The Costco Apartment Building Caper
Often, a single city council member who opposes a project can hold things up for years.
In a remarkable bit of regulatory maneuvering, Costco, the membership-only big-box retailer, has entered the apartment investment and development business.
On a vacant 5-acre parcel in south Los Angeles, a standard big-box Costco will be going up in the near future. However, in an effort to bypass the absurd regulatory structure in Los Angeles, Costco will be tacking on several hundred apartment units to their store development, including 184 “affordable” units made from prefabricated modules. The remainder of the mixed-use project will comprise recreational facilities and some green space.
Planning the development in this fashion, rather than just building the Costco store, is an attempt by Costco to exempt the development from drawn out and costly state reviews, saving many millions of dollars and potentially years in approval timeline.
Never Let a Housing Crisis Go to Waste
The regulatory structure that incentivizes this move by Costco relies on the premise that there is a housing crisis or emergency in Los Angeles, and in California broadly. It fails to recognize that the housing crisis, such as it is, is caused and exacerbated by that same structure – specifically, excessive zoning laws and related regulations.
A recent Wall Street Journal article described a 49-unit affordable housing project in Los Angeles that has taken 17 years to build. Bureaucratic approval often sits on the critical path, allowing no other progress to be made until it’s received. Often, a single city council member who opposes a project can hold things up for years. One can easily imagine the political power, and benefits, that comes with such opposition.
Longer timelines for building are just one symptom of regulatory excess. High prices are another. In San Jose, CA, the cost to build a single unit of affordable housing increased by 24% in 2022, reaching a new high of $938,700!
The median home price in California – a dysfunctional state with significantly negative outward migration – is over $900,000. Three of the six markets with the highest regulatory intensity vis-à-vis housing are in California, including Los Angeles in 5th. The average time to construct an apartment building in the city is four years.
One housing executive put it succinctly:
“Thinking about building in a city like Los Angeles and dealing with the politics, navigating the bureaucracy, it’s the last place I want to be.”
Checking Out
Costco can hardly be blamed for doing what they need in order to get their project off the ground with the least disturbance from government planners and an army of state bureaucrats.
As California continues to mire in its own filth, this episode goes to show that government interference in the economy creates perverse incentives, always ending up in malinvestment, low quality, and high prices.
Good thoughts, especially "It fails to recognize that the housing crisis, such as it is, is caused and exacerbated by that same structure – specifically, excessive zoning laws and related regulations." The Rush Limbaugh Theory proven valid once again: "Everything the government touches, turns to crap." Cosco should not be gaming the system, but threatening to close all its stores in Mexifornia until its corrupt government rescinds its insane regulations concerning housing. Business needs to find a backbone, or will be either Bud-Lighted by consumers or crushed by unelected progressive bureaucrats. No wonder there are so many cars here in rural North Carolina with California plates.