City Council Eases Land Value Recapture Fees, Aims to Spur Downtown Development

In a 4-1 vote Tuesday night, the Hermosa Beach City Council approved Planning Commission recommendations to significantly reduce Land Value Recapture (LVR) fees for small mixed use development by commercial property owners, with supporters hoping the change will finally unlock stalled downtown construction.

What is 'Land Value Recapture' ? (click to see detail)

The Basic Concept: When a city rezones property to allow more valuable uses (like adding residential development rights to commercial-only land), the property value increases. Land Value Recapture policies require property owners to share a portion of that windfall with the public.
How It Works in Hermosa Beach: Properties that gained residential development rights through the Housing Element overlay can either include affordable housing units on-site OR pay a per-square-foot fee when they develop.
The Fee Structure: Smaller properties (4 or fewer units) pay $76 per square foot; larger properties (5+ units) pay $104 per square foot. These fees go into funds for affordable housing development elsewhere in the city.
The Exemption: Developers can avoid the fee entirely by making 15% of their units affordable to very-low or low-income residents, or 25% affordable to moderate-income residents.
The Goal: Generate funding for affordable housing or incentivize developers to build affordable units directly—ideally making the fee high enough that developers choose to build affordable housing rather than pay.
The Reality: Since taking effect in August 2024, not a single development application has been submitted on affected properties—no projects with affordable units, no projects paying the fee. The policy designed to create affordable housing may instead be preventing any housing from being built at all.

The council voted (in line with a Planning Commission recommendation) to eliminate LVR fees entirely for properties with maximum density of one to two units and reduce fees from $76 to $40 per square foot for three to four-unit developments. The changes take effect 30 days after adoption.

A substitute motion by Councilmember Michael Keegan to eliminate fees for properties up to six units failed 2-3, with only Councilmember Dean Francois joining in support.

Councilmember Raymond Jackson cast the lone dissenting vote on the approved measure, arguing that relaxing LVR requirements undermines the city's affordable housing mandate. Jackson had previously stated in October 2023 when the scheme was first proposed "I don't want money, I'm not a fan of the fee...I want affordable housing...I don't want to incentivize market rate development."

Jackson also raised the specter of "land banking," suggesting property owners might hold parcels indefinitely without building if fees were eliminated. But as Planning Manager Alexis Oropesa confirmed, "there is nothing to prevent someone from holding on to the property" even with LVR fees in place.

Critics of LVR argued that it may in fact encourage land banking by making immediate development unprofitable while preserving the theoretical future value of the upzoning.

Upper Pier Ave. property owner Jon David, who has warned about LVR since 2022, was blunt: "It is just a program that programmatically makes small infill housing in Hermosa Beach infeasible on our commercial lots... You can't capture any value if you don't create that value."

He noted the program "blocks protected housing 10 units and under" and warned of potential legal jeopardy: "We have proven mathematically that it blocks housing, protected housing. And so I think... we have to be careful also of following the law, of having HCD come to us and say we mathematically proved our study proved that we're blocking housing, blocking protected housing. And why didn't you fix it?"

Hermosa's 'Housing Element', a part of the city's General Plan that aims to satisfy state mandates on 'affordable' housing provision has come under increasing scrutiny after a recent appeal court decision in neighboring Redondo Beach which ruled that part of their plan was infeasible.

What is 'The Housing Element'? (click to see detail)

The State Mandate: Every California city must update its Housing Element every eight years, demonstrating how it will accommodate its share of regional housing growth. Hermosa Beach's current element covers 2021-2029 and was certified by the state in July 2024.
The Numbers: Hermosa Beach must plan for 558 new housing units this cycle, broken down by income level: 232 very-low income, 127 low-income, 106 moderate-income, and 93 above-moderate (market rate) units.
The Strategy: The city rezoned properties through a "Housing Element overlay" that allows residential development on formerly commercial-only sites. The element includes 14 programs addressing everything from ADU development to affordable housing preservation.
The Progress: Halfway through the cycle, 384 units are somewhere in the development pipeline—from applications to completed construction. The city claims that it is on track to exceed its market-rate housing target.
The Problem: All 384 units in the pipeline are market-rate housing. Zero affordable units have been proposed or built, meaning the city is falling behind on its affordable housing obligations across all income categories—a failure that could trigger state penalties and "builder's remedy" provisions that override local zoning controls.
The Regional Context: Neighboring Redondo Beach's Housing Element is currently being challenged in court, illustrating the legal risks cities face when their housing plans don't satisfy state requirements. A failed Housing Element can result in loss of local control over development decisions, and there are strong similarities between our plan and the Redondo plan.

Failed Experiment Acknowledged

The vote marked a significant retreat from the city's ambitious 2022 affordable housing strategy. Mayor Rob Saemann, who had previously supported the program, acknowledged it as "a failed experiment."

"I honestly, I think that being able to change your mind as a planning commissioner or councilman or mayor... is a plus not a minus," Saman said. "I think it's a plus to be able to reevaluate something, a decision you made once, to reevaluate it and say the world changes, the situation changes."

The program, incorporated into the city's 2021-2029 housing element, was supposedly designed to capture value from commercial properties rezoned to allow residential development. The fees were intended to either incentivize developers to include affordable units or generate revenue for a housing trust fund.

To date, the program has produced zero affordable housing units and zero revenue, according to Community Development Director Alison Becker.

"I recommend that we be... gingerly handling the request from the council to consider changes to the land value recapture program," Becker told councilmembers. "We're mid-cycle. We will be beginning our process to develop our next cycle housing element within two years."

However, Becker acknowledged reality: "If we are really not seeing... revenues which can help us subsidize or otherwise support affordable housing production, we can design a new program."

The council could revisit the entire LVR program structure for the next housing element cycle and potentially eliminate it for larger projects as well if the pattern of zero results continues.

One public commenter wryly observed: "There is affordable housing in Hermosa Beach. I know this because I took advantage of it... in my 20s. It was called having roommates."