By Konrad Putzier

ALTADENA, Calif. -- California's economic future hinges on solving the state's crippling housing shortage. The charred landscape around Los Angeles presents a major test.

January's wildfires turned more than 16,000 buildings in the Altadena and Pacific Palisades into toxic ash. These are largely single-family-home enclaves, but the state in recent years changed laws to make it easier to build apartments.

Now, California faces a choice. Will it build the housing it badly needs? Or will it accept economic stagnation as the price for leafy neighborhoods of single-family homes?

Some housing advocates believe the fires created new urgency to add density. Among them, pro-development group Abundant Housing LA is urging the city of Los Angeles to change zoning rules to allow for more apartments in single-family areas throughout the city.

"I absolutely think the wildfires have changed the conversation," said Azeen Khanmalek, the group's executive director.

In Altadena, reconstruction is still months or even years away, but worries about dramatic change are already rising. Handwritten placards reading "Altadena not for sale!!" sprang up soon after the Eaton fire ravaged the Los Angeles County community. Locals reported sightings of suspiciously well-dressed men -- real estate speculators, they feared -- taking photos of properties. These were rumors, but they ran wild on social media. A columnist at a local newspaper debunked a theory the fire was planned to spur on denser development.

"I don't want to rebuild next to multifamily housing," said Victoria Knapp, chair of the town council in Altadena. The suburban community is about 11 miles northeast of downtown Los Angeles

Knapp's midcentury-modern house burned to the ground and so did many others on her cul-de-sac. "If a developer bought all of those, then all of a sudden I don't live in a single-family neighborhood," the 58-year-old said.

Anti-apartment sentiment is also brewing in Pacific Palisades, a scenic neighborhood on the western edge of Los Angeles. There, Rick Caruso, mall owner and runner-up in the city's last mayoral election, has said he opposes new development that adds density.

California's housing shortage is at the root of its economic problems. Residents are leaving for other states at a rapid clip. Economic expansion lags behind states like Texas and Florida. California's unemployment rate, recently 5.5%, is the second highest in the country and has risen much faster than the national rate. Inflation, driven in large part by housing costs, is eating into renters' living standards.

"California is absolutely strangling itself with this housing shortage," said Scott Wiener, a San Francisco Democratic state senator who is a proponent of development.

California's housing construction is well below levels seen in the 1980s and 2000s, when the state's population was smaller. The typical home in California costs more than twice as much as the national average, according to Zillow data. The extreme costs contribute to California's homelessness crisis as housing prices grow faster than wages.

State and local red tape can drag housing construction projects out for years, if they get approved at all. Gov. Gavin Newsom and state lawmakers have in recent years worked to loosen some restrictions that slow housing construction.

Businesses struggle to hire when workers can't afford to live nearby. Soaring housing costs have made it hard for Los Angeles to find municipal workers, said Nithya Raman, a city council member.

Shortages push housing development to the fringes, where homes sit uneasily next to forests and brushland. That makes them vulnerable to fires, which are becoming more frequent and deadly as the Earth warms. The Eaton and Palisades fires could end up costing anywhere from $40 billion to over $200 billion, according to different estimates.

Building more density in the most fire-prone hillsides, where the lack of affordable insurance alone is a big impediment, is unlikely. The question is whether more housing can be built farther away from the hills.

The root causes of California's housing crisis go back more than a century, when cities started creating zoning rules that reserved most urban land for single-family homes. Restrictions grew for decades.

The result: As of 2024, 96% of all residential land in California was zoned for single-family homes, including 74% of residential land in the city of Los Angeles, according to the University of California, Berkeley's Othering and Belonging Institute.

The years after the 2007-09 financial crisis exacerbated California's problems by shrinking home construction. Tighter lending policies, high land costs, bureaucratic delays and labor shortages were all contributing factors.

Altadena -- a suburbanized, unincorporated community of about 42,000 people at the foot of the San Gabriel mountains -- grew under these longstanding limits.

The supply-and-demand mismatch pushed rents and home prices ever higher. Much of the community maintained a middle-class look, filled with modest-size, midcentury homes, but with California-size prices. The average home value there was $1.27 million as of January, according to listing site Zillow. Home sellers benefit, but middle-class buyers and renters are shut out.

"There's not one person who works at our sheriff's station that lives within 20 miles from here. Same with the post office," said Knapp, the Altadena town council chair.

She said she's open to duplexes. She's also considering an accessory dwelling unit, or ADU, on her lot for guests. But she doesn't want to see big apartment buildings next to single-family homes. Although Altadena's Black population has shrunk in recent decades, the area is still home to many Black homeowners, and Knapp worries that they will leave if developers buy their lots.

When wildfires destroyed predominantly single-family neighborhoods in the past, they were mostly rebuilt as before, largely with single-family homes. But in recent years, the state passed laws making it easier to build apartments or more units on single-family lots. Under pressure from the state, numerous localities, including the city and county of Los Angeles, changed zoning rules to allow more apartments.

Last year, Los Angeles County updated a land-use plan and allowed more apartments along a couple of Altadena's commercial streets while restricting development on the fire-prone hillsides. The changes were modest, but more than 600 people signed a petition in opposition.

"This whole issue became very hot," said Michael Bicay, president of Altadena Wild, an environmental group that supported the new zoning plan.

The Eaton fire then supercharged worries about change.

"We all really hope for the ability to restore our community to what it was and not have it be turned into something by big developers that nobody wants to see," said one attendee at a post-fire virtual community meeting hosted by U.S. Rep. Judy Chu, a Democrat whose congressional district includes Altadena.

In late January, the Los Angeles County Board of Supervisors, which governs Altadena, unanimously voted to ask the state to temporarily suspend some pro-development laws in the fire-affected areas, citing the threat of displacement. These laws include rules that allow developers to build taller if they set apartments aside as affordable, and the rule that allows duplexes on single-family lots.

The governor's office is in conversations with the county, Newsom spokeswoman Tara Gallegos said. The governor is committed to a plan that is "responsive to community need" while also "maintaining the state's commitment to increasing the supply of affordable housing," she said.

At the county board hearing, the motion drew criticism from supporters of housing density. It "is an attempt to override every progressive housing and land-use policy passed in the last five years, the laws designed to make housing more affordable," said Michael Schneider, CEO of transportation nonprofit Streets for All.

Rob Orlandini, who lost his Altadena hardware store in the fire, wants to preserve the community's unique small-town feel. He doesn't support big apartment buildings, even if they could mean more customers.

"I don't want that," said the 38-year-old, who grew up in Altadena and has spent most of his life there. "I prefer it to stay the same way."

Write to Konrad Putzier at konrad.putzier@wsj.com

(END) Dow Jones Newswires

March 08, 2025 21:00 ET (03:00 GMT)

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