Santa Barbara’s new Adaptive Reuse Ordinance is an important step toward transforming downtown vacant commercial buildings into housing, revitalizing the area, and preserving our historic structures. The intention is good, and many property owners say they stand ready to help build more market-rate housing using this method. However, the ordinance City Council approved last week went too far in prioritizing economic development, speed, and flexibility over affordability, removing one of our most important tools for ensuring that at least a portion of the housing actually serves local residents, the in-lieu fee. The goal of economic vibrancy is valuable, but it shouldn’t come at the expense of long-term affordability or the city’s sole source of dedicated local housing funds.
Sole Source of Local Dedicated Funding
The in-lieu fee option is not a penalty for not building affordable units. It is a partnership tool that allows developers who cannot, or choose not to, build on-site affordable units to contribute to the city’s Local Housing Trust Fund. Right now in-lieu fees are the sole dedicated source of funding for the Local Housing Trust Fund. The housing fund finances other affordable and workforce housing projects across Santa Barbara and serves as a mechanism to obtain matching dollars for state grants. Eliminating the in-lieu fee option weakens this tool. Without it, we lose a way to reinvest developer contributions directly into deed-restricted homes that are permanently affordable to teachers, healthcare workers, and service employees.
Santa Barbara still has the chance to get this right: When adopting last week’s new Adaptive Reuse Ordinance, City Council also directed staff to return with a study of a reimagined in-lieu fee structure. City staff must follow through swiftly on this commitment and return with a fair and transparent in-lieu fee system, not just for the Adaptive Reuse Ordinance, but eventually for all development projects moving forward. The latter should happen when the policy can be informed by data coming from a city-sponsored financial feasibility and nexus study, conducted by an outside consultant, BAE.
Such a thoughtful analysis can help ensure the fee aligns with current construction costs, leverages state matching dollars for the Local Housing Trust Fund (should they become available), and reflects Santa Barbara’s unique market conditions. The new system should be clear, transparent, and well-organized, with built-in oversight to guarantee that collected fees directly support affordable housing development.
In-Lieu Not New, Time Tested
Fortunately Santa Barbara can learn from other cities’ pitfalls and successes. Since its inception over 50 years ago, affordable housing inclusionary and in-lieu fee policies, have been enacted in over 700 jurisdictions in 31 states, according to the National…