Upzoning Was Meant To Fix L.A.’s Housing Crisis—Is It Making It Worse?

Gary Mkrtichyan thought he was helping solve Los Angeles’ housing crisis.

Last year, the general contractor broke ground on a small infill project in a single-family neighborhood—exactly the kind of construction California’s new zoning laws were meant to encourage.

But nearly a year later, the project is stuck in limbo, and what began as a plan to build more housing has turned into a master class in red tape, rising costs, and bureaucratic confusion.

“What the city is telling you is, ‘Hey, we’ll let you add more homes, but you also have to fix the sidewalks. You have to give our streets more lighting out of the developer’s pocket,’” he says. 

Those costs are eating into developers’ already shrinking bottom lines, and raising alarm bells that the upzoning laws taken up by cities and states across the country may fall short of what’s needed to adequately address the housing crisis.

The idea behind these reforms is simple: Add density, ease shortages, and bring down prices. But builders and developers say the math no longer works. Even as local governments urge them to build, the true cost of turning those promises into real homes has exploded.

While much attention has focused on rising materials and labor costs, the hidden costs—of upgrading utilities, navigating conflicting agency rules, and waiting months for basic approvals—risk adding yet another headwind that is passed off as higher costs to renters and homebuyers.

In Los Angeles, new apartments now need rents of $4,000 to $5,000 a month just to break even, according to the Los Angeles Times. And for small builders like Mkrtichyan, those numbers don’t pencil out.

“My clients are going bankrupt on this project,” he says. “That’s the reality of it.”

The project that should have worked

After the devastating Eaton and Palisades wildfires, California Gov. Gavin Newsom signed a series of measures aimed at fast-tracking housing construction.

“The world looks to California for leadership—it’s time to build modern, connected communities that fulfill California’s promise, meeting the needs of today and the next generation,” the governor wrote in a signing statement for SB 79, a bill aimed at allowing more high-density development near major public transit centers.

For general contractors like Mkrtichyan and the developers who work with him, these measures should have been a boon. Instead, there were problems from the start for his multifamily apartment building on what had once been a single-family lot.

Before he could get started on the actual construction process for his infill lot, Mkrtichyan had to upgrade nearly every piece of public infrastructure touching the property: new gas, sewer, and water lines, a relocated fire hydrant, and extra street lighting. Most of it sat on city property. All of it came out of his client’s pocket.

Then came the gas line debacle. Mkrtichyan discovered a gas line running through the property that fed a neighbor’s home. When he called to have it moved, the company billed him $70,000 for the fix and left him waiting months for a response.

“After it was in the scheduling department for two months, nobody got back to me about anything,” he says. “The new person’s email that they gave me was actually the wrong email. So for another two months, I’ve been trying to reach an email that is the wrong email.”

After eight months of back-and-forth, he finally tracked down a regional supervisor through LinkedIn.

“They told me that they were going to finish this within a week or two. … They emailed me yesterday saying they don’t have a date for me.”

And that was only one utility. To move a fire hydrant, Mkrtichyan had to go through another provider. He waited nearly two months for a response. Then another agency told him to install a new storm drain using a city-approved product available from just two suppliers. Both were back-ordered for six to eight months.

“Why would a homeowner have to install the storm drain for city street stormwater? It’s chaos,” he says.

Meanwhile, the property sat idle. The client continued to pay $20,000 to $30,000 a month in interest and overhead, plus an additional $8,000 to $9,000 for round-the-clock security after the job site suffered multiple break-ins.

For him, the irony is impossible to miss. A project designed to create new housing has become a casualty of the very systems meant to support it.

“They do not have the infrastructure, they don’t have the organization, they don’t have the manpower to do this,” he says.

L.A.’s housing fix meets bureaucratic gridlock

Los Angeles is at the top of California’s housing agenda—under the 2021-2029 cycle it must plan for some 456,643 new housing units, including roughly 185,000 affordable units, according to the city’s Plan to House LA. Yet city documents acknowledge that existing zoning capacity won’t suffice, obliging L.A. to rezone enough land for an additional 255,432 units.

Meanwhile, the systems tasked with approving development—zoning, permitting, utilities—were built in a very different era and are now under strain to deliver at this new scale. And that’s a problem.

“Revising zoning laws to legalize a more diverse range of homes—particularly smaller homes that use less land—is one step in a broader policy agenda," writes Jenny Schuetz, a senior fellow at the Brookings Institution. 

“Local and state governments that want to boost housing supply also need to rethink related regulations, including discretionary review processes, building codes, parking requirements, and impact fees.”

For Mkrtichyan, that fragmentation is more than theoretical. He says he’s heard from developers across the city reporting similar experiences.

“It took one of my clients in Van Nuys almost four months after they passed their final inspection for [the power company] to come and power the building,” he says.

A bellwether for the nation

What’s happening in Los Angeles is a warning shot for the rest of the country.

In the last five years, dozens of states and cities have embraced versions of California’s housing playbook. Oregon; Minneapolis; Austin, TX; Portland, OR; and Denver have all passed or proposed “missing middle” reforms that loosen single-family zoning and encourage multiunit construction on smaller lots. The logic is universal: Build more homes, prices will stabilize.

But if California—one of the biggest housing markets in the country—can’t make them work in practice, it raises a question and an opportunity for everyone else: What other systems need to be addressed to ensure the success of upzoning reforms?

As the Urban Institute observes, even when upzoning allows more homes, “there is little evidence that big upzonings will produce an adequate number of housing units affordable to families with low incomes.” 

Instead, more work is needed to be done to bring down the overall costs of construction from materials, labor, and the types of delays that stem from a bureaucracy built for a different time.

'Shine a light' on a broken system

Mkrtichyan still believes in the idea behind California’s reforms. After all, the state desperately needs more homes. But on the ground, the process feels designed to defeat that mission.

When Mkrtichyan visits his worksite now, the future he once imagined—a row of new homes filling an underused lot—is hard to see.

“The only thing we could do is talk about it and shine light on it,” he says, “so hopefully one day somebody does something about it.”

For now, the site stands as its own metaphor. It was supposed to be proof that California could build its way out of a crisis. Instead, it’s become a reminder of how even the best-intentioned policies can collapse under their own weight—when the systems built to support them can’t keep up.