Whack-a-mole housing policy

When in the summer of 2017 the Santa Monica City Council, after six years of work, adopted the Downtown Community Plan (DCP), the then architecture critic for the L.A. Times, Christopher Hawthorne, wrote an article about it. Hawthorne, after a conversation with City Manager Rick Cole, expressed guarded optimism that the plan, which Cole and the council had touted as a “housing” plan, would indeed lead to the building of more housing, for all income levels, in downtown Santa Monica.

According to Hawthorne, Cole characterized the DCP as being the result of a “grand bargain” between anti-growth and pro-housing factions in Santa Monica. Because the DCP included streamlined approvals for housing and height and density bonuses for housing development, and eliminated parking minimums, Cole was confident, based on the City’s financial analysis, that developers would build housing despite increased requirements for including affordable housing.

Hawthorne was respectful of Cole’s optimism, but the critic injected a note of skepticism in his article by including a comment from Santa Monica housing activist Jason Islas to the effect that the DCP’s high percentage requirements for affordable housing (maxing out at 30% for the largest projects “on-site,” or 35% “off-site”) would mean that no housing would be built. Islas’ comment on the affordability question was that “30% of zero is zero.”

Now nearly two years on, and according to a “Downtown Community Plan Monitoring Report” the City issued March 22, Islas’ predictions have proven more accurate that City Manager Cole’s. Since adoption of the DCP, six projects have been proposed under the DCP standards, totaling 335 units, but only 19—only 6%!—are affordable. How can that be, you say? Isn’t 20% the minimum under the DCP?

No. Twenty percent is the minimum for projects over 39 feet tall (“Tier 2 projects.”) Five of the six DCP projects are Tier 1. Under the City’s rosy financial analysis, this wasn’t supposed to happen. The City’s financial consultants, and a majority of City Council members, predicted developers would build market rate units in Santa Monica even if they had to provide higher percentages of affordable housing than were required anywhere else in the state.

Developers are proposing to build market-rate housing (but not much) under DCP standards, but not with nearly the affordable housing City Council wanted to come with it.

As I said, five of the six DCP projects are Tier 1, which means they only have a five percent affordable requirement. One project is Tier 2, but as the March 22 report points out, the developer of that project opted to build to 50 feet even though the zoning would have allowed a height of 60 feet (meaning an additional floor of apartments). By adding that floor, the developer would have increased the affordable obligation from 20% to 25%, presumably wiping out any profit for the additional density.

It’s not only that developers are not building the denser and more affordable housing that the DCP was supposed to encourage, but the housing being proposed contravenes other goals of the DCP. The five Tier 1 DCP projects are entirely comprised of small (less than 375 square feet) studio units. (These units are referred to in developer applications and staff reports as “single room occupancy” (SRO) units, but don’t confuse them with what “SRO” usually refers to, namely “congregant” housing, with shared bathrooms, kitchens and other facilities often built for residents who need supportive services. The proposed units are small versions of what are variously referred to in real estate listings as “studios,” “singles” or “bachelor” units, with their own bathrooms and cooking facilities.)

The DCP is bizarre, but I suppose typical for the product of political “grand bargains,” in that the its standards penalize the building of what the City professes to want—a mix of unit types and affordability to create a diverse neighborhood downtown—while making it easier to build what the City says it doesn’t want, namely smaller projects with 95% market rate units and only one type of unit.

These Tier 1 projects, some of which have replaced previously-proposed Tier 2 projects, have caused the typical hysteria that is the City’s response to events that are simultaneously unexpected and predictable. Tomorrow night City Council will consider an ordinance to ban the building of projects with only small studio units after having adopted an emergency ordinance to do this in March. (Which, no surprise, caused the developer of the Tier 1 all-studio projects to sue the City, since the developer understandably felt that he had played by the rules.)

The ordinance won’t solve the problem, however, since it won’t stop the building of studios that are larger than 375 square feet. Meaning that developers could still build Tier 1, all studio projects, but with fewer, somewhat larger units. These would still be profitable: according to statistics I read in a recent Lookout article, 435-square-foot studios currently rent for about $2,500 (or more) in Santa Monica. That’s more than $5 per square foot. (Meaning that whatever residents who live comfortably in big houses or securely in rent-controlled apartments say, there’s a market for small apartments. Not only young tech workers, but think of the many international students at SMC.)

What developer needs to build above 39 feet if there is that kind of money to be made, especially if approvals are not discretionary and the affordable housing requirement is minimal? Figure it this way: if you remove all the unprofitable affordable housing from a Tier 2 project, you’re probably left with the same amount of profitable square footage in a Tier 1 project. As Islas said, 30% of zero is zero.

The ordinance being proposed is a typical example of a whack-a-mole planning. You don’t like all-studio projects? Ban them: whack! But the problem is not that developers have found a work-around to the City’s Byzantine and onerous requirements under the DCP, but the DCP itself, which the City based on wishful thinking and a financial analysis that developers warned the City was flawed.

The fact that the DCP turns out not to be the housing plan the City touted is borne out by a lot of good news about housing in Santa Monica. Anyone who gets around town these days can see that a lot of apartments are under construction.

New apartments under construction on Lincoln Boulevard

According to a March 26 staff report on the City’s Affordable Housing Production Program, in the four years ending 2018 1001 units were constructed, of which 40% (402) are affordable. The 1001 is consistent with the LUCE’s modest goal that 250 units would be built per year, a one-half percentage point annual increase over the city’s approximately 50,000 housing units. Even more encouraging, 759 units were under construction, and 1,384 units had received planning approval. (Keep in mind that these figures are for the entire city, while the DCP only affects downtown.)

These are the kind of numbers that the City could try to use to justify an exemption to the “dreaded” SB50 making its way through the legislature. However, none of this housing is a product of the DCP.

It’s time to revisit the DCP. But who wants to spend six years doing that?

Thanks for reading.

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