Creating Equity
Affordable Homeownership in Santa Monica
Report by
Santa Monica Housing Commission
7 May 2023
Santa Monica Housing Commission Affordable Homeownership Report 1 Acknowledgements
This report was created by the Santa Monica Housing Commission during the 2022-2023 program year. The Housing Commission comprises Commissioners Peter Borresen, Kate Evarts, Dominic Gomez, Josh Hamilton, and Richard Hilton; Vice Chair Theresa Marasco; and Chair Michelle Gray. This report originated with 2022-2023 Housing Commission Work Plan items related to increasing affordable homeownership and is based on the initial hard work of the Housing Commission Ad Hoc Affordable Homeownership Subcommittee, comprising Commissioner and Subcommittee Chair Peter Borresen, Commissioner Dominic Gomez, and Vice Chair Theresa Marasco. The initial work of the subcommittee was discussed, revised, and expanded by the entire Housing Commission with the input of Santa Monica residents and additional research by Commissioner Borresen, Vice Chair Marasco, and Chair Gray.
Santa Monica Housing Commission Affordable Homeownership Report 2 Table of Contents
1. INTRODUCTION ..................................................................................................................................... 3
1.1 Notes on terminology ............................................................................................................. 4
2. AFFORDABLE HOMEOWNERSHIP IN HOUSING POLICY................................................................. 5
2.1 Fulfills stated city goals .......................................................................................................... 5
2.2 Preserves and expands affordability....................................................................................... 6
2.3 Advances social, racial, and economic justice ....................................................................... 6
2.3.1 Social and economic justice............................................................................................. 6
2.3.2 Racial justice ................................................................................................................... 7
2.3.3 Proposed HUD requirements ........................................................................................... 9
3. AFFORDABLE HOMEOWNERSHIP INVENTORY ...............................................................................11
3.1 Existing housing................................................................................................................... 11
3.1.1 Rent controlled units ...................................................................................................... 11
3.1.2 100% affordable units .................................................................................................... 11
3.1.3 Market rate units............................................................................................................ 12
3.1.4 Inclusionary Units .......................................................................................................... 12
3.2 New housing........................................................................................................................ 13
3.2.1 New 100% affordable single and multifamily properties ................................................. 13
3.2.2 New market rate and inclusionary units ......................................................................... 15
4. MEANS TO AFFORDABLE HOMEOWNERSHIP.................................................................................16
4.1 Existing funding.................................................................................................................... 16
4.1.1 For prospective home buyers......................................................................................... 16
4.1.2 For organizations and municipalities .............................................................................. 17
4.2 Proposed actions for Santa Monica ..................................................................................... 19
4.2.1 TORCA 2.0.................................................................................................................... 19
4.2.1.1 For rent controlled buildings and units................................................................................20
4.2.1.2 For market rate and inclusionary units ...............................................................................21
4.2.2 HUD homeownership program....................................................................................... 21
4.2.3 100% affordable rental housing conversion.................................................................... 22
4.2.4 Inclusion of for-sale units in new 100% affordable rental housing .................................. 22
4.2.5 Equalize fees ................................................................................................................. 23
4.2.6 Prioritize new market rate for-sale housing over new market rate rental housing............ 23
4.2.7 New forgivable down payment assistance loan fund ...................................................... 24
4.2.8 New home purchase assistance office ........................................................................... 24
4.2.9 Community land trusts ................................................................................................... 24
4.2.10 Rent to own ................................................................................................................. 25
5. RECOMMENDATIONS..........................................................................................................................27
6. CONCLUSION.......................................................................................................................................30 Santa Monica Housing Commission Affordable Homeownership Report 3
1. Introduction
Home. Hogar. Words that evoke images of warmth, safety, and sanctuary. More than mere shelter, home is a physical place where we live, play, work, and love, as well as a liminal, emotional place of memory, security, aspiration, and identity. Both a springboard and an anchor, home is the cornerstone of the fabled American Dream.
No wonder, then, that homeownership is such a widespread, cherished goal. In modern capitalist societies, the only way to improve on one’s personal idea of home—existing or aspirational—is to own one’s own home, including the land on which it lies. This ownership physically manifests and makes permanent the stability of home.
Homeownership confers numerous benefits in addition to stability. It contributes to lower and more controlled long term housing costs, builds personal and multigenerational wealth through appreciation, enables environmental customization, and provides a means of selfexpression. Homeownership fosters pride, builds social equity, and strengthens community.
Unfortunately, in Santa Monica homeownership and its many attendant benefits are reserved exclusively for wealthy people, most of whom are white. From small condos to sprawling mansions, the cost of owning residential real estate in Santa Monica is prohibitively expensive for those with low to moderate incomes, including the vast majority of Black and brown Santa Monica residents.
Affordable homeownership may not seem feasible in Santa Monica due to the high cost of living, and therefore a poor use of limited city and federal resources. However, successful programs in similarly costly cities like San Diego1 and New York City2 demonstrate otherwise. Furthermore, affordable homeownership is particularly key to affirmatively furthering fair housing—as new proposed HUD guidelines require—in cities with high costs of living. As this report illustrates, affordable homeownership is vital to creating equity— both literal and figurative, financial and societal.
The following report outlines multiple ways for Santa Monica to advance homeownership parity, from converting existing housing stock to facilitating new construction, and utilizing federal, state, and local funding from individual home purchase assistance programs to grants for institutions and municipalities. Together with proposed Santa Monica programming, these diverse sources of inventory and funding can be combined in myriad ways to achieve the city’s affordable homeownership goals. 1 https://www.sdhc.org/housing-opportunities/affordable-for-sale-housing/ 2 https://www.nyc.gov/site/hpd/services-and-information/hdfc.page Santa Monica Housing Commission Affordable Homeownership Report 4
1.1 Notes on terminology
In this report homeownership always refers to the purchase by one or more real individuals of any form of private residence for the purpose of owner occupancy. This residence can take the form of an individual unit in a multifamily building, an individual unit in a duplex or triplex, a tiny house, a townhouse, a modular home, etcetera. Note that the initial requirement of owner occupancy does not mean an owner can never rent or sell their unit to another party, as building wealth is a key benefit of homeownership that affirmatively furthers fair housing by facilitating upward mobility.
In addition, regardless of the form a private residence takes, in this report homeownership always includes full or proportional fractional ownership of the property’s underlying land.
This stipulation is important because stored wealth and capital appreciation in residential real estate is primarily attached to a property’s underlying land.
In this report the terms single family housing, home, unit, or property refers to a freestanding private residence—for example a traditional house, tiny home, or modular home—not the zoning or land use classification.
Finally, unless indicated otherwise, in this report the term voluntary homeownership model refers to individual tenants’ ability to choose whether or not to purchase the housing unit they live in, not building owners' ability to choose whether or not to participate in providing for-sale units or converting rental units to for-sale units.
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2. Affordable homeownership in housing policy
Robust and effective housing policy requires multiple elements to satisfy the diverse housing needs and desires of Santa Monica residents. These include market rate home rentals, market rate home ownership, affordable home rentals, and affordable home ownership. Housing policy in the City of Santa Monica currently addresses all but one of these elements: affordable homeownership. This significant omission must be addressed and remedied for multiple reasons, including the following.
2.1 Fulfills stated city goals
Affordable homeownership is an explicitly stated goal of the City of Santa Monica. On 31 March 2021, City Council updated the City of Santa Monica’s 6 th Cycle (2021-2029)
Housing Element to include the requirement that the City of Santa Monica:
“Explore diverse opportunities for affordable homeownership and transition from renters to owners by residents.”3
Santa Monica seems to have been thinking about affordable homeownership for years.
Since at least 2016, the application for the city’s Below Market Housing waitlist has included a check box for applicants to indicate interest in homeownership opportunities.
Furthermore, on 11 March 2023 City Council voted unanimously to adopt council priorities for the Fiscal Years 2023-2025 Budget that include the guiding principle of Racial Justice, Equity, and Social Diversity:
The City of Santa Monica acknowledges the effects of generational and institutional racism and discrimination, and its consequences that continue to impact our residents and businesses. These lessons of our history cannot be ignored. The City is committed to advancing racial equity and social diversity to improve the wellbeing of people who live, work, learn, play, and do business in our City and create a community where differences in life outcomes cannot be predicted by race, class, gender, disability or other identities. Everyone in Santa Monica must have an opportunity to thrive4
3 https://www.hcd.ca.gov/housing-elements/docs/santa-monica-6th-draft070822.pdf 4 https://santamonica.gov/press/2023/03/11/city-council-adopts-priorities-and-provides-direction-for-2023- 2025-biennial-budget-process
Santa Monica Housing Commission Affordable Homeownership Report 6 As demonstrated in section 2.3, opportunities for affordable homeownership are closely tied to issues of racial justice, equity, and social diversity.
Finally, city staff have stated that California demands for affordable housing construction may be met via affordable homes for-sale.
5 Enabling low and moderate income individuals and families to own homes in Santa Monica fulfills all of these vital city priorities.
2.2 Preserves and expands affordability
Since California mandated the end of vacancy control with the Costa-Hawkins Rental Housing Act of 1995, base rents of rent controlled units in Santa Monica can be reset at market rates with each new tenancy. This, in addition to the removal and redevelopment of rent controlled buildings under the Ellis Act of 1985, has led to a continual and significant loss of housing affordability in Santa Monica.
6 Introducing new affordable homeownership
opportunities will help preserve and make permanent existing city housing affordability and increase the total affordable housing stock in Santa Monica.
2.3 Advances social, racial, and economic justice
Homeownership contributes to lower housing costs, builds personal and multigenerational wealth through appreciation, fosters stability, enables personalization, builds social equity, and strengthens community. However, in Santa Monica only wealthy, and predominantly white, people can afford to purchase houses or multifamily units and enjoy the numerous benefits of homeownership. Dedicated efforts to expand diverse affordable homeownership opportunities for low and moderate income Santa Monicans can change this disparity.
2.3.1 Social and economic justice
Affordable rentals serve an important purpose, particularly for short term and transitioning residents. However, they do not enable long term Santa Monicans with low and moderate incomes to realize the many benefits of homeownership. To do that, Santa Monicans of modest means must have equal opportunities to own residential property through robust affordable homeownership policies and programs.
5 Santa Monica Housing Commission meeting, 10 November 2022, agenda item 5A https://santamonica.gov/media/HED/Housing/Housing%20Agenda%20Attachments/11-10- 22%20HC%20Agenda%20Final.pdf
6https://www.smgov.net/uploadedFiles/Departments/Rent_Control/Reports/Annual_Reports/2022%20Annual %20Report.pdf
Santa Monica Housing Commission Affordable Homeownership Report 7 In addition to helping lower and control long term housing costs, build wealth, establish roots, personalize their homes, build social equity, and strengthen community, affordable homeownership policies and programs will also qualitatively improve city housing stock for the whole city, but particularly for low and moderate income residents.
In contrast with many affordable rentals, the conversion, design, and construction of local affordable housing for-sale will result in the creation of homes that more closely follow real estate trends that reflect home buyers’ actual preferences. These include desirable location and setting; proximity to preferred schools, parks, goods, and services; adequate square footage; abundant natural light; pleasing, and not institutional, facades that complement neighborhood aesthetics; and amenities like inviting common spaces, generous landscaping, and sufficient parking. Such housing characteristics will improve quality of life for low and moderate income residents while improving the overall quality of Santa Monica’s housing inventory.
2.3.2 Racial justice
Social and economic injustice are particularly evident when analyzing racial disparities in rates of homeownership.
US Department of Housing and Urban Development (HUD) Secretary Marcia L. Fudge recently issued the following statement:
“Today, homeownership is the principal source of wealth creation for most American households. Unfortunately, [National Association of REALTORS® Research Group’s] report confirms that Black Americans are being locked out of homeownership opportunities at an even higher rate than a decade ago. It is critical that we bridge the racial homeownership gap with intentional solutions that recognize both the persistent history of discrimination and inequity, and the current crisis of housing affordability.”8
The report to which Secretary Fudge refers, entitled 2023 Snapshot of Race and Home Buying in America, shows more Americans own homes now than during any year following the Great Recession, but Black Americans continue to face significant obstacles to homeownership. Furthermore, rates of Hispanic American and Asian American homeownership still trail that of white Americans. Worse, the homeownership rate for Black Americans is lower now than it was a decade ago.9
8 https://www.hud.gov/press/press_releases_media_advisories/hud_no_22_029 9 https://cdn.nar.realtor/sites/default/files/documents/2023-snapshot-of-race-and-home-buying-in-the-us-03- 02-2023.pdf
Santa Monica Housing Commission Affordable Homeownership Report 8 Systematic and institutional harm to and theft from Black and brown people, particularly regarding property ownership and once thriving communities, is widely documented.
Tactics including redlining, exclusionary zoning, racially restrictive covenants, and displacement via eminent domain to build highways and other development were common and caused the upheaval and destruction of untold numbers of individuals, families, and communities nationwide.
According to Robert D. Bullard, an urban planning professor at Texas Southern University:
“If you look at Black and Latino neighborhoods, in terms of homeownership, the loss of equity, the business corridors that were destroyed and the loss of community that highways have caused, the damage is tremendous”
10 These discriminatory practices occurred in Santa Monica in living memory. In order to extend the Interstate 10 highway to the Pacific Ocean, the city leveled the Pico neighborhood, forcing Black, Mexican, and Japanese residents to leave their longtime homes and communities.11 Then, through eminent domain proceedings, the city razed the historic Belmar Triangle to build the Santa Monica Civic Auditorium and part of the Los Angeles County Courthouse grounds,
12 burning down homes and businesses that were
rented and owned by African Americans and other marginalized groups.13 The resulting loss of affordable housing, deeply rooted community, and multigenerational wealth impacts Black and brown Santa Monicans and their descendants to this day.
In recent years. the City of Santa Monica has made many efforts to advance truth and reconciliation with historically marginalized and disenfranchised residents. These include formal recognition of historically significant city sites,15 dedication to diverse city hiring practices, the ongoing reframing project to address the problematic WPA mural in City Hall16, and recently a formal apology by Santa Monica City Council17 for historical wrongs committed by the city against Black residents.
Such efforts also include the Right to Return policy that took effect January 2022, which allows up to one hundred people previously displaced from the Pico neighborhood and 10 https://www.latimes.com/projects/us-freeway-highway-expansion-black-latino-communities/ 11 https://www.latimes.com/homeless-housing/story/2021-11-11/the-racist-history-of-americas-interstatehighway-boom 12 https://alisonrosejefferson.com/wpcontent/uploads/2021/10/ReconstructionAndReclamation.FINAL_.12.21.2020-3.pdf 13 https://www.smconservancy.org/property/belmar/
15 https://santamonica.gov/belmar-history-art
16 https://www.santamonica.gov/programs/acknowledge-and-reframe-together 17 https://www.argonautnews.com/community/discussing-santa-monica-s-black-apology/article_a5560aa8- a288-11ed-bbaf-83d8cd59503a.html
Santa Monica Housing Commission Affordable Homeownership Report 9 Belmar Triangle area and their descendants to receive priority status on the city’s Below Market Housing waitlist.
18 Placement on this list provides low and moderate income individuals with opportunities to apply for local affordable rental units.
Sheryll Cashin, Georgetown University law professor and author of “White Space, Black ‘Hood: Opportunity Hoarding and Segregation in the Age of Inequality”, said this about Santa Monica’s Right to Return policy:
“It’s an example of more of what needs to happen where a city looks honestly at its past to understand that a lot of the dramatic inequality in the present overlays with race”
19 Unfortunately, providing historically marginalized and disenfranchised Santa Monicans with the opportunity to apply for below market rental housing does little to restore the historical homes, wealth, and once thriving community these residents and their descendants lost.
Nichelle Monroe, a local whose great-uncle is said to have been the first Black baby born in Santa Monica over a century ago and whose architect grandfather, Vernon Brunson, designed many buildings in the city, agrees.
Monroe thinks Santa Monica should make it easier for her family to purchase a home in the city. While she’s proud that her family is featured in the educational materials lining the new Belmar Triangle walking path, she says:
“But what else is there? The theft is still there. The generational wealth is still gone.”
20 To meaningfully begin to acknowledge and restore the depth and breadth of historical harm to and theft from Black and brown Santa Monicans, we must turn to affordable homeownership.
2.3.3 Proposed HUD requirements
Affordable homeownership is an integral part of achieving social, racial, and economic justice. HUD concurs, having recently released a new proposed Affirmatively Furthering Fair Housing Final Rule two years in the making. This proposed rule takes a significant step 18 https://www.latimes.com/homeless-housing/story/2021-12-26/santa-monica-to-people-long-evicted-byfreeway-come-back-home 19 https://www.latimes.com/homeless-housing/story/2021-12-26/santa-monica-to-people-long-evicted-byfreeway-come-back-home 20 https://www.latimes.com/homeless-housing/story/2021-12-26/santa-monica-to-people-long-evicted-byfreeway-come-back-home Santa Monica Housing Commission Affordable Homeownership Report 10 towards addressing the country’s history of discriminatory housing policies and practices. It responds to both President Biden’s directive, Memorandum on Redressing Our Nation's and the Federal Government's History of Discriminatory Housing Practices and Policies, 25 and to HUD and Secretary Fudge's call to weave equity throughout HUD's work.26 “Affirmatively furthering fair housing means more than merely steering clear of housing discrimination violations” said Demetria L. McCain, Principal Deputy Assistant Secretary for Fair Housing and Equal Opportunity. “Today, HUD is taking new, bold action to eliminate the historic patterns of segregation that continue to harm American families.
This action will help make the purpose of the Fair Housing Act reality by making it easier for local communities to identify inequities and make concrete commitments to address them.”27
HUD’s new Affirmatively Furthering Fair Housing Final Rule expands upon previous HUD policy, implementing opportunities for transparency and accountability while bolstering economic equity for all American families. This proposed rule is just one part of a larger Equity Plan being implemented by HUD.28 Affordable homeownership is a significant component of HUD’s comprehensive new Equity Plan.
While this rule is awaiting adoption, American history and HUD policy have been moving steadily in this direction and its mandates are expected take effect shortly. As HUD Secretary Marcia L. Fudge concluded her previously cited statement on racial disparity in homeownership:
“The Biden-Harris Administration and HUD will continue to prioritize opening the door to homeownership for families—especially those who have been systemically kept out over generations”
29 As a progressive city dedicated to diversity, equity, and inclusion, Santa Monica should take the initiative to adopt exemplary plans, policies, and practices that exceed existing minimum fair housing requirements and embody the goals of forthcoming HUD rules. By offering meaningful paths to affordable homeownership, Santa Monica can begin to fulfill the forthcoming HUD requirement for inclusion of an equity plan in the 5-Year and Annual Consolidated Plans, while modeling best practices for affirmatively furthering fair housing for cities nationwide.
25 https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/26/memorandum-on-redressingour-nations-and-the-federal-governments-history-of-discriminatory-housing-practices-and-policies/ 26 https://www.hud.gov/press/press_releases_media_advisories/HUD_No_23_013 27 https://www.hud.gov/press/press_releases_media_advisories/HUD_No_23_013 28 https://www.hud.gov/sites/dfiles/PA/documents/HUDEquity508compliant.pdf 29 https://www.hud.gov/press/press_releases_media_advisories/hud_no_22_029 Santa Monica Housing Commission Affordable Homeownership Report 11
3. Affordable homeownership inventory
Providing affordable homeownership opportunities for Santa Monicans first requires local housing inventory for purchase by prospective homebuyers. This inventory can come in two forms: existing housing and newly constructed housing.
3.1 Existing housing
Santa Monica’s considerable existing rental housing inventory leaves room for some rental units to be repurposed for purchase. The benefits of converting existing rental units to units for purchase include ready availability and lower costs. While Santa Monica currently prohibits the conversion of multifamily rental housing to for-sale multifamily housing, 31 there
is precedent for changing this policy. For further discussion, see section 4.2.1.
3.1.1 Rent controlled units
As demonstrated by the original Tenant Ownership Rights Charter Amendment (TORCA), 32 with appropriate legislation, existing rent controlled units can provide a repository of ready affordable housing for sale. Furthermore, when occupied buildings that are subject to rent control are placed on the market, their sale prices are frequently lower than their replacement cost because rent control laws prevent new building owners from charging existing tenants prevailing market rents. This presents a unique opportunity for nonprofit parties to purchase discounted multifamily housing in order to facilitate tenants’ optional subsequent affordable purchase of their units, as outlined in section 4.2.1.1.
3.1.2 100% affordable units
Existing 100% affordable rental buildings in Santa Monica also have the potential to be converted to properties with affordable optional homeownership opportunities, wherein existing tenants could purchase the units they occupy or similar units in the same or comparable buildings. For further discussion, see section 4.2.3. 31 https://library.qcode.us/lib/santa_monica_ca/pub/municipal_code/item/the_charter_of_the_city_of_santaarticle_xx-2018 32 https://library.qcode.us/lib/santa_monica_ca/pub/municipal_code/item/the_charter_of_the_city_of_santaarticle_xx Santa Monica Housing Commission Affordable Homeownership Report 12
3.1.3 Market rate units
There is abundant and increasing market rate rental housing in Santa Monica, many units of which stand vacant. Providing landlords with the option to convert some of these existing market rate rental units to purchasable units can provide valuable additional homeownership opportunities for all Santa Monicans. Importantly, this option can also provide increased opportunities for affordable homeownership, particularly when units are purchased with low income and first time homebuyer assistance programs.
With more than 70% of Santa Monica residents renting their homes, numerous rental vacancies awaiting formal inventory, and no shortage of new market rate rental construction in various stages of development, enabling the optional conversion by landlords of existing market rate rental housing to for-sale housing is a potentially time- and cost-saving means of increasing affordable homeownership opportunities in Santa Monica.
To ensure meaningful expansion of homeownership opportunities in Santa Monica, including affordable homeownership, city policy changes that permit such conversions should include requirements that individual units be purchased by owner-occupants, with minimum tenancy duration requirements of two years before an owner may sell or rent their unit, and/or penalty fees to discourage real estate flipping. Such policy changes should also ensure protections for existing tenants, including generous advance notice of conversion, right of first refusal to purchase, and possible relocation compensation. If individual tenant owned properties allow owners to subsequently rent their units, the rent charged should conform to affordability requirements where deed-restrictions are present. For further discussion, see section 4.2.1.2.
3.1.4 Inclusionary Units
A valuable potential source of affordable homeownership inventory is inclusionary units in existing (and future) market rate rental projects. In concert with the optional conversion mentioned above, all such inclusionary units should be eligible for similar optional conversion with the key stipulation that the city maintain inclusionary units’ affordability by deed restricting their sale. When inclusionary units are on the same site with accompanying market rate units, this practice will have the added benefit of affirmatively furthering fair housing by integrating market rate and affordable housing, reducing the stigma of concentrated and siloed affordable housing and improving low and moderate income residents’ access to high opportunity, low poverty neighborhoods. For further discussion, see section 4.2.1.2.
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3.2 New Housing
While Santa Monica’s land area is small, it has room and numerous projects slated for new housing construction. Focusing new housing construction on homeownership instead of rental housing can greatly increase the city’s affordable homeownership inventory, with results that will benefit all Santa Monica residents and prospective homeowners, now and in the future.
In addition to the rewards above, affordable homeownership policies and programs will result in the qualitative improvement of city housing for low and moderate income residents. Currently, the exclusive dedication of policy and resources to affordable rental housing—particularly 100% affordable rental housing—leads to design and construction choices that maximize utility and uniformity in order to minimize building time and cost.
These come at the real expense of livability and environmental and aesthetic choices that maximize usability, comfort, and physical and mental health for tenants.
For example, 100% affordable housing buildings in Santa Monica are often identifiable by their angular, flat, and modular facades composed of inexpensive industrial materials, the absence of adequate green space, and sparse landscaping. The interiors of these units are often small and utilitarian, including countertops finished with inexpensive, drab composite materials to hide dirt and wear, and small windows that afford little natural light.
Again, in contrast with many affordable rentals, the conversion, design, and construction of local affordable for-sale housing will result in the creation of units that more closely follow real estate trends that reflect actual preferences of home buyers. These include desirable location and setting; proximity to preferred schools, parks, goods, and services; adequate square footage per unit to accommodate free movement, substantial in-unit storage, and guests; abundant natural light; pleasing, and not institutional, facades that complement neighborhood aesthetics; and amenities like attractive and comfortable common spaces, generous landscaping, and sufficient parking. Such housing characteristics improve quality of life for low and moderate income residents as well as the overall quality of Santa Monica’s housing inventory.
3.2.1 New 100% affordable single and multifamily properties There are currently thousands of affordable housing units in Santa Monica, virtually all of which are rentals.35 There are also many 100% affordable housing projects in Santa Monica that provide affordable rental housing and more continue to be built. Rather than focusing exclusively on new rental housing, the city and existing and/or new nonprofit 35 See figures B-52 and B-53. https://www.santamonica.gov/media/Housing-Element-Update-2021-to2029/Adopted%20Appendix%20B%20Housing%20Needs%20Clean.pdf Santa Monica Housing Commission Affordable Homeownership Report 14 housing providers could invest resources into the design and construction of new 100% affordable for-sale housing units in myriad forms.
One form this new construction could take is traditional multifamily buildings designed and built for sale to qualifying low and moderate income buyers. Once all the units in a building were sold, management and operations of the building and property could continue under one of several common structures, for example, a condominium, community land trust, or cooperative.
However, planning new construction offers opportunities for creative design that will introduce visual interest to neighborhoods while maintaining their aesthetic continuity, greatly benefiting both homeowners with modest incomes and their neighbors. New construction could take the form of a property with diverse residential structures on it, for example, ten tiny homes with optimized communal spaces. Alternately, a property could include a duplex, triplex, or quadplex and one or more tiny homes or accessory dwelling units (ADU).
A possible variation on the above illustrations involves mixed use projects wherein owner occupied residential units benefit from having mixed use commercial facilities on site as an additional source of revenue to help sustain the owners’ collective property. In addition to the potential financial benefits of this configuration of 100% affordable for-sale housing, mixed use developments create greater access to goods and services for tenant owners and their neighbors.
With imagination and commitment to diversifying Santa Monicans’ affordable homeownership options, creative and forward thinking nonprofits could design and build diverse 100% affordable for-sale housing properties and mixed use properties that expand current ideas of quality affordable housing. Such diverse combinations of structures and densities can offer low and moderate income individuals and families the privacy, exterior space, and lower density of traditional single family housing with the cost- and spacesaving benefits of multiple units on a single property.
Large areas of land in Santa Monica are bought by nonprofits using city loans which are subsequently forgiven.
36, 37 This permanent land transfer to third parties at little or no cost is currently used almost exclusively for affordable rental housing. Diverting some of the city’s resources to affordable homeownership projects in lieu of affordable rental housing projects would create a better and more diversified investment in Santa Monica residents, neighborhoods, and community.
36 See figure B-53. https://www.santamonica.gov/media/Housing-Element-Update-2021-to2029/Adopted%20Appendix%20B%20Housing%20Needs%20Clean.pdf 37 See Grant Balance Reduction (1) on page 6 of linked document. https://www.santamonica.gov/media/HED/Housing/2021-07-27_HousingTrustFundGuidelines.pdf Santa Monica Housing Commission Affordable Homeownership Report 15
3.2.2 New market rate and inclusionary units
Compared with traditional single family housing and even luxury condominiums, modest market rate multifamily for-sale units provide a considerably less expensive, and therefore more attainable, alternative for prospective homeowners. Smaller in size than traditional houses, with significant cost per unit and land per unit savings, modest market rate multifamily units are an important element of increasing affordable homeownership opportunities for low and moderate income Santa Monicans.
While new high density rental apartment construction is common in Santa Monica, 38 such
affordable multifamily for-sale construction is not. Shifting focus from the former to the latter can provide residents with valuable affordable homeownership inventory.
Furthermore, new market rate multifamily for-sale construction could provide additional opportunities for affordable homeownership via new policy that requires a minimum percentage of deed restricted units in each new market rate building, which are sold solely to qualifying low and moderate income homebuyers.39
38 https://smmirror.com/2022/12/ws-communities-files-first-santa-monica-builders-remedy-project/ 39 San Francisco has a similar requirement. https://sf.gov/information/inclusionary-housing-program Santa Monica Housing Commission Affordable Homeownership Report 16
4. Means to affordable homeownership
4.1 Existing funding
4.1.1 For prospective home buyers
There are many different sources of financial assistance for prospective homebuyers of modest means. The following is a non-exhaustive list of current homeownership assistance programs.
HUD Housing Choice Voucher Homeownership Program
The Housing Choice Voucher (HCV) homeownership program allows families that are assisted under the HCV program to use their voucher to buy a home and receive monthly assistance in meeting homeownership expenses.
https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/homeownershi p
California Housing Finance Agency Forgivable Equity Builder Loan Program The Forgivable Equity Builder Loan gives first-time homebuyers a head start with immediate equity in their homes via a loan of up to 10% of the purchase price of the home. The loan is forgivable if the borrower continuously occupies the home as their primary residence for five years. The Forgivable Equity Builder Loan is a forgivable subordinate loan program that may only be used with a CalHFA first mortgage.
https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm Los Angeles County Development Authority (LACDA) First-Time Homebuyers Home Ownership Program
The Home Ownership Program (HOP) loan provides a second mortgage loan for first-time homebuyers with an assistance amount of up to $85,000, or 20% of the purchase prices, whichever is less. The loan provides down payment and/or closing assistance and is secured with a Deed of Trust and Promissory Note. Santa Monica does not currently participate in this program. https://www.lacda.org/home-ownership/home-ownershipprogram#:~:text=The%20Home%20Ownership%20Program%20 Santa Monica Housing Commission Affordable Homeownership Report 17 The California Housing Finance Agency MyHome Assistance Program CalHFA Government Loans (FHA): MyHome offers a deferred-payment junior loan of an amount up to the lesser of 3.5% of the purchase price or appraised value to assist with down payment and/or closing costs. CalHFA Conventional Loans: MyHome offers a deferred-payment junior loan of an amount up to the lesser of 3% of the purchase price or appraised value to assist with down payment and/or closing costs. https://www.calhfa.ca.gov/homebuyer/programs/myhome.htm Neighborhood Housing Services of Los Angeles County NeighborhoodLIFT Program In collaboration with Wells Fargo and NeighborWorks® America, provides eligible homebuyers with $25,000 in down payment assistance on qualified properties ($27,500 for veterans and service members, teachers, paraprofessionals, law enforcement officers, firefighters, and emergency medical technicians). https://nhslacounty.org/lift/ The Golden State Finance Authority GSFA Platinum® Program Financial assistance up to 5.5% of the first mortgage loan amount; assistance can be used towards down payment and/or closing costs; homebuyer doesn't have to be a first-time homebuyer to qualify; perfect credit not required—FICO scores as low as 640 can qualify; DTI up to 50% allowed in some circumstances; 1-4 unit residences, condos, townhomes and manufactured homes allowed; flexible income limits (low-to-moderate income); various first mortgage loan types available to fit the needs of the homebuyer (FHA, VA, USDA, and conventional financing). https://gsfahome.org/programs/dpa/platinum.shtml
4.1.2 For organizations and municipalities
There are many different sources of financial assistance for organizations and municipalities that serve prospective homebuyers of modest means. The following is a nonexhaustive list of such current and planned financial assistance programs.
HUD Family Self Sufficiency Program
The HUD Family Self Sufficiency (FSS) program is the nation’s largest asset building program for low income families. The program currently serves around 65,000 participants at over 700 Public Housing Authorities (PHAs). FSS is a voluntary program that uses a combination of coordination of services and supports from community partners and an escrow savings account to help participants grow their earned income and savings and Santa Monica Housing Commission Affordable Homeownership Report 18 increase their financial wellbeing overall. Upon graduation from the program, the average family participating in FSS in 2021 had about $9,500 in savings. The $113 million-dollar Family Self-Sufficiency (FSS) NOFO released in August 2022 is an historic expansion of the program and central to HUD’s agenda for economic justice.
On 17 May 2022, HUD published a new FSS rule, taking a critical step towards making FSS available to even more families. Among other changes, the rule permits any adult household member, not only the official head of household, to enroll in the program, and eliminates regulations that were potential barriers to program graduation. The rule also eliminates a cap on savings that had been in place for higher-income families.40 FSS is usually administered by individual housing authorities, but it may also be administered in conjunction with nonprofit organizations. The Santa Monica Housing Authority (SMHA) stopped admitting participants to the FSS program in 2019; St. Joseph Center still administers the program for existing participants who have yet to complete the five year program.
https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/fss California Department of Housing and Community Development Homeownership Super NOFA
A one-stop shop for affordable homeownership projects and programs. The California Department of Housing and Community Development (HCD), in accordance with Assembly Bill 434 (Chapter 192, Statutes 2020), is working to make our homeownership program funds accessible to more developers and communities. This funding provides loans and grants to local public entities and nonprofits for homeownership development projects, selfhelp technical assistance projects, mortgage assistance programs, owner-occupied rehabilitation programs, shared housing programs, and programs for the acquisition of manufactured housing for agricultural households. https://www.hcd.ca.gov/grants-andfunding/programs-active/homeownership-super-nofa HUD Self-Help Homeownership Opportunity Program NOFO
The U.S. Department of Housing and Urban Development (HUD) announced the availability of $12.5 million through the Self-Help Homeownership Opportunity Program (SHOP) for eligible national and regional nonprofit organizations and consortia with experience providing or facilitating self-help housing opportunities. This funding opportunity aims to develop decent, safe, and sanitary housing for low income persons and families who would otherwise not have the opportunity to become homeowners. The continued 40 https://www.hud.gov/press/press_releases_media_advisories/HUD_No_22_142 Santa Monica Housing Commission Affordable Homeownership Report 19 partnerships with local communities and organizations that SHOP funds facilitate will help rebuild and revitalize neighborhoods and improve the lives of residents by expanding access to affordable housing and homeownership opportunities. https://www.hud.gov/press/press_releases_media_advisories/hud_no_22_165
4.2 Proposed actions for Santa Monica
4.2.1 TORCA 2.0
The City of Santa Monica passed the Tenant Ownership Rights Charter Amendment (TORCA) in 1984 to enable tenants and landlords to negotiate the conversion of multifamily building units into condominiums. Benefits included the potential transfer of equity from landlords to tenants; increased housing security for tenants who continued to rent, as they were protected from Ellis Act evictions;
43 and the numerous rewards of homeownership.
TORCA had several shortcomings. Conversion required tenants and landlords to negotiate, which was not always easy or possible. The ability for owners to sell voluntarily vacated units at market prices gave them incentive to persuade tenants to vacate their units. This sometimes resulted in the harassment of renters by owners, and even by third parties who offered to help renters purchase their units in order to flip them for sizable profits. 44 Only seven percent of original renters bought and occupied their units under TORCA, 45 likely a consequence of the above challenges and a lack of city engagement. TORCA ended in 1996.46
The Santa Monica Housing Commission recommends that the City of Santa Monica make policy changes to allow the conversion of existing rental units to for-sale units with the express provisions detailed below. TORCA 2.0 is a placeholder name for this recommended new legislation given its evolution from the original TORCA. 43 https://library.qcode.us/lib/santa_monica_ca/pub/municipal_code/item/the_charter_of_the_city_of_santaarticle_xx?view=all 44 Multiple private conversations between Commissioner Borresen and Santa Monica landlords, TORCA tenants, and other interested parties circa 2005-2010
45 https://santamonica.gov/media/HED/Housing/Housing%20Agenda%20Attachments/HC%202-2- 23%20Agenda%20Final.pdf
46 https://library.qcode.us/lib/santa_monica_ca/pub/municipal_code/item/the_charter_of_the_city_of_santaarticle_xx Santa Monica Housing Commission Affordable Homeownership Report 20
4.2.1.1 For rent controlled buildings and units
The Housing Commission recommends that City Council make policy changes to allow and encourage the conversion of existing rent controlled units to for-sale units, with these provisions:
1. Conversions of rent controlled buildings take place via the purchase of entire rent controlled properties by nonprofit organizations or government intermediaries with the primary goal of facilitating renters’ optional purchase of their units.
2. Any organization purchasing a rent controlled building via the above provision institute deed restrictions to preserve housing affordability. Rental units remain subject to rent control unless and until individual tenants choose to purchase their units, at which time the units will be sold at an affordable rate.
3. All individual unit purchases include proportional ownership of the entire property’s underlying land.
3. Tenants’ purchase of their units is strictly voluntary. No existing tenants are displaced by this policy. Any organization that purchases a rent controlled building continue managing, under rent control, the tenancies of those who do not wish to purchase their units.
4. There are no time constraints for tenants to purchase their units after property acquisition.
5. Units that are vacant at the time of conversion, or that become vacant should renters leave voluntarily, are sold with affordability covenants.
6. Once all units are sold, the managing organization retains no further ownership or control of the property or land. The building would operate in a manner similar to other owner occupied buildings.
7. Units purchased by tenants must be owner occupied. A minimum tenancy duration requirement of two years before an owner may sell or rent their unit, and a flip tax and/or penalty fee applies to tenants purchasing their units in order to ensure owner occupancy and prohibit unit flipping. Proceeds from such taxes or fees may be returned to collective tenant owners for property improvements.
8. If individual tenant owned properties choose to allow subsequent renting of units by owners, rent charged must conform to affordability requirements where deed-restrictions are present.
Santa Monica Housing Commission Affordable Homeownership Report 21
4.2.1.2 For market rate and inclusionary units
The Housing Commission recommends that the City of Santa Monica make policy changes to allow the conversion of existing market rate rental housing to for-sale units, with these provisions:
1. Market rate buildings that are exempt from rent control may be converted to tenant owned units.
2. Building conversion requires protection for existing tenants who wish to remain in their units as renters without purchasing their units.
3. Converted buildings preserve the affordability of inclusionary units by converting them to affordable for-sale units if and when ownership conversion takes place. These affordable units are sold to qualifying low or moderate income buyers and include a minimum owner occupancy duration of 2 years before an owner may sell or rent their unit, and a flip tax and/or penalty fee to ensure owner occupancy and prohibit unit flipping.
4. If individual owner occupied properties choose to allow subsequent renting of units by owners, rent charged by owners of affordable units must conform to affordability requirements where deed-restrictions are present.
4.2.2 HUD homeownership program
The HUD Housing Choice Voucher (HCV) homeownership program allows families that are assisted under the HCV program to use their voucher to buy a home and receive monthly assistance in meeting homeownership expenses. The HCV homeownership program is available only to families that have been admitted to the HCV program and each PHA has discretion to determine whether to implement the HCV homeownership program in their jurisdiction.
To participate in the HCV homeownership program, the HCV family must meet specific income and employment requirements (employment requirements do not apply to elderly and disabled families), be a first-time homeowner as defined in the regulation, attend and satisfactorily complete the pre-assistance homeownership and housing counseling program required by the PHA, and meet any additional eligibility requirements set by the PHA.47
The HUD HCV homeownership program is a uniquely powerful tool for helping qualified low income renters become first-time homebuyers, which enhances stability, contributes 47 https://www.hudexchange.info/programs/public-housing/hcv-homeownership/ Santa Monica Housing Commission Affordable Homeownership Report 22 to lower and more controlled long term housing costs, and builds personal and multigenerational wealth through appreciation in addition to the less tangible benefits of homeownership. Significantly, this program can also assist HCV holders to transition away from HUD assistance, making their vouchers available for new low income residents in need of this housing assistance.
As such, the Housing Commission strongly recommends that the Santa Monica Housing Authority Board direct SMHA staff to adopt participation in the existing HUD HCV and other available HUD homeownership programs.
4.2.3 100% affordable rental housing conversion
Given the stated desire of the city to increase affordable homeownership, the Housing Commission recommends that City Council direct staff to begin exploring this potential subset of affordable homeownership inventory in two ways:
First, staff should conduct research to determine the legal, financial, and logistical feasibility of working with existing and/or new housing nonprofit partners to convert 100% affordable rental housing to a homeownership model whereby each tenant would be given the option to purchase their unit.
Next, the city should engage directly with existing nonprofit housing providers currently managing, constructing, or planning 100% affordable rental properties in Santa Monica to gauge their willingness to consider such transitions and discuss how they could be orchestrated.
The Housing Commission further recommends that, should this source of affordable homeownership inventory prove feasible, the city encourage or require existing nonprofit housing providers of 100% affordable rental buildings to transition their units to a voluntary ownership model. If necessary, this may require buildings to migrate to new nonprofits that will pursue ownership as a primary goal.
4.2.4 Inclusion of for-sale units in new 100% affordable rental housing Furthermore, both to encourage the construction of 100% affordable for-sale housing and to improve the quality of 100% affordable housing development units and properties, the Housing Commission recommends the city explore the feasibility of requiring all new 100% affordable housing projects to include a minimum percentage of for-sale units in each 100% affordable housing building, for example ten percent, with possible provisions that may permit a lower or no percentage of for-sale units in a given building in exchange for additional 100% affordable housing projects comprised of 100% affordable for-sale units.
Santa Monica Housing Commission Affordable Homeownership Report 23 All such for-sale units must be owner occupied. They should require a minimum owner occupancy duration requirement of two years before an owner may sell or rent their unit, and a flip tax and/or penalty fee in order to ensure owner occupancy and prohibit unit flipping. Proceeds from such taxes or fees may be returned to collective tenant owners for property improvements. If individual owner occupied properties choose to allow subsequent renting of units by owners, rent charged must conform to affordability requirements where deed-restrictions are present.
4.2.5 Equalize fees
In Santa Monica, city fees48 and planning policies49 are biased against new for-sale housing construction compared with new rental housing construction. These disparities may discourage the construction of lower priced multifamily buildings occupied by tenant owners in favor of rentals.
To encourage new construction of for-sale multifamily housing, the Housing Commission recommends the City of Santa Monica equalize the treatment of new ownership construction and new rental construction in planning and fee schedules so that one isn’t privileged over the other.
4.2.6 Prioritize new market rate for-sale housing over new market rate rental housing Again, compared with traditional single family housing and even luxury condominiums, modest market rate multifamily for-sale units provide a considerably less expensive, and therefore more attainable, alternative for prospective homeowners. Smaller in size than traditional houses, with significant cost per unit and land per unit savings, modest market rate multifamily units are an important element of increasing affordable homeownership opportunities for low and moderate income Santa Monicans.
While new high density rental apartment construction is common in Santa Monica,50 such affordable multifamily for-sale construction is not. And while rental housing serves an important purpose, particularly for short term and transitioning residents, it does not enable long term Santa Monicans with low and moderate incomes to realize the many benefits of 48 Affordable housing fees are $39.12 per square foot for apartments and $45.70 per square foot for condominiums (effective 12/01/22; updated annually). https://www.santamonica.gov/housing-ahppdevelopers 49 See item G on linked page: On site affordable housing units must be rental units in rental projects. In ownership projects, these affordable units may be rental units or ownership units. https://library.qcode.us/lib/santa_monica_ca/pub/municipal_code/item/article_9-division_6-chapter_9_64- 9_64_050
50 https://smmirror.com/2022/12/ws-communities-files-first-santa-monica-builders-remedy-project/ Santa Monica Housing Commission Affordable Homeownership Report 24 homeownership. Shifting focus from the former to the latter can provide residents with valuable affordable homeownership inventory.
In light of this, the Housing Commission recommends that the city prioritizes new construction of market rate for-sale housing over market rate rental housing until homeownership rates equalize.
4.2.7 New forgivable down payment assistance loan fund
Dedicated financial assistance programs are vital to increasing homeownership among low and moderate income individuals and families. The Housing Commission recommends that the City of Santa Monica use local, state, and federal housing trust funds to establish generous homeownership assistance programming that provides interest free or forgivable down payment assistance to low and moderate income city residents who wish to purchase affordable housing.
4.2.8 New home purchase assistance office
Buying a home for the first time is daunting. Navigating affordable homeownership assistance programs is even more complex, difficult, and time consuming, particularly for first time home buyers. The Housing Commission recommends that the city establish a home purchase assistance office that will encourage homeownership, help prospective buyers navigate the numerous and varied purchase assistance programs, monitor ownership programs, and seek new ways to help Santa Monica residents, particularly those with low or moderate incomes, buy a home.
4.2.9 Community land trusts
Community Land Trusts (CLTs) are organizations that own land and develop it through an inclusive, community-based process.52 They originate in movements for racial, economic, and environmental justice and have been used to combat Black land loss and displacement, build community wealth, and strengthen community health and wellbeing.53 CLTs develop land according to a community’s needs, which can include anything from open space to a multifamily rental housing project. However, CLTs are most often created to provide affordable homeownership opportunities to low- and moderate-income 52 https://nhc.org/policy-guide/shared-equity-homeownership-the-basics/shared-equity-models-of-ownership/ 53 https://www.lisc.org/our-stories/story/real-power-is-in-the-land-community-land-trustspast-present-andfuture/ Santa Monica Housing Commission Affordable Homeownership Report 25 households. There are about 200 community land trusts in the US, and the model has become popular in the UK as well.54
The CLT model is structured around a ground lease. The CLT owns land, which is leased to households who purchase the homes that sit on CLT land. Removing the cost of land from the cost of purchasing the home provides a significant subsidy to the households. The ground lease limits the amount for which the home can be sold, passing the subsidy on from one homeowner to the next. CLTs also often retain the right to repurchase the home in the case of foreclosure.55
CLTs and the community-based nongovernmental organizations (NGOs) that establish them are generally grant fundable and attract foundation support. The NGO sector is growing, with hundreds of CLTs nationwide. Some cities are also investing substantial public funds in CLTs, as in Houston’s CLT bond issue and capital campaign totaling $140 million. Boston recently lost 2500 units of affordable housing in a single year when deed restrictions expired, so the city now funds a network of CLTs across the metro area. Other cities have made smaller initial investments, such as Louisville, Kentucky which put $2.3 million into developing 10 CLT units, and is working with Grounded Solutions to expand their programs.56
The Housing Commission recommends that the city research, create, and secure funding for a community land trust pilot program to permanently acquire land and convert or erect affordable for-sale housing in order to create opportunities for 100% affordable homeownership with fractional underlying ownership of underlying land, under community control, with or without mixed use space, in high opportunity, low poverty neighborhoods, for low and moderate income Santa Monicans.
4.2.10 Rent to own
While there are many financial assistance programs for low and moderate income individuals and families pursuing homeownership, these programs can involve standard mortgage products that require participants have good credit and/or access to additional savings. Not all low and moderate income prospective homeowners can be served via these programs. However, rent-to-own programming can provide a gradual path to homeownership for low and moderate income people who lack strong credit histories and/or sufficient savings to utilize traditional homeownership assistance programs.
Typical rent to own opportunities advertised by private property owners can be predatory schemes that result in higher monthly payments by tenants that nonetheless fail to result in 54 https://nhc.org/policy-guide/shared-equity-homeownership-the-basics/shared-equity-models-of-ownership/ 55 https://nhc.org/policy-guide/shared-equity-homeownership-the-basics/shared-equity-models-of-ownership/ 56 https://challenge.economicarchitectureproject.org/evolution-in-community-land-trusts Santa Monica Housing Commission Affordable Homeownership Report 26 homeownership because agreements include clauses whereby tenants forfeit all ownership claims unless and until they have paid the entire home purchase price. Because this can take a long time, tenants often move out before completing the purchase and forfeit equity that might have been built under a contract with different conditions.
Municipal, nonprofit, and other organizations whose aims are to advance affordable homeownership have an opportunity to create supportive, rather than predatory, rent to own programming. One key potential difference between the two is fractional accrual of equity by tenants with each payment, ensuring rent to own is not a decades long, all or nothing bid for homeownership.
Therefore, the Housing Commission recommends that City Council direct staff to research and report to City Council on the feasibility of and best practices for supporting rent to own paths to affordable homeownership whereby a portion of paid monthly rents are credited toward the purchase of that unit as well as proportional ownership of the underlying land.
Tenants accrue fractional ownership with each payment and retain rights to compensation for such if they vacate their unit prior to completing its purchase. Rent to own programming may be implemented by the city or via a nonprofit organization with the primary aim of advancing affordable homeownership.
Santa Monica Housing Commission Affordable Homeownership Report 27
5. Recommendations
The Santa Monica Housing Commission recommends that City Council urgently takes the following actions to establish and increase avenues for affordable homeownership in Santa Monica:
1. Create new city policy (e.g., TORCA 2.0) that:
A. Allows and encourages the conversion of existing rent controlled units to for-sale units, with the following provisions:
i. Conversions of rent controlled buildings take place via the purchase of entire rent controlled properties by nonprofit organizations or government intermediaries with the primary goal of facilitating renters’ optional purchase of their units;
ii. Any organization purchasing a rent controlled building via this provision institute deed restrictions to preserve housing affordability and rental units remain subject to rent control unless and until individual tenants choose to purchase their units, at which time the units will be sold at an affordable rate; iii. All individual unit purchases include proportional ownership of the entire property’s underlying land;
iv. Tenants’ purchase of their units is strictly voluntary, no existing tenants are displaced by this policy, and any organization that purchases a rent controlled building continue managing, under rent control, the tenancies of those who do not wish to purchase their units;
v. There are no time constraints for tenants to purchase their units after property acquisition;
vi. Units that are vacant at the time of conversion, or that become vacant should renters leave voluntarily, are sold with affordability covenants; vii. Once all units are sold, the managing organization retains no further ownership or control of the property or land and the building operate in a manner similar to other owner occupied buildings;
viii. Units purchased by tenants must be owner occupied with a minimum tenancy duration of two years before an owner may sell or rent their unit, and a flip tax and/or penalty fee to ensure owner occupancy and prohibit unit flipping;
Santa Monica Housing Commission Affordable Homeownership Report 28 ix. If individual tenant owned properties choose to allow subsequent renting of units by owners, rent charged must conform to affordability requirements where deed-restrictions are present. (See section 4.2.1.1) B. Allows the conversion of existing market rate rental housing to for-sale units, with the following provisions:
i. Market rate buildings that are exempt from rent control may be converted to tenant owned units;
ii. Building conversion requires protection for existing tenants who wish to remain in their units as renters without purchasing their units; iii. Converted buildings preserve the affordability of inclusionary units by converting them to affordable for-sale units if and when ownership conversion takes place and these affordable units are sold to qualifying low or moderate income buyers with a minimum tenancy duration of two years before an owner may sell or rent their unit;
iv. If individual owner occupied properties choose to allow subsequent renting of units by owners, rent charged by owners of affordable units must conform to affordability requirements where deed-restrictions are present. (See section 4.2.1.2)
2. Direct SMHA staff to adopt participation in the existing HUD HCV and other HUD homeownership programs. (See section 4.2.2)
3. Begin exploring the potential of converting 100% affordable rental housing to for-sale housing in the following ways:
A. Conduct research to determine the legal, financial, and logistical feasibility of working with current and/or new housing nonprofit partners to convert 100% affordable rental housing to a tenant-optional homeownership model on a per unit basis;
B. Engage directly with existing nonprofit housing providers currently managing, constructing, or planning 100% affordable rental properties in Santa Monica to gauge their willingness to consider such transitions and discuss how they could be orchestrated;
C. If feasible, encourage or require those current nonprofits to transition their units to a tenant-voluntary ownership model, which may require buildings to migrate to new nonprofits that will pursue ownership as a primary goal. (See section 4.2.3) Santa Monica Housing Commission Affordable Homeownership Report 29
4. Explore the feasibility of requiring all new 100% affordable housing projects to include a minimum percentage of for-sale units in each 100% affordable housing building, for example 10%, with possible provisions that may permit a lower or no percentage of for-sale units in a given building in exchange for additional 100% affordable housing projects comprised of 100% affordable for-sale units. All such for-sale units should require owner occupancy and a minimum owner occupancy duration of two years before an owner may sell or rent their unit. If individual owner occupied properties choose to allow subsequent renting of units by owners, rent charged must conform to affordability requirements where deed-restrictions are present. (See section 4.2.4)
5. Equalize the treatment of new ownership construction and new rental construction in planning and fee schedules so that one isn’t privileged over the other. (See section 4.2.5)
6. Prioritize new construction of market rate for-sale housing over market rate rental housing until homeownership rates equalize. (See section 4.2.6)
7. Establish generous city programs using housing trust funds to provide interest free or forgivable down payment assistance to low and moderate income city residents who wish to purchase affordable housing. (See section 4.2.7)
8. Establish a city home purchase assistance office that will encourage homeownership, help prospective buyers navigate the various purchase assistance programs, monitor ownership programs, and seek new ways to help Santa Monica residents buy their homes. (See section 4.2.8)
9. Research, create, and secure funding for a community land trust pilot program to permanently acquire land and convert or erect affordable for-sale housing in order to create opportunities for 100% affordable homeownership with fractional underlying ownership of land, under community control, with or without mixed use space, in high opportunity, low poverty neighborhoods, for low and moderate income Santa Monicans. (See section 4.2.9)
10. Direct staff to research and report to City Council on the feasibility of and best practices for supporting rent to own paths to affordable homeownership whereby a portion of paid monthly rents are credited toward the purchase of that unit and proportional ownership of the underlying land. Tenants accrue fractional ownership with each payment and retain rights to compensation for such if they vacate their unit prior to completing its purchase. Rent to own programming may be implemented by the city or via a nonprofit organization with the primary aim of advancing affordable homeownership. (See section
4.2.10)
Santa Monica Housing Commission Affordable Homeownership Report 30
6. Conclusion
Homeownership is the cornerstone of the American Dream. In addition to the financial and material rewards of helping lower and control long term housing costs, building personal and multigenerational wealth, and enabling environmental customization, homeownership brings vital, less tangible benefits like providing a means of self-expression, fostering pride, increasing social equity, and strengthening community. As such, homeownership is an unparalleled means of improving individuals’ and families’ quality of life.
Santa Monica prides itself on being a diverse, equitable, and inclusive city. It has taken great strides in acknowledging historical harms and facilitating the participation of marginalized communities in creating a vibrant local cultural milieu. At this point in history, diversity is still inextricably tied to socioeconomic diversity. Therefore, the city’s next steps to advance diversity, equity, and inclusion must address the fact that diversity in Santa Monica, as elsewhere, still exists at the expense of its least privileged residents.
While affordable rental housing is a key component of plans to remedy California’s and Santa Monica’s affordable housing crisis, relegating low and moderate income residents solely to rental housing perpetuates and exacerbates other economic and societal disparities. These disparities are increasingly evident in Santa Monica given the high cost of living, and the city must act swiftly and decisively to mitigate and more fully address them.
HUD Secretary Marcia Fudge correctly states that “homeownership is the principal source of wealth creation for most American households.” As such, equity in Santa Monica—both literal and figurative, financial and societal—is dependent upon the creation of affordable homeownership opportunities. To strengthen the fabric of this community and ensure that equity, diversity, and inclusion thrive here, Santa Monica must work to enfranchise and empower those who are integral to the city’s character and success but not yet integrated into both its tangible and intangible wealth.
Despite the high cost of living in Santa Monica, including some of the highest real estate prices in the country, affordable homeownership is possible here. Successful programming in similarly expensive cities like San Diego and New York City demonstrates this. With the commitment and creativity of city leaders, Santa Monica can strengthen its social, cultural, and economic foundations while protecting and fortifying its most vital asset—the people who live, work, play, and love here.
The Santa Monica Housing Commission thanks City Council for its consideration of this report and the community informed recommendations herein. The Housing Commission respectfully asks that the Mayor, Mayor Pro Tempore, and Councilmembers act swiftly to begin the process of including all residents in the bounty, equity, and pride of homeownership in Santa Monica.