Planning commission urges council to exempt 1'2 unit small lots from land-value-recapture fee and study incentives

Hermosa Beach planning commissioners on Nov. 18 unanimously recommended City Council exempt the smallest overlay sites from the city's land value recapture fee and direct staff to pursue zoning incentives and a temporary fee reduction to encourage small-lot redevelopment.

Staff reviewed the LVR ordinance adopted Jan. 23, 2024 and effective when the housing element was certified Aug. 1, 2024. The ordinance applies to housing-element overlay sites that were rezoned from nonresidential uses; projects must either include on-site affordable units or pay an LVR fee that was designed to equal the subsidy needed for affordable housing. Staff summarized the council'adopted two-tier fee structure: tier 1 at $76 per square foot for parcels under the 4-unit threshold and tier 2 at $104 per square foot for larger parcels, and reported that, to date, no entitlement applications on overlay sites have included affordable units or paid LVR fees.

Staff also noted that small lots make up roughly one-quarter of the city's RHNA capacity (about 137 of 558 units). "The small lots in our land inventory do account for almost a quarter of the total RHNA number," Becker said, and presented five options including maintaining the program, exempting the smallest lots, assessing additional tiers, exploring zoning incentives, or a temporary fee reduction.

Public commenters from downtown businesses and property owners said the current fee levels make small-lot projects infeasible and urged the commission to exempt 1-2 unit lots. John David, a downtown property owner, told commissioners the fee was a market-killer: "You need carrots, not sticks," he said, arguing the program has chilled small-lot activity. Other commenters recommended following the consultant Cosmont's findings and consulting local developers before raising fees further.

Commissioners debated the trade-offs between capturing public value from rezoning and keeping small-lot redevelopment feasible. Several commissioners noted Cosmont's original feasibility work and changes in the construction market since the fee was set. Commissioner Hoffman and others suggested the program has not generated revenue and may be constraining development; Commissioner Flaherty and Vice Chair Aizon raised the importance of maintaining commercial vitality on ground floors while allowing upper-story residential.

Vice Chair Aizon moved that the commission recommend the City Council: exempt smallest lots that can only accommodate 1 to 2 units from any LVR fee (option b); direct staff to study zoning regulations that would encourage residential development on small lots (option d); and implement a temporary 24-month reduced fee of $40 per square foot for projects that yield 3 to 4 units (a narrowed application of option e). The motion passed unanimously. Staff will present the commission's recommendation to City Council, and the commission asked staff to consult with HCD to confirm whether changes would trigger a mid-cycle revision that requires formal state review.

The commission's recommendation does not change current ordinance text; it is a request that council consider the exemptions, the temporary fee reduction and zoning incentives. The matter will return to council for a final decision (Case No. 25-CDD-077).