Happy first birthday to CHIP, the sprawling Citywide Housing Incentive Program adopted last February by City Council to jumpstart homebuilding and meet LA’s state-mandated housing target: 450,000 new homes in eight years, roughly triple the city’s recent homebuilding pace. To reach that ambitious goal, LA came up with an alphabet soup of different programs like AHIP, MIIP, and TOIA. Each letter jumble is a different flavor of carrot for developers - they can build a bigger apartment building if they set aside some of the homes for low-income folks. The city had implemented successful incentive programs before, like Transit Oriented Communities (TOC) in 2017, but CHIP was supposed to be bigger and better - enough to super-charge homebuilding in LA.

City Council passed CHIP unanimously but rather quietly. News reports featured few quotes from elected officials about the effort. But when SB 79, the state transit-oriented upzoning law, was being debated last summer, suddenly CHIP became city leaders’ pride and joy. Many Councilmembers defended their opposition to SB 79 by arguing they had already upzoned in a more locally-driven, sensitive way. Councilmember John Lee had a typical quote: “SB 79 is a blunt tool that does not take into account the years of painstaking work all of us have put into crafting and adopting our housing element and Citywide Housing Implementation Plan.”

Even Karen Bass, in her letter to Gavin Newsom asking him to veto SB 79, took credit for CHIP as she argued state intervention was unnecessary: “I have cut red tape and spearheaded local initiatives, such as the Citywide Housing Incentive Program, to accelerate housing development…The City of Los Angeles has already made substantial efforts to align with state housing goals and increase housing development citywide.”

CHIP CHIP, Hooray! We don’t need no stinkin’ SB 79. LA’s got this.

Our leaders’ enthusiasm seemingly got a boost last fall, when the Planning Dept. released a gushing report on the first six months of CHIP, trumpeting over 16,000 homes already proposed. Tremendous! But a closer reading of the report revealed some puzzling choices. First, the report counted pre-applications, which are just a formality developers submit stating their intent to file an application later. Many pre-applications are just vaporware - they never get farther than that initial form. The number of actual applications was buried in a table on page 5 of the report - only 3,000 filed.

The six-month report also counted projects submitted under the State Density Bonus program. As you might imagine by its name, the density bonus comes from state law, not a city program. But CHIP tweaked some aspects of how the city implements the law, so Planning decided to count density bonus projects in its report, comprising about half of the total applications. The problem is that the vast majority of those applications would have been submitted with or without CHIP.

CHIP at one year

To clear things up, I obtained a list of all actual applications submitted under CHIP, not including state density bonus projects, in the first full year of the program’s existence¹ . Here are the numbers:

Total projects submitted: 101
Total homes proposed: 9,411

Each of the first four columns represents a different CHIP program. One wrinkle to keep in mind is that not all of the CHIP programs are new policies. Of the four, two are updated versions of city programs that existed before, and two are brand new.

Rebranded programs:

TOIA (2,862 homes proposed) - Transit-Oriented Incentive Areas is an updated version of the successful TOC program. It allows developers to build bigger buildings near transit stops. To compare, in the first year of TOC, developers proposed 9,909 homes - TOIA generated less than 1/3 of that. So…not great.

AHIP (6,077 homes proposed) - the Affordable Housing Incentive Program is an updated version of Mayor Bass’ wildly successful Executive Directive 1 (ED 1), which allows 100% affordable housing to be built just about anywhere apartments are allowed. To compare, in the first year of ED 1, developers proposed 10,306 homes (data courtesy of housing policy savant Joseph Cohen May) - AHIP generated about 60% of that. So…not terrible.

New programs:

Now let’s look at the parts of CHIP that are truly new policies, allowing apartments to be built in places that weren’t possible before:

OC (472 homes proposed) - Opportunity Corridors allows bigger apartment buildings all along major boulevards in wealthier parts of the city. The idea is to fill in the areas between the transit stops on those boulevards. Unfortunately, developers aren’t biting yet. So far, only six projects have been proposed citywide.

OC-T (zero homes proposed) - Opportunity Corridor Transition Areas allow 4-16 unit “missing middle”-type buildings on residential side streets within a block or two of opporunity corridors. The catch with OC-T is that, like all CHIP programs, it can’t be used on single-family lots, which means it is limited to side streets zoned for duplexes and fourplexes - i.e. the places that already have missing middle housing. This limitation makes OC-T pretty useless, and nobody’s used it yet.

Oof

To recap: CHIP, which city leaders are touting as the vehicle for tripling housing production in LA and meeting our very ambitious housing targets, generated about 9,400 applications for new homes in its first year. Just one-sixth of what the state says we need. Even more embarrassingly, 95% of those homes were proposed through programs that are basically rebrands of successful city housing programs that existed for years before CHIP. And those rebrands, especially TOIA, included tweaks that were intended to make them even more likely to generate new housing. But in comparison with the programs they replaced, the rebranded programs are delivering fewer homes than their predecessors did - certainly not triple the homes. And don’t get me started on the actually new policies in CHIP - so far it’s hard to call them anything but duds.

Why is this happening? One possibility is the effects of ULA, the “mansion tax” that actually taxes new apartment buildings too. ULA has driven down homebuilding overall in the city and creates a huge headwind for any new housing policy, no matter how well-designed. There are also macroeconomic factors like higher interest rates and tariffs, except other cities have managed to keep building despite these challenges. It’s also possible the incentive structures in the CHIP programs could benefit from some rejiggering - perhaps in order to make the math work, developers need bigger rewards for setting aside apartments for low-income families. Finally, there’s the elephant in the room - single-family neighborhoods. After a big fight, City Council opted to exempt them from all of CHIP, leaving a huge swath of developable land on the table.

Enter SB 79

All of this is suddenly extremely relevant, as on Tuesday City Council is starting to consider how to implement SB 79 in LA. As you recall, most Councilmembers specifically cited CHIP’s potential to boost housing production in the city as a reason to oppose SB 79. Well, with SB 79 now law, and CHIP not delivering, how will that impact how Council sees the law now?

Interestingly, the Planning Dept’s report on SB 79 implementation options actually recommends expanding CHIP as a way to get out of implementing SB 79 for now. The state law allows cities to delay it going into effect until 2030 if their transit stations are in low-income areas or already have good enough zoning (this is a gross oversimplification, but work with me here). Shockingly, at least to me, 88% of LA qualifies for deferral - most of the areas around the transit stations in wealthy parts of LA have pretty decent zoning, but a few on the Westside and in the Valley have mostly just single-family homes.

In a bit of four-dimensional zoning chess, the Planning Dept. is telling City Council that they can fully delay SB 79 for four years by partially addressing the single-family elephant. Planning recommends pre-emptively increasing the zoning in some single-family zones so that every part of the city qualifies for deferral. They are actually proposing to upzone using programs from CHIP - either TOIA (up to 7-story buildings) or OC-T (up to 3-story buildings). As we’ve seen, both of these programs are disappointments - especially OC-T, which hasn’t seen a single project application in its first year. Would TOIA or OC-T work better in single-family neighborhoods, where the land is cheaper and there are no existing apartments to contend with? Hard to know.

The more important question is: does City Council feel any urgency? The housing crisis isn’t getting any better, and the city’s vaunted solution is a flop so far. City Council could take this opportunity to delay SB 79 for four years, or they could use this moment as a kind of do-over on CHIP. If the city pre-emptively upzones with a too-weak program that doesn’t generate enough homes, we’ll get four more years of the same failed policies. If instead the city takes this opportunity to actually do a real upzoning (TOIA in single-family zones might be great), they could put CHIP on a path to outshine SB 79 and actually get us out from under this crushing housing shortage.

1  I counted all projects submitted under the Affordable Housing Incentive Program (AHIP), Transit-Oriented Incentive Areas (TOIA), Opportunity Corridors (OC), and Opportunity Corridor Transition Areas (OC-T). This includes applications submitted to the Planning Dept. and directly to Building and Safety (LADBS). I excluded four projects whose applications were withdrawn. Two projects recently submitted to LADBS have an unknown unit count, but they look to be on the smaller side based on the lot size.