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September 9, 2020

Honorable Eric Garcetti, Mayor
Honorable Michael Feuer, City Attorney
Honorable Members of the Los Angeles City Council

Re: Meeting the Moment: An Action Plan to Advance Prop. HHH 

By overwhelmingly approving Prop. HHH in 2016, Los Angeles’ voters authorized City officials to issue up to $1.2 billion in general obligation bonds with the aim of reducing homelessness by acquiring, developing, or remodeling supportive housing and facilities, including interim housing, restrooms, showers, health clinics and storage. The measure provided for citizen oversight and a yearly financial audit by the City Controller. My office first examined HHH in October 2019 and recommended reallocating funds to lower-cost projects and streamlined permitting.

Over the last year, homelessness in the City of Los Angeles jumped to 41,290 according to the 2020 Greater Los Angeles Homeless Count, up 16 percent from 2019 and 45 percent since 2016. Deaths among the unhoused population climbed almost 100 percent over seven years, with 1,047 people dying on the streets in 2018 alone. And COVID-19 has caused outdoor health and safety conditions to deteriorate further. While these facts illustrate the depth of the humanitarian emergency, they also reveal how one of the City’s primary tools to address it is coming up short. My latest audit reassesses the current HHH strategy and recommends a short-term action plan to utilize the remaining bond funds and provide more immediate relief to people experiencing homelessness.

Time, costs still rising

Today, more than three years after the first bond issuance and nearly four years since HHH’s approval, only three bond-funded supportive housing projects are open. There are 5,522 supportive units and 1,557 additional units in the pipeline, but 73 percent are not yet in construction. An additional 975 supportive units are being developed through the HHH Housing Challenge. The City also funded 24 interim housing projects and facilities with $58 million from HHH — a deliberately limited amount to focus on supportive housing.

My office’s 2019 audit uncovered that supportive housing projects typically take three to six years to complete from concept to occupancy. COVID-19’s impact on these already lengthy timelines is not clear, but will almost certainly extend them, and it is possible that some projects in the pipeline today may never come to fruition. Before the pandemic hit, the City had already granted time extensions for 15 projects in pre-development, ranging from 42 days to more than one year, because of permitting problems, financing complexities and lawsuits. Not only do delays slow projects down, they also increase development costs.

Based on present estimates, 81 percent of units will not be completed until at least January 1, 2022, with 57 percent unavailable until 2023 or later — seven years after the bond’s approval. Supportive housing is considered the best long-term strategy to help chronically homeless individuals get back on their feet, but HHH’s lagging progress could leave that population without stable shelter options for years to come. Even when every HHH unit is completed, tens of thousands of Angelenos will still require housing — highlighting the need for a more strategic and flexible approach to utilizing remaining HHH funds.

Not only are HHH timelines out of step with the demand for housing, rising program costs are as well. For projects in construction, the average per-unit cost increased from $521,000 in 2019 to $531,000 this year, with the highest per-unit cost reaching $739,000. And the share of units costing more than $600,000 spiked from 10.8 percent in 2019 to 28.5 percent today. Similarly, one-third of the units in pre-development will exceed $600,000, and per-unit averages increased from $507,000 to $558,000 in the past year. The highest total development cost for a single project in pre-development now surpasses $76 million.

Short-term action plan needed

Our most vulnerable residents are suffering concurrent crises and deserve a housing strategy that addresses this reality. Although the City has a plan to use the remaining $30 million in HHH funds, along with any money returned due to unsuccessful supportive housing projects, it would simply replicate the status quo by starting the development process all over again. Instead, City leaders should pivot to a viable plan that would spend available HHH dollars in these ways:

  • Build more interim housing and facilities: Stopgap measures will not end homelessness but will get thousands of people off the streets more rapidly while supportive units are built, and help meet health, hygiene, sanitation and storage needs.
  • Prioritize adaptive reuse: The City should pursue alternative development strategies that could prove cheaper and faster to complete, including acquisition, rehabilitation or adaptive reuse of existing buildings, like hotels/motels, and unused commercial and office space.

Adopting a short-term action plan will add flexibility to the HHH program, ease suffering for the unsheltered population and help the City achieve its long-term, voter-mandated goals — adding housing to improve people’s lives while reducing homelessness in Los Angeles.

Respectfully submitted,

RON GALPERIN
L.A. Controller

In November 2016, more than 77 percent of voters in the City of Los Angeles approved Proposition HHH. The ballot measure authorized the City to issue up to $1.2 billion in general obligation bonds to acquire or build supportive/affordable housing and facilities such as interim shelters, restrooms, showers, storage, and service centers. The resounding approval of the ballot measure – and significant amount of funding – was an unequivocal commitment by Angelenos to tackle homelessness.

Proposition HHH requires the Controller’s Office to perform audits for each year in which bonds are outstanding or bond proceeds remain unspent. The financial audit for FY2019 did not identify any significant irregularities or improprieties related to Proposition HHH. We also continued to assess the City’s progress.

Our previous review of Proposition HHH found that development costs for supportive housing were high (median cost of $531,000 per unit) and estimated project timelines (three to six years) were not aligned with the magnitude of the homeless crisis. Because most of the supportive housing projects funded through Proposition HHH were in the early planning stages, we recommended that the City should reallocate some funding commitments to projects with lower costs or to interim housing and other facilities.

This recommendation remains relevant. Nearly four years have passed since voters approved Proposition HHH and the need to pivot to a different direction continues to grow. Despite the City’s efforts to lower costs and shorten timelines, the current trajectory of the program falls significantly short of our increasing and immediate needs.

  • Only three projects have been completed with a total of 179 supportive units and 49 non-supportive units. There are still 5,522, but nearly 73 percent of these have not yet begun construction. The City is also aiming to develop 975 supportive units through the Proposition HHH Housing Challenge, but the projects have not yet begun construction.[3]
  • Based on the City’s current projections – which may not fully reflect pandemic-related delays – only 19 percent of remaining units in the HHH development pipeline will be completed before January 1, 2022. Approximately 43 percent of total units are scheduled to be completed before January 1, 2023.
  • More than 28 percent of units in construction exceed $600,000 per unit. Proposition HHH funds do not make up the entirety of costs and projects are financed by a variety of other sources, including the State and federal government.

Proposition HHH is a key component of the City’s overall strategy to reduce homelessness, which consists of a broad range of policy reforms and programmatic responses by the City, County, and Los Angeles Homeless Services Authority (LAHSA). Still, large numbers of Angelenos continue to fall into homelessness.

  • The point-in-time count conducted in January 2020 estimated that there were 41,290 people experiencing homelessness in the City of Los Angeles – an increase of 16 percent from the previous year.
  • Nearly 29,000 of these people were unsheltered and fighting to survive in tents, encampments, vehicles, and other locations.
  • The impacts of longstanding systemic racism continue – Black residents represent less than 9 percent of the City’s overall population while making up nearly 38 percent of the homeless population based on the estimated count from January 2020.
  • Los Angeles County Department of Public Health data indicates that more than 1,000 unhoused people will likely die this year – at least three lives lost each day. Their study found that that the average age at death was 51 for individuals experiencing homelessness, compared to 73 for the general population between 2013 and 2018.

This grim reality is further compounded by the fact that the annual homeless count was performed before the devastation caused by COVID-19. Since then, hundreds of thousands of residents have lost their jobs and households that were already struggling to make ends meet have had their wages reduced. The ongoing uncertainty about the economic recovery, additional federal assistance, and eviction protections are a dangerous combination for these residents and others with precarious housing situations.

The pandemic has been especially difficult for Black and Latinx residents in Los Angeles County, many of whom have pre-existing health conditions or work in jobs that cannot be performed remotely. According to age-adjusted morality rates reported by the Los Angeles County Department of Public Health as of August 24, 2020:

  • The mortality rate for Black residents was two times higher than white residents; and
  • The mortality rate for Latinx residents was 2.7 times higher than white residents.

The overlapping issues described above – income inequality, lost wages, housing insecurity, disparate health outcomes – mean increased risk of homelessness for many of our most vulnerable residents. The City and State have taken steps in recent months to strengthen the safety net, but the overall impact of those efforts remains to be seen. Barring an unforeseen intervention, the situation is likely to further deteriorate and put lives in jeopardy.

The convergence of these generational crises makes it even more critical to get HHH-funded supportive housing units, interim housing, and other facilities built as quickly and inexpensively possible. But the current situation also raises larger questions about how to balance the City’s long-term objectives and available resources with the growing humanitarian emergency that we are facing.

How much HHH funds have been committed and spent?

As of August 2020, the City has “committed” $1.17 billion in Proposition HHH funds, which leaves approximately $30 million in remaining funds based on the maximum amount authorized by the ballot measure. But the funding commitments do not become contractual obligations until the City and housing developers formally execute loan agreements.

To reach that stage, housing developers who receive HHH funding commitments – which do not fully cover the cost of the project – are provided up to two years to close the remaining funding gap and obtain the necessary approvals (e.g., land use entitlements and building permits) to move forward. Developers who successfully navigate this phase (referred to as “pre-development”) close their loans with the City, complete tasks required by other funders, and begin construction. Actual spending of HHH bond proceeds does not occur until all of these steps have been completed and housing developers periodically submit requests for payment.

As of June 30, the City has formally awarded $330 million in loans for supportive housing and spent approximately $160 million on both housing and shelters/facilities projects.

By a significant margin, the committed funds have been set aside for supportive housing rather than shelters and facilities for people experiencing homelessness. This approach is driven by the City’s steadfast commitment to developing supportive housing, which is designed to provide a combination of housing and services to help people experiencing homelessness, especially those who have disabling conditions and have been unhoused for an extended period.

What is the status of HHH supportive housing?

Since our last report, three HHH-funded projects were completed and several projects moved into the construction phase. According to the City’s Housing and Community Investment Department (HCIDLA), there are up to 14 projects which are scheduled to be completed by the end of 2020. But a large share of the projects are still in the process of securing additional funding and obtaining approvals (i.e., pre-development).

Many projects were delayed before COVID-19, but the situation placed additional strain and uncertainty on the affordable housing framework held together by the City, County, State, federal government, developers, lenders, and private investors. Important project components such as funding, costs, and timelines are being affected.

On average, nearly $9 million has been set aside for each project in pre-development. The current economic volatility increases the likelihood that some projects do not proceed to the construction phase. If this occurs, HCIDLA plans to solicit proposals for new supportive housing projects using funds that were intended for unsuccessful projects.  

The City also set aside $120 million in funding with the aim of developing 975 supportive housing units through the HHH Housing Challenge. These efforts were intended to identify different housing typologies or innovative financial models to reduce project costs and development timelines.

The City is in the process of awarding $78 million in  financial commitments for 652 units through the HHH Challenge. Preliminary estimates show lower costs ($425,122 per unit) and shorter development timelines – which are both encouraging compared to the non-Challenge projects. However, several of the developers are now pursuing federal tax credits due to delays on State funding. This shift is significant and may mean added time and costs as the projects move toward construction.

How much do HHH supportive housing projects cost?

High costs associated with development of supportive housing are not unique to Los Angeles, and financing complexity and regulatory requirements make comparisons to market rate development difficult. Jurisdictions face challenges due to factors such as prevailing wage requirements, land use issues, policy priorities outlined by funders, and competition from private sector construction projects for labor and materials.

Across all projects, Proposition HHH funds make up around 25 percent of total development costs. The maximum allowable Proposition HHH subsidy for supportive housing was $140,000 per unit during the most recent funding cycle and $220,000 per unit for previous funding cycles.

Construction costs typically represent more than half of each project’s development cost and contracts are not executed until funds are assembled, land use issues are resolved, and Proposition HHH loans are closed. As a result, the construction costs associated with each project largely reflect the demand for materials and labor when the contracts were finalized. For example, the National Association of Homebuilders recently reported that lumber costs increased considerably since April 2020. The impact of this increase will likely be reflected in the cost of projects moving toward construction during this period.

A closer look at the distribution of per-unit costs for projects in construction shows that the overall share of units with costs above $600,000 increased from 10.8 to 28 percent since we issued our last report in October 2019.[4]

At the other end of the spectrum, the percentage of units below $400,000 also increased. Notably, two projects in this lower cost range were conversions of existing motels. There are two additional projects in construction which utilize a rehabilityation/adaptive reuse approach and the cost per unit is close to or less than the other projects in construction.

This limited sample size and number of potential factors make it difficult to draw larger conclusions about these projects. However, the United States Government Accountability Office (GAO) analyzed affordable housing projects completed between 2011 and 2015 which were funded with one of the federal tax credits available through the Low Income Housing Tax Credit Program (LIHTC) program. The study found that median per unit development costs for affordable housing projects were lower in rehabilitation projects compared to new construction. This gap appeared across a range of locations, including New York City, Chicago, and California.

Potential cost savings could be partially offset by the higher cost of maintaining an older building. But our dire need for faster solutions and the State’s current efforts with Project Homekey (to be discussed later) are consistent with this approach.

Currently, nearly 33 percent of units in pre-development are estimated to exceed $600,000. It is unclear how much these projects will cost by the time they begin construction.

When will supportive housing developed through HHH be available?

An ongoing challenge for the City is the inherent complexity and length of time required to successfully finance projects. Proposition HHH funds (in the form of loans) are intended to help developers get projects off the ground and compete for other sources of funding, often federal LIHTC tax credits. The City provides developers with a two-year window to secure the funding necessary to make projects financially viable.

The upside of this partial-funding approach is that it helps the City spread HHH funding across a larger pool of projects. The downside is that each additional layer of funding comes with its own set of policy priorities, application process, award timeline, and costs.

During our last review, we learned that supportive housing projects typically take three to six years to complete (from conceptualization to occupancy). A significant portion of that timeline is consumed by the project financing process. The City could increase its HHH subsidy and thereby reduce the amount of time/effort needed to close a smaller funding gap, but the tradeoff would likely result in less units being built.

Beyond challenges related to project financing, developers successfully navigate projects through multiple City departments to obtain the necessary land use approvals and permits to begin construction. In 2019, the City established a position (“HHH Concierge”) to increase the speed at which HHH and affordable housing projects move through the development pipeline. The City has not yet finalized performance metrics to measure the impact of these efforts.

The timeline for HHH projects is further challenged by the pandemic and will add to what is already a lengthy development process. Projects currently under construction must adjust to social distancing guidelines and projects in pre-development must navigate added uncertainty in terms of project funding. According to the City’s estimates, Angelenos in need of supportive housing will need to wait several years before the majority of units are completed.

An ongoing challenge for the City is the inherent complexity and length of time required to successfully finance projects. Proposition HHH funds (in the form of loans) are intended to help developers get projects off the ground and compete for other sources of funding, often federal LIHTC tax credits. The City provides developers with a two-year window to secure the funding necessary to make projects financially viable.

The upside of this partial-funding approach is that it helps the City spread HHH funding across a larger pool of projects. The downside is that each additional layer of funding comes with its own set of policy priorities, application process, award timeline, and costs.[5]

What shelters and facilities projects have been funded through HHH?

The City has funded a total of 24 projects using approximately $58 million in Proposition HHH funds. The limited scope of this effort was driven by the City’s decision to prioritize development of supportive housing. In 2018, the City Council voted to suspend a planned request for proposals (RFP) and another RFP has not been issued since then.

Before the facilities program was suspended, the Office of the City Administrative Officer (CAO) solicited project proposals from outside entities and Councilmembers seeking to develop facilities on City-owned property. Eligible projects included rehabilitation/expansion of existing sites or acquisition/construction of new sites. In addition, projects that enhanced existing facilities to improve service delivery or continue operations – such as retrofits to make buildings compliant with the Americans with Disabilities Act (ADA) – were also eligible.

Projects funded by the City include a mix of shelters for survivors of domestic violence, transitional housing service centers, navigation centers, and health clinics. Most of the projects (19 of 24) were renovations to existing shelters and facilities rather than new construction. When completed, the projects will provide 196 new shelter beds.

What should the City do?

The City is in the midst of overlapping crises that disproportionately impact our most vulnerable residents. The situation is likely to further deteriorate without significant federal assistance. These dire circumstances provide an opportunity to reflect on decisions that were made years ago and evaluate alternate paths that may still be viable.

Many of the underlying issues contributing to the slow progress and high costs associated with supportive housing developed through Proposition HHH are inherently difficult to undo overnight. At the current trajectory, less than half of the 7,079 housing units still being developed using HHH funds will be completed by January 1, 2023 – at the earliest. Supportive housing is also being developed through the HHH Housing Challenge, but the timing of those projects is difficult to predict given their evolving status.

There are several non-HHH efforts that have been initiated in recent months to tackle homelessness and the pandemic. The City and County recently reached a multi-year agreement to fund 6,700 housing interventions. Key elements of the City’s plan are outlined below.

  • Project Homekey – The State is making $600 million in grant funding available to local public entities so they can purchase and rehabilitate housing, including hotels, motels, vacant apartment buildings, and other buildings and convert them into interim or permanent, long-term housing. Nearly all of the funding ($550 million) is emergency assistance from the federal government and must be spent by the end of 2020.

If local jurisdictions provide $150,000 in matching funds per door, the State is willing to provide up to $200,000 in acquisition funding per door.[1] The City recently approved a plan to apply for $250 million in capital funding from the State and has set aside up to $150 million in federal COVID-19 relief funds to meet the match requirement. The City aims to use the funds for up to 1,250 units and may need to allocate additional funding for rehabilitation/repair of the acquired properties. On a per-unit basis, the City’s estimated budget for this effort is $320,000which may represent a faster solution at a lower cost than most units developed through Proposition HHH.

  • LAHSA COVID-19 Recovery Program – In June 2020, LAHSA presented a three-year plan which seeks $610 million in new funding to find housing solutions for the 4,000 high-risk homeless individuals who received temporary hotel/motel placements through Project Roomkey and the 11,000 individuals who were targeted for assistance but not placed. LAHSA is seeking to use multiple sources of funding (including the State funding described above) to acquire hotels/motels, lease market-rate units, and utilize shared housing units.

The City recently approved a plan to provide LAHSA with more than $97 million in federal COVID-19 relief funds over the course of four years. LAHSA is aiming to place 3,000 people in privately-owned rental units by providing rental assistance and case management services.

  • Interim housing sites – The City’s recent plan includes funding estimates to acquire and deploy 740 interim beds, at least partially through the use of pop-up tiny homes (i.e., Pallet Shelters). The City’s current estimated capital cost per unit for the interim housing sites, which will be adjusted once contractors are selected, is approximately $46,000.

Even if these initiatives meet their goals in a timely manner, there will still be thousands of unsheltered Angelenos. Each day they spend without housing or shelter puts them at greater risk of illness or death.

Given the overall timeline and costs for completing HHH-funded supportive housing projects, the question remains about how best to move forward. The City’s current plan is to use the remaining HHH funds (approximately $30 million) and any potential funds ($9 million per project) returned from unsuccessful projects to start the process anew and solicit proposals for new supportive housing projects – which are unlikely to be completed until 2025 or later.

The City should reconsider this plan. The issue is not whether the City should invest in supportive housing using HHH funds – the issue is whether the City should almost exclusively pursue an approach that frequently costs more than $600,000 per unit and takes up to six years to complete when there are 29,000 people suffering in the streets. Instead, the City should find other ways to use any remaining/returned HHH funds to deliver faster and less expensive projects that better balance our long-term goals with our short-term needs.

  • Focus on interim housing and facilities – Interim housing is critical to helping get vulnerable people off the streets. Available and accessible facilities are also essential to helping people meet their basic health, hygiene, sanitation, and storage needs. Unfortunately, neither of these have been prioritized or funded at a scale that matches the needs of people experiencing homelessness in Los Angeles.

According to the City, State law prohibits using Proposition HHH bond proceeds on items such as equipment, tents or other non-permanent structures, or mobile hygiene facilities. But the City has full authority to fully fund the construction of interim housing and facilities on City-owned property, or acquire property and initiate projects. The City should consider using HHH funds to supplement its emerging effort to increase the supply of interim housing solutions.

  • Prioritize acquisition, rehabilitation, and adaptive reuse opportunities – Another approach would be to pursue strategies that minimize the impact of issues such as land use challenges, the cost of new construction, and systemic issues related to complex project financing. Different approaches – such as acquisition, rehabilitation, or adaptive reuse of existing buildings funded by Proposition HHH bond proceeds – may help reduce costs and timelines, and add units at a far faster rate than the current pace (228 units in nearly four years).

Funding currently available through Project Homekey is an opportunity for the City to acquire hotels/motels and other existing buildings that can be converted into interim shelters or supportive housing. Although the retrofits needed to make these buildings suitable for supportive housing will add time and money, the locations can be temporarily used as interim housing. In addition, this approach may help mitigate concerns about increased risk of COVID-19 transmission within congregate shelter settings. A potential option for the City would be to contribute available Proposition HHH funding to expand these efforts.

Social distancing has also raised larger questions about the future of commercial space such as office space and big-box retail stores. Although it is too early to determine whether any downward market trends – and the costs associated with potential renovations – make these projects financially viable, the City should work with subject matter experts to identify opportunities.

Shifting course through these strategies may increase the City’s ability to deliver supportive housing, interim housing, and facilities at a lower cost and faster rate. More broadly, it would help re-align a generational voter investment with our emerging and urgent needs.

[1] The ballot measure required that at least 80 percent of HHH funds be used for supportive housing and facilities, and up to 20 percent can be used to develop affordable (i.e., income-restricted) units. Affordable units are intended to provide subsidized housing for low-income residents. Affordable units and onsite building manager units are referred to as “non-supportive” throughout this report.

[2] See Appendix A for a copy of the FY2019 financial audit.

[3] These projects are discussed later in this report and are not included in analyses unless specifically noted.

[4] This analysis is not a one-for-one comparison – the August 2020 data includes additional projects and the outlier projects may simply reflect construction costs at the time those contracts were signed. Regardless, the snapshot provides an overview of the 30 projects currently in construction.

[5] Projects/units were categorized by the date when they are estimated to enter into service.

[6] In a shared living environment, the “door” corresponds to the number of rooms that will be occupied by different individuals/households.

In November 2016, more than 77 percent of voters in the City of Los Angeles approved Proposition HHH. The ballot measure authorized the City to issue up to $1.2 billion in general obligation bonds to acquire or build supportive/affordable housing and facilities such as interim shelters, restrooms, showers, storage, and service centers.[6] The primary focus of the ballot measure was to use bond proceeds from Proposition HHH to augment the City’s non-HHH efforts and facilitate the development of up to 10,000 supportive housing units over the course of ten years. The effort was widely embraced by voters as a way to provide permanent housing solutions to people experiencing homelessness in Los Angeles.

Proposition HHH requires the Controller’s Office to perform audits for each year in which bonds are outstanding or bond proceeds remain unspent. The financial audit for FY2019 did not identify any significant irregularities or improprieties related to Proposition HHH.[7] We also continued to assess the City’s progress.

Our previous review of Proposition HHH found that development costs for supportive housing were high (median cost of $531,000 per unit) and estimated project timelines (three to six years) were not aligned with the growing magnitude of the homeless crisis. The underlying causes for these outcomes were a mix of issues specific to building supportive/affordable housing, as well as frequent obstacles to building multifamily housing in Los Angeles. The City took a number of steps to address these challenges, but a significant amount of Proposition HHH funds were already conditionally awarded to project proposals submitted by developers.

Because many projects were in the early planning stages of development at the time of our last report, we sought to identify opportunities for the City to change course before it was too late. We recommended that City policymakers consider the following actions to reduce costs and shorten timelines.

  • Evaluate the feasibility of reallocating some Proposition HHH funds that have been conditionally awarded – especially funds committed to expensive projects with outlier development costs. This may free up funding for projects with lower per-unit costs or for interim shelters and facilities.
  • Support the Proposition HHH Concierge’s efforts to streamline permitting and other processes to ensure that projects currently in the development pipeline are completed as quickly as possible.

Since we issued those recommendations, the number of unhoused Angelenos grew significantly. The annual point-in-time count led by the Los Angeles Homeless Services Authority (LAHSA) estimated that 41,290 individuals were experiencing homelessness in January 2020, an increase of 16 percent from the previous year. A closer look at the data shows the continued impacts of systemic racism in Los Angeles – Black residents represent less than 9 percent of the overall population while making up nearly 38 percent of the homeless population.

Nearly 29,000 of the City’s overall homeless population were unsheltered and fighting to survive in tents, encampments, vehicles, and other locations. Data from the Los Angeles County Department of Public Health shows that more than 1,000 unhoused people will likely die this year – at least three lives lost each day.[8] Between 2013 and 2018, the leading causes of death for individuals experiencing homelessness were coronary heart disease, accidental drug/alcohol overdoses, transportation-related injuries, and homicide. The County estimated that the average age at death was 51 for individuals experiencing homelessness, compared to 73 for the general population.

Proposition HHH is a significant component of the City’s Enhanced Comprehensive Homeless Strategy, which is a collaborative effort between the City, LA County, and LAHSA. The strategy includes a broad range of policy reforms and programmatic efforts to tackle homelessness. While strategies invariably take time to implement and evaluate, the data indicates that the crisis is further deteriorating and raises questions about the overall direction and impact of Proposition HHH.

The tragic picture outlined above is likely going to grow – the annual count was performed before the public health and economic devastation caused by COVID-19. From a public health standpoint, the pandemic has taken a serious toll – more than 225,000 cases reported and nearly 5,500 deaths in LA County at the time of this report. The pandemic has been especially deadly for Black and Latinx residents, many of whom have pre-existing health conditions and work in jobs that cannot be performed remotely. According to age-adjusted morality rates reported by the Los Angeles County Department of Public Health as of August 24, 2020, the mortality rate for Black residents is two times higher than white residents. The mortality rate for Latinx residents is 2.7 times higher than white residents.

The economic fallout from the pandemic is also devastating. Entire sectors of the economy have come to a virtual standstill, and some will likely be transformed in the aftermath of COVID-19. For example, social distancing requirements are causing employers to rethink telework as a viable long-term option for some professions. A shift away from traditional office settings would mean less demand for workers who help support and maintain those buildings. Research shows that the City is down more than 200,000 jobs and these figures do not account for residents who remained employed but had their wages reduced. The disruption places added burden on individuals who can least afford it and those who are already struggling with high housing costs.

The City implemented measures such as a rent lottery for 50,000 low-income households, rent freezes for units covered by the Rent Stabilization Ordinance (RSO), and a moratorium on evictions for renters who can demonstrate that they are unable to pay rent as a direct result of COVID-19. But these protections are limited and temporary – the threat of widespread homelessness remains. Researchers at UCLA estimate that, without additional action, tens of thousands of households in LA County are at risk of falling into homelessness as a result of post-pandemic evictions.[9] The State recently approved legislation to extend protection from evictions through January 31, 2021.

The convergence of these generational crises further emphasizes the importance of getting supportive housing units, interim shelters, and support facilities built as quickly and inexpensively possible. The full impact of COVID-19 on Proposition HHH-funded projects remains unclear, but each of the following components is being affected.[10]

  • Project funding – Assembling funding from multiple sources to make projects financially viable is an inherently challenging task. The ongoing economic volatility creates uncertainty for private lenders/investors, thereby increasing the risk that projects do not move forward.

A critical part of making projects viable are federal rental subsidies in the form of Section 8 housing vouchers. In 2017, the Housing Authority of the City of Los Angeles (HACLA) committed to providing vouchers for up to 5,000 units developed through Proposition HHH and recently committed an additional 1,000 vouchers. But there are currently not enough vouchers to fund all of the units in the development pipeline.

Proposition HHH supportive housing projects also require operating subsidies so that service providers can provide tenants with resources such as case management services and medical, mental health, and substance use treatment services. The County committed to funding these services – primarily through sales tax revenue generated from Measure H – but revenue projections remain uncertain due to the economic downturn.

  • Construction costs – A regional slowdown in market-rate multifamily housing construction may drive down labor costs for Proposition HHH-funded projects due to increased competition among general contractors and subcontractors. However, potential cost savings may be offset by increased costs for materials due to disruptions to international supply chains.
  • Development timelines – The Mayor issued an emergency order (“Tolling Order”) which temporarily suspended deadlines related to the financing and pre-development activities necessary to develop or rehabilitate affordable and supportive housing.

Construction of multifamily buildings requires large numbers of workers in tight spaces. Shortly after the public health emergency was declared, the Department of Building and Safety (LADBS) issued social distancing requirements at construction sites. These changes are essential to protecting worker safety, but will likely slow down construction.

As of August 2020, no Proposition HHH projects have been cancelled as a direct result of COVID-19. But the uncertainty likely means additional delays, higher costs, and greater risk of unsuccessful projects. The City’s Housing and Community Investment Department (HCIDLA) plans to reallocate funds from unsuccessful projects by initiating a call for developers to submit proposals for development of new supportive housing.

This report provides a status update on progress made on Proposition HHH-funded projects and explores ways to use Proposition HHH funds to deliver assistance to the tens of thousands of homeless Angelenos suffering through these unprecedented crises. It is important to place the City’s efforts with Proposition HHH into broader context – other ongoing initiatives are discussed throughout the report.

[7] The ballot measure specified that at least 80 percent of the funds must be used for supportive housing and facilities, and up to 20 percent can be used to develop affordable (i.e., income-restricted) units. Affordable units are intended to provide subsidized housing for low-income residents. Affordable units and onsite building manager units are referred to as “non-supportive” throughout this report.

[8] See Appendix A for a copy of the FY2019 financial audit.

[9] Steve Chiotakis, “More than 600 people have died of homelessness this year. Andrew Kettle was number 566,” KCRW, July 28, 2020, https://www.kcrw.com/news/shows/greater-la/unhoused-deaths-coronavirus-la-oc/andrew-kettle-homeless.

[10] Blasi, G. (2020). UD Day: Impending Evictions and Homelessness in Los Angeles. UCLA: Institute on Inequality and Democracy. Retrieved from https://escholarship.org/uc/item/2gz6c8cv.

The City reports that approximately $1.17 billion  in Proposition HHH funds – nearly the maximum amount approved by voters – has been allocated as of August 2020[11]:

  • $993 million for supportive/affordable housing developed through the traditional HCIDLA development pipeline;
  • $120 million for supportive housing developed through the HHH Housing Challenge; and
  • $58 million for interim shelter and facilities projects.

The City has not allocated the remaining $30 million in Proposition HHH funds, but plans to do so in the coming months.

By a significant margin, the City is directing funding to the development of supportive/affordable housing rather than interim shelters or facilities such as restrooms, showers, storage, clinics, or service centers. The City made this policy decision because it was consistent with the intent of the ballot measure and presented a permanent housing solution for people experiencing homelessness rather than temporary relief. But the ballot measure did not include any language that specified how much should be used for interim shelter/facilities versus housing.

Proposition HHH funding commitments for housing are conditional and are typically made early in the development process. Actual disbursement of bond proceeds does not occur formal loan agreements (i.e., contracts) are executed and housing projects are ready to begin construction. HCIDLA is tasked with reviewing invoices submitted by developers and approving payments.

The Office of the City Administrative Officer (CAO) oversees the development of shelters and facilities using Proposition HHH funds, which are made available as loans repayable through a service repayment agreement with a term corresponding to the useful life of the funded facility. Developers are facilities must periodically submit requests for reimbursement payments that are subject to review and approval by CAO staff.

As of June 30, 2020, the City issued two Proposition HHH bonds with a combined value of almost $363 million, formally awarded $330 million in loans for supportive housing projects, and spent approximately $160 million for housing and facilities projects. The City has not issued any Proposition HHH bonds since July 2018 but has tentative plans to issue a new bond sometime in 2021 (assuming the bond proceeds on hand continue to be spent at a similar pace).

HHH Supportive Housing Development Pipeline

By any measure, development of multifamily housing in Los Angeles takes lots of time and money. Building supportive/affordable housing presents its own set of challenges. Since our last report, the first three HHH-funded projects were completed and several projects moved into the construction phase. Three projects did not move forward due to a range of issues: one did not receive Council approval; a developer with an HHH funding commitment elected to discontinue the project; and another project became ineligible for HHH funding because the developer no longer had legal authority to build in the proposed location.

Excluding completed units and potential units from the Proposition HHH Housing Challenge (discussed below), there are currently 5,522 supportive units and 1,557 non-supportive units in the development pipeline. However, nearly 73 percent of the units have not begun construction and are still in various stages of the pre-development (i.e., planning) process.

HCIDLA estimates that three projects will begin construction in the near future and up to 14 projects will be ready for occupancy by the end of the calendar year. Should this occur, it would represent important progress and would expand the City’s overall supply of supportive housing. But the magnitude of our homeless crisis far exceeds the average number of housing units (66) being added with each project. Finding ways to quickly build at a significantly greater scale/lower cost is essential.

Proposition HHH Housing Challenge Program

The City set aside $120 million in HHH funds with the goal of identifying innovative housing typologies or non-traditional financial models (e.g., alternatives to federal tax credits) that can be used to reduce development costs and complete projects within two years of executing a funding contract. Developers did not have to demonstrate site control before applying for funds through the HHH Housing Challenge. The City aims to facilitate the development of 975 supportive housing units through this process.

The City is in the process of awarding $78 million in HHH financial commitments for 652 total units through the HHH Challenge. The projects include promising approaches such as a financing plan tailored for modular construction and use of alternate structural materials. Preliminary estimates show lower costs ($425,122 per unit), lower HHH subsidies for most projects, and shorter development timelines – which are encouraging compared to the non-Challenge projects.

However, several of the developers are now pursuing federal tax credits due to delays on State funding. This shift is significant and may mean added time and costs as the projects move toward construction. Due to the evolving nature of these projects, they are not incorporated into the analyses throughout this report.

Cost of Proposition HHH Supportive Housing

Responding to homelessness requires developing policy and program responses tailored around the needs of people experiencing homelessness. Some individuals need sustained rental assistance, while others have greater need for services. Supportive housing is intended to provide with subsidized housing combined with on-site services such as mental and physical health services, education and job training, and drug and alcohol treatment. Buildings developed through Proposition HHH have dedicated space for these services, such as offices and meeting rooms that contribute to overall project costs.

The Terner Center for Housing Innovation recently analyzed quantitative data and conducted stakeholder interviews to identify cost drivers associated with hundreds of affordable and supportive housing projects throughout California.[1] Their analysis focused on housing developments funded with a specific type of federal tax credit (9%) between 2008 and 2019. Although many of the City’s HHH projects are funded with a different type of tax credit (4%), the research provides valuable insight.

  • Projects built in Los Angeles had total development costs (i.e., land, construction, and soft costs) of approximately $600 per square foot. The cost of projects in San Francisco was significantly higher during the same period, and projects built in the inland areas of the State had lower costs compared to Los Angeles.
  • Supportive housing is typically more expensive to build compared to housing for seniors and families. One of the contributing factors is that the units are usually smaller in size and each have their own kitchen and bathroom, which both add costs.

The Terner study also cited the impacts of factors such as prevailing wage requirements, rising construction costs, funding complexity, and land use issues. The report presented a number of issues for further exploration, many of which were related to State policies (e.g., streamlined funding and building/environmental code regulations) and others that will take time to implement (e.g., promoting innovation in the construction industry and growing the construction labor force). Progress in these areas is essential and will require a sustained effort given the lack of affordable and supportive housing throughout the State.

But in this current moment, the City is left to make funding decisions about Proposition HHH before these important reforms can be carried out. Proposition HHH loans typically make up approximately 25 percent of each project’s total budget. The maximum allowable Proposition HHH subsidy for supportive housing was $140,000 per unit during the most recent funding cycle and $220,000 per unit for previous funding cycles. The remaining funding comes from a combination of private sources and other sources of taxpayer funds such as federal government, State of California, and LA County. Although the City does not bear the entire cost of these projects, it should seek to further minimize development costs and – to the greatest extent possible – avoid draining the overall pool of funds available for supportive and income-restricted housing projects. 

All supportive and affordable units funded through Proposition HHH are subject to a 55-year affordability covenant to ensure that they are restricted to the target population. More than 51 percent of the units being developed using HHH funds are compact studios (typically < 500 sq. feet) and 33 percent are 1-bedroom apartments – all units must have a kitchen and full bathroom to function as supportive housing. Larger apartments being built are set aside for families experiencing homelessness.

Cost of completed HHH supportive housing projects

Since we issued our last report, the first three HHH-funded projects were completed and will provide homes and supportive services to a mix of formerly homeless individuals, seniors, families, transition age youth, and individuals with mental health conditions. The average HHH subsidy for these projects was approximately $7 million.

It is important to note that these projects (and six others) were not initiated after the passage of Proposition HHH in November 2016. Instead, they were already in HCIDLA’s development pipeline and HHH funding was used at the latter stages of pre-development – rather than the first-in approach – to close funding gaps and move the projects toward construction. As a result, the costs and timelines associated with these projects may not be representative of other projects in the development pipeline.

To better understand how costs were distributed for the completed projects, we analyzed project budgets submitted to HCIDLA during the pre-development phase and organized the data into the categories outlined below. These budgets are a snapshot of total development costs (TDC) estimates at the time of application and evolve over time, but they provide general context about the various cost drivers. As shown in the chart, construction costs accounted for nearly 58 percent of total development costs.

As shown here, construction costs typically represent more than half of each project’s development cost and contracts are not executed until funds are assembled, land use issues are resolved, and Proposition HHH loans are closed. As a result, the construction costs associated with each project largely reflect the demand for materials and labor when the contracts were finalized.

In our previous report, we found that projects were incurring soft costs of approximately 35 percent for non-construction activities such as fees, insurance, and financing costs. HCIDLA explained that the difficult and lengthy process of assembling funding from multiple sources contributes to these costs, and that the soft cost ratio was consistent with research published by the United States Governmental Accountability Office (GAO) in 2018. The soft cost ratio for the three completed projects listed above (31 percent) was consistent with this level.

Cost of HHH supportive housing projects in construction

The average HHH contribution for projects in construction is nearly $9.4 million. The aggregate data reported by HCIDLA shows that average per-unit development costs for projects in construction increased slightly, and outliers at both ends continued to separate themselves.

A closer look at the distribution of per-unit costs shows that the overall share of units with development costs above $600,000 increased from 10.8 to more than 28 percent.

At the other end of the spectrum, the percentage of units below $400,000 also increased. Notably, two projects in this lower cost range were conversions of existing motels. There are two additional projects in construction which takes a rehabilitation/adaptive reuse approach and the cost per unit is close to or less than the other projects in construction.

This limited sample size and number of potential factors make it difficult to draw larger conclusions about these projects. However, the GAO analyzed affordable housing projects completed between 2011 and 2015 which were funded with one type of tax credit (9%) available through the Low Income Housing Tax Credit Program (LIHTC) program. The study found that median per unit development costs for affordable housing projects were lower in rehabilitation projects compared to new construction.[1] This gap appeared across a range of locations, including New York City, Chicago, and California. Potential cost savings could be partially offset by the higher cost of maintaining an older building. But our dire need for faster solutions and the State’s current efforts with Project Homekey (to be discussed later) are consistent with this approach.

In addition, HHH projects in construction with development costs below $500,000 have an average of 73 units, whereas projects with development costs above $600,000 have an average of 58 units. While the limited sample size and number of variables makes it difficult to draw larger conclusions, the difference in costs – and need for additional units – suggests the City should prioritize funding larger projects. 

It should be noted that the analysis is not a one-for-one comparison – the August 2020 data includes additional projects and the outlier costs may simply reflect construction market dynamics at the time those contracts were signed. Regardless, the data snapshot provides additional context about the current project portfolio.

The cost breakdown of projects in construction was consistent with the completed projects, with slightly higher costs associated with land acquisition.

Cost of HHH supportive housing projects in pre-development

The average HHH contribution for projects in pre-development is nearly $8.9 million. The cost of projects in pre-development represent an estimate at the time project proposals are submitted to HCIDLA – typically years before they begin construction. After receiving a conditional letter of commitment, developers have two years to assemble funding, obtain land use approval, and navigate the City’s permitting processes. As a result, the estimates below are preliminary and will be subject to market forces when construction contracts are finalized.

The estimated cost per unit increased by more than ten percent for projects in pre-development. The lowest cost project reported in October 2019 (Vermont and Manchester) has been corrected due changes in how the project is tracked by HCIDLA and the State. The project is a multiphase family and senior development, and the second phase (62 units) is funded by Proposition HHH. Both phases of the project were previously tracked together because they shared other funding sources, but that approach unintentionally made the HHH-funded units appear to be less expensive.

Cost Distribution of HHH Units in Pre-Development

Currently, nearly 33 percent of units in pre-development are estimated to exceed $600,000. The National Association of Homebuilders recently reported that lumber costs increased considerably since April 2020 – it is unclear how much these projects will cost by the time they begin construction.

Estimated Project Completion Timelines

Recent events and continued uncertainty will almost certainly add to what is already a lengthy development process. Projects currently in construction must adjust to social distancing guidelines and projects in pre-development must navigate added uncertainty with their financing arrangements.

Even before the pandemic, the City granted extensions for 15 projects beyond the two-year window provided by the conditional funding commitment. The extensions ranged from 42 to 397 days and were requested due to challenges such as City permitting processes, tax credit application timelines, and a CEQA lawsuit. Beyond taking longer to complete projects, delays will likely result in higher development costs in the form of interest on loans and holding costs on land.

During our last review, we learned that supportive housing projects typically take three to six years to complete (from conceptualization to occupancy). We previously calculated the timeline by measuring the number of years from the date of the City’s funding commitment to the estimated completion of construction. For this report we measured the length of time from the City’s funding commitment to the estimated occupancy date. This methodology does not capture time spent acquiring land to build a project.

Using this approach, the three completed projects took approximately 2.8 years to complete. But these projects – and six others currently in construction – were already in HCIDLA’s development pipeline before Proposition HHH was approved in November 2016. Whereas Proposition HHH funds are typically “first-in” and developers have two years to secure additional financing, HHH funds helped developers of the initial group of projects close a financing gap and move toward construction.

Based on the City’s current projections – which may not fully reflect pandemic-related delays – only 19 percent of remaining units in the HHH development pipeline will be completed before January 1, 2022. Approximately 43 percent of total units are scheduled to be completed before January 1, 2023.

Proposition HHH Concierge

The City received grant funding in 2019 from United Way of Greater Los Angeles to create and fund the Housing Crisis Response Team within the Mayor’s Office of Citywide Homeless Initiatives. The grant also provided funding for the establishment of an Affordable Housing Production Manager (also referred to as the “HHH Concierge”). The primary goal of the HHH Concierge is to increase the speed at which HHH and affordable housing projects move through the development pipeline.[4]

The HHH Concierge has been collaborating with developers and City departments to streamline processes in accordance with established legal requirements and troubleshoot issues on a project-by-project basis. These efforts have led to the City’s Department of Building Services (LADBS) establishing a dedicated case processing team focused exclusively on HHH/affordablehousing projects.

The City has not yet finalized performance metrics to measure the impact of these efforts. They are in the process of establishing baselines for each permitting process and plans to launch quarterly reports and a public-facing dashboard.

Interim Shelter and Facilities Development

The January 2020 point-in-time count found that approximately 29,000or 70 percent – of the City’s overall homeless population was unsheltered. This data was compiled before the onset of the pandemic and likely understates the actual number of unsheltered residents. Uncertainty about continued federal assistance, additional job losses, and temporary renter protections mean that hundreds of thousands of additional households are at risk of falling into homelessness in the coming months.

There are several non-HHH efforts that have been initiated in recent months to tackle homelessness and the pandemic. The City and County recently reached a multi-year agreement to fund 6,700 housing interventions. Key elements of the City’s plan are outlined below.

  • A Bridge Home (ABH) program – Launched in 2018, the City’s primary strategy for emergency housing solutions has been through ABH. As of June 2020, 13 ABH projects with 933 beds were completed and in service. The City recently reported that it expects approximately 840 beds to open by the end of the 2020.
  • Homeless, Housing, Assistance, and Prevent Program (HHAP) – The City received a one-time grant of approximately $117.6 million from the State in June 2020. The funds have been committed across several categories including operating costs for ABH locations, ABH construction costs, rental assistance and rapid re-housing, and public health and hygiene.
  • Project Homekey – The State is making $600 million in grant funding available to local public entities so they can purchase and rehabilitate housing, including hotels, motels, vacant apartment buildings, and other buildings and convert them into interim or permanent, long-term housing. Nearly all of the funding ($550 million) is emergency assistance from the federal government and must be spent by the end of 2020.

If local jurisdictions provide $150,000 in matching funds per door, the State is willing to provide up to $200,000 in acquisition funding per door.[1] The City recently approved a plan to apply for $250 million in capital funding from the State and has set aside up to $150 million in federal COVID-19 relief funds to meet the match requirement. The City aims to use the funds for up to 1,250 units and may need to allocate additional funding for rehabilitation/repair of the acquired properties. On a per-unit basis, the City’s estimated budget for this effort is approximately $320,000which may represent a faster solution at a lower cost than most units developed through Proposition HHH.

  • LAHSA COVID-19 Recovery Plan – In June 2020, LAHSA presented a three-year plan which seeks $610 million in new funding to find housing solutions for the 4,000 high-risk homeless individuals who received assistance through Project Roomkey and the 11,000 individuals who were targeted but not placed in hotels/motels. LAHSA is seeking to use multiple sources of funding (including the State funding described above) to acquire hotels/motels, lease market-rate units, and utilize shared housing units.

The City recently approved a plan to provide LAHSA with more than $97 million in federal COVID-19 relief funds over the course of four years. LAHSA is aiming to place 3,000 people in privately-owned rental units by providing rental assistance and case management services.

  • Interim housing sites – The City’s recent plan includes funding estimates to acquire and deploy 740 interim beds, at least partially through the use of pop-up tiny homes (i.e., Pallet Shelters). The City’s current estimated capital cost per unit for interim housing sites, which will be adjusted once contractors are selected, is approximately $46,000.

Even if these initiatives meet their goals in a timely manner, there will still be thousands of unsheltered Angelenos. Each day they spend without housing or shelter puts them at greater risk of illness or death.

Proposition HHH Shelter/Facilities Program

Proposition HHH authorized the City to use up to $1.2 billion in bond proceeds to develop supportive and affordable housing, as well as facilities such as shelters, showers, restrooms, storage, clinics, and navigation centers. The ballot measure required at least 80 percent of HHH funds to be used on supportive housing and shelters/facilities and prioritized supportive housing, but it did not specify how to distribute funds between those categories.

Although the supportive housing model (i.e., housing combined with services) is considered a best practice for addressing chronic homelessness, shelter beds and facilities fulfill a critical role in helping unsheltered individuals until housing becomes available. Decisions about how to balance these approaches depend on a range of factors such as available funding, existing housing and shelter inventories, project costs, public health conditions, the number of unsheltered residents and their service needs.

The City has funded a total of 24 projects using approximately $58 million in Proposition HHH funds. [16] The relatively limited scope of this effort was driven by the City’s decision to prioritize development of supportive housing. In 2018, the City Council voted to suspend a planned request for proposals (RFP) and another RFP has not been issued since then.

Eligible projects included rehabilitation/expansion of existing sites or acquisition/construction of new sites. In addition, projects that enhanced existing facilities to improve service delivery – such as retrofits to make buildings compliant with the Americans with Disabilities Act (ADA) – were also eligible. The shelter/facilities projects that were funded by the City fall into two broad categories based on the entity that proposed (i.e., sponsored) them, HHH award process, and funding model.

  • Non-City-sponsored projects – The City solicited proposals from non-profit or private entities for shelters/facilities projects in two phases: (1) an expedited request for proposals (RFP) in February 2017 seeking shovel-ready projects ready to begin construction within a year; and (2) a conventional RFP in August 2017. Applicants needed to meet a series of criteria to be considered, including whether they had funding in place to operate the proposed shelter/facility.

Funding for non-City sponsored projects was made available as loans repayable through service repayment with a term corresponding to the useful life of the project. The initial RFP did not establish a minimum or maximum funding amount, but the second RFP set thresholds at $100,000 and $3.5 million, respectively. In total, the City funded 20 non-City sponsored projects with approximately $33 million in HHH funds.

  • City-sponsored projects – The City also funded projects through processes outlined in its matrix for re-purposing City-owned properties (i.e., Asset Evaluation Framework). To initiate this process, Councilmembers identified specific City-owned properties they sought to re-purpose and requested that the CAO, Office of the Chief Legislative Office (CLA), Board of Public Works Bureau of Engineering (BOE), and LAHSA evaluate the construction costs and service funding needed to establish the proposed shelter/facility.

Unlike the non-City-sponsored projects described above, the minimum/maximum funding thresholds did not apply. In total, the City funded four City-sponsored projects with approximately $24 million in HHH funds.

The table below provides an overview about the types of facilities funded with Proposition HHH funds. It is important to note many of these facilities have multiple functions. For purposes of this summary, we primarily used the same main categories listed by the City.

Most of the projects (19 of 24) funded by the City are renovations of shelters/facilities already embedded in their respective communities. A total of 196 new shelter beds will be provided when these projects are completed.

[11] Proposition HHH-related data for this report was obtained directly from HCIDLA, the City’s Proposition HHH dashboard (https://hcidla2.lacity.org/hhh-progress), City Council Files, and recurring reports submitted to the Proposition HHH Citizens and Administrative Oversight Committees.

[12] Reid, C., Napolitano, A., Stambuk-Torres, B. (2020). “The Costs of Affordable Housing Production: Insights from California’s 9% Low-Income Housing Tax Credit Program.” Terner Center for Housing Innovation at UC Berkeley. Retrieved from: http://ternercenter.berkeley.edu/development-costs-LIHTC-9-percent-california.

[13] The project budgets submitted by developers to HCIDLA frequently bundle a number of items such as permit processing fees, local development impact fees, furnishings, and soft cost contingency under the category “other costs.”

[14] U.S. Government Accountability Office. (2018). “Low-Income Housing Tax Credit: Improved Data and Oversight Would Strengthen Cost Assess­ment and Fraud Risk Management.” Report GAO-18-627. Retrieved from: https://www.gao.gov/products/gao-18-637.

[15] The Mayor issued Executive Directive #13 (ED13) in October 2015 to facilitate streamlined and prioritized case processing for all affordable housing developments. Although it was issued before Proposition HHH, the strategies outlined within ED13 apply to supportive housing developments.

[16] In a shared living environment, the “door” corresponds to the number of rooms that will be occupied by different individuals/households.

[17] Two additional projects received funding commitments but did not proceed due to unanticipated costs. Another project did not move forward because the developer ran into issues converting single room occupancy (SRO) units to transitional housing.

The primary recommendation in our previous report called on the City to consider reallocating previously-committed HHH funds from expensive or stalled projects to projects with lower costs or development of shelters and facilities. These are inherently difficult decisions – but the results since Proposition HHH was passed in November 2016 need to be considered before electing to stay the course.

  • Only three projects have been completed (228 units) nearly four years after voters approved Proposition HHH. Approximately 73 percent of total units are still in pre-development and have not yet begun construction.
  • Based on the City’s current projections, only 19 percent of remaining units in the HHH development pipeline will be completed before January 1, 2022. Approximately 43 percent of total units are scheduled to be completed before January 1, 2023.
  • More than 28 percent of units in construction exceed $600,000 per unit. Nearly 33 percent of units in pre-development are projected to exceed the same cost threshold, and will be subject to market forces when developers solicit bids for construction contracts.

Given the overall timeline and costs for completing HHH-funded supportive housing projects – and the magnitude of our overlapping crises – the question remains about how best to move forward. The City’s current plan is to use the remaining HHH funds (approximately $30 million) and any potential funds ($9 million per project) returned from unsuccessful projects to start the process anew and solicit proposals for new supportive housing projects – which are unlikely to be completed until 2025 or later.

The City should reconsider this plan. The issue is not whether the City should invest in supportive housing using HHH funds – the issue is whether the City should almost exclusively pursue an approach that frequently costs more than $600,000 per unit and takes up to six years to complete when there are 29,000 unsheltered Angelenos and an average of three lives lost every day in LA County. Instead, the City should find other ways to use any remaining/returned HHH funds to deliver faster and less expensive projects that better balance our long-term goals with our short-term needs.

  • Focus on interim housing and facilities – Interim housing is critical to helping get vulnerable people off the streets. Available and accessible facilities are also essential to helping people living on the streets meet their basic health, hygiene, sanitation, and storage needs. Unfortunately, neither of these have been prioritized or funded at a scale that matches the needs of people experiencing homelessness in Los Angeles.

According to the City, State law prevents the City from using Proposition HHH bond proceeds on items such as equipment, tents or other non-permanent structures, or mobile hygiene facilities. But the City has full authority to fully fund the construction of interim housing and facilities on City-owned property, or acquire property and initiate projects. The City should consider using HHH funds to supplement its emerging effort to increase the supply of interim housing solutions.

  • Prioritize acquisition, rehabilitation, and adaptive reuse opportunities – Another approach would be to pursue strategies that minimize the impact of issues such as land use challenges, the cost of new construction, and systemic issues related to project financing. Different approaches – such as acquisition, rehabilitation, or adaptive reuse of existing buildings funded by Proposition HHH bond proceeds – may help reduce costs and timelines, potentially adding units at faster rate than the current pace (228 units in nearly four years).

CalMatters obtained data from the California Hotel & Lodging Association that showed smaller hotel/motel properties in Los Angeles County may cost approximately $100,000 per unit to acquire, but would likely require additional time and money before they could be converted into supportive housing.[18] The City has explored the purchase or long-term leases of hotel/motel properties but encountered regulatory hurdles due to the need for zoning changes and a lack of interest from small business owners. However, those efforts mainly took place before the onset of the pandemic – the City may encounter a vastly different marketplace for these opportunities.

Funding currently available through Project Homekey is an opportunity for the City to acquire hotels/motels and other existing buildings that can be converted into interim shelters or supportive housing. Although the retrofits needed to make these buildings suitable for supportive housing will add time and money, the locations can be temporarily used as interim housing and mitigate risks associated with COVID-19 transmission in congregate shelter settings. On a per-unit basis, the City’s estimated per unit budget in its application for Project Homekey funding is $320,000. A potential option for the City would be to contribute available Proposition HHH funding to expand these efforts.

Social distancing requirements have also raised larger questions about the future of commercial space such as office space and big-box retail stores. Although it is too early to determine whether any downward market trends – and the costs associated with potential renovations – make these projects financially viable, the City should work with subject matter experts to identify opportunities.

Shifting course through these strategies may increase the City’s ability to deliver supportive housing, interim shelter, and facilities at a lower cost and faster rate. More broadly, it would help re-align a generational voter investment with our emerging and urgent needs.

[18] Matt Levin, “Converting a motel to homeless housing, step by step,” CalMatters, June 9, 2020, https://calmatters.org/housing/2020/06/motel-conversion-homeless-housing-california/.