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HomeMy WebLinkAboutItem 07 - 2020 Affordable Housing Nexus Study Department Name: Community Development Cost Center: 4003 For Agenda of: April 21, 2020 Placement: Consent Item Estimated Time: N/A FROM: Michael Codron, Community Development Director Prepared By: Rachel Cohen, Associate Planner SUBJECT: RECEIVE AND FILE THE 2020 AFFORDABLE HOUSING NEXUS STUDY RECOMMENDATION Complete a significant Housing Major City Goal Task and r eceive and file the 2020 Affordable Housing Nexus Study (Attachment A). DISCUSSION Housing Major City Goal – Nexus Study Task Housing was identified as a Major City Goal for the 2019-21 Financial Plan. The adopted goal language states, “Facilitate the production of housing with an update of the Housing Element, including an emphasis on affordable housing (including unhoused people) and workforce housing through the lens of climate action and regionalism.”  A core priority identified in the MCG work scope and action plan is to complete an Affordable Housing Nexus Study to evaluate the current nexus between new commercial and residential development and the City’s requirements for affordable housing embodied in its Inclusionary Housing Requirements (SLOMC 17.138). The last time a study was completed was in 2004. Inclusionary Housing Ordinance The City’s first Inclusionary Housing Ordinance was adopted in 1999 and since that time, the City has focused on ensuring that a percentage of all new housing units are affordable to income eligible households. The inclusionary housing requirement can be met by 1) building affordable dwellings as part of a development project, 2) dedicating real property, improved or not, for development of affordable housing by the City’s Housing Authority or by a non-profit housing provider, 3) paying an in-lieu fee which is used to assist with the development of new affordable housing throughout the City, or 4) a combination of the above methods, to the approval of the Community Development Director. To date, more than 850 deed-restricted or otherwise secured affordable dwellings have been planned for, entitled, or built since the adoption of the Inclusionary Housing Ordinance in 1999. Additionally, the City has granted, loaned, or committed $10,450,954 of affordable housing in-lieu funds to assist with the development of 464 new deed-restricted affordable housing units. Item 7 Packet Page 53 Why Complete a Nexus Study? A nexus study is necessary to establish the relationship between market-rate residential development and non-residential development and the need to support and construct new deed- restricted affordable housing in the City. This nexus study analyzes if new market-rate residential and non-residential development in the City increases demand for affordable housing. A nexus study is intended to determine whether: (1) those subject to the fee are contributing to the demand that the fee will be used to address; and (2) that the amount of the fee is reasonably related to the magnitude of the fee-payer’s contribution to the problem. Nexus Study Finding The Nexus Study determined that both residential and commercial development are creating demand for affordable housing that is not being met by the housing market. The study’s findings verify that there is a nexus that justifies the City having an inclusionary housing requirement as it is applied to both residential and commercial development. Recommendations from the Nexus Study An update to the Inclusionary Housing Requirement will be pursued following adoption of the City’s Housing Element Update. The updated ordinance will implement policy direction included in the Housing Element Update. Consultants David Paul Rosen & Associates (DRA) has provided recommendations for updates to the City’s existing Inclusionary Housing Requirement. These recommendations are summarized below and can also be found in the Executive Summary Section of the Nexus Study. 1. Inclusionary Housing Ordinance (IHO) and Geographical Variation Based on comparable cities and an analysis of San Luis Obispo’s economic/market data, the City should consider different requirements based on whether the residential project is for sale or rent, and should discontinue differentiating between housing projects located within the City Limits and Expansion Areas. Recommended City-Wide Affordable Housing Requirement for Residential Development: ▪ Rental: Build 5% of units at very low income (50% Area Median Income (AMI)1 and 10% of units at low income (80% AMI) ▪ Owner: Build 5% of units at low income (80% AMI) and 10% of units at moderate income (120% AMI) Current Affordable Housing Requirement for Residential Development (both rental and owner): ▪ In City Limits: Build 3% low (80% AMI) or 5% moderate (120% AMI) income Affordable Dwelling Units ▪ In Expansion Area: Build 5% low (80% AMI) and 10% moderate (120% AMI) income Affordable Dwelling Units. 1 AMI’s listed in the recommendations are maximums for the various income groups. Item 7 Packet Page 54 2. Affordable Housing Standards The City should maintain its current definitions of affordable housing expense in terms of the percent of AMI (Area Median Income) used to calculate affordable rents and sales prices. In addition, DRA recommends that the City include utility costs as part of rent and Homeowners Association (HOA) fees as part of the affordable sales prices. Existing City IHO does not include utility costs as part of rent or include HOA fees as part of the sales price. 3. Project Size and Density Adjustments DRA recommends eliminating the project size and project density adjustments currently contained in Inclusionary Housing Ordinance Table 2A and recommends a minimum inclusionary requirement of one unit for projects of five or more units not otherwise exempt from the ordinance. 4. Residential In-Lieu Fees DRA recommends applying in-lieu fees on a per square foot basis as the estimated economic equivalent of providing on-site units. Existing City IHO bases in-lieu fees on building valuation. “Building valuation” is the total value of all construction work for which a permit would be issued, as determined by the Chief Building Official. 5. Non-Residential Nexus Fees (Commercial Development) Based on the non-residential nexus fees adopted in other California communities (see Attachment A, Table ES-5 and Section 7.8), DRA recommends fees in the range of $1 to $4 per square foot for industrial uses and $2 to $5 per square foot for other non -residential uses. Existing City IHO bases commercial in-lieu fees on building valuation. Relation to Housing Element Based on recommendations of the DRA Nexus study, staff anticipates that the Housing Element update will include new policy and program language to evaluate amendments to the Inclusionary Housing Ordinance, including Table 2A, based on findings of an economic feasibility analysis once the Housing Element has been adopted by City Council and certified by the State. Item 7 Packet Page 55 Next Steps ▪ April 22, 2020: Submit the Nexus Study to the Planning Commission for receive and file ▪ September 2020 (anticipated adoption date): Complete an update to the Housing Element ▪ Winter/Spring 2021: Complete an economic feasibility analysis ▪ Fall 2021: Based on recommendations of the Nexus Study, the economic feasibility analysis, and guiding policies included in the Housing Element Update staff will evaluate amendments to the Inclusionary Housing Ordinance and present its recommendations to the Planning Commission and City Council Policy Consistency Housing Element Programs 2.15, 2.16 and 4.6 outline items to consider, such as evaluating Table 2A, increasing affordability options for those making above 121 percent AMI, and providing affordable units that are consistent in size, location and character as market rate development, as a part of the inclusionary housing ordinance (IHO). The Nexus Study is the first step in providing information that can be used to evaluate these considerations and any other changes to the IHO. Consistency COVID-19 Orders and Current Fiscal Contingency Plan. The Nexus Study was completed prior to the COVID-19 orders and the current fiscal contingency Plan. This activity is connected to the Housing Element update which is state mandated to be completed by no later than December 2020 and is presently allowed under the State and Local emergency orders associated with COVID-19. Public Engagement The Nexus Study is an informational document and does not create nor modify any goals, policies or regulations, therefore there is no requirement for public engagement. The public will have an opportunity to provide comments on this item prior to the meeting. In addition, the policies that guide how this information will be used are being developed as part of the Housing Element Update, which is following a “consult” level of public engagement. ENVIRONMENTAL REVIEW Since this item is informational in nature and involves no action by the City Council, the California Environmental Quality Act (CEQA) does not apply to the recommended action because it does not constitute a “Project” under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: Yes Budget Year: 2019-202 Funding Identified: Yes 2 The Nexus Study was budgeted as part of the 2018-2019 budget year, but was carried over into the 2019-20 budget cycle as a part of the Major City Goal Item 7 Packet Page 56 Fiscal Analysis: Funding Sources Current FY Cost Annualized On-going Cost Total Project Cost General Fund NA $65,000 State Federal Fees Other: Total $65,000 The work completed by DRA to prepare the Nexus Study cost $65,000 and was paid from the General Fund. ALTERNATIVES Continue consideration of the Nexus Study. Although no action is recommended in association with this report, the City Council could ask staff to return during a future meeting to present additional information. Attachments: a - COUNCIL READING FILE - 2020 Nexus Study Item 7 Packet Page 57 Page intentionally left blank. Item 7 Packet Page 58