A recent study commissioned by City staff has some of Santa Monica’s elected officials echoing the words of City Hall’s staunchest critics – alleging incompetence, wasted tax dollars and suspicious back-room decisions.
The concerns of Rent Control Board members over a recent Ellis Act report delivered by Keyster Marston Associates reveals how the City is still reeling from the fight over Measure LV, even as the 2016 election ebbs to make way for the politics of November 2018.
RCB members are ostensibly elected to protect Santa Monica’s man-made non-renewable resource: relatively cheap housing for those who have rented in Santa Monica for decades. The story here is as old as the Ellis Act itself: a recent economic upswing has made the RCB’s job more difficult. Landlords are collecting huge payouts for leaving the business all together and listing their properties. Often within six months of a sale, the new owners evict the remaining tenants and convert the property to luxury homes or condos. More than 150 rent-controlled units were lost to Ellis evictions in 2015 alone.
At least, that’s what the report commissioned by the City Council said. But to several board members, it can’t be the whole story.
To Nicole Phillis, it’s a cop out.
“You need to dig deeper and look at what fuels land speculation,” Phillis said in a recent interview with the Daily Press. The issue is particularly personal since she’s the one who conceived of the study in the first place in an attempt to inject more data into the discussion of downtown Santa Monica’s rising skyline amid the contentious campaign for Measure LV.
“Once it’s gone, it’s gone forever,” Phillis told the City Council in August of last year when they unanimously supported funding the study. Phillis asked for an outside firm to look at rates of appreciation, zoning, building size, ownership changes and the ratio of market-rate to long-term renters along with land value. A staff report estimated $80,000 for the study with a promise to return to Council if additional funds were needed.
The Council appeared excited and voted unanimously to fund the study to find contributing factors to Ellis activity.
“This is an opportunity for us to see – are there other policies, zoning or otherwise, that we’ve implemented that encourage the removal of existing rent-control stock from the market and are there things we can do to change it,” now Mayor Pro-Tempore Gleam Davis said before approving the funds.
Over the next year, hype built up around the study. Phillis hoped the board would be able to move forward with policies to save units once they had the actual data. When she finally got her hands on the report in early November, she couldn’t believe what she saw.
“The bottom line is, this was not acceptable work product and I don’t know anyone who would go and purport to present something that’s clearly deficient and expect it to go swimmingly,” said Phillis, who was one of three board members who grilled the study’s author, Kathe Head, over the report at a public meeting.
At one point, Head reassured the Board she could take the heat.
“I really apologize if my tone comes off as harsh,” Phillis said.
“I’m a big girl,” replied Head.
Head told Phillis the answer to her questions were simple economics: supply and demand for property in this beach community’s eight square miles.
“These (developers) are mostly downzoning,” Head said, who is managing principal at Keyser Marston. “It’s really compelling … you’re just getting big ol’ houses where you had three units.”
Phillis, Caroline Torosis and Anastasia Foster all criticized the 36-page report as a cursory review of the RCB’s own data. The report listed tactics used by other jurisdictions to curb Ellis activity but did not vet their chance of success in Santa Monica. Now, Phillis and Torosis are asking what happened: how did a near six-figure study commissioned by the Council morph into a $38,000 report from KMA that said the problem was simply speculation.
“I don’t know what’s going on now,” Torosis said in an interview with the Daily Press. “No one has given us an update. No one seems to know.”
Phillis has submitted a public records request to track conversations between city staff and KMA over the past year.
The City’s public information officer told the Daily Press staff is in the process of gathering feedback from other commissions on the study before presenting to the City Council in Spring 2018, about 18 months after the study was first commissioned.
The City’s top housing manager, Barbara Collins, oversaw the report. Collins told the Daily Press the reality may be hard for the elected board members to stomach: that there isn’t much the City can do about skyrocketing property value amid an economic boom.
“Investors are looking for places to park their money and property in Santa Monica is a pretty sure bet,” Collins said. “I think that many of the answers the Rent Control Board sought are in the report and it may be hard for them to accept that it’s really a matter of economics that causes Ellis (activity) because that’s a hard thing to solve.”
In fact, Collins said her staff and KMA struggled to find incentives for landlords to stay in the rental game in the face of rising property values. She said the struggle led to a suggestion in the report to modify Santa Monica’s strict home-sharing ordinance to allow landlords to list some of their units on AirBnb in exchange for keeping the rest of their units on the market for renters.
“It was the only thing we could find to offer an incentive to existing owners to keep their property in the rental market,” Collins said.
Board members balked at the suggestion, arguing the issue of home-sharing in Santa Monica is settled. Torosis said he study would have benefitted from more oversight by the Board.
“We are the subject matter experts on this,” Torosis said. “This was not even close to a complete work product and should have been vetted before it went before us in the public meeting.”
But to Collins, more analysis (and more money) won’t change the challenge facing Santa Monica’s remaining rent-controlled tenants. The report found developers could often resell their properties for 150 to 400 percent of the purchase price after a conversion. When the researchers factored in the costs of construction, developers still net a profit between 34 to 45 percent.
“It’s really a financial windfall for owners,” Collins said. The report found home values have increased nearly 60 percent since 2009. “The answer does not involve zoning. Zoning in Santa Monica has not changed.”