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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. (Community Development 20861840)
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To: Honorable Mayor and Members of the City Council
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) 2020-21, including an ending fund balance of $1,772,196.
BACKGROUND
On December 19, 1989, the City Council adopted the Ordinance. 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 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 Affordable Housing 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 Community Development Director and can be appealed to the City Council for a final decision.
The AMC mandates that the 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, 2021, 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 the fact that 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 predicate of affordable housing need, and the reason for the local legislative solutions that flow from it. This study was reviewed 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. From 2006-2016, the region created 500,000 new jobs and added 100,000 residential units. Prior to the COVID-19 global pandemic, the Bay Area Building Association reported that for every 4.3 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.) 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 August 2011-August 2021, shows a 208% increase in the average change in home value. The economics of supply and demand would indicate that 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 that 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
The Alameda County Housing & Community Development Department engaged Michael Baker & Associates (MBA) to prepare an Analysis of Impediments to Fair Housing Choice (AI) for the County and all cities within the County (excluding Oakland and Berkeley). During July and August of 2019, MBA received 3,296 responses to its seven-page survey and facilitated three community engagement meetings and three stakeholder meetings. The AI concludes that housing affordability and availability are the largest issues found to affect the residents participating in the community engagement process.
Per the City’s Rent Program Annual Report for FY 2020-21, the city maintained a vacancy rate of 2.9%, and 42% of tenant households spend at least 30% of their income on rent. The City has only met 44% of its Regional Housing Need Allocation (RHNA) goal as established in 2014 (the 2021 draft RHNA goal has more than doubled), and the City has approved construction of five additional affordable housing sites (more than 620 units) since then. However, the city has insufficient affordable housing stock to meet the current demand, while at the same time the demand for affordable housing continues to grow, albeit at a slower pace than previous years. 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 continue to invest in affordable housing production, programs, and activities.
Affordable Housing Fund Revenues and Expenditures
For FY 2020-21, the AHUF Fund (208) starting balance was $777,283. Please note that the starting balance is $11,080.47 higher than the ending balance that staff had reported for the previous year; the difference in the ending fund balance and the beginning fund balance is attributed to the Governmental Accounting Standards Board (GASB) 31 investment income adjustment, which is done at the end of the fiscal year. A total of $1,344,773 in revenues were recorded for FY 2020-21, including $1,262,944 in fees, $61,876 in principal and interest payments, $19,608 in investment income and $345 in miscellaneous revenues. This is in stark contrast to the total revenues of $774,525 that were collected during the previous five years. The Affordable Housing Fees were collected from projects developed by Alameda BTS EDP, LLC and South Loop 1 LLC. Total expenditures for FY 2020-21 were $349,861 for program implementation, including predevelopment activities related to affordable housing development. With revenues exceeding expenditures by $994,913, the FY 2020-21 ending balance for the AHUF Fund was $1,772,196 as of June 30, 2021.
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 includes an annual budget of $305,242 to AHA for fiscal years 2020-21 through 2022-23 from the fund. Approximately $610,000 from the current balance has been appropriated to cover the remaining two years of the agreement. Staff is preparing to publish a Notice of Funding Availability to solicit proposals from affordable housing developers for up to $750,000 in early 2022. That will leave the City with a fund balance of approximately $412,000. Because the revenues vary each year and because the City received more revenues last year than it had during the previous five years, staff is proposing to have some funds remaining 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. Staff will return at a separate regular meeting in the spring of 2022 to address that aspect of the Ordinance.
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 Affordable Housing Ordinance. Consistent with the Affordable Housing Ordinance. All the revenues collected from the City’s AHUF are sequestered in the Affordable Housing Fund (208/legacy fund 266) and can only be used for eligible housing-related purposes as specified in the Affordable Housing 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
The California Environmental Quality Act (CEQA) applies only to projects that have the potential for causing a significant effect on the environment. This action is not a project pursuant to Public Resources Code section 21065 and CEQA Guidelines section 15378.
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.
CITY MANAGER RECOMMENDATION
The City Manager recommends acceptance of the annual review of the City of Alameda’s Affordable Housing Unit Fee requirements and accept the annual Affordable Housing Unit Fee Fund Activity Report.
Respectfully submitted,
Lisa Nelson Maxwell, Community Development Director
By,
Lisa Fitts, Community Development Program Manager
Financial Impact section reviewed,
Annie To, Finance Director
Exhibit:
1. Annual Report
cc: Eric Levitt, City Manager