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Venice Beach Is a Hot Place to Live, So Why Is Its Housing Supply Shrinking?

Venice, Calif., is one of the nation’s hottest neighborhoods, brimming with affluent young residents and technology startups like Snap chat parent Snap Inc. But in one respect, it bears little resemblance to a boomtown: It hasn’t gained a single housing unit in 15 years.

The ZIP Code encompassing this vibrant Los Angeles precinct is the toughest place in America to build housing, according to an analysis of housing data conducted for The Wall Street Journal by Issi Romem, chief economist at BuildZoom, a website for contractors.

In all, the area, which encompasses Venice Beach, had about 700 fewer housing units in 2015 than in 2000, as apartment development stalled and wealthy homeowners gobbled up adjacent properties and leveled them. Home prices in the ZIP Code have more than tripled in those 15 years, rising 246% compared with the national average of 52% in the period, according to Mr. Romem’s analysis.

Venice Beach is an extreme example of what has been happening in wealthy urban enclaves across the U.S. that have been resisting new housing development in recent years.

Apartment developers have stepped up production focused largely on the inner cores of big U.S. cities, where millennials are flocking for high-paying jobs and easy commutes, and where development is often welcomed. Meanwhile, surrounding low-rise neighborhoods—many filled with older structures and historical character—are keeping developers out.

Residents of these older urban neighborhoods generally have resisted newcomers, complaining about congestion on roads and public transportation and seeking to preserve architecture, sunlight and views.

Yet if U.S. cities want to ease housing-price pressures, Mr. Romem said, they will have to relax zoning restrictions and allow tall new buildings across the majority of neighborhoods, not just in concentrated downtown areas.

“If you want to stunt this housing affordability crisis, you need to rewrite the rules,” Mr. Romem said. “If you don’t open the floodgates, things won’t improve.”

After Venice Beach, the second most difficult place to build in the U.S., according to Mr. Romem’s analysis, was Prospect-Lefferts Gardens in Brooklyn, a park-side section of limestone row houses that is popular with young families priced out of other Brooklyn neighborhoods. The third-toughest place to build was the Fishtown section of Philadelphia, a city few think of as hostile to development.

Fishtown, with a gritty waterfront and working-class roots, has become an artsy hub as young people move in. But getting new projects off the ground here is difficult, developers say. Labor costs are nearly in line with those of New York City, but rents and condo prices, despite recent gains, are nowhere close.

A proposal to build 23 studio and one-bedroom apartments there, in a former church, has been in the works for two years facing opponents who want to preserve an iconic building. One of the developers, Michael Wachs, managing principal at Linden Lane Capital Partners, said if his group gives up, another developer could come in and build townhomes on the site. “We’re trying to save the building,” he said, while his opponents “are trying to bring back a way of life that’s not there.”

Opponents of the project say that the church is one of the most beautiful buildings in the neighborhood and a link to its history and should be preserved in full.

In Venice Beach, the total number of housing units permitted now under zoning rules is half the number permitted in the late 1950s, according to an analysis by Dario Alvarez, president of community planning firm Pacific Urbanism. Developers said even projects that require only minimal changes to the rules encounter such stiff community opposition they often lose momentum and die.

Opponents “object all the way through and then they’ll take every appeal that they can,” said Frank Murphy, who has been a developer in the area for 40 years. “Even though they may lose on appeal, by that time your developers just get dragged out so long they give up.”

Those opposed to new development say it is often aimed at the very wealthy or very poor and doesn’t seem to benefit current residents of what traditionally have been predominantly middle-class neighborhoods. New buildings may not fit with the character or scale of the neighborhood, and too often cities don’t have a plan for the additional strains on transportation and parking that result, they say.

The Venice Beach population is shrinking even as the local economy has boomed. The neighborhood had about 27,000 residents in 2015, about 3,800 fewer than in 2000, according to U.S. Census data. At the same time, the ZIP Code has added 4,000 new jobs, according to Jed Kolko, chief economist at employment website Indeed.

A proposal to build what developers say is the neighborhood’s first 100% affordable housing project in 15 years is meeting stiff opposition. Becky Dennison, executive director of the project, Venice Community Housing, said land prices in the neighborhood have risen such that it is virtually impossible to build affordable housing there.

Her project, a couple of blocks off the beach, represents an unusual opportunity, she said, because it sits on city-owned land. It will be aimed at the area’s large homeless population, with subsidies to ensure that tenants would pay no more than 30% of their incomes on rent.

Ms. Dennison said her group could build 260 units on the site but has voluntarily scaled it back to 140 apartments after encountering opposition from local residents. “Not having done [new affordable development] in so long adds to that fear of the unknown,” she said.

Opponents said they plan to fight the project to the end. “They’re planning a structure of mind-boggling proportions,” said Zelda Lambrecht, a local homeowner and founding member of Venice Vision, a neighborhood advocacy group. “It’s like living next door to Disneyland.”

Other Venice Beach residents lament that rising real-estate prices and rental rates have made it difficult for residents to stay. Victoria Taylor, owner of a Moroccan textile and décor shop in the Mar Vista section who has lived in Venice Beach since 1990, said she is moving to Austin, Texas. She earns a six-figure income, she said, but could never afford to buy a house in Venice Beach.

“It’s stupid,” Ms. Taylor said. “You can’t get a two-bedroom house here for under $1 million. It’s just not worth it for me when I can get something bigger for less somewhere else.”

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