HomeMy WebLinkAbout02/16/1999, 1 - INCLUSIONARY HOUSING REQUIREMENT council
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CITY OF SAN LU IS O B I S P O
FROM: Arnold Jonas, Community Development Dim
Prepared By: Jeff Hook, Associate Plann �--,
SUBJECT: Inclusionary Housing Task Force recommendation on equity sharing and related
issues and proposed changes to the Housing Element based on those
recommendations.
CAO RECOMMENDATION: 1) Adopt a resolution amending Program 1.22.10 and Table 1
of the Housing Element to modify the Affordable Housing Requirement, and amending
Housing Element Policy 1.22.1 and deleting Policy 1.22.4 for consistency with Table 1; and 2)
introduce an ordinance to print, approving an Inclusionary Housing Requirement to implement
Program 1.22.10 of the General Plan Housing Element, including the revised Equity Sharing
Purchase Program, as recommended.
REPORT-IN-BRIEF
In November, Council asked the Inclusionary Housing Task Force to reconvene to address
early resale of properties under the proposed equity sharing program and related issues. The
Task Force met and has modified its original recommendation to address these issues. The
recommended changes have been incorporated into the draft ordinance and are described in the
attached letter from Task Force Chairperson Steve Nelson.
The draft ordinance would establish an Inclusionary Housing Requirement and an Affordable
Housing Fund, thereby implementing two core programs of the Housing Element. Several
Housing Element amendments are recommended to maintain consistency within the element
and with other policies in the General Plan. The draft ordinance reflects several changes
intended to reduce the impact of inclusionary requirements on development costs while meeting
the intent of General Plan policies. For example, it adds land dedication as one of the ways
developers can meet the inclusionary requirement, besides construction of affordable units on site .
or payment of in-lieu fees, and expands the range of exempt projects to include projects which
are essentially non-residential/non-commercial in nature, such as churches, schools, and day care
centers.
The draft ordinance also includes an Equity Sharing Purchase Program. This program would
allow buyers of affordable dwellings to realize equity growth and financial benefits from home
ownership sooner than would be possible under a conventional requirement that dwellings remain
affordable, according to City standards, for at least 30 years. To address concerns that the equity
sharing program might encourage early resale and thus, loss of affordable housing, the draft
ordinance includes a provision to "recapture" additional equity if a property under the equity
sharing program is resold within the first five years of its original sale.
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DISCUSSION
Inclusionary Housing Task Force Recommendation. At its November 10`h meeting, Council
members discussed the Inclusionary Housing Ordinance and the Task Force's
recommendations. Discussion focused on the proposed Shared Equity Purchase Program, and
while there was general support for the program, Council members identified issues which
needed further study. They asked the Task Force to hold an additional meeting to discuss and
if possible, recommend a strategy for addressing these issues:
1. The possibility of early resale of equity sharing properties, resulting in accelerated loss of
affordable housing and windfall for the initial property owner.
2: The reduction or loss of the City equity share over time due to inflation or other factors.
3. Affordable housing agreement terms and conditions relating to owner-occupancy, buyer
eligibility, and resale.
The Task Force met on December 14th and recommended several changes to the draft
ordinance, as described in the attached letter from Chairperson Steven Nelson. The Task
Force's main recommendation is a change to the Shared Equity Purchase Program. This
change would discourage "early resale" within the first five years of ownership by
"recapturing" a larger percentage of the owner's equity than would apply after five years, or
alternatively, by allowing the owner to sell to another eligible low- or moderate income buyer.
Other recommendations include reviewing the equity sharing program in five years to evaluate
its effectiveness, use of established loan guidelines under the First Time Homebuyer Program,
and changing draft ordinance language in Section 17.91.140 by replacing "shall" with "may."
The effect of this change is to give greater flexibility by allowing developers and homebuyers
to participate in either equity sharing or 30 year affordability. Staff supports these
recommendations. Otherwise, the draft ordinance is unchanged from Council's November
hearing.
Background The proposed inclusionary housing requirements and related General Plan
amendments will implement two core housing programs of the General Plan- that of providing
affordable housing for very-low, low and moderate income households, and establishing an
Affordable Housing Fund. Affordable housing requirements, sometimes referred to as
"inclusionary housing requirements", have been adopted City policy since the Land Use and
Housing Elements were updated in 1994. Housing Element programs 1.22.10 and 1.22.11 set an
affordable housing requirement and call for the establishment of a housing "trust fund." The
affordable housing program requires that new development projects include affordable housing
units with guarantees that they remain affordable for at least 30 years, or pay an in-lieu fee to
assist in the development of affordable housing. The Inclusionary Housing Requirement and
Affordable Housing Fund would work in concert with the affordable housing requirement and the
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Affordable Housing Incentives to help develop affordable housing and acquire land for affordable
housing projects.
Task Force's Previous Changes. The Task Force was established to help the City develop a
program which reflected local needs, priorities and issues, and reviewed an initial draft prepared
by staff. The attached letter and minutes describe the rationale and discussion leading to the Task
Force's recommendation. Consistent with the Council's direction, the Task Force's overall intent
was to "recapture" approximately one-half of the increased land value of property in expansion
areas resulting from annexation("unearned increment"). The changes reflect the Task Force's
conclusion that, based on the 1997 update of the Mundie and Associates report, the effects of the
adopted inclusionary requirements would exceed the City Council's intent to recapture
approximately fifty percent of the unearned increment in expansion areas and could adversely
impact the economic feasibility of new development projects.
The Planning Commission supported the Task Force recommendation as submitted. The Task
Force's recommended changes and additions have been incorporated into the attached draft
ordinance. Most of the changes were editorial in nature, however several significant changes
were made which will affect how the ordinance is applied(page and section refers to the draft
Inclusionary Housing Ordinance):
1. P. 3, Section]7.91.030(8). Excluded projects which are "essentially non-commercial or non-
residential in nature and which provide educational, social or related services." Examples of
such projects could include churches, day care centers, private schools,private social service
agencies and non-profit housing agencies.
2. P. 3, Section 17.91.030(9): Extended the replacement period for structures damaged by fire,
flood or other disaster without being subject to inclusionary housing requirements from two
years to three years.
3. P. 7, Sections 17.91.130 and 140. Modified the requirement that affordable units created
under the ordinance remain affordable for 30 years, and recommended that developers of for-
sale affordable housing have the option to participate in a "Shared Equity Purchase
Program"in lieu of the 30-year affordability requirement. The Shared Equity Purchase
Program is intended to recoup a portion of the equity at time of sale of the original affordable
unit. Under this program, the developer of affordable housing would enter into an agreement
with the 0y, committing to participate in either the 30-year affordability program or the
Shared Equity program. Under the Shared Equity program, buyers of affordable units would
be required to participate in an equity sharing program, secured by a second trust deed
against the property. The City, its housing authority or other non-profit housing providers
would then use the property's equity growth, upon resale, to help other eligible persons to
secure affordable housing.
Task Force members also recommended these changes to the General Plan Housing Element:
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Revisions to the Affordable Housing Requirements, Table 1, below:
Type of Development Project
wr. . Residential Commercial
Build 3% low or 5% moderate Build 1 ADU per acre, but not
cost Affordable Dwelling Units less than 1 ADU per project;
(ADUs7),but not less than 1
7ADU per project; or
In City
or pay in-lieu fee equal to 23% of
building valuation.
Location pay in-lieu fee equal to 5% of
building valuation?
Build 549% low-and 1049% Build 1 ADU per acre,but not
moderate-cost ADUs, but not less less than 1 ADU per project;
than 1 ADU per project;
In Expansion or
Area or
pay in-lieu fee equal to 23% of
pay in-lieu fee equal to 4310% of building valuation.
building valuation.
1Developer may build affordable housing in the required amounts, erpaay an in-lieu fee or dedicate land based I
on the above formula.
2) Amend Program 1.22.10 (2.3.1, General Plan Digest), as follows:
1.22.10. The City shall require that new development projects
include affordable housing units, with gwffantees that they remain afferdable, as required by
dedicate land for affordable housing,
or pay an in-lieu fee to assist in the development affordable housing Citywide.
This amendment removes language which becomes moot with adoption of the inclusionary
housing requirement and adds land dedication as an option for meeting the requirement.
3) Modify Policy 1.22.1 of the Housing Element (2.2.1, General Plan Digest), 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 remain affordable at least 30
years, or as otherwise provided by State law, consistent with the Affordable Housing
Standards (SLOMC Ch. 17.90), or that the owners of the affordable dwelling units
shall participate in an equity sharing program established by the City.
The Task Force's recommendation was to modify the 30-year affordability term, since the Shared
Equity Purchase Program would allow the sales price of an affordable unit to increase to market
level prices at the first resale and for all subsequent sales of the property. In return, the c4-4