After several months of focus by SBAOR, other REALTOR® associations and other pro-business trade associations, the City of Los Angeles is recommending a repeal of the “15% Ordinance”. This ordinance required a bureaucratic waiver for condo sales in Los Angeles (including San Pedro, Wilmington and Harbor City), and a point-of-sale fee for $150 to $500.
The Mayor and City Council of Los Angeles will shortly being the process to repeal this ordinance. Special thanks to Los Angeles Councilwoman Janice Hahn for introducing a motion to repeal the ordinance and special thanks also goes to SBAOR member John Greenwood of ERA Golden West Realty for his work on starting this effort.
What is the 15% Ordinance?
The 15% Ordinance is a well-meant measure to foster affordable housing in the City, however it is fundamentally flawed:
- It adds new levels of cost, stress and risk to the condo sale process,
- it creates a potential surplus of millions of dollars whose use and oversight raises questions, and
- most parties agree that it has accomplished virtually nothing to actually provide affordable housing in the city.
The 15% Ordinance, passed in 1974, required condo developers in Los Angeles to either:
- Set aside 15% of their units for affordable housing, or
- Give the city the right of first refusal to buy up to 15% of the units in a condo building at market rates. The city would then release those units for affordable housing.
We have heard anecdotally that most if not all developers have opted for the second choice. However, the city has only exercised its option once in 33 years. Still, for every condo sale in a building under this ordinance the seller needs to obtain a waiver, with which the city agrees not to buy that particular unit.
What are the fees?
The fees, which were first levied in April 2007, are $150 per waiver, or $500 to expedite. At the rate of 600 waivers per week, HACLA stands to take in upwards of $4.5 million per year.
Why should the 15% Ordinance be repealed?
The 15% Ordinance has accomplished virtually nothing for true affordable housing in Los Angeles. City Council will consider either repealing it or actually using it to buy units at market rates. Still, this approach is fundamentally flawed:
- Waivers are processed during escrow. If the Housing Authority opts to buy a unit in escrow, then it is taking someone else’s new home right out from under them, and that homebuyer may have no legal recourse because the condo is subject to the underlying covenant on the property.
- If HACLA opts to buy a unit before escrow, then it is doing so without competitive bidding. The determinant of true market value is therefore in question, and HACLA may obtain the unit either above or below market rates. Units bought repeatedly outside of market rates will have an impact, however slight, on overall housing prices in Los Angeles.
- There is nothing, other than availability of funds, that is preventing HACLA from purchasing units on the open market today and re-releasing them for affordable housing. There is no need for the 15% Ordinance or the associated bureaucratic strain to HACLA.
Watch this space for updates on how you can help and lend your support to City Councilmembers in repealing this point-of-sale burden.