The Affordable Housing Linkage Fee and Its Impact on Architecture

By Will Wright

On December 13, 2017 the Los Angeles City Council voted to levy an Affordable Housing Linkage Fee (AHLF)  on new development throughout the city.  This fee will have a phased-in implementation schedule that begins 120 days from the date that Mayor Garcetti signs the legislation, with 100% of the fee going into effect in about 485 days.  The fee which will range from $8.00 to $15.00 per square foot for residential development and $3.00 to $5.00 per square foot for commercial development (depending on its location) and will be paid into the City’s Housing Impact Trust Fund, which will help fund the the construction or rehabilitation of affordable housing, as well as, enable the Housing and Community Investment Department (HCIDLA) to extend affordability covenants on existing housing.

Over the course of the last two years, the AIA|LA Political Outreach Committee has been deeply involved with weighing the pros and cons of this linkage fee.  We hosted two separate roundtable discussions on the topic and engaged directly with the Department of City Planning as they were formulating the provisions of the ordinance.  Many architects feel that the AHLF is a much-needed and helpful funding tool.  After all, we have dozens of award-winning architects that work in lock step with affordable housing providers and our friends with the Southern California Association of Non-Profit Housing.  However, other architects feel that it will only make housing more expensive, in general, and will further exacerbate our housing crisis.  The Los Angeles Chamber, The Building Industry of America and other trade groups cautioned City Council repeatedly that a linkage fee might slow housing production in LA, or simply encourage developers to build elsewhere.  Still yet, many more (such as myself) agree with the report that UCLA issued last summer, with the proposal to tax land rather than development.  Who knows how all of this will play out?  And if the Public Activity Bonds are preserved in the updated Federal Tax Code (which as last reported seems to be the case), there is quite a bit of further analysis to explore the feasibility of having projects pencil-out!

What is especially important to note is the calibration threshold for the projects that will be exempt from paying the linkage fee by including a certain percentage of affordable housing units within the project.  As strong proponents of seeing more mixed-income and middle-income housing built throughout the city, which will help facilitate the creation of inclusive and complete communities, the AHLF may serve as an incentive to build a housing mixture that better integrates a range of affordable units alongside market-rate.  For instance, if your project dedicates at least 40% of the total units for moderate income households, or at least 20% of total units for low income (11% very low income; 8% extremely low income), then your exempt from paying the fee.  

In addition, when you match the exemption incentives provided by the AHLF along with the exemption incentives that are created through the newly adopted Transit Oriented Communities guidelines  you may see the feasibility expand of creating denser projects near transit that are emblematic of the values that more mixed-income housing provides.  The TOC guidelines have a tiered series of benefits and even create the possibility for parking reductions, reduced set-backs and additional incentives to encourage the development of more housing.

Lastly, as the new Park Dedication and Fee Update ordinance takes full effect in January 2018, you may see even more housing built with the added affordability provisions in effort to be exempt from that fee, as well.  In aggregate, all of these fees taken together may add another $25,000 to $45,000 in fees per unit of housing (on top of all the other existing fees) - so that means there is quite the financial incentive now to build mixed-income housing in effort to avoid the cost of paying all of those fees.  Will the market deliver?  Who knows?  When you’re working with your clients, I hope you will take a moment to examine all of these possibilities and select the formula that delivers sustainable results.

If you are currently working on a project that is aiming to be exempt from the AHLF and will also gain a benefit from the TOC Guidelines, please contact Will Wright at AIA Los Angeles.  We’d like to begin tracking these projects so that we can better understand how all of these incentives are working together to encourage more housing development throughout the City of Los Angeles.

For complete details on the AHLF, please CLICK HERE to access Council File: 17-0274.
Last updated: 19-Dec-2017 12:56 PM
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