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HomeMy WebLinkAbout6/8/2022 Item 5a, Dantona Delgado, Adriana From:Jim Dantona <jim@slochamber.org> Sent:Thursday, June To:Advisory Bodies Cc:Codron, Michael; Cohen, Rachel Subject:City of SLO's Inclusionary Housing Amendments Attachments:SLO Chamber IHO letter.pdf This message is from an External Source. Use caution when deciding to open attachments, click links, or respond. Good morning Planning Commissioners, Please find attached the SLO Chamber’s Inclusionary Housing Task Force letter regarding the proposed amendments th coming before the commission on June 8. We would be more than happy to walk you through the key points of our letter in a meeting. If you are interested, please feel free to reach out to me and we can schedule that time. Thank you for the service to our community. All the best, -- Jim Dantona President/CEO 895 Monterey Street, San Luis Obispo, CA 93401 T: 805.786.2761 slochamber.org | imagineslo.com 1 June 1, 2022 Dear Mayor Stewart, SLO City Councilmembers and Planning Commissioners, The SLO Chamber of Commerce respectfully submits the following comments regarding updates to the City’s Inclusionary Housing Ordinance. The vision of our organization’s support for housing is simple –we need more housing, of all types,for all income ranges to support our residents and local economy.Our most disadvantaged are suffering, the majority of our local workforce commutes, and one of the most significant barriers to recruiting and retaining employees is housing - both affordable and market rate. While historically, the debate around how to address our local and statewide housing crisis has been centered on either market rate housing or subsidized housing, we are currently living with the failure of that strategy. This oppositional approach has fallen woefully short of the magnitude of our housing challenge and doubling down will only serve to widen the chasm between affordable and luxury housing in our community, with nothing in between. For years, we have been looking for ways to incentivize missing middle housing, to create the stairsteps in affordability that are critical for a healthy community. With a few changes to the proposed draft, we believe that the city ’s Inclusionary Housing Ordinance can be one piece of that puzzle. In our series of task force, committee, and board meetings, our goal was clear from the start: the inclusionary housing ordinance is an opportunity to more efficiently and effectively get housing of all kinds built,not just secure a fixed number of deed restricted affordable units.To achieve this goal,the following key principles need to be considered: ●While there is no such thing as a perfect nexus study, significant feasibility considerations omitted from this study, published in February of 2020, should be taken into account. ●Custom homes should not be exempt from the ordinance. ●Table 2A has delivered results and should be updated, not eliminated. ●Fees should be calibrated to a proportionate share of what a nonprofit developer ’s needs to secure state and federal funds. ●As reflected in the City ’s study, very low and low income units can be produced more efficiently as rental housing or by affordable developers - we should follow that recommendation. ●Flexibility is a powerful incentive for partnership between for and non profit developers - we should use it to get the most units of all kinds built. ●It is imperative that we consider additional ways to produce affordable housing - not just the Inclusionary Housing Ordinance and fees. Overarching approach One of the first things that stood out in the draft is the shift to one standard citywide approach to inclusionary housing rather than separate standards for expansion areas. We are glad to see this change which continues the more realistic, more equitable “one big happy family” approach that was established during the last comprehensive impact fee update. Additionally, we appreciate that the draft ordinance exempts housing projects that include a density bonus. While it has higher thresholds for the number of affordable units created, this incentive based program rewards collaboration and is exactly the type of structure that can accelerate the production of both affordable and market rate homes that we so desperately need. Nexus Study We recognize the inherent limitations of nexus studies, particularly when they examine a volatile and risk-filled part of our economy - housing. Without spending the entirety of our letter on the study, it is important to note that: ●Proposed development will be serving a different market than the time studied. ●We cannot go back in time to know what would exist today if tools like 2A didn't exist. ●The study does not consider the burden of other local factors such as land costs, impact fees, time to market, entitlement process, and market risk when determining what is feasible. ●Outside forces including inflation, supply chain issues, processing delays and changes in Fed policy all impact our local housing market. ●The analysis has cherry-picked data and market factors from a very favorable period of time, which no longer exist, or would not exist over the term of the ordinance (assumed to be 10-20 years). As noted in the staff report and EPS reports, “…financial feasibility is an important consideration because if the development of market rate housing is not financially feasible for developers, then the amount of affordable housing accomplished through the inclusionary housing ordinance will be minimal.” The EPS study assumed that a 15% profit margin was adequate to thread this needed but the assessment fails to take the full breadth of development risks into account.While 15% profit margin works for buying finished lots and completing vertical construction, that is not the case for new development. The entitlement work and essential infrastructure mean more capital is required; because of these higher risks, banks require higher projected returns. The nexus study underestimates the financial requirement to construct housing and does not recognize that many projects suffer tremendous losses and never make it to development, because of these variables. Comparing SLO to Berkeley, Petaluma or Oakland is apples and oranges. A comparison to Santa Maria, Paso Robles, Atascadero, and Salinas would be more appropriate since those are areas inside or adjacent to SLO’s HMA. The economic analysis also compares SLO’s affordable housing requirements to Morro Bay, Pismo Beach, the City of Santa Barbara, and several other Central Coast communities where there is virtually no new housing activity. Table 2A The staff report says that “Table 2A has been successful in providing smaller unit sizes and higher density” but is “no longer achieving affordability.” In fact, Table 2A has promoted workforce and missing middle housing. While our local housing market may heat up or cool down, smaller units will remain more affordable than larger units in the same market.Below is a sample of 1,616 units that were constructed or are under construction and used Table 2A: <750 750-999 1,000-1,249 1,250-1,499 1,500-1,749 1,750-1,999 2,000+Total Avila Ranch 51 180 224 101 556 San Luis Ranch 120 48 48 94 91 401 Noveno 90 90 86 266 600 Tank Farm 25 89 68 14 25 221 West Creek 42 7 56 13 44 10 172 Total 187 144 223 288 219 358 197 Percent 12%9%14%18%14%22%12% ●There are units across the entire size spectrum. ●One third (554) of the units are less than 1,250 SF. The EPS study references 1,100-1,200 as the moderate income size threshold. ●One half (824) of the units are less than 1,500 SF. ●Only 12% (197) of the units are larger than 2,000 SF. We recognize that 2A needs to be updated, however, the risks of eliminating it all together are too great. The demand for larger, more expensive housing is significant and without incentives like Table 2A, missing middle housing will be even less likely to be produced. There are ways to appropriately adjust the numbers, to account for changes since it was established, while not throwing the baby out with the bathwater: ●Require 10 percent of units be affordable across the board, but with the discounts and reductions associated with modified Table 2A. ●Provide an additional column with a reduced requirement in the Table for projects with SLO County employee preference or owner occupancy for 4+ years. ●Projects would be required to provide a minimum of 25% of the standard (no more than a 75% reduction) in the project regardless of average density and unit size. See revised table 2A below: Density units/net acre Average unit size Local worker/ owner occupancy <750 751-999 1,000-1,250 1,250-1,750 1,750+ 36+25%50%50%50%100%-25% 24-35.99 25%50%50%50%100%-25% 12-23.99 50%50%75%75%100%-25% 7-11.99 75%75%100%100%100%-25% <7 100%100%100%100%100%-25% Fees An in-lieu fee based on square footage is better than one based on valuation. The current system keeps investors guessing until the last minute but the proposed update creates valuable predictability. However, some adjustments need to be made to the specific recommendations: ●Commercial | The commercial linkage fee is close but based on intensity of use, $2.5/SF for industrial and warehouse uses, and $5/SF for all other non-residential uses makes more sense. ●Custom Homes | All market rate residential units,not just developments of 5+ units, should be subject to the tiered fee schedule below; equal treatment for individual building projects and subdivision projects. ●Tiered in lieu fee | The residential in lieu fees proposed would add approximately $45,000 to a typical 1,800 sq. ft house and $25,000 to a typical 1,200 sq. ft apartment/rental unit. In lieu fees should be calculated relative not to the ‘pain’ a developer would take on to build the unit themselves, but rather calibrated to what a nonprofit developer would need from a local source to leverage other financing, and create a unit, as well as the graduated impact described in the study. Residential in lieu fees would be appropriately tiered at: ○0 - 1,000 | $2/SF ○1,001 - 1,500 | $5/SF ○1,501- 2,000 | $9/SF ○2,001 - 2,500 | $14/SF ○2,501 - 3,000 | $20/SF ○3,001+ | $27/SF Example: A 2000 square foot unit would generate a $9,000 fee - $2/sq ft for the the first 1000 sq ft ($2,000), $5/sq ft for the next 500 sq ft ($2,500) and $9/sq ft for the next 500 sq ft ($4,500) For sale units As reflected in the City ’s study, very low and low income units can be produced more efficiently as rental housing or by affordable developers - we should follow that recommendation by focusing on very low/low as rental product, and moderate/workforce as for sale product. The EPS analysis concludes that it would cost ~$650,000 to build a 1,550 SF single family home. This estimate is $385,000 greater than the $265,000 that the same report describes as being affordable for low income households. Additionally, low/very low income families typically face a far greater challenge qualifying to purchase and maintain a home without a down payment assistance program or other subsidies. Instead of fighting these realities, we should be doubling down on building the appropriate rental units to meet the needs of low income families. Provide more families affordable rentals to build credit, so that they can move up the continuum of housing to a moderate or missing middle home. When considering for sale units, a requirement of 5% low and 5% moderate is unreasonable and gets in the way of our goal to create more housing of all types. A requirement of 10% moderate will be effective in building a larger amount of moderate income for sale housing that is a key step from affordable rental to workforce housing. Standards We are in agreement with the spirit of the standards described in the draft ordinance. To avoid the creation of a community with a good/bad side of the tracks, to ensure equitable access to amenities that we know are correlated with higher-income residents such as good schools and parks, safe, well maintained streets, and the attention of local leaders. We can preserve the spirit of this section and build more units of both affordable and market rate housing when we allow inclusionary units to be consolidated into a product type rather than dispersed throughout a residential or mixed use development. When we mandate homogeneity, we lose out on opportunities for increased efficiency, leveraging state and federal funding sources, and better support services. This opportunity cost is not worth it. Items 1, 3 and 4 of the the Standards section of the draft should be amended to read: 1.Inclusionary units may be concentrated within the development project to achieve efficiency, leverage state and federal funding sources, and achieve better management and support services for the residents. 3.The applicant may reduce square footage of inclusionary units as compared to the market rate units as long as the minimum square footage of the affordable units are no less than seventy-five percent of the average size of all market rate units in the development with the same bedroom count.Exemptions may be considered for projects that are designed to meet specific affordable housing programmatic constraints. For the purpose of this subsection, the “average size” of a unit with a certain bedroom count equals the total square footage of all market rate units with that bedroom count in the development divided by the total number of market rate units with the same bedroom count in the development. 4.For developments with multiple market rate unit types containing differing numbers of bedrooms, inclusionary units shall be representative of the market rate unit mix.Exemptions may be considered for projects that are designed to meet specific affordable housing programmatic constraints. For example, a for sale,residential project includes fifty (50) dwelling units; ten (10) three-bedroom units, twenty (20) two-bedroom units, and twenty (20) one- bedroom units. To represent the units within the residential project, the five (5) required inclusionary units would be one (1) three-bedroom, two (2) two-bedrooms and two (2) one-bedrooms. Additional Funding Sources As we stated in the opening, our goal is to support policies and programs that result in the creation of all types of housing and levels of affordability that are critical for a healthy community. With a few changes to the proposed draft, we believe that the city’s Inclusionary Housing Ordinance can be one piece of that puzzle. But it cannot be the only one. Looking at the City ’s IHO without simultaneously considering other predictable, bondable and permanent funding sources for affordable housing constrains our ability to address the problem more holistically and it also puts unnecessary pressure on new market rate housing - which we also desperately need. We recognize that the magnitude of subsidy required to provide low and very low income units is significant. We also know that our entire community benefits significantly when that type of housing is plentiful. To not only meet but exceed state requirements, we need to look to new funding sources such as a regional bond, Enhanced Infrastructure Financing District, project-specific Community Financing District, and/or dedicating a portion of existing TOT. We also need to address factors that increase risk and therefore cost to getting new housing - whether affordable or market rate - built. While not all of these factors are under local control, permit processing time, and infrastructure readiness are both things we can improve. Thank you for your consideration. Please don’t hesitate to reach out if you have any questions or would like to discuss further. Sincerely, SLO Chamber Inclusionary Housing Task Force Aaryn Abbott | Abbott|Reed Inc. LeBren Harris | Hampton Inn & Suites/ TownPlace Suites San Luis Obispo Rachel Kovesdi | Kovesdi Consulting Donna Lewis | Guaranteed Rate Damien Mavis | CoVelop Kerry Morris | Morris & Garritano Stephen Peck | Peck Planning & Development Ken Triguero | People’s Self Help Housing