The city of L.A. is suffering from a housing shortage. The state is practically begging<\/a> it to build more homes, and Mayor Karen Bass implemented a faster permitting process<\/a> earlier this year. But Schon and a growing number of developers across L.A. say that building new apartments simply isn\u2019t an option at the moment.<\/p>\n Projects don\u2019t pencil. Taxes eat through profits. And the few developers still building are often opting for smaller, safer projects such as ADUs and townhouses as opposed to the taller, denser developments that experts say the city desperately needs to help solve the housing crisis.<\/p>\n It\u2019s leading to a market where no one is thriving. Developers aren\u2019t making money, and tenants are still dealing with rents higher than in most other cities. <\/p>\n There was a bit of relief earlier this year, when rents dropped to a four-year low,<\/a> but pent-up demand<\/a> and decades of underbuilding ensure that housing in many neighborhoods is still expensive for renters and out of reach for aspiring buyers.<\/p>\n \u201cPeople are scared to build in L.A. right now,\u201d Schon said. \u201cAll my developer colleagues and friends are sitting on the sidelines because new development doesn\u2019t make sense.\u201d<\/p>\n Construction has slowed across the board. According to Kidder Mathews<\/a>, in the first half of the year, 2,376 new apartment units were completed in L.A. County \u2014 a nearly 9% drop compared with the same stretch last year. In addition, only 25,636 apartment units were under construction \u2014 about a 15% drop from last year.<\/p>\n \u201cWe\u2019ve been tracking an overall decline in construction for years now, and we expect that to continue,\u201d said Darin Beebower, executive vice president at Kidder Mathews. \u201cMost developers I speak to are \u2018pencils down.\u2019 And they have been for a while.\u201d<\/p>\n An apartment building owned by Paul Schon sits between two others in Los Angeles. <\/p>\n (Eric Thayer \/ Los Angeles Times)<\/p>\n Paige Sterling, a spokesperson for Bass, said the mayor has passed multiple directives to address the concerns of developers, including Executive Directive 1<\/a>, which expedites homeless shelters and affordable housing projects, and the faster permitting process<\/a> she announced in April.<\/p>\n \u201cIn the face of a growing affordability crisis, Mayor Bass has been laser-focused on slashing red tape and eliminating the bureaucratic barriers that have stalled housing production in Los Angeles for decades,\u201d Sterling said in a statement. \u201cNearly 50,000 units of affordable housing are now being fast-tracked because of her Executive Directive 1.\u201d<\/p>\n So why is building housing in L.A. \u2014 a city with seemingly infinite demand<\/a> \u2014 such a slog? A few reasons, developers say.<\/p>\n The first and most obvious is a factor affecting the industry nationwide: interest rates, which skyrocketed in 2022 and never went back down. Developers often borrow money from investors to finance projects, but margins get much tighter when you borrow at 7% compared with 2%.<\/p>\n \u201cLarge developers would love to break ground on projects around L.A., but the numbers have to make sense. Right now, they simply don\u2019t,\u201d Beebower said.<\/p>\n The second factor, Schon said, is policies dating back to the pandemic. The city and the county instituted tenant protections such as rent freezes<\/a> and eviction moratoriums for years, a vital aid for renters during an uncertain time. But developers claim the moves flattened revenues by keeping rents lower than what the market demanded and also creating a backlog of eviction cases<\/a>. Even though the protections have expired, their ripple effects continue today, at the same time that expenses, such as construction costs, have shot up.<\/p>\n Developers said the third factor making projects harder is Measure ULA<\/a>, the so-called mansion tax passed by city voters in 2022 that levies a 4% or a 5.5% tax on all L.A. property sales above $5.4 million \u2014 not just mansions, but parking lots, offices and apartment buildings. Over the summer, there was a push to exempt<\/a> multifamily buildings from the tax within 10 years of construction, but the City Council shelved it<\/a>.<\/p>\n \u201cRight off the top, you\u2019re subtracting 4 to 5% of the sale price, which is a big piece of your profit,\u201d Schon said, adding that it\u2019s a tough sell when pitching projects to investors, many of whom are more comfortable parking money in the stock market.<\/p>\n All of this is leading to less housing, experts say.<\/p>\n Developer Yoni Chriqui said that many of his friends who once built projects with 20 to 30 units are now sticking to four units or less in order to stay under the mansion tax\u2019s $5.4-million threshold.<\/p>\n \u201cPeople are building two or three stories on parcels that could hold six or seven stories,\u201d Chriqui said.<\/p>\n Chriqui spent much of his career building apartments and single-family homes. In 2023, he switched exclusively to small-lot single-family projects.<\/p>\n \u201cI only saw downsides from renting apartments. Expenses increase, rent revenue stays flat, and all of a sudden you\u2019re upside down,\u201d he said.<\/p>\n When he started building 15 years ago, \u201csoft costs\u201d \u2014 such as city permits and inspections that aren\u2019t related to the actual construction \u2014 were around 10% to 12% of a project\u2019s budget. Now, he estimates they\u2019re 20% to 25%.<\/p>\n Chriqui said permit costs increase 4% to 5% per year, along with other regulations and fees sprinkled in that make projects harder to justify. For example, in 2016, L.A. started charging park fees<\/a> to multifamily developers in lieu of making them provide actual park space. In 2026, those fees climbed<\/a> to $8,929 per unit \u2014 so the developer of a 50-unit complex would owe $446,450 in park fees.<\/p>\n Schon and Chriqui both said that density bonuses and incentives are great, but they\u2019re not enough to make large projects financially viable.<\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/us-ca\/wp-content\/uploads\/2026\/09\/1790075531_890_.jpeg\")
<\/p>\n