Transit-Oriented Incentive Programs and Multifamily Housing: Evidence from Los Angeles

High housing costs in major US cities have brought renewed attention to the regulatory constraints that limit new residential construction. In response, many local and state governments have adopted policies that aim to produce new housing units by easing these constraints. Among these, transit-oriented development incentives—which legalize or encourage dense housing near transit—are popular.

In a recent working paper, I study the impacts of one such policy. Los Angeles’s Transit-Oriented Communities (TOC) Incentive Program was implemented in 2017 following voter approval of a ballot referendum (Measure JJJ), which, among other provisions, enabled the City of Los Angeles to create an affordable housing incentive program for developments located near major transit stops. TOC raised the threshold for discretionary review for some projects and granted regulatory relief (i.e., density bonuses and reduced parking requirements) in exchange for income-restricted units. The program applied to land within a half mile of major bus and metro stops and zoned for two or more residential units.

By shifting many multifamily housing developments from discretionary to ministerial (rules-based) approval, LA’s TOC program altered the approval timeline and probability for projects near major transit stops. Using a novel dataset that links entitlement applications, permits, and parcel-level characteristics, I examine how the shift from discretionary review to rules-based approval affected the quantity, type, and timing of new housing development.

Four findings emerge from this analysis. First, on average, the number of units proposed annually has more than doubled. Second, despite the surge in applications and changes in the location of approved projects, the TOC program had no economically significant impact on the aggregate supply of housing in Los Angeles. Rather, I estimate that TOC increased the housing stock by fewer than 560 housing units over six years.

Third, the program shifted the composition of new development. Projects using TOC incentives were more likely to include income-restricted units and to be in lower-income, renter-occupied neighborhoods. Given that the program had no observable effect on the number of units permitted, this suggests that LA’s TOC program increased the number of income-restricted units by decreasing the number of market-rate units.

Finally, according to my analyses of pre-TOC developments, TOC projects in areas with higher predicted opposition were more likely to be proposed and permitted. This finding suggests that the program enabled projects previously unlikely to succeed under discretionary review.

Why did streamlining of the approval process increase proposals and the supply of affordable units, but have little effect on the total number of permitted units? TOC's muted effect on aggregate supply is partly due to timing. By the time developers had secured a location and TOC approval, they were facing Covid-related lockdowns, supply chain issues, rising construction prices, and increased financing costs. The incentives provided by TOC were likely too small to overcome the increase in costs.

The design of the TOC program also seems likely to have contributed to its limited impact on supply. Projects proposing to add 50 or more units at baseline (i.e., without density bonuses) were still subject to discretionary reviews. Most projects were likely to be well above the higher discretionary review threshold. Moreover, it is possible that the income threshold for affordable units was too low. When deciding whether to build, developers consider the trade-off between lost revenue due to income-restricted units and potential revenue from having more market-rate units. It is possible that the never-built projects would have required rents that were too high for the project to be profitable.

The experience of LA’s TOC program reveals how land use reform can (and cannot) reshape the supply of urban housing. While the program did not meaningfully increase the total number of permitted multifamily units, it has enabled a different kind of development: more income-restricted buildings, often in lower-income neighborhoods with higher expected opposition. These findings highlight how procedural streamlining can shift the type and location of urban development, even if aggregate supply effects are limited.