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Recommendation to Accept the Annual Review of the 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 Remain Needed to Support the Production of Affordable Housing in the City of Alameda. (City Manager 20821840-52010)
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To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
On December 19, 1989, the 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) 2023-24, including an ending fund balance of $922,197.
BACKGROUND
The Ordinance 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. The application for an adjustment or waiver is reviewed by the Assistant City Manager, per the City Ordinance for Development Fees (Chapter 27) and as the staff with the “responsibility for administering the City’s affordable housing development programs.” The adjustment or waiver can be appealed to City Council for a final decision.
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 affordable housing units, programs, and activities are still needed. 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, 2024, 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, a study was conducted 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 by the City in November 2006. As part of this review, it was concluded that (1) the demand for affordable housing and associated subsidies is 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.
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. From 2011 to 2017, the Bay Area added 658,000 jobs and 140,000 units, or 4.7 jobs for every housing units and in some of the region’s more expensive counties, the imbalance was higher with a ratio of 8.14 new jobs to every new housing unit. (Source: “Losing Ground: What the Bay Area’s housing crisis means for middle-income households and racial inequality” dated March 2023 by Sarah Karlinsky). Additionally, Bay Area jobs increased by 6.2% between March 2021 and 2022 compared to a 4.5% increase in the nation and 6.4% gain in California. (Source: “Bay Area Job Watch” dated February 19, 2022 by Bay Area Council Economic Institute). 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 2014-July 2024, shows a 177% 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, continues 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 (Source: Housing Needs in Alameda County: Building a Framework for Equitable Investment, 2023).
Per the City’s Rent Program 2023 Annual Report, 44% 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 (Source: City of Alameda 2023-2031 Housing Element). Given the 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 continues to invest in affordable housing production, programs, and activities.
Affordable Housing Fund Revenues and Expenditures
For Fiscal Year (FY) 2023-24, the AHUF Fund (208) starting balance was $1,234,920. A total of $77,904 in revenues were recorded for FY 2023-24, including $0.00 in fees, $2,252 in principal and interest payments, and $75,652 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. The contrast in revenue is primarily due to development progress and limited affordable housing supply. Total expenditures for FY 2023-24 were $390,627. This includes $350,000 for predevelopment costs for North Housing Permanent Supportive Housing (PSH) Phase I, also known as Estuary I, plus costs for program staffing and City cost allocation related to affordable housing development. The FY 2023-24 ending balance for the AHUF Fund was $922,197 as of June 30, 2024.
Planned Expenditures
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, the 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 (Wellness Center) and North Housing PSH I (Estuary I). As of January 2024, North Housing PSH I was awarded 9% tax credits and successfully closed on its construction financing. A total of $375,000 was disbursed in FY 2023-24 to finance a portion of the North Housing PSH I. The 1245 McKay Avenue project Is expected to commence in early 2026.
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 the last two fiscal years (2022-23 and 2023-24). Consequently, staff continue to propose to retain the existing fund balance of $922,197 of which approximately $750,000 has already been allocated. The $172,197 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. In 27-10a., it 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
• Accept the AHUF Fund Activity Report
• Provide direction to staff regarding 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 (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. The fees support the City Strategic Plan Priority to House All Alamedans and End Homelessness.
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, by motion, 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,
C’Mone Falls, Housing and Human Services Manager
Andre Fairley, Management Analyst
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibit:
1. Annual Report