City Aims to Subsidize Middle-Class Housing

Attempting to halt Santa Barbara’s transformation into a city of pricey condos in which even the better-paid service workers cannot find housing, the City Council voted at its Tuesday meeting to collect a developer fee from every condo project regardless of its size. The resulting pot of money would likely be used to create affordable housing for middle-income workers, who do not qualify for most government housing assistance.

Since 2004, the city has demanded the inclusion of affordable units in projects of 10 units or more. As far as it goes, the existing ordinance is effective, according to Housing Programs Supervisor Steve Faulstich, in that almost all of those buying the affordable units created so far are people who hold jobs on the South Coast. The buyers ranged in professions from a pre-school teacher to a spa masseuse, from a hotel front desk manager to a housekeeper, from a family practice physician to a college instructor – all of them working on the South Coast, he said.

However, the ordinance hardly solves the affordable housing crunch, as the vast majority of condo projects go up without creating any such units. Of the 13 condo projects submitted to the city in the past four weeks, said Faulstich, only two propose developments of ten or more units. The others being smaller than ten units are therefore unaffected by the inclusionary ordinance. An additional 20 projects of just two-to-four units are pending, said Faulstich, representing another 58 market-priced condos sporting price-tags of around $1.2 million, which is the asking price for a brand new condo in the City of Santa Barbara. Sellers may not be getting that price, but condo costs have done nothing but steadily rise beyond the reach of middle-class workers. Three years ago the median selling price for a two-bedroom South Coast condo was $500,000, according to Multiple Listing Services; it is now $670,000.

As it stands, developers of ten units or more must make 15 percent of them affordable or pay an in-lieu fee. As per the recommendation of the Housing Policy Steering Committee – which drafted the proposed revisions – developers of smaller projects would be required to allot a smaller percentage as affordable, with that percent being based on a sliding scale depending on how many condos they are creating. Furthermore, the smaller project developers would pay in-lieu fees instead of building the affordable units themselves. In this way, the city could accumulate a pot of money to subsidize middle-class housing.

Currently, the in-lieu fee is steep: Developers must pay $488,000 for each affordable unit they opt not to include in the project. (The city arrived at that fee by subtracting the sale price of an affordable unit from the cost to build it.) Besides reducing the threshold from 10 condos to two, the council directed the ordinance committee to reduce the in-lieu fee to $370,000 or less, as middle-income buyers can afford to pay more for the home and require a smaller subsidy.

Part of the rationale for making market-rate developers subsidize affordable housing in the first place is that new residents moving into higher-priced condos create the need for more service workers, from gardeners to doctors. This point is not universally accepted, however. “Your problem with affordable housing has absolutely nothing to do with the 150 new homes built every year on the South Coast,” said Jerry Bunin, meeting attendee and spokesperson for the Homebuilders Association of the Central Coast. “Zero.”

Bunin’s sentiments represent is just a sample of the heat that councilmembers may face as they craft and ultimately adopt such an ordinance, which would affect many property owners as well as the politically active real estate lobby. This heat may burn especially hot for current councilmembers Helene Schneider, Das Williams and Brian Barnwell, whose seats are open to challengers in the coming election.

The decision to proceed came only after much hand-wringing and heated discussion among councilmembers, some of whom initially insisted that this move was precipitous. Beginning with City Councilmember Brian Barnwell – who sat on the Housing Policy Task Force that hammered out the proposal, but said he voted to send it to council only to show them how impossibly complicated it was – the councilmembers said more discussion was needed before the council was ready to amend the inclusionary housing ordinance.

Councilmember Grant House agreed, saying that affordable housing solutions are too complicated and controversial to be laid at the feet of the Ordinance Committee, of which he is a member. Among other things, House said he worried that the money developers spend on in-lieu fees would be diverted from efforts put into quality design and construction, especially considering the city’s stringent architectural standards.

At the Tuesday meeting, Mayor Marty Blum reiterated that the amendment raised difficult questions which should be addressed as part of the city’s general plan update. Among the sticky wickets, she said, is the question of whether fees should be calculated according to the number of units, the number of bedrooms, or by square footage. That the five-member supermajority was needed to pass the amendment seemed to sound its death knell at least for the next few years. Councilmembers Roger Horton and Iya Falcone concurred, adding that council needed to continue discussing various ways of solving the middle-class housing issue, including real-estate transfer taxes and employer-sponsored housing, which Falcone called “the wave of the future.” Several councilmembers referred to the need to first establish the “big picture” of affordable housing in the city.

The turnaround started with Helene Schneider and Das Williams’ insistence that the council needed to do something about the city’s housing situation soon. “It has been talked and talked and talked about over and over again,” Schneider said. Schneider assured her colleagues that all of the outstanding issues associated with density and other concerns could still be taken up during the general plan update and did not need to be resolved before reducing the threshold to two units for an in-lieu fee. Schneider said that the staff proposal had been duly vetted in the Planning Commission, and claimed that the financial analysis leading to the pro-rated in-lieu fee rate card was thorough and sound. Finally, she reminded her colleagues of last year’s highly publicized eviction last year of working families from apartments at 85 North La Cumbre Avenue to make way for condos, an event accompanied by emotional pleas, organized resistance and political speeches bemoaning the loss of affordable housing. In that as in other such situations, Schneider said she felt bound to approve the condo project because it conformed existing city ordinances and procedures, but felt badly that the city could offer little other accommodation to the displaced.

Schneider and Williams were firmly supported not only by Faulstich, the lead staff in developing the proposal, but by Community Development Director Paul Casey. “I heard lots of lamenting after 85 North La Cumbre that you wanted to do something about this issue,” Casey said. If the council did not want to pursue the amendment immediately, he said, the next opportunity would be two and a half years from now, after the city was out of the thick of the general plan update process, assuming that the amendment – and not some other aspect of the update – was the council’s top priority at that time. “It’s not a complex task for the Ordinance Committee to take on to lower the threshold [to two units],” Faulstich said. “It’s not as complicated as [what] I heard some councilmembers talking about.” Even City Attorney Steve Wiley chipped in, saying that employer-sponsored housing could be addressed in a separate ordinance.

Ultimately, the council sent the proposed amendment to the ordinance committee on a motion by Barnwell, who added the condition that the inclusionary rate should remain at 15 percent for developments of 10 or more units, and not increase to 20 for larger projects, as called for in the staff report. Following several smaller caveats and conditions councilmembers worked out as the revision began to seem more like a reality, the council council voted unanimously to forward the matter to the ordinance committee, which will begin to craft the amendment to the inclusonary housing ordinance at an as-of-yet unspecified date.