HomeMy WebLinkAboutItem 8.1 Rental Permit BMR Units
CITY CLERK
File # Dffi~[Q]-[i]lm
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: December 4, 2007
SUBJECT:
RECOMMENDATION:
~.~
FINANCIAL STATEMENT:
PROJECT DESCRIPTION:
Background:
Request to Permit Rental of Below Market Rate For-Sale Units on
the Basis of Hardship.
Report Prepared by John Lucero, Housing Specialist and
Sabrina Wolfson, Deputy City Attorney
1)
2)
3)
Receive Staff presentation;
. Deliberate;
Provide direction to Staff on:
a. Whether a policy should be brought back to the City
Council allowing for rentals of BMR units based on
hardship, and the length of time for the rentals (if
applicable); or
b. Provide Staff with alternative direction.
There would be a financial impact for Staff to design, implement,
and manage the rental of Below Market Rate For-Sale Units. The
funding for the management of the program would be provided from
the Inclusionary Zoning In-Lieu Fee Fund. The amount from the
Inclusionary Zoning In-Lieu Fee Fund would vary based on the
number of BMR owners requesting that the City allow the rental of
their units
The City's Inclusionary Housing Program includes both Below Market Rate (BMR) Rental and For-Sale
units. The City's program has been operating since 1997. In 2002, the City entered into an Affordable
Housing Agreement with Toll Brothers for the Terraces at Dublin Ranch for 105 BMR units. Pursuant to
the Affordable Housing Agreement, the affordable sales price of the BMR units are based on a household
size of either one or two persons.
COPIES TO:
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K:\Agenda Staternents\2007\CC\CCSR12-4Kelso.doc
Page 1 of 4
ITEM NO. g.,
As of October 2007, there were 220 BMR for-sale units that received entitlements from the City of
Dublin. Over time, these BMR units will be sold and then possibly resold. At the time of preparing this
report, 108 BMR units had been sold and occupied.
As a mechanism to ensure the affordability.of BMR for-sale units, the City requires purchasers of for-sale
units to execute a Resale Restriction Agreement and Option to Purchase (Resale Restriction Agreement),
which is recorded against the BMR unit. The Resale Restriction Agreement requires the BMR unit to
remain affordable to low-and moderate-income households for a period of 30 years at the Terraces at
Dublin Ranch and 55 years for all other developments that contain BMR for-sale units. Thus, if a BMR
owner desires to sell their BMR unit, it must sell the unit to another low- or moderate-income household
. at a restricted price. The maximum restricted resale price is generally the original price paid by the BMR
owner for the BMR unit, increased by the percentage increase in the median household income for
Alameda County between the date of the Resale Restriction Agreement and the date the City receives
notification of the owner's intent to sell.
In addition, the Resale Restriction Agreement grants the City an option to purchase the BMR unit at the
restricted price upon the occurrence of the following events: (1) receipt of notification of the owner's
intent to sell the BMR Unit; (2) any actual, attempted, or pending sale, lease or other transfer of the unit;
(3) any actual, attempted, or pending encumbrance of the unit; (4) recordation of a Notice of Default
and/or a notice of sale; (5) commencement of a judicial foreclosure proceeding or execution by the owner
of a deed in lieu of foreclosure; (6) commencement of a bankruptcy proceeding or action; or (7) a
violation by the owner of any provision of the Resale Restriction Agreement. The City may assign its
option to another government entity, a non-profit affordable housing provider or to a low- or moderate-
income household.
In the past several years, there have been several re-sales of the BMR for-sale units. All but one of the
resales has been from the Terraces at Dublin Ranch. The restricted resale price is based on the original
amount paid by the owner, increased by percentage increase in the area median income. The property
owner may sell the unit through a real estate agent, sale by owner and/or use the Tri Valley Housing
Opportunity Center to help locate qualified buyers. At present, there are six BMR units in the Terraces
that are on the re-sale market.
Until recently, the resale process has been smooth, with City Staff working with the seller of the unit and
reviewing potential applicants for purchase. However, recently as a result of the slow down of the
housing market, some sellers have indicated that it is becoming increasingly difficult to find qualified
buyers willing to purchase BMR units at the restricted resale price because the restricted resale price is
close to the market price, and thus, buyers would rather purchase a market-rate home free of restrictions.
In addition, Toll Brothers continues to sell new BMR units in the Terraces; therefore, the resale units are
competing with the sale of new units. It should be noted, however, that Toll Brothers and the current
BMR owners may sell the BMR units for less than the maximum restricted price set forth in the City's
Affordable Housing Agreement and Resale Restriction Agreement, if they so desire.
On October 8, 2007, the City received a letter from an individual who owns a BMR unit in the Terraces.
The letter indicates that the owner is experiencing difficulties selling the BMR unit to a qualified
purchaser at the restricted resale price. The owner has requested that the City allow the rental of the unit
until a qualified buyer can be found.
The Resale Restriction Agreement executed by the owner provides that rental of the unit is not permitted
without the consent of the City.
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ANALYSIS:
The documents that the City uses to make a determination on whether the Inclusionary Housing Program
allows for the rental of units are the Resale and Restriction Agreement, the Inclusionary Zoning
Ordinance (IZO) and the Layperson's Guide. The Resale and Restriction Agreement states that "the
owner shall occupy the property as his or her principal residence for the duration of his or her ownership
and shall not rent or lease the property or portion thereof during the term of this agreement without prior
written approval of City. " The Inclusionary Zoning Ordinance and Layperson's Guide are silent on how
the City should evaluate such a rental request.
Staff has reviewed the Inclusionary Program, contacted other jurisdictions and worked with the City
Attorney on the analysis of the issue of whether or not to allow the rental of a for sale BMR unit as
follows:
Hardship
The Resale Restriction Agreement is clear in stating that the purchaser of the BMR Unit is required to
occupy the unit as his or her principal residence. However, some inclusionary programs in other cities
include a provision in their resale restriction agreements allowing the owner to rent the unit in the event
of a hardship. While the City's Resale Restriction Agreement does not refer to hardship, it does allow the
property owner to request City approval to rent the BMR unit. Staff suggests that the City make a
determination on whether to permit BMR unit owners to rent their units upon demonstration of hardship
as described below.
Generally, hardship is a term that is used to describe something that is out of the control of the property
owner. For example, hardship would include a situation in which a BMR owner is transferred to another
area by their company; or needs to leave the area to care for a sick relative. The City of Livermore has
allowed a limited-term rental of a BMR unit for this type of hardship. Similarly, the City of San
Francisco permits a BMR owner to rent a BMR unit when the household is forced to temporarily relocate
due to employment requirements, or for other reasons deemed acceptable to the Mayor's Office of
Housing provided that the unit is not rented for more than 6 months, the tenant satisfies the income and
other eligibility requirements, and the rent is affordable. In contrast, the City of Pleasanton does not
permit the rental ofBMR for-sale units.
A financial hardship situation that is principally one of the BMR owner's own making could be excluded
as a hardship case. For example, the owner of a BMR unit purchases a new principal residence before the
sale of their BMR unit and is obligated to pay on two mortgages.
If the City Council decides to permit limited term rentals of BMR for-sale units upon the owner's
demonstration of a hardship, Staff would like direction as to what constitutes hardship. Is hardship:
. Unavoidable relocation?
· Personal illness or illness in the family?
. Inability to sell unit?
. Double mortgages?
· Some other item as directed by City Council?
In addition, if the City Council makes a determination that rentals based on hardship (as noted above);
then Staff would like direction as to how long owners should be permitted to rent their BMR units.
Page 3 of 4
Administration
The Inclusionary Housing Program was developed as a Program in which BMR multi-family rental units
are managed by a private entity. At the time the Program was developed, it was determined that a
successful and cost-effective rental program would be one that has private professionals screening
tenants; has on-site management, if possible; and would require limited City Staff time for monitoring
compliance with income and rent restrictions.
If the City Council decides to permit the rental of BMR for-sale units upon a showing of hardship by the
BMR owner, City Staff would have,to monitor the rental unit for compliance with income guidelines for
affordable units. As noted above, the BMR Rental Program was developed on the premise that rental
units would be monitored and managed by a private entity. Currently Staff monitors the units by working
with the private organization that manages the units. If several BMR owners are permitted to rent their
units, there would be an impact on City Staff because Staff would be required to perform additional
monitoring. In addition, there is a screening process that private organizations use to ensure that the
tenant is not only income qualified, but would be a responsible renter. City Staff would review
applications of qualified households for completeness, compliance with IZO, final income and the
households' verification and qualification. Staff would occasionally take on the responsibility of
conducting annual affordable rental surveys to determine the current affordable rental rates in the Dublin
and Tri- Valley region.
If the City Council were to permit limited term rentals of BMR for-sale units, Staff would return to
Council at a future meeting with a Rental of Below Market Rate for Sale Units on the Basis of Hardship
Policy to be adopted by Resolution ofthe City Council and a Budget Change Form, if applicable.
RECOMMENDATION:
Staff recommends that the City Council: 1) Receive Staff presentation; 2) Deliberate; 3) Provide direction
to Staff on (a) whether a policy should be brought back to the City Council allowing for rentals of BMR
units based on Hardship, and the length of time for the rentals (if applicable); or (b) Provide Staff with
alternative direction.
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