HomeMy WebLinkAbout6/8/2022 Item 5a, Jeffries
Delgado, Adriana
Krista Jeffries <krista@yimbyaction.org>
Sent:Friday, June 3,
To:Advisory Bodies
Subject:Inclusionary Housing Ordinance Feedback
Attachments:Early SLO IHO Properties.pdf; SLO YIMBY IHO recommendations.pdf; SLO CC 3_1
Public Comment-2.pdf
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Good Afternoon Commissioners,
Please find attached three separate documents regarding the IHO proposal.
1) Case study from the first project to pay into the Inclusionary Ordinance, comparing the fees then and now, and likely
sale prices of comparable properties, along with a case study from the first project to deed-restrict a house, and the
outcome of that property today. Both properties were approved at City Council in October 1999.
3) SLO County YIMBY's proposal for the IHO and surrounding policies going forward
4) Our original comments from the City Council meeting in March, detailing our overall perspective of the root causes of
high housing prices and the flaws in the EPS memo and nexus study.
Please feel free to reach out to me with any questions.
Ban Cars & Build Homes,
Krista Jeffries
SLO County YIMBY
Lead Organizer
805.904.7325
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1
Hello Council Members,
I wanted to share something I found this week while reading some of the minutes from
1999 when the city passed the IHO.
One of the first projects to participate in it and provide the housing instead of the in-lieu
fee is currently 672 E Foothill.
It was approved by city council on October 19, 1999, when it was 680 Foothill.
680 E Foothill Blvd
10 detached condo PUD units
Nine of them have 2b/2ba, one of them has 3b/2ba. Developer agrees to deed-restrict
the 3-bed to "moderate income level." 672 E Foothill sells for $275k in 2001. There is no
sign of sale from the original owner, so presumably whoever bought it in 2001 still owns
it.
In the same project, 686 Foothill was a market-rate unit bought in 2001 for 250k like all
the other 2b/2ba market units,then in 2006 was sold for more than 2x that amount,
then sold again in 2015 and 2018. I do not know how much the developer made on the
construction and sale, but it's safe to say that the first homeowner made quite a bit more
than the developer on the same house.
At least two other homes in the PUD are currently being rented out now at $2400/m.
The **deed restricted** 3b unit at 672 E Foothill is being rented out at $3400/mo by
the same income-restricted owner who bought it in 2001.Or, potentially, by a family
member who may have inherited it. The current maximum rent for a 3b moderate
income rental unit is $2690, while the rent for a 2b is $2420. So the market rate units
not only are being rented for less, but they're *lower* than the maximum rents for a 3b
income-restricted unit (because it's smaller). And the 2b market rate units are being
rented at almost the same rent they would be if they were deed restricted.
How do we feel about the fact that the inclusionary unit is being rented at market rate,
presumably by the same person who bought it deed-restricted, or their descendant?
The proposed IHO policy mandates equity share in the event an income-restricted
buyer sells a home within 6 years. Is the city considering a rent-share program as well,
in case a purchased deed-restricted unit were to become a market-rate rental?
I started thinking about it when Arroyo Grande Plan Comm received an update on their
housing production, but the report failed to take into account the loss of at least 74 units
to short-term rentals (that they were aware of, as they had no consistent method of
tracking which ones had been permitted and which hadn’t, so it’s likely there are more
than 74 units lost).
The performance of the city’s IHO should consider the same information. If SLO has
entitled, planned, or built 1200 units of deed-restricted housing since 1999, how many
are still deed-restricted? Restricted rental apartments from PSHH and HASLO are
easier to track, but the ownership models are not.
Some may consider this home turning into an income property for a buyer to be a
“success.” Such a definition would depend entirely on the goals of the city’s IHO. I was
unable to determine an ultimate purpose or metric for the IHO through the meeting
minutes I’ve read so far, meaning it wasn’t clear to me if this sort of loss of
deed-restricted housing was the intended outcome.
If the goal is to provide low- or moderate-income residents with a step into real estate
investment so they can move up the ladder, then it is a success. If the city’s goal is the
preservation and production of affordable homes, then this example would indicate a
failure, or at least a loophole.
My personal feelings on the matter, based on the reading I’ve done on the subject from
people much smarter than I am, is that housing ownership can be a good investment or
it can be accessible/affordable to the majority of the population. It cannot be both.
Seeing the outcome of the East Foothill property confirms that.
October 5 1999
6 Single family residences - El Capitan Way (867, 871, 875, 879, 883, 887)
-Developer proposes five 1340 sqft homes (and one that's 1300sqft), detached garages
in the back with the ability to do studio apartments on top of the garages in the future.
-6k sqft lots each
-Developer agreed to 25k of in-lieu fees.
-Plan Comm denied him the ability to add the garage studios in the future because of
"neighborhood compatibility"
-Each home sold for around $365k in 2001. Project went from first discretionary hearing
to sale of all units in about two years.
What that 25k fee looks like today when translated to today's money, versus what the
new IHO will require as in-lieu fee:
1999 Dollars 1999 Dollars
Adjusted to
2022
Equivalent
Fees Under
Proposed IHO
if Project Were
Built Today
Proposed IHO
Adjusted to
1999 Dollars
Total In-Lieu
Fee
$25,000 $43,000 $186,000 $107,000
Fee By Square
Foot
$2.68 $4.65 $20 $11.53
Fee Per Unit $3,591.20
($3,484 for the
smaller one)
$6,231
(6,045 for the
smaller one)
$26,800
($26,000 for
the smaller
one)
$15,450
($14,989 for
the smaller
one)
Sale Price $365,000 $633,400 ––
Estimated
Sales Price
––$1.2M 3291 Violet St
$1.1M 629 Woodbridge St
$1.2M (3935 Kilbern)
San Luis Ranch and Avila Ranch
are selling homes of this square
footage for much less, however
they have much smaller lots.
These listings were the closest
approximation I could find for
age, home size, and lot size.
Due to the low availability of
empty lots, I am doubtful that
homes will be able to command
this price very often or for much
longer unless the city were to
annex more land or remove
open space from its protected
status. A more realistic home
price would be somewhere
between 500k and 880k, like the
examples of recently sold homes
I’ve found here.
880 Lawrence Drive
2478 Victoria Avenue
852 Tarragon Lane
267 Bridge Street
3073 Rockview Place
3202 Fennel Lane
3818 Hatchery Lane
To The City Council of San Luis Obispo,
In 2016, The Economist published an article detailing the results of their meta-analysis on which
laws intended to reduce child sex trafficking were actually working and which ones were making
the problem worse.Their study found that laws written with the intent to punish abusers were
being pursued at the expense of laws that actually prevented child sex trafficking and were in
many instances worsening the abuse against victims.From the article linked above:
“As awareness of child-abuse has grown, the punishment of past crimes has sometimes
taken precedence over the prevention of future ones.”
Their conclusion, when considering which policies to pursue and which ones to reform or
discard, was to say to lawmakers “First, save the children.”
High housing costs and child sex trafficking are two completely separate issues; home builders
are hardly villains, like child sex traffickers. And yet, regardless of the issues being addressed,
the problems of writing effective policy to deter an undesirable outcome (the former being
homelessness, traffic, and poverty, the latter being violence against other humans) can be
elusive unless decision makers ask themselves critical questions about (1) the fundamental
nature of the problem at hand, and (2) examine how well the end results reflect the desired
outcome. Instead of asking “Does this save the children?”we strongly urge the Council and staff
to ask “Does this bring down the rent?”Not just with the Inclusionary Ordinance, but with all
policy decisions. Housing is absolutely critical to the success of every single council goal.
SLO County YIMBY believes that while inclusionary ordinances are important tools and can be
used effectively to produce housing the market will seldom meet on it’s own, the conclusions of
this study are not connecting the appropriate causes and effects, and the nexus study started off
asking the wrong questions. Instead of asking “What is causing this policy to be less effective
than we hoped?” it appears to have started with “How can we justify adding costs to a certain
type of housing?” which is counterproductive, to say the least.
Please accept these responses we have provided to the EPS memorandum and staff report,
and the links we have provided for further information. Thank you for your service to our
community, and please do not hesitate to reach out with any questions or comments.
Sincerely,
Kevin Buchanan and Krista Jeffries
MEMORANDUM NOTES
“While such fees may be technically justifiable, it is not uncommon for the maximum
nexus-based fees to render new development infeasible and, as such, cities typically
adopt affordable housing fees at much lower levels.”
-Inclusionary housing fees (IHF) can render projects infeasible even though IHF is not the
highest cost item, indicating we can afford a higher inclusionary fee like the ones proposed if we
trim the costs somewhere else.
“Developers opting to pay a fee rather than providing the units onsite as part of the
development would pay an in-lieu fee charged per square foot of $25 for new for- sale
housing and $20 per square foot for new rental housing. For new commercial
developments, EPS recommends a per square foot commercial linkage fee amount of
$5.00 for office, service, hotel, and retail uses, and $4.00 for industrial and institutional
uses.”
-This inequity between residential and commercial is counterproductive. While housing
development at a large enough scale does induce commercial development, commercial
development more strongly induces the need for housing, and since SLO County has added
almost 4x as many jobs as we have housing over the last 10 years, the lion's share of
contribution towards IHF should be born on commercial development.
“EPS analysis finds that under current market conditions, new units of these sizes rent
for approximately $3,000 per month (as shown on Figure 2), which is not affordable even
for moderate-income households (households earning 120 percent of AMI). Therefore,
units of at least 1,100 square feet are no longer ‘affordable by design’, as was the intent
of Table 2A.”
-The intent of Table 2A was to provide instruction on how to calculate affordable housing
burdens for new development, not bring down the price of affordable-by-design units. Those
units are subject to the forces of the market, and since affordable units are not market units, it’s
illogical to tie the price of these by-design units together with non-market units in this manner.
The cost of those market units is determined primarily by the regional and neighborhood
vacancy rate, which currently sits at historically low levels. See tables and charts listed below
from Apartment List, the Biden Administration, and the 2020 SLO Housing Element Update.
“Residential developments of less than four units are exempt.”
-This leaves out a significant source of contributions to AHF from the population with the most to
gain from a continued overall shortage in housing - single unit, SFR projects. It also inequitably
targets the missing middle housing we need the most. The council should strongly consider
excluding multi-family projects of 2-10 units from the IHF, zoning more land to make these
projects feasible, and shifting the funds anticipated from projects of 4+ units to be garnered from
other sources. Larger developers, who have large amounts of capital and investors to pay back
upon sale of units, are not interested in these smaller projects anyway, so it does not constitute
a loss of funding.
“While an 800 square foot unit is affordable to a moderate- income household of two, a
family of three would experience an affordability gap of $15,400 for an 1,100 square foot
unit. A moderate-income household of four would experience an affordability gap of
$32,650 for a 1,500 square foot unit, despite having a higher income than the household
of three.”
-This excerpt indicates that the affordable-by-design program is effective for a certain size of
units and certain households.However, there continues to be a severe shortage for larger units
more suitable for families, particularly higher up the income ladder. These are the people who
are continually commuting to work in the city from surrounding areas, damaging SLO’s goals of
DEI and climate neutrality.Adding more of these kinds of units will bring down the rents, even if
they don’t contribute to the IHF.
“This analysis shows that 1,100 and 1,500 square foot units are unaffordable and thus
contributing to an affordable housing shortage, because their construction is not
required to contribute to the development of housing that is affordable in the
community.”
-This statement is logically unsound. It insists that by adding costs to aff-by-design units of
housing (which has been indicated to be effective for certain unit sizes and income levels), that
it will yield more affordable housing overall. The conditions that facilitate production of
inclusionary units are more complex than funding alone, otherwise no one would be contributing
to the in-lieu fee and would be building the units instead. Additionally, there are other activities
that drive up housing costs but do not contribute to AHF, the most significant ones being
(1) gutting and rehabbing older, smaller homes and thus making them more expensive
(2) sale of any above-moderate housing between private parties
Yet this memo does not call for 10% capital gains tax on the sale of homes above a certain
price-point, nor a 10% share of estimated construction value before permitting. If we need a
15% profit margin to allow new construction to be feasible, why does the report leave out the
homes sales that are leaving their sellers with far more than 15% profit?Click here to read some
locals on Facebook share what they paid for their home and what they sold it for.
“The purpose of the nexus study was to determine the extent to which new market-rate
residential and non-residential development in the City increases demand for housing…”
-The availability of housing does not induce demand for more housing. If this were the case,
larger developers would all flock to places with higher vacancy rates, like Omaha and St. Louis,
and expect to make more money than in places with lower vacancy rates, like San Luis Obispo.
Employment and commerce is the demand-inducer. We know this because housing closer to
shops, restaurants, and employment is more expensive per square foot than housing that is
further from it, even if both homes are generally expensive.
“… and exacerbates the City’s shortage of affordable housing.”
The city does not merely have a shortage of affordable housing, but a shortage of housing
overall. The number of new homes has gone down by 20-35% each decade since 1979. This
was despite the fact that the population continued to grow at above average rates through the
1980s and kept pace with the state and national average through subsequent decades.
-70s to 80s: 35% decrease
-80s to 90s: 29% decrease
-90s to 00s: 21% decrease
“DRA states that the basis for the fee is that development increases employment, which
also increases the demand for housing for the added employees.”
-Every county in the state of California has created more jobs than they have new units of
housing over the past several decades. This has been replicated in almost every major metro
area in the country. Employment increases the demand for housing, not the other way around.
Now we are at a point where we struggle to fill the jobs we do have because of the shortage
(and thus high market price) of housing.
“EPS’s recommended inclusionary approach would see an increase in the percentage of
required affordable units, from 3-5 percent (depending on affordability) to 10 percent.”
-This is not an unreasonable overall percentage at face value, but it is a significant percentage
increase, over 300% depending on the project. This additional cost will be borne easily by
large-scale developers who will continue to plow over greenfield lots with expensive SF homes,
and the missing middle builders, who are largely local and do not have investors to pay back,
will be unable to produce the kinds of homes our workforce needs. Trade-offs must be made in
order to overcome this substantial cost. The current entitlement environment is not amenable to
it for the homes we need the most. We strongly urge the Council to consider allowing projects
that build these units and meet objective standards to go through a ministerial process instead
of a discretionary one.
“For for-sale residential, the recommended fee level is $25 per square foot, while for
rental units, the recommended fee level is $20 per square foot…For commercial
developments, EPS recommends a commercial linkage fee as opposed to an inclusionary
program. The proposed fee amounts are $5.00 per square foot for office, service, hotel,
and retail uses, and $4.00 per square foot for industrial and institutional uses.”
-As discussed earlier, commercial development induces demand far more than housing
development. Therefore the higher fees should be borne by commercial development rather
than residential.
Single family homes induce demand for service workers like housekeepers, babysitters, and
landscapers who need housing that is not typically available in proximity to their workplace.
Multi-family homes induce more demand for waitstaff and entertainment, but are less expensive
to live in than SFR and suitable housing can be provided closer to those jobs. The difference
between these two kinds of housing and the demand they induce should be reflected in a lower
cost for MFR (over 10 units) and the maximum fee for SFR.
STAFF REPORT NOTES
Table 1
-The recommendations of the study involve simplifying the calculations, which is good, but it
also suggests adding costs to missing middle housing units while relatively sparing commercial
development, which is not good. Those reasons are discussed earlier in this public comment.
“The nexus study analyzed if new market- rate residential and non-residential
development in the City increased demand for affordable housing and included an
analysis on the historical performance of the City’sIHO program.”
-This is asking the wrong question. The goal of affordable housing funds and the IO is to provide
housing currently not met by the market. The entire problem of affordability is being viewed
within a very narrow lens. The nexus study should have started with the question of “Does this
program meet the goals of lowering the cost of housing? Why or why not?”
“The approach for defining the appropriate affordable housing commercial linkage fees
was built off a similar exercise performed by DRA in the Nexus Study that relied on
surveying commercial linkage fees in other jurisdictions.”
-Why do we look at what other cities are doing when all other cities in California are performing
poorly on housing affordability? Why do cities insist that they are unique enough to be exempt
from state law, yet look to other cities for guidance on policy? Almost 150 cities have currently
had their housing element updates rejected by HCD. This practice needs to be scrapped.
“Construction cost estimates are based on assumptions used in the Nexus Study
analysis, adjusted for inflation, with total direct and indirect costs (except affordable
housing fees) assumed to be approximately $650,000 per unit.”
-If we expect homes to cost this much to build, which renders them unaffordable to most
workers, why are we considering adding costs and expecting it to create more affordable
housing?
SLO Inclusionary Housing Ordinance
Recommendations
●Include custom projects, as the County’s IHO did before it was repealed.
○New construction and additions that don’t add new units of housing -
$0.75/sqft based on the size of the new footprint of the house
○Major remodeling projects that require permits - $0.25/sqft based on the
existing footprint of the house
●Exempt multifamily projects of 2-10 units (possibly up to 15)
○This will incentivize “Missing Middle Housing”that is cheaper to construct,
cheaper to rent, and easier on existing infrastructure
○Proposed IHO would add fees to a project demolishing old single-family
homes and then building four or more units of housing (now feasible under
SB9 and SB10), punishing the exact kinds of projects we need
●Include Condo Conversions (from rental to ownership)
○Ellis Act evictions and conversions like this are a big driver of displacement
and homelessness
●Exempt Commercial Conversions that create at least 2 units of housing
○Popular opinion strongly favors commercial conversion and it is also very
expensive to bring commercial space up to residential code
●Include State Density Bonus vs City Density Bonus in the Ordinance
○Current language is unclear which bonus would apply
●Reduce Inclusionary Fee to $5/sqft
○10% is the maximum any IHO should have, even in high-end places like NYC
and LA, in order to facilitate both market-rate and deed-restricted units
●Permit developers to deed-restrict a variety of housing units instead of
mandating deed-restricted units match the market-rate units
○Region deeply needs housing for single-person households
○Diverse neighborhoods can be achieved with diverse types of housing stock,
not just deed-restrictions (See attached East Foothill Blvd case study)
Yes to people. Yes to housing.
yimbyaction.org 1
○Costs to build market-rate and deed-restricted units are the same; proposed
IHO policy will incentivize paying into the fund instead of building homes; city
must determine which outcome is their ultimate goal
●Mandate a program where deed-restricted ownership units must be rented at
the same income bracket for the following 30 years after purchase
○672 East Foothill Blvd was deed-restricted at “Moderate Income” in 1999 but
is now being rented at a higher rent ($3400/m) than the market-rate units in
the same development; maximum rent for moderate-income 3b units is
currently $2690
Other Recommendations
●Rezone the neighborhoods surrounding Cal Poly with an SB10 ordinance to
facilitate more housing where the demand is highest
○Currently zoned Single Family Residential; SB9 is automatically applied but 4
units is not enough to incentivize with current construction/labor/land costs
●Eliminate density limits and parking requirements
○State building code is always in effect to ensure safe structures
○If that’s a bridge too far, at least allow these policies for projects using the
state density bonus
●Exempt Deed-Restricted units from impact fee calculation
●Defer impact fees for 100% low-income housing for 15+ years at 3% interest in
order to make local affordable housing projects more competitive for tax
credits
○Since 1999, the city has entitled or produced 1200 deed-restricted units (or
about 52 units a year), which is about the size of 1 project for People’s
Self-Help or HASLO
○Each project has paid somewhere between $2-3M in impact fees, whereas
the city’s budget is over $200M; put a line item in the budget for Affordable
Housing Impact Fees so the infrastructure costs are covered until the loans
are paid back. Many infrastructure projects paid for by these projects aren’t
started or completed for several years afterward anyway, especially for infill
locations, and these projects never show up “out of nowhere.”
●Make transit funding a higher budget priority and upzone areas around bus
stops
Yes to people. Yes to housing.
yimbyaction.org 1