Developers can build housing inside commercial buildings in downtown Santa Barbara without having to include affordable units.

The City Council vote was unanimous at 7-0.

“Anything we can do to encourage our downtown property owners in that direction is a good thing,” Councilwoman Meagan Harmon said.

Santa Barbara officials are looking to make it less expensive and quicker for developers to get approval if they build housing on top of retail in commercial buildings. Although the city has a 10% inclusionary housing ordinance, the council members opted to exempt developers from having to put in affordable units.

The idea is that it is extremely difficult for developers to build within the existing walls of a commercial building, and adding affordable units would make projects nearly unprofitable for developers. So, they decided that it is better to have some housing downtown, to increase supply, than to risk having none.

Currently, converting nonresidential space into housing requires zoning modifications because the buildings often cannot accommodate the open yard, parking or setbacks that are required for residential development.

The proposed adaptive reuse ordinance would remove the requirement for those zoning modifications and associated discretionary hearing. The changes would reduce developer risk, speed up the approval process and make it easier to convert buildings to housing.

Ben Romo, who represents the Yardi brothers, has said his clients have worked on three adaptive reuse projects downtown, but that they are “unicorns,” doing the work for philanthropic reasons, and are willing to receive only a 5% return on their housing projects. Such a small return is unacceptable for most developers, he said.

Developers who build more than 40 units would have to comply with the inclusionary ordinance. In addition, the city plans to study “in-lieu” fees for downtown developers.

“To me, this is not a housing ordinance. This is an economic ordinance, as it applies to the downtown district,” Councilman Mike Jordan said. “It involves housing, but the primary concern in my mind is the economic stimulation as it applies to the central business district.”

The inclusionary housing ordinance would apply to all development in commercial buildings outside of the downtown central business district.