Los Angeles Housing Department (LAHD) response to the LA City Controller’s third annual Proposition HHH audit

HHH funds were approved by voters to build 7000 units alongside the usual 3000 units in the City’s pipeline of housing to end homelessness. As of the end of 2021 there are 8,000 HHH units in the pipeline1, and the City continues to fund on an annual basis 300 non-HHH supportive housing units. HHH will exceed the promised production by 26%.

Tenants of PATH Properties

The most recent audit once again found no concerns or irregularities. The Controller’s office offered generous guidance and assistance in working through roadblocks such as speeding up wage compliance approvals, and project funding at escrow closing.

The Housing Department strongly disagrees with the audit headline that “problems overshadow progress”. In a year saturated with soundbites, the people of Los Angeles need facts.

Construction Costs. The 2020 audit noted that the median total development cost per unit was $549,608; this year the median rose 5.5% to $580,155. In the same twelve months the National Producer Price Index for Residential Construction Costs rose 17.6%. Costs for HHH or any affordable housing development need to be put in the context of costs for equivalent market rate developments. Even a quick google search of “multifamily construction costs in California” produces data backed reports from the Terner Center at UC Berkeley, the UC Riverside School of Business, and others showing that market rate construction in all of California, and particularly in Los Angeles and the Bay Area, has reached staggering heights. By failing to acknowledge the market context the audit makes it seem that HHH costs are unreasonable, and that it is impossible to identify a feasible plan to produce the housing we need.

Comparing high quality apples to high quality oranges: HHH projects are expected to remain affordable and well-operated for decades. So in addition to high quality materials and design, each project includes prevailing wages, higher energy efficiency standards, operating and replacement reserves, furniture and fees that market rate projects would not include.

Leveraged Funding and Broader Goals: The average City investment for a typical HHH unit is $133,000, and the average total development cost per unit is $557,492. There are twenty-five projects in the pipeline that are receiving funding from programs that encourage housing projects to include more features to reduce greenhouse gas emissions, or more community-serving facilities like grocery stores or child care. These programs pay for these additional features, so the average development cost is higher but not the HHH investment.

The headlining “sound bite” project – with total development costs of $837,000 identified in the audit, is on publicly owned land owned by LA County. The 62-unit Vermont Manchester Senior Housing development is part of a larger project. The Vermont Manchester Transit Priority Project, which includes multiple uses on a shared seven story structure with a store, extra parking requirements, supportive service spaces and a community kitchen.

Financial Commitment Process: Each HHH project goes through rigorous vetting, through the Citizens’ Oversight Committee, the Administrative Oversight Committee, the Homelessness and Poverty Committee, and the City Council and Mayor’s approval before being issued a conditional loan commitment. All HHH projects undergo a last financial review at construction loan closing. Details of each housing development can be viewed on the Prop HHH Progress Report, including downloadable data that is updated monthly.

Re-Allocate Funds for Interim Housing: Although the audit notes that only $58 million of HHH funds were used for interim housing in the past two years the City has invested more than $860 million from other sources in producing and operating 10,000 interim beds, ranging from congregate shelters to Tiny Home Villages and others. To keep these open the City would need to allocate $237 million annually for operating costs. While interim housing is needed for immediate relief, permanent housing is not only a better financial investment in the long term; it is what moves people from homelessness to being housed. The City has invested in both approaches with different funding sources.

Streamlining and Innovations: The audit recommended extension of some streamlining and innovative approaches that are in place and being developed, including the streamlining and CEQA protections of the PSH Zoning Ordinance and AB1197; the funding innovations to support modular development: and the purchase of ready-to-occupy buildings.

Tenants of Skid Row Housing Properties

Stay the course and deliver on promises: The HHH program is almost complete; within the next few years all the projected HHH homes will be built and occupied. HHH provided important resources for the City to address homelessness but it was always only a part of the solution. It will deliver more units, ahead of schedule, at a lower per unit cost from the City than planned in 2016, but it is only the first stage. Rather than complaining that HHH alone won’t be enough to end homelessness for 40,000 people in need, it is time to plan and lead the next stage of this work.

View or download LAHD’s response to the audit here.

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