Title
City Council Request that the Planning Board Review Affordable Housing Regulations Citywide
Body
BACKGROUND
On June 16, 2016, the City Council voted to direct staff and the Planning Board to consider revisions of Alameda’s Inclusionary Housing requirements to:
• Increase the overall percentage of required affordable units as defined by the current Housing Element of Alameda’s General Plan and State housing laws within residential developments; and
• Add a “work force housing” requirement in addition to the affordable housing requirement.
The City Council further asked that the recommendations from staff and the Planning Board:
• Not require an increase in the total number of units allowed by zoning; and
• Help Alameda meet its Regional Housing Need Allocation (RHNA) for affordable units.
DISCUSSION
The City Council’s 2016 statement that due to, “the high home prices and rents in Alameda, low and even middle income households are in need of increased opportunities in new developments” reflects a long-standing policy objective of the Alameda City Council to increase affordable housing opportunities in Alameda that goes back at least 14 years:
• In 2003, the City Council adopted the Inclusionary Housing Ordinance which requires that each residential project include at least 15% of the units with deed restrictions ensuring affordability for very low-, low- and moderate-income households. Inclusionary housing ordinances are not required by the State of California to meet the City’s RHNA obligations.
• In 2010, the City Council adopted the Density Bonus Ordinance, which grants density bonuses to project that provide affordable housing units that exceed the City’s Inclusionary Housing Ordinance requirements. The Density Bonus Ordinance is required by State Law.
• In 2012, the City Council adopted a set of amendments to the General Plan Housing and Land Use Elements and Alameda Municipal Code and zoning regulations specifically designed to bring the City of Alameda into conformance with State of California Housing Element laws regarding the development of affordable housing. The amendments included adoption of the Multifamily Overlay Zoning designation on several key housing opportunity sites in Alameda.
• In 2014, the City Council adopted a revised Housing Element to address the City’s RHNA obligations for the 2015 through 2023 period, which the State of California certified as in compliance with State Law. The City of Alameda is currently in conformance with State Law and in compliance with its RHNA obligations (described in more detail below.)
• In 2015, the Council initiated efforts to require “middle income” or “work force” housing on a project-by-project basis. Site A at Alameda Point, approved in 2015, was the first project to include project-specific requirements for smaller, “affordable by design” units that might be affordable to middle income home buyers and renters.
• In 2017, the City Council approved the Main Street Specific Plan for the Main Street District at Alameda Point, which includes “middle income” housing provisions in addition to inclusionary housing requirements. The Specific Plan represents the Council’s first decision to address “middle income” housing needs on an area wide basis.
• In 2017, the City Council approved a comprehensive set of amendments to the City of Alameda Accessory Dwelling Unit Ordinance to bring the City’s code into conformance with recent state laws specifically designed to increase the supply of smaller, more affordable, market rate units.
The balance of the staff report addresses Council’s direction to consider options for achieving additional affordable housing, including more middle income housing, without increasing the overall amount of new residential development.
Considerations for increasing the requirement to provide 15% deed restricted housing units. When considering the potential benefits and impacts of increasing the 15% percent inclusionary requirement, the Planning Board and City Council may consider the following:
Consideration #1: Meeting the City’s RHNA Obligations. The Council referral makes reference to ensuring that the recommendation “help Alameda meeting its RHNA obligations.” The City is currently meeting its State RHNA obligations and does not need to increase the 15% inclusionary housing requirement to remain in compliance with its RHNA obligations. The City’s responsibility is to provide enough land zoned at the appropriate densities to facilitate the development of the number of units established in the local RHNA. The 2014 Housing Element identifies where that land is in Alameda and how it is zoned appropriately to achieve densities that support housing development for all income groups. The Multi-family Overlay Zoning District adopted in 2012, allows a density of 30 units per acre. The State of California Legislature determined that zoning that allows 30 units per acre is sufficient to support housing for all income groups, including the low-income housing identified in the RHNA. The 2014 Housing Element identifies that the City has enough sites zoned with a MF Overlay to meet the low-income portion of the RHNA. For that reason, the State of California has certified that the City of Alameda is in conformance with State law and is meeting its RHNA obligations.
The City’s RHNA responsibility can be summarized as follows: 1) zone the right amount of land to accommodate the RHNA, 2) do not deny the housing projects proposed on those lands by private sector developers, and 3) do not adopt other regulations that constrain the private developer’s ability to build housing on those lands.
Assuming that the City does not downzone some of its designated Housing Element housing opportunity sites, does not deny a housing project on a Housing Element site, and does not adopt other regulations that might constrain the financial feasibility of developing housing on a Housing Element site, the City will remain in compliance with its RHNA obligations until 2023.
Consideration #2: Automatic Density Bonuses. The City Council referral explicitly states that the Council does not support a proposal that simply increases the total of number of units on each site to increase the amount of affordable housing on each site.
The City’s current 15% inclusionary requirement is comprised of requirements for 4% very low-, 4% low- and 7% moderate-income units, which ensures that each project does not automatically qualify for an affordable housing density bonus. When a project triggers a State Density Bonus, the result is that the number of units in the project increases and the actual percentage of affordable units in the project goes down, not up.
Over the last seven years that the Density Bonus Ordinance has been in place, most developers in Alameda who have requested a density bonus, have chosen to increase their very low-income housing requirement from 4% to 5%, which qualifies them for a 20% density bonus under state and local law. Therefore, the number of affordable units is increased by 1%, the project size increases by 20%, and the overall percentage of affordable deed restricted units in the project drops from 15% to about 13%.
The State Legislature enacted the Density Bonus Law (Government Code Sections 65915-65918) to address the shortage of affordable housing in California. The statute recognizes that the market rate units in a project subsidize the affordable units; therefore, the law grants additional market rate units for developers that offer affordable deed-restricted units.
In 2010, in compliance with State law, the City adopted AMC Section 30-17 Affordable Housing Density Bonus Ordinance. Pursuant to the ordinance, if a developer volunteers to provide 5% very low-income, 10% low-income, or 10% moderate-income units, the City must provide the developer with specific density bonuses and waivers from City of Alameda development standards (e.g. height limits, open space requirements, etc.). The percentages are set by State law and cannot be adjusted by local ordinance.
Therefore, given the Council’s direction to avoid increasing the number of units in each project automatically, the options for increasing the percentage of affordable units in each project are limited to:
• Increasing the requirement for Low Income units from 4% to no more than 9%.
• Increasing the requirement for moderate income units from 7% to no more than 9%.
It should also be noted that the closer the City’s Inclusionary requirement gets to the threshold for a density bonus, the more likely it is that a developer will simply choose to increase the percentage of affordable units to achieve a density bonus or waive other city development standards.
Consideration #3: Deed-Restricted Units Increase the Cost of the Market Rate Units. Given California’s land and construction costs, the 15% deed-restricted units in each residential project must be financially subsidized by the 85% of the units that are not deed-restricted. (This relationship is acknowledged and confirmed by the State Density Bonus legislation described above in Consideration #2.) These subsidies result in an increase in the cost to the buyer or renter of the 85% market rate units. As a result, the City Council and the Alameda community have become increasing concerned that projects in Alameda are producing 15% of their units for very low-, low- and moderate-income households, 85% for wealthy households, and nothing for “middle income” households that cannot afford the 85% of market rate units and do not qualify for the 15% of units that are deed-restricted. This concern has resulted in the Council’s desire for requirements for “middle income” or “workforce housing” for each project.
Therefore, the Planning Board and City Council should consider that any proposal to increase the requirement for Low Income units from 4% to no more than 9% or increase the requirement for moderate income units from 7% to no more than 9% will result in an increase in the cost of the other 85% of the units in the project, which will worsen the conditions for “middle income” households in Alameda.
Consideration #4: Constraints on Housing Development. The State of California does not require that cities adopt inclusionary housing requirements. In fact, the Department of Housing and Community Development (HCD) considers inclusionary zoning regulations to be a "constraint" on housing production because it places a financial burden on the for-profit housing development community, which provides the majority of the new housing in California. As a result, HCD requires that the City of Alameda annually review its ordinance to ensure that it is not constraining housing development. If it is determined that the ordinance requirements are creating a financial constraint on housing development, the City must reduce those requirements or risk being found by the State to be in non-compliance with State Law. Staff prepares a Housing Element Annual Report that is reviewed by the Planning Board and City Council each year. To date, the report has concluded that the current 15% Inclusionary Housing Ordinance requirement has not been a constraint on housing development in Alameda.
If the City amends its ordinance to increase the 15% requirement, and if the change results in fewer housing projects being proposed, then the ordinance could be found to be a constraint on housing development and the City could be found to be out of compliance with State Housing Element law.
Consideration #4: Inclusionary Housing Requirements in Other Cities. Alameda is not alone in its struggle to address the affordable housing crisis. The experiences of other cities may help the Planning Board and City Council make decisions about whether or not to increase the 15% inclusionary requirement by a few percentage points for low- - or moderate-income units.
A brief survey of other cities finds that:
• Berkeley requires 20% moderate-income units in ownership projects. No very low- or low-income units are required. Rental projects pay an in-lieu fee.
• Emeryville requires 20% moderate-income units in ownership projects. No very low- or low-income units required. Rental projects include 4% very low- and 8% low, but no moderate-income units.
• Fremont requires 3.5% affordable units (all moderate) on attached units plus a fee. Detached projects include 4.5% affordable units plus a fee.
• Hayward requires 7.5% affordable units (all moderate income) on attached ownership projects or pay an in-lieu fee. Detached ownership projects provide 10% affordable units or pay an in-lieu fee. No inclusionary housing requirements for rental units.
• San Leandro residential ownership projects include 9% moderate-income units and 6% low-income units. Rental projects include 10% low-income units and 5% very low-income units.
• Union City ownership projects include 13% moderate units and 2% very low-income units or pay an in-lieu fee. Rental projects include 10% low-income units and 5% very low-income units or pay an in-lieu fee.
• San Francisco recently adopted an 18% (10% low income and 8% moderate) requirement for rental units and a 20% (12% low income and 8% moderate) for ownership projects. Exhibit 1 includes an analysis prepared for the City of San Francisco.
• Oakland does not have an inclusionary housing ordinance.
The survey of other cities reveals three general findings:
• Alameda’s requirement for 15% inclusionary units that includes very low-, low-, and moderate-income housing exceeds the requirements of most of our neighboring cities and the few neighboring cities that require more than 15% either do not require low- and very low-income units or allow developers to pay in-lieu fees instead of providing the units.
• Alameda is the most restrictive city regarding an option to pay in-lieu fees. In Alameda, only projects with nine or fewer units may pay in-lieu fees. All the other cities allow residential projects of any size an option, or requirement, to pay in-lieu fees.
• Alameda’s inclusionary requirement applies equally to ownership and rental projects. The required percentage of affordable housing (15%) and the ability to pay an in-lieu fee is the same regardless of housing tenure. Most other cities surveyed have different requirements based on whether or not the housing being built is ownership or rental.
Consideration #5: The Cumulative Impact of New Regulations on New Housing Development. At a time when the City Council is considering new universal design requirements, ,, revised public art requirements, new “middle income” housing requirements, and new “bird safe” building requirements for new development, the staff, Planning Board, community, and Council will need to carefully consider the cumulative effect of all of these requirements on the ability of the private, and non-profit, sector to build Alameda’s share of the region’s much needed housing as identified in the City’s RHNA.
Considerations for requiring middle income, affordable by design, “workforce housing” in all residential developments.
Consideration #6. “Work Force” is “Middle Income” or “Affordable by Design” Housing. The Council asked for recommendations for “work force” housing. “Work force” housing, is also sometimes called “middle income” housing, or “Affordable by Design” Housing. For the purposes of this report, all three terms may be used interchangeably and refer to the same type of housing. Staff considers households earning 120% - 180% of median income to be “middle income”. As detailed below, a family of four earning $116,900 to $175,320 would be “middle income.” However, the definition of “middle income” can be refined if the proposed income range does not fully capture the identified need for affordable housing Considerations 7-10 below address options for new regulations for “middle income” housing.
Consideration #7: “Middle Income” Housing is Market Rate Housing. Middle income housing is not deed restricted. It utilizes design strategies (“affordable by design”) instead of deed restrictions to be less expensive than larger market rate units in the project. The primary way to design a unit to be less expensive is to make it smaller. (Assumption: A 900 square foot unit will be less expensive than a 2,000 square foot unit in the same building or project.) A second way may be to locate the unit on the back side of a waterfront building without a view of the water. (Assumption: A unit without a waterfront view will be less expensive than the same size unit in the same building or project with a waterfront view.)
Because it is not deed-restricted and because it is more affordable, a “middle income” household may be able to purchase the unit and over time build equity, which will allow that household to use that equity to purchase a larger home in the future, if the “middle income” unit is too small for the family, or the family has grown over time. A purchaser of a deed-restricted unit is limited in the amount of equity s/he can realize and does not fully benefit from the Bay Area’s rising housing values. Assumption: A “middle income” household wishes to purchase a home and build equity that can be used to purchase a bigger home in the future or be used for other financial needs.
Consideration #8: Middle Income Units Should not Increase the Cost of Other Market Rate Units. Because “middle income” units are not deed restricted and because the units are sold or rented at market rates, the “middle income unit” does not need to be financially subsidized by the other market rate units in the project that are already subsidizing the 15% percent of deed-restricted units. Therefore the “middle income” units are not increasing the costs of the other 85% of units.
Consideration #9: Middle Income Units do not Trigger Density Bonuses. Because the “middle income” units are not deed-restricted for very low-, low- or moderate-income units, “middle income” units do not trigger density bonuses or waivers under the State and local Density Bonus laws.
Consideration #10: Middle Income Units can Achieve Public Policy and Private Financial Objectives. In 2017, the City Council adopted a requirement that all new housing in the Main Street neighborhood of Alameda Point include at least ten percent (10%) of the units designed to be affordable to households with a household income between 120% and 180% of area wide median income (AMI), to the satisfaction of the Planning Board. To achieve this requirement, the development application shall include information about current and projected home sales prices or rental rates and the proposed unit design and size to justify and explain how at least 10% of the units have been designed to be affordable to the target household income levels. To provide some flexibility, the Planning Board may waive or reduce the 10% requirement or impose a different development requirement for projects with certain characteristics, such as:
- Undue hardship caused by geotechnical or topographical constraints, historic preservation requirements or other site size or legal constraints.
- Conflicts with State of Federal regulations
- Providing 100% of units to lower-income households
- Other financial feasibility constraints
The charts below illustrates the size and cost of housing that a household in the “affordable” and “workforce” income ranges could afford. Based on AMI for Alameda County for a family of four and standard underwriting guidelines, current interest rates and housing costs, households within the workforce income range would be able to afford a home in the $500,000 to $750,000 price range.
The chart below shows that households within the workforce income range would be able to afford a home that ranges in size from 1,000 to 1,600 square feet given the current housing costs of $470 per square feet.
The Planning Board and City Council could consider an amendment to the Zoning Code to apply the Alameda Point “middle income” housing standard to residential development citywide.
Conclusion
Staff is recommending a Zoning amendment that would require that residential projects of 10 units or more provide at least 10% of the units be at a size that is affordable to households with incomes between 120% and 180% of AMI.
The amendment, in combination with the City’s existing Inclusionary Housing Ordinance, would ensure that each future housing development with 10 or more units will include:
• Four percent (4%) of the units deed restricted to households that earn less than 50% of AMI (Units deed restricted by Inclusionary Housing Ordinance);
• Four percent (4%) of the units deed restricted to households that earn between 50% to 80% of the AMI (Units deed restricted by Inclusionary Housing Ordinance);
• Seven percent (7%) of the units deed restricted to households that earn between 80% and 120% of the AMI (Units deed restricted by Inclusionary Housing Ordinance);
• 10% of units designed to be affordable to households that earn between 120% and 180% of AMI; and
• 75% of the units with no deed restrictions or “affordable by design” requirements.
The “affordable by design” requirements of the proposed ordinance amendment would be enforced through the Design Review approval of the project floor plans. Although the lack of a deed restriction does not guarantee that the unit will be affordable to the target income population in perpetuity, or even for 50 years, it does ensure that all future projects will have a range of units with an associated range of costs.
ENVIRONMENTAL REVIEW
Approval of an annual report is not subject to the review under the California Environmental Quality Act (CEQA), nor is an annual report defined as a “project” under CEQA. No future review is required.
RECOMMENDATION
Hold a Public Hearing and recommend that the City Council:
• Retain the existing 15% requirement in the Inclusionary Housing Ordinance.
• Adopt a Citywide “affordable by design” requirement, to bring the rest of the City into alignment with the standard set by the Main Street Specific Plan.
Respectfully Submitted By:
Andrew Thomas, Assistant Community Development Director
Exhibit 1: San Francisco Inclusionary Housing Analysis