HomeMy WebLinkAbout11/10/1998, 1 - PLANNING COMMISSION RECOMMENDATION TO 1) ADOPT A RESOLUTION AMENDING PROGRAM 1.22.10 AND TABLE 1 OF THE HOUSING ELEMENT TO MODIFY THE AFFORDABLE HOUSING REQUIREMENT, AND AMENDING HOUSING ELEMENT POLICY 1.22.1 AND DELETING POLICY 1.22.4 FOR council it°
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acenaa Repoin
CITY OF SAN LU IS O B 1 S P 0
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FROM: Arnold Jonas, Community Development Direc or
Prepared By: Jeff Hook, Associate Planne
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SUBJECT: Planning Commission recommendation to 1) adopt a resolution amending
Program 1.22.10 and Table 1 of the Housing Element to modify the Affordable Housing
Requirement, and amending Housing Element Policy 1.22.1 and deleting Policy 1.22.4 for
consistency with Table 1; and 2) introduce an ordinance to print, approving an Inclusionary
Housing Requirement to implement Program 1.22.10 of the General Plan Housing Element.
CAO RECOMMENDATION: 1) Adopt a resolution amending the General Plan Housing
Element and 2) Introduce an ordinance to print, approving the Inclusionary Housing
Requirement Ordinance as recommended.
REPORT-IN-BRIEF
The Council-appointed Inclusionary Housing Task Force has completed its review of the Draft
Inclusionary Housing Requirement. Their recommendations have been reviewed and endorsed
by the Planning Commission. The Commission's recommendation, if adopted, would establish
an Inclusionary Housing Requirement and the Affordable Housing Fund, thereby implementing
two core programs of the Housing Element. Several Housing Element amendments are
recommended to maintain consistency. The recommended draft ordinance includes several
changes intended to reduce the impact of inclusionary requirements on development costs while
meeting the intent of General Plan policies. It adds land dedication as one of the ways developers
can meet the inclusionary requirement, besides construction of affordable units on site or
payment of in-lieu fees, and expands the range of exempt projects to include projects which are
essentially non-residentiallnon-commercial in nature, such as churches, schools, and day care
centers. The recommended ordinance also includes an Equity Sharing Purchase Program which
allows buyers of affordable dwellings to realize equity growth and financial benefits from home
ownership sooner than would be possible under a mandatory 30-year affordability.
DISCUSSION
Planning Commission Recommendation
On a motion by Commissioner Ready, seconded by Commissioner Ewan, the Commission
recommended that: 1) the City Council amend the General Plan Housing Element Policy
1.22.1. as recommended by staff and delete Housing Element Policy 1.22.4., and amend
Housing Element Program 1.22.10. and Table 1 as recommended by the Task Force; and 2)
the City Council introduce an ordinance to print, adopting the Inclusionary Housing
Requirements as recommended by the Task Force. The motion carried 4:1 (Commissioner
Marx dissenting). Commissioner Whittlesey, who arrived at the meeting just before the vote,
stepped down.
Council Agenda Report - Inclusionary Housing Requirement
Page 2
Discussion focused on the Equity Sharing program and its potential effects on the City's
affordable housing supply. Three Task Force members spoke in support of the innovative
program, and emphasized that it would allow low and moderate income home buyers to "build
wealth", while generating additional capital to expand the supply of affordable housing. One
citizen voiced concern with the proposed ordinance and the City's affordable housing strategy.
Situation. At its June 24th meeting, the Planning Commission discussed a draft ordinance which
would implement the Affordable Housing Requirement of the General Plan. Due to the
complexity of the affordable housing issue and the Commission's desire to engage various
viewpoints in the review process, Commissioners asked the City Council to establish a task force
to advise the City on the proposed ordinance. At its July 21'hearing, the City Council adopted
Resolution No. 8833, establishing the Inclusionary Housing Task. The Council established the
Task Force as a temporary advisory committee, with the intent that the draft ordinance return to
the City Council for action in November. The City Council appointed the following persons to
serve on the Task Force:
• Steven Nelson, Chair
• John French
• Robert Griffin
• John Rosetti
• Scott Smith
• Betty Woolslayer
• Mary Whittlesey, Planning Commission member
Jeff Hook, of the City Community Development Department and George Moylan, Executive
Director of the City's Housing Authority, staffed the Committee, which met once a week from
August 17" through October 6". The Task Force completed its review on October 616 and
forwarded the attached recommendation and revised draft ordinance to the Planning Commission.
Background. The proposed inclusionary housing requirements and related General Plan
amendments will implement two core housing programs of the General Plan - that of providing
affordable housing for very-low, low and moderate income households, and establishing an
Affordable Housing Fund. Affordable housing requirements, sometimes referred to as
"inclusionary housing requirements", have been adopted City policy since the Land Use and
Housing Elements were updated in 1994. Housing Element programs 1.22.10 and 1.22.11 set an
affordable housing requirement and call for the establishment of a housing "trust fund." The
affordable housing program requires that new development projects include affordable housing
units with guarantees that they remain affordable for at least 30 years, or pay an in-lieu fee to
assist in the development of affordable housing. The Inclusionary Housing Requirement and
Affordable Housing Fund would work in concert with the affordable housing requirement and the
Affordable Housing Incentives to help develop affordable housing and acquire land for affordable
housing projects.
Council Agenda Report - Inclusionary Housing Requirement
Page 3
Task Force Recommendation
As explained in the attached letter, the Task Force recommends that the City adopt a revised
Inclusionary Housing Ordinance. The attached letter and minutes describe the rationale and
discussion leading to the Task Force's recommendation. Consistent with the Council's direction,
the Task Force's overall intent was to "recapture" approximately one-half of the increased land
value of property in expansion areas resulting from annexation ("unearned increment"). The
changes reflect the Task Force's conclusion that, based on the 1997 update of the Mundie and
Associates report, the effects of the adopted inclusionary requirements would exceed the City
Council's intent to recapture approximately fifty percent of the unearned increment in expansion
areas and could adversely impact the economic feasibility of new development projects.
The Planning Commission supported the Task Force recommendation as submitted. The Task
Force's recommended changes and additions are shown in the attached draft ordinance. Most of
the changes were editorial in nature, however several significant changes were made which will
affect how the ordinance is applied (page and section refers to the draft Inclusionary Housing
Ordinance):
1. P. 3, Section17.91.030(8): Excluded projects which are "essentially non-commercial or non-
residential in nature and which provide educational, social or related services. " Examples of
such projects could include churches, day care centers, private schools, private social service
agencies and non-profit housing agencies.
2. P. 3, Section 17.91.030(9): Extended the replacement period for structures damaged by fire,
.flood or other disaster without being subject to inclusionary housing requirements from two
years to three years.
3. P. 7, Sections 17.91.130 and 140: Deleted the requirement that affordable units created
under the ordinance remain affordable for 30 years, and substituted a "Shared Equity
Purchase Program"which is intended to recoup a portion of the equity at time of sale of the
original affordable unit. Under this program, buyers of affordable units would be required to
participate in an equity sharing program, secured by a second trust deed against the
property. The City, its housing authority or other non-profit housing providers would then
use the property's equity growth, upon resale, to help other eligible persons to secure
affordable housing.
Task Force members also recommended these changes to the General Plan Housing Element:
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Council Agenda Report - Inclusionary Housing Requirement
Page a
Revisions to the Affordable Housing Requirements, Table 1, below:
Type of Development Project
Residential Commercial
Build 3% low or 5% moderate Build 1 ADU per acre, but not
cost Affordable Dwelling Units less than 1 ADU per project;
(ADUs'), but not less than 1
ADU per project; or
In City
or pay in-lieu fee equal to 25% of
building valuation.
Location pay in-lieu fee equal to 5% of
building valuation.'
Build 540% low-and 1026% Build 1 ADU per acre, but not
moderate-cost ADUs, but not less less than 1 ADU per project;
than 1 ADU per project;
In Expansion or
Area or
pay in-lieu fee equal to 25% of
pay in-lieu fee equal to+310% of building valuation.
building valuation.
1Developer may build affordable housing in the required amounts, er-pay an in-lieu fee or dedicate land based
on the above formula.
2) Amend Program 1.22.10 (2.3.1, General Plan Digest), as follows:
1.22.10. The City wiH amend ib regulations to shall require that new development projects
include affordable housing units, with guarantees that they remain affordable, as required by
dedicate land for affordable housing,
or pay an in-lieu fee to assist in the development affordable housing Citywide.
This amendment removes language which becomes moot with adoption of the inclusionary
housing requirement and adds land dedication as an option for meeting the requirement.
3) Delete Policy 1.22.1 of the Housing Element (2.2.1, General Plan Digest), as follows:
1.312.1 For a prejeet to qtts4ify as "affordable hattsft" tinder the pro-visions of this Element,
guarantees must be presented that the hottsft units wi4l remain affardable at least 39
years, or m otherwise provided by State law, eensisterA with the Afferdable !!a g
The Task Force's recommendation was to delete the 30-year affordability term, since the Shared
Equity Purchase Program would allow the sales price of an affordable unit to increase to market
level prices at the first resale and for all subsequent sales of the property. In return, the City
would recoup a percentage of the built-up equity in the property which would then be reinvested
Council Agenda Report - Inclusionary Housing Requirement
Page 5
in the Affordable Housing Fund to help expand affordable housing opportunities (e.g.first time
homebuyers'loans, infrastructure financing for affordable housing projects, or direct financial
support for affordable housing projects).
3) Delete Policy 1.22.4 of the Housing Element (2.2.4, General Plan Digest), as follows:
the Gity's pelmlation in approyAnimely the same proportion as these swft are Rmod in the Gity's
pepWmfien. For this dement's p1mrAM period, the prepar6ens shaH be these of the 1990 U.S.
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This policy was included in the Housing Element to address State Housing and Community
Development Department comments in 1994 that City housing policies did not go far enough in
addressing regional housing needs. The policy requires that almost one-half of new housing
produced be priced at levels affordable to very-low and low income households. The Task Force
noted, however, that the policy set an inclusionary standard which was inconsistent with the
requirements in Table 1. The Task Force recommended that the policy be deleted and that the
City's affordable housing production standard be established through the amended Table 1. Staff
supports this change.
Issues Discussed At the Planning Commission
The Planning Commission discussion revolved around several dominant issues, including:
1. Possible reduction in affordable opportunities over time for the Shared Equity Purchase
Program;
2. Time periods affordable units should remain affordable; and
3. Abuse of affordable housing programs by people speculating in the housing market.
A discussion of these issues follows.
1. Shared Equity Purchase Program- Possible Loss of Affordable Housing.
The ordinance proposed by the Task Force is consistent with the General Plan, with the possible
exception of the shared equity program. The proposed equity sharing program is an innovative
approach designed to help "recycle" the built-up equity in affordable units to benefit other very-
low, low and moderate income households, give greater flexibility to owners of affordable
dwellings, and avoid windfalls upon sale of affordable units. The concern with the program is
that over time it may result in a decrease in the number of affordable housing units it produces.
Housing Element Policy 1.22.2. (GP Digest 2.2.2) states that the City will adopt measures to
prevent the loss of existing affordable housing. This concern was discussed by the Planning
Commission, but no program change was recommended.
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Council Agenda Report - Inclusionary Housing Requirement
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An analysis of a hypothetical shared equity program turnover of a housing unit is attached to
illustrate the concern (see Attachment 1). It suggests that in order for the same size family with
the same income to purchase the same size home, more subsidy may become necessary over time
than will be generated by the sale of the home originally priced at an affordable level. This
means that additional subsidy from the Affordable Housing Fund.or some other funding source
would be needed to make the purchase possible. If the amount of later Affordable Housing Fund
loans begin to exceed the return on previous loans, more units will need to be sold over time than
are purchased in order to maintain an adequate loan fund. This would be particularly likely
during slow or recessionary housing markets. Given a finite amount of residential land in the
City, the net result is a decrease in the number of families that could be assisted or the number of
affordable housing units.
2. Required Time Period for Affordability.
City policies require that to qualify as meeting the inclusionary requirement, housing must
remain affordable for a period of 30 years. After that time, the owner of the affordable unit may
sell or rent that unit at its market price. State law requires that affordable housing which has
received a "direct financial contribution' from the City (excluding density bonuses or zoning
exceptions), must remain affordable for at least 30 years. For-sale units under the equity sharing
program would not be subject to the 30-year minimum term of affordability, as their sales price
at the first resale would rise to fair market levels. This is the reason for the recommendation to
amend Housing Element policy 1.22.1. Under the proposed ordinance, all buyers of affordable
units would be required to participate in the equity sharing program. This situation has two
significant consequences:
1. Affordable, for-sale units would not be eligible to receive direct City financial assistance,
such as land cost buydowns, interest rate buydowns, payment of impact fees or infrastructure
cost sharing. These forms of assistance would only be available, then, for affordable rental
projects.
2. The analysis of the Shared Equity Purchase Program suggests that affordable housing units
could be lost to the market sooner than the 30 period required by other programs.
To address these first two issues, staff recommends a modification to the Shared Equity Purchase
Program to allow more than one option for affordable housing for purchase. Specifically, retain
the option to produce for sale units developed with financial assistance with guarantees of
affordability for 30 years. The Shared Equity Purchase Program should be implemented, but
with some limit so that it can be evaluated without preempting other forms of affordable housing
construction. A cap on the proportion of shared equity for sale units would moderate the
potential loss of affordable units. For a period of 5 to 10 years, the performance of the shared
equity program could be observed to evaluate if, in fact, the number of affordable units it creates
is diminished over time through the resale of these units. The Shared Equity Purchase Program
could be re-evaluated after a certain period to determine whether it is achieving General Plan
goals. An Affordable Housing Agreement, required by the Inclusionary Housing Ordinance for
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Council Agenda Report - Inclusionary Housing Requirement
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all affordable units created under that ordinance, would specify the number of affordable units,
location, type of affordability program, and duration of affordability.
At the Planning Commission meeting, staff suggested limiting shared equity units to 25% of the
affordable purchase units would be appropriate. A task force member suggested 25% to 50%
would give a better assessment of what the program can accomplish. There is no objectively
correct proportion. Section 17.91.130 of the Task Force draft states that all for purchase
inclusionary units must participate in the Shared Equity Purchase Program. This section should
be modified if the Council determines a more cautious transition to the shared equity
program would be prudent and is identified in the ALTERNATIVES section of this report.
Because State Law requires the 30 year affordability term for projects receiving direct financial
contributions from the City (including CDBG funding), and because much of the inclusionary
housing built may be in the form of rental units, it would not be appropriate to delete the 30 year
affordability requirement from the Housing Element as recommended by the Task Force. This
policy should be changed if it is the Council's desire to adopt the Shared Equity Purchase
Program, which allows affordable housing units to be sold at market rates at the discretion of the
property owner. Staff and the Planning Commission recommend the following revision to the
affordability requirement:
1.22.1 For a project to qualify as "affordable housing" under the provisions of this Element,
guarantees must be presented that the housing units will: jlremain affordable for at
least 30 years, or Q participate in a City-approved equity sharing program, or 3provide
such guarantees-as are otherwise required or permitted by State law, consistent
with the Affordable Housing Standards (SLOMC Ch. 17.90).
3. Potential Abuse of Affordable Housing Programs.
The Planning Commission also discussed how the financial advantages of the program could be
abused by absentee property owners or transient buyers who did not intend to live in the
community, and by short term investors with no long-term interest in the community who would
displace local families in need of housing. Staff believes the "Equity Sharing Agreement" and
second trust deed described in 17.91.140 could include guarantees to insure that only owner-
occupants could purchase affordable units. Other communities have utilized waiting lists as a
means of insuring affordable housing in the community is purchased by people with a long-term
interest in remaining in the community. Maintaining and administering such a list adds to the
administrative cost of the programs.
Other Issues Addressed at the Planning Commission Meetings
Audience members and Commissioners raised several concerns regarding the first draft of the
ordinance at the June 10'meeting which were also touched on at the Commission's October 28i°
meeting. The issues and how these were addressed in the draft ordinance, are described below:
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Council Agenda Report - Inclusionary Housing Requirement
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1. Costs for Affordable Housing should be broadly borne by the Community.
Adopted housing policy calls for much of the responsibility for providing affordable housing to be
borne by property owners and developers of new housing, particularly in expansion areas. This
remains a key component of the draft ordinance. However, the Task Force's recommended
strategy also involves a community partnership to create affordable housing. The City provides
housing incentives, including fee waivers, density bonuses and other development incentives
through the Affordable Housing Fund, the developer and/or land owner accepts a smaller profit
to enable a percentage of the houses to be sold at affordable levels (or to pay an in-lieu fee or
dedicate land); the buyer or renter pays rental or purchase costs up to the amount designated as
"affordable". based on unit type and tenure, in the Oty's Affordable Housing Standards which
are updated annually.
2. Builders of smaller dwellings should be eligible for special recognition or incentives.
Smaller dwellings or "starter homes"are less expensive to build, and thus, can be more easily
marketed and sold at prices which meet the affordability standards. Task force members
considered an in-lieu fee which could be assessed on a per-square-foot basis, however it was
decided that the proposed strategy of basing the in-lieu fee on construction value was more
practical and would achieve the same ends.
3. Exempting development projects of up to 4 dwelling units or commercial buildings up to
2,500 square feet appears inconsistent with Council's original program objectives and
with the idea of spreading the costs of providing affordable housing as widely as possible
throughout the community. Consequently, the exemptions should be deleted.
The Task Force discussed exemptions at length. The Task Force believed exemptions or
"exclusions".from the inclusionary requirement were appropriate to rejlect practical, political
and economic realities of implementing the affordable housing requirements. They noted that the
scale or size of a development project has a direct bearing on the economic feasibility of
constructing affordable housing or paying an in-lieu fee, and that most communities with viable
inclusionary housing programs exempted small development projects.
4. There should be an inflationary factor built into the resale contracts on for-sale housing
to allow property owners to realize some equity growth.
The proposed Shared Equity Purchase Program would accomplish this.
5. The affordable housing requirement should be adopted as an ordinance or resolution and
should not be part of the General Plan. The General Plan should refer to, but not
include, the Affordable Housing Requirement (Table 1 of the Housing Element).
As proposed, the Inclusionary Housing Requirement would be adopted as an ordinance, separate
from the Housing Element. Table 1, which sets the Affordable Housing Requirement, would
Council Agenda Report - Inclusionary Housing Requirement
Page 9
remain part of the Housing Element and could be amended up to four times per year by Council
resolution.
6. The City's CDBG funds are a logical source of funding of the proposed Affordable
Housing land.
Generally, CDBG and Home Investment Partnership (HOME)funds must be allocated to specific
development projects and could not be deposited in an Affordable Housing Fund for citywide use.
Moreover, while CDBG funds can be used for land acquisition and certain other affordable
housing development costs, they cannot, in most cases, be used for actual construction labor or
materials costs. Anticipated funding sources for the proposed Affordable Housing Fund will be:
1) in-lieu housing fees, 2) Shared Equity Purchase Program payments, 3)principal and interest
payments from below-market first-time homebuyer loans, donations and other sources to be
identified Where CDBG funds can be used to support development of affordable housing (e.g.
property acquisition), Housing Element policies support using such funds either directly or
through an Affordable Housing Fund.
7. Developers should get credit for costs of dedicating land for affordable housing, such as
appraisal costs, recording costs, title fees, and related fees. The dollar value of these
costs should be credited against the developer's total affordable housing in-lieu fee
requirement.
Under the proposed draft ordinance, these costs are the developer's responsibility.
8. The effects of students on S'LO housing demand and demographics should be considered
when reviewing this program.
This is outside of the scope of the draft Inclusionary Housing Ordinance workprogram. Student
housing need and supply are addressed in the General Plan Housing Element. The proposed
inclusionary housing program is likely to have an overall beneficial effect on the range of housing
types and costs available.
9. There should be a provision in the ordinance which allows for construction of affordable
housing offsite, particularly for commercial development where the construction of on-
site affordable housing may not be feasible.
The draft ordinance deliberately does not include a provision for off-site housing, since the
General Plan calls for housing affordable to various economic strata to be intermixed into new
neighborhoods, rather than segregated into separate enclaves. Allowing an off-site construction
alternative may conflict with this policy. The proposed ordinance allows for payment of fees in-
lieu of providing the affordable housing on-site, which may accomplish the same ends since in-
lieu fees could then be used to help provide affordable housing anywhere in the City.
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Council Agenda Report - Inclusionary Housing Requirement
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10. New subdivisions should be able to meet the Affordable Housing Requirement through
the payment of in-lieu fees.
Task Force members discussed the issue and supported flexibility in allowing payment of in-lieu
fees in new subdivisions, however, the payment of fees was considered less beneficial than the
production of new affordable units. In-lieu fees remain an option in the draft ordinance.
Implementation details were left to the Community Development Director to be spelled out in the
"Affordable Housing Agreement. "
11. Provide additional details of how the "Housing Trust Fund" would work.
Administrative details will be handled by the Finance Director. The Finance Director
recommends that the fund's formal name be the "Affordable Housing Fund", since the funds are
not held "in-trust"in a technical sense. This will require that the Draft Ordinance be modified to
reflect this name change. While implementation details have yet to be developed, the Affordable
Housing Fund would set up as a separate operating fund under the control of the City Council.
As specified by the ordinance, the Fund would be used exclusively to provide funding for
affordable housing and for reasonable costs associated with the development of affordable
housing.
12. The Inclusionary Housing Program should be more strongly incentive-based.
The in-lieu fee and the Affordable Housing Fund will allow the City to offer greater incentives in
return for providing affordable housing. The existing Affordable Housing Incentives, including
Cityfee waivers, expedited permit processing, and residential density bonuses are incentives
which are already available and which can be used in conjunction with the proposed Inclusionary
Housing Requirement.
13. The program might be structured to include a scaled affordable housing requirement
which is proportional to the size of the project.
The Task Force considered but ultimately decided against this approach, primarily due to the
belief that this approach would be more difficult to administer.
FISCAL IMPACT
The Inclusionary Housing Requirement and Affordable Housing Fund will require a significant
investment of staff time to administer, particularly at start-up. As the number of affordable
housing units increases over time, the amount of staff hours required could reasonably be
equivalent to a full-time position, requiring the allocation of CDBG funds or other funds to
administer the program. The Housing Authority or other non-profit housing provider may assist
the City and developers in determining the buyer/renter eligibility, coordinating sale or rental
agreements, and possibly, managing affordable rental properties. The cost for providing these
services is not known.
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Council Agenda Report - Inclusionary Housing Requirement
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ALTERNATIVES
1. Limitation on Equity Sharing. The City Council could set a cap on the number of
affordable units allowed to participate in the Shared Equity Purchase Program. If Council
members support this approach, staff recommends a 25% to 50% cap on the number of
equity sharing units.
2. Continuance. The City Council is under no required deadline to act on this item and may
continue it for fiu-ther review.
Attachments:
1. Shared Equity Purchase Program Scenario
2. Draft Council Resolution
3. Draft Ordinance
4. Revised Draft Ordinance Inclusionary Housing Requirement
5. Inclusionary Housing Task Force Recommendation
6. Planning Commission Resolution
7. Planning Commission Minutes, October 28, 1998
8. IHTF Minutes, August 7 - October 1, 1998
jb/L:indlusion
A .achment 1
SHARED EQUITY PURCHASE PROGRAM SCENARIO
Using the Task Force example, the initial subsidy is the sale of the unit as an affordable unit to the first
buyer, a qualified low-income buyer. Subsequent subsidies are in the form of first-time homebuyer loans
from the Housing Trust Fund.
Inrtdl Purchase This is the City's
"equity sham"in the
Market Sales Price $150,000 unit secured by a
Actual Sales Price 120,000 second TD for 20%
City "Subsidy"(20%)
30,000 of market value
Homeowner Down 4,500
Homeowner Loan 115,500
Market Sales Price 150,000
The new homeowner would have monthly payments of about$765 (30 year fixed mortgage @ 7%
interest). Based on the City's Affordable Housing Standards, a household would need to earn abort
$37,000 per year to afford these payments. This income level is designated as "lower income"for a
four person household.
At Resale(4-7 years later) Funds available to
Market Sales Price $200,000City for additional
Actual Sales Price 200.000
affordable housing
Loan Payoff 105,000 Funds available to
Equity Growth 95,000 homeowner for new
City Equity (20%) 40,000 housing
Homeowner's Equity 55,000
SUBSEQUENT ANALYSIS-City's Reinvestment
To replace the sold unit with equivalent,pre-owned housing for another low/mod income homebuyer, the
City might reinvest as follows:
Funds available
Market Sales Price $200,000 from Previous sale
of affordable
City Subsidy 40,000 housing unit
Homeowner's Cost 160,000
Homeowner's Down(5%) 8,000
Homeowner's Loan 152,000
CONCLUSION
The new homeowner would have a monthly payment of$1011 (assuming a 30-year fixed mortgage® 7%
interest). This would require an annual household income of about$48,500, or a"moderate income" for
a four-person household, according to the Affordable Housing Standards. Thus, a unit initially affordable
to a low-income household would now be affordable only to a household earning a moderate-income or
above moderate income, unless a deeper subsidy than that available from resale of the original affordable
unit was provided.
ATTACHMENT 1
Shared Equity Purchase Program Scenario
Page 2
In time, the buyer's share of the costs may increase beyond the ability of low-or moderate income buyers
to purchase a comparable house. Simply stated, to retain a comparable dwelling affordable to a
low-or moderate income household, the City's subsidy would need to increase at each resale, beyond the
City's equity share from the resale of the original affordable unit. Consequently, it is reasonable to
expect that: 1) it will require the City's equity share from the sale of more than one affordable unit to
retain one dwelling at the same level of affordability originally provided, and 2)over time, a one-for-one
replacement of affordable housing may not be assured through this program.
m11.1110aaacn
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Attachment 2
RESOLUTION NO. (1998 SERIES)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
AMENDING THE GENERAL PLAN HOUSING ELEMENT TO AMEND THE
AFFORDABLE HOUSING REQUIREMENTS AND RELATED POLICIES.
WHEREAS, the City's General Plan policies encourage the production of housing which
meets the needs of very-low,low,and moderate income households; and
WHEREAS,the Planning Commission has considered measures to increase the production
of affordable housing to achieve the City's housing objectives and recommends that the General
Plan Housing Element, adopted in September 1994, be amended in conjunction with the adoption
of an Inclusionary Housing Requirement; and
WHEREAS, the Director of Community Development has determined that the proposed
amendment is not a "project" as defined by the California Environmental Quality Act in that it
implements adopted policy and will not result in any physical change to the environment and that
no further environmental review is required.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Amendments. The City Council hereby amends the General Plan Housing
Element as follows:
1) Amend Policy 1.22.1 of the Housing Element (p. 13), as follows:
1.22.1 For a project to qualify as "affordable housing" under the provisions of this Element,
guarantees must be presented that the housing units will: j hremain affordable for at
least 30 years, or Q participate in a City-approved equity sharing program, or_Lprovide
such guarantees-as are otherwise required or permi' :dprevided by State law, consistent
with the Affordable Housing Standards (SLOMC Ch. 17.90).
2) Delete Policy 1.22.4 of the Housing Element (p. 13), as follows:
1.22.4 Homing prodeefitm eilywide should provide how* afferdable te stil fifflneirl seft o
the City's peptilation in approximmely the some prepertien as those sftm are femd ie
the Gity's pepulamien. For this element's planning period, the preperdens shall be
m
17of. ..Leye __aerate-ineome, 34 v
r -�`f
Council Resolution No. (1998 Series)
Page 2
1.22.10 Amend Program 1.22.10 and Table 1 (p. 14), as follows:
1.22.10. The City shall require that new development projects
include affordable housing units, with gumafftes that they renuin affordable, as required bi
dedicate land for affordable housing,
or pay an in-lieu fee to assist in the development affordable housing Citywide.
Table 1
Affordable Housing Requirements'
Type of Development Project
Residential Commercial
Build 3% low or 5% Build 1 ADU per acre, but
moderate cost Affordable not less than 1 ADU per
Dwelling Units (ADUs2), project;
but not less than 1 ADU per
In City project; or
or pay in-lieu fee equal to
Location 25% of building valuation.
pay in-lieu fee equal to 5%
of building valuation.'
Build 519% low- and Build 1 ADU per acre, but I
1029% moderate-cost not less than 1 ADU per
ADUs, but not less than 1 project;
In ADU per project;
Expansion or
Area or
pay in-lieu fee equal to
pay in-lieu fee equal to 25% of building valuation.
1510% of building
valuation.
1Developer may build affordable housing in the required amounts, er-pay an in-lieu fee or
dedicate land based on the above formula.
SECTION 2.Environmental Determination. The City Council has determined that the proposed
amendments are not a "project' as defined by the California Environmental Quality Act since it
does not have a potential for resulting in a physical change to the environment and therefore, no
further environmental review is required.
I - I �
Council Resolution No. (1998 Series)
Page 3
SECTION 3. Notice and Publication. The City Clerk shall publish-a summary of the resolution.
m a newspaper of local circulation..
On. motion of _ - _ , seconded by -- - - --- - - and on the
following roll call vote: ---- -- --
AYES:
NOES:
ABSENT:
the fotegoiag.Resolution was passed and':adopted this day.of
Mayor Allen Settle-- -
ATTEST:
City Clerk-
APPROVED.
lerkAPPROVED:
lt3'. ttoni - - - - --- --- ----
n L-HEa qnd.ffs
/7v �V• •• • •�
ORDINANCE NO. (1998 Series)
AN ORDINANCE OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING AN INCLUSIONARY HOUSING REQUIREMENT AND
HOUSING TRUST FUND
WHEREAS, the General Plan identifies affordable housing as a primary community goal
and seeks ways to provide housing which is affordable to very-low, low and moderate income
households within existing neighborhoods and in expansion areas;
WHEREAS, Land Use Element policies 2.5 and 2.13 call for new development to
contribute to the conservation or production of affordable housing, and call for the City to adopt
an inclusionary housing and development fee ordinance,consistent with the Housing Element;
WHEREAS, the City of San Luis Obispo has adopted a Housing Element of the General
Plan which documents housing needs and addresses the City's regional share housing needs for
households of all income levels,pursuant to Government Code Section 65584(a);
WHEREAS, based upon the needs analysis in the Housing Element, the City of San Luis
Obispo has determined that there is an unmet need for housing affordable to very-low, low and
moderate income households;
WHEREAS, the City has established quantified housing objectives to help meet its
regional share housing needs,based on its capacity to accommodate new residential development
during the Element's planning period from June 1994 to June 1999;
WHEREAS, the City's affordable housing production objective is 40 dwelling units per
year,for a total of 200 new affordable housing units during the planning period;
WHEREAS, the private market has not produced in the past, nor is likely to produce in
the future, a sufficient number of affordable dwellings to meet City quantified housing objectives
or the City's assigned regional share of lower income housing;
WHEREAS, despite increased City grant funding for affordable housing, local, state and
federal funding sources are limited and alone are not sufficient to enable the City to meet its
affordable housing objectives;
WHEREAS, new development which does not include or contribute affordable housing
exacerbates the City's shortage of affordable housing by: reducing the supply of land available
for residential development which could accommodate affordable housing, and by inducing
additional demand for housing to serve the needs of very-low, low and moderate income
employees,many of whom are employed in lower wage retail and service industries;
WHEREAS, to address the City's affordable housing needs and help achieve its regional
housing objectives,the Housing Element Program 1.22.10 calls for the City to amend its
regulations to require that new development projects include affordable housing units or pay an
in-lieu fee,as described in Table 1 of the Element;
Ordinance No. (1998 Series)
Page 2
WHEREAS, Housing Element Program 1.22.11 calls for the City to establish a housing
trust fund to be used to develop affordable housing units and acquire land for affordable housing
projects, with affordable housing in-lieu fees to be collected and deposited in this fund;
WHEREAS, the City conducted an economic study of the effects of affordable housing
requirements on the feasibility of new development in San Luis Obispo entitled the Mundie
Report,prepared in 1991 and updated in 1997;
WHEREAS,the economic study concludes that while the affordable housing requirement
would create an additional economic burden on private developers, implementation of the City's
affordable housing requirements will not pose an unreasonable economic hardship and that the
requirements will help achieve City affordable housing objectives without sacrificing economic
feasibility of new development;
WHEREAS, the City has adopted affordable housing incentives (SLOMC Ch. 17.90) to
provide technical, financial and procedural assistant to developers of affordable housing to help
offset development costs and facilitate the conservation and production of affordable housing;
and
WHEREAS, the City Council established a citizen task force to evaluate the a proposed
Inclusionary Housing Requirement,composed of persons representing various points of view in the
community, and said task force reviewed and recommended changes to a draft ordinance
implementing an Inclusionary Housing Requirement; and
WHEREAS,Planning Commission and the City Council have held hearings to consider the
proposed ordinance, and said ordinance comes to the Council with a favorable recommendation
from the citizen task force and the Planning Commission;
BE IT ORDAINED by the Council of the City of San Luis Obispo as follows:
SECTION 1. Findings.
1. This ordinance is necessary to implement General Plan policy and programs, to help
achieve City quantified housing objectives and to protect the health, safety and
welfare of its citizens.
2. This ordinance is not a "project" as defined by the California Environmental Quality
Act in that it implements adopted policy and will not result in any physical change to
the environment;consequently no further environmental determination is required.
SECTION 2. Inclusionary Housing Requirement Established. The City Council hereby
establishes an Inclusionary Housing Requirement, as specified in the attached ordinance text,
Exhibit A.
I - l �
Ordinance No. (1998 Series)
Page 3
SECTION 3. A summary of this ordinance, approved by the City Attorney, together with
the.names of the Council members voting for and against it, shall be published at least five days
prior to its fmal passage, in the Telegram-Tribune, a newspaper published and circulated in this
City. This ordinance will go into effect at the expiration of thirty (30)days after its final passage.
INTRODUCED AND PASSED TO PRINT by the Council of the City of San Luis
Obispo at a meeting held on the day of 1998, upon motion
Of seconded by and on the
following roll call vote:
AYES:
NOES:
ABSENT:
Mayor Allen Settle
ATTEST:
Bonnie Gawf, City Clerk
APPROVED AS TO FORM:
JoryftmpCi4ttorney
Attachment: Exhibit A
jWL:indhsg.ord
�- 15
At%chment 4
(EXHIBIT A)
October 63, 1998 17.91.010 Purpose.
The purpose and intent of this
Inclusionary Housing Task Force chapter is to promote the public welfare by
Recommendation increasing the production and availability of
affordable housing units
and mdeme ineeme persons an
Chapter 17.91 households, to establish an inclusionary
INCLUSIONARY HOUSING housing requirement which implements
REQUIREMENT Gty-General Plan policies guiding land use
and housing development.
Sections:
17.91.000 Title. 17.91.020 Definitions.
17.91.010 Purpose. For the purposes of this chapter, the
17.91.020 Definitions. following words and phrases shall have the
17.91.030 Applicability and
meaning set forth below:
17.91.040
Exclusions.
x _General standards. A. "Affordable" means housing which can
50 Procedures. be purchased or rented by a household with
17.91.0
17.91.050 In-lieu housing fee. very-low, low, or moderate income, as
des #bed in the City's Affordable Housing
17.91.070 Housing trust fund. Q'
17.91.080 Dedication of land. 17.20, SLOMC).
17.91.090 Incentives. ordable Housing Agreement" shall
can a written agreement between the
17.91.100 Project Application. ,',�.° :z
17.91.110 Conditions of approval. oper, City and possibly additional
17.91.120 Program ' .• parties which specifies the terms and
conditions under which affordable housing
Reguirementligibilit ";�*/9 requirements are to be met.
C. "Affordable Housing Project" shall
17.91.130 Eligibility mean a development project in which one
Screen
in hundred percent of the dwellings to be built
guaranie will be sold or rented in conformance with
17.91.140 Shared Equity Purchase the City's Affordable Housing Standards.
Prograin 17.91.150 Management/Monitoring. D. "Building Valuation" shall mean the
17.91.1650 Enforcement and Appeals. total value of all construction work for
17.91.1760 Severability. which a construction permit is required, as
determined by the Chief Building Official
17.91. Title.
using the Uniform Building Code.
Th E. "Commercial Project" means a
The provisions of this chapter shall development project involving primarily
be known collectively as the Inclusionary non-residential uses, including retail,
Housing Requirement of the City of San
Luis Obispo. office, service-commercial, light-industrial,
neighborhood commercial, tourist-
-ao
commercial, and manufacturing uses as California Health and Safety Code, Section
further described in the zoning regulations. 50079.5; provided the income of such
F. "Density" means residential density as persons and families shall not exceed eighty
defined in Section 17.16.010 of this code. percent of the median income within the
G. "Density bonus" means a density county.
increase of at least twenty-five percent over P. "Moderate income households" shall
the maximum density otherwise allowable include those persons and families whose
under the zoning regulations. incomes exceed eighty percent but are less
H. "Development project" shall mean an than or equal to one hundred twenty percent
activity for which a subdivision map or of the median income within the county.
construction permit is required, including (Ord. 1035 § 1 (part), 1985)
new buildings and building additions or Q. "Residential Development" shall mean
remodels as described in Section development projects which result in the
17.91.030, but not including changes in subdivision of land and/or the construction
ownership, occupancy, management or use. or conversion of dwellings, including, but
I. "Director" means the Community not limited to: single family detached
Development Director or his authorized homes, apartments, condominiums,
representative. live/work studios, mobile homes, and
J. "Expansion Area" - A land area group housing.
proposed for annexation to the City.
K. "Housing trust fund" means a fund 17:91Q30 Applicability.
established and administered by the City, A. chapter shall apply to development
containing in-lieu fees and other funds held Vpro)ects consisting of five or more lots or
in trust and used exclusively to increase and 0 lg dwelling units, and to commercial
improve the supply of affordable hous' g'` development projects consisting of 2,500
L. "Inclusionary housing unit" means, a square feet of gross floor area or larger.
dwelling which is built under the provis s:.q, B. The following types of development
of this chapter, and which meets the City's` projects are excludedeff -
Affordable Housing Standards. 1. Residential developments of 4 units or
M. "In-lieu fee" means a fee paid to the less;
City as an alternative to the production of 2. New commercial developments of less
inclusionary housing, to be used in the than 2;500 square feet gross floor area;
acquisition, construction, or rehabilitation 3. Residential and commercial building
of affordable housing. additions, repairs or remodels,
N. "Very-low income" shall have the provided that such work does not
meaning set forth in California Health and increase the number of existing
Safety Code, Section 50105W3; provided dwellings by four or more units; or
that such income level shall not exceed 50 result in an increase in gross floor area
percent of median income within the of 2,500 square feet— r 10 pereer*-,
county. ...Meltever is less;
O. "Low" or "lower income households" 4. The conversion of less than five
shall have the meaning set forth in dwelling units to condominiums within
28
1-a 1
any five-year period. permit was issued prior to the effective
5. Commercial condominium date of this ordinance and which
conversionseeaver-siens which do not continue to have an unexpired
result in the creation of new dwellings; permit(s).
6. Affordable housing projects;
7. Emergency projects, or projects which 17.91-.040 General Standards.
the City Council determines are A. Methods of meeting requirements. New
necessary to protect public health and development projects shall satisfy the
safety; inclusionary housing requirements, as
8. Development proiects which the City specified in Table 1 of the General Plan
Council determines are essentially non- Housing Element. To meet the
commercial or non-residential in nature, requirements, the developer shall comply
which provide educational, social or with one or more of the following methods;
related services to the community and 1. Construct the required number of
which are proposed by public agencies, affordable dwelling units, as
non-profit agencies, foundations and specified in Table 1, on the project
other similar organizations—Projeets site; or
2. Pay an in-lieu fee as described in
Table 1; or
safety;-m ;edicate land for affordable housing;
9.
�-14. which replace or restore a ''- se a combination of the above
structure damaged or destroyed by a ` . ethods, to the approval of the City
fire, flood, earthquake or other disaster `. Council.
within three years prior to .ARCO`,, B. Affordable housing standards.
application for the new structuf0s). Affordable dwelling units constructed must
meet City Affordable Housing Standards,
strueture d&y&ged or destroyed byand must be consistent with affordability
fire, flood, e&rdtqwAe or ether disaster policies in the General Plan Housing
within two to the Element.
C. Concurrent development. The required
inclusionary units shall be constructed
concurrent with market rate units unless the
residential dwelling tinits frerm the developer and the City Council agree
pend within an Affordable Housing Agreement
a. for eemmereial pr-qjeets, there is no to an alternative development schedule.
-ess floor area ever th-st
pre-viatisly exi 17.091.050 Procedures.
A. Fractional numbers. In determining the
10. Projects for which —an approved number of dwellings that are required to be
tentative map or vesting tentative map built pursuant to Table 1, fractional units
exists, or for which a construction less than 0.50 shall be rounded down to the
3$
� -aa
first whole number unit, and fractional within a residential development; or for
units of 0.50 or greater shall be rounded up residential subdivisions to be built out by
to the next higher whole number unit, as others, prior to final subdivision map
calculated by the Director. approval; or prior to occupancy for new
B. Timing. The inclusionary housing commercial buildings or remodels; or prior
requirement shall be met prior to issuance to building permit issuance, for projects for
of a Certificate of Occupancy for the first which a certificate of occupancy is not
unit in a building, or the first building in a issued; or as otherwise provided by written
complex to be constructed or remodeled; or agreement between the developer and City,
for subdivisions, prior to final map to the approval of the Director.
approval; or prior to building permit
issuance, for projects for which a 17.91.070 Housing Trust Fund
Certificate of Occupancy is not issued; or A. Housing Trust Fund established. The
as otherwise agreed to by the City Council City hereby establishes a Housing Trust
as part of tentative map, rezoning, Fund. Said fund shall be administered by
conditional use permit or other the Finance Director and shall be used
development approval. exclusively to provide funding for the
C. Affordable housing agreement. The provision of affordable housing and for
developer may enter into an agreement with reasonable costs associated with the
the City, the City's Housing Authority, development of affordable housing, at the
non-profit housing provider, or other dicktron of the City Council.
qualified housing provider approved by the ,�)y"hdl eu fees. In-lieu fees collected shall
City Council to construct, refurbish, '.;lie id_e_posited into the Housing Trust Fund,
tai
convert, operate and maintain the requiredtatithe satisfaction of the Director.
affordable housing. Such Affordabl` ,
Housing Agreemen r', 17.91.080 Dedication of Land.
fireenteats shall be to the approval of the r A. Irrevocable offer of land dedication. At
City Council and shall be in a form the discretion of the City Council, an
approved by the City Attorney. irrevocable offer to dedicate land equal or
greater in value to the in-lieu fee which
17.91.060 In-lieu Housing Fee. would otherwise be required may be
A. Payment of in-lieu fee. Developer may, offered to the City, or to a housing
at his discretion, choose to pay a fee to the provider designated by the City, instead of
City in lieu of constructing affordable providing the required number of
dwellings to meet this requirement. affordable dwellings or paying in-lieu fees.
B. Amount and method of payment. The -In considering an offer to dedicate land to
dollar amount and method of payment of meet this requirement, the City Council
the in-lieu fee shall be as described in Table must find that the dedication of land will
1 of the General Plan Housing Element, to provide equal or greater public benefit than
the approval of the Director. constructing affordable units or paying in-
C. Timing. In-lieu fees shall be paid prior lieu fees, based on the following criteria:
to release of occupancy of the first dwelling 1. Valuation of the land to be
a$
1-a a
- dedicated relative to other methods by the City to the extent that resources are
of meeting the requirement; available for this purpose and to the degree
2. Suitability of the land for housing, that such incentives or assistance will assist
including General Plan conformity, in achieving the City's housing goals.
size, shape, topography, and B. Affordable Housing Agreement. Any
location; and incentives provided by the City, beyond
3. Feasibility of developing affordable those incentives to which a developer may
housing, including general plan be automatically entitled to under Ch.
consistency, and availability of 17.90 of this code, shall require City
infrastructure. Council approval and shall be set out in an
B. Land valuation. The valuation of land Affordable Housing Agreement. The form
offered in-lieu shall be determined by the and content of such agreement shall be to
Director, based upon an appraisal made by the approval of the City Attorney and the
a qualified appraiser mutually agreed to by Director. Developers are further
the developer and the City. Costs encouraged to utilize other local, state or
associated with the appraisal, title insurance federal assistance, when available, to meet
and transfer, recordation and related costs the affordable housing standards.
shall be borne by the developer.
C Agreement and liming. The land 17.91.100 Project Application.
dedication shall be by deed or other A. Method of application. An
instrument acceptable to the City, and shall ap,,PPli '" developer proposing a project for
be completed by recordation with the ]iiaffordable housing is required shall
Recorder of the County of San Luis Obispo T sii a statement with the standard
r' ,
prior to occupancy release of the first �p� . g application, describing the
residential unit or commercial building,m''-&Q� inclusionary housing proposal. The
the development; or prior to building developer's statement shall include:
C'
permit issuance, for projects for 1. A brief description of the proposal,
certificate of occupancy is not issued; or as including the method chosen to meet
otherwise provided by written agreement the inclusionary housing
between the developer and the City. requirement, number, type and
location of affordable units,
17.91.090 Incentives. preliminary calculation' of in-lieu
A. Eligibility for incentives. The developer fees, or offer of land dedication;
may be eligible to receive, or to request 2. How the proposal meets General
development incentives in return for Plan policies and inclusionary
constructing affordable housing in housing requirements;
connection with a development project, 3. Plans and other exhibits showing
pursuant to the Affordable Housing preliminary site layout, grading,
Incentives (SLOMC Chapter 17.90), as part building elevations, parking and
of an application to the City for other site features, location of
development approvals. Incentives or other affordable dwelling units and (where
forms of financial assistance may be offered applicable), market-rate dwelling
5$
-a4
units; Housing Agreement shall be binding to all
4. Description of incentives requested, future owners and successors in interest.
including exceptions from B. Agreements for constructing affordable
development standards, density units. For development projects meeting
bonuses, fee waivers or other their inclusionary requirement through
incentives; and construction of affordable dwelling units,
5. Other information which the the Affordable Housing I
Director determines necessary to Agreemen
adequately evaluate the proposal. shall specify:
B. Director response. After receiving a 1. The number and location of
complete planning application, including an affordable units;
affordable housing proposal, the Director 2. The size (square footage), number
shall respond to the applicant or of bedrooms, and design of the
developer's affordable housing proposal. affordable units;
The City response shall identify: 1) 3. Terms of affordability;
affordable housing issues and concerns; 2) 4. Schedule for construction of the
incentives which the Director can support affordable units;
when making a recommendation to the 5. Incentives or other assistance to be
decision-making body; and 3) procedures provided by the City;
which will need to be followed to complyWhere applicable, the procedures to
with the inclusionary housing requirements. used for qualifying tenants or
b yers, setting rental/sales costs,
'renting or selling units, filling
vacancies, and managing the units;
17.19.110 Conditions of Developm Rn., �, and
Approval. +, 7. Other terms or conditions requested
A. Submittal of an Affordable Housn�ig, by City.
Agreement. Applicants and developers or B. Agreements for land dedication. For
development projects subject to this chapter development projects meeting their
shall, as a condition of development inclusionary housing requirement through
approval, prepare and submit an Affordable land dedication, the agreement shall
Housing Agreement for City approval. The specify:
draft agreement shall be reviewed by the 1. The method of conveyance,
Director and City Attorney for compliance schedule, and appraised value of the
with project approvals, City policies and in-lieu contributions;
standards, and applicable codes. Following 2. Calculation of in-lieu fees otherwise
approval and signing of the agreement by applicable to the project at the time
the parties, the final agreement shall be of recordation;
recorded and relevant terms and conditions 3. Title report and insurance;
shall be recorded as a deed restriction on 4. Description of location, condition,
those lots or affordable units subject to improvements, and other relevant
affordability requirements. The Affordable factors applying to the property; and
68
1 -d5
5. Other information required by the shall enter into a shared equity
City. agreement with the City. Said
C. Payment of in-lieu fees. An Affordable agreement shall be recorded as a second
Housing Agreemen trust deed against the purchased
agreemeef shall not be required for projects property, at no_interest, securing and
which meet their inclusionary housing stating the City's equity share in the
requirement through the payment of an in- property. The City's equity share shall
lieu fee. be the percentage of the property's
value that is determined by:
17.91.120 Program (a) the difference between the
Reguiremen market-price upon purchase and
Only households qualifying as very the actual price paid by the
low, low or moderate income, pursuant to homeowner, and/or
the Giey-s Affordable Housing Standards, (b) the amount of subsidy given to
shall be eligible to rent, purchase or occupy the homeowner to purchase the
inclusionary units developed or funded in property.
compliance with this requirement.
17.91.130 Eligibility Screening. Upon sale, the City's equity share shall
bwepaid to the City from the proceeds
The City, its housing authority, orsale, less the City's percentage
other housing provider designated by the a of title insurance escrow fees and
City shall screen prospective renters or , {?do umentary transfer taxes, at the
buyers of affordable units. Renters or close of escrow.
buyers of affordable units shall enterAt i—
an agreement with City, its housutg ;! 17.91.150 Management and
authority or other housing provider Monitoring.
comply with affordable housing standards. Inclusionary rental units shall be
Further, buyers of affordable units shall managed and operated by the property
agree, owner, or the owner's agent, for the term
Stwxluds, to enter ftto participate in a of the Affordable Housing
Shared Equity Purchase Program, as Agreemen .
described in Section 17.91.140. an Sufficient documentation shall be submitted
to ensure compliance with this
chapter,
t less thm 39 years, or as otherwise shall submit an aF&tm] repeft to the ,
required by Swe law. within dtirty (39) days ef the end of the
es4endw year, identifying the leeatien of
17.91.140. 17.91.140. Shared Equity
Purchase Program. Under this inferatation,
program the qualified buyer of a
designated affordable dwelling unit
78
I-oZb
eamplianee with these requirements, to the
satisfaction of the Director.
17.91.1650 Enforcement and Appeals.
A. Enforcement. No final subdivision map
shall be approved, nor building permit
issued, nor shall any other development
entitlement be granted for a development
project which does not meet these
requirements. No inclusionary unit shall be
rented or sold except in accordance with
these requirements and the affordable
housing standards.
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 appeal JL/L-EHTFm'.oW
provisions. (SLOMC Ch.17.66).
17.91.1760 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 o �J
provision to other persons or situations F
shall not be affected thereby. ''
r.
ss
� -a �
Atta., iment 5
October 6, 1998
To: City of San Luis Obispo Planning Commission
From: Stephen Nelson, Inclusionary Housing Ad Hoc Committee Chair L�
Re: Inclusionary Housing Ordinance Recommendations
Committee Members:John French,Robert Griffin, Stephen Nelson,John Rossetti,
Scott Smith,Mary Whittlesey,and Betty Woolslayer.
Staff: Jeff Hook,Associate Planner and George Moylan,Housing Authority Director.
The Inclusionary Housing Ad Hoc Committee has been meeting weekly for the past two months
to review the Draft Inclusionary Housing Ordinance. Members of the committee represented a
broad range of interests in our community. Even though there were divergent opinions
expressed, all committee members made a sincere effort to reach a consensus on the significant
proposed changes to the Draft Inclusionary Housing Ordinance and Table 1 in the Housing
Element.
The committee reviewed the Housing Element and it's stated goal to"adopt measures to
encourage creating housing that's affordable to all its citizens," and discussed at length the key
.question as to how wide to"spread the impact" of paying for affordable housing. Committee
members agreed that while philosophically it made sense to spread costs throughout the
community as widely as possible, some wide-spread methods, such as a sales tax increase or a
real estate property transfer tax are not politically feasible. Practical considerations also argued
that some types of development should be excluded. They also agreed that the increase in land
value because of annexation into the City,often referred to as the"unearned increment",was an
accessible and logical funding source for affordable housing. The committee's general
sentiment, however, was that Inclusionary requirements should only be one part of what should
be a much more broad-based funding for affordable housing.
An overall goal of the committee was to make the ordinance flexible to allow for currently
unknown opportunities and address problems of fairness and equity that might arise in the future.
Considerable discussion and sensitivity were given to"not killing the goose that lays the golden
eggs" by pushing commercial development fees higher than in outlying areas,thus discouraging
new commercial development within the City of San Luis Obispo.
A review of the Mundie Report generated many questions as to the validity of the financial
assumptions and numbers used in the report. Even though there was concern about the specifics
of the Mundie Report,the committee felt that the report gave an overall picture of development
cost trends. It was also felt that Inclusionary requirement would largely impact land values as
opposed to impacting developer profits or raising sales or rental prices. This conclusion is
consistent with the City's goal of recapturing 50% of the increased land value created by
annexation into the City.
Inclusionary Housing Ad Hoc Committee Recommendations
October 6, 1998
Page 2
The committee spent a considerable amount of time discussing the Affordable Housing
Requirements found in Table 1 in the Housing Element. We reviewed what other California
communities have established as their affordable housing requirements. In-lieu fees were set at a
level that would encourage developers to choose building affordable housing rather than paying
the fee. The committee has enclosed proposed revisions to Table 1 which incorporates the
Mundie Report Production Alternative 3 (Mundie Report,page 27)for residential development
projects. The in-lieu fee recommended for commercial projects is 2% which is roughly
equivalent to the$1.50 per square foot residential school construction fee. The committee felt
that an affordable housing fee similar to the school fee, while significant,would not be too large
a disincentive to stop commercial development.
The committee felt that a Shared Equity Purchase Program would be the best way to equitably
handle resale of designated affordable single family houses. The advantages to this approach
include significantly less staff time to monitor the program, incentives to the homeowner to sell
the home and move into a regular market-rate home,thereby freeing up funds to help another
family purchase a house,avoidance of a potentially significant windfall to whoever happens to
own the house at the end of 30 years, and maintaining public funds to assist low and moderate
income families purchase a house in perpetuity. A profile of a Shared Equity Purchase Program
is enclosed.
The committee's recommendation adds balance and equity while trying to maximize this
resource as a way to significantly increase affordable housing in our community. Please feel free
to call upon any of us for insights and amplification on our recommendation.
Attachments: Proposed Changes to the Draft Inclusionary Housing Ordiance
Proposed Changes to Table 1 in the Housing Element
aq
Shared Equity Purchase Program
Under this program the City would share in the equity build-up on single family
residences where a direct subsidy is given to the purchaser or where the property is
purchased at a below market rate because of Inclusionary Requirements imposed on the
developer of the house.For example, if a developer sold a house to a qualified family at
$25,000 less than its market price,the City would consider the$25,000 as its equity
investment in the house and the City's equity would be preserved by a"silent second trust
deed" on the property. No interest would accrue on the 2nd Trust Deed.
There would be no need to monitor the house or the owners' income because when the
homeowner sells the house,the City would have to be repaid their percentage share of the
sales price in order to transfer title to a new owner. The City would share in certain
closing costs(Title Insurance Fee,Escrow Fee, and Transfer Taxes),but not real estate
sales commissions.
Because the City receives back its percentage share of the sales price,the City will be
able to turn around and assist another qualified family in purchasing a market-rate house.
There would be no windfall to whoever happened to own the house at the end of 30 year
period as there would be if the program utilized the original draft proposal approach.
Example
Purchase Sale(4-7 Years Later)
Market Sales Price $150,000 Market Sales Price $200,000
Actual Sales Price 120,000* Actual Sales Price 200,000
City Subsidy (20%) 30,000** City Equity(20%) 40,000
Homeowner Down 4,500 Homeowner Equity 55,000
Homeowners' Loan 115.500 Approx Loan Payoff 105.000
Market Sales Price $150,000 Market Sales Price $200,000
*Actual Sales Price per City Affordable Housing Standards
**Market Sales Price-Actual Sales=City Subsidy . This could also be a cash subsidy.
Advantages to Shared Equity Program
Minimizes staff time to monitor-doesn't create a bureaucracy
Encourages homeowner to sell and move to un-subsidized market-rate home
Allows homeowner to fully enjoy the fruits of homeownership(American Dream)
Prevents a"Windfall" to whoever happens to own the house at end of 30 years
Preserves in perpetuity "Public Funds" to help other qualified families
Has the potential to assist more low-income families because of higher turnover
City shares in equity growth
Doesn't stigmatize a particular house as"assisted"
Uses market forces-prevents aberrations caused by arbitrary formulas
Win-Win Program
Disadvantages to Shared Equity Program
If housing prices fall and the lender forecloses on the house,the City might lose
their equity position in the property.
1-3a
tachment 6
SAN LUIS OBISPO PLANNING COMMISSION
RESOLUTION NO. 5236-98
WHEREAS, the Planning Commission of the City of San Luis Obispo did
conduct a public hearing in the Council Chamber, City Hall, 990 Palm Street, San Luis
Obispo, California, on October 28, 1998 pursuant to a proceeding instituted under
application TA 88-98, City of San Luis Obispo, applicant
ITEM REVIEWED:
TA 88-98: Review of the Draft Inclusionary Housing Ordinance
WHEREAS, said Commission as a result of its inspections, investigations, and
studies made by itself, and in behalf of testimonies offered at said hearing finds that the
proposed General Plan Amendments and Inclusionary Housing Requirement are
consistent with the General Plan and will help achieve City housing goals, particularly
with regard to affordable housing needs.
NOW, THEREFORE, BE IT RESOLVED that the Planning Commission recommend to
the City Council, approval of TA 88-98 as follows:
1. Amend General Plan Housing Element Policies 1.22.1 as recommended by staff at
Page 5 of the Staff Report, delete Policy 1.22.4 and amend Program 1.22.10 and
Table 1 as recommended in the report; and
2. Introduce an. ordinance to print and adopt the Inclusionary Housing Requirement,
as recommended by the Inclusionary Housing Task Force.
The foregoing resolution was approved by the Planning Commission of the City of San
Luis Obispo upon a separate roll call vote:
AYES: Commissioners Ewan, Ready, Senn and Jeffrey
NOES: Commissioner Manx
REFRAIN: None
ABSENT: None
Arnold B. Jonas, Secretary
Planning Commission
I-31
Attachment 7
Draft
PLANNING COMMISSION MINUTES
October 28, 1998
Item 2: City Wide: TA 88-98: Review of the draft inclusionary housing ordinance;
City of San Luis Obispo, applicant
Associate Planner, Jeff Hook, explained that last June, the Planning Commission
reviewed this item and referred it to the City Council with a recommendation to
establish an Inclusionary Housing Task Force. The purpose of the Task Force was to
review the Draft Inclusionary Housing Ordinance that had been prepared by staff and to
suggest changes, where appropriate. The Council established a Task Force which met
once a week over a period of two months. Task Force members reviewed the draft
Ordinance in considerable detail and recommended several important changes. They
generally supported the overall direction of the ordinance, but refined and improved it
in many ways. The item is up for your consideration and endorsement this evening and
the Commission's action will be forwarded to the City Council. The City Council
intended that the item return as soon as possible, no later than November, and it has
been scheduled for the November 10, 1998 meeting. Consequently, staff was asking
the Commission to take action on the Task Force recommendation at tonight's meeting.
The City's Housing Element, adopted in 1994, states that the City will amend its
regulations to establish an affordable housing requirement and includes a table which
lists affordable housing requirements. However, the requirements have not been
implemented. No new residential developments have been required to meet these
requirements because an implementing ordinance has not been adopted to enforce the
policy. The draft ordinance, and General Plan amendments recommended to ensure
consistency between the ordinance and the General Plan, will implement the affordable
housing requirement. The City is not meeting its housing goals established in the
Housing Element (Mr. Hook presented a chart with Housing Element projected housing
numbers). He explained that the projected numbers were developed in 1993-94 based
on a realistic assumptions and that the projected number of housing units, including
affordable housing units, was lower than the City's "assigned" regional housing need,
but at the time, was considered achievable. The number of affordable units actually
built was considerably less - about one quarter of that projected. The proposed
program would make significant in roads in increasing the rate of production of
affordable units, the primary purpose for this ordinance. Mr. Hook highlighted some
of the most important features of the Ordinance. The Inclusionary Housing
Requirement would do several things. First, all new development projects, commercial
and residential would meet an Inclusionary Housing Requirement. This would exempt
residential projects of four or less lots or units, and exempt commercial projects with a
floor area of less than 2,500 square feet. There would also be an exemption for
projects which are essentially non-commercial or non-residential in nature. This
includes projects which provide community benefits, such as schools, social services,
j _3z
Draft Planning Commission,...nutes,October 28, 1998
Page 2
and day care centers operated by non-profit organizations. Also exempted were
buildings being reconstructed after having been burned or damaged by natural disasters.
The Task Force recommended that such buildings be allowed three years to rebuild
without having to meet the Inclusionary Housing Requirements.
Under the proposed ordinance, Mr. Hook explained that a developer would have
several ways to meeting the requirements: 1) build affordable housing with the
requirement, 2) pay a fee in lieu of actually constructing affordable units, 3) dedicate
land to the City of Housing Authority or other non-profit housing provider to construct
housing, or 4) a combination of these methods. The Housing Task Force also
recommend that the City establish a "Shared Equity Purchase Program" which would
allow the City and a property owner of an affordable unit to share in the equity growth
of property. When the property was resold, the City would recoup part of its
investment in the property as equity. The original owner would get equity, the City
would get equity which would provide other affordable housing opportunity, e.g. loans,
interest rates, etc. The proposed ordinance would also establish a Housing Trust Fund
which would provide financial assistance to affordable housing projects and be funded
through various sources, such as the Inclusionary Housing In-Lieu Fee Program,
grants, and repaid principal and interest from housing loans.
Mr. Hook noted Inclusionary Housing is not a new concept and has existed in various
forms and jurisdictions in California for over 20 years. It is a mandatory requirement
which requires that new development help increase the supply of affordable housing.
Communities with Inclusionary housing programs include Irvine, Pleasanton,
Livermore, Roseville, Palo Also, Santa Monica, etc. and Santa Barbara and Monterey
Counties. A 1995 housing report determined that there were 24,000 affordable units
built in California over a 20-year period and $22 million in in-lieu fees generated as a
direct result of inclusionary housing programs. In establishing the Task Force, the City
Council asked that the group focus on several key topics. He outlined the topics and
the Task Force's response:
t. Is the proposed draft ordinance consistent with affordable housing requirement, will
it achieve General Plan Goals?
The task force determined that the draft ordinance was generally consistent, but
there were some inconsistencies with housing element language. This dealt with
the 30-year affordability policy and a policy requiring that new development
include affordable housing units in the same proportion that they exist in the
City at the time the Housing Element was adopted. Several General Plan
amendments are recommended to ensure consistency between the ordinance and
General Plan Housing Element.
2. Is the proposed ordinance consistent with Council's intent to capture th of the
increased value or unearned increment in expansion areas, and if not, what changes
are needed?
r- 33
Draft Planning Commission Minutes,October 28, 1998
Page 3
The task force felt that the recommended changes to the Affordable Housing
Requirement made the program consistent with Council's stated intent for the
program. They based their judgment on a 1997 study by Mundie and Associates
which evaluated the economic impacts of affordable housing requirements.
They determined that the current affordable housing requirements in the
Housing Element were too high and would exceed the Council's intent in
expansion areas.
3. Should the ordinance include exemptions.
The task force felt that it should and recommended that those be expanded
somewhat. A land dedication option is included in the ordinance.
a. Should the proposed ordinance include a land dedication option? If so, how should
it be structured?
The Task Force recommended including a land dedication option.
5. What additional affordable housing incentives, if any, are needed to accomplish
housing goals?
The task force felt that the incentives were appropriate and suggested two new
ones., equity sharing and establishing a trust fund.
Mr. Hook concluded his remarks and thanked the members of the Task Force: Steven
Nelson, John French, Robert Griffin, John Rosetti, Scott Smith, Betty Woolslayer,
Mary Whittlesey for their dilligent efforts. He said that some members of the Task
Force were in the audience and that they may wish to comment.
PUBLIC COMMENT:
Steve Nelson, Chair of the Committee, commented that despite some philosophical
differences, all Task Force members made a good faith effort to accomplish their goals.
The Task Force represented a broad cross section of the community. He mentioned the
members again and their backgrounds. He stated that inclusionary housing is only one
of the tools that is needed to provide adequate affordable housing and that other
resources also need to be drawn upon. He explained the concept of "unearned
increment" as the increase value of land resulting from annexation of expansion areas.
The City Council stated that they want to reclaim 50% of the unearned increment to be
used for affordable housing and the proposed ordinance would do that.
Chairman Senn questioned if the Task Force's recommendation represented a consensus
of the overall committee. Mr. Nelson stated that the Task Force worked very hard to
have a consensus and felt this was a unanimous recommendation.
I- 34
Draft Planning Commission N....ates,October 28, 1998
Page 4
John French, developer and Task Force member, explained his view that under the
proposed ordinance, assets were being taken to solve what is really a community
problem and should be funded by a broader segment of the community. The Task
Force agreed that broader funding, e.g. taxes, was not really feasible so an ordinance
must be adopted that is inherently unfair. This will have a significant impact on
housing resources in the community, both positive and negative. One helpful feature
will be shared equity. This program will probably not reach low income households,
which will continue to require 30-year affordability. He made a comment on an item
on Page 4 - shared equity - should be an election by the people participating in the
program.
Commr. Jeffrey asked why recommended limit on the number of units under equity
sharing was 25% and wanted to know if this should be a decision by the developer.
Mr. French replied this decision should be made by the home buyer. The compromise
is targeted toward limiting to 25% or some small percentage of the total number of
affordable units. Mr. French urged that the equity sharing program be available to all
buyers of affordable units. In response to a question on unit downsizing, Mr. French
stated that downsizing is going to impact the timing of the people seeking move from
subsidy to non-subsidy. They are likely to move up in a rising market. Small risk for
a positive gain and benefits for taking the equity sharing approach. Equity sharing
would only apply to for-sale units - not rental units. In response to a question whether
there was time limit for owner to own before they could turn around and sell the
affordable unit at market rates, Mr. French stated there was no minimum or maximum
times. The Task Force felt people would use this when they were in a position to
refinance. Houses turn over every five to seven years in today's environment. This
gives the option of not having to resell that particular unit to a subsidized buyer and
problems associated. It recaptures 30 year windfall.
Commr. Marx asked about renting out these units once purchased. Mr. French stated
that this program will reduce abuse potential and create more motion in the real estate
market in the lower end. In response to a question on whether the ordinance required
owner occupancy, Mr. French stated the property is supposed to remain occupied by
the original purchaser. Rental and profit should not be an option.
Betty Woolslayer stated she supports the shared equity program. Individuals who want
to get into housing would not be looking at interest for the City's down payment - as
the equity goes up the City would share in this. If equity doubled, more money would
come out of sale and give someone else the ability to have a down payment. The
recommendation of a 25 to 50% limit was acceptable, and suggested that the program
be given ten years to prove itself. The City will be able to get its equity investment
back and reinvest in additional affordable housing. In lieu fees be looked at to create
more housing units as a developer can more economically provide housing rather than
turning over fees to the Housing Authority. There needs to be as many affordable
1-35
Draft Planning Commission i..,autes,October 28, 1998
Page 5
housing units produced as possible and these have been slow in being produced.
Shared equity was a strong option supported by most members of the Task Force.
Commr. Ready asked if 34 to 'k of the for-sale units should be under shared equity,
was it envisioned that participation would be voluntary on the part of the home buyer?
Ms. Woolslayer. stated that if options are given, yes, however it really should be the
only option. If an option, all will participate.
George Moylan, Housing Authority Director, stated he was not there to speak on the
ordinance as it speaks for itself, however he had two concerns. He stated that someone
needs to look to a broad base for funding the housing trust fund. The ordinance is
suggested, however, he feels this will not meet community needs. He strongly suggests
that the City also consider using the transient occupancy tax, transfer tax, or utility tax
to provide money for affordable housing. He also suggested that City take the lead as it
is a regional problem. He also wanted the City to revise its Affordable Housing
Standards to set the "moderate" income affordability level at 100 percent of median
County income (instead of 110 percent) and use a factor of 30 percent of income
(instead of 35 percent) for housing costs.
When asked if this ordinance would be just one step in a much bigger project, Mr.
Moylan stated this ordinance in implementable but must be brought further. Mr.
Moylan stated that the affordability limits in the current ordinance are set at 120% of
income or less- for moderate 80%-120%. This does not differentiate between rental
criteria and home ownership criteria. Home ownership costs more than rental-space,
tax, etc. A developer could state he could meet the criteria and built all 1 bedroom
apts. and be called affordable. Asked if there were ways to avoid resale by speculators,
Mr. Moylan said he sees the City holding a 2°d trust deed to limit occupancy to owners,
but that will not offer all protection needed. It is hoped people will keep there homes
longer.
Mr. Hook explained that ordinance Section 17.19.110 addresses conditions of
development approval and requires that there be affordable housing agreement struck
between the City and the developer that meets the requirement for approval. The
developer must enter into agreement approved by City establishing the terms of the
affordability arrangement (in lieu, dedication, etc.) which establishes the number of
units to be built and where. The recommendations states that all of the affordable units
be sold under an equity sharing arrangement. According to the draft, homebuyers
would also have an agreement that describes the equity sharing relationship. This
would allow the City to set owner-occupant requirement.
Commr. Marx asked if there would be anything in the deed setting conditions for the
turnover of the house and are homeowners obligated to stick with the program. Mr.
Hook explained that there is an initial owner which is screened for eligibility, a low or
moderate income person. The unit is priced at terms that the City determines to be
I- 36
Draft Planning Commission h...,ates,October 28, 1998
Page 6
affordable. Once the property is sold, all resale restrictions are gone and it becomes a
market rate unit and anyone can purchase it, for owner-occupancy or rental.
Mr. Moylan stated the Task Force agreed that the percentage for in-lieu fees in
expansion areas should be high enough to encourage a developer to build affordable
housing and not contribute in-lieu fees, since the actual production of affordable
housing is the City's primary objective.
Jim Miller, citizen, asked-regarding the relative affordable housing requirements in the
City and in expansion areas, and felt the expansion area percentages are too high
compared to In-City requirements. He said it seems as though things are going
backward and people are allowed to buy in the City, yet other provisions for the low-
and moderate income persons do not exist, such as affordable shopping. Housing and
shopping that are affordable go together and housing cannot work without this. He
suggests that a close look be taken and the percentages being talked about, however,
does the City really want to be like other towns with affordable housing, such as Santa
Maria. He also did not see a provision for current density in certain areas to be
developed. Certain areas would be clusters of low income housing. He hopes this
could be looked at and what is already in the area. He wants to know where are the
affordable housing areas in SLO. Nobody seems to know, however, staff Associate
Planner Peggy Mandeville is checking into this. Affordable housing must work for the
people who will be buying it. He asks that the numbers be looked at.
Mr. French stated he wants to make clear the dollars in the in lieu fees vs. building the
houses. This is contained in the staff report, however, 10% is a large number. A 1700
square foot house would cost $60 a square foot to build ($12,000 in lieu fees). In
perspective, comparing to $2,500 to $3,000 for school fees, etc., this fee would be
bigger that other fees and substantially more expensive to the developer. This will have
a large impact on the housing supply of the City in the future. More affordable units
will be built in the future, in contrast to what has been done. He feels a balance is
needed, since opportunities for upper end "executive" type housing in the City will
become increasing limited, and there is no upper end housing planned in the expansion
areas. He felt balance must be achieved. He was concerned that this segment of the
housing market may have to seek housing in other communities.
The public hearing was closed.
Commr. Jeffrey questioned the provision for the shared equity. The provision tends to
ignore the availability of developable land. As development goes forward, there are not
safeguards to maintain a housing stock of affordable housing. Was the Task Force
looking to use shared equity or a 30-year guarantee. Was there any consideration of
merging the two approaches to still maintain a 20-30 year guarantee and also apply the
shared equity principal to this?
1- 3�
Draft Planning Commission Mawtes,October 28, 1998
Page 7
Steve Nelson explained that the problem of using a 30-year affordability term is that at
the end of the 30 years, the owner gets a windfall profit and the affordable unit is lost.
Whoever can qualify, gains all of the equity built up over the period and the City gets
nothing. With shared equity, the affordable unit is indistinguishable from other units in
a neighborhood and is therefore, not stigmatized. The City could feasibly own a 2nd
trust deed for 20 percent of the market value of a house and if the house is sold a few
years later, the City still owns 20% of the house. As with FHA. Loans, there could be
owner-occupant requirements. The City puts the profit from any sale of the house into
a trust fund and the money becomes available to assist another qualified family. When
asked about the financial risk to the City, Mr. Nelson conceded this could be a
downside but is not anticipated to happen.
Commr. Marx feels the City is risking loss of its equity in a down market. Mr. Nelson
stated that with conventional affordable housing agreements, at the end of 30 years the
City would be looking at getting nothing back. With equity sharing, if there was a loss,
it would be a loss from the in lieu fee trust fund not from the general fund. Only a loss
from specifically designated housing funds - no risk to the City's normal operating
budget.
Commr. Jeffrey was concerned that given a limited amount of resources, when
saturation is reached (buildout), nothing has been done to protect low income housing at
that point and nothing has been gained. Mr. Moylan explained that if the house is sold,
the City will recoup enough to help another person buy another house. This program
would mainly benefit moderate income persons, since truly low income persons would
probably not be able to afford the downpayment or monthly payments. Low income
persons would benefit from affordable apartments that would be built under this
program. Staff recommends that equity sharing be tried out for five years with a limit
on the number of units allowed to participate. This will be a trial, however, the Task
Force felt that equity sharing should apply to all affordable for-sale units.
Chairman Senn asked the percentage between owned and rented units. Mr. French
stated this could be 50-50 and noted there has not bee affordable single family housing
construction for ten years. Nothing is being lost and something could be gained. This
can be a great program with some revisions and restructuring. Nothing will be lost and
there will be a chance to give moderate income people the opportunity for a home.
Commr. Jeffrey asked regarding the payment of in lieu fees and stated they appear to be
in conflict with the goals stated in the Housing Element (Goal 1.24 Mixed Income
Housing). This states that affordable housing should be scatter throughout a
development not in clusters. Can a percentage of affordable houses built by a
developer be supplemented by in lieu fees? Steve Nelson stated that there would be
some developers who will choose to pay the fees and build some affordable units. John
French stated that he feels there will be a blend and fees and affordable unit
construction, dispersed throughout residential developments. He stated that according
to the Housing Element, only about one-third of the City's housing stock is at the
I - 3 �
Draft Planning Commission .__..utes,October 28, 1998
Page 8
moderate income level, however, when driving around the community we do not see
this. The shared equity would allow to keep a more diverse and more spread out use
by reinvesting in some of the older areas. Asked if there could be a cap of in lieu fees
of 75% of affordable housing with a builder required to build 25% of the homes, Mr.
French stated that the Task Force wanted to allow some flexibility in the affordability
agreements with the City. All agreements will be negotiated and there will be
flexibility of fees, land dedication, and construction of housing. This is crucial to be
left this,way.
Regarding Page 8, 17.19.140, Equity share to be repaid "prior to close of escrow,"
Mr. Nelson noted that that should read "at the close of escrow."
Commr. Ewan asked if the 30-year affordability restriction is there to assure there are
affordable apartments. He wants to know how the equity sharing would accomplish
this in terms of affordable apartments. Mr. French stated that for apartments, the 30-
year affordability requirement is the most practical way to go. Low income housing
has to considered and it would not be realistic to expect the private sector to go into the
low income housing business. Even non-profits have a hard time at 60-80 percent (of
County median income) income levels, since a massive subsidy is required to make new
for-sale housing affordable.
Commr. Ready stated there had been some discussion earlier regarding the limiting of
the equity sharing to approximately 25 percent and asked if this provision were
included in the draft ordinance. Mr. Hook stated this was staffs recommendation,
however the Task Force's recommended draft ordinance did not include any limit on
the percentage of equity sharing.
Commr. Marx asked if there was any consideration given to requiring a tenure or
waiting period before people would be eligible for equity sharing. John French stated
that there was no consideration made for this and there was not discussion. The abuse
issue is one that goes past five years. The equity sharing program allows their
residency to fit their lifestyles and their jobs.
Jeff Hook was asked regarding the housing trust fund. He replied that the Task Force
had discussed how the trust fund could be used to benefit affordable housing but that it
did not discuss administrative details of how the fund would operate. The draft
ordinance states that the Finance Director in concert with the City Council will
establish the administrative details of the fund. Trust funds have been established with
foundations, councils, etc. running them. Mr. Hook presumed the council would
administer the fund, but there are other ways. The details have not been worked out
and the Task Force was not the forum to do this.
Commr. Ready moved that the Planning Commission recommended that the City
Council: (1) amend General Plan Housing Element Policies 1.22.1 as recommended by
staff at Page 5 of the Staff Report, delete Policy 1.22.4 and amend Program 1.22.10
�-3y
Draft Planning Commission Minutes,October 28, 1998
Page 9
and Table 1 as recommended in the report, and (2) recommend that the City Council
introduce and ordinance to print and adopt the Inclusionary Housing Requirement as
recommended by the Inclusionary Housing Task Force.
Commr. Ewan seconded the motion.
Commr. Marx commented that she was concerned that the proposed ordinance will not
accomplish what it's intended to do, and she is concerned that Mary Whittlesey is not in
attendance and she was the representative to the group. She would have been more
comfortable with the presentation had there been input from her at this meeting. As to
the deletion of 1.22.4 of the Housing Element, she is concerned that if this policy is
deleted, the reality of the City's housing need would not be addressed. She proposes
that the shared equity program be tried out, but that there be a period of time before a
home owner would become eligible - seven years and proposes that there should be a
waiting list which should extend for at least four years before a person would become
eligible in the first place. She wants the program to be available to people who are
"putting down roots in the community", not people who will be speculating in the
housing market. She feels that Government Code Section 65583 would make it
impossible for the affordable housing requirement not to be adopted as part of the
General Plan . It has to be part of the housing element and wants the City Council to
take a look at this. She feels that #8 on page six needs scrutiny to find the effect of
students on SLO housing demand because the community has a large turnover of
population every four to five years.
Cmmr. Whittlesey arrived late and stepped down.
The Commission voted on the motion:
AYES: Ready, Ewan, Senn, and Jeffrey.
NOES: Marx.
The motion carries.
_40
Attachment 8
MINUTES
INCLUSIONARY HOUSING AD HOC COMMITTEE
Thursday, October 1, 1998
The meeting convened at 12 Noon in the Planning Conference Room,
San Luis Obispo City Hall, 990 Palm Street.
ROLL CALL:
Present: Chairperson Steve Nelson, John French, Betty Woolslayer,
John Rossetti, and Mary Whittlesey.
Absent: Scott Smith and Robert Griffin
Staff: John Mandeville, Long-Range Planner, and George Moylan,
Housing Authority
PUBLIC COMMENT: None
APPROVAL OF MINUTES: The draft minutes of the September 28, 1998
meeting were approved with two slight changes . On page 2 of the
minutes the production subsidy amount was changed from $30,000 to
$25, 000 and the number of affordable units produced was increased
from 74 to 90 . Motion to approve was made by Committee member
Rossetti as seconded by Committee member Woolslayer and was adopted
unanimously.
DISCUSSION ITEMS: Draft Inclusionary Housing Ordinance review.
1 . Discuss General Standards, Section 17 .91 .040 (B and C) .
2 . Procedures, Section 17 . 91 .050.
3. In-lieu fee for residential subdivisions, Section 17 .91 .060.
4 . Eligibility Screening, Section 17 .91 . 120, 130.
5 . Other remaining sections, as determined necessary.
While the free-flowing discussion did not include a specific
section-by-section review of the above all were discussed by the
Committee during the meeting. Chairman Nelson began the meeting by
outlining a "Shared Equity Purchase Program" as a vehicle for
meeting affordable single-family needs outlined in the proposed
ordinance. In concept instead of paying back the initial loan with
or without interest the homebuyer at re-sale, re-financing or pay-
off of mortgage would be responsible for re-paying the full equity
percentage amount contributed by the City to the City's Trust Fund.
The repaid funds could then be used to finance another Shared
Equity property with a new, qualified, home-buyer.
- 41
Chairman Nelson explained that this program would be easy to
monitor and would result in additional funds coming back to the
City because it is likely equity in single-family housing will
exceed any interest produced by a loan made to a lower or moderate
income household. John French suggested the way to protect the
city's interest was to place a second mortgage on the property.
John Mandeville indicated changes would have to be made to the
adopted housing element (General Plan) to accommodate the program.
Committee members endorsed the concept with Committee member
Rossetti suggesting we should be bold and put it in the plan.
Committee member French made such a motion, and Committee member
Woolslayer seconded the motion. The motion was adopted with the
dissent of Committee member Whittlesley. The intent is to have a
Shared Equity program delineated in the ordinance.
A general discussion of sub-division issues was then held. The
discussion surrounded the issues of land price and when fees should
be paid, i.e. at time of final subdivision approval or at the time
of issuance of building permit or possibly even when a Certificate
of Occupancy was issued. However, the City does not now issue a C
of 0 on single-family homes.
After much discussion a consensus was to leave the ordinance alone
in this respect, leaving it to the interpretation of Planning Staff
inorder to provide as much flexibility as possible.
George Moylan was asked to re-write Sections 17 .91 . 120 and
17 .91 . 130 to reflect today's discussion.
Steve Nelson then outlined the process he was going to follow in
meeting the Planning Commission' s submission date of October 7 .
Jeff would be returning to town on Monday, October 5th. Steve would
meet with him in the morning and make appropriate changes to the
draft ordinance. A revised draft ordinance would be faxed to
Committee members Monday afternoon so that they could review prior
to Tuesday's meeting.
There being no further business the Committee adjourned to the
next, and final, IHAHC meeting on Tuesday, October 6 at 12 Noon in
the Planning Conference Room, San Luis Obispo City Hall, 990 Palm
Street.
Respectfully submitted,
George Moylan
- 47
MINUTES
INCLUSIONARY HOUSING AD HOC COMMITTEE
Monday,September 21, 1998
The meeting convened at 12 Noon in the Council Hearing Room, San Luis Obispo City Hall, 990
Palm Street.
ROLL CALL
Present: Chairperson Steve Nelson, John French John Rosetti, Scott Smith, Mary Whittlesey
and Betty Woolslayer.
Absent: Robert Griffin,George Moylan .
Staff: Jeff Hook, Associate Planner.
PUBLIC COMMENT: None.
APPROVAL OF MINUTES: The draft minutes of the meeting of September 14, 1998 were
approved as submitted on a motion by Committee member French, seconded by Committee member
Smith, on a 6:0 vote.
DISCUSSION ITEMS: Draft Inclusionary Housing Ordinance review.
1. Continued discussion of Applicability, Section 17.91.030: Revised wording for exemptions
8, 9, and 10.
Chairman Nelson asked staff to read the revised wording for the exemptions, discussed at last
week's meeting. Staff presented the revised wording, as noted below:
8. "Development projects which the City Council determines are essentially non-commercial or non-
residential in nature,which provide educational, social or related services to the community and which are
proposed by public agencies,non-profit agencies, foundations and other similar organizations."
9. "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 strircuue(s)."
10. "Projects for which a plaffiing application has been certified complete,or 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 this ordinance and which continue to have an unexpired permit(s).
After a brief discussion, the Committee supported the revised exemptions as presented.
2. Consider Mundie Report findings and Table 1 requirements.
Discussion then focused on the revised Mundie Report. Committee member Rosetti felt that the
financial assumptions in the report, such as lease costs and construction costs for commercial
development, were incorrect and consequently, the study's usefulness was limited.
Committee member Smith felt that development cost assumptions in the Mundie Report were
i _ 43
IHAHC Minutes, Meeting of September 21, 1998
Page 2
accurate enough to evaluate the relative impacts of the various alternatives, and pointed out that
financial assumptions were always subject to different interpretations andjudgement.
Committee member French felt that in most cases, the affordable housing requirement would have
the greatest effect on land value (as opposed to developer's profit or lease/sale costs). He
emphasized that development financing is so complex and dynamic that it is difficult to accurately
reflect real development costs in a study like the Mundie Report. He observed that some of the
report's assumptions about development costs and revenues appeared too high and some appeared
too low. He explained the limitations of data used in the report and stated that in a relative sense,
the report provides a fair indication of development cost trends.
Committee member Rosetti was concerned that adoption of an inclusionary housing requirement
might "kill the goose" by pushing development fees (for commercial-development) higher than in
outlying areas, thus discouraging new commercial development within the City of San Luis Obispo.
Committee member French cited a study that concluded that, contrary to commonly held views,
residential development does "pay its own way" and results in higher revenues than costs for the
local agency. He noted that the Mundie Report reached the conclusion that the City's adopted
requirement of 20 percent moderate plus 10 percent low income housing in expansion areas ("base"
requirement) would exceed the Council's original target of "recapturing" one-half of the land value
increase resulting from annexation. He stated he could support Alternative #3 in the Mundie Report
which set the inclusionary requirement at 10 percent for moderate income housing and 5 percent for
low income housing.
Chairperson Nelson agreed that some reduction in the inclusionary requirement seemed warranted,
and felt that Alternative #1 in the Mundie Report, requiring 20 percent moderate income housing
plus 3 percent low income housing was preferable.
Committee member Smith felt that a 3 percent low income housing requirement was too low and
that given the City's housing policies and adopted housing needs, Alternative #2 requiring 13
percent moderate income housing and 7 percent low income housing was a more realistic approach
than the other two alternatives.
No decision was reached on whether to recommend changes to the inclusionary housing production
requirement and discussion turned to in-city commercial development.
3. Discuss commercial in-lieu inclusionary housing fee.
Committee member Rosetti felt that city land values are so "tight" that commercial developers have
very little flexibility to reduce land values to offset the effects of an inclusionary requirement. He
felt that the in-lieu fee should be reduced or possibly eliminated within "in-city" areas.
Chairperson Nelson said that it was his understanding that the effect of an inclusionary housing
requirements on land prices would be felt mainly by the lard owner, since developers could
negotiate land prices which reflected the added costs of building housing or paying an in-lieu fee.
IHAHC Minutes, Meeting of September 21, 1998
Page 3
Discussion followed on whether the in-lieu fee should be different for in-city and expansion areas.
Committee member Rosetti stated that a more workable approach for in-lieu fees might be to base
the fee on a cost per square foot of floor area approach, similar to state school fees.
Members agreed that this was an important area of discussion but that because of the time, they
would have to postpone discussion to the next meeting.
There was a brief discussion regarding a strategy for completing the Committee's review within the
Council's timeframe, that is, by the end of September. Members noted that there was only one
meeting left in September and that they probably needed two or possibly three more meetings to
finish. Various ideas were discussed, including holding night meetings and extra long meetings to
expedite the Committee's review. Chairman Nelson noted that the Committee needed to allow time
to assemble a "report" to the Planning Commission which included the Committee's
recommendation and rationale supporting the recommendation. It was agreed that they would hold
the September 28'h meeting as originally scheduled and decide at that meeting whether to schedule
additional meeting and if needed, when the meetings would be held.
4. CLOSING: List topics for the September 28, 1998 IHTF meeting agenda:
1. Set strategy for completion of Committee's review.
2. Discuss inclusionary requirements for in-city versus expansion areas.
3. Discuss General Standards, Section 17.91.040, subsections B and C.
4 Discuss Procedures, Section 17.91.050.
The meeting adjourned at 1:30 p.m. to-the = meeting to be held on Monday, September 28,
1998, at 12 Noon, in the Council Hearing Room, San Luis Obispo City Hall, 990 Palm Street.
Respectfully Sub tted,
/JeffHook, Associate Planner
two.HTF9-21.min
I -45
MINUTES
INCLUSIONARY HOUSING AD HOC COMMITTEE
Monday,September 14, 1998
The meeting convened at 12 Noon in the Planning Conference Room, San Luis Obispo City Hall,
990 Palm Street
ROLL CALL
Present: Chairperson Steve Nelson, John French Robert Griffin, John Rosetti, Scott Smith,
Mary Whittlesey and Betty Woolslayer.
Absent: None.
Staff: Jeff Hook,Associate Planner,George Moylan,Director,Housing Authority.
PUBLIC COMMENT: None.
APPROVAL OF MINUTES: The draft minutes of the meeting of September 9, 1998 were
approved as submitted on a motion by Committee member Whittlesey, seconded by Committee
member Rosetti, on a 6:0 vote (Committee member Griffin arrived late).
DISCUSSION ITEMS: Draft Inclusionary Housing Ordinance review.
1. Continued discussion of Applicability, Section 17.91.030: Revised wording for
exemptions 8, 9, and 10.
Chairman Nelson asked if staff had revised wording for the exemptions. Staff noted that they
were still working on the revised wording and would bring it to the Committee's September
21' meeting. The Committee decided to address General Standards and discussed the land
dedication option under Ch. 17.91.040(A). Jeff Hook explained how the land dedication
option would work under the draft ordinance. He noted that in reviewing other inclusionary
programs, he found that many of them included a land dedication option in-lieu of actually
building affordable dwelling units or paying a fee. He said that communities with flexible
inclusionary housing programs allowed several ways to meet the inclusionary requirement and
that these communities reported their programs were well received by developers. Committee
members unanimously agreed that the program should include a land dedication option, and
approved subsection A, "methods of meeting requirements", as presented in the draft.
Members agreed that staff should emphasize the importance of flexibility when presenting the
program to the Planning Commission and City Council.
Committee members then reviewed Table 1 in the Housing Element, the Inclusionary Housing
Requirements. Committee member Rosetti believed the proposed 5 percent in-lieu fee for
commercial development was too high and felt that it might discourage commercial
development from locating or expanding in San Luis Obispo. Committee member French felt
that the inclusionary requirements for residential construction in expansion areas were too high
l - 4b
IHAHC Minutes, Meeting of September 14, 1998
Page 2
and would have a greater impact on development feasibility than originally anticipated. He
referred to the updated Mundie Report and said that the analysis showed that the City's
original target of "capturing" one-half of the increase in land value upon annexation for
affordable housing would be exceeded in residential expansion areas under the adopted
requirements in Table 1. An extended discussion of the costs of commercial development and
potential impacts of housing in-lieu fees on development feasibility ensued.
Mr. Hook noted that the Mundie Report was conducted to address this very issue and
suggested that Committee members review the Mundie Report before making a
recommendation on the in-lieu fee percent requirements. Some Committee members
questioned whether there should be a difference in the amount of in-lieu fees required for in-
City projects versus expansion area projects.
Committee member Griffin suggested the possibility that in-lieu fees be set as a range, with
Council to set the exact amount based on the specific characteristics of each project.
Committee member French was concerned that basing the in-lieu on a percentage of
construction costs would discourage the production of small homes, since the fee would come
out of the developer's profit and there is a smaller profit margin for small homes when
compared with larger homes. He suggested basing the in-lieu fee requirement on a percentage
of the market-rate sales cost, or on the appraised value for rental properties.
No decisions were reached on the percent inclusionary requirements or on the basis for
assessing in-lieu fees. Chairman Nelson suggested that the Committee address the issue of the
30-year termof housing affordability. Mr. Hook explained that the 30-year affordability term
was set by the City Council and reflected State law and the typical home mortgage repayment
term. He said that communities which had established inclusionary programs but had not
required long-term affordability had "lost" many of their affordable housing units.
Advantages and disadvantages of different .affordability terms were discussed, including
permanent affordability and shorter-term affordability. By consensus, committee members
agreed that the 30-year affordability term was a reasonable compromise and supported keeping
it as proposed in the draft.
Due to time constraints, committee members did not discuss item 3, procedures.
CLOSING: List topics for the September 21, 1998 IHTF meeting agenda:
• Members to review the Mundie & Associates Report and review its findings relative
to applicability to Table 1 in the Housing Element;
• Committee member Rosetti to suggest an approach for setting commercial in-lieu
inclusionary housing fees;
I - 47
IHAHC Minutes, Meeting of September 14, 1998
Page 3
• Committee would consider the difference in inclusionary requirements between in-
city and expansion areas;
• Staff to present revised wording for applicability exemption 8.
The meeting adjourned at 1:30 p.m. to the IHTF meeting to be held on Monday, September
21, 1998, at 12 Noon, in the Council Hearing Room, San Luis Obispo City Hall, 990 Paha
Street.
Respectfully Submitted,
Jeff Hook, Associate Planner
jh/L:IHM-Kn in
MINUTES
INCLUSIONARY HOUSING AD HOC COMMITTEE
Wednesday,September 9, 1998
The meeting convened at 12 Noon in the Planning Conference Room, San Luis Obispo City Hall,
990 Palm Street.
ROLL CALL
Present: Chairperson Steve Nelson, John French Robert Griffin, John Rosetti, Scott Smith,
and Mary Whittlesey.
Absent: Betty Woolslayer.
Staff: Jeff Hook, Associate Planner; George Moylan,Director,Housing Authority.
PUBLIC COMMENT: None.
APPROVAL OF MINUTES: The draft minutes of the meeting of August 24, 1998 were
approved as submitted on a motion by Committee member Smith, seconded by Committee
member Whittlesey,on a 5:0 vote (Committee member Griffin arrived late).
DISCUSSION ITEMS: Draft Inclusionary Housing Ordinance review.
1. Continued discussion of Applicability, Section 17.91.030: Exemptions.
Chairperson Nelson recapped last meeting's discussion of exemptions, noting that discussion of
applicability of the inclusionary housing requirement to commercial development was
postponed until today's meeting so that Committee members French and Rosetti could
participate.
John Rosetti suggested that the draft ordinance be revised to exempt only individually built,
single-family homes, instead of 4 or fewer dwellings as currently proposed in the draft.
John French felt that to be fair, the ordinance should not include any exemptions for new
development, but he could live with Mr. Rosetti's suggestion. He would be more comfortable
with a lower inclusionary requirement and suggested the impact fee be reduced from five
percent of construction value to two and one half percent.
Discussion then focused on the so-called "unearned increment" in property value gained upon
annexation to the City as it related to the inclusionary housing requirement. Committee
members noted that the key question was how wide to "spread the impact" of paying for
affordable housing. Committee members agreed that while philosophically it made sense to
spread costs throughout the community as widely as possible, practical considerations argued
for some types of development to be exempt. They also agreed that the "unearned increment"
was the most accessible and logical funding source for affordable housing in the City's
-49
IHAHC Minutes, Meeting of September 9, 1998
Page 2
expansion areas, and noted that other possible funding sources, such as real estate transfer fees
or using a portion of sales tax revenues, were probably not feasible at this time.
John French observed that the City needed to avoid setting the inclusionary requirement so
high that development costs in the City were widely disproportionate with similar costs in the
County and surround cities. He felt this would lead to land use and.environmental conflicts as
new development was more likely to occur outside of the City in fringe areas.
Mr. Hook explained that the proposed 4 unit or less exemption related to the City's Affordable
Housing Incentives. The incentives apply only to projects of five or more units, so that
projects subject to the inclusionary requirement would also be eligible to receive certain
incentives. It also relates to financial feasibility, since smaller residential and commercial
projects are less able physically and financially to include affordable housing or pay an in-lieu
fee.
Committee members discussed exemption 2, the exemption for small commercial projects and
agreed that the 2,500 square foot threshold was reasonable.
Mr. Moylan questioned the exemption for "affordable housing projects." The Committee
noted that by definition, the exemption would apply to residential projects in which 100
percent of the units were sold or rented at levels defined as "affordable" by City standards.
Mr. Moylan felt that units rented at "moderate" rents would essentially be market rate units,
and too expensive to meet affordable housing needs. He suggested that exemption 6 apply only
to very-low and low income affordable housing projects.
Mr. Hook noted that the Inclusionary Housing Program was only one of several City programs
intended to increase affordable housing. He said that in the previous 5 years, approximately
2.5 million dollars in federal funding had been allocated for very-low and low income housing
and that the inclusionary housing program was intended to reach broader housing needs,
including moderate income households, large families, single-parent households and others
who did not qualify for most housing assistance programs because of their income but could
still not afford to rent or buy housing in San Luis Obispo.
Committee members decided not to change exemption 6.
After extended discussion, Committee members agreed that the proposed 4 dwelling unit
exemption in the draft ordinance was acceptable and that it should apply both in-City and in
expansion areas. They concurred with exemptions 1, 2, 3 (as modified at the last meeting),
recommended that exemptions 7 and 8 be combined, and focused on the wording for
exemptions 8, 9 and 10. Committee members liked Mr. Moylan's revised wording for
exemption 8 and suggested minor wording changes. They suggested that the wording be
simplified so that it did not use undefined terms. It was agreed that Mr. Hook and Mr.
Moylan would come back with refined wording.
1-5-0
IHAHC Minutes, Meeting of September 9, 1998
Page 3
For exemption 9, Mr. French felt that the proposed two year "grace" period to rebuild
damaged structures was too short, and suggested five years. After discussion, the Committee
agreed that the period should be three years, and that subsections a and b should be deleted
since they were not necessary.
Committee members agreed that exemption 10 should remain and asked that staff report back
on whether it should include a provision for projects for which a complete application was
received prior to the effective data of the ordinance.
Committee member Griffin asked staff to determine whether "exclusion" would be preferable
over "exemption" and whether their were any legal differences between the two terms.
CLOSING: List topics for the September 14, 1998 IHTF meeting agenda:
2. Committee members said that at the next meeting they would begin discussion of General
Standards and Procedures. Specific issues to address include the 30 year term (of
affordability) and measures for qualifying occupant's financial eligibility.
The meeting adjourned at 1:35 p.m. to the IHTF meeting to be held on Monday, September
14, 1998, at 12 Noon, in the Council Hearing Room, San Luis Obispo City Hall, 990 Palm
Street.
7Resyubmi d,
ociate Planner
jh/L:WTF9-9.n in
1 'sl
MINUTES
INCLUSIONARY HOUSING TASK FORCE
Monday,August 24, 1998
The meeting convened at 12 Noon in the Council Hearing Room, San Luis Obispo City Hall, 990
Palm Street.
ROLL CALL
Present: Chairperson Steve Nelson, Robert Griffin, Scott Smith, Mary Whittlesey, and
Betty Woolslayer.
Absent: John French and John Rosetti.
Staff: Jeff Hook,Associate Planner. (George Moylan absent)
PUBLIC COMMENT: None.
APPROVAL OF MINUTES: The draft minutes of the meeting of August 17, 1998 were
approved as submitted on a motion by Committee member Griffin, seconded by Committee
member Whittlesey, on a 5:0 vote.
DISCUSSION ITEMS: Draft Inclusionary Housing Ordinance review.
1. Applicability, Section 17.91.030: Exemptions.
Committee members continued their discussion of exemptions from the August 17, 1998
meeting. Chairperson Nelson asked staff to restate the "alternative approach" discussed at last
week's meeting, which would exempt in-city residential development from the inclusionary
housing requirement. Mr.. Hook explained that the draft ordinance exempted residential
projects of four units or less from the inclusionary housing requirement. He added that most
large, in-city sites zoned for residential use were already developed and that most new in-city
residential development would be four units or less and thus, exempt under the proposed
ordinance. An alternative approach to the draft ordinance would be to exempt in-city
residential development from the requirement entirely; and apply the requirement only to new
residential development in annexation areas, since that is where there is an "unearned
increment" in property value upon annexation. It is this incremental value which would then
be "shared" with the community by providing affordable housing. The requirement for
commercial development would not change.
Steve Nelson explained his understanding of the term "unearned increment" as it related to
annexations, and suggested that the unearned increment was a legitimate basis for the
Inclusionary Housing Requirement. Mary Whittlesey asked staff about the "vacant residential
sites" in the Housing Element and whether there were some large, developable in-city sites
remaining. Mr. Hook said that several sites shown as being vacant in the 1994 Housing
Element had since been developed; however there were some vacant residential sites remaining
IHTF Minutes, Meeting of August 24, 1998
Page 2
in the City which could accommodate more than 4 dwellings. He noted that development of
these sites was typically constrained by several factors, such as creeks/flooding,
access/topographic limitations, or lack of water or sanitary sewer connections.
Scott Smith supported keeping the in-city inclusionary requirement for residential
development, along with the exemption for four or less dwellings, since there was still some
potential for residential projects of more than four units, particularly when conversions of
apartments to condominiums were considered.
Steve Nelson felt that the alternative approach had merit. Several members felt that the
ordinance should include a rationale for why certain development projects were exempt.
Committee members discussed and revised exemption 3 under "Applicability" and deleted the
"or 10 percent, which ever is less" to resolve possible inconsistencies in the types of projects
exempted. Several committee members felt that the list of specific projects to be exempt
should be combined, where possible, to reduce its length. Discussion then focused on
exemption number 8 which authorized the City Council to exempt development projects upon
making certain findings.
There was general consensus that the exemption was too broadly worded and that a less broad
measure would be easier to understand and administer. Subsections 2 and 3 were deleted;
subsection 1 wording was modified to read: "Projects which the City Council finds would
help achieve or not impede the objectives of this chapter, and for which no public purpose
would be served by strict enforcement of the inclusionary housing requirement."
Committee members and staff discussed how certain types of "institutions" would be
addressed, like private schools and day care centers, social services and non-profit agencies.
Committee members expressed the preference for an exemption which would cover "public
facilities" and give the City Council the authority to exempt projects upon finding greater
public benefit in not imposing the requirement. Committee members asked staff to prepare
draft wording for such an exemption and bring it to the next meeting.
Because the Chair and at least two other members were going to be absent from the scheduled
August 31' meeting, the Committee decided unanimously to cancel the 31° meeting. The next
scheduled meeting is Wednesday, September 9 .
Chairman Nelson said he was still concerned about how the commercial in-city requirement
would work and its effects. He felt it was important to get input from committee members
French and Rosetti on that aspect of the draft ordinance.
CLOSING:
2. List topics for the September 9, 1998 IHTF meeting agenda:
I -5-3
IHTF Minutes, Meeting of August 24, 1998
Page 3
Committee members decided to conclude the discussion on "Applicability", and on General
Standards, Section 17.91.040, Procedures, Section 17.91.050 and inclusionary housing
requirements for commercial projects in other jurisdictions.
The meeting adjourned at 1:35 p.m. to the IHTF meeting to be held on Wednesday, September
9, 1998, at 12 Noon, in the Planning Conference Room, San Luis Obispo City Hall, 990 Palm
Street.
Res pec bnutted
Jeoolk, Associate Planner
inn.:IHTF8-24.ron
1 -5,11
MINUTES
INCLUSIONARY HOUSING TASK FORCE
Monday, August 17, 1998
The meeting convened at 12 Noon in the Planning Conference Room, San Luis Obispo City Hall,
990 Palm Street.
ROLL CALL
Present: Chairperson Steve Nelson, John French, Robert Griffin, Mary Whittlesey, and
Betty Woolslayer.
Absent: Scott Smith,John Rosetti.
Staff: Jeff Hook,Associate Planner.
George Moylan,Director, Housing Authority
PUBLIC COMMENT: None.
APPROVAL OF MINUTES: The draft minutes of the meeting of August 7, 1998 were
approved as submitted on a motion by Committee member Whittlesey, seconded by John French,
on a 5:0 vote.
AGENDA ITEMS:
1. Review discussion format and objectives for meeting. Chairperson Nelson explained his
suggested review strategy for this and future meetings. He suggested that the Committee
use the draft Inclusionary Housing Ordinance as the discussion outline, covering each
section consecutively from the beginning. The Committee unanimously agreed with this
approach.
2. Review Housing Element policies on affordable housing. Committee members briefly
discussed Housing Element policies. Staff provided a background on implementation
actions taken and explained that under the adopted Affordable Housing Requirements, the
higher in-lieu fees required for expansion areas (compared with in-city projects) reflected
the City Council's stated objective to "recapture" one-half of the increased property values
resulting from annexation. The "recaptured" property value would then be used for the
public's benefit by increasing the supply of affordable housing.
3. Review "Affordable Housing Incentives. In response to a question, Mr. Hook explained
that the Affordable Housing Incentives were adopted by the City Council to implement the
Housing Element and were part of the Municipal Code. He noted that they provided
density bonuses of at least 25 percent for projects of five or more units with at least 20
percent of the total units sold or rented at prices affordable to very-low, low or moderate
income households.
Committee member French stated that in his experience, density bonuses were not
i -55
IHTF Minutes, Meeting of August 17, 1998
Page 2
workable in San Luis Obispo, due largely to neighborhood opposition and other
development requirements. He questioned the value of density bonuses as an incentive for
affordable housing.
3. Review Draft Inclusionary Housing Ordinance.
• Purpose - Chapter 17.91.010. (Who do we serve?) Members discussed the stated
purpose of the IHO and questioned why the purpose did not include providing affordable
housing for "very-low" income persons. Mr. Hook explained that the Housing Element
includes many policies intended to provide affordable housing for very-low income
persons and that the City had committed over $2 Million in Community Development
Block Grant funds to the City's Housing Authority to provide affordable public housing
primarily for very-low income households. The IHO focused primarily on meeting
housing needs of lower and moderate income groups, since these groups' incomes made'it
more likely that they would be able to purchase a home. Due to high land costs in San
Luis Obispo, affordable housing for very-low income persons was basically rental
housing, since at 50 percent of median County income, very-low income persons had a
difficult time making mortgage payments, even for units priced at "affordable" levels. He
noted that in-lieu fees collected under the IHO program could be used to help fund
affordable rental housing, so the program would also help meet the housing needs of very-
low income persons.
Members unanimously agreed that the Purpose section should be modified to state that
"The purpose of this chapter is to promote the public welfare by increasing the production
and availability of affordable housing units," without specifying very-low, low or
moderate income levels, since the definition of "affordable" housing under Section
17.91.020 already includes all three income levels.
• Definitions - Chapter 17.91.020. (What is affordable?) Committee members made
several editorial changes to the Definitions section. Under subsection K, "Housing Trust
Fund", Committee members agreed to recommend adding "held in trust and used
exclusively" after "monies" in the text.
• Applicability - Chapter 17.91.030. (Exemptions and who pays?) There was a lengthy
discussion of exemptions and to what projects the IHO should apply. Committee member
French felt that the requirements should be applied consistently to all projects, including
single-family houses. Mr. Moylan agreed that that approach had merit but doubted that it
was "politically realistic." He suggested that it was more realistic to exempt projects of
one or two dwelling units. Chairperson Nelson felt that the so-called "unearned
increment," or increased value conferred upon annexed property, was what made the IHO
program workable. He questioned the value of applying the IHO to small, in-city
residential projects since any "unearned increment" for these properties had been realized
long ago. In response to questions, Mr. Hook explained there were three reasons for
I- 5b
IHTF Minutes, Meeting of August 17, 1998
Page 3
exempting residential projects of less than five units: 1) to avoid adding costs or fees to
small residential projects; 2) to tie in with the adopted affordable housing incentives which
applies to projects of five or more units; and 3) most successful IHO programs in
California exempt small residential projects.
No clear consensus was reached on the issue of exemptions. Mr. Hook suggested one
approach that might address the Committee's range of concerns was to consider applying
the IHO only to commercial projects within existing city limits, and to both residential and
commercial projects in expansion areas. Most of the residential capacity within existing
city limits is built out, and consists primarily of one and two unit infill projects. In
expansion areas, most residential development would occur through residential
subdivisions subject to the 1HO, with few or no exemptions. Under this approach, the
IHO could logically apply to apply to in-city commercial projects as well as expansion
area commercial, since commercial expansion directly contributes to housing demand and
there is significant potential for commercial expansion with existing city limits.
Committee member French suggested basing an exemption on unit floor area to encourage
smaller, more affordable dwellings. He suggested that dwellings with floor areas of 1400
sq. ft. or less could be exempt.
CLOSING.
5. Topics for the August 24, 1998 IHTF meeting agenda:
• Applicability: exemptions.
• General Standards
• Procedures
• Report from staff on commercial inclusionary..housing requirements from other cities.
The meeting adjourned at 1:30 p.m. to the IHTF meeting to be held on Monday, August 24,
1998, at 12 Noon, in the Council Hearing Room in City Hall, 990 Palm Street, San Luis
Obispo.
Res bmitted
Hook, Associate Planner
ihn.:IHTra-n.min
I -S'I
MINUTES
INCLUSIONARY HOUSING TASK FORCE
Friday,August 7, 1998
The meeting convened at 12 Noon in the Council Hearing Room (Room 9), San Luis Obispo
City Hall, 990 Palm Street.
ROLL CALL
Present: Chairperson Steve Nelson, John French, Robert Griffin, Scott Smith, John
Rosetti, Mary Whittlesey (Planning Commission member),.
Absent: Betty Woolslayer.
Staff: Jeff Hook, Associate Planner.
George Moylan,Director, Housing Authority
PUBLIC COMMENT: None.
APPROVAL OF MINUTES: The draft minutes of the meeting of July 27, 1998 were approved
as submitted on a 6:0 vote.
AGENDA ITEMS:
1. Review and approve meeting schedule. Committee members unanimously approved the
meeting schedule as presented.
2. Review and discuss workbooks. Jeff Hook reviewed the content of the committee
workbooks and displayed a syllabus on Inclusionary Housing Programs in California
prepared by the California Coalition for Rural Housing Projects. Committee members
asked to receive copies of the syllabus and Mr. Hook said he would distribute copies before
the next meeting.
3. Develop list of specific topics to accomplish at each meeting. Committee members did
not set specific objectives for each meeting and instead, skipped to agenda item 4.
4. Evaluate focus topics and discuss possible changes. Each committee member was given
an opportunity to identify issues that he or she felt should be reviewed by the task force.
Below is a list of topics suggested:
Affordable housing incentives Inclusionary housing implementation
Exemption Housing trust fund
"Houskeeping" review of language, etc. Conformity with General Plan
Definition of "Affordable Housing" Review other housing programs/standards
Rental v. homeownership emphasis Land dedication option
Buildout v. in-lieu fee Impact of IH on new development
1 - 51
IHTF Minutes, Meeting of August 7, 1998
Page 2
Applying the "windfall" standard Flexibility to protect against recession
Who are we serving? Two-tier system evaluation
Duration of affordability Mechanisms to ensure continued affordability
The City's Affordable Housing Standards were discussed. George Moylan noted that the
rental cost limits appeared low and suggested that they be checked. Jeff Hook said he would
do so for the next meeting. Scott Smith suggested that the City's standards be checked against
county, state and federal housing affordability standards for consistency and offered to do the
comparison and evaluation. Members agreed with Mr. Smith and felt the comparison would
be useful.
ITEMS FOR THE AUGUST 17, 1998 =AGENDA:
-Questions on the following: Housing Element, Affordable Housing Incentives, Draft
Inclusionary Housing Ordinance.
-Review topics: Who are we serving? (with inclusionary housing program); and Who pays for
inclusionary housing programs?
The meeting adjourned at 1:30 p.m. to the 1HTF meeting to be held on Monday, August 17,
1998, at 12 Noon, in the Council Hearing Room in City Hall, 990 Palm Street, San Luis
Obispo.
Respec tt ,
Je ook, Associate Planner
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MEQ a AGENDA
DATE �� in ITEM #
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November 3, 1998
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TO: City Council
� a•A� �ii�Y ❑Fir Gal
FROM: John Du�-- ERIUORIG ❑POLICE CHF
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❑REC DIR
❑UTIL DIR
SUBJECT: Inclusionary Housing Ordinance O PERS DIR
In my recommendation to you, I have endorsed the work of the Housing Task Force and the Planning
Commission, recognizing and respecting their hard work on this issue. However, I also recall the
laborious process of the City Council deliberating and approving the Housing Element, with the
emphasis upon the City making a meaningful effort towards a true affordable housing program.
In reading the report prepared by the Inclusionary Housing Task Force and subsequently reviewed and
approved by the Planning Commission, I believe I must raise a"philosophical concern"which, though
discussed by both the Housing Task Force and the Planning Commission, is deserving of the Council's
fiuther review and discussion. Without getting into the mechanics of the program, the fact that all for
sale affordable housing units are participants in the equity-sharing program will, in a fairly rapid
process in a real estate inflation economy, "ratchet up"the price of housing for subsequent buyers and
by a corresponding degree"ratchet down"the affordability of the housing unit.
This program is excellent for first-time buyers of the affordable units but, with the subsequent sale and
purchase, the house very quickly reaches the market level price and hence the affordability aspect is
eliminated(see attached Exhibit A).
Again, the philosophical question is whether a person being given the opportunity to purchase a new
home because of a public subsidy at a below-market price should be granted the privilege of
subsequently selling at a fair market price and receiving half of the equity gained, with only half of the
public portion of the equity gain being used to continue the affordability of the program.
Community Development Department staff, in wrestling with this problem, has suggested an
alternative by the limitation on equity sharing to perhaps 25% to 50% of the equity-sharing units. A
way of looking at this, again given the extent of the public investment program and the desire to retain
the affordability of the units over a long period of time, would be to limit the equity sharing to, let's
say, 25% to the home buyer, with 75% being retained to preserve the affordability of the units for a
longer period of time.
I respect the work of the Housing Task Force and the review and deliberation of their recommended
program by the Planning Commission. However, there is some danger in the program being perceived
as, and in reality being, unduly kind to the initial purchasers of the units, leaving the program with a
shorter benefit or a limited life to the detriment of future generations of persons needing affordable
housing units.