Like the rest of Southern California, Los Angeles has been struggling with a housing shortage for decades. Despite government intervention and a pandemic-era “exodus,” LA still can’t seem to create enough housing for its residents, especially when it comes to affordable housing.
The shortage is leading to rising rental rates, increasing home prices, and growing homelessness. It’s also forcing some Angelinos out and preventing would-be transplants from joining us.
So what’s going on? Why can’t we seem to fix this major problem? Why is the shortage actually getting worse? And what can we do to turn things around?
What Caused the LA Housing Shortage?
The LA housing shortage comes down to supply and demand. But there are complex forces on each side exacerbating the problem.
On the supply side, we have:
- Limited land to build on. Much of the undeveloped land in LA remains so because the terrain isn’t suitable for development.
- Under-construction. After the housing market collapse of 2008, home builders were understandably hesitant to resume construction during the long, slow recovery.
- Low population density. 72% of LA is zoned for single-family use. This means we can fit fewer homes into the available land area.
- Government regulations and policies. Red tape, including lengthy permitting processes and understaffed departments of building inspectors, prevents builders from adding new units as quickly as we need them.
On the demand side, we have:
- Employment opportunities. With thriving tech, healthcare, manufacturing, and entertainment industries, many people come to LA for work.
- Dream chasing. How many people have moved to LA to make their dreams come true?
- Local amenities. There’s always something to do here.
- Sunny weather. Lots of people are drawn to the sunshine (263 days per year on average)!
Why is LA’s Housing Shortage Getting Worse?
The housing shortage is getting worse, particularly as evidenced by the increase in the unsheltered homeless population in LA.
In 2016, local voters approved a $1.2 billion ballot measure (Prop HHH) to build 10,000 new apartments to help end homelessness in LA. At the time, LA had around 21,000 residents living on the street. By 2024, that figure was up to around 29,000.
Why?
The most obvious culprit is the COVID pandemic, which crippled the economy, closed businesses, cost people jobs, and forced people from their homes.
The workforce and supply chain disruptions from COVID seriously hindered progress on Prop HHH. By March 2024, only 3,357 of the 10,000 units were complete.
Even as we recovered from COVID, lingering supply chain issues and skyrocketing inflation slowed new construction. Residential building permits dropped by 23% in 2024, largely due to these issues.
On top of all of this, the devastating wildfires destroyed at least 11,100 residential units in January, displacing many more Angelinos and tightening the housing market squeeze further.
Can We Turn LA’s Housing Shortage Around?
While we can reduce LA’s housing shortage, it’s going to take a lot of work. We have a lot going for us, but we also have some major hurdles to overcome.
On the positive side, Prop HHH is back on track, with 10,519 total units planned for completion by 2026! And California Senate Bills 684 and 1123 have been implemented to streamline the approval process for multi-family development, which will help make it easier to build more units in less space.
And the hurdles? First, the LA City Council has voted to keep multi-family structures mostly out of single-family neighborhoods, severely limiting opportunities for efficiently adding units to the housing inventory across most of the city and forcing more multi-family development into already-dense areas. Then, there are the current administration’s tariff and immigration policies. Higher tariffs increase the cost of equipment and materials for building, while the immigrant hostility severely limits LA’s construction workforce.
How Do We Overcome the Hurdles to Address LA’s Housing Shortage?
So, what can we do to better manage the long-standing housing shortage going forward?
Here are actionable ways to help overcome LA’s housing crisis:
- Continue restructuring zoning laws to allow more multi-family housing in single-family neighborhoods, with a focus on “gentle density” to allow more units without changing the character of traditionally single-family neighborhoods.
- Continue streamlining permitting to speed up construction approvals.
- Grow the construction workforce by supporting immigration and trade programs.
- Prioritize affordable housing over luxury developments.
- Expand public-private partnerships to build affordable housing faster.
- Strengthen disaster recovery to quickly rebuild homes after wildfires.
- Lower construction costs through exemptions and modular building methods.
- Focus on infill development, building on empty lots and underused spaces within the city rather than expanding further outward.
- Remove or reform the mansion tax to avoid discouraging development and sales that could help fund broader housing efforts.
Gatsby Investment is committed to adding housing units to the LA area while earning strong returns for real estate investors.
We specialize in converting neglected single-family homes and vacant lots into small, gentle-density multi-family developments. Our development projects are specifically designed to be completed quickly (typically in less than two years), helping us bring more units to the market while expediting investor returns.
At the same time, we have launched built-for-you developments to serve as a full-service development program for homeowners looking to rebuild after the wildfires and investors looking to complete their own residential new construction projects.
Whether you’re looking to support the LA community through additional housing development, invest in a real estate opportunity with strong return potential, or both, Gatsby is here to serve you!