An Audit Lays Out What’s Gone Wrong with L.A.’s Homeless Housing Measure

The city controller’s office examines how voter-approved Proposition HHH became a historic debacle in the making

In 2016, Angelenos voted overwhelmingly to approve what became the city’s signature bond measure to build thousands of units of housing for the homeless. Three years later, the handwriting is on the wall: Los Angeles is plainly not keeping pace with a growing crisis.

This week, L.A. City Controller Ron Galperin released the most authoritative reckoning to date of Proposition HHH, the $1.2 billion affordable housing bond program. The audit lays out the disappointing effects that permitting delays and cost increases have had on a program once touted by city leaders as a means to build an estimated 10,000 supportive housing units for the chronically homeless.

Not a single bond-funded unit of homeless housing has opened since voters approved the bond measure three years ago. The first two of 19 projects under construction are expected to open by the end of this year. Even if all goes according to plan, no more than 239 affordable units are expected to be open by the end of Year 3. The units take anywhere from three to six years to complete, a length of time which, the audit noted, “does not meet the level of urgency needed to match the magnitude of our homelessness crisis.” Homelessness in the city has increased 30 percent since 2016, with more than 27,000 people going unsheltered in the city each night.

In the meantime, affordable housing has ceased to be affordable at all. Today the median cost to build a unit of homeless housing is only slightly less than the sale price of a market-rate condominium or single-family home, the audit found.

Los Angeles reported in March that the average total cost of a unit of homeless housing under the HHH program—first projected at $350,000—had exceeded $502,000 by early this year. There are more than 1,000 units in the HHH pipeline whose cost will exceed $600,000 each, and one project in which the cost per unit tops $700,000, Galperin said in a statement.

The dramatic increase in construction cost has led to an equally dramatic decrease in the number of bond-backed housing units expected to be built for the homeless. The initial target of 10,000 supportive housing units—which still appears on the website of Mayor Eric Garcetti’s office—was reduced to 5,873, a reduction of 41 percent. (An additional 1,767 units of affordable housing and manager units will also be built, but without specialized services that classify them as “supportive” units for the homeless.)

A public-housing debacle of this magnitude is attributable to many factors: the soaring cost of construction labor and materials, losses in federal tax credit funding, and bureaucratic red tape, to name a few. But Galperin’s report does not spare the city leaders a share of the blame.

In the first place, not everything about the cost increases was due to forces beyond the city’s ability to control. An eye-popping 40 percent of total cost came from what are known as “soft costs,” things like development fees, consultant fees, and financing, which the audit calls “unusually high.” (Construction cost, by comparison, was 49 percent of the cost.) Cost of land in Los Angeles accounted for just 11 percent.

The city also sold HHH bonds long before the proceeds would be used to build homeless housing, creating a situation in which taxpayers incurred at least $5.2 million in excess interest payments through the fiscal year that ended in June.

To date, no single City department is responsible for program-wide Proposition HHH accounting decisions.

The audit finds fault with the city for not moving quickly enough to fast-track the approval process through various city departments. It took until this year for the city to hire an “HHH manager” and form a task force out of the Mayor’s Office to help shepherd the 60 projects through the pre-construction approval process. “[G]iven the City’s longstanding challenges in these areas, it is unclear why this did not occur sooner,” the audit reads. To date, no single City department is responsible for program-wide Proposition HHH accounting decisions. “The lack of centralized authority may present challenges in the future, as additional funds are spent.”

A Los Angeles analysis found that the first 25 projects funded by HHH were delayed by an average of 203 days past their estimated start date: the shortest holdup was 28 days; the longest, 424. The city council did pass an ordinance last year that would have allowed it to speed up land use approvals for permanent supportive housing projects, but NIMBY lawsuits have tied it up in court ever since. The state recently passed a law that would exempt permanent supportive housing projects from parts of the California Environmental Quality Act, which has been the basis of many such lawsuits.

The citizen panel that oversees HHH has led an effort to develop alternative construction models (like shared and prefabricated modular housing) and financing (including from the private sector) as ways to get a handle on delays and cost. In January, the city set aside $120 million for a program to produce 975 new supportive housing units in less than two years at an average cost of around $350,000 per unit. The shorter timelines and lower costs are attractive, but it remains to be seen if the state and federal governments will agree to fund these novel approaches to homeless housing construction.

Considering that the city has already conditionally awarded nearly all of the remaining funds from the bond program, the audit would appear to be more of a post-mortem than a course correction. (Homeless advocates have been calling for an audit of since 2017. The ballot language of HHH allows an audit of the program “each year bonds are outstanding or proceeds remain unspent.”) But Galperin says that it is not too late to maximize what remains of the funding.

“[T]here is still an opportunity to review the expensive projects, determine what can be done to make them more cost effective, and then implement changes to the process that will achieve that goal,” he said.

RELATED: Will a Measure to Help L.A.’s Homeless Become a Historic Public Housing Debacle?

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