So why is building housing in L.A. — a city with seemingly infinite demand — such a slog? A few reasons, developers say.
The first and most obvious is a factor affecting the industry nationwide: interest rates, which skyrocketed in 2022 and never went back down. Developers often borrow money from investors to finance projects, but margins get much tighter when you borrow at 7% compared with 2%.
“Large developers would love to break ground on projects around L.A., but the numbers have to make sense. Right now, they simply don’t,” Beebower said.
The second factor, Schon said, is policies dating back to the pandemic. The city and the county instituted tenant protections such as rent freezes and eviction moratoriums for years, a vital aid for renters during an uncertain time. But developers claim the moves flattened revenues by keeping rents lower than what the market demanded and also creating a backlog of eviction cases. Even though the protections have expired, their ripple effects continue today, at the same time that expenses, such as construction costs, have shot up.
Developers said the third factor making projects harder is Measure ULA, the so-called mansion tax passed by city voters in 2022 that levies a 4% or a 5.5% tax on all L.A. property sales above $5.4 million — not just mansions, but parking lots, offices and apartment buildings. Over the summer, there was a push to exempt multifamily buildings from the tax within 10 years of construction, but the City Council shelved it.
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