HomeMy WebLinkAbout65B - RPT - HOO UPDATEREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
CLERK OF COUNCIL USE ONLY:
JULY 2, 2019
TITLE: APPROVED
❑ As Recommended
RECEIVE AND FILE REPORT ON THE ❑ As Amended
❑ Ordinance on ls' Reading
STATUS OF EVALUATING AND ❑ Ordinance on 2ntl Reading
AMENDING THE HOUSING OPPORTUNITY ❑ Implementing Resolution
ORDINANCE ❑ Set Public Hearing For
{STRATEGIC PLAN NO 5,3)
CONTINUED TO
FILE NUMBER
CITY MAN GER
RECOMMENDED ACTION
Receive and file report on the status of evaluating and amending the Housing Opportunity
Ordinance.
DISCUSSION
On December 4, 2018, City Council received and filed a report on the effectiveness of the
Housing Opportunity Ordinance (Exhibit 1), the City of Santa's Ana inclusionary housing
ordinance. In that report, staff indicated that the next step were to conduct stakeholder outreach
with the private market developer community and nonprofit community before returning to City
Council for a Work Study session in early Spring 2019. In addition, staff anticipcated by fiscal
year end to bring an amended Ordinance for City Council review and consideration that
incorporates revisions proposed through stakeholder feedback and the Work Study session.
Since the December 4, 2018 report to City Council, an interdepartmental working group from the
Planning and Building Agency and Community Development Agency met bi-weekly to work on
amending the ordinance. Staff also conducted an informal survey of other cities to obtain first-
hand experince feedback regarding the effectiveness of their inclusionary housing ordinances.
On February 13, 2019, staff held an Inclusionary Housing Roundtable with the Planning Directors
Association of Orange County (PDAOC) to obtain feedback from developers and other cities on
best management practices within the realm of inclusionary zoning, fees and related topics. Four
panelists representing two market rate developers, one affordable housing developer and a
community land trust participated. The event was attended by nearly 30 participants from cities
throughout Orange County.
In addition, Keyser Marston Associates (KMA) has been retained to assist in analyzing the
feasibility issues associated with the inclusionary housing requirements. The feasibility
assessment will include a market analysis, affordability gap analysis, and KMA's proprietary pro
forma models. The feasibility assessment will inform the final recommendations regarding the
65B-1
Report on Status of Evaluating and Amending the Housing Opportunity Ordinance
July 2, 2019
Page 2
percentage of affordable housing on -site and the depth of affordability to be included in the
amended Housing Opportunity Ordinance, supportable in -lieu fee payment amounts, and off -site
alternatives to developing the inclusionary units on -site within a market -rate project.
Three stakeholder meetings were scheduled in June and July to obtain input from market rate
developers, affordable housing developers, and affordable housing advocacy groups. The
feasibility assessment will be finalized by the end of August. Staff anticipates to have an
amended Ordinance ready for City Council review and consideration before the end of the year.
Staff will outreach to City Council over the next two months on the Housing Opportunity
Ordinance and this amendment process.
STRATEGIC PLAN ALIGNMENT
Approval of this item supports the City's efforts to meet Goal # 5 - Community Health, Livability,
Engagement & Sustainability, Objective # 3 (Facilitate diverse housing opportunities and support
efforts to preserve and improve the livability of Santa Ana neighborhoods), Strategy C (Provide
that Santa Ana residents, employees, artists and veterans receive priority for affordable housing
created under the City's Housing Opportunity Ordinance or with City funding to the extent allowed
under state law).
FISCAL IMPACT
There is no fiscal impact associated with this action.
=iq�� -
Minh T ai
Executive Director
Planning and Building Agency
Steven A. Mendoza
Executive Director
Community Development Agency
Exhibit: 1. Staff Report from December 4, 2018
65B-2
EXHIBIT 1
R8QUEST FOR
COUNCIL ACTION
I
^Vili':J-
CITY COUNCIL MEETING DATE:
DECEMBER 4, 2018
TITLE:
RECEIVE AND FILE REPORT ON THE
EFFECTIVENESS OF THE HOUSING
OPPORTUNITY ORDINANCE AND NEXT
STEPS IN DEVELOPING POLICY OPTIONS
FOR FUTURE CONSIDERATION
(STRATEGIC PLAN NO 5, 3)
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
APPROVED
❑ As Recommended
❑ As Amended
❑ Ordinance on la Reading
❑ Ordinance on 2nd Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
Receive and file report on the effectiveness of the Housing Opportunity Ordinance and next steps
in developing options for future consideration.
DISCUSSION
On November 28, 2011, City Council adopted the Housing Opportunity Ordinance (Ordinance) to
encourage the development and availability of affordable housing by requiring the inclusion of
affordable housing units within new developments or the conversion of rental units to
condominium ownership when the number of units exceeds the densities permitted under the
General Plan. The Ordinance was amended by the City Council on October 6, 2015 to increase
the in -lieu fee among other key changes. (See Exhibit 1 for a more detailed history.)
Under the. Ordinance, developers may elect to satisfy their inclusionary unit requirements for a
project, in whole or in part, by payment of a fee in -lieu of constructing some or all of the required
incluslonary units on -site or off -site. The amount of the in-ileu fee depends on the total number of
housing units in the project. In the case of a residential project containing between five (5) and.
twenty (20) residential lots or residential units, the fee is five dollars per square foot ($5.00/SF) of
the sum total of the number of habitable square feet within the entire project. In the case of a
residential project comprised of more than twenty (20) residential lots or residential units, the
amount of the fee is fifteen dollars per square foot ($15.00/SF) of the sum total of the number of
habitable square feet within the entire project.
In accordance with Section 41-1910 of the Ordinance, "Between July 1, 2018 and December 31,
2018, staff shall report' n the effectiveness of the Housing Opportunity Ordinance and provide
options for council cons'deration on the components of this ordinance, including, but not limited
to, the monetary amount of Inclusionary in-lleu fee per square foot" Staff has prepared the
following report on the effectiveness of the Ordinance followed by policy areas staff will evaluate. .
L•
EXHIBIT 1
Report on Effectiveness of Housing Opportunity Ordinance and Council Options
December 4, 2018
Page 2
Effectiveness of the Ordinance
On -Site Develocment.
Since 2011, a total of 33 units have been developed on -site as a result of the Ordinance,,
including 23 ownership units for -sale and 10 rental units:
In -Lieu Fees Generated. -
A total of $13,886,436 in in -lieu fees have been generated since October 2011 as a result of the
Ordinance. These fees were generated from a total of 9 projects that opted to pay the In-Ileu fee
instead of building units on -site. If those 9 projects had instead built the inclusionary housing
units on -site, a total of 393 low-income units or 263 very low-income units would have been
created. By comparison, there were 2,589 market -rate units produced or are under construction.
(See Exhibit 2 for more detailed information.)
Affordable Housina Units underConstruction/Pre-Construction with In Lieu Fees:
A total of 108 units are under construction / pre -construction with an Investment of in -lieu fees
generated. This includes a $4,775,000 loan of In -lieu fees to develop 57 units of affordable
housing at the Santa Ana Arts Collective and a pre -loan commitment of $1.3 million of in -lieu fees
to develop 51 units of affordable housing at the Tiny Tim Plaza project:
Units Under Construction / Pre -Construction with In -Lieu Fees
Project
# of Units
TOTAL
Santa Ana Ants Collective
57
108
Tin Tim Plaza
51
In addition, $3,131,700 of ir-lieu fees was committed by City Council on September 14, 2018 to'
create 200 emergency shelter beds at the Link interim emergency shelter. An update on staff
efforts to replenish the In -lieu fees provided for the Link is provided In a separate staff report for
the December 4s' City Council meeting.
The remaining balance of in -lieu fees generated was made available by City Council on June 19,.
2018 In RFP # 18-056 for Affordable Housing Development. A recommendation is forthcoming
by a Review Panel formed by staff on the award of these remaining in -lieu fees.
L.
EXHIBIT 1
Report on Effectiveness of Housing Opportunity Ordinance and Council Options
December 4, 2018
Page 3
FEEDBACK PROVIDED BY THE EDIBT COMMITTEE
At the November 28, 2018, Economic, Development, Infrastructure, Budget and Technology
Council Committee (EDIBT) meeting, the Committee provided feedback regarding areas of the
Ordinance to be evaluated by staff. The feedback provided by the Committee included the
following options for future consideration:
1) On -Site Development:
a. Require Inclusionary units to be built on -site.
b. Require all developments to comply with the Ordinance instead of only those
projects that trigger the Ordinance when the number of units exceeds the densities
permitted under the General Plan. However, exclude adaptive -reuse projects that
are more difficult to develop.
c. Remove the option for developers to build 10% of the units on -site for very low -
Income families and only permit developers to develop 15% of the units on -site for
low -Income families.
2) In -Lieu Fees:
a. Establish a more competitive in -lieu fee option with criteria.
3) Density Bonus Concession:
a. Make the concession merit -based to provide more very low-income units on -site,
serve special needs populations and/or provide deeper affordability.
NEXT STEPS AND POLICY AREAS STAFF WILL EVALUATE
For the next steps, staff will conduct stakeholder outreach with the private market developer
community and nonprofit community before returning to City Council for a Work Study session In -
early Spring 2019. Using the feedback from the EDIBT Committee, staff has prepared a non -
exhaustive list of five key policy areas to evaluate for the City Council. By fiscal year end, staff
anticipates to have an amended Ordinance ready for City Council review and consideration that
incorporates revisions proposed through stakeholder feedback and the Work Study session.
Following are the five policy areas and options that will be evaluated:
L City Density Bonus Concession:
The current Ordinance allows second density bonus on top of State density bonus, which can
almost double the base density permitted. Staff is unable to negotiate additional project
requirements that match the General Principles adopted by City Council on March 20, 2018 in the
Affordable Housing Funds Policies and Procedures because the density bonus concession in the -
Ordinance allows a developer to receive the concession without any further merit -based
requirements or criteria. Therefore, regarding the density bonus concession, staff will study the
following policy options for future City Council consideration:
1) No change.
2) Remove the City Density Bonus Concession.
L•
EXHIBIT 1
Report on Effectiveness of Housing Opportunity Ordinance and Council Options
December 4, 2018
Page 4
3) Modify the concession so that a Density Bonus has merit -based criteria to align with policy
priorities adopted by City Council on March 20, 2018 In the Affordable Housing Funds
Policies and Procedures to provide more very low-income units on -site, serve special
needs populations and/or provide deeper affordability.
11. In -Lieu Fee Payment versus On -Site Development Requirement.
The current Ordinance allows a developer to opt -out of building inclusionary housing units on -site
by paying the in -lieu fee. Since the creation of the Ordinance in October 2011, only 33 affordable
housing units have been developed on -site and 108 units are currently under construction. This
is a total of 141 affordable housing units. (Staff do not currently have an estimate on how many
additional affordable housing units will be produced through RFP # 18-066.) Meanwhile, as'
stated above, if the same 9 developers who opted to pay the in -lieu fee had built the units on -site,
the city would have approximately 393 low-income units or 263 very low-income units. This is
nearly:!two or three times the amount of affordable housing units created. Every private market
decision by a developer is based on the economics of their project and their profit margin.
Specifically, if it is more cost effective for a developer to pay the in -lieu fee versus developing the.
affordable housing units on -site with restrictive rental/ownership covenants, a developer will
choose the option to pay the in-Ileu fee. Therefore, regarding the calculation of the In -lieu fee
payment option versus on -site development requirement, staff will study the following policy
options for future City Council consideration:
1) No change.
2) Eliminate the In -lieu fee entirely as an option thereby requiring the development of units
on -site or off -site.
3) Modify the in -lieu fee to be more comparable to other cities,
Ill. In -Lieu Fee Payment 77ming.
The current Ordinance requires a developer to pay their In-Ileu fee prior to issuance of a building
permit, The timing of the in -lieu fee payment has become an issue for some developers of multi-
phase and single-phase projects. In one case, a developer requested to phase. their In-Ileu fee
payment in three phases such that they could close on their financing. In another case, a
developer requested to pay their In -lieu fee at the issuance of their certificate of occupancy
Instead of their building permit In addition, for large phased developments, it can be difficult for
the City. to administer and a burden for the developer to finance. Therefore, regarding the timing'
of the in -lieu fee payment, staff will study the following policy options for future City Council
consideration:
1) No change.
2) Allow the payment of In-lleu fees in phases based on a developer's project schedule, to be
negotiated by staff.
3) Allow the payment of in -lieu fees at the issuance of the certificate of occupancy or when
the building permit is finalized.
EXHIBIT 1
Report on Effectiveness of Housing Opportunity Ordinance and Council Options
December 4, 2018
Page 5
N. Applicability of the Ordinance -
a. General Plan Update Completion. -
The current ordinance only applies to projects when the number of units exceeds the
densities permitted under the General Plan. As a result, there are various projects that do
not trigger the Ordinance. Specifically, this does not allow thel City to require incluslonary
housing for residential projects in residential zones. It is anticipated that with the adoption
of the new General Plan, all housing projects will be In residen tal zones. Generally, since
the adoption of the Ordinance more affordable housing units would have been created If all
of the projects had been required to build on -site. Therefore, I agarding the applicability of
the Ordinance, staff will study the following policy optio s for future City Council
consideration:
1) No change, recognizing that revenues and housing u its will decrease once the
General Plan Is update completed.
2) Modify the ordinance to apply to all housing projects.
b. Adaptive Reuse.
The current Ordinance requires adaptive reuse projects t . provide onsite affordable
housing or pay an in -lieu fee. Simultaneously, the City s Adaptive Reuse Ordinance allows
developers to convert vacant or underused existing office l or commercial space to
residential uses. Certain Incentives are provided to encourage the provision of housing in
this way. Therefore, regarding the applicability of the Ordinance, staff will study the
following policy options for future City Council consideration:
1) No change.
2) Create a reduced requirement for adaptive reuse project i.
3) Eliminate the applicability of the Ordinance on adaptive reuse projects.
c. Non -Residential Uses -
The current Ordinance only applies to residential proje s. Some cities require
inclusionary housing fees for non-residential projects. Therefore, regarding the
applicability of the Ordinance, staff will study the following p ]icy options for future City
Council consideration:
1) No change.
2) Modify the Ordinance to create an inclusionary housing f Be for non-residential uses.
V- Percent Set -Aside for On -Site Units:
The current Ordinance allows developers the option to develop 100/8 units on -site for very low-
income families or 15% units on -site for low-income families. If only the higher threshold of 15%
is applied, the City will receive more affordable housing units an the 10% alternative.
Therefore, regarding the percentage of units to be built on -site, staff V1 ill study the following policy
options for future City Council consideration:
1) No change.
2) Modify to allow a reduced percent set -aside for very low-inco �e as well as other housing
including Special Needs Housing or housing types that meet o r Regional Housing Needs
Assessment requirements.
65B-7
EXHIBIT 1
Report on Effectiveness of Housing Opportunity Ordinance and Council Options
December 4, 2018
Page 6
3) Remove the option for developers to build 10% of the units on -site for very low -Income
families thereby only permitting developers to develop 15% of the units on -site for low-
income families.
To facilitate Council consideration of additional policy areas not listed above, staff has provided
comparisons of other inclusionary housing ordinances as provided In Exhibits 3 and 4.
STRATEGIC PLAN ALIGNMENT
Approval of this item supports the City's efforts to meet Goal # 5 - Community Health, Livability,
Engagement & Sustainability, Objective # 3 (Facilitate diverse housing opportunities and support
efforts to preserve and improve the livability of Santa Ana neighborhoods), Strategy C (Provide
that Santa Ana residents, employees, artists and veterans receive priority for affordable housing
created under the City's Housing Opportunity Ordinance or with City funding to the extent allowed
under state law).
FISCAL IMPACT
There is no fiscal impact associated with this action.
Steven A. Mendoza Minh Thal
Executive Director Executive Director
Community Development Agency Planning and Building Agency
Exhibits: 1. History of the Housing Opportunity Ordinance
2. Detailed Breakdown of In -Lieu Fee Payments and On -Site Units
3. Summary Comparison of other Inclusionary Housing Ordinances
4. Staff Report from the City of San Diego on other Inclusionary Housing
Ordinances
L. w
EXHIBIT 1
History of the Housing Opportunity Ordinance
The first version of the Housing Opportunity Ordinance (HOO) was brought before the City
Council as a Work Study Session on January 18, 2011. The Initial proposal was conducted as
part of the Housing Element update process. The draft HOO proposed that 15% of new
housing should be set aside as affordable for 45 years (owner -occupied) and 55 years (rental),
This draft HOO would be triggered by any applications for up -zoning, Increases In residential
density, Increases In percentage of residential development, conversion of commercial or
Industrial to residential uses, and conversion of rental units to condominium ownership due to
the Palmer court case. Other development options included the payment of In -lieu fees,
substantial rehabilitation of existing apartments, or the construction of off -site units.
A Planning Commission work-study session on March 14, 2011 included a technical study by
Kathe Head with Keyser Marston and Associates (KMA) that provided a market -based formula
for determining the in -lieu fee. On March 28, 2011 the Planning Commission recommended
Zoning Ordinance Amendment (ZOA) No. 2011-01, Staff presented this proposal to the
Community Redevelopment and Housing Commission on April 5, 2011. On May 9, 2011 an
ad -hoc committee was formed and held two meetings on June 7 & 30, 2011 to discuss the
proposed ordinance In detail. This discussion included a debate between the merits of a fixed
fee vs. a market conditions fee. This proposal required developments of five or more
residential units to Include a 15% set -aside of affordable units on -site while accepting in -lieu
fees only under unique conditions.
On November 7, 2011 the City Council reviewed Item # 75B to adopt ZOA No. 2011-01. The
Mayor and Council amended the proposed ordinance and voted 6-1 in favor of Ordinance NS-
2825.On November 28, 2011 the City Council held a second reading and adopted the first
version of the Housing Opportunity Ordinance.
[In a related action, on December 2, 2014 the City Council passed the Adaptive Reuse
Ordinance (NS-2874) which required reuse projects to follow the HOO requirements.]
A special meeting to revise the HOO was held by the Planning Commission on July 20, 2015.
They voted 3-2 to recommend ZOA No. 2015-03 making the following changes to the
ordinance: the fees would be assessed on a square footage basis, all affordability restrictions
were to last 55 years, allowance for 15% moderate Income of ownership projects, an explicit
exemption for projects submitted prior to the 2011 HOO adoption, adding an exemption for
adaptive reuse projects, adding exemptions for retrofitting, and requiring a 1 for 1 sq. ft. match
for off -site construction. The City Council reviewed the proposals on August 4, 2015, Following
additional revisions, a second reading was held on September 1, 2015 and formally adopted
as Ordinance NS-2881. A minor revision clarifying administrative procedures and the
applicability of the HOO was adopted as Ordinance NS-2885 on October 6, 2015. This was the
last time a revision to the HOO occurred.
EXHIBIT 1
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65B-11
TI49 CITY OF S,%N ®11ma
OFFICE OF THE INDEPENDENT BUDGET ANALYST REPORT
Date Issued: July 12, 2018 18A Report Number: 18-21
City Council Docket Date: July 31, 2018
Item Number: TBD
Comparison of Inclusionary Housing
Programs
OVERVIEW
To facilitate the affordable housing discussion planned at City Council on July 31, this report
provides requested information from Counoilmember Ward's office regarding the various
components of inclusionary housing programs in California cities. In addition, information on the
effect of recently enacted legislation, Chapter 376 of Statutes of 2017 (AB 1505) was requested.
AB 1505 allows cities to require that rental residential development include a certain percentage
of affordable rental units and provide alternative means of complience. This bill.supersedes a court
decision that deemed inclusionary zoning policies for rental residential development in conflict
with the state's Costa -Hawkins Rental Housing Act.
BACKGROUND
What is Inclusionary Housing?
Inclusionary housing refers to programs and strategies that promote the creation of affordable
housing when new development occurs, t This includes fee -based policies such as housing impact
or linkage fees, which are fees assessed on new development intended to mitigate a resulting
demand in affordable housing, Inclusionary zoning is a type of inclusionary housing strategy that
requires or encourages a certain portion of affordable housing units to be provided within market -
rate projects.2
I Thaden, Emily and Ruoelu, Wang, "Inclusionary Housing in the United States: Prevalence, Impact, mid Practices,"
Lincoln institute of Land Policy, September 2017.
2 United States Department of Housing and Urban Development, Office of Policy Development and Research,
"Inclusionary Zoning and Mixed -Income Communities,"
httos:&lgwbudiisor v ortftmiodicaWaiVsvrinRl3/hi&blipbt3btml.
OFFICE OF THE INDEPENDENT BUDGET ANALYST
202 C STaasrr MS 3A SAN DIEGO, CA 92101
Tat. (619) 22 1,,36-6556
65B-12
EXHIBIT 1
Methodology
According to the most recent survey available ofinclusionary programs available,149 jurisdictions
in California were identified with inclusionary housing programs.3 This report is limited to the six
most populated cities with reported inclusionary housing policies. Chula Vista was also selected
to provide a regional comparison to the City of San Diego. The report discusses the most
significant elements of each city's policy in a general format beginning with some background,
the main or base requirement of the policy, alternatives to the base requirement, and impacts of
city policies.
FISCAL/POLICY DISCUSSION
Recent Legislation — AB 1505
AB 1505 authorizes a city or county to require, as a condition of development of residential rental
units, that the development include a certain percentage of units that are affordable to moderate
and lower -income households. The new law became operative in January 2018 and supersedes a
2009 court decision in Palmer&Wh Street Properties v. City of Los Angeles (Palmer) that
inclusionary zoning for rental residential development conflicts with the state's Costa -Hawkins
Rental Housing Act. The Costa -Hawkins Rental Housing Act gives rental housing owners the right
to set initial and all subsequent rental rates for a unit built after 1995. In response to the Palmer
decision, many jurisdictions suspended their inclusionary zoning ordinances for rental housing
development. As shown in this report, many jurisdictions have also changed the structure of the
policy to be fee -based and allow, as an alternative to the fee, the production of affordable units
within a development project, in order to comply with the Costa -Hawkins Rental Housing Act.
A summary of some of the identified impacts from AB 1505 are provided at the end of this report.
An overview of inclusionary housing programs is provided below,
City of San Diego
Inclusionary Housing Ordinance
Back rg ound: The City of San Diego's fee -based Inclusionary Housing Ordinance was passed in
2003 and is one of several ways that affordable housing is created and preserved in throughout the
city. According to the Inclusionary Affordable Housing Ordinance the purpose of the program is
"to encourage diverse and balanced neighborhoods with housing available for households of all
income levels."
Base requirement: San Diego's Inclusionary Housing Progratn requires that all new residential
development that is at least two units is subject to an Inclusionary Affordable Housing Fee. These
fees are collected and placed in the Affordable Housing Fund. Instead of the fee, the developer can
provide affordable units on or off -site of the project. Off -site units are allowed if they assist in
9 Thaden, Emily and Ruoniu, Wang, "Inclusionary Housing in the United States: Prevalence, Impact, and Practices,"
Lincoln Institute of Land Policy, September 2017.
65B-13
EXHIBIT 1
meeting the goal of providing economically balanced communities and the goal of providing
transit -oriented development.
Fee: For residential developments under 10 units, the fee rate per square foot is on a sliding scale
and increases for each additional unit, For projects that are 10 units or more, the current rate is
$10.82 per square foot. The fee is calculated by multiplying the per square foot rate and the
aggregate gross floor area of all units within the development,
Alternative: Instead ofpaying the fee, developers of for -sale unit projects may provide 10% of the
total number of dwelling units in the project affordable to households earning up to 100% of the
area median income of a family (AMI).
Exemptions: An exemption is provided for residential development, receiving a financial or other
form of assistance, with at least 10% of total dwelling units affordable to, and occupied by
households earning up to 65 % of AMI,
Impact: Since the inception of the Inclusionary Housing Program, $133.3 million has been
collected in fees. In addition, 2,531 affordable units have been built with inclusionary fees and 957
affordable units have been built by developers under this ordinance and through other incentive
programs. There are also 907 affordable units in the pipeline to come.
City of Los Angeles
Measure JJJ—A, ffordable Housing Requirements and In -Lieu ree
Back rg ound The City of Los Angeles uses many ordinances and policies to promote housing
development for residents of all incomes. The City -had been worldng on a mixed -income housing
ordinance but it was stalled with the Palmer decision 4 However, voters approved different
affordable housing requirements and an in-licu fee through Measure JJJ in November 2016.
Basic Requirement: The measure requires developers of certain residential projects to provide
affordable units or pay a fee instead. Projects subject to Measure JJJ are those that are at least 10
units and need changes to land uses or maximum building height that results in an increase in
residential density of more than 35%, or allows a residential land use which was previously not
allowed. Projects must meet one of the on -site affordability provisions or one of the specified
alternative options. In addition, the measure includes various labor requirements related to pay,
training, and local hiring for construction done on the project,
Affordability Provisions: Affordability requirements vary depending on whether the project
produces rental units or for -sale units, For rental projects, affordability requirements also depend
on: 1) whether they increase residential density by more than 35 %; 2) whether it creates residential
use where it was previously not allowed; and 3) what household incomes are targeted. Lower
City of Los Angeles, Development of a Mixed Income Housing Ordinance, report to the Housing, Community and
Economic Development Committee February 3, 2010, bttp://cilaep Iacity.ore/onlinedocs12008/08-2614 Ipt elan 2-
10,ndf
5 Tbrough a General Plan amendment or zone change
65B-14
EXHIBIT 1
affordability requirements exist for rental projects that result in an increase in residential density
beyond 35%, as opposed those that result in new residential land use.
Affordability requirements for for -sale projects increase depending on the household income
targeted — the lower the income, the lower the percentage required since they require the greatest
subsidy, Table 1 below summarizes these requirements.
Alternatives; A developer can satisfy affordable housing requirements by building affordable units
off -site of the project if affordability levels are compatible to those required for units provided on -
site, and they are provided in proximity of the project. Other alternatives include acquiring and
preserving a property containing at -risk affordable units, or paying an "in -lieu fee".
In -Lieu Fee: The rental fee varies depending upon the unit size and affordability level. The for -
sale fee depends on the size, affordability level, which communityplan area the project is located,
and housing type, According to the affordability gaps study, fee rates for for -sale units vary
significantly: from a few hundred dollars per market -rate unit to over $400,000 per unit assuming
the lowest rate that satisfies the affordability requirements.
Additional Incentives: In addition to increased residential density or attaining new residential use
for the development, a project under this program that satisfies the affordable housing
requirements is also entitled to three incentives included in the state's density bonus program,
Table It City of Los Angeles Measure JJJ Affordable Housing and Fee Requirements
Rental Projects' ForSale Protects__
difmvtaMe UnY Asrcentaeerr
Increase in Residential Density
5%s for extremely low income end
11 for vary low income; or
%
Over 35%
either:
20% for lower income; or
6% for very low income or
40% for moderate income
15% for lower income
—
R6i4ential Use. -Where Not ::
5% for extremely loww income and.
Same as above'
.ProvioUtly.Alldwed'
•••.c
11%vety low,incom'aor`.^.
20%kilowerindohie. ;'
...
Tn-T,fen Fee
.. Crt;ase in Residential,Density'
Exampl6: $46,350 petorie b'ei3room'
Cbuld ruhge between a f0ly hutidred '
Over•3'S%
dttitassumm$5%uforeXtremelylow
to,'dyer'.$40%1300 par:prmket -rate '
income and:6%forverylowineome-'unit
Residential Use Where Not
Example, $66,585 per oue•bedroom
Same as above
Previously Allowed
unit assuming 5% for extremely low
income and 11% for_ very low
income
t The affordabilityunitpememages indicate the minimum percentage of affordable units required within a residential development.
Affordable unite must have rents or prices set at a level that is affordable to the specified targeted household income,
2 Rental income thresholds: Extremely low-income units target household incomes up to 30%of AMI; very low-income units target
households up to 50% of AMI, and lower -income units target households up to 80% of AMI.°
a For -sale income thresholds: very low-income targets households up to 50% of AMU, lower -income targets households up to 80%
ofAML end moderate -income targets households up to 120%of AM.
6In-Lieu Fee Study for Compliance with City of Los Angeles Measure JJJ, Affordability Gaps Study, March 13,
2017,
httus•//nlnnning lacity arc/orditrancesldocs/I'OCILA Measure, JJJ Affordability Gan Analysis 03132017 Edit ndf
65B-15
EXHIBIT 1
m ac : City staff indicate that initial results of Measure JJJ show a significant decline ofproposed
housing units through General Plan amendments and zone changes, which may be due to a
confluence of factors. However, staff have also seen positive results emerging from a separate
program that originated from Measure JJJ, called the Transit Oriented Communities Affordable
Housing Incentive Program (TOC Program),
The TOC Program promotes affordable housing development located in a one-half mile radius
around a major transit stop by providing incentives such as additional density and reduced parking.
There are varying levels of affordability required targeting extremely -low income households,
very low-income households, and lower income households. Additional incentives could be
granted if certain labor standards are met, but this is discretionary,
Los Angeles also has an affordable housing linkage fee program which became operational in June
2018. For -sale and rental housing development are exempt from the fee if they include affordable
units where at least 40% are for moderate -income households; 20% are for low-income
households; II% are for very low-income households; or 8% are for extremely low-income
households. The fee per square foot varies by size of the development project, but ranges between
$1 in a low market area and $18 in a high market area.? Since the linkage fee has just gone into
effect, there is no information available on its impacts. However, city staff estimate that the fee
could generate about $110 million per year that would go towards affordable housing,
City of San Jose
Inclusionary Housing Ordinance
Background: San Jose's Inclusionary Housing Ordinance was adopted in January 2010. However,
its implementation was stalled because it was challenged by the California Building Industry
Association claiming that it was an unconstitutional exaction. In 2015, the city's ordinance was
upheld by the California Supreme Court which instead characterized residential inclusionary
zoning ordinances as "land use restrictions", and therefore not subject to special scrutiny triggered
by exactions.' This ruling allowed San Jose's Inclusionary Housing Ordinance to be reactivated
after a grace period, but only for for -sale units (not for rental units) due to the Palmer court
decision.
San Jose's Inclusionary Housing Ordinance kept the requirements related to rental units in law but
made its operation contingent upon the Palmer decision being overturned, or the state legislature
authorizing control of rents of inclusionary units. With the enactment of AB 1505, San Jose has
only recently been able to fully implement its hiclusionary Housing Ordinance for both for -sale
and rental units even though it has been on the books since 2010.
Base Requirement: The ordinance requires that all residential development projects that are 20
units or more include 15% of the housing on -site at a cost that is affordable to specified income
?City of Los Angeles, Affordable Housing Linkage Fee, Ordinance Background and Frequently Asked Questions,
February 2017.
B California Building Industry Association v. City of San Jose, March 10, 2016
httpsV/harvardlawreview ore/2016/03/califomia-buildiniz-indtistry-asmi-v-city-of-san-io accessed July 6, 2018.
65B-16
EXHIBIT 1
levels. Projects that create for -sale units must provide units at an affordable sales price to
households earning up to 110% of AMI.
Projects that provide new rental units must satisfy the 15% obligation with the following
breakdown:
• 9% of the total dwelling units at an affordable rent for moderate income households earning
up to 80% of AMI
• 6% made affordable to very low-income households earning up to 50°/o of AML
Incentives: The program offers developers incentives to provide housing on -site such as: an
increase inproj ect density that would otherwise not be allowed; reduction in parking requirements;
reduction in minimum setback requirements; the ability to provide an alternative unit type as
compared to the market rate units; the ability to provide alternative, but functionally equivalent,
amenities than market rate units; and additional assistance from the city for such things as selling
and renting affordable units to qualified households.
Alternatives: The program allows for the alternatives listed below.
Offsite: Developers may provide affordable units off -site if at least 20% of the total units in the
residential development are affordable. For -sale affordable units must be available to households
earning no more than 110% of AMI. Rental projects must also satisfy the 20% obligation, but by
providing 12% of the total dwelling units in the project affordable to lower -income households
earning up to 60% of AMI, and 8% for very low-income households earning up to 50% of AMU.
In -Lieu Fee: Developers may pay a fee instead of constructing the affordable units within the
project. The current fees are $167,207 per inclugionary home and $125,000 per inclusionary unit
through June 30, 2019. These rates reflect the average city subsidy per unit, which is then applied
to the 20% requirement for the proportion of affordable units within the residential development.
Other alternatives include:
• Dedication of land instead of constructing inclusionary units
■ Purchase or transfer of affordable housing credits between developers
• The acquisition and rehabilitation of existing market rate units for conversion to affordable
units
• Allowing developers to provide affordable units that are restricted by an agreement
between the developer and the United States Department of Housing and Urban
Development
• Allowing a developer to propose a combination of options outlined above,
Impact: Since San Jose's inclusionary, program hag only recently begun to fully operate, there is
no information currently available on how many affordable units have been created attributed to
the city's inclusionary housing program.
Housing Impact Fee .Program
San Jose also established a Housing Impact Fee Program in 2014 and started collecting fees in
2016. The affordable housing impact fee applies to new small residential rental development (with
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EXHIBIT 1
3 to 19 dwelling units) at a fee of $17.83 per square foot, The impact fee does not apply to for -sale
unit developments.
San Francisco
Inclusionary Housing Program
Background: San Francisco has had an inclusionary housing program since 1992, which was
discretionary up until 2002. It was recently amended in the fall of 2017 and is currently
transitioning to becoming fully operational by 2028.
Base Rec;W ment: All residential development projects that are at least 10 units pay an Affordable
Housing Fee. The Affordable Housing Fee is different for each unit type. The fee is calculated by
multiplying the fee per unit (i.e. a one -bedroom unit has a fee of $268,960) by the number of units
of that type in the project, times the fee rate. The fee rate is 30% or 33% since it reflects the off -
site affordable unit percentage requirement for either rental units or for -sale units,
Alternatives: As an alternative to paying the fee, a developer can construct affordable units on or
off -site of the residential development. Affordability requirements vary depending upon the size
of the project and whether the units are for -sale or for rent. These requirements are summarized in
Table 2 below.
On -site: The city is currently phasing in increases to affordable housing obligations for on -site
projects. For small for -sale and rental unit projects (10 to 24 units), the number of affordable units
required to be constructed on the project site is 12.5% of all units and must be available for low-
income households. This percentage will be increased annually until it reaches 15% in 2024,
For large projects (25 writs or more), 21% of all units within for -sale unit projects must be
affordable, with certain proportions targeting low-income households, moderate -income
households, and middle -income households. For rental unit projects, 19% of all units are required
to affordable, with a breakdown similar to for -sale units.
Off -site: If developers elect to construct affordable units at a different site than the development,
the affordability obligation increases from 12% to 20% for small projects, For large for -sale unit
projects, the required number of affordable units is 33% of all writs in the development, broken
down by low-income, moderate -income, and middle -income households. Similarly, 30% of all
units within a rental unit project are required to be affordable with a comparable breakdown by
household income. The following table summarizes the details of San Francisco's Inclusionary
Housing Program.
7
M•
EXHIBIT 1
Table 2: Summary of San Francisco's Affordability Requirements4l
Small For-SAo Units Small Rental Units Large For•Saie Units Large Rental Units
Onsite
.12.5%;f0rlowincwmc3
12.5%° for low fneeme3
21'%° ...
199V ;?
,foflow;•'.'
5°/°.formodgtnte
40 fdr'inodeSete..•: '.
3% lormidd q i , c ; `
:.' 'i% foYwlidle`
Off -site
20%forlowincome
20%for low income
33%
30%
18%for low
18%for low
8%for moderate
6%for moderate
7% for middle
6% for middle
r Affordable For -sale units for low-income households earn up to 80% of MA moderate -income households earn up
to 105% of AK and middle -income households cam up to 130% of AMI.
7 Affordable rental units for low-income households earn up to 55% of AM; moderate -income households earn up to
80% of AK and middle -income households cam up to 110% of AM.
315 % at full implementation
126% at full implementation
324% at full implementation
Impact: It is too early to identify the impacts of the city's new Inclusionary Housing Program.
However, the most recent housing inventory report indicates that in 2017, 421 inclusionary units
were added which accounts for 28.8% of all affordable units provided through all city programs.9
City of Sacramento
Mixed Income Housing Ordinance
Backeround: In 2015, the Sacramento City Council modified its Mixed Income housing
Ordinance to a fee -based policy in compliance with the Palmer decision. Prior to 2015, Sacramento
had a project -percentage requirement of 5% of total dwelling units to be affordable to low-income
households earning up to 80% of AMI and 10% for very low-income households with income up
to 50% of AMC These units were required to be built on the site of the development project, to the
extent possible. The City cites one of the reasons for moving away from the project-porcentage
approach was the difficulty of marketing for -sale inclusionary units due to a limited range of
qualified buyers.10
Base Reuirement: The Ordinance requires that an affordable housing impact fee be assessed for
all now market rate housing units, with the intent of providing housing for a variety of incomes
and family types. Residential developments larger than 100 acres are additionally required to
develop a Council -approved mixed -income housing strategy. The strategy demonstrates how the
projeotprovides housing forvariety of incomes and family types. It may also provide for fee credits
for land dedication, construction of affordable units, or another mechanism that leads to affordable
housing.
9 2017 San Francisco Housing Inventory, San Francisco
Council Report,
Report ID: 2015-00668,
65B-19
EXHIBIT 1
Affordability requirements: The ordinance states that multi -dwelling development projects
constructed for fee credit may contain any proportion of affordable dwelling units. Affordable
units must be targeted to low-income households earning up to 80% of AMI. It also provides that
the maximum number of affordable dwelling units in a multi -unit residential development project
is 150.
Em: The fee is $2.85 per square foot for housing units up to a certain density. For multi -unit
dwellings, the fee is reduced to $0 at 40 dwelling units per acre, with the intent to incentivize such
development, Dwelling units located in a specified Housing Incentive Zone are charged $1.23 per
square foot. The fee is adjusted annually for inflation.
Exem tp ion: The ordinance exempts various development projects from paying the impact fee,
including projects in which at least 10% of the dwelling units are affordable for a duration of no
less than 30 years.
Impact: According to the most recent annual report on the Mixed Income Housing Ordinance, $1.7
million in fees and interest have been collected since the implementation of the ordinance in 2015.
There have not been expenditures on development of affordable housing yet.'r
City of Oakland
Affordable Housing impact Fee
Back ound: The Oakland City Council adopted development impact fees for affordable housing,
transportation, and capital improvement in May 2016 and they went into operation in September
of that year. The Affordable Housing Impact Fees are being phased in over three years12 which
will largely be completed by fiscal year 2019. The impact fee is intended to compensate for the
increased demand for affordable housing generated by market -rate residential development
projects within the City of Oakland.
.Base Requirement: As a condition of a building permit for new housing units, the developer must
pay the impact fee or provide affordable housing units on -site or off -site of the project.
Fee: The fee varies by housing type and in which of the three "impact fee zones" the project takes
place, The payable fee is the product of the fee per housing unit, and the number of additional
housing units. The bottom of the range for the fee per housing unit in Table 3 reflects the zone that
has the most affordable housing costs, while the top end of the range reflects areas that are the
most expensive. Zone 2 lies between these figures.
I City of Sacramento City Council Report, Annual Reports of the Housing Trust Fund, Mixed Income Housing
Ordinance, and HOME Investment Partnerships Program, June 26, 2018,
of Oakland Transportation, Capital Improvements, and Affordable Housing Impact Fees Summary,
65B-20
EXHIBIT 1
Table 3: City of Oakland Affordable Housing Impact Fees
Alternatives: To be exempt from the impact fee, the developer may instead provide on -site or off -
site affordable housing units.
On -site: Developers can choose any of the following options for providing affordable housing: 13
9 10% of the total number of housing units in the project are moderate -income units;
• 10% are low-income units; or
• 5% are very low-income units.
Off site: For affordable units provided off -site, the requirements outlined above apply and the twits
must be located within one half mile of the development project, unless otherwise exempted.
Impact: The impact fee report for FY 2017 includes partial -year information on the initial
implementation of the Affordable Housing Impact Fee as it is being phased in. The city collected
$478,000 in fees and there is an additional $7.2 million in revenue assessed but is not due yet.14
At the time of the report, 10 development projects were including on -site affordable housing in
lieu of paying the impact fee. These projects translate to 152 affordable units."
City of Chula Vista
Balanced Communities Policy
Background: Chula Vista's Inclusionary Housing program was adopted in 1981 and applies to all
residential development of 50 units or more, It is intended to increase affordable housing in new
communities in the eastern part of the City.
Base Requirement: The program requires that 10% of the total number of dwelling units in a
residential development project are to be affordable. At least 5% must be affordable to low-income
households and 5% are affordable to moderate -income households. The policy encourages
construction of affordable units on the site of the project for for -sale developments, A developer
of a rental project who has not received any city assistance may voluntarily fulfill this obligation
to not conflict with Costa -Hawkins.
13 Moderate income units are affordable to households earning up to 120% of AM% low income units are affordable
to households earning up to 80% of AMI, and very low-income units are affordable to households earning up to
50% of ME
14 Fees are paid in two installments: 500/6 due prior to issuance of a building permit and 30% prior to issuance of a
certificate of occupancy (i.e. project completion).
13 City of Oakland Impact Fees Annual Report Agenda Report, November 2017,
10
65B-21
EXHIBIT 1
The city uses the following income categories for determining affordable rents and prices: very
low-income households earn up to 50% of AMI, low-income households earn between 50% and
80% of AMI, and moderate -income households cam between 80% and 120% of AMI.
Alternatives: A developer may use any combination of alternatives to satisfy the inclusionary
requirements, A developer can elect to provide affordable units off -site. This can be done through
construction of new affordable units; acquiring and rehabilitating existing market rate units to
affordable units; transfer of affordable housing credits from another developer; and through special
needs housing projects or programs such as shelters and transitional housing.
In -Lieu Fee; The in -lieu fee is currently set at $124,220 per unit and is multiplied by number of
affordable housing units required. It applies to both moderate and low-income households for
either rental or for -sale units, The fee is based upon the affordability gap of what low and moderate -
income households can afford to pay for a home and the median sales price of a home in Chula
Vista.
Exemptions: To avoid increasing low-income housing concentrations, the program exempts
designated census tracts called "Area of Low/Moderate Income Concentration" in which the
median income is below the citywide median income and it also falls within the Low to Moderate
Income Boundary as defined by the federal government. Anecdotally, City of Chula Vista staff
indicated that they have seen more market -rate development in those areas, which would have the
effect of diluting the concentration of affordable housing.
Incentives: The policy encourages production of affordable housing for very low and low-income
households over housing targeting moderate income households by reducing the required
affordable housing requirement. For example, low-income units count for a L5 unit credit when it
is provided in place of a moderate -income unit. Therefore, for every additional low-income unit
provided more than the requirement, the obligation to provide moderate-incomo reduces by 1.5
units each. Similarly, if very low-income units are provided, each one counts as a 2.0 unit credit
in place of a moderate -income unit.
Impact: No recent data was available at the time of this report that reflects how many affordable
units or fees have been collected because of this policy. However, the Housing Element of the
eity's General Plan adopted in 2013 stated that during the 2005-2010 reporting period, the city
constructed or entered into inclusionary agreements for the addition of 334 low-income and 183
moderate income housing units in the city.16
Impacts of AB 1505
Because AB 1505 became operative in January 2018, little is known about how cities have reacted
or intend to react in response. The bill would allow cities to implement inclusionary zoning policies
for rental units that are based in prescribed project -percentages of affordable units, as opposed to
the common fee -based structure. The policies included in this review currently have requirements
for rental units but are structured in a way that they are in compliances with Costa -Hawkins.
Through conversations with jurisdictions in this report, many cities have recently amended their
16 City of Chula Vista, Housing Element of the General Plan, 2013
htU:Rwww.chulavistaca.povthometshowdocument?i d=5503.
11
65B-22
EXHIBIT 1
inclusionary housing policies before AB 1505 was enacted, which took significant political will to
get adopted. These cities appear to be currently focusing on implementing these measures and
monitoring their progress as opposed to contemplating adopting revised inclusionary zoning
policies in response to AB 1505.
However, both San Francisco and San Jose have already adjusted their policies in response to AB
1505. Prior to enactment of AB 1505, San Francisco allowed developers to build affordable rental
units on -site or off -site if they waive thew Costa -Hawkins rights through an agreement. The city
has removed references to this requirement in municipal code as these agreements are no longer
necessary.
San Jose has had inclusionary requirements for rental units in law for many years but they have
not been operative because they were contingent upon a change in the Palmer ruling or a legislative
change. The enactment of AB 1505 makes these provisions operative. Also, San Jose used to place
a Housing Impact Fee on large rental unit projects but now these projects have been incorporated
into the requirements of the Inclusionary Housing Ordinance.
CONCLUSION
As evident in this report, inclusionary housing programs vary widely in structure and complexity.
The policies reflect the unique needs and priorities of each jurisdiction.
Los Angeles' Measure JJJ lead to the creation of an incentive program that is starting to see
preliminary positive results in encouraging affordable housing near major transit stops. San Jose
provides developers numerous incentives to provide affordable units on -site as well as many
alterative options. San Francisco targets middle and moderate incomes, because as stated in its
Housing Element Plan, "public subsidies tend to fund very low and low-income housing, with very
limited grants allocated for moderate -income home buyers." Sacramento's policy places value on
higher density development by exempting high density projects from fees, Chula Vista encourages
developers to develop in certain areas by not charging fees in areas that already have a high
concentration of affordable housing. It also provides additional incentives when units for low-
income households areprovided over units For moderate -income households. Finally, San Diego's
policy is the most focused policy in comparison to other jurisdictions, targeting low and median -
income households.
Many of the policies reviewed in this report have been recently modified so it is difficult to assess
the outcomes of the programs and whether they are fulfilling their intended purpose, This report
can be used as a reference to compare the City of San Diego's inclusionary policy to how other
jurisdictions have struchuedtheir policies. Additional research could be done in the future to assess
whether the City of San Diego's policy is fulfilling its intended purpose and whether it reflects and
addresses our greatest local needs.
nri��
ICissee
Fisol & Policy Analyst
APPROVED: Andrea' e_ vl'm
Independent Budget Analyst
12
65B-23
65B-24