Why are developers so eager to build low income housing?

One of the answers is told in the beginning minutes of this PBS Frontline documentary.

From the video: “IRS gives billions in tax credits to the states. Then the states award credits to developers who sell them for cash to investors – mostly banks. The developers use the cash to help build apartment buildings and because tax payer money pays for most of it, they can charge the lower rents which are required. ‘The tax credits give us the equity to build the apartment buildings,’ stated one of these builders.”

In addition to the tax credits, the state of California gives developers additional incentives to include low income housing in a building. One of these rewards is a density bonus. The density can be increased (i.e. add additional floors to the building) by 35%. I’m not an expert so I’m not sure if there may be other tricks in the law which allows the density to be even higher such as possibly claiming more than one density bonus.

So if the corner of Bellflower and Stearns is re-zoned for five story buildings, when the density bonus for including low income housing is figured in, developers will be able to build seven story buildings. Then the  developers make more money from the rents or sales of the additional units. And what’s not to like for the developers? They’ve used taxpayer money from tax credits.

From the Density Bonus Law in Section 65915:

(f) For the purposes of this chapter, “density bonus” means a density increase over the otherwise maximum allowable gross residential density as of the date of application by the applicant to the city, county, or city and county …


More to come on how SB 35 will (it will pass and be signed into law soon) impact this by eliminating local control of the permitting process, streamlining the process for developers, eliminating all parking requirements and eliminating the expiration on the permit approval for some of these projects.



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