HomeMy WebLinkAboutStaff Report 1.B 07/09/2018Agenda Item #1.B
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DATE: July 9, 2018
TO: Honorable Mayor and Members of the City Council and Planning Commissioners
through City Manager
FROM: Sue Ca t�J,
i;Housing Administrator
SUBJECT: Joint Workshop with City Council and Planning Commission Regarding
Petaluma's Inclusionary Housing Policy
RECOMMENDATION
It is recommended that the City Council and Planning Commission conduct a joint workshop
regarding Petaluma's inclusionary housing policy, and provide comments as appropriate.
BACKGROUND
Since 1975, the California Legislature has recognized that "there exists within the urban and
rural areas of the state a serious shortage of decent, safe, and sanitary housing which persons and
families of low or moderate income can afford." In 1980, the Legislature declared "Local and
state governments have a responsibility to use the powers vested in them to facilitate the
improvement and development of housing to make adequate provision for the housing needs of
all economic segments of the community." (Cal. Gov. Code 65580)
In 1984, the City of Petaluma formulated and enacted an inclusionary housing policy which
reflected the values of the community regarding the provision of housing for the people in the
community most -in -need. The policy, which is a program of the Housing Element, (a chapter of
the City's General Plan), is simple, flexible, and enforceable. The policy requires developers of
new residential developments to provide affordable housing, but offers them options as to how
they fulfill that requirement. Currently, the developer can exercise options that include: 1) build
on-site units or dedicate a portion of the project site to the City for affordable units; 2) pay an in -
lieu fee; or 3) use alternative methods to meet the intent of the inclusionary requirement, such as
requesting a smaller percentage of on-site units or donating a separate parcel of land to build
affordable units, subject to approval by the City Council.
Housing affordability was part of Council goal discussion in February 2017. The Council
determined to review housing -related fees to generate funding for affordable housing projects,
and adopted the priority, "Identify and implement programs to increase affordable housing," in
its 2017 and 2018 goals. A task included with this priority is "seek to provide housing for all
income levels."
In April, 2017, Economic & Planning Systems (EPS) was retained by the City to update the
City's inclusionary housing in -lieu fee for residential projects and the City's commercial linkage
fee. In addition, EPS was asked to prepare a nexus -based impact fee study for rental and
ownership housing due to past legal challenges to inclusionary programs fiom homebuilders and
property rights advocates.
EPS presented their draft nexus study to the Council at a workshop on September 25, 2017 that
detailed a gap between market prices of housing in the City and prices affordable to very low,
low and moderate -income households, and included a proposed per square foot in -lieu fee for
rental and ownership projects based on the affordability gap.
At the March 5, 2018 City Council meeting, staff presented several policy options for Council
consideration which included: 1) increasing the in -lieu fee; 2) increasing the Commercial
Linkage fee; 3) establishing a percentage requirement for on-site inclusionary housing; and 4)
establishing a percentage for the in -lieu fee inclusionary requirement. At that meeting, the
Council directed staff to draft an amendment to the Housing Element in accordance with the
authority in AB -1505 to require on-site inclusionary housing units as part of residential housing
development projects, both homeownership and rental, in the City to mitigate the effect of new
market rate housing on the City's affordable housing stock." The City Council also requested
legislation to increase the City's Housing In -Lieu fee to a 20% inclusionary requirement and
Commercial Housing Linkage fee be increased to reflect Sonoma County's current rate for their
commercial linkage fee.
Consistent with the Council's direction, staff prepared an amendment to Housing Element
Program 4.3 to require inclusionary housing on-site for all residential projects with more than
five units. Additionally, staff prepared a zoning text amendment to modify Chapter 3 of the
Implementing Zoning Ordinance (IZO) to provide for clear implementation of the more general
language in the Housing Element policy and program with Section 25.010 of the IZO. These
amendments were presented to the Planning Commission at their June 12, 2018 meeting for
consideration and recommendation to the City Council.
Staff presented the proposed 15% on-site inclusionary requirement for all residential
developments with five or more units as well as a draft inclusionary housing policy to be added
to Chapter 3 of the IZO. After discussion, the Planning Commission requested a joint workshop
with the City Council to discuss the City's overall approach to inclusionary housing prior to
moving forward with a recommendation on the proposed amendments. Some concerns the
Commissioners raised regarding the proposed amendments were that they were was not flexible
enough, that project size should be considered, and that the on-site inclusionary percentage might
be too high. Because modification to the inclusionary housing in -lieu fees and commercial
linkage fees are not within the Planning Commission's purview, those items were not discussed
in detail other than as an information item as part of the overall package of inclusionary housing
items requested by the City Council.
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DISCUSSION
As noted, the proposed ordinance amendments reflect the Council's preferences for inclusionary
housing stated in March, 2018. The amount of inclusionary housing to be required of a project is
a policy matter over which the Council currently has great flexibility.
Legal Background
Recent developments in the law governing local government inclusionary regulations in
California, as well as the existing California Planning and Zoning Law as it relates to housing
elements in local general plans, support the City Council's authority to enact the local
inclusionary regulations the Council has directed staff to prepare.
In Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, (2009) 175 CA 4th 1396, the court
had held that the Costa -Hawkins Act, Civil Code section 1954.53(a), prohibits local agencies
from requiring on-site inclusionary housing in rental housing developments. AB -1505, which is
codified in sections 65850 and 65850.1 of the Government Code and took effect January 1, 2018,
overturns the holding in the Palmer case and expressly permits cities to adopt ordinances
requiring inclusion of affordable residential units for moderate, low, very low, and extremely low
income households in rental housing developments, so long as such ordinances provide alternate
means of compliance that may include, but are not limited to, in -lieu fees, land dedication, off-
site construction, or acquisition and rehabilitation of existing units. AB -1505 also grants the
State Department of Housing and Community Development the authority to review certain
ordinances adopted under the statute that require more than 15 percent of the total number of
units in a residential rental development to be affordable to households earning 80 percent or less
of area median income. Accordingly, with the passage of AB 1505, the State Legislature has
restored the authority of cities and counties to require inclusion of affordable housing units in
new rental housing projects.
In June of 2015, the California Supreme Court upheld the City of San Jose inclusionary housing
ordinance in California Building Association v. City of San Jose, (2015) 61 Cal. 4th 435. The
San Jose inclusionary ordinance required all residential developments of 20 or more new or
modified units to provide 15 percent of the on-site for -sale units as affordable units as defined in
the ordinance, or to satisfy alternative requirements with an increased inclusionary requirement
of the equivalent of 20 percent of the on-site for -sale units. The alternative requirement options
include: providing off-site affordable units, paying an in -lieu fee, dedicating land, or acquiring
and rehabilitating a comparable number of affordable units. The court observed that the purpose
of the city's inclusionary ordinance was not only to mitigate the effect of new market rate
housing on the city's stock of affordable housing, but also to increase the number of affordable
units in the city, and to distribute the affordable units throughout the city to obtain the benefits of
economically diverse communities. The court held that the San Jose inclusionary ordinance was
not an exaction, because it did not require a developer to pay a monetary fee or convey a
protected property interest, but rather imposed lawful, non -confiscatory land use restrictions in
the form of price limits. According to the Court, such ordinances, to be valid, need only be
reasonably related to the broad general welfare purposes for which they are enacted.
Accordingly, under the San Jose case, inclusionary housing ordinances that require residential
projects to provide a reasonable amount of on-site affordable units, and offer reasonable
alternative means of satisfying the ordinance's inclusionary objectives, are valid local land use
regulations and not takings.
Cities or counties that elect to adopt inclusionary rental ordinances pursuant to AB 1505 must
provide developers with an alternative means of compliance such as payment of in -lieu fees,
dedication of land, or the construction of affordable units off-site.
Proposed Housing Element Amendments
Council direction in March 2018 was to require on-site units for both ownership and rental
developments. The percentage in our current inclusionary policy is 15% for both on-site units
and to pay an in -lieu fee.
The Commission indicated they would like to further discuss the size of development projects
that are required to meet the inclusionary requirement. For example, projects of five or more
units are currently responsible for addressing affordable housing. Council may consider making
all new residential units subject to the in -lieu policy, or Council may also limit the on-site
inclusionary policy to projects of a specific number of units recognizing the challenge of
developers providing units in smaller developments as well as the challenge to staff in
monitoring units spread throughout the City.
Currently, the inclusionary policy in Petaluma's 2015-2023 Housing Element states:
Policy 4.2 -Assign a share of the responsibility for providing affordable housing to the
developers of market rate housing and non-residential projects.
Program 4.3 — Continue to require residential projects of five or more units to contribute to the
provision of below market rate housing in one of the following ways:
a. Dedicate 15% of the units on-site or a portion of the project site or property to the
City or a non-profit organization for use as affordable housing.
b. Within a half -mile radius of the planned SMART stations, developers are encouraged
to provide at least 15 percent of the units in a rental housing project at rents
affordable to very low and low-income households for a minimum period of 30 years.
c. Within a half -mile radius of the planned SMART stations, developers may be
required to provide at least 15 percent of the units in a for -sale project at prices
affordable to low and moderate -income households for a minimum period of 30
years.
d. The developer can make an in -lieu payment to the City's Housing Fund.
e. Use alternative methods, such as requesting a smaller percentage of on-site units or
donating a separate parcel of land to build affordable units to meet the intent of the
inclusionary requirement, subject to approval by the City Council.
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Updated language for Housing Element Program 4.2 is proposed as follows:
Program 4.3
Continue to require residential projects of five or more units to contribute to the provision of
affordable housing in one of the following ways:
a. Require developers of residential projects, both homeownership and rentals, of
five or more units to provide 15% of the units on-site for use as affordable
housing with affordability restrictions of at least a 45 year duration for
homeownership developments and affordability restrictions for of at least a 55
year duration for rental developments.
Subject to approval by the City Council, developers may fulfill their inclusionary
requirement by one of the following ways:
a. Donate a portion of the project site or property to the City or a non-profit
organization for use as affordable housing.
b. The developer may make an in -lieu payment to the City's Housing Fund in an
amount equal to a 20% inclusionary requirement.
c. Use alternative methods, such as requesting a smaller percentage of on-site units, or
donating a separate parcel of land to build affordable housing to meet the intent of
the inclusionary requirement
If a developer chooses not to provide on-site units, and wants to choose an alternative method,
Council can consider criteria to review the alternative method in fulfilling the City's inclusionary
requirement. For example, the following criteria proposed by a City Councilmember may be
incorporated into the attached inclusionary housing section of Chapter 3 of the IZO under E.6:
"In considering requests from a developer to pay the in lieu fee, in whole or in part, rather
than creating inclusionary affordable units, the City Council's consideration will be
whether creating more inchisionary affordable units than the developer proposes would
render the overall project financially infeasible under then -current economic
conditions. To that end, the developer may, at its option and at its own expense, provide
its project financial information to an independent, third party housing/real estate analyst
selected by the City, who will conduct a financial feasibility analysis. The independent
analysis will be conducted ittilizing the applicant's data, and any additional information
that may be required of the developer to compete a thorough assessment. The
independent analyst shall employ recognized best practices for the industt)� and render a
detailed recommendation to the City Council to support its conclusions. Any of
developer's sensitive proprietary information utilized in the report shall be redacted
before making the report public. "
Inclusionary Housing MicY
In order to implement the Council -directed inclusionary housing requirements as outlined above,
staff prepared zoning code amendments to Chapter 3 of the IZO (Development and Land Use
Approval Requirements). It is helpful and appropriate to address implementation of the Housing
Element inclusionary policies in the IZO to provide greater detail regarding administration of the
inclusionary program than is appropriate in the Housing Element, and to allow for flexibility in
the implementation of the City's inclusionary housing program and potential future changes to
further enhance the program without necessarily making further changes to the Housing
Element.
New section 3.040 Inclusionary Housingis �s proposed as follows:
This section shall govern inclusionary housing as part of residential development pursuant to
Housing Element Policy 4.2 and associated Program 4.3.
A. Applicability. The provisions of this section shall apply to all residential projects of five
or more units, including residential components of mixed-use projects.
B. Requirements. All residential projects of five or more units shall comply with following
requirements:
1. Location. Unless otherwise permitted in accordance with this section,
inclusionary housing units shall be provided on the site of the residential
development.
2. Quantity. The number of onsite inclusionary housing units shall be equal to or
greater than 15 percent of the total number of residential units or lots in the
residential project.
3. Income Levels. The following income restrictions shall apply based on the
ownership structure of the residential project.
a. Inclusionary housing units in a rental project shall be made affordable to
very low and low income households as follows: 7.5% of the total number
of residential units or lots in the residential project shall be affordable to
very low income households, and 7.5% of the total number of residential
units or lots in the residential project shall be affordable to low income
households.
b. Inclusionary housing units in an ownership project shall be made available
to low and moderate income households as follows: 7.5% of the total
number of residential units or lots in the residential project shall be
affordable to low income households, and 7.5% of the total number of
residential units or lots in the residential project shall be affordable to
moderate income households.
4. Duration. Affordable units required pursuant to this section shall be made
subject to affordability covenants that are binding on owners of the units and their
successors for a duration of at least 55 years in the case of rental projects and for a
duration of at least 45 years in the case of ownership projects.
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5. Fractional Units. In determining the number of inclusionary units required to be
provided pursuant to this section, fractional units shall be rounded up to the
nearest whole integer. For example, in the case of a 20 unit residential rental
project, provision (13)(3)(a) would require making 7.5% or 1.5 of the units
affordable to very low income households, and 7.5% or 1.5 of the units affordable
to low income households. In this example, the inclusionary unit obligation for
the project for would be rounded up 2 units affordable to very low income
households and 2 units affordable to low income households.
C. Inclusionary unit development standards. In addition to other development standards
and requirements set forth in this ordinance and other applicable laws and regulations, all
inclusionary housing units shall be consistent with the following standards:
1. Inclusionary units shall be constructed and occupied concurrently with or prior to
the construction and occupancy of the market rate residential units in the project,
unless an alternative schedule based on extenuating circumstances is adopted as
part of the project approval. In phased projects, inclusionary units shall be
constructed and occupied in proportion to the number of units in each phase of the
project.
2. Inclusionary units shall be distributed throughout the residential project site, to the
fullest extent practicable.
3. The design, appearance, and general quality of the inclusionary units shall be
comparable and compatible with the design of the market rate units in the
development, provided all other zoning and building codes are met as determined
through the Site Plan and Architectural Review process.
D. Alternative Compliance. At the sole discretion of the City Council, a project's
inclusionary housing requirement may be met through alternative compliance in one of the
following ways or a combination thereof:
1. Donation of a portion of the project site or an off-site property to the City or a
non-profit organization deemed acceptable by the City for development of
affordable housing; or
2. Payment of a housing in -lieu fee established by the City's adopted fee schedule;
or
3. Use of an alternative method, such as provision of a smaller percentage of onsite
inclusionary units coupled with payment of a housing in -lieu fee for the
inclusionary units not provided.
If a developer chooses not to provide on-site units, and wants to choose an alternative
method, Council can consider criteria to review the alternative method in fulfilling the
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City's inclusionary requirement. For example, the following criteria proposed by a City
Councilmember may be incorporated into the attached inclusionary housing section of
Chapter 3 of the IZO under E.6:
"In considering requests f oin a developer to pay the in lieu fee, in whole or in part, rather
than creating inclusionary affordable units, the City Council's consideration will be
whether creating more inclusionary affordable units than the developer proposes would
render the overall project financially infeasible under then -current economic
conditions. To that end, the developer may; at its option and at its own expense, provide
its project financial information to an independent, third -party housing/real estate analyst
selected by the City, who will conduct a financial feasibility analysis. The independent
analysis will be conducted utilizing the applicant's data, and any additional information
that may be required of the developer to compete a thorough assessment. The
independent analyst shall einploy recognized best practices for the industry, and render a
detailed recommendation to the City Council to support its conclusions. Any of
developer's sensitive proprietary information utilized in the report shall be redacted
before making the report public. "
E. Submittal Requirements. All applications submitted to the City for development of a
residential project of five or more units or a mixed-use project including a residential
component of five or more units shall include the proposed method of satisfying the
requirements of this section. Compliance with the inclusionary housing requirements
shall be reviewed as part of the development review process and presented to the decision
making body as part of the overall project analysis for consistency with both the City's
General Plan and this ordinance. Submittal requirements to demonstrate compliance with
this section shall include the following:
1. Total number of residential units in the project
2. Number of onsite inclusionary units
Proposed sale price of both market rate and inclusionary units and/or proposed
rental price for both market rate and inclusionary units
4. Location of onsite inclusionary units within the project
5. Size and bedroom count for the proposed inclusionary units
6. Should the applicant wish to request alternative compliance from the City
Council, the application shall include the request and describe the method and
details of proposed alternative compliance.
Timeframe for Implementation
There was discussion from the Council and Commission on when to implement the new fees as
well as the amendment to the Inclusionary Housing policy. The City Council showed strong
support at their July 2, 2018 meeting to make the implementation date for the projects that have
an application deemed complete by the Planning Department by January 1, 2019 be exempt from
the new changes. This will give the development community plenty of notice as to when the
new fees and policy will go into effect. This date will also give the State Housing & Community
Development Department time to review the amendment and give us their feedback within sixty
days from submitting the amendment to their office.
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