Housing Development Back In the Spotlight Next Week

Controversial Land Value Recapture scheme to be re-examined by Commission

The Hermosa Beach Planning Commission will tackle two critical housing issues at its November 18 special meeting: whether the city's Land Value Recapture fees are deterring development on small lots, and a mid-cycle check-in on the city's housing goals.

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 main event will be a City Council-directed review of the Land Value Recapture (LVR) ordinance, specifically examining whether the current $76 per square foot fee for smaller properties is workable. The fee applies to properties rezoned to allow residential development unless they include affordable housing units.

More than a year after the ordinance took effect in August 2024, not a single development application has been submitted that either includes affordable units or pays the LVR fee—a concerning sign that the policy intended to generate affordable housing may instead be freezing development altogether.

The stakes are significant: small lots represent nearly 25% of the city's state-mandated housing allocation, accounting for 137 of the 558 units Hermosa Beach must plan for by 2029.

Staff has prepared five options for the Commission to consider, ranging from maintaining the status quo to exempting the smallest properties entirely from fees. A temporary fee reduction to jumpstart development is also on the table.

Housing Element Progress to be reviewed

The Commission will also receive a reality check on the city's housing progress. While 384 units are somewhere in the development pipeline—from initial applications to completed construction—none are designated as affordable housing. The city appears on track to meet its market-rate housing targets but is falling short on affordable units across all income categories.

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.