Mills Act for Multifamily Preservation Picks Up Steam

Mayor John Mirish has been preservation-minded when it comes to multifamily rental properties. Toward that end he has championed the state’s Mills Act tax-incentive program: give an owner a break on his property tax and contractually bind him to investing in the restoration and rehabilitation of the property. His initiative is picking up steam!

At recent City Council rent stabilization study sessions in the fall, then-councilmember Mirisch had raised the prospect of using tax incentives to encourage owners to maintain their small- and medium-sized multifamily rental properties. These provide housing for what he calls the missing middle: the middle classes getting priced out of rental housing in many other markets.

In Beverly Hills we have not seen as much of a loss of rent-controlled units as in surrounding areas. Our zoning code (and specifically parking requirements) effectively keep a lid on redevelopment. The four, six or ten units that comprise many of our older buildings can’t be built today under the existing code. The required minimum unit size today is too large; and there is required about two parking spaces for a 1-bedroom and three for a 2-bedroom apartment. That was not required of our older buildings.

That’s why it’s critical to keep the relatively-affordable units we have in service today. Encouraging preservation through Mills Act contracts (a property tax break for an ironclad commitment to invest in the maintenance and restoration) is an important option to keep the bulldozer at bay.

(Read about the Mills Act in a tip sheet from the Tax Assessor.)

During a rental housing crisis any incentive that keeps affordable housing available is a winning strategy because it costs too much to replace even when the codes allow it. The most efficient way to provide affordable rental housing is to safeguard what we already have.

Mills Act to the Rescue?

Then-councilmember Mirisch restated his interest in expanding the city’s Mills Act program at the City Council rent stabilization study session in January. Councilmembers in prior sessions in the fall had indicated interest, but the proposal was set aside.

Mayor Mirisch has made affordable housing his key focus area, so he wasn’t interested in dithering on the Mills Act proposal any longer. On the eve of his incipient mayoralty he said was willing to put the brake on the rent stabilization ordinance if that would get his issue heard. “For me the key is having a Mills Act program,” he said in January. “Otherwise I ain’t going for it.”

He framed the tax benefit as a way for an owner of an historic property to reinvest his tax savings into the property.:

We need to do outreach to encourage [landlords to participate] so we can 1) hopefully bring down rents; and 2) to keep the housing stock we have. …The goal has to be to preserve as much affordable housing as possible – and this is our affordable housing.

He asked his fellow councilmembers, “Are we in agreement that we should take as broad a stroke – all eligible buildings – and actively encourage owners to apply to protect their buildings?”

Then-Mayor Gold was a bit cool to expanding the program. Councilmember Bosse supported more discussion and suggested it be considered during the next step in the rent stabilization policy process. (Councilmembers subsequently referred most RSO issues to the new Rent Stabilization Commission.) In the meantime, the possible Mills Act program expansion was sent to the Cultural Heritage Commission for review.

However there are a few caveats to the Mills Act program as a multifamily housing preservation tool (as we discuss in our explainer):

  • Mills Act applies is available only to designated historic buildings and only a small proportion of our nearly 1,100 rental buildings would qualify under current rules;
  • Historic designation is voluntary and likewise participation in the Mills Act program depends on the owner’s interest in preservation (which may not jibe with his interest to maximize his property value);
  • The current program tightly caps the benefit which can be extended to a maximum of three properties in any year and reduce property tax collections by the city by no more than $100,000;
  • The current program tops out with properties values at about $7.5 million in order to keep the lid on revenue costs to the city — and some historic multifamily buildings have a higher valuation; and,
  • Older properties assessed at a lower tax base would see a relatively smaller benefit under the program than would a property purchased recently with a higher tax base.

The city’s Cultural Heritage Commission touched on these realities in its own study session on April 15th. The commission was generally supportive not only of extending the Mills Act program past its expiration date and even expanding it to include additional multifamily properties. (Today just two multifamily rental properties are designated as a local historic resource and only one has contracted for the tax benefit.)

Driving the commission discussion was former Planning commissioner Noah Furie. “Let’s look at raising the valuation limit [currently $7.5 million for any property] and increasing the number of contracts at least for multifamily” (emphasis added).

“Only multifamily?” another commissioner asked. “Yes,” he replied. “Only multifamily. If we can improve the existing housing stock and tenants get to benefit from a restored resource…that has a lot of value.” He was suggesting that that more people overall would benefit from a multifamily Mills Act contract than would one family in a single-family home. (Of course the broader benefit from preservation is to the larger community.)

Commissioner Craig Corman suggested perhaps refocusing the Mills Act program if tax benefits for high-value single-family homes is determined not to be the most productive use of limited program funds. “Maintaining the rental stock is a policy issue that is not implicated in single-family contracts,” he said. He added that three multifamily rental properties on North Oakhurst that are proposed for demolition could benefit. Returning them to the rental market would require extensive restoration and the tax benefit may encourage re-use.

Commissioner Furie suggested that program expansion could help to preserve character-contributing blocks in addition to single properties. There could even be a mechanism to adjust the cap as needed to accommodate the city’s objective to preserve the rental stock.

Mayor Mirisch, too, has been interested to preserve character-contributing apartment buildings at the scale of the block. Seems like there may be a meeting of the minds between the Mayor and the commissioners!

Thoughts on the Mills Act Program

The commission’s discussion is very heartening for a few reasons. First, any preservation tool we can use to save our historic small- and medium-sized multifamily properties is important. We have lost too many of them to condos or luxury rentals that do not serve the majority of today’s renting households.

Second, we need to conserve the character-contributing properties and not only the designated historic ones. Fifteen years ago the city conducted an historic survey and identified several historic multifamily districts. The city never moved to designate any district (perhaps even opposing designation) and in fact never even finished the survey.

Third, a renewed push to conserve and preserve our multifamily stock using the Mills Act program will provide the push we need to finally complete the multifamily property inventory; it remains incomplete even today.

Fourth and most timely, Commissioner Corman’s suggestion that the Mills Act may provide the needed incentive to bring the 332–336 North Oakhurst properties back to the rental market is a great idea! Today those properties sit vacant despite the buyer’s attempt to demolish them several years ago. (They are pictured at the top.)

They would be gone now, in fact, if a private citizen, Steve Mayer, who lives in the vicinity, had not appealed the city’s decision. He prevailed; Council reversed itself; and now they sit awaiting rehabilitation. The Mills Act program would be especially useful because the owner has few development alternatives available to him. And given the size of the job the tax benefit would be considerable. Perhaps even enough to change his mind on development.

Indeed North Oakhurst is a perfect test case for the Mayor’s interest to expand the Mills Act program. We can start by designating and preserving those register-eligible properties.

Next stop: City Council with some estimated costs should the tax incentive be targeted to multifamily conservation and preservation. Read the Cultural Heritage Commission’s staff report and watch the commissioners discuss the Mills Act program renewal and possible expansion below.