Why Developers are Pivoting to This Apartment Type in Los Angeles

Near Los Angeles International Airport, Six Peak Capital has begun construction on a 116-unit affordable housing project—a notable shift for a developer once focused on market-rate co-living spaces. In South Los Angeles, SoLa Impact recently opened a 79-unit affordable complex at just under $275,000 per unit, far below the city’s typical $1 million cost per unit. Meanwhile, in the San Fernando Valley, developer Passo is set to open its first affordable project ahead of schedule and under budget. These developments reflect a broader surge in affordable housing across the region, targeting residents earning below 80% of the area median income of $106,000. Advocates credit this boom to a streamlined approval process that could serve as a model for other U.S. cities, even as market-rate housing projects stall amid high costs, strict regulations, and limited buildable land.

Much of this momentum stems from Executive Directive 1 (ED1), a policy enacted by Mayor Karen Bass in late 2022 that allows fully affordable projects to skip lengthy public hearings and City Council votes. The directive has reduced approval times from months to mere weeks, leading developers to propose more than 35,000 ED1-backed units and secure approvals for 29,000 as of August—surpassing the combined total from 2020 to 2022. “The capital is available, the sites are actionable and the financial community is watching,” said Passo Principal Simon Aftalion, whose firm plans to build nearly 3,000 units under ED1. Still, Los Angeles faces a steep climb toward its state-mandated goal of permitting 456,000 new homes by 2029, including 184,000 affordable units. Despite ED1’s success, high construction costs, complex financing, and lingering bureaucratic hurdles continue to challenge multifamily development across the region.

National Interest

The Los Angeles City Council is moving to codify Mayor Karen Bass’s Executive Directive 1 (ED1) into law, creating a permanent ordinance modeled on its framework. ED1, enacted in late 2022 to accelerate affordable housing approvals, has become a leading model nationally, according to YIMBY Law executive director Sonja Trauss, whose group has defended several ED1 projects from legal challenges. Despite its promise, confusion over implementation initially slowed the rollout, prompting three major revisions. “Clarity has arrived, but there was a lot of frustration that ensued in the beginning,” said Kevin Kawaoka of NAI Global. The directive remains the fastest path to approval for affordable housing in Los Angeles, with many applications processed within 60 days, while other programs such as the City Housing Incentive Program and SB 79 also support affordable development through additional incentives and streamlined approvals.

However, critics warn that ED1’s speed and flexibility have fueled speculation rather than construction in some cases. Developers have used the expedited process to secure entitlements and flip sites for profit, driving up land prices without adding housing. Others have proposed dense micro-unit projects that are difficult to lease, sidelining mission-driven builders and undermining ED1’s core goal of quickly delivering affordable homes. As interest rates rose, many small developers behind early ED1 projects have begun selling entitled properties, including one of the first— a 75-unit complex at 1228–1238 S. Normandie Ave. “People saturated the market at the beginning,” said consultant Jordan Beroukhim, noting that many smaller players can no longer afford to build and are now offloading sites to larger developers.

Growing Pains

While many ED1 housing proposals have stalled, others—such as Six Peak Capital’s Ramsgate project in Westchester—are moving forward with solid financial backing from low-income housing tax credits and strong lender interest. Developer Chris Aiello said that as market-rate opportunities dry up, more capital is flowing into affordable housing, with multiple funds competing to finance Ramsgate’s $31.3 million construction loan. The project, which broke ground in October 2025, will deliver fully furnished studios, one-bedroom, and two-bedroom units by late 2027. Debt broker Zack Streit of Priority Capital Advisory, who arranged the financing, noted that lender enthusiasm for ED1 deals is surging as traditional multifamily construction slows across Los Angeles.

According to Streit, ED1 projects can now achieve returns close to 7%—once unthinkable for affordable housing—thanks to waived parking mandates, higher allowable density, and California’s property tax exemption for qualifying developments, which together can boost yields by 100 basis points. Aiello said Six Peak is leveraging the state’s welfare tax exemption through a nonprofit partner, calling it “an important piece of the puzzle.” These financial tools, combined with ED1’s streamlined approvals, are reshaping the city’s multifamily investment landscape. Lenders are beginning to view ED1 projects as a distinct asset class, adjusting underwriting standards and return expectations to match the new economics of affordable housing in Los Angeles.

A Permanent Vision

The Los Angeles City Council's tool to make ED1 permanent is the proposed Affordable Housing Streamlining Ordinance.

A new provision to the ordinance, however, requires union labor on buildings over 85 feet, sparking concern that additional labor mandates could creep into smaller projects and make projects pricier and more challenging, Aftalion said.

Adding union labor requirements "will only serve to exacerbate Los Angeles’ housing affordability crisis,” he said.

The ordinance advanced out of the Planning and Land Use Management Committee in early October with a 4-0 vote. It now heads to the Housing and Homelessness Committee, chaired by Councilmember Nithya Raman, who can choose to waive the hearing or bring it forward before a full Council vote.

If approved, the ordinance would codify ED1 into the city’s municipal code, replacing the temporary executive order with permanent legislation.