Title
Inclusionary Housing Ordinance Update. WORKSHOP to consider recommendations for updates to the inclusionary housing ordinance. General Plan: Citywide. Zoning: Citywide. CEQA Determination: Exempt - Common sense exemption - regulation of affordable housing have no possibility of an effect on the physical environment.
Body
To: Honorable President and Members of the Planning Board
From: Steven Buckley, Secretary to the Planning Board
Allen Tai, Director of Planning Building and Transportation
EXECUTIVE SUMMARY
The City initiated a review of the inclusionary housing ordinance in response to policies and programs in the Housing Element and the Strategic Plan by preparing a workplan, hiring a consultant, and establishing a working group. The working group met with the consultant several times with a variety of topics on the agenda. The consultant has prepared a report with background information on the existing housing market and inclusionary requirements, and drafted a set of recommendations and options for consideration by the Planning Board. Next steps include outreach to the residential development community and other stakeholders and drafting an ordinance.
BACKGROUND
The Housing Element identified shortcomings in the adopted ordinance and policies. Key issues were:
• No in-lieu fee option as required by state law
• Moderate income rental units effectively function as market rate units due to higher incomes in Alameda
• Differing prices and costs of development are not accounted for in requirements for ownership and rental housing types.
Therefore, the Council included a program in its 2023 Strategic Plan, Program HH8a: Update Inclusionary Housing Ordinance. The anticipated timeline was to have this completed in mid-2025.
The Housing Element committed the City to “consider modifications to the ordinance to lessen or eliminate the 7% moderate income units and increase the 4% requirement for low- income units and 4% very low income units, or alter the percentages for each level or required units in some other way, given the larger need for lower income units.”
This agenda item is for the purpose of providing an update on the consultant recommendations in response to the feedback from the working group.
In particular, the baseline assumptions and approach are:
• Most new development is currently infeasible due to market forces beyond the City’s control, as demonstrated by other local studies, but we can reference those studies as prototypes of development with generic costs and revenues.
• When the business cycle swings back to profitability, the City should expect to see inclusionary units in new projects, as this is generally not the determining factor in project feasibility, so we should endeavor to maintain an equivalent “cost” to the development as existing inclusionary requirements by adapting the ratio and affordability levels according to the subsidy required for each unit.
• Rental and ownership housing has different economics and so different approaches are appropriate to consider for ratios and pricing of units in each.
• Many large projects include moderate income units in the project and a separate developer / building dedicated to units for lower income households, which establishes more options to consider in the formal program. Regulatory options include a discretionary approval and project feasibility analysis.
• In-lieu fees are currently collected only for small projects, but are typically available to all project sizes and types in other jurisdictions, so the City should explore a fee structure that also achieves public policy goals, whether they be to establish a funding source for sponsoring new affordable housing projects and/or to encourage compliance with developer-provided on-site units.
• In lieu fees should be a comparable cost to developers as providing the units, and should be within the range of fees collected by similar local jurisdictions. Adjustments for unit size and affordability can be accommodated by charging a fee per square foot of building floor area.
DISCUSSION
The following is a summary of the findings of the consultant report, which reflects the discussion of the working group. Please see Attachment 1 for the full analysis.
Inclusionary Ratios
For rental projects, the report compares the likely cost of compliance for four different alternatives based on the targeted income levels and the ratio of units required.
|
Scenario |
Affordability (income as % of AMI) |
Ratio (% of total units) |
Outcome |
|
Existing |
50 / 80 / 110 |
4 / 4 / 7 |
No Change |
|
Option 1 |
80 |
12 |
Slightly Less Costly |
|
Option 2 |
50 / 80 |
5 / 5 |
Moderately More Costly |
|
Option 3 |
50 / 80 |
4 / 6 |
Roughly Same Cost |
|
Option 4 |
50 / 80 / 100 |
4 / 4 / 4 |
Same Cost |
For ownership projects, the working group heard that the VLI and LI ownership units were potentially difficult to find qualified buyers for who could provide the necessary down payment and that some found it difficult to meet on-going costs of ownership, while it also provides a meaningful opportunity to participate in the opportunity afforded homeowners to have stability and equity. Options were explored to focus on moderate income households.
|
ScenarioAffordability (income as % of AMI)Ratio (% of total units)Outcome |
|
|
|
|
Existing |
50 / 80 / 110 |
4 / 4 / 7 |
No Change |
|
Option 1 |
110 |
18 |
Same Cost |
|
Option 2 |
110 |
20 |
Slightly More Costly |
In-Lieu Fees
For in-lieu fees, the report notes that there are several options depending on the desired policy outcomes. The City has an in lieu fee only available to projects with nine or fewer units. The study tested several options to see how a citywide in-lieu fee could be set. For rentals, while the total cost of compliance for rentals would go up, some developers might still choose the fee option. For ownership projects, the fee is substantially less than the cost of on-site compliance and so could be raised much higher and still be attractive.
|
ScenarioFee / Unit ($)Fee / Net SF ($)Outcome |
|
|
|
|
Rental |
|
Existing |
28,808 |
27.50 (calculated) |
No Change * |
|
Option 1 |
34,113 |
35.00 |
Moderately Higher |
* More costly than on-site compliance
|
Ownership |
|
Existing |
28,808 |
17.87 (calculated) |
No Change |
|
Option 1 |
|
35.00 |
Double |
|
Option 2 |
|
50.00 |
Triple * |
* Remains less costly than on-site compliance, estimated as an average $62.44 per square foot
For a hypothetical large apartment project, the current fee equates to roughly $27.50 per net square foot, which is $10 per square foot above the estimate of the cost of onsite compliance. Because the cost of onsite compliance depends on the rent level and size of market rate units and because of the logistical demands of managing BMR units, it is likely that many rental project developers would prefer to pay this fee even though it appears significantly higher.
ALTERNATIVES
The Board may consider the following alternative actions:
• Do not recommend changes to the inclusionary ordinance.
ENVIRONMENTAL REVIEW
The workshop is not a project subject to review under the California Environmental Quality Act under the common sense exemption, as it does not result in any action.
RECOMMENDATION
Review the consultant recommendations and options and provide direction to staff for drafting an amendment to the ordinance and regulations.
Respectfully submitted,
Steven Buckley, Planning Services Manager
Exhibits:
1. Consultant Report
2. Staff Report for January 27, 2025 Meeting