Santa Barbara officials are debating fundamental changes to the controversial Average Unit-sized Density Incentive Program for residential projects, but the Planning Commission on Thursday rejected a proposed inclusionary housing amendment.
The City Council adopted the AUD program in 2013 to incentivize more rental and for-sale housing development, with plans to halt applications once 250 new units get certificates of occupancy. To date, 151 units have been built and the city has a map showing project locations and development status.
No rental restrictions or affordability components were built into the program, and the high market rates of the first few projects prompted the city to look into inclusionary housing requirements for future developments.
Planning commissioners said the AUD program was not designed to create workforce, affordable housing, but policymakers want to encourage housing development across all income levels.
The proposed inclusionary housing amendment requires 10-unit-plus rental housing AUD projects to have 10 percent of the units be affordable to moderate-income tenants. Smaller projects must pay an in-lieu fee.
To be considered affordable by general terms, housing should not cost more than 30 percent of an individual’s or household’s gross monthly income (before taxes and other deductions).
For the current Area Median Income in Santa Barbara of $79,600, a moderate-income, two-person household would make 81 percent to 120 percent of that AMI. An “affordable” rent for that household would be $1,910 monthly, according to the city.
That’s lower than the current market rates for most two-bedroom apartments in Santa Barbara, new or not, and a lot of one-bedroom apartments.
About 63 percent of city households are in the very low-, low- and moderate-income categories, according to the Community Development Department staff.
Scroll down for a rent comparison of citywide averages, newly built Santa Barbara AUD projects, and new Goleta complexes.
Planning commissioners were presented with a feasibility study by Keyser Marston Associates on the inclusionary housing amendment, but they criticized the Los Angeles consultant’s financial assumptions, calculations and conclusions altogether.
Local developers speaking during public comment said the development costs — construction, land acquisition, permitting time and money — were all too low for Santa Barbara, and the desired 5 percent rate of return for developers, used as the benchmark for the study, was also too low.
Commissioners also questioned the numbers, and the consultant’s choice not to talk to local industry people for calculating the numbers.
The commission members were frustrated at being asked to consider this one aspect of AUD program amendments, when they would rather take all of the proposed changes into account at once.
They voted not to recommend the inclusionary housing amendment, and asked the City Council’s Ordinance Committee to look more into this and other AUD program issues, such as allowing a density bonus for inclusionary units, doing peer review into the financial feasibility study, and looking at possible increased density and height allowances for AUD projects.
Commissioners also asked for more information about priority processing for housing projects, to possibly make approvals faster — and more certain — for developers.
The pending “Phase 2” AUD amendments aren’t expected to be resolved for another 18 months, city staff said, including parking requirements for developers, and allowing more density in the downtown Central Business District.
Planning Commissioner Deborah Schwartz said the city has to be more thoughtful about amending its housing policy, and to give better incentives to developers to create housing across a range of incomes.
Many other commissioners echoed the sentiment in rejecting this inclusionary housing amendment, saying it didn’t have enough facts behind it.
During public comment, Austin Herlihy, executive vice president of Radius Group, said the feasibility study “is inaccurate in almost all areas.”
Desired returns are more in the range of 7 percent, not 5 percent, and the lengthy process to get approval and building permits in Santa Barbara is not considered in the financial analysis, he added.
Herlihy said several AUD project developers are deciding against building their projects, even if they already have permits, because of rising construction and financing costs.
Architect Brian Cearnal urged the Planning Commission to allow bonus density — more units — for inclusionary housing projects, since otherwise they are replacing market-rate units. He also asked the city to revisit building height limits of 60 feet. Even with higher density allowed, some sites aren’t large enough to fit more units, he said.
City staff members noted that no bonus density was considered for inclusionary AUD rental projects, even though the city currently allows it in for-sale projects: developers get 5-percent bonus density if 10 percent of for-sale projects are targeted at moderate-income buyers.
Commissioner John Campanella pointed to the in-progress Estancia Santa Barbara project on Upper State Street, with million-dollar for-sale condos and townhomes, and said there were more than 800 applications for the nine inclusionary units.
“Those 900 people I’m guessing are renters,” he said. “They need something better or they’re changing their household size, but they can’t afford to buy a house.”
AUD Program Rent Comparisons
Santa Barbara’s citywide average rent numbers, as of March 2018, were $1,273 for a studio; $1,582 for a one-bedroom; $2,546 for a two-bedroom; and $3,991 for a three-bedroom place.
Those averages are about $1,000 higher monthly than is affordable to a moderate-income (or lower) tenant for a two-bedroom, and $2,100 higher than is affordable for a three-bedroom unit, according to the city.
Searching for a two-bedroom apartment in Santa Barbara (within 2 miles of ZIP code 93101) on Craigslist last week got eight results for less than $2,000, and most of those were shared rooms, or a room in a shared home.
The Marc, which was the first completed AUD project, has been used as an example of how not-affordable the AUD project rents are. The complex at 3885 State St. charges about $3,200 for one-bedroom units and more than $3,700 for two-bedroom places.
Creating affordable, workforce housing was not a requirement of the AUD program, however, and rent comparisons of other newly-constructed projects shows The Marc may not be as much of an outlier as previously thought.
Arlington Village, at 1330 Chapala St., is charging $3,408 for a two-bedroom unit, and the same price as The Marc for three-bedroom apartments.
The 604 E. Cota St. complex reported rents in 2018 of $2,475 for one-bedrooms and $3,070 for two-bedrooms, and Craigslist postings show similar rents for this year.
The new 316 W. Micheltorena St. complex, near Highway 101, is opening and currently advertising a 632-square-foot, one-bedroom unit for $2,750 and a slightly bigger two-bedroom unit for $2,900 monthly.
A duplex at 522 Garden St. built under the AUD program is currently a short-term rental property, but in 2017 reported $5,000 monthly rental income for the two-bedroom unit, according to the city.
The AUD program-built complex at 1623 De la Vina St. reported an average $2,850 monthly rent for a two-bedroom unit in 2017.
In Goleta, there are several new complexes that dwarf the size of Santa Barbra housing developments being built under the AUD program.
Rents for these new units, including at Hollister Village and Willow Springs, range from about $2,300 for one-bedrooms to more than $3,500 for three-bedrooms, and they are generally larger units than the ones built in Santa Barbara.
A two-bedroom apartment at The Marc reported $3,200 rents last year, for 862 square feet, while a two-bedroom in Hollister Village is 951 square feet and starts at $3,131, according to its website.
— Noozhawk managing editor Giana Magnoli can be reached at gmagnoli@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.