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SR-400-001-03 (11) '-160 , I-A APR 2 5 1989 CA:ffi{M:11608/hpc City council Meeting 4-25-89 Santa Monica, California 70tJ- tJtJ/-- C3 STAFF REPORT TO: Mayor and City council FROM: city Attorney SUBJECT: Ordinance Adding chapter 4B to Article IX of the Santa Monica Municipal Code Implementing Program 10 of the Housing Element At its June 21, 1988 meeting, the city council held a public hearing on a proposed ordinance implementing Program 10 of the Housing Element. Following the public hearing, the City Council continued consideration of the ordinance so that additional staff analysis could be undertaken. At its June 21, 1988 meeting, the City Council raised con- cerns about the fallowing: 1. The importance of Program 10 in terms of the City's overall housing POllCY, and the relationship between Program 10, Program 12, and Ordinance Number 1367 (CCS). 2. The applicability of Program 10 to Single Room Occupan- cy (SRO) units. 3. The applicability of Program 10 to properties 1n com- mercial districts. 4. The appl1cability of Program 10 to properties in Rl d1stricts. , \-A - 1 - APR 2 5 1989 5. The applicability of Program 10 to properties which have obtained Category Band C removal permits from the Rent Con- trol Board. 6. The components which comprise the assumptions used to calculate the in-lieu fee requirements, including: market rents, unit sizes, and land prices, and the proposed adjustment factor. 7. The applicability of CEQA to the proposed ordinance implementing Program 10. A draft staff report providing responses to these concerns and a revised ordinance was subsequently prepared. On October 24, 1988, the city Attorney's office distributed the proposed ordinance implementing Program 10 and the draft staff report to interested parties, including persons who spoke at the public hearing on June 21, 1988, land use attorneys prac- ticing in Santa Monica, the Chamber of commerce, members of the Plannlng Commission and Housing Commission, neighborhood or- ganizations, tenant and landlord activists, for review and com- ment. The written comments received by staff are attached as Appendix A. This staff report provides information and discussion in response to the concerns raised by the city council at its June 21, 1988 meeting. As a result of comments submitted by members of the public, the draft staff report and ordinance have been modified in several respects. - 2 - ANALYSIS PART I. THE NEED FOR PROGRAM 10. The need for Program 10 was documented in staff's summary of housing production trends in its June 20, 1988, Supplemental Information report. This report updates that information with recent data not included in monthly Building Department Certifi- cate of Occupancy and Building Permit summaries, corrects an ap- parent inconsistency in the new construction totals, specifies large projects WhlCh inflate the annual new construction sum- maries, restates the conclusions presented in the June 20, 1988 report, and provides a basis for staff's approach to the data analysis. New construction has shifted new housing opportunities to- ward condominium ownership and away from rental housing. Between January 1976 and December 1986, 2,845 units in multi-family structures were constructed. Of these, 1,903 (67%) were con- dominium units, while 942 (33%) were rental units. The number of rental units constructed represents approximately 63% of the num- ber which were demolished during the same time period. Slnce 1985, with the softening of the condominium market, more rental units have been developed than new condominium units, 788 rental units and 465 condominium units respectively. Eighty- three percent (83%) of the rental units developed since 1979 have been developed during these last four years (January 1985 - March 1989) . Annual new construction figures are summarized in Table 1 below: - 3 - TABLE 1. CERTIFICATES OF OCCUPANCY JANUARY 1976 - DECEMBER 1986 Condominium Rental All units Year 50+ Other Total 50+ Other Total Total 1976 0 163 163 100 (1) 67 167 330 1977 0 86 86 0 265 265 351 1978 0 104 104 0 141 141 245 1979 0 161 161 0 15 15 176 1980 144(2) 324 468 0 6 6 474 1981 0 287 287 0 6 6 293 1982 0 201 201 0 0 0 201 1983 0 169 169 61(3) 57 118 287 1984 0 99 99 0 14 14 113 1985 153(4) 2 155 126(5) 49 175 330 1986 0 10 10 0 35 35 45 Total 1,903 942 2,845 BUILDING PERMITS JANUARY 1987 - MARCH 1989 1987 1988 1989 o o o 105 158 37 105 158 37 o o o 205 304 59 205 304 59 310 462 86 Total 300 568 868 (1) Neilson villa, 100 Rental units (2) Sea Colony II, 144 condominium Units (3) Barnard Park, 61 Rental Units (4) Sea Colony III, 153 Condominium Units (5) 1528 5th (Salvation Army), 126 Rental Units As Table 2 below details, of the 937 rental units completed since 1979 or currently under construction, 272 (or 29%) have been developed with some form of city financial assistance or through development agreements: - 4 - TABLE 2. Development Agreements 61 Ocean Park Redevelopment Projects 116 Section 8 New Construction 24 Public Housing 19 City-wide Housing and Acquisition and Rehabilitation Program (CHARP) projects 30 Pico Neiqhborhood Housinq Trust Fund proiects 22 Total 272 The remaining 665 units represent 65% of the 1,016 units demolished during the same 1979-1989 time period. staff does not believe that a more accurate view of private sector housing production would be gained by using a 1980 base- line, which would exclude 1978-1979 demolitions in the new con- struction versus demolition analysis. Because much of post-1980 construction has taken place on sites cleared during the preced- ing years, any comparative analysis must use a baseline not later than 1979. An overview using a 1976, 1977, or 1978 baseline would not produce a signiflcant1y different picture than that presented by using the 1979 baseline. with the passage of rent control occurring in 1979, that year represents the most appro- priate dividing line for an analysis of new construction trends. PART II. UNITS SUBJECT TO PROGRAM lO. A. Applicability to Sinqle Room Occupancy units. The 1980 Census found that there were 3,970 O-Bedroom units in Santa Monica. The Census also found 969 units with no bathroom or only a half bath, and 1,264 units without complete kitchen facilities. More than one-fourth of all units without kitchen - 5 - facilities were located in the downtown area. Since 1983, approx- imately ninety-three percent (93%) (305) of these SRO units in the downtown have been removed from the rental housing stock by receiving category B (177 units) or Category C (50 units) removal permi ts from the Rent Control Board, through exercise of the Ellis Act (28 units), or other demolition (50 units). While SRO units meet the needs of a particular segment of the community, these units are not comparable to multi-family dwelllngs with private cooking and bath facilities. The Zoning Ordinance differentlates between mUlti-family dwellings and boarding houses and residential hotels, within which categories most SRO buildlngs would fall. SRO units have not been subject to Program 10 requirements in the past, and therefore should not be subject to the proposed implementing ordinance. However, based upon the continuing loss of SRO unitsl and the special role these units play in providing housing, a separate ordinance ad- dressing SRO unit removals is necessary, desirable, and consis- tent with the Housing Element. Thus, consistent with the ap- proach taken by other jurisdictions, staff will present to the Clty council at a later date recommendations to preserve SRO housing. B. Applicability in Commercial Zones. In 1975 there were 3,308 multifamily residential units in areas zoned for commercial use. An additional 616 mobile home unlts were located in areas zoned for industrial use. The requirement of replacement of residential units removed from commercial zones is consistent with the city's Housing and - 6 - Land Use Elements and with current zoning as residential uses are permitted in commercial zones throughout the city. Program 3 of the Housing Element calls for the City to encourage housing in commerc~al zones where appropriate and to consider housing in industrial zones. The Land Use Element also contains policies encouraging development of residential uses in commercial zones, as does the Bayside District Specific Plan. Multi-family residential development is currently a permitted use in the fol- lowing commercial zones: CP, CA, C-3, C-4, C-4A, and CM. In addition, the vast majority of multifamily residential rental un~ts currently located in commercial zones are low- and moderate-income rent controlled units. Even with these units, the City has an inadequate number of affordable housing units. If Program 10 were to be deemed inapplicable to units in commer- cial zones, a strong incentive to remove existing affordable housing units, to be replaced by commercial projects would be created. The City would not only lose the affordable housing which exists in commercial zones, but also would not recover fees to enable it to replace the lost affordable housing elsewhere in the city. Since the potential exists for the loss of a substantial number of residential units from commercial zones, and replace- ment of these units is consistent with City land use and housing POllCY, the replacement requirements of Program 10 should apply to commercial zones. As of June, 1988, of all properties withdrawn under the Ellis Act, 52% of the properties, representing 67% (or 145) of - 7 - all mUlti-family rental units withdrawn under the Ellis Act, have been in commercially zoned areas. c. Applicability in RI Zones. Although current data is not available, in 1975 there were 541 multifamily residential units in Rl zones, some of which are owner-occupied condominiums. Of the 439 multifamily rental units in the zone, 180 were in duplexes, 105 were units in triplexes, and 154 units were in developments of four or more units. The current Zoning Ordinance limits new multifamily residential use to the development of duplexes in transitional areas of the Rl zone. It further limits duplex development to those transitional parcels exceeding 6,000 square feet and abut- ting R3 and R4 zones. Based upon review of Sandborn maps, it is estimated that approximately 105 of the multifamily units in the Rl zone are located in transitional zones where duplex construc- t~on would be permitted. Exempting Rl property from Program 10 would put at risk a small number of the multifamily units located in the Rl zone, but would encourage home-ownership and protect the integrity of the zone as a community of single family residences. Therefore, staff recommends that Rl properties be exempted from Program 10 requirements. D. Properties with Category Band C Removal Permits. The Rent Control Charter Amendment as implemented by Rent Control Board regulations establishes four categories under which property owners may petition the Board to remove units from the rent-controlled stock: - 8 - 1. category A permits may be granted if the owner is unable to collect the Maximum Allowable Rent. 2. Category B permits may be granted where an owner demonstrates that the Maximum Allowable Rent does not provide a fair return and the owner cannot rent the unit at that rent which would provide a fair return. 3. category C permits may be granted where the Rent Control Board determines that the unit is uninhabitable and can- not be made habitable in an economically feasible manner. 4. Category D permits may be granted if comparable controlled rental units are to be provided to replace those removed, and at least 15% of the controlled units to be built will be affordable to low income households. The Rent Control Board has granted six Category Band 38 Category C removal permits for multifamily and SRO structures since 1979. Category B permits have removed 253 units from the rent controlled stock, and 233 units have been removed under Cat- egory C. In determining whether Category B or Category C units should be differentiated from other units subject to Program 10, staff examined the removal permit determination process for points of contrast with Program 10. Category B permits are granted to allow the owner to remove units from the controlled rental market because, given operating costs of the property, the controlled rents do not give the owner a falr return and the owner could not rent the units at that rent which would provide a fair return. A Program 10 fee or replace- ment requirement would not be in conflict with the intent of the - 9 - Category B process. An owner of rental units would still be al- lowed to remove those units from the controlled stock to re- develop with market-rate units, or, in an area with the appropri- ate zoning, to redevelop for a commercial use. The finding that the owner could not earn a fair return on the existing units has no bearing on the ability of the owner to develop a market rate rental property or to pay a fee in order to develop a commercial project. A Category C permit would indicate that for the particular unlt or units considered, repairs necessary to bring the units up to average habitability standards could not be amortized through the Maximum Collectible Rent over a ten year period. The average habitability standard is a subjective determination which will vary in its application. The granting of such a permit does not indicate the unit is uninhabitable according to City Codes, a determination which is made by the City's Building Officer. While the Rent Control Board flnding may indicate that the prop- erty should not be occupied, many of the units for which category C permits have been issued have been tenant-occupied at the time the permit is granted. The finding for a Category C removal is an economic finding based as much on the rent potential of the property as the rehabilitation needs of the property. Units requiring comparable levels of rehab11itation may therefore not be equally eligible for a removal permit. A determination regarding the value of a unit's contribution to the housing stock cannot be made solely on the basis of whether or not that unit has obtained a Category C permit. - 10 - As in the case of Category B, the feasibility determination used in Category C cases does not take into account the highest and best use of the property, i.e., the feasibility of redevelop- lng the property with market rate housing units or paying a re- placement housing fee in order to develop commercial property. Whether or not the property has a Category C removal permit is irrelevant to the determination regarding the feasibility of re- placement or the impact of a fee. Indeed, the owner of rental property who has poorly maintained a rent controlled property and obtained a Category C rernoval permit may be in a better financial position to absorb the replacement fee associated with Program 10 than an owner of a well maintained property. While the intent of the Category C regulations is not to grant a removal permit to an owner who has willfully allowed their property to deteriorate, that determination is a highly subjective one. Exemption from Program 10 requirements would constitute a clear incentive to owners of marginal properties to allow further deterioration to achieve Category C status. Properties which have been granted Category A, B, or C re- moval permits are nevertheless in a position that differs from other properties. A determination has been made by the Rent Con- trol Board that the continued operation of the properties as they currently exist, or as they would be after necessary rehabilita- tion, does not yield a fair return. Owners of such property are permi tted to remove existing structures and to build whatever current land use and zoning regulations allow on their proper- ties. These properties are not being voluntarily removed in the same way as properties which may be removed pursuant to the Ellis - 11 - Act or some other means. The owners of properties with Category A, B, or C removal permits have shown to the satisfaction of the city, in effect, that they must construct new projects in order to make economically viable use of their properties. In light of these considerations, the ordinance has been revised to reduce the replacement housing obligation of proper- t~es with category A, B, or C removal permits to the number of units allowed by current zoning instead of the number of units being removed. Thus, in those cases where density standards have been lowered, the obligation would be consistent with these stan- dards. Since owners of properties with Category A, B, or C re- moval permits have demonstrated to the City that they must, for economic reasons, recycle their properties rather than that they have voluntarily chosen to do so, Staff believes it to be fair to base their Program 10 replacement fees on the number of units permitted by current zoning to be replaced. PART III. FEE CALCULATION. Housing Divis~on staff calculated Program 10 fees which would be required to provide one-for-one replacement for all mul- tifamily resldential rental dwelling units removed and not re- placed. staff analysis indicated that one-for-one replacement would require that a developer pay fees ranging from $27,000 for each a-Bedroom unit removed, to $63,000 for each 4-Bedroom unit removed and not replaced. - 12 - A. Methodoloqy. The fee recommended in this Ordinance represents an amount sufficient to enable the City to replace the multifamily residen- tial rental dwelling units being removed. The proposed fee rep- resents the average dollar amount per unit which would be re- quired for the City to construct a typical project incorporating 85% market rate units and 15% affordable units, as required by current city requirements. To calculate the equity necessary to construct one new low or moderate income housing unit, staff estimated typical con- struction costs, "soft" costs, and land costs, and subtracted from the sum of these costs the mortgage which could be supported by the average market rent. The gap between total development costs and the supportable mortgage represents the amount required to be funded from publ ic or private sources of subsidy and/ or developer equity. This gap represents the fee required to pro- vide one-for-one replacement. In order to arrive at the fee amount, City staff first es- tablished the components of development costs necessary to es- tabllsh a fee structure, including: unit sizes, typical con- struction costs, land prices, unit rents and financing. These assumptions are summarized below. B. Unit Sizes. There are three existing unit size standards in effect in Santa Monica, lncluding the Uniform Building Code ("UEe"), HUD standards for federally assisted multifamily housing, and Or- dinance Number 1448 (CCS) implementing Program 12 of the City's - 13 - Housing Element. These standards, the average size of units reg- istered with the Rent Control Board ("RCBn) and the average size of units built by Community Corporation of Santa Monica (nCCSM") with City assistance, are summarized in Table 1. TABLE 1. UNIT SIZE STANDARDS (SQUARE FEET) Unit Size RCB UBC HUD Ord. 1448 CCSM SRO NA 220 NA NA NA o Bedroom 400 360 415 500 NA 1 Bedroom 700 500 540 600 573 2 Bedroom 1000 640 800 850 843 3 Bedroom 1200 780 1050 1080 951 4 Bedroom 1200 920 1150 1200 1232 The Program 12 unit sizes were established based upon the presumption that inclus10nary units should be of comparable size to market rate units. In setting Program 12 unit sizesl the HUD minimum standards were adjusted upward 30-85 square feet to reflect staffls finding that new market rate projects provide units greater in size than the federal minimum standard. Insofar as replacement projects would have to meet the requirements of Program 12, the Program 12 standards were used in calculating replacement unit costs under program 10. C. Construction Costs. Construction costs were calculated at $55 per square foot of dwelling area, and $10,000 per parking space required under the zoning code. These figures are based upon standard building industry data utilized by the Building and Safety Division in establishing project valuation. - 14 - D. Land Costs. staff used a baseline land cost of $42 per square foot, which represents the average land cost for market rate rental projects currently in the development pipeline. staff varied building densities to arrive at per unit land costs, presuming that O-Bedroom units could be built to a maX1rnurn density of 7.5 units per 7500 square foot lot, while 4-Bedroom units could be built to a density of 5.5 units per standard lot. Based upon these assumptions, staff calculated per unit land costs as detailed below. TABLE 2. PER UNIT LAND COSTS Unit Type Land Cost/Lot Units/Lot Per Unlt Land Cost O-Bedroom $315,000 7.5 $42,000 I-Bedroom $315,000 7.0 $45,000 2-Bedroom $315,000 6.5 $48,482 3-Bedroom $315,000 6.0 $52,500 4-Bedroom $315,000 5.5 $57,273 E. Soft Costs. In addi tion to land and construction costs, staff added typical soft costs in order to establish total development costs. Soft costs, including architecture, taxes, insurance, financing fees, and other typical miscellaneous project costs, were esti- mated to equal 13-15% of total development costs. F. Total Development Costs. Total development costs were then calculated adding together the construction cost, land cost, and soft cost compo- nents as follows: - 15 - Unit Type Dwellinq Parkinq Land Soft Costs Total Cost 0 Bedroom $27,500 $10,000 $42,000 $14,483 $93,983 1 Bedroom $33,000 $20,000 $45,000 $16,100 $114,100 2 Bedroom $46,750 $20,000 $48,462 $18,892 $134,104 3 Bedroom $59,400 $25,000 $52,500 $21,453 $158,353 4 Bedroom $66,000 $30,000 $57,273 $23,580 $176,853 G. unit Rents. To calculate the maximum affordable mortgage for the model replacement project, staff assumed that 85% of the units would be at these market rates, while 15% would be affordable to median income households per the city's Program 12 Ordinance. The Kotin, Regan & Mouchly (nKRMtt) study, commissioned by the city for the Program 12 analysis in 1986, found market rents for an average 1000 square foot two-bedroom apartment to range from $1.05 per square foot in the Pico neighborhood to $1.42 in the wilshire corridor. In July, 1988, staff surveyed rents in recently constructed market rate rental proj ects in the Pico, Ocean park, and Santa Monica-Wilshlre Corridor neighborhoods of Santa Monica. Rents in these areas, by unit size, fell within the ranges specified below: TABLE 4. RENT SURVEY Unit size Pico Ocean Park Santa Monica-Wilshire o Bedroom 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom $579 $750 $1025-1075 NA NA NA NA $1105-1300 $1340-1600 NA NA NA $1495 $1525-1600 NA - 16 - In general, per square foot rents are found to decrease with increases in unit size. Among the properties surveyed with known square footages, per square foot rents ranged from $1.05 for very large three bedroom units in the Santa Monica-Wilshire Corridor to $1.34 for small two-bedroom units in Ocean Park. Not included in the above survey are Ocean Avenue and Downtown luxury market rate units, both existing and under construction, with projected rents of greater than $2.15 per square foot. Based upon the KRM's 1986 analysis, recent consultation with KRM, and the above-mentloned survey, city staff established the following rent schedule for use in calculating replacement project income and required in-lieu fees: TABLE 5. RENT SCHEDULE Unit size Market Rent (85%) program 12 Rents (15%) o Bedroom 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom $864 $988 $1,174 $1,340 $1,513 $655 $760 $903 $1,031 $1,164 These market rents would be considered affordable to households earning approximately 130% of the Los Angeles County Median Income. H. Mortqage Calculation. Industry standard formulae were used to calculate vacancy loss, operating expenses, taxes, and debt service coverage. Vacancy loss was calculated at 3%. Operating expenses based upon the formula used by KRM were calculated as follows: - 17 - Operating Expenses (5% x Monthly Rent) + ($1.10jSq. Ft.jI2) Income available for debt service was calculated using a standard debt service coverage ratio of 1.10. The maximum mortgage was then calculated assuming a 30 year variable rate loan at 9.5%. I. Fee Calculation. Finally, the maximum mortgage was subtracted from the total development costs to give the equity gap which equals the recom- mended fee. This calculation is summarized as follows: TABLE 6. FEE CALCULATION Unit Type Averaqe Rent Max. Loan Dev. Cost Gap/Fee 0 Bedroom $835 $67,472 $93,983 $26,511 1 Bedroom $954 $76,074 $114,100 $38,026 2 Bedroom $1,133 $89,195 $134,104 $44,909 3 Bedroom $1,294 $100,162 $158,353 $58,191 4 Bedroom $1,461 $113,492 $176,853 $63,361 The funding gap for each unit type was then rounded to establish the appropriate per unit fees of $27,000, $38,000, $45,000, $58,000, and $63,000, for O-Bedroom, I-Bedroom, 2-Bedroom, 3-Bedroom, and 4-Bedroom units, respectively. J. Relation of Fees to Program Goals. Program 10 was included in the city's Housing Element as one part of multi-pronged strategy to protect and enhance the ability of the city to provide housing for persons of all In- comes. Because the removal process will tend to replace afford- able units with market rate units, it is essential that the City utilize Program 10 in-lieu fees to develop affordable units. - 18 - However, while the proposed fee levels would allow the city to facilitate the development of market rate projects, the fees will not be sufficient to facilitate the development of afford- able units on a one-for-one basis. The table below indicates the actual gap between develop- ment costs and the maximum affordable mortgage which could be carried by units at affordable rent levels: TABLE 7. FEE VS. SUBSIDY FOR AFFORDABLE PROJECTS Subsidy Required at Affordable Rents unit size Per Unit Fee Median Low Very Low a-Bedroom $27,000 $38,000 $50,000 $69/000 I-Bedroom $38,000 $48/000 $63,000 $85/000 2-Bedroom $45,000 $56/000 $74,000 $99,000 3-Bedroom $58,000 $69,000 $89,000 $118,000 4-Bedroom $63,000 $76,000 $98/000 $131,000 As the above table indicates, the proposed Program 10 fee will not come close to allowing the city to replace units removed wi th affordable units on a one-for-one basis. For each unit removed, the fee would facilitate 80% replacement at median income rents, 60% replacement at low income rents/ and approximately 50% replacement at very low income rents. In order to approach one-for-one replacement/ the City will be required to obtain additional private and public subsidies to supplement in-lieu fees. The availability of these outside sources of subsidy is uncertain and should not be presumed in any calculation of in-lieu fees. - 19 - K. Conclusion. Based upon the analysis outlined above, and further detailed in Table 1 attached hereto, city staff has determined that the fees appropriate to implement program 10 are as follows: TABLE 8. RECOMMENDED FEES unit size Per Unit Fee O-Bedroom I-Bedroom 2-Bedroom 3-Bedroom 4-Bedroom $27,000 $38,000 $45,000 $58,000 $63,000 These fees would be applied to all the units to be removed and not replaced according to unit type. For simplicity of administratlon and to ensure adequate funds for replacement units of standard size, staff does not recommend imposition of the fees on a per square foot basis. PART IV. RELATIONSHIP TO PROGRAM 12 AND ORDINANCE NUMBER 1367 (CCS). The City's Housing Element establishes the basis for a mul- ti-pronged approach to assisting low and moderate income house- holds. Program 10, Program 12, and Ordinance Number 1367 (CCS) are each lntended to address different aspects of the city's housing needs. Program 10 is a replacement program, one aimed at maintain- ing the existing housing stock. Recognizing that the market pressure has removed many more rental units than it has created, Program 10 is intended to stabilize the existing stock by ensur- ing that mul tlfamily units are replaced as they are removed. - 20 - Program 10 does not, however, provide a mechanism to ensure that replacement units are affordable to low and moderate income per- sons, except to the extent that those units are built by the city with fees paid by developers. Ordinance Number 1367 (CCS) is a housing production program aimed at meeting new housing needs created by new office develop- ment. without such an ordinance, existing housing resources, even if replaced under Program 10, would be strained with the addition of each new office development. provision of housing on-site or payment of Office Housing Mitigation fees ensures that new developments help meet the new housing demand they generate. Program 12 is a housing affordability program. Program 12 recognizes that maintaining and expanding the supply of afford- able housing is crucial if Santa Monica is to maintain its his- toric diversity. By establishing inclusionary requirements and fees, Program 12 ensures that at least a small portion of the housing which is produced, including housing produced under Pro- gram 10 and Ordinance Number 1367 (CCS), is affordable to low and moderate income households. PART V. CEQA. An Environmental Impact Report was performed and adopted by the City Council when the Housing Element was adopted in 1983. Program 10, along with other programs contained in the Housing Element, has been implemented since that time. However, in order to ensure that an ordinance adopted by the City Council will not - 21 - be vulnerable to attack under the California Environmental Quali- ty Act, the proposed ordinance should be subjected to environmen- tal review prior to city Council action. PART VI. SECTION-BY-SECTION ANALYSIS. The proposed ordinance implements Program 10 as follows. When an owner/developer of multifamily residential rental dwelllng units seeks to remove those units, the owner/developer must enter into an agreement with the city to comply with Program 10. Program 10 contains a fee requirement which must be satisfied over a ten year period fallowing issuance of a certificate of occupancy. If an owner/developer replaces the removed rental units on with new rental units on the site from which they have been removed, he or she will be deemed to satisfy the fee requirement. Replacement housing units which are intended to satisfy the fee requirement of Program 10 must be completed prior to issuance of a certificate of occupancy for any subsequent development on the property from which the units have been removed. The following is a section-by-section analysis of the proposed ordinance: Sectlon 9440. This Section sets forth the findings and purpose of the proposed ordinance. section 9441. This Section sets forth the definitions of words and phrases used in the proposed ordinance. Section 9442. This Section provides that compliance with Program 10 as outlined in the ordinance is required of all - 22 - projects prior to issuance of a building permit, license, or other City approval where the demolition or conversion of multifamily residential units is involved. section 9443. This section provides that this Chapter applies to any development involving removal of multifamily residential units and to any property that has removed mul tifamily residential units and for which a deed restriction requiring compliance with Program 10 has been recorded. Section 9444. This section requires that a compliance agreement be entered into by any developer in connection with an application for a demolition or other permit necessary for remov- al of a multifamily residential rental unit. The compliance agreement will indicate that the developer will comply with Pro- gram 10 either by paying the required fee or by provision of re- placement housing units. This Section further requires that if a developer intends to satisfy Program 10 by paying the required fee, he or she must enter into a fee agreement prior to issuance of a certificate of occupancy for a development on the subject slte. If a developer intends to satisfy Program 10 by replacing the removed units instead of paying the required fee, he or she must submit a replacement housing plan for approval by the Plan- ning Director wi thin sixty days of the date of the compliance agreement. If a replacement plan is not approved by the Planning Director, the developer shall be required to pay the fee required by Section 9445. Section 9445. This section sets forth the exact fees developers must pay in order to satisfy Program 10 and mitigate the adverse consequences of removal of multifamily residential - 23 - dwelling units from a site. These fees are based on the number and size of the units to be removed, except in connection with properties WhlCh have been granted Category A, B, or C removal permits. As to those properties with Category A, B, or C removal permits, the fees are based on the number of units that can be bUl1t on the site under the current zoning laws. Fees will be adjusted for inflation by the percentage change in the Consumer Price Index times .65 plus the percentage change in land cost multiplied times .35 between the date of adoption of this Ordinance through the month in which payment is made. Section 9446. This Section requires a developer to enter into an agreement to pay the fee over a period of ten years, with the first installment due prior to issuance of a certificate of occupancy for the development or conversion of the subject site. This agreement will create a lien on the property and will bind the developer and successors in interest to the property. The agreement is to be recorded. This section also provides that in lieu of enterlng into an agreement, a developer may pay the entire fee prior to issuance of a certificate of occupancy for the development or conversion of the subject site. section 9447. All payments made pursuant to the ordinance will be deposited in a Reserve Account separate from the General Fund and will be used only for development of low and moderate income mUltifamily residential rental dwelling units. section 9448. This section sets forth the situations in which replacement of removed units will satisfy the fee requirements of section 9445. Those situations include: - 24 - 1. One-for-one on-site replacement of multifamily residentlal dwelling units for any project involving the removal of such units. 2. Development of replacement units off-site in the context of a City project undertaken for pUblic-serving uses. 3. Development of replacement units off-site in the circumstance where the Coastal Commission has approved off-site replacement units in connection with removal of multifamily rental units in the Coastal Zone prior to the effective date of this Chapter. This section also requires that replacement units must be comparable in size and amenities to units being replaced and that replacement units must meet the requirements of Chapter 4A of Article IX of the Municipal Code (the City's Inclusionary Housing Program) . Finally, this Section requires that the certificate of occupancy for replacement housing units must be obtained prior to issuance of a certificate of occupancy, or any other appropriate license or City permit necessary for any new development or activity on the subject site if the replacement housing units are to satisfy the fee requirements of this Chapter. section 9449. This Section provides that multifamily residential dwelling units developed pursuant to the replacement requirements of the Santa Monica Rent Control Board will count toward the satisfaction of the requirements of this Ordinance if they otherwlse meet the Replacement Plan requirements of this Ordinance. This section further provides that a property which - 25 - has been granted a Category D removal permit by the Rent Control Board may not meet its Program 10 obligation by paying a fee pursuant to section 9445. section 9450. This Section provides that properties in the R-l District, single room occupancy units, units converted pursuant to TORCA, condominium units, and multifamily units which are replaced by nonprofit social service uses are exempt from this Chapter. section 9451. This Section provides that the provisions of this Chapter are not intended to supersede any other local ordlnances and regulations. RECOMMENDATION It is respectfully recommended that: 1. The city Council direct staff to prepare an initial study on the accompanying ordinance implementing Program 10 of the Housing Element. 2. The ordinance be returned to City Council upon preparation of a negative declaration or EIR, whichever is determined by the initial study to be appropriate. PREPARED BY: Robert M. Myers, City Attorney Laurie Lieberman, Deputy city Attorney Candy Rupp, Housing Division Manager Jeff Mudrick, Senior Development Analyst - 26 - CA:RMM:11443jhpc City council Meeting 4-25-89 Santa Monica, California ORDINANCE NUMBER (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA ADDING CHAPTER 4B TO ARTICLE IX OF THE SANTA MONICA MUNICIPAL CODE IMPLEMENTING PROGRAM 10 OF THE HOUSING ELEMENT THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES ORDAIN AS FOLLm\1S: SECTION 1. Chapter 4B is added to Article IX of the Santa Monica Mun1cipal Code to read as follows: CHAPTER 4B. REPLACEMENT HOUSING PROGRAM. SECTION 9440. Findings and Purpose. The city Council finds and declares: (a) In recent years, there has been a significant shift in multifamily residential development from construction of apartments to development of condominiums both by new construction and by conversion. (b) The City of Santa Monica has experienced a significant reduction in the number of multifamily residential rental dwelling units due to demolition and - 1 - conversion from residential to commercial Use. (c) The vast majority of mUltifamily residential rental dwelling units removed from the housing market due to demolition or conversion to commercial use are low and moderate income residential rental housing units. Cd) Individuals and families displaced from multifamily residential rental dwelling units as a result of demolition or conversion to other use are increasingly unable to find affordable replacement housing in the city. (e) The demolition and conversion of multifamily residential rental dwelling units has altered the historic housing stock balance and has contributed to the scarcity of affordable housing in the city. (f) Program 10 of the Housing Element of the General Plan of the City of Santa Monica adopted on January 25, 1983, provides for a replacement housing program where removal of existing multifamily residential rental dwelling units occurs in order to preserve and maintain the - 2 - city's overall housing stock and population density. (g) Pursuant to the police power,- the City has the authority to address both the housing imbalance created by the removal of existing multifamily residential rental dwelling units and the overall need for affordable housing in the city. (h) The purpose of this Chapter is to reduce the negative impact on affordable multifamily housing caused by new commercial and new residential development which requires demolition of existing multifamily housing and by conversion of mul tifamily housing to commercial use. (i) New commercial and new residential development which requires demolitlon of existing multifamily housing units is generating a reduction in the City's overall housing stock, and more particularly a reduction in the City's affordable housing stock, and increases the imbalance between jobs and affordable houslng in the City. (j) Conversion of rental housing to commercial use is generating a reduction - 3 - in the city's affordable housing stock and contributes to the imbalance between jobs and affordable housing in the city. (k) The City has a continuing need for low and moderate income housing, and such need is exacerbated by the demolition and conversion of such housing by new developments and commercial conversions. (1) The Preliminary Draft 1988 Regional Housing Needs Assessment published by the Southern California Association of Governments indicates that there is a continuing need in the City for low and moderate income housing. (m) Any fees collected pursuant to this Chapter shall be used only to finance low and moderate income housing units. (n) The fee requirements of this Chapter will help diminish the overall loss of multifamily residential housing units in the City and to mitigate the adverse consequences of removal of affordable housing units, thereby providing greater opportunities for low and moderate income households to secure housing in the city. (0) The facts and evidence presented in the Housing Element of the - 4 - General Plan establish that there is a reasonable relationship between the need for the replacement of low and moderate income housing which is removed either by demolition or conversion and the replacement requirements or fee established by this Chapter, and also that there is a reasonable relationship between the use of the fee and the type of development for which the fee is charged. (p) The fees required by this Chapter shall not exceed the reasonable costs of constructing replacement units. SECTION 9441. Definitions. The following words or phrases as used in this Chapter shall have the following meanings: (a) Fee. A fee paid to the City by a developer pursuant to this Chapter to satisfy the replacement housing requirements of this Chapter. (b) Multifamily Residential Rental Dwellinq unit. A multifamily dwelling unit as defined in the Comprehensive Land Use and zoning Ordinance which has been used for rental purposes subsequent to April 10, 1978, whether or not rented on the date of adoption of this Chapter. - 5 - (e) On-Site Replacement. Construction of multifamily residential rental dwelling units on the site from which units are to be removed. (d) Off-site Replacement. Con- struction of multifamily residential rental dwelling units on a site other than the site on which units are to be removed. (e) Program 10., Program 10 of the Housing Element adopted on January 25, 1983, by Resolution Number 6620 (CCS). (f) Remove or Removal. The demolition of multifamily residential rental dwelling units or the conversion of such units to other use. Removal includes an activity for which an occupancy permit is required pursuant to subdivision (b) or (c) (3) of Section 4812a of the Municipal Code. Removal does not include an activity for which an occupancy permit is required pursuant to subdivision (c) (1) of section 4812a of the Municipal Code unless there is an alteration of the premises to reduce the number of units. (g) Replacement Plan. A plan describing the replacement of mul ti- family residential rental dwelling units - 6 - which are removed from the mUltifamily residential housing market. (h) Single Room occupancy Housinq Unit. A housing unit which is contained within a residential hotel, rooming house, hotel, or motel where the unit does not contain either private food preparation or sanitary facilities. (i) Site. One or more contiguous parcels under common ownership which have been used, developed, or built upon as a unit. SECTION 9442. Replacement Housinq Requirement. (a) No person shall remove a multifamily residential rental dwelling unit unless the person has complied with the provisions of this Chapter. (b) No permit, license, or other approval shall be issued or granted by the Ci ty for the development or use of any property from which any multifamily residential rental dwelling unit has been removed until the person seeking the license, permit, or other approval has complied with this Chapter. - 7 - SECTION 9443. Applicabili~y. This Chapter shall apply to: (a) Any development, project, o~ other activity involving the removal of any multifamily residential rental dwelling unit. For purposes of this Chapter, development, project, or other activity shall include the creation of a parking lot or open space on a site previously occupied by a multifamily residential rental dwelling unit. (b) Any site from which multifamily residential rental dwelling units have been removed and for which an agreement has been recorded requiring compliance wi th Program 10 in connection wi th any development of the site. SECTION Agreement. (a) At the time of application for a demolition permit or other approval necessary for the removal of a multifamily residential rental dwelling unit, the developer shall enter into a compliance agreement in accordance with the provisions of this section. 9444. Compliance - 8 - (b) The compliance agreement shall provide that the developer shall be required to comply with this Chapter either by payment of the fee required by section 9445 or by provision of replacement housing units as provided by section 9448. (1) If the developer intends to comply with this Chapter by paying the fee required by Section 9445, an agreement which meets the requirements of section 9446 shall be delivered to the city prior to the issuance of a certificate of occupancy for any development on the subject site. If no certificate of occupancy is required for the conversion or other new activity on the subject site, the agreement shall be delivered to the City prior to commencement of the new use or activity on the subject site. (2) If the developer intends to satisfy the requirements of this Chapter by providing replacement housing uni ts , a replacement plan in accordance with subsection (c) shall be submitted to the Director of Planning within sixty (60) days of the date of the compliance agreement. If a replacement plan is - 9 - submitted in a timely manner and is disapproved by the Planning Director I a developer shall be permitted to re-submit a replacement plan within thirty (30) days of the disapproval. If the re-submi tted replacement plan is not approved by the Planning Director, or if no plan is re-submitted following disapproval, the developer shall be required to pay the fee required pursuant to section 9445. ( 3 ) The compl iance agreement shall provide that the replacement housing requirement may be satisfied by providing replacement units for a portion of the uni ts removed and a fee payment for the remainder of those units. (4) The compliance agreement shall contain other provisions deemed necessary by the City to ensure compliance with this Chapter. (c) A replacement plan must contain the following: ( 1) Identif ication of the site for development of replacement units and proof of site control. (2) Description of proposed replacement units, e.g., size of units and numbers of units. - 10 - (3) Schedule for construc- tion and estimated completion and occupancy date for replacement units. (4) A security instrument in a form acceptable to the City to guarantee the successful completion of the replacement housing units in lieu of meeting the fee requirements of this Chapter. (5) A deed restriction to ensure that replacement housing units shall be mUltifamily residential rental dwelling units for the lifetime of the project. (6) Information establishing that the replacement units are comparable in size, and provide amenities comparable to the multifamily residential rental dwelling units which are to be removed. (7) Such other information as the City may require to determine that the units being removed will be satlsfactorily replaced. SECTION 9445. Fee. (a) The replacement housing fee required by this Chapter shall be - 11 - satisfied by payment of a fee to the City in the amount required by this section. (b) The amount of fee required pursuant to this Section shall be based on the number and the size of the units to be removed and not replaced on-site by units pursuant to section 9448 as follows: o Bedroom Unit $27,000 per unit 1 Bedroom Unit $38,000 per unit 2 Bedroom Unit $45,000 per unit 3 Bedroom Unit $58,000 per unit 4 or More Bedroom Unit $63,000 per unit (c) with regard to a property which has been granted a Category A, B, or C removal permit by the Rent Control Board, the required fee shall be calculated on the basis of the number of units permitted to be constructed on the site pursuant to Chapter IX of the Municipal Code. The percentage of 0, 1, 2 , 3 , and 4 or more bedroom units being removed shall be calculated and this calculation shall be used to establish the bedroom size for the units for which the fee is required. (d) Any fee payment required pursuant to this Section shall be adjusted for inflation by the percentage change in - 12 - the Consumer Price Index ("CPP') mul tiplied times .65 plus the percentage change in land cost multiplied times .35 between the date of adoption of this Chapter through the month in which payment is made. (1) For purposes of this Section, CPI shall mean the index for Urban Wage Earners and Clerical Workers for the Los Angeles/Long Beach/Anaheim statistical area, as published by the United states Department of Labor, Bureau of Labor statistics. (2) For purposes of this Section, "land cost" shall mean the average purchase price per square foot for multifamily residentially zoned property, as determined through an independent survey performed for the Community and Economic Development Department by a qualified real estate consultant and adjusted on an annual basis. SECTION 9446. Payment of Fee. (a) A developer shall enter into an agreement with the city for payment of the fee required by this Chapter. - 13 - ------ (b) The agreement shall contain the following requirements: (1) The fee shall be paid in ten (10) annual installments. (2) The first installment shall be due prior to issuance of the certificate of occupancy for any development or conversion on the subj ect site. (3) The agreement shall create a lien on the property which shall be binding on the developer and any successor of the developer, including any person acquiring an interest in the property by foreclosure, trust sale, or other proceeding. (4) Installment payments shall be adjusted annually for inflation pursuant to section 9445{d). (5) The agreement shall be recorded. (6) Such other provisions as are reasonably deemed necessary by the city to ensure payment of the fees required by this Chapter. (c) In lieu of entering into the agreement provided by this section, a developer may pay the entire fee prior to - 14 - issuance of the certificate of occupancy for any development or conversion on the subject site. SECTION 9447. Deposit and Use of Fee. Any payment made pursuant to this Chapter shall be deposited in a Reserve Account separate from the General Fund to be used only for development of low and moderate income multifamily residential rental dwelling units. Any interest income earned by monies in such account shall be expended only for development of low and moderate income multifamily residential rental dwelling units. SECTION 9448. Replacement Housing units In satisfaction of Fee Requirement. (a) A fee shall not be required by section 9445 as follows: (1) To the extent that removed multifamily residential rental dwelling units are replaced by multifamily residential rental dwelling units on the site from which they have been removed, the replacement housing fee required by Section 9445 shall be deemed satisfied. (2) To the extent that multifamily residential rental dwelling - 15 - units removed from a property owned, controlled, or operated by the City are replaced by multifamily residential rental dwelling units either on the site from which they have been removed or off-site, the replacement housing fee required by Section 9445 shall be deemed satisfied. ( 3 ) To the extent tha t the Coastal commission has approved off-site replacement multifamily residential rental dwelling units in connection with the removal of multifamily residential rental dwelling units located in the Coastal Zone prior to the effective date of this Chapter, the replacem.ent housing fee required by Section 9445 shall be deem.ed satisfied by such off-site replacement units. (b) with regard to a property which has been granted a category A, B, or C removal permit by the Rent Control Board, the number of units required to be replaced shall be calculated on the basis of the number of units permitted to be constructed on the site pursuant to Chapter IX of the Municipal Code. The percentage of 0, 1, 2, 3, and 4 or more bedroom units being removed shall be - 16 - calculated and this calculation shall be used to establish the bedroom size for the replacement units. (c) Replacement housing units shall be deemed to satisfy the fee requirements of section 9445 only insofar as such units are developed in accordance with the approved replacement plan required by section 9444(c). (d) Replacement housing units shall be subject to the requirements of Chapter 4A of Article IX of this Code, except that such requirements may not be satisfied by the payment of an in lieu fee. (e) Replacement housing units shall be deemed to satisfy the fee requirements of this Chapter only if the certificate of occupancy for such units has been obtained prior to issuance of a certificate of occupancy for any development, conversion or other new activity on the subject site. If no certificate of occupancy is required for the conversion or other new activity on the site, in order to satisfy the requirements of this Chapter, the certificate of occupancy for the replacement housing units must be obtained - 17 - prior to commencement of the new use or activity on the subject site. SECTION 9449. Relation to Replacement units Required by Rent control Board. (a) Multifamily residential rental dwelling units developed pursuant to replacement requirements of the Santa Monica Rent Control Board shall count toward the satisfaction of this Chapter if they otherwise meet the requirements described herein. (b) A property which has been granted a Category D removal permit by the Rent Control Board may. not meet its Program 10 obligation under this Chapter by paying a fee pursuant Section 9445. SECTION 9450. Exemptions. The following shall be exempt from the requirements of this Chapter: (a) Units located in the R-l District. (b) Single room occupancy units. (c) Units converted pursuant to Article XX of the City Charter. - 18 - (d) Units converted or constructed pursuant to a tentative map approved after April 10, 1979. (e) Units converted pursuant to a final map approved after April 10, 1979, and for which a Rent Control Board exemption or removal permit has been obtained. (f) Units which are removed from a site and replaced by a nonprofit residential social service use which constitutes the principal use on the site, but only as long as the nonprofit residential social service use exists on the property, and only upon execution of a deed restriction in a form acceptable to the city imposing the requirements of this Chapter should the nonprofit residential social service use terminate. SECTION 9451. Applicability of Other City OrcUnanc:es and Regulations. None of the provisions in this Chapter are intended to supersede any provision of the City Charter, ordinances, regulations, or resolutions concerning demolition of residential housing, relocation of displaced tenants, rent control removal - 19 - requirements, or inc1usionary housing requirements applicable to multifamily residential projects. SECTION 2. Any provision of the Municipal Code or appendices thereto inconsistent with the provisions of this Ordinance, to the extent of such inconsistencies and no further, is hereby repealed or modified to that extent necessary to effect the provisions of this Ordinance. SECTION 3. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconsti tutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The city Council hereby declares that it would have passed this Ordinance, and each and every section, subsection, sentence, clause, or phrase not declared" inval id or unconstitutional , without regard to whether any portion of this Ordinance would be subsequently declared invalid or unconstitutional. SECTION 4. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The city Clerk shall cause the same to be published once in the official newspaper - 20 - within 15 days after its adoption. This Ordinance shall become effective 30 days from its adoption. APPROVED AS TO FORM: ~ w.... ~ ROBERT M. MYERS 0 City Attorney - 21 - ~'YI:88~ ;'/$~ ../~ ./bed . /~ 3tl/ ./~ ~. -c~ .9tl.vt73 October 28. 1988 CITY t..iiORNE'T SANTA MONICA OCT 3\ 17 21 fM 'DO C~ty of Santa Honlca 1685 Ma:1.n St. Santa Mon~ca. Ca. 90402 Att: Ms. Laur:1.e Liebe~an, Deputy City Atty. SubJect: Proposed Ord:1.nance Program 10 Dear Ms. L1eberman: Your transm1ttal letter request:1.ng comments on the above was rece1ved Oct. 27th w1th an 1mput deadl1ne of Oct. 28th. HopefUlly, add1tlonal tlme w1ll be allowed under such Clrcumstances. It 1S clear that the pr10clpa1 lntent of th:1.s proposed ordloance 1S to thwart both the sp1rlt and stated purpose of the state's Ell1S Act WhlCh guarantees all rental houslng owners the fundamental rlght to go out of bUS1ness and to put the1r property to lawful alternat:1.ve use. The net effect of th:1.s proposed 1egls1at1on 1S to force rental hous:1.ng owners back 1nto the bus10ess they seek to leave or ~n the alternat:1.ve, force them to pay an enormous ransom, wh:1.ch 1n a great many S:1.tuat1ons would represent most or all of thelr land value. It:1.5 clear from recent declslon5 that the courts w111 not tolerate these tactics and that attempt1ng them wlll expose thlS Clty to substantlal l:1.abllltles. The staff report of June 20, 1988 c:1.ted 1n the analysls :1.nd1cates extreme preJu- dlce against mult:1. un:1.t ownershlp houslng 10 favor of multl unlt rentals. It also falls to acknowledge that Clty pol~cles lnstltuted 1n 1973 dellberately dlS- couraged the constructlon of rentals leav:1.ng mult1 un:1.t ownersh:1.p unlts the only economlcally v1able alternat1ve. Program 10 was vlgorously opposed by a large m1nor~ty of the C~tlzens Adv1sory Commlttee on houslng from Wh1Ch :1.t emerged. The goal ~t purports to support, that of preserv~ng the C1ty'S demograph1c m~x as ~t eXlsted 1n the late 19705 :1.S hl;tor~cally flawed. From 1ts found1ng only 117 years ago, Santa Mon~ca has undergone constant demo- graph~c change. Not too long ago 1t was almost exc1us~vely prlvate homes. Only with the complet1on of the Santa Mon1ca freeway in 1965 d1d ~t become a rental domlnated commun~ty wlth a h1gh water mark in 1980 of 70% rentals and 30% owners. There is no compelling social po11cy reason at all for the appllcat10n of force to preserve any part1cu1ar status quo. ) . City of Santa Mon1ca Page 2 If more rental hous1ng w1th a 15% 1nclus1onary component is des1red there 1S a workable alternative to th1S illegal ord1nance. The C1ty Counc11 could fa1rly qUlckly restore the low dens1ty. low rlse rental construction standardS pi 1972 wh11e 1eav1ng unchanged the restrictlons for multl ownersh1p unlts. If th1S were coupled wlth a long term real guarantee aga1nst future pr1ce controls then almost all new multl unlt houslng construction would be rentals. 4AMES W. BAKER , ... /' J~" Y Incent1ves work....force does not. JWB/b