Is LA’s Housing Crisis Becoming More About Feasibility Than Zoning?

Question

Something interesting is happening in Los Angeles right now. The city is far behind on its RHNA housing targets, but despite faster approvals under programs like ED-1, many projects still aren’t getting built. It seems like the conversation is slowly shifting away from “permits are too slow” toward a bigger issue: feasibility. High construction costs, elevated interest rates, affordability requirements, insurance costs, labor, and policies like Measure ULA are making a lot of projects difficult to pencil out — even when approvals move faster. In other words, entitlement friction is still real, but removing friction alone doesn’t automatically make development financially viable. Curious how investors, developers, and builders here are viewing this. Do you think the bigger bottleneck today is zoning/approvals, or has the real issue become project economics themselves?

Rick Albert · Answer

This only scratches the surface on why developers are slowing down.

I would say the primary reason is construction, red tape, and Measure ULA. UCLA had done a study saying that because of Measure ULA, they saw an 18% decline in units being built (roughly 1,900 a year).

But I think the other component is how tenant friendly it has become. The City says they want to build affordable housing, but why would anyone want to build affordable housing where a low income tenant can stop paying rent and then get a free attorney to drag out the process? Why would you build when you know your income is capped at 4% increase on the high end for existing tenants, knowing that almost all of your other expenses are at market rates? You can use the same crews and literally just build in the next county over.

On a mom-and-pop level, all my listings this year were in LA, LA County, or Ventura County (coming up). All were rentals at some point. The risk of owning rentals in LA has gotten so high they are cashing out.

With that said, if you know how to navigate all of this, it can be extremely profitable. Rent Control and these other factors actually decreases supply, and therefore when you do have vacancies, can ask, in some cases, raise prices. Right now we are at a four year low but that is for a variety of reasons including past development projects are finally coming online.

Nicholas Krummen · Answer

This matches what I keep seeing. Zoning stopped being the wall once the state by-right floor kicked in — on most single-family LA lots you can't be denied a detached ADU up to 800 sq ft, 16 ft tall (18 ft near major transit), 4 ft side/rear setbacks (Gov. Code §66323), and ministerial review has a 60-day clock. On paper, "allowed" is largely solved.

Where deals actually die now is feasibility: overlays the base zoning doesn't show you — specific plans, hillside, coastal, HPOZ/historic, fire and flood layers — plus utility hookups, sewer vs septic, and grading on the harder lots. Two parcels with identical R1 zoning can have completely different real-world buildability once those layers stack. So an investor screening by zoning alone will overpay for lots that look clean and pass on lots that are actually fine.

The practical move is to pull the overlay/feasibility picture before you tie up a property, not after you've paid for plans. That's the step that's gotten under-priced as zoning got easier.

Full disclosure, I built a free tool that does exactly this for City-of-LA addresses — reads zoning + overlay data and returns a cited verdict, and flags "needs review" instead of faking a yes when an overlay's involved: backyardcheck.com/?src=bp-forum

Pouyan Broukhim · Answer

The issue with LA has become population decline. Would-be tenants are leaving the area, and we are facing a perfect storm of affordability challenges, regulatory friction, and social instability. Between the rising cost of living, concerns regarding local policy, and the ongoing homelessness crisis, the fundamental demand drivers that once made LA a "no-brainer" for developers are becoming increasingly fragmented. When you layer the high cost of construction and restrictive exit taxes like Measure ULA on top of a shrinking or transient tenant base, it makes it incredibly difficult to justify the risk of new development in the region.

Georgii Grigoriants · Answer

@Seph Hancock

I think this is where deep micro-market analysis starts becoming much more important than broad market narratives alone.

In the Glendale case we were analyzing, what stood out wasn’t just pricing — it was investor psychology. Two properties directly across from each other on the same street were being viewed completely differently by the market, even though both sat inside the exact same highly supply-constrained micro-location.

Most buyers immediately anchored to the “better” transaction: the larger lot, cleaner condition, river access, stronger optics. As a result, the second property started looking disproportionately weak by comparison — especially because of the fire damage, smaller footprint, and the feeling that the better opportunity had already been missed.

But that’s also where things become interesting analytically.

In mature infill markets where very little new land remains, the market can sometimes over-discount current aesthetics while underestimating long-term positioning and future scarcity. Especially once replacement costs continue rising and redevelopment opportunities become increasingly limited over time.

At a certain point, architecture, layout efficiency, design quality, and execution can start compressing the perceived value gap between a slightly larger lot and a slightly smaller one far more than many investors expect.

It almost feels like some buyers are underwriting today’s appearance, while others are underwriting what that micro-location may realistically become over the next 5–7 years.

Seph Hancock · Answer

I think this is one of the most important conversations happening in real estate development right now.

For years, the narrative was that zoning and approvals were the primary bottleneck — and to be fair, in many cities they still are. But in markets like Los Angeles, it increasingly feels like approvals alone are no longer enough to make projects viable.

You can speed up entitlements, but if:• construction costs stay elevated• debt remains expensive• insurance keeps rising• labor costs increase• affordability requirements tighten margins• and transaction taxes like Measure ULA impact exits…

…the deal still may not pencil.

That’s the key issue.

A project can be politically approved and still economically impossible.

And honestly, that’s a dangerous phase for housing markets because it creates the illusion of progress through policy while actual housing production remains constrained.

I also think this is why we’re seeing more developers shift toward:• smaller infill projects• adaptive reuse• phased construction• joint ventures• and markets with lower basis and fewer layers of cost pressure

The reality is that capital goes where risk-adjusted returns make sense.

If developers can earn similar or better returns in Texas, Arizona, Nevada, or parts of the Southeast with less entitlement risk and lower build costs, a lot of capital will continue flowing there instead.

My view is that LA’s challenge is no longer just a zoning problem.

It’s becoming a capital stack and feasibility problem.