Title
Recommendation to Amend the Inclusionary Housing Program Preference Point System, Program Guidelines, including Adopting Underwriting Standards, and Prepare Revisions to the Appeal Process via an Ordinance. (Housing 266)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Acting City Manager
Re: Recommendation to Amend the Inclusionary Housing Program Preference Point System, Program Guidelines, including Adopting Underwriting Standards, and Prepare Revisions to the Appeal Process via an Ordinance
BACKGROUND
In 2003, the City Council adopted the Inclusionary Housing Ordinance which requires that each market rate residential project include at least 15% of the units with deed restrictions ensuring affordability for very low-, low- and moderate-income households. AMC Section 30-16 Inclusionary Housing Requirements for Residential Projects currently requires that all residential projects with five (5) or more units provide at least 15% of the units with deed restrictions to ensure that the units are affordable to very low-income (4%), low-income (4%), and moderate-income (7%) households. Residential projects with nine (9) units or less may pay a per unit fee in lieu of providing the deed-restricted units. Any project with 10 or more units must construct the deed-restricted units.
To enforce AMC Section 30-16, developers must enter into an Affordable Housing Agreement with the City which defines the requirements, details marketing guidelines, and includes the Inclusionary Housing Program Buyer Selection Guidelines (Guidelines), attached as Exhibit 1. Staff, developers and the public rely on the Guidelines for the rules and regulations of program implementation. Developers rely on the Guidelines for establishing the sales/rental price of the inclusionary units, staff uses the guidelines for determining buyer/renter income and evaluating other underwriting criteria, and the public knows how the program operates based on the Guidelines. An appeal process is outlined in the ordinance.
To date, the City has 136 units that have been sold through the Inclusionary Housing Program and which continue to be monitored through a services agreement with the Housing Authority of the City of Alameda. This number is in addition to the 123 Inclusionary rental housing units. The Guidelines have not been updated in the last 15 years and, as a result, need to be revised based on lessons learned and current best practices for implementing Inclusionary Housing programs. Staff is requesting City Council approval of the amendments to the guidelines as it was the body that approved the original program guidelines.
DISCUSSION
As noted above, staff is requesting City Council approval of revisions to the Guidelines, including the Inclusionary Housing Program’s preference point system, and the appeal process. If the Council approves changes to the Guidelines as described below, staff will revise the staff operations handbook and public marketing materials accordingly. If Council approves the proposed revisions to the appeal process, staff will prepare an amendment to the Ordinance for action at a later date.
Preference Points
The current preference point system is as follows:
1. Applications from qualified households with a household member who lives or works in Alameda receives one preference point per household.
2. Applications from first-time homebuyers receive one preference point per household (a first-time homebuyer is someone who has not owned a house in the last three years).
3. Applications from large households, defined by a family size that is one person more than the number of bedrooms in the unit, receive one preference point (i.e., a four-person household would receive a preference point for a three-bedroom unit).
Based on the current Guidelines, an applicant could be granted a maximum of three preference points. Staff is proposing to simplify the preference point system and make it easier for the public to understand and easier to implement as follows:
1. Retain the existing preference point for households with a member who lives or works in Alameda (including qualified City employees).
2. Add a new preference point for qualified Alameda Unified School District (AUSD) employees (moderate-income units only).
3. Eliminate the preference point for first-time homebuyers and establish a threshold program requirement that all members of the household be first-time homebuyers.
4. Eliminate the third preference point for larger households as it was confusing to the public and in some instances made it more difficult for single heads-of-households to qualify for an inclusionary unit.
AUSD Preference Point
Staff is recommending that the City Council approve the preference point for AUSD employees for moderate-income units as consideration for AUSD’s role in administering affordable housing funds that are subject to its 1991 Business and Waterfront Improvement Project (BWIP) Pass-through Agreement. With the dissolution of Redevelopment Agencies, the State Department of Finance had determined that these former Community Improvement Commission (CIC) affordable housing funds were available for affordable housing development in the City, but that those funds must flow through AUSD. AUSD was entitled to portion of the housing funds in return for agreeing to the initial creation of the BWIP project area. In addition, the State Department of Finance required the Successor Agency to the CIC to identify a housing provider, which was the Alameda Housing Authority.
In an effort to access these funds, AUSD and the Housing Authority have entered into a Memorandum of Understanding (MOU). As part of the MOU, the Housing Authority has agreed to provide a preference point for AUSD employees for units (very low- and low- income) in projects it develops that benefits from these housing funds.
In addition to a preference point for AUSD employees that qualify for very low- and low-income Housing Authority units, AUSD requested that a preference point be available for those employees that are eligible for moderate-income units as well. Approval of this preference point in conjunction with the AUSD/Housing Authority MOU will facilitate access to over $30 million in affordable housing funds over the next 28 years. Should the Council decline to amend the preference point system outlined in the Inclusionary Guidelines, there is a provision AUSD/Housing Authority agreement that would terminate the MOU.
The proposed preference point for AUSD employees under the City’s Inclusionary Housing Program would be for moderate-income units only. It would be available for AUSD employees for a minimum of one moderate-income unit, and no more than 30% of the available moderate-income units, in any given project. For example, if a residential project had one moderate-income unit available, qualified AUSD employees would receive a preference point for that unit. If no AUSD employee applied for the unit or was deemed qualified, the unit would be available for households with a preference point for living or working in Alameda. If a residential project had 10 moderate-income units, qualified AUSD employees would receive a preference point for a maximum of three units. If no AUSD employee applied for the unit or was deemed qualified, the units would be released into the larger pool and made available to households with a preference point for living or working in Alameda.
Lottery applications will continue to be processed in order of lowest lottery number and highest preference points. However, processing of applications from AUSD employees will stop once 30% of the moderate-income units available through the inclusionary housing program have been made available to AUSD employees. Staff believes that this is an equitable solution that provides an opportunity for eligible AUSD employees to access inclusionary housing and continues to provide a preference point for Alameda residents and employees for 70% of the moderate-income units and 100% of the very low- and low-income units.
Inclusionary Housing Guidelines
In addition to revising the preference points, staff recommends updating the Guidelines, including staff’s Operations Handbook, and preparing a public-facing document that summarizes the underwriting guidelines that staff uses for evaluating applications. These documents will detail areas such as minimum down payment, maximum allowed gift, the first-time homeownership counseling (education) requirements, and many other details that have been used for underwriting applications to qualify households for inclusionary units, but have not been clearly spelled out. Adopting the standards below for the key program underwriting criteria will provide transparency for applicants, improve program administration and facilitate developer pro forma analysis regarding setting the purchase price for inclusionary units.
|
Underwriting Criteria |
Underwriting Standard |
|
Minimum Down Payment |
3% Borrower’s own funds |
|
Maximum Down Payment / Minimum Loan Amount |
50% of the purchase price |
|
Maximum Allowed Gift |
10% of the purchase price, funds must be sourced |
|
Interest Rate Used for Unit Pricing |
Interest rate assumption for purposes of pricing unit to be the current CalHFA rate plus 0.75% |
|
Earnest Money Deposit |
To be no more than 3% of the contract price |
|
First Time Homebuyer Counseling |
Required for all adults who will be on title (and therefore, on the loan) |
|
Asset Test |
Clarifies that retirement accounts are not included |
Appeal Process
The appeal process for the Inclusionary Housing program is currently described in Alameda Municipal Code (AMC) Section 30-16.12(b) and requires a hearing before the Planning Board. It is most likely that the appeal process was included consistent with the rest of the Zoning Code sections; however, the most common reason for disqualification is having a projected annual income that exceeds the maximum allowable income for the particular inclusionary unit. This type of review is not typically a function of the Planning Board. Therefore, staff recommends that the appeal process for a prospective purchaser be revised as follows:
1. Disqualification is issued by the City or its program administrator on behalf of the City.
2. An applicant may appeal the decision and provide additional/new information.
3. Staff will review the appeal and any new/additional information and issue a new determination.
4. If the second determination is also a disqualification, then the applicant may petition to a Hearing Officer for a binding decision.
The proposed change in the appeal process provides consistency in the evaluation of disputes and appeals by using a third-party hearing officer to review the file and render a binding decision. Cases can be heard efficiently and a final determination can be concluded.
The change in the appeal process must be approved by ordinance. If approved by Council, staff will prepare the required amendment and return to City Council for a first reading of the ordinance.
Conclusion
The City’s Inclusionary Housing Program has been in effect for 15 years. During that time, staff has gained significant experience in administering the program and is recommending that the Council approve the changes to the preference point system, the underwriting standards and the appeal process in order to better implement the program.
FINANCIAL IMPACT
There is no financial impact on the General Fund to revising the Inclusionary Housing Program Guidelines, preference point system and appeal process.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The proposed revisions to the Inclusionary Housing Program Buyer Selection Guidelines, including the preference point system and appeal process, are consistent with the City’s Inclusionary Housing Ordinance AMC Section 30-16. If the City Council agrees that the appeal process should be revised, that portion of the Municipal Code will need to be amended.
ENVIRONMENTAL REVIEW
Approval of the proposed revisions to the Preference Point system and the Inclusionary Housing Program Buyer Selection Guidelines is not considered a project pursuant to Public Resources Code section 21065 and California Environmental Quality Act (CEQA) Guidelines section 15378. Therefore, no environmental review is required.
RECOMMENDATION
Amend the Inclusionary Housing program preference point system, Program guidelines, including adopting underwriting standards, and direct staff to prepare revisions to the appeal process via an Ordinance.
Respectfully submitted,
Debbie Potter, Community Development Director
By,
Lisa Fitts, Management Analyst, Housing Authority of the City of Alameda
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibit:
1. Inclusionary Housing Guidelines