Episode 89: How to Evaluate Zoning Reforms with Aaron Barrall (part 1)

Shane Phillips 0:05
Hello! This is the UCLA Housing Voice Podcast, and I'm your host, Shane Phillips.

This week we're joined by Aaron Barrall, of Lewis Center fame, to talk about our recent analysis of the citywide upzoning adopted by the City of Los Angeles just a few months ago. More specifically, but also more generally because this doesn't just apply to LA, we're going to talk about our approach for evaluating upzoning proposals, how to estimate how much capacity is being added, how to determine how much of that capacity has any hope of ever becoming new housing, and how to assess whether that new capacity is hardening divisions between poorer and wealthier areas or breaking them down and increasing people's access to good jobs, schools, transit, parks, and so forth. Los Angeles is our case study here, but I really want to underscore that this approach is pretty universal, and the big picture lessens even more so. You do not need to care about or know anything about LA to learn a thing or two. Here's hoping anyway, because this is a two-parter. We will be back with part two of the interview in a couple weeks.

The Housing Voice Podcast is a production of the UCLA Lewis Center for Regional Policy Studies with production support from Claudia Bustamante, Irene Marie Cruise, and Tiffany Lieu. Share the show with your network and send your questions and feedback to shanephilipsatucla.edu.

With that, let's get to our conversation with Aaron Barrall. Our guest this week is Aaron Barrall, graduate of UCLA's Master of Public Health Program, staff research data analyst with us here at the Lewis Center and the Randall Lewis Housing Initiative, and the linchpin of a wide range of projects we have worked on during the year and a half. He's been a full-time part of our team. Aaron, thanks for joining us, and welcome to the Housing Voice Podcast.

Aaron Barrall 2:10
Thanks for having me. I've been listening since the first episode, so this is pretty exciting for me.

Shane Phillips 2:15
We appreciate that. Every listener counts. Even the ones we make listen because they work for us. My co-host today is Mike Manville. Hey, Mike.

Michael Manville 2:23
Hey, guys. Great to be here.

Shane Phillips 2:25
I suppose you are aware of this, Aaron, but as always, we first ask for a virtual tour of a place that our guest knows well and wants to introduce our listeners to, so where to?

Aaron Barrall 2:35
I'm going to choose San Diego, which is a place that is close to my heart because it's where I spent my late teens and early 20s, which is, of course, one of the best parts of anybody's life, or hopefully it should be. With any large city, there are always a million things to do and places to visit, but I think it's a city that really excels in its climate and natural beauty, as well as its food options. I would start at the very southern tip of the city at Borderfield State Park, which is directly on the southern border, and it's where the southwesternmost point of the contiguous United States is. It's a little bit off the beaten path, and I always find it to be a very powerful experience seeing the contrast of a very heavily militarized border with the nature and the ecosystem of the Tijuana River Estuary, and then, of course, the beach there too. From there, I would head north. If I was driving, I would go up the Silver Strand State Beach and make my way to Balboa Park, which is where you can go visit a museum, see the botanical gardens. You can catch an opera there sometimes, or even just walk around to read a book. Finally, I would do an evening hike at the Torrey Pines State Park, which overlooks the ocean and feels pretty removed from the middle of the city, and this is a fantastic place to watch the sunset. Along the way, I would be sure to check out some of San Diego's signature food dishes, particularly the Baja-style fish taco and then the California burrito. For those of us who are uninitiated, the California burrito is a burrito traditionally made with carne asada, pico de gallo, and avocado. But the main ingredient is french fries, and I know this might sound a little gross or weird, but it's something that you need to try to understand it. And if you're not completely exhausted with all of that, I would suggest heading to North Park or downtown to catch some live music to close the night out.

Shane Phillips 4:26
As someone from Seattle who was very skeptical of the Seattle dog until trying it, I'm more open-minded to weird-sounding foods, local foods, than I might otherwise be. And for people who don't know what the Seattle dog is, this is a hot dog with, well, I don't know what it has for sure beyond cream cheese, but the cream cheese is the part that always gives people the same expression that Mike is giving right now. Sounds disgusting. I did not try it for a long time, and then after I tried it, I started making them at home. I was just super into it. You put some sriracha on there, maybe some jalapenos really spice it up. So the fries didn't give Mike that face, so you can see why I'm open-minded these days.

Michael Manville 5:13
I love Seattle and I love San Diego. I think San Diego is a great city, but without trying either one, I'm much more open to the California burrito than to the Seattle dog. I don't think hot dogs and cream cheese were meant to go together.

Shane Phillips 5:27
You can't know until you try it.

Michael Manville 5:29
I could be wrong. I could be wrong. But San Diego, wonderful city. Yeah.

Shane Phillips 5:33
Actually, Aaron had asked if anyone has done San Diego before, and I don't recall for sure, but when you mentioned the border, Aaron, it did remind me that Donora Gonzalez, back when we talked about suburbanization or mass-produced housing in the suburbs of Mexico, she talked about the area just on the other side of the border and the kind of beach there and everything. So I think that contrast is super interesting. All right. I am not going to take more time with this because we've got a lot to talk about. So our conversation today and next time is about a report by Aaron and me published in November 2024 titled, Chipping In, Evaluating the Effects of LA's Citywide Housing Incentive Program on Neighborhood Development Potential. This study centers on the city we call home, Los Angeles, but as with our previous episodes featuring Lewis Center research on LA housing policy, this one's got lessons that apply just about anywhere, I hope. If you liked episode 59 on discretionary approval processes or episode 79 on inclusionary zoning, I think you will enjoy these ones as well. And again, Mike was making a face, this time based on the name of the report and just to explain what was going on there a little bit. We like to have fun with the title, but at the end of the day, we felt like this zoning reform, it helps, it made a difference. It's chipping in. It's not really changing the game.

Michael Manville 7:06
I fully admit that in our school, I am in the minority, but I do not approve of taking report and article titles and using puns.

Shane Phillips 7:17
Well, yeah, you're definitely in the minority and you're going to stay there.

Michael Manville 7:21
But you will not stampede me.

Shane Phillips 7:25
Well, we appreciate you coming on despite that. This study was our effort, Aaron and I's, to understand how a proposed citywide rezoning might change development patterns in the city. Compared to existing zoning, we wanted to get a sense for how many more homes would be allowed and the types of neighborhoods where that new capacity was located. We care about those questions for the same reasons the state required the city to change its zoning policies in the first place, because there's a relationship between the number of homes a city allows in its codes and zoning maps and the number of homes that are eventually built. And, of course, because cities that build more homes are more affordable cities, all else equal. The locations of homes allowed by zoning policy, what we will generally refer to as zoned capacity from here on out, also matter a great deal. A lot of Lewis Center research has been about exploring the fair housing implications of zoning and land use policy, and more specifically, the ways that building homes in higher income, higher opportunity neighborhoods helps reverse historical patterns of race and class-based segregation. That goal, formally known as Affirmatively Furthering Fair Housing, or AFFH, is arguably the aspect of the 1968 Fair Housing Act that we've made the least progress on as a nation. I'm not even sure I can say that for sure because I don't know every element of that Fair Housing Act, but of the two big ones, the nondiscrimination and reversing segregation, we've made a lot more progress on the nondiscrimination and not so much, not really much at all, on the undoing segregation. Beyond federal law, though, since about 2017, Affirmatively Furthering Fair Housing is also an explicit mandate in California law. Beyond that, we care about where housing is allowed and the types of homes allowed there, because these decisions also help determine how much housing ultimately gets built. If you allow a 60 unit apartment on a plot of land in wealthy West L.A. and the same size project on an equivalent parcel in poorer South L.A., the former is a lot more likely to actually be redeveloped. Again, all else equal. If the reason for that is not obvious, then stick around because we are going to dig into that quite a bit over the next couple episodes. L.A.'s rezoning proposal was interesting for a bunch of reasons. It was close to citywide, which is fairly unusual. Zoning changes are often done neighborhood by neighborhood, especially in larger cities like Los Angeles. It also initially promised changes to some neighborhoods currently restricted to single family zoning only, which account for about 70% of residentially zoned land in the city. Then the city planning department walked away from that commitment after homeowner groups yelled at them. Then they came back near the end of the process with seven single family rezoning options for the city council to consider. Those remained separate from the rest of the rezoning plan, which was known as the Citywide Housing Incentive Program, or CHIP. CHIP only applied to parcels already zoned for multifamily housing, so it was really about increasing the intensity of development in commercial and multifamily neighborhoods, and one could argue widening the gap between those communities and the ones where detached houses dominate and in fact are the only things allowed. That gap being both in terms of the built environment and in terms of the cost of housing in those communities. The rezoning was also interesting because it was state mandated, which we will share a bit more background on in a moment, and because LA's scale and the relative quality of its parcel and zoning data made it possible to do an in-depth evaluation in the first place, the kind that just isn't really possible in most jurisdictions. I am almost done with my summary. CHIP was approved by the City Council in February of this year, 2025. So what do we expect it to accomplish? At the most basic level, how much does it increase zone capacity for new homes and how much of that new capacity is in more affluent communities that better support upward mobility? I think policymakers and advocates are already asking these questions in many communities and they're questions we try to answer in this study. But we also do need to go deeper. For one thing, how much of that zone capacity is essentially vaporware, capacity on paper that for one reason or another probably will not translate into new homes? How much can be achieved when we limit up zoning to parcels already zoned for multifamily or commercial uses? And how do the effects change when we expand these reforms into exclusionary single family neighborhoods? We tackle these questions as well with the goal of providing a conceptual framework for answering them in any community, not just in LA. All zoning reform is not created equal, even when two zoning reforms increase total capacity by the same amount. That's the broader and, in my view, more important message of this study. So that is the big picture and it probably sounds pretty abstract so far. Los Angeles is going to help us ground these lofty concepts in a real world case study in the form of CHIP, again, the Citywide Housing Incentive Program. Aaron, I'm going to finally stop talking and turn it over to you. Where did this CHIP proposal come from? I think we need to go back to California's regional housing needs assessment and how some big state law changes led to LA having to plan for a lot more housing in the future than it had over the past 30 or 40 years. So take it away.

Aaron Barrall 13:02
Yeah, so this round of state housing plans had much higher housing targets than ever before, mainly due to a few changes in state law. The first was Senate Bill 828, which increased housing allocations for each region and it required that demographers at the state level account for existing housing needs when they're assigning regional level targets. The thought here is that if a region or the state is already in a housing crisis, we shouldn't benchmark that as the baseline. We should be trying to get out of the housing crisis instead of just assuming that that's the natural state of things. And so 828 increased everything quite significantly. Assembly Bill 1771 then mandated changes in the way that regional governments or MPOs, Metropolitan Planning Organizations, assign targets to cities. Instead of each planning organization developing their own methodology to assign targets, state law now specifies a number of objectives, including that these targets be distributed in an equitable manner and that they should prioritize infill development in high income and job rich cities. So an example of how this changed, the most dramatic example in the state is the city of Costa Mesa, which is a coastal community in Orange County. Previously in the earlier planning cycle, it had two assigned units and the updated changes in state law made its most recent plan have to accommodate 11,760. So that is the biggest change across the whole state.

Shane Phillips 14:35
And just to clarify, this is the number of units that the city has to plan for over an eight year period. So in the previous eight year cycle, they had to plan to build at least two. And then in the next eight year cycle from I think 2021 to 2029, they had to plan for 11,000.

Michael Manville 14:53
And I think this is worth dwelling on just a second because the arena, this whole process is a source of widespread misunderstanding in California. And it goes back all the way many decades and it started, in theory it still is, but it started out as a way to ensure that cities in California would have enough zoned area to accommodate the projected future growth of population. It was a sort of state level law that said, look, people are coming to California and our cities have to be able to hold the housing that will hold them. And so there's nothing about RENA, this is just probably the biggest misunderstanding about it, that says the city has to build housing itself. There's nothing about it that says the city even has to see housing get built, right? It just has to have room for housing to be built in its zoning code. And one result of this was that for decades, this was just an unbelievably toothless law where cities just lied through their teeth and went through performative motions and nobody did anything. And for the reasons that Aaron has described is that you could project the future growth of your city based on how much it had grown in the past. But of course, if you're a highly restrictive suburb, you don't grow much. And so you can just say, well, hey, look, the last 20 years, we haven't grown much at all. So we don't expect much growth. And it's like, yeah, but you don't grow much because you won't zone for any housing, which is in theory the point of this exercise. And then when things would go to the MPOs, the regional bodies to allocate need, you would have a highly political process where, you know, in point of fact, richer, more exclusive cities would push the zoning allocation onto poorer, less demand cities. And it was in some ways a win-win for them because the richer cities where someone might actually build housing, and this is something we'll get into, they didn't have to rezone. And the poorer cities where there wasn't much demand, they could rezone, but they wouldn't get any housing. And so the only people who lost were people who actually needed housing, which was like they didn't live in California yet. And so I think it's worth just emphasizing that these reforms that Aaron did a really good job describing what those bills did, like they were addressing a really serious problem where we had a very time-intensive and cumbersome regulatory process every eight years that accomplished very, very little because it was so easy to gain.

Aaron Barrall 17:20
And I also think it's worth diving into that a little more, too, because the previous pattern and the way that assignments were allocated was based off the previous growth. And so that had the effect of giving cities that are further out on the urban fringe much higher housing targets than those directly adjacent to job centers, for example. So I think another example here is warranted. So the city of Banning, which is in Riverside County kind of on the far eastern side of it, went from 3.8 thousand units as its target in the previous cycle to 1.7 thousand now. The unincorporated area of San Diego went from 22 thousand to 6 thousand seven hundred. And so most jurisdictions did not have their targets lowered, but some of these areas where we might think of them as sprawling or at least just further out from major job centers, they did actually have a reduction. And so this was because the state decided to prioritize infill development as a policy.

Shane Phillips 18:17
Yeah. Maybe last clarification here, these regional housing needs assessment figures, the amount that cities are required to plan for, they are neither a cap on how many homes you plan for or build nor a minimum that you have to build necessarily. It really is just a planning exercise. But in the case of Banning, for example, the fact that its requirement went down doesn't mean it cannot plan for, you know, a hundred thousand homes if it wants to. But it means it doesn't have to plan for more than that. I think you said seventeen hundred. And the reason is because we just don't really expect a lot of growth there anyway. And it's not something we're prioritizing. Correct.

Aaron Barrall 18:58
So collectively, these two laws are what raised Los Angeles's housing target from eighty two thousand to four hundred fifty thousand. But another series of laws increased the scrutiny of sites that the city included to meet its target. Assembly Bill 1397 increased the evidence necessary for specific sites. And Senate Bill 166 essentially mandated that cities include extra sites beyond those that are assigned within the allocation itself. We actually describe these changes very well in a paper that Mike and I were co-authors on, California's Strengthened Housing Element Law, Early Evidence on Higher Housing Targets and Re-Zoning. It's a great read.

Michael Manville 19:43
It's like a Grissom novel. More housing. More boring. Yeah. I mean, and again, you know, just to emphasize, you know, we're going to get into this. The site's inventory and the fact that it is so important and has traditionally been so important in RENA is in some ways illustrative of the extent to which RENA was a charade. Because in principle, if the state comes to a city and says, hey, you know, you've got a plan for, you know, X thousand more housing units, that's actually very easy to do. You just look at all the low density zoning in your city and say, hey, we're raising it up 20 percent or 30 percent. Right. It depends on the zoning code that you edit and you've done it. But no one actually wants to do that. And so instead, what they do is they try and figure out how they can meet this target while minimally changing their zoning. And what this has traditionally involved is going to existing sites and saying, we think that in the next eight years, what is on this site is going to be redeveloped or could be redeveloped into something much higher density that's currently allowed. And sometimes this was done in good faith and just turned out to be wrong. In a very few instances, it turned out to be right. And many times it was people just lying. Right. There's examples of cities putting their city halls on the site's inventory, basically saying that the city hall is going to be knocked down and turned into apartment buildings. There's a straight up piece of evidence in the Los Angeles Times where Lacanada Flint Ridge, a very affluent suburb in the San Gabriel Valley, put a church on it. And someone went and asked the people around the church and they just said, no, we just helped the city lie. Of course, there's not going to be apartments there. Right. So it's a this reform, again, was a very necessary reform because the amount of bad faith going on was just unbelievable.

Aaron Barrall 21:42
Yeah. Mike, I do have to shout out San Juan Capistrano because I think the city hall example is really important and a lot of cities included their city halls in bad faith. The San Juan Capistrano is a city that even prior to actually having to do their housing element, they committed to redeveloping it for permanent supportive housing and the project's actually getting built. So I think that's a point of hope. Not every city is acting in bad faith all the time. And it's something that's important to remember, too.

Michael Manville 22:11
Yeah. If you're actually going to follow through and not go to your own city hall, God love you. It also seems like something that shouldn't have to be necessary.

Shane Phillips 22:18
Yeah. There's usually quite a bit of other places you could build it if you wanted to. All right. So Los Angeles goes from having to plan for at least 82,000 additional homes built over the eight years from 2013 to 2021 to having to plan to build at least 450 something thousand units over the next eight years. They also had to do so in such a way that affirmatively furthers fair housing, but we will put that aside for now. It's a huge task and one that the existing zoning regime is unlikely to deliver since we had only permitted something like 120,000 units over the previous eight years. The planning department had to estimate existing zone capacity before they could figure out how much more they needed to meet this new higher goal. And I think how they did that is an interesting story. It's also in some ways the reason we became interested in evaluating CHIP independently. Can you talk about this concept of development probability and the work Issey-Rome did for the city way back in 2020 or so?

Aaron Barrall 23:22
One of the laws that I just mentioned, assembly bill 1397, changed state law so that the sites that cities are claiming to meet their capacity are subject to much higher standards. Previously, the state law said that cities need to find sites with, quote, potential for redevelopment, but the updated language says realistic and demonstrated potential. And the threshold is even higher for non-vacant sites. Non-vacant sites are defined very broadly, anything that has some type of active use or existing structure, whether it's a restaurant, a house, or a parking lot. And so these existing uses and structures are presumed to impede development absent findings based off substantial evidence that these uses will be discontinued in the planning period. That's language directly in the government code. And this law was passed to prevent cities from putting bad faith sites in, like Mike just mentioned, places where there is no reasonable shot for redevelopment. But the fact is that cities don't know whether the current activities on a given site will be discontinued. It's just impossible to predict which specific parcels will get redeveloped outside of known owner or developer intent. Recognizing the difficulty in meeting this law, some land use scholars, including our very own Pavo Mankinen, published a paper called, Making It Work, Legal Foundations for Administrative Reform of California's Housing Framework.

Michael Manville 24:47
It's another barn burner of a read.

Aaron Barrall 24:49
It is. And this paper proposed that cities use something called development probability to help a achieve this requirement. The logic is that while you can't predict whether a specific individual site will be redeveloped or the uses will be discontinued, you can come up with aggregate statistics showing that, hey, maybe each site has a one to two percent chance of being redeveloped in a five or eight year period. And then we can take those statistics and apply them across the whole city. You know, this type of model is a reasonable way to meet the intent of the state law, choosing sites and rezoning in a fashion that will actually result in new production. And this approach also makes sense for L.A. There's just no reasonable way that a city with a target for four hundred and fifty thousand new units can go through and justify each site specifically. The law was really not aimed at Los Angeles. It's aimed at smaller cities that were engaging in bad faith planning efforts. So the city of Los Angeles contracted with the Turner Center and Metro site. And Izzy Romum looked at recent development history, zone capacity and other factors to come up with a development probability model. I'll skip some of the details, but the main conclusion of this is that the city's existing zoning was likely to result in about 43000 new units based off of this model. Los Angeles was also one of the only cities that actually used the development probability model to figure out its existing capacity. Other cities still provide extensive details about each individual site. Now the city does also get the count pending developments and accessory dwelling units towards its total. And so when you put those pending projects and accessory units together with the 43000 units that are expected to be developed through the existing zoning, the city still had a shortfall of about two hundred and fifty five thousand units. And California state law says they need to rezone for those units. So they need to add minimum rezone for two hundred fifty five thousand new units that would not be allowed under the existing zoning code. It's also important to understand that this citywide housing incentive program is not the only rezoning that the city is doing to accommodate this two hundred fifty five thousand unit shortfall. It also updated the downtown community plan and this will help count towards that rezoning potential as well.

Shane Phillips 27:14
OK so we have this ambitious target requiring us to plan for four hundred fifty thousand units over eight years. Prior experience and this analysis by Metro site tells us that the zoning code is not up to that task. And so we need to rezone to increase capacity by at least two hundred and fifty five thousand additional units beyond the estimated two hundred and thirty thousand or so that already exists or are in the pipeline. One thing that we saw from Issy's analysis is that the odds of any given parcel redeveloping over a five or ten year period are very low like something like one to five percent something on that order. And so actually to increase capacity to actually produce two hundred and fifty five thousand additional units over an eight year period you would imagine you need to actually increase zone capacity by millions of units because only a small share of those are actually going to be redeveloped over the next planning cycle. We'll come back to that idea in a minute but first let's just share what the city proposed for its rezoning. I mentioned that the planning department said in twenty twenty three that it was no longer considering allowing these lower cost multifamily homes on parcels zoned for single family houses and they took that position before the first draft of CHIP came out. Because of that initially our analysis only looked at the proposed changes to parcels already zoned to allow multifamily housing which in L.A. includes most commercially zoned parcels as well. The changes generally allowed taller and bulkier buildings with more units. Tell us about the three main programs in CHIP and why we evaluated only one of those as the post CHIP scenario for this report.

Aaron Barrall 29:10
I'll start with the state density bonus law which is a long standing California law that gives developers extra density and design flexibility in exchange for reserving some percentage of the units of a project for lower or moderate income households. And this law applies on a sliding scale. So generally if you include more affordable units you'll get higher densities and more flexibility. In the past six years state laws changed quite a few times and the city's local implementation ordinance of the state law needed to be updated. In particular a new bill from a year ago, Senate Bill twelve eighty seven, provides something called a supplemental bonus which allows developers to get a one hundred percent density bonus as long as they provide the required deed restricted units. So this component of CHIP is really focused on complying with state law but the city did make some other administrative improvements here and there that will hopefully improve the process and allow projects to get approved faster. Next up is the affordable housing incentive program. This program provides very significant density bonuses for affordable housing developments. This section also partially implements state law but with even better incentives and flexibility for developers. More ambitious is a program that incentivizes affordable housing in high opportunity areas. The California Tax Credit Allocation Committee, or TCAC for short, produces maps every year that take into account things like income, environmental quality, educational attainment, etc. And then they classify census tracts as either low, moderate, high, or highest opportunity. High and highest opportunity tracts tend to be wealthier, have better life outcomes on different measures, and they tend to be where the state wants to prioritize lots of new affordable housing. So within these high and highest and moderate opportunity tracts, most properties will get a fifty five percent floor area ratio bonus or four point six five, whichever is higher. And this is along with unlimited density and with some high bonuses as well. I actually think the affordable housing incentive program is pretty exciting and quite good in a lot of ways, but it was not the primary focus of our report because we believe the uptake will be somewhat limited by tax credit funding availability. We instead focus on the next suite of programs, which are the mixed income incentive programs, or MIP for short.

Shane Phillips 31:40
MIP. Yeah, go ahead. Don't mind me.

Aaron Barrall 31:46
Broadly, the mixed income incentive program contains three sub programs, the transit oriented incentive areas, opportunity corridors, and opportunity transition areas. The biggest of these is the transit oriented incentive area, which is fundamentally an extension and expansion of the existing transit oriented communities program, which I know we've talked about that on the podcast before.

Shane Phillips 32:08
Yup. Again, go back to episode fifty nine.

Aaron Barrall 32:12
These programs provide density, height, floor area, and design flexibility for projects near transit. Projects near higher quality transit, like train stations, get better bonuses and projects within high and highest opportunity areas and commercially zoned properties also get better bonuses under this transit oriented incentive area program. The opportunity corridor program only applies to large street with frequent transit in higher opportunity areas. Across the board here, the density is unlimited and the city set floor area ratios and height bonuses to effectively unlock five to seven story buildings, but because these only apply to a limited number of streets, the actual geographic area of this program is somewhat limited.

Shane Phillips 32:55
I would say more than somewhat limited. It is very limited. If you look at a map, you don't see much.

Aaron Barrall 33:03
And a lot of the opportunity corridor programs are also included in the transit oriented incentive areas too. You just get better bonuses, more permission, higher densities. So finally, there's the opportunity transition program. This is intended to unlock more of the missing middle housing types that we see in small scale multifamily projects. Things like six and eight plexes, bungalow courts, et cetera. It applies in lower density multifamily zones that are adjacent or proximate to these opportunity corridors. Again, it's tiered based off the distance from the opportunity corridor. So projects up to 750 feet away from the corridor can build six units, while those that are closest can build 16. There are very limited number of parcels that can participate in this program, but it's still exciting to see the city attempt to re-legalize housing that they've made illegal through different down zonings. So these only apply in RD, which is restricted density, and R2, which is duplex zones. Historically, if you look at these RD and R2 zones in LA, often these have expansive multifamily development there already, but the city has down zoned them in the 1980s, so it's hard to build there right now.

Shane Phillips 34:23
And I think it's another reason that the number of units actually delivered in some of these places might be pretty limited because quote unquote upzoning to allow an eight unit project or 16 units where you might already have six or eight or 10 units on many of these parcels is very unlikely to result in redevelopment. And we'll talk more about that for sure. Just to summarize though, so we have these three programs that are part of CHIP. You have the state density bonus law implementation. The reason we don't include that in our analysis, we just kind of incorporate it into the base line, is because it really is just the city complying with state law. It's not rezoning to accommodate more housing, it's just doing what the state already requires of it, and it actually got sort of a waiver or delay on implementation of this. I think you said this, Aaron, but just to underline, the reason we don't include the affordable housing incentive program, the AHIP, is at the end of the day, these projects, because they're 100% deed restricted affordable units reserved for lower income households, they cannot be built without subsidies and subsidies are really the limiting factor on these kinds of projects. So allowing them in more places will not produce much more housing of this type without more subsidies. And there's not really many prospects for more subsidies in the near to medium term future, certainly from the federal government, but also from the state government with a giant budget deficit. There's maybe some argument that by opening up this kind of development to more areas, the costs could fall a little bit, and so we can get a little more bang for our buck. I think that's plausible. But when we're talking about needing to build hundreds of thousands of more units, and currently we subsidize several thousand a year in the city, it's just not going to make that big a difference. And so that's why we really focus on this mixed income incentive program, which is projects that can be built and are built today as mixed income projects without subsidies by private for-profit developers.

Michael Manville 36:26
And I think it's important to, those are projects that get built today and they get built a fair amount for Los Angeles, but they aren't built that much because they are very expensive to build. And so I do think it's important to sort of put in context that like this program is insane. It's an example of the insanity that has led California to be a comprehensive failure in housing affordability, that looking in the eye of a massive supply shortfall where everybody agrees everything's too expensive, what you run headlong into is not an effort to just say, hey, we should be able to build more housing, but just a complete fetishization of income restricted housing that sort of makes that housing and providing that housing trump everything else, even though we know it's extraordinarily expensive to build. And if you just step back and imagine the US national government announcing that it was restricting all production of food and then conditioning extra production by farmers based on how much money they donated to the food stamp fund, we would all understand that that would be batshit insane. But in California, programs like this are just totally normal. And it's great that they were doing more than we used to, but it's a failed vision of housing affordability.

Shane Phillips 37:40
Yes. And I think that is sort of a point I make in episode 79 as well. You totally understand how we got here and why this feels like what is politically possible. But at the same time, you also, when you really think about it, you do recognize that at some level this is a dead end. They cannot provide everything we need. And until we actually commit to allowing whatever you want to call it abundance, making sure we can actually build enough housing broadly, and then complimenting that with adequate public resources rather than trying to have the 1% of homes we build every year, try to solve all of our housing affordability challenges for the 100% of people who live here, we're not going to get there.

Michael Manville 38:31
Yeah. What they're doing here is they're driving the bus off the cliff at 30 miles an hour instead of 50 miles an hour, and they want us all to give them an award.

Aaron Barrall 38:40
Well, I confess, Mike, I take a slightly more optimistic viewpoint than you, but I think you make a really good point and something that I should have discussed earlier, too, which is that for all of these mixed income incentive programs, there are some fairly high inclusionary housing requirements for low income housing, which is defined as 80% of the area median income. For essentially the lowest it would be, it would be 21% inclusionary, and this is based off the gross units, not base units, so it's higher than state density bonus in that way. This goes all the way up to 27% for low income. These are pretty high numbers, and so I think that we'll talk about that a little more later, but it's certainly worth acknowledging.

Michael Manville 39:24
And I'm sure you can count on one hand the number of people in the city who actually worked out how expensive those doors would be to provide in those buildings. And by one hand, I mean no hands.

Shane Phillips 39:36
Yeah, I'm not sure what the analysis for that looks like, and I think generally speaking, the analyses that are done for that are sort of a paper exercise that no one fully believes in. It's funny, though, Mike, you said that we are slowing the bus down from 50 miles an hour to 30 miles an hour, because in speed, if the bus goes under 50, it explodes. So maybe that's not exactly what we want. But it is L.A. That's true. That's true. Okay, so we've introduced these scenarios pre-chip, post-chip, essentially taking the state density bonus as a given, putting aside the affordable housing incentive program. What is the mixed income housing incentive program actually accomplishing? Now is your chance to show off a bit and tell us how you did this analysis, because it really was all you. We've got parcel data for L.A.'s 800,000 parcels from the county assessor and existing and proposed zoning for all of those parcels from the city planning department. What comes next?

Aaron Barrall 40:43
First, we joined the eligible program based off the city's available maps. We used the city's maps here instead of creating our own, just so that our analysis would be consistent and comparable with whatever the city produced, since this was essentially an independent evaluation of the city's own plan. So to begin with, we excluded areas that were exempt from CHIP. These include neighborhoods like downtown Los Angeles, Boyle Heights, and there were a few others, too. And for the bulk of this report, we also didn't include zones that were ineligible, basically those for single-family homes only or for heavy industry. The intent of this report is really to understand how the citywide housing incentive program specifically is changing development capacity without being distorted by the bulk of Los Angeles' zoning capacity, which really is for single-family homes only. We took the base zoning and calculated potential capacity on each parcel in two ways. First, we looked at density. We can calculate the allowed units by multiplying the units per acre of density by the parcel size. Now, in Los Angeles, though, commercial properties tend to have very high densities, but very low floor area ratio allowances. So while it's possible to theoretically build up to the density limits, it's often practically impossible because builders are just not allowed the structure volume that they need to do it. We also calculated a reasonable estimate of floor area ratio-based units. To do this, we assumed an average of 800 square feet per unit and an overall building efficiency of 85%. These are sort of rule of thumb assumptions that capture different types of buildings, but they seemed reasonable after we talked to some developers and land use consultants that work here in Los Angeles.

Shane Phillips 42:31
And we actually looked at the building size and number of units of buildings built over the past decade or so. We did. That was about where we landed was the average was around 800, 900 square feet. And then if you take into account the building efficiency, the 10 or 15% of the building that's just for circulation and for elevators, equipment rooms, that kind of thing, you end up around 800 square feet.

Aaron Barrall 42:55
Yeah. And so this 800 square feet is a balance for the FAR limited density. The theoretical capacity could be much higher in some situations if developers only provided micro units that were all 250 square feet. But we don't see developers doing it that much right now. So we calculated these capacities, both density and floor area limited for every existing and rezone program, including the state density bonus, the transit oriented communities, transit oriented incentive areas, et cetera. And then for each of these programs, we took the lower of either the floor area ratio based density limit or the actual hard density estimate to figure out the realistic maximum development potential on a given parcel. So to demonstrate how this would work, we consider a 7,200 square foot parcel with a base zoning allowance of 29 units per acre and a floor area ratio of 3.0. The density limitation would be rounded to five units for the base zoning. And since density bonus allows a 100% bonus now, then the state density bonus would have a potential of 10. Now if we assume that this parcel is within a high opportunity area and it's near a train station and adjacent to an opportunity corridor, then under the transit oriented incentive area program, it would have unlimited density and a 45% floor area ratio bonus. So based on those parameters and after accounting for the required setbacks, we estimated that this property could potentially fit 21 units within its floor area. Under the opportunity transition area program, this would allow a hard cap of 16 units. Since opportunity corridors and transition areas are mutually exclusive geographically, the potential under the opportunity corridor program for this example parcel would be zero. So within these program buckets, that is the existing capacity and the mixed income program, we took the highest number of units that would be allowed on each parcel. So in this example parcel case, state density bonus law is the highest of the existing programs because it allows 10 units. So we would assume 10 as the baseline for existing capacity. And then for the mixed income incentive program, transit oriented incentive areas allows the most and so we would classify this as 21 units for mixed income. And then that allows us to compare before and after to see how the zoning is changing and what the capacity is before and after.

Shane Phillips 45:25
All right. So we have this before CHIP estimate based on whether the state density bonus law or the TOC program provides the most capacity and the post CHIP estimate of whether it's the state density bonus law, the TOIA program or the opportunity corridor or opportunity transition program. Really quick, what is the gross capacity in aggregate for the whole city for all these affected parcels for both pre and post CHIP?

Aaron Barrall 45:55
Under the existing policy, we see a gross capacity of about 3.7 to 3.8 million units. And then under the mixed income incentive program, that goes up to 4.4 million units. This is a 17% increase in terms of gross capacity between existing and the mixed income incentive program. Right. About 650,000 units.

Shane Phillips 46:19
And I think it's worth dwelling for a minute on how the city's zoning theoretically could accommodate 3.7 million total homes in these multifamily and commercial areas even before CHIP. We have today about 1.5 million existing units across the city. So there's room for more than twice that amount on paper. And that's not even including some places with a lot of capacity like downtown, which is not a part of this analysis and not a part of the CHIP. I'll note that these are not precise estimates, but I do think we're confident that we're in the right ballpark on these estimates. Yet despite all of this capacity on paper, we've only permitted about 15,000 units per year on average over the last decade. And many of those were accessory dwelling units and mansions replacing older single family homes. In 2024, in fact, that was actually the first year where the city permitted more ADUs than multifamily units, about 9,000 of each, which is partly because multifamily is sharply down from its peak of 14,000 units in 2022 and partly because ADUs have continued a pretty inexorable climb from fewer than 100 per year permitted prior to 2016 and just gone up and up and up since other state laws have made them more viable across the state. But anyway, that is important context, but a bit beside the point. The point is we have all of this capacity theoretically, but it is not translating into homes in the real world. So that brings us to our second set of estimates, what we call net realistic capacity. Contrast that with gross capacity. What makes it net and what do we mean by realistic?

Aaron Barrall 48:02
There are really two major components to this. The first is removing the number of existing units. So we're only counting the net gaining capacity, which is required by state law. And in this bucket, we also exclude properties that are exceedingly unlikely to be redeveloped for housing in the near term. I'm not going to go through the whole list of exclusion factors here, but we did things like remove condominiums, parcels that are intersecting protected open space, and properties that have new buildings on them already. We looked at the existing uses, including the number of units and the square footage that are already there, and then what would be allowed. And we assumed that properties that could at least multiply the number of existing dwelling units by five or the floor area by 2.5 were just unlikely to be redeveloped. And this is based off of some ongoing work that we're doing assessing development history within Los Angeles itself. The reason we chose these two factors were because they indicate that the existing structures are very significant, and we know that properties with large active uses are unlikely to be rebuilt for housing soon. We also took out parcels and historic preservation zones, even though some of these could potentially be redeveloped, they're more challenging to do, and parcels that are being used for things like schools and hospitals. Again, that's not the whole list, but that should give you a sense of the types of parcels that we took out.

Shane Phillips 49:25
And I do just want to emphasize that, you know, there's many, many cases where you will have a, let's say a four story apartment building, and the pre-CHIP zoning policy allowed four stories, and post-CHIP allows six stories. This is just a made up example, but this kind of thing is seen all over the place. Those extra two stories are not going to be enough to motivate any developer to redevelop that project. There are very narrow circumstances where these kinds of things happen, but it is, as Aaron said, exceedingly rare. It just does not make financial sense in almost any case to tear down a four story building just to build a six story building, unless that building needs to be torn down for other reasons already, and not many other cases. There's also situations where you have a prior down zoning, where you might have a 10 story building or a 13 story building somewhere. The current policy allows for six, and then it's up zoned to eight. In that case, even the post-CHIP up zoning has not actually increased capacity beyond what is there right now. Again, this is not an uncommon scenario, and if we were just to look at, oh, you could build six stories before and eight after, if you counted that increase, you would be misleading the reader to say that this is meaningful capacity that we've added in the city.

Michael Manville 50:53
This is exacerbated by, in almost all instances, it was six stories before, now you get eight. If you build that eight story building, a bunch of your units now have to be subsidized. You're, by definition, not going to make money on all those extra units. Some of them have to be carried at a below market rate. It's like Chris Elmendorf says, it's like, yeah, we give, but then we take. You can't act surprised when people don't take you up on that.

Shane Phillips 51:24
Right. I think an important point there is giving and taking, if you give 100 and you take back 80, just to put some random numbers to it that mean nothing, that's making development more attractive than it was before, but you really do need to take into account how difficult and how few homes are being developed right now, how unattractive it has been for a long time and so these marginal improvements in the appeal or the financial feasibility or attractiveness of redeveloping a property are probably not going to be sufficient and that is somewhere where we're going there.

Michael Manville 52:06
Yeah. I mean, one way to put this just to put a pin on it is that in most instances, if you own an existing building in Los Angeles, the absolute best thing to do is operate that existing building. You don't have to take it off the market to redevelopment. You don't have to put yourself through an arduous regulatory process that might invite requirements you don't even anticipate and you own a building in a dynamic region where there is a shortage of building space. You're doing fine. Right. So to pry a site out of the market for existing buildings and put it into the market for development, you have to dangle something pretty enticing and the embedded hostility to market rate development that permeates most of coastal California makes that impossible.

Shane Phillips 52:50
Right. So Aaron, on the net realistic capacity estimates, what were the results pre-chip and post-chip?

Aaron Barrall 52:59
We see that the existing capacity is about 1.33 million units and then the mixed income incentive program is about 1.7 million units. So ultimately, the mixed income program increases net realistic capacity by roughly 380,500 units or 30%. There are relatively few existing units on these more realistic properties, only about 77,000, which sounds like a lot, but compared to the 1.7 million, it's actually not that much. Most of the net realistic capacity is on properties that are commercial or have very low intensity residential development on them already.

Shane Phillips 53:41
Yeah. And we presented this research on campus back in February and there is a video which we can link to of that presentation. And during that presentation, we got a good question from Minji Kim, our new UCLA colleague and a previous housing voice guest. Check out episode eight. It is a good one. She asked about whether we also considered feasibility and I think it would be useful to explain the distinction as we see it between a realistic project and a feasible one. Could you field that question, Aaron?

Aaron Barrall 54:13
Yeah. So I think Mike just touched on it very effectively, but the fundamentals are that there are a lot of factors that go into whether a particular parcel is actually feasible for redevelopment, including the number of units that are legally allowed on it. But other factors like interest rates, construction costs, inclusionary requirements, and transfer taxes, they can be large constraints to project feasibility here in Los Angeles. The point is that even parcels that meet our screening criteria as realistic might actually not be profitable or generate sufficient returns to trigger redevelopment. This is an area that we didn't evaluate for this project, but considering parcel level feasibility would get us a more precise answer. This is what the UC Berkeley Turner Labs does in effect with their housing policy tool.

Shane Phillips 54:59
Yeah. In some ways, net realistic capacity is the more generous lower bar estimate where it's holding each project to a lower standard. I think for a project to be feasible, it has to also be realistic by our definition. But if it is realistic, it is not necessarily feasible and I think very often will not be feasible for one reason or another. One argument we make in favor of using this net realistic estimate, aside from it just being simpler, is that it is not subject to changing market conditions and something that's going to change day to day, year to year, be very dependent on who owns the property, and so the property tax assessment that they are facing that will be different from someone who buys it in the future. There's just a lot that you really cannot fully incorporate if you're trying to look at feasibility, but by sticking to this net realistic capacity, we're kind of being conservative in a sense, generous with our estimate, but also being more, I guess, even handed or approaching it in a more standardized way where everyone is being treated the same. Right. Using our net realistic capacity estimate, CHIP gives us an absolute increase of about 380,000 units and a percentage increase of almost 30%. By this metric, LA is hitting its 255,000 unit rezoning goal, but I think that is not the whole story. We don't evaluate feasibility at the parcel level, but we do address it in a simple way by looking at what we call marketeers or what really AECOM calls marketeers. Give us a quick primer on where these marketeers come from and what they mean, and then tell us how all this capacity is distributed among stronger and weaker markets throughout the city.

Aaron Barrall 56:54
As the city was moving forward with the CHIP process, it contracted with a large consulting company AECOM to assess market feasibility of redevelopment for different building typologies across various neighborhoods in the city. AECOM started by classifying neighborhoods into what it calls marketeers, which range from one to four. A neighborhood with a marketeer of one would indicate that that neighborhood probably has lower rents or home sale prices than one that was classified as a four, where developers and landlords can request higher prices. This is, of course, a very simplified version, but that's the general idea. The report found that development in marketeers one and two was generally infeasible, three was sometimes feasible, and four was mostly feasible. But it is also important to note that this market study was conducted over the summer between the second and the third drafts of these programs, and to my knowledge, AECOM and the city haven't reviewed the CHIP ordinance as adopted yet, though I do think on that note that the city took into account the results of this market study and actually increased bonuses between the second and third. So it's possible, and in fact likely, that the CHIP that was adopted is probably more feasible than the one that AECOM evaluated, but we just don't know the details there. So within that context, we looked at where capacity was changing relative to these neighborhood marketeers. So for example, we know that if most of the capacity is being added in neighborhoods that are classified as marketeer one, there's a low feasibility for redevelopment, and we wouldn't expect the CHIP to result in a ton of new housing there, and vice versa for if most of the capacity was concentrated in tier four neighborhoods. We see that roughly 40% of new capacity is added in tiers three and four, and 60% in tiers one and two. By and large, most of the existing and new capacity is located within these lower marketeers. However, the largest percent increase is tier four, which has a change of almost 46%. So I would consider the results here a little bit of a mixed bag, and I would also note that I have some questions and a little bit of skepticism about how these marketeers were defined and then the resultant map. For example, both Sherman Oaks and then the Encino-Tarzana neighborhood, which are relatively affluent neighborhoods in the South San Fernando Valley, are classified as marketeer one, and they're consequently grouped with much lower income neighborhoods in South Los Angeles. My intuition is that there's some nuance here, and the point isn't that these marketeers aren't instructive, but to understand that there are probably some limitations to what they can tell us.

Shane Phillips 59:38
So as you say, Aaron, the AECOM marketeers are a little bit questionable in some ways, and I think maybe part of that is coming from the fact that they seem to be not just looking at the actual market characteristics of an area, but also the types of housing that would be allowed there or that CHIP would allow there, which is really two different issues. Something that does not do that is the opportunity map categories that you brought up earlier, the low, moderate, high, and highest resource neighborhoods that each census tract across the whole state is categorized by. So I think these might actually be a pretty good proxy for stronger markets in the city and maybe a good alternative metric for assessing feasibility. We also looked at the results there where this capacity fell into each of these four different opportunity categories. So what were the results there?

Aaron Barrall 1:00:32
We see that most of the existing and future capacity is located in low resource census tracts, but that is tempered by big changes in the high and the highest resource census tract categories. We see that the high resource census tract, which has an existing capacity of about 171,000 units, that actually increases by 115,000 units, or an increase of 67.7%. The highest resource category has a baseline of roughly 232,000 units, and the capacity there increases by 194,000 units, or an increase of 83.8%. So what this is really telling us is that while most of the capacity, both existing and future, is concentrated within these lower resource neighborhoods, most of the new capacity and the increased potential is happening within high resource and highest resource census tracts. So that's something that's what we would want to see if we're looking at where housing could be feasible and where we want to see new capacity in terms ofAffirmatively Furthering Fair Housing.

Shane Phillips 1:01:44
Yeah, and I do think in some ways this is maybe the most impressive or appealing part of CHIP to me, and I do think it is worth lauding. There's many shortcomings, Mike has detailed them pretty clearly here with CHIP, with pre-existing zoning, but it does feel like something of an inflection point to actually be increasing capacity more in higher resource neighborhoods than low resource neighborhoods. That has just not been something that Los Angeles or really, I think just about anywhere in the country has done for generations, really. And so, as a starting point, and we should be far past starting points, but as a starting point, I do think it's worth acknowledging, we will get back to being critical in our next episode, but I think this is the point to close out. We're going to talk more about the Affirmatively Furthering Fair Housing elements of this. We're going to talk about some bigger picture lessons from all of this and a few more findings as well. We're going to talk about the single family results. All of that will be coming in the next episode. Mike, thank you for co-hosting on this one. Next time we're going to have Paavo co-hosting because he's done a lot of the work on the fair housing research side of our research agenda. Aaron, thank you for joining us and taking all the time for this first episode and agreeing to take almost as much, maybe even more next time in just a couple of weeks.

Aaron Barrall 1:03:10
So thank you. Yeah. Thanks for having me. This is really exciting, especially after working with you for a while and listening to this podcast for even longer. It's really exciting to actually be on and being able to share some of the work that we spent so long putting together.

Shane Phillips 1:03:23
Yeah. Great to finally have you on the show and not just once, but for a double header. Double header. Thank you. You can find a link to all the Lewis Center's work on our website, lewis.ucla.edu. Show notes and a transcript of the interview are there too. The UCLA Lewis Center is on the socials. I'm on Blue Sky at ShaneDPhillips and Mike is on Twitter at MichaelManville6. Thanks for listening. We'll see you next time.