Capturing the Rhythm of
Downtown Santa Monica
Santa Monica Centric
Affordability requirements, rising construction costs could lead to fewer apartments in Downtown Santa Monica
By Kevin Herrera

If you've driven south on Lincoln Boulevard towards Colorado Avenue lately, you've seen plenty of construction going on.


A newly completed, 100-percent affordable housing project dubbed The Arroyo sits adjacent to three other mixed-use development sites that have broken ground. When completed these projects will add 320 apartments to Downtown Santa Monica, more than 100 designated affordable.


For the casual observer, it seems like a housing boom is afoot, and it couldn't come at a better time as rents continue to rise throughout the city, making Downtown out of reach for many who endure stressful and taxing commutes by car, bus or train so they can work in Santa Monica's hotels, restaurants, tech start-ups, hospitals and other businesses.


The hope is increased supply, and a wider range of apartment types, from studios to three bedroom units, will help stabilize rents and provide opportunities for younger Santa Monicans to remain in the city they call home and help parents struggling to find more room for their growing families.


But a closer examination of those Lincoln projects reveals that the boom may actually be just a blip.


Affordable housing requirements under the Downtown Community Plan, a land use roadmap adopted in July 2017, along with rising construction and labor costs thanks to a bustling economy and President Trump's tariffs, could delay or dramatically alter housing projects working their way through the pipeline, leading to fewer affordable units being built than originally hoped for.


In a report by city planners, concerns were raised after a local developer redesigned and resubmitted plans for five projects that, while providing more units overall, offer up what have been called single-room-occupancy units, or SROs, that are akin to studios or bachelor apartments and not the larger one-, two- and three-bedroom apartments City planners and elected officials envisioned when adopting the DCP. These five projects also contain significantly less affordable housing units than their previous incarnations.


Those familiar with the projects say the plans for parcels on Fifth, Sixth and Seventh streets were revised because of the increased cost of construction, and the DCP's affordability requirements. Others speculate the developer is responding to the preferences of millennials who would rather have their own space instead of sharing an apartment with one or two roommates, even if that means less square footage overall. These SROs are also being proposed without parking as a way to cut cost and, theoretically, lead to more affordable rents.




Another housing project in the pipeline, slated for Lincoln Boulevard, is slightly shorter and less dense than what is allowed under the DCP, raising alarm. The DCP allows buildings as high as 84 feet on streets adjacent to the Expo Light Rail Line, but reaching that height triggers affordable housing requirements of 30 percent if the units are built on-site, and 35 percent if they're built off-site.


If this trend continues, Santa Monica will not get the housing it desperately needs to help meet demand.


"When we see people who have a lengthy track record of providing high-quality housing projects begin to take those projects off the table, that is a signal to us that there is something wrong," said City planner Peter James, who authored a report to Council on the DCP's progress and impact on housing construction.


Not only do the proposed SROs, which are smaller than 375 square feet, provide just the bare minimum of affordable housing (5 percent of the total number of units) in an area of the city where housing equity is a major concern, James said they also may be exempt from paying mitigation fees that would help offset their impact on the surrounding community.


The City Council moved quickly to temporarily ban SROs until further study can be conducted. The move is being contested by the developer and will most certainly lead to a lawsuit.


Councilman Kevin McKeown said he and other council members are not opposed to SROs, but when five of them popped up in place of larger projects with more affordable units included, something needed to be done to pause the clock for further study.


"I am happy that we have gotten on our way to producing more housing Downtown, as that is the appropriate place to do it, but I wish we could see more affordable housing," he said. McKeown doesn't fault developers for trying to make a profit. It's the council's responsibility to look at loopholes and determine the best way to adjust zoning codes to best encourage and reward the types of housing it wishes to see in Downtown.


"We're fighting to maintain a balance while riding a surfboard on an unpredictable swell."


For nearly three decades the Council has been bound by a voter-approved measure that requires elected officials to adopt policies that lead to the production of 30 percent affordable housing annually. Before 2012, the City used redevelopment funds to help close the gap, working with non-profit housing developers to construct 100 percent affordable housing projects. When redevelopment agencies were dissolved, the Council had to rely more on market-rate projects. It's been several years since the 30 percent minimum has been reached. 


Everyone knows that building in Santa Monica is a challenge. The land is expensive. The approval process elongated. Then add on tariffs, a significant labor shortage nationwide and competition for materials thanks to a building boom, and then affordable housing requirements much higher than in nearby cities, and one can see why Downtown may never realize the number and types of apartments originally hoped for.


If the DCP's affordability requirements are deterring developers from building to the maximum, council could look to the City of San Francisco for a possible solution. There elected officials opted to set a lower affordability requirement initially — 18 percent — with gradual annual increases until the level reaches a cap of 25 percent. Officials there conducted a study, just as Santa Monica did, and determined that levels above 25 percent would deter new housing construction.


Santa Monica' study gave the council confidence it was making the right decision on affordability, despite warnings from land-use attorneys and housing advocates.


Whether its market rate or affordable, Santa Monica and the rest of California needs both badly. Los Angeles and the Bay area have some of the most expensive rents in the nation, and homelessness is on the rise, with LA County reporting a 12 percent increase in the number of people living on the streets, putting the total at just under 59,000.


California still needs 1.4 million more affordable rentals than what currently exists. Of more than 2 million very low-income renter households in the state, roughly two-thirds are severely cost burdened, meaning they spend more than half their income on rent, according to a report by the California Housing Partnership.


"There is never enough (affordable housing)," said Tara Barauskas, executive director of Community Corp. of Santa Monica, the city's largest affordable housing developer and property manager for such projects. Barauskas also serves on the DTSM, Inc. Board of Directors.


"It's extremely hard to build affordable housing as part of market rate projects, and even more so when they are stand-alone projects. The land in this area is so expensive and the sites are smaller."


Community Corp. also must pay a prevailing wage, hire locally and meet stricter environmental standards.


It takes anywhere between $500,000 and $600,000 to build one affordable unit, she said. The Arroyo's 64 units cost around $40 million.



(Community Corp.'s The Arroyo is a 100 percent affordable housing complex with Platinum LEED Certification, the highest level of sustainability under the LEED system.) 


500 Broadway, a soon-to-be-developed mixed-use residential project in Downtown, contributed supplemental financing, partially improved land, project design and required permitting as part of a deal with the City that helped it meet its affordability requirements for its housing project nearby.


Community Corp. has looked to the Pico Neighborhood as a more affordable area of Santa Monica to build low-income housing. Some residents there have complained, saying Pico is shouldering too much of the burden, a claim that is disputed by Barauskas. Community Corp. has purchased apartments in several neighborhoods in Santa Monica, rehabbed them and made them affordable to various income levels.


Finding construction workers can be a challenge since most can't afford to live in or around Santa Monica. Add in the recent tariffs on lumber from Canada or steal from China, and costs begin rise dramatically. Barauskas estimates tariffs added $100,000 to the Arroyo.


California lawmakers were planning to advance some of the most aggressive policies in the nation to combat rising housing costs, however, those measures failed. One bill would have allowed more apartments near transit and in areas currently zoned only for single-family homes. Another would have prevented double-digit rent increases each year.


Homeowners from predominantly suburban communities, real estate lobbies and a lack of intervention from Gov. Gavin Newsom and leadership in the state legislature fueled the bills' demise.


Dave Rand, a local land use attorney with the firm Armbruster Goldsmith & Delvac LLP, praises Santa Monica for its willingness to build more housing of all types to help solve California's housing crisis and urges the council and city planners to act sooner rather than later to amend the DCP so that more units can be built.


"The high affordability housing requirements were born out of the best intentions, but I would encourage the council to look at the raw data and make a determination on whether or not it is working out," Rand said. "I think the data is pretty clear that a fix is needed. We need to re-evaluate as soon as possible."


City planners are seeking state funding to re-evaluate the DCP's affordability requirements and how to incentivize the creation of affordable housing citywide.


There are those who believe the council should give the DCP more time to see what may come. Developers could be delaying projects in an attempt to pressure the council into reducing the requirements. 


Things could certainly change. Trump could lift tariffs. Immigration reform could help solve the labor shortage. The economy could experience a downturn, lowering demand for raw materials. But even if all that were to occur, will the affordability requirements of the DCP still lead to fewer units than what is allowed by the code? At the moment, the answer seems to be yes.

Kevin Herrera is a former journalist turned marketing and communication expert, beer enthusiast, cyclist, cultural observer/commentator and expert on all things Downtown Santa Monica. He is currently the sr. marketing & communication manager for Downtown Santa Monica, Inc.