Wednesday, August 28, 2024
The Breakfast Blogs #2: Workforce Housing Guru, Eddie Lorin
The affordable housing crisis in California—and across the nation—remains a critical topic of discussion in the multifamily sector, and for good reason. According to data from the National Low Income Housing Coalition, California has 1.3 million extremely low-income renter households, yet there are only 24 affordable rental units available for every 100 such households. Additionally, 77% of these low-income renter households face severe cost burdens. The affordable housing crisis is worsening, leaving renters in desperate need of solutions.
I recently sat down with Eddie Lorin, a 30-year real estate veteran who has transformed over 50,000 apartment units and facilitated over $3 billion in transactions throughout his career. We discussed the affordable housing crisis in California, the challenges in the sector, and potential solutions.
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Naturally Occurring Affordable Housing (NOAH) Fills an Essential Need
A key focus of our conversation was Naturally Occurring Affordable Housing (NOAH), which refers to existing market-rate rental housing that remains affordable to low- and moderate-income residents (i.e., households earning roughly 30-120% of the area median income, or AMI). It's important to note that the median-priced home in Los Angeles County was nearly $900,000 in June/July 2024, requiring several times the AMI for LA County, which is around $98,000. Consequently, while approximately two-thirds of U.S. families own their homes, the opposite is true in Southern California, where the chronically high cost of housing has resulted in a large permanent renter class.
Eddie explained that most new housing construction in Southern California is luxury-oriented, targeting more affluent homebuyers or “renters by choice.” In contrast, older Class B/C apartments, or NOAH properties, often serve as the only affordable infill housing alternatives for Angelenos who are “renters by necessity.” Upgrading NOAH properties not only improves tenants’ lives but also enhances the surrounding communities.
While renovating Class B/C apartments doesn’t directly increase housing supply, it does enhance the quality of existing housing stock, elevating tenants' living experiences and improving neighborhood conditions. In the affordable housing sector, there’s a misconception that working-class tenants seek the cheapest housing available, which isn’t true. Most low- and moderate-income renters desire the best and safest housing they can afford for their families.
Paladin’s historically high percentage of voluntary transfers—where existing tenants choose to move into upgraded units within the same property—demonstrates this preference and underscores the vital role NOAH plays in addressing the affordable housing crisis.
Common Sense Solutions to Address California’s Housing Crisis
Eddie and I also explored some of the core issues driving the housing crisis in California and nationwide. Contrary to the narrative often presented by certain politicians, housing advocates, and media outlets, the root issue isn’t “greedy corporate landlords,” especially since institutional investors own less than 4% of single-unit rental homes nationwide.
The primary factor driving California’s high housing costs is rooted in Economics 101: supply and demand, specifically the lack of new housing supply.
Since the 2008 Global Financial Crisis, California’s housing deficit has grown to 1 million units, representing one-quarter of the overall 4 million unit housing shortage across the U.S. Simply put, we are not building enough new homes to keep pace with household formation and population growth. It doesn’t take a rocket scientist to understand that insufficient supply coupled with growing demand leads to higher home prices and rents.
Eddie also shared his insights on why there is so little new housing supply, particularly in California. He pointed to NIMBY resistance and lawsuits, massive regulatory obstacles (including rent control), high land and development costs, and the lengthy 4-5 year entitlement process with uncertain outcomes as the primary reasons for the lack of new supply.
When discussing potential solutions to the affordable housing crisis, we emphasized the importance of implementing better public policies. Short-term solutions include expanding voucher programs for low-income households. Vouchers provide targeted relief to those who truly need it, in a way that rent control cannot, by supplementing the difference between what renters can afford and the actual rent charged.
Longer-term solutions must focus on increasing the supply of new housing by adding to voucher assistance programs through various incentives and lowering regulatory hurdles. This approach would allow for greater family mobility and increase the inventory of rental units available. Overall, it's crucial to bring humanity and heart back into the dialogue around affordable housing by providing renters with resources that ensure safe and attainable housing.
If you’d like to see other blog posts and articles, please visit the Resources section of our website.
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