HomeMy WebLinkAboutItem 5a. Inclusionary Housing Update (CODE-0261-2022)
PLANNING COMMISSION AGENDA REPORT
SUBJECT: REPEAL AND REPLACE THE CITY OF SAN LUIS OBISPO’S MUNICIPAL
CODE CHAPTER 17.138 (INCLUSIONARY HOUSING REQUIREMENTS) TO UPDATE
REGULATIONS FOR CONSISTENCY WITH THE 6TH CYCLE HOUSING ELEMENT
PROJECT ADDRESS: City-wide BY: Rachel Cohen, Senior Planner
Phone Number: (805) 781-7574
Email: rcohen@slocity.org
FILE NUMBER: CODE-0261-2022 FROM: Tyler Corey, Deputy Director
RECOMMENDATION
Adopt a draft Resolution (Attachment A) to:
1) Recommend that the City Council introduce and adopt an Ordinance (Attachment
B) repealing and replacing the City of San Luis Obispo Municipal Code Chapter
17.138 (Inclusionary Housing Requirements); and
2) Review proposed commercial linkage fees and housing in-lieu fees and ensure
they are supported by the Nexus Study and Feasibility Analysis (Attachment C).
SUMMARY
The City Council has tasked the Community Development Department with updating the
Inclusionary Housing Ordinance as part of the 2021-23 Major City Goal work program for
Housing. On March 1, 2022, the City Council participated in a Study Session where staff
presented background information and analysis on the City’s current affordable housing
requirement and a preliminary recommendation on updates to the City’s Inclusionary
Housing Ordinance (IHO). City Council provided feedback to staff on a range of topics
including fractional units, the removal of Table 2A, calculating total number of inclusionary
units based on land use rather than zone, and Below Market Rate (BMR) Administration.
Council then directed staff to continue with outreach efforts to stakeholders and the
community regarding the proposed updates.
1.0 PLANNING COMMISSION’S PURVIEW
The Planning Commission’s role is to review the proposed Municipal Code amendments
to Title 17 for consistency with the City’s Housing Element, State Law, clarity, and internal
consistency, and to make a recommendation to the City Council regarding the proposed
amendments.
2.0 PROJECT INFORMATION
Meeting Date: 6/8/2022
Item Number: 5a
Time Estimate: 90 Minutes
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CODE-0261-2022 – Inclusionary Housing Ordinance Update
Planning Commission Report – June 8, 2022
2.1 Background
The City’s first Inclusionary Housing Ordinance (IHO) was adopted in 1999. Since then,
more than 1,200 affordable units have been constructed and financed to meet the
requirements of the IHO. A lot has changed since 1999, and in 2020 the City hired
consultant David Paul Rosen and Associates (DRA) to complete an Affordable Housing
Nexus Study. This study evaluated the nexus between new commercial and market-rate
residential development. The Study confirmed that both market-rate residential and
commercial development are inducing demand for affordable housin g that is not being
met by the current housing market.
On November 17, 2020, the City Council adopted the 6th Cycle Housing Element, which
includes housing policies and programs for the 2020-2028 planning period. Program 2.13
in the 6th Cycle Housing Element requires that city staff update the Inclusionary Housing
Ordinance based on the information provided in the Nexus Study.
In addition to the Nexus Study, the City hired Economic & Planning Systems, Inc. (EPS)
in April 2021 to conduct a feasibility analysis of the City’s proposed affordable housing in -
lieu and commercial linkage fees based on the findings and recommendations included
in the Nexus Study. EPS has developed a preliminary recommendation on changes to
the City’s Inclusionary Housing Ordinance based on their Feasibility Analysis, which was
presented to City Council on March 1, 2022.
2.2 Previous Public Review
April 21, 2020: City Council received the Affordable Housing Nexus Study that determined
that both residential and commercial development are inducing demand for affordable
housing that is not being met by the housing market. The Study’s findings verify that there
is a nexus that justifies the City having an Inclusionary Housing Ordinance that applies to
both residential and commercial development (4.21.20 Council Report and Meeting
Minutes).
March 1, 2022: City Council conducted a Study Session for the purposes of providing
background information and analysis of the City’s current affordable housing
requirements, a preliminary recommendation on updates to the City’s Inclusionary
Housing Ordinance, a commercial linkage fee recommendation, and an overview of
progress of onboarding the City’s Below Market Rate (BMR) Housing Administrator
(3.1.22 Council Report and Meeting Minutes).
3.0 PROJECT ANALYSIS
3.1 General Plan Housing Element Consistency
The IHO update is part of the City’s Major City Goal work program for Housing and
Homelessness and directly implements several 6th cycle Housing Element Programs as
described below.
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Item 5a
CODE-0261-2022 – Inclusionary Housing Ordinance Update
Planning Commission Report – June 8, 2022
Goal 2 in the City’s adopted and state certified 6th cycle Housing Element is Affordability
and states:
Accommodate affordable housing productions that helps meet the City’s
Quantified Objectives.
The City’s Quantified Objectives are the number of housing units that will be planned,
building, rehabilitated, and preserved during the Housing Element’s planning period.
Housing Element Policy 2.4 states:
Encourage housing productions for all financial strata of the City’s population, as
allocated in the Regional Housing Needs Allocation, for the 6 th Cycle planning
period. The number of units per income category are: extremely low and very low
income, 1,405 units.
Housing Element Program 2.13 states:
Update the Inclusionary Housing Ordinance, including Table 2A, based on findings
and recommendations in the 2020 Affordable Housing Nexus Study and conduct
further feasibility analysis in order to evaluate the City’s ability to provide affordable
housing in the proportions shown in the Regional Housing Needs Allocation, per
Policy 2.4.
Goal 4 in the 6th cycle Housing Element is Mixed-Income Housing and states:
Preserve and accommodate existing and new mixed -income neighborhoods and
seek to prevent neighborhoods or housing types that are segregated by economic
status.
Housing Element Program 4.6 states:
Amend the City’s Inclusionary Housing Ordinance to require that affordable units
in a development be of similar size, number of bedrooms, character and basic
quality as the non-restricted units in locations that avoid segregation of such units,
including equivalent ways to satisfy the requirement. Also evaluate adjusting the
City’s allowable sales prices for deed-restricted affordable units per a variety of
unit types.
3.2 Current Inclusionary Housing Ordinance
The Inclusionary Housing Ordinance (IHO) requires a minimum number of affordable
housing units be provided with all new development in the City. The IHO program is one
of several tools (along with incentives such as parking reductions, density bonuses,
flexible development standards, grant programs, and use of the City’s affordable housing
fund) to achieve its affordable housing objectives. The City’s first Inclusionary Housing
Ordinance was adopted in 1999 and since that time, the City has focused on ensuring
that a percentage of all new housing units are affordable to income eligible households.
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CODE-0261-2022 – Inclusionary Housing Ordinance Update
Planning Commission Report – June 8, 2022
Current IHO requirements can be met by 1) building affordable dwellings as part of a
development project, 2) dedicating real property, improved or not, for development of
affordable housing by the City’s Housing Authority or by a non- profit housing provider, 3)
paying an in-lieu fee which is used to assist with the development of new affordable
housing throughout the City, or 4) a combination of the above methods, to the approval
of the Community Development Director.
More than 1,200 deed-restricted or otherwise secured affordable dwellings have been
planned for, entitled, or built since the adoption of the IHO in 1999. The City has granted,
loaned, or committed over $10,750,000 of affordable housing in-lieu funds to assist with
the development of over 500 new deed-restricted affordable housing units.
3.3 Affordable Housing Analysis and Recommendations
Affordable Housing Nexus Study
As noted in Section 2.1 above, the Nexus Study confirmed that both market-rate
residential and commercial development are creating demand for affordable housing that
is not being met by the current housing market. This conclusion, and the
recommendations provided below, were based on current residential and commercial
development within the City. The Nexus Study recommendation is based on the
maximum justifiable Nexus fees the City could implement to meet the affordable housing
demand incurred by current development. Overall, the Study r ecommended that the City
adopt fees less than the maximums because fees at these high levels would affect the
financial feasibility of development as well as the competitiveness of development in the
City. Recommendations from the Nexus Study are provided below in Table 3 .
Feasibility Analysis
The City hired Economic & Planning Systems, Inc. (EPS) to conduct a feasibility analysis
to refine the recommendation provided in the Nexus Study. EPS recommended several
revisions to the City’s existing affordable housing inclusionary program for new residential
and mixed-use development and introduced a nexus-based commercial linkage fee for
non-residential uses based on their feasibility analysis. A summary of the EPS
recommendations is provided below in Table 3.
Summary Comparison of Affordable Housing Analysis and Recommendations
Table 3 provides a comparison between the City’s current IHO, the recommendations
from the Nexus Study and Feasibility Analysis.
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Planning Commission Report – June 8, 2022
Table 1: Comparison of the City’s Current IHO, the Nexus Study’s recommendation,
and the recommendation based on EPS’ feasibility analysis.
Current IHO Nexus Study
Recommendation
Feasibility Analysis
Recommendation
Where the
IHO applies
Requirements differ
within City Limits and
Expansion Areas
Same requirements Citywide Same requirements
Citywide
Table 2A
Adjustments
Applies to projects
that qualify
Remove Remove
Residential
For Sale
Within City Limits: 3%
low or 5% moderate
income
Expansion Area: 5%
low and 10%
moderate income
15% (5% at low and 10% at
moderate)
10% (5% low-income
units and 5%
moderate income)
For Sale In-
lieu Fee
Within City Limits: 5%
of building valuation
Expansion Area: 15%
of building valuation
Apply on a square foot basis
(no specific amount
recommended)
$25 per square foot
For Rent
Within City Limits: 3%
low or 5% moderate
income
Expansion Area: 5%
low and 10%
moderate income
15% very low- and low-
income units (5% very low
and 10% at low)
6% (3% very low-
income and 3% low-
income)
For Rent In-
lieu Fee
Within City Limits: 5%
of building valuation
Expansion Area: 15%
of building valuation
Apply on a square foot basis
(no specific amount
recommended)
$20 per square foot
Commercial
Commercial
Development
Within City Limits &
Expansion Area: 2
affordable units per
acre or 5% of building
valuation
Nexus justifiable fees: $69-
173 per square foot.
Recommended Fee Range
based on other jurisdictions:
Other Non-residential Uses:
$2 to $5 per square foot
Industrial Uses: $1 to $4 per
square foot
Office, service, hotel,
and retail uses: $5
per square foot
Industrial and
Institutional Uses: $4
per square foot
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Item 5a
CODE-0261-2022 – Inclusionary Housing Ordinance Update
Planning Commission Report – June 8, 2022
City Council Study Session Feedback
On March 1, 2022, the City Council provided the following feedback in response to
recommendations provided in the Nexus Study and Feasibility Analysis. The draft
Inclusionary Ordinance (Attachment B) reflects changes based on the direction provided
by Council and is noted below.
1. Regarding fractional units, two Council members supported an approach for
projects that contain 10 units or less where payment of an in-lieu fee would be
allowed when the number of required inclusionary dwellings results in a fractional
unit.
Staff Response: The IHO amendments include the provision that if a project
contains 10 units or less and the number of required inclusionary dwellings results
in a fractional unit, an applicant may pay the in-lieu fee for the fractional unit or
provide one Moderate affordable unit in the project. For example, a residential
project proposes to construct six (6) dwelling units for rent. Per Section
17.138.040, the project would have an inclusionary housing requirement of 0.36.
The applicant may pay an in-lieu fee for the fractional amount or deed restrict one
of the six (6) dwelling units for Moderate-income households (see Attachment B,
Section 3, under Section 17.138.080(A): Fractional Numbers).
The application of fractional units is being considered because rounding to the next
whole number results in smaller projects having a higher percentage of affordable
units as compared to those projects with more units.
2. The majority of Council supported the recommendation to remove Table 2A
(Inclusionary Housing Adjustment Factors).
Staff Response: The IHO amendments include the removal of Table 2A, consistent
with the nexus study and financial feasibility analysis recommendations and
Council direction. Table 2A was established as a part of the IHO to encourage the
development of projects with higher density and smaller unit sizes, that would be
considered affordable-by-design within the City. Table 2A has been very
successful in achieving smaller units, however, as noted in the Feasibility Analysis,
Table 2A is no longer achieving affordability in the current market. The Feasibility
Analysis found that under current market conditions, smaller units are not
affordable, even for moderate-income households. Most notably, the Feasibility
Analysis provides evidence that it is feasible for applicants to construct more
affordable units as a part their development projects.
3. Council supported the recommendation to base the inclusionary housing
requirement based on project type, rather than zoning or location.
Staff Response: The proposed IHO amendments include that inclusionary
requirements and commercial linkage fees be calculated based on the land use,
rather than the zoning of the site (see Attachment C, Section 3, under Section
17.138.040). The City’s current IHO calculates the required number of units based
on acreage and then allows that number to be adjusted based on Table 2A. The
amendments to the IHO allow for the number of inclusionary housing units to be
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CODE-0261-2022 – Inclusionary Housing Ordinance Update
Planning Commission Report – June 8, 2022
based on the total number of residential units and the commercial linkage fee be
based on the total square footage of commercial space proposed as part of a
project. This change more accurately captures the housing needs based on the
actual uses being proposed as part of the project.
4. The majority of Council also provided direction that staff should increase the
Commercial Linkage fee because the recommendation from EPS was lower than
what commercial projects are paying under the current IHO.
Staff Response: The Feasibility Analysis recommended that office, service, hotel,
and retail uses have a Commercial Linkage fee of $5 per square foot and Industrial
and Institutional Uses: $4 per square foot. The Analysis noted that this is less than
what commercial development projects are paying under the current IHO. In
addition, the Nexus Study provides justifiable fees of $69-173 per square foot. Staff
is recommending the Commercial Linkage fees be increased to $6 per square foot
for office, service, hotel, and retail uses and $5 per square foot for industrial and
institutional uses based on three factors:
a. The fees are justifiable per the Nexus Study;
b. The fees are consistent with recent fees paid by commercial development
projects, and
c. The current fees have not limited the development of commercial projects
within the City.
5. Council supported the recommendation establishing a section in the ordinance that
addresses the role and responsibilities of the Below Market Rate (BMR)
Administrator, and provided further guidance to work with the BMR Administrator
to establish the following:
a. Local preference for San Luis Obispo residents or employees, or others who
often commute to the City; and
b. Long term affordability (maintaining deed-restricted units as long as
possible).
Staff Response: The proposed IHO amendments include Section 17.138.110 –
Administration, Management, and Monitoring (Attachment B, Section 3) which
outlines the duties of the BMR Administrator, including the ability to screen and
select qualified buyers and renters according to the City’s Ownership and Rental
Housing Guidelines and Affordable Housing Standards. Additionally, amendments
have been made to Section 17.138.100 – Shared Equity Purchase Program
(Attachment B, Section 3) that only allows the offer of units under the Shared
Equity Purchase Program when a development project includes affordable
housing units for sale in excess of the inc lusionary housing requirement for the
project. This change allows for inclusionary units to be retained for a much longer
period of time.
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CODE-0261-2022 – Inclusionary Housing Ordinance Update
Planning Commission Report – June 8, 2022
6. Council directed staff to continue outreach with various stakeholders and the
community.
Staff Response: The proposed amendments to the IHO have been presented to
the SLO Chamber of Commerce, Economic Development Committee and
members of the Developer’s Roundtable. In addition, the proposed amendments
have been made available to the public through the City’s Website with
opportunities for public feedback via email, phone, mail and Open City Hall.
Comments have varied with some supportive of the City requiring affordable
housing and others have commented that increasing the requirement and
eliminating Table 2A will disincentivize the development of housing within the City
and others think that the inclusionary requirement should be higher.
3.4 Additional Key Amendments since release of Draft Ordinance
This section outlines key recommended amendments made by staff since the release of
the draft IHO. All changes made to the draft IHO since its release to the public are
highlighted in Yellow within the legislative draft of Chapter 17.138 in Attachment E.
1. Section 17.138.020 (Applicability & Exclusions) has been amended to clarify that
the inclusionary housing ordinance only applies to residential development
projects. Commercial development projects are subject to a Commercial Linkage
Fee.
2. Section 17.138.030 (Definitions) have been amended to include a definition of
“Commercial Linkage Fee” and cross reference the code section that is being
amended to include this requirement.
3. Section 17.138.040 (renamed to “Inclusionary Housing Requirements”) has been
amended to:
o Provide further clarification of the requirements, depending on the type of
development, and provides additional references within the code.
o Require all commercial square footage be eligible for the Commercial
Linkage fee and no longer exempt projects that contain less than 2,500
square feet of new gross floor area of commercial space.
o Require that residential subdivisions that result in five (5) or more residential
lots or parcels, which do not include any associated or required
development plan, shall pay the In-Lieu Housing Fee at the time of building
permit issuance for lot development.
4.0 ENVIRONMENTAL REVIEW
The proposed amendments to the Municipal Code Title have been assessed in
accordance with the authority and criteria contained in the California Environmental
Quality Act (CEQA), the state CEQA Guidelines, and the environmental regulations of the
City. Specifically, the proposed amendments have been determined to be exempt from
further environmental review pursuant to CEQA Guidelines Section 15061(b)(3), the
“Common Sense” exemption, because the proposed actions will have no possibility of a
significant effect on the environment and will not cause impacts as all projects subject to
the Inclusionary Housing Ordinance will be required to comply with all relevant City
standards, codes, and regulations, including environmental review.
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Planning Commission Report – June 8, 2022
5.0 OTHER DEPARTMENT COMMENTS
Staff comments have been incorporated into the proposed changes to Title 17.
6.0 ALTERNATIVES
6.1. Continue project. An action continuing the project should include direction to the
staff on pertinent issues.
7.0 ATTACHMENTS
A. Draft PC Resolution Recommending the Council Repeal and Replace the IHO and
Review In-Lieu Fees and Commercial Linkage Fees
B. Draft Ordinance of the IHO
C. City Council Draft Resolution for Inclusionary In-lieu and Commercial Linkage Fees
D. Draft Commercial Linkage Fee Ordinance (Title 4)
E. Legislative Draft of the IHO
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RESOLUTION NO. PC-XXXX-22
A RESOLUTION OF THE PLANNING COMMISSION OF THE CITY OF
SAN LUIS OBISPO, CALIFORNIA, RECOMMENDING THE CITY
COUNCIL INTRODUCE AND ADOPT AN ORDINANCE AMENDING
TITLE 17 (ZONING REGULATIONS) OF THE MUNICIPAL CODE,
REPEALLING AND REPLACING CHAPTER 17.138 (INCLUSIONARY
HOUSING REQUIREMENTS) FOR QUALIFYING DEVEOPMENT
PROJECTS WITH AN EXEMPTION FROM ENVIRONMENTAL REVIEW
(CEQA) AS REPRESENTED IN THE PLANNING COMMISSION
AGENDA REPORT AND ATTACHMENTS DATED JUNE 8, 2022
(CITYWIDE; CODE-0261-2022)
WHEREAS, on January 5,1999, The City adopted its first Inclusionary Housing
Ordinance contained in Ordinance No. 1346; and
WHEREAS, on June 13, 2007, and update was made to the Inclusionary
Housing Ordinance regarding resident selection process for inclusionary housing
contained in Ordinance No. 1508; and
WHEREAS, a Nexus Study was reviewed by Council on April 21, 2020 to
determine the feasibility of increasing the required amount of affordable housing in
housing projects and implementing that into the City’s Inclusionary Housing Ordinance;
and
WHEREAS, the City Council of the City of San Luis Obispo conducted a web-
based public hearing via teleconference November 17, 2020, for the purpose of final
adoption of the sixth cycle update to the General Plan Housing Element that included
Program 2.13 that states, “Update the Inclusionary Housing Ordinance, including Table
2A, based on findings and recommendat ions in the 2020 Affordable Housing Nexus
Study and conduct further feasibility analysis in order to evaluate the City’s ability to
provide affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4”; and
WHEREAS, in April 2021, the City hired Economic & Planning Systems, Inc.
(EPS) to conduct a feasibility analysis based on the findings and recommendations
included in the Nexus Study and current market information and provide preliminary
recommendations for updates to the City’s existing Inclusionary Housing Ordinance; and
WHEREAS, the State of California Office of Housing and Community
Development, on September 3, 2021, certified the City of San Luis Obispo’s 6 th Cycle
General Plan Housing Element as in full compliance with State Law; and
WHEREAS, a Study Session was held by City Council on March 1, 2022, to review
the preliminary recommendations of the feasibility analysis; and
WHEREAS, on May 11, 2022, the City published a draft of the proposed
amendments to Municipal Code Chapter 17.138 for public review; and
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Planning Commission Resolution No. PC-XXXX-2022
CODE-0261-2022 (Citywide)
Page 2
WHEREAS, the Planning Commission of the City of San Luis Obispo conducted a
public hearing in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo,
California on June 8, 2022, for the purpose of recommending amendments to Chapter
17.138; and
WHEREAS, notices of said public hearing were made at the time and in the
manner required by the law; and
WHEREAS, the Planning Commission has duly considered all evidence, including
the testimony of the applicant, interested parties, and the evaluation and
recommendations by staff, presented at said hearing.
NOW, THEREFORE, BE IT RESOLVED, by the Planning Commission of the City
of San Luis Obispo as follows:
SECTION 1. Findings. Based upon all evidence, the Planning Commission makes
the following findings:
1. The proposed commercial linkage fees and inclusionary housing in-lieu fees
are supported by the 2020 Affordable Housing Nexus and 2021 Feasibility
Analysis.
2. The proposed amendments to Title 17 of the Municipal Code are consistent
with the 6th Cycle Housing Element Program 2.13 which states, “Update the
Inclusionary Housing Ordinance, including Table 2A, based on findings and
recommendations in the 2020 Affordable Housing Nexus Study and conduct
further feasibility analysis in order to evaluate the City’s ability to pr ovide
affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4.”
3. The proposed amendments to Title 17 of the Municipal Code are consistent
with the 6th Cycle Housing Element Program 4.6 which states, “Amend the
City’s Inclusionary Housing Ordinance to require that affordable units in a
development be of similar size, number of bedrooms, character and basic
quality as the non-restricted units in locations that avoid segregation of such
units, including equivalent ways to satisfy the requirement. Also evaluate
adjusting the City’s allowable sales prices for deed-restricted affordable units
per a variety of unit types.”
4. The replacement of Chapter 17.138 to Title 17 of the Municipal Code will not
alter the character of the City or cause health safety or welfare concerns
because the amendment is consistent with the General Plan and directly
implements City goals and policies.
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Planning Commission Resolution No. PC-XXXX-2022
CODE-0261-2022 (Citywide)
Page 3
SECTION 2. Environmental Determination. The proposed amendments to the
Municipal Code Title have been assessed in accordance with the authority and criteria
contained in the California Environmental Quality Act (CEQA), the state CEQA
Guidelines, and the environmental regulations of the City. Specifically, the proposed
amendments have been determined to be exempt from further environmental review
pursuant to CEQA Guidelines Section 15061(b)(3), the “Common Sense” exemption,
because the proposed actions will have no possibility of a significant effect on the
environment and will not cause impacts. In this case, the proposed repeal and
replacement of the Inclusionary Housing Ordinance is consistent with State Law and the
City’s 6th Cycle Housing Element and will not have an significant effect and project
specific environmental review will be required.
SECTION 3. Action. The Planning Commission hereby recommends the
introduction of an ordinance to City Council to repeal and replace, in its entirety, Chapter
17.138, entitled “Inclusionary Housing Requirements”, of the San Luis Obispo Municipal
Code as set forth in Exhibit A and incorporated herein.
Upon motion of ______________________, seconded by __________________ and
on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was passed and adopted this 8th day of June 2022.
_____________________________
Tyler Corey, Secretary
Planning Commission
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Planning Commission Resolution No. PC-XXXX-2022
CODE-0261-2022 (Citywide)
Page 4
EXHIBIT A
Chapter 17.138: Inclusionary Housing Requirements
Sections:
17.138.010 – Purpose
17.138.020 – Applicability and Exclusions
17.138.030 – Definitions
17.138.040 – Inclusionary Housing Requirements
17.138.050 – Standards for Inclusionary Units
17.138.060 – In-Lieu Housing Fee
17.138.070 – Inclusionary Housing Proposal
17.138.080 – Procedures
17.138.090 – Eligibility Requirements
17.138.100 – Shared Equity Purchase Program
17.138.110 – Administration, Management, and Monitoring
17.138.120 – Enforcement
17.138.010 – Purpose
The purpose and intent of this Chapter are: 1) to promote the public welfare by increasing the
production and availability of affordable housing units; 2) to establish an inclusionary housing
requirement which implements General Plan policies guiding land use and housing
development; and 3) to ensure that affordable housing units established pursuant to the
provisions of this Chapter are located in a manner that provides for their integration with market
rate units.
17.138.020 – Applicability and Exclusions
A. This Chapter shall apply to residential development projects consisting of five or more
residential lots or new dwelling units.
B. The following types of residential development projects are exempt:
1. Residential projects of four new units or less;
2. Residential additions, repairs, or remodels, provided that such work does not
increase the number of existing dwellings by five or more dwelling units;
3. The addition or inclusion of Accessory Dwelling Units associated with an existing or
proposed residential or mixed-use development;
4. Affordable housing projects in which 100 percent of the dwellings to be built will
be sold or rented in conformance with the City’s Affordable Housing Standards
(excluding any on-site manager unit);
5. Housing projects that include a density bonus.
6. Emergency projects or projects which the Council determines are necessary to protect
public health and safety;
7. Development projects which the Director determines are essentially noncommercial
or nonresidential in nature, which provide educational, social, or related services to
the community and which are proposed by public agencies, nonprofit agencies,
foundations, and other similar organizations;
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Planning Commission Resolution No. PC-XXXX-2022
CODE-0261-2022 (Citywide)
Page 5
8. Projects which replace or restore a structure damaged or destroyed by fire, flood,
earthquake, or other disaster within three years prior to the application for the new
structure(s) (see Chapter 17.92 Nonconforming Structure);
17.138.030 – Definitions
For the purposes of this Chapter, the following words and phrases shall have the meaning set
forth below. For all other definitions, the provisions of Article 9 (Definitions) of this Title shall
apply.
A. “Administrator” means Below Market Rate Program Administrator which may either be the
City itself or a third-party administrator acting as an agent for the City in connection with all
aspects of the operation of the City's Below Market Rate program pursuant to an Agreement
entered into between the City and the Administrator, as such agreement may be amended
or replaced from time to time.
B. “Affordable” means housing which can be purchased or rented by a household with very
low-, low-, or moderate- income, as described in the City’s affordable housing standards.
C. “Below Market Rate (BMR)” means that the affordability level of an inclusionary unit is below
the cost of what a current market rate unit would be and is affordable to extremely low-, very
low-, low-, or moderate-income households.
D. “Borrower” shall be defined as one who meets the eligibility requirements for purchasing an
inclusionary affordable unit.
E. “Commercial Linkage Fee” means the fee paid by the applicant of commercial development
projects to mitigate the impacts that such developments have on the demand for affordable
housing in the City (see Municipal Code Chapter 4.60).
F. “Density bonus” means a density increase over the maximum density otherwise
allowable under the Zoning Regulations, Chapter 17.140.
G. “Early resale” shall mean the sale, lease, or transfer of property within seven years of the
initial close of escrow for Equity Share Inclusionary Units.
H. “Equity Share” shall mean the shared equity of appreciation between the City and the
Borrower on inclusionary units when agreements specifically allow for affordable units to be
sold at market-rate after a 7-year period.
I. “Fee Schedule” means fees that for-sale and for-rent units are subject to and are paid to
either the City or the Administrator for associated costs related to but not limited to eligibility
screening, income verification, marketing of affordable units, and the close of escrow or
completion of new lease agreements for affordable units.
J. “Inclusionary housing unit” means a dwelling unit required under the provisions of this
Chapter, and which meets the City’s affordable housing standards.
K. “Low-” or “lower-income households” shall have the meaning set forth in Health and Safety
Code Section 50079.5; provided the income of such persons and families shall not exceed
80 percent of the median income within the City as published and periodically updated by
the State Department of Housing and Community Development.
L. “Market rate” shall mean the highest price a willing buyer would pay and a willing seller would
accept, both being fully informed and in an open market, as determined by an appraiser.
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M. “Moderate-income households” shall have the meaning set forth in Health and Safety Code
Section 50079.5; provided the income of such persons and families exceed 80 percent but
are less than or equal to 120 percent of the median income within the City as published and
periodically updated by the State Department of Housing and Community Development.
N. “Commercial development project” shall mean development projects which result in the
subdivision of land and/or the construction or conversion of structures for the purpose of
conducting business, including but not limited to retail sales, restaurants, offices, gas
stations, manufacturing, etc.
O. “Residential development project” shall mean development projects which result in the
subdivision of land and/or the construction or conversion of structures, including, but not
limited to, single-unit attached or detached homes, apartments, condominiums, live/work
units, mixed-use, mobile homes, transitional housing or supportive housing, and group
housing.
P. “Very low-income” shall have the meaning set forth in Health and Safety Code Section
50079.5; provided the income of such persons and families shall not exceed 50 percent of
the median income within the City as published and periodically updated by the State
Department of Housing and Community Development.
17.138.040 – Inclusionary Housing Requirements
A. General Requirements. All non-exempt residential development projects shall include
inclusionary units as required by this chapter. If the calculated number of units results in a
fraction, the number shall be rounded as described in Section 17.138.080(A).
1. Construct the required number of inclusionary units for Residential or Mixed-Use
projects;
2. Pay an in-lieu fee for Residential or Mixed-Use projects; or
3. Pay a commercial linkage fee (see Municipal Code Chapter 4.60) for new Non-
Residential or Non-Residential portions of Mixed-Use project(s).
B. Residential Requirements
1. Ownership Dwelling Units. Ten (10) percent of the dwelling units (see Section
17.138.080.A) shall be made available for sale to eligible households with five (5)
percent for low-income households (fractional units may be rounded down to the next
whole number) and five (5) percent for moderate-income households (fractional units
may be rounded up to the next whole number). See Section 17.138.080.A for more
information regarding fractional numbers.
2. Rental Dwelling Units. Six (6) percent of the dwelling units (see Section 17.138.080.A:
Fractional Numbers) shall be made available for rent to eligible households with three
(3) percent for very low-income households (fractional units may be rounded down to
the next whole number) and three (3) percent for low-income households (fractional
units may be rounded up to the next whole number).
3. In-Lieu Housing Fees. An applicant may pay in-lieu fees to the City rather than
construct inclusionary units on site for residential projects that would create five (5) or
more dwelling units or parcels (see Section 17.138.060: In-Lieu Housing Fee).
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C. Non-Residential Requirements
1. Commercial, Office, Service, Hotel, Retail, Industrial, and Institutional Uses. An
applicant shall pay a commercial linkage fee based on the gross square footage of the
non-residential space in accordance with Municipal Code Chapter 4.60.
D. Mixed-Use Development Requirements
1. Dwelling Units & Commercial Space. For mixed-use development with five or more
dwelling units, the inclusionary housing requirement is determined in accordance with
subsection B of this Section for all dwelling units in addition to subsection C of this
Section for all new commercial square footage within the development project. For
example, a for-rent mixed-use project includes twenty (20) residential units and 5,000
square feet of commercial space: the inclusionary requirement would be two (2)
affordable units (20 x 6% = 1.2 rounded to 2) and a commercial linkage fee would be
applied to the 5,000 square feet of commercial space.
2. Commercial Space. For mixed-use development with four or less residential units, only
the base inclusionary housing requirement for non-residential square footage shall be
provided in accordance with subsection C of this Section. For example, a for-rent mixed-
use project includes four (4) residential units and 5,000 square feet of commercial
space: a commercial linkage fee would be applied to the 5,000 square feet of
commercial space.
E. Residential Final Maps or Parcel Maps
1. Residential Subdivisions. Tentative Maps as defined in Chapter 16.10 “Tentative
Maps” of the Municipal Code, that result in five (5) or more residential lots or parcels,
which do not include any associated or required development plan, and are intended
for independent development, shall pay the In-Lieu Housing Fee (see Section
17.138.060: In-Lieu Housing Fee) at the time of building permit submittal.
17.138.050 – Standards for Inclusionary Units
A. Standards. Inclusionary units must meet the following standards:
1. Inclusionary units shall be dispersed throughout the residential development projects to
prevent a concentration of affordable units within the development project.
2. Inclusionary units shall be consistent with the design of market rate units in terms of
exterior appearance, materials, and finished quality.
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
residential development project with the same bedroom count. 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 residential
development project divided by the total number of market rate units with the same
bedroom count in the residential development project.
4. For residential development projects with multiple market rate unit types containing
differing numbers of bedrooms, inclusionary units shall be representative of the market
rate unit mix. 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.
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5. The required inclusionary units shall be constructed concurrently with market rate units,
unless an alternative development schedule is otherwise stipulated by the applicable
Review Authority of the residential development project.
6. Inclusionary units shall be subject to the City’s and/or the Administrator’s Fee Schedule
in accordance with Section 17.138.110.
17.138.060 – In-Lieu Housing Fee
A. Payment of In-Lieu Fee. The developer may, at their discretion, choose to pay a fee, as
established by a resolution of the City Council, to the City in lieu of constructing affordable
units to meet their inclusionary housing requirement.
B. In-Lieu Fee Calculation. In-lieu fees shall be calculated using the total square footage of
new, habitable square footage, as defined by California Building Code, included within the
residential development project. Final Maps or Parcel Maps shall pay the In-Lieu Housing
Fees consistent with Section 17.138.040E.,
C. Affordable Housing Fund. In-lieu fees shall be calculated using the new, habitable square
footage, as defined by California Building Code, included within the residential development
project. Final Maps or Parcel Maps in-lieu fees shall be calculated at time of individual lot
development using the new, habitable square footage included within the residential
development project.
D. Timing. In-lieu fees shall be paid prior to building permit issuance. For projects constructed
in phases, in-lieu fees shall be paid in the proportion that the phase bears to the overall
project.
17.138.070 – Inclusionary Housing Plan
A. Application Requirements. An applicant proposing a project for which inclusionary
housing is required shall submit a statement with their planning application or building
permit (whichever applies), describing the project’s inclusionary housing plan. The
statement shall include:
1. A project description that includes details regarding the proposed residential
development project such as, but not limited to total number of dwelling units, number
of bedrooms per dwelling unit, square footage of all units (both residential and
commercial), type of project (rental or ownership), etc.;
2. A description of the inclusionary housing plan for each construction phase, including the
method chosen to meet the inclusionary housing requirement and including all of the
following information including but not limited to:
a. Whether the unit is for sale or rental;
b. The number, location, unit type, tenure, number of bedrooms and baths, floor plan,
construction schedule of all inclusionary units;
c. Preliminary calculation of in-lieu fees or commercial linkage fee as applicable;
d. Other information which the Director determines necessary to adequately evaluate
the proposal.
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17.138.080– Procedures
A. Fractional Numbers. In determining the number of dwellings that are required to be built
pursuant to Section 17.138.040.B fractional units shall be rounded up to the next higher
whole number unit. If a project contains 10 units or less and the number of required
inclusionary dwellings results in a fractional unit, an applicant may pay the in-lieu fee for the
fractional unit or provide one Moderate affordable unit in the project. For example, a
residential project proposes to construct six (6) dwelling units for rent. Per Sect ion
17.138.040, the project would have an inclusionary housing requirement of 0.36. The
applicant may pay an in-lieu fee for the fractional amount or deed restrict one of the six (6)
dwelling units for Moderate-income households.
B. Affordable Housing Agreement. The applicant shall complete and sign an Affordable
Housing Agreement.
1. Submittal of an Affordable Housing Agreement. Applicants of residential
development projects subject to this Chapter shall submit an affordable housing
agreement on forms provided by the City and pay a processing and recordation fee.
2. Timing. All building permits for inclusionary units in a residential development project
shall be issued concurrently with, or prior to, issuance of building permits for the market
rate units.
3. Construction Schedule. The inclusionary units shall be constructed concurrently with,
or prior to, construction of the market rate units, unless otherwise stipulated by the
applicable Review Authority of the residential development project. Occupancy permits
and final inspections for inclusionary units in a residential development shall be
approved concurrently with, or prior to, approval of occupancy permits and final
inspections for the market rate units.
4. Review and Approval. The draft agreement shall be reviewed by the Director and City
Attorney for compliance with project approvals, City policies and standards, and
applicable codes. Following approval and signing of the agreement by the parties,
the final agreement shall be recorded, and relevant terms and conditions shall be
recorded as a deed restriction on those lots or affordable units subject to affordability
requirements. The affordable housing agreement shall be binding to all future owners
and successors in interest.
5. Term. The affordable housing agreement shall ensure that affordability is maintained
for the longest period allowed or required by State law, but not less than 45 years for
ownership and 55 years for rental.
6. Exemption for In-Lieu Fee Payment. An affordable housing agreement shall not be
required for projects which meet their inclusionary housing requirement through the
payment of in-lieu fees.
17.138.090 – Eligibility Requirements
A. Program Requirement. Only households qualifying as extremely low-, very low-, low-, or
moderate income, pursuant to the affordable housing standards, shall be eligible to rent,
purchase, or occupy inclusionary units developed or funded in compliance with this
requirement. For-sale inclusionary housing units shall be owner-occupied for the term of the
affordable housing agreement.
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B. Eligibility Screening. The City or an Administrator designated by the City shall screen
prospective renters or buyers of affordable units. Buyers of affordable units shall enter into
an agreement with the City. Occupants must be selected by means of an open, public
process which ensures that individuals of a group of interested participants are selected in
accordance with the City’s BMR Ownership and Rental Housing Guidelines. Private
selection of individuals by project owners is not permitted for any affordable units.
17.138.100 – Shared Equity Purchase Program
When a residential development project includes affordable housing units for sale in excess of
the inclusionary housing requirement for the project, the additional units may be offered under
the Shared Equity Purchase Program.
A. Under this program, the qualified buyer of a designated affordable dwelling unit shall enter
into a shared equity agreement with the City. Said agreement shall be recorded as a lien
against the purchased property, at no interest, securing and stating the City’s equity share
in the property. The City’s equity share shall be calculated by the Director, and shall be
the decimal percentage of the property’s value resulting from:
1. The difference between the property’s market value and the actual price paid by the
homeowner, divided by the market value; and/or, when applicable
2. The amount of subsidy provided by the City to the homeowner to purchase the
property, divided by the
property’s market value.
B. Upon sale, the City’s equity share shall be repaid to the City from the proceeds of the
sale, less the City’s percentage share of title insurance, escrow fees, and documentary
transfer taxes, at the close of escrow. The proceeds from the sale shall be deposited into
the City’s Affordable Housing Fund and shall be used for the purposes set forth in Health
and Safety Code § 33334.2(e).
C. In the event of “early resale,” owners of properties subject to the Shared Equity Purchase
Program shall either: (1) pay an equity recapture fee to the City as described in the schedule
below, in addition to the City’s equity share, or (2) sell the property to another eligible
household. If the owner chooses to pay the equity recapture fee, the recapture fee shall be
paid to the City upon resale at close of escrow, based on the following schedule:
Table 8-1: Percent of Equity Build-up Recaptured
Year % of Equity Build-up Recaptured
0 – 3 100%
4 75% + City’s Equity Share
5 50% + City’s Equity Share
6 25% + City’s Equity Share
7 and after 0% + City’s Equity Share
The recapture amount shall be determined prior to the calculation of escrow closing costs.
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17.138.110 –Administration, Management, and Monitoring
Inclusionary rental and owner units shall be managed and operated by the property owner, or
the owner’s agent, for the term of the affordable housing agreement. Sufficient documentation
shall be submitted to ensure compliance with this Chapter, to the satisfaction of the Director.
A. Duties of Program Administrator. The City may either handle in-house or contract for
administration of the BMR Ownership Housing Program and monitoring compliance with
the requirements of this Chapter to a program Administrator pursuant to an agreement
executed between the City and the Administrator in accordance with the approved fee
schedule. At a minimum, the Administrator shall perform the following services:
1. Maintain and administer the City’s BMR Ownership and Rental Housing Guidelines and
Affordable Housing Standards.
2. Screen and select qualified buyers and renters according to the City’s Ownership and
Rental Housing Guidelines and Affordable Housing Standards and maintain qualified
owner and renter eligibility list;
3. Maintain a list of eligible mortgage lenders for financing the purchase of inclusionary
units in accordance with the BMR Ownership Housing Guidelines;
4. Market new and vacant BMR for-sale and rental units within the City’s affordable
housing inventory.
5. Monitoring compliance with terms and conditions of the occupancy and sale
restrictions;
17.138.120 – Enforcement
A. Enforcement. No final subdivision map shall be approved, nor building permit issued,
nor shall any other development entitlement be granted for a residential development
project subject to this Chapter that does not meet these requirements. No inclusionary unit
shall be rented or sold except in accordance with these requirements and the affordable
housing standards.
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ORDINANCE NO. _____ (2022 SERIES)
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, APPROVING AN UPDATE TO THE CITY’S
INCLUSIONARY HOUSING ORDINANCE OF THE MUNICIPAL CODE
(CHAPTER 17.138) WITH AN EXEMPTION FROM ENVIRONMENTAL
REVIEW (CEQA)
WHEREAS, on January 5,1999, The City adopted its first Inclusionary Housing
Ordinance contained in Ordinance No. 1346; and
WHEREAS, on June 13, 2007, and update was made to the Inclusionary
Housing Ordinance regarding resident selection process for inclusionary housing
contained in Ordinance No. 1508; and
WHEREAS, a Nexus Study was reviewed by Council on April 21,2020 to
determine the feasibility of increasing the required amount of affordable housing in
housing projects and implementing that into the City’s Inclusionary Housing Ordinance;
and
WHEREAS, the City Council of the City of San Luis Obispo conducted a web-
based public hearing via teleconference on November 17, 2020, for the purpose of final
adoption of the sixth cycle update to the General Plan Housing Element that included
Program 2.13 that states, “Update the Inclusionary Housing Ordinance, including Table
2A, based on findings and recommendations in the 2020 Affordable Housing Nexus
Study and conduct further feasibility analysis in order to evaluate the City’s ability to
provide affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4”; and
WHEREAS, in April 2021, the City hired Economic & Planning Systems, Inc.
(EPS) to conduct a feasibility analysis based on the findings and recommendations
included in the Nexus Study and current market information and provide preliminary
recommendations for updates to the City’s existing Inclusionary Housing Ordinance ; and
WHEREAS, the State of California Office of Housing and Community
Development, on September 3, 2021, certified the City of San Luis Obispo’s 6 th Cycle
General Plan Housing Element as in full compliance with State Law; and
WHEREAS, a Study Session was held by City Council on March 1, 2022, to review
the preliminary recommendations of the feasibility analysis; and
WHEREAS, on May 11, 2022, the City published a draft of the proposed
amendments to Municipal Code Chapter 17.138 for public review; and
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WHEREAS, the Planning Commission of the City of San Luis Obispo conducted
a public hearing in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo,
California on June 8, 2022, for the purpose of recommending amendments to implement
programs of the 6th Cycle Housing Element by updating the Inclusionary Housing
Ordinance; and
WHEREAS, the City Council of the City of San Luis Obispo conducted a public
hearing in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo,
California on ________, 2022, for the purpose of introducing an ordinance to repeal and
replace Chapter 17.138 (Inclusionary Housing Requirements); and
WHEREAS, notices of said public hearing were made at the time and in the
manner required by law; and
WHEREAS, the City Council has duly considered all evidence, including the
testimony of the applicant, interested parties, and the evaluation and recommendations
by staff, presented at said hearing.
NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Findings. Based upon all the evidence, the City Council makes the
following findings:
1. The proposed amendments to Title 17 of the Municipal Code are consistent
with the 6th Cycle Housing Element Program 2.13 which states, “Update the
Inclusionary Housing Ordinance, including Table 2A, based on findings and
recommendations in the 2020 Affordable Housing Nexus Study and conduct
further feasibility analysis in order to evaluate the City’s ability to provide
affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4.”
2. The proposed amendments to Title 17 of the Municipal Code are consistent
with the 6th Cycle Housing Element Program 4.6 which states, “Amend the
City’s Inclusionary Housing Ordinance to require that affordable units in a
development be of similar size, number of bedrooms, character and basic
quality as the non-restricted units in locations that avoid segregation of such
units, including equivalent ways to satisfy the requirement. Also evaluate
adjusting the City’s allowable sales prices for deed-restricted affordable units
per a variety of unit types.”
3. The repeal and replacement of Chapter 17.138 of the Municipal Code for
qualifying development projects will not alter the character of the City or cause
health safety or welfare concerns because the amendment is consistent with
the General Plan and directly implements City goals and policies.
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SECTION 2. Environmental Determination. The proposed amendments to the
Municipal Code Title have been assessed in accordance with the authority and criteria
contained in the California Environmental Quality Act (CEQA), the state CEQA
Guidelines, and the environmental regulations of the City. Specifically, the proposed
amendments have been determined to be exempt from further environmental review
pursuant to CEQA Guidelines Section 15061(b)(3), the “Common Sense” exemption,
because the proposed actions will have no possibility of a significant effect on the
environment and will not cause impacts. In this case, the proposed repeal and
replacement of the Inclusionary Housing Ordinance is consistent with State Law and the
City’s 6th Cycle Housing Element and will not have an significant effect and project
specific environmental review will be required.
SECTION 3. Action. The City Council hereby repeals and replaces, in its entirety,
Chapter 17.138, entitled “Inclusionary Housing Requirements”, of the San Luis Obispo
Municipal Code as set forth and incorporated herein.
Chapter 17.138: Inclusionary Housing Requirements
Sections:
17.138.010 – Purpose
17.138.020 – Applicability and Exclusions
17.138.030 – Definitions
17.138.040 – Inclusionary Housing Requirements
17.138.050 – Standards for Inclusionary Units
17.138.060 – In-Lieu Housing Fee
17.138.070 – Inclusionary Housing Proposal
17.138.080 – Procedures
17.138.090 – Eligibility Requirements
17.138.100 – Shared Equity Purchase Program
17.138.110 – Administration, Management, and Monitoring
17.138.120 – Enforcement
17.138.010 – Purpose
The purpose and intent of this Chapter are: 1) to promote the public welfare by increasing
the production and availability of affordable housing units; 2) to establish an inclusionary
housing requirement which implements General Plan policies guiding land use and
housing development; and 3) to ensure that affordable housing units established
pursuant to the provisions of this Chapter are located in a manner that provides for their
integration with market rate units.
17.138.020 – Applicability and Exclusions
A. This Chapter shall apply to residential development projects consisting of five or
more residential lots or new dwelling units.
B. The following types of residential development projects are exempt:
1. Residential projects of four new units or less;
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2. Residential additions, repairs, or remodels, provided that such work does not
increase the number of existing dwellings by five or more dwelling units;
3. The addition or inclusion of Accessory Dwelling Units associated with an existing
or proposed residential or mixed-use development;
4. Affordable housing projects in which 100 percent of the dwellings to be built
will be sold or rented in conformance with the City’s Affordable Housing
Standards (excluding any on-site manager unit);
5. Housing projects that include a density bonus.
6. Emergency projects or projects which the Council determines are necessary
to protect public health and safety;
7. Development projects which the Director determines are essentially
noncommercial or nonresidential in nature, which provide educational, social,
or related services to the community and which are proposed by public
agencies, nonprofit agencies, foundations, and other similar organizations;
8. Projects which replace or restore a structure damaged or destroyed by fire, flood,
earthquake, or other disaster within three years prior to the application for the
new structure(s) (see Chapter 17.92 Nonconforming Structure).
17.138.030 – Definitions
For the purposes of this Chapter, the following words and phrases shall have the
meaning set forth below. For all other definitions, the provisions of Article 9 (Definitions)
of this Title shall apply.
A. “Administrator” means Below Market Rate Program Administrator which may either
be the City itself or a third-party administrator acting as an agent for the City in
connection with all aspects of the operation of the City's Below Market Rate program
pursuant to an Agreement entered into between the City and the Administrator, as
such agreement may be amended or replaced from time to time.
B. “Affordable” means housing which can be purchased or rented by a household with
very low-, low-, or moderate- income, as described in the City’s affordable housing
standards.
C. “Below Market Rate (BMR)” means that the affordability level of an inclusionary unit
is below the cost of what a current market rate unit would be and is affordable to
extremely low-, very low-, low-, or moderate-income households.
D. “Borrower” shall be defined as one who meets the eligibility requirements for
purchasing an inclusionary affordable unit.
E. “Commercial Linkage Fee” means the fee paid by the applicant of commercial
development projects to mitigate the impacts that such developments have on the
demand for affordable housing in the City (see Municipal Code Chapter 4.60).
F. “Density bonus” means a density increase over the maximum density otherwise
allowable under the Zoning Regulations, Chapter 17.140.
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G. “Early resale” shall mean the sale, lease, or transfer of property within seven years
of the initial close of escrow for Equity Share Inclusionary Units.
H. “Equity Share” shall mean the shared equity of appreciation between the City and
the Borrower on inclusionary units when agreements specifically allow for affordable
units to be sold at market-rate after a 7-year period.
I. “Fee Schedule” means fees that for-sale and for-rent units are subject to and are
paid to either the City or the Administrator for associated costs related to but not
limited to eligibility screening, income verification, marketing of affordable units, and
the close of escrow or completion of new lease agreements for affordable units.
J. “Inclusionary housing unit” means a dwelling unit required under the provisions of
this Chapter, and which meets the City’s affordable housing standards.
K. “Low-” or “lower-income households” shall have the meaning set forth in Health and
Safety Code Section 50079.5; provided the income of such persons and families
shall not exceed 80 percent of the median income within the City as published and
periodically updated by the State Department of Housing and Community
Development.
L. “Market rate” shall mean the highest price a willing buyer would pay and a willing
seller would accept, both being fully informed and in an open market, as determined
by an appraiser.
M. “Moderate-income households” shall have the meaning set forth in Health and
Safety Code Section 50079.5; provided the income of such persons and families
exceed 80 percent but are less than or equal to 120 percent of the median income
within the City as published and periodically updated by the State Department of
Housing and Community Development.
N. “Commercial development project” shall mean development projects which result in
the subdivision of land and/or the construction or conversion of structures for the
purpose of conducting business, including but not limited to retail sales, restaurants,
offices, gas stations, manufacturing, etc.
O. “Residential development project” shall mean development projects which result in
the subdivision of land and/or the construction or conversion of structures,
including, but not limited to, single-unit attached or detached homes, apartments,
condominiums, live/work units, mixed-use, mobile homes, transitional housing or
supportive housing, and group housing.
P. “Very low-income” shall have the meaning set forth in Health and Safety Code
Section 50079.5; provided the income of such persons and families shall not
exceed 50 percent of the median income within the City as published and
periodically updated by the State Department of Housing and Community
Development.
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17.138.040 – Inclusionary Housing Requirements
A. General Requirements. All non-exempt residential development projects shall
include inclusionary units as required by this chapter. If the calculated number of units
results in a fraction, the number shall be rounded as described in Section
17.138.080(A).
1. Construct the required number of inclusionary units for Residential or Mixed-Use
projects;
2. Pay an in-lieu fee for Residential or Mixed-Use projects; or
3. Pay a commercial linkage fee (see Municipal Code Chapter 4.60) for new Non -
Residential or Non-Residential portions of Mixed-Use project(s).
B. Residential Requirements
1. Ownership Dwelling Units. Ten (10) percent of the dwelling units (see Section
17.138.080.A) shall be made available for sale to eligible households with five
(5) percent for low-income households (fractional units may be rounded down to
the next whole number) and five (5) percent for moderate -income households
(fractional units may be rounded up to the next whole number). See Section
17.138.080.A for more information regarding fractional numbers.
2. Rental Dwelling Units. Six (6) percent of the dwelling units (see Section
17.138.080.A: Fractional Numbers) shall be made available for rent to eligible
households with three (3) percent for very low-income households (fractional
units may be rounded down to the next whole number) and three (3) percent for
low-income households (fractional units may be rounded up to the next whole
number).
3. In-Lieu Housing Fees. An applicant may pay in-lieu fees to the City rather than
construct inclusionary units on site for residential projects that would create five
(5) or more dwelling units or parcels (see Section 17.138.060: In -Lieu Housing
Fee).
C. Non-Residential Requirements
1. Commercial, Office, Service, Hotel, Retail, Industrial, and Institutional
Uses. An applicant shall pay a commercial linkage fee based on the gross
square footage of the non-residential space in accordance with Municipal Code
Chapter 4.60.
D. Mixed-Use Development Requirements
1. Dwelling Units & Commercial Space. For mixed-use development with five or
more dwelling units, the inclusionary housing requirement is determined in
accordance with subsection B of this Section for all dwelling units in addition to
subsection C of this Section for all new commercial square footage within the
development project. For example, a for-rent mixed-use project includes twenty
(20) residential units and 5,000 square feet of commercial space: the
inclusionary requirement would be two (2) affordable units (20 x 6% = 1.2
rounded to 2) and a commercial linkage fee would be applied to the 5,000 square
feet of commercial space.
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2. Commercial Space. For mixed-use development with four or less residential
units, only the base inclusionary housing requirement for non-residential square
footage shall be provided in accordance with subsection C of this Section. For
example, a for-rent mixed-use project includes four (4) residential units and
5,000 square feet of commercial space: a commercial linkage fee would be
applied to the 5,000 square feet of commercial space.
E. Residential Final Maps or Parcel Maps
1. Residential Subdivisions. Tentative Maps as defined in Chapter 16.10
“Tentative Maps” of the Municipal Code, that result in five (5) or more residential
lots or parcels, which do not include any associated or required development
plan, and are intended for independent development, shall pay the In -Lieu
Housing Fee (see Section 17.138.060: In-Lieu Housing Fee) at the time of
building permit submittal.
17.138.050 – Standards for Inclusionary Units
A. Standards. Inclusionary units must meet the following standards:
1. Inclusionary units shall be dispersed throughout the residential development
projects to prevent a concentration of affordable units within the development
project.
2. Inclusionary units shall be consistent with the design of market rate units in terms
of exterior appearance, materials, and finished quality.
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 residential development project with the same bedroom count. 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 residential development project divided by the total number of
market rate units with the same bedroom count in the residential development
project.
4. For residential development projects with multiple market rate unit types
containing differing numbers of bedrooms, inclusionary units shall be
representative of the market rate unit mix. 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.
5. The required inclusionary units shall be constructed concurrently with market
rate units, unless an alternative development schedule is otherwise stipulated
by the applicable Review Authority of the residential development project.
6. Inclusionary units shall be subject to the City’s and/or the Administrator’s Fee
Schedule in accordance with Section 17.138.110.
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17.138.060 – In-Lieu Housing Fee
A. Payment of In-Lieu Fee. The developer may, at their discretion, choose to pay a
fee, as established by a resolution of the City Council, to the City in lieu of
constructing affordable units to meet their inclusionary housing requirement.
B. In-Lieu Fee Calculation. In-lieu fees shall be calculated using the new, habitable
square footage, as defined by California Building Code, included within the
residential development project. Final Maps or Parcel Maps in-lieu fees shall be
calculated at time of individual lot development using the new, habitable square
footage included within the residential development project.
C. Affordable Housing Fund. All in-lieu fees collected shall be deposited into the
Affordable Housing Fund. The fund shall be administered by the Finance Director
and shall be used exclusively to provide funding for the provision of affordable
housing and for reasonable costs associated with the development of affordable
housing, at the discretion of the Council.
D. Timing. In-lieu fees shall be paid prior to building permit issuance. For projects
constructed in phases, in-lieu fees shall be paid in the proportion that the phase
bears to the overall project.
17.138.070 – Inclusionary Housing Plan
A. Application Requirements. An applicant proposing a project for which inclusionary
housing is required shall submit a statement with their planning application or
building permit (whichever applies), describing the project’s inclusionary housing
plan. The statement shall include:
1. A project description that includes details regarding the proposed residential
development project such as, but not limited to total numbe r of dwelling units,
number of bedrooms per dwelling unit, square footage of all units (both
residential and commercial), type of project (rental or ownership), etc.;
2. A description of the inclusionary housing plan for each construction phase,
including the method chosen to meet the inclusionary housing requirement and
including all of the following information including but not limited to:
a. Whether the unit is for sale or rental;
b. The number, location, unit type, tenure, number of bedrooms and baths, floor
plan, construction schedule of all inclusionary units;
c. Preliminary calculation of in-lieu fees or commercial linkage fee as
applicable;
d. Other information which the Director determines necessary to adequately
evaluate the proposal.
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17.138.080– Procedures
A. Fractional Numbers. In determining the number of dwellings that are required to be
built pursuant to Section 17.138.040.B fractional units shall be rounded up to the next
higher whole number unit. If a project contains 10 units or less and the number of
required inclusionary dwellings results in a fractional unit, an applicant may pay the
in-lieu fee for the fractional unit or provide one Moderate affordable unit in the project.
For example, a residential project proposes to construct six (6) dwelling units for rent.
Per Section 17.138.040, the project would have an inclusionary housing requirement
of 0.36. The applicant may pay an in-lieu fee for the fractional amount or deed restrict
one of the six (6) dwelling units for Moderate-income households.
B. Affordable Housing Agreement. The applicant shall complete and sign an
Affordable Housing Agreement.
1. Submittal of an Affordable Housing Agreement. Applicants of residential
development projects subject to this Chapter shall submit an affordable housing
agreement on forms provided by the City and pay a processing and recordation
fee.
2. Timing. All building permits for inclusionary units in a residential development
project shall be issued concurrently with, or prior to, issuance of building permits
for the market rate units.
3. Construction Schedule. The inclusionary units shall be constructed
concurrently with, or prior to, construction of the market rate units, unless
otherwise stipulated by the applicable Review Authority of the residential
development project. Occupancy permits and final inspections for inclusionary
units in a residential development shall be approved concurrently with, or prior
to, approval of occupancy permits and final inspections for the market rate units.
4. Review and Approval. The draft agreement shall be reviewed by the Director
and City Attorney for compliance with project approvals, City policies and
standards, and applicable codes. Following approval and signing of the
agreement by the parties, the final agreement shall be recorded, and relevant
terms and conditions shall be recorded as a deed restriction on those lots or
affordable units subject to affordability requirements. The affordable housing
agreement shall be binding to all future owners and successors in interest.
5. Term. The affordable housing agreement shall ensure that affordability is
maintained for the longest period allowed or required by State law, but not less
than 45 years for ownership and 55 years for rental.
6. Exemption for In-Lieu Fee Payment. An affordable housing agreement shall
not be required for projects which meet their inclusionary housing requirement
through the payment of in-lieu fees.
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17.138.090 – Eligibility Requirements
A. Program Requirement. Only households qualifying as extremely low-, very low-, low-
, or moderate income, pursuant to the affordable housing standards, shall be eligible
to rent, purchase, or occupy inclusionary units developed or funded in compliance
with this requirement. For-sale inclusionary housing units shall be owner-occupied
for the term of the affordable housing agreement.
B. Eligibility Screening. The City or an Administrator designated by the City shall
screen prospective renters or buyers of affordable units. Buyers of affordable units
shall enter into an agreement with the City. Occupants must be selected by means
of an open, public process which ensures that individuals of a group of interested
participants are selected in accordance with the City’s BMR Ownership and Rental
Housing Guidelines. Private selection of individuals by project owners is not
permitted for any affordable units.
17.138.100 – Shared Equity Purchase Program
When a residential development project includes affordable housing units for sale in
excess of the inclusionary housing requirement for the project, the additional unit s may
be offered under the Shared Equity Purchase Program.
A. Under this program, the qualified buyer of a designated affordable dwelling unit
shall enter into a shared equity agreement with the City. Said agreement shall be
recorded as a lien against the purchased property, at no interest, securing and
stating the City’s equity share in the property. The City’s equity share shall be
calculated by the Director, and shall be the decimal percentage of the property’s
value resulting from:
1. The difference between the property’s market value and the actual price paid by
the homeowner, divided by the market value; and/or, when applicable
2. The amount of subsidy provided by the City to the homeowner to purchase
the property, divided by the
property’s market value.
B. Upon sale, the City’s equity share shall be repaid to the City from the proceeds
of the sale, less the City’s percentage share of title insurance, escrow fees, and
documentary transfer taxes, at the close of escrow. The proceeds from the sale
shall be deposited into the City’s Affordable Housing Fund and shall be used for
the purposes set forth in Health and Safety Code § 33334.2(e).
C. In the event of “early resale,” owners of properties subject to the Shared Equity
Purchase Program shall either: (1) pay an equity recapture fee to the City as
described in the schedule below, in addition to the City’s equity share, or (2) sell the
property to another eligible household. If the owner chooses to pay the equity
recapture fee, the recapture fee shall be paid to the City upon resale at close of
escrow, based on the following schedule:
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Table 8-1: Percent of Equity Build-up
Recaptured Year % of Equity Build-up
Recaptured 0 – 3 100%
4 75% + City’s Equity Share
5 50% + City’s Equity Share
6 25% + City’s Equity Share
7 and after 0% + City’s Equity Share
The recapture amount shall be determined prior to the calculation of escrow closing
costs.
17.138.110 –Administration, Management, and Monitoring
Inclusionary rental and owner units shall be managed and operated by the property
owner, or the owner’s agent, for the term of the affordable housing agreement. Sufficient
documentation shall be submitted to ensure compliance with this Chapter, to the
satisfaction of the Director.
A. Duties of Program Administrator. The City may either handle in-house or contract
for administration of the BMR Ownership Housing Program and monitoring
compliance with the requirements of this Chapter to a program Administrator
pursuant to an agreement executed between the City and the Administrator in
accordance with the approved fee schedule. At a minimum, the Administrator shall
perform the following services:
1. Maintain and administer the City’s BMR Ownership and Rental Housing
Guidelines and Affordable Housing Standards.
2. Screen and select qualified buyers and renters according to the City’s
Ownership and Rental Housing Guidelines and Affordable Housing Standards
and maintain qualified owner and renter eligibility list;
3. Maintain a list of eligible mortgage lenders for financing the purc hase of
inclusionary units in accordance with the BMR Ownership Housing Guidelines;
4. Market new and vacant BMR for-sale and rental units within the City’s affordable
housing inventory.
5. Monitoring compliance with terms and conditions of the occupancy and sal e
restrictions;
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17.138.120 – Enforcement
A. Enforcement. No final subdivision map shall be approved, nor building permit
issued, nor shall any other development entitlement be granted for a residential
development project subject to this Chapter that does not meet these requirements.
No inclusionary unit shall be rented or sold except in accordance with these
requirements and the affordable housing standards.
INTRODUCED on the ___ day of _________, 2022, AND FINALLY ADOPTED by
the Council of the City of San Luis Obispo on the ___ day of ________, 2022, on the
following vote:
AYES:
NOES:
ABSENT:
__________________________
Mayor Erica A. Stewart
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, on ______________________.
__________________________
Teresa Purrington,
City Clerk
Page 42 of 60
R _____
RESOLUTION NO. _____ (2022 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SAN LUIS OBISPO, CALIFORNIA, AMENDING INCLUSIONARY
HOUSING IN-LIEU FEES IN ACCORDANCE WITH CHAPTER 17.138 OF
TITLE 17 AND ESTABLISHING THE AMOUNTS OF COMMERCIAL
LINKAGE FEES IN ACCORDANCE WITH CHAPTER 4.60 OF TITLE 4 OF
THE SAN LUIS OBISPO MUNICIPAL CODE AND AMENDING THE
COMPREHENSIVE FEE SCHEDULE
WHEREAS, the State of California has found that local governments have a
responsibility to use the powers vested in them to facilitate the development of housing
and to make adequate provision for the housing needs of all economic segments of the
community (Government Code Section 65580(d); and
WHEREAS, on August 16, 2022, the City Council of the City of San Luis Obispo
adopted an ordinance amending inclusionary housing requirements, including
inclusionary housing in-lieu fees, as codified in Chapter 17.138 of Title 17 of the San Luis
Obispo Municipal Code (“Inclusionary Housing Ordinance”); and
WHEREAS, on August 16, 2022, the City Council of the City of San Luis Obispo
adopted an ordinance establishing a Commercial Linkage Fee on Non-Residential
development as codified in Chapter 4.60 of Title 4 of the San Luis Obispo Municipal Code
(the “Commercial Linkage Ordinance)”; and
WHEREAS, the purpose and findings supporting the adoption of the Inclusionary
Housing In-Lieu Fee are set forth in the Inclusionary Housing Ordinance; and
WHEREAS, the purpose and findings supporting the adoption of the Commercial
Linkage Fee are set forth in Commercial Linkage Fee Ordinance; and
WHEREAS, the Council desires to establish herein the amount of the Inclusionary
Housing In-Lieu Fees for residential development and Commercial Linkage Fees for
specified non-residential land uses in the City; and
WHEREAS, the Comprehensive Fee Schedule will be updated to reflect all new
and updated fees; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis
Obispo as follows:
SECTION 1. Recitals. The recitals set forth above are hereby adopted as the
findings of the City in adopting the policies herein.
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SECTION 2. Environmental Determination. Amending the inclusionary in-lieu
housing fee and establishment of a commercial linkage fee is not considered a project
subject to the California Environmental Quality Act (“CEQA”) pursuant to Section
15378(b)(4) of the CEQA Guidelines, which excludes the following from the definition of
projects: the creation of a government funding mechanism or other government fiscal
activities which do not involve any commitment to a specific project which may result in
a potentially significant physical impact on the environment .
SECTION 3. Inclusionary Housing In-Lieu Fee. Applicants opting to pay an
inclusionary housing in-lieu fee in accordance with Chapter 17.138 of the San Luis
Obispo Municipal Code shall pay the fee based on the habitable square footage of space
within the residential development project as follows:
Residential unit type Fee per square foot
New for-sale housing $25.00
New rental housing $20.00
SECTION 4. Commercial Linkage Fee. The Commercial Linkage Fees adopted
in Chapter 4.60 of the City of San Luis Obispo Municipal Code are hereby established in
the following amounts and shall be computed as follows:
All Commercial Development Projects and all Non- Residential portions of a project
subject to Chapter 4.60 shall pay the commercial linkage fee based on the gross
square footage of each use included in the proposed project as follows:
Non-Residential Use Fee per square foot
Office, Service, Retail, Hotel $6.00
Industrial, Manufacturing $5.00
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SECTION 5. Effective Date. This Resolution shall take effect upon the effective
date of both the Inclusionary Housing Ordinance and the Commercial Linkage Fee
Ordinance.
Upon motion of _________, seconded by __________, and on the following roll
call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this ____ day of ________ 2022.
___________________________
Mayor Erica A. Stewart
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, on ______________________.
__________________________
Teresa Purrington
City Clerk
Page 45 of 60
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ORDINANCE NO. _____ (2022 SERIES)
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, AMENDING TITLE 4.60 OF THE CITY OF SAN
LUIS OBISPO MUNICIPAL CODE TO ESTABLISH A COMMERCIAL
LINKAGE FEE WITH AN EXEMPTION FROM ENVIRONMENTAL
REVIEW (CEQA)
WHEREAS, the City of San Luis Obispo (“City”) aims to provide sufficient levels
of affordable housing for its residents; and
WHEREAS, development of new commercial projects encourages new residents
to move to the City, and some of the employees needed to meet the needs of new
commercial development earn incomes only adequate to pay for affordable housing; and
WHEREAS, because there is a need for additional affordable housing within the
City, these employees might otherwise be forced to live in less-than-adequate housing
within the City, pay a disproportionate share of their incomes to live in adequate housing
within the City, or commute ever-increasing distances to their jobs from housing located
outside of the City, thereby harming the City’s ability to attain goals articulated in the City’s
General Plan; and
WHEREAS, the City Council of the City of San Luis Obispo conducted a web -
based public hearing via teleconference on November 17, 2020, for the purpose of final
adoption of the sixth cycle update to the General Plan Housing Element that included
Program 2.13, which provides, “Update the Inclusionary Housing Ordinance, including
Table 2A, based on findings and recommendations in the 2020 Affordable Housing Nexus
Study and conduct further feasibility analysis in order to evaluate the City’s ability to
provide affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4”; and
WHEREAS, on April 21, 2020, City Council reviewed a Nexus Study prepared by
David Paul Rosen and Associates (DRA) which confirmed that both market-rate
residential and commercial development are creating demand for affordable housing that
is not being met by the current housing market; and
WHEREAS, pursuant to Government Code Section 66001, the Nexus Study
establishes that there is a reasonable relationship between the commercial linkage fees
and the commercial development on which it is imposed and between the need for
affordable housing and the commercial development projects against which the fee is
charged; and
WHEREAS, in April 2021, the City hired Economic & Planning Systems, Inc.
(EPS) to conduct a feasibility analysis of the City’s inclusionary housing requirements
based on the findings and recommendations included in the Nexus Study; and
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WHEREAS, the City may adopt and impose commercial linkage fees to mitigate
the impact of commercial development projects on available affordable housing in the
City under the authority of Sections 66000 et seq. of the California Government Code
(“Mitigation Fee Act”); and
WHEREAS, the commercial linkage fees will be placed in the City’s Affordable
Housing Fund and the fees will be used solely to increase the supply of housing
affordable to extremely low, very low, low, and moderate-income residents; and
WHEREAS, the State of California Office of Housing and Community
Development, on September 3, 2021, certified the City of San Luis Obispo’s 6 th Cycle
General Plan Housing Element as in full compliance with State Law; and
WHEREAS, a Study Session was held by City Council on March 1, 2022, to review
staff’s recommended amendments to Chapter 17.138, that were derived from the Nexus
Study and the EPS financial analysis; and
WHEREAS, the City Council of the City of San Luis Obispo conducted a public
hearing in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo,
California on July 19, 2022, for the purpose of introducing an ordinance to implement
commercial linkage fees; and
WHEREAS, notices of said public hearing were made at the time and in the
manner required by law; and
WHEREAS, the City Council has duly considered all evidence, including the
testimony of the applicant, interested parties, and the evaluation and re commendations
by staff.
NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Findings. Based upon all the evidence, the City Council makes the
following finding:
1. All recitals are true and correct and are incorporated herein by reference.
2. The proposed amendments to Title 4 are also consistent with the 6th Cycle
Housing Element and implements program 2.13.
SECTION 2. Environmental Determination. The proposed amendments to the
Municipal Code Title have been assessed in accordance with the authority and criteria
contained in the California Environmental Quality Act (CEQA), the state CEQA
Guidelines, and the environmental regulations of the City. Sp ecifically, approval of fees
and/or charges is not a “project” for the purposes of CEQA, pursuant to CEQA Guidelines,
Section 15378(b)(4); and even if considered a “project” under CEQA, would be exempt
from CEQA review pursuant to CEQA Guidelines Section 15061(b)(3), the “Common
Sense” exemption, because the proposed ordinance will have no possibility of a
significant effect on the environment and will not cause impacts.
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SECTION 3. Action. The City Council hereby adds Chapter 4.60, entitled
“Commercial Linkage Fees”, to the San Luis Obispo Municipal Code as set forth and
incorporated herein.
Chapter 4.60: Commercial Linkage Fees
Sections:
4.60.010 – Purpose.
4.60-020 – Definitions.
4.60.030 – Fees to be set by resolution.
4.60.040 – Payment of fees.
4.60.050 – Exemptions.
4.60.060 – Disposition and use of fees.
5.60.070 - Enforcement
4.60.010 – Purpose
A. Encourage the development and availability of housing affordable to a broad range
of households with varying income levels within the city as mandated by State l aw,
California Government Code Section 65580 and following.
B. Offset the demand for affordable housing that is created by new development and
mitigate environmental and other impacts that accompany new commercial
development by protecting the economic diversity of the City’s housing stock;
reducing traffic, transit and related air quality impacts by allowing more residents
to live near their workplace; promoting jobs/housing balance; and reducing the
demands placed on transportation infrastructure in the region.
C. Promote the City’s policy to provide an adequate number of affordable housing
units to the City’s housing stock in proportion to the existing or projected need in
the community, as identified by the Housing Element.
D. Support the Housing Element goal of assisting in the development of new housing
that is affordable at all income levels and the policies and actions that support this
goal.
E. Encourage the production of the very low, low, and moderate income units planned
for in the Housing Element of the General Plan.
4.60.020 - Definitions
For the purposes of this Chapter, the following words and phrases shall have the
meaning set forth below.
A. “Administrator” means Below Market Rate Program Administrator which may
either be the City itself or a third party administrator acting as an agent for the
City in connection with all aspects of the operation of the City's Below Market Rate
program pursuant to an Agreement entered into between the City and the
Administrator, as such agreement may be amended or replaced from time to time.
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B. “Affordable housing agreement” means a written agreement between a builder
and the City as provided by Section 17.138.080.B.
C. “Below Market Rate (BMR)” means that the affordability level of an inclusionary
unit is below the cost of what a current market rate unit would be and is affordable
to extremely low-, very low-, low-, or moderate-income households.
D. “Commercial development project” shall mean development projects which result
in the subdivision of land and/or the construction or conversion of structures for
the purpose of conducting business, including but not limited to hotels, retail
sales, restaurants, offices, gas stations, research and development uses and
manufacturing.
E. “Commercial linkage fee” means the fee paid by applicant of commercial
development projects to mitigate the impacts that such developments have on the
demand for affordable housing in the City.
F. “First approval” means the first discretionary approval to occur with respect to a
commercial development project or, for commercial projects not requiring a
discretionary approval, the issuance of a building permit.
G. “Inclusionary housing plan” means a plan for a residential development project
submitted by an applicant as provided by Section 17.138.070.
H. “Planning permit” means any discretionary approval of a residential or mixed use
project, including but not limited to a comprehensive or specific plan adoption or
amendment, rezoning, tentative map, parcel map, conditional use permit,
variances, or architectural review.
4.60.030 – Fees to be Set by Resolution
The amount of commercial linkage fee imposed on applicants of commercial development
projects shall be determined by resolution adopted by the City Council and may be
adjusted annually by the percentage change in the Consumer Price Index for all Urban
Consumers (CPI-U). Commercial linkage fees shall not exceed the cost of mitigating the
impact of the commercial development projects on the availability of affordable housing
in the city.
4.60.040 – Payment of Fees
A. A commercial linkage shall be applied to commercial development projects
involving new construction and additional gross square footage to existing
commercial buildings. If a development is exempt from the fee at initial
construction, but later converts to a commercial development project, the
converted square footage will be subject to the fee.
B. Any commercial linkage fee shall be paid in full prior to the issuance of the first
building permit for the commercial development project subject to the fee or at a
time otherwise specified by Council Resolution. If no building permit is required,
the fee shall be paid before a conversion of use may take place. The fee shall be
calculated based on the fee schedule in effect at the time the building permit is
issued as adopted by the City Council.
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4.60.050 – Exemptions
A. The following commercial projects are exempt from the provisions of this chapter.
1. City buildings and facilities and those public facilities entitled to an exemption
under state law.
2. Schools, places of public assembly, cultural institutions, childcare facilities,
nursing homes, residential care facilities, and skilled nursing facilities.
3. Projects which replace or restore a structure damaged or destroyed by fire, flood,
earthquake, or other disaster within three years prior to the application for the
new structure(s) (see Chapter 17.92 Nonconforming Structure).
4.60.060 – Disposition and Use of Fees
Commercial linkage fees collected shall be deposited into the Affordable Housing Fund.
The fund shall be administered by the Finance Director and shall be used exclusively to
provide funding for the provision of affordable housing and for reasonable costs
associated with the development of affordable housing, at the discretion of the Council.
4.60.070 – Enforcement
A. Payment of the commercial linkage fee is the obligation of the builder of a
commercial development project. The City may institute any appropriate legal
actions or proceedings necessary to ensure compliance herewith, including, but
not limited to, actions to revoke, deny, or suspend any permit or development
approval.
B. The City Attorney and Community Development Director shall be authorized to
enforce the provisions of this chapter and all affordable housing agreements,
regulatory agreements, by civil action and any other proceeding or method
permitted by law.
C. Failure of any official or agency to fulfill the requirements of this chapter shall not
excuse any builder or owner from the requirements of this chapter. No permit,
license, map, or other approval or entitlement for a commercial development
project shall be issued, including without limitation a final inspection or certificate
of occupancy, until all applicable requirements of this chapter have been satisfied.
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D. The remedies provided for in this chapter shall be cumulative and not exclusive
and shall not preclude the City from any other remedy or relieve to which it
otherwise would be entitled under law or equity.
INTRODUCED on the ___ day of _________, 2022, AND FINALLY ADOPTED
by the Council of the City of San Luis Obispo on the ___ day of ________, 2022, on the
following vote:
AYES:
NOES:
ABSENT:
__________________________
Mayor Erica A. Stewart
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, on ______________________.
__________________________
Teresa Purrington,
City Clerk
Page 52 of 60
CITY OF SAN LUIS OBISPO
Title 17 – ZONING REGULATIONS
DRAFT
Chapter 17.138: Inclusionary Housing Requirements
Sections:
17.138.010 – Purpose
17.138.020 – Applicability and Exclusions
17.138.030 – Definitions
17.138.040 – Inclusionary Housing Requirements
17.138.050 – Standards for Inclusionary Units
17.138.060 – In-Lieu Housing Fee
17.138.070 – Inclusionary Housing Proposal
17.138.080 – Procedures
17.138.090 – Eligibility Requirements
17.138.100 – Shared Equity Purchase Program
17.138.110 – Administration, Management, and Monitoring
17.138.120 – Enforcement
17.138.010 – Purpose
The purpose and intent of this Chapter are: 1) to promote the public welfare by increasing
the production and availability of affordable housing units; 2) to establish an inclusionary
housing requirement which implements General Plan policies guiding land use and
housing development; and 3) to ensure that affordable housing units established pursuant
to the provisions of this Chapter are located in a manner that provides for their integration
with market rate units.
17.138.020 – Applicability and Exclusions
A. This Chapter shall apply to residential development projects consisting of five or
more residential lots or new dwelling units.
B. The following types of residential development projects are exempt:
1. Residential projects of four new units or less;
2. Residential additions, repairs, or remodels, provided that such work does not
increase the number of existing dwellings by five or more dwelling units;
3. The addition or inclusion of Accessory Dwelling Units associated with an existing
or proposed residential or mixed-use development;
4. Affordable housing projects in which 100 percent of the dwellings to be built
will be sold or rented in conformance with the City’s Affordable Housing
Standards (excluding any on-site manager unit);
5. Housing projects that include a density bonus.
6. Emergency projects or projects which the Council determines are necessary to
protect public health and safety;
7. Development projects which the Director determines are essentially
noncommercial or nonresidential in nature, which provide educational, social, or
related services to the community and which are proposed by public agencies,
nonprofit agencies, foundations, and other similar organizations;
Deleted: General Standards
Deleted: Procedures
Deleted: Affordable
Deleted: Fund Established
Deleted: Real Property Dedication
Deleted: Incentives
Deleted: Project Application¶
17.138.110 – Required Agreements¶
17.138.120 – Program Requirements¶
17.138.130 – Eligibility Screening¶
17.138.140 – Affordability Restrictions¶
17.138.150 –
Deleted: 17.138.160 – Early Resale of Shared Equity
Properties¶
17.138.170 –
Deleted: 180
Deleted: and Appeals
Deleted: 17.138.190 – Severability¶
¶
Deleted:
Deleted: rental
Deleted:
Deleted: development
Deleted: , and to commercial development projects
consisting of 2,500 square feet or more of gross floor
area
Deleted: excluded
Deleted: developments
Deleted: <#>New commercial developments of less
than 2,500 square feet of gross floor area;¶
Deleted: <#>and commercial building
Deleted: <#>four
Deleted: <#> or result in an increase in commercial
gross floor area of 2,500 square feet or more
Deleted: <#>The conversion of less than five
dwelling units to condominiums within any five -year
period;¶
5.
Deleted: <#>Commercial condominium conversions
which do not result in the creation of new dwellings
Deleted: <#>;
Deleted: a
Deleted: h
Deleted: s
Page 53 of 60
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8. Projects which replace or restore a structure damaged or destroyed by fire, flood,
earthquake, or other disaster within three years prior to the application for the new
structure(s) (see Chapter 17.92 Nonconforming Structure );
17.138.030 – Definitions
For the purposes of this Chapter, the following words and phrases shall have the
meaning set forth below. For all other definitions, the provisions of Article 9 (Definitions)
of this Title shall apply.
A. “Administrator” means Below Market Rate Program Administrator which may either be
the City itself or a third-party administrator acting as an agent for the City in connection
with all aspects of the operation of the City's Below Market Rate program pursuan t to
an Agreement entered into between the City and the Administrator, as such
agreement may be amended or replaced from time to time.
B. “Affordable” means housing which can be purchased or rented by a household with
very low-, low-, or moderate- income, as described in the City’s affordable housing
standards.
C. “Below Market Rate (BMR)” means that the affordability level of an inclusionary unit is
below the cost of what a current market rate unit would be and is affordable to
extremely low-, very low-, low-, or moderate-income households.
D. “Borrower” shall be defined as one who meets the eligibility requirements for
purchasing an inclusionary affordable unit.
E. “Commercial Linkage Fee” means the fee paid by the applicant of commercial
development projects to mitigate the impacts that such developments have on the
demand for affordable housing in the City (see Municipal Code Chapter 4.60).
F. “Density bonus” means a density increase over the maximum density otherwise
allowable under the Zoning Regulations, Chapter 17.140.
G. “Early resale” shall mean the sale, lease, or transfer of property within seven years of
the initial close of escrow for Equity Share Inclusionary Units.
H. “Equity Share” shall mean the shared equity of appreciation between the City and the
Borrower on inclusionary units when agreements specifically allow for affordable units
to be sold at market-rate after a 7-year period.
I. “Fee Schedule” means fees that for-sale and for-rent units are subject to and are paid
to either the City or the Administrator for associated costs related to but not limited to
eligibility screening, income verification, marketing of affordable units, and the close
of escrow or completion of new lease agreements for affordable units.
J. “Inclusionary housing unit” means a dwelling unit required under the provisions of this
Chapter, and which meets the City’s affordable housing standards.
K. “Low-” or “lower-income households” shall have the meaning set forth in Health and
Safety Code Section 50079.5; provided the income of such persons and families shall
not exceed 80 percent of the median income within the City as published and
periodically updated by the State Department of Housing and Community
Development.
Deleted: <#>Projects for which an approved
tentative map or vesting tentative map exists, or for
which a construction permit was issued prior to the
effective date of the ordinance codified in this
Chapter and the permittee has performed
substantial work and incurred substantial liabilities
and which continue to have unexpired permits. ¶
Deleted:
Deleted: <#>“Building valuation” shall mean the total
value of all construction work for which a construction
permit is required, as determined by the Chief
Building Official using the Uniform Building Code.¶
Deleted: <#>“Development project” shall mean an
activity for which a subdivision map or
constructionbuilding permit is required, including new
buildings and building additions or remodels, but not
including changes in ownership, occupancy,
management, or use. ¶
Deleted: <#>“Expansion area” means a land area
proposed for annexation to the City or annexed after
the adoption date of the ordinance codified in this
Chapter.¶
“Housing Authority” refers to the Housing of Authority
of San Luis Obispo (HASLO). ¶
Deleted: which is built
Deleted: County
Page 54 of 60
CITY OF SAN LUIS OBISPO
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L. “Market rate” shall mean the highest price a willing buyer would pay and a willing
seller would accept, both being
fully informed and in an open market, as determined by an appraiser.
M. “Moderate-income households” shall have the meaning set forth in Health and Safety
Code Section 50079.5; provided the income of such persons and families exceed 80
percent but are less than or equal to 120 percent of the median income within the City
as published and periodically updated by the State Department of Housing and
Community Development.
N. “ Commercial development project” shall mean development projects which result in
the subdivision of land and/or the construction or conversion of structures for the
purpose of conducting business, including but not limited to retail sales, restaurants,
offices, gas stations, manufacturing, etc.
O. “Residential development project” shall mean development projects which result in the
subdivision of land and/or the construction or conversion of structures, including, but
not limited to, single-unit attached or detached homes, apartments, condominiums,
live/work units, mixed-use, mobile homes, transitional housing or supportive housing,
and group housing.
P. “Very low-income” shall have the meaning set forth in Health and Safety Code Section
50079.5; provided the income of such persons and families shall not exceed 50
percent of the median income within the City as published and periodically updated
by the State Department of Housing and Community Development .
17.138.040 – Inclusionary Housing Requirements
A. General Requirements. All non-exempt residential development projects shall include
inclusionary units as required by this chapter. If the calculated number of units results
in a fraction, the number shall be rounded as described in Section 17.138.080(A)..
1. Construct the required number of inclusionary units for Residential or Mixed-Use
projects;
2. Pay an in-lieu fee for Residential or Mixed-Use projects; or
3. Pay a commercial linkage fee (see Municipal Code Chapter 4.60) for new Non-
Residential or Non-Residential portions of Mixed-Use project(s).
B. Residential Requirements
1. Ownership Dwelling Units. Ten (10) percent of the dwelling units (see Section
17.138.080.A) shall be made available for sale to eligible households with five (5)
percent for low-income households (fractional units may be rounded down to the
next whole number) and five (5) percent for moderate-income households
(fractional units may be rounded up to the next whole number). See Section
17.138.080.A for more information regarding fractional numbers.
2. Rental Dwelling Units. Six (6) percent of the dwelling units (see Section
17.138.080.A: Fractional Numbers) shall be made available for rent to eligible
households with three (3) percent for very low-income households (fractional units
may be rounded down to the next whole number) and three (3) percent for low-
income households (fractional units may be rounded up to the next whole number).
Deleted: value
Deleted: fully informed and in an open market, as
determined by an appraiser or other qualified
professional.
Deleted: include those
Deleted: whose incomes
Deleted: County
Deleted: <#>“Real property” shall mean land and
improvements, if any, including anything permanently
affixed to the land, such as buildings, walls, fences,
and paved areas.¶
Deleted: <#>Non-residentia
Deleted: <#>l
Deleted: dwellings
Deleted: studios
Deleted: 50105, defined as “
Deleted: whose incomes do
Deleted: the qualifying limits for very low-income
families as established and amended from time to
time in compliance with Section 8
Deleted: United States Housing Act of 1937, and
Deleted: in the California Administrative Code.”
Deleted: General Standards
Deleted: ¶
A. Methods of Meeting Requirements. New
development projects shall satisfy the inclusionary
housing requirements, as specified in Tables 2 and 2A
of the General Plan Housing Element (also included
below) which require that all nonexempt development
projects shall contribute toward the production of
affordable housing by constructing at least one
affordable dwelling unit or paying an in-lieu fee. To
meet the requirements, the developer shall comply with
one or more of the following methods:
Deleted: 1.
Deleted: section
Deleted: : Fractional Numbers, unless otherwise
specified
Deleted: affordable dwelling units, as specified in
Table 2 of the Housing Element, as adjusted by
Table 2A of the Housing Element; or
Deleted: 2. Pay an in-lieu fee as described in Table
2, as adjusted by Table 2A. For development
projects in which the adjustment factor under Table
2A equals zero (“0”), the minimum adjustment factor
shall be 0.25 (resulting in a minimum in-lieu fee of
1.25 percent of the building valuation for
development projects and commercial developments
in expansion areas, and 3.75 percent of building ...
Deleted: 56: Development Impact Fees
Deleted: : Fractional Numbers
Deleted: (Fractional Numbers)
Page 55 of 60
CITY OF SAN LUIS OBISPO
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3. In-Lieu Housing Fees. An applicant may pay in-lieu fees to the City rather than
construct inclusionary units on site for residential projects that would create five (5)
or more dwelling units or parcels (see Section 17.138.060: In-Lieu Housing Fee).
C. Non-Residential Requirements
1. Commercial, Office, Service, Hotel, Retail, Industrial, and Institutional Uses.
An applicant shall pay a commercial linkage fee based on the gross square footage
of the non-residential space in accordance with Municipal Code Chapter 4.60.
D. Mixed-Use Development Requirements
1. Dwelling Units & Commercial Space. For mixed-use development with five or
more dwelling units, the inclusionary housing requirement is determined in
accordance with subsection B of this Section for all dwelling units in addition to
subsection C of this Section for all new commercial square footage within the
development project. For example, a for-rent mixed-use project includes twenty
(20) residential units and 5,000 square feet of commercial space : the inclusionary
requirement would be two (2) affordable units (20 x 6% = 1.2 rounded to 2) and a
commercial linkage fee would be applied to the 5,000 square feet of commercial
space.
2. Commercial Space. For mixed-use development with four or less residential
units, only the base inclusionary housing requirement for non-residential square
footage shall be provided in accordance with subsection C of this Section. For
example, a for-rent mixed-use project includes four (4) residential units and 5,000
square feet of commercial space: a commercial linkage fee would be applied to
the 5,000 square feet of commercial space.
E. Residential Final Maps or Parcel Maps
1. Residential Subdivisions. Tentative Maps as defined in Chapter 16.10 “Tentative
Maps” of the Municipal Code, that result in five (5) or more residential lots or
parcels, which do not include any associated or required development plan, and
are intended for independent development, shall pay the In-Lieu Housing Fee (see
Section 17.138.060: In-Lieu Housing Fee) at the time of building permit submittal.
17.138.050 – Standards for Inclusionary Units
A. Standards. Inclusionary units must meet the following standards:
1. Inclusionary units shall be dispersed throughout the residential development
projects to prevent a concentration of affordable units within the development
project.
2. Inclusionary units shall be consistent with the design of market rate units in terms
of exterior appearance, materials, and finished quality.
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 affordab le units
are no less than seventy-five percent of the average size of all market rate units in
the residential development project with the same bedroom count. For the purpose
of this subsection, the “average size” of a unit with a certain bedroom count eq uals
the total square footage of all market rate units with that bedroom count in the
residential development project divided by the total number of market rate units
Deleted: within the development project that result
in an increase in gross floor area of 2,500 s quare
feet
Deleted: C.
Deleted: Projects
Deleted: Non-Residential
Deleted: projects
Deleted: dwellings
Deleted: or 2,500 square feet or more of new non-
residential square footage
Deleted: by: (1) using Table 2 to calculate the base
inclusionary requirement for the commercial use,
and (2) using Table 2A to adjust the base
requirement based on project density and average
unit size, as described in
Deleted: (B) of this Section.
Deleted: times the commercial linkage fee
Deleted: Non-Residential
Deleted: projects
Deleted: fewer than five dwellings, the base
inclusionary housing requirement for the commercial
use shall apply
Deleted: inclusionary requirement would only be
Deleted: times the commercial linkage fee
Deleted: s
Deleted: to the City
Deleted: or mixed-use
Page 56 of 60
CITY OF SAN LUIS OBISPO
Title 17 – ZONING REGULATIONS
DRAFT
with the same bedroom count in the residential development project.
4. For residential development projects with multiple market rate unit types containing
differing numbers of bedrooms, inclusionary units shall be representative of the
market rate unit mix. 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.
5. The required inclusionary units shall be constructed concurrently with market rate
units, unless an alternative development schedule is otherwise stipulated by the
applicable Review Authority of the residential development project.
6. Inclusionary units shall be subject to the City’s and/or the Administrator’s Fee
Schedule in accordance with Section 17.138.110.
17.138.060 – In-Lieu Housing Fee
A. Payment of In-Lieu Fee. The developer may, at their discretion, choose to pay a
fee, as established by a resolution of the City Council, to the City in lieu of constructing
affordable units to meet their inclusionary housing requirement.
B. In-Lieu Fee Calculation. In-lieu fees shall be calculated using the total square
footage of new, habitable square footage, as defined by California Building Code,
included within the residential development project. In-lieu fees shall be calculated
using the new, habitable square footage, as defined by California Building Code,
included within the residential development project. Final Maps or Parcel Maps in-lieu
fees shall be calculated at time of individual lot development using the new, habitable
square footage included within the residential development project . ,
C. Affordable Housing Fund . All in-lieu fees collected shall be deposited into the
Affordable Housing Fund. The fund shall be administered by the Finance Director and
shall be used exclusively to provide funding for the provision of affordable housing and
for reasonable costs associated with the development of affordable housing, at the
discretion of the Council.
D. Timing. In-lieu fees shall be paid prior to building permit issuance. For projects
constructed in phases, in-lieu fees shall be paid in the proportion that the phase bears
to the overall project.
17.138.070 – Inclusionary Housing Plan
A. Application Requirements. An applicant proposing a project for which inclusionary
housing is required shall submit a statement with their planning application or building
permit (whichever applies), describing the project’s inclusionary housing plan. The
statement shall include:
1. A project description that includes details regarding the proposed residential
development project such as, but not limited to total number of dwelling units,
number of bedrooms per dwelling unit, square footage of all units (both residential
and commercial), type of project (rental or ownership), etc.;
Deleted: D. Timing. The inclusionary housing
requirement shall be met prior to issuance of a
certificate of occupancy for the first unit in a building,
or the first building in a complex to be constructed or
remodeled; or for subdivisions, prior to Final Map
approval; or prior to building permit issuance, for
projects for which a certificate of occupancy is not
issued; or as otherwise agreed to by the Director as
part of tentative map, rezoning, Minor Use Permit,
Conditional Use Permit, or other development
approval.¶
E. Affordable Housing Agreement. To meet the
requirement, the developer may enter into an
agreement with the City, the Housing Authority of San
Luis Obispo (HASLO), nonprofit housing provider, or
other qualified housing provider approved by the
Director to construct, refurbish, convert, operate, and
maintain the required affordable housing. Such
affordable housing agreements shall be to the
approval of the Director and shall be in a form
approved by the City Attorney. ¶
Deleted: A.
Deleted: his or her
Deleted: dwellings
Deleted: this
Deleted: B. Amount and Method of Payment. The
dollar amount and method of payment of the in -lieu ...
Deleted: In-lieu fees for Final Maps or Parcel Maps
which are subject to Inclusionary Housing ...
Deleted: Timing. In-lieu fees shall be paid prior to ...
Deleted: Establi
Deleted: shed¶
The City hereby establishes an
Deleted: In-lieu fees collected shall be deposited into
the Affordable Housing Fund, to the satisfaction of the ...
Deleted: ¶
Deleted: release of occupancy of the first dwelling
within a residential development; or for residential ...
Deleted: A. Irrevocable Offer to Dedicate Real ...
Deleted: 17.138.100 – Project
Deleted: ¶
A. Method of Application.
Deleted: /developer
Deleted: affordable
Deleted: the standard
Deleted: ,
Deleted: proposal
Deleted: developer’s
Deleted: 1.
Deleted: brief
Deleted: of the proposal
Page 57 of 60
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2. A description of the inclusionary housing plan for each construction phase,
including the method chosen to meet the inclusionary housing requirement and
including all of the following information including but not limited to:
a. Whether the unit is for sale or rental;
b. The number, location, unit type, tenure, number of bedrooms and baths, floor
plan, construction schedule of all inclusionary units;
c. Preliminary calculation of in-lieu fees or commercial linkage fee as applicable;
d. Other information which the Director determines necessary to adequately
evaluate the proposal.
17.138.080– Procedures
A. Fractional Numbers. In determining the number of dwellings that are required to be
built pursuant to Section 17.138.040.B fractional units shall be rounded up to the next
higher whole number unit. If a project contains 10 units or less and the number of
required inclusionary dwellings results in a fractional unit, an applicant may pay the in-
lieu fee for the fractional unit or provide one Moderate affordable unit in the project. For
example, a residential project proposes to construct six (6) dwelling units for rent. Per
Section 17.138.040, the project would have an inclusionary housing requirement of
0.36. The applicant may pay an in-lieu fee for the fractional amount or deed restrict one
of the six (6) dwelling units for Moderate-income households.
B. Affordable Housing Agreement. The applicant shall complete and sign an Affordable
Housing Agreement.
1. Submittal of an Affordable Housing Agreement. Applicants of residential
development projects subject to this Chapter shall submit an affordable housing
agreement on forms provided by the City and pay a processing and recordation
fee.
2. Timing. All building permits for inclusionary units in a residential development
project shall be issued concurrently with, or prior to, issuance of building permits
for the market rate units.
3. Construction Schedule. The inclusionary units shall be constructed concurrently
with, or prior to, construction of the market rate units, unless otherwise stipulated
by the applicable Review Authority of the residential development project.
Occupancy permits and final inspections for inclusionary units in a residential
development shall be approved concurrently with, or prior to, approval of
occupancy permits and final inspections for the market rate units.
4. Review and Approval. The draft agreement shall be reviewed by the Director and
City Attorney for compliance with project approvals, City policies and standards,
and applicable codes. Following approval and signing of the agreement by the
parties, the final agreement shall be recorded, and relevant terms and conditions
shall be recorded as a deed restriction on those lots or affordable units subject to
affordability requirements. The affordable housing agreement shall be binding to
all future owners and successors in interest.
5. Term. The affordable housing agreement shall ensure that affordability is
maintained for the longest period allowed or required by State law, but not less
Deleted: ;
Deleted: type and
Deleted: of affordable
Deleted: term of affordability; preliminary
Deleted: ; or offer of land dedication
Deleted: 2. How the proposal meets General Plan
policies and inclusionary housing requirements;¶
3. Plans and other exhibits showing preliminary
site layout, grading, building elevations, parking and
other site features, location of affordable dwelling
units, and (where applicable) market value dwelling
units;¶
4. Description of incentives requested, including
exceptions from development standards, density
bonuses, fee waivers or other incentives; and¶
5.
Deleted: , including but not limited to the method
proposed to award occupancy of the affordable units
Deleted: 110
Deleted:
Deleted: Required Agreements
Deleted: Table 2,
Deleted: A.
Deleted: and developers for
Deleted: , as a condition of development approval,
Deleted: , or final recordation of a final or parcel
map, whichever occurs first
Deleted: B.
Page 58 of 60
CITY OF SAN LUIS OBISPO
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than 45 years for ownership and 55 years for rental.
6. Exemption for In-Lieu Fee Payment. An affordable housing agreement shall not
be required for projects which meet their inclusionary housing requirement through
the payment of in-lieu fees.
17.138.090 – Eligibility Requirements
A. Program Requirement. Only households qualifying as extremely low-, very low-, low-,
or moderate income, pursuant to the affordable housing standards, shall be eligible to
rent, purchase, or occupy inclusionary units developed or funded in compliance with
this requirement. For-sale inclusionary housing units shall be owner-occupied for the
term of the affordable housing agreement.
B. Eligibility Screening. The City or an Administrator designated by the City shall
screen prospective renters or buyers of affordable units. Buyers of affordable units
shall enter into an agreement with the City. Occupants must be selected by means of
an open, public process which ensures that individuals of a group of interested
participants are selected in accordance with the City’s BMR Ownership and Rental
Housing Guidelines. Private selection of individuals by project owners is not permitted
for any affordable units.
17.138.100 – Shared Equity Purchase Program
When a residential development project includes affordable housing units for sale in
excess of the inclusionary housing requirement for the project, the additional units may
be offered under the Shared Equity Purchase Program.
A. Under this program, the qualified buyer of a designated affordable dwelling unit shall
enter into a shared equity agreement with the City. Said agreement shall be recorded
as a lien against the purchased property, at no interest, securing and stating the City’s
equity share in the property. The City’s equity share shall be calculated by the
Director, and shall be the decimal percentage of the property’s value resulting from:
1. The difference between the property’s market value and the actual price paid by
the homeowner, divided by the market value; and/or, when applicable
2. The amount of subsidy provided by the City to the homeowner to purchase
the property, divided by the
property’s market value.
B. Upon sale, the City’s equity share shall be repaid to the City from the proceeds of
the sale, less the City’s percentage share of title insurance, escrow fees, and
documentary transfer taxes, at the close of escrow. The proceeds from the sale shall
be deposited into the City’s Affordable Housing Fund and shall be used for the
purposes set forth in Health and Safety Code § 33334.2(e).
C. In the event of “early resale,” owners of properties subject to the Shared Equity
Purchase Program shall either: (1) pay an equity recapture fee to the City as described
in the schedule below, in addition to the City’s equity share, or (2) sell the property to
another eligible household. If the owner chooses to pay the equity recapture fee, the
recapture fee shall be paid to the City upon resale at close of escrow, bas ed on the
following schedule:
Deleted: s
Deleted: 120 –
Deleted:
Deleted: 17.138.130 – ¶
Deleted: Housing Authority
Deleted: other housing provider
Deleted: Renters or b
Deleted: have equal probability of selection.
Deleted:
Deleted: 17.138.140 – Affordability Restrictions¶
Developers of affordable units for sale shall specify the
type of affordability restriction to be applied. The
developer shall choose to either: (1) participate in a
shared equity purchase program , as described in
Section 17.138.150, or (2) enter into an affordable
housing agreement to ensure that affordability is
maintained for the longest period allowed or required
by State law. ¶
17.138.150
Deleted: 17.138.160 – Early Resale of Shared Equity
Properties¶
Deleted: shared equity purchase program
Deleted: “Early resale” shall mean the sale, lease, or
transfer of property within seven years of the initial
close of escrow. …
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Table 8-1: Percent of Equity Build-up
Recaptured Year % of Equity Build-up
Recaptured 0 – 3 100%
4 75% + City’s Equity Share
5 50% + City’s Equity Share
6 25% + City’s Equity Share
7 and after 0% + City’s Equity Share
The recapture amount shall be determined prior to the calculation of escrow closing
costs.
17.138.110 –Administration, Management, and Monitoring
Inclusionary rental and owner units shall be managed and operated by the property
owner, or the owner’s agent, for the term of the affordable housing agreement. Sufficient
documentation shall be submitted to ensure compliance with this Chapter, to the
satisfaction of the Director.
A. Duties of Program Administrator. The City may either handle in-house or contract
for administration of the BMR Ownership Housing Program and monitoring
compliance with the requirements of this Chapter to a program Administrator pursuant
to an agreement executed between the City and the Administrator in accordance with
the approved fee schedule. At a minimum, the Administrator shall perform the
following services:
1. Maintain and administer the City’s BMR Ownership and Rental Housing
Guidelines and Affordable Housing Standards.
2. Screen and select qualified buyers and renters according to the City’s Ownership
and Rental Housing Guidelines and Affordable Housing Standards and maintain
qualified owner and renter eligibility list;
3. Maintain a list of eligible mortgage lenders for financing the purchase of
inclusionary units in accordance with the BMR Ownership Housing Guidelines;
4. Market new and vacant BMR for-sale and rental units within the City’s affordable
housing inventory.
5. Monitoring compliance with terms and conditions of the occupancy and sale
restrictions;
17.138.120 – Enforcement
A. Enforcement. No final subdivision map shall be approved, nor building permit
issued, nor shall any other development entitlement be granted for a residential
development project subject to this Chapter that does not meet these requirements.
No inclusionary unit shall be rented or sold except in accordance with these
requirements and the affordable housing standards.
Deleted: 170
Deleted: 180
Deleted: and Appeals
Deleted: which
Deleted: B. Appeals. The Director shall administer
and interpret these requirements, subject to
applicable codes and City procedures. Decisions of
the Director are appealable, subject to the Zoning
Regulations Chapter 17.126 (Appeals). ¶
17.138.190 – Severability¶
If any provision of this Chapter or the application
thereof to any person or circumstances is held invalid,
the remainder of the Chapter and the application of
the provision to other persons or situations shall not
be affected thereby.
Page 60 of 60
REPEAL AND REPLACE THE CITY OF SAN LUIS
OBISPO’S MUNICIPAL CODE CHAPTER 17.138
(INCLUSIONARY HOUSING REQUIREMENTS) TO UPDATE
REGULATIONS FOR CONSISTENCY WITH THE 6TH CYCLE
HOUSING ELEMENT
Planning Commission
June 8, 2022
Recommendation
Adopt a draft Resolution to:
1)Recommend that the City Council introduce and adopt an Ordinance
repealing and replacing the City of San Luis Obispo Municipal Code
Chapter 17.138 (Inclusionary Housing Requirements);and
2)Review proposed commercial linkage fees and housing in-lieu fees
and ensure they are supported by the Nexus Study and Feasibility
Analysis.
2
Planning Commission Purview
Review the proposed Municipal Code amendments to Title 17 for
consistency with the City’s Housing Element,State Law,clarity,and
internal consistency,and to make a recommendation to the City Council
regarding the proposed amendments.
3
Housing Opportunities
4
▪The Inclusionary Housing Ordinance is only one tool that the City utilizes to achieve
housing objectives.
▪Additional tools the City utilizes are:
▪Density Bonus
▪A streamlined Development Review process
▪Objective Design Standards
▪Ministerial review of ADUs and JADUs
▪SB 9
▪Minimum density allowances
▪Fractional density units
▪Tiered impact fee structure that incentivizes smaller units
▪The City is also working on 3 additional programs,Missing Middle,Flexible Density,
Subdivision updates to support additional housing within the City.
IHO Background
5
▪The City’s first Inclusionary Housing Ordinance was adopted in
1999.
▪Over 1,200 deed-restricted or otherwise secured affordable
dwellings have been planned for,entitled,or built.
▪The City has granted,loaned,or committed over $10 million of
in-lieu funds to assist with the development of new deed-
restricted affordable housing units.
▪Inclusionary Housing Requirements were last updated in 2007.
▪Completed and presented to Council in April 2020.
▪Determined that both residential and commercial
development are creating demand for affordable housing
that is not being met by the housing market.
▪Provides the maximum justifiable Nexus fees the City
could implement to meet the affordable housing demand
incurred by current development.
▪Recommended the City adopt fees less than the
maximums because fees at these high levels would affect
the financial feasibility of development as well as the
competitiveness of development in the City.
▪Recommended a financial feasibility analysis be
conducted.
Nexus Study
6
2020 Housing Element Update
7
▪On November 17,2020,the City Council adopted the 6th
Cycle Housing Element,which includes housing policies
and programs for the 2020-2028 planning period.
▪Program 2.13 in the Housing Element requires that city staff
update the Inclusionary Housing Ordinance based on the
information provided in the Nexus Study.
Feasibility Analysis
8
▪In April 2021,the City hired EPS,Inc.to conduct a
feasibility analysis.
▪EPS recommended several revisions to the City’s
existing affordable housing inclusionary program and
introduced a nexus-based commercial linkage fee for
non-residential uses.
Affordable Housing Analysis and Recommendations
Current IHO Nexus Study
Recommendation
Feasibility Analysis
Recommendation
Where the IHO
applies
Requirements differ within
City Limits and Expansion
Areas
Same requirements
Citywide
Same requirements
Citywide
Table 2A
Adjustments
Applies to projects that
qualify Remove Remove
Affordable Housing Analysis and Recommendations
Current IHO Nexus Study
Recommendation
Feasibility Analysis
Recommendation
Residential
For Sale
Within City Limits: 3% low or 5%
moderate income
Expansion Area: 5% low and
10% moderate income
15% (5% at low and 10% at
moderate)
10% (5% low-income units and
5% moderate income)
For Sale In-lieu
Fee
Within City Limits: 5% of building
valuation
Expansion Area: 15% of building
valuation
Apply on a square foot basis
(no specific amount
recommended)
$25 per square foot
For Rent
Within City Limits: 3% low or 5%
moderate income
Expansion Area: 5% low and
10% moderate income
15% very low-and low-income
units (5% very low and 10% at
low)
6% (3% very low-income and
3% low-income)
For Rent In-lieu
Fee
Within City Limits: 5% of building
valuation
Expansion Area: 15% of building
valuation
Apply on a square foot basis
(no specific amount
recommended)
$20 per square foot
Affordable Housing Analysis and Recommendations
Current IHO Nexus Study
Recommendation
Feasibility Analysis
Recommendation
Commercial
Commercial
Development
Within City Limits & Expansion
Area: 2 affordable units per acre
or 5% of building valuation
Nexus justifiable fees: $69-
173 per square foot.
Recommended Fee Range
based on other jurisdictions:
Other Non-residential Uses:
$2 to $5 per square foot
Industrial Uses: $1 to $4 per
square foot
Office, service, hotel, and retail
uses: $5 per square foot
Industrial and Institutional
Uses: $4 per square foot
City Council Study Session Feedback
12
Fractional Units for Less than 10 Units
▪Example:
▪6-unit rental project
▪Each unit is 900 sq.ft.for a total project size of 5,400
sq.ft.
▪The onsite requirement is 6 units times 6%
inclusionary =.36 of an affordable unit.
▪You can’t provide 0.36 of a unit onsite,so pay fee.
▪The fractional fee would be ($20 x .36)x 5,400 sq.ft.
=$38,880.
▪Versus the full fee that would be is $20 x 5,400 sq.ft.
=$108,000.
Unit
Count
Ownership $
per Square
Foot
Rental $ per
Square Foot
5 12.5 6
6 15 7.2
7 17.5 8.4
8 20 9.6
9 22.5 10.8
10 25 12
City Council Study Session Feedback
13
Removal of Table 2A
▪IHO amendments include the removal of Table 2A.
▪Table 2A was established as a part of the IHO to encourage the
development of projects with higher density and smaller unit sizes -
affordable-by-design.
▪Table 2A is no longer achieving affordability in the current market.
▪The Feasibility Analysis provides evidence that it is feasible for applicants to
construct more affordable units as a part their development projects.
City Council Study Session Feedback
14
Removal of Table 2A:Examples
Project
# of
Residential
Units
Total affordable
per Table 2
(5%)
Total
affordable per
Table 2A
Total affordable per Amended IHO
For Rent
(6%)
For Sale
(10%)
Commercial
($6/s.f.)
600 Tank Farm 280 14 1 17 28 $75,000.00
Bullock Ranch 184 28*7 12 19 N/A
950 Orcutt 78 4 1 5 8 $40,800.00
2800 Broad 20 1 1 2 2 $46,908.00
1030 Orcutt 15 1 1 1 2 $10,284.00
2120 Santa
Barbara 69 4 1 5 7 $18,000.00
*15%requirement for being in an expansion area
City Council Study Session Feedback
15
IHO Requirements Based on Project Type
▪Inclusionary requirements and commercial linkage fees are
proposed to be calculated based on the land use,rather than
the zoning.
▪Current IHO calculates the required number of units based
on acreage and then allows that number to be adjusted
based on Table 2A.
▪Proposed amendments allow for the number of inclusionary
housing units to be based on the total number of residential
units and the commercial linkage fee be based on the total
square footage of commercial space proposed as part of a
project.
City Council Study Session Feedback
16
Increase Commercial Linkage Fee
▪The Feasibility Analysis recommended that office,service,
hotel,and retail uses have a Commercial Linkage fee of $5 per
square foot and Industrial and Institutional Uses:$4 per square
foot.
▪The Nexus Study provides justifiable fees of $69-173 per
square foot.
▪Staff is recommending the Commercial Linkage fees be
increased to $6 per square foot for office,service,hotel,and
retail uses and $5 per square foot for industrial and institutional
uses.
City Council Study Session Feedback
17
Below Market Rate Administrator
▪Proposed IHO amendments include an “Administration,
Management,and Monitoring”section which outlines the duties
of the BMR Administrator.
Long Term Affordable vs.Shared Equity Purchase Program
▪Amendment is proposed for the “Shared Equity Purchase
Program”that only allows the offer of units under the Shared
Equity Purchase Program when a development project includes
affordable housing units for sale in excess of the inclusionary
housing requirement for the project.
Additional Key Amendments
18
▪“Applicability and Exclusions”-amended to clarify that the inclusionary
housing ordinance only applies to residential development projects.
Commercial development projects are subject to a Commercial Linkage
Fee.
▪“Definitions”-amended to include a definition of “Commercial Linkage Fee”
and cross reference the code section that is being amended to include this
requirement.
Additional Key Amendments
19
▪“Inclusionary Housing Requirements”section has been amended to:
▪Provide further clarification of the IHO requirements,depending on the type of
development,and provides additional references within the code.
▪Require all commercial square footage be eligible for the Commercial Linkage fee
and no longer exempt projects that contain less than 2,500 square feet of new
gross floor area of commercial space.
▪Require that residential subdivisions that result in five (5)or more residential lots
or parcels,which do not include any associated or required development plan,
shall pay the In-Lieu Housing Fee at the time of building permit issuance for lot
development.
New Staff Proposed Amendment
20
▪IHO should be applied to all market rate residential
units.
▪The Nexus Study and the Feasibility Analysis both
support applying the IHO to development projects of
less than 5 units.
▪Residential projects of 10 units or less would have the
ability to pay a fraction of the in-lieu fee or provide
one Moderate income unit to meet their inclusionary
requirement.
▪Staff recommends that an amendment be made to
the proposed IHO to remove the exemption of
residential developments of less than 5 units.
Unit
Count
Ownership $
per Square
Foot
Rental $ per
Square Foot
1 2.5 1.2
2 5 2.4
3 7.5 3.6
4 10 4.8
5 12.5 6
6 15 7.2
7 17.5 8.4
8 20 9.6
9 22.5 10.8
10 25 12
Recommendation
Adopt a draft Resolution to:
1)Recommend that the City Council introduce and adopt an Ordinance
repealing and replacing the City of San Luis Obispo Municipal Code
Chapter 17.138 (Inclusionary Housing Requirements);and
2)Review proposed commercial linkage fees and housing in-lieu fees
and ensure they are supported by the Nexus Study and Feasibility
Analysis.
21
Additional Slides
22
The IHO update is part of the City’s Major City Goal work
program for Housing and Homelessness and directly
implements several 6th cycle Housing Element.
The proposed amendments are consistent with several
Housing Element Goals,Policies,and Programs.
Project Analysis: Housing Element Consistency
1.Building affordable dwellings as part of a
development project,
2.Dedicating real property,improved or not,
for development of affordable housing by
the City’s Housing Authority or by a non-
profit housing provider,
3.Paying an in-lieu fee which is used to assist
with the development of new affordable
housing throughout the City,or
4.A combination of the above methods,to the
approval of the Community Development
Director.
Current IHO Requirement
24
The current inclusionary housing requirement can be met by:
Current IHO Requirement
25