By Kevin Herrera
Daily Press Staff Writer

CITYWIDE — Keith Hagaman was planning to build eight townhouses north of Wilshire Boulevard, but ever since the City Council approved new affordable housing requirements for developers, he’s been having second thoughts.

The problem: No more in-lieu fees. Instead, developers have to build affordable housing. They can no longer pay into a City Hall fund.

Hagaman planned to pay a fee of $26.08 per square foot of development to cover the affordable housing requirements that comes with building condos and townhouses in Santa Monica.

That’s no longer an option under changes to the requirements, passed by the council earlier this month to comply with Proposition R, a local law mandating that 30 percent of all housing built each year be affordable.

Hagaman will now have to set aside at least 20 percent of the units he builds for moderate-income buyers. If he chooses to build the affordable housing off-site, which would help raise the value of his town homes, Hagaman would have to set aside 25 percent more than what is required for on-site development. The units also would have to be located within a one-quarter mile radius of the market-rate units he builds, which is nearly impossible given the high price of land north of Wilshire Boulevard.

“By paying the fee we were just barely getting by, and then this comes into play,” Hagaman said of the new requirements. “I don’t know if I can move forward with my project now … I just don’t think (the council) has thought this through. This is a monumental shift compared to how things have been done in the past.”

Housing that is considered “low income” is defined as those households whose incomes do not exceed 60 percent of the Los Angeles County median income, which ranges from about $33,000 for one person to $62,800 for eight people. “Moderate income” housing is defined as those households whose income do not exceed 100 percent of the LA County median income.

Hagaman isn’t the only one considering pulling out of Santa Monica. Rosario Perry, an attorney representing the Action Apartment Association and developers like Hagaman, said he has received calls from 40 to 50 builders who said they have projects that will be affected by the law.

They are planning to sue City Hall, claiming the new requirements create a tremendous financial burden and constitute severe constraints on the production of new housing and therefore must be approved by the state, Perry said.

“Builders are very upset,” said Perry, who is “85 percent sure” a lawsuit will be filed soon. “They feel they weren’t told about this change and did not have an opportunity to address the council.”

City officials said the requirements don’t place an unfair burden on developers and will not significantly hinder the construction of housing.

“We don’t think this will inhibit development,” said Barry Rosenbaum, City Hall’s land use attorney, who helped draft the ordinance. “We believe development can go forward, but if someone wants to develop a condo project in a residential district, there is going to have to be some affordability, which is usually one unit under typical development.”

Perry said the changes have essentially put a moratorium on condo construction in residential areas as developers will not want to invest millions to see their profits dwindle. He also said it is nearly impossible to reap all of the rewards that come along with building an affordable unit on-site because parcels are not large enough to accommodate what is called a “density bonus,” which is an incentive offered by the state that allows developers to add square footage to their projects if they put affordable housing on-site.

The modifications only apply to developments of four or more housing units in multi-family residential zones — not commercial or industrial. Developers building under four units are still eligible to pay the in-lieu fee. Rental housing is not subject to the new requirements.

“This is part of a battle that has been going on for 30 years,” between developers and Santa Monicans for Renters Rights (SMRR), Perry said, who questioned why the modifications only applied to multi-family residential and not commercial zones.

The foundation of SMRR — the ruling political party in Santa Monica for the past 27 years — is protecting rent control and affordable housing in the city. It has held the majority on the City Council for most of the past three decades.

“This is a way to stop people from (converting) rental units into condos,” Perry said, referring to the Ellis Act, which is a law that allows landlords to take rental units off the market, tear down them down and build condos — typically much more expensive than apartments.

When the council voted for the change, Mayor Bob Holbrook and Councilman Herb Katz were the only two who voted against it. The two have often been empathetic with developers in the past. Those who supported the new requirements were, for the most part, members of SMRR or have been supported by the organization in past elections, except Councilman Bobby Shriver.

At least 18 developers and landlords filed requests to speak to the council before the decision was made, but since the law was being read for the second time, city rules do not allow public discussion unless a majority of the council supports it. Holbrook, Katz and Shriver voted in favor of hearing from the public, while the remaining four members did not.

Elaine Golden-Gealer, a property owner and real estate broker who specializes in condominiums, said she felt disrespected when council members voted against hearing her speak.

“I thought this was a democracy,” she said while walking out of City Hall. “It isn’t.”

When asked why she did not attend an earlier meeting in which the changes were first discussed, Golden-Gealer said she didn’t know anything about it, nor did other property owners.

“I think if you look at the tapes from the meeting you’ll see that the first reading took place at 1 a.m.,” she said. “That’s not a normal time for anyone to be up there, especially when they have to be up at 6 a.m.”

Councilman Ken Genser, who supported the modifications, said it is the council’s policy not to allow public comment on an issue that is up for its second reading, and that doing so in this case would create a precedent for others to press the council for more time to speak.

“We went out of our way for increased public comment,” Genser said. “We opened the hearing a second time.”

Genser said the new requirements are necessary to create a balance between affordability and condos that can cost as much as $2 million.

“The price of land has gone up exponentially, largely because of the quality of life in the city and I think it is appropriate for the community to recapture part of that value and part of that increase to make sure all people of all income levels can remain in this city,” Genser said. “These requirements are basically an exaction on the land and I’m not sure that isn’t an appropriate place for the cost to come from.”