A tax dispute concerning Los Angeles County affordable housing properties is causing concern at one of the nation's largest public housing agencies amid a worsening affordable housing crisis.

The Los Angeles County Assessor is challenging the tax-exempt status of dozens of parcels dedicated to affordable housing that are owned by the Housing Authority of the City of Los Angeles, a public agency that provides affordable housing to more than 83,000 Los Angeles residents.

The debate is now playing out in Sacramento where a state bill has been introduced to stop tax collectors from taxing property belonging to HACLA and similar housing agencies.

HACLA said the assessor's office has so far determined that 135 parcels — which are owned by nonprofit public benefit corporations — are not exempt from tax collection. That nonprofit status is crucial for HACLA. Over the years, the agency has employed nonprofit benefit corporations in order to own residential properties and increase the supply of affordable housing. The parcels contain roughly 550 housing units.

HACLA said the assessor's tax determination comes at future financial cost to HACLA, but the agency said it couldn't calculate that cost because the cost depends on its future real estate development as well as government support for development.

"However, the determination takes away resources that HACLA could otherwise use to provide affordable housing and housing for the homeless, and would ultimately result in less affordable housing being provided than we could otherwise support," a HACLA representative told CoStar News in an email. "HACLA believes that we must find ways to increase, and not decrease, affordable housing during the present housing crisis."

A representative for the assessor said the dispute appears to be due to the state and county's property tax administration system being "extremely complicated and often confusing."

"Assessors have no jurisdiction or policy role relative to direct or special assessments," the assessor's representative said in an emailed statement. "To exempt such assessments from property taxes, legislative action would be required."

Meanwhile, California Assemblymember Mike Gipson has sponsored a bill that specifies that property "held by a nonprofit public benefit corporation that is controlled by a housing authority ... is exempt from taxation." A representative for Gipson didn’t respond to multiple requests to comment from CoStar News.

The bill has been referred to the Assembly Committee on Housing and Community Development. The committee will consider the bill and whether it wants to send it to the full state representative assembly. If approved by the assembly, it would then need senate approval. The bill could be signed into this year by the Gov. Gavin Newsom. The last day for the governor to sign or veto bills passed this year by the legislature is Oct. 14.

A HACLA representative said that the assessor's designation would not affect the high-profile deals the agency completed through public-private partnerships last year. In 2022, HACLA purchased more than 1,000 market-rate housing units in greater Los Angeles with more than 500 becoming affordable housing for decades to come, according to a statement. The deals included acquisition of 669 units in L.A.'s Baldwin Village neighborhood for $220 million deal, or about $329,000 per unit. That deal was among the largest multifamily sales in L.A. last year and won a CoStar Impact Award.

"HACLA will continue to pursue deals, including partnerships similar to that which was used in the the award-winning Baldwin Village transaction, to expand the supply of affordable housing within the city of Los Angeles," the HACLA representative said.

Meanwhile, the HACLA representative said the tax dispute with Los Angeles County will not have any effect on HACLA's marketing and leasing. The representative said that no unit that's subject to a regulatory agreement will become unrestricted or market rate as a result of the tax dispute.

HACLA, founded in 1938, has a roughly $1 billion annual budget with funding from the U.S. Department of Housing and Urban Development, Section 8 administrative fees, rent from public housing residents and other programs and capital grants.

Los Angeles has an average asking multifamily rent of $2,214, ranking among the top-20 most expensive places to rent an apartment in the U.S., according to CoStar data.

Angelenos on average spend roughly 35.6% of their income on rent, among the highest in the country, according to Moody's Analytics.