HomeMy WebLinkAbout02/16/1999, 1 - INCLUSIONANRY HOUSING REQUIREMENT CONT Council Agenda Report-Inclusionary Housing Requirement
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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.
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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.
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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.
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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
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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;
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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
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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
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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
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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?
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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
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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
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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.
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