Memorandum
To: City Council
From: Heather Averick, Director of Housing and Human Services Department RE: Proposed FY 2025-26 Annual Automatic Adjustment for the Affordable Housing Unit Base Fee
This memo summarizes the results of applying the annual adjustment calculation methodology adopted by the City to establish the Affordable Housing Unit Base Fee pursuant to Santa Monica Municipal Code Section 9.64.070.B (“the affordable housing unit base fee shall be adjusted [annually] based on changes in constructions costs and land costs.”). This methodology was approved by the Santa Monica City Council at a public hearing on June 13, 2006, based on the recommendation of HR&A in a letter to City staff dated April 24, 2006. A copy of the April 24, 2006 letter is included for reference as Attachment A hereto. The City Council approved the last annual increase for FY 2024-25 using this methodology when it adopted Resolution No. (CCS) on October 8, 2024.
For the construction cost inflation component of the calculation approach, the Engineering News Record’s (ENR) Construction Cost Index specific to the Los Angeles metro area is utilized, because it is updated monthly and is readily available via the Internet by subscription. The applicable index change was 3.7 percent measured between March 2025 (the current budget adoption year) and March 2024, as compared with a 9.7percent change between March 2024 and March2023.
Although there is no comparable index for inflation in land cost, the City-adopted method uses the weighted average annual change in median condominium sale prices, by Zip Code, as a proxy measure for land cost changes measured for the immediately preceding calendar year. Based on our analysis of 2024 sales data compiled by the consultant company RSG, from Los Angeles County Assessor records, the weighted average change for the City during 2024 was 0.3 percent, as compared with a negative 2.7 percent during 2023.
The relative balance between land cost inflation (based on changes in median condo prices) and construction costinflation(basedonaconstructioncostindex) continues to be based on development cost data for the two most recently completed and/or under-construction multi-family affordable developments assisted by the City. For the current analysis, the two City-assisted projects are 1834-1848 14th Street and 1413 Michigan. The City-adopted calculation approach uses a simple average of the ratio between land purchase price and the sum of land cost and hard construction cost to derive the land value percentage (29.3%).
The inverse of the land value percentage is the construction cost share (70.7%).
Table 1, on the following page, presents the annual adjustment calculation establishing the Affordable Housing Unit Base Fee for FY 2025-26. It shows that a weighted average inflation index using this City Council-approved approach results in a 2.7 percent annual increase (as compared with a 6.1 percent adjustment for FY 2024-25):
▪ $45.10 per square foot for apartment developments (an increase of $1.19per square foot from the FY 2024-25 Fee).
▪ $52.69 per square foot for condominium developments (an increase of $1.39 per square foot from the FY 2024-25 Fee); and
The results of the calculations shown in Table 1 will be the basis for a Resolution changing the Affordable Housing Base Fee for FY 2025-26.
ATTACHMENT A
April 24, 2006 HR&A Letter re: Annual Adjustment
Methodology