HomeMy WebLinkAbout02-19-2019 Item 5 - Affordable Housing Conversion from Long-Term Affordability Program to Equity-Share 814, 828, 830 Lawrence Dr Department Name: Community Development
Cost Center: 4008
For Agenda of: February 19, 2019
Placement: Consent
Estimated Time: N/A
FROM: Michael Codron, Community Development Director
Prepared By: Cara Vereschagin, Assistant Planner
SUBJECT: REQUEST OF THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS
OBISPO TO CONVERT THREE AFFORDABLE HOUSING UNITS IN THE
MOYLAN TERRACE DEVELOPMENT FROM THE CITY’S LONG-TERM
AFFORDABILITY PROGRAM TO THE EQUITY-SHARE PROGRAM
RECOMMENDATION
Adopt a Resolution (Attachment A) allowing the Community Development Director to authorize
the conversion of three affordable housing properties within the Moylan Terrace Development,
located at 814 Lawrence Drive, 828 Lawrence Drive, and 830 Lawrence Drive from the City’s
Long-Term Affordable Program to the Equity-Share Program.
DISCUSSION
Background on Moylan Terrace Development
Moylan Terrace (the “Project”) is an 80-unit, residential development, which was developed by
the Housing Authority of the City of San Luis Obispo (HASLO) betwee n the years of 2012
through 2016. The Project offers townhome-style units available for purchase to a mix of
households across a var iety of income levels. More specifically, the Project contained a total of
27 deed-restricted affordable units, including 2 very-low income homes, 14 low income homes,
and 11 moderate income homes. The remaining 53 units sold at market -rate prices.
At the time Phase 1 of the Project began construction in 2012, the City only allowed deed -
restricted housing under long-term affordability agreements. As this was the time of the Great
Recession, HASLO had a very difficult time obtaining financing for the Project . In response,
they requested that the City develop implementation documents for the City’s Equity-Share
program, in-lieu of the Long-Term Affordable Program. The City agreed, and HASLO
contributed $10,000 to support the development of the documentation, which was outsourced to
real estate law firm, Goldfarb & Lipman LLP. The intent was that all 27 deed-restricted
affordable homes would be under this equity-share program; however, the development of the
documents took longer than anticipated. Meanwhile, construction had been completed in Phase
1 of the Project, which included 3 affordable units. Due to the lapsing eco nomy and pressure
from the Project’s investors, HASLO could not afford to financially delay the sale of the homes
and utilized the existing Long-Term Affordability Program for the 3 units. Subsequently, the
remaining 24 affordable units were sold under the Equity-Share Program, with the documents
developed by Goldfarb & Lipman LLP.
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In the development of the later phases of the project, HASLO suggested the City consider
converting the 3 long-term units to the equity-share program, to ensure consistency a nd avoid a
conflicting situation. City staff was not opposed to the concept, but the suggestion was never
pursued due to time conflicts and other pressing priorities.
The request (Attachment B) is being considered at this time due to an inquiry by one of the three
long-term deed-restricted property owners.
Long-Term Program Financial Conflict Versus Equity-Share Program Benefit
In addition to the lack of inconsistency with the differing affordability programs for the 27 deed -
restricted homes in the Moylan Terrace Development, there is a substantial financial discrepancy
between the owners of the 3 long-term program units and the owners of the 24 equity-share
program units. Consider the following example:
Acquisition of Moylan Terrace Affordable Unit
The property located at 814 Lawrence Drive is a 2-bedroom home located in the Moylan Terrace
development , that was sold under the City’s Long -Term Affordability Program, to a low-income
buyer in June 2013 for the price of $162,900. The owner put 5% down at the time of sale (equal
to $8,145) and borrowed the remaining 95% of the total purchase price (equal to $154,755).
Resale of Affordable Unit Under the Long-Term Affordability Program
Per the City’s 2018 Affordable Housing Standards (as provided in Attachment C), the property
owner would be allowed to sell the unit for no more than $179,700 today. After subtracting
approximately 6% of the total sales price for closing costs (totaling $10,782), the owner would
be left with $168,918, which is an appreciation of $6,018 dollars more than what they paid for
the home six years ago in 2013.
Concurrently, in order to produce the owner’s true “net balance” from the sale of the unit, the
total must also be adjusted for the mortgage loan balance. If the owner had made payments
around $3,000 per year (which would be standard in a particular mortgage loan in this situation),
the remaining loan balance today, after six years of ownership would be about $137,000.
Thus, if the owner were to sell the property today, after six years of ownership under the City’s
Long-Term Affordability Program, the true Net Balance would equal as follows:
Long-Term Program Net Balance = $179,700 (2018 sales price) - $10,782 (closing costs) -
$137,000 (remaining mortgage loan balance) = $31,9181
Resale of Affordable Unit Under the Equity-Share Affordability Program
On the contrary, if the affordable home had been sold under the City’s Equity-Share Program,
the owner’s Net Balance after resale would be significantly larger. Based on the Equity-Share
Worksheet below, if the unit were to sell today under this program (i.e. Year 6 highlighted in
green on the Equity-Share Program Calculations chart), both the owner and the City would
benefit from a share in the equity difference between the 2013 sales price of the home and the
1 Note that this $31,918 includes the owner’s initial $8,145 down payment and the $6,018 appreciation gain
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current market value today. As seen below, the owner’s Net Balance would be about $111,540
and the City would capture $119,185 to finance future affordable housing projects. Additionally,
if the owner were to wait to sell the property after seven years of ownership, they would
approximately net $165,869.
$162,900 Mortgage Loan 95.0% 154,755$
$245,000 Down Payment 5.0% 8,145$
34%Total 100.0% 162,900$
*Total City ES = (Market Value - Affordable Price) / Market Value
390,000$ 390,000$
162,900$ 23,400$
23,400$ 366,600$
203,700$
68,260$
Years Owned % Equity to City** Total % City ES*** City ES Owner ES NR - City ES Loan Balance Owner Net
Year 1 (June 2013-June 2014)100%100%203,700$ -$ 162,900$ 151,908$ 10,992$
Year 2 (June 2014-June 2015)100%100%203,700$ -$ 162,900$ 148,952$ 13,948$
Year 3 (June 2015-June 2016)100%100%203,700$ -$ 162,900$ 145,934$ 16,966$
Year 4 (June 2016-June 2017) ES% + 75% NP 100%203,700$ -$ 162,900$ 142,684$ 20,216$
Year 5 (June 2017-June 2018) ES% + 50% NP 84%170,110$ 33,590$ 196,490$ 139,280$ 57,210$
Year 6 (June 2018-June 2019) ES% + 25% NP 59%119,185$ 84,515$ 247,415$ 135,875$ 111,540$
Year 7 (June 2019-June 2020) ES%34%68,260$ 135,440$ 298,340$ 132,470$ 165,869$
**Per Section 17.138.160 of the City's Zoning Regulations
***If ES% + % of NP is > 100%, the City will only retain 100% of the Net Proceeds and no more.
CITY AFFORDABLE HOUSING PROGRAM - EQUITY-SHARE WORKSHEET
Affordable Purchase Price (2013)
Market Value at Purchase (2013)
Property Address: 814 Lawrence Drive
Affordability Level: Low Income
Bedroom Count: 2 Bedrooms
Equity-Share Program Calculations
Minimum Equity-Share (ES) Portion to City
City ES Minimum
City Equity-Share Percent (City ES)Financing by Owner
Net Resale (NR) Value
Current Market Value (2019)
Closing Costs (6% assumed)
Total Net Resale (NR)
Total City Equity-Share (ES)*
Current Market Value (2019)
Affordable Purchase Price (2013)
Closing Costs (6% assumed)
Net Proceeds (NP)
It can be seen from the example above that the Equity-Share Program would be more beneficial
for the owner of the Moylan Terrace deed-restricted home, as they wou ld net approximately
$111,540 from the resale of the unit, versus only $31,918 under the Long -Term Affordability
Program – a significant difference of $79,622. The change from a long -term agreement to an
equity-share agreement also provides the possibilit y for upward mobility, as the owner thus has a
greater chance of affording market -rate housing from the proceeds of the resale of the home.
However, the trade-off is the term of the affordability. Under an equity share, the unit can be sold
at any time and the deed restriction goes away upon the sale. A portion of that money though
gets “re-funneled” into the City’s Affordable Housing Fund and used for future construction of
affordable housing. The conversion to an equity-share agreement might also incent ivize the
property owners to complete routine home improvements and maintain a decent level of upkeep,
thus improving to the overall quality and resale value of their homes.
Policy Context
Housing Element Policy 2.3 – For housing to qualify as “affordable” under the provisions of
this Element, guarantees must be presented that ownership or rental housing units will remain
affordable for the longest period allowed by State law, or for a shorter period under an equity-
sharing or housing rehabilitation agreement with the City. The requested conversion of the
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subject units from the Long-Term Affordability Program to the Equity-Share Program is
consistent with the intent of Housing Element Policy 2.3., because equity-sharing is recognized
by the City and the State as an effective tool to guarantee affordability for a specific duration of
time.
Housing Element Policy 4.4 – In its discretionary actions, housing programs and activities, the
City shall affirmatively further fair housing and promote equal housing opportunities for persons
of all economic segments of the community. The request to convert the three units to the Equity-
Share Program is consistent with Housing Element Policy 4.4, because it would provide the
owners of those units with the same opportunities as those owners of the other twenty-four deed-
restricted properties in the Moylan Terrace development.
Public Engagement
Before bringing forward this request for Council consideration, staff communicated and met with
local mortgage consultants, various owners of the three Moylan Terrace units, and
representatives from HASLO. As this request is a unique circumstance, and only potentially
affects three property owners, there is no need for further public engagement.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act does not apply to the recommended action in this
report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378.
FISCAL IMPACT
Budgeted: No Budget Year: 2018-19
Funding Identified: No
Funding
Sources
Total Budget
Available
Current Funding
Request
Remaining
Balance
Annual
Ongoing Cost
General Fund N/A $ $ $
State
Federal
Fees2
Other:
Total N/A $ $ $
This request will not result in a negative fiscal impact to the City. The approval of this request
creates the opportunity for the City to realize a positive fiscal impact under some circumstances.
For example, if the three owners decide to convert the liens on their properties, the City would
receive a portion of the equity at the time of resale. These funds would be captured into the
City’s Affordable Housing Fund, to be utilized for future affordable housing development. Thus,
this request would lead to a positive fiscal impact , which would be dependent on the City’s
equity-share percentage for each property, time of resale, and current market conditions .
2 HASLO contributed $10,000 in 2013 for the development of the Equity-Share documents.
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ALTERNATIVES
1. The Council may deny the Request of HASLO. City staff does not recommend this action
because this is a unique situation, that occurred because of circumstances that were beyond
the City’s control.
2. The Council may continue the request of HASLO. City staff does not recommend this action
because further delay means a gamble with the real estate market . In turn, this influences the
amount of money that both the owners and the City could potential gain from the resale of
the three units at a market -rate price.
Attachments:
a - Resolution
b - Request for Equity-Share Conversion from HASLO
c - 2018 Affordable Housing Standards
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R ______
RESOLUTION NO. _____ (2019 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, TO AUTHORIZE THE COMMUNITY
DEVELOPMENT DIRECTOR TO CONVERT THREE AFFORDABLE
HOUSING PROPERTIES WITHIN THE MOYLAN TERRACE
DEVELOPMENT FROM THE CITY’S LONG-TERM AFFORDABLE
HOUSING PROGRAM TO THE EQUITY-SHARE PROGRAM
WHEREAS, on June 30, 2011 the City of San Luis Obispo (the “City”) and the Housing
Authority of the City of San Luis Obispo (“Owner”) entered into an Affordable Housing
Agreement (the “Agreement”) to provide twenty (27) “for-sale” units and one (1) “for-rent” unit
a new residential development located at 851 Humbert Avenue, commonly known as Moylan
Terrace (the “Project”); and
WHEREAS, the Agreement was recorded in the Official Records of San Luis Obispo
County on October 18, 2011 as Document #2011052125 and was amended on August 7, 2015 to
update locations of the affordable units; and
WHEREAS, on December 17, 2012, the owner requested the City to develop
implementation documents (the “Documents”) for an equity-share program for all of the “for-sale”
affordable units in the Project; and
WHEREAS, the construction of the Phase 1 of the Project was completed prior to the
Cit y’s complet ion of the Documents; and
WHEREAS, the three (3) affordable units (the “Units”) located in Phase 1 of the Project
were sold under the City’s Long-Term Affordable Housing Program, located at 814 Lawrence
Drive, 828 Lawrence Drive, and 830 Lawrence Drive ; and
WHEREAS, the City completed the Documents and the subsequent twenty-four (24)
affordable units in the Project were sold under the City’s Equity-Share Program; and
WHEREAS, the City and the owners of the Units each individually entered into a Purchase
Money Deed of Trust and supplemental Promissory Note at the time of escrow; and
WHEREAS, on October 25, 2018, the Owner submitted a request to the City to convert
the Units from the City’s Long-Term Affordable Housing Program to the City’s Equity-Share
Program.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo
as follows:
SECTION 1. Community Development Director Authority. The Community
Development Director is hereby authorized to execut e an agreement, in a form subject to the
approval of the City Attorney, convert ing the Long-Term Affordability deed restriction to an
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Resolution No. _____ (2019 Series) Page 2
R ______
“Equity-Share” program consistent with Section 17.138.150 of the City’s Municipal Code. The
Community Development Direct is further authorized to take any other actions necessary to
implement the intent of this Resolution.
SECTION 1. Environmental Review. The action to convert three affordable housing
properties within the Moylan Terrace Development to the City’s Equity-Share Program is exempt
from the provisions of the California Environmental Quality Act (CEQA), because it does not
constitute as a “Project” under the CEQA Guidelines §15378.
Upon motion of _______________________, seconded by _______________________,
and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _____________________ 2019.
____________________________________
Mayor Heidi Harmon
ATTEST:
____________________________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
_____________________________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City
of San Luis Obispo , California, this ______ day of ______________, _________.
____________________________________
Teresa Purrington
City Clerk
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,",.HNL.0"",""October 25,2OtBMichaelCodronCommunity Development DirectorCity of San Luis Obispo, CAVia: Email : mcodron(ôslocitv.orgSubject: Moylan Terrace - Conversion of Deed Restrictions to Equity SharesDear Michael,HASLO would like to ask the City to consider the possibility of allowing the 3 deed restricted units inMoylan Terrace to convert to equity share arrangements with the City. As you are aware, HASLO,through Moylan Terrace LLC, was the developer of Moylan Terrace. Per the Developer Agreement 27 ofthe 80 homes were sold at very low, low and moderate income prices. lt is our understanding that oneof the three deed restricted affordable owners in Moylan has asked to convertto an equity share, andthat the City feels that this request should come from HASLO, since we were the project developer.First I would like to emphasize that HASLO is not opposed to deed restricted for-sale units. This requestis a "one off' and based on historical context. Please consider the following:L) 24 of the 27 affordable owners are under equity share agreements.2) Phase 1- of Moylan began construction in2OL2 amidst the Great Recession. The economy wasstill so bad that we had a very difficult time obtaining financing for the construction. Because ofour economic concerns as the developer, we asked the City if we might utilize an equity sharearrangement in lieu of the deed restriction mechanism. At that point, no homes in MoylanTerrace had been advertised or sold.3) Although City rules allowed for an equity share, no actual City document existed at that time.Therefore, HASLO deposited S1.0,000 with the City and document development was outsourcedto Goldfarb and Lipman,4l Our hope a nd intent was to use the eq uity sha re document on all 27 affordables in Moyla n.However, document development took longer than anticipated and meanwhile Phase 1construction was completed. We decided that financially we could not delay sale of these firstphase units and incur the interest holding costs which were running about S1,000/day.Therefore out of necessity Phase 1 sales utilized the City's deed restriction document which hadbeen used on previous City homeownership projects. All subsequent 24 affordable homes inMoylan utilized the equity share document developed by Goldfarb & Lipman.5) Duríng development of these later phases we suggested that the City consider offering aconversion to equity share to first phase buyers. This was to ensure consistency and inanticipation of the situation before you today. The City was not expressly opposed to theconcept at that time, but everyone got busy and it was just not pursued.HOUSING AUTHORITY OF SAN LUIS OBTSPO 487 Leff StreetPo Box ì289 San Luis obispo, cA 93406 ph (8o5) 543-4478 fx (8o5) 543-4992 wwwhaslo.orgPacket Pg. 24Item 5
Thank you for your consideration and all the things you do to make San Luis Obispo a wonderful city.Please feel free to contact me for any clarifications or quest¡ons.ng Authority of San Luis ObispoPacket Pg. 25Item 5
2018 AFFORDABLE HOUSING STANDARDS
(Effective June 21, 2018)
Purpose
These standards apply to all development projects within the City. They set maximum rental
costs or sales prices based on income level and dwelling size and are used by developers,
citizens, housing groups, City staff and commissions, and housing agencies. The Community
Development Director implements the standards. Besides defining the often misunderstood
term "affordable housing", the standards promote the construction of housing which meets
residents' needs and help explain the City's housing requirements. In addition, the City uses
these standards to determine if housing projects are "affordable" and qualify for density
bonuses, financial assistance or other types of incentives. For more information about these
standards, call the City’s Community Development Department at (805) 781-7170.
The City requires new development projects to provide affordable housing for extremely-low,
very-low, low, or moderate income households by:
1) Building affordable housing in conjunction with new residential or commercial
development; or
2) Paying an “in-lieu fee” to support the development of affordable housing; or
3) Contributing real property, including land or existing dwellings, to be used as
affordable housing; or
4) By a combination of these methods.
To help offset costs of providing affordable housing, the City has adopted Affordable Housing
Incentives (San Luis Obispo Municipal Code Chapter 17.90). State and local law allows
residential density bonuses and certain other incentives in return for developers agreeing to
construct affordable housing. Additional information on incentives is available from the
Community Development Department.
How the Standards Are Determined
These standards are prepared by the Community Development Department and are updated
annually to show income limits for the City and County of San Luis Obispo as published by
the State Department of Housing and Community Development (HCD). These limits are
shown in Table 1. By law, the upper income limit for “extremely-low income” households is
30 percent of the area median income; the upper income limit for "very-low income"
households is 50 percent of the area median income; the upper limit for "lower income"
households is 80 percent of the area median income; and the upper limit for "moderate-
income" households is 120 percent of the area median income.
Households with More Than Eight Persons
For all income groups, the income limits for households larger than eight persons are
determined as follows: For each person in excess of eight, add eight percent of the four-
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2018 Affordable Housing Standards
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person income limit to the eight-person income limit and round the sum to the nearest $50.
For example, the nine-person very-low income limit is 0.08 X $41,600 = $3,328; then $3,328
+ $54,950 = $58,278 rounded to $58,300.
TABLE 1: 2018 ANNUAL INCOME LIMITS ($)
INCOME GROUP NUMBER OF PERSONS IN HOUSEHOLD
1 2 3 4 5 6 7 8
EXTREMELY LOW 17,500 20,000 22,500 25,100 29,420 33,740 38,060 42,380
VERY LOW 29,150 33,300 37,450 41,600 44,950 48,300 51,600 54,950
LOW 46,600 53,250 59,900 66,550 71,900 77,200 82,550 87,850
MEDIAN* 58,250 66,550 74,900 83,200 89,850 96,500 103,150 109,800
MODERATE 69,900 79,900 89,850 99,850 107,850 115,850 123,800 131,800
Updated June 2018, from CA State Department of Housing and Community Development (HCD) Official Income Limits.
*Median Income shown for reference only. This is not an official Affordable Housing Income Level.
How to Determine Affordable Rents or Sales Prices
To determine affordable rents or sales prices, follow these three steps: 1) find the “income
group” in Table 1, based on the number of persons in the household and their gross annual
household income; 2) determine the number of bedrooms in the dwelling to be bought, rented
or sold; and 3) Use Table 2 to find the maximum affordable rent or sales price based on the
income group and number of bedrooms. When the number of persons in the household is
not known, the City's affordability standards for both rent and sales prices can assume the
following household sizes corresponding to the number of bedrooms in the dwelling:
• Studio unit: use the income limit for a one-person household.
• One-bedroom unit: use the income limit for a two-person household.
• Two-bedroom unit: use the income limit for a three-person household.
• Three-bedroom unit: use the average income limit for a four-five person household
• Four-bedroom unit: use the income limit for a six-person household
Affordable Rent Limits
The maximum monthly rents to qualify as affordable housing are listed in Table 2. For
example, the maximum monthly rent cost for a two-bedroom dwelling which is affordable to a
lower-income household can be found in Table 2 by reading across the row labeled “Low,
Maximum Monthly Rent” and then finding $1,124 under the column heading “2-Bedroom.”
Rent limits are based on formulas set by State law (H&S Code 50053) and are computed as
shown on Page 3 of these Standards.
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2018 Affordable Housing Standards
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TABLE 2: 2018 RENT/SALES AFFORDABILITY STANDARDS
INCOME GROUP TENURE DWELLING
Maximum STUDIO 1-BDRM 2-BDRM 3-BDRM 4-BDRM
EXTREMELY LOW
Monthly
Rent $437 $499 $562 $649 $724
Sales Price $52,500 $60,000 $67,500 $81,775 $101,225
VERY LOW
Monthly
Rent $728 $832 $936 $1,082 $1,206
Sales Price $87,45 $99,900 $112,350 $129,825 $144,900
LOW
Monthly
Rent $874 $998 $1,124 $1,298 $1,448
Sales Price $139,800 $159,750 $179,700 $207,675 $231,600
MODERATE
Monthly
Rent $1,214 $1,386 $1,560 $1,803 $2,010
Sales Price $244,650 $279,650 $314,475 $363,475 $405,475
Calculation of Affordable Rents
• For extremely-low income households: Affordable monthly rents shall not exceed 30%
of 30% of the annual area median income for the number of persons expected to reside in
the unit, divided by 12, and adjusted for household/unit size.
• For very-low income households: Affordable monthly rents shall not exceed 30% of
50% of the annual area median income for the number of persons expected to reside in
the unit, divided by 12, and adjusted for household/unit size.
• For lower-income households: Affordable monthly rents shall not exceed 30% of 60%
of annual area median income divided by 12, and adjusted for household/unit size.
• For moderate-income households: Affordable monthly rents shall not exceed 25% of
100% of the annual area median income divided by 12, and adjusted for household/unit
size.
Affordable Sales Prices
The maximum sales prices for affordable housing are based on a formula that accounts for
what a typical extremely-low income, very-low income, low-income or moderate-income
household can afford to pay for housing, following established guidelines. Sales price limits
are determined by multiplying the annual income limit of the income group, adjusted for
household size (by 3 for extremely-low, very-low and low income households, and by 3.5 for
moderate income households), rounded to the nearest $25. For example, the calculation of
maximum sales price for a 2-bedroom dwelling is computed as shown on Page 4 of these
Standards.
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2018 Affordable Housing Standards
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Calculation of Affordable Sales Prices
• 3 X $59,900 = $179,700 for a two-bedroom low-income unit; and
• 3.5 X $89,850 = $314,475 for a two-bedroom moderate-income unit.
Affordability Programs
Rental housing affordability is maintained through recorded agreements (Affordable Housing
Agreement) between a property owner and the City. These agreements shall specify: a) the
income category for each dedicated affordable unit; b) the term for which rental units must
remain affordable; and c) terms under which affordability is maintained after sale or transfer
of the property. The City’s current terms as specified in the Housing Element are the
maximum allowed by State law; 45 years for ownership units and 55 years for rentals. For
purposes of determining affordability requirements, Single Room Occupancy (SRO) units
shall be treated as one-bedroom dwellings.
There are two different approaches to maintaining long-term affordability which require
signing an Affordable Housing Agreement: 1) the property owner agrees to maintain the
designated dwelling unit as affordable for at least 45/55 years; or 2) the property owner
agrees to participate in a “shared equity purchase program” as described in the City’s
Inclusionary Housing Requirement. The decision on which approach to use is up to the
developer, except where state or federal standards applying to a given project require
specific affordability periods.
Long Term Affordability Program
Under the long-term affordability program, the housing must remain affordable for at least
45/55 years from the original date of sale or rental. Affordability terms are secured by an
affordable housing agreement, promissory note and deed of trust, recorded on the property
prior to or concurrent with the initial occupancy (for rental units) or sale of the property. The
promissory note is based on the monetary difference between the property’s initial capped
purchase price and its fair market value outside of the program. The note is an "affordability
loan" or “silent second” payable to the City. Repayment of the affordability loan is waived as
long as affordability requirements are met. For-sale properties must be owner-occupied,
and may be sold or otherwise transferred only to eligible buyers and at prices deemed
affordable under these standards. Upon resale, the City, its Housing Authority, or a non-profit
agency approved by the City, retains the first right of refusal to purchase affordable properties
at their then current appraised value.
Equity Share Program
Under the equity-share program, the buyer of an affordable dwelling enters into an
agreement with the city guaranteeing affordability for at least 6 years after the initial date of
sale. Upon resale of the property, the agreement ensures that the City’s equity share returns
to the City for use in other affordable housing developments. The City’s equity share is
based on the difference between the property’s market value and the actual price paid by the
homeowner, divided by the market value; or the amount of subsidy provided by the city,
divided by the property’s market value. Affordable units sold before the sixth year are subject
to an additional “Equity Recapture Fee” ranging from 25 to 100 percent of the property’s
equity. For more information, refer to the Inclusionary Housing Requirements, Ch. 17.91 of
the San Luis Obispo Municipal Code.
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