City Council
Report
City Council Meeting: January 13, 2026
Agenda Item: 10.A
1 of 8
To: Mayor and City Council
From: Jing Yeo, Director, Administration
Subject: Introduction of an Ordinance to Extend the Off-Site Affordable Housing Pilot Program, Allowing Additional Applicants of Qualified Market Rate Multi-family Residential Projects to Satisfy the City’s Affordable Housing Requirements through Alternative Options
Recommended Action
Staff recommends that the City Council:
1. Adopt a finding that the actions below have been previously analyzed in the certified 6th Cycle Housing Element Environmental Impact Report and are statutorily exempt from the California Environmental Quality Act pursuant to Section 21080.085(a) of the California Public Resources Code;
2. Introduce for first reading an ordinance to add Section 9.64.065 to the Santa Monica Municipal Code to establish the Off-site Affordable Housing Pilot Program for 1000 units and add Section 9.64.075 to the Santa Monica Municipal Code to extend and expand the Off-site Affordable Housing Pilot Program.
Summary
On June 10, 2025, Council gave direction to staff to “establish a pilot program allowing market-rate housing projects more flexibility in how they provide affordable housing units off-site, while also allowing these housing projects to be eligible for density bonus, incentives/concessions, and modifications.” The purpose of this program is to incentivize market-rate housing projects that were entitled but not proceeding with building permits due to financial challenges in the development market.
On August 12, 2025, City Council approved an emergency ordinance to establish the Off-Site Affordable Housing Pilot Program. This program allows approved market-rate housing projects more options for fulfilling the City’s affordable housing requirements of the City’s Affordable Housing Production Program (AHPP) while simultaneously 2 of 8
proceeding with construction of the market rate portion of the housing development.
Participating projects would also be eligible for a local density bonus (which is not currently an option for new applications that choose to build affordable housing off-site) in an effort to expedite housing production in Santa Monica.
Under the AHPP pilot program, developers of sites with already approved entitlements have three alternative options if they opt out of constructing on-site affordable units:
• Option 1 – Build market rate units first, deposit a gap financing amount of $150,000 per unit into an escrow account, and develop the required affordable units off-site within four years.
• Option 2 – Rehabilitate existing units off-site that are deemed uninhabitable and, if they’re not already, deed-restrict these rehabilitated units as affordable. • Option 3 – Pay an in-lieu fee that will go to the city’s Housing Trust Fund for future affordable housing developments.
Council directed that the pilot program be established for up to 1,000 units based on applications received prior to September 30, 2025. Council also directed that staff return to Council with an update on the pilot program after public outreach with affordable housing providers and further consideration of the program’s terms.
On September 30, 2025, Council held a study session to receive an update on the results of the AHPP pilot program to date, and a summary of outreach efforts including feedback received. Council provided direction to staff to extend the off-site pilot program and allow for additional eligible projects with approved entitlements, subject to certain conditions.
In June 2025, before applying for employment with the Housing Action Coalition (HAC), Mayor Pro Tem Zwick consulted with the City Attorney’s Office to determine whether accepting such a position would create a conflict of interest with his role on the City Council. Relying on that legal advice, Mayor Pro Tem Zwick applied for the position in July 2025 and later accepted an offer on August 18, 2025, after additional consultation with City legal staff. 3 of 8
Before beginning employment, Mayor Pro Tem Zwick took further steps to avoid any actual or perceived conflict, including making clear that he would perform no work related to Santa Monica, ensuring that Santa Monica was excluded from his professional portfolio, and confirming that HAC would cease advocacy activities in Santa Monica, which it did prior to his start date. Mayor Pro Tem Zwick began his employment with HAC on September 8, 2025.
In October 2025, following continued public questions and concerns, the City Attorney’s Office sought opinions from multiple outside law firms regarding the application of the Political Reform Act to Mayor Pro Tem Zwick’s employment.
On October 28, 2025, he publicly announced that he would voluntarily recuse himself from all housing-production-related matters while seeking formal guidance from the California Fair Political Practices Commission (FPPC). Working in conjunction with the City Attorney’s Office, he then submitted a formal advice request to the FPPC on November 10, 2025.
On December 8, 2025, the FPPC issued a formal advice letter concluding that, prospectively, Mayor Pro Tem Zwick is disqualified from participating in certain City Council decisions related to housing production under the FPPC’s interpretation of the Political Reform Act and its “nexus test.” Specifically, while neither Zwick nor HAC's financial interest in housing production decisions made in Santa Monica met traditional criteria that would cause it to rise to the standard of being material, it was possible that under a separate “nexus test” that the FPPC might apply, “any reasonably foreseeable financial effect on a source of income to a public official or the official’s spouse is material if the decision will achieve, defeat, aid, or hinder a purpose or goal of the source.”
Under that standard, the FPPC advised City housing production decisions could benefit HAC, despite safeguards put in place to ensure no direct benefit to either Mayor Pro Tem Zwick or HAC from such decisions.
4 of 8
The FPPC’s advice is forward-looking only. By statute, the FPPC does not issue opinions on past actions, and the FPPC did not find that Mayor Pro Tem Zwick acted improperly, violated the law, or failed to disclose his employment.
Therefore, staff is bringing forward two actions for Council consideration on January 13, 2026, related to the AHPP.
The first action is to consider for introduction and first reading a regular ordinance to codify the AHPP pilot program (Section 9.64.065 of the Santa Monica Municipal Code) for the applications for 1000 units, filed and pending prior to September 30, 2025, with the same terms and conditions as the emergency ordinance presented to Council on August 12, 2025. This action is recommended out of an abundance of caution in light of the advice from the FPPC and the timing of the employment.
The second is to consider for introduction and first reading a regular ordinance to codify the expansion of the AHPP pilot program (Section 9.64.075 of the Santa Monica Municipal Code) beyond the 1000 units approved by the emergency ordinance and in the ordinance codifying Section 9.64.065, but with different conditions and requirements, as outlined in this report.
If approved, these actions will: 1) allow the applications filed before September 30, 2025, which are currently pending and arguably vested under the Housing Accountability Act (California Government Code 65589.5) and other state housing laws, to proceed under the same terms and conditions as the August 12, 2025 emergency ordinance; and 2) extend the pilot program beyond the pending applications for 1000 units with additional terms and conditions for future applications.
Discussion
Program Status
Subsequent to adoption of the Emergency Ordinance on August 12, 2025, establishing the initial AHPP pilot program, the City received six applications for the pilot program within the first week. These applications total 1,088 units, consisting of 916 market rate units and 102 affordable units as indicated in the table:
5 of 8
Project
Address (ENT)
Total
Units
# of
Previously
Approved
Market
Rate Units
# of
Previously
Approved
On-Site
Affordable
Units
# of
Revised
Market
Rate Units
Pilot
Program
Option
Chosen2
Option 1 OffSite PropertyOption 1 #
of Off-Site
Affordable
Units
Option 3
Project
SF
Option 3
Estimated InLieu Fee
1902 Wilshire
(23ENT-0156)
140 126 14 140 1 1333 7th St* 14 N/A -
1527 Lincoln
(23ENT-0161)
210 189 21 210 1 1143-1145 25th
St
21 N/A -
2501 Wilshire
(23ENT-0173)
170 153 17 170 1 1333 7th St* 17 N/A -
2025-2037
Wilshire
(23ENT-0178)
150 135 15 150 1 1333 7th St* 15 N/A -
1931 Wilshire
(24ENT-0183)
260 234 26 260 1 1143-1145 25th
St
26 N/A -
2906 Santa
Monica
(20ENT-0311)
88 79 9 88 3 N/A - 51,189 sf $2,247,708.99
Total 1,018 916 102 1,018 93
With the 6 applications, the total 1,000 unit cap was reached with the submittal of the six applications and the initial round of the AHPP is closed to additional applicants.
On September 30, 2025, Council held a study session on the program, taking into consideration the comments received from affordable housing providers. Council recommended that staff return with an ordinance to extend the AHPP pilot program to additional multiple unit projects, but with modifications to the program that would apply to new applicants. Pursuant to Council direction, these following modifications have been included in the Ordinance and would only apply to new applicants of the pilot program:
• New Program Option for At-Risk Units: Section 9.64.075(G) of the program includes an option for the applicant to purchase covenants for at-risk units (i.e., affordable-deed restricted units with covenants at risk of expiring). Applicants using this option must record an extension of the covenant for a term of 75 years. • Community Benefit Payment: Section 9.64.075(H)(1) requires that in the event the sale of the multiple unit project is not subject to the Measure GS Transfer tax for whatever reason, the program requires the owner or applicant to pay a Community Benefit Payment to the City. The payment applies to the first transfer of a multiple-unit project (or its property) and is equal to 4.6% of the amount of consideration or value of that transfer, unless the transaction is subject to the City’s Measure GS Third Tier Tax, in which case payment of the GS tax satisfies 6 of 8
this requirement. The payment is to be secured by a performance deed of trust recorded against the market rate property.
• Option 1 Gap Financing: To address the concern that the estimated gap financing amount is too low, the gap financing amount for new program applicants is increased to $160,000 per unit. This amount would be reviewed and updated annually based on the construction cost index.
• Strong Enforceable Milestones for Option 1 for Construction of Off-Site Units: To ensure that milestones are met for the construction of the off-site affordable housing, an applicant must satisfy a series of binding, enforceable milestones:
o Prior to issuance of a building permit for the first market rate project, the applicant must submit a complete entitlement application for the off-site affordable housing project.
o Prior to receiving a certificate of occupancy for the first market rate project, applicant must submit construction plans for the off-site affordable housing project.
o Off-site affordable housing construction must commence within 48 months of issuance of the first building permit for any market-rate project (or 18 months for Coastal Zone projects), unless the City grants a 12-month extension for good cause.
o If construction does not commence on time, the City may exercise its option to acquire the off-site property and may retain the Gap Financing Amount.
• Long Term Affordability Protections: To protect long-term protections of affordable housing tenants, the Ordinance requires that, when an applicant chooses to utilize the off-site affordable housing option, the applicant must record a Right of First Refusal Agreement on that off-site property. This agreement ensures that the City has the first opportunity to purchase the off-site property before it can be sold to any third party. If the property owner receives a purchase offer, the City may choose to match that offer and acquire the property, or allow the sale to proceed.
7 of 8
Council also gave direction to staff to conduct the following future work efforts related to the AHPP:
• Financing Competitive Analysis – Prepare an analysis, such as timeline data, to ensure the pilot projects don’t compete or undermine financial funding of Cityfunded affordable housing projects • Nexus Study for In-Lieu Fee – Pursuant to Council direction, staff is currently working on a Request for Proposal to review and update, if necessary, the City’s affordable housing in-lieu fee. Staff anticipates completion of the study in 2026 and will return to Council with the results of the study.
In addition to the Council directed items, the expanded AHPP pilot program would allow for purchase of affordability covenants on pre-existing market rate units.
Environmental Review
The ordinance for the AHPP pilot program has been analyzed as part of the 2021-2029 6th Cycle Housing Element Environmental Impact Report (EIR) [SCH No. 20212269242021] that was certified by Council on October 12, 2021, with an Addendum to the EIR approved on October 11, 2022. These amendments implement Program 2.C that was described and analyzed in the 6th Cycle Housing Element EIR.
Additionally, pursuant to Section 21080.085(a) of the California Public Resources Code, the ordinance is statutorily exempt from CEQA. Under PRC Section 21080.085(a), CEQA does not apply to zoning actions contained in an approved housing element pursuant to subdivision (c) of Section 65583 of the Government Code. The ordinance implements the certified 6th Cycle Housing Element. Therefore, the ordinance is statutorily exempt and no further environmental review under CEQA is required.
Past Council Actions
Meeting Date Description
June 10, 2025 Council directed the City Manager to return with a pilot program allowing market-rate housing projects more flexibility in how they provide affordable housing units off-site as a means to incentivize housing production for approved
8 of 8
projects that are unable to proceed due to economic
uncertainty. The pilot program should include provisions to ensure that the off-site affordable housing units are
constructed and also allow housing projects to be eligible for density bonus, incentives/concessions, and modifications under State density bonus law.
August 12, 2025 Council adopted an emergency ordinance amending the Zoning Ordinance to establish a pilot program allowing for flexibility and incentives for complying with the City’s Affordable Housing Production Program.
September 30, 2025 Council held a study session to receive an update on the Offsite Affordable Housing Pilot Incentive Program and provided direction to staff to extend the pilot program to additional eligible approved projects, subject to certain conditions.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended action.
City staff will monitor the pilot program and return to Council should additional resources be necessary for implementation and management of this program.
The effect of additional in-lieu fees on the City’s Housing Trust Funds is unknown and will be dependent on which eligible projects elect to utilize Option 3 of the pilot program.
Prepared By: Rachel Kwok, Environmental Planner
Approved Forwarded to Council
Attachments:
A. AHPP Ordinance Final 010626
B. September 30, 2025 Council Meeting
C. August 12, 2025 Council Meeting
D. June 10, 2025 Council Meeting
E. Written Comments
F. PowerPoint Presentation