Santa Monica could halt the loss of its housing supply by prohibiting developers from replacing rent-controlled apartment buildings with single-family homes and small condominiums, according to a new City of Santa Monica report.
Developers are buying small rent-controlled buildings and making swift use of the Ellis Act, a 1985 state law that allows landlords to evict tenants if they want to get out of the rental business, to replace them with single-family homes, duplexes or triplexes, capitalizing on Santa Monica’s skyrocketing home prices and eroding the city’s housing stock.
Speculators are moving quickly: 41 percent of Ellis evictions in Santa Monica were filed by property owners who have owned their buildings for less than one year, and an additional 23 percent came from landlords who owned their buildings for less than five years.
“One of the trends we’ve seen is someone knocking down a four-unit building and replacing it with a house,” said Jim Kemper, the City’s housing program manager. “There’s an overall loss of housing stock.”
To counter that trend, the City is considering requiring property owners to construct four-unit buildings when they redevelop buildings in low-density residential (R2) areas, such as Wilmont and Pico, according to the report.
“The whole point of an R2 zone is to have fourplexes and triplexes,” Kemper said. “Building a one-unit dwelling is contrary to the whole point of that zoning area.”
With a minimum density requirement, new projects would be subject to the City’s requirement that multi-family housing includes units for low-income households. Kemper said developers typically build triplexes, duplexes and single-family homes in R2 areas because a fourplex must include an affordable unit. Smaller developments pay an in-lieu fee.
“If you’re on a parcel that only allows you to build four units, most developers say ‘Why not build three larger luxury units and just pay the fee?’” he said.
The report from consultants Keyser Marston Associates (KMA) also proposes requiring development on an Ellised property to include at least the same number of units as the rent-controlled building or charging an impact fee for each rent-controlled unit lost. Both proposals would require studies to determine if they would make new development financially infeasible.
The report follows a 2017 KMA study of Ellis activity in Santa Monica. The original report concluded that Ellis evictions have followed changes in property values over the last 30 years and most are occurring in south Santa Monica, Wilmont and downtown.
The report released Thursday found that 429 rent-controlled units on 63 properties have been Ellised in the last three decades and converted to offices, stores, restaurants, hotels and other businesses. Local zoning changes have had no effect on that development, KMA found.
Developers are increasingly converting rent-controlled apartments to commercial buildings, however. 59 units in two buildings were Ellised in 2016, the largest spike since 68 units in 1990.
An additional 320 units across 45 properties with commercial zoning are vulnerable to Ellis evictions, according to the report.
Residential conversions follow a similar pattern. The three years with the most Ellis activity were 1988, 1990, 2000 and 2017. Between 2013 and 2017, the number of Ellised units increased almost sevenfold to 101 dwellings after years of decline.
“In general, the withdrawal rate declined between 2009 and 2014, although there was a spike in 2011,” the report said. “This period generally corresponds to the economic recession that seriously impacted the real estate market.”
Two-thirds of rent-controlled buildings were converted to single-family homes, duplexes, triplexes or fourplexes. That’s a pattern unique to Ellised properties; total new development in Santa Monica produced buildings with five or more units 81 percent of the time.
“If the majority of Ellis withdrawals are happening in the R2 zone, the maximum number of units you could build back up is four,” Kemper said. “A lot of new development is downtown or along commercially zoned boulevards, where more density is allowed.”