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SR-0 (113) -, 55-1. OCT 2 0 ,~~l RM J~.1 By! JG WPFlles\Staffrpt".InfOltem\mc1Jev wpd InformatIOn Item October 7, 1997 Santa MOnIca, Cahforma To Mayor and CIty CounCIl From CIty Staff Subject InformatIOn Regardmg Alternatlve ReVISIOns of the CIty'S InelusIOnary Housmg Ordmance INTRODUCTION Thls report transmIts mformahon concernmg reVlSlon of the CIty'S InelusIOnary Housmg OrdInance, Santa Momca Code SectlOn 928 et seq. commonly know as OrdInance 1615 A eny CouncIl Study SeSSIOn wIll be held on October 14, 1997 to proVide CouncIl 'nth a reVlew of the InelusIOnary HOUSIng Program and to present conceptual alternatIves to Ordmance 1615 for consIderatIOn BACKGROl}ND On Apnll5. 1997. the CIty CounCIl approved m concept the 1998-2003 Draft Housmg Element and dIrected staff to prepare an amended InelusIOnary Housmg Ordmance Program 2 a of the City's Draft Housmg Element reqUIres reVIew and reVlSlon of the CIty's IneluslOnary Housmg Ordmance SpecIfically. the Housmg Element slates "'Study modIficatIOns of the CIty'S IneluslOnary Housmg Program (Ordmance 1615) \\'hlch would help support new housmg productIOn 1D a way that balances thIS productIOn 'Vlth mamtenance and conservatlOn of eXIstmg housmg stock. whIle complymg WIth ProposlUon R .. 1 55 :1.. OCT 2 B 1997 " -f "I< , ,~ 1. On July 8. 1997. CIty CouncIl approved the selectIOn of HamIlton Rabmovltz and Alschuler (HR&A) to prepare analyses relatmg to modIficatIOns of the Cuy's IncluslOuary Housmg Ordmance HR&A WIll assIst staff III conductmg publIc workshops and heanngs to gather publIc mput on the eXlstmg program Then scope of \\'Ork \'1idl occur III three phases. lastmg from mId-July through February 1998 These phases mclude 1) research and analysIs pnor to artIculatIOn of prelllmnary concepts. 2) reVIew and presentatIOn of prehmmary concepts through publIc workshops. study seSSIOns and publIc heanngs, and 3) final recommendatIons of an Implementation program and reVIew \vnh decisIOn makers Phase three ofHR&A's scope of work mcludes formulanon of a recommended ImplementatIOn program denved from finanCIal modehng of and analYSIS of the effect o,f zomng reqUIrements on prototypIcal reSIdentIal developments PublIc Meetmgs IndIVIdual meetmgs have been conducted WIth the publIc. the Planrung CommISSIOn and the Housmg CommISSIOn A PublIc Workshop was held September 7. 1997 that mcluded an open house segment \vhere partICIpants VIewed and commented on dIsplay panels that explamed the current IncluslOnary Program and pOSSible conceptual alternatives A presentatIOn and group dISCUSSIon about the existmg IncluslOnary Program and conceptual alternatIves was conducted A PublIc Heanng and Study SeSSIOn \vas conducted at the September 10. 1997 Planrung CommISSIon meetmg Addmonally. a Pubhc Heanng and Study SeSSIOn was conducted at the September 18. 1997 Housmg COlrumsslOn meetmg ') "'- '> ,~ & '"~> .C Attached for your reYleW IS a copy of the Conceptual Alternatlves (Attachment '"A.') presented to the Planmng CommlsslOu and Housmg CommlsslOn at theIr September meetmgs These conceptual alternatIves WIll be the mam tOpIC of the presentatIOn to CIty CouncIl at the October 14. 1997 CouncIl meetmg PublIc Comments Attachment 'B" to thIS staff report IS a summary of the comments made by the pubhc at the September 7, 1997 PublIc Workshop and at both the Planmng and Housmg CorrumsslOn September meetmgs Pubhc Comment to date on the conceptual altematIves, whIle vaned, has favored an mc1uslOnary program that mcludes an m heu fee component The Housmg CommISSIOn dISCUSSIOn focused on a blend of Conceptual AlternatIves Four and FIve ThIS would provIde InCentIves to developers that would allow a possIble combmatlOn of fee optIOns and provlSlon of on-sIte mcluslOnary umts to fulfill an mclusIOnary reqUIrement The Planmng CommISSIOn dISCUSSIOn also focused on ImplementatIOn of an m-heu fee optIOn and IncentIves that could be proVlded to developers of multI-famIly housmg Each sessIOn mcluded a presentatIOn that 1) explamed how the eXIstmg InclusIOnary Housmg Ordmance works. 2) reported on Inc1uslOnary Housmg Programs of other JurIsdIctIOns', 3) dIscussed the multI-famIly real estate market condItIOns affectmg actual and potential proJects. and 4) presented conceptual alternatIves to Ordmance 1615 A copy of the shde presentatIon used at all three publIc meetmgs IS attached for your mformatIOn as Attachment "C It "' .J DISCL'SSION J SIX possIble alternatIves to Ordmance 1615's pro]ect-by-pro]ect approach to achIeve ProposltlOn R's reqmrement have been dIscussed and presented at the three publIc meetmgs These potentlal alternatives are not recommendatIOns. but are sImply general concepts deSIgned to facihtate dISCUSSIon AlternatIve 1 }Jo Pnvate Sector ReqUIrements or Nev,- IncentIves AlternatIve 2 Voluntary Pnvate Sector Program \<vah Slgmficant Incenttves for On-SIte Affordable Umts AlternatIve 3' PermIt RatIOnIng \\'lth Preferences for Slgmficant Affordable Housmg Conumtments Altematlve 4 Mandatory Fee for aU Market Rate MultifamIly Projects with Performance Optlons In LIeu of Fee AlternatIve 5 More FleXIble Mandatory Project-by Project Program AlternatIve 6 Status Quo WIth LImIted Changes Attachment '"A" prOVIdes an overvIew of each alternanve mcludmg an IdenttficatlOn of possIble Impacts on affordable hOUSlllg production. pOSSIble Impacts on market rate housmg productIOn, potenttal CIty budget Impacts. and program ImplementatIOn Issues The October 14, 1997 CIty CounCIl study seSSIOn \v111 focus on the conceptual alternatIves attached to thIS staff report (Attachment '"A'O) Staffw1l1 return to The Planmng CommiSSIOn and Housmg ConumsslOU In December 1997 to present recommendatIons and respond to comments 4 ( and questions It IS anticIpated that staff wIll return to the Cny CouncIl In early 1998 wIth a recommended IncluslOnary Housmg Implementanon Program Prepared by Jeff MathIeu. DIrector of Resource Management Bob Moncnef. Housmg ~1anager JohalU1a GullIck. Housmg Coordmator ATTACHMENTS Attachment "A" Attachment "B" Attachment "C' RevIew of the Inc1uslOnary HOUSIng Program and PresentatIOn of Conceptual AlternatIves to OrdInance 1615 An excerpt from InclusIOnary PublIc Workshop. September 7, 1997 Prepared for HOUSIng CommISSIOn Study SeSSIOn, September 18, 1997. Planmng CommISSIOn Study SeSSIOn September 10. 1997 Summary of dIscussIOn- InclusIOnary PublIc Workshop. September 7, 1997, PlannIng CommISSIon Study SessIOn September 10. 1997, HOUSIng CommISSIOn Study SeSSIOn. September 18. 1997 SlIde PresentatIOn - ReVIew of the InclusIOnary HOUSIng Program and PresentatIon of Conceptual AlternatIve to OrdInance 1615, Presented to PlannIng CommISSIon (September 10, 1997) HOUSIng CommISSIOn (September 18. 1997) 5 ATTACHMEKT A City of Santa Monica Review of the Inclusionary Housing Program and Presentation of Conceptual Alternatives to Ordinance 1615 (with revisions) Presentatio Santa Monica Planning Commlsst Santa Monica Housing Commission Santa Monica City Council- 0 Prepared by Hamilton, Rabinovitz Be AIsch Moore lacofano Goltsma Project Background/Purpose Project Background/Purpose ntrl Almost seven years ago, Santa Monica voters amended the City Charter (with Proposition R) to require that 30 percent of all new multi-family units constructed each year be reserved for low- and moderate-income households. Nearly five years ago, a City Implementing Ordinance (No. 1615) was adopted making this a requirement of each new apartment and condominium proiect. What Is "Inc1usionary" Housing?~Z= I "Incluslonory housing" programs, policies, ordinances or other requirements requile or encourage that a percentage of dwelling units developed in 0 residential project be set aside, usually over an extended period of time, for rent or sale to households eorningless than average Incomes. Santa Monica is one of over 60 California ;urisdictions with an incluslonary policy, program or ordmance. ~~ ....,' Why are Changes Needed? The recently completed preliminary draft 1998-2003 Housing Element Update indicates that the Program may need 10 chanse in order to meet the original Program objectives and to be more responsive t(J the future multi-family re'll estate market and the changing legal environments In approving the preliminary dralt 1998-20~ Housing Element Update, the City Council d~ the City staff to ...view.... Program and recomnNHHl appropriate changes.. The City Council expects to adopt changes to the Program in early 1998, at about the same time that the ~ Housing Element is formally adopted ~. p The City is now seeking public INdbaclc an"if>> commen" on how the Inclusionary Housing Program currently works, what has been accomphshed, and whether alternatives should be considered. ~ Project Background/Purpose (cont.) ~P1 ~~ eN ~ ~- ,8 :u:... ~ ~ ~~ oc.tt:ftIl. L~ ') Community Participation Process ~Of-~c..~. tu.~ ~ 10 '11: t:nr( ~ ~r- u.t-~- NDWJI. .... ~H&p~~GK~. PID&P.~.-.r,. ~ ~- ~ ~~ ~ & \ 1IJ H1'1 me ~.6IiO ~N Gt~~ H'I!f2. f!ICU9( 1q'19 2. Potential Conceptual Alternatives Introduction to Conceptual Alternatives -'/'/ro' are SOrT'e aiternotlves to Ordl nonce 1615's t::'olecl~by.prolect approach to achieving Proposlllon R 5 reqL.'lrement for 30':0 affordable multi-family housing each year2 The followmg orf;! potentlai alternatives '0 the current approach These are not recommendatIons, but general concepts for discussion ~" No Private Sector Requ Iremerts ~r I ~ New Incentives - Depend on !~. Non-Profit Produc'lon I" A Voluntary Private SecTor Progro"1 ~~tt~ i With Significant Incentives for I if~ IOn-Site Affordable Units ~I. Permit Rationing With Preferences for I~ ,I I Significant Affordable Housing I I'{ I Commitments 1 1" A Mandatory Fee for AI! Market Rate jPrlE~ Multi-Family Prolects With 1 J Performance Options In Lieu of the Fee ~ .~ " I Ii · A More FlexIble Mandatory Proled-By-Prolect Program I' " Status Quo With Very Limited Changes I i " Others ~ Potential Conceptual Alternatives - Alternative I: No Private Sector Rcquu'cmcnts/Ncw Incentives Alternative 1: No Private Sector Requirements or New Incentive. Overview of the Concept Proposition R's 30% affordable requirement is satisfied through City-assisted housing production only. There are no requirements on private developers to build affordable housing, unless City-assisted efforts faU short of proiections. AHordable Housing Production Impacts · An average 81 units per year, based on City revenue proisetions. · Assumes City and non-profit sector produce 30% of each year's new multi-fomily housing without any required contribution of units, fees or other assistance from the private sector. ~ · Assumes nO"1>rofit production keeps pace with revenues. But, revenues are subject to annual appropriation and legislative changes; each revenue source has different leveraging implications and program requirements. . The non-profit production process is often more complicated and time consuming than private production due to multiple funding sources and -their separate requirements. . Over time, may result in less geographically dispersed affordable housing production, depending on development opportunities and city policies. u. Po'ten'tial Conceptual Alternatives - Alternative I (cant.) Affordable Housing production Impacts lcont.' · Could Induce the private sector to produce affordable units through the sale of credits, depending on affordable-market rate production linkage relative to demand for market rate units · Some developers may still choose to provide affordable units to obtOln the State density bonus, or eXisting incentives Market Rate Housing Production Impacts · Ties market rote production fa rate of City/non-proFit production IF City affordable hOUSing revenues Yield 81 affordable units per year, an average 188 market rate Units could be bUIlt each year and still meet Proposlhon R's 30% requirement [~ · Removes all costs associated with Ordinance 1615, thereby eliminating any adverse financial feasibility Impacts associated with the Program · Removes triggering 25% denSity bonus on most protects, but stili allows developers to receive It If they meet minimum statutory mcluslonary requirements · May result In higher levels of market rate multi-family construction, If the market recovers and prolects are otherwise feasible v. Potential Conceptual Alternatives - Alternative I (cont.) City Budget Impacts · Assumes no significant changes In known revenue Sources Changes In programs or appropnatlons would reduce affordable unit production and proportional market rate productIOn · Eliminates most Ordinance 1615 adminIstration costs, except momtorlng . May require more efforts to facilitate non-profit production and modest additional expenditures to support non-profit capaCity budding Program Implementation Issues · Repeal Ordinance 1615 and adopt replacement ordinance · May require enactment of a stand-by pnvate sector requirement that could be Implemented qUickly If City/non-profit production rate falters · May want to deSign and Implement an affordable umt credit trading program ~: f- Potential Conceptual Alternatives - Alternative 2: Voluntary Private Sector Program Alternative 2: Voluntary Private Sector Program with Significant Incentives fer On-Site AHordable Units Overview of the Concept ?rODosltlon R's 30'};, affordable housing requirement IS satlsfted largely by non-profit production os In AlternatIVe I { but IS supplemented to a greater degree by pm'ate sector on-site affordable unit production In return for recelvmg more significant Incentives than are now available In Ordinance 1615 Possible Examples of Incentives Include: o Extra denSity bonus. ~ Special zoning code fleXlbdltles, o Slgnlhcantly reduced fees and other reqUIrements, lZ Highly expedited planning approvals and bUilding permit proceSSing. and o Access 10 City equity, debt and/or subsidy finanCing f!~~:! {rtf\E. AHordable Housing production Impacts · On-site affordable production depends on t",e value of the incentives relative to the cost of proViding the on-site units · If non-profits produce about 100 units/year and developers find incentives suffiCiently attractive, has the potentlOl to produce more affordable units than Alternative I · Any City finanCial resources used as part of the Incentives package could reduce funding ava/lable for non-profIt productIOn, unless new resources are Identified · Over time, may result In less geographICally dispersed affordable hOUSing producflon, depending on non-profit development opportunities and CIty poliCies Pote"tial Conceptual Alternatives - Alternative 1 (cont.) Market Rate Housing Production Impacts · As wIth AlternatIve 1, removes all costs assocIated wIth Ordinance 1615, thereby ellmrnatmg any adverse financial feaslbllily Impacts associated w,th the Program · May reduce the number of prolects uSIng the State 25% denSity bonus, though some wIll use It or any greater bonus available through the rncentlves package for on-site affordable units · May result In higher levels of market rate multI-famIly construction, If the market recovers and prolects are otherwise feaSible · Incentives packoge may result In larger scale prolects In some locations · Incentives could be structured to favor commercial or other non-resldentlol sites ~i~ ~ City Budget Impacts · Eliminates most Ordmance 16\5 admmlstratlve costs, except annual mOnitoring of production results · May Involve some extra costs to deSign and administer the incentives package · May mvolve some extra program evaluation costs io assess the affordable housmg beneffts received compared wIth the financial value to the developer Implementation Issues · Develop, model and refine the incentIves package · Enact new Ordinances, Ordmance Amendments and/or administrative gUidelines for specIfic incentives · Repeal Ordinance 1615 3 Potential Conceptual Alternatives - Alternative ]: Pe.-mit Rationing Alternative 3: Permit Rationing with Preferences for Significant AHordable Housing Commitments Overview of the Concept Establish an annual limit on the number of market rate multI-famIly units that can be developed each year, but consIstent with HOUSing Element planmng targets Projects would be evaluated and ranked on the baSIS of formal cntena, with significant weight In the scoring to on-site Units Of other effort, to assist the development of affordable housmg Affordable Housing Production Impacts · Non-profIt sector would contmue to produce In proportIon to available CIty resources, as In Alternatives 1 and 2 ~l ". ,\ i , . I , · Could result In more affordable units than Alternative I, and inspire creatrve private sector responses to affordable hOUSing productlon as developers compete to provIde the greatest benefits and highest prolect ranklngs at least cost · Over trme, may result In less geographically dispersed affordable hOUSing productIon, depending on non-profIt development opportunltres and CIty poliCies Market Rate Housing Production Impacts · Con add to front-end costs due to requIrements to prepare proposals for competrtlve City evaluatton · Annual hOUSing production limits would probably exceed recent hOUSing production due to the ufalr shareH requirements In the HOUSing Element '1 P!)tential Conceptual Alternatives - Alternative 3 (cant.) Market Rate Housing Production Impads (ton'.) · Dependmg upon what other polley considerations are re"ected in the pOint system Ie 9 , preference for non-reSidential sites, deSign and other aesthetic Issues, environmental mitigation, public Improvements), achieving a high rankmg could result In higher development costs · Based on the history of related "growth management" programs elsewhere, this approach can Introduce distortions Into the market due to vanatlon among developers In their ability to successfully compete In thiS kind of process City Budget Impacts · Eliminates most Ordinance 1615 admmlstratlve costs, except annual mOnitoring of production results ~~ lffl~ ., · Adds costs to deSIgn and adminIster the program, particularly dUring the first few years of ImplementatIon Implementation Issues · May require substantlal modIfications to procedures In other City Departments · Adopt new Ordmances and adminIstrative gUldelmes for all aspects of the Program (application, revIew and ranking cnterla, evaluation processl . May reqUIre substantral Zoning Ordinance mochf.catrons to merge the prolect reView and rankmg process with related entitlements procedures · Perform legal analysIs of Program JustifICation · Repeal Ordmance 1615 Ie Potential Conceptual Alternatives - Alternative 4: Mandatory Fee for All Multi-Family Projects Alternative 4: Mandatory Fee for All Market Rate Multi-Family Proiects with Performance Options In Lieu of Fee Overview of the Concept Fundamentally changes the focus of the Program from on-Site mduslonary to a development fee for affordable hOUSing A mandatory development fee per umt {or per square ft bUilt! IS pOld to the City for every market rate prolect, but no on-site affordable uMs are required Fees are used In combination With City and other resources to construct affordable umts at other Sites, using a developer selected by the City Credits agOlnst the fee are allowed For voluntarily Including affordable umts on Site, bUYing land for an affordable protect elsewhere in the City, bUilding affordable umts elsewhere In the City, or providing other forms of assistance to the development of affordable umts ~~j AHordable Housing Production Impacts · Non-profit sector would continue to produce In proportion to other aVOIlable City resources, as In Alternatives 1 and 2 · ThiS new CIty revenue source could substantially Increase affordable housmg production · It IS a much more effiCient hOUSing production program because It can achieve prolect scale economies and enables leveraging that IS not aVOllable under the Ordinance 1615 approach · Ability to produce new Units With expanded resources may attract additional non-profit developers, IOcreose competition and result In some prolect cost savings to the City II Potential Conceptual Alternatives - Alternative 4 (cant.) AHordable Housing Production Impads {conI.} · Over tIme, may result In less geographically dispersed affordable housing production, depending on non-prof,t development opportunities and City Policies Market Rate Housing Production Impads · As wIth Alternatives 1 and 2, removes most of the costs associated With OrdInance 1615, thereby reducing any adverse financial feasibIlity Impacts assocIated wIth the current Program · Translates the cost of the CIty'S affordable housrng requIrement IOta a more customary and fmancoble cost of development · May reduce the number of proJects usmg the State 25% density bonus, although It would remam aVaIlable for those who choose statutory on-sIte mclus10nary requIrements 16 li:l rci2 I lr;a!r'-8 · Assuming a fee amount that IS feasIble for average prolects, thiS may result In hIgher levels of market rate multl.famlly construction, If the market recovers and prolects are otherwise feaSible City Budget Impacts · Eliminates most Ordinance 1615 adminIstrative costs, except annual monitoring of productIon results · Would Increase City revenues In the Citywide Housing Trust Fund · Would rncrease the cost to admrnrster the affordable housing production process, but Ihls would be an eltglble use of fee proceeds · May requIre funding a development fee "nexus" study I')... Potential Conceptual Alternatives - Alternative 4 (cant.) .~A · a ..T. Implementation Issues · Determine an appropriate basis for and amount of the fee. · Model fee impact on the feasibility of average prolect. · Determine whether a "nexus study" is required under Gov't. Code ~ 66000, et seq., and if so, complete it. · Adopt an Implementing Ordinance to establish the fee olld fee collection procedures, and a resoJution setting the fee amount. · Develop_a fee expenditure plan to ensure commitments of funds within five years of receipt. · Repeat Ordinance 1615. 19o Alternative 5: More Flexible Mandatory Proiect-by.Proiect Program Overview of the Concept. The current project-by-project on-site requirement remains in place, but with various technical and administrative changes to make the existing Program more flexible. Examples of Enhanced Flexibility Include: ~ lower Indusionary Percentage (e.g., to Match the Slate DensIty Bonus Formula); ~ Higher Project Threshold (e.g., Exempt projecb under 10 Units), ~ In L,eu Fee Available for 10-20 Unit Projects; rtJ More flexible calculus for setting the affordable purchase price amount (e 9, Increase to 35% of household income to reRect income tax advantages of ownershipl, and iii More alternatives to the on-site reqUIrement Ie 9 I purchase land, off-site constrvchon or other forms of asslstance~ affordable housing-production elsewhere In the CityJ. AHordable Housing Production ImpaCr5 · Non-profit sector would continue to produce In proportion to other available City resources, as in previous alternatives. · May result in a higher number of on-site Units in mid-size proiects. · Would generate additional fee revenues and other forms of assistance to produce off-site affordable units. · May result in more geographically dispersed affordable housing production due the higher probability of on-site affordable units In private projects, particularly rentals 14- Potential Conceptual Alternatives - Alternative 5 (cant.) EHJ Market Rate Housing Production Impacts . Reduces, but may not ehmmate the costs associated With Ordmance 1615, thereby reducing any adverse fmanclal feasIbilIty Impacts associated With the current Program . May result In higher levels of market rate multi-family construction, If the market recovers and pro/ects are otherwIse feasIble City Budget Impacts · May reduce some Ordinance 1615 administrative costs, but may Increase cost of annual compltance mOnitoring due to the larger number of compliance options Implementation Issues · Specify Program element changes · Test reVised Program for feaSibility Impacts · Adopt applicable Ordinance and Implementation GUideline changes, including any applicable changes to Ordmance 1615 17 Potential Conceptual Alternatives - Alternative 6: Status Quo with Limited Changes Alternative 6: Status Quo with limited Changes Overview of the Concept The Ordinance 1615 prolect-by-prolecl approach remainS In place wIth only a very few changes, such as a more flexible in-lIeu fee option Ie 9, removing the current limitatIOns on protects of less than 20 units) Affordable Housing Production Impads · Non-profrt sector would contmue to prodlJCe In proportion to other available City Resources, as In previous alternatives · Would generate add'honal fee revenues to produce additional off'slte affordable Units · Would not probably result In many on-sIte affordable UOltS. I ~-.'1' ,4- , c: Market Rate Housing Production Impacts · A more flexIble In lIeu fee could, Itself, result In a modestly hIgher rote of market rate development, partIcularly condominiums, If average protects were otherwise feaSible City Budget Impacts · An increase In In lieu fee revenues to the CitywIde Affordable HOUSing Trust Fund · Minor admlmstratlve costs 10 support an enhanced affordable production program mode possIble by addItional fee revenues Implementation Issues · Develop In lieu fee amendments · Test finanCial feasIbility of In lieu fee · AmendOrdrnance 1615, Implementing gUldeltnes and the fee resolution os needed IW ATTACHMENT C City of Santa Monica Review of the Inclusionary Housing Program and Presentation of Conceptual Alternatives to Ordinance 1615 Presentatio Santa Monica Planning Commissi Santa Monico Housing Commission Prepared by Hamilton, Rabinovitz & AlscH Moore lacofano Goltsma ----- ----------------------- -.....-------- PRESENTATION OVERVIEW .:. Project Background .:. Why Inclusionary Housing? .:. What is "Affordable" Housing? .:. What is Santa Monica's Inclusionary Housi Program? .:. Lessons Learned .:. Potential Conceptual Alternatives ------------------- -------------~--........--......... PROJECT BA KGROUND .:. What Is "Inclusionary Housing"? . Require or encourage a percentage of units sale to households earning less than average . 7 years ago, Santa Monica voters amended the Charter with Proposition R to require construction 0 housing affordable to low and moderate income households .5 years ago, Ordinance 1615 was adopted to implement Proposition R ---------- ----- --------------... -- ~~-..... PROJECT BACKGROUND ""-... .:. Why Are Changes Needed? .. Program was reviewed in detail in recently Preliminary Draft 1998-2003 Housing Element .. Changes in real estate market conditions and Sta affect Program details .. The City Council has indicated its intention to revise t Program --------- ----- ----------.... ----- ~--........- PROJECT~A KGROUND~ .:. Community Participation Process t ======= AAt WHY "INCLUS10NARY" HOUSING? ~ .:. The Inclusionary Housing Appr h Is Not Unique to Santa Monica or Califor +In California, earliest examples date from the was encouraged by the State . State's density bonus program and Housing Elem share" requirement --~--------~ -------................. . Until 1982, inclusionary housing was required by the Coastal Commission . Today, about 60 California cities and counties have inclusionary policies or programs for multi-family housing ~- , CJCJ( WHY "INClUSioN RY" HOUSING? .:. The Inclusionary Housing Appr h Is Not Unique to Santa Monica or Califor . Elsewhere - a few other inclusionary housin are scattered around the US .'n New Jersey, remedial measures include "mand set -asides" [][]{ WHY "INCLUSIONARV" HOUSING? -........,........... --- ----------~ --.~ --- --. .:. Santa Monica Has Had Some m Of Inclusionary Housing Since 1983 .. Program 12 in the City's 1983 Housing Elem .. Program 12 "in lieu" fee added in 1986 "In "lieu fee" and Program detaifs revised between 1 and 1990 .. Proposition R approved by the City's voters in Novemb,.- 1990 - .. Ordinance 1615 adopted by the City Council in March 1992 r 7 ------------------ WHY "INC-~l'-S10'N tJtJc RY" HOUSING? .:. What Do Advocates Hope The Accomplish? .. Economic integration Equal opportunity Reduce conflicts between isolated groups Reduce impacts of long-distance commuting .. Concurrency Provide affordable housing as new housing is builtt not after-th fact .. Meet State-mandated regional "fair share" requirement - ----------- ------------ -- AAc. WHY "INCLUSION RY" HOUSING? -- .:. What Do Its Critics Say? .. Misdirected burden on developers . Bids up the price of housing, thereby exacero problem it was supposed to cure .. Causes unintended market distortions r1t 1-( ~~ WHAT IS "AFFORDAB~b "HOUSING? .:. Qualifying Household Incomes .. Annual federal estimate of 4-person media income (MFI) for Los Angeles County .. Federal formula for adjustments by family size .. City-defined percentages of MFI. ~$Low income" = BOOk of the MFI, adjusted for household size "Moderate income" = 1000/0 of the MFI, adjusted for household size Low and Moderate Income Thresholds, City of Santa Monica, FY 1997-98 Income Threshold Household SIze 1-Person 2-Person 3-Person L A County 4-Person MedIan FamIly Income (MFI)=$51 ,:::00 Low Income = 60%)( MFI $21,546 $24,624 Moderate Income = 100% x MFI $35,910 $41,040 Sources City of Santa Monica Housing DIvIsion, HR&A $27,702 $46,170 4.Person $30,780 $51 ,300 (27 -------- -----------. ----------c Of ~ { WHAT IS "AFFOR'O, BlE" HOUSING: .:. "Affordable" Rents + Based on Federal household income thre . Based on Federal 30%-of-income guideline . City converts household size to dwelling unit size Low Income Maximum Rents for Low- and Moderate-Income Households, City of Santa Monica, FY 1997-98 0- 1- Bedroom Bedroom $539 $616 $898 $1,026 2- Bedroom $731 $1,218 3- Bedroom $835 $1 ,392 Income Category Moderate Income Other Indicators Median Rent Control MAR ('97) · w/Costa.Hawklns ('97) .. Median Market Rent ('95) ... . Median MaxImum Allowable Rent (MAR) .. MedIan MAR among controlled units that have turned over under the City's Costa-Hawkins Implementation program ... MedIan market rent per a 1995 asked-for rent survey of unIts advertIsed m Ihe newspaper (nol mcludms renl-controlled Units) Sources City of Santa Monica Housing DIvIsion, Santa MOnica Renl Control Administration, HR&A $472 $558 $700 $556 $664 $625 $707 $848 $1,245 $886 $1,095 $1.500 I~ ---------- ----- --,-, ---,- Dt" WHAT IS "AFFORDABLE" HOUSING~ 16 ~ - .:. "Affordable" Owned Housing Pn . Based on Federal household income thre . Based on Federal 30%-of-income guideline . City subtracts other ownership costs from 300/e th to estimate maximum mortgage . City converts household size to dwelling unit sizes . Maximum purchase price based on FannieMae mortgag rate, 3D-year loan term and 1 DOlo down payment Maximum Sales Price for Low- and Moderate-Income Households, City of Santa Monica, FY 1997-98 0- 1- 2- Bedroom Bedroom Bedroom Low Income $49,342 $56,391 $66,964 Moderate Income $93,789 $107,188 $127,286 Other Indicators $167,500- MedIan Market Pnce NA NA $270,000 Sources City of Santa Monica. Prellmmary Draft Housmg Element Update, 1998-2003; HR&A Income Category 3- Bedroom $76,480 $145.374 NA 17 --- -~--. WHAT-IS-SANT A MONICA'S ~~. 'INCLUSIONARY" HO ~ ING PROGRAM' .:. The Inclusionary Housing Program . Proposition R . Ordinance 1615 .:. Proposition R -- A City Charter Amendment . Can be changed only by a majority of voters WHAT-IS_SANTA MONICA'S ~~. ;INCLUSIONARY"~--H'O"USING PROGRAM' ~ .:. Proposition R -- A 1990 Amendmen to the City Charter .:. The CIty Council by Ordl1lance shall at all times reqUl at not less than thirty percent (300/0) of all multifamily-residential housing newly ructed 11l the elly on an annual baSIS IS permanently affordable to and occ low and moderate Income households. For purposes of Section, "low inc household" means a household with an income not exceeding sixty (60%) of the Los Angeles County median income, adjusted for family publishedfrom tIme to time by the U.S.. Department of Housing and UrB Development, and moderate Income household means a household with an income not exceeding one hundred percent ( 1 00%) of the Los Angeles Coun median income, adjusted for family Size, as published from time to time by the United States Department of Housing and Urban Development. At least fifty percent (50%) of the newly constructed units required to be permanently affordable by thiS Section shall be affordable to and occupied by low income households. WHAr-IS~ANTA MONICA'S I~ 'INCLUSIONARY';'HO SING PROGRAM .:. Proposition R Says: aThe City Coun . hall..." . Interpretation: A mandatory duty of tl1 ity Council to adopt an implementing ordinance. .:. Proposition R Says: Hat all times require. . .. " "Interpretation: Each and every year. .:. Proposition R Says: Hnot less than 30% of all. . ." . Interpretation: 'Nhat about fractions of units? .:. Proposition R Says: Hmulti-family residential housing. . . . " . Interpretation: Includes apartments and condos; other types of multi-family housing? 2C WHAT-IS SANTA MONICA'S ~. ~---- 'INCLUSIONARY"~HQUSING PROGRAM" .:. Proposition R Says: Hnewly construe in the City. . .. " + Interpretation: New construction and cement projects even if they result in fewer units. IS new construction measured? .:. Proposition R Says: Hon an annual basis. . .. " + Interpretation: Start date? Calendar year or a Git year? This implies a duty to maintain an annual dat inventory . -:. Proposition R Says: His permanently. . ." + Interpretation: How to define and enforce it - 25 years? 50 years? Forever? Economic and/or physical life of the structu re? -WHAT~IS~~ANT A MONICA'S ~ ---- - 'INCLUSIONARY"~H-Q SING PROGRAM' .:. Proposition R Says: "affordable to a occupied by low and moderate income households. . . " . Interpretation: "Affordable" rents and pu only partially defined. How can the City ensu applicable income and rent thresholds are bein each year? What happens to occupants if their in rise? " - . - t.... ''-' - , ~ :;,; I I, I, .:. Proposition R Says: "At least 50% . . . shall be affordable L occupied by low income households" +-Interpretation: Half of the annual requirement applies tL- low income households. But the eligibility income and rent thresholds change every year. Implies annual monitoring and enforcement. 2~ W-~AT-is-SANT A MONICA'S ~ .......--.....~ ;'INCLUSIONARY" HOU, ING PROGRAM .:. What Is Ordinance 1615? . Applies Prop Rls citywide annual 300/0 requi every new apartment and condominium develo establishes various implementation details . Companion City Council resolutions adopt additiona'-' guidelines, set fees and rent and purchase price thresholds . Can be changed by a majority vote of the City Council, Oi an initiative or referendum approved by a majority of the City's voters 23. -~~~~TIS---SA~T A MONICA'S ~~ ;'INCLUSIONARV" HOU, ING PROGRAM .:. Project-By-Project Requirement .. Formula imposes higher than 300/0 requirem small projects .:. On-Site vs. In Lieu Fee Requirements +':1 lieu fee available under very limited circumstances , . Fee for low-income units only; moderate-income units must always be on site . Half due at building permit, other half secured and due at Certificate of Occupancy WHAT IS-SANTA MONICA'S ~. "INCLUSIONARY" HOU ~ ING PROGRAM .:. In Lieu Fee Calculation . Based on 1995 average City subsidy per unl affordable projects, adjusted annually for inflatl . Currently $55,500 per unit 2. - ~. WHAT IS~SANTA MONICA'S "INCLUSIONARV" HC>th ING PROGRAM -------- ----------- -~----- -- --------.. ~-- .:. Specifications For On-Site Inclusio .. Must be evenly distributed . May be smaller, feature fewer amenities than m units, but must have similar exterior appearance .. Minimum unit sizes are specified and must reflect the bedroom size distribution of the market rate units .. Must be built concurrently .... Must be rentals in a rental project; may be rentals or for- sale in an ownership project ~~ WHAT IS~SANTA MONICA'S --..... ;'INCLUSIONARY" HOU'~ ING PROGRAM ---.... .... Public subsidies for the affordable units are allowed, but not required .:. Fee Waivers, Density Bonus And Incentives .... City waives condominium tax and park and rec facilities tax for the affordable units; school distric school facilities fee .... State density bonus applies, but only if the affordable units are on-site \.VAAT--IS SANTA MONICA'S ~- 'INCLUSIONARY;'-H-aUSING PROGRAM .:. Pricing Requirements For Inclu. ary Units .. See WHAT IS AFFORDABLE HOUSING. .:. Eligibility For Inclusionary Units . Developers select tenants or purchasers from a p qualified list prepared by the City .. Developer must rent or sell affordable units soon after construction .. Categories of City officials and their relatives, and the relatives of the developer, even if they qualify by income, may not occupy affordable units WHAT-IS~SANTA MONICA'S ~ -----~ 'INCLUSIONARV"--HO~~~ING PROGRAM' .:. Coordination With Other City irements For Affordable Housing .. Affordable inclusionary units count toward an Control Board replacement requirements .:. Deed Restriction And Annual Reporting To .:. Annual Report To The City Council On Progr Implementation .. If Proposition R requirements are not being met, the Council may amend Ordinance 1615 or the guidelines to ensure compliance ------- ---------. LESSONS LEARNED ~ r~--ll--lf---' L~J ~: L~r .:. How Does Santa Monica's Or ce 1615 Compare With Similar Programs In Jurisdictions? Santa Monica's Ordinance 1615 Compared With Inclusionary Housin9 Pro9rams Elsewhere in Califo~nia Program Component Santa Monica's Range in Program California IncluslOnary Percentage Minimum PrOject Size Income Targets Affordab.llty Term Affordab./.ty Percent of 'sehold Income -jable Umt DisperSIon In ~t able Unit Size es es to On-Site Units Jlllty Opl-Out 30%, some vanatlon 2 Units 60% and 100% of MFI 55 Years 30% Required Smaller, But Bedrooms In Proportion to Market Rate Distribution MinImum DensIty Bonus, Zomng Rehef and Fee WaIvers for Affordable Umls Only, UnspecIfied Others Allowed, Others Only If 100% Affordable In Lieu Fee In limited Cases None 5-66 % 0-50 Units 50-120% of MFl 10 Years-Permanent 25%-35% None-ReqUired Same-Smaller Size, None-Same Bedroom Dlstrrbutlon MInimum Density Bonus, Extra Density Bonus, Zomng Rehef, Speedy ProcesslIlg, Fee Waivers, Public Fmancmg In LIeu Fee, Land Dedication, Off-Site Construction, Credit Transfers None-Yes Dominant Condition Under 15% Under 10 Units 80-120% of MFf 30 Years and Permanent 30% Required Smaller Size Density Bonus, Fee Waivers In LIeu Fee, Off-Slle Construction None aliI Coalition for Rural Housing, Creatmg Affordable Communllles, Inclus,onary Housrng ProSjrams In CallfDmlB, November 1994, I-."I&A 3\ ~----- ------ ~- --- ----=----- LEsse- s LEARNED lC~l~~l~~l .:. The Real Estate Market In Gen .. 1990-93 recession adversely affected de supply of new housing, and depressed value .. Dramatic restructuring of residential lending crite .. Northridge earthquake damage resulted in housing losses, exacerbated out-migration, added to record foreclosures and resulting downward pressure on valu and bid up construction costs --- lilL~ll~1 LESSO-NS LEARNED ~ ...., .:. The Multi-Family Market In Pa. lar . Explosion of construction defect litigation . Significant shift in developer/investor perspec Emphasis on competitive near-term returns LESSONS LEARNED~-l!~~\-=-= .:. The Costa-Hawkins Rental Ho .. Restricts City's ability to impose rent limit vacancies after Jan.1, 1999 .. May restrict mandated on-site affordable rental reqUirement .:. Changes In Santa Monica Development Standards .. New zoning relief for affordable units .. New zoning incentives for residential use in commercial districts t~~~li~l~l ~- LESSONS LEARNED ~'-- .....'----..... .:. Changes In The Affordable Ho Environment . Declining Federal resources for new constru .. No State program resources available; Low Inca Housing Tax Credits are becoming increasingly competitive . City funding sources are projected to remain stable ov the 1998-2003 Housing Element planning period .. Revenue projections in the Draft Housing Element support about 81 new affordable units per year, 1998- 2003 ------~ -------~ LESS-eNS LEARNED l~-~Ik~l~~{ .:. Has The City Been Meeting Pr Target? . Yes, but due to non-profit housing production, inclusionary units .:. 1998-2003 Outlook . Using the City's estimates of affordable housing fund~. non-profit developers may be able to build up to 81 unii per year, an increase over past performance LESS'O~LEARNED l[-lh~ll~l '-.., --., .:. What PRACTICAL Problems e Been Identified With The Ordinance 161 To Implementing Proposition R? . Inability to tully utilize density bonus due to cont zoning standards j . Incentives no proportional to Program costs .. Other Progra elements are very restrictive .. Compliance onitoring and enforcement are complicate .. May not be a ery efficient approach -~~---- ------ ----- -~ LEsseN~ LEARNED ~"--.~ I~-ll-ll~' _~ l ~~ ~ l' .:. What FINANCIAL FEASIBILI roblems Have Been Identified With The Ordinanc Approach To Implementing Propositio . Under better market conditions, may render ave projects infeasible . Disparity between purchasing power of "affordable" r maximum and "affordable" purchase price maximum . Limited opportunities for in lieu fee . Land costs remain very high ----- ~-------- POTENTIAL C(jNG~UAL ALTERNATIVES ~ " 1: No Private Sector Requirements New Incentives 2: Voluntary Private Sector Program With Incentives For On-Site Affordable Units 3: Permit Rationing With Preferences For Sig Affordable Housing Commitments : Mandatory Fee For All Market Rate Multi-Family Projects With Permit Options In Lieu Of Fee More Flexible Mandatory Project-by-Project Program : Status Quo With Very Limited Changes --~-- ---- -~- POTENTIAL CONGEJ:TUAL ALTERNATIVES ~, 1 :No Private Sector Requiremen r New Incentives .:. Affordable Housing Production Impacts .. Annual average production of about 81 units .. No contributions from private sector (all housing City and non-profit sector) .. Assumes non-profit production keeps us with revenue- .. Non-profit production can be time consuming .. May result in less geographically dispersed housing 4G - --- POTENTIAL CONCEPTUAL ALTERNATIVES' ~ ". 1 :No Private Sector Requiremen r New Incentives .:. Market Rate Housing Production Impacts ... Ties market rate production to rate of City/no production (189 units/year) ... Removes all costs associated with Ordinance 161 .... Removes triggering 250/0 density bonus on most proje ... May result in higher levels 01 market rate multi-family POTENTIAL CONCEPTUAL ALTERNATIVES " -~ 1 :No Private Sector Requiremen r New Incentives + Ci0~Budgetlmpac~ + Assumes no significant changes in known re .. Eliminates most Ordmance 1615 costs .. May require more efforts to facilitate non-profit prod .:. Program Implementation Issues + Repeal Ordinance 1615 and enact new ordinance .. May require enactment of stand-by private sector reqmnt .. Consider affordable unit credit trading program -- POTENTIAL CONCEPTUAL ALTERNATIVES' ~~'-----. 2: Voluntary Private Sector Prog With Significant Incentives For On-Site Affordable · s Possible incentives include: .. Extra density bonus ... Special zoning code flexibilities .. Significantly reduced fees and other requirements .. Highly expedited planning approvals and building permi processing .. Access to City equity, debt and/or subsidy financing ---------------- - ~ -----------.. POTENTIAL CONG PTUAL ALTERNATIVES 2: Voluntary Private Sector Prog Incentives For On-Site Affordable With Significant .5 .:. Affordable Housing Production Impacts . Non-profit sector would continue to produce in p available City resources . On-site private production depends on value of incen . Any City financial resources used as incentives could r funding for non-profit production . May result in less geographically dispersed housing -- - POTENTIAL CONC~AL ALTERNATIVES "- .......... .:. Market Rate Housing Production Impacts + Removes all costs associated with Ordinance 1 + May reduce the number of projects using the State density bonus . May result in higher levels of market rate multi-family con structio n + Incentives may result in larger scale projects With Significant .s 2: Voluntary Private Sector Prog Incentives For On-Site Affordable 45. ---- ~---------- -- ----------- POTENTIAL C(jNGEt~AL ALTERNATIVES 2: Voluntary Private Sector Prog Incentives For On-Site Affordable .:. City Budget Impacts . Eliminates most Ordinance 1615 costs . May involve extra costs to design/administer incentl . May involve extra program evaluation costs With Significant . s .:. Implementation Issues . Prepare incentives package and enact ordinances . Repeal Ordinance 1615 POTENTIAL CONCEPTUAL ALTERNATIVES ~ 3: Permit Rationing With Prefere s For Significant Affordable Housing Commitments .:. Affordable Housing Production Impacts . Non-profit sector would continue to produce in p available City resources . Could result in more affordable units than Alternative . May result in less geographically dispersed housing ~-------------- --- ------.--. POTENTIAL CONCEPTUAL ALTERNATIVES ~, 3: Permit Rationing With Prefere s For Significant Affordable Housing Commitments .:. Market Rate Housing Production Impacts . May add to front-end project costs .. Annual housing production limits would probably ex recent housing production due to "fair share" require . Could result in higher development costs .. Could introduce distortions into market ~~ POTENTIAL CONCEPTUAL ALTERNATIVES -"'-""'- , 4: Mandatory Fee For All Marke Rate Multi-Family Projects With Performance Optl S In Lieu Of Fee .:. Market Rate Housing Production Impacts .. Eliminates most Ordinance 1615 costs .. Translates the cost of City's affordable housing r into a more customary and financable development .. May reduce the number of projects using State 250/0 bonus .. May result in higher levels of market rate multi-family construction ~ --------------- -----..------.. POTENTIAL CONGEe!~AL ALTERNATIVES 4: Mandatory Fee For All Marke Rate Multi-Family Projects With Performance Optl s In Lieu Of Fee + CiryBudgetlmpac~ . Eliminates most Ordinance 1615 costs .. Increases City revenues in Citywide Housing Tru . Increases the cost to administer affordable housing production . May require funding a development fee "nexus" study --- " -- POTENTIAL C-ONGEtTUAL ALTERNATIVES 4: Mandatory Fee For All M~ke Rate Multi-Family Projects With Performance Opt. s In Lieu Of Fee .:. Implementation Issues .. Determine an appropriate basis for and amou .. Model fee impacts on feasibility of average projec .. Determine need for "nexus" study .. Adopt ordinance establishing fee and collection proce .. Develop a fee expenditure plan .. Repeal Ordinance 1615 ..r., --- --------------------..~- -'-------- POTENTIAL CONCEPTUAL ALTERNATIVES ~, -'~ .:. 5: More Flexible Mandatory Pr -ect-by-project Program Examples of Enhanced Flexibility inclu .. Lower inclusionary percentage (match State de .. Higher project threshold (exempt projects under 1 .In lieu fee available for 10-20 unit projects .. More flexible calculation for setting the affordable purch price amount .. More alternatives to the on-site requirement ,... -- POTENTIAL CONCEPTUAL ALTERNATIVES .......-......-....., .:. 5: More Flexible Mandatory roject-by-Project Program .:. Affordable Housing Production Impacts .. Non-profit sector would continue to produce in available City resources .. May result in a higher number of on-site units in mi projects .. Could generate additional fee revenues to produce off.. units .. May result in less geographically dispersed housing 551 po ",. --- -- --- -- -------~- POTENTIAL CONGEeTUAL ALTERNATIVES .:. 6: Status Quo With Li~ hanges .:. Affordable Housing Production Imp .. Non-profit sector would continue to produc available City resources .. Would generate additional fee revenues to produ units .:. Market Rate Housing Production Impacts .. Could result in a modestly higher rate of market rate development (due to flexible in..lieu fee) . ....-. POTENTIAL CONCEPTUAL ALTERNATIVES ---,'-...... "'-..... .:. 6: Status Quo With Limited hanges + CiryBudgetlmpac~ ... Increases in lieu fee revenues to Citywide Fund ... Minor administrative costs to support production ~. Implementation Issues ... Develop and test in lieu fee amendments ... Amend Ordinance 1615