SR-407-003 (4)
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RM:H&R:JM:BM:TR:SG:F:\HOUSING\SHARE\WPFILES\STAFFRPTlinclusionary amounts 2000.wpd AUG - 8 .
Council Meeting: August 8, 2000 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to 1) Adopt a Resolution Establishing Year2000 Maximum
Allowable Rents and Purchase Prices for the Inclusionary Housing Program
(Ordinance 1615) and 2) Adopt a Resolution Establishing Year 2000
Maximum Allowable Rents 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 for on-site and off-site affordable units developed under the
City's Affordable Housing Production Program (Ordinance 1918).
Backaround
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 60% of the L.A. County median income, adjusted by household size. A moderate-
income household is defined as a household whose income does not exceed 100% of the
L.A. County median income, adjusted by household size.
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AUG - 8 _
Since the adoption of Proposition R, the City Council has adopted two consecutive
implementing ordinances. Adopted in March, 1992, Ordinance 1615 (also known as the
Inclusionary Housing Program) was effective until July, 1998. 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, in the case of Ordinance
1615, maximum purchase prices for affordable units. Even though Ordinance 1615 has
been replaced by Ordinance 1918, the requirements of Ordinance 1615 still apply to
housing developments built when the ordinance was in effect.
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
limits is discussed below.
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.
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Maximum Allowable Income
Calculation of income limits for affordable units in Santa Monica begins with the 2000 HUD
area median income for a four-person household: $52,100. This amount represents an
increase of $800 over the 1999 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 2000 HUD area median household income of$52, 100 is adjusted
by household size and by the targeted income category to determine the income limits for
all affordable housing units.
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.
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The factors contained in the formula include: 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, clothing, transportation, and medical expenses. Thirty percent
is the standard used by HUD and the City.
The "bedroom adjustment factor" is used to adjust the rent based upon 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 average number of persons occupying units of a given size.
During 2000, maximum rents for inclusionary units developed under Ordinance 1615 and
Ordinance 1918 cannot exceed the limits as shown in Exhibit 2.
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
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Affordable Housing Production Proqram. The 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 2000 includes the following additional
assumptions as required by the Inclusionary Housing Program Guidelines:
Down payment of 10 percent
Loan term of 30 years
Interest rate of 8.155% (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, 7/9/99 - 7/3/00)
Homeowner Association Fees of$208 per month (based upon recent survey
of Santa Monica developers)
Property Taxes at the assessment year rate of 1.25%
Private Mortgage Insurance at 0.52% of the loan amount.
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Once the annual calculation is made, the maximum purchase price remains fixed
throughout the year.
The maximum allowable purchase prices for low-income and moderate-income units
subject to Ordinance 1615 for year 2000 are shown in Exhibit 3.
For-Sale Units - Ordinance 1918
Maximum purchase prices for affordable condominiums developed under Ordinance 1918
are not established each year by the City Council. Rather, under the Administrative
Guidelines for the Affordable Housing Production Program adopted by City Council on
October 5, 1999, the sale price varies from sale to sale depending upon an income
qualifying household's ability to obtain conventional bank financing, applicable interest
rates, and other conventional lending standards and criteria.
BudQet/Financiallmpact
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 for on-site and off-site affordable units
developed under the City's Affordable Housing Production Program (Ordinance 1918).
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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 2000 Maximum Allowable Income Levels for Affordable Housing
Developed Under Ordinance 1615 CCS and Ordinance 1918 CCS By
Household Size and Income Category
2 Year 2000 Maximum Allowable Rents for Affordable Housing Developed
Under Ordinance 1615 CCS and Ordinance 1918 CCS By Income Category
and Unit Size
3 Year 2000 Maximum Allowable Purchase Prices for Inclusionary Housing
Units Developed Under Ordinance 1615 CCS
4 Resolution Establishing the Year 2000 Maximum Allowable Rents and
Maximum Allowable Purchase Prices for the Inclusionary Housing Program
5 Resolution Establishing the Year 2000 Maximum Allowable Rents for the
Affordable Housing Production Program
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EXHIBIT 1
YEAR 2000 MAXIMUM ALLOWABLE INCOME LEVELS
For Affordable Housing Developed Under
Ordinance 1615 CCS and Ordinance 1918 CCS
By Household Size and Income Category
INCOME CALCULA nON: (Median Income X Income Catee:orv X Hhld Adiustment Factor)
Median Income Year 2000: $52,100
"4 - PERSON HOUSEHOLD"
HOUSEHOLD ADJUSTMENT FACTOR
I-person 0.7000
2-person 0.8000
3-pcrson 0.9000
4-person 1.0000
5-pcrson 1.0800
6-person 1.1600
7-person 1.2400
8-person 1.3200
MAXIMUM ALLOW ABLE INCOME LEVELS (ANNUAL)
Very Low ~ Moderate
Household Size 50% 60% 100%
I-Person $18,235 $21,882 $36,4 70
2-Person $20,840 $25,008 $4 I ,680
3-Person $23,445 $28,134 $46,890
4-Person $26,050 $31,260 $52,100
5-Person $28,134 $33,761 $56,268
6-Person $30,218 $36,262 $60,436
7-Person $32,302 $38,762 $64,604
8-Person $34,386 $41,263 $68,772
f:/...Istaffrptlexhibits/OO Income Rent Price.xls
7/20/2000
EXHIBIT 2
YEAR 2000 MAXIMUM ALLOWABLE RENTS
For Affordable Housing Developed Under
Ordinance 1615 CCS and Ordinance 1918 CCS
By Income Category and Unit Size
MONTHLY RENT CALCULA nON:
(Median Income X Income Category X Bedroom Adjustment Factor X Affordability Standard) /12
Median Income Year 2000: $52,100
"4 - PERSON HOUSEHOLD"
Affordabilitv Standard: 30%
Bedroom Adiustments:
O-Bdrm 0.700
1-Bdnn 0.800
2-Bdrm 0.950
3-Bdrm 1.085
4- Bdnn 1.225
MAXIMUM ALLOWABLE RENTS (MONTHLY)
Very Low Low Moderate
Unit Size 50% 60% 100%
O-BDRM $456 $547 $912
1-BDRM $521 $625 $1,042
2-BDRM $619 $742 $1 ,237
3-BDRM $707 $848 $1,413
4-BDRM $798 $957 $1,596
f:\...\staffrpt\exhibits\OO Income Rent Price.xls
7/20/2000
EXHIBIT 3
YEAR 2000 MAXIMUM ALLOWABLE PURCHASE PRICES
For Inclusionary Housing Units Developed Under
Ordinance 1615 CCS
Median Income (Year 2000) $ 52,100
Affordability Standard 30%
Interest Rate 8.155%
Term (months) 360
Unit Unadjusted Q.lk!rrn 1..Bdrrn 2lkirrn a.BdITn
Bedroom Adjustment 1 0.7 0.8 0.95 1.085
VERY LOW INCOME UNITS
Percent of Median 50%
Annual Income $ 26,050
Affordable Housing Cost (per month) $ 651
Homeowner Assoc. Fees (per month) $ 208
Property Taxes (1.25% [per month]) $ 57
PMI (.52% of loan amt. [per month]) $ 21
Affordable Mortgage Payment (per month) $ 365
Affordable Mortgage $ 49,050
Down Payment @ 10% $ 5,450
ll...B.drm 1..Bdrrn 2Jklrm a.BdITn
Sales Price @ 10% Down Payment $ 54,500 $ 38,150 $ 43,600 $ 51,775 $ 59,133
LOW INCOME UNITS
Percent of Median 60%
Annual Income $ 31,260
Affordable Housing Cost (per month) $ 782
Homeowner Assoc. Fees (per month) $ 208
Property Taxes (1.25% per month) $ 73
PMI (.52% of loan amt. per month) $ 28
Affordable Mortgage Payment (per month) $ 473
Affordable Mortgage $ 63,463
Down Payment @ 10% $ 7,051
ll...B.drm i.B.dIrn 2..Bdrrn .3...Bd.rrn
Sales Price @ 10% Down Payment $ 70,514 $ 49,360 $ 56,412 $ 66,989 $ 76,508
MODERATE INCOME UNITS
Percent of Median 100%
Annual Income $ 52,100
Affordable Housing Cost (per month) $ 1,303
Homeowner Assoc. Fees (per month) $ 208
Property Taxes (1.25% per month) $ 140
PMI (.52% of loan amt. per month) $ 52
Affordable Mortgage Payment (per month) $ 902
Affordable Mortgage $ 121,117
Down Payment @ 10% $ 13,457
ll...B.drm i.B.dIrn 2..Bdrrn a.BdITn
Sales Price @ 10% Down Payment $ 134,574 $ 94,202 $ 107,660 $ 127,846 $ 146,013
f:I...lstaffrptlexhibitsIOO Income Rent Price.xls 7/20/2000