With costs escalating and Los Angeles' homeless count continuing to climb, an audit released by City Controller Ron Galperin raises questions regarding the high cost of supportive housing projects built with Proposition HHH funds.

Proposition HHH, a $1.2-billion bond measure passed by more Los Angeles voters in 2016, was intended to produce 10,000 units of affordable and permanent supportive housing.  Three years later, with most of that money now spoken for, HHH is likely to fall well short of that goal.  Assuming all of the 95 projects currently in entitlements or pre-development come to fruition, the ballot measure would generate 7,640 total housing units - 5,873 of which would be supportive housing.

The shortfall has resulted from unexpectedly high construction costs for HHH projects.  In crafting the ballot measure, it was assumed that the cost of building a studio or one-bedroom apartment would be approximately $350,000, while apartments with two or more bedrooms would average $414,000.

In reality, the median per-unit cost of the current pipeline of HHH projects is $531,373 - just shy of the median sales price of a condominium in the City of Los Angeles.  More than 1,000 of those units are expected to cost $600,000 or more, and one project has an average costs that exceeds $700,000.

While the price of labor and materials have contributed to the high cost of HHH projects, land costs have averaged just 11 percent of total project budgets.  According to the audit, unusually high "soft costs," such as fees, consultants, and financing are the true culprit, accounting for upwards of 40 percent of HHH project budgets.

These soft costs are exacerbated by extended approval and construction timelines in the City of Los Angeles.  One survey respondent quoted in the audit described the City's permitting process as a "nightmare."

"HHH projects are estimated to take between three to six years to complete - a schedule plainly out of step with the City's urgent need to bring tens of thousands of people off the streets and into housing," reads the report.

The report also questions the timing of HHH distributions, noting that local ordinances and statewide legislation enacted since 2016 could have eased the entitlement for supportive housing projects, and thus saving the City money.

When the City issued its second round of HHH bonds in July 2018, it had yet to spend down the available funds from its first bond issuance.  This resulted in City taxpayers incurring $5.2 million in additional interest payments without realizing any benefits.

Two recent additions to the HHH program received praise.

The hiring of a "HHH Concierge," - who shepherds projects through the City's approval process - was cast as "a welcome step that should have been taken sooner."

Likewise, the Proposition HHH Challenge issued earlier this year was recognized for its potential to deliver supportive housing at a substantially lower cost, though the audit notes that it is unclear whether these non-traditional projects will be able to obtain State and Federal funding in the future.  Nonetheless, the six challenge projects would generate 975 supportive housing units with an average per-unit cost of just under $352,000 - a steep discount from the average HHH project to date.

The audit closes with a series of recommendations, including the establishment of a centralized accounting authority for the HHH program and additional steps to strengthen the power of the HHH Concierge.

The most aggressive proposal suggested in the audit is to consider reallocating some HHH funds that have been conditionally awarded - specifically those to projects with exceptionally high development costs.  The audit suggest that the money could instead go towards the development of lower-cost supportive housing projects, or other service facilities such as shelters, clinics, storage, and showers.

“We’re not saying we should be ashamed of HHH,” said a spokeperson for the City Controller to the Los Angeles Times. “We’re saying we have a program that is not keeping pace with the crisis at hand. We need to figure out what changes can be made so we can better fulfill the intention voters had when they approved this proposition.”