SMRR Letter Senator Ben Allen and Assemblymember Richard Bloom


Jan 27, 2017

The Honorable Ben Allen Member, California State Senate State Capitol, Room 2054 Sacramento, CA 95814

The Honorable Richard Bloom Member, California State Assembly State Capitol, Room 2003 Sacramento, CA 95814

Dear Senator Allen and Assemblyman Bloom:

As we approach the beginning of the legislative session for 2017 we anticipate renewed efforts behind legislation that proponents say are intended to address the affordable housing shortfall in California communities. We wish to offer early observations about how such legislation can and should be framed if it is to do more good than harm. As you know, Santa Monica has had significant experience and notable success in provision and development of affordable housing in our community. We also have a strong record in the development of market rate housing and understand the dynamics of such in a local market.

Major Concerns

The rationale for legislative efforts in the prior session for streamlining the processing of applications for market rate development was that increasing the supply of housing of any sort would automatically remedy the crisis of housing affordability in California. This oversimplifies the dynamics of the marketplace significantly. It is wishful thinking to believe that this approach is a practical way to a ensure a lower cost housing supply in the near term, especially down to a level affordable to lower income households. The time required to develop the number of units needed to have such a significant effect in the marketplace would be measured in multiple decades. Such a strategy effectively forsakes the needs of hundreds of thousands of lower income families priced out of the marketplace now, the meager inclusionary program proposed in the prior legislation notwithstanding.

If the State of California is serious about addressing its affordable housing crisis, including the crisis experienced by lower income families, it must intervene directly, not indirectly, and in the near term to create hundreds of thousands of new affordable housing units and work to help willing local communities to do so as well themselves.

Another rationale for prior efforts to streamline the development process for market rate development was a mistaken belief that doing so will lower developer costs and thus lead to lower market rents.

Unfortunately, even if streamlining lowers development costs, developers will rent at whatever the market will bear irrespective of costs.

In addition, and of the greatest concern, the proposed legislative program in the last session made no distinction between developments proposed for sites already developed with existing multifamily housing and developments proposed for sites that are vacant or in commercial use. It would have facilitated both. This would without doubt have resulted in the displacement of many working families and the loss of many units of existing affordable housing in our community and many other California communities. (These losses would be facilitated by the Ellis Act in cities, like Santa Monica, with rent control ordinances.) It is possible, perhaps likely, with such legislation, that California would lose more existing affordable units than it would gain in new inclusionary units. And communities would lose many of their current lower income residents.

As well, the flawed prior program inexplicably required fewer inclusionary units in developments near transit. For developments to yield meaningful numbers of new transit riders, these developments need a greater number of affordable units in close proximity to transit, not fewer, since lower income families have a much higher propensity to use public transit services.

Historical Perspectives and Observations:

Rent Control

The single largest component of affordable housing in Santa Monica is its rent-controlled housing stock. Prior to full implementation of the vacancy decontrol provisions of Costa-Hawkins in 1999, more than half of Santa Monica’s total housing stock consisted of rent-controlled apartments affordable to households with moderate incomes or less. Today, only 25% of the City’s entire housing stock consists of rent-controlled apartments that remain affordable to those with moderate incomes or less. Avoiding the loss of these units and their residents remains a decades-long priority of the affordable housing strategy for our community.

Any program serious about meeting the need for affordable housing in California communities must address the rapid erosion of the affordable rental housing in our and other communities with rent control ordinances. These communities generally feel the greatest price pressures on their housing stock. Thus, constraining vacancy decontrol and repealing or significantly restricting the use of the Ellis Act should be policy priorities.

New Affordable Housing Production

The community of Santa Monica has committed itself over the past three decades to serious efforts to create new affordable housing. We have had significant success, with lessons that may be of use to you in formulating legislation and to other communities with similar priorities.

In 1990 Santa Monica voters approved Proposition R, a local measure requiring that in the aggregate a minimum of 30% of all new units built in Santa Monica each year be deed-restricted affordable to and occupied by households at or below the Los Angeles County area median income. Half of such units (i.e., 15% of all new units built) must be deed-restricted affordable to and occupied by households earning 60% of Los Angeles County area median income or less.

According to city staff, 38% of units built in the last 22 years have been deed-restricted affordable units. This was achieved at the same time as the city experienced an overall housing construction boom.

Specifically, local Santa Monica housing policies and programs over the past 22 years have produced:

  • 5084 newly constructed housing units, including 3133 market rate units;
  • 1951 newly constructed deed-restricted affordable housing units (38%), including over 1200 units targeted to low and very low income households;
  • Approximately 800 existing housing units that were acquired and rehabilitated for use as deed-restricted housing affordable to very low, low, and moderate income households.

    Regional Housing Needs Allocation (RHNA)

In addition, California requires communities to assume some responsibility in their Housing Elements for meeting regional housing needs, called the Regional Housing Needs Allocation (RHNA). In the six years from 2008 to 2014, Santa Monica’s total RHNA obligation was 662 units.

During that six year period over 1500 housing units were built in Santa Monica, well more than double the RHNA requirements. Of these:

  • 799 were market rate units, far exceeding the 277 unit RHNA allocation.
  • 744 (or 55%) were deed-restricted multi-family units targeted to very low, low and moderate income households, nearly doubling the 385 unit RHNA allocation.

    Assessment

Any reasonable assessment would conclude that Santa Monica’s land use and housing policies and programs, rather than being unduly restrictive, have been remarkably successful in generating both market rate and long-term affordable housing.

In fact, if communities throughout Los Angeles County had proportional production to that of Santa Monica during the past 22 years we would not now be talking about an affordable housing crisis. There would have been over 500,000 total units built of which nearly 200,000 would have been deed-restricted affordable units. In addition, some 80,000 multifamily units would have been acquired, rehabilitated, and deed-restricted as housing affordable to low and moderate families.

What Worked for Santa Monica

1)  The City of Santa Monica had local funds to invest, mostly redevelopment dollars and housing mitigation fees, in creating new affordable housing.

2)  This effort was supplemented by implementation of local inclusionary housing requirements on market rate projects.

But Santa Monica’s success would be more difficult now because of the loss of redevelopment funds and because there is a legal cloud over the ability of cities to adopt at least some forms of inclusionary zoning laws. It is fully within the power of the legislature to remedy both of these deficiencies.

Fortunately, a recent voter approved sales tax measure and allocations of city general fund revenues has replaced lost funds for affordable housing in Santa Monica. However, other communities may not have the same opportunity.

Recommendations: Preservation and direct development of affordable housing needs to become the priority driving state policy, rather than relying upon indirect market strategies that creates significant risks of displacement and loss of existing affordable housing:

1. The State of California can do the following to enable communities to produce affordable housing in the near and long term:

    a)  Create a new mechanism for local governments to raise funds to support local construction as well as acquisition and rehabilitation of affordable housing.

    b)  Restore to local governments the clear authority to adopt local inclusionary housing ordinances whereby cities can require significant affordable units be included in market rate developments.

    c)  Create a state affordable housing fund that can be available to communities eager to build affordable housing. Perhaps it can serve as a match to communities who create local sources of affordable housing funding and incent communities to meet or exceed their RHNA allocations.

2. Any future legislation seeking to streamline the processing of market rate multi-family housing applications should:

    d)  Apply only to developments proposed at sites where there will be no displacement of existing residents and no loss of existing housing. This can be accomplished by limiting the streamlining to projects at vacant sites and sites occupied with commercial uses.

    e)  Provide robust levels of inclusionary housing to qualify, most especially near transit.

3. If the State of California is interested in expanding the supply of housing it should develop tools to facilitate development in locations where market rents would be more affordable to middle-income households, rather than simply streamlining the approval process for high- income housing in hot markets. In Los Angeles County, for example, such efforts could focus on commercial boulevards where major transit service expansion, like Bus Rapid Transit, is planned. Many of these boulevards are in very low density use now and have much more reasonable land values than hot-market communities. Public amenities like urban forestry and an attractive streetscape, perhaps funded by the Greenhouse Gas Reduction Fund, can make these boulevards attractive places for people to live. Infrastructure Finance Districts can lower development costs in several ways. Efforts must include policies that ensure deed restricted housing affordable to low-income families is included as well as policies to protect existing families and existing affordable housing.

Conclusion

We believe that state strategies focused solely on enabling market rate housing, even with modest inclusionary requirements, will not measure up to the scale of need for affordable housing in a reasonable timeframe (if ever) either countywide or statewide. We do not believe the trickle-down effects of merely expanding market rate housing will ever trickle-down broadly enough or fast enough to address the need we experience now for housing affordable to lower income families in California or LA County.

While development of market rate housing can itself be beneficial to a community, we must find and implement policies that help communities directly produce affordable housing in the near term and we must do so soon and we must do it at scale.

The good news is, we know what does work. Let’s restore the tools local governments once had – funding for affordable housing and clear authority for inclusionary housing – but also give local governments strong incentives to actually use them - including state resources for affordable housing.

It is essential to re-emphasize that whatever measures the State of California tries to use to expand development of new market rate housing should never be at the expense of existing affordable housing and their existing residents. Even with inclusionary requirements we may well lose many more affordable units than we will gain. The affordable housing we are losing is our true crisis.

Denny Zane
Co-Chair
Santa Monicans for Renters’ Rights

Patricia Hoffman
Co-Chair
Santa Monicans for Renters’ Rights

CC: Mayor Ted Winterer, City of Santa Monica Members, Santa Monica City Council Rick Cole, Santa Monica City Manager Congressman Ted Lieu

Governor Jerry Brown
CA Senate President Pro Tempore Kevin de Leon
CA Assembly Speaker Anthony Rendon
Ben Metcalf, Director, CA Department of Housing & Community Development
Lisa Bates, Deputy Director, Housing Policy Division, CA Dept. of Housing & Community Dev. Members, Los Angeles County Board of Supervisors
Mayor Eric Garcetti, City of Los Angeles
Members, Los Angeles City Council
Members, Assembly Housing and Community Development Committee
Members, CA State Senate Transportation & Housing Committee