Hermosa Beach planning panel recommends exempting tiniest downtown parcels from land value recapture and temporary fee cut for small projects

Hermosa Beach

The Planning Commission voted unanimously on Nov. 18 to recommend that the City Council exempt the smallest downtown parcels (those that can only yield one to two dwelling units under current density rules) from the city's Land Value Recapture (LVR) fee, direct staff to explore zoning changes to encourage small-lot residential development, and pursue a temporary fee reduction for 3- and 4-unit small-lot projects.

Staff background: Director Lisonbee Becker explained the LVR ordinance was adopted by the council on Jan. 23, 2024 and became effective Aug. 1, 2024 after housing element certification. Under the ordinance, properties in the housing element overlay that redevelop into residential or mixed-use projects must either provide on-site affordable units or pay an LVR fee; council set a two-tier fee structure to incentivize on-site affordability: $76 per square foot for tier-1 small lots (1-4 units) and $104 per square foot for larger parcels (5+ units), with fee waivers for projects that include the required share of very-low, low or moderate income units.

No uptake to date: Becker told the commission there have been no entitlement applications on overlay sites requiring affordable units or LVR payments in the program's first year. She said small lots make up about a quarter of the city's RHNA capacity (staff estimated these small-lot allocations account for about 137 units across income categories) and that fee levels, market conditions, or timing could explain the lack of activity.

Public reaction split: Downtown property owners, business owners and small-lot advocates urged exemptions or fee reductions, arguing the current fees make small renovations or modest second-floor residential conversions infeasible. John David, a downtown business owner, told the commission: "You need carrots, not sticks," and argued small owners need incentives rather than added costs. Other commenters urged staff to use local stakeholder engagement and to heed prior consultant recommendations that the smallest lots be exempted.

Commission discussion and motion: Commissioners debated five staff options (retain program, exempt smallest lots, study new small-lot fee tiers, explore zoning incentives, or a temporary fee reduction). Several commissioners said the ordinance's fee levels now appear out of date given rising construction costs and uncertain market demand; others worried that removing all LVR would surrender public value created by rezoning. Vice Chair Aizon moved a bundled recommendation that instructed staff to: (1) exempt one- and two-unit capacity lots from any dollar LVR charge; (2) explore zoning regulations that would encourage residential building on small lots; and (3) implement a 24-month temporary reduction for three- and four-unit small lots at $40 per square foot. Commissioner Hoffman seconded and the motion carried on a unanimous vote.

What the commission asked staff to do next: staff will prepare a recommendation report to City Council on the motion, and consult with HCD if necessary to determine whether proposed changes would trigger a mid-cycle housing-element revision. Council action would be required to change the ordinance or fee schedule.

Context and implications: Supporters of exemption said keeping small parcels feasible is essential to downtown vitality and that small owners historically do not pursue multiyear, high-risk redevelopment without clear incentives. Opponents of a full exemption noted the LVR was designed to recapture some public benefit when the city creates private value through rezoning and that any revenue shortfall reduces funding options for subsidized housing. The Planning Commission

recommended a targeted, near-term adjustment rather than full repeal, leaving the council to weigh the legal and fiscal tradeoffs.