Why does the "Costco Prison" exist, and why is it...

Why does the "Costco Prison" exist, and why is it designed the way it is?

As often is the case, the answer is regulatory arbitrage!

Costco wanted to build a store in Central/South LA.

The problem is, new massive big-box stores are hard to get approved in LA. They're subject to discretionary approvals, site plan review, and have to go through CEQA.

Costco was facing years of public hearings, millions of dollars of consultant fees, and an uncertain outcome.

However, mixed-use housing projects that meet certain criteria are automatically exempt from discretionary reviews by state law (AB 2011).

So Costco did what any good Scooby-Doo villain would do. They put on a mask that says "I'm an apartment building, not a big-box store." (I'm really stretching with this metaphor).

But now they faced some new problems.

To get the full protection of state housing laws (HAA), mixed-use buildings must be at least 2/3 residential. The Costco itself is 185,000 square feet. So they needed at least 370,000 sq ft of residential.

(They ended up with 471,000 sq ft of residential plus an additional 56,000 sq ft of amenity space)

But for a project that big, to qualify for AB 2011, you need to not only pay prevailing wages, but use "skilled and trained" (aka union) labor.

"luckily", union labor requirements only apply to on-site construction. So to lower the amount of on-site labor needed, Costco turned to pre-fab building modules.

Pre-fab modules need to fit on trucks, which results in mostly small shotgun-style one-bedroom units.

And that's how you end up with a Costco housing project that resembles a prison!

I’ve managed to upset everybody on the internet, so here are some follow-ups, corrections, and clarifications

First of all, I’m not opposed to this project. LA has a massive housing shortage, and we need all the new housing we can get.

I called it a “Costco Prison” as a tongue-in-cheek joke meant to be an engaging hook to get people interested in reading a long tweet on esoteric land-use policy.

And it worked! The tweet would have nowhere near 1.4 million views in 15 hours if I hadn’t called it that.

Also, it really does resemble a prison in plan view. But so does your typical college dorm. That’s not intended as a value judgement, even though I totally get how it reads as one.

Second, some details, corrections, and points of clarification:

-AB 2011 doesn’t have a “skilled and trained” labor requirement, rather it has a stricter form of prevailing wages
-Labor cost isn’t the only advantage of going pre-fab here. In addition, it allows on-site construction to go much faster, which means the Costco can open sooner
-Many pre-fab factories in CA do actually have a unionized workforce. However, there are still labor cost savings. I do not know who the fabricator is for this project.
-As is typical with big-box stores, Costco is not the developer itself, rather Thrive Living (the affordable pre-fab arm of Magnum Real Estate Group) is the developer

Third, some general thoughts on the project:

-I overall have mixed-feelings about this project. Although I support it, there is a lot I don’t like
-A Costco with housing on top is absolutely better than just a Costco alone
-Micro units are an important part of an affordable housing ecosystem, and I’m a big proponent of a lot of projects that are primarily micro-units
-That being said, 800 micro-units in a single building is a lot
-Given that this is above a Costco, it feels strange that they’re building units with no room for Costco-sized purchases
-I would have liked to see family-sized units here. The decision to go with micro units over family-sized ones was almost certainly the better financial decision for the developer, but I think a bunch of family homes interspersed with green space above a Costco would be awesome
-One really great thing about this project is the amount of open space and the design of the open space
-I’m personally not a fan of horizontally-massive buildings. I’d much rather see eight 100-unit buildings rather than one 800-unit building. That being said, separate buildings wouldn’t have really been possible here unless they put the Costco underground