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SM.a.r.t Column: The Up Zoning Scam (Part 2)

Last week’s SMart article  (https://smmirror.com/2024/06/sm-a-r-t-column-the-up-zoning-scam-part-1/)  discussed the ambitious 8895 units (including 6168 affordable units) that Santa Monica is required to build by Sacramento within the 2021-2029 time period. Because of certain factors outside the City’s control, even with the State’s gutting of all local control and codes, it will still be very hard to meet that target, particularly the 69% affordable housing mandate.

So, what’s a poor developer to do? With a virtually flat population growth, a high vacancy rate, the usurious cost of money, plus outrageous construction and land costs, why would anyone build in Santa Monica? And certainly, no developer(s) are foolish enough to flood the City with 8895 empty units since that would not only tie up all their expensively borrowed construction cash but, even worse, devalue the income and valuation of all their other existing Santa Monica rental properties.

There are two main reasons developers will still build in Santa Monica. First is to capitalize on this one-time bonanza of essentially no code and quality constraints. The developers have won their battle to be able to build anything, anywhere, and now just need to finally conquer the Coastal zone (where the real profits are), which is the last area that still has some protection from overdevelopment. Scott Weiner is even now trying to gut the Coastal Zone’s development controls. This total State theft of local power may not last forever, especially when the real limits to growth (global warming, water, and power shortages, seismic and sea level events, etc.etc.) start to kick in and when the inevitable resident backlash appears.

Deep pockets needed

Second, deep-pocketed developers take the long view. Regardless of what contraindications the future holds, they feel the area west of the 405 will always be desirable and profitable. Our mild climate coastal location upwind of LA, with a decent (but shrinking) school district, our proximity to LAX, UCLA, and major hospitals, all will provide long-term protection of their investments in Santa Monica. They need to capitalize now, but then they only need to have deep enough pockets to hold on for the big long-term payoff. In other words, our seaside town is being killed by all our very own desirable traits, which are irresistible to developers. They want to exploit our value now, even if they will kill, with their skyscrapers, the very same thing that makes the City desirable: its low-key beachside ambiance. 

So what will happen? First, Santa Monica developers will rush in to grab all the current State zoning giveaways and submit plans for a suffocating number of skyscrapers. You will see an incredible parade of proposed outrageously tall buildings in glossy publications, but you will have no forum to object to them because the State has purposefully removed any requirement for public hearings. No developer wants to spend their evenings being harangued by residents who will be adversely effected by their oversized developments.

Feeding Frenzy ahead

After the application feeding frenzy, our local Planning Department will approve every skyscraper request (including the huge list of discretionary itemized waivers they are not actually required to approve) in the foolish attempt to eliminate even the smallest disincentive or make any improvement to the project and thus reach the magical 8895 unit target. So, on paper we will probably meet the target to permit that ambitious number of units but, of course, not the 6168 affordable unit goal since that was just bait to sell it to the naive residents. There never was, nor will there ever be, any mechanism to actually permit and build 6168 affordable units in Santa Monica over the remaining 5 years of this 8-year housing element cycle ending in 2029.

Now, with permits in hand, ready for an imaginary  20% population boom, the development community will simply sit tight and trickle out just a very small number of skyscrapers, which will actually get built next year, with a little more trickling out every year after that so as not to flood the market and lower prices everywhere. Since the apartments will be virtually all (85-90%) for upper-end tenants, this strategy relies on harvesting wealthy rental residents from Brentwood, West LA, Beverly Hills, etc., not to mention New York, EU, and even China. The reason these new units will be rented to wealthy outsiders is that with a 10% vacancy rate, wealthy Santa Monicans living here already have plenty of choices if they want to relocate within Santa Monica itself. 

This may sound like some weird dystopian novel, a City frantically making way for wealthy outsiders while being flooded with homeless citizens (who are also mostly non-natives), but this is now our new normal. Recently, as of November 2023 (about 1/3 of the way into the 8-year housing cycle), the City shows that 2663 units were in plan check plus 2378 units already approved plus 813 units actually under construction, for a grand total of 5854 units in the “pipeline.” So, just 1/3 of the way into the eight-year cycle, we already have two-thirds of the required projects in the pipeline.  This is exactly what you would expect from Sacramento’s neutering of all local codes, review boards, and commissions: developers always jump in whenever they can make even a little more money than before.

Exactly as Planned

So the system is performing exactly as expected by the developer lobby, but another prediction is also coming true exactly as planned: the new State laws were not designed to create affordable housing: the 6000+ affordable units were just a fig leaf for the Sacramento power grab. If we look at the what is now actually in that 5854 unit pipeline, in the affordable housing category, there is a wimpy 1081 units (18.5% ) compared to the  4773 market-rate units (81.5%). In reality the ratio of affordable to market-rate housing should be the reverse: 69.3% to 30.7%. Another way of saying this is the total number of market-rate units in the pipeline is already, at year 3, about twice (4773 to 2727) what is needed for the entire 8 year period! This ratio is not likely to change in the remaining 5 years. It will probably get worse.

Finally, the dark side of the State’s up zoning scam is visible. First, there are no penalties for not meeting the affordable housing requirement. Even if the State says that any City that does not meet its mandated targets might be put in the Builder’s Remedy penalty box (where every project must be approved by right), this is a toothless punishment since the entire state is already essentially in the Builder’s Remedy penalty box. The damage has already been done. Sacramento has already normalized that developers can do whatever, whenever, however they want. Local desires and quality controls are irrelevant. 

Second, there is no mandate that any units (affordable or otherwise) need to be actually built (only permitted). Some people suspect the vast majority of projects (including their 1000 affordable units) will never actually get built. But a small number of skyscrapers will, as we said, trickle out being built every year. This will initially have tragic impacts on the immediate residents, including traffic gridlock, shading, lost photo voltaic opportunities, years of construction disruption, etc. etc. But the impact by each skyscraper will initially be concentrated on a few nearby blocks. But eventually the whole City will be overrun as the negative impacts of each skyscraper start to overlap. 

Nonetheless, the vast majority of the permitted skyscrapers will initially exist only on paper. They will lie dormant like a volcano waiting to suddenly explode with devastating consequence on a new several-block area. Because the explosion can occur at any time, the adjacent existing properties will suffer devaluation instantly the moment the skyscraper is approved/permitted, but the existing owner will not be able to get their property taxes reduced until they actually sell it at discounted price if the prospective buyer wants to key the existing use and not, for example, build a competing skyscraper.

Max corner cutting

Third, the developers will exploit and expect to receive every possible code waiver. Expect microscopic units, essentially no parking, minuscule open spaces, and countless other reductions in the quality of housing. The poster child for this is type of project is the proposal for 601 Broadway: 24 stories, 264 units, including 40 (15%) affordable units and a ridiculous 103 parking spaces (each apartment gets 39% of a parking space), all from an out of state REIT, Real Estate Investment Trust, the preferred vehicle of housing speculators. Notice that the deep pockets needed for this “permit and hold” strategy insures that only large corporate developers can play this game. The “Mom and Pop” developer is typically too small and under-financed to play. 

Fourth, today, with this development binge, we are guaranteeing the housing affordability crisis of 2079 because all of today’s “affordable” units need be affordable for only 55 years; after that, they can go up to market rate. However, there is no guarantee that the units will actually stay affordable at the original affordability levels for over half a century since neither the City nor the State has any auditing/enforcement mechanism to insure that they stay affordable. The temptation to cheat for rental property owners may be irresistible. 

Fifth, the real loss is the opportunity for the 73% of Santa Monica tenant residents to become owners. None of these new projects are condo projects, so Santa Monica has, again, institutionalized a permanent underclass of renters who have no retained value from the thousands of dollars they donate monthly to their corporate landlords. In spite of SMRR’s heroic efforts, renters are always an exploited class. The rents, of course, will be set just high enough that renters cannot save enough to become owners and thus escape the rental treadmill. The State should have mandated not only affordability but also ownership options. In other words, if you are burning $4000 or $5000 on rent, you should be buying.

  So, the State imposed up zoning has done an incredible job in solving an imaginary problem (the alleged lack of profits for property owners) but is hopelessly failing to solve a real problem: the lack of affordable units. This is not a surprise as our seaside City segues to Miami Beach, then to Honolulu, and finally to Hong Kong. The lack of surprise is due to the fact that in a capitalist society, you simply cannot build your way to affordability. It has never happened. Ever.  If you could, then those dense seaside cities listed above would have the cheapest, most affordable housing. Instead, the developer-feeding frenzy on our horizon will leave you with a less livable, more gentrified, less sustainable, and less resilient city which its residents and visitors won’t recognize.

Thank you, Sacramento.

By Mario Fonda-Bonardi AIA

S.M.a.r.t Santa Monica Architects for a Responsible Tomorrow

Thane Roberts, Architect, Mario Fonda-Bonardi AIA, Robert H. Taylor AIA, Architect, Dan Jansenson, Architect & Building and Fire-Life Safety Commission, Samuel Tolkin Architect & Planning Commissioner, Michael Jolly, AIR-CRE Marie Standing. Jack Hillbrand AIA 

For previous articles, see www.santamonicaarch.wordpress.com/writing

in Opinion
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