It has been more than half a year since Measure JJJ, an initiative that requires developers use union labor and allocate a portion of the property to affordable housing for any projects that are require a zoning change, passed last November, and it is already having an impact on development in Los Angeles. Laurie Lustig-Bower, a executive VP at CBRE and a development sales expert, says that Measure JJJ is a major concern for developers looking at potential land sites, and none want to take the risk of needing an exemption to the general plan because the cost increases rise significantly.
“Measure JJJ has had a negative impact. Developers have not wanted to go outside of the zoning that is allowed on the property, because the cost for an exemption is so punitive,” Lustig Bower tells GlobeSt.com. “If you try to ask for anything additional, like adding more height or anything at all that is outside of the zoning box, you have to use a portion of union labor and add on affordable housing. The developers that I have spoken with say that it increases their overall costs by 20% to 30%. At that point, it becomes too punitive to build.”
Measure JJJ was passed at the ballot box as a community response to the substantial increases in rental rates and the rise in luxury housing developments. The measure was meant to provide balance in the market, but Lustig-Bower doubts that will happen. “The city was hoping that Measure JJJ would give them more affordable housing, but I don't think it is going to,” she says. “It is too expensive to build and the projects don't pencil anymore. It stops people from even asking for a small change, even if that change is a positive thing for the community.”
Because Measure JJJ only affects projects that require an exemption to the general plan or a zoning change, land sites with entitlements have become much more popular than they already were (entitled sites have always been attractive). “When I value my sites, I always base the value on the buy-right with the current zoning in place,” says Lustig-Bower. “What ends up happening, you don't have any flexibility to ask for anything more from the city. It is a much easier path now and it is much less risky to go with something that already has entitlements.”
Although these sites are in higher demand, they aren't necessarily garnering a higher price tag, because land values are dependent on rental rates and income. “When we value sites, we value to the full extent of what the property could be worth based on the current rents in the market or current pricing for condos,” explains Lustig-Bower. “The market was going to pay the highest price for the site regardless, as long as it has made financial sense. The land can only drive so much economic value.”
Demand for housing is high in Los Angeles, and the city needs more supply; however, Lustig-Bower says that developers will likely go outside of the city to build more housing. “This may drive developers away from L.A. City to other markets where Measure JJJ isn't in effect,” she says. “If the land is already zoned or entitled and you don't need to ask for anything additional, then you won't trigger JJJ.”
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Kelsi Maree Borland
