Where’s Los Angeles's Affordable Housing? | Amir Jawaherian

Los Angeles is trying to build more affordable housing for low-income families and the homeless. Under state law, LA is required to plan for nearly half a million housing units by 2029, with 40 percent of them affordable to lower-income households. However, when we talked to LA developers, they said that various local policies are making it increasingly difficult to pursue housing projects. There was actually a moratorium issued by a judge not long ago banning City of from issuing any permits until they are able to complete 3,000 affordable housing units. I mean, do we want to battle the housing issue we have? Amir Javaharian, a developer and real estate agent who wanted to build more affordable housing for LA, he'll share his perspective on how difficult it is to build housing in Los Angeles. I challenge the way they're actually trying to compensate for lack of housing. You're not able to do that in the next 50 years in LA. There are other people like me who would actually challenge the city. We are willing to sign a guaranteed contract, and I will deliver 10,000 units in five years. It's not that difficult, trust me. I'm Siamak Warami. Welcome to California Insider. Amir, it's great to have you on. Welcome. Thank you. Thank you for inviting me. You're a developer and real estate agent from LA, and you know, there's a lot of things happening in LA. There's a lot of laws, regulations, Measure ULA that has passed that we've covered on the show. We want to hear what's going on on the ground for you guys. Can you tell us what's happening? Of course. I would like to actually start by talking about the Measure ULA, or as they call it, the mansion tax. This is a transfer tax that applies to all kinds of real estate, not only mansions, meaning if you're selling a parking lot and it's over $5 million, you have to pay this tax. It was advertised under a mansion tax on ultra luxury, but this transfer tax includes any real estate over $5 million to pay 4%, and over $10 million to pay over 5.5% transfer tax. And it doesn't matter if you bought it at the higher price or lower price. It doesn't matter if you made money. Not at all. Not at all. As a matter of fact, that is actually a great point that you bring up. We have scenarios that people bought homes, and this was right before the Measure ULA. And for multiple reasons, they need to sell their property today, and they have to pay this tax from the total sale of the property, regardless if they're losing money or if they have gain. We also heard affordable housing got impacted too. Well, in order for us to develop affordable housing, first, we have to find suitable parcel of lands or underdeveloped properties. And in order to make an impact, you have to buy a large enough opportunity or assembly to be able to build affordable homes. Now, the value of land in Los Angeles is not cheap. If you're a seller of an underdeveloped assembly or a parcel in LA, and your property is valued more than $5 million, when you look at your closing cost, it's close to 10%. So you think twice. Do I want to sell? Or I should just maybe refinance my property and take the proceeds and hold it for a while. There is a very interesting data that you should look into. Measure ULA went into effect April of 2023. In March of 2023, we had 139 transactions over $5 million. In just March? In just March. In April of 2023, and this is the beginning of the ULA tax, we had only two transactions over $5 million. Wow. I believe $5 million and plus, or the transaction over $5 million, the volume has declined by 70% since ULA going into effect. And when you said the transactions went down, for some of us that are not really involved in real estate, what does it mean for LA? I'll speak in the field that I have more experience, and that is investment and development. In order for any investor or any developer to put their capital at risk, we need to make sure that their property or the project is feasible. The rule of thumb was, you have to be able to show a three times resale value on your purchase. So if I'm buying a land for a million dollars, I need to be able to resell this for $3 million. Now, when you take the ULA into consideration, although on paper it says four and five and a half percent from sale, this four to five and a half percent from the total sale sums up to over 30, between 30 and 40% of potential margins. And that's where we're having or we're seeing the lack of transactions. Buyers are not optimistic or they're not willing to put their money at risk because their returns are not great. You can buy, you know, treasury bonds and get a 5% return. Why would you want to go through all that trouble to make 8% annually? So it doesn't make sense. What's happening is we are undercutting the opportunity of development and consequently affecting a significant portion of our community, starting from professional consultants, architects, engineers, land use consultants, all the way to skilled labor. Is there any other impacts besides the layoff? We have been having a lot of challenges with local policies. ULA is one of them. Other policies that have impacted property values that I personally have experienced has been an ordinance was put in place in 2017 in Beverly Hills Hillside urgently and applied retroactively, which it was never heard of. Reducing your allowable square footage in terms of building allowable square footage. And that had a significant impact on property values. As a matter of fact, if you go back and compare property values in 2015 and 16 in the hillside of Beverly Hills compared to today, they had more value, even though the real estate market has doubled. One thing I want to point out is not everyone who lives in Beverly Hills or Beverly Hills Hillside is a millionaire or a billionaire. These are ordinary people who worked their entire life and had an opportunity to buy a property, which was their biggest asset throughout their life, their biggest investment, hoping to be able to count on this when they come to the age of retirement. There's another policy that's still not approved by the city attorney, but was unanimously approved by the Plum Committee in the City of LA. And this is the second time they're trying to pass this policy. The first time around, they brought this policy under the name of the Ridgeline Ordinance. What they were planning to do with this policy was that, you know, we need in order for us to protect our natural habitat, we need to protect our ridgelines. That policy did not get the approval it needed. What happened, they actually repackaged the same policy and introduced it as a wildlife ordinance this time around in order to protect our mountain lions and our bobcats. They want to limit the allowable square footage, regardless of your land area, to 6,000 square feet. So if you have a five acre parcel, you can only build 6,000. And if you have a 20,000 parcel, you might be able to build the same. Now, I love animals. I have a dog that we've adopted from shelter when my son was six years old, Mr. DJ, and we love him dearly. We need to be more sensible about the impacts these policies would have on ordinary people. When they passed the Measure ULA, the tax is supposed to go to the homeless. We're supposed to help the homeless. And there's been a number of initiatives because homelessness is a big problem in LA, right? What are your thoughts on that? I think the unhoused or the homeless, it's an epidemic that we have. Unless we get real with the problem on hand, we're not able to resolve it. No matter how much money we collect, we cannot tax our way to resolving a problem that we do not have a solution for. We've done Measure HHH. Do you know much about this? Yes. Measure HHH is supposed to actually create 10,000 housing units in 10 years with a 1.2 billion bond issuance. Now, we are in 2024, and I believe Measure HHH went into impact in 2016 or 15, if I'm not wrong. The claim is that we've added 7,000 affordable housing units, but the truth is they might have delivered only 1,200. And the remaining ballast is to be completed soon or under development. Now, my issue with Measure HHH, I'm actually in full support of providing a safe habitat and a safe living space for every single person. The problem I have with Measure HHH, like all the other measures put in place, there's no accountability. The initial estimate for the cost of each unit was $250,000. And after nine years, they are claiming that the average cost for each unit is $600,000. Amir, you're a developer. To me, when you listen to this, $600,000 sounds like a lot if it's especially a one-bedroom apartment, studio. But is this a lot, or is that normal right now? You can argue actually this case from two points of view. I am developing Section 8 housing in North Hollywood myself because I do believe that this is an essential issue that we have on hand, it needs to be addressed. The average cost per unit, which can range between 400 to 650 square feet, is between $250,000 and $300,000. Wow. This is the actual cost. Now, I'm not surprised why under the Measure HHH the cost of each unit is $600,000 because there are limitations and barriers in place to reduce the cost of construction. When I moved into Section 8 development, I was hopeful to be able to use HUD funding under the Measure HHH to finance my project. However, after four and a half months, I was informed that I do not qualify for two reasons. The first thing is I've never done Section 8 housing. Well, the point of people like me entering into Section 8 housing is to be able to provide more affordable units and hopefully overcome this issue. The second requirement is that even if you overcome the first hurdle, you have to hire companies who pay prevailing wages. Now, I understand that when it comes to public works. By doing so, you will increase your cost of construction, the cost of labor, up to 100%. Now, I'm not advocating for underpaying anyone, but there are ways that you can reduce the cost of construction. We are hiring well-qualified contractors and subcontractors, and our cost of construction is significantly lower. And using the prevailing wages, that's the union wages? How does that work? It is union wages. Usually, companies who are in that field are specialized in infrastructure projects. They do enter housing, but it has to be significant in order for them to adopt such projects. Now, I'm sure you're aware of one of the recent affordable housing projects in Santa Monica. They call it the Arroyo. The average cost of each unit in Arroyo between 400 to 700 square feet per unit is $1 million. Yeah, we had somebody on the show that explained this to us, but 400 to 700 square feet. Two things come to mind here. First of all, if the cost of affordable housing per unit for 400 square feet on average is $1 million, is a $5 million home really a luxury home in that case? The second question that comes to mind is, there are studies that show we need a half a million affordable housing units in order to stabilize our housing issue. In L.A.? Half a million. Half a million. At $600,000 to $1 million per unit, what is that number? How much money do we need? Folks, you've probably been hearing me talk about WireEFI for a while now. 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Now, let's go back to the interview. Amir, you have been developing and you have been getting investors and developing projects, the whole process of development. How are you impacted? My first attempt of developing was two luxury homes in the city of Beverly Hills. Obviously, I think anyone who dreams as a kid, you know, that one day I want to become a developer or building a structure that's going to outlast me and leave a legacy behind. Beverly Hills would be one of the cities that you definitely want to be able to put your mark on. I was able to actually create a syndication that consisted of four partners, and we were able to secure two beautiful opportunities in the city of Beverly Hills. Extremely optimistic, and one of the reasons we decided to be in the city of Beverly Hills, because it's one of the safest places that you can probably put your money in, let's just put it that way. We were impacted actually by the emergency ordinance that was put in place in 2017 by Beverly Hills City in the hillside. In order for us to battle that ordinance, just to get back what was initially granted to us, we had our permits, but because they were planning actually to implement it retroactively, we had to hire actually attorneys, land use consultants, and pay hundreds of thousands of dollars to be able just to reclaim what was originally given to us. So you had the permits, but then the passed, and then they said even though you have the permit, the permits were canceled. Yes, they implemented the law retroactively. They impacted actually a significant number of people. Now for us, we were able actually to overcome this issue and go out and again refinance the project, which would cost a significant amount of money, and started our construction. Again, back on track, extremely excited, very happy, until one day I got a notice from the city again that, you know, in one of our drive-bys, we've noticed your properties, and we are in the opinion of you have actually exceeded your allowable grading. I wasn't worried about it. I said, okay, we have all the documents, you know, we can just provide them with all the information, and we're going to be back at it again in a week. It took us 11 months just to prove to them that we didn't do anything wrong. Unfortunately, we lost those projects. We had to go and stop the projects and go through the hardship. So that was the first impact I had. It never made sense to me. The first time I heard about the emergency retroactive policy, I said, that's not happening. This doesn't make sense. We're in Beverly Hills. But it happened. The second time where we got the stop work order, I said, well, we have all the documents. We didn't do anything wrong. We're, you know, this is Beverly Hills. Again, we were impacted. It had a significant financial impact on me and my partners. So when you said you lost the project, you lost all the investments? Everything. So we had to go, myself, back to square one. Now, I always had a thing for development. I mean, it doesn't matter what, I'll come back. I mean, now, after that development, I promised myself, I said, you know what, you better stick to the sale of real estate. Let's just not get into developments anymore. But it didn't take long. And there was a reason why. As a father, I understand the importance of having a safe space for your family. And everything starts, in my opinion, with housing. You can't sleep hungry at night. But you can't grow or have a healthy family or grow a family if you do not have a secure living space. I'm okay if I'm not, you know, if I don't have enough to eat. But I know my kids are safe and secure. That was actually one of the reasons I started going from building an extremely luxury home to the exact opposite, which was the Section 8 affordable housing. For profit, obviously. But at the same time, I think this is a way for me to give back to the city that accepted me as an immigrant. We did have actually challenges even in order to secure our Section 8 permits. Yes, there are actually some policies put in place that they want the permits to be reviewed, you know, much faster. But the city staff is not well informed. We had to, to part, educate them. And once we went through the whole planning section, we have all the approvals from the planning section. Now the housing department needs to just, you know, provide a clearance so we can move ahead. They have 60 days to respond to your requests. We had to actually send a series of emails after day 90 and force them into responding to us, which they're all surprises to me. I mean, do we want to battle the housing issue we have? Do we know how much do we need in order to battle or to build 500,000 housing units? If it's 600 to a million dollars, what is that number? And as a matter of fact, I just want to, you know, make a very bold statement. And I'm sure they're pretty, actually, there are other people like me who would actually challenge the city. We are willing to sign a guaranteed contract, and I'm going to be greedy on this, at $450,000 per unit. And I will deliver 10,000 units in five years. This is actually an important issue that needs to be addressed. Again, I'm sure there are many people out there just like me who are willing to accept these contracts below what they're actually announcing, guaranteeing that we will deliver. So if they bring you guys in, the private developers, you guys are willing to come up with a fixed fee and do this project? Absolutely. And take a very handsome profit. You think it's a good deal to do it at that price? Absolutely. Because you really need to look at this issue from different aspects. I challenge the way they're actually trying to compensate for lack of housing. With infill developments, you're not able to make half a million units. You're not able to do that in the next 50 years in LA. We have now judges issuing moratorium on cities, forcing them to put affordable housing. There was actually a moratorium issued by a judge not long ago, banning city of Beverly Hills from issuing any permits until they are able to complete 3,000 affordable housing units. Does that sound feasible? Is it even real? So what you're saying is that these policies, we're pushing for affordable housing, but in the process of pushing for it, we are affecting housing in a sense with the policy. Absolutely. We are increasing the cost of living. It's an interesting fact. If you drive 30 minutes, 35 minutes out of LA, you can buy $650,000, you can buy a three to four bedroom single family home on a 10,000 square foot lot. Have we ever asked the unhoused or the people who need the affordable housing that would they prefer to live in a single family home or a 400 square foot apartment? We're going to build a half a million affordable housing in city of LA. Where? And let's say we were able to accomplish 20% of that. How are we going to manage our traffic? Are we concerned about environmental? Okay, what about the impact on adding that much density to a city that does not have the infrastructure to support? Look, we only have two major highways. The 101 and 405, it's a parking lot. Nine hours throughout the day. How are we going to add more to this? I mean, I think these are very simple, simple questions that I think people need to start asking. If you want to provide a better life experience, why don't we start thinking about creating suburban communities? That's going to cost less. And it's much easier to develop because you don't have limitations. I have to go find six, 7,000 square foot lots, you know, a bunch of them and assemble them in order to make maybe 80 affordable housing units. That's going to take me five years. I can build actually 2,000 homes in five years. 2,000 homes? Yeah. Listen, it's not that difficult. Trust me. I can tell you as a household, as a father, as a husband, and I'm pretty sure my wife would agree with me. We will take that single family home over the 400 square foot apartment any day of the week. As a matter of fact, that's why I actually settled in Calabasas 10 years ago and where my office was in Beverly Hills. So I've been commuting for about 11 years from Calabasas to Beverly Hills. I did it because I knew my family would have a better lifestyle, a better experience. So I think we're making decisions on behalf of other people without really understanding their needs. So Amir, if the leaders of LA came to you tomorrow and said, you help us solve this problem, what would you do? I think we need to look at our city as a whole and give everyone the same right. The homeowners and the unhoused. As a homeowner, you deserve to be safe and secure in your house. As an unhoused person, you need to get help. By just taking them and putting them in a small apartment, we're not getting rid of the problem. Now, Amir, you're pretty vocal about this. I wonder why? I'm a first generation immigrant to this country. Now, I was lucky enough to be born in America, but I grew up in Iraq. I left my motherland because I was not accepted. My ideas were not accepted and I did not have a voice. Now, I traveled a lot in my youth. I lived in Turkey, I lived in Germany and I lived in Dubai. And when we had our first baby, when my son was born in 2009, me and my wife collectively decided that we want to give our child the American dream. We want to give him the opportunity to have the American dream. I truly believe California is a piece of heaven on earth. You cannot find another state like California anywhere in this world. From the climate, from the sceneries that it provides, and the mix of different cultures that's so accepting. I have never felt home anywhere else as much as I have from day one, when I moved to Los Angeles. Amir, do you have any other thoughts for our audience? I think as a nation, we are becoming the lazy nation in terms of taking in the news. We just read the title. I think we should take it upon ourselves to respect each other and keep our leaders accountable. And again, be involved, have honest conversations, have honest communications, put our differences aside. At the end of the day, no matter what we believe in, we all would want to have a prosperous future. I think we need to start from there. And again, hopefully, once we understand each other's need and truly look into the problem and the issues that created the problem, we're able to find a solution for it. I'm sure there are many other people in California or in LA who would take this upon themselves and tackle this issue and overcome it, giving our families, our new generation, an opportunity to grow in a safe environment. These are not ambitious goals. This is just what's expected, I believe. Amir Jawaharian, developer and real estate agent from LA. It was great to have you on California Thank you so much. Thank you for having me.