City Council
Report
City Council Meeting: October 8, 2024
Agenda Item: 5.C
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To: Mayor and City Council
From: Heather Averick, Director, Housing and Human Services Department Subject: Adoption of Affordable Housing Production Program Fee Resolutions Recommended Action
Staff recommends that the City Council:
1. Adopt the attached Resolution increasing the Affordable Housing Unit Base Fee by
6.1 percent for new market-rate apartments and condominiums (Attachment A).
2. Adopt the attached Resolution increasing the Affordable Housing Unit Development Cost by 6.1 percent (Attachment B).
3. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines.
Executive Summary
A key element of Santa Monica’s strategy to increase housing affordability is requiring market-rate housing developers to assist with creating affordable housing. Developers must either construct residences that are affordable to low- and moderate-income households or pay a fee, which is used to subsidize affordable housing built by developers.
The City calculates and publishes adjustments to the Affordable Housing Unit Base Fee and Affordable Housing Unit Development Cost on an annual basis, to keep pace with changes in land and construction costs.
The calculation methodology approved by City Council uses a combination of the annual change in median condominium sale prices in Santa Monica as a proxy measure for land cost changes and the change in construction costs based upon the Engineering News Record’s (ENR) Construction Cost Index specific to the Los Angeles area. The land cost and construction cost factors are weighted based on development cost data for the two 2 of 6
most recently completed or under construction multi-family affordable developments financed by the City.
Based on 2023 sales data compiled using Los Angeles County Assessor and Recorder data (Attachment C), the weighted change for the City in median condominium sale prices from 2022 to end of year 2023 was negative 2.9 percent.
The ENR Construction Cost Index increased 9.7 percent between March 2023 and March 2024 (Attachment D). A land cost inflation weight of 29.2 percent and construction cost inflation weight of 70.8 percent results in a 6.1 percent increase ([-2.9% x 29.2%] + [9.7% x
70.8%] = 6.1%).
The new Affordable Housing Unit Base Fee and Affordable Housing Unit Development Cost would be 6.1 percent higher than the existing amounts. If approved, the new amounts would become effective December 1, 2024. The table below, Historical Annual Adjustment Rate, summarizes the adjustments in previous years.
Historical Annual Adjustment Rate
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
4.9% 3.6% 5.0% 5.0% 2.2% 0.0% -2.7% 10.2% 5.8% 6.1%
Background
The Affordable Housing Production Program (AHPP), Chapter 9.64 of the City’s Municipal Code, implements Proposition R, which establishes that not less than thirty percent of all newly constructed multi-family housing in the City annually must be affordable to low- and moderate-income households for at least 55 years. The AHPP requires developers of new market-rate multi-family housing to contribute to affordable housing goals by designating a portion of a development’s total residences as affordable housing, constructing affordable housing off-site, designating land for affordable housing development, or paying an affordable housing fee, in accordance with the following formulas:
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1. Affordable housing unit base fee x floor area of multi-family project
2. Multi-family projects with fractional affordable housing units of less than 0.50 based upon the formulas established in Section 9.64.050: Affordable Housing Unit Development cost x fractional percentage.
When the formula calculation for required affordable residences results in a fraction of less than 0.50, the obligation can be satisfied by payment of a fee based upon the Affordable Housing Unit Development Cost. For example, if a development is required to provide 4.7 units of affordable housing, the developer is required to designate four affordable residences and pay 0.5 times the Affordable Housing Unit Development Cost to satisfy the requirement associated with the fraction.
Discussion
Annual Fee Adjustments
Section 9.64.070 of the AHPP provides that the Affordable Housing Unit Base Fee and the Affordable Housing Unit Development Cost shall be adjusted annually by Council resolution based on changes in construction and land costs. The fee adjustment methodology is detailed in Section 2 of the AHPP Administrative Guidelines (Attachment E) and reflects the methodology approved by Council in 2006. The fees are adjusted based on two factors: 1) changes in construction costs as measured by the ENR Construction Cost Index, and 2) changes in land costs measured by using the proxy of change in median condominium sales prices.
The table below summarizes the changes in these two factors since 2023, and the calculation results in a 6.1 percent increase in 2024:
Fee Description 2023
Amount
2024
Amount
%
Change
Affordable Housing Unit Base Fee –
Apartments (per square foot) $41.39 $43.91 6.1%
Affordable Housing Unit Base Fee –
Condominiums (per square foot) $48.35 $51.30 6.1%
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Affordable Housing Unit Development
Cost $434,257 $460,747 6.1%
The proposed Resolutions, Attachments A and B, would adjust the fees accordingly, effective December 1, 2024. Details of the calculations prepared by staff for the Affordable Housing Unit Base Fee and the Affordable Housing Unit Development Cost are provided in Attachment C and Attachment D. The revenue implications resulting from the proposed fee adjustments are anticipated to be minimal, as fee revenues depend on development activity in any given year.
On September 6, 2024, the City published notice in the Santa Monica Daily Press of this hearing and the availability of the staff analyses. The City republished this notice on September 20, 2024. Copies of these analyses have been available in the City Clerk's Office for public review since September 5, 2024.
Past Council Actions
October 10,
2023
(Attachment F)
The previous annual adjustment increasing the fees by 5.8 percent.
June 13, 2006
(Attachment G)
City Council approved the methodology for ascertaining changes in these costs and thereby calculating the adjustment.
July 21, 1998
(Attachment H)
The AHPP was adopted by the City Council and has been
periodically amended, as necessary.
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Environmental Review
The new Affordable Housing Unit Base Fee and Affordable Housing Unit Development Cost is exempt from the provisions of CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines (common sense exception) which states that CEQA does not apply “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” The new rate reflects annual fee adjustments, and therefore, it can be seen with certainty that there is no possibility that the new rates may have a significant effect on the environment.
Financial Impacts & Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended action. The proposed rate change in the Affordable Housing Unit Base Fee and Unit Development Cost is expected to increase annual revenues by approximately $26,490 per apartment compared to last year, depending on development activity levels. Revenues will be deposited in account 10420002.415300.
The Department will monitor the revenue activity. Budget adjustments would be incorporated in the FY 2024-25 Midyear Budget or future budget, if needed.
Prepared By: Brittany Aguirre, Policy And Performance Analyst Approved Forwarded to Council
Attachments:
A. Affordable Housing Unit Fees Resolution
B. Affordable Housing Development Cost Resolution
C. Proposed FY 2024-25 Annual Automatic Adjustment for the Affordable Housing Unit Base Fee
D. Proposed FY 2024-25 Annual Automatic Adjustment for the Affordable Housing Unit Development Cost
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E. AHPP Administrative Guidelines
F. October 10, 2023 Staff Report
G. June 13, 2006 Staff Report
H. July 21, 1998 Staff Report
I. Written Comments