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Home My WebLink About3/5/2024 Item 8a, Grant Lenny Grant < To:E-mail Council Website Cc:Shoresman, Michelle; Pam Ricci; Rachel Raynor; Scott Martin; Anthony Tomasello; Matthew Ottoson; Kimmie Nguyen; Jami Williams; Janelle Wahl; Erik Justesen; Pease, Andy Subject:RE: draft housing study session comments - please review and comment before noon This message is from an External Source. Use caution when deciding to open attachments, click links, or respond. From: Leonard Grant, Principal Architect Leader of RRM Housing Market Sector RRM Design Group Subject: City of SLO City Council Study Session – March 5, 2024 Dear Mayor Stewart and City Council members, Thank you for the opportunity to provide feedback and input on your Housing Needs and Opportunities Study. We at RRM Design Group are heartened by your e?orts to make progressive changes to address the housing shortage especially for the lower and middle income citizens of San Luis Obispo. We commend your team led by Timmi Tway, Teresa McClish and Daisy Wiberg for their excellent work. Their work is thoughtful and far reaching. This is an excellent start and we hope to be a partner for you to explore progressive ideas to result in housing for all the citizens of San Luis Obispo. We hope you appreciate and embrace our comments as we have gathered some of our housing planners and architects who work in housing design and planning every day for developers providing housing along the much of the housing continuum from transitional housing to very low and low income deed restricted apartments to market rate apartments, mixed use projects, adaptive reuse housing projects, municipal ADU programs, senior housing, permanent supportive housing and so on. Not only do we design many projects in San Luis Obispo but across the County and State. We applaud the e?orts to provide a framework to support ‘housing for all’! None of us can truly thrive unless all of us are included in basic human needs such as decent, comfortable, safe, supportive, a?ordable housing. To begin with, some of the population statistics to be highlighted by your team are signiﬁcant in our eyes, especially: “The County of SLO is the second least a?ordable small metro area in the entire nation. The cost of housing in the County is about 51.7% higher than the national average, ranking it as a small metro area with the fourth highest housing cost in the United States.” “…the City is meeting approximately 12% for the Moderate-Income category, 37% for the Low\[1\]Income category, and 17% of the Very-Low and Extremely-Low Income categories.” In addition to these facts, please consider the following: 1 With inﬂation currently settling close to the 3% in the U.S., high shelter costs- the largest component of inﬂation, remain sticky - creating a challenge for the Federal Reserve to get U.S. inﬂation to the 2% target. Additionally, it is harder to acquire capital for land acquisition, design and construction costs (AD&C). According to economists at the National Association of Home Builders (NAHB), lack of zoning is the biggest hurdle to realize housing- especially multi-family residential homes which are needed to realize the shortage of approximately 10 million homes (across the U.S. – single family and multifamily homes combined). Household formation, construction worker shortage and productivity are headwinds for the housing construction industry. Approximately 20% of adult children in the U.S. are still living with their parents. A signiﬁcant problem getting worse is that there is a shortage of over 400,000 construction workers in the U.S. and need to add approximately 700,000 construction workers per year to keep up with retirement and demand. It is unrealistic that the industry will hire this many workers. The aging construction worker is resulting in a decrease in productivity in the industry as the work is physically demanding. The construction industry is about the only major industry in the U.S. with a decline in productivity over recent times. While the end of the year has seen a reduction of long-term interest rates, the housing market is set to experience gains in 2024 for single-family construction and existing-home sales while multi-family residential construction will slow in 2024 and likely rebound in 2025. Housing needs analyses: We appreciate the Housing continuum outlined by sta?, this shows a deep understanding of the a?ordable housing crisis that we are in. There is no silver bullet or solution. This is a complex problem that resulted from decades of decisions and policies (likely with unintended consequences and in some cases outright discriminatory behavior such as redlining). We must strategically unwind many of these decisions and policies and your sta? took great steps in outlining opportunities. We encourage a deeper dive and in some cases deeper recommendations. When scoping the housing needs analysis, it would be helpful to know how many apartment units are in the City of San Luis Obispo and how that compares to State wide percentages. It would be vital to know how much land is zoned to allow multifamily residential projects where at least 40 units or more realistically 100 units can be built. It is much more feasible to build a 100 unit apartment project than a 10 unit project because scaling allows a more discounted purchasing program and attracts more robust capital to build infrastructure and attract the developers who are experts at building these types of projects. We need to invite developers of market rate apartments to build and operate apartment housing projects in San Luis Obispo. There are very few developers of market rate apartments in San Luis Obispo due to the lack of land zoned to build sizeable projects, the time and substantial risk to entitle such projects and the fees incurred for processing and permit issuance for apartment projects. Our understanding is that the City has proportionally much lower apartment units per capita than the much of the rest of the State. This is certainly not due to demand- it is due to zoning, fees and other issues outlined by your sta? and some additionally we mention here. It would be vitally important to ensure that there is enough viable land zoned to provide market rate apartment units for low and moderate income households as the ABD study demonstrates that realistically, apartments are what are a?orded by low and moderate income families -- and developers of deed restricted housing, while absolutely critical for very low and low income housholds provide far less than what is needed in totality. This zoning is perhaps the most important initiative the City can achieve to provide the scale of housing needed for people that work in the City in normal jobs like retail, o?ice, public safety, teaching, services, hospitality, nursing, food services, etc. To compound the problem, there is a shortage of construction workers in San Luis Obispo County due in part to the high cost of housing. It is a viscous cycle. Other cities such as Paso Robles have come to the realization that we must zone more land, change the fee structure to size of unit rather than per unit, streamline the process including by-right ministerial approvals for the 2 type of housing needed, and allow more simply constructed buildings to be approved. These initiatives are outlined by your sta? in this study. From a design perspective, the City has unique requirements like sloping set back requirements that force stepped back walls to be constructed. It is time to relax some of the requirements that add additional cost to projects if the City wants to be inclusive of all its citizens who work in the City or aren’t able to work at all yet have lived here for a long time and are being out competed when their lease is up. Apartment projects have simple structures and modest ﬁnishes to make them more a?ordable. Just because they are simple, doesn’t mean they have to be ugly! They certainly should be high quality, durable and of the character of the City. We o?er comments below the noted City considerations. Topic: Streamlining: The City has amended its Zoning Ordinance and permitting practices to allow more projects to be eligible for ministerial review and shorter processing time as follows: a. Established new section to exempt speciﬁc housing projects from discretionary review (17.106.020.C); b. Streamlined Discretionary Review for Housing Projects less than 49 units (17.106.030); and c. Implemented E-review processes to allow digital permit and plan submittal and review. This will improve transparency and hopefully streamline existing permitting processes. RRM Position: Consider exempting market rate rental apartment projects up to 100 units for ministerial review. This will encourage developers to build rental properties as it will unlock projects that are leery to provide capital for such projects as it typically takes a year or longer to approve these projects thru the various advisory bodies and planning commission and in some cases appeal to City Council. The City has made important inroads by having more residential projects qualify for expedited processing. With the holding costs of land and a long review process, the ability to provide a?ordability su?ers. Looking for e?iciencies in the system to identify potential issues early on is important – Pre-Application process and Development Review Committee feedback. Recommend that the City continue to look for steps in the project review process that can be streamlined. Topic: Mixed Use The 2021 Zoning amendments included allowance of Mixed-Use Developments in C-S and M zones by right. This has resulted in signiﬁcant new area available for residential development and a total of 621 units in the C-S or M zones that are currently under building review or construction, including: Victoria Crossing (33- units); Broad Street Place (40-units); Orcutt Mixed Use (5-units); Laurel Creek (98- units); Bridge St. Apartments (94-units); Tribune Work-Live Project (43-units); 650 Tank Farm (249-units); 1030 Orcutt (15- units); and McMillan Mixed Use (44-units). RRM Position: Agree with sta? and encourage expansion in Airport area as noted below. Topic: Speciﬁc Plan Amendments and other geographic opportunities One way to directly encourage the provision of new housing is to provide additional capacity through upzoning or by changing zoning to allow housing in areas where it was previously not allowed. The City has incorporated the following two speciﬁc plan updates into the 2023-25 Financial Plan Major City Goal work program for Housing & Homelessness: a. Margarita Area Speciﬁc Plan - The Margarita Area Speciﬁc Plan (MASP) was adopted in 2004 and much of the residential development potential of the plan was limited by the San Luis Obispo County Regional Airport, Airport Land Use Plan. In 2021 the Airport Land Use Plan (ALUP) was amended. As such, several areas of the MASP are either available for residential development (where it was not allowed before) or available for higher density residential development. Sta? is preparing a Request For Proposals (RFP) for a consultant to prepare amendments to the MASP that would increase density on existing residentially zoned land and speciﬁcally include opportunities and incentives to develop “Missing Middle” Housing types as well as allowing mixed-use development on commercially zoned land. The RFP for consultant services to move this e?ort forward is tentatively scheduled for City 3 Council consideration in April 2024. It is estimated to be completed in fall 2025. b. Airport Area Speciﬁc Plan – Airport Area: a. In 2020 the City amended the Zoning Regulations to allow mixed-use development by right within the Service Commercial (C-S) and Manufacturing (M) zones but did not extend this change to any of the speciﬁc plan areas. With the update and amendment to the ALUP and the recent allowance for mixed use development in the rest of the City, the City is currently moving forward with an applicant- funded application to review options for allowing mixed-use development with a Conditional Use Permit where consistent with the ALUP. Approximate estimate for work completion is by the end of 2024. Position: Consider 100% residential projects in C-S and M zones by right where market rate rental projects are proposed. Expand to land in the southern edge of the City along South Higuera, Tankfarm Road, Los Osos Valley Road with parcels large enough for 50 or more units. Allow mixed-use projects in the Airport Area Speciﬁc Plan (AASP). Support the City’s e?ort to update the Zoning Regulations to have the AASP in parity with other C-S and M zones to allow mixed-use development consistent with the ALUP. Topic Speciﬁc Plan Amendments a. Upper Monterey planning area: The current Financial Plan includes an e?ort to begin outreach and engagement with property owners and businesses in the Upper Monterey Special Focus Area to conﬁrm scope in pursuing an area plan consistent with Land Use Element Policy 8.2.2. This work is scheduled to commence in the fourth quarter of FY25. The City could develop strategies for the plan to include speciﬁc provisions to increase market rate ownership and rental housing or missing middle housing, in addition to placemaking and economic revitalization for the area. b. Mid-Higuera planning area: The Mid-Higuera area could be explored as a location for zoning changes that could encourage missing middle housing. This work is not currently in the work plan but could be implemented in a future ﬁnancial plan consistent with General Plan Land Use Element Program 8.4 that identiﬁes the area as an opportunity to develop customized land use approaches19 . Position: Agree with this e?ort. We suspect that these units will more likely be good candidates for tax credit, low income, deed restricted projects or mixed use projects. It is generally more expensive to build in more urbanized downtown areas due to potential clean up of toxic soils, high water tables, neighborhood opposition and appeals, higher level of aesthetic expectations of discretionary approval bodies, etc. higher sales or rental incomes are usually needed to overcome these costs. Interestingly, sometimes the a?ordable housing projects can work due to density bonus laws paving the way for faster approvals and less of a proﬁt motivation. Banks require market rates to be proﬁtable where as a?ordable projects are heavily subsidized and not required to have as much ﬁnancial strength. Alternatively, this may be a great opportunity for non-proﬁt organizations to develop a workforce project with a shared equity agreement such as the Moylan Terrace project that was developed by HASLO. Both HASLO and People’s Self Help Housing seem to be interested in building mixed income projects with equity sharing agreements. This would be an opportunity for local workers to enter into buying a home at under market and sharing equity with the organization and or City should the resident sell the unit within a certain time period. The equity would go back into the a?ordable housing fund of the City if the home owner sold prior to full vesting. Many of the buyers of these units do not move as they vest into the project due to the sense of community and the value or wealth creation that normally would not be available to their income level. It also reduces the need for a car and allows them to have a more normal housing cost proportional to their income. Again, the NP organization does not have the same proﬁt requirement that the traditional developer needs. Topic: Preapproved plans for “missing middle” housing. In addition to including speciﬁc design criteria for “missing middle” housing in an update to the City’s ODS, pre-approved plan sets could be developed similar to pre-approved ADUs. This may include duplex, triplex, fourplex or cottage-style development to be “house-scale” and ﬁt into various neighborhoods. RRM Position: Very interesting proposal!- agree. City should implement a variety of regulatory and planning measures to remove barriers and may support “missing middle” housing production at a more moderate price point by: 4  Looking at the full-range of state housing laws that add ﬂexibility and promote smaller units in addition to existing regulations for ADUs and urban lot splits (SB9).  Implementing the Flexibility Density Program – will really beneﬁt small lots in the downtown core to include more upper ﬂoor housing units and could be expanded to other areas.  Amending the City’s objective design standards for small lot and small house inﬁll projects that can be approved ministerially, as well as pre-approved ADU plans, to further promote missing middle housing.  Updating the City’s Zoning ordinance to potentially add incentives speciﬁc to missing middle housing and potentially leverage provisions of state laws (Example, SB10 \[Weiner\]).  ADUs – making it easier for homeowners to build ADUs on single family lots. This could include accepting ADU prototype plans that will work on the most common lot types, reducing impact fees, and removing that very onerous requirement for ADU applicants in speciﬁc neighborhoods to replace the sewer lateral of their neighbors. If a bond is on the table as Lenny mentioned, many cities have established small loan programs for ADU applicants – low interest rates and the loans can even get forgiven if a deed-restricted ADU is provided.  Missing middle in existing neighborhoods. City Councilmembers have tossed around the “missing middle” buzzwords for a couple years now without proposing serious changes to single family zones. Perhaps greater density is allowed as an incentive to getting a deed-restricted unit or two. Agree that the City develop missing middle prototypes providing for triplexes, fourplexes, townhouses on typical single- family lots. Other cities are beginning to. Topic: Opportunities to encourage the provision of and free up market rate housing 2. In 202221, the City updated its Inclusionary Housing Ordinance to help address impacts that occur as a result of residential or commercial development in the form of requiring BMR units or payment of an in-lieu fee. Since the most recent version of the ordinance became e?ective in September 2022, $416,080 of in- lieu fees have been collected22. Fees collected are placed in the City’s A?ordable Housing Fund and a?ordable housing developers may apply to the City Council for funds for 100% BMR projects for low and very low-income eligible households. RRM Position: We are very concerned about how the inclusionary housing in essence taxes all non-a?ordable deed restricted housing. We feel strongly that the City could successfully collaborate with the Couty of SLO and other jurisdictions to put forth a bond to collect a vastly higher amount of funds for needed a?ordable housing as Santa Clara County and other counties have done not only to subsidize a?ordable housing but also infrastructure needed to support the housing. We understand that the City has made substantial e?orts to change the inclusionary housing to grow the a?ordable housing fund and are not suggesting they reduced or abandon the inclusionary housing until there is a more permanent and deeper source of funding approved. We also think that becoming a self-help county will be beneﬁcial to leverage more funding for infrastructure. We understand that this is not a City led initiative but also we believe that this is a regional, state and national issue and that the City can go it alone or collaborate in a regional e?ort. We think collaborating in a regional e?ort will be more robust for the citizens of our region and that the City could play a leadership role in it’s progressive attitude. We encourage the City to allow the size of housing units to increase above 600 sq. ft. This is a market driven factor. Engage talking to rental management companies for what is small yet attractive to single or double occupancy studios and one bedroom apartments. Encourage keeping the size below 800 sq ft. Our clients typically look for 800 sq. ft. as a minimum. Upon reading the City’s Housing Element (link below) Programs, it seems like the City should incorporate actions related to collaboration with California Polytechnic State University, SLO to ensure housing is being provided on campus to meet the campus population demand, which might reduce students occupying rental housing that could otherwise be used for non-students in the community. With some of the RRM sta? as alumni of the University, we have ﬁrst-hand experience with living o? campus, so we recognize that this is a behavior change with students as well as the University will need to make changes to its living programs to better foster on campus living and/or require students to live on campus for a certain number of years. https://www.slocity.org/home/showpublisheddocument/30985/637667061640130000 5 Topic: Future Opportunities to encourage Below Market Rate Housing 1. As the City is now designated as a Prohousing City by the state, application will be made for Prohousing Incentive Program (PIP) funds that may be used for a variety of purposes, including support for a?ordable and special needs housing as well as for programs such as down payment assistance. Application for funds for up to $750,000 is underway and expected to be submitted in March. 2. Investigation into bond programs or other local revenue measure could lead to the generation of a dedicated local revenue stream. Tax exempt bond programs could help increase the supply of BMR rental units for moderate- income qualifying households by new construction of BMR units or allowing acquisition of market rate apartment buildings that are then converted to BMR rental housing for moderate-income households25 and provide rehabilitation of apartment unit stock. General obligation bonds or a local revenue measure would similarly develop a dedicated funding stream for BMR housing26 . Such measures would require outside resources to develop. Position: As stated previously, we believe a bond would be highly valuable to the e?ort for housing the continuum of SLO residents. Topic: SB 4 (Sen. Wiener) provides by-right approval and CEQA exempt status for a?ordable housing on land owned by religious organizations and higher education institutions, which sunsets on Jan 1, 2036. The City has 41 properties that would qualify under this statute, 18 of which are larger than an acre and may allow limited construction of units depending on many factors and interest. The City has not received any applications under SB4, although there has been some discussion in monthly faith community meetings with sta? regarding opportunities. Units could be BMR rental units or alternatively, as described below, units could be temporary modular units and rented in conjunction with a supportive service partner. Incentives could be developed to encourage applications, with provision of sta? resources. RRM Position: This agree this is a potentially important opportunity. Another opportunity to increase housing supply is to collaborate with our local School District to allow them to use excess district owned land to use for various housing types, a?ordable, sta?, faculty and market rate. There is a new housing laws, AB2295, that give Districts more power in zoning and use of excess land to invest in faculty and sta? housing. Starting in January 1, 2024, AB 2295 will allow sta? housing to be built on any property owned by a school district without requiring the district to request zoning changes from city or county o?icials. Topic: Homeless Crisis RRM Position: The speciﬁc ideas presented in the sta? report are all sound and should be pursued. New State legislation proposed to assist people with mental illness and drug addiction would be beneﬁcial to help minimize the severity of the homeless situation locally and throughout California. Next steps: ALTERNATIVES Continue consideration to a future meeting. If the City Council does not have su?icient information to provide direction to sta?, or if additional time is needed for discussion, the Council can continue consideration of the item to a future meeting. If the City Council decides to continue the meeting, direction should be provided to sta? on any additional information needed to complete the discussion. RRM Position: We volunteer time to many local organizations such as REACH, the Home Builders Association (HBA), AIA, etc. We encourage you to continue working with local organizations to detail out the work e?ort. We are not sure why there was not a lot of public feedback on this item. In asking a member of the HBA Government A?airs Committee, they mentioned that they have been engaged with the County and were not aware of the City e?ort. REACH was aware and seem very supportive of this e?ort. We would encourage additional collaboration with REACH, the HBA, SLO 6 Housing Trust Fund, HASLO, People’s Self Help Housing, local design professionals, realtors, lenders, etc to get thorough feedback to inform this very important e?ort. We would encourage the City to send housing sta? and elected leaders to the SLO County Housing Summit where these issues will be discussed by local developers of market rate and a?ordable housing as well as the Executive Director of the Silicone Valley Housing Trust Fund who have done great work in amassing serious funds to support a?ordable housing. RRM Recommendations: 1. Zone land/rezone land/ﬂex zoning for 50 unit and larger projects. 2. Allow projects less than 100 units to be processed ministerially. 3. Calculate fees to size of unit. 4. Work with County on a?ordable housing and associated infrastructure bond. Consider collaboration with County to become ‘Self Help County’. 5. Encourage and support CP, SLCUSD, County of SLO, and religious organizations to build more housing on their land. 6. Update speciﬁc plans and AASP to allow more residential and in CS and M and BP zones. Thank you again for the opportunity to provide feedback and collaborate with you on housing for all San Luis Obispo citizens. We look forward to next steps. Please feel free to reach out for additional collaboration. Sincerely, Leonard Grant, Principal Architect RRM Design Group LEONARD GRANT | AIA Principal Architect 3765 S. Higuera, Ste. 102 San Luis Obispo, CA 93401 Office: (805) 543-1794 rrmdesign.com 7