Requiring developers to deed-restrict a larger share of new housing for low- and moderate-income households would bring development to a halt unless the city of Santa Monica allowed taller and denser buildings along commercial boulevards and around Bergamot Station, according to a recent report.
On Wednesday, the Planning Commission will discuss a study the city commissioned from HR&A Advisors, Inc. on the feasibility of changing the city’s affordable housing requirements to incorporate a wider range of income levels. The study found that it would be cost-prohibitive for developers to set aside 20% of new units for a mix of low- and moderate-income households — as the city council proposed in March — under the city’s current development regulations.
The city requires developers to deed-restrict between 10% and 30% of units in new buildings to households earning 50% or 80% of the Los Angeles area median income, which is about $73,000 for a family. A project taller than 39 feet must include a high percentage of affordable units.
Until March, developers could also reserve 5% for 7.5% of the units for households earning 30% of the area median income. The city council suspended that option because developers discovered it was more profitable to include a very small amount of extremely low-income housing and therefore began to overproduce housing for households earning 30% of the area median income.
Affordable requirements differ in Downtown Santa Monica. New projects must deed-restrict 20% of their units at a variety of income levels: 20% for extremely low-income households, 20% for very low-income households, 30% for low-income households and 30% for moderate-income households.
When the council voted to suspend the extremely low-income option citywide, it also commissioned a study on whether downtown’s affordable housing requirements could be extended to the rest of the city.
The council was trying to boost affordable housing production to ensure compliance with Proposition R, a local law voters approved in 1990 that requires 30% of all new units built in the city to be affordable. But some council members, including Mayor Gleam Davis, said requiring more affordable housing could make development financially unviable under the city’s current development standards — a conclusion the study supports.
The study evaluated the effects of applying the downtown requirements along Santa Monica’s main corridors, such as Wilshire, Santa Monica and Lincoln boulevards, and around Bergamot Station. It also evaluated the feasibility of deed-restricting 15% of units for very low-income households or 7.5% of units for extremely low-income households. (The latter was the option the council voted to remove.)
The study found that requiring developers to use the downtown requirements would result in a profit and return on cost below the industry standard — in this scenario, 12.5% and 5.7%, respectively — and would deter developers from building in Santa Monica.
The study authors and city staff said height and density limits would limit the profitability of new development with higher proportions of affordable units. The city’s 2015 zoning ordinance caps new buildings on the boulevards at three or four stories and the 2010 Land Use and Circulation Element (LUCE) removed four out of five activity centers that offered height and density bonuses.
“The boulevards and Bergamot area feature lower FARs and building heights as compared with downtown, and hence less achievable floor area and dwelling units that can be accommodated,” the study said. “Although development costs and land costs are lower, the combination of relative differences adversely impact financial feasibility for most of the retail/apartment prototypes.”
The study also found that lower rents outside downtown would also impact the feasibility of development along the boulevards and in the Bergamot area, particularly if they were subject to downtown’s affordable housing requirements.
The Planning Commission discussed last month the possibility of increasing height and density limits in those areas in order to satisfy a forthcoming state mandate that would require Santa Monica to zone for 9,000 new units.
The commission will meet at 7 p.m. Wednesday at City Hall, 1685 Main St.
madeleine@smdp.com
