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O2191 F: atty\mu n i\laws\barry\afford a b lehousi ng amend ord rev5-2 5-06-2. doc City Council Meeting 6-13-06 Santa Monica, California ORDINANCE NUMBER 2191 (CCS) (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AMENDING SANTA MONICA MUNICIPAL CODE SECTIONS 9.56.020, 9.56.030, 9.56.040, 9.56.050, 9.56.060 AND 9.56.070 TO MODIFY THE OPTIONS FOR MEETING AFFORDABLE HOUSING REQUIREMENTS WHEREAS, Santa Monica is a coastal city in a prime location, being bordered by the City of Los Angeles to the north, east and south; and WHEREAS, the combination of a scenic oceanside location, excellent climate, and the ready availability of urban facilities, services and entertainment make Santa Monica an extremely desirable place to live; and WHEREAS, land area of the City is very small - approximately eight square miles; and . WHEREAS, Santa Monica is already a fully built-out city, with only thirty-three vacant residential parcels and a population of approximately ninety-one thousand five hundred; and WHEREAS, Santa Monica's population density, eleven thousand two hundred persons per square mile, is the second highest among neighboring and nearby jurisdictions, and is the densest among coastal communities in Los Angeles County; and 1 WHEREAS, the vast majority of new market rate multi-family development in the City is not affordable, with the average cost of a new market rate condominium in the City is now approaching $1,200,000.00; and WHEREAS, market conditions, including the high cost and lack of residential land, construction costs, and the availability and cost of financing, make the development of affordable housing in the City extremely difficult; and WHEREAS, the vast majority of housing units have been and will continue to be produced by the private housing industry; and WHEREAS, new market rate multi-family housing In Santa Monica accommodates upper-income households almost exclusively because of the high rent or purchase price required to occupy it; and WHEREAS, because the City is fully built-out, land available for residential development in the City is extremely limited; and land which could be used for development of housing for affordable households is being depleted by development of high cost housing resulting in a continued rise in land costs; and WHEREAS, continued new residential development which does not include or contribute toward the cost of affordable housing development will only serve to further exacerbate the current affordable housing shortage; and WHEREAS, the lack of affordable housing production by market-rate development has a direct impact upon the health, safety, and welfare of the residents; and WHEREAS, the failure to provide adequate affordable housing for lower-wage workers can force these workers to live in less than adequate housing within the City, 2 pay a significantly disproportionate share of their incomes to live in adequate housing within the City, or commute ever-increasing distances to their jobs from housing located outside the City; and WHEREAS, requiring developers to assist in the production of affordable housing is also consistent with the City's long-standing commitment to achieve and maintain a suitable living environment including decent housing for persons at all economic levels; and WHEREAS, this municipal commitment conforms with State and Federal policies and is a principal goal of the City's 2000-2005 Housing Element Update and the 2005- 2010 Consolidated Plan; and WHEREAS, California's Housing Element law requires each city and county to develop local housing programs designed to address its "fair share" of existing and future housing needs for all income groups; and WHEREAS, the City's 2000-2005 Housing Element Update establishes the City's fair share at 2,208 housing units of which 1,281 should be affordable; and WHEREAS, between 1998 and 2005, 62 % of new residential developments were constructed in the City's commercial districts; and WHEREAS, 84% of the residential units with building permits issued as of December 2005 will be located in the City's commercial districts; and WHEREAS, the City has historically effectuated this commitment to affordable housing through extraordinary efforts manifest in various City laws, policies and programs; and 3 WHEREAS, for instance, the City's voters have adopted initiative measures which strive to maintain and promote affordable housing in the City; the Rent Control Charter Amendment, adopted in 1979, has as its primary purpose the protection of affordable housing and has historically been the City's most important legislative tool for maintaining a supply of affordable housing; and, similarly, Proposition R, adopted by the voters in 1990, mandates that thirty percent of all new multi-family housing units constructed in the City each year be affordable; and WHEREAS, the City's zoning laws and policies also include substantial incentives for the production of affordable housing, including height and density bonuses and reduced parking requirements; and WHEREAS, the City operates a number of programs which facilitate the production of affordable housing, including loans to private, non-profit agencies to create through acquisition and rehabilitation, or construct new affordable housing units; and WHEREAS, the Housing Element Update catalogues a dozen funding sources that the City utilizes to assist in the development and rehabilitation of affordable housing totaling almost $70,000,000.00; and WHEREAS, despite this significant commitment by the City, the City's total housing needs exceed its available resources and the City's ability to meet these needs; and WHEREAS, despite the City's prime location and high real estate values, the City has historically been successful in maintaining economic diversity; and 4 WHEREAS, based on census data in the 2000-2005 Housing Element Update, 23.0 percent of the City's households were very low income, 16.1 percent were low income, 20.7 percent were moderate income, and 40.1 percent were upper income; and WHEREAS, fifty-three percent of households residing in rent-controlled apartments in the City were very low- and low-income; and WHEREAS, this diversity is an essentia I element of the City's character; it sets the City apart from all other similarly situated coastal cities in California; and WHEREAS, notwithstanding the City's ongoing commitment and efforts, changes in State and Federal law and market conditions are making it increasingly difficult for the City to ensure a continued supply of affordable housing; and WHEREAS, in 1986, the State enacted the Ellis Act which enables a property owner to cease operating property as residential rental property and, more recently, in 1995, the State enacted the Costa-Hawkins Rental Housing Act which eliminated the limits on the rents which a property owner may charge when re-renting voluntarily vacated units; and WHEREAS, between 1986 and 2005, over sixteen hundred controlled rental units have been permanently withdrawn from the rental market pursuant to the Ellis Act; and WHEREAS, Costa-Hawkins has had a devastating impact on the City's affordable housing stock because between 1999 and 2005, 13,183 controlled rental units, or about 48 percent of the total, have been rented at market rates; and 5 WHEREAS, 8,444 of these units had formerly been affordable to low-income households including 5,351 units which had formerly been affordable to very low- income households; and WHEREAS, the median monthly rents upon re-rental have increased to $1,300.00 from $735.00 (77%) for one bedroom units; $1,748.00 from $946.00 (85 percent) for two bedroom units and $2,248.00 from $1,192.00 (89 percent) for three or more bedroom units; and WHEREAS, had the 13,183 units not been rented at market, the median Maximum Allowable Rent ("MARs"), including the 1999-2005 general adjustment, for these units would have been affordable to households making 80% of median income; and WHEREAS, none of the post-increase-medians are affordable at this income category; and WHEREAS, after these increases, the median MARs of the O-bedroom units are only affordable at 100% of median and above; and WHEREAS, the median MARs of 1-bedroom units are only affordable to households at 120% of median and above while the median rents for 2 and 3-bedroom units are not even affordable to that income level; and WHEREAS, this law is having and will continue to have a significant impact on the City's supply of affordable housing; and WHEREAS, there is an extremely low vacancy rate for the existing affordable rental housing stock; and 6 WHEREAS, according to the annual report to the City Council concerning the City Affordable Housing Production Program and Proposition R, only 17% of the units in multifamily developments completed during FY03/04 were affordable; and WHEREAS, based on the building permits that have been issued for new multifamily developments, only 6% of these units will be affordable; and WHEREAS, Section 9.56.150 of the Affordable Housing Production Ordinance provides that when the provisions of Proposition R have not been met, the City Council shall take action to ensure that its provisions are met in the future; and WHEREAS, reductions in State and federal funding for affordable housing, changes in these programs, and the potential expiration of controls on rents in federally- assisted projects all hinder the City's ability to provide or promote affordable housing threatening the City's existing affordable housing stock; and WHEREAS, the decline in the affordability of this housing stock is further exacerbated by the production of luxury market rate housing; and WHEREAS, given current economic conditions and the general desirability of the City; the price of new housing will only continue to increase, thereby further exacerbating the growing shortage of affordable housing in the City; and WHEREAS, this Affordable Housing Production Program will benefit the City as a whole since each development which contributes to affordable housing through the provisions of this Chapter augments the City's housing mix, helps to increase the supply of housing for all economic segments of the community, addresses the affordable housing need generated by the development, helps meet the voter mandate expressed 7 in Proposition R and thereby supports a balanced community which is beneficial to the public health, safety and welfare of the City, NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES HEREBY ORDAIN AS FOLLOWS: SECTION 1. Santa Monica Municipal Code Section 9.56.020 is hereby amended to read as follows: 9.56.020 Definitions. The following words or phrases as used in this Chapter shall have the following meanings: Affordable Housing Fee. A fee paid to the City by a multi-family project applicant pursuant to Section 9.56.070 of this Chapter to assist the City in the production of housing affordable to very low-, low-, and moderate-income households. Affordable Housing Unit. A housing unit developed by a multi-family project applicant pursuant to Sections 9.56.050 or 9.56.060 of this Chapter which will be affordable to very low-, low-, or moderate-income households. 8 Affordable Housing Unit Development Cost. The City's average cost to develop a unit of housing affordable to low- and moderate income households. Dwelling Unit. One or more rooms, designed, occupied or intended for occupancy as separate living quarters, with full cooking, sleeping and bathroom facilities for the exclusive use of a single household. Dwelling unit shall also include single-room occupancy units as defined in Santa Monica Municipal Code Section 9.04.02.030.790. Floor Area. Floor area as defined in Santa Monica Municipal Code Section 9.04.02.030.315. HUD. The United States Department of Housing and Urban Development or its successor. Income Eligibility. The gross annual household income considering household size and number of dependents, income of all wage earners, elderly or disabled family members, and all other sources of household income. Industrial/Commercial District. Any district designated in the Santa Monica Zoning Ordinance as a commercial or industrial district. 9 "Low," "Very Low," and "Moderate" Income Levels. Income levels determined periodically by the City based on the United States Department of Housing and Urban Development (HUD) estimate of income for a 4- person household in the Los Angeles-Long Beach Primary Metropolitan Statistical Area. The major income categories are: "low-income" (sixty percent or less of the area median), "very low-income" (fifty percent or less of the area median), and "moderate-income" (one hundred percent or less of the area median). Adjustment shall be made by household size as established by the City. Market Rate Unit. A dwelling unit as to which the rental rate or sales price is not restricted by this Chapter. Maximum Affordable Rent. A monthly housing charge which does not exceed one-twelfth of thirty percent of the maximum very low-, low-, and moderate-income levels as defined in this Chapter and adopted each year by the City. This charge shall represent full consideration for housing services and amenities as provided to market rate dwelling units in the project, whether or not occupants of market rate dwelling units pay separate charges for such services and amenities. Housing services and common area amenities include, but are not limited to, the following: 10 parking, use of common facilities including pools or health spas, and utilities if the project is master-metered. Notwithstanding the foregoing, utility charges, to the extent individually metered for each unit in the project, may be passed through or billed directly to the occupants of affordable housing units in the project in addition to maximum allowable rents collected for those affordable housing units. Multi-family Project. A multi-family residential development, including but not limited to apartments, condominiums, townhouses or the multi-family residential component of a mixed use project, for which City permits and approvals are sought. Multi-family Project ApplicantL Any person, firm, partnership, association, joint venture, corporation, or any entity or combination of entities which seeks City development permits or approvals to develop a multi-family project. Multi-family Residential District. Any district designated in the Santa Monica Zoning Ordinance as a multi-family residential district. 11 Parcel. Parcel as defined in Santa Monica Municipal Code Section 9.04.02.030.570. Vacant Parcel. A parcel in a multi-family residential district that has no residential structure located on it as of August 20, 1998 or which had a residential structure located on it on that date which was subsequently demolished pursuant to a demolition order of the City. No demolition of structures shall be permitted except in accordance with Santa Monica Municipal Code Section 9.04.10.16 et seq. SECTION 2. Santa Monica Municipal Code Section 9.56.030 is hereby amended to read as follows: 9.56.030 Applicability of chapter. (a) The obligations estab lished by this Chapter shall apply to each multi-family project for which a development application was determined comp lete on or after May 25, 2006 involving the construction of two or more market rate units. No building permit shall be issued for any multi-family project unless such construction has been approved in accordance with the standards and procedures provided for by this Chapter. (b) Multi-family projects for which a development application was determined complete prior to May 25, 2006 12 shall be subject to the provisions of Santa Monica Municipal Code Section 9.56.010 et seq. as they existed on the date the application for the project was determined complete. SECTION 3. Santa Monica Municipal Code Section 9.56.040 is hereby amended to read as follows: 9.56.040 Affordable housing obligation. All multi-family project applicants shall comply with the requirements of this Chapter in the following manner: (a) Multi-family project applicants for multi-family ownership projects of four or more units in multi-family residential districts shall choose one of the two following options: (1) Providing affordable housing units on-site in accordance with Section 9.56.050; (2) Providing affordable housing units off-site in accordance with Section 9.56.060; (b) In addition to the options established in subdivisions (1) and (2) of subsection (a), all other multi- family project applicants may also choose one of the following options: 13 (1 ) Paying an affordable housing fee in accordance with Section 9.56.070; (2) Acquiring land for affordable housing in accordance with Section 9.56.080. A multi-family project application will not be determined complete until the applicant has submitted a written proposal which demonstrates the manner in which the requirements of this Chapter will be met. SECTION 4. Santa Monica Municipal Code Section 9.56.050 is hereby amended to read as follows: 9.56.050 On-site option. The following requirements must be met to satisfy the onsite provisions of this Chapter: (a) For ownership projects of at least four units but not more than 15 units in multi-family residential districts: The multi-family project applicant agrees to construct at least: (i) twenty percent of the total units as ownership units for moderate-income households, or as an alternative (2) twenty percent of the total units as rental units for low- income households if these rental units are provided by the 14 applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2). (b) For ownership projects of 16 units or more in multi-family residential districts: The multi-family project applicant agrees to construct at least (i) twenty-five percent of the total units as ownership units for moderate-income households, or as an alternative, (ii) twenty-five percent of the total units as rental units for low-income households if these rental units are provided by the applicant in accordance with Civil Code Sections 1954.52(b) and 1954.53(a)(2). (c) For all other multi-family applicants: The multi-family project applicant agrees to construct at least (i) ten percent of the total units of the project for very-low income households or (ii) twenty percent of the total units of the project for low income households or (iii) one hundred percent of the total units of a project for moderate income households in an Industrial/Commercial District. (d) Any fractional affordable housing unit that results from the formulas of this Section that is 0.75 or more shall be treated as a whole affordable housing unit (i.e.: any resulting 15 fraction shall be rounded up to the next larger integer) and that unit shall also be built pursuant to the provisions of this section. Any fractional affordable housing unit that is less than 0.75 can be satisfied by the payment of an affordable housing fee for that fractional unit only pursuant to Section 9.56.070(a)(4) or by constructing all the mandatory on-site affordable units with three or more bedrooms. The Planning and Community Development Department shall make available a list of very low-, low-, and moderate-income levels adjusted for household size, the corresponding maximum affordable rents adjusted by number of bedrooms, and the minimum number of very low- or low-income units required for typical sizes of multi-family projects, which list shall be updated periodically. (e) The multi-family project applicant may reduce either the size or interior amenities of the affordable housing units as long as there are not significant identifiable differences between affordable housing units and market rate units visible from the exterior of the dwelling units, provided that all dwelling units conform to the requirements of the applicable Building and Housing Codes. However, each affordable housing unit provided shall have at least two bedrooms unless (1) the proposed project comprises at least 16 ninety-five percent one bedroom units, excluding the manager's unit, in which case the affordable housing units may be one bedroom, (2) the proposed project comprises at least ninety-five percent zero bedroom units, excluding the manager's unit, in which case the affordable housing units may be zero bedroom units, (3) the proposed project comprises zero and one bedroom units, excluding the manager's unit, in which case the affordable housing units must be at least one bedroom units, or (4) the multi-family project applicant has elected not to pay the affordable housing fee pursuant to Section 9.56.070(a)(4), in which case the affordable housing units must be at least three bedroom units. The design of the affordable housing units shall be reasonably consistent with the market rate units in the project. An affordable housing unit shall have a minimum total floor area, depending upon the number of bedrooms provided, no less than the following: o bed rooms 500 square feet 1 bedroom 600 square feet 2 bedrooms 850 square feet 3 bedrooms 1080 square feet 17 4 bedrooms 1200 squar-e feet Affordable housing units in multi-family projects of one hundred units or more must be evenly disbursed throughout the multi-family project to prevent undue concentrations of affordable housing units. (f) All affordable housing units in a multi-family project or a phase of a multi-family project shall be constructed concurrently with the construction of market rate units in the multi-family project or phase of that project. (g) On-site affordable housing units must be rental units in rental projects. In ownership projects, these affordable housing units may be either rental units or ownership units. Affordable housing ownership units shall comply with requirements concerning sales price, monthly payment, and limited equity and resale restrictions as established by resolution of the City Council to ensure that subsequent purchasers are also income-qualified households. (h) Each multi-family project applicant, or his/her successor, shall submit an annual report to the City identifying which units are affordable units, the monthly rent (or total housing cost if an ownership unit), vacancy 18 information for each affordable unit for the prior year, verification of income of the household occupying each affordable unit throughout the prior year, and such other information as may be required by City staff. (i) A multi-family project applicant who meets the requirements of this Section shall be entitled to the density bonus development standards established in Santa Monica Municipal Code Section 9.04.10.14.040. G) All residential developments providing affordable housing on-site pursuant to the provisions of this Section shall receive priority building department plan check processing by which housing developments shall have plan check review in advance of other pending developments to the extent authorized by law. SECTION 5. Santa Monica Municipal Code Section 9.56.060 is hereby amended to read as follows: 9.56.060 Off-site option. The following requirements must be met to satisfy the off-site option of this Chapter: (a) The multi-family project applicant for ownership projects of four or more units in multi-family residential 19 districts shall agree to construct 25% more affordable housing units than number of affordable housing units required by Section 9.56.050(a) and (b). (b) For all other multi-family project applicants, the applicant shall agree to construct the same number of affordable housing units as specified in Section 9.56.050(c). (c) The multi-family project applicant shall identify an alternate site suitable for residential housing which the project applicant either owns or has site control over (e.g., purchase agreement, option to purchase, lease) subject to City review to ensure that the proposed development is consistent with the City's housing objectives and projects. (d) The off-site units shall be located within a one- quarter mile radius of the market rate units. (e) The off-site units shall satisfy the requirements of subsections (d) through U) of Section 9.56.050. (f) The off-site units shall not count towards the satisfaction of any affordable hous ing obligation that development of the alternative site with market rate units would otherwise be subject to pursuant to this Chapter. 20 (g) Exceptions to the location of the off-site units specified in this Section may be granted by the Planning Commission on a case-by-case basis upon a showing by the multi-family project applicant, based upon substantial evidence, that the location of off-site units in a location different from that specified in this Section better accomplishes the goals of this Chapter, including maximizing affordable housing production and dispersing affordable housing throughout the City. (h) The Housing Division of the Resource Management Department shall prepare administrative guidelines to implement this Section. SECTION 6. Santa Monica Municipal Code Section 9.56.070 is hereby amended to read as follows: Section 9.56.070. Affordable housing fee. A multi-family project applicant eligible to meet the affordable housing obligations established by this Chapter by paying an affordable housing fee shall pay the fee in accordance with the following requirements: (a) An affordable housing fee may be paid in accordance with the following formulas: 21 (1 ) Multi-family Projects in Multi-family Residential Districts: affordable housing unit base fee x floor area of multi- family project; (2) Multi-family Projects in Multi-family Residential Districts on Vacant Parcels: affordable housing unit base fee x floor area of multi- family project x 75%; (3) Multi-family Projects in Industrial/Commercial Districts on Parcels that are either not already developed with multi-family housing or are already developed with multi-family housing, but the multi-family project preserves the existing multi-family housing or a Category C Removal Permit has been obtained for the existing multi-family housing: affordable housing unit base fee x floor area of project devoted to residential uses x 50%. (4) Multi-family projects with fractional affordable housing units of less than 0.75 based on the formula established in Section 9.56.050(d): 22 City's Affordable Housing Unit Development Cost x Fractional Percentage (b) For purposes of this Section, the affordable housing unit base fee shall be established by resolution of the City Council. Commencing on July 1, 2006 and on July 1 of each fiscal year thereafter, the affordable housing unit base fee shall be adjusted based on changes in construction costs and land costs. No later than July 1,2010, and approximately every five (5) year period thereafter, the City will conduct a comprehensive study of these fees and the results of the comprehensive study shall be reported to the City Council. The amount of the affordable housing fee that the multi-family project applicant must pay shall be based on the affordable housing unit base fee resolution in effect at the time that the affordable housing fee is paid to the City. (c) For purposes of this Section, the City's affordable housing unit development cost shall be established by resolution of the City Council. Commencing on July 1, 2007 and on July 1 of each fiscal year thereafter, the City's affordable housing unit development cost shall be adjusted based on changes in construction costs and land costs. No later than July 1, 2010 and approximately every five (5) year period thereafter, the City will conduct a 23 comprehensive study of these fees and the results of the comprehensive study shall be reported to the City Council. The affordable housing fee that the multi-family project applicant must pay shall be based on the affordable housing unit development cost resolution in effect at the time of payment to the City. (d) The amount of the affordable housing unit base fee may vary by product type (apartment or condominium) and shall reflect, among other factors, the relationship between new market rate multi-family development and the need for affordable housing. (e) The affordable housing fee shall be paid in full to the City prior to the City granting any approval for the occupancy of the project, but no earlier than the time of building permit issuance. (f) The City shall deposit any payment made pursuant to this Section in a Reserve Account separate from the General Fund to be used only for development of very low- and low-income housing, administrative costs related to the production of this housing, and monitoring and evaluation of this Affordable Housing Production Program. Any monies collected and interest accrued pursuant to this 24 Chapter shall be committed within five (5) years after the payment of such fees or the approval of the multi-family project, whichever occurs later. Funds that have not been appropriated'within this five-year period shall be refunded on a pro rata share to those multi-fam i1y project applicants who have paid fees during the period. Expenditures and commitments of funds shall be reported to the City Council annually as part of the City budget process. (g) An affordable housing fee payment pursuant to this Section shall not be considered provision of affordable housing units for purposes of determining whether the multi- family project qualifies for a density bonus pursuant to Government Code Section 65915. SECTION 7. Any provision of the Santa Monica 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 8. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional 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, 25 or phrase not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional. SECTION 9. 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 within 15 days after its adoption. This Ordinance shall become effective 30 days from its adoption. APPROVED AS TO FORM: 26 Approved and adopted this 13h day of June, 2006. ~f ::d. //, - " .,.-' /" / ~-', ...-'":, / ./F0'.,: ,,'/ 7 ' ~4f! o?2 ?_- v'" ~/ . ,-vY"I' ~ Robert T. Holbrook, Mayor State of California ) County of Los Angeles) ss. City of Santa Monica ) I, Maria M. Stewart, City Clerk of the City of Santa Monica, do hereby certify that the foregoing Ordinance No. 2191 (CCS) had its introduction on May 25,2006, and was adopted at the Santa Monica City Council meeting held on June 13, 2006, by the following vote: Ayes: Council members: Bloom, Genser, McKeown, O'Connor, Mayor Pro T em Shriver Noes: Council members: Katz, Mayor Holbrook Abstain: Council members: None Absent: Council members: None ATTEST: