L.A.'s Apartment Boom.

CONSTRUCTION ON RISE, BUT AFFORDABLE UNITS REMAIN EXTREMELY SCARCE

GOT a plump wallet? Looking for a fancy apartment? Welcome to L.A.

As for the rest of you, tough luck renting in a market like this.

Apartment construction in L.A. County remains steady at the highest levels since 1990, according to the most recent statistics compiled by the Construction Industry Research Board. Much of the activity is taking place near the urban core of Los Angeles, where the early success of new residential projects has some developers heralding a new era for L.A.'s inner city.

But industry observers say new apartment construction is doing little to help fill a desperate need for affordable housing that has been growing since apartment construction bottomed out in the 1980s.

About 40 percent of the permits for apartment construction pulled this year to date were in the city of Los Angeles, mostly in communities near downtown L.A.., said Ben Bartolotto, a researcher with the Construction Industry Research Board. There were permits for 3,090 apartment and condominium units pulled countywide in the first five months of this year, up from 1,946 during the same period in 1999.

"There's apartment building (activity) everywhere, but the largest projects seem to be closer in," Bartolotto said.

The reason is simple, said Dennis Cavallari, senior vice president of Legacy Partners: L.A., where most land has already been developed, must now embrace high-density infill housing to meet demand.

"We try and pursue well-located infill sites that are close to employment centers, that are in upscale neighborhoods, and we try to build toward the high end of the market," Cavallari said. "You can't build low-end housing in any of those locations because the costs are way too high (for the rents to cover land-acquisition and development expenses)."

Legacy Partners is building a number of complexes, including 187 apartments in West-wood, expected to open in October; 350 apartments on Colorado Boulevard in Santa Monica; 579 units in Woodland Hills; and it is set to break ground soon on 188 apartments in Studio City.

Builders with projects near downtown L.A. say they're filling a need for a home in the heart of the city, free from commutes and tire-some lawns, just blocks away from work, restaurants and life's other amenities, said Tom Gilmore, manager of Gilmore Associates. His company is among the major developers active in L.A.'s urban core, rehabilitating existing buildings into loft-style apartments.

"Housing hasn't been redefined for this era yet," Gilmore said. "The mode is changing for housing in L.A., and I think everybody is caught with their pants down on this one."

The first building of an apartment complex that Gilmore is building in the city's old financial district, with 70 of 250 planned apartments, is set to open in August. That building is 40 percent pre-leased, company officials said.

Apartment shortage

At $900 for a small one-bedroom unit at the Gilmore project, the rents of L.A.'s new apartment stock aren't outrageous. But they're well beyond what most L.A. residents can afford, and affordable housing boosters say that on its current course the trend threatens to impede economic growth in the region.

The emphasis on high-end apartments is encouraging an unhealthy mix of rental housing in the market, said Joe Carreras, manager of community planning and economic development for the Southern California Association of Governments.

The health of the region's economy is directly tied to its ability to provide affordable housing, according to Stephen Cauley, associate director of the real estate center at UCLA's Anderson School. That's because the jobs of low-income people -- often blue-collar workers in such trades as construction, retail or manufacturing -- are critical to keep the economy diverse and functional.

As a result, multifamily housing is one of the region's most pressing social and economic issues, Cauley said.

"It's just plain economics," Cauley said. "If you don't have housing for people, it's awfully hard to have economic growth."

Since the construction of new apartments bottomed out in 1993 -- dropping to World War II levels -- overcrowding has gotten worse, especially in the county's southern cities, Carreras said. Meanwhile, the amount of money people are spending on rent as a percentage of household income has risen sharply. Almost 476,000 of 753,463 households in the city of Los Angeles suffer from either overcrowding or rents higher than one-third of household income, according to a 1999 SCAG housing needs assessment.

Despite the lack of new affordable units hitting the market, more than half of Los Angeles County households are renters, Carreras said. The existing demand for low-cost units simply can't be met, and that means younger residents will be pushed out of L.A. -- or forced to live in worsening conditions.

"At some point it's going to have an impact, and it's not going to be positive," Carreras said.

Multifamily housing conference

A conference planned for October, the second UCLA Anderson Real Estate Center Multifamily Housing Forecast Conference, is set to explore the factors that impede the construction of affordable apartments. Mayor Richard Riordan is set to be the keynote speaker.

Like housing prices, apartment rents are reaching the levels seen at the height of the last real estate boom, excluding inflation, said UCLA's Cauley. Almost all apartments that are not subsidized are being built for the high end of the market, and there's simply not enough state and federal subsidies out there to handle the need for affordable housing, he added.

"They're just not making money building those things right now," Cauley said.

SCAG's Carreras points to a range of issues that need to be addressed, not the least of which is the virtual freeze on the construction of new condos after a rash of lawsuits prompted insurance companies to shy away from covering them. Other issues include a need for tax credit programs and fiscal incentives for cities to encourage development of affordable housing stock.

Cauley argues there is a need to overhaul municipal ordinances by streamlining the approval process, restructuring zoning requirements, and easing some limits, such as parking restrictions, in areas where they are not needed.

"We've got a set of regulating laws, each one of which has a good purpose," Cauley said. "The problem is, they really are preventing the provision of housing for people at the lower end of the economic spectrum. Is it better to have people move out of Los Angeles? Is it better to have two, three families in an apartment?"