Surprise! Fraud Alleged in “Low Income” Housing Development

"Affordable housing" is one of those euphemisms that need to be exposed and knocked down. "Low-income" housing is often subsidized, too. So this story by Jessica Garrison and David Zahniser in the Los Angeles Times got my attention.

The cities of Los Angeles and Glendale have filed fraud lawsuits against one of the region's biggest developers of low-income housing, revealing new details about how the politically connected firm allegedly misappropriated public money.

This is one reason why the government should be involved in as few things as possible. There is always a risk of fraud. Is there fraud in private transactions? Yes, but if a business screws me over, I can take my business elsewhere, as can all of my friends. But we're pretty much stuck with our government. Businesses, especially big ones, may manipulate the government system to their unfair advantage over taxpayers and competition. If the actions are actually criminal, they still have to be exposed and then prosecuted. If I suspect a business is screwing me over, I can take my business elsewhere without having proven anything.

When Advanced Development and Investment Inc. used $2.6 million in L.A. housing funds to build apartments known as The Mediterranean, the company reported spending $396,000 for framing. The real cost, according to a lawsuit filed late last week, was $50,000.

In East Hollywood, where the developer built Harvard Circle using $3.9 million in city funds, the company reported $190,000 for glasswork. The city contends that work cost $75,600.

And so it went, according to the suit, in 15 low-income projects paid for with $29 million in city funds over roughly a decade: ADI allegedly reported much higher construction costs than it actually incurred, pocketing the difference. Lawyers estimate that the city could be on the hook for losses between $30 million and $180 million.

The city of Glendale, from which ADI received roughly $34 million since 2005 for four projects, also filed suit, accusing the company of millions of dollars more in fraud.

We don't need a government program to build affordable or low cost housing.

1. All housing that sells or rents is affordable to someone.

2. Housing is made lower cost, and thus affordable to more people, through supply & demand and the costs to produce the housing. All of the costs a company incurs in gaining government approvals, buying the land, designing the development, constructing the housing (materials, labor), and selling the housing must be passed along to the buyers.

Housing prices rise when there is less supply, when it is more difficult to gain approval for building it, and when labor costs are increased. The least expensive housing will be the housing that is in the least desirable location, smaller, and made from less expensive materials.