Loading...
HomeMy WebLinkAboutStaff Report 12 08/06/1984AUG 2 0 -684 10 AUG - 6 t184 12 AGENDA ITEM #12 KEY WORD: Low - Moderate Income Housing DEPARTMENT City Manager REQUESTED COUNCIL ACTION: Approve the resolution as presented. RECOMMENDATION: The City adopt an "affordable housing impact fee" to further implement the Housing Element. BACKGROUND: See attached memo. ALTERNATIVES: Modify Fee Schedule. Take No Action. CONSEQUENCES OF NOT ACTING: Developers offering in -lieu payments would have no way of determining amounts and the City would have no authority to collect. ACTION FOLLOWING AUTHORIZATION: Develop program for utilization of funds and implement the fee schedule. AUG - 6 1984 1 2 CITY OF PETALUMA Memorandum August 1, 1984 TO: Mayor and City Council FROM: John L. Scharer, City Manager SUBJ: Provisions for Low - Moderate Income Housing BACKGROUND The Housing Element of the General Plan adopted December 6, 1982, Resolution No. 9620 N.C.S. sets forth goals, policies and implementation programs to achieve an adequate supply of housing for all groups. Program 2 of this policy (page I -4) provides "that developers of any planned residential development with 16 units or more be required to provide one of the following:" a. 10 -15% of the units for rental or ownership at prices affordable to very low, low and moderate income households. The amount of units shall be based on the project size and the type of units provided (e.g. very low, low or moderate income) as outlined in the Residential Development Control System; or b. A portion of the land be given to the City to be used as a site for affordable housing, or C. An in -lieu fee related to the cost of providing housing. The primary purpose of the fee is to write down land costs or acquire housing fee develop- ment of low and moderate income housing in Petaluma, or d. The developer and the City can agree to alternative measures that meet policy objectives. The City currently has',two approved subdivisions that contain conditions relating to the provision,of low - moderate income housing.-' Each of the developers has offered to make an in- lieu payment to satisfy the condition. Additionally, informal conversations have been held with other developers who indicated they also would prefer to make in -lieu payments. In -lieu payments would provide the City with a great deal more flexibility in providing needed subsidies. t Housing - 2 - August 1, 1984 The County Housing Authority staff has indicated their desire to work with the City in designing a program to optimize the use of the funds. RECOMMENDATION 1. The City Adopt a schedule of in -lieu fees with a minimum and a maximum. A recommended schedule is: Sales Price Under $75,000 - 0 - $ 75,000 - $ 79,999 $1,500 Per Unit 80,000 84,999 1,600 If " 85,000 - 89,999 1,700 If " 90,000 - 94,999 1,800 If If 95,000 - 99,999 1,900 If If 100,000 - 104,999 2,000 If It 1.05,000 - 109,999 2,100 If " 110,000 - 114,999 2,200 it 115,000 - 119,999 2,300 If It 120,000 - Over 2,400 If " 2. The City Council adopted a program for utilization of the funds and contract with the Sonoma County Housing Authority to provide the necessary administration. (See attached draft entitled "Options for Implementing an Inclusionary Zoning Program" prepared by Ms. Chris Gouig, Executive Director, Sonoma County Housing Authority.) JLS:da Enc. John . Scharer City �anager OPTIONS FOR IMPLEMENTING AN INCLUSIONARY MING PROGRAM L�Ca i City_ of Petaluma With the enactment of State law regarding housing elements and the virtually concurrent reduction in federal and State funds for housing, many California cities and counties have turned to the development community for assistance in creating housing oppor- tunities for low- moderate income households. Several approaches to meeting the needs of this income group have been tried, some successfully and some not. They essentially fall into two cate- gories: voluntary and mandatory. The Voluntary Option This approach, known generally as "voluntary inclusionary zoning ", "density bonuses ", or "density increases" creates incentives for the development of affordable housing. Using this method, the locality will provide a builder with an increase in density over that which s /he could normally expect in exchange for that devel- oper building a portion of the units for low- moderate income house- holds. To make sure that these newly -built units are indeed sold to low- moderate income families, the locality provides for some form of income verification. The units usually also carry resale restrictions in an attempt to keep them in the affordable category for as long as possible. This option only creates affordable units if builders choose to use it. If a builder does not want any increase in density then s /he will not be required to include affordable units within his/ her project. One approach to encouraging builders to request such increases, is modelled on the City of Santa Rosa Density Increase Program.- The City created "housing opportunity areas" throughout the City at low densities. A builder could, however, obtain a substantial increase if affordable housing was included in his/ her project. Santa Rosa has produced roughly 500 affordable units under this program, scattered around the City rather than concentrated in any one area. The City's housing authority administers the program. Copy to: Gene Beatty Greg Freitas Warren Salmons a The Mandatory Option The mandatory approach is known as "inclusionary zoning" (or some- times, "mandatory inclusionary zoning "). This technique requires that local builders include some number or percentage of units in their projects for low- moderate income households. Cities using this method may or may not grant a density increase. Essen- tially, building affordable units becomes a condition of develop- ment, very much like being required to build sidewalks and streets in the project. Cities and counties with this type of program basically fall into two categories: those who require that the affordable units are built by the developer and those who, collect in -lieu fees and, through various designs, cause the affordable unit construction themselves. 1. Developer Construction of Affordable Units With this method the local builder is required to build the affordable units in his /her project at the same time s /he is constructing the market -rate units. The exteriors of the affordable units are identical to those of the other units in the project so that they cannot be identified. Also, the unitsare usually scattered throughout the project so as to avoid "the low- income area" name tag. Some cities require that the interiors of the affordable units also be the same as those of the market -rate units while others allow for a downgrading in such items as carpeting, cabinetry, fixtures, etc. Prices for such units should be set at an amount that a low - moderate income household (120% of the median income) can afford. It is not enough for a developer to build his /her affordable units to sell at a price of $90,000, for example, because that is_$10,000 less than anything else on the market. If a family falling in the low- moderate income category earns only enough to afford an $80,000 home, the $90,000 home built by the developer will not be able to be sold to the target family group. Since the amount a household can afford to pay for a home is interest -rate sensitive, the selling price the developer must use should be tied to the interest rate of the financing s/he has available for his/her prospective buyers. In addition to setting the afforable price levels, a city or county should also provide for some method of verifying the incomes of the buyers and for maintaining the units in the affordable category for as long as possible. 2. In-lieu Fees Such a program would require builders to pay "affordable housing" fees instead of actually constructing low- moderate income units.' The amount of money accumulated by the City would depend on the basis on which the fees were charged and the amount of the fee. For instance, if the City were to charge builders the difference between the market price of their units and the "affordable" price for each afford- able unit that they otherwise would have had to build, the amount of money could be substantial. If, however, the builder is charged a nominal amount for each affordable unit s /he would have built, the funds will accumulate much more slowly. A third approach, and probably the most straight- forward, is to establish an "affordable housing impact fee" in much the sane way the school districts charge a fee for each new housing unit to pay.for school construction costs. Regardless of the basis used, however, this approach will result in the development of a pot of money for affordable housing, an "affordable housing fund (Fund)" if you will. Unlike federal and state housing programs, such a Fund could be used by the City in a variety of ways to promote the development of affordable housing or cause housing that is built in the City to-be affordable by low- moderate income buyers. Some examples of the use of the Fund include subsidizing rents for tenants in local apartment projects, assisting local non - profit housing organizations with their land acquisition and development costs, and writing down mortgages for families who otherwise would not be able to afford to buy a home. The latter approach should be limited to persons who do not currently own a home (the City may also want to consider making the program available for first -time buyers only). A homebuyer assistance program could work in one of two ways: money in the Fund could be used as a "silent second mortgage" or Fund proceeds could be used on a monthly basis to subsidize mortgage payments. A. The Silent Second The City (or its assign) could use the money in the Fund to make a second mortgage, secured by a deed of trust, to a low- moderate income buyer purchasing a moderately - priced home (home prices should not exceed those set for the mortgage revenue bond programs-$107,000 maximum) . The second could earn interest at market rates, some nominal rate (say 3%), or be interest free. The silent second is recaptured (along with interest if applicable) at the time the buyer sells the home. The City then has the funds available to assist another low - moderate income buyer with the purchase of the home. A variation on this approach is the shared - equity mortgage. Rather than charging an interest rate, the City would make the silent second in some amount (say 25% of the mortgage) in exchange for 25% of the appreciation at the time of sale. The City would,of course,also receive the amount of its second when the home is sold. In this example, the City becomes a silent partner in the owner- ship of the home. There are a couple of problems with the silent second method: 1) a large up -front contribution from the Fund is required to cover the second. This will limit the number of families able to participate in the program at any one time; and 2) the full amount of the second will be outstanding for as long as the buyer lives in the home unless the City requires payments to begin after some specified period of time. A positive feature of this approach is that it should be fairly straightforward to administer. Advertisement for such a program probably need not be extensive in order to develop a waiting list. The City may be able to rely on realtors and developers for buyer referral without doing much advertising of its own. The County Housing Authority could screen and verify the incomes of the buyers. The Authority, using money from the Fund, could also be the holder of the silent second or shared - equity mortgage, transferring it from seller to buyer as homes are sold. Costs to pay the Authority for its services could be paid directly from the Fund or charged to the buyer as some form of loan origination fee. Unlike regular affordable housing programs, the silent second approach will not be targeted toward any particular home. Rather, an eligible buyer should be able to use the program to purchase a home anywhere in the City. This .flexibility should make the r.rogram a popular one and will more than likely result in many more applicants for the prograrn than can be served, At some point it is probable that the waiting list for the program would be closed, much in the same way the Housing Authority stops taking names for its Section 8 program. To avoid a waiting list several years in length the City may want to establish preferences or Priorities for the use of Fund proceeds. For example, .first priority could go to families earning less than the median income rather than 120% of median. The City also may want to give priority to Petaluma residents and /or to people who work in Petaluma before opening the list to anyone. B. The Monthly Fayment So as not to -have the entire Fund proceeds outstanding for long periods of tide, it may be possible to structure a program whereby the City uses Fund monies to subsidize the monthly mortgage Payments on behalf of eligible families. The subsidies would be secured by a deed of trust in the same manner as the silent second. A possible problem with this approach is its acceptance by lenders and when that acceptance could be obtained. Essentially, a lender would have to make a higher mortgage than-s/he normally would to one of the participating families, with the guarantee that the City would be subsidizing the payments. The lender may require that the City offer some Proof that the subsidies will indeed continue for the life of the mortgage. Since it would be difficult to predict the amount of money in the Fund in the future, such proof_ may not be available. This approach would also cost more to administer since subsidy checks would have to be cut monthly instead of in one lump sum line the silent seconds. It does, however, have the probability of being able to serve more families at any one time than the silent seconds. Regardless of the approach selected by the City, the Housing Authority is interested is acting as the City's assign for this program, Al- though a budget is not attached to this writing, the tasks involved with the program could.probabl_y be handled by a senior clerk staff on a part -time basis and thus not cost a great deal (we would have to cover-our costs, however). Such staff would be supervised by the CDBG program manager who would also be overseeing the non - Petaluma work of the staff. To implement the program would reauire a contract between the City and the Housing Authority. Prior to such contract, the City should establish the fee amount and the Authority should develop a budget for the program.