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Recommendation to Accept the Annual Review of the City of Alameda’s Affordable Housing Unit Fee Requirements Consistent with Section 27-1 of the Alameda Municipal Code; Accept the Annual Affordable Housing Unit Fee Fund Activity Report; and Find that: 1) Unit/Fee Requirements Set Forth in Local Law Remain Reasonably Related to the Impacts of Development, and 2) the Affordable Housing Units, Programs and Activities Required by Local Law Remains Needed to Support the Production of Affordable Housing in the City of Alameda. (City Manager 20821840)
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To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
On December 19, 1989, City Council adopted an Affordable Housing Ordinance (Ordinance), which authorized imposing affordable housing in-lieu fees that would apply to non-residential construction. The City of Alameda’s (City) Affordable Housing Unit/Fee (AHUF) requirements may be satisfied either by providing affordable housing units or by paying an in-lieu fee. These in-lieu fee payments are deposited and tracked in the Affordable Housing Fund (Fund 208). Pursuant to Alameda Municipal Code (AMC), the City is required to annually report on the status of the funds and the uses for which the funds were expended. Exhibit 1 shows the AHUF Fund activity for Fiscal Year (FY) 2022-23, including an ending fund balance of $1,234,920.
BACKGROUND
On December 19, 1989, City Council adopted the Ordinance, which authorizes affordable housing in-lieu fees that apply to office/research and development, retail, warehouse/industrial, manufacturing, and hotel/motel construction. The Ordinance established the City’s AHUF requirements in Section 27-1 of the AMC and stated that these requirements can be satisfied either by providing housing units affordable to very low-, low- and/or moderate-income households or by paying an in-lieu fee. Such fees are not subject to the Mitigation Fee Act. (See California Building Industry Assn. v. City of San Jose (2015) 61 Cal.4th 435 (inclusionary housing regulations are to be reviewed as zoning regulations, and not exactions subject to the restrictions of the Mitigation Fee Act); 616 Croft Ave., LLC v. City of West Hollywood (2016) 3 Cal.App.5th 621 (same).)
The Ordinance requires that, at the time of a building permit application, a developer of a non-residential project (new construction or expansion) may satisfy the affordable housing requirement either by providing affordable units or by paying an in-lieu fee. The Ordinance provides developers with a process to apply for an adjustment or waiver of the affordable housing requirement if there is no reasonable relationship between a particular project and the need for affordable housing. Per the Ordinance, the application for an adjustment or waiver is reviewed by the Community Development Director (now the Base Reuse and Economic Development Director) and can be appealed to the City Council for a final decision. The Ordinance is currently based on the previous department and staff structure, however staff is bringing a recommendation to City Council to update the Ordinance at a future meeting. Staff is coordinating with the Planning, Building and Transportation Department to review the Ordinance and proposed changes, including administrative changes so that references to the Community Development Director will be updated accordingly.
The AMC mandates that City Council review the AHUF requirements on an annual basis to determine that they remain reasonably related to the impacts of development and whether the described affordable housing units, programs, and activities are still needed. (AMC § 27-1.4(c)) The Annual Report includes a statement of total fees collected, the beginning and ending fund balance, and how the fees were expended during the most recent fiscal year.
This staff report and the attached Affordable Housing Fund Activity Report (Exhibit 1) have been prepared to satisfy the annual review requirements pursuant to Section 27-1 of the AMC for the fiscal year ending June 30, 2023, and to serve as the Annual Report.
Monies in the AHUF fund may only be used in accordance with, and in support of, activities to implement the City's adopted Housing Element. These uses include, but are not limited to, predevelopment or development loans used to develop affordable housing, grants to develop affordable housing, participation leases, or other public/private partnerships and administrative costs to administer related programs. The affordable housing funds may also be expended for the benefit of rental or owner-occupied housing.
DISCUSSION
The Unit/Fee Requirements Set Forth in Local Law Remain Reasonably Related to the Impacts of Development
Prior to adoption of the Ordinance, in 1989, the City ordered a study to determine whether construction or expansion of non-residential development was a major factor in attracting new employees to the City, which in turn created a need and demand for additional housing in the City, and consequently, the need for additional affordable housing. It is this jobs-housing imbalance that forms the factual basis of affordable housing need, and the rationale for local legislative solutions. This study was reviewed in November 2006. Based on this review, City Council approved the study’s conclusion that (1) the demand for affordable housing and associated subsidies was comparable to or greater than the demand calculated at the time of the original study in 1989, and (2) the City’s fees are well within the limits of the maximum fees that could be supported on a nexus basis.
Since 2006, the jobs-housing imbalance in the nine-county Bay Area has continued to grow. Prior to the COVID-19 global pandemic, the Bay Area Council reported that for every eight jobs created in the San Francisco Bay Area, one residential unit is provided. While this ratio decreased to 3.46 to 1 during the pandemic, it is still more than double the ratio for areas outside of California, including Denver (1.7) and Austin (1.5) and higher than parts of Santa Clara County, which are at 3.2 (Source: “The Jobs-Housing Mismatch: What it Means for U.S. Metropolitan Areas” dated July 7, 2021 by Eric Kober.). Within the Bay Area the job growth is expected to surge five percent (5%) this year, but the rate of constructing new housing is projected to decelerate sharply to four percent (4%) (Source: “California Economic Outlook Report-September 2022 by Scott Anderson). The regional impacts of robust job creation without the corresponding production of housing units continues to put intense upward pressure on the cost of housing in the Bay Area.
The S&P CoreLogic Case-Shiller Index (Case-Shiller Index) measures the average change in value of residential real estate given a constant level of quality. The Case-Shiller Index for the San Francisco Metropolitan Area, which includes San Francisco, the East Bay, North Bay and Peninsula, for the 10-year period from July 2013-July 2023, shows a 173% increase in the average change in home value. The economics of supply and demand would indicate this substantial increase in average home value over the last ten years is tied to insufficient supply. The combination of a relatively high jobs-housing ratio and high appreciation rates demonstrate that residential construction rates have not kept pace with job creation. Therefore, it is essential the City, along with other local jurisdictions, continue to mitigate the impacts of non-residential job creation on housing affordability by requiring the production of affordable housing units or payment of an in-lieu fee.
The Affordable Housing Units, Programs and Activities Required by Local Law Are Still Needed
As reported by the Alameda County Housing & Community Development Department, the Bay Area continues to lack sufficient funding to enable the development of affordable housing at the levels needed for our communities (Source: Housing Needs in Alameda County: Building a Framework for Equitable Investment, 2023). As of 2023, there are 32,944 affordable homes in the region that are ready to be built but cannot advance until more public funding is secured, and 57% of the Bay Area’s 3.5 million low-income residents are rent-burdened, meaning they pay more than 30% of their household income on rent (Source: Housing Needs in Alameda County: Building a Framework for Equitable Investment, 2023).
As noted in the City’s Rent Program 2022 Annual Report, 47% of tenant households spend more than 30% of their income on rent. The City currently has insufficient affordable housing stock to meet demand, while at the same time the demand for affordable housing continues to grow, albeit at a slower pace than previous years. While the 2014 Housing Element identified the need for the creation of 1,723 units in Alameda, the 2022 Housing Element indicates the City’s allocation would increase to 5,353 housing units between 2023 and 2031 to accommodate local and regional housing needs and the City has a 2.9% vacancy rate (Source: City of Alameda 2023-2031 Housing Element). Given this extremely low vacancy rate (5% is considered a healthy vacancy rate) and the number of rent-burdened tenant households in the City, it is critical that the City continue to invest in affordable housing production, programs, and activities.
Affordable Housing Fund Revenues and Expenditures
For Fiscal Year (FY) 2022-23, the AHUF Fund (Fund 208) starting balance was $1,265,624. A total of $36,564 in revenues were recorded for FY 2022-23, including $0.00 in fees, $811 in principal and interest payments, and $35,752 in investment income. This is in stark contrast to the total revenues of $1,344,773 that were collected in FY 2020-21 from projects developed by Alameda BTS EDP, LLC and South Loop 1 LLC. Total expenditures for FY 2022-23 were $67,268 for program implementation, including predevelopment activities related to affordable housing development. The FY 2022-23 ending balance for the AHUF Fund was $1,234,920 as of June 30, 2023.
Planned Expenditures
In June 2020, City Council approved an amendment to the Service Agreement between the City and the Housing Authority of the City of Alameda (AHA) for AHA staff related costs, as well as costs related to feasibility analyses, property acquisition, due diligence, predevelopment and construction. The Service Agreement included a total budget of $915,726 payable to AHA for fiscal years 2020-21 through 2022-23 from the AHUF fund. The contract ended June 30, 2023.
In January 2022, through a Notice of Funding Availability (NOFA), staff made available $750,000 of AHUF funds. At the June 2022 City Council meeting, City Council approved staff’s recommendation to split the HOME and AHUF funds between the two permanent, supportive housing projects for formerly homeless individuals, 1245 McKay Avenue and North Housing PSH I. While the funds have been allocated to these two projects, they have not yet been disbursed and remain on the City’s balance sheet. North Housing PSH I was awarded 9% tax credits and is aiming to close on its construction financing by mid-January 2024. Approximately $325,000 will be disbursed in FY 2023-24.
AHUF revenues to the City vary each year. While the FY 2020-21 revenues were greater than the City had received during the previous five years, the City collected no affordable housing fees in FY 2021-22 and FY 2022-23. Consequently, staff propose to retain the existing fund balance of $1,234,920 of which $750,000 has already been allocated. The $484,920 that remains unallocated may be used for expenses that may arise over the next five years.
Review of Fee Rates
The Ordinance also establishes a method for increasing the fee annually. AMC Section 27-1.10(a) states, “The affordable housing unit/fee resolution may provide for an annual increase in the amount of the fee to reflect the percentage increase in the cost of construction or public improvements as reported in the Engineering News Record-Construction Price Index for the San Francisco Bay Area.”
ALTERNATIVES
• Make the required findings and accept the annual review of the Affordable Housing Ordinance and the annual AHUF Fund Activity Report.
• Modify the annual AHUF Fund Activity Report prior to acceptance.
FINANCIAL IMPACT
There is no financial impact from conducting or accepting an annual review of the Ordinance. All the revenues collected from the City’s AHUF are deposited into the Affordable Housing Fund (Fund 208) and can only be used for eligible housing-related purposes as specified in the Ordinance.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This Annual Review and the attached Annual Report are consistent with the requirements of Section 27-1 (Affordable Housing Unit/Fee Requirements) of the AMC.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with accepting the Annual Review of the Affordable Housing Ordinance and the Annual AHUF Fund Activity Report.
RECOMMENDATION
Accept the annual review of the City of Alameda’s Affordable Housing Unit Fee Requirements consistent with Section 27-1 of the Alameda Municipal Code; accept the annual Affordable Housing Unit Fee Fund Activity Report; and find that 1) unit/fee requirements set forth in local law remain reasonably related to the impacts of development; and 2) the affordable housing units, programs and activities required by local law remains needed to support the production of affordable housing in the City.
Respectfully submitted,
Amy Wooldridge, Assistant City Manager
By,
Lisa Fitts, Housing and Human Services Manager
Andre Fairley, Housing and Human Services Management Analyst
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibit:
1. Annual Report