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HomeMy WebLinkAbout02/16/1999, 1 - INCLUSIONANRY HOUSING REQUIREMENT CONT Council Agenda Report-Inclusionary Housing Requirement Page 5 would recoup a percentage of the built-up equity in the property which would then be reinvested 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). 30-year affordability would remain a condition of approval for those projects receiving City financial assistance under the Affordable Housing Incentives. State law requires that projects receiving cityfinancial assistance (other than density bonuses) must remain affordable for at least 30 years. 4) Delete Policy 1.22.4 of the Housing Element (2.2.4, General Plan Digest), as follows: 1.22.4 the Gity's pepulation in approximmely the same prepaf6an as these strata are found in the Gity's populaadea. For this element's pianning pefied, the prTarfiens ssbefl be these of the 1990 U.S. > , ineome,34%x. 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-law 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 Cry's affordable housing production standard be established through the amended Table 1. Staff supports this change. Issues raised 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 28te meeting. The issues and how these were addressed in the draft ordinance, are described below: 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 City's Affordable Housing Standards which are updated anvuially. 1-5 Council Agenda Report - Inclusionary Housing Requirement Page 6 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 reflect 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 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 Fund. 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 bei-6 Council Agenda Report - Inclusionary Housing Requirement Page 7 idenn:fled, such as proceeds from the previous Park Hotel block grant rehab loan. 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 SLO 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. 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 Affor Council Agenda Report - Inclusionary Housing Requirement Page 8 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 returnfor providing affordable housing. The existing Affordable Housing Incentives, including City fee 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. FLSCALIMPACT 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. ALTERNATIVE Continuance. The City Council is under no required deadline to act on this item and may continue it for further review. Attachments: 1. Draft Council Resolution 2. Draft Ordinance and revised Draft Ordinance Inclusionary Housing Requirement 3. Inclusionary Housing Task Force Recommendation, December 14, 1998 meeting. 4. Original Inclusionary Housing Task Force Recommendation 5. Planning Commission Resolution 6. Planning Commission Minutes, October 28, 1998 j":indusioa 1-S Aachment #1 RESOLUTION NO. (1999 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: Lremain affordable for at least 30 years, or Q participate in a City-approved equity sharing program, orj) vide such guarantees-as are otherwise required or IIIbedpmYkW by State law, consistent with the Affordable Housing Standards (SL.OMC Ch. 17.90). 2) Demme Policy 1.22.4 of the Housing Element (p. 13), as follows: 1.22.4 the Gi�P's populadoft in eppreyAmftly the same pfoperfien as these swaa are found in these of the 1999 U.S. Gewwa very iew , 3 iew ineeme, 18 ffledeffttee, 34 1-9 Council Resolution No. (1999 Series) Page 2 1.22.10 Amend Program 1.22.10 and Table 1 (p. 14), as follows: 1.22.10. The City wiH amend its regulations to shall require that new development projects include affordable housing units, with gtimantees that they remain affefdable, as required by 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 5+9% 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. I 4-510% of building valuation. 1Developer may build affordable housing in the required amounts, e"ay 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. 1-10 1 Council Resolution No. (1999 Series) Page 3 SEMON"I Notice and Publication. -The City Clerk.shall publish a summary of the resolution in a newspaper of local circulation. i On motion of , seconded 6y and-on.the.following roll call vote: AYES: NOES:: ABSENT: the foregoing Resolution was passed and.adopted this-- _ day of -----_ : 1.999. Mayor Allen Settle ATTEST: City'Clerk - --- — - — - APPROVED= 1=1 A0achment #2 ORDINANCE NO. (1999 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(x); 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; 1-12 Ordinance No. (1999 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. I. 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. 1-13 Ordinance No. (1999 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 final 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 1999, upon motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: Mayor Allen Settle ATTEST: Lee Price, City Clerk APPROVED AS TO FORM: * w ey tor n ity Attorney Attachment: Exhibit A jh/L:inclhsg2.ad 1-14 January 26, 1999 increasing the production and availability of affordable housing units, and to establish an EXMIT A inclusionary housing requirement which Chapter 17.91 implements General Plan policies guiding land use and housing development. INCLUSIONARY HOUSING REQUIREMENT 17.91.020 Definitions. For the purposes of this chapter, the Sections. following words and phrases shall have the 17.91.000 Title. meaning set forth below: 17.91.010 Purpose. A. "Affordable" means housing which can 17.91.020 Definitions. be purchased or rented by a household with 17.91.030 Applicability and very-low, low, or moderate income, as Exclusions. described in the City's Affordable Housing 17.91.040 General standards. Standards (Ch. 17.20, SLOMC). 17.91.050 Procedures. B. "Affordable Housing Agreement" shall 17.91.060 In-lieu housing fee. mean a written agreement between the 17.91.070 Affordable Housing fund. developer, City and possibly additional 17.91.080 Dedication of land. parties which specifies the terms and 17.91.090 Incentives. conditions under which affordable housing 17.91.100 Project Application. requirements are to be met. 17.91.110 Conditions of development C. "Affordable Housing Project" shall approval. mean a development project in which one 17.91.120 Program Requirements. hundred percent of the dwellings to be built 17.91.130 Eligibility Screening. will be sold or rented in conformance with 17.91.140 Affordability Restrictions. the City's Affordable Housing Standards. 17.91.150 Shared Equity Purchase D. "Building Valuation" shall mean the Program. total value of all construction work for 17.91.151 Early Resale of Shared which a construction permit is required, as Equity Properties. determined by the Chief Building Official 17.91.160 Management and using the Uniform Building Code. Monitoring. E. "Commercial Project" means a 17.91.170 Enforcement and Appeals. development project involving primarily 17.91.180 Severability. non-residential uses, including retail, office, service-commercial, light-industrial, 17.91.000 Title. neighborhood commercial, tourist- The provisions of this chapter shall commercial, and manufacturing uses as be known collectively as the Inclusionary further described in the zoning regulations. Housing Requirement of the City of San F. "Density" means residential density as Luis Obispo. defined in Section 17.16.010 of this code. G. "Density bonus" means a density 17.91.010 Purpose. increase of at least twenty-five percent over The purpose and intent of this the maximum density otherwise allowable chapter is to promote the public welfare by under the zoning regulations. H. "Development project" shall mean an 1-15 Inclusionary Housing Requirement activity for which a subdivision map or include those persons and families whose construction permit is required, including incomes exceed eighty percent but are less new buildings and building additions or than or equal to one hundred twenty percent remodels as described in Section of the median income within the county. 17.91.030, but not including changes in (Ord. 1035 § 1 (part), 1985) ownership, occupancy, management or use. Q. "Residential Development" shall mean I. "Director" means the Community development projects which result in the Development Director or his authorized subdivision of land and/or the construction representative. or conversion of dwellings, including, but J. "Fxpansion Area" - A land area not limited to: single family detached proposed for annexation to the City. homes, apartments, condominn,ms, K. "Affordable Housing Fund" means a live/work studios, mobile homes, and fiord established and administered by the group housing. City, containing in-lieu fees and other funds held in trust and used exclusively to 17.91.030 Applicability and increase and improve the supply of Exclusions. affordable housing. A. This chapter shall apply to development L. "Inclusionary housing unit" means a projects consisting of five or more lots or dwelling which is built under the provisions new dwelling units, and to commercial of this chapter, and which meets the City's development projects consisting of 2,500 Affordable Housing Standards. square feet of gross floor area or larger. M. "In-lieu fee" means a fee paid to the B. The following types of development City as an alternative to the production of projects are excluded: inclusionary housing, to be used in the I. Residential developments of 4 units or acquisition, construction, or rehabilitation less; of affordable housing. 2. New commercial developments of less N. "Very-low income" shall have the than 2,500 square feet gross floor area; meaning set forth in California Health and 3. Residential and commercial building Safety Code, Section 50105; provided that additions, repairs or remodels, such income level shall not exceed 50 provided that such work does not percent of median income within the increase the number of existing county. dwellings by four or more units; or O. "Low" or "lower income households" result in an increase in gross floor area shall have the meaning set forth in of 2,500 square feet; California Health and Safety Code, Section 4. The conversion of less than five 50079.5; provided the income of such dwelling units to condominiums within persons and families shall not exceed eighty any five-year period. percent of the median income within the 5. Commercial condominium conversions county. which do not result in the creation of P. "Moderate income households" shall new dwellings; 2 1-16 Inclusionary Housing Requirement 6. Affordable housing projects; or 7. Emergency projects, or projects which 4. Use a combination of the above the City Council determines are methods, to the approval of the City necessary to protect public health and Council. safety; B. Affordable housing standards. 8. Development projects which the City Affordable dwelling units constructed must Council determines are essentially non- meet City Affordable Housing Standards, commercial or non-residential in nature, and must be consistent with affordability which provide educational, social or policies in the General Plan Housing related services to the community and Element. which are proposed by public agencies, C. Concurrent development. The required non-profit agencies, foundations and inclusionary units shall be constructed other similar organizations; concurrent with market rate units unless the 9. Projects which replace or restore a developer and the City Council agree structure damaged or destroyed by within an Affordable Housing Agreement fire, flood, earthquake or other disaster to an alternative development schedule. within three years prior to the application for the new structure(s). 17.91.050 Procedures. 10. Projects for which an approved A. Fractional numbers. In determining the tentative map or vesting tentative map number of dwellings that are required to be exists, or for which a construction built pursuant to Table 1, fractional units permit was issued prior to the effective less than 0.50 shall be rounded down to the date of this ordinance and which first whole number unit, and fractional continue to have unexpired permits. units of 0.50 or greater shall be rounded up to the next higher whole number unit, as 17.91.040 General Standards. calculated by the Director. A. Methods of meeting requirements. New B. Timing. The inclusionary housing development projects shall satisfy the requirement shall be met prior to issuance inclusionary housing requirements, as of a Certificate of Occupancy for the first specified in Table 1 of the General Plan unit in a building, or the first building in a Housing Element. To meet the complex to be constructed or remodeled; or requirements, the developer shall comply for subdivisions, prior to final map with one or more of the following methods; approval; or prior to building permit 1. Construct the required number of issuance, for projects for which a affordable dwelling units, as Certificate of Occupancy is not issued; or specified in Table 1, on the project as otherwise agreed to by the City Council site; or as part of tentative map, rezoning, 2. Pay an in-lieu fee as described in conditional use permit or other Table 1; or development approval. 3. Dedicate land for affordable housing; C. Affordable housing agreement. To meet 3 1-17 Inclusionary Housing Requirement the requirements, the developer may enter shall be used exclusively to provide funding into an agreement with the City, the City's for the provision of affordable housing and Housing Authority, non-profit housing for reasonable costs associated with the provider, or other qualified housing development of affordable housing, at the provider approved by the City Council to discretion of the City Council. construct, refurbish, convert, operate and A. In-lieu fees. In-lieu fees collected shall maintain the required affordable housing. be deposited into the Affordable Housing Such Affordable Housing Agreements shall Fund, to the satisfaction of the Director. be to the approval of the Director and shall be in a form approved by the City 17.91.080 Dedication of Land. Attorney. A. Irrevocable offer of land dedication. At the discretion of the City Council, an 17.91.060 In-lieu Housing Fee. irrevocable offer to dedicate land equal or A. Payment of in-lieu fee. Developer may, greater in value to the m-lieu fee which at his discretion, choose to pay a fee to the would otherwise be required may be City in lieu of constructing affordable offered to the City, or to a housing dwellings to meet this requirement. provider designated by the City, instead of B. Amount and method of payment. The providing the required number of dollar amount and method of payment of affordable dwellings or paying in-lieu fees. the in-lieu fee shall be as described in Table In considering an offer to dedicate land to 1 of the General Plan Housing Element, to meet this requirement, the City Council the approval of the Director. must find that the dedication of land will C. Tuning. In-lieu fees shall be paid prior provide equal or greater public benefit than to release of occupancy of the first dwelling constructing affordable units or paying in- within a residential development; or for lieu fees, based on the following criteria: residential subdivisions to be built out by 1. Valuation of the land to be others, prior to final subdivision map dedicated relative to other methods approval; or prior to occupancy for new of meeting the requirement; commercial buildings or remodels; or prior 2. Suitability of the land for housing, to building permit issuance, for projects for including General Plan conformity, which a certificate of occupancy is not size, shape, topography, and issued; or as otherwise provided by written location; and agreement between the developer and City, 3. Feasibility of developing affordable to the approval of the Director. housing, including general plan consistency, and availability of 17.91.070 Affordable Housing Fund. infmtructure. Affordable Housing Fund established. The B. Land valuation. The valuation of land City hereby establishes an Affordable offered in-lieu shall be determined by the Housing Fund. Said fund shall be Director, based upon an appraisal made by administered by the Finance Director and a qualified appraiser mutually agreed to by 4 1-18 Inclusionary Housing Requirement the developer and the City. Costs the approval of the City Attorney and the associated with the appraisal, title insurance Director. Developers are further and transfer, recordation and related costs encouraged to utilize other local, state or shall be borne by the developer. federal assistance, when available, to meet C Agreement and Timing. The land the affordable housing standards. dedication shall be by deed or other instrument acceptable to the City, and shall 17.91.100 Project Application. be completed by recordation with the A. Method of application. An Recorder of the County of San Luis Obispo applicant/developer proposing a project for prior to occupancy release of the first which affordable housing is required shall residential unit or commercial building in submit a statement with the standard the development; or prior to building planning application, describing the permit issuance, for projects for which a inclusionary housing proposal. The certificate of occupancy is not issued; or as developer's statement shall include: otherwise provided by written agreement 1. A brief description of the proposal, between the developer and the City. including the method chosen to meet the inclusionary housing 17.91.090 Incentives. requirement, number, type and A. Eligibility for incentives. The developer location of affordable units, term of may be eligible to receive, or to request affordability, preliminary development incentives in return for calculation of in-lieu fees, or offer constructing affordable housing in of land dedication; connection with a development project, 2. How the proposal meets General pursuant to the Affordable Housing Plan policies and inclusionary Incentives (SLOMC Chapter 17.90), as part housing requirements; of a City planning application. Incentives 3. Plans and other exhibits showing or other forms of financial assistance may preliminary site layout, grading, be offered by the City to the extent that building . elevations, parking and resources are available for this purpose and other site features, location of to the degree that such incentives or affordable dwelling units and (where assistance will help achieve the City's applicable), market-rate dwelling housing goals. units; B. Affordable Housing Agreement. Any 4. Description of incentives requested, incentives provided by the City, beyond including exceptions from those incentives to which a developer may development standards, density be automatically entitled to under Ch. bonuses, fee waivers or other 17.90 of this code, shall require City incentives; and Council approval and shall be set out in an 5. Other information which the Affordable Housing Agreement. The form Director determines necessary to and content of such agreement shall be to adequately evaluate the proposal. 5 1-19 Inclusionary Housing Requirement B. Director response. After receiving a affordable units; complete planning application, including an 2. The size (square footage), number affordable housing proposal, the Director of bedrooms, and design of the shall respond to the applicant or affordable units; developer's affordable housing proposal. 3. Terms of affordability; The City response shall identify: 1) 4. Schedule for construction of the affordable housing issues and concerns; 2) affordable units; incentives which the Director can support 5. Incentives or other assistance to be when making a recommendation to the provided by the City; decision-maldng body; and 3) procedures 6. Where applicable, the procedures to which will need to be followed to comply be used for qualifying tenants or with the inclusionary housing requirements. buyers, setting rental/sales costs, renting or selling units, filling 17.19.110 Conditions of Development vacancies, and *�managing the units; Approval. and A. Submittal of an Affordable Housing 7. Other terms or conditions requested Agreement. Applicants and developers for by City. development projects subject to this chapter B. Agreements for land dedication. For shall, as a condition of development development projects meeting their approval, prepare and submit an Affordable inclusionary housing requirement through Housing Agreement for City approval. The land dedication, the agreement shall draft agreement shall be reviewed by the specify: Director and City Attorney for compliance 1. The method of conveyance, with project approvals, City policies and schedule, and appraised value of the standards, and applicable codes. Following proposed land dedication; approval and signing of the agreement by 2. Calculation of housing in-lieu fees the parties, the final agreement shall be otherwise applicable to the project at recorded and relevant terms and conditions the time of recordation; shall be recorded as a deed restriction on 3. Title report and insurance; those lots or affordable units subject to 4. Description of location, condition, affordability requirements. The Affordable improvements, and other relevant Housing Agreement shall be binding to all factors applying to the property; and future owners and successors in interest. 5. Other information required by the B. Agreements for constructing affordable City. units. For development projects meeting C. Payment of in-lieu fees. An Affordable their inclusionary requirement through Housing Agreement shall not be required construction of affordable dwelling units, for projects which meet their inclusionary the Affordable Housing Agreement shall housing requirement through the payment specify: of an in-lieu fee. 1. The number and location of 6 1-20 Inclusionary Housing Requirement 17.91.120 Program Requirements. City's equity share in the property. The Only households qualifying as very low, City's equity share shall be the percentage low or moderate income, pursuant to the of the property's value that is determined Affordable Housing Standards, shall be by: eligible to rent, purchase or occupy. (a) the difference between the inclusionary units developed or funded in market-price upon purchase and compliance with this requirement. the actual price paid by the homeowner, and/or 17.91.130 Eligibility Screening. The City, its housing authority, or other (b) the amount of subsidy given to housing provider designated by the City the homeowner to purchase the shall screen prospective renters or buyers property. of affordable units. Renters or buyers of affordable units shall enter into an Upon sale, the City's equity share shall be agreement with City, its housing authority repaid to the City from the proceeds of the or other housing provider to comply with sale, less the City's percentage share of title affordable housing standards. insurance, escrow fees and documentary transfer taxes, at the close of escrow. 17.91.140 Affordability Restrictions. Developers of affordable units for sale shall 17.91.151. Early Resale of Shared Equity specify the type of affordability restriction Properties. In the event of "early resale", to be applied. The developer shall choose owners of properties subject to the Shared to either: 1) participate in a Shared Equity Equity Purchase Program shall either 1) Purchase Program, as described in Section pay an equity recapture fee to the City as 17.91.150, or 2) to enter into an affordable described in the schedule below, in addition housing agreement to ensure that to the City's equity share, or 2) sell the affordability is maintained for a period of property to another eligible household. not less than 30 years, or as otherwise "Early resale" shall mean the sale, lease or required by State law. Affordable rental transfer of property within five (5) years of units shall be subject to a 30 year term of the initial close of escrow. If owner affordability. chooses to pay the equity recapture fee, the recapture fee shall be paid to the City prior 17.91.150 Shared Equity Purchase to close of escrow at resale, based on the Program. Under this program, the following schedule: qualified buyer of a designated affordable dwelling unit shall enter into a shared equity agreement with the City. Said agreement shall be recorded as a second trust deed against the purchased property, at no interest, securing and stating the 1-21 Inclusionary Housing Requirement Year % of Equity Build-up Recaptured: 17.91.180 Severability. If any provision of this chapter or the application 0-2 100% thereof to any person or circumstances is 3 75% held invalid, the remainder of the chapter 4 50% and the application of the provision to other 5 25% persons or situations shall not be.affected 6 and after 0% thereby. "Equity Build-up" shall be defined as the property sales price less actual purchase price,.less the City's equity. The recapture amount shall be determined prior to the calculation of escrow closing costs. 17.91.160 Management and Monitoring. Inclusionary rental units shall be managed and operated by the property owner, or the owner's agent, for the term of the Affordable Housing Agreement. Sufficient documentation shall be submitted to ensure compliance with this chapter, to the satisfaction of the Director. 17.91.170 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. JWL-MTFm3.md Decisions of the Director are appealable, subject to the zoning regulations appeal provisions. (SLOMC Ch.17.66). 8 1-22 Attac went #-3 December 15, 1998 To: San Luis Obispo City ouncil From: Stephen Nels , Inclusionary Housing Ad Hoc Committee Chair Re: Equity Sharing Recommendations in Response to Council Inquiries At your November 10th meeting, the Council asked our committee to meet one more time and review some concerns you raised about the Equity Sharing Purchase Program that we recommended be included in the Ordinance for Inclusionary Zoning. Our Task Force met yesterday. Those in attendance included: John French, Robert Griffin, Stephen Nelson, John Rossetti, Scott Smith and Betty Woolslayer. Staff members present included Jeff Hook and George Moylan. The Task Force unanimously endorsed the following recommendations in response to the issues the Council raised: ISSUE 1 The possibility of early resale of equity sharing properties, resulting in accelerated loss of affordable housing and windfall for the initial property owner. Task Force Recommendation Should the owner sell the property within the first five years, he would have to comply with either of the two options below: Option A Year Owners' Equity Build-up Recaptured 0 - 2 100% 3 75% 4 50% 5 25% 6 and after 0 1-23 Equity Sharing Recommendations December 15, 1998 Page 2 Owner's Equity Build-up is defined as Sales Price less Actual Purchase Price less City Equity. An example would be: Sales Price: $200,000 Actual Purchase Price* Minus $112,500 City Equity @25% Minus $ 50,000 Owner Equity Build-up Equals $ 37,500 *Note the that Market Price at Purchase was $150,000. The buyer's downpayment and loan amount at purchase was $112,500. The City assumes an equity position in the property of$37,500 or the difference between the market value and the price paid by the buyer. The City's equity percentage is secured by a second trust deed. Recapture Amount shall be determined prior to calculation of closing costs. Option B Owner sells house to a family who qualifies under the City's Affordable Housing Guidelines. ISSUE 2 The City may experience a loss in equity share over time due to inflation or other factors Task Force Recommendation Council should review program in 5 years and make appropriate adjustments at that time. Note that because the City's share of the equity in a home is a percentage and not a fixed amount, the City's equity will grow proportionately with overall housing price increases in the City. As a result, there is no need for an inflation index. There may be other factors that should be considered, but they are impossible to identify at this time. Thus, the recommendation to review the program in five years. 1-24 Equity Sharing Recommendations December 15, 1998 Page 3 ISSUE 3 Affordable housing agreement terms and conditions to owner- occupancy, buyer eligibility, and resale. Task Force Recommendation Use the established First-Time Homebuyer Program Guidelines used by the Housing Authority as a guide. In addition to addressing the three issues above, the Task Force also recommends changing the Draft Ordinance by deleting the word "shall" and inserting "may" in the first sentence of Section 17.91.140 that deals with the Shared Equity Purchase Program. This would allow the City greater flexibility to use other appropriate programs to assist in purchasing affordable housing. The Task Force feels very strongly that the Shared Equity Purchase Program will be the best way to handle resale of designated affordable single family houses. The advantages to this approach include (1)significantly less staff time to monitor the program, (2)incentives to the homeowners to sell the home and move into a regular market-rate home, thereby freeing up funds to help another family purchase a house, (3)avoidance of a potentially significant windfall to whoever happens to own the house at the end of 30 years, and (4)maintains public funds to assist low and moderate income families purchase a house in perpetuity. 1-25 Attachment 4 October 6, 1998 To: City of San Luis Obispo Planning Commission From: Stephen Nelson,Inclusionary Housing Ad Hoc Committee Chair 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. 1-26 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 maximise 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 1-27 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 Minim3eS 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 los 28 their equity position in the property. 41tachment 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 Marx REFRAIN: None ABSENT: None Arnold B. Jonas, Secretary 1-29 Planning Commission Attachment 6 Draft PLANNING COMMISSION MUMS 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, 1-30 Draft Planning Commission Minutes,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: 1. 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 1h of the increased value or unearned increment in expansion areas, and if not, what changes are needed? 1-31 Ihah 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. 1-32 Draft Planning Commission Minutes,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- Comm . rogram.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 1-33 Draft Planning Commission lvtinutes,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 'k to t/2 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' 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 1-34 Draft Planning Commission Minutes,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 m-lieu fees, since the actual production of affordable housing is the City's primary objective. Jim Miller, citizen, askedregarding 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? 1-35 Draft Planning Commission Minutes,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 2' 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 fiord. 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 1-36 Draft Planning Commission Minutes,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 staff s 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 1-37 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 notbe 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. 1-38