Four years after Los Angeles voters approved Measure JJJ, which mandated a program that incentivizes affordable housing developments near major transit stations, building permits are rising in qualified neighborhoods. According to a study by the Urban Institute and the USC Sol Price School of Public Policy, new research reveals that the program offers more long-term profit potential than market-rate apartments in many neighborhoods.

The program, now known as the Transit-Oriented Communities Affordable Housing Incentive Program, encourages affordable housing within a half-mile of major transit stops by allowing additional density in exchange for providing affordable units. As a result, qualifying developments can build more units to replace – or even exceed – revenue lost by reducing rent.

The study, “Los Angeles’ Housing Crisis and Local Planning Responses: An Evaluation of Inclusionary Zoning and the Transit-Oriented Communities Plan as Policy Solutions in Los Angeles,” finds that the program has increased the approval rate of building permits in TOC areas compared to the preceding density bonus program. It also projects that TOC-eligible projects in many neighborhoods will be more profitable than exclusively market-rate developments. The John Randolph Haynes and Dora Haynes Foundation funded the study.

“The TOC program successfully balances financial incentives that attract private construction of affordable units without giving developers a windfall,” said lead author Linna Zhu, now a research associate with the Urban Institute. “While alone it won’t solve the housing crisis in Los Angeles, our study indicates that it is part of the solution and a roadmap for policymakers in other cities facing housing crises.”

To be considered affordable, a household must spend no more than 30% of its income on housing. By that standard, Los Angeles has a shortage of 566,000 affordable units. Yet, Los Angeles County permitted only one unit per 3.2 new jobs in 2019, which is 44% below the national average of one per every 1.8 jobs.

As a result, the study contends that Los Angeles’ affordability crisis owes primarily to a supply problem. While the study concludes that no single program will close the affordability gap in Los Angeles, the examination of the TOC program shows early signs of success.

To measure the TOC program’s effectiveness, a team of five economists created data models and financial simulations, including a series of analyses that forecasted 13 years of cash flow on 20 hypothetical developments located throughout the city. The economists assessed affordable and market-rate developments in TOC zones to determine which type of housing was the better investment.

Though the results varied according to each neighborhood’s real estate market’s strength, the team confirmed that most TOC-eligible projects would be more profitable than 100% market-rate developments.

The full study is available at huduser.gov/portal/periodicals/cityscpe/vol23num1/ch5.pdf.