Restrictive zoning. Some areas of the city which may be appropriate for new residential construction are not zoned to allow the construction of new homes or apartments. Areas change over time. What was once a thriving industrial corner may now be blighted with vacant buildings. What was once a little noticed corner may now be a new light rail station. What was once an abandoned business district may be seeing significant residential construction. Community leaders can examine the General Plan Framework, their Community Plan and their neighborhoods for areas appropriate for new development, and rezone them so that they allow for new development.
Economic feasibility. One reason for the lack of housing is the difficultly of finding development sites that are economically feasible. Generally, two major factors play a role in determining whether new homes or apartments can be built on a parcel of land.
- Land Costs. High land costs make it prohibitively expensive to build all but high-priced luxury housing. In addition, medium and high densities are often required to make the economics work.
- Size of parcel. Many vacant or unused parcels in the city are too small to build enough homes and apartments to make it profitable for a developer to go through the process of designing and building a new development.
- Government subsidies for affordable housing. A limited amount of government subsidy means that only about 2,000 new affordable homes and apartments are built every year in the City.
- Inadequate return on investment. Local rents and home prices that are low relative to costs of development is an issue for market-rate, but not affordable, developments. Developers need to show their lenders and investors that a particular development earns enough income to "pencil out." That means that once the development is finished it will rent or sell at a price that will allow the developer to pay for the materials, labor, land, and interest that all go into constructing the building and still make a profit. If the developer needs to charge $1,500/month rent to cover all the costs, and rents in the immediate area are $1,200/month – the rent is low relative to the cost of development and the project doesn't "pencil".
- Shifting Market. Real estate development is a boom and bust industry. Not all new development is feasible at any given point in time. For example, Los Angeles has an oversupply of office and retail space making it economically unfeasible to include ground-level retail in most small mixed-use developments. There is so much vacant commercial space, that the chances of renting a new store at a rent high enough to cover the costs of development are extremely small.
Environmental concerns. Some vacant sites and buildings are contaminated with toxic substances due to past industrial or commercial use of the site, or because of the local geology. The cost of cleaning up contaminated "brown fields" for residential use is often prohibitively expensive. There are a few state and federal programs to aid local communities in cleaning up the land.
Noise and pollution. Many vacant parcels are located near heavy industrial areas or major freeways and do not lend themselves to the development of housing due to the impact of noise and/or pollution.
