Background
The Malibu Coastal zone stretches along 27 miles of Pacific Ocean shoreline from the City of Los Angeles to the border of Ventura County. It also extends five miles inland to encompass the coastal terrace and a portion of the Santa Monica Mountains. Until 1991, the entire coastal zone was part of unincorporated Los Angeles County. However, the City of Malibu was formed in 1991 and now constitutes about one fifth of the coastal zone.
The Malibu Coastal Zone Program is designed to retire antiquated subdivisions in the rugged Santa Monica Mountains.
The extremely rare Mediterranean ecosystem found in the Santa Monica Mountains provides for exceptional biological diversity, with more than 900 species of plants, over half of the bird species found in the entire United States and habitat for mountain lions, bobcats and golden eagles. To protect a portion of this important natural resource, the Santa Monica Mountains National Recreation Area was created by the U. S. Congress in 1978.
In addition to natural resources, the Malibu Coastal Zone is known for natural disasters. Wildfires are a common occurrence. These fires burn the vegetation from steep and highly-erosive slopes making them vulnerable to landslides during the winter rainy season. The steep canyons are also highly susceptible to flooding.
This area is also extremely hard to provide with infrastructure. For example, access to the Malibu beaches is often difficult due to traffic congestion; yet the rugged coastal topography does not easily lend itself to new roadways or even the expansion of existing roads.
The mountains are also laced with thousands of small lots created prior to the advent of modern subdivision regulations. These lots were originally designed as sites for weekend cabins. Some of these lots, which are generally between 4,000 and 7,000 square feet each, are suitable for development. However, many are not.
Where these substandard lots have been developed, roadways are often inadequate, making access difficult, particularly if residents need to evacuate in advance of a wildfire. In addition, septic systems installed on small, steep lots can fail, causing raw sewage to enter nearby streams. In the late 1970s, coliform contamination exceeded standards in two Santa Monica Mountain creeks. These creeks enter the Pacific Ocean at some of the most popular beaches in Southern California.
Almost 5,000 of these substandard lots remained undeveloped in the late 1970s. Many of them are steep, inaccessible, not suitable for septic systems and difficult to serve with public utilities. Nevertheless, unless there are health or safety concerns, the County of Los Angeles considers every legally-created lot as having a vested right for the development of one single-family home. If all of the lots in these antiquated subdivisions were to be developed, there would be even more environmental damage and significantly more households exposed to wildfire, landslides, floods and traffic congestion.
Despite the well-publicized hazards and inconveniences of living in the Santa Monica Mountains, people continue to build new homes there. In fact, due to its natural beauty and proximity to Los Angeles, land in the Malibu area is highly desirable and extremely expensive.
The California Coastal Act of 1976 created the California Coastal Commission to safeguard coastal resources and ensure public access to the coast. The Coastal Act also requires all municipalities to adopt a Local Coastal Program (LCP) to regulate development in a manner that protects the coastal zone. Until an LCP is certified, the Coastal Commission has the authority to approve or deny development applications in a jurisdiction. Between 1977 and 2004, development within the Malibu Coastal Zone was regulated by the California Coastal Commission. The bulk of this profile summarizes the initial TDC program established and implemented by the Coastal Commission during this period. However, the final paragraphs describe the program implemented by the City of Malibu since 2004.
The 1976 California Coastal Act states that new subdivisions can only be permitted where 50 percent of the existing lots are already developed. In 1978, 64 percent of the 13,475 lots of record in the Malibu Coastal Zone were vacant. Unless a solution was found, the Commission would have to allow the development of hundreds of substandard lots in antiquated subdivisions while denying new subdivisions which complied with modern environmental standards and which were located in areas suitable for development.
In 1978, a study was performed by the Santa Monica Mountains Comprehensive Planning Commission which recommended that future subdivisions not be permitted in the Malibu Coastal Zone which would increase the total number of lots. It suggested that development potential be transferred from existing substandard lots to specific areas capable of accommodating growth. A second study concluded that only one of the small lot subdivisions existing in the Malibu Coastal Zone met modern environmental standards. The report added that many of the lots were too steep to provide a good building site or allow for a septic tank leach field; many had no public water service or paved road access.
Prior to establishing a policy or preparing guidelines, the Coastal Commission began facilitating transfers in order to allow individual subdivisions. During one of these early transactions, a private broker asked that the Commission create rules and regulations to institutionalize the program.
Consequently, in 1979, the California Coastal Commission adopted guidelines for the location of new subdivisions and the mitigation of their impacts. These guidelines require that one existing lot be retired from development for each lot created through new subdivisions. As described in detail in the following section, these guidelines established a process for subdividers to buy TDCs from the owners of undeveloped substandard lots in order to be granted new subdivisions in the extremely desirable Malibu coastal area. The sending site owners receive compensation for the development potential of their substandard lots even though these lots are deed restricted from future development.
Through this TDC program, the Commission has allowed new subdivisions without increasing the overall development capacity of the area. In addition, the Commission can shift development from inappropriate areas without spending public funds to acquire substandard lots.
Elizabeth Wiechec, now a consultant, was Executive Director of the Mountains Restoration Trust from 1982 to 1992 and has written an excellent analysis of the Malibu program for the Santa Monica Mountains Conservancy. Most of the information in the first part of this case study comes from that 81-page publication entitled “Transfer of Development in the Malibu Coastal Zone”.
Process
The Malibu program is considered voluntary because sending site owners are not prohibited from developing their existing lots nor are they required to sell development rights for their substandard lots. The owners of receiving sites, on the other hand, must buy TDCs in order to create new lots. However, they can always develop one home on an existing, legal lot. Consequently, the program is not considered mandatory for the receiving site owner although the value of home sites in Malibu makes the purchase of TDCs and the subdivision of land economically attractive.
TDCs are only needed to create the additional lots, not to build on the original lot which existed prior to the subdivision. For example, the owner of a large legal lot would have to buy three TDCs in order to be granted a subdivision separating the original lot into four smaller lots.
Developers are highly motivated to buy TDCs because of the huge increases in land value that can be gained by subdividing land. According to Elizabeth Wiechec, the size of the lot is not as important as the size of building site. Consequently, splitting a 10-acre lot into four, 2.5-acre lots can produce a 300- to 400-percent increase in value.
Originally, the guidelines confined potential sending sites to existing substandard lots in small lot subdivisions. Larger lots and undivided acreage were not at first allowed to be sending sites. However, amendments made to the guidelines in 1981 allowed TDCs to be transferred from land parcels of any size within Significant Ecological Areas. The guidelines do not designate receiving sites other than to describe them as areas that are currently developed and capable of accommodating growth.
The guidelines also establish criteria for determining the number of TDCs available at a sending site within a small lot subdivision. One credit is assigned for any combination of small lots which total one acre or more regardless of whether these lots can actually be developed. Alternatively, one credit can be assigned for one or more small lots, regardless of size, which meet two criteria: they must be buildable, meaning they are served by an existing road and not located in a landslide or geologic-hazard area; they must be eligible to support a house consisting of at least 1,500 square feet of floor area according to a slope-intensity formula. As a third alternative, an owner may claim one TDC for three existing lots of at least 4,000 square feet each regardless of the floor area allowed under the slope-density formula. Finally, the Commission can allow increased credit value on a case-by-case basis to land that offers exceptional public access opportunities.
When TDCs are severed from a sending site, the lot is retired from development through a scenic easement. The easement runs with the land in perpetuity and precludes residential development. The easement protects the site for light, air, view and scenic qualities. If stated in the easement, the property may be used for private recreational uses. However, these easements do not give the public any rights for use or entry. The easements are recorded free of any encumbrances, with any loans subordinated to the easement to provide protection from foreclosure.
To prevent abandonment, deed-restricted lots must be joined with adjacent lots. Los Angeles County does not allow the merger of contiguous lots in common ownership. To avoid the expense of removing the original lot lines by a process called reversion to acreage, the sending site owner records a Declaration of Restrictions. This agreement ensures that the lots are treated as a single parcel of land which cannot be divided or sold separately.
The TDC is approved for transfer from the sending site after the Coastal Commission has accepted the scenic easement and authorized the recordation of all documents.
As described in the preceding section, the Malibu Coastal Zone TDC program began with individual transfers facilitated, at first, by the Coastal Commission staff and, later, by private sector brokers. In addition to the time consumed in negotiating these purchases, developers were concerned about the high cost of the early TDCs ( $25,000 to $40,000 ) caused by short supply. Developers needing a large number of TDCs were particularly concerned that the TDC market was unstable.
To provide stability and consistency, the State Coastal Conservancy took a proactive role in creating and selling TDCs. The Coastal Conservancy is a division of the State Resources Agency authorized to protect coastal resources through a wide range of planning, acquisition and development techniques including the awarding of grants to governments and non-profit organizations.
The Coastal Conservancy is particularly interested in correcting problematic subdivisions through the implementation of restoration plans which guide the use of land acquisition funds. In the early 1980s, the Conservancy prepared and implemented a restoration program in the Malibu Coastal Zone. The Conservancy ensured a dependable supply of TDCs by creating and purchasing 213 TDCs using $2.6 million. This money was actually a revolving fund, with the proceeds of the TDC sales repaying the Conservancy. The 213 TDCs were purchased in four separate project areas: El Nido, Malibu Lake, Cold Creek and Las Flores Heights.
The El Nido subdivision was created in the 1920s with narrow winding roads and 347 lots on 70 acres of land. By 1980, only 40 lots were developed. Los Angeles County had inherited 153 lots due to property tax default and it was offering them for sale to the public whether or not they were buildable. Approximately 25 of the lots were in or near the bed of a creek that drains into a canyon which is now a public park. Through the Conservancy, the 153 lots owned by Los Angeles County and 30 other lots were permanently retired.
The Conservancy’s second restoration project was the Malibu Lake small lot subdivision, which is now surrounded on three sides by Malibu Creek State Park. This tract was created in the 1920s and 1930s to provide cabin sites adjacent to a private hunting camp. Within the Coastal Zone, only 16 of the 158 lots were developed in 1981. Many of the lots were not suited to septic systems and further development of these lots could threaten the quality of the water in Malibu Creek. The Conservancy purchased 125 lots here for $773,000.
The third Conservancy project was the Cold Creek Watershed, a 5,000-acre area containing exceptional wildlife habitat supported by one of the few perennial streams in the Santa Monica Mountains. The Coastal Commission originally required that TDCs used on receiving sites within the Cold Creek watershed had to come from sending sites within the Cold Creek watershed. The only small-lot subdivision within the Cold Creek project area is the Monte Nido subdivision, a 1926 tract with 416 lots on 40 acres. Although the lots average only 4,000 square feet, each lot relies on individual septic systems, including the lots immediately adjacent to the two blue-line streams that cross the subdivision.
However, the Monte Nido subdivision was considered by some to have too few potential sending sites to create an adequate supply of reasonably-priced TDCs. The TDCs from Monte Nido were priced much higher than the TDCs in other parts of the Malibu Coastal Zone. In addition, there were concerns that the owners of the potential sending sites could cooperate to drive up TDC prices even more or perhaps block a proposed development. One developer stated that this requirement was essentially a denial of his project, claiming that it would be difficult or impossible to buy enough TDCs from within the watershed to mitigate a proposed subdivision. In response, the Coastal Commission allowed a tract outside of the Cold Creek watershed, the Fernwood small lot subdivision, to serve as a reserve source of TDCs for receiving sites within the Cold Creek watershed. Fernwood is the largest of the small lot subdivisions, with 1497 lots, 1154 of which were undeveloped in 1979.
In addition, the Conservancy started a program allowing developers to pay fees in lieu of actually purchasing TDCs. The Conservancy would then use the funds generated by the fees to purchase TDCs. The Coastal Commission also reduced the formula for creating TDCs within the watershed to one TDC for two contiguous lots or five non-contiguous lots. And finally, the Mountains Restoration Trust, a non-profit satellite organization of the Conservancy was created to purchase TDCs at below market rates using creative techniques that are not always available to a governmental agency.
The Conservancy started the Mountains Restoration Trust with a $300,000 grant for the purchase of TDCs. Five percent of the in lieu fee was to be reimbursed to the Conservancy until the grant was fully repaid. However, the demand for Cold Creek TDCs declined. Instead of buying TDCs, the Trust found itself accepting TDCs as donations from homeowners wanting charitable-donation tax benefits in exchange for scenic easements. Typically, these donations were made by homeowners who owned five contiguous lots but only used two or three of these lots as a building site. By donating scenic easements on the two or three undeveloped lots, these property owners were able to continue to use these lots as private open space yet they received tax benefits as high as $150,000. Using this process, the Trust accepted easements from over 46 lots, representing 24 TDCs. Because these TDCs were acquired for little or no money, the Trust was able to sell TDCs for $15,000 to $18,000, a fraction of the price originally assumed.
As of the publication of Beyond Takings and Givings, the Trust had retired the development rights on 260 acres of land within the Cold Creek watershed, representing 22 TDCs. In addition, the Trust had collected in lieu fees equivalent to 39 additional TDCs but the fee money had not yet been used to record easements on sending sites.
The fourth Coastal Conservancy project is the Las Flores Heights Restoration Program. In 1918, the Las Flores Heights subdivision was created with 102 lots on 160 acres. The lots in Las Flores Heights range from one-half acre to an acre in size, but they tend to be steep and many are not served by a paved road. This area is particularly susceptible to natural disaster. In the 1930s, 20 homes existed in this subdivision; however, by 1982, all but six of the homes had been eliminated by fires and floods. The fires of 1993 reduced that number even more. The Conservancy granted the Trust $886,000 to acquire a major interest in a landholding which included 60 percent of the Las Flores Heights subdivision plus a 160-acre site to the north of the tract.
As explained above, in addition to lots in small-lot subdivisions, sending sites could also be land within Significant Environmental Areas, or SEAs. Seven canyons in the Santa Monica Mountains were designated as SEAs. The majority of natural resource protection has been the result of the National Park Service acquisition of 21,000 acres by 2003 for the Santa Monica Mountains National Recreation Area and the State of California’s acquisition of three large park sites totaling 38,000 acres.
However, 52 TDCs have been created using resource lands as sending sites. In most instances, the sale of these TDCs only partly compensated for the acquisition costs since large resource parcels are typically worth much more than their TDC value. This occurs because the Coastal Commission guidelines only allow one TDC to be generated per parcel up to 20 acres in size. Under these guidelines, a large building site might be worth $200,000 while the TDC that can be severed from that site is valued at about $20,000.
In “Transfer of Development in the Malibu Coastal Zone”, Elizabeth Wiechec discusses significant changes in Malibu Coastal Zone TDC program resulting from three sources: the regulatory framework, the incorporation of the City of Malibu and shifting market forces.
In 1984, the program was modified to reduce the ability to grant TDCs for the retirement of lots which were actually unbuildable due to geologic hazards, septic system limitations and flood hazards. In another modification, the Coastal Commission refined its maps of Environmentally Sensitive Habitat Areas (ESHAs) to protect only the riparian area flanking streams. As a result, many properties which were previously considered unbuildable became viable home sites with commensurate increases in value. This greatly decreased the likelihood that they would become TDC sending sites.
Wiechec also cites changes in the TDC program which resulted from political and market forces. From 1982 to 1986, developers were reluctant to buy TDCs because the Land Use Plan for the Malibu Coastal zone was still in flux. When the Land Use Plan was adopted in 1987 with the TDC concept intact, the program stabilized. At the same time, the Malibu real estate market was very active, with new building sites selling for as much as $1 million. The Trust and the Conservancy tried to keep the price of TDCs low to ensure an adequate supply in order to reduce developer discontent with having to buy TDCs to create a new lot. With TDC prices at about $20,000 each, most developers accepted the concept and treated the purchase of TDCs as simply a normal procedure of developing in Malibu.
Even though the voters approved cityhood for Malibu in June of 1990, incorporation did not occur until March of 1991. During this nine-month gap, developers scrambled to get subdivisions approved while Malibu was still in the County of Los Angeles. In the year prior to incorporation, approximately 150 TDCs were exchanged. During this period, one quarter of all the credits transferred since the beginning of the program were bought and sold.
It looked likely that the Trust would not be able to meet the demand for more TDCs in 1990, and developers complained to the Coastal Commission that the TDC requirement would become a de facto taking of their properties. In response, TDC prices were increased to $35,000 each and the Trust was able to buy all the easements needed to meet the rising demand for TDCs. This ability to meet the demand was critical to keeping the program in place since the subdivisions probably would have been approved without TDCs if TDCs had not been available for developers to buy. The strong demand for TDCs dropped abruptly in 1991, thanks to a building moratorium imposed by the new Malibu city council and the recession of the early 1990s.
In the “Recommendations” section of “Transfer of Development in the Malibu Coastal Zone”, Elizabeth Wiechec offers four suggestions for the future of the TDC program: Place greater emphasis on resource and parkland protection; ensure an adequate supply of TDCs to mitigate large subdivisions; encourage private brokers to participate in the process; and make incremental refinements to the program rather than fundamental changes. To implement these suggestions, Wiechec calls for five program refinements: a mitigation bank, bankable TDCs, the completion of the Cold Creek Restoration Program, the abolition of transfer zones and an improved TDC registry. The mitigation bank concept is detailed in the following two paragraphs.
In Weichec’s mitigation bank concept, public agencies would deed restrict existing parkland and deposit the resulting TDCs in a mitigation bank. When the mitigation bank sells these TDCs, the proceeds would be used to purchase additional land to be transferred to the agencies which originally deposited the TDCs. The concept responds to the need to create TDCs in advance of the demand created by large subdivisions. It also offers a source of capital at a time when the likelihood of raising public funding to seed TDC programs seems remote. The California Resources Agency, which oversees the State Department of Recreation as well as the Coastal Conservancy, the Santa Monica Mountains Conservancy and all other state conservancies, has already gone on record as supporting the use of existing parkland to create TDC reserves.
As a second option, Weichec suggests that developers be allowed to pay in lieu fees to the mitigation bank. Alternatively, developers could purchase land targeted by a public agency and present it to the mitigation bank as mitigation for a proposed subdivision. Finally, the Santa Monica Mountains Conservancy could institute a program allowing an acquisition to mitigate a proposed subdivision even if it does not meet the mitigation guidelines through a Condition of Special Circumstances process which recognizes that greater mitigation weight should be granted to the deed-restricting of critical parcels such as land at the headwaters of a watershed or lots which provide public access to a beach.
Program Status
The Malibu Coastal Zone program has several factors typically found in successful TDR programs. The demand for new lots in Malibu is so great, and the economic benefits of subdividing land are so obvious, that developers have been willing to pay for the retirement of substandard lots as long as TDCs are available at a reasonable price. Even though the sending lot owners are not obligated to sell TDCs, the program has been flexible enough to respond to market forces to ensure that TDCs are always available to meet the demand. In addition, the program was assisted by the California Coastal Act and the California Coastal Commission, which ensured that new lots would only be allowed by transfers. And finally, this program was greatly helped by the Coastal Conservancy, which provided seed money for restoration programs and established the Mountains Restoration Trust, with a staff that had the ability to adapt and allow the program to survive through severe economic and political challenges.
To date, 505 credits have been transferred under the Malibu Coastal Zone program. As a result, 924 substandard lots have been retired in antiquated subdivisions or roughly 20 percent of the undeveloped, substandard lots originally inventoried in the late 1970s. These 924 retired lots include roughly 800 acres of land that are now permanently preserved. In addition, the in lieu fee program has accepted the equivalent of 39 more TDCs, bringing the total to 544 credits transferred. This makes the Malibu program one of the most active TDR programs in the country.
After waiting for the City of Malibu to adopt its own Local Coastal Plan, the California Coastal Commission prepared and adopted an LCP for Malibu in 2002.* The City sued the state over this action but lost in court. In 2004, the City adopted its own LCP which closely adheres to the Commission’s 2002 program which in turn is similar to the original TDC program started in the 1970s. In brief, sending sites are subjected to a formula that calculates their “credit area.” The greater the natural slope of the site, the smaller the credit area. In the Fernwood subdivision sending area, one TDC is allocated for retiring one or more lots served by existing roads and water that are not in geologic hazard zones and have a total credit area of at least 1,500 square feet. Other options are available. For example, one TDC can be granted to three lots served by roads and water mains that have at least 500 square feet of credit area per lot as long as each lot contains at least 4,000 square feet of gross area and is not in a geologic hazard zone.
These credits can be transferred to any part of the City of Malibu where new lots can be created via subdivision or where multi-family residential units are permitted. In single-family subdivisions and larger multiple-family residential projects, one TDC is needed for each new lot or additional dwelling unit created.
The City of Malibu required TDCs of only one development between the time that it began managing its own program in 2004 and 2006. In August 2009, the City adopted an ordinance amending two aspects of the Local Implementation Plan of the Local Coastal Program including a provision allowing ownership of sending parcels to be transferred to a public entity willing to accept title. As of the writing of this profile in November 2009, the Coastal Commission had not yet approved the change.
*For details regarding the City of Malibu’s TDC program, this profile relied heavily on Transfer of Development Rights in US Communities, by Margaret Walls and Virginia McConnell published in 2007 by Resources for the Future.
