The blog of the Urban Institute
June 23, 2021

Low-Density Infill’s Role in Fixing Los Angeles’s Housing Supply Shortage

June 23, 2021
Three Facts Policymakers Need to Know

Los Angeles has one of the country’s most severe housing shortages. Its low housing supply has led to unaffordability, low homeownership rates, overcrowding, and high housing cost burdens. To combat the housing crisis, some are turning to low-density infill housing, such as two-to-four-unit buildings.  

In a new analysis, we highlight three characteristics about the city’s low-density housing stock to shed light on how low-density infill housing could mitigate the housing supply shortage. This evidence can help policymakers evaluate when, where, and how to encourage private developers to build more infill housing.

1. Low-density infill housing is more affordable than single-family housing.

Our analysis of First American’s property records data and the American Community Survey shows that two-to-four-unit low-density housing is, on average, more affordable than single-family housing across all neighborhoods in Los Angeles. As of 2020, the average total assessed value per unit for two-to-four-unit properties is $178,830, compared with $673,401 for single-family properties. Assessed land values for two-to-four-unit properties are half the level of land values for single-family properties after adjusting for lot size. And assessed improvement values are considerably lower.

Lower assessed values in land and improvements make low-density housing a much more affordable type of housing in Los Angeles

Variations by structure type  

                       

Valuations

                       

Two-to-four-unit housing

                       

Single-family housing

Average assessed land value ($) 

284,266

456,393

Average assessed improvement value ($)

169,963

217,009

Average assessed total value ($)

454,229

673,401

Average lot size (square feet)     

6,311

7,202 

Average land values per square foot ($)

45.0

63.4

Average improvement value per square foot ($)   

26.9

30.1

Average total value per square foot ($)

72.0

93.5

Average total value per unit ($)

178,830

637,401

Source: First American Property Records Data as of Q4 2020.
 

The data show that two-to-four-unit infill housing would provide more affordable opportunities for current renters to become homeowners, which would alleviate the city’s long-term supply shortage and affordability crisis.

2. Low-density infill housing is more prevalent than single-family housing in neighborhoods of color. Black and Hispanic households are more likely to own and live in low-density infill housing.

Property records data show that the four most prevalent housing types by building structure in Los Angeles are single-family properties (66.1 percent), two-to-four-unit housing (23.1 percent), apartments (7.9 percent), and condominiums (2.0 percent). In neighborhoods of color, low-density housing makes up a greater share of the housing stock (28.2 percent) than it does in majority-white neighborhoods (10.5 percent).

Black and Hispanic landlords in two-to-four-unit properties are more likely to be owner-occupants than their white counterparts. Analyzing the racial and ethnic compositions of 2019 borrowers for two-to-four-unit properties using Home Mortgage Disclosure Act (HMDA) data, we find that 75.6 percent of Black borrowers and 73.7 percent of Hispanic borrowers are owner-occupants, compared with 40.8 percent of white borrowers.

And when we compare the composition of owner-occupied two-to-four-unit properties with that of owner-occupied single-family properties, we find a greater share of Black and Hispanic borrowers in two-to-four-unit housing. Our analysis of 2019 HMDA data shows that of all financed two-to-four-unit owner-occupied properties, 10.0 percent and 47.2 percent of the borrowers were Black and Hispanic, respectively, compared with 5.8 percent and 29.7 percent, respectively, in single-family properties.

Bar chart showing owner-occupied two-to-four-unit housing has a greater share of Black and Hispanic borrowers in LA

This evidence indicates that increasing the supply of low-density infill housing would especially benefit households of color, because 76.7 percent of Black households and 77.4 percent of Hispanic households in the city have low and moderate incomes, according to the 2015–2019 five-year American Community Survey. With a greater infill housing supply, Black and Hispanic households would have a greater likelihood of homeownership, which would help increase their long-term wealth accumulation.

3. Low-density infill housing is geographically concentrated in historically redlined neighborhoods and has higher denial rates than single-family housing.

The Home Owners’ Loan Corporation (HOLC) was established in the late 1930s to provide government-backed mortgage credit for homebuyers, a crucial early form of mortgage liquidity that also resulted in denying financing to households in lower-graded areas. Our spatial analysis of the HOLC maps that were the basis for redlining shows that the existing two-to-four-unit housing stock disproportionately fell within areas that were graded “hazardous” or “declining” during the redlining era (mapped in red and yellow below).

Maps showing census tracts with a high share of two-to-four-unit buildings closely resemble formerly redlined areas in downtown LA

This geographical correlation raises an important question: is the legacy of redlining limiting the financing opportunities for homeowners of two-to-four-unit housing? Our analysis of 2018 and 2019 HMDA data shows that the denial rates for two-to-four-unit properties are significantly higher than for single-family housing across all income categories. As part of our research, we spoke with numerous lending institutions, which all raised concerns about greater lending risks for triplexes and quadraplexes. This suggests that a lack of financing may be a key barrier for households with low and moderate incomes to gain access to homeownership for new low-density infill housing.

This lack of financing could pose a barrier to increasing the supply of two-to-four-unit properties and could increase the likelihood of an influx of institutional buyers for new infill housing. In turn, this would limit access to homeownership for households of color because this type of housing is more concentrated among communities of color.

Policy implications

Increasing the supply of low-density infill housing in Los Angeles can help alleviate the housing supply shortage and stimulate more homeownership opportunities, especially among households of color. But local jurisdictions need thoughtful strategies to encourage developers to construct more of this low-density infill housing and need to work with lenders to ease the financing constraints. Jurisdictions can evaluate financing obstacles, work with local lenders and federal agencies to ensure equitable access to homeownership, and address segregation that continues to limit economic mobility.


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