LA’s tech scene is on the rise. The number of unicorn companies in Los Angeles is growing, and the city has become the third-largest startup ecosystem nationally behind the Bay Area and New York with more than 4,000 VC-backed startups in industries ranging from aerospace to creators. As the number of tech companies in the region grows, so does the number of tech workers. The city is quickly becoming more and more like Silicon Valley — a new startup and a dozen tech workers on every corner and companies like Google, Netflix, and Twitter setting up offices there.
But with growth comes growing pains. Los Angeles, especially the burgeoning Silicon Beach area — which includes Santa Monica, Venice, and Marina del Rey — shares something in common with its namesake Silicon Valley: a severe lack of housing.
According to the most recent Regional Housing Needs Assessment, from 2020, which determines how much housing must be built between 2021 and 2029, Los Angeles needs to construct more than 456,000 units of housing, or around 57,000 per year, to keep up with demand. But the city is anticipated to build just short of 231,000 in that period, or around 29,000 per year. And the flood of new tech workers is only exacerbating the problem.
Tech’s unique problem
The average tech salary in Los Angeles ranges from $114,000 for marketing and design positions to more than $148,000 for developers and engineers. This beats out the median annual household income in LA county, which is just over $71,000, according to the U.S. Census Bureau.
High salaries put tech workers at an advantage in both the renting and buying markets, but it’s major liquidity events, such as a company being acquired or going public, that allow people to put down massive down payments or all-cash offers that really give them an edge, said Matt Canzoneri, CEO and co-founder of home-buying platform DwellWell. “They’re not relying on their high paychecks,” Canzoneri said. “They all of a sudden come into a windfall of cash that shakes up the market.”
Developers are more likely to build and price rental units and homes for purchase at rates that people in tech can afford, but are out of others’ budget.
The city’s IPO activity really started picking up in 2021, when companies including Dave and Rivian went public. According to data from PitchBook, the region saw 18 tech IPOs in 2021. That’s more than double the number of IPOs it had in 2020, when seven companies IPO’d, and more than triple the number of tech IPOs in 2019, when five tech companies went public.
LA has also seen a lot of M&A activity in the last few years, PitchBook data shows. In 2021, 434 tech deals took place in the region, worth an average of $377.6 million. That’s up from 284 deals in 2020 worth an average of $246.2 million.
Developers are more likely to build and price rental units and homes for purchase at rates that people in tech can afford, but are out of others' budget. And with the sheer lack of housing units overall, people who don’t make enough money are getting pushed out of certain areas.
According to apartment rental platform RentCafe, the average apartment for rent in Santa Monica costs $3,958, with 95% of the apartments in the area costing more than $2,000 per month. Meanwhile, the average home value is more than $1.9 million, according to Zillow. In Los Angeles overall, the average rent is $2,734, with 74% of the apartments costing more than $2,000 per month. Houses cost $972,828 on average.
Tech’s unique solutions
Though tech aggravates the housing problem, tech may also provide unconventional solutions: Construction tech companies can create additional housing at a much faster pace than traditional development projects. “We have to look at clever ways of innovating and building our way out of the supply deficit, and one of the ways that we can do that is to limit the time and cost of constructing a home,” said Aisling Carlson, a local startup founder. “Technology can play a key role in adding value there.”
Modal Living, which builds prefab “accessory dwelling units,” sees a heavy concentration of business in Southern California, according to CEO Colin Jube. Adding another unit to a backyard offers “a really good solution for places like LA that have a lot of single-family neighborhoods,” Jube said. California offers a reimbursement of up to $40,000 for households that build an additional unit on their property.
“If you take any average single-family neighborhood in LA or anywhere, there’s really no way to get new, affordable housing into that neighborhood,” Jube said. “It’s built out, and typically zoning will not allow for apartment buildings or other types of housing types. So ADUs are a great way … to add housing density.”
Adding another unit to a backyard offers “a really good solution for places like LA that have a lot of single-family neighborhoods.”
And ADUs aren’t the only things that can be prefabricated. Some companies are building entire homes before they hit a plot of land, often at a much quicker rate than traditional construction. In a city where the construction of new units of housing is slow going, prefabricated housing can be a fix, said Steve Glenn, CEO of Plant Prefab. This kind of building “can make the construction process more efficient from a labor standpoint, from a productivity standpoint, and from a time standpoint, to make it less costly to actually build.”
Though construction tech like this sounds exciting in theory, these solutions must go hand-in-hand with something less cool: Los Angeles zoning laws. “There are way more people that need housing than housing exists,” Jube said. “At its core, that’s really a zoning issue. LA in particular … has a disproportionate amount of single-family zoning.”
The underlying issue
A study released in March by UC Berkeley’s Othering and Belonging Institute found that 78% of residential land in the greater Los Angeles area is zoned for single-family housing.
This means there’s fewer housing units per square mile. From there, it’s basic economics of supply and demand: If construction isn’t keeping up with the increasing demand for housing, prices go up and inevitably get too expensive for the people who’ve lived in the city their whole lives.
For reference: In the Bay Area, which is also feeling a housing crunch, 85% of all residential land is zoned for single-family-only dwellings.
“There’s a housing crisis everywhere. But it’s particularly bad in those two cities, and both of those cities suffer from some of the same issues,” Jube said. “Developers that would otherwise be happy to build higher-density projects simply aren’t allowed to because of zoning.”
More than three-quarters of residential land in the greater Los Angeles area is zoned for single-family housing, but the city and the state are working to make room for more housing units and to rezone.Photo: Nat Rubio-Licht/Protocol
And often, tech’s decision makers are all in on this kind of zoning, with the posh Bay Area town of Atherton being a prime example. Tech executives from Netflix, Google, Electronic Arts, and others wrote strongly worded notes to the city council after it proposed legalizing the construction of multifamily properties. Billionaire tech investor Marc Andreessen wrote to the council that apartment buildings would “MASSIVELY decrease our home values” and “IMMENSELY increase the noise pollution and traffic.”
But it’s not all doom and gloom. LA and the state are working on a number of solutions, including the recently approved LA Housing Element, which requires the city to rezone to make room for a minimum of 255,000 units of housing and could rezone for up to 1.4 million, LA city planner Matthew Glesne told Protocol. Two bills also received support from state legislators in late August that boost home-building by allowing developers to construct housing units on commercial land.
But the city has a long way to go. “We have the second fewest homes per adult of major cities in the country,” Glesne said. “Certainly the lowest income among us pay the price for that.”
Protocol data researcher AJ Caughey assisted with reporting on this story.