Affordable Housing in California: Trends, Challenges and Opportunities for Developers

Real Estate partner Connie Pak provides an insider perspective on the affordable housing landscape for developers in Los Angeles, discussing emerging trends like mixed-use developments and adaptive reuse, as well as the challenges posed by high land costs, labor shortages and environmental regulations. Connie also highlights the evolving legal landscape and innovative opportunities for developers to create impactful projects that address California’s housing crisis while aligning with their business objectives.

Tell us about your practice and the types of real estate development matters you typically work on. 

My practice consists of a broad array of commercial real estate transactions encompassing leasing; purchase and sale; mortgage and construction financing; the development and management of office, retail, industrial and mixed-use properties; and affordable housing transactions. I work with municipalities, developers, owners and investors in all aspects of commercial real estate development and have particularly enjoyed working on complex mixed-use transactions involving retail, affordable housing and commercial components coupled with various layers of financing. 

With our representation of the county of Los Angeles, for example, Loeb has helped transact approximately over $800 million worth of financing provided toward new affordable housing projects throughout the county since 2021. We continue to help our clients provide much-needed public housing to the local community. 

Can you briefly explain what affordable housing means in California and why it has become such a critical issue? 

California has long been facing an affordable housing crisis due to chronic housing shortages, increasing rents and stagnant wages. The state has seen its homeless population grow year after year. Californians who are most affected by the housing affordability crisis are renters and households with the lowest incomes. In response, California has proposed policy solutions targeting such households and bypassing various legislation to address the housing crisis. However, challenges remain, such as high housing and construction costs, inadequate shelter spaces, and the need to streamline housing production in the face of declining state and local funding. 

In addition, the recent wildfires in Los Angeles have only exacerbated the situation, which Mayor Bass and Gov. Newsom have been trying to address by signing executive orders and presenting initiatives to expedite the creation and rebuilding of housing and to prohibit price gouging at rental properties.

What emerging trends are you seeing in affordable housing development? 

We are seeing more mixed-use developments, which combine residential, commercial and recreational spaces within a single project. This approach creates vibrant communities while maximizing land use in densely populated urban areas. Developers and consumers have been recognizing the benefits of creating environments where residents can live, work and play without the need for extensive commuting, ultimately contributing to a higher quality of life. 

There has also been much discussion in the industry about adaptive reuse and the challenges of adapting underutilized commercial spaces such as office space for residential redevelopment. Given the expense of new construction, especially where retrofitting is needed, the state legislature has attempted to address such challenges and support conversion opportunities with the introduction of certain bills, but these projects are difficult to implement. The law continues to evolve in this area as developers look for more opportunities to streamline the reuse of nonresidential space.

Another trend we are seeing is a growing interest in the development of sustainable building practices. Due to increased awareness relating to climate change and its environmental impact, the industry has been focused on trying to adopt eco-friendly construction methods in new projects, such as using renewable energy sources, energy-efficient building materials and advanced technologies to reduce the environmental footprint of new developments. Such initiatives align with California’s long-standing commitment to environmental sustainability and its stringent regulations governing emissions.

Lastly, California’s real estate industry is increasingly using artificial intelligence technologies which can shape how projects are conceived, designed and delivered. The design phase in particular benefits from the use of virtual reality and augmented reality, and such tools can provide a new interactive experience for consumers during property tours and allow them to visualize a space before construction.

As the landscape shifts, what new laws or regulations have significantly impacted affordable housing in California? 

California’s numerous housing laws have gained attention in recent years. The state has implemented new laws aimed at increasing housing production in response to rising demand. In 2025, several new laws have taken effect. Below is a high-level overview of a few of these laws:

• SB 1037 penalizes local governments that fail to meet the requirements of housing element law—e.g., by blocking or delaying approved housing—and would impose penalties of up to $50,000 per month. These funds would go back into supporting affordable housing in those same areas. 

• AB 3093 amends the rules so that, among other things, cities and counties must plan for everyone’s housing needs, especially those at the lowest income levels, so that all Californians can have a place to live.

• SB 1395 expands emergency shelter options, making it easier to develop and operate interim housing, including emergency shelters and designated public facilities. These facilities provide a place to stay and help users with obtaining housing assistance, health care and other services to help them get back on their feet.

What are some of the biggest challenges developers face in the affordable housing space? 

In addition to the state’s various housing mandates, one of the largest hurdles is the high cost of land. As demand for real estate continues to rise due to population growth and economic opportunities in urban areas, land prices continue to rise. This leads to limited options for developers seeking to construct affordable housing and other developments. To address escalating costs, developers are required to come up with creative financing solutions that will still allow them to obtain a potential return on investment.

California is also experiencing an ongoing labor shortage within the construction industry. The demand for skilled labor has outstripped supply, resulting in increased labor costs and project delays. Without a steady supply of qualified labor, project timelines and budgets are adversely impacted. 

Environmental concerns also pose another challenge for real estate developers in California. The state’s strict regulations regarding environmental protection, carbon emissions and sustainability require developers to conduct thorough assessments and ensure compliance with laws. Issues such as air quality and water scarcity along with the increasing occurrence of climate-related disasters can influence project approval processes and delay a project while increasing costs. To address these challenges, the industry is seeking ways to adopt sustainable practices, such as using eco-friendly materials and employing green building technologies.

Looking ahead, what opportunities or challenges do you foresee for developers in California’s affordable housing space? 

While there continue to be challenges imposed by high land costs, inflation, construction labor shortages, and supply chain disruptions and delays (to name a few) amid an ever-changing legal landscape, there are opportunities for developers to bridge the affordability gap. 

Developers can continue focusing on developing or rehabilitating affordable housing spaces by incorporating office and retail spaces, for example, into their affordability projects. By doing so, they can leverage tax incentives, fee reductions and financing programs favorable to affordable housing, zoning approvals, and other subsidies in their mixed-use projects. Developers might consider expanding existing properties by adding affordable units into their projects and conducting operations in affordable housing-friendly localities. 

Also, the recent changes in accessory dwelling unit (ADU) laws can provide more opportunities for developers to construct ADUs by taking advantage of relaxed permitting rules and building restrictions, thereby contributing to the housing supply. Furthermore, advancements in technology are expected to streamline the development process, which may provide more efficient and tailored solutions. 

As the affordable housing space in Los Angeles continues to evolve, especially in the wake of the January wildfires, developers must remain vigilant in finding innovative ways to create impactful projects while balancing financial and business considerations. At Loeb, we continue to closely monitor the housing and real estate industry to provide effective counsel to our California clients, keeping them informed of emerging developments and helping them identify and navigate potential challenges.