CITY HALL — A small wording change in a recently approved law lowering rent and income limits on Santa Monica’s affordable housing supply may make a big difference for developers with housing projects working their way through the public process, developers say.
The City Council passed an ordinance on June 11 that would lower the amount that property owners could charge for affordable units by between 20 and 25 percent, a proposal that came with the backing of the Legal Aid Foundation of Los Angeles and met little resistance from development interests.
However, a last-minute change from the dais may mean those lower limits apply to projects almost done with their development agreements that never believed they may take the extra hit on project revenues, and didn’t calculate it into the costs.
The critical moment came when City Attorney Marsha Moutrie requested that the council make a choice: Did they want the ordinance to become effective for those development agreements that had not yet been voted on by the council, or those that had not yet been approved?
“Which would capture more properties?” asked Councilmember Kevin McKeown.
The answer was the latter, and the measure — which still must go through a second reading — could mean that projects like one recently approved on Second Street may have to lower their expectations in terms of income from their development.
That development had proposed eight affordable units consisting of five very-low income one-bedroom units and three low-income studios which, prior to the change, could have brought in roughly $6,961 per month in rent.
Under the new limits, owners could charge only $5,280 per month for the same mix.
The change actually brings Santa Monica’s policies in line with state income limits, which are based on the area’s median income.
In the past, Santa Monica officials based their rent levels on a benchmark income of $84,300 for a family of four. The limit used in Los Angeles is based on the area’s median income, or $64,800 for a family of four, said Denise McGranahan, an attorney with the Legal Aid Foundation.
Rents for low-income, very low-income and moderate households are calculated using percentages of that baseline, meaning that the higher dollar amount used by Santa Monica drove up the cost of affordable housing.
“Using the higher benchmark has resulted in rents that are now hundreds of dollars higher than the rents charged by most cities with inclusionary housing ordinances,” McGranahan said.
The City Council also added an “extremely low income” category for families that make 30 percent of the area median income.
That’s important because the vast majority of people waiting for affordable housing in Santa Monica are looking for those lower income standards. Only 1 percent want moderately-priced housing, which, according to a report, is practically market rate.
Developers with buildings in the pipeline did not oppose the new limits, assuming that they would be grandfathered in. Tuesday’s vote changed that.
“I think people were blindsided,” said Dale Goldsmith, a land use attorney working on the Second Street project.
He’s still not sure if the ordinance will apply to that project, which is expected to come up for a second reading later this month.
Others have expressed a reluctance to move forward with housing projects because local policies like the Affordable Housing Production Program have become unpredictable.
The change is “pretty material,” said Jim Andersen, president of NMS Properties, a development company with several projects in Downtown.
Andersen also spoke at the Housing Commission in March, saying that if rents go down, fewer affordable units may be built over time.
Patricia Hoffman, co-chair of Santa Monicans for Renters’ Rights, believes that the council’s move to capture the largest number of units possible was critical to housing affordability in the area.
“It’s absolutely necessary,” she said. “Anything that doesn’t have final approval and hasn’t opened yet, they will find a way to make it work.”
McKeown, one council member who backed the Legal Aid Foundation in their work, said that ensuring affordability was a matter of social justice.
“The developers making big plans for our city need to realize we have working families and low-income seniors who are part of our community too,” he said.
Affordable housing has been a major topic of conversation in Santa Monica in recent years, particularly after the loss of the Redevelopment Agency, an entity funded by local taxes that poured millions into the creation of affordable housing in the city.
Voters also passed Proposition R in 1990, a measure that required that 30 percent of the housing built in the city meet local affordability standards for low- and moderate-income families, with at least half falling into the low-income category.
Although 101 affordable residences were built in the 2011-12 fiscal year, only three of those were affordable to low-income families, according to a report released Tuesday.
City Council members have identified that mix as problematic, largely because apartments at the moderate-income affordability limit under the old standards were almost equivalent in price to market-rate housing.
Officials hope that will be corrected by projects approved, but not completed, in the same year. The majority of affordable units in those developments qualify as low-income apartments, according to the report.
There are active building permits for 723 residences in 37 multifamily developments, 53 percent of which are affordable with 282 aimed at low- and very-low income households. It’s almost impossible to predict how many of those will be ready at the end of this fiscal year, according to the report.
Affordable housing continues to be a controversial topic in the city, with some grumbling that it brings the wrong element to town, particularly in the aftermath of recent shootings in the Pico Neighborhood.
Others believe the creation of more affordable housing hurts the local market overall, similar to rent control policies that also aim to keep rents low.
“Government mandated low-income housing is an artifice to distract attention from the consequences of a failed economic model,” said Wes Wellman, president of the Action Apartment Association, which represents landlords locally.
“The housing produced is inconsequential relative to the demand and merely serves to make lottery winners of the few who obtain it and to allow policy makers to boast of their commendable enterprises,” he continued.
The market will find a way to supply housing to those who need it, although it may be through renting apartments to multiple roommates, driving down the per-person cost of an apartment, he said.