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Height, Density Limits Curb Santa Monica's Ability to Meet Affordable Housing Goals

Bob Kronovetrealty
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By Jorge Casuso

November 19, 2019 -- Santa Monica will have to allow taller, denser buildings on major thoroughfares if it hopes to meet its affordable housing goals, according to a new report.

An analysis by HR&A Advisors, Inc. found that developments that set aside 20 percent of the units for low- and moderate-income tenants would not be financially feasible under the City's current standards for mixed-use residential developments.

The analysis -- which will be presented to the Planning Commission Wednesday -- applies to projects outside the Downtown on Wilshire Boulevard, east Santa Monica Boulevard, Lincoln Boulevard, Broadway and Colorado boulevards, and within the Bergamot Area Plan.

The boulevards and Bergamot area have lower Floor Area Ratios (FAR) and building heights than Downtown, allowing for fewer dwelling units that do not offset the lower land and development costs, the study found.

This creates a "mismatch between rents and net operating income as compared to total development cost."

The study found that all apartment developments with ground-floor retail "are likely to be developed under the 7.5 percent Extremely Low-Income scenario," which the Council has discontinued because it yields fewer units.

But HR&A's analysis found that many developments with higher affordability percentages "are marginal or unlikely to be developed."

The study gauged the impacts of applying the Downtown Community Plan's affordable housing standards to select parts of the city ("Santa Monica Council Sets Highest Affordable Housing Requirement in State for Downtown," July 27, 2017).

The plan, approved by the City Council in July 2017, requires that up to 30 percent of all new multi-family housing Downtown be designated affordable, likely the highest threshold of its kind in California.

Santa Monica has long set lofty affordable housing goals.

Proposition R, approved by local voters in 1990, earmarks 30 percent of all multifamily housing completed each fiscal year as affordable to low- and moderate-income households. At least half is reserved for low-income households.

But over the past five years, the City has been falling short of meeting that target ("Santa Monica Sees Lowest Affordable Housing Production in More Than a Decade," May 13, 2019).

Santa Monica also is far from reaching the housing goals expected to be set by the Southern California Association of Governments (SCAG).

Under the association's recent Regional Housing Needs Assessment (RHNA), Santa Monica would have to build some 4,800 new housing units between 2021 and 2029, a goal that could almost double.

Under an alternative methodology, "the allocation is now estimated to be approximately 9,000 units, of which approximately half are at the lower income level," according to the staff report to the Planning Commission.

The alternative methodology boosts the affordable housing requirements for cities such as Santa Monica "that have access to high quality transit, jobs, and a healthy development community," staff said.

While the City's development standards make it difficult for residential developments to meet affordable housing goals, office developments with ground-floor retail, would pencil out, the study found.

These developments, which can pay a fee instead of providing the affordable housing on site, are financially feasible "largely due to strong assumed triple-net rents" that pass through almost all expenses to the tenants.

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