LA Mayor Karen Bass’ budget calls for 80% drop in financing of new affordable housing

Facing a nearly $1 billion deficit, the city of Los Angeles is set to finance much less affordable housing over the next year under a proposed budget released this week by Mayor Karen Bass.

The budget calls for a nearly 80% drop in city financing of new affordable housing units, declining from 770 homes in the current fiscal year to 160 homes in the next fiscal year.

Speaking with reporters Tuesday at a San Fernando Valley car dealership, Bass said economic conditions are increasingly unfavorable to housing development.

“The housing market, period, has been in decline because of interest rates and the general economy,” Bass said. “We have to look for how we cut back everywhere. Obviously, we want to see housing produced citywide, considering the shortage.”

Why such a steep drop?

The downward projections come at a time when Angelenos continue to struggle with the city’s entrenched housing crisis. Most L.A. residents are renters, and most renters are paying more than 30% of their income on housing costs, a level the federal government deems unaffordable.

Clara Karger, a spokesperson for the mayor’s office, said the decline in the city’s affordable housing financing is the result of the sunsetting of Proposition HHH, passed by voters in 2016. That $1.2 billion bond measure has subsidized the creation of thousands of new permanent supportive housing units.

Measure ULA, the so-called “mansion tax” approved by voters in 2022, created a new source of affordable housing revenue. However, it has not increased the number of low-rent apartments in the city’s pipeline yet, officials said, because the measure continues to face litigation.

For now, they said, the city is taking a wait-and-see approach before committing money from Measure ULA to new affordable housing projects.

Karger said the mayor’s office is working “in coordination with City Council to responsibly allocate the funding for affordable housing.”

L.A. Mayor Karen Bass discusses her budget proposal at a car dealership in the San Fernando Valley.

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David Wagner/LAist

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Are there other ways for L.A. to get more affordable housing?

Financing from the city is not the only way affordable housing gets built in L.A. However, projects funded by sources outside the city budget are also facing economic challenges.

Continued high interest rates make it difficult for project financing to pencil out. Housing policy experts say the Trump administration’s emphasis on tariffs and deportations will likely make California’s high cost of housing construction even more expensive. And most of the city’s residential land remains off-limits to new apartments because of single-family zoning, which was left untouched in the city’s latest housing plan update.

Executive Directive 1, signed by Bass during her first week in office to accelerate the approval of 100% affordable housing projects, initially generated a surge of applications from developers eager to capitalize on a smoother path to breaking ground.

Many of those proposals were entirely financed by private capital, with no taxpayer subsidies. But the city went to court to try to kill these projects in single-family neighborhoods, and interest in the program cooled after Bass issued further restrictions on where such projects could be built.

L.A. gets some of its affordable housing from new market-rate apartment buildings. Developers are required by state law to set aside a small percentage of units for low-income renters in exchange for greater density. But a recent study from researchers with RAND and UCLA found that Measure ULA has caused a broad decline in these projects.

The researchers said the 40% decline in new housing permits in L.A. since 2022 has been steeper than in other neighboring cities. They concluded that L.A. would likely have more affordable housing if the “mansion tax” — which applies to sales of properties above $5 million — did not apply to recently constructed apartment buildings.

Other housing changes in the mayor’s budget

Bass’ budget proposal also calls for the elimination of the seven-member Affordable Housing Commission and the merging of its responsibilities into the Rent Adjustment Commission, which oversees the city’s rent control program.

Karger, the mayor’s spokesperson, said the proposal emerged from discussions with the city’s Housing Department.

“This consolidation of two advisory bodies promotes efficiency and reduces the Housing Department's administrative burden,” Karger said.

While the city’s Housing Department is projected to receive a net increase of 74 positions under the mayor’s budget, the Planning Department is slated to lose 114 existing staffers in layoffs. The Planning Department’s budget is set to be reduced from $72 million to $56 million.

A pessimistic outlook for housing growth

The city is contending with aggressive housing goals under state law, including a requirement to plan for about 185,000 new homes by 2029 that are affordable to low-income residents. Currently, the city is falling far short of that goal.

Thousands of Angelenos were displaced by January’s wildfires, and many are now looking for new housing. But the mayor’s budget is not counting on much growth in home sales or construction within the city.

More home-buying and building could help boost city revenues because of higher property tax and documentary transfer tax collection. But with home prices out of reach for the vast majority of Angelenos and interest rates remaining high, city officials are pessimistic about the likelihood of any boom in the housing market.

The budget’s revenue outlook says continued inflation and elevated interest rates will likely end up “hampering any rebound in the real estate market and housing production.”