As part of a new campaign to save neighborhoods and house more poor people, the Los Angeles Housing Department wants to help buyers take advantage of today's cheap prices for apartment buildings to acquire and rehabilitate some of the city's worst slum properties.
The department is proposing to lend private investors and nonprofit groups money to buy and restore graffiti-scarred buildings taken over by drug dealers, boarded-up hulks occupied by transients, and properties given up by owners who bailed out on their debts.
Although the city already has loaned money for a few such projects in the past, housing officials now want to spend $20 million or more in federal funds annually on the strategy, making it a key element of efforts to close the gap between supply and demand for low-income housing.
It is estimated that 100,000 Los Angeles families must share quarters with others, and another 150,000 spend more than half their income on rent.
In the past, market conditions have made it more economical to construct new buildings to close that gap. But the current unprecedented bust in the long boom for rental housing has caused foreclosures in growing numbers and sent values tumbling as much as 50%, making it possible to snap up bargains all over the city, but especially in low-income neighborhoods.
TRW Redi-Data, a real estate research company based in Riverside, reported that already this year foreclosures of apartment buildings and duplexes countywide are up by more than half compared to 1992. TRW market analyst Nima Nattagh also found that foreclosed buildings were selling for about 20% less than the amount of their loans and one-third less than assessed value.
The City Council Housing and Community Development committee will review the shift in strategy Monday as part of an update of the city's housing affordability policy. The full council's endorsement is necessary to borrow federal housing funds.
"What we're looking at is an opportunity to do more numbers," said Housing Department General Manager Gary Squier. Buying and fixing a run-down building now can cost a third or even less than building one from scratch, he said.
For example, A Community of Friends, a nonprofit group that specializes in housing for the mentally ill, took out a city loan recently to buy and convert a long-abandoned bathhouse in Boyle Heights to apartments. The building sold for about $800,000, about half the asking price of two years earlier.
A total of 160 units in four buildings already are being rebuilt under the proposed strategy, which still must go to the Los Angeles City Council. The rent for those apartments, many of which were either vacant or unlivable when acquired, will be affordable because the new owners were given discounted interest rates and favorable repayment terms. For example, a family of four with an income of $24,150, or half the county median, is expected to pay $513 in rent.
Not all housing experts agree on how much money the strategy shift would save. And other agencies that produce low-income housing, such as the Community Redevelopment Agency, are not immediately falling in line with it.
Some also question whether acquisition and rehabilitation makes sense as a citywide affordable housing strategy because apartment buildings vary greatly in quality and quantity from area to area.
City Councilman Mark Ridley-Thomas, chairman of the committee that will review the proposal Monday, said, "It is not a done deal at this point."
He said he favored a "balanced approach that would . . . maybe accelerate the rehab but pay close attention to how we get new units built."
All agree, however, that the housing stock in a growing number of neighborhoods is decaying, even in some formerly stable areas such as North Hills, Van Nuys and Hollywood.
"Some multifamily neighborhoods are in a real tailspin because of the impact of gangs and drugs and the increasing numbers of bankrupt properties and lost cash flow," Squier said. "All of these factors are converging simultaneously in some neighborhoods . . . sometimes in the middle of otherwise good neighborhoods."
Worried that such trends will worsen the city's shortage of low-income housing, Squier created a Neighborhood Recovery Program this past summer. The program is aimed at organizing city services to attack blatant drug selling, mount a crackdown on slumlords and try to create jobs for residents. In addition, program staff members will work to enlist tenants and owners in the cause of neighborhood improvement.
"We're willing to be the department that takes the lead in renewing these neighborhoods, even if we get out of our traditional role of just doing housing, because it's just that important," said Sam Luna, who heads the new neighborhood recovery program. "We're at war against decline."