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RM:JM: BM:TR:SG:F:IRESOURCEISHAREISTAFFREPDRTSI7-12-01-InclusionaryAmts2001.wpd
City Council Meeting: July 10, 2001 Santa Monica, California
TO: Mayor and Councilmembers
FROM: City Staff
SUBJECT: Recommendation to 1) Adopt a Resolution Establishing Year 2001
Maximum Allowable Rents and Purchase Prices for the Inclusionary
Housing Program (Ordinance 1615) and 2) Adopt a Resolution
Establishing Year 2001 Maximum Allowable Rents and Purchase Prices
for the Affordable Housing Production Program (Ordinance 1918)
Introduction
This report recommends that the City Council 1) adopt a resolution establishing maximum
allowable rents and purchase prices for inclusionary housing units developed under the
Inclusionary Housing Program (Ordinance 1615); and, 2) adopt a resolution establishing
maximum allowable rents and purchase prices for on-site and off-site affordable units
developed under the City's Affordable Housing Production Program (Ordinance 1918).
Backqround
In November 1990, Santa Monica voters approved Proposition R. Proposition R requires
that not less than 30% of all multifamily residential housing newly constructed in the City
each year be permanently affordable to, and occupied by, low- and moderate-income
households. A low-income household is defined as a household whose income does not
exceed BO% of the L.A. County median income, adjusted by household size. A moderate-
1
18
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income household is defined as a household whose income does not exceed 100% of the
L.A. County median income, adjusted by household size.
In March 1992, the City Council adopted Ordinance 1615, the Inclusionary Housing
Program, to implement Proposition R. On July 21, 1998, the City Council replaced
Ordinance 1615 with Ordinance 1918, the Affordable Housing Production Program.
Both Ordinance 1615 and Ordinance 1918 require that the City Council establish by
resolution on an annual basis the maximum affordable rents and maximum purchase
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urciinance i yi 8, ine requirements ofi ~rdinance 161 ~ stiii appiy io nousing aeveiopmenis
for which a development application was deemed complete prior to March 1, 1998.
Rent and purchase price limits are based upon the U.S. Department of Housing and Urban
Development (HUD) income limits. The methodology used by the City to calculate these
limi#c ic rlicn~~ccoiJ holn~ei
Discussion
Ordinances 1615 and 1918 require that the Maximum Allowable Income be based upon
the median Los Angeles County income, adjusted by household size, as determined by
HUD. The following describes how the Maximum Allowable Income is calculated and
adjusted based upon applicable income categories and household size.
2
Maximum Allowahle Income
Calculation of income limits foraffordable units in Santa Monica begins with the 2001 HUD
area median income for a four-person household: $54,500. This amount represents an
increase of $2,440 over the 2000 amount. The income limit is adjusted for the number of
persons actually in the household (HUD's household adjustment factor).
Ordinance 1615 targets two different income groups: 1) low-income, and 2) moderate-
income. Ordinance 1918 targets three different income groups: 1) very low-income, 2) low-
income, and 3) moderate-income. These income groups are defined as follows:
Very low-income: Household income at or below 50 percent of the area
median, adjusted by household size;
Low-income: Household income at or below 60 percent of the area median,
adjusted by household size; and,
Moderate-income: Household income at or below 100 percent of the area
median income, adjusted by household size.
Exhibit I shows how the 2~01 HUD area median household income of $54,500 is adjusted
by household size and by the targeted income category to determine the maximum
allowable levels for all affordable housing units.
3
Maximum Allowable Rents
Maximum allowable rents are also based upon the Los Angeles County area median
income for a four-person household. Exhibit 2 shows the formula used in this calculation.
The formula includes the following variables: a) the targeted income category, b) the
afFordability standard, and c) the bedroom adjustment factor.
The "affordability standard" is the maximum percentage of household income which may
be used to pay rental housing costs while still leaving enough to pay other necessary
expenses--such as food, clothinq, transportation, and medical expenses. Thirtv percent
~+he ~~.~..,,~~,-a ~ e,~ ti„ ui in .,.,.a +tie r~+.,
ia u ic aaai iuai u ~i.°i~u vy ~ ivv ai iu u ic viay.
The "bedroom adjustment factor" is used to adjust the rent based upon a presumed
relationship between the number of bedrooms and the number of household occupants.
Bedroom adjustment factors are the same as those used by HUD for calculating rents in
the Section 8 program and rely on certain assumptions established by HUD about the
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4,,.,,uy„ ,...,,,.,,,, ~. N..,~.,,.., .,.,.,..Ny.,,y ..,,,.~ ,,. ~. y.,,..,, ~~~.,.
During 2001, maximum rents for inclusionary units developed under Ordinance 1615 and
Ordinance 1918 cannot exceed the limits as shown in Exhibit 2.
4
Maximum Purchase Price
Ordinance 1615 and Ordinance 1918 establish different methodologies for calculating
maximum purchase prices of for-sale units. For-sale units developed under Ordinance
1615 are subject to the Inclusionary Housing Program Guidelines. For-sale units
developed under Ordinance 1918 are subject to the Administrative Guidelines for the
Affordable Housinq Production Program. Their respective methodologies are described
below.
For-Sale Prices - Ordinance 1615
Under Ordinance 1615, calculation of the maximum purchase price starts with a deter-
mination of the applicable household income. Household income determines how much
a household can afford in monthly payments, including mortgage, taxes, insurance, and
other relevant costs. Ordinance 1615 caps the proportion of household income that may
be applied toward housing payments at 30 percent.
Calculation of the maximum sales price for year 2001 includes the following additional
assumptions as required by the Inclusionary Housing Program Guidelines:
' Down payment of 10 percent
' Loan term of 30 years
5
' Interest rate of 7.765% (based upon fixed rate loans using the midpoint
between the high and low required yield as set by Fannie Mae during the
most recent twelve month period (in this case, 5/12/00 - 5/7/01)
' Homeowner Association Fees of $323
' Property Taxes at the annual assessment rate of 1.25%
' Private Mortgage Insurance at 0.52% of the loan amount.
Once the annual calculation is made, the maximum purchase price remains fixed
throuqhout the year
The maximum allowable purchase prices for low-income and moderate-income units
subject to Ordinance 1615 for year 2001 are shown in Exhibit 3.
For-Sale Unifs - Ordinance 1918
Under the Administrative Guidelines for the Affordable Housinq Production Proqram
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auuNtcta a'y viiy vvu~ ~~.~~ v~ ~ vvwuci , i vv -, ~ ic i i~ann nui i i Nu v~ ~c~oc N~~vc~ ~v~ w~~~uav~o
conciominiums deveiopea uncier Urdinance iyi~s varies from saie to saie ciepending upon
an income qualifying household's ability to obtain conventional bank financing, applicable
interest rates, and other conventional lending standards and criteria.
6
BudgetlFinancial Impact
There are no financial or budgetary impacts.
Recommendations
It is recommended that the City Council 1} adopt the attached resolution establishing
maximum allowable rents and purchase prices for inclusionary housing units developed
under the Inclusionary Housing Program (Ordinance 1615); and, 2) adopt the attached
resolution establishing maximum allowable rents and purchase prices for on-site and off-
site affordable units developed under the City's Affordable Housing Production Program
(Ordinance 1918).
Prepared by: Jeff Mathieu, Director of Resource Management
Bob Moncrief, Housing and Redevelopment Manager
Tad Read, Housing Coordinator
Steve Goldmaker, Administrative Analyst
Exhibits: 1 Year 2001 Maximum Allowable Income Levels for Affordable Housing
Developed Under Ordinance 1615 CCS and Ordinance 1918 CCS By
Household Size and Income Category
2 Year2001 Maximum Allowable RentsforAffordable Housing Developed
Under Ordinance 1615 CCS and Ordinance 1918 CCS By Income
Category and Unit Size
3 Year2001 MaximumAllowable Purchase Pricesforlnclusionary Housing
Units Developed Under ~rdinance 1615 CCS
4 Resolution Establishing the Year 2001 Maximum Allowable Rents and
Maximum Allowable Purchase Prices for the Inclusionary Housing
Program
5 Resolution Establishing the Year 2001 Maximum Allowable Rents and
Maximum Allowable Purchase Prices for the Affordable Housing
Production Program
7
EXHIBIT 1
YEAR 2001 MAXIMUM ALLOWABLE INCOME LEVELS
For Affordable Housing Developed Under
Ordinance 1615 CCS and Ordinance 1918 CCS
By Household Size and Income Category
INCOME CALCULATION: (Median Income X lncome Categorv X Hhld Adjustment Factorl
EXAMPLE: $54,500 X 0.50 X 0.80 =$ 21,800
For a 2- person household at 50°/o of Median Income
Median Income Year 2001: $54,500 "4 - PERSON HOUSEHOLD"
HOUSEHOLD ADJU STMENT FACTOR I
1-person 0.7000 I
I
p
O II
3-
ers
n
- r----- ~.9(100
- - ---
4-person 1.0000
5-person 1.0800
6-person 1.1600
7-person 1.2400
8-person 1.3200
MAXIMUM ALLOWABLE INCOME LEVELS (ANNUALI
I ~
I Vecy Low Low Mode
rate I
Household Size ~ ~~ %o I I vv /o ~ I ~
iw io I
I
1-Percnn
I~19_~75 ~
~
~22.R9(1 ~
~
~3R.15n ~ I
I 2-Person $21,800 $26,160 ( I $43,600 ( I
3-Person $24,525 $29,430 $49,050
4-Person $27,250 $32,700 $54,500
5-Person $29,430 $35,316 $58,860
6-Person $31,610 $37,932 $63,220
7-Person $33,790 $40,548 $67,580
8-Person $35,970 $43,164 $71,940
f:/.../staffrpUexhibits/InclusAmts Exhibits 1-3.xIslExhibit 1-Max Income 06/28/2001
EXHIBIT 2
YEAR 2001 MAXIMUM ALLOWABLE RENTS
For Affordable Housing Developed Under
Ordinance 1615 CCS and Ordinance 1918 CCS
By Income Category and Unit Size
RENT CALCULATION:
(Median Income X Income Category X Bedroom Adjustment Factor X Affordability Standard) / 12
EXAMPLE: ($54,500 X 0.50 X 0.950 X 0.30u12 =$545
2- Bedroom Unit at 50% of Median Income
Median Income Year 2000: $54,500 "4 - PERSON HOUSEHOLD"
Affordabilitv Standard : 30°/o
Bedroom Adjustments:
0-Bdrm 0.700
1-Bdrm 0.800
--- _-
-----
2-Bdrm 0.950
- -- __
3-Bdrm _- ----
1.085
4-Bdrm 1.225
MAXIMUM ALLOWABLE RENTS (MONTHLYI
Very Low 50%
__. _ _ _ . __.e .~_~ Low 60%
__ ._ ____._ i ___ _.. Moderate 100%
. .__. _ _ ---
HUD I ~
Expected
, HUD ,
; HUD
' HUD
No of Expected Expected I Expected
Persons Unit Size Max Rent Income Max Rent Income Max Ren t Income
__
-
1
_W._ _. ~~
0-BDRM
_ __
$477
_ _
~$ 19,075
_ ._ _.._~_.. _._ . _..
~572
I$ 22,890
_________~ _
_.__ _.__
$954
$ 38,150
2 ~ 1-BDRM _
- -
$545 ,
~ $ 21,800 $654 ~ $ 26,160 $1,090 ~ $ 43,600
~
~ 3.5 2-BDRM
__ $647 $ 25,888
_ $777 $ 31,065
_ $1,294 ~
$ 51,775
5* 3-BDRM $739 L$ 29,566 $887 $ 35,480 $1,478 $ 59,133
7* -
-_
4-BDRM
$835 - -
' $ 33,381
$1,001
$ 40,058
$1,669
$ 66,763
*Plus or minus 1 percent
f:\...lstaftrpt\exhibitsllnclusAmts Exhibits 1-3.xls\Exhibit 2-Max Rent 06/2812001
EXHIBIT 3
YEAR 2001 MAXIMUM ALLOWABLE PURCHASE PRICES
For Inclusionary Housing Units Developed Under
Ordinance 1615 CCS
Median Income (Year 2001) $ 54,500 (Assumes a 4-Person Household prior to adjustment)
Affordability Standard 30%
Interest Rate (4/20/00-4/16/01) 7.765%
Term (months) 360
Unit Unadjusted Q Bdrm 1 Bdrm 2~dim 3 Bdrm
Bedroom Adjustment 1 0.7 0.8 0.95 1.085
Percent of Median 50°/
Annuallncome $ 27,250
Affordable Housing Cost (per month) $ 681
Homeowner Assoc. Fees (per month) $ 323
Property Taxes (1.25% [per month]) $ 47
PMI (.52% of loan amt. [per month]) $ 18
Affordable Mortgage Payment (per month) $ 293
AfFordable Mortgage $ 40,839
Down Payment @ 10% $ 4,538
9~dIn1 1~dL111 2~[Ol 3 Bdrm
Sales Price @ 10% Down Payment $ 45,377 $ 31,764 $ 36,302 $ 43,108 $ 49,234
ercent of Median 60%
nnuallncome $ 32,700
ffordable Housing Cost {per month) $ 818
omeowner Assoc. Fees (per month) $ 323
roperty Taxes (1.25% per month) $ 65
MI (.52% of loan amt. per month) $ 24
ffordable Mortgage Payment (per month) $ 406
fFordable Mortgage $ 56,589
own Payment @ 10% $ 6,288
II 2@dCm 1~drn1 2~slriu ~Si.Clri II
Sales Price @ 10°/a Down Payment $ 62,877 $ 44,014 $ 50,302 ~ 59,733 ~ 68,222
ent of Median 100°/a
aallncome $ 54,500
•dable Housing Cost (per month) $ 1,363
eowner Assoc. Fees (per month) $ 323
~erty Taxes (1.25°/a per month) $ 137
(.52% of loan amt. per month) $ 51
~dable Mortgage Payment (per month) $ 851
~dable Mortgage $ 118,594
n Payment @ 10% $ 13,177
0 Bdm, 1~dL-1 2~dLm ~dLm ~
Sales Price @ 10% Down Payment $ 131,771 $ 92,240 $ 905,417 $ 125,183 $ 142,972
f:1...lstaffrptlexhibitsllnclusAmts Exhibits 1-3,xlsExhibit 3-Max Price 06128/2001