EXHIBIT A
Contents:
1) Missing Middle Housing Realignment Plan Presentation 2) Missing Middle Housing Realignment Plan: A Policy
Package for Santa Monica
3) Supplemental Addendum: Four Reforms to Extend
MMHRP Reach
Missing Middle Housing
Realignment Plan
Shawn Landres, Planning Commissioner
Presentation to City Council
July 14, 2026
Who Is Missing from Santa Monica
Firefighter + Teacher
$100,700 + $62,500
Police Officer + Spouse
$110,484 + working spouse
Nurse raising children
$110,000
The Cottage Court
6–7 detached cottages
7 on R-2 (7,500 SF), 6 on R-1 (6,000 SF), around a shared courtyard 850 SF each, 28–30 feet
Type V-A wood frame, two stories, R-3 per building
Unified street facade
neighborhood scale preserved
At least 1 deed-restricted at 200% AMI
the workforce covenant
A Recognized Building Form
The MMHRP establishes the cottage court as a permitted building form across every pathway where missing middle housing belongs.
R-1
Single-family parcels
R-2
Small multifamily parcels
MHO
Moderate Income Housing
Overlay
§9.31.196
Community assembly parcels
Eight Policy Updates
Density at 1 per 800 SF RHNA-compatible across every eligible parcel size AHPP tiered fee trade Reduced fee in exchange for 200% AMI workforce covenant Disaggregated transportation fee Unbundled from parking; zero-parking projects pay less Pre-approved plans + 90-day ministerial review 30-day expedited for pre-approved plans; modeled on SB 684 and SB 1123
R-3 building code classification Per building, not per project. Saves ~10% on hard costs.
Revolving Capital Fund Bridges the financing gap created by the workforce covenant Lot consolidation via existing courtyard exception Leverages SMMC §9.08.030(F) for family assemblies of adjacent parcels AB 1070 advocacy State-level reform to normalize the cottage court form The Community Assembly Pathway
Congregation-owned parking lots. Zero units in three years.
The Mix
50%
Market-rate sale
congregational discretion
30%
Workforce sale
at 200% AMI
20%
Affordable rental
at 80% AMI
Land stays in tax-exempt hands.
Congregation retains fee title; cottages conveyed as improvements only on a 99-year ground lease.
Net profit to the congregation helps finance parking replacement or access as needed.
Community Assembly: What's Different
Three amendments that apply only to §9.31.196 projects. 1 §9.31.196 Alternative Compliance
50/30/20 mix replaces the 50% at 80% AMI requirement that has produced nothing. Lot tie permits adjacent-parcel community assembly retention.
2 Nonprofit Developer Partner Waiver
Waivable where the congregation (or an affiliated 501(c)(3)) demonstrates operational capacity through facility management and fiduciary governance.
3 CLT Ground Lease Standards
99-year renewable term. Formula resale for the workforce tier. Land may not be transferred out of tax-exempt ownership.
New Housing for Working Santa Monicans
R-1 and R-2 Owner-Occupants ~150 cottages
Original program scope, Portland-matched buildout
Family Assemblies (consolidation) 20–40 cottages
Adjacent parcel assemblies under courtyard exception
Community Assembly Parcels 120–160 cottages
Three-tier mix on §9.31.196 parcels, no public subsidy
TO: Planning Commission, City of Santa Monica
FROM: Shawn Landres, Planning Commissioner
RE: Missing Middle Housing in Santa Monica — A Policy Package DATE: For the Planning Commission meeting of April 15, 2026 Missing Middle Housing Realignment Plan:
A Policy Package for Santa Monica
What Is Missing Middle Housing, and Who Is Missing from Santa Monica American housing production has organized itself around two poles. At one end, the subsidized pipeline: LIHTC-financed apartment complexes, public housing, and project-based vouchers serving households below 80% of Area Median Income. At the other, the unassisted market: single-family homes, luxury condominiums, and market-rate apartments priced for households above 200% AMI. Between those two systems is a gap where neither one reaches. The households in that gap earn too much to qualify for subsidized housing and too little to afford what the market builds. The housing types that historically served them (duplexes, triplexes, fourplexes, cottage courts, small apartment buildings) largely stopped being built after the mid-20th century, eliminated by single-family zoning, parking requirements, and building codes that treat a fourplex the same as a 200-unit tower.
The term “missing middle housing” names this gap. Coined by the architect Daniel Parolek of Opticos Design in 2010, it refers to residential buildings of 2 to 12 units in forms compatible with single-family neighborhoods: townhouses, cottage courts, courtyard housing, small multiplexes. In a coastal California city where new-construction 2-bedroom rents start at $3,850 and a 6,000 SF lot with a house sells for $3 million, the missing middle is the income band where a firefighter married to a teacher, a police officer with a working spouse, or a dual-income nurse household earns enough to live with dignity but not enough to live here.
Santa Monica illustrates the consequences of that gap. SMMUSD enrollment fell from 11,300 (2014) to 8,623 (2024–25): 24% in a decade. The 25–44 cohort, the prime family-formation years, shrank from 40.1% of the population (2000) to 33.4%. Residents 65+ grew from 14.4% to 19.2%. Median age climbed from 39 to 42.7. Children under 15 constitute 11.8% of the population. Average household size is 1.8, 36% below LA County’s 2.8.
The racial displacement preceded and shaped the housing crisis. African-American families constituted roughly 25% of certain Santa Monica neighborhoods through the mid-20th century. The Belmar neighborhood was razed by eminent domain in the 1950s. I-10 bisected Pico. African-American residents as a proportion of the city population fell to 3.78% by 2000; recent ACS data shows 5.2%.
Roughly 90% of Santa Monica’s workforce commutes into the city to work: more than 70,000 people daily, for approximately 90,000 jobs. A starting teacher would need to spend 58% of gross income on a one-bedroom apartment; a restaurant worker, 100%. New-construction 2BR rents average $3,850–$4,430. Median condos sell at approximately $1.2 million ($1,060–$1,540/SF). A 6,000 SF lot with a 2,800 SF home sells for $3 million or more; 7,500 Landres, Missing Middle Housing Realignment Plan
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2 SF R2 lots command $3.75–$4 million or higher. Without intervention, market-rate missing middle housing serves only households above roughly 200% AMI ($170,560 for a couple, $213,200 for a family of four).
Santa Monica’s zoning nominally permits missing middle housing. The R2 zone allows duplexes, triplexes, townhouses, and courtyard housing. SB 9 applies to R-1 lots. The density bonus is available. Yet SB 9 has generated two applications in Santa Monica. The emergency interim SB 1123 ordinance generated zero. The zoning permits the housing in the same sense that a restaurant menu permits a meal no one can afford: the listing exists, but the price is prohibitive. This is performative zoning: rule changes that rhetorically indicate reform but produce nothing, because the rules never were what stood in the way.
This memo proposes the Missing Middle Housing Realignment Plan (MMHRP), a local missing middle housing program that produces more affordable units and a more competitive developer return than any pathway currently available under state law. SB 9 yields a maximum of 4 units, requires the owner to occupy one for three years, and produces zero deed-restricted affordable housing; it has generated two applications in Santa Monica. SB 1123 yields up to 10 units with an average size of 1,750 SF, requires no affordability covenant, and serves households above 200% AMI.
The program proposed here yields 6–7 2-bedroom units of 850 SF on the same lots (paralleling the 850 SF 2-bedroom unit type that Portland’s Residential Infill Project has produced at scale), requires deed-restricting at least one unit (two on larger lots), and produces $360,000–$725,000 more profit than SB 1123 on the same parcel.
The affordable housing is not a cost the developer bears. It is a byproduct of a better development envelope that the city controls: reduced setbacks, R-3 building code classification, fee reductions, and pre-approved plans. These concessions are available only through the local program; a developer who uses SB 9 or SB 1123 builds under existing standards and receives none of them. The concessions make the local pathway more profitable, and the affordability covenant is how the city captures a share of the value that the concessions create.
Proposed Definition
The following draft definition is recommended for adoption by resolution as the basis for subsequent code amendments, fee modifications, and legislative advocacy.
Missing Middle Housing means residential development of 2 to 12 dwelling units on a single lot, in building forms compatible with single-unit neighborhoods, including duplexes, triplexes, fourplexes, townhouses, courtyard housing, and cottage courts. Missing middle housing is designed for long-term occupancy (minimum 31 consecutive days per tenancy) and serves households earning between 80% and 200% of Area Median Income as defined by the U.S. Department Landres, Missing Middle Housing Realignment Plan
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3 of Housing and Urban Development for the Los Angeles-Long Beach-Glendale HMFA.
Missing middle housing is distinguished from conventional multifamily development by four characteristics: (1) building form scaled to the surrounding neighborhood; (2) a sliding floor area ratio that rewards additional units over larger units; (3) affordability achieved through reduced per-unit costs rather than public subsidy; and (4) ownership structures (fee-simple small-lot subdivision, townhouse condominium, or cooperative) that minimize construction defect liability exposure and maximize long-term wealth building for occupants.
In Santa Monica, 80–200% AMI means $85,280 to $213,200 annually for a couple, $106,600 to $266,500 for a family of four. A starting SMMUSD teacher at $62,500 (59% AMI) falls below this range and needs the subsidized housing pipeline. A mid-career firefighter at $100,700 (94% AMI), a police officer at $110,484 (104% AMI), or a nurse at $110,000 (103% AMI) sits squarely within it. Two of those salaries in the same household reach 200% AMI.
The upper bound marks the threshold below which new-construction housing in Santa Monica does not pencil without intervention. The lower bound marks the ceiling of the deeply subsidized pipeline, where LIHTC and the Housing Trust Fund already operate. The missing middle is the space between those two systems, where neither one reaches.
Executive Summary
The MMHRP is a local missing middle housing program that produces more affordable housing and a higher developer return than SB 9 or SB 1123. The program applies to both R1 and R-2 lots. It consists of six interventions, all within local authority. • Create a local MMH pathway on R-1 and R-2 lots that outcompetes state pathways on both affordability and profit. Amend §§9.07 and 9.08 to allow up to 1 unit per 1,000 SF on lots of 6,000 SF or more, with reduced setbacks (15’ front, 10’ rear) and a sliding FAR (850 SF max on 6,000 SF lots; 1,100 SF max on 7,500 SF+).
Condition the additional density on at least one deed-restricted unit at or below 200% AMI (two on 7,500 SF+ lots building 850 SF units). The building form is a detached cottage court that reads as a large single-family home from the street: two stories, 30- foot height limit, 42–45% lot coverage, residential massing and materials. Each cottage classifies as R-3 per building under the California Building Code. The concessions (setback reduction, fee trades, R-3 classification, pre-approved plans) are exclusive to this pathway; they are not available to SB 9 or SB 1123 projects. A developer who builds 7 × 850 SF cottages under the local program and deed-restricts two units produces $360,000 more profit than the same developer building 6 units under SB 1123 with no covenant. The affordable housing is not a cost the developer bears; it is a byproduct of a better development envelope that only the local pathway provides.
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4 • Use the R-3 townhouse pathway. Townhouses with separate ground-floor entries already qualify as R-3 under the California Residential Code regardless of unit count.
No code change is needed. This avoids $25,000–$30,000 per unit in R-2 commercialgrade building code requirements: $90,000–$156,000 on a 6-unit project. • Disaggregate the transportation impact fee. Replace the flat $3,607–$4,578/unit fee with a per-parking-space vehicle component and a per-bedroom multimodal component. Zero-parking projects save $1,600–$2,900/unit ($9,600–$17,400 on a 6- unit project). Revenue-neutral. Requires a nexus study ($150,000–$250,000, 14–18 months).
• Trade AHPP fees for affordability covenants. Tiered fee reductions (25%–100%) in exchange for recorded deed restrictions at income levels from 200% AMI down to 80% AMI. On a 6-unit mixed-tenure project, estimated savings of $90,000–$100,000.
Rental projects have a straightforward compliance pathway; ownership projects of 4+ units in multifamily zones require modification of on-site affordable unit requirements rather than fee reductions.
• Commission pre-approved cottage court plans. Standardized architect-designed plans for 6–7 unit R-3 cottage court configurations on R-1 and R-2 lots, with 30-day ministerial processing. Saves $8,000–$11,000/unit in soft costs ($48,000–$66,000 on a 6-unit project). No U.S. city has been sued for defects from pre-approved plans; California Government Code §818.4 and AB 253 provide statutory immunity. • Establish a rotating capital pool restricted to projects that maximize deedrestricted units. At higher construction costs ($475/SF), homeowner developers who choose to deed-restrict multiple rental units face a financing gap where restricted rental income cannot quite service the remaining mortgage. A city-funded revolving loan pool of $2–$4 million would bridge this gap, but only for projects that produce at least two deed-restricted units at ≤200% AMI or at least one at ≤150% AMI. The pool loan is limited to the “covenant gap”: the difference between the remaining mortgage and what restricted income can support. Projects that retain units at market rents need no public capital and should not receive it. The cost per deed-restricted unit ($80,000– $190,000, revolving) is comparable to or less than what the Trust Fund spends per deeply affordable unit ($250,000–$290,000, non-revolving), and produces units immediately.
A seventh intervention, statewide building code reform (AB 6), would extend R-3 treatment to stacked configurations and is not within local control. The six local interventions are designed to work without it. AB 6 would expand the range of building types that qualify for R-3 savings, benefiting institutional-scale production on large parcels more than homeowner-scale townhouse projects.
At 200% AMI, the homeowner pro forma pencils on both lot sizes at $350/SF construction costs and is feasible with a modest city capital pool ($37,000–$64,000 per project) at $475/SF. At 150% AMI, it pencils at $350/SF and at $475/SF on 7,500 SF lots with favorable Landres, Missing Middle Housing Realignment Plan
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5 sale prices. At 120% AMI, it requires supplemental measures at higher construction costs. On large institutional parcels (100,000 SF+) with fully depreciated land, the economics are fundamentally different: the volume of market-rate sales absorbs the cost of restricted units, and 80–120% AMI is achievable without public subsidy. A feasibility study should confirm these thresholds before adoption.
The Barriers
Six barriers prevent production:
1. The density cap. R2 zoning limits density to 1 unit per 2,000 SF (§9.08.030). A 6,000 SF lot gets 3 units by right. At 3 or 4 units, the homeowner pro forma does not pencil.
Six units is the minimum at which a homeowner can live in one, sell enough to cover construction costs, and rent one at an affordable level while generating positive cash flow.
2. The building code threshold. At 3+ dwelling units, the California Building Code reclassifies a project from R-3 (residential) to R-2 (commercial), adding $25,000– $30,000 per unit. Townhouses with separate ground-floor entries avoid this under the existing R-3 pathway, but the density cap prevents building enough of them.
3. The transportation fee structure. A flat per-unit fee charges the same amount regardless of whether the building includes parking. Buildings without parking generate 30–50% fewer vehicle trips.
4. The AHPP compliance pathway. Eighty-five percent of small-project developers pay the in-lieu fee rather than provide affordable units. The fee generates Trust Fund revenue; it does not maximize affordable housing production.
5. Soft costs and permitting timelines. Every project requires bespoke architectural design and full plan review, adding $8,000–$11,000/unit and months of processing time to small projects that could use standardized designs.
6. The financing gap created by affordability restrictions. At $475/SF, a homeowner developer who retains deed-restricted rental units faces a gap between the remaining mortgage and what restricted rental income can service. A permanent lender will not issue the loan. The gap does not exist for projects that retain units at market rents; it is created specifically by the affordability covenant. Public capital should bridge the gap that the public restriction creates, but only for projects that produce a significant number of deed-restricted units. Without that restriction, the pool is a profit subsidy.
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6 Policy Discussions and Preliminary Financial Estimates The proposals below are preliminary. The pro formas use a range of construction costs ($350–$475/SF), standard assumptions for operating expenses (35% of gross rent including management, maintenance, insurance, and property tax on improvements), and current Santa Monica sale prices ($1,100–$1,200/SF for new-construction cottages). The affordability analysis uses HUD FY2025 income limits for the LA-Long Beach-Glendale HMFA. All assumptions should be tested in the economic feasibility study before adoption. The purpose of presenting them here is to demonstrate that the proposed code and fee changes can produce viable projects under realistic conditions, to identify where they cannot, and to invite challenge on every number.
Intervention 1: A Local MMH Pathway on R-1 and R-2 Lots That Outcompetes State Law on Both Affordability and Profit
The state provides two pathways for small residential development. SB 9 allows up to 4 units on R-1 lots with owner-occupancy for lot splits. SB 1123 allows up to 10 units on multifamily lots with an average unit size of 1,750 SF. Neither requires an affordability covenant beyond the existing local inclusionary ordinance. SB 9 has generated two applications in Santa Monica. SB 1123’s emergency ordinance generated zero. Both pathways fail because they provide insufficient density to cover Santa Monica land costs (SB 9) or because they provide no development incentives beyond ministerial approval (SB 1123).
The local program proposed here is designed to be more profitable than either state pathway at sub-1,000 SF unit sizes, while requiring deed-restricted affordable units that neither state pathway produces. The mechanism is a package of development concessions (reduced setbacks, R-3 classification, fee reductions, pre-approved plans) available exclusively through the local pathway. A developer who uses SB 9 or SB 1123 builds under existing standards and receives none of them.
The program applies to both R-1 and R-2 lots of 6,000 SF or more. On R-1 lots, the building form must read as a large single-family home from the street: two-story detached cottages arranged around an interior courtyard, with the street-facing facade presenting a single unified elevation. Height, lot coverage, and setback standards maintain neighborhood-scale massing.
Four code changes make this possible, all within local authority.
Density. Amend §§9.07 and 9.08 to allow up to 1 dwelling unit per 1,000 SF of lot area for qualifying missing middle housing projects. This yields 6 units on a 6,000 SF lot and up to 7 on a 7,500 SF lot.
Setbacks. Reduce front setbacks from 20 feet to 15 feet and rear setbacks from 15 feet to 10 feet for qualifying MMH projects. Side setbacks remain at 4 feet. This gains 10 feet of Landres, Missing Middle Housing Realignment Plan
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7 buildable depth, which is the difference between 6 detached cottages fitting on a 6,000 SF lot and not fitting. SB 9 and SB 1123 provide no setback relief beyond the existing 4-foot sides.
Sliding FAR. Adopt a floor area ratio that rewards additional units over larger units, calibrated to lot size:
Lot Size Max Units Max Unit Size Max FAR
6,000–7,499 SF 6 850 SF 0.85
7,500 SF or more 7 1,100 SF 0.88
Portland’s Residential Infill Project uses this structure. The Santa Monica version tiers by lot size. On a 6,000 SF lot, six 850 SF cottages produce genuine 2-bedroom units; Portland’s program demonstrated the viability of the 850 SF 2-bedroom at scale, and the unit type has become a tested standard for missing middle production. On a 7,500 SF lot, the developer chooses: seven 850 SF 2-bedroom units (maximizing unit count and affordability leverage) or six 1,050–1,100 SF 3-bedroom units. The 850 SF option on 7,500 SF lots allows the city to require two deed-restricted units rather than one while the project still produces over $1.4 million in capital profit at $475/SF. SB 1123, by contrast, permits an average of 1,750 SF per unit, steering developers toward larger, more expensive units that serve households above 200% AMI.
Even the market-rate units diversify the housing stock. An 850 SF cottage at $1,100/SF sells for $935,000: 22% below the median Santa Monica condo ($1.2 million) and 38% below a new-construction townhouse ($1.5 million+). Estimated rent: $3,400–$3,800 per month, 10– 15% below new-construction 2-bedroom apartment rates ($3,850–$4,430). The unit type does not currently exist in Santa Monica’s housing market: a new-construction, fee-simple, ground-floor 2-bedroom with a private entry and courtyard, priced between an ADU and a condominium. The 1,100 SF cottages price comparably to existing condos. The sliding FAR steers developers toward the 850 SF size (more units, more profit, more affordability leverage), which means the market-rate units themselves add supply at a price point the current market does not reach.
R-1 form controls. On R-1 lots, the following additional standards apply to ensure the cottage court reads as a large single-family home:
• Maximum height: 28 feet (matching R-1 limit, below R-2’s 30 feet) • Maximum lot coverage: 40% (below R-1’s current 45–55%) • Street-facing facade: single unified elevation with one primary entry; individual cottage entries face the interior courtyard
• Materials and massing: consistent with the prevailing residential character of the block face
• No more than two visible rooflines from the street
• Courtyard not visible from the public right-of-way
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8 These controls are objective and ministerially reviewable. They ensure the cottage court is indistinguishable from a large single-family home when viewed from the street while providing six to seven independent dwelling units behind the facade.
Parking on R-1 lots. R-1 and R-2 lots within the AB 2097 transit radius (half-mile of a major transit stop) provide zero required parking. R-1 lots outside the transit radius provide 1 space per unit, accommodated within the site as a shared parking court accessed by a single driveway. On a 7,500 SF lot, seven surface spaces require approximately 2,100 SF including circulation; the courtyard is less generous but all seven cottages fit. On a 6,000 SF lot outside the transit radius, the parking court may compress the site plan to five units. The additional project cost of parking (construction plus the higher vehicle-infrastructure component of the disaggregated transportation fee) is approximately $40,000–$45,000 on a 7-unit project: a
1.7% reduction in profit that does not change the program’s advantage over SB 9 or SB 1123.
Building Form: The Detached Cottage Court
Each cottage is a separate building with one dwelling unit, classified as R-3 per building under CBC §310.4 regardless of how many buildings occupy the lot. San Diego’s Information Bulletin 125 (June 2025) reflects this framework. With California-mandated NFPA 13D sprinklers, detached cottages separated by 6 feet require no fire-rated walls. The R-3 pathway avoids $15,000–$26,000 per unit in R-2 commercial-grade requirements: $90,000– $156,000 on a 6-unit project.
On a 6,000 SF lot (42’ × 95’ buildable with proposed setbacks): three rows of 2 detached cottages at 14’ × 30’ per floor, two stories, 6’ separation between buildings. Total depth: 92’ against 95’. Six units at 840–850 SF each, with a central courtyard between rows. Lot coverage: approximately 42%.
On a 7,500 SF lot (42’ × 125’ buildable with proposed setbacks): at 850 SF per unit, seven cottages in a 3-2-2 or 4-3 row configuration. At 1,050 SF per unit, six cottages at 16’ × 33’ per floor with generous courtyard space.
Why the Concessions Must Be Exclusive to the MMH Pathway This is the most important design principle in the program, and the easiest to get wrong. If Santa Monica applies setback reductions, fee trades, or streamlined permitting to all residential projects, including SB 9 and SB 1123, every rational developer will take the concessions and build under state law. State law requires no affordability covenant. State law permits units up to 1,750 SF average. State law provides ministerial approval. The concessions would reduce costs and increase profit on projects that produce zero deedrestricted units. The city would have given away its only leverage and received nothing in return.
This is not a theoretical risk. It is what happens every time a city offers development incentives without tying them to a specific public benefit. Santa Monica’s own SB 1123 emergency ordinance illustrates the dynamic: the city adopted standards that went further Landres, Missing Middle Housing Realignment Plan
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9 than state law required (allowing up to 20 units, 1.5 FAR, 3 stories) and generated zero applications, because the standards were available to projects with no affordability obligation and no developer chose to build affordable housing voluntarily.
The concessions in this program (reduced setbacks, AHPP tiered fee trade, R-3 detached cottage classification, pre-approved plans, capital pool access) exist for one purpose: to make the affordability covenant more profitable for the developer than building without one.
They accomplish this by creating a development envelope that state law cannot match (10 additional feet of buildable depth, one to two additional units per lot, $200,000–$350,000 in fee and cost reductions). The envelope is the city’s asset. The covenant is the price of access.
Every future action that extends these concessions to SB 9 or SB 1123 projects, whether by ordinance amendment, resolution, or administrative interpretation, eliminates the program’s affordability production. The ordinance language must prohibit this explicitly, and the implementation guidelines must ensure that no subsequent administrative action applies MMH development standards to non-MMH projects.
The Three-Pathway Comparison (7,500 SF Lot, 850 SF Units, $400/SF, Land Already Owned)
SB 9 (R-1) SB 1123 (R-2) Local MMH (R-1 or R-2)
Maximum units 4 6 7
Owner-occupancy required Yes (3 years) No No
Setback relief None None 15’ front, 10’ rear
R-3 classification Per building Per building Per building AHPP Full Full Tiered trade (reduced)
Pre-approved plans No No Yes
Deed-restricted units 0 0–1 2
Pre-tax profit $679,000 $2,205,000 $2,565,000
Profit advantage over SB 1123 — +$360,000
Affordable units advantage — +1 to +2
The local program is more profitable because the setback reduction creates capacity for a seventh unit whose revenue ($935,000) exceeds its construction cost ($594,000) plus the covenant discount on the second restricted unit ($110,000). The developer accepts the covenant not out of civic virtue but because the local pathway, with the covenant, is the better deal. If AB 6 advances and extends R-3 treatment to stacked configurations, the profit advantage widens to approximately $725,000 because stacking doubles the unit yield from each additional building footprint that the setback reduction creates.
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10 Draft Ordinance Language
Amend SMMC §§9.07 and 9.08 to add:
Section 9.07.030(d) / 9.08.030(d). Missing Middle Housing Density and Development Standards.
(1) Notwithstanding subsection (a), a multiple-unit project on a lot of 6,000 square feet or more in the R1 or R2 district may contain up to 1 dwelling unit per 1,000 square feet of lot area, provided that:
(A) The project meets the definition of Missing Middle Housing adopted by resolution of the City Council;
(B) All dwelling units are constructed as detached structures classified under R-3 occupancy of the California Building Code, with no more than one dwelling unit per building;
(C) At least one dwelling unit is subject to an affordability covenant recorded pursuant to Section 9.64.050(f), restricting maximum housing cost to a household income level at or below 200% of Area Median Income. On lots of 7,500 square feet or more where the project contains seven or more dwelling units with a maximum unit floor area of 850 square feet, at least two dwelling units shall be subject to such covenant;
(D) Maximum unit size and floor area ratio comply with the following schedule:
Lot area Maximum dwelling units Maximum unit floor area Maximum FAR 6,000–7,499 SF 6 850 SF 0.85
7,500 SF or more 7 1,100 SF 0.88
(E) Front setback: 15 feet. Rear setback: 10 feet. Side setbacks per subsection (a); (F) In the R1 district, the following additional standards apply: (i) Maximum height: 28 feet; (ii) Maximum lot coverage: 40%; (iii) The street-facing facade shall present a single unified elevation with one primary entry; individual dwelling unit entries shall face the interior of the lot; (iv) No more than two rooflines shall be visible from the public right-of-way; (v) Exterior materials and massing shall be consistent with the prevailing residential character of the block face.
(2) The additional density authorized by this subsection is not cumulative with density bonuses granted under Government Code Section 65915.
(3) The development standards in this subsection, including but not limited to reduced setbacks, increased density, and fee reductions under Section 9.64.050(f), apply exclusively to projects qualifying under this subsection. These standards shall not be applied, by ordinance, resolution, administrative interpretation, or condition of approval, to projects developed under Government Code §65852.21 (SB 9), §66499.40 (SB 684/SB 1123), or any other state-mandated ministerial approval Landres, Missing Middle Housing Realignment Plan
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11 pathway. Projects developed under state law shall comply with the development standards otherwise applicable in the R1 or R2 district.
The affordability covenant is the public consideration for the additional density. The development concessions (setback reduction, AHPP tiered trade, R-3 classification, preapproved plans) are available exclusively through this pathway. They are not available to projects developed under Government Code §65852.21 (SB 9) or §66499.40 (SB 684/SB 1123). A developer who builds under state law receives none of the local concessions. A developer who builds under this section receives all of them, in exchange for the covenant.
Intervention 2: Disaggregate the Transportation Impact Fee Santa Monica charges a flat transportation impact fee of $3,607–$4,578 per multifamily unit regardless of whether the building includes parking. Buildings without parking generate 30– 50% fewer vehicle trips (Millard-Ball 2022; Chatman 2013; Caltrans 2018). AB 2097 already has eliminated parking minimums for most of Santa Monica. The fee structure has not caught up.
The Mitigation Fee Act requires a “reasonable relationship” between a fee and the development’s actual impact. A disaggregated fee that charges per parking space for vehicle infrastructure and per bedroom for multimodal infrastructure provides a stronger nexus than the current flat rate. Post-Sheetz v. Cnty. of El Dorado, Cal., 601 U.S. 267, 144 S. Ct. 893 (2024), ABAG/MTC’s September 2025 guidance recommends “more fine-grained analysis.” Draft Resolution Language
Amend SMMC Chapter 9.66:
Section 9.66.040. Fee Calculation.
(a) The Transportation Impact Fee for residential development shall consist of two components:
(1) Vehicle Infrastructure Component. $[amount per nexus study] per parking space provided, funding roadway capacity, traffic signals, pavement maintenance, and vehicle-related capital improvements.
(2) Multimodal Infrastructure Component. $[amount per nexus study] per bedroom, funding transit, bicycle, and pedestrian capital improvements. (b) “Parking space” means any off-street space designated for parking a motor vehicle, including garage, carport, surface, and mechanical lift spaces. Electric vehicle charging spaces are parking spaces.
(c) Fee amounts shall be established by Council resolution following a nexus study meeting Government Code Section 66001 requirements.
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12 Illustrative Revenue-Neutral Rates
Component Rate Basis
Vehicle infrastructure approximately $2,812/parking
space
55% of revenue ÷ 80 spaces
Multimodal
infrastructure
approximately $1,228/bedroom 45% of revenue ÷ 150
bedrooms
Impact on a 6-Unit Missing Middle Project
Project Spaces BR
Current
Fee Proposed
Per-Unit
Savings
6-unit cottage court, 0 parking,
2BR
0 12 $24,558 $14,736 $1,637
6-unit cottage court, 1 space/unit,
2BR
6 12 $24,558 $31,608 ($1,175)
Electric vehicles generate identical VMT, identical congestion, and greater road wear than comparable ICE vehicles. The vehicle infrastructure component should apply equally per space regardless of fuel type.
Nexus Study
Five phases: (1) parking supply inventory and vehicle trip counts across parking ratios; (2) multivariate regression calibrated against Caltrans 2018, Millard-Ball 2022, and the Santa Monica Travel Demand Model; (3) vehicle-CIP/multimodal-CIP cost allocation; (4) financial feasibility analysis per AB 602; (5) documentation, public hearing, adoption. Budget:
$150,000–$250,000. Timeline: 14–18 months. Fee effective 60 days after adoption; 120-day judicial challenge period.
Intervention 3: Trade AHPP Fees for Affordability Covenants The AHPP applies to every multifamily project of 2 or more units (§9.64.030(A)), with no small-project exemption. Rental projects of any size and ownership projects of 2–3 units may pay the in-lieu fee ($45.10/SF for apartments, $52.69/SF for condominiums). Ownership projects of 4 or more units in multifamily zones may not: they must provide affordable units on-site (20%) or off-site (at a 25% penalty).
For rental projects, a tiered fee reduction in exchange for recorded affordability covenants would produce deed-restricted units that the current in-lieu fee does not. A 4-unit rental project currently generates $153,340 for the Housing Trust Fund, which (leveraged at $250,000–$290,000 in local subsidy per unit) might eventually produce half a deeply affordable unit. The same project restricted at 150% AMI with a 50% fee reduction would produce four deed-restricted units immediately, retaining $76,670 in fee revenue.
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13 Under current code, ownership projects of 4 or more units in multifamily zones cannot pay the in-lieu fee; they must provide affordable units on-site. This is the most complex compliance mechanism directed at the least sophisticated developers. A homeowner building six cottages and selling four does not have the legal infrastructure to administer on-site affordable units across decades. The ordinance should extend the in-lieu fee option to ownership projects of 7 or fewer units, and then apply the tiered trade: reduced fees in exchange for affordability covenants, with a full waiver for projects that deed-restrict at least one unit at or below 80% AMI. This produces more naturally occurring affordable housing than the current on-site requirement, because the current requirement is attached to projects that do not pencil and therefore do not get built. The fee waiver lowers total project cost by $90,000–$100,000 on a 6-unit project, closing a meaningful share of the gap at higher construction costs. The Trust Fund revenue loss is minimal, because these 4–7 unit ownership projects were not paying the fee under current code.
The Trust Fund remains essential for the 30–80% AMI band. The tiered structure channels different projects to different affordability levels rather than routing everything through a fee that produces revenue and forgoes housing.
Proposition R (1990) does not prescribe a specific fee amount, compliance mechanism, or income tier. A tiered fee structure requires no amendment to Proposition R and no voter approval.
Draft Ordinance Language
Amend SMMC §9.64.050 to add:
Section 9.64.050(f). Fee Reduction for Deed-Restricted Units. (1) A project recording an affordability covenant meeting subsection (3) requirements shall receive a fee reduction:
Maximum household income Fee reduction
≤80% AMI 100% (full waiver)
81–120% AMI 75%
121–150% AMI 50%
151–200% AMI 25%
(2) The reduction applies to restricted unit(s) only. Market-rate units pay the full fee. (3) Qualifying covenants shall: (A) be recorded in first lien position before certificate of occupancy; (B) run with the land for 55 years (rental) or 45 years (ownership), resetting at each transfer; (C) restrict maximum housing cost to 30% of gross income at the applicable AMI per HUD limits for the LA-Long Beach-Glendale HMFA, adjusted for household size by bedroom count; (D) require annual income certification of rental occupants and resale price certification of ownership transfers, administered by the Housing Division; (E) grant the City a right of first refusal for ownership units at the restricted resale price.
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14 (4) Thresholds shall be adjusted by Council resolution at least every three years, based on current HCD State Income Limits and an economic feasibility analysis.
Rental and Ownership: Different Implementation Challenges Rental deed restrictions are straightforward to administer. The Housing Division already monitors 55-year regulatory agreements, conducts annual recertification, and charges $190.78/year per unit. Rental covenants should account for the majority of early uptake.
Ownership deed restrictions are more complex. Resale price formulas must be calibrated and administered across decades. The City’s right of first refusal must be funded or it will not be exercised. For-sale condominium projects in California face construction defect liability under SB 800 (Civil Code §895 et seq.), adding $8,000–$18,000 per unit. The preferred ownership structure is fee-simple small-lot subdivision, which substantially reduces CDL exposure. The feasibility study should model both tenure types.
Intervention 4: Pre-Approved Plans and Technical Assistance The program serves professional developers, institutional landowners, Prop 19 inheritors, and homeowner-occupants. All of them face the same soft-cost barrier: bespoke architectural design and full plan review add $8,000–$11,000 per unit and months of processing time to projects that could use standardized designs. Pre-approved plans and technical assistance reduce this barrier for every developer type.
Pre-Approved Cottage Court Plans
Santa Monica should commission 3–5 architect-designed plans for 6–7 unit R-3 cottage court configurations on standard R-1 and R-2 lots. All R-3 qualified. Posted publicly at no cost.
Thirty-day ministerial building permit processing.
No U.S. city has been sued or found liable for defects from pre-approved plans. California Government Code §818.4 immunizes permit decisions, §818.6 immunizes inspections, and AB 253 (signed October 2025) adds explicit statutory immunity for residential permits of 1–10 units reviewed by third-party professionals. Plans should be owned by the architect (not the city) to keep professional liability with the licensed design professional, with property owners required to engage licensed engineers for site-specific adaptation. The Lakewood dual holdharmless model provides a tested template.
Documented savings: Bryan TX, $8,000+/unit. Kalamazoo, approximately $11,000/unit.
Technical Assistance and Community Land Trust Pathway
Santa Monica could work with organizations such as the Incremental Development Alliance, which trains non-professional developers to build small multifamily projects. Atlanta selected 15 resident-developers; 5 proceeded to construction. The city should also issue an RFQ for CLT partnership, modeled on the Irvine CLT (nearly 500 units from city land donations and Landres, Missing Middle Housing Realignment Plan
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15 low-interest loans). A mission-motivated owner could donate land to a CLT for a charitable deduction at fair market value ($3 million or more on a standard R2 lot) while the CLT develops permanently affordable housing.
Intervention 5: Building Code Reform (Legislative)
The California Building Code treats a triplex identically to a 200-unit apartment complex. At 3+ dwelling units, the classification jumps from R-3 to R-2, triggering $25,000–$30,000/unit in commercial-grade requirements. For detached cottages (which this memo proposes as the primary building form), R-3 classification is already available per building. For stacked configurations, the barrier remains.
Santa Monica cannot change the R-2/R-3 threshold locally (H&S Code §17958). AB 6 (Ward, 2025–26) would require HCD to study allowing 3–10 unit buildings under the CRC. It passed the Assembly 79-0 and was held in Senate Appropriations in August 2025. Santa Monica should send a Council support letter, join the California YIMBY/CNU coalition, request inclusion as an HCD working group case study (citing the 8,895-unit RHNA obligation), and advocate for a California Middle-Income Housing Tax Credit modeled on Colorado’s MIHTC.
What Santa Monica Can Do Without AB 6, and What AB 6 Adds The six local interventions are designed to work without AB 6. The R-3 detached cottage pathway is available under current California code. For 6-unit projects on 6,000–7,500 SF lots, the cottage court form fits well.
The constraint without AB 6 is building form. Stacked flats, garden apartments, and 2-over-2 configurations remain classified as R-2 at 3+ units. For the homeowner-scale cottage court, this is not a limitation. For larger projects (8, 10, 20+ units) on institutional parcels, the townhouse-only or cottage-only constraint limits site utilization: stacked configurations would produce more units per acre.
AB 6, if it advances, would extend R-3 treatment to all small multiplexes of 3–10 units regardless of configuration. The per-unit savings are the same; the difference is the range of building types and lot configurations that qualify. The city should advocate for AB 6 while building a program that does not depend on it.
Preliminary Pro Formas: Who Builds and What They Face
The program serves three constituencies, each with different economics and different motivations.
Professional developers with existing land. A professional developer or small builder who already holds a lot (through long-term ownership, family transfer, or below-market acquisition) is the primary production pathway. This developer does not live on the lot, does not need Landres, Missing Middle Housing Realignment Plan
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16 temporary housing, and does not face owner-occupancy constraints. The developer builds, sells, and moves on. At sub-1,000 SF unit sizes, the local MMH pathway is more profitable than SB 1123 because the setback reduction creates capacity for an additional unit whose revenue exceeds the cost of the affordability covenant. The developer accepts the covenant because the local pathway is the better deal.
Institutional and large-lot landowners. A congregation, nonprofit, hospital, city parking lot, or private holder with 20,000–200,000 SF of fully depreciated land is the production engine for deeper affordability. The volume of market-rate sales absorbs the cost of deed-restricted units, and 80–120% AMI is achievable without public subsidy. This pathway is detailed in the Large-Lot Economics section below.
Proposition 19 inheritors. An heir who inherits an R-1 or R-2 lot receives a stepped-up basis and faces Prop 19 reassessment pressure. The lot-split structure (sell the house parcel with the §121 exclusion, develop cottages on the retained parcel) is the only homeowner model that can match or exceed the passive alternative of selling. This is a real but narrow constituency.
Homeowner-occupants. A homeowner who demolishes their house, builds cottages, and lives in one faces a financial sacrifice relative to selling. At every construction cost, the homeowner who simply sells and invests the proceeds ends up with more wealth. The sacrifice is modest at $350/SF and steep above $425/SF. The homeowner-occupant model is viable for owners with other retirement assets who value the housing outcome; it is not a general production strategy. An ADU on the existing lot is a cheaper and lower-risk path to the same civic outcome.
The pro formas below present construction costs excluding land (which is equity at risk for existing owners, not a cash outlay). Temporary housing ($216,000 for 24 months at $9,000/month) applies only to homeowner-occupants who must vacate during construction; professional developers and inheritors using the lot-split model do not incur this cost.
Construction costs for R-3 residential in the Los Angeles metro range from $350/SF (competitive bid, standardized plans, experienced builder) to $475/SF (custom design, prevailing wage, complex site). The feasibility study should index to the California Construction Cost Index at the time of adoption.
Development Budget: 6 × 850 SF Cottages on a 6,000 SF Lot Line Item Low ($350/SF) High ($475/SF)
Hard construction: 6 × 850 SF $1,785,000 $2,422,500
Soft costs (15%) $267,750 $363,375
Demo and site prep $55,000 $55,000
AHPP (tiered trade, 6 units) $100,000 $100,000
Transportation: 0 spaces, 12 BR × $1,228 $14,736 $14,736 Parks: 6 × $8,876 $53,256 $53,256
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17 Line Item Low ($350/SF) High ($475/SF)
Other permit fees $40,000 $40,000
Utility connections/metering (6 units) $60,000 $60,000
Landscape $25,000 $25,000
Construction loan interest (24 mo, 7.5%) $180,000 $240,000 Loan origination (1.5 points) $18,000 $24,000
Builder’s risk insurance $18,000 $22,000
Property tax during hold $20,000 $20,000
Lease-up/vacancy reserve $15,000 $15,000
Contingency (15%) $415,000 $535,000
Total (professional developer) $3,067,000 $3,990,000
Add: temporary housing (homeowner-occupant only) $216,000 $216,000 For R-1 lots outside the AB 2097 transit radius, add approximately $40,000–$45,000 for 6 surface parking spaces and the higher vehicle-infrastructure fee component.
Development Budget: 7,500 SF Lot Options
The 7,500 SF lot offers a choice that the 6,000 SF lot does not. At 1,050 SF per unit (6 units), it produces larger 3-bedroom cottages. At 850 SF per unit (7 units), it produces more units, more sale revenue, and substantially more affordability leverage.
Option A: 6 × 1,050 SF (3BR)
Line Item
Low
($350/SF)
High
($475/SF)
Hard construction: 6 × 1,050 SF $2,205,000 $2,992,500
Soft costs (15%) $330,750 $448,875
Demo, site, AHPP, fees, utilities, landscape $588,000 $588,000 Carrying costs (loan interest, origination, insurance, tax, reserves)
$307,500 $400,000
Contingency (15%) $497,000 $641,000
Total (professional developer) $3,695,000 $4,837,000
Add: temporary housing (homeowner-occupant only) $216,000 $216,000 Option B: 7 × 850 SF (maximum affordability leverage)
Line Item Low ($350/SF) High ($475/SF)
Hard construction: 7 × 850 SF $2,082,500 $2,826,250
Soft costs (15%) $312,375 $423,938
Demo, site, AHPP, fees, utilities, landscape $616,000 $616,000 Landres, Missing Middle Housing Realignment Plan
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18 Line Item Low ($350/SF) High ($475/SF)
Carrying costs $340,000 $437,000
Contingency (15%) $478,000 $618,000
Total (professional developer) $3,565,000 $4,640,000
Add: temporary housing (homeowner-occupant only) $216,000 $216,000 For R-1 lots outside the transit radius, add approximately $40,000–$45,000 for 7 surface parking spaces and the higher vehicle-infrastructure fee.
Scenarios That Pencil
All scenarios below require the MMH affordability covenant (at least one deed-restricted unit on 6,000 SF lots; at least two on 7,500 SF+ lots building 850 SF units). Sale prices at $1,100/SF market, $825,000 per covenanted unit. Retained rental units at 200% AMI produce $31,600 NOI per unit. Costs shown are for a professional developer (no temporary housing). 6,000 SF Lot (6 × 850 SF, market unit sale price $935,000) Scenario At $350/SF ($3.1M cost) At $475/SF ($4.0M cost) Sell 5 market + 1
covenanted
Capital profit: +$2,433,000 Capital profit: +$1,510,000 Sell 4 market + 1
covenant, rent 1
+$498,000 cash; NOI
$31,600/yr
NOI $31,600/yr, DS $17,200/yr,
Net +$14,400/yr
Sell 3, rent 3 (2
restricted)
NOI $94,800/yr, DS $12,600/yr,
Net +$82,200/yr
See capital pool table
7,500 SF Lot, Option A (6 × 1,050 SF, market unit sale price $1,155,000) Scenario At $350/SF ($3.7M cost) At $475/SF ($4.8M cost) Sell 5 market + 1
covenanted
Capital profit:
+$2,855,000
Capital profit: +$1,713,000
Sell 4 market + 1
covenant, rent 1
+$700,000 cash; NOI
$31,600/yr
NOI $31,600/yr, DS $12,700/yr, Net
+$18,900/yr
7,500 SF Lot, Option B (7 × 850 SF, market unit sale price $935,000) Scenario At $350/SF ($3.6M cost) At $475/SF ($4.6M cost) Sell 5 market + 2
covenanted
Capital profit:
+$2,760,000
Capital profit: +$1,685,000
Sell 4 + 1 covenant, rent 2 (1
restricted)
+$910,000 cash; NOI
$63,200/yr
NOI $63,200/yr, DS $5,500/yr,
Net +$57,700/yr
The 7-unit / 850 SF option on 7,500 SF lots is the strongest affordability lever in this program.
The city requires two deed-restricted units, and the project still produces $1.69 million in Landres, Missing Middle Housing Realignment Plan
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19 capital profit at $475/SF. Every scenario pencils at both cost points with no capital pool needed. A developer who wants to maximize return and minimize covenant exposure builds 7 × 850 SF and sells all seven (five market plus two covenanted): $1.69 million at the high end of the cost range, two deed-restricted units, no ongoing management responsibility.
Who Does Not Pencil Under This Program
A professional developer who acquires a teardown at current market prices ($3M+ for a 6,000 SF lot) cannot produce affordable housing under any pathway, including this one. The land cost consumes all margin. The same developer building under SB 1123 with larger units ($1,200+ SF) at higher per-unit sale prices can produce market-rate housing profitably on acquired land. The local MMH program does not serve that developer; SB 1123 does, and the city collects the full AHPP in-lieu fee on those projects.
The local program serves developers with existing land: long-term owners, inheritors, institutional holders, and CLTs. The economics work because the land is equity at risk (not a cash outlay), the Prop 13 basis is low, and the construction cost per unit is reduced by R-3 classification, pre-approved plans, and the AHPP tiered trade. The program is designed for these developers, and the three-pathway comparison holds for them.
The Land Basis Advantage
The pro formas exclude land cost because land is equity at risk for existing owners, not a cash outlay. This distinction is what makes the program work. A professional developer acquiring a teardown at $3 million faces a total project cost of $6–$7 million against $5.5– $6.3 million in revenue: a loss on every configuration. The same project on land already owned, with a Prop 13 basis reflecting a 1990s purchase, produces $1.5–$2.8 million in capital profit. The entire affordability production of this program rests on the gap between assessed value and market value for long-term landowners. The feasibility study should quantify this gap across the R-1 and R-2 parcel inventory by cross-referencing LA County Assessor data (last sale date, assessed value, title type) with the city’s GIS zoning layer.
Ongoing rental management at this scale costs 8–10% of gross rent for professional property management, plus 5–10% for maintenance reserves. The NOI figures above reflect total operating expenses of 30–35% of gross rent.
A Rotating Capital Pool
When a local homeowner developer retains deed-restricted rental units at $475/SF construction costs, the construction-to-permanent loan conversion can create a financing gap. A permanent lender will issue a mortgage on the rental units only if the net operating income covers the debt service. At $475/SF with $1,100/SF sale prices, the remaining mortgage on deed-restricted rental units may exceed what restricted rental income can support. The permanent lender declines. The project stalls at the finish line, not because the long-term economics are unviable, but because no standard lending product bridges the gap between construction cost and stabilized restricted income.
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20 The pool should finance only projects where the financing gap is a direct consequence of the affordability covenant, not projects where the gap exists because the developer retained too many units at market. A developer who sells four and rents two at market rents does not need public capital; the market rents service the debt. A developer who sells three and rents three with deed restrictions at 200% AMI, or who sells four and rents two at 150% AMI, faces a gap that exists because the covenant reduces income below what the lender requires. That is the gap the city should bridge. Without this restriction, the pool subsidizes private profit rather than producing affordable housing.
Eligibility criteria for pool loans:
• The project must produce at least two deed-restricted units (rental or for-sale) at or below 200% AMI, or at least one unit at or below 150% AMI. • The pool loan amount is limited to the difference between the remaining mortgage and the maximum mortgage supportable by restricted rental income (the “covenant gap”), not the full remaining mortgage.
• The loan is secured by the deed-restricted units and the affordability covenant runs with the land for the full covenant term.
Scenario Lot
Covenant
Gap
Pool
Loan Result With Pool
Sell 3, rent 3 restricted at
200% AMI, $475/SF
6,000
SF
$165,000 $165,000 Breakeven; 3 deedrestricted units
Sell 3, rent 3 restricted at
200% AMI, $475/SF
7,500
SF
$358,000 $358,000 Breakeven; 3 deedrestricted units
Sell 4, rent 2 restricted at
150% AMI, $475/SF
6,000
SF
$190,000 $190,000 Breakeven; 2 deedrestricted units
Sell 4, rent 2 restricted at
150% AMI, $475/SF
7,500
SF
$160,000 $160,000 Breakeven; 2 deedrestricted units
The mechanism: the city lends the covenant gap amount as a subordinate loan secured by the deed-restricted rental units. The loan is interest-only at 1–2% for the first ten years, then converts to a fully amortizing instrument (or deferred-payment until refinancing, sale, or covenant expiration). The city’s security is a deed of trust in second position plus the affordability covenant. The capital rotates as loans are repaid.
The city should fund this pool because the gap is a direct consequence of city-imposed costs and city-required affordability restrictions. The AHPP fee, the transportation impact fee, the parks fee, and the permitting timeline together add $200,000–$250,000 to the cost of a 6-unit project. The density cap and setback standards (which this memo proposes to amend) determine how many sale units are available to cover construction costs. The affordability covenant (which is the public consideration for the additional density) is what reduces the rental income below the lender’s threshold. The city created every condition that produces the financing gap; the city should bridge it, particularly when the cost per deed-restricted unit ($80,000–$190,000, revolving) is comparable to or less than what the Trust Fund spends per Landres, Missing Middle Housing Realignment Plan
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21 deeply affordable unit ($250,000–$290,000, non-revolving) and produces units immediately rather than years later.
Three funding sources are realistic for seeding the pool: a dedicated allocation (10–15%) from ongoing AHPP in-lieu fee revenue, capitalized over two to three years; a one-time general fund allocation or set-aside from an existing housing revenue source; or state revolving loan programs such as CalHome. The feasibility study should model the pool size, loan terms, repayment assumptions, and capitalization schedule against the projected volume of MMH projects in the first five years.
For scenarios that pencil without the pool (sell-all-with-covenant, sell-4/rent-2 at market, and all 7-unit Option B scenarios on 7,500 SF lots), no public capital is needed. The pool exists for the narrower set of projects where a homeowner developer chooses to maximize deedrestricted units and needs the city to bridge the gap that the restrictions create.
The Opportunity Cost
For a developer with existing land, the relevant comparison is not the passive return on invested capital. It is the return from building under SB 1123 with no covenant. The threepathway comparison shows that the local MMH program produces $360,000 more profit than SB 1123 at sub-1,000 SF unit sizes. The developer who uses the local pathway is not sacrificing return for affordability; the developer is choosing the more profitable pathway and accepting the covenant as the price of access.
For a homeowner-occupant who demolishes the house and lives in one cottage, the comparison is different: selling the house and investing the proceeds at 5% produces $88,000–$99,000/year in passive income with no construction risk. The development scenario at $350/SF produces $1.5 million in capital profit on the sell-all-with-covenant structure (buy a condo, build 6 cottages on the lot, sell all 6 with one covenant). At $475/SF, the profit is approximately $510,000. The sell-all-with-covenant model is financially rational at both cost points, though the passive alternative produces more annual income. A homeowner who intends to occupy one cottage and retain rental units faces a steeper trade-off: $20,000– $50,000/year in forgone income relative to selling. That model serves owners with other retirement assets; it is not a general production strategy.
Parcel Inventory and Projected Unit Yield
Santa Monica has approximately 2,768 R-2 parcels and over 6,000 R-1 parcels across four neighborhoods (North of Montana, North of Wilshire, Sunset Park, and Expo/Pico). Standard subdivision lots are 50’ × 120’ (6,000 SF); North of Montana and portions of North of Wilshire have wider, deeper lots in the 7,500–15,000 SF range. The precise distribution by lot size requires cross-referencing LA County Assessor parcel data (lot dimensions, last sale date, assessed value, title type) with the city’s GIS zoning layer. Both datasets are publicly available. The feasibility study must produce this analysis parcel by parcel. The estimates below use neighborhood-typical lot patterns and should be treated as a framework, not a count.
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22 Estimated parcel distribution by lot size:
Zone
Total
Parcels
Est. 6,000–
7,499 SF
Est. 7,500+
SF
Sub-6,000 SF
(ineligible)
R-2 2,768 ~1,245 (45%) ~830 (30%) ~693 (25%)
R-1 ~6,200 ~2,790 (45%) ~2,480
(40%)
~930 (15%)
Combined eligible
(6,000+ SF)
~4,035 ~3,310
Total eligible universe: approximately 7,345 parcels across both zones.
The “likely to develop” filter. Not every eligible parcel will develop. Four conditions must converge: long-term ownership with a low Proposition 13 basis (so that land is equity at risk, not a cash outlay that consumes all margin), physical suitability (regular lot shape, adequate street access, no steep grade), owner willingness and access to construction financing, and a developer or builder willing to execute. LA County turnover data suggests 55–65% of residential parcels in Santa Monica have not changed hands in 20 or more years. Of those, perhaps 15–25% would seriously consider development under a well-incentivized program.
Portland’s Residential Infill Project permitted approximately 1,400 middle housing units in three years across roughly 100,000 eligible single-family parcels: 0.5% annual uptake.
Sacramento’s SB 9 saw 32 applications in four months. Santa Monica’s SB 9 produced two.
The local program is substantially more attractive than SB 9 (more profitable, no owneroccupancy lock-in, pre-approved plans, fee reductions), so uptake should exceed SB 9’s near-zero rate. Portland’s rate is the upper bound for R-2 lots, where multifamily development is already familiar. R-1 lots in North of Montana present the widest uncertainty: the largest lots and highest potential yield per parcel, combined with the strongest political resistance and least familiarity with infill development.
Conservative five-year uptake by neighborhood:
Area
Primary
Zone
Est. Eligible
Parcels
Annual
Uptake
5-Year Lots
Developed
Sunset Park / Pico / Ocean
Park
R-1 + R-2 ~2,800 0.8–1.0% 110–140
North of Wilshire R-1 + R-2 ~1,800 0.5–0.8% 45–70
North of Montana R-1 ~2,200 0.2–0.4% 20–45
Total small-lot (R-1 + R-2) ~6,800 175–255
Institutional / very large
parcels (20,000+ SF)
Mixed ~50–80 — 5–10
The institutional parcels (congregations, nonprofits, city-owned parking lots, SMMUSD sites, UCLA-owned lots) are separately analyzed in the Large-Lot Economics section. Their unit Landres, Missing Middle Housing Realignment Plan
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23 yield is 30–100 units per parcel; a handful of institutional projects would produce as many units as dozens of small-lot projects.
Projected unit yield (five-year, conservative):
Configuration
Lots
Developed
Units per
Lot
Total
Units
Deed-Restricted at
200% AMI
6,000 SF lots (~55% of
small-lot)
95–140 6 570–840 95–140
7,500+ SF lots (~45% of
small-lot)
80–115 7 560–805 160–230
Small-lot subtotal 175–255 1,130–
1,645
255–370
Institutional / very large
parcels
5–10 30–100 150–600 30–150 (at 80–150%
AMI)
Total 180–265 1,280–
2,245
285–520
The small-lot program produces 255–370 deed-restricted units over five years at 200% AMI:
workforce households earning up to $170,560. The institutional pathway adds 30–150 units at deeper affordability (80–150% AMI) on parcels where the volume of market-rate sales absorbs the cost. Combined, the program produces 285–520 deed-restricted units in five years with no general fund expenditure, no tax-increment financing, and (for the sell-all-withcovenant structure) no ongoing public subsidy.
For context: the Housing Trust Fund spends $250,000–$290,000 per deeply affordable unit, non-revolving. The small-lot MMH program produces deed-restricted units at a public cost of zero (sell-all-with-covenant) to $80,000–$190,000 per unit (capital pool scenarios, revolving).
Even the capital pool scenarios cost less per unit than the Trust Fund, the capital rotates, and the units are produced immediately.
The program pencils at 200%, 150%, and 120% AMI. The constraint is not viability; it is uptake. The next section addresses why the initial covenant level should be 200% and not deeper.
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24 The Affordability Target: A Policy Choice, Not an Economic Constraint The ratio of market-rate to restricted units is 5:1 (on 6,000 SF lots) or 5:2 (on 7,500 SF lots building 850 SF units). The market-rate revenue absorbs the covenant discount at every AMI level:
AMI
Level
Covenant
Discount per
Unit
Revenue Loss per
Project (7,500 SF, 2
restricted)
Developer Profit
at $475/SF
Profit Advantage
over SB 1123
200% $110,000 $220,000 $1,685,000 +$360,000
150% $315,000 $630,000 $1,275,000 ~$0
120% $440,000 $880,000 $1,025,000 –$300,000
At 200% AMI, the covenant restricts who can purchase the unit (a household earning $170,560 or less) rather than reducing the sale price dramatically. A two-firefighter household ($176,800 combined) qualifies. A teacher married to a teacher ($132,500) does not quite reach 200% but does reach 150%. A police officer married to a nurse ($165,000) qualifies.
The covenant captures the workforce households this program is designed to serve: people who earn enough to live with dignity and not enough to compete for market-rate housing in Santa Monica.
At 200% AMI, the local pathway’s profit advantage over SB 1123 is $360,000. The developer takes the covenant because the local pathway is the better deal. No tax-increment financing is needed. No public capital is required for the sell-all-with-covenant structure. The program is self-sustaining: the concessions generate the value; the covenant captures a share of it; the developer keeps the rest.
At 150% AMI, the profit advantage over SB 1123 narrows to approximately $0–$50,000. The concessions barely offset the deeper covenant discount. Some developers will choose SB 1123 instead. Uptake declines. Fewer deed-restricted units are produced.
At 120% AMI, the local pathway is less profitable than SB 1123 on some configurations. The concessions no longer offset the covenant, and the developer must accept a net cost to participate. Uptake drops to near zero. The program becomes what SB 9 already is: a pathway that exists on paper and produces nothing. That is performative affordability.
The policy choice is between pushing to 120% and risking the same non-result that SB 9 produced (two applications, zero affordable units), or setting the covenant at 200% and producing 232–370 deed-restricted units over five years with no public subsidy, no taxincrement financing, and no risk to the general fund.
This memo recommends 200% AMI as the initial covenant level.
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25 The threshold should not be lowered to 150% unless external economic conditions relax enough that the deeper covenant produces at least the same profit advantage over SB 1123 that the 200% covenant produces under current conditions. The relevant external variables are construction costs (indexed to the California Construction Cost Index or an equivalent local benchmark), construction loan interest rates, and new-construction sale prices per square foot. At current conditions ($400–$475/SF construction, 7.5% construction loan rates, $1,100/SF sale prices), the 200% AMI covenant generates a $360,000 profit advantage over SB 1123. The 150% AMI covenant generates a $0–$50,000 advantage: not enough to reliably steer developers toward the local pathway.
The threshold may be lowered to 150% AMI by Council resolution only when the annual recalibration (conducted as part of the economic feasibility study or its successor monitoring report) demonstrates that:
1. The local MMH pathway at 150% AMI produces a profit advantage over SB 1123 of at least $250,000 on a 7,500 SF lot (the minimum margin that reliably incentivizes the covenant over the state pathway);
2. The construction cost index has declined, or sale prices have risen, or interest rates have fallen, sufficiently to account for the difference; and
3. No change in state law (including amendments to SB 1123, SB 9, or the density bonus) has narrowed or eliminated the concessions advantage that makes the local pathway competitive.
If any of these conditions is not met, the 200% AMI threshold remains. The recalibration is annual and the burden of proof is on the city to demonstrate that the deeper covenant will not destroy uptake. A covenant level that produces zero projects is not an affordability policy; it is a performative gesture. The city’s goal is deed-restricted units, not a lower number on a resolution that no one uses.
At $350/SF construction costs, the sell-4/rent-1 structure produces a free-and-clear rental unit on both lot sizes. The tables below show net annual income from that unit at each affordability level.
AMI Level Monthly Rent Annual NOI 6,000 SF Lot 7,500 SF Lot 200% ($170,560, couple) $4,264 $31,600 +$31,600/yr +$31,600/yr 150% ($127,920, couple) $3,199 $23,700 +$23,700/yr +$23,700/yr 120% ($102,300, couple) $2,558 $19,000 +$19,000/yr +$19,000/yr At $350/SF, all three AMI levels pencil because there is no mortgage on the rental unit. The 200% AMI rent of $4,264/month falls within the current Santa Monica market range ($4,200– $4,800); at this level, the covenant restricts who can rent the unit rather than reducing the rent. At 150% and 120% AMI, the covenant does reduce income, but the unit remains cashflow positive.
Below 120% AMI, the homeowner and professional developer models do not reach.
Households below 120% AMI need the subsidized housing pipeline: the Trust Fund, LIHTC, Landres, Missing Middle Housing Realignment Plan
April 2026
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26 and project-based vouchers. On large institutional parcels (see below), the volume of marketrate sales absorbs the cost of deeply restricted units, and 80–120% AMI is achievable without public subsidy. The small-lot model and the institutional model serve different parts of the income spectrum. Neither substitutes for the other.
Large-Lot Economics: Where Deeper Affordability Becomes Possible The pro formas above model a homeowner on a 6,000–7,500 SF lot building six cottages.
That is one constituency. There is another: the institutional or private landowner with tens of thousands of square feet of fully depreciated land and no intention of living on the site. The economics are fundamentally different, and the affordability they can produce is substantially deeper.
Consider a 100,000 SF parcel. At the proposed density of 1 unit per 1,000 SF, it yields 100 units by right. With a density bonus (50% at one VLI unit per §65915), it could reach 150 or more. The land is carried at book value; the owner has no mortgage, no temporary housing cost, and no personal displacement. Construction financing is institutional. Scale reduces hard costs to approximately $300–$350/SF.
Illustrative Budget: 66 Units on 100,000 SF
Line Item Per Unit Total
Hard construction: 900 SF at $300/SF $270,000 $17,820,000 Soft costs (12%) $32,400 $2,138,400
Site work $20,000 $1,320,000
AHPP (blended, tiered trade) $15,000 $990,000
Transportation + Parks + Other fees $18,000 $1,188,000
Construction financing (institutional) $18,000 $1,188,000 Contingency (10%) $37,000 $2,465,000
Total $410,000 $27,100,000
Revenue: Sell 50 at Market, Restrict 16 at 120–150% AMI Fifty units sold at $1,100/SF × 900 SF: approximately $49.5 million. That covers the $27.1 million construction cost nearly twice over. The remaining 16 units (24% of the project), retained as deed-restricted rental at 120–150% AMI, produce $19,000–$23,700 per unit annually in NOI ($304,000–$379,000 total). Stabilized value of the restricted rental portfolio at a 5% cap: $6.1–$7.6 million.
The institutional owner’s total position: $49.5 million in sales plus $6.1–$7.6 million in retained rental value, on $27.1 million invested. The restricted units are not a concession; they are free-riders on the market-rate production volume, and 120% AMI is achievable without public subsidy at this scale.
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27 Per-acre yields. The 100,000 SF parcel is 2.3 acres. At 66 units, the project produces 29 units per acre, of which 7 are deed-restricted at 120–150% AMI. Per-acre development cost:
approximately $11.8 million. Per-acre revenue: approximately $24.2 million (sales plus stabilized rental value). Per-acre capital profit: approximately $12.4 million. Per-acre public subsidy: zero. For comparison, a typical LIHTC project in Los Angeles produces 50–80 units per acre at 4–5 stories, all restricted, at a public subsidy cost of $250,000–$400,000 per unit ($12.5–$32 million per acre in public capital). The MMH large-lot model produces fewer restricted units per acre (7 versus 50–80) at a public cost of zero; the market-rate units crosssubsidize the restricted ones internally. With AB 6, stacked configurations on large parcels could reach 40–50 units per acre and 10–12 restricted units per acre, still at zero public cost.
At 80% AMI (full AHPP waiver), the restricted units produce lower NOI (approximately $12,700/unit, $203,000 total for 16 units) and lower stabilized value (approximately $4.1 million). The project still produces a substantial return. The institutional project pencils while delivering deeply affordable units that the homeowner model cannot reach.
Who Holds These Parcels in Santa Monica
The city owns surface parking lots. Institutional landowners (congregations, nonprofits, hospitals, and private holders with long depreciation histories) hold parcels ranging from 20,000 to 200,000 SF.
The policy framework in this memo applies to these parcels. The density amendment, the AHPP tiered trade, the R-3 cottage pathway, and the pre-approved plans all scale up. What changes at institutional scale is the denominator: enough market-rate units to absorb the cost of deeply affordable production, institutional financing that reduces carrying costs, and professional management that reduces execution risk. The homeowner model produces one to three affordable units at 150–200% AMI. The institutional model produces 13–16 affordable units at 80–150% AMI. Both are needed. Neither substitutes for the other.
If AB 6 advances, the institutional model gains further: stacked configurations on large parcels would produce more units per acre than cottage courts, and the R-3 cost savings would apply to all of them. Without AB 6, the institutional model still works in cottage or townhouse form, at lower densities on a given parcel.
Density Bonus Stacking
The Density Bonus Law (§65915) applies to projects of 5+ units. A 6-unit cottage court qualifies. One VLI unit (25% ratio) qualifies for the maximum 50% bonus (3 additional units) plus 4 concessions. AB 1287 provides a stacked bonus for projects combining VLI and moderate-income units.
SB 1211 (January 2025) allows up to 8 detached ADUs on existing multifamily lots. During construction: 2. Post-occupancy: up to the number of existing units.
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28 Density bonus stacking matters most for professional developers on acquired land, where additional units offset $400–$550/SF land costs. Local homeowner developers on owned land already pencil at 6 units without it. The density amendment in Intervention 1 is not cumulative with density bonus.
Risks
The disaggregated fee is novel in California. The empirical support (Millard-Ball, Chatman, Caltrans 2018) is stronger than the evidence underlying most existing flat-rate fees, and ABAG/MTC post-Sheetz guidance favors granularity. The 120-day judicial challenge window after adoption creates a period of legal uncertainty.
San Diego’s ADU Bonus Program illustrates what happens when affordability tiers are set too shallow: 295 deed-restricted units, every one at the minimum depth (110% AMI, 15-year term). The structure proposed here requires 55-year terms at all levels and steeper affordability for larger reductions. Even so, the moderate tiers will attract the most applications. The Trust Fund will receive less in-lieu revenue. That trade-off should be quantified in the feasibility study before adoption.
Deed-restricted ownership carries implementation risk that rental does not. Resale price formulas must be administered across decades. The City’s right of first refusal must be funded. SB 800 construction defect liability makes condominium development hazardous for small builders. Fee-simple small-lot subdivision mitigates this risk; the feasibility study should confirm whether it is sufficient.
AB 6 could stall indefinitely in the Senate. The cottage court pathway constrains building form to detached structures, excluding stacked configurations. Meaningful statewide building code reform could take two or more legislative sessions.
Long-term landowners who could develop may lack the risk tolerance, construction knowledge, or capital reserves for a 24-month building project. Bryan TX’s pre-approved plan program produced zero projects in its first year. Atlanta’s IncDev cohort converted 5 of 15 participants. Pre-approved plans and workshops lower barriers. They do not remove the barrier of deciding to take the risk.
The Prop 13 advantage is unambiguous for the original owner. Proposition 19 eliminated the parent-child exclusion for non-primary-residence transfers. The local homeowner developer pathway works for current owners. It does not survive intergenerational transfer without estate planning.
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29 Where This Has Worked
Portland adopted its Residential Infill Project in 2021: sliding FAR, fourplexes by right. 1,400+ middle housing units in three years, fourplexes 76% of production. Average unit $460,000 versus $916,000 for a new single-family home. Small local firms drove production.
Sacramento eliminated density maximums in single-family zones in September 2024. Thirtytwo applications in the first four months.
San Diego’s ADU Bonus Program (2021) produced 295 deed-restricted units in two years.
Every applicant chose the shallowest affordability tier. The lesson for tier design: depth and duration matter.
Memphis extended the IRC to 6 units in 2021. North Carolina extended it to triplexes and fourplexes in July 2025. Alaska, Utah, and Rhode Island followed. No adverse safety outcomes reported.
Bryan TX pre-approved four building types (2020, $8,000+/unit savings). Uptake was slow.
Kalamazoo built approximately 48 homes using pre-permitted plans (approximately $11,000/unit savings). Pre-approved plans work best as one element of a comprehensive package.
Implementation Sequence
Months 0–3. Council adopts the missing middle housing definition by resolution. Staff initiates the transportation impact fee nexus study (consultant RFP). City Attorney prepares the density amendment to §9.08.030 and the AHPP tiered fee ordinance. Council directs staff to commission an economic feasibility study modeling the combined effect of the proposed interventions on 6-unit missing middle development across three lot sizes (6,000 SF, 7,500 SF, and 10,000+ SF) and both tenure types (deed-restricted rental and deed-restricted feesimple ownership), including the rotating capital pool structure and supplemental measures needed for 150% and 120% AMI viability.
Months 3–9. Feasibility study completed. Council reviews findings. Based on results, Council introduces and adopts the density amendment and AHPP tiered fee ordinance (first and second reading), with any adjustments to tier levels, lot-size thresholds, or supplemental measures indicated by the study. Council sends an AB 6 support letter. City commissions pre-approved cottage court plan designs.
Months 9–15. Nexus study data collection and modeling. Pre-approved plans completed and posted. Technical assistance partnership established; first workshop for R2/R3 lot owners.
Months 15–21. Nexus study completed. Council adopts the disaggregated fee by resolution after public hearing. CLT RFQ issued.
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30 Months 21–27. Disaggregated fee takes effect. First pre-approved projects enter permitting.
First local homeowner developer projects break ground. AHPP covenant uptake reported in Prop R annual monitoring.
Ongoing. Advocate for AB 6 or its successor. Advocate for a California MIHTC. Update the nexus study every 8 years (AB 602). Adjust AHPP tiers by resolution every 3 years. Monitor deed-restricted ownership units for resale compliance and CDL claims; report findings to Council annually.
TO: Planning Commission, City of Santa Monica
FROM: Shawn Landres, Planning Commissioner
RE: Supplemental Addendum: Four Reforms to Extend MMHRP Reach DATE: For the Planning Commission meeting of April 15, 2026 (Item 14-A) NOTE: This informational addendum supplements the primary memo posted on Friday, April 10. It draws on feasibility analysis completed between the primary memo submission and the April 15 Commission meeting. The primary memo's proposed cottage court form, workforce covenant structure, and neighborhoodscale design controls remain unchanged. This addendum refines three aspects of program calibration and adds one substantial new pathway for housing production on community-assembly-owned parcels.
Summary
This addendum provides additional context to Item 14-A.
Four refinements warrant incorporation to the original program design:
1. Leverage the existing courtyard housing exception in Chapter 9.08 to enable smallscale parcel consolidation without new zoning authority.
2. Establish a 90-day ministerial approval timeline modeled on SB 684 and SB 1123.
3. Revise the base density standard from 1 cottage per 1,000 SF to 1 per 800 SF to achieve RHNA-compatible default density automatically across the full eligible parcel range.
4. Integrate the MMHRP cottage court form with SMMC §9.31.196 (Community Assembly Sites) and Chapter 9.19 (Moderate Income Housing Overlay), two existing Santa Monica programs that have produced zero units since their April 2023 adoption. (Extending the MMHRP to large-parcel institutional developers on commercial land no longer is recommended. First-principles analysis confirms that podium multifamily dominates cottage courts on commercial land by approximately 2:1 in revenue per acre, and AB 130 reduces costs proportionally on both forms rather than closing the relative gap. Institutional capital will not voluntarily forgo entitled capacity for a covenant trade, and no off-the-shelf MMHRP modification could compete with the text amendments or development agreements institutional holders could seek to negotiate on commercial parcels. Large-parcel institutional developers will continue to produce housing on Santa Monica's commercial parcels through SB 79, AB 130, State Density Bonus Law, and the AHPP-plus-Density-Bonus combination.
These are the appropriate frameworks for institutional-scale commercial redevelopment.) AB 130 (effective June 30, 2025) provides a statutory CEQA infill exemption and a prevailing wage exemption for qualifying housing projects under 85 feet, materially reducing the cost basis on cottage court development across every pathway. Santa Monica’s local religiousland and moderate-income housing (designed prior to and independently of SB 4), have Landres, MMHRP Addendum
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2 produced nothing because their economics do not pencil under the standard of 50% affordable units at 80% AMI. The MMHRP cottage court form, combined with a three-tier affordability mix and the AB 130 cost basis, resolves both programs' potential feasibility deficits without public subsidy. (NB: AB 130 does not change the relative economics between cottage courts and podium multifamily on institutional commercial land, because it reduces costs proportionally on both forms.)
Community assembly parcels are not a small subset of the MMHRP. Under the four reforms proposed here, they are the program's largest single production opportunity. Relative to the institutional pathway, it offers materially better economics, because religious institutions carry no land basis, operate at mission-aligned hurdle rates, and have been waiting three years for a feasibility framework that does not require public subsidy.
The MMHRP remains focused on the constituencies where the cottage court form has a genuine structural advantage: owner-occupants, small family assemblies, and community assembly parcels. The program is not a universal cottage court mandate but rather a targeted intervention for three specific constituencies that the current zoning and state law do not serve, combined with a structural integration with §9.31.196 that converts a dormant local program into a no-subsidy production pipeline for workforce and affordable housing on congregation-owned land.
Recommendation
The four reforms described in this addendum complement the seven policy pieces set out in the primary memo. Implementation requires amendments to three chapters of the Santa Monica Municipal Code (Chapter 9.08, Chapter 9.19, and Chapter 9.64) and modification of SMMC §9.31.196. The amendments are independently adoptable but collectively transformative, and the adoption sequence matters: the new 200% AMI workforce housing covenant category in Chapter 9.64 is the foundation on which the §9.31.196 and MHO integration pathways depend.
The MMHRP cottage court form, properly integrated with §9.31.196 and the MHO, would deliver an estimated 120 to 160 units on congregation-owned parcels that have produced nothing under existing programs, plus continued production on R-1 and R-2 owner-occupant parcels at the original program scope. The three-year benchmark rises from the 150 cottages the original memo proposed to approximately 290 new homes, of which at least 50 are deedrestricted at 80 percent AMI and 60 are deed-restricted at 200 percent AMI workforce.
The Cost Basis: AB 130 Applied Uniformly
AB 130, effective June 30, 2025, provides two benefits that apply automatically to MMHRP cottage courts. The statutory CEQA infill exemption is the strongest form of CEQA protection available, not subject to the unusual circumstances exception that can undermine categorical exemptions. The prevailing wage exemption applies to projects under 85 feet in height.
Cottage courts at 28 feet sit comfortably below the threshold and qualify automatically, eliminating the prevailing wage exposure that would otherwise apply where mixed-use Landres, MMHRP Addendum
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3 components, public funding involvement, or unit counts above SB 35's thresholds trigger the requirement.
Defensible AB 130-corrected hard cost assumptions range from approximately $380 per square foot at the base to $430 at the high end and $455 at the stress case. Statewide construction cost data from RLB Q3 2025, the Terner Center, and Cumming Group all support this range. The reduction from the original $400, $450, and $475 cost assumptions represents approximately 5 to 8 percent of total hard costs, which is appropriate for small wood-frame residential construction.
The exemption applies uniformly across owner-occupants, family assemblies, religious institutions, and MHO-eligible developers. The R-1 6,000 SF and R-2 7,500 SF owneroccupant pro formas benefit by approximately $146,000 and $170,000 of additional cash at completion, respectively. The community assembly reference project benefits by approximately $440,000. AB 130 is the third-largest contributor to the program's improved feasibility, behind the affordability mix shift on §9.31.196 parcels and the density increase to 1 per 800 SF, but ahead of every other reform in the package.
Reform One: Leverage the Existing Courtyard Housing Exception Santa Monica Municipal Code currently limits residential parcel consolidation to 7,500 SF or 125 percent of the average parcel area within 500 feet, whichever is greater. Chapter 9.08 already contains an exception for courtyard housing under §9.08.030(F) that permits consolidation beyond the 7,500 SF limit when the development includes a courtyard meeting specific design criteria: minimum 10 percent of lot area, at least 1,000 SF in total area, and 18-foot minimum dimensions.
The MMHRP cottage court form is functionally identical to the courtyard housing the exception contemplates. The reform expressly leverages the existing exception with two reconciliations. First, the MMHRP's density standard of 1 per 800 SF supersedes the underlying R-2 or R-3 per-parcel calculation that the courtyard housing framework would otherwise apply. Second, the MMHRP cottage court form satisfies the courtyard design minimums without modification. The reform does not require new consolidation authority. It removes ambiguity about whether MMHRP cottage courts qualify for an exception that already exists.
Proposed Code Language
MMHRP cottage court developments that comply with the density, form, and covenant provisions of this ordinance shall be deemed to satisfy the courtyard housing exception in SMMC §9.08.030(F). For MMHRP projects, the density standard established by this ordinance (one unit per 800 square feet of consolidated parcel area) supersedes the underlying zone density calculation that would otherwise apply under the courtyard housing exception. All other requirements of §9.08.030(F), including courtyard minimums of 10 percent of lot area, 1,000 square feet minimum total area, and 18-foot minimum dimensions, shall apply to MMHRP projects.
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4 The most likely operational use case is a family with two or three adjacent R-2 parcels developing a larger cottage court across the combined site rather than being forced into the SB 684 or SB 1123 pathway where no workforce covenant is produced. The reform is not a primary institutional-scale reform; the consolidation limit still caps typical assemblies at a scale below the 50,000 SF institutional threshold. But it removes a procedural barrier that would otherwise force these smaller assemblies into pathways that produce no workforce covenant.
Reform Two: A 90-Day Ministerial Approval Timeline
Each year added to the project timeline costs approximately 300 to 500 basis points of IRR at forecast prices. A four-year California-norm entitlement-to-occupancy cycle delivers an IRR roughly 900 to 1,500 basis points below the same project delivered in 24 months. For owneroccupants, the timeline compression is the difference between a project they can finance with a residential construction loan and a project they cannot. For small family assemblies and religious institutions, the compression is the difference between projects that pencil and projects that do not.
The MMHRP should guarantee a 90-day by-right ministerial approval window for conforming projects, modeled on SB 684 and SB 1123. Combined with AB 130's CEQA infill exemption, the 90-day window produces a total entitlement timeline of approximately 90 to 120 days from complete application to building permit issuance. The full project cycle target is 30 months from application to certificate of occupancy. Pre-approved plans should receive expedited 30- day processing and, ideally, pathways to self-certification with appropriate liability management.
Proposed Code Language
Applications for MMHRP cottage court development that comply with all requirements of this ordinance shall be processed ministerially by the Planning Department. The Department shall approve or deny a complete application within 90 days of submission. An application that is not approved or denied within the 90-day period shall be deemed approved. No discretionary review, architectural review, or design review shall be required for MMHRP projects that meet the form, density, and covenant standards established by this ordinance. MMHRP projects qualifying under Public Resources Code §21080.66 are exempt from California Environmental Quality Act review.
The 90-day window is precedented. SB 684 and SB 1123 both establish ministerial review timelines of 60 to 90 days for small lot subdivisions and small multifamily projects. Santa Monica's existing 100 percent affordable housing pathway under Interim Ordinance 2460 CCS already provides ministerial processing for qualifying projects. The MMHRP pathway extends this procedural model to market-rate cottage courts with a workforce covenant.
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5 Reform Three: A Density Standard Calibrated for the Community Assembly Pathway
The original MMHRP proposed density at 1 cottage per 1,000 SF of lot area. The standard tracked Portland's empirical cottage cluster production density and produced 6 to 7 cottages on conventional R-2 and R-1 parcels. The standard was reasonable but incomplete. It fell below the 30 du/acre threshold for lower-income RHNA credit on the smallest eligible parcels, and it provided no flexibility for the unusual situations where a higher density permission could resolve site planning constraints.
The cleaner standard is 1 per 800 SF across the full eligible parcel range, with the understanding that owner-occupants on R-1 and R-2 will not build to the maximum. On a 6,000 SF lot the standard yields 7.5 cottages at 32.6 du/acre, comfortably above the RHNA threshold. On a 7,500 SF lot it yields 9.4 cottages at 40.7 du/acre. On a 15,000 SF community assembly parcel it yields 18.75 cottages at 54.4 du/acre. Every eligible MMHRP parcel automatically qualifies for lower-income RHNA credit under Government Code §65583.2(c)(3)(B) without case-by-case justification.
The discrepancy between zoning permission and actual buildout is the design point. Owneroccupants on conventional R-1 and R-2 parcels will build at Portland-matched density of approximately 7 cottages on 7,500 SF and 6 on 6,000 SF, for the reasons Portland's Residential Infill Project has produced cottage clusters at conservative densities even where the code permits more: market preferences for slightly larger cottages, courtyard and parking site constraints, fire access requirements, and construction efficiency at smaller cluster sizes.
The 1 per 800 SF standard accordingly serves three functions on R-1 and R-2. It establishes RHNA-compatible default density automatically. It provides flexibility for the small subset of owner-occupants who want to maximize cottage count for family compounds or multigenerational households. It accommodates the unusual site configurations (long narrow parcels, corner lots, parcels with utility easements) where the Portland-matched buildout produces awkward layouts that the higher density permission could resolve.
The community assembly pathway under §9.31.196 is the constituency where the zoning permission translates into actual buildout. Congregations that develop on existing surface parking lots carry zero land basis and operate at mission-aligned hurdle rates that tolerate single-digit returns. The denser layout that owner-occupants will not build is exactly the layout the community assembly pathway needs to clear feasibility under the three-tier mix described in Reform Four. On a 15,000 SF community assembly parcel, the difference between 15 cottages at 1 per 1,000 SF and 18 cottages at 1 per 800 SF is approximately $1.5 million of additional surplus at midpoint pricing.
Proposed Code Language
The maximum density permitted for MMHRP cottage court development shall be one unit per 800 square feet of parcel area, applied uniformly across all eligible parcels regardless of size. This density standard supersedes the underlying base Landres, MMHRP Addendum
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6 zoning district density and any conflicting provisions of Chapter 9.07, Chapter 9.08, or other applicable chapters of this Title.
Reform Four: Integration with §9.31.196 and the MHO
Two existing Santa Monica programs are purpose-built for missing middle housing development. Both have produced zero units since their adoption by Ordinance No. 2742CCS § 2 on April 11, 2023. Both fail on feasibility for reasons the MMHRP cottage court form can resolve.
Why §9.31.196 Has Produced Nothing
The current §9.31.196 grants ministerial Administrative Approval, 33 feet of additional height above base, no density limits, and no parking minimums or replacement requirements. The binding constraint is the affordability requirement. At least 50 percent of units must be deedrestricted at 80 percent AMI or lower. The 2025 LAHD-published maximum rent at 80 percent AMI for a 1-bedroom is $2,424 per month, against a Santa Monica market rent for a comparable new-construction 850 SF unit exceeding $4,000. The annual revenue gap per unit is approximately $18,912; on a 15-unit project with 8 deed-restricted units, the lifetime present value gap is approximately $2.1 million. No congregation can absorb this gap without tax credit equity or public subsidy, and §9.31.196 was designed as a no-subsidy pathway.
Why the MHO Has Produced Nothing
The MHO’s 50 percent local density bonus and 33-foot height bonus are less generous than the conventional AHPP-plus-State-Density-Bonus pathway, where AB 1287 (effective January 2024) permits up to 100 percent density bonus. Rational developers choose the conventional path. The MHO needs the cottage court form as its differentiating product, not a marginal improvement on a uniformly disadvantaged program.
Community Assembly Parcels Replace Institutionally Owned Large Lots Community assembly parcels under §9.31.196 substitute for the institutional pathway with materially better economics. Religious institutions in Santa Monica's R-1 and R-2 zones, concentrated between Wilshire and Montana and in Sunset Park west of 20th Street, share three characteristics that institutional capital lacks. They carry zero land basis. They operate at mission-aligned hurdle rates that tolerate single-digit returns. They have organizational capacity for ongoing property management through existing facility staff and lay leadership.
Of the 38 parcels and 257 units of capacity identified in Housing Element Appendix F Category 11, an estimated 120 to 160 units could be produced under a modified MMHRP pathway with the three-tier mix structure.
The 50/30/20 Mix and the Case for Congregational Discretion The MMHRP cottage court form on a 15,000 SF community assembly parcel accommodates 18 cottages at 1 per 800 SF. The recommended mix is 20 percent at 80 percent AMI deedrestricted rental (4 units), 30 percent at 200 percent AMI workforce sale (5 units), and 50 Landres, MMHRP Addendum
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7 percent market-rate sale (9 units). The mix produces approximately $7.0 million in midpoint surplus and $3.9 million in stress-case surplus on a $8.7 million total development cost.
A congregation that retains 9 cottages free of covenant has the choice each year whether to rent at market, rent below market, house clergy and staff, or sell at market. A congregation that deed-restricts those same units at 80 percent AMI has surrendered that choice for 55 years. Most congregations want flexibility to respond to changing membership demographics, ministry priorities, and financial conditions over decades, which includes offering belowmarket rents on a discretionary basis. Combined with congregational stewardship, the actual affordability outcome could approach or exceed the current 50 percent at 80 percent AMI requirement, achieved through congregational discretion rather than legal compulsion.
Community Land Trusts for Santa Monica
The community assembly pathway is structured around a community land trust (CLT). The congregation, or an affiliated 501(c)(3) entity it controls, retains fee title to the land in perpetuity. The 5 workforce cottages and the 9 market-rate cottages are conveyed as improvements only, on a 99-year renewable ground lease. The 4 affordable rental cottages remain entirely under congregational ownership and operation. The land never leaves taxexempt hands.
The CLT structure does three things that fee-simple conveyance cannot. It preserves the property tax exemption on the land in perpetuity, eliminating the property tax burden that would otherwise reduce the affordability of every covenanted cottage and reduce the congregation's net rental income. It generates ongoing ground lease revenue (nominal on the workforce tier, market-rate on the market tier) that compounds the congregation's recurring income beyond what the rental NOI alone provides. And it ensures that the affordability and workforce restrictions are enforced through the ground lease itself rather than only through a recorded deed restriction, making enforcement at resale considerably simpler.
Administrative burden is manageable. The CLT operates as a thin entity holding land title, collecting nominal ground rent, and approving resales against a formula. Most congregations can administer this through existing facility management capacity or through a contract with a property management firm at modest cost. Several California religious institutions, including those participating in the Yes In God's Backyard movement, operate CLT structures successfully. The unrelated business income tax exposure is minimal because ground lease income on real property held for charitable purposes is generally excluded from UBIT under IRC §512(b)(3); the congregation's tax counsel should confirm the exclusion applies to its specific structure.
§9.31.196 and SB 4
SB 4 (Wiener, 2023, codified at Government Code §65913.5) provides a statewide by-right pathway for 100 percent affordable housing on religious institution land. The MMHRP community assembly pathway serves different economics. SB 4 requires 100 percent affordability at low-income levels with up to 20 percent moderate-income and 5 percent staff units. The market-rate cross-subsidy that makes the three-tier mix self-financing is not Landres, MMHRP Addendum
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8 permitted under SB 4, which means SB 4 projects require tax credit equity, public subsidy, or substantial congregational fundraising to close the financing gap. Most Santa Monica congregations do not have the capital capacity or the development partnership infrastructure to assemble those sources, which is why SB 4 has produced only a handful of projects statewide in its first two years and none in Santa Monica. SB 4 also requires prevailing wage on projects of 10 or more units, adding 5 to 8 percent to the cost basis — the precise advantage AB 130 provides to MMHRP cottage courts under 85 feet. A congregation using the MMHRP's §9.31.196 alternative compliance pathway avoids prevailing wage entirely; a congregation using SB 4 does not. SB 4's ministerial processing runs parallel to §9.31.196's existing Administrative Approval pathway, but SB 4 imposes statewide design standards that may conflict with local neighborhood-scale expectations, while §9.31.196 (as modified under Reform Four) incorporates the MMHRP cottage court form controls directly into local code.
Both pathways remain available. For a congregation with committed 9 percent tax credit equity and an experienced nonprofit development partner, SB 4's 100 percent affordable framework delivers deeper affordability than the MMHRP three-tier mix can. For the far larger set of Santa Monica congregations without those resources, the MMHRP community assembly pathway is the only structure that actually produces housing without requiring a financing stack the congregation cannot assemble. SB 4 is the right tool for a narrow set of well-capitalized projects. The MMHRP is the right tool for everyone else.
Five Code Amendments
Integration requires amendments to three chapters of the Santa Monica Municipal Code and modification of SMMC §9.31.196. The amendments are listed in priority order based on implementation dependency.
Amendment One: Chapter 9.64 (AHPP) — 200% AMI Workforce Housing Covenant This is foundational. Both the §9.31.196 pathway and the MHO pathway require a new covenant category above the existing Chapter 9.64 tiers (30%, 50%, 80%, and 120% AMI).
The amendment defines income eligibility at 200 percent AMI, requires improvement-only sale on a community land trust ground lease, imposes a 55-year deed restriction with a formula resale price tied to AMI growth or CPI, and grants the City a right of first refusal at the formula price. Income verification cross-references the existing § 9.64.110 methodology. The CLT ground lease structure preserves the property tax exemption on the land in perpetuity, which makes the 200 percent AMI price point achievable in Santa Monica's market.
Amendment Two: §9.31.196 — Cottage Court Alternative Compliance Add a three-tier alternative compliance pathway (20 percent at 80 percent AMI rental, 30 percent at 200 percent AMI workforce sale, 50 percent market-rate) for qualifying cottage court projects with density at 1 per 800 SF as a form control. Clarify that community assembly retention may be satisfied on an adjacent parcel under common ownership through a recorded lot tie agreement. The lot tie agreement should include an express covenant that community assembly use will continue on the sanctuary parcel for the duration of the affordability restrictions on the cottage court parcel, a prohibition on separate sale or transfer Landres, MMHRP Addendum
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9 of either parcel without City approval, a provision that if the congregation ceases community assembly use the City may require conversion of additional cottage court units to 80 percent AMI rental, and an acknowledgment that the lot tie cannot be cancelled without written approval of the Building Official.
Amendment Three: Chapter 9.19 (MHO) — Cottage Court Building Form Add cottage court as a permitted MHO building form at 1 per 800 SF density. Specify that the MHO height bonus is optional and that cottage buildings within a courtyard development need not be uniform in height. The MHO incorporates the Chapter 9.64 workforce covenant by reference rather than defining its own parallel category. MHO cottage court projects may use all, a portion, or none of the 33-foot height bonus; the base 28-foot form will be the typical choice on R-2 parcels with sensitive neighborhood transitions.
Amendment Four: §9.31.196 — Nonprofit Developer Partner Waiver Waive the requirement for a nonprofit affordable housing developer partner where the congregation demonstrates operational capacity through current building management, fiduciary board experience, and a property management agreement with a licensed property manager. Most Santa Monica congregations have the capacity to manage four rental units and to administer the limited resale covenant oversight required for the 200 percent AMI workforce cottages. The requirement for a specialized nonprofit partner adds cost and institutional complexity disproportionate to the operational demands of a small project.
Amendment Five: Chapter 9.64 (AHPP) — Resale Covenant Standards Establish minimum standards for community land trust ground leases used to satisfy the workforce covenant: 99-year renewable term, nominal ground rent on the workforce tier and market-rate ground rent on the market-rate tier, formula resale price for the workforce tier, owner-occupancy requirement, CLT preemptive purchase option at the formula price, and City approval of the ground lease template. Cross-reference SB 196 (2019), which clarifies that CLT-restricted properties are assessed at the restricted improvement price rather than market value, providing significant additional affordability support on the workforce tier. The CLT entity must be the congregation or a 501(c)(3) it controls; land may not be transferred out of tax-exempt ownership.
Updated Pro Formas Across the Board
The four reforms require recalibration of the pro formas in the primary memo. The recalibration applies AB 130 cost basis to every pathway and reflects the Portland-matched buildout on conventional R-1 and R-2 parcels (where owner-occupants will build at 1 per 1,000 to 1,200 SF in practice even though the zoning permits 1 per 800 SF). On community assembly parcels, the recalibration reflects the full 1 per 800 SF buildout because the community assembly pathway's economics support the denser layout. The detailed pro forma handoffs for staff review are available as separate companion documents.
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April 2026
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10 R-2 7,500 SF Owner-Occupant Baseline
The original pro forma assumed 7 cottages at $400 per square foot, producing cash at completion at midpoint pricing of $3,223,112. The updated pro forma holds the cottage count at 7 (Portland-matched buildout) and applies the AB 130 cost basis of $380 per square foot, producing cash at completion at midpoint pricing of $3,393,269. The improvement is approximately $170,000, attributable entirely to the AB 130 cost basis reduction because the cottage count is unchanged. The 30-year total owner-occupant position, combining cash at completion, 30-year ADU rental NOI under Proposition 13 protection, and retained cottage equity on the two cottages held free and clear, reaches $7.27 million in current dollars and approximately $11.3 million in nominal dollars if the retained cottages appreciate at 3 percent annually.
R-1 6,000 SF Owner-Occupant Companion
The original pro forma assumed 6 cottages at $400 per square foot, producing cash at completion at midpoint pricing of $2,384,024. The updated pro forma holds the cottage count at 6 (Portland-matched buildout) and applies the AB 130 cost basis of $380 per square foot, producing cash at completion at midpoint pricing of $2,529,818. The improvement is approximately $146,000. The 30-year total owner-occupant position reaches $6.41 million in current dollars and approximately $10.4 million in nominal dollars with appreciation.
Community Assembly Reference Project, 15,000 SF
The reference project assumes 18 cottages at the zoning maximum of 1 per 800 SF, with the 20/30/50 mix (4 affordable rental, 5 workforce sale, 9 market-rate sale). Applying the AB 130 cost basis of $380 per square foot, and including a $200,000 community assembly preservation budget for ADA upgrades and interior reconfiguration of the existing worship space, the total development cost is approximately $8.7 million. Midpoint surplus is approximately $7.0 million. Stress-case surplus (at $455 per square foot cost and $1.22 million downside cottage price) is approximately $3.9 million. Break-even market-rate price under the stress-case cost basis is approximately $768,000 per cottage, 37 percent below the downside forecast of $1,220,000.
Why the Pro Formas Look Better
The changes in the updated pro formas come from three sources in descending order of magnitude. On community assembly parcels, the single largest driver is the affordability mix shift from 50 percent at 80 percent AMI (current §9.31.196) to the 20/30/50 three-tier mix; the shift moves the 15,000 SF reference project from approximately $377,000 in surplus to approximately $7.0 million at midpoint pricing. The second largest driver on community assembly parcels is the density increase from 1 per 1,000 SF to 1 per 800 SF, which adds approximately $1.5 million of additional surplus through the larger unit count. The AB 130 cost basis reduction adds approximately $440,000 on the community assembly reference project.
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11 On R-1 and R-2 owner-occupant parcels, only the AB 130 cost basis reduction applies to the updated pro formas because the cottage count remains at Portland-matched levels. The improvements of $146,000 (R-1) and $170,000 (R-2) are meaningful but modest, approximately 5 percent of cash at completion on each parcel. The 1 per 800 SF zoning permission nevertheless serves three purposes on these parcels even though most owneroccupants will not build to the maximum: RHNA-compatible default density, flexibility for family compounds, and accommodation for unusual site configurations.
Implementation Sequence
The five code amendments are independently adoptable but collectively transformative.
Council should adopt Amendment One (Chapter 9.64 workforce covenant) first, as it is the foundation on which Amendments Two through Five depend. Amendments Two and Three (§9.31.196 and MHO cottage court provisions) can be adopted in parallel after Amendment One. Amendments Four and Five (nonprofit waiver and resale covenant standards) can follow as a second wave.
The four reforms in this addendum are similarly independent in their core zoning and process components. The lot consolidation reform and the timeline compression reform are immediately actionable and require no coordination with other code provisions. The density increase to 1 per 800 SF requires coordination with the original MMHRP ordinance language.
The §9.31.196 and MHO integration requires the five amendments above.
The MMHRP cottage court form, properly integrated with §9.31.196 and the MHO and supported by the three procedural reforms, would deliver approximately 290 new homes over the three-year benchmark period. At least 50 are deed-restricted at 80 percent AMI and at least 60 are deed-restricted at 200 percent AMI workforce, across three constituencies:
owner-occupants on R-1 and R-2 parcels (approximately 150 cottages), small family assemblies (20 to 40 cottages), and community assembly parcels (120 to 160 cottages). The community assembly pathway is the program's largest single production opportunity, unlocking capacity the City's Housing Element already recognizes but existing programs have failed to produce.
Landres, MMHRP Addendum
April 2026
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12 Appendix A: Owner-Occupant Pro Formas (R-1 6,000 SF and R-2 7,500 SF)
What the Recalibration Changes
The original MMHRP pro formas assumed 7 cottages on R-2 7,500 SF and 6 cottages on R-1 6,000 SF at $400 per square foot of hard cost. Two refinements require updating both pro formas in parallel. The first is the AB 130 prevailing wage exemption, which strips approximately 5 to 8 percent from the cost basis on cottage court projects under 85 feet. The defensible AB 130-corrected hard cost assumptions are $380 per square foot at the base, $430 at the high end, and $455 at the stress case.
The second refinement concerns density. The addendum proposes a zoning standard of 1 cottage per 800 SF of lot area, with the understanding that owner-occupants on conventional R-1 and R-2 parcels will build at Portland-matched density (approximately 7 cottages on 7,500 SF and 6 on 6,000 SF) for the reasons Portland's Residential Infill Project has produced cottage clusters at conservative densities even where the code permits more:
market preferences for slightly larger cottages, courtyard and parking constraints, fire access requirements, and construction efficiency at smaller cluster sizes.
Site and Program Comparison
Parameter R-2 7,500 SF R-1 6,000 SF
Parcel size 7,500 SF 6,000 SF
Zoning density permitted 1 per 800 SF (9 cottages max) 1 per 800 SF (7 cottages max) Portland-matched buildout 7 cottages 6 cottages
Cottage size 850 SF each 850 SF each
Total residential area 5,950 SF 5,100 SF
Built density (du/acre) 40.7 43.6
Owner-occupied units 1 1
Retained ADU rental units 1 1
Units sold at completion 5 4
Construction loan rate 9.25% 9.25%
Construction period 18 months 18 months
Building code classification R-3 per-building R-3 per-building CEQA pathway AB 130 exemption AB 130 exemption
Approval pathway 90-day ministerial 90-day ministerial
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13 Prevailing wage Exempt (AB 130) Exempt (AB 130)
Total Development Cost
Cost line
item R-2 base R-1 base R-2 high R-1 high R-2 stress R-1 stress Hard
construction
$2,261,000 $1,938,000 $2,558,500 $2,193,000 $2,707,250 $2,320,500 Soft costs
(32%)
$723,520 $620,160 $818,720 $701,760 $866,320 $742,560
Construction
interest
$248,461 $213,022 $281,154 $240,989 $297,500 $254,973
Total dev
cost
$3,232,981 $2,771,182 $3,658,374 $3,135,749 $3,871,070 $3,318,033 Per-unit TDC $461,854 $461,864 $522,625 $522,625 $553,010 $553,006 Per-unit TDC is essentially identical between R-2 and R-1 at each cost level, confirming internal consistency.
Cash at Completion: R-2 7,500 SF (5 Cottages Sold)
Cost basis Downside ($1.22M) Midpoint ($1.395M) Upside ($1.57M) Base $380/SF $2,562,019 $3,393,269 $4,224,519
High $430/SF $2,136,626 $2,967,876 $3,799,126
Stress $455/SF $1,923,930 $2,755,180 $3,586,430
Cash at Completion: R-1 6,000 SF (4 Cottages Sold)
Cost basis Downside ($1.22M) Midpoint ($1.395M) Upside ($1.57M) Base $380/SF $1,864,818 $2,529,818 $3,194,818
High $430/SF $1,500,251 $2,165,251 $2,830,251
Stress $455/SF $1,317,967 $1,982,967 $2,647,967
Both parcels deliver positive cash at completion across every cost and price combination.
The stress-case downside produces $1.9 million on R-2 and $1.3 million on R-1. 30-Year Owner-Occupant Position at Midpoint Pricing
The 30-year owner-occupant position combines cash at completion, accumulated ADU rental NOI (Proposition 13 protected, $4,000/month initial rent, 3 percent annual escalation), and the equity value of the 2 retained cottages.
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14 Component R-2 7,500 SF R-1 6,000 SF
Cash at completion $3,393,269 $2,529,818
30-year ADU rental NOI $1,090,198 $1,090,198
Retained cottage equity (2 units,
current value)
$2,790,000 $2,790,000
Total 30-year position (current
dollars)
$7,273,467 $6,410,016
If the retained cottages appreciate at 3 percent annually over the 30-year hold, the year-30 nominal positions reach approximately $11.3 million on R-2 and $10.4 million on R-1.
AB 130 Improvement Attribution
Because owner-occupants build at Portland-matched cottage counts rather than the zoning maximum, the AB 130 cost basis correction is the single source of pro forma improvement on these parcels.
Parcel Original $400/SF AB 130 $380/SF Improvement
R-2 7,500 SF (7
cottages)
$3,223,112 $3,393,269 $170,157
R-1 6,000 SF (6
cottages)
$2,384,024 $2,529,818 $145,794
The improvement is approximately 5 percent of cash at completion on each parcel. The 1 per 800 SF zoning permission nevertheless serves three purposes on R-1 and R-2 even though most owner-occupants will not build to the maximum: RHNA-compatible default density, flexibility for family compounds, and accommodation for unusual site configurations.
Conservative Assumptions for Staff Review
The construction interest calculation assumes 60 percent average loan draw across 18 months. The 5 percent sales costs assumption is at the low end of the Santa Monica range of 5 to 7 percent. The 30-year ADU rental NOI assumes continuous occupancy. Staff should adjust these conservative assumptions in any final pro forma model used for ordinance development; none change the program viability conclusion.
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15 Appendix B: Community Assembly Pro Forma (15,000 SF
Reference Project)
What the Reference Project Demonstrates
The 15,000 SF community assembly reference project tests whether the §9.31.196 cottage court alternative compliance pathway will pencil for congregations operating without public subsidy. The current §9.31.196 has produced zero units in three years because the 50 percent at 80 percent AMI affordability requirement creates a $2.1 million present-value financing gap no congregation can absorb. The reference project applies the proposed threetier mix (20 percent at 80 percent AMI rental, 30 percent at 200 percent AMI workforce sale, 50 percent market-rate) and demonstrates meaningful surplus across every reasonable cost and price combination.
The project assumes 18 cottages at 850 SF each on the 15,000 SF parcel, applying the 1 per 800 SF zoning standard at the maximum buildout the community assembly pathway can support. The mix is 4 affordable rental units retained by the congregation under a 55-year deed restriction at 80 percent AMI, 5 workforce sale units conveyed in fee subject to a 55- year deed restriction at 200 percent AMI with City right of first refusal, and 9 market-rate sale units that the congregation may sell free of covenant. The community assembly preservation budget of $200,000 covers ADA upgrades, interior reconfiguration, and shared facility improvements for continued worship use on the same parcel.
Site and Program
Parameter Value
Parcel size 15,000 SF
Zoning context R-1 or R-2 with §9.31.196 community assembly use Cottages 18 (at 1 per 800 SF)
Cottage size 850 SF each
Total residential area 15,300 SF
Built density 52.3 du/acre
Affordability mix 4 affordable / 5 workforce / 9 market Affordability ratio 50% covenanted (22% deep + 28% workforce) Land cost to congregation $0 (existing surface parking lot) Construction loan rate 9.25%
Construction period 18 months
Building code classification R-3 per-building
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April 2026
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16 CEQA pathway AB 130 statutory exemption
Approval pathway §9.31.196 ministerial Administrative Approval Total Development Cost
Cost line item Base $380/SF High $430/SF Stress $455/SF Hard residential (15,300
SF)
$5,814,000 $6,579,000 $6,961,500
Community assembly
preservation
$200,000 $200,000 $200,000
Total hard costs $6,014,000 $6,779,000 $7,161,500
Soft costs (32% of hard) $1,924,480 $2,169,280 $2,291,680 Construction loan
interest
$660,878 $744,742 $786,653
Total development cost $8,599,358 $9,693,022 $10,239,833 Per-cottage TDC $477,742 $538,501 $568,880
Surplus Across Nine Scenarios
Surplus represents revenue from selling 9 market-rate cottages (net of 5 percent sales costs) and 5 workforce cottages at $750,000, less total development cost. The 4 affordable rental units generate no sale proceeds but produce ongoing income.
Cost basis Downside ($1.22M) Midpoint ($1.395M) Upside ($1.57M) Base $380/SF $5,506,642 $7,002,892 $8,499,142
High $430/SF $4,412,776 $5,909,026 $7,405,276
Stress $455/SF $3,865,843 $5,362,093 $6,858,343
The stress-case downside still produces $3.9 million of surplus, enough to retire the construction loan, fund ongoing operations of the affordable rental units, and provide the congregation with capital reserves. Break-even market-rate price under the stress-case cost basis is approximately $768,000 per cottage, 37 percent below the downside forecast of $1,220,000.
Annual Congregation Income from Retained Assets
Under the CLT structure described in the addendum, the congregation's ongoing income combines net operating income from the 4 affordable rental units (which the congregation owns and operates directly) plus ground lease income from the 5 workforce cottages Landres, MMHRP Addendum
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17 (nominal) and 9 market-rate cottages (market rate). The congregation retains land title to all 14 conveyed cottages.
Income line item Annual amount
Gross rent (4 × $2,424/mo × 12) $116,352
Less vacancy and collection (5%) ($5,818)
Less operating expenses (30%, no property tax
under 501(c)(3))
($34,906)
Net rental income $75,629
Plus workforce ground leases (5 × $50/mo × 12) $3,000
Plus market-rate ground leases (9 × $200/mo × 12) $21,600 Total annual congregation income $100,229
Total annual income of approximately $100,000 represents recurring revenue for a congregation that previously earned zero from the parking lot. At a 6.0 percent capitalization rate, the income stream's capitalized value is approximately $1.67 million. The CLT structure also preserves the property tax exemption on the underlying land in perpetuity, eliminating an ongoing tax burden that would otherwise reduce both rental NOI and ground lease income.
Sensitivity to the Affordability Mix
The addendum recommends the 20/30/50 mix. The sensitivity table shows surplus at midpoint pricing and base cost across four alternatives.
Mix label Affordable Workforce Market Surplus
20/30/50
(recommended)
4 units 5 units 9 units $7,002,892
25/35/40 (more
affordable)
4 units 6 units 8 units $6,427,642
33/33/33 (initial
draft)
6 units 6 units 6 units $3,777,142
50/30/20 (current
§9.31.196)
9 units 5 units 4 units $376,642
The 50/30/20 row demonstrates why §9.31.196 has produced no units. The 50 percent at 80 percent AMI requirement leaves only $377,000 of surplus on an $8.7 million project, a 4 percent margin that no congregation can finance without public subsidy.
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18 The 45/35/25 mix (8 affordable rental at 80% AMI, 6 workforce sale at 200% AMI, 4 marketrate sale) is available as a backup if the Council wants to remain as close as possible to the intent of the current §9.31.196's 50% deep-affordability requirement while still permitting the program to function. The mix produces approximately $1.13 million of surplus at midpoint pricing under the base cost basis ($380/SF), compared to $7.0 million under the recommended 20/30/50 mix. Annual congregation income rises to approximately $164,000, reflecting the larger affordable rental portfolio (8 units instead of 4). However, the margin for error narrows sharply. However—and this could dissuade risk-sensitive congregations from participating—the mix produces only $462,000 of surplus under the downside-base scenario, and turns negative under any cost escalation to the high or stress range: a $632,000 deficit at $430/SF with downside pricing, and a $1.18 million deficit at $455/SF with downside pricing.
The break-even market-rate price under the stress-case cost basis is approximately $1,530,000 per cottage, 25 percent above the downside forecast of $1,220,000 — meaning that any combination of moderate cost overrun and modest market softening pushes the project into loss territory that no congregation can absorb. The 45/35/25 mix is feasible only if cost control is excellent and market pricing holds at or above the midpoint forecast through the delivery horizon (2028-29 at the earliest). Council should adopt this mix only if it explicitly accepts the production risk, and should consider pairing it with a Rotating Capital Pool backstop (as described in the primary memo) that activates if any individual project shows a feasibility shortfall during predevelopment underwriting. Ultimately the incremental payoff relative to the 50/30/20 mix may not be worth the increase in feasibility risk.
Scaling by Parcel Size
Community assembly parcels in Santa Monica range from approximately 6,000 SF to 30,000+ SF. The scaling table shows surplus at midpoint pricing and base cost across a range of sizes, holding the 20/30/50 mix constant.
Parcel size Cottages Total dev cost Surplus at midpoint 10,000 SF 12 $5,903,232 $5,048,268
15,000 SF 18 $8,599,358 $7,002,892
20,000 SF 25 $11,907,340 $9,995,660
25,000 SF 31 $14,678,467 $13,275,533
30,000 SF 38 $17,911,448 $15,518,302
Per-cottage TDC declines with parcel size as fixed costs amortize across more units. Larger parcels produce proportionally larger surplus and offer congregations the opportunity to develop in phases.
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19 Production Capacity Across the Category 11 Inventory Housing Element Appendix F Category 11 identifies 38 community assembly parcels with combined area of 555,589 SF and an estimated 257-unit capacity. Applying the 1 per 800 SF zoning standard to the full inventory produces a theoretical maximum of 695 cottages. The realistic production estimate is lower because not every congregation will develop, parcels below approximately 9,000 SF lack scale for the three-tier mix, and some parcels have site constraints that limit buildable area. An estimated 120 to 160 units could be produced under the modified MMHRP three-tier pathway over the 6th and 7th cycles combined.
Cost and Price Calibration
The hard cost basis reflects current Los Angeles wood-frame residential construction costs with the AB 130 prevailing wage exemption applied. The market-rate cottage price range of $1,220,000 to $1,570,000 reflects current Santa Monica condominium pricing with a 10 to 15 percent new-construction detached premium and 3 to 5 percent annual appreciation through 2028-2029 delivery. The 200 percent AMI workforce sale price of $750,000 tracks the 2025 Los Angeles County AMI of $213,200 at 200 percent, producing an affordable purchase at standard underwriting (35 percent DTI, 6.5 percent mortgage rate, 30-year term).
Conservative Assumptions for Staff Review
The construction interest calculation assumes 60 percent average draw across 18 months.
The 5 percent sales costs assumption is at the low end of the Santa Monica range. The 30 percent operating expense ratio assumes a relatively efficient owner-operator model. The community assembly preservation budget of $200,000 covers typical ADA upgrades and interior reconfiguration; congregations with deferred maintenance or aspirational facility upgrades will spend more, and those costs should be evaluated as separate capital projects.
None of these conservative assumptions changes the conclusion about program viability.