The Santa Monica City Council voted 6-1 at its last meeting to approve a pilot program allowing developers to build affordable housing off-site instead of requiring it as part of a development, despite concerns the policy could lead to economic segregation in the city.
Supporters said the emergency ordinance addresses a construction crisis that has left thousands of approved housing units unbuilt due to high interest rates and rising construction costs. Only two building permits for multifamily units have been issued in Santa Monica this year—one for affordable housing and another for a three-unit project.
Mayor Lana Negrete cast the lone dissenting vote, warning the program could create "modern-day redlining just in a much subtler form."
"This pilot risks accelerating that imbalance," Negrete said. "Off-site inclusionary housing...still tends to push affordable units to where the land is the cheapest. That's not integration, that's not diversity."
The pilot program offers three options for developers to meet affordable housing requirements: constructing units off-site with $150,000 per unit in gap financing, rehabilitating existing uninhabitable units, or paying in-lieu fees of $43.91 per square foot for apartments and $51.30 per square foot for condominiums.
The pilot program is limited to 1,000 units and set to expire on September 30, 2025, with staff directed to return with more data for potential renewal.
The program targets approximately 40 housing projects that received approval but remain stalled. City records show up to 3,598 approved market-rate units and 642 affordable units across 37 projects could potentially be eligible.
Staff reported the residential construction industry faces "significant financial challenges due to macroeconomic and global political factors," including elevated interest rates, construction material cost volatility, and labor shortages. Local factors such as the city's Measure GS transfer tax have further complicated construction financing.
Council member Jesse Zwick supported the measure, arguing economic realities demand flexible solutions.
"The status quo is not working—absolutely nothing is getting built right now," Zwick said. "We need to adapt our rules to this economy because it's not changing anytime soon."
Supporters argued the program would unlock thousands of housing units, while critics worried about inadequate affordable housing production and insufficient public input.
"This ordinance is likely to produce in excess of a thousand units of housing and 100 affordable units," said supporter Sam Shapiro Klene.
Opposition came from housing advocates who questioned the program's effectiveness. Mike Soloff from Santa Monica for Renters' Rights criticized the rushed timeline, saying the organization received only five days' notice about the proposal's details.
The program includes safeguards prohibiting off-site affordable units in the Pico neighborhood, where affordable housing is already concentrated. Under the off-site construction option, developers have up to 48 months after building permit issuance to begin affordable housing construction, with possible 12-month extensions.