Downtown SM panoramo

A new report released by the city of Santa Monica last week revealed that in Santa Monica’s booming downtown, nearly two-thirds of people living there are struggling to do so.

According to the report, about 60 percent of Downtown Santa Monica renters are “rent burdened,” meaning that they pay more than 30 percent of their income for housing.

That’s of particular interest to city officials as they work out the details of Santa Monica’s Downtown Community Plan, which will set the standards for, among other things, affordable housing requirements in new residential construction in the city’s thriving urban core for the next 20 years.

While people who work in Downtown Santa Monica make up about a quarter of the city’s workforce, “only one percent of Downtown workers both live and work in Downtown; another eight percent live elsewhere in Santa Monica,” according to the report. The rest commute from outside the city.

Next Sponsor

The Downtown has become an increasingly desirable place to live in the last several decades. Meanwhile the amount of new housing allowed to be built hasn’t kept pace with increasing demand. The resulting skyrocketing rents increasingly are pricing out the lower- and middle-income households who work in the Downtown.

Maximum allowable rents for workforce housing. From Santa Monica's draft Downtown Community Plan.
Maximum allowable rents for workforce housing. From Santa Monica’s draft Downtown Community Plan.

According to the report, the average asking rent for a two-bedroom apartment in Downtown Santa Monica is $5,276 a month. A household would have to make nearly $190,000 a year to be able to afford to live a unit at that price without being “rent burdened.” An average two-bedroom apartment Downtown rents for $3,296 a month; a household would have to make a combined $119,000 a year to afford that.

To tackle the growing gap, the proposed Downtown Community Plan actually sets standards for a new affordable housing requirement above and beyond what the city already requires through its Affordable Housing Production Program (AHPP).

Currently, the city requires that at least 30 percent of all new housing being built be affordable to households making 80 percent of the area median income (AMI) or less. In 2015, the area median income in Los Angeles County for a four-person household was $64,800, according to the California Department of Housing and Community Development.

Under the new Downtown Community Plan, city planners hope to encourage developers to go beyond the required 30 percent and offer some units to households making 130 to 180 percent of AMI, which would still be below the average rents. For example, a two-bedroom apartment renting to a household making 130 percent of the area median income would be restricted to a maximum rent of $1,895 a month.

It’s a start to close the widening affordability gap in Santa Monica, where there has been plentiful job growth in the last three decades but little housing growth to match. Since 1980, Santa Monica’s residential population has increased by less than 5,000 people.

What relatively little new housing was allowed was built in Santa Monica’s Downtown. More than 60 percent of all rental units in Downtown were built after 1979, which means they aren’t subject to the Santa Monica’s rent control law. Rent increases there are governed primarily by the rules of supply and demand, which, in a high-demand, slow-growth city, means that annual rent increases can be quite high.

“Nearly 40 percent of Downtown housing units were built after 1999. In comparison, only 19 percent of the city’s housing stock was built after 1979, and 7 percent was built after 1999,” the report reads.

Also, newer units necessarily rent at higher rates than older ones, according to the report.

“While larger buildings typically have more building amenities than smaller buildings, the level of amenities is considered less important than location and property age in determining how much tenants will be willing to pay. To the extent that larger buildings in Downtown command premium rents, this may be tied to the fact that many of the large buildings located in Downtown are relatively new and located in prime locations with convenient access to the beach, shopping, and restaurants,” the report states.

Downtown Santa Monica is also the city’s most transit-rich neighborhood and will become even more so next month when Expo opens.

However, the impact of the age of the housing in Downtown is worth noting. As new housing gets built and rent to higher-income renters, it takes the pressure of older housing in other parts of the city that can rent at lower rates. Theoretically, if new housing in Downtown Santa Monica continues to be built, older housing in Downtown and throughout the rest of the city should see less extreme rent growth. But only if housing gets built at a reasonable pace.

A recent report released by the State Legislative Analyst’s Office pointed out that in communities where new housing was being built, rental increases in older existing housing stock were significantly lower than in communities where housing was consistently blocked.

It points to the fact that, in addition to requiring property owners to set aside a certain number of units to be rented at lower rents, another strategy that Santa Monica could take to assure that middle-income households can still find homes they can afford is to build more housing in places where it doesn’t displace existing residential buildings.