A Third of LA’s Affordable Housing Is Out of Compliance

The Los Angeles Housing Department was sitting on a $2.9 billion loan portfolio, responsible for 47,000 affordable units across 1,600 properties — and had no system to monitor whether any of them were financially solvent, physically safe, or compliant with basic requirements. One project had been losing money every year since 2016. Nobody flagged it. Inspectors visited buildings with roach infestations and mold and filed nothing. A third of properties broke the rules. Almost no one enforced them.

This is the department that Mayor Karen Bass put at the center of her housing emergency. On her first day in office, Bass declared a state of emergency and signed executive directives to fast-track affordable housing construction. She re-upped the emergency in July 2023, calling for the city to respond “urgently and aggressively.”

A performance audit released June 5, 2025 by City Controller Kenneth Mejia shows what that urgency actually looked like inside LAHD.

And while some of the audit’s years predate Bass’s tenure, this is the mayor who ran on affordable housing. She should have something to show for it other than noncompliance.

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A Third of Properties Are Noncompliant.

The audit found that 33% of affordable housing properties were noncompliant in 2023. That includes 13% with actual violations like over-charged rents or over-income tenants, and 20% that didn’t submit required documentation at all. Noncompliance has been rising: 27% in 2021, 31% in 2022, 33% in 2023.

LAHD staff told auditors that a 30% noncompliance rate is “average in their experience.”

When properties don’t submit required documentation, LAHD’s Occupancy Monitoring Unit is supposed to follow up. In the 12 months auditors reviewed, there were 179 “Non-Submission” properties. LAHD sent follow-up notices to 27 of them (15%). Of those 27, only 3 became compliant. That’s a less than 2% resolution rate on the most basic compliance function the department has.

Auditors found one property charging rents more than 30% above LAHD’s limits since at least 2019. For some units, that overcharge held for years — and the same property was renting to tenants whose incomes exceeded the eligibility limit by as much as 60%. LAHD knew. It did nothing.

The main enforcement tool LAHD has is a referral to the City Attorney’s Office. LAHD made 11 such referrals in 2022. In 2023, it made zero. With hundreds of noncompliant properties flagged by its own contractor, the department logged not a single referral for legal escalation that year.

The City Attorney’s Office declined to meet with auditors at all.

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Roaches in the Walls, Mold in the Units

Federal HOME program regulations require LAHD to inspect HOME-funded rental projects for health and safety at least once every three years. Beyond that, LAHD runs a Systematic Code Enforcement Program (SCEP) aiming for a four-year inspection cycle across all rental units citywide.

Auditors found that LAHD has not completed the SCEP cycle it started in 2019. More than five years in, over 27,000 of 107,000 rental properties are still waiting for an inspection case to be opened.

The inspection gaps are bad enough. What LAHD actually does when inspectors show up is worse.

During site visits for the audit, inspectors found evidence of roach infestations at multiple affordable housing properties. Dead roaches at a senior housing project. Roach droppings at a HOME-funded project. Live infestations at another.

LAHD’s inspectors can’t cite any of it.

City code enforcement only has authority over building, electrical, and plumbing violations. Mold and infestations technically fall to the Los Angeles County Department of Public Health. When LAHD inspectors see roach infestations, their official response is to leave a pamphlet for the tenant explaining how to call the County.

Except they often can’t do even that, because tenants aren’t home during business-hours inspections, and the County won’t accept referrals without tenant contact information.

The result: LAHD inspectors walk through units with visible infestations and leave with nothing on paper. Violations that directly threaten residents’ health go uncited.

Federal HOME regulations require LAHD to establish property standards that include mold and infestation, with written inspection procedures to address them. The audit found LAHD has neither. LAHD’s defense is that it enforces the existing building code, which it claims is more restrictive in some ways than HUD standards. But that code doesn’t cover mold or infestations. The argument is circular: they follow the code, the code doesn’t cover what’s making people sick, nothing changes.

The audit notes that LAHD already has the authority, as the city’s HOME administrator, to cite for things beyond the Housing Code. Inspectors already cite for missing refrigerators in HOME-funded units under federal authority. They could do the same for mold and roaches. They haven’t.

This is the department Mayor Bass called “critical” to confronting the city’s housing emergency. It found roaches in senior housing and left a pamphlet.

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$2.9 Billion in Loans, With No Financial Monitoring.

LAHD manages a loan portfolio worth more than $2.9 billion to affordable housing projects across the city. Nearly 80% of those loans are residual receipts loans, which only generate payments when a project is profitable. In FY 2022-23, LAHD collected over $29 million in loan payments.

When affordable housing fails financially, units go vacant, tenants get displaced, and the city has to spend millions cleaning up the wreckage. Bass knows this firsthand. The Skid Row Housing Trust collapsed in early 2023, threatening nearly 2,000 units at 29 properties. After a court-appointed receiver took over, LAHD inspectors found over 600 code violations at the Trust’s buildings. The city spent roughly $36 million stabilizing the properties through a receivership process that took nearly two years to wind down.

The audit asked a basic question: does LAHD monitor the financial health of the projects it’s lending to, so it can see the next Skid Row Housing Trust coming before it collapses?

The answer is no.

LAHD does not have a process to annually assess and monitor the financial health of affordable housing projects. Its Loan Portfolio Unit reviews financial statements from borrowers only to calculate loan payments due to the city. It does not use that information to evaluate whether a project is financially sustainable, whether it’s building adequate reserves, or whether it’s showing early warning signs of distress.

Auditors identified affordable housing projects in financial distress that were not on LAHD’s list of at-risk properties. One of those projects had been unprofitable every year since it began operating as affordable housing in 2016 — year after year of losses through the end of the audit period, and still not on the watchlist.

There’s also a supply problem. As of May 2024, LAHD was still waiting on approximately 170 of 700 (25%) project financial statements that were due in 2023. The department doesn’t have a proactive process to collect delinquent statements. It waits. Projects in financial trouble are the least likely to submit on time, meaning LAHD’s blind spots track almost perfectly with its highest risks.

Federal HOME regulations require LAHD to examine the financial condition of HOME-funded rental projects at least once a year. The audit found LAHD was not following this requirement.

This is more than two years after Skid Row Housing Trust. Two years after the city watched a housing trust collapse, spent tens of millions on the fallout, and went through a two-year receivership. After all of that, LAHD still had no financial monitoring process. Still wasn’t watching.

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Zero Communication Between Departments

Underneath all of these failures is a structural problem: LAHD’s different oversight functions operate in silos and don’t share information.

When auditors asked for a list of HOME-funded rental projects from different LAHD units, they got different lists. The Code Enforcement Division counted 518 HOME-funded projects. The Occupancy Monitoring Unit’s contractor counted 353. Those are not rounding errors.

A property that misses rent limits, is losing money, and has code violations is a property that LAHD’s different units each see partially, and none see whole. There’s no risk-based monitoring system to pull the picture together.

The audit recommends LAHD adopt a risk-based monitoring approach, use data it already has to flag high-risk properties, and extend that framework across its entire Affordable Housing Inventory.

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What an “Emergency” Looks Like

Bass declared a housing emergency. She passed executive directives to cut red tape on new affordable housing construction. She talked about urgency and sea changes and moving people inside.

That energy did not reach LAHD’s compliance division, which couldn’t get three properties into compliance after sending notices. It did not reach LAHD’s inspection teams, who photographed roach infestations and left pamphlets. It did not reach LAHD’s loan portfolio unit, which collected $29 million from borrowers without once asking whether those borrowers were financially viable.

Over 568,000 lower-income households in Los Angeles are renters. The city’s entire affordable housing stock covers fewer than 47,000 of them. Every unit in that inventory has to work. Regulatory agreements that run 55 years are only worth something if someone is enforcing them.

Mayor Bass declared an emergency. She asked for this audit, and it came back describing a department that can’t enforce its own rules, can’t cite what’s making tenants sick, and isn’t watching the money. But urgency that doesn’t result in tangible action isn’t really urgency at all.

Mayor Bass’s office could not be reached for comment for this article.