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SM.a.r.t. Column: A Path to Affordable Ownership in Santa Monica

[Note: our guest author today is Andres Drobny, a former Professor of Economics at the University of London, the former Chief Economist at Bankers Trust Company in London, and the founder of Drobny Global Advisors, a financial markets boutique based in Santa Monica. Andres resides in Santa Monica.]

We regularly hear of friends or colleagues leaving town to buy a home they can afford. After all, who wouldn’t want to switch from an ever increasing monthly rent to a fixed and stable mortgage payment? Especially when, at the end of the process, you own a tangible asset. It’s a shame, and a disadvantage to the city, that many residents feel forced out if they want to buy a home. And, what about long term renters who don’t have the funds to put a down payment anywhere? 

We can start to address this. We have the units, the financial assets, the infrastructure, and even the management right here in Santa Monica!  It’s all in the great public housing agencies that were developed 40 years ago to address affordability in the rental sector. They are a roaring success, have mushroomed in size and importance, and could be adapted to be at the center of the next revolution in affordable housing–affordable ownership.

Consider the largest, CCSM, Community Corp of Santa Monica. Established in 1982, CCSM now has 100 properties with more than 2000 total units designed for low and moderate income individuals and families. It’s become a large and powerful nonprofit, with a net asset value that looks well north of $1bn (2000 units x $700K avg per unit – ½ the SM average condo sale in 2023 – minus $150mn debt). And, CCSM is building more properties with more units. So far, all of them rentals. 

These agencies are Santa Monica assets. They are our assets!  It’s our success. And, we could redirect them to help establish an affordable ownership sector.

Other municipalities and endowments show us the way; they offer a template. We often hear how they ‘sold off’ housing and land to raise funds due to financial stress, or to fund new projects. These sales would typically be gobbled up by investors and developers. 

We could do something here but in Santa Monica style. Create a system where long term faithful residents are given the opportunity to purchase their units at discounted prices. Unlike asset sales by endowments or municipalities, these ‘sales’ would simply mean CCSM passes title to some tenants, with little or no money actually changing hands. The housing equity locked up in these agencies would be released to deserving tenants, who suddenly gain exposure to equity gains after years of plowing money into the system.  

No developers, no investors, just regular Santa Monica folks. It would serve to diversify the affordable housing mix in Santa Monica, creating an incentive to stay here for the long term. And, it would leave agencies like CCSM at the center of an expanded mixed affordable housing sector. This process would seem a win-win, for tenants, owner occupiers, CCSM, and, frankly, all stakeholders in Santa Monica.

Getting this off and running is not without difficulties; there are hurdles to overcome. The first is the CCSM Charter, itself, which expressly prohibits sales: ‘….no part of this corporation’s income or assets shall ever inure…..to the benefit of any private individual’ (p3, Article 5A).  

This means a referendum of SM stakeholders is needed to change the Charter to allow sales to tenants. Such a referendum would likely politicize the issue, which could turn into a real positive. It would allow residents–owner occupiers and renters–to visualize a common goal. Placing such a referendum on the ballot for the 2026 SM elections has the potential to spark a strong popular response, perhaps allowing new alliances to be forged in the city and break up a highly polarized political structure. 

There are also financial hurdles. A first issue is that CCSM has existing mortgage obligations that may require renegotiation with lenders and a change in bylaws. There would likely have to be a workaround.

A bigger question, though, is that the current 30-year fixed mortgage rate at around 7%, makes it hard to facilitate purchases by tenants while keeping their total monthly payments roughly unchanged. That would seem crucial to making this plan work. As an example, a renter paying $1500/mo. can now only borrow around $250K at current rates. A $2500/mo. rental rate translates to roughly a $380K mortgage. One solution is for tenants to plow some capital to purchase the units. Or maybe other sources of subsidy can be found.

But, there’s a rather simple and elegant alternative. Offer purchasers different types of ownership stakes. Some senior living organizations, for example, now offer residents the choice of buying a 100% stake in their units or smaller percentage stakes (50%, 25%). This recent innovation in senior housing finance seems a perfect fit to a new affordable ownership sector. Imagine the possibilities as this new sector grows and matures. There could be rent to buy opportunities offered, so residents in affordable rentals use some of their rents as a downpayment on an eventual purchase.

There are many details to sort out, for sure. But, the equity to fund the transfers is just sitting there, locked up in the housing agencies. Much of the infrastructure is there in the same agencies. And, we can find innovative ways to make the numbers, which appear challenging, also add up. 

What’s needed is the political will to make these changes happen. The starting point would be a referendum in 2026 to change these charters to allow limited sales to existing long term tenants. And, start the process towards creating a 21st-century mixed rental/owner affordable sector. The change is long overdue. 

Andres Drobny

Santa Monica Architects for a Responsible Tomorrow: Thane Roberts, Architect, Robert H. Taylor AIA, Dan Jansenson, Architect and Building, and Fire-Life Safety Commission, Samuel Tolkin Architect & Planning Commissioner, Mario Fonda-Bonardi AIA & Planning Commissioner, Michael Jolly, AIR-CRE

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