SR-407-002-04 (2)
RM:Housing:BM:TR:F:\RESOURCE\SHARE\STAFFREPORTS\TrstFndGudAmend.doc
Council Meeting: April 24, 2001 Santa Monica, California
To: Mayor and City Council
From: City Staff
Subject: Recommendation to Amend the Consolidated Rental Housing Trust Fund
Guidelines to Increase Per Unit and Per Project Maximum Subsidy
Amounts for New Construction Projects
INTRODUCTION
This report recommends that the City Council amend the Consolidated Rental
Housing Trust Fund Guidelines to increase per unit and per project maximum
loan/grant (“subsidy”) amounts for new construction projects.
BACKGROUND
In November 1998, the City Council approved the Consolidated Rental Housing
Trust Fund Guidelines (“Trust Fund Guidelines”). The Trust Fund Guidelines
govern the use of the City’s five housing trust funds: the Citywide Housing Trust
Fund; the Redevelopment Housing Trust Fund; the HOME Trust Fund; the
CDBG Trust Fund, and, the TORCA Housing Trust Fund. The purpose of the
Trust Fund Guidelines is to establish parameters for the types and terms of
subsidies available from the City’s housing trust funds.
The Trust Fund Guidelines may be amended as needed to reflect changes in
market conditions, legislation, and funding sources. In May 2000 the City
Council approved various amendments to the Trust Fund Guidelines, including
an increase to the maximum per unit and per project subsidy amounts for
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acquisition/rehabilitation projects, but not for new construction. It was not
necessary to increase the maximum unit subsidy and overall subsidy amounts for
new construction at that time because the City’s housing policy emphasized
acquisition/rehabilitation. In the near future a focus on construction of new family
sized units is contemplated. Increases in the cost of new construction and land
have rendered obsolete the existing Housing Trust Fund Guidelines for maximum
subsidies.
Discussion
The Trust Fund Guidelines establish both per unit and per project subsidy limits.
The Guidelines allow increases by up to 20 percent above the limits at the
discretion of the City Manager/Executive Director and above 20 percent by
approval of the City Council/Redevelopment Agency.
Costs for new residential development in Santa Monica have increased
significantly since 1998. Land and construction represent most of the cost
increases.
Studies performed by Hamilton, Rabinovitz & Alschuler, Inc. (HR&A) in 1998 and
2000 in relation to the City’s Affordable Housing Production Program reveal
these increases. Based upon HR&A’s 1998 study, average per unit land for a
prototypical 16-unit development in the R2 zone on a 15,000 square foot parcel
ranged from $37,500 in lower cost areas to $65,625, or an average of $51,562
between lower and higher cost areas. When HR&A updated their study in 2000,
land costs for the same prototypical project had increased to $55,313 per unit in
lower cost areas and to $92,813 per unit in higher cost areas, or an average of
$74,063 between lower and higher cost areas.
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From a cost standpoint, it would be preferable to develop new affordable housing
in areas of the City where land prices are lowest. However, it is City policy to
encourage the distribution of affordable housing throughout the City. Therefore,
the City’s lending practices must allow the flexibility to develop on land where
costs may be higher.
Construction costs have also risen sharply since 1998. Based upon the same
1998 and 2000 HR&A studies, construction costs for the prototypical 16-unit
project rose from $84 per square foot to $97 per square foot. This represents an
increase from $73,500 to $84,875 in construction costs per unit in the
prototypical 16 -unit development.
The City’s own recent experience with the costs of construction for affordable
housing reveals even higher costs. In particular, construction costs for the
Fourth Street Senior Housing Project and Colorado Court average approximately
$134 per square foot. Higher construction costs for these projects is primarily
attributable to inflation associated with the heated construction market, prevailing
wage requirements, and building code requirements. Assuming an average
building square footage per unit of approximately 1,000 square feet (based upon
two new affordable family projects in the City located at 708 Pico Boulevard and
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1438-44 16 Street), and based upon the per square foot construction costs of
$134 for affordable developments now under construction, the estimated average
construction costs per unit for an affordable new construction family project is
$134,000.
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Using the above information, staff estimates that the per unit current cost of
developing a typical affordable new construction family project in the City would
be approximately $259,000, as shown in the following table:
Item Cost Per Unit
Land $75,000
Hard (i.e. construction) Costs $134,000
Soft (i.e. architectural, admin.) Costs* $50,000
Total Development Costs$259,000
Less Estimated Non-City Subsidy ($110,000)
Estimated City Subsidy$149,000
*Soft costs typically include organizational and administrative expense, financing costs, architectural and engineering
services, and legal fees. This amount reflects an average of three recent tax credit-funded projects in the City, adjusted
for inflation.
Based upon the most likely combination of outside funding, including four percent
tax credits with multifamily bonds, the State Multifamily Housing Program,
Federal Home Loan Bank funds, and private financing, it is estimated that a
prototypical new construction family project would leverage approximately
$110,000 in outside funding, leaving an unfunded balance of $149,000 to be
subsidized by the City.
Given their smaller size, the average per unit subsidy for zero- and one-bedroom
units is estimated at $130,000.
Therefore, staff is recommending that Section III, Loan/Grant Terms, Maximum
Loan/Grant amount for new construction be amended to reflect the following per
unit and per project subsidy amounts:
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New Construction Existing LimitsProposed Limits
0 & 1 Bedroom Units $90,000 $130,000
2 Bedroom Units $100,000 $150,000
3 Bedrooms or More $110,000 $150,000
Per Project $2,500,000 $4,500,000
The Trust Fund Guidelines will continue to allow increases by up to 20 percent
above these limits at the discretion of the City Manager/Executive Director and
above 20 percent by approval of the City Council/Redevelopment Agency.
FINANCIAL/BUDGETARY IMPACT
There will be no financial or budgetary impact of this recommended change to
the Trust Fund Guidelines.
RECOMMENDATION
It is recommended that the City Council amend the Consolidated Rental Housing
Trust Fund Guidelines to increase the per unit and per project maximum subsidy
amounts for new construction projects.
Prepared by: Jeff Mathieu, Director of Resource Management
Bob Moncrief, Housing & Redevelopment Manager
Tad Read, Housing Coordinator
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