What’s the Solution to LA’s Dire Housing Crisis? A Local Expert Weighs In
In the aftermath of the devastating blazes in January, residents expect quick results. EGRE's Richard Rubin knows how to expeditiously create more homes.
In the wake of the devastating wildfires and subsequent mudslides, Southern California’s already dire housing crisis reached a critical level. Tens of thousands of displaced residents are still searching for housing in a strained market, with the sudden increase in demand leading to a fierce competition for available units and growing concerns over affordability.
Multi-Housing News caught up with Endeavor Group Real Estate Managing Partner Richard Rubin, a real estate expert and Los Angeles resident, about the wildfires’ impact on rental availability, pricing and the broader housing market. Rubin believes the crisis serves as a turning point for a more resilient, long-term housing strategy in Southern California, and sees office-to-residential conversions as a quick solution to the urgent need for housing.
READ ALSO: Where Office-to-Resi Conversions Are Growing Most—and Why
How much has demand for rental properties increased since the fires and the mudslides?
Rubin: Just to give an indication: It is estimated that some 10,000 homes were destroyed in Pacific Palisades and Malibu. So, this leaves a vacuum of probably, on average, some 25,000-40,000 people needing a place to live. Then there is the matter of if people would choose to move back to these areas even as they are being brought back to life. This is not taking into account the Altadena community where thousands of homes and businesses were destroyed.
A friend of mine who happens to be in real estate lives in an apartment in Brentwood. There was one apartment available for rent in her building. After the first Palisades fire, there were 76 enquiries in one morning and a victim of the fire paid the entire year up front at 20 percent above market. These stories are all too common. Price gouging penalties are difficult to enforce as one tries to establish ‘fair market value’ in this market.
With competition for housing so fierce, how much have rental rates increased in the affected areas?
Rubin: It is a perfect storm really, 300,000 unhoused in California, a statistic that is significantly underreported based on a host of factors, juxtaposed with the public sector’s inefficiencies, the insane amounts of bureaucracy, exclusionary zoning, prohibitive build costs, cost of capital today, with debt and equity and now these fires.
There was an article that I read recently which said that for every $1,000 of monthly rental, that figure is now north of $2,000, which is just ridiculous. So, a $2,000 studio is now $4,000. Some of the more affluent folks who had homes destroyed and are not dependent on insurance payouts and relief from mortgage payments from lenders, are apparently purchasing other luxury homes in neighboring communities for cash.
As both a local and a real estate specialist, what’s the magnitude of the reconstruction efforts needed in the area? What’s your assessment?
Rubin: I would say nothing in our lifetime has come close to this. It would be akin to rebuilding The City of Rome at the height of its powers, just on a larger scale, and The Olympics and Soccer World Cup loom. So, there is not only the infrastructure, which is needed to be rebuilt, reservoirs and fire department updates required, businesses rebuilt, there are tens of thousands of homes to be rebuilt.
What immediate steps should be taken to house displaced individuals, and how does adaptive reuse fit into the short-term response?
Rubin: There needs to be rapid fire housing solutions from federal, state and city levels. There is no silver bullet. The private sector needs to be allowed to act expediently without the usual nonsense in order to get plans looked at and approved.
There needs to be a focus on disused commercial assets and creative solutions to cater to the unhoused but also to market-rate housing. Workforce housing probably has the most acute need, but it is also the most underfunded. Before the fires, the situation was dire all across the state. Now things have become more scarce and much more expensive. The legislators need to attract developers to all areas, not only in the affected fire areas but throughout Southern California.
Do you have any data about the number of office buildings that could be converted to housing?
Rubin: Multiple properties—not only commercial office—could theoretically be converted into housing, clustered around the various areas affected by the fire, stretching from Orange County to the south to Oxnard in the north. There are more than 500 properties that range from a minimum of 35,000 square feet—the minimum square feet for density and economies of scale in conversion terms—up to 1.5 million square feet.
There would be little to no housing crisis—excluding the unhoused with acute substance and mental issues and even for them there is space, but a lot depends on the provision of support services which is not a direct real estate issue—if the properties were converted into housing. There is a lot of misconception about the lack of viability of commercial office conversions. However, at the basis, that one can procure this type of real estate. Assuming the red tape is removed, they should be very viable targets for housing.
It sounds like converting office to residential could not only add much needed housing, but also help LA County office landlords solve their vacancy problem. Isn’t this a lengthy process? Is there any way it could be accelerated given the urgent need for housing?
Rubin: Firstly, there is the misconception that conversions are as expensive as building out of the ground but may have a time benefit. This is factually inaccurate and is buoyed by some fact in that the assets were too expensive previously. Inefficient floorplates, which one was paying top dollar for previously, are now significantly discounted.
This has been the case for retail for quite some time, but post COVID-19, it relates to certain vintage of commercial office stock. Also, there has been a lack of experience by landlords and professionals in doing these conversions, preferring for the most part to build out of the ground. Additionally, the mortgages weren’t flexible enough to extend to a conversion when the current loan may have been underwater.
READ ALSO: Wildfires Sharpen Focus on LA Multifamily
How can Los Angeles establish a long-term adaptive-reuse strategy that both addresses displacement and the broader housing shortage? Can adaptive reuse be part of a proactive housing resilience plan?
Rubin: It has to be amongst several other factors. If not now, when? We have a significantly underreported unhoused population, price gouging, tens of thousands of folks who are now homeless, too.
The public sector can’t account for more than $80 billion which was earmarked for housing, they are spending in some cases more than $800,000 per unit for developments for the unhoused, the homeless crisis is getting worse and worse, and this was before the fires. Now you have affluent folks who are homeless, taking up scarce housing inventory in the 61 to 120 percent area median income range, which leaves more people with nowhere to live.
So developers, local, state and federal government need to work together.
Rubin: With Doge displaying frivolous government spending, regardless of one’s political views, this will usher in the dispossession of a lot of federally occupied builds. Either a public-private partnership would work or any other concessionary sale value which would favor an outright purchase or a creative lease structure with private landlords.
There need to be incentives for developers to develop all sorts of affordable housing. Not only LIHTC-funded affordable, but privately funded affordable housing from 30 to 80 percent of the average median income. Lenders, too, need to come to the party. It would help if the inflation stats favored a drop in rates from the feds.
