The City Council voted 4-1 last Tuesday night to approve an expanded pilot program allowing developers to build affordable housing off-site rather than within their market-rate projects, clearing legal uncertainty created by a conflict of interest involving Mayor Pro Tem Jesse Zwick.
The vote addressed two components: reaffirming the original 1,000-unit pilot program approved last August, and expanding it to roughly 3,000 additional units in already-approved projects that have stalled due to challenging economic conditions.
The revote was prompted by a California Fair Political Practices Commission ruling in December that Zwick was disqualified from participating in housing production decisions due to his employment with the Housing Action Coalition. The FPPC does not issue opinions on past actions by statute, and did not find that Zwick acted improperly, violated the law, or failed to disclose his employment. However, city staff recommended the revote "out of an abundance of caution" to ensure the legislation stands on firm legal ground.
Zwick was not present during the reading. Councilmember Lana Negrete cast the sole no vote, while Councilmember Barry Snell recused himself because his spouse is CEO of a nonprofit located on property owned by a pilot program participant.
The program aims to "unstick" housing projects that received city approval but have not moved forward due to high interest rates, construction costs and other market challenges. By allowing developers to convert formerly inclusionary affordable units into market-rate units and build affordable housing separately, proponents say the program improves project economics while ultimately delivering more affordable units.
"We need more housing. We need more affordable housing, and this is going to unstick some of those units," Mayor Caroline Torosis said. "Really proud to innovate on this when local jurisdictions around the county and the state are having such a hard time really getting those affordable units built."
Councilmember Dan Hall thanked colleagues "who brought this compromise forward through a lot of stakeholder engagement and community organization engagement."
The city received six applications for the initial pilot program shortly after its August approval, totaling 1,018 units. Five projects containing more than 900 units came from a single developer, Cypress Equity Investments. One developer representative told the council the pilot would allow projects to move forward and generate substantial transfer tax revenue when sold.
For the program expansion, the council imposed significantly stronger requirements than the original pilot. The gap financing amount—money deposited in escrow to help fund off-site affordable projects—increased from $150,000 to $160,000 per unit, indexed annually to construction costs.
A new "community benefit payment" requires developers to pay 5% of a project's sale price to the city for affordable housing purposes. This provision protects against potential repeal or reduction of Measure GS, the city's real estate transfer tax, which has faced ongoing challenges.
The expansion also includes strict enforceable milestones for off-site construction. Developers must submit entitlement applications for off-site projects before receiving building permits for market-rate developments, and submit construction plans before receiving certificates of occupancy. Off-site affordable construction must commence within 48 months of market-rate building permits, or the city can acquire the off-site property and retain the escrowed funds.
The ordinance includes a right of first refusal giving the city the first opportunity to purchase off-site affordable properties before they can be sold to third parties.
Public comment reflected sharp divisions over the program. Supporters argued it would revive "over 100 affordable units" that were previously stalled. Critics viewed the timeline as "too long while market-rate housing is prioritized" and questioned whether the program gives excessive concessions to developers.
Santa Monicans for Renters' Rights, a prominent advocacy organization, submitted detailed written comments raising concerns about financial and timing risks to the city. While supporting the concept of a pilot program with appropriate safeguards, SMRR argued the original $150,000 gap financing was insufficient based on recent affordable housing construction costs, and warned that delays in building off-site projects could leave the city bearing unexpected costs.
The group calculated that recent city-funded affordable projects show gap financing needs of approximately $242,000 per unit, significantly higher than the pilot's requirements even with the increase to $160,000.
Community Development Director Jing Yeo told the council the program establishes requirements for 75-year affordability covenants and mandates that approved nonprofits own and operate the off-site projects. All off-site properties must be deemed environmentally sound by the city manager.
The ordinance was introduced for first reading last Tuesday and will return for final adoption at a future council meeting.