By Jorge Casuso
September 25, 2025 -- Market-rate housing developers rushed to take advantage of a City program that offers density bonuses and an opportunity to build affordable units off-site.
Approved August 12, the program to kick-start stalled housing construction received applications for a total of 1,088 units -- 916 market-rate and 102 affordable -- in its first week, exceeding the 1,000 units allowed by September 30.
On Tuesday, the City Council will decide "whether to terminate, extend and / or modify the terms" of the pilot program that gives developers three options to meet the City's affordable housing quotas.
By far the most popular option -- chosen in five of the six applications -- allows developers to "pool" affordable units from multiple projects and build them at an off-site location.
The developer would have up to four years after receiving a building permit to obtain a permit for the affordable units and "deposit a gap financing amount of $150,000 per unit into an escrow account," staff noted.
The off-site units cannot be built in the Pico Neighborhood, the city's poorest area. The two sites chosen for the pooled units are at 1333 7th Street Downtown and 1143-1145 25th Street, adjacent to Douglas Park. Both sites are near the five market rate projects.
The final applicant chose an option that allows a developer to pay an affordable housing fee that would be used by the City to subsidize other affordable developments.
The developer of the 88-unit market-rate project at 2906 Santa Monica Boulevard would pay the City approximately $2.2 million in-lieu of building nine affordable units on-site.
None of the applications used a third option that allows developers to rehab existing multifamily units the City has declared uninhabitable owned by third parties.
The program was approved as an emergency ordinance to counter a construction slowdown "due in large part to elevated interest rates, construction material costs volatility, labor shortage and wage pressure, and stagnant rental rates," City staff has said.
Housing developers also have indicated that Measure GS, a real estate transfer tax hike approved by Santa Monica voters in 2022 to help fund affordable housing, has made it difficult to obtain financing, staff wrote when the ordinance was proposed.
Both the City's Planning Commission and Santa Monicans for Renters’ Rights (SMRR) weighed in on Tuesday's agenda item.
SMRR, which helped elect the pro-housing super-majority on the Council, recommended increasing the $150,000 per unit gap financing and the in-lieu fee to reflect the actual cost of construction.
The tenants' group also recommended developers provide "greater assurance" the affordable units would be built by submitting documents that could include an entitlement application, a plan check, construction contracts and tax credit application.
The Planning Commission recommended that the program include moderate income units and be extended until the end of the current Housing Cycle, during which the City must plan for 8,895 new housing units, with 6,168 of them affordable, by October 2029.
According to staff, the program applies to 37 approved projects totaling as many as 3,598 approved market rate units and 642 approved affordable units, staff said.
"The pilot program is no longer available to other projects unless the Ordinance is amended and extended" by the Council, staff said in a report for Tuesday's meeting.