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to the United Way or other charities, as opposed to government to resolve social problems. On the left, however, many people feel we should tax “the rich” and have the government build more housing and provide services for today’s homeless population.
As we saw with the recent passage of Proposition HHH, people in general are prepared to invest something. Voters approved more than $1.2 billion, but there is little to show as of yet. The question is do people have a “right” to something like housing, that actually costs money? If they do, who pays for it? I guess the other question is, when it costs over $600,000 to build a new housing unit in the City of Los Angeles, can we ever make a dent in solving the homeless problem when 60,000 over are unhoused today in the City? At $600,000 per unit, Proposition HHH only gets us 2,000 units for the 60,000 homeless on our streets today.
The City has tried to build homeless shelters and found that endeavor very expensive and inefficient. What if we tried a new approach? What if we created an incentive for private investors to risk private capital, build shelters, and make a profit? Many on the left will object to investors making a profit, even though it could provide a more efficient process and timely solution at a lower cost.
What does the provision of housing entail when you break it down? Land, labor, materials, entitlements, permit fees and, ultimately, return on investment. (ROI). In order to make housing more affordable, one or more of the elements in this equation have to be impacted. Another element in the equation is time because “time is money.” The longer it takes to build anything, the more it costs.
So, what would be my proposal for solving this homelessness crisis? I would use the best business solutions from the right, and the best social solutions from the left. To start, we should employ the “Triple Net Lease” concept to encourage private investment. What this means is that the tenant, in this case the government, would assume responsibility for all taxes, insurance and maintenance for the period of the lease, let’s say that term is 20-years. The public would be surprised to learn how many businesses are actually triple net leases, and in fact, many government offices are actually under triple net leases. The risk of getting a project built would
be minimized for the developer, with an assurance that the project would be fully leased upon completion. The government would have no risk as they would only expend funds for completed projects.
Many of the frontend and construction costs, land, engineering, labor, and some materials could be tax deductible, if the project went through the State Tax Credit Allocation Committee. Since they already grant tax credits, special consideration could be given to these homeless projects, therefore, reducing the time to get the credits. This option would only be an option on permanent housing projects.
On the state side, a simple filing with the Franchise Tax Board should be all that is needed to get tax benefits. Some developers may desire to go without receiving the tax credits because of too much red tape. Yet another possibility could be “Social Impact Funds.” These are funds that invest in social projects and require a lower return. Social Impact Funds could literally be rolled over as they become investors in the projects.
Because this could easily be a profitable endeavor, many investors would likely be interested because these projects make great business sense. Each of these options would lower the costs of construction significantly. But more importantly they would reduce a developer’s and government’s risk by encouraging private sector participation. Developers could also solicit investors and distribute the credits and benefits as well as equity positions in the project. The project would still have depreciation and interest deductions like any other construction project. Lost tax revenues from the credits and other incentives would be offset by profits earned by developers and resulting income and property taxes.
For transitional housing, (where the resident would live until a permanent unit was available and they were stable) these would be built as dormitory (co-living) or motel-like structures. Some engineering design and zoning analysis would need to be done in advance to determine the appropriate height and density that would be allowed per lot. Keeping the development projects moderately sized will nullify some “NIMBY” (Not In My Backyard) opposition.
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