Los Angeles sits on a sleeping giant of housing supply. It begins with starter home conversions

The Los Angeles City Planning Commission met last month to consider a proposal to slow-walk the implementation of Senate Bill 79, a state law allowing mid- and high-rise housing near transit centers. The proposal would stall SB 79 until 2030, replacing it with a “Low-Rise Ordinance” that places the right type of housing in the wrong place.

Both the city and the commission recognize that L.A. needs more housing. But there is a far bigger, multibillion-dollar housing opportunity in front of them.

According to new research from the American Enterprise Institute’s Housing Center, Los Angeles has a generational opportunity to legalize starter homes: converting aging single-family homes into townhomes, quadplexes or developments of up to eight homes per lot. Legalizing this would add roughly 13,600 additional homes a year, nearly doubling L.A.’s new housing construction, yielding homes at lower prices while generating $9 billion in property tax revenue.

This conversion process has been underway for years. Across the city, single-family homes worth $1.1 million are torn down and replaced by $3.1 million McMansions, without adding supply. Legalizing starter homes doesn’t speed up that cycle; it changes what gets built. A four-home conversion produces homes valued at around $1.2 million each — roughly one-third the McMansion price. Even as individual homes get cheaper, total value rises. L.A. taxes this, so city revenue grows while families pay less.

That is the unusual feature of legalizing starter homes: It solves supply, affordability and revenue problems at once. The revenue stacks as lots convert — about $182 million in year one, $9 billion over the decade, $36 billion over 20 years. It helps fund the city’s general fund, schools and other critical services.

Three factors make the L.A. opportunity so significant. Its single-family stock is old; the typical home was built before 1960. The city has spent decades preventing its housing stock from growing. And land is expensive: the median home is worth roughly $1.1 million, most of that in the land itself. 

The result: nearly 400,000 single-family homes frozen in time on land worth a fortune.

Starter homes are almost entirely a single-family-neighborhood opportunity, making the geography of the city’s SB 79 debate backwards. The state is correct that transit can accommodate taller buildings, and a by-right regime free of SB 79’s red tape could deliver thousands of new homes (one estimate: roughly 4,200 per year).

The city’s low-rise counteroffer is both too much and not enough: more density than L.A. needs with starter homes citywide, but too little to build meaningfully near transit.

Los Angeles was built on starter homes. From 1921 to 1930, the city permitted around 220,000 homes — about half of them duplexes, triplexes, quadplexes or bungalow courts. Two-thirds of those homes still stand. L.A. didn’t stop building them because demand vanished; federal policy, state law and city zoning starting in the 1930s outlawed them.

California has a path to fix this. In 2017, California reformed accessory dwelling unit policy with a simple recipe: streamline approvals, allow by right, lower fees and wait times. The result is almost a quarter of new L.A. homes since have been ADUs. The same recipe applied to starter homes would create a much greater opportunity.

Los Angeles has a shortage of nearly 500,000 homes, and is fighting Sacramento to delay and reduce new construction near transit. Meanwhile, the largest and most beneficial change available to any city sits in plain sight on every block of single-family LA. By legalizing starter homes, the city could build 136,000 more homes over the decade at lower prices, and the $9 billion would fund crucial services. The only question is whether the city will pick it up.