The Santa Barbara City Council on Oct. 14 unanimously approved an adaptive reuse ordinance aimed at encouraging conversion of underused commercial buildings into housing downtown and directed staff to return with an analysis of a sliding in-lieu fee for inclusionary requirements.

The ordinance, introduced by staff and sponsored as a council item, adds a new section to the Santa Barbara Municipal Code establishing regulations for adaptive reuse projects. The council’s action preserves inclusionary housing requirements for most projects while exempting rental adaptive-reuse projects in the Central Business District (CBD) that propose fewer than 40 new residential units. Council also endorsed staff’s recommended maximum average unit sizes and asked staff to study stormwater management and other compliance pathways to increase downtown housing.

Why it matters: downtown Santa Barbara has seen rising commercial vacancy and limited options for adding housing without altering the city’s historic fabric. The ordinance is intended to preserve building character, reduce construction waste and lower conversion costs by allowing ministerial approvals when projects remain within existing building envelopes, reduce parking requirements and waive some discretionary hearings. Proponents say the incentives will make conversion to housing financially feasible; opponents warned that removing inclusionary requirements for smaller projects could reduce funding for deed-restricted affordable homes.

Council discussion and details

Dana Falk, the city’s long-range project planner, presented the ordinance and the staff recommendation. Falk said staff analyzed 19 example change‑of‑use projects filed since 2019 and focused on 11 in the CBD, which averaged about eight units per project; she said staff expects typical adaptive‑reuse projects to be about 10–20 units once incentives are in place. Falk said staff recommended exempting rental adaptive‑reuse projects in the CBD from the rental inclusionary requirement if they proposed fewer than 40 units while maintaining ownership conversion requirements citywide. She described the 40‑unit threshold as balancing expected project sizes, inclusionary rounding rules and opportunity costs to avoid discouraging conversions.

Several stakeholders spoke during public comment. Jan Hubbell, president of the board for Habitat for Humanity of Southern Santa Barbara County, urged the council not to eliminate in‑lieu fees or inclusionary requirements for smaller rental projects, saying those fees are a key local funding source for deed‑restricted affordable housing. Ben Romo, a local developer, said easing rules would help trigger downtown conversions: “The easier you make it and the more you reduce expenses, the more units you’ll get,” he said. Ellen Bilston, representing AIA Santa Barbara, backed the ordinance and said lowering on‑site affordable unit requirements can make adaptive reuse feasible given seismic, accessibility and stormwater retrofit costs. Rob Fredericks of the Housing Authority and other speakers urged the council to retain inclusionary requirements or an in‑lieu option to build the local housing trust fund.

Key policy elements adopted or confirmed

- CBD exemption: Staff recommended, and council approved, exempting adaptive reuse rental projects in the Central Business District from the rental inclusionary housing requirement if they propose fewer than 40 new residential units. That threshold was derived from analysis of recent applications and rounding rules for inclusionary calculations.

- Ownership projects: Ownership inclusionary requirements remain unchanged; staff recommended the exemption apply only to rental projects in the CBD.

- Maximum average unit sizes: The ordinance sets a maximum average unit size of 1,200 square feet for rental projects and 2,000 square feet for ownership projects; staff said the community development director may grant exceptions in specific floor‑plan circumstances.

- Compliance pathways: Council directed staff to study alternative compliance options downtown, including possible revisions to stormwater management requirements to create additional ways applicants could meet city standards while producing housing.

- Analysis of in‑lieu fees: Council directed staff to return with information on a sliding in‑lieu fee schedule for the CBD so the council can consider tradeoffs between encouraging adaptive reuse and generating funds for deed‑restricted housing.

Votes and motion

A motion to approve the staff recommendations as presented, with direction to staff to come back with a sliding in‑lieu fee analysis, was made by Council Member Sneddon and seconded by Mayor Pro Tem Friedman. The council voted unanimously to approve the ordinance and the staff direction. The council’s vote finalizes introduction and directs staff to return with the specified analyses.

Implementation and next steps

Community Development staff will prepare the implementing ordinance language for final adoption and will study alternative compliance pathways for downtown projects (stormwater management being cited specifically). The council asked staff to return with a sliding, graduated in‑lieu fee proposal for CBD adaptive reuse projects and an analysis of how the threshold affects likely project outcomes and affordable housing funding. The ordinance includes provisions intended to accelerate approvals when projects fit within existing building envelopes and to preserve historic resources.

Context and tradeoffs

Staff estimated that exempting smaller CBD adaptive reuse rental projects (below 40 units) could reduce near‑term in‑lieu fee revenue by an estimated $160,000 and reduce the number of on‑site moderate‑income units expected from projects already in the pipeline by about three units, while potentially enabling about 20–30 additional market‑rate units to move forward. Staff emphasized that adaptive reuse projects are relatively infrequent — roughly 2.5 applications per year with about 0.6 completions annually during the period studied — and that opportunity costs and project feasibility were central to the recommended threshold.

What the ordinance does not do

The ordinance does not eliminate inclusionary requirements citywide; it does not change ownership inclusionary requirements; and it does not create a final in‑lieu fee schedule for CBD projects today. Instead, the council directed staff to study and return with a sliding in‑lieu fee option and other compliance changes for council consideration.

Evidence/record

The council’s consideration began when staff introduced item 15 on Oct. 14; staff presentation and public comment are in the official meeting record. The council approved the motion in roll call at the Oct. 14 meeting and instructed staff to return with the requested analyses.