WHEREAS, Santa Monica is a coastal city in a prime location, being bordered by the City of Los Angeles to the north, east and south; and

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1 City Council Meeting / /2013 ORDINANCE NUMBER (CCS) (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AMENDING SANTA MONICA MUNICIPAL CODE SECTIONS , , AND TO MODIFY THE MAXIMUM INCOME AND RENT FORMULA AND CORRESPONDING DEFINITIONS. WHEREAS, Santa Monica is a coastal city in a prime location, being bordered by the City of Los Angeles to the north, east and south; and WHEREAS, the combination of a scenic oceanside location, excellent climate, and the ready availability of urban facilities, services and entertainment make Santa Monica an extremely desirable place to live; and WHEREAS, land area of the City is very small approximately eight square miles; and WHEREAS, Santa Monica is already a fully built-out city, with only thirty-three vacant residential parcels and a population of approximately ninety-one thousand five hundred; and WHEREAS, Santa Monica s population density, persons per square mile, is the second highest among neighboring and nearby jurisdictions, and is the densest among coastal communities in Los Angeles County; and WHEREAS, market conditions, including the high cost and lack of residential land, construction costs, and the availability and cost of financing, make the development of affordable housing in the City extremely difficult; and WHEREAS, the vast majority of housing units have been and will continue to be produced by the private housing industry; and WHEREAS, new market rate multi-family housing in Santa Monica accommodates upperincome households almost exclusively because of the high rent or purchase price required to occupy it; and WHEREAS, because the City is fully built-out, land available for residential development in the City is extremely limited; and land which could be used for development of housing for affordable households is being depleted by development of high cost housing resulting in a continued rise in land costs; and 1

2 WHEREAS, continued new residential development which does not include or contribute toward the cost of affordable housing development will only serve to further exacerbate the current affordable housing shortage; and WHEREAS, the lack of affordable housing production by market-rate development has a direct impact upon the health, safety, and welfare of the residents; and WHEREAS, the failure to provide adequate affordable housing for lower-wage workers can force these workers to live in less than adequate housing within the City, pay a significantly disproportionate share of their incomes to live in adequate housing within the City, or commute ever-increasing distances to their jobs from housing located outside the City; and WHEREAS, requiring developers to assist in the production of affordable housing is also consistent with the City s long-standing commitment to achieve and maintain a suitable living environment including decent housing for persons at all economic levels; and WHEREAS, this municipal commitment conforms with State and Federal policies and is a principal goal of the City s Housing Element Update and the Consolidated Plan; and WHEREAS, California s Housing Element law requires each city and county to develop local housing programs designed to address its fair share of existing and future housing needs for all income groups; and WHEREAS, the City s Housing Element Update establishes the City s fair share at housing units of which should be affordable; and WHEREAS, the City has historically effectuated this commitment to affordable housing through extraordinary efforts manifest in various City laws, policies and programs; and WHEREAS, for instance, the City s voters have adopted initiative measures which strive to maintain and promote affordable housing in the City; the Rent Control Charter Amendment, adopted in 1979, has as its primary purpose the protection of affordable housing and has historically been the City s most important legislative tool for maintaining a supply of affordable housing; and, similarly, Proposition R, adopted by the voters in 1990, mandates that thirty percent of all new multi-family housing units constructed in the City each year be affordable; and WHEREAS, the City s zoning laws and policies also include substantial incentives for the production of affordable housing, including height and density bonuses and reduced parking requirements; and WHEREAS, the City operates a number of programs which facilitate the production of affordable housing, including loans to private, non-profit agencies to created through acquisition and rehabilitation, or construct new affordable housing units; and 2

3 WHEREAS, the Housing Element Update catalogues a dozen funding sources that the City utilizes to assist in the development and rehabilitation of affordable housing totaling almost ; and WHEREAS, despite this significant commitment by the City, the City s total housing needs exceeds its available resources and the City s ability to meet these needs; and WHEREAS, despite the City s prime location and high real estate values, the City has historically been successful in maintaining economic diversity; and WHEREAS, based on census data in the Housing Element Update, percent of the City s households were very low income, percent were low income, percent were moderate income, and percent were upper income; and WHEREAS, percent of households residing in rent-controlled apartments in the City were very low- and low-income; and WHEREAS, this diversity is an essential element of the City s character; it sets the City apart from all other similarly situated coastal cities in California; and WHEREAS, notwithstanding the City s ongoing commitment and efforts, changes in State and Federal law and market conditions are making it increasingly difficult for the City to ensure a continued supply of affordable housing; and WHEREAS, in 1986, the State enacted the Ellis Act which enables a property owner to cease operating property as residential rental property and, more recently, in 1995, the State enacted the Costa-Hawkins Rental Housing Act which eliminated the limits on the rents which a property owner may charge when re-renting voluntarily vacated units; and WHEREAS, between 1986 and 2012, over controlled rental units have been permanently withdrawn from the rental market pursuant to the Ellis Act; and WHEREAS, Costa-Hawkins has had a devastating impact on the City s affordable housing stock because between 1999 and 2012, controlled rental units, or about percent of the total, have been rented at market rates; and WHEREAS, of these units had formerly been affordable to low-income households including units which had formerly been affordable to very low-income households; and WHEREAS, the median monthly rents upon re-rental have increased to from $ ( for one bedroom units; from ( percent) for two bedroom units and $ from $ ( percent) for three or more bedroom units; and 3

4 WHEREAS, had the units not been rented at market, the median MAR s, including the general adjustment, for these units would have been affordable to households making of median income; and WHEREAS, none of the post-increase-medians are affordable at this income category; and WHEREAS, after these increases, the median Maximum Allowable Rents ( MARs ) of the 0- bedroom units are only affordable at 100% of median and above; and WHEREAS, the median MARs of 1-bedroom units are only affordable to households at % of median and above while the median rents for 2 and 3-bedroom units are not even affordable to that income level; and WHEREAS, this law is having and will continue to have a significant impact on the City s supply of affordable housing; and WHEREAS, according to the annual report to the City Council concerning the City Affordable Housing Production Program and Proposition R, of the units in multifamily developments completed during FY were affordable; and WHEREAS, based on the building permits that have been issued for new multifamily developments, only of these units will be affordable; and WHEREAS, Section of the Affordable Housing Production Ordinance provides that when the provisions of Proposition R have not been met, the City Council shall take action to ensure that its provisions are met in the future; and WHEREAS, the requirements of the AHPP are based on a number of factors including, but not limited to, the City s long-standing commitment to economic diversity; the serious need for affordable housing as reflected in local, state, and federal housing regulations and policies; the demand for affordable housing created by market rate development; the depletion of potential affordable housing sites by market-rate development; and the impact that the lack of affordable housing production has on the health, safety, and welfare of the City s residents including its impacts on traffic, transit and related air quality impacts, and the demands placed on the regional transportation infrastructure; and WHEREAS, reductions in State and federal funding for affordable housing, changes in these programs, and the potential expiration of controls on rents in federally-assisted projects all hinder the City s ability to provide or promote affordable housing threatening the City s existing affordable housing stock; and WHEREAS, the decline in the affordability of this housing stock is further exacerbated by the production of luxury market rate housing; and 4

5 WHEREAS, between , % of new residential development has occurred in the City s commercial districts; and WHEREAS, % of the residential units with building permits issued as of December will be located in the City s commercial districts; and WHEREAS, the United States Department of Housing and Urban Development (HUD) publishes a Median Family Income (MFI) also known as the Area Median Income (AMI) for the Los Angeles-Long Beach, CA HUD Metro FMR Area (Los Angeles); The AMI for a family of four for 2012 was $64,800; HUD also publishes a Very Low Income (VLI) number for a family of four for Los Angeles which is 50% of AMI, adjusted for high housing costs; The VLI for 2012 was $42,150; WHEREAS public affordable housing programs use either 2 X VLI or the AMI as benchmarks to calculate maximum affordable income and/or maximum affordable rents, adjusted for unit and household size; For example, the Federal LIHTC program and the State of California MHP program, use the 2X VLI benchmark to set rents and incomes; the State of California Density Bonus and Redevelopment programs as well as the majority of local inclusionary housing programs use AMI to set rent limits and 2 X VLI to set some income limits; the City of San Francisco has used the AMI to set income limits for its inclusionary housing program. WHEREAS, these two benchmarks have diverged over time such that in 2012, the MFI ($64,800) is not equal to two times the VLI ($84,300), a difference of nearly $20,000, the City of Santa Monica s AHPP program follows the Federal LIHTC programs in setting its rents and incomes limits based on 2 x VLI; and WHEREAS, beginning in approximately 2004, due to the high cost of housing in the Los Angeles County metropolitan area, the United States Department of Housing and Urban Development s median income limits diverged from Santa Monica s moderate income limit (2xVLI) such that Santa Monica s moderate income limit was substantially higher than the United States Department of Housing and Urban Development s median income limit for the Los Angeles County metropolitan area; and WHEREAS, housing overpayment is a significant problem in the City of Santa Monica, with 44% of the population paying more than 30% of their income to rent from 2006 to 2010, and renter households earning less than $50,000 were the most impacted according to the 2012 Santa Monica Analysis of Impediments to Fair Housing Choice; WHEREAS, the rents charged through the AHPP program are higher than in other California cities, including the City of Los Angeles, the City of San Francisco, the County of Los Angeles, and the City of West Hollywood; WHEREAS, Proposition R requires that moderate income household means a household with an income not exceeding one hundred percent (100%) of the Los Angeles County median 5

6 income, adjusted for family size, as published by the United States Department of Housing and Urban Development; and WHEREAS, Proposition R requires that low income household means a household with an income not exceeding sixty percent (60%) of the Los Angeles County median income, adjusted by family size, as published from time to time by the United States Department of Housing and Urban Development; and, WHEREAS, the average market rate rents for zero and one bedroom apartments in Santa Monica are equivalent to the rents charged for moderate income affordable units under the current AHPP program, and there is no demand for those moderate income AHPP units as they are currently priced while tens of thousands of households 98% of all applicants -- populate the city waiting list for affordable housing for extremely low, very low and low income households, and less than 1% of the waiting list applicants on the 2011 waiting list were moderate income households. WHEREAS, this municipal commitment is an action which affirmatively furthers fair housing choice in that it addresses impediments recognized in the City s 2012 Analysis of Impediments to Fair Housing Choice (insert); and WHEREAS, housing overpayment is a significant problem in the City of Santa Monica, with 44% of the population paying more than 30% of their income to rent from 2006 to 2010, and renter households earning less than $50,000 were the most impacted according to the 2012 Santa Monica Analysis of Impediments to Fair Housing Choice; WHEREAS the City of Santa Monica wishes to update and change its AHPP program s rents and incomes limits setting methodology in order to better target lower income households and maintain the City s present diversity; WHEREAS, Santa Monica desires to align its income and rent limits with the median income published by the United States Department of Housing and Urban Development; WHEREAS, the community benefits associated with creating apartments for moderate income households as currently defined in the AHPP are questionable; WHEREAS, the community benefit of sustaining the diversity of Santa Monica is implemented by the proposed changes in its AHPP; WHEREAS, given current economic conditions and the general desirability of the City; the price of new housing will only continue to increase, thereby further exacerbating the growing shortage of affordable housing in the City; and WHEREAS, this Affordable Housing Production Program will benefit the City as a whole since each development which contributes to affordable housing through the provisions of this Chapter augments the City s housing mix, helps to increase the supply of housing for all economic segments of the community, addresses the affordable housing need generated by the 6

7 development, helps meet the voter mandate expressed in Proposition R and thereby supports a balanced community which is beneficial to the public health, safety and welfare of the City, NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES HEREBY ORDAIN AS FOLLOWS: SECTION 1. Santa Monica Municipal Code Section is hereby amended to read as follows: Definitions. The following words or phrases as used in this Chapter shall have the following meanings: Adjusted for Household Size means for a household of one person in the case of a studio unit, two persons in the case of a one-bedroom unit, three persons in the case of a two-bedroom unit, five persons in the case of a three-bedroom unit, and six persons in the case of a four-bedroom unit. Affordable Housing Fee. A fee paid to the City by a multi-family project applicant pursuant to Section of this Chapter to assist the City in the production of housing affordable to very low-, low-, and moderate-income households. Affordable Housing Unit. A housing unit developed by a multi-family project applicant pursuant to Section or of this Chapter which will be affordable to extremely low, very low-, low-, or moderate-income households. Affordable Housing Unit Development Cost. The City s average cost to develop a unit of housing affordable to low- and moderate income households. Annual Gross Income. Gross income as defined in CCR Title 25, Section 6914, as amended from time to time. Area Median Income or AMI. The unadjusted median income level published by HUD on an annual basis for the Los Angeles-Long Beach Metropolitan Statistical Area, adjusted solely for household size, but not for high housing cost area. The AMI is also referred to as the Median Family Income. Bedroom Adjustment Factors are as follows:.7 for a 0 bedroom unit;.85 for a 1 bedroom unit; 1.0 for a 2 bedroom unit; 1.15 for a 3 bedroom unit; and, 1.30 for a 4 bedroom unit.. Dwelling Unit. One or more rooms, designed, occupied or intended for occupancy as separate living quarters, with full cooking, sleeping and bathroom facilities for the exclusive use of a single household. Dwelling unit shall also include single-room occupancy units as defined in Santa Monica Municipal Code Section

8 Floor Area. Floor area as defined in Santa Monica Municipal Code Section HUD. The United States Department of Housing and Urban Development or its successor. Industrial/Commercial District. Any district designated in the Santa Monica Zoning Ordinance as a commercial or industrial district. Extremely Low Income Household shall mean a household whose income does not exceed the extremely low income limits applicable to the Los Angeles-Long Beach Primary Metropolitan Statistical Area, adjusted for household size, as published and periodically updated by the State Department of Housing and Community Development pursuant to Health & Safety Code Section The income limit for Extremely Low Income Households in the Los Angeles- Long Beach Primary Metropolitan Statistical Area is 30 percent of the area median income. Very Low-Income Household shall mean a household whose Annual Gross Income is between 31% and 50% of Area Median Income, Adjusted for Household Size, as defined in this Chapter. Low-Income Household shall mean a household whose Annual Gross Income is between 51% and 60% of Area Median Income, Adjusted for Household Size, as defined in this Chapter. Lower-Moderate Income Household or Low-Mod Income Household shall mean a household whose Annual Gross Income is between 61% and 80% of Area Median Income, Adjusted for Household Size as defined in this Chapter. Moderate Income Household shall mean a household whose Annual Gross Income is between 81% and 100% of Area Median Income, Adjusted for Household Size, as defined in this Chapter. Market Rate Unit. A dwelling unit as to which the rental rate or sales price is not restricted by this Chapter. Maximum Monthly Affordable Rent (MMAR) The maximum monthly rent that a housing developer may charge a household occupying an Affordable Housing Unit. The MMAR shall be no more than 30 percent of the maximum Annual Gross Income for an Extremely Low, Very Low, Low, Low-Mod, or Moderate Income Household as defined in this Chapter, divided by 12, adjusted for Household Size as of the first date of the tenancy, as adopted each year by the City The MMAR is calculated as follows: (Unadjusted) Area Median Income (I) x Household Income Category (e.g..60 (low)) (2) x Bedroom Adjustment Factor (3) x 30% 12 Rent. The total charges for rent, utilities, and related housing services and amenities (including one parking space per household) to each household occupying an Affordable Housing Unit. The housing services and amenities provided to a household occupying an Affordable Housing Unit shall be the same as those provided for market rate dwelling units in the project, whether or not occupants of market rate dwelling units pay separate charges for such services and amenities. 8

9 Housing services and common area amenities include, but are not limited to, the following: parking, use of common facilities including pools or health spas, and utilities if the project is master-metered. Notwithstanding the foregoing, utility charges, to the extent individually metered for each unit in the project, may be billed directly to the occupants of affordable housing units, but the occupants shall be provided a corresponding utility allowance according to the Santa Monica Housing Authority s utility allowance schedule approved annually by the City. Multi-family Project. A multi-family residential development, including but not limited to apartments, condominiums, townhouses or the multi-family residential component of a mixed use project, for which City permits and approvals are sought. Multi-family Project Applicant. Any person, firm, partnership, association, joint venture, corporation, or any entity or combination of entities which seeks City development permits or approvals to develop a multi-family project. Multi-family Residential District. Any district designated in the Santa Monica Zoning Ordinance as a multi-family residential district. Parcel. Parcel as defined in Santa Monica Municipal Code Section Vacant Parcel. A parcel in a multi-family residential district that has no residential structure located on it as of August 20, 1998 or which had a residential structure located on it on that date which was subsequently demolished pursuant to a demolition order of the City. No demolition of structures shall be permitted except in accordance with Santa Monica Municipal Code Section et seq. SECTION 2. Santa Monica Municipal Code Section is hereby amended to read as follows: Applicability of chapter. (a) The obligations established by this Chapter shall apply to each multi-family project for which a development application was determined complete on or after, 2013 involving the construction of two or more market rate units. No building permit shall be issued for any multi-family project unless such construction has been approved in accordance with the standards and procedures provided for by this Chapter. Notwithstanding the above, a multifamily rental housing project that will be developed by a nonprofit housing provider receiving financial assistance through one of the City s housing trust fund programs shall not be subject to the requirements of this Chapter so long as the project is an affordable housing project meeting the requirements of Santa Monica Municipal Code Section and the project s affordability obligations will be secured by a regulatory agreement, memorandum of agreement, or recorded covenant with the City for a minimum period of fifty-five years. (b) Multi-family projects for which a development application was determined complete prior to May 25, 2006 shall be subject to the provisions of Santa Monica Municipal 9

10 Code Section et seq., as they existed on the date the application for the project was determined complete. (c) A designated landmark building or contributing structure to an adopted Historic District that is retained and preserved on-site as part of a multi-family project shall not be considered or included in assessing any of the requirements under this Chapter. SECTION 3. Santa Monica Municipal Code Section is hereby amended to read as follows: Income and pricing requirements for affordable housing units. The City Council shall, by resolution, on an annual basis, set maximum Annual Gross Income Limits, Maximum Monthly Affordable Rents, and Maximum Affordable Purchase Prices for affordable housing units, adjusted by the number of bedrooms. The City shall publish yearly schedules of Annual Gross Income limits by household size and and Maximum Monthly Affordable Rents by affordability level. (a) Maximum Monthly Affordable Rents shall be set at rates such that qualified extremely low-income, very low-income, low-income, low-mod income, and moderate-income households pay a maximum monthly rent that does not exceed the Monthly Maximum Affordable Rent as defined in Section of this Chapter. (b) Such Maximum Affordable Purchase Price shall be set at rates such that qualified occupants for low income units pay total monthly housing costs (mortgage payment, property taxes, homeowners insurance, property mortgage insurance, homeowners association fees) that do not exceed thirty-eight percent of the gross monthly household income for households earning sixty percent of the median income and that qualified occupants for very low-income units pay total monthly housing costs (mortgage payment. property taxes, homeowners insurance, property mortgage insurance, homeowners association fees) that do not exceed thirty-eight percent of the gross monthly household income for households earning fifty percent of the median income and that qualified occupants for moderate income units pay total monthly housing costs (mortgage payment, property taxes, homeowners insurance, property mortgage insurance, homeowners association fees) that do not exceed thirty-eight percent of the gross monthly household income for households earning one hundred percent of the median income. APPROVED AS TO FORM: MARSHA JONES MOUTRIE City Attorney 10

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