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HomeMy WebLinkAboutItem 8.1 Afford Hous Imple Prgm CITY CLERK File # 430-80 AGENDA STATEMENT CITY COUNCIL MEETING DATE: October 3, 2000 SUBJECT: Affordable Housing Implementation Program - Workshop Two Report Prepared by Dennis Carrington, Senior Planner and Regina Adams, Assistant Planner ATTACHMENTS: 1. Affordable Housing Report RECOMMENDATION: 1. 2. Receive Affordable Housing Report Question staff and consultants regarding information received from the Report Provide input and choose components for Dublin's Affordable Housing Plan Implementation Plan with respect to: a) Affordable Housing Program Options b) Possible changes to Dublin's Inclusionary Regulations c) Affordable Housing Funding Options d) Target Group Designation FINANCIAL STATEMENT: None at this time. DESCRIPTION: At the previous workshop held on April 4, 2000, planning and consulting staff presented background information pertaining to various affordable housing programs. During the workshop, City Council members directed planing and consulting staff to produce cost estimates for the programs discussed in order to designate target groups and set priorities for affordable housing program design. Hence, the purpose of this second workshop is threefold: 1 ) Staff will present a variety of affordable housing options for funding and implementing affordable housing programs. 2) Staff will present a comparative analysis of current policy and possible revisions to the Inclusionary Zoning Regulations with respect to in-lieu fees and potential commercial linkage fees (mechanisms for funding affordable housing programs). 3) In response to the staff presentations, the City Council will then discuss the affordable housing options and possible target groups presented and decide which options and target groups will comprise the City's Affordable Housing Implementation Plan or give staff direction for further analysis. COPIES TO: In-House Distribution ITEM NO. g:~housing\implementation program\CC Staff Report- Workshop 2 The affordable housing options that will be presented and discussed include the following: Affordable Housing Program Options · Provide Down Payment Assistance for Inclusionary Units (silent second mortgage or assistance with closing costs ). · Subsidize new construction of small lot, for-sale single-family residences. · Acquire and rehabilitate existing rental properties. · Subsidize new construction of multi-family housing. · Encourage developers to participate in existing programs to build affordable housing. · Provide rent subsidies. Possible Changes to Dublin's Inclusionany Regulations · Remove the in-lieu fee option and require developers to build units. · Change the percentage of inclusionary units required to increase the number of units produced and require that developers provide the units. Affordable Housing Funding Options · Continue requiring a per square foot in-lieu fee but increase the amount. · Increase the percentage of inclusionary units required to increase the amount of in lieu fees collected · Implement a commercial linkage fee. Potential Target · · · · · Groups will be discussed with emphasis on: First-time homebuyers Seniors Workforce housing Low-income renters Disabled Persons Attachment A consists of the Affordable Housing Report that describes each program option. After receiving public comments and direction from the City Council, planning and consulting staff will prepare and present models for possible Affordable Housing Implementation Programs at a later date. The models presented will contain cost estimates and analyses in terms of ABAG's requirements and overall feasibility. AFFORDABLE HOUSING REPORT A. INTRODUCTION The City of Dublin is in the process of establishing a comprehensive Affordable Housing Implementation Plan to address the question of affordable housing in Dublin and to work toward meeting State mandates. In the past, private developers in the City of Dublin have chosen to pay in-lieu fees in accordance with the City's Inclusionary Zoning Ordinance rather than produce housing affordable to all income groups. During the previous workshop held on April 4, 2000, staff presented an in-depth overview of Dublin's current affordable housing policies. Under current affordable housing policies, the City has not produced any affordable housing units available to low-income and very-low- income households in the past year. A private developer accessed other government funding for affordable housing and constructed 57 affordable housing units in 1999, but the City was not directly involved. Dublin also funds existing programs, however, the City is not involved in the management of these programs nor does the City provide oversight. Although no units have been generated, $4.7 million in in-lieu fees have been collected through September 15, 2000. By mandate of the Inclusionary Regulations in the Zoning Ordinance, the City must begin to spend portions of the $4.7 million collected by September 18, 2002 (seven years from the date the City began collecting in-lieu fees) or return the funds to the developers. The Association of Bay Area Governments (ABAG) assessed the lack of affordable housing in the Bay Area and produced a report titled "Regional Housing Needs". This report is a guideline that will be used by the State to monitor cities' affordable housing production. ABAG indicated that Dublin must produce 796 units that are affordable for very low-income household, 531 units affordable to low-income households, and 1,441 affordable to moderate-income households for a total of 2,768 units during the next six (6) years. The City's Affordable Housing Program must address this State and Regional requirement. Specifically, this affordable report is designed: To address ABAG's 6 year affordable housing requirements. · To present viable program option components. · To research target group and workforce housing needs. · To seek City Council direction in assembling components for a comprehensive affordable housing implementation program. Previously, the City Council gave staff direction to explore potential affordable housing programs and consider ways to revise and strengthen the current inclusionary regulations. In additional to these requests, the City Council asked that staff research possible target group designations and workforce housing target groups. Many program options exist for implementing affordable housing. This report will focus on potential programs the City Council may want to implement in addition to possible changes to the current Inclusionary Regulations. B. CURRENT AFFORDABLE HOUSING PROGRAM 1. Dublin's Current Affordable Housing Status Staff has projected under certain assumptions that the City will add approximately $6.9 million to its affordable housing-fund over the next five years to the current $4.7 million already collected. Adding this $6.9 million to the $4.7 million brings an estimated $11.6 million that could be generated in affordable housing in-lieu fees if the City does not amend its Inclusionary Regulations. To date, none of these funds have been allocated. Below is a synopsis of the affordable housing programs in which Dublin currently administers and or participates: Inclusionarv Zoning Regulations These regulations require that developers of 20 or more units either set aside 5% of the units to low-income, very low-income, and moderate-income households or pay a per unit in-lieu fee. The City has collected $4.7 million in in-lieu fees thus far. Density Bonus Regulations Adopted in 1991, these regulations grant a density bonus up to a 30% increase in the number of dwelling units authorized for a given parcel, subject to certain criteria. No units have been constructed under this State-required program. 2 Second Units Seconds units are small accessory dwellings permitted under Dublin's Zoning Ordinance. Four units have been built under the Second Unit Ordinance. Additional programs that the City funds but does not administer are listed below: Rehabilitation and Minor Home Repair This program is administered by Alameda County and paid for by CDBG funds. Fewer than ten households annually benefit from this program. Mortgage Credit Certificate Program (MCC) Administered by Alameda County, the MCC program and provides homebuyer assistance through income tax credits for a portion of the participant's mortgages interest. Section 8 Program The Section 8 Program provides vouchers to eligible households. Currently, thirty- one (31) Dublin residents receive housing subsidies from the Section 8 Program. The Dublin Housing Authority will issue thirty-six (36) additional vouchers to subsidized residents at an apartment complex in Dublin when the complex' s contract with HUD expires on June 23, 2001. 2. Impact of present program on ABAG goals Dublin has produced a total of 57 affordable housing units that can be counted toward ABAG's goals. If the City continues its current affordable housing production rate, it will not meet ABAG's 2,768 affordable unit requirement by the June 30, 2006 deadline for very low-income, low-income, and moderate-income households. While serving few Dublin residents, Rehabilitation and Minor Home Repair, and Mortgage Credit Certificate Programs do assist in preserving the City' s existing affordable housing stock. Some of the current options, such as the Density Bonus Regulations, are State mandates and can not be amended or removed. Keeping the current strategies in place would not adversely impact affordable housing production and would only enhance additional steps taken to produce affordable housing. 3 C. NEW PROGRAM OPTIONS THAT COULD BE CONSIDERED Additional programs could be pursued using our present funding ($11.6 million by 2006). More staff time or active participation by the Dublin Housing Authority contract staff would be necessary to pursue these opportunities. Some of the programs that are presented could assist the City in meeting ABAG Housing Goals in addition to increasing Dublin's affordable housing stock. 1. Provide Down Payment Assistance for Inclusionary Units (silent second mortgage or closing cost assistance): The City could provide some or all of the downpayment funds in the form of a silent second mortgage or closing cost assistance. The target household could use either option to purchase a new home. Once the unit is resold, the initial down payment assistance subsidized by the City would be returned to the City and used again for the inclusionary unit' s new buyer. Down payment assistance is best targeted toward moderate-income households who can afford to purchase a home but lack the savings necessary for the down payment or closing costs. Down payment assistance will not satisfy ABAG requirements for permanently affordable units unless it is in conjunction with the purchase of an inclusionary unit. 2. Subsidize new construction of small lot, for-sale single family residences: The City could sponsor additional affordable, for-sale housing development. By providing money toward land and or development costs to a private (profit or non-profit) developer to create this housing. Aside from city assistance, few public subsidies are available to assist the developer in reducing development costs. Two options are presented here: a) The City buys down the cost of the units from the developer, and the buyer assumes responsibility for the down payment. b) The City buys down the cost of the units from the developer and provides down payment assistance in the form of a silent second mortgage or other types of ownership assistance, additionally, secures a long term affordability deed restriction which would meet ABAG Housing Goals. For both options, the City could make units affordable homebuyers by "buying down" the costs from the developer. In "buying down the cost", the City pays a portion of the purchase price of a 4 market-rate unit to the developer so that the overall purchase price is reduced and becomes affordable for the target household. In the second option, the City provides a silent second mortgage directly to the buyer towards the down payment, in addition to buying down the cost of the unit. If the City imposed a deed restriction in conjunction with the options mentioned above, the units would qualify as permanently affordable, thus satisfying ABAG's affordable housing goals. Typically, cities do not act alone, but work with non-profit developers and other agencies that provide additional funding. The funds from other sources reduce the City's per unit subsidy costs, so more affordable housing could be produced. 3. Acquire and rehabilitate existing rental properties: Under this altemative, the City could acquire or assist a private developer (non-profit or for- profit) in acquiring older rental properties, properties with deferred maintenance, uninhabitable properties, or other below-market properties. The housing is renovated using public funds from the City or federal programs such as the HOME program and CDBG. State and other local funds are also available on a competitive basis. Once rehabilitated, the rents for the housing remain permanently affordable, satisfying ABAG's requirement. An acquisition-rehabilitation program best serves low-income and very low-income households who are typically renters, because it involves a lump sum payment up front to make the units affordable, unlike rent subsidies that increase over time. 4. Subsidize new construction of multi-family housing. Subsidizing new construction is one way to increase the supply of rental units. A private developer (for-profit or non-profit) develops the project concept, obtains financing from a variety of sources, both public (City, State and Federal programs) and private lenders. In the two scenarios listed below, the developer's private management arm manages the building once constructed, and rents remain affordable for a specified time (30 to 55 years or other period considered permanently affordable, thus satisfying ABAG's requirements). The City could fund affordable multi-family units. The City could provide direct funding for affordable rental housing construction in the form of a grant or low-cost loan. b) The City could form partnerships with Other Government, Non-Profit, or Private Entities Dublin could form partnerships with other agencies that are actively involved in affordable housing production and management, such as Bridge or Echo Housing. 5. Encourage developers to participate in and use in-place processes and or existing programs to build affordable housing. The City could encourage developers to utilize existing processes to build affordable housing. These processes/mechanisms include the following: City Processes that developers could use to build affordable housing · Rezoning land from commercial to residential uses could directly increase the amount of land available for market-rate and below market-rate housing. Density bonuses constitute one method the City currently has available to encourage affordable unit production. If low-income housing is provided in a development, a density bonus up to 30% is possible. A density bonus plus a subsidy from the City could reduce per unit development costs and make affordable multi-family unit production economically feasible. In addition to granting the density bonus, the City could subsidize all or a portion of the development costs. Density bonuses work best when combined with other incentives such as fee waivers, exemptions to height, setback, and other development regulations. The density bonus option has not been used in Dublin, because not enough value was placed on land in the past to make the option desirable. Fee waivers. The City could waive fees assessed on new affordable housing development, such as building permits and plan check fees. In-lieu fees that have already been collected could offset the potential loss in revenue. Land Assembly. The City could acquire parcels owned by different entities then re- assemble them. Once acquired, the City could sell the land at market-rate or at below-market rate to developers interested in building affordable housing. In this manner, the City could provide a service to a developer who may not be able to assemble parcels privately. The number of units produced would depend on the City's opportunities to acquire and, if necessary, rezone land. The opportunity does exist for the City to practice land assembly for under-utilized commercial parcels. 6 Off-site and on-site infrastructure improvements could be all or partially paid for by a City. By paying for the improvements from existing in-lieu fees, the City decreases costs to the developer. Off-site improvements may include roads, sidewalks, curbs, gutters, traffic signals and signs, sewers, storm drains, etc. On-site improvements could include parking, grading, landscaping, etc. If necessary, the City could provide variances or rezone the property to accommodate an affordable housing project's required infrastructure improvements, in addition to paying for them. Exceptions to the Dublin Zoning Ordinance Development Regulations such as setback, height, and parking requirements could be provided as an incentive for developers to produce affordable housing because it decreases costs to the developer. Of the City processes mentioned, only rezoning and exceptions to the zoning ordinance, do not require direct or indirect outlays of funds from the City. Mechanisms also exist outside of City processes that axe accessible to developers who want or need funding to build affordable housing. b) Existing federal, state and local programs that developers could use to fund affordable housing Tax credits. The State of California administers tax credits and sets the criteria for awarding them on a competitive basis. The tax credit rate is approximately 4% for acquisition costs and 9% for new construction. To qualify for tax credits, a project must have 20% of its units occupied by very low-income households or 40% of the units set aside for low-income households. Mo. rtgage Revenue Bonds. Mortgage revenue bonds are issued by local jurisdictions to developers for financing affordable housing projects. Mortgage revenue bonds lower overall development costs by reducing the interest rate for long-term financing of the project. The City or County could apply for these bonds from the California Debt Limit Allocation Committee and, if awarded the funds, issue bonds for a specific project to the developer, or the developer could participate in a California Housing Finance Agency bond issue. 7 HOME and CDBG funds. HOME and CDBG funds could be used for rental housing development. The HOME Program serves households earning up to 80% of area median income while CDBG serves a variety of household income categories. The City, in conjunction with a development parmer, could apply to Alameda County for specific projects to be funded under the Alameda County HOME Consortium program or apply for CDBG grants. Both the HOME and CDBG grants are administered through competitive processes, whereby the developers must apply and meet certain criteria. The City could encourage developers to pursue these funds. Other State-Funded Programs. The State of California's FY 2000/01 budget allocated $500 million towards housing and related expenditures. These funds will be available on a competitive basis. Application guidelines for these funds are being developed by the State Department of Housing and Community Development (HCD) and should be available by early Fall 2000. The funding areas include: 1 ) Development of multifamily rental housing; 2) First-time homebuyer assistance; and 3) Funds for community amenities. Once the guidelines are available, it will be possible to see how the availability of these funds could benefit Dublin. Developers do not have to use these processes and mechanisms exclusively. They could be combined to minimize costs of affordable housing. The 57 affordable housing units constructed at Park Sierra Apartments in Dublin were constructed using both tax credits and bond financing. The tax credits/bond financing programs required that Park Sierra set aside 20% (57 units) for very low-income households. The 20% set-asides were higher than Dublin's 5% inclusionary requirement, so the City was able to exceed the Inclusionary Regulations' goals for that development. Although, the chances that developers in Dublin have in accessing these outside funding options may be small due to competition for the funding, they still wan'ant consideration in affordable housing development. If the City could encourage developers in the future to participate in programs that offered tax credits, bond financing, or other enticements, additional affordable housing units, some of which may be permanently affordable, could be developed at little or no cost. 8 6. Provide Rent Subsidies. The City could subsidize all or a part of eligible tenants' rents based on selection criteria. The City could create and manage its own program or continue to provide funding to other agencies, such as the Alameda County Housing Authority, that have established programs in place, i.e. Dublin could increase funding to the Housing Authority to expand its rental voucher program. Rental subsidy programs are considered a viable affordable housing option, because they primarily target low-income and very low-income households. However, ABAG does not count units receiving rental subsdies, unless the target households reside in permanently affordable units. Summary of Housing Program Options The charts below reflect the number of units that could be generated under each option for the different income categories with the following assumptions: 40% of the $11.6 million is targeted to very low-income households, 40% of the $11.6 million is targeted to low-income households, and 20% of the $11.6 million is dedicated to moderate-income households as stipulated by the Inclusionary Regulations. Acquisition-Rehabilitation allocating $9.28 million ($4.64 million for very-low income households and $4.64 million for low-income householdsb Additional Units that could be generated under current 2000-2006 RHND Target household Inclusionary Regulations Allocation RHND deficit Very-Low Income 99 796 697 Low-Income 1,1642 531 (633) Moderate-Income 0 1,441 1,441 Total 1,263 2,768 1,505 ~ The $4.64 million represents 40% of $ 11.6 million that is allocated to very low-income and low-income households under the City' s Inclusionary Regulations. 2 1164 units could be produced if Dublin had sufficient multi-family housing inventory that could be acquired for this purpose. Subsidize New Construction of Multi-Family Projects allocating $9.28 million ($4.64 million for very-low income households $4.64 million for low-income households) Additional Units that could be generated under current 2000-2006 RHND Target household Inclusionary Regulations Allocation RHND deficit Very-Low Income 41 796 755 Low-Income 68 531 463 Moderate-Income 0 1,441 1,441 Total 109 2,768 2,659 Subsidize New Construction of Small-Lot, For-Sale Housing allocating $2.32 million for moderate-income households3 Additional Units that could be generated under current 2000-2006 RHND Target household Inclusionary Regulations Allocation RHND deficit Very-Low Income 0 796 796 Low-Income 0 531 531 Moderate-Income 42 1,441 1,399 Total 42 2,768 2,726 Down payment assistance and rental subsidies do not count toward ABAG's 2,768 total unit requirement for low-income, very low-income and moderate-income households, unless these program options are used for the purchase or rental of inclusionary units. Encouraging developers to pursue funding sources outside of City mechanisms resulted in 57 units, but these outside sources that are awarded competitively, such as tax credits and mortgage bonds, used would not be guaranteed for every development, making unit projection difficult. Allocating Dublin's projected $11.6 million in-lieu fees to generate units As demonstrated by the charts, some programs are more effective in generating units for certain income categories than others generate. Acquisition-rehabilitation best targets low-income households. Assuming that there are 1,164 multi-family units that can be acquired and 10 rehabilitated, acquisition-rehabilitation would exceed ABAG's 591 unit requirement for low- income households by 573 units. New construction of small-lot, for sale housing generates 42 units for moderate-income households. With the exception of acquisition-rehabilitation for the low-income category, no one method comes close to meeting ABAG's goals. When considering participating in new program options to increase the supply of affordable housing, it is important to note that new housing development will generally be the most expensive in terms of per unit cost due to the high costs of land acquisition and permit processes. Furthermore, locating suitable sites and obtaining neighborhood support is often challenging. Although building new affordable housing is the most costly option, it has the advantage of adding pennanent units to Dublin's existing inventory of affordable units. Ideally, a comprehensive affordable housing program will encompass all the housing programs mentioned to take advantage of every opportunity for generating units. While the models above imply the City is acting alone, this is typically not the case. Often cities will leverage their funds by providing grants to a variety of agencies and private developers (either for-profit or non- profit) who already have other funding sources. In this manner the agencies or private developers can pool the funds from many sources to complete affordable housing projects. If Dublin chooses to keep current Inclusionary Regulations in place, then leveraging the funds for affordable housing projects would be considered an efficient and feasible alternative. By leveraging the funds, the City could match, dollar for dollar, state, federal, or other private funds or provide a lump sum based on target group criteria and restrictions, e.g. 40% of the funds will go toward inclusionary units that target low-income seniors. In matching other funds, the City spends a fraction of the total cost for affordable housing development and could fund other affordable housing projects with the money saved. If the housing programs presented were implemented through leveraging or by the City itself, along with the possible options to strengthen the inclusionary regulations and expand funding, these programs could generate more units than were estimated under the current provisions. Options for strengthening the inclusionary regulations are discussed in the next section of the report followed by affordable housing funding options. 3 $2.32 million represents 20% of $11.6 million that is allocated to moderate-income households under the City's Inclusionarry Regulations. 11 D. POSSIBILE OPTIONS FOR STRENGTHENING DUBLIN'S CURRENT INCLUSIONARY REGULATIONS In order to come closer to meeting ABAG's housing target for Dublin, the City Council may wish to consider strengthening the Inclusionary Regulations combined with implementing some or all of the fore-mentioned affordable housing programs. Possible changes for strengthening the Inclusionary Regulations include: 1. Removing the in-lieu fee option and requiring developers to build units. The City' s Inclusionary Regulations stipulate that 5% of the total number of units in a development be affordable to target income households. Of the 5% Inclusionary units, 40% may be affordable to low-income households, 40% should be affordable to very low-income households, and 20% affordable to moderate-income households. If the City required that all affordable units be built instead of allowing developers to pay in-lieu fees, it is projected that approximately 255 units would be produced from an estimated 5,100 units produced over the next five years4. The 255 affordable units produced translates into 102 units that would be affordable to low-income households, 102 units affordable to very low-income households, and 51 units affordable to moderate income households. The City absorbs no administrative costs by requiring that affordable housing be built. Although the 255 units produced under this option falls short in meeting ABAG's 2,768 unit requirement for very low-income, low-income, and moderate-income households, they are considered permanently affordable. Although the income categories include above moderate-income households, the emphasis of the new programs is placed on low-income, very low-income, and moderate-income households. It is assumed that the market will provide most of the units affordable to above-moderate income households. Remove the in-lieu fee and require that the developer build units Additional Units that could be generated under current 2000-2006 RHND Target household Inclusionary Regulations Allocation RHND deficit Very-Low Income 102 796 694 Low-Income 102 531 429 Moderate-Income 51 1,441 1,390 Total 255 2,768 2,513 4 The "255" traits (shown on Table 1 of Exhibit A) comes from taking the projected 5,100 units developed over the next five years and multiplying by the 5% required affordable units as required by the current inclusionary regulations. 12 2. Changing the percentage of inclusionary units required to increase the number of units produced and requiring that developers provide the units. An increase from the current 5% requirement to a higher percentage could directly translate to an increase in inclusionary units. For instance, if the City increases the percentage of inclusionary units from 5% to 10% and requires that the developer exclusively provide units, the 255 number of inclusionary units produced would double to 510 units. Increasing the inclusionary requirement to 15% and requiring the developer to build the units yields a total of 765 units. This option costs the City no money, and brings Dublin closer to meeting ABAG's 2,768 affordable unit requirement for very low-income, low-income, and moderate-income households. Increase inclusionary requirement to 10% and require that developers provide the units Additional Units that could be generated under current Inclusionary Inclusionary Target household Requirement Regulations 2000-2006 RHND Allocation RHND deficit Very-Low Income 10% 204 796 592 Low-Income 10% 204 531 327 Moderate-Income 10% 102 1,441 1,339 Total 510 2,768 2,258 Increase inclusionary requirement to 15% and require that developers provide the units Additional Units that could be generated under current Inclusionary Inclusionary Target household Requirement Regulations 2000-2006 RHND Allocation RHND deficit Very-Low Income 15% 306 796 490 Low-Income 15% 306 531 225 Moderate-Income 15% 153 1,441 1,288 Above Moderate-Income 0 0 2,668 2,668 Total 765 2,768 4,671 13 E. NEW AFFORDABLE HOUSING FUNDING OPTIONS The City Council may want to consider methods to increase funding for affordable housing programs, particularly if new program approaches, such as the City constructing new for-sale housing or the City practicing acquisition-rehabilitation, are desired. The new program approaches require more money than amending the inclusionary regulations, which is primarily policy-oriented. The City Council may also want to consider increasing funding even if the City chooses to only amend the inclusionary regulations and continue to fund existing programs, because more money generated could produce more units. The "Affordable Housing Funding Options", Table 2 of this report summarizes the potential revenues for each funding option listed below. 1. Possible change to the inclusionary requirement by increasing the percentage of inclusionary units required thereby increasing the amount of in-lieu fees collected. Increasing the percentage of inclusionary units increases the amount of in-lieu fees collected for developers who opt to pay in-lieu fees. If the 5% requirement was increased to 10% the amount of in-lieu fees collected would double. If the City raised the fees to 15%, the amount of in-lieu fees collected would triple. 2. Possible changes to the current in-lieu fee structure by continuing requiring a per square foot in-lieu fee but increase the amount. In-lieu fees are currently assessed on a per square foot basis. If developers choose the in-lieu fee option instead of providing units, they are now charged $1.00 per square foot of habitable space for single-family and $0.75 for multiple-family development. These per square foot in-lieu fees will generate approximately $8,041,383 over the next five years. Increasing this fee to $2.00 per square foot for a single family residence and $1.50 per square foot for a multiple-family unit would generate fees of $16,082,756 during the same period. 3. Implementing a Commercial Linkage Fee The City could create a linkage fee that could be levied on new commercial developments. For the purpose of evaluation, staff has included all commercial, industrial, and office uses in proposing a commercial linkage fee. The commercial linkage fee could be integrated with the existing building permit process making implementation feasible. A commercial linkage fee could directly result in an increase in affordable housing fees. It is estimated that 5,644,449 square feet of commercial development will be built over the next five years in Dublin. If the City imposed a per square foot linkage fee, the City could collect $2,822,225 ($.050 x 5,644,449) 14 for funding affordable housing. programs. Table 1 below summarizes other cities' commercial linkage fee 15 Table 1: SUMMARY OF SELECTED HOUSING LINKAGE FEE PROGRAMS (2000) City Livermore Pleasanton Cupertino Threshold Commercial and Industrial (specific uses defined in Ordinance) - no size threshold Commercial/ Industrial/Office (no size threshold) Office and industrial developments (no size threshold) Fee Varies by property type, ranging from $. 16 for low intensity industrial to $.81/sq.ft. lbr retail. $.50/sq./L - updated January 2000 Effective 1997: $2.00/sq.ft. Fee to be updated this year. Fee Increases Adjusted annually based on the Engineering News Record 20- city building cost index. Adjusted annually by % change in the San Francisco/Oakland CPI. Adjusted annually based on % change in CPI, all urban consumers, for SF-Oakland area. Exemptions Public hospital, property used primarily for religious worship, day care, schools, and other publicly owned property. Reduction oft~e possible under certain circumstances. Retail development is excluded. Notes Livermore's fee was adopted in February 1999. Thus far, fee revenues have averaged $.5 million annually. Fee implemented in 1990. Provision of units remains an option. City worked with major employers before adopting its linkage program. This helped minimize opposition. Nexus study was prepared. Menlo Park Napa County Palo Alto Sunnyvale Commercial and industrial developments of more than 10,000 gross sq. ft. None Commercial and industrial developments of more than 20,000 gross sq. ft. All industrial development exceeding 35% FAR $1.92/sq.ft. (office) .76/sq.ft. (warehousing, printing, assembly) 1997 $.20/sq.R. - $1.40/sq.ft. Effective 4/99: $4.03/sq. ft. $7.14 sq. ft. Adjusted annually based on % change in CPI, all urban consumers, for SF-Oakland area. Adjusted annually based on % change in CPI, all urban consumers, for SF-Oakland area. Fee has not changed since adoption in 1980's. Churches; private clubs, lodges, and fraternal organizations; public facilities. Non-profits Churches; colleges and universities; commercial recreation; hospitals and convalescent facilities; private clubs, lodges, and fraternal organizations; private educational facilities; public facilities. Program was modeled after Palo Alto's program. Nexus study was prepared. There is a two-tier fee structure. Rates vary by use. Hotels are $1.40, office $1.00, warehouse $.20-.30. Nexus study was undertaken before program was adopted. Study used to set the initial amount of the fee, which was based on the cost to develop a unit, $50,000 (now $74,570). Staff indicated that one reason that fees have not been increased is that to do so could require a nexus study. It was also noted that few projects have been affected because City Council not likely to approve projects above 35% FAR. Notes on other rates: San Diego also has no minimum size threshold and charges by building use, ranging from $.27 for warehouses to $.80 for R&D space to $1.06 for office space. San Francisco's $7.05 rate only applied to office space when analyzed in 1997. Recommendations were to impose somewhat lower fees ($2-4) for other non-residential uses including hotel, retail, medical, etc. 16 The accompanying Table 2, Affordable Housing Funding Generating Options, shows that $2.8 million in affordable housing fees could be generated over the next five years by adopting a $0.50 per square foot commercial linkage fee with the following assumptionss: - Commercial projects containing fewer than 10,000 square feet are exempted. - A single fee structure applies to all commercial development. 5 Extrapolated and rounded from Table 5, the total $2.8 million commercial linkage fee projected was derived from multiplying the total 5,644,449 square feet of commercial space by the proposed $0.50 per square foot commercial linkage fee. 17 Table 2: Affordable housing funding options Affordable Housing Affordable housing funding options E.1) Increase the % of inclusionary units required and thereby increase the amount of in-lieu fees collected Based on a project 5,100 units that will be produced over the next five years Inclusionary requirement increased to 10% 15% E.2) Keep the per square foot in-lieu fee charge and increase it: Based on 3,472,855 square feet of space for multi-family development projected over the next five years Multi-Family Total Fees That Could Be Generated over the next five years $23.2 million $34.8 million CurrentS0.75 persq. ff. $2,604,641 $1.50 persq. ft. $5,209,281 $3.00 per sq. ft. $10,418,562 $5.00 persq. ft. $17,897,714 Based on 5,436,742 square feet of space for single-family development projected over the next five years Single Family Current $1.00 per sq. ft. $2.00 per sq. ft. $4.00 per sq. ft. $8.00 per sq. ft. E.3) Impose a Commercial Linkage Fee $5,436,742 $10,873,484 $21,746,968 $43,493,936 $2,822,224 $4,233,337 $5,644,449 Based on 5,644,449 square feet of proposed commercial developments occurring within the next five years $0.50 persq. ft. $0.75 persq.~. $1.00 persq. ft. 18 F. PROPOSED TARGET GROUPS FOR AFFORDABLE HOUSING PROGRAMS Proposed target groups discussed by the City Council during the April 4, 2000 workshop included the following: 1. First-time homebuyers A key obstacle for first-time homebuyers is that they lack savings for down payments, although they may have adequate incomes to pay for monthly mortgage costs. First-time homebuyers are typically workforce members, police officers, retail clerks, teachers and other service employees. Downpayment assistance programs could provide first-time homebuyers with the opportunity to secure a mortgage. 2. Seniors As of 1990, there were 438 Dublin households considered senior households, that is households headed by persons over 65 years of age. This represented 6.4% of Dublin's population. When the 2000 census results are tallied, it is likely that this percentage will be higher.6 Factors that should be taken into consideration when planning for senior housing needs include: 1. The supply of market rate, smaller units (e.g., townhomes, patio homes, etc.). 2. Housing affordability, and supportive housing that enables seniors to remain independent. Oftentimes, the senior household requires both affordable and supportive housing. According to 1990 Census data, there are approximately 82 renter households headed by a senior, in comparison to 356 senior owner households. However, among those renters, almost 60% are paying more than 30% of their gross incomes for rent, in comparison to 38% of all Dublin households that pay more than 30% of their income to rent. Therefore, Dublin seniors that rent could most benefit from possible rental assistance and acquisition-rehabilitation programs. Existing programs such as the Minor Home and Rehabilitation program that allow persons to retrofit and repair their homes with low-interest loans and Dublin' s Second Unit Regulations ordinance, could better serve senior homeowners. 6 The 1990 Census may not reflect current conditions in Dublin due to the rapid growth of the City during the past ten years. Between 1990 and 1999, the population in Dublin is estimated to have increased from 23,229 persons to 28,707 persons, for an increase of 24%. 19 3. Persons with Disabilities There are approximately 420 persons with disabilities living in Dublin according to 1990 Census data. The 1990 Census identified these persons as those of working age that experienced either a mobility or self-care limitation. Similar to seniors, for disabled renters paying more than 30% of their income toward housing, rental assistance programs could best serve this group. 4. Low-Income Renters 1990 Census data indicated that there were about 295 households in Dublin that pay more than 30% of their income toward rent. Due to rent increases in Dublin over the past decade, this number has probably increased. Rental assistance programs and new affordable rental construction best serve low-income and ver low-income households. ForLSale housing and ownership programs are not economically feasible, because the affordability gap for persons earning below 80% of the Alameda County median income is very high. 5. Dublin's Workforce Dublin's workforce as a target group, comprised of police personnel, fire fighters, teachers, service industry workers, and retail clerks, fall into the low-income, and moderate-income categories. Income Categories in relation to the proposed target groups The Median income for a family of four with a single wage earner in Alameda County is $67,600. Household income category thresholds are as follows: · Very low-income is defined as the 50% median income group. This group does not earn more than $33,800 for a household of four. · Low-income is defined as the 80% median income group. This group does not earn more than $50,200 for a household of four. · Moderate-income is defined as the 120% median income group. This group does not earn more than $81,120 for a household of four. 2O TABLE 3: Proposed Target Groups' Income Levels Income Categories Very Low-Income Low-Income Moderate-Income Possible Target Groups First-time home buyers Seniors Persons with Disabilities Low-Income Renters Workforce members X X X X X X X X X X X X The selection of target groups will help dictate the options selected for the Affordable Housing Implementation Program. Some programs such as the New Construction of Small Lot For-Sale Units will not be available to the low and very low income categories, because the cost threshold exceeds their income level and the required subsidy could be too high. Other options, such as the Acquisition/Rehabilitation, best target low-income households. The target income categories from which the target groups will be derived are governed by Dublin' s Inclusionary Regulations that stipulate, of the 5% inclusionary units produced, 40% to very-low income households, 40% affordable to low-income households, and 20% affordable to moderate-income households. In determining the criteria for target group selection and subsequent program options, the City Council will ultimately have to decide the level of City participation in selecting applicants and target group criteria. The City could adopt the criteria used by existing programs or develop its own criteria. Additional staff resources would be necessary if the City chose its own target groups and chose to develop and administer its own housing programs as opposed to funding existing programs with pre-established target groups. G. SAMPLE WORKFORCE HOUSING PROGRAM OPTIONS The City Council specifically asked what programs were available to assist the workforce target group. This section gives an overview of what segments of the population comprise the workforce target group and some of the programs that could be tailored to meet the needs of Dublin' s workforce. 21 Table 4, Summary Table, provides examples of several different rental and ownership programs that could be adopted by the City to assist the workforce target group for the unit generating options. The examples of San Francisco Bay Area cities using these programs are as follows: 1. Inclusionary Units - Rental and Ownership Examples: a. Menlo Park Workforce Preferences. The City of Menlo Park's BMR Inclusionary Housing Program) stipulate that current residents and the local workforce are priority groups. b. Pleasanton Workforce Preferences. City of Pleasanton's Home Ownership Assistance Program (PHAP) also gives preference to current residents and the local workforce. Dublin's ordinance presently gives preference to four groups: seniors, first-time homebuyers, other Dublin residents, and those who need to move to Dublin. These preferences could be modified to add the workforce as a preference group. Down Payment Assistance, Assistance with Closing Costs, and Silent/Deferred Mortgages Examples: a. Buy Downs. Both Pleasanton and Menlo Park provide down payment assistance to buyers of inclusionary units in the form of "buy downs". In Menlo Park, down payment assistance is also available to buyers of market rate housing, as long is it does not exceed an affordable sales price. b, CASA. In Pleasanton, the City has implemented a Community Assisted Shared Appreciation (CASA) program in cooperation with a local non-profit and lender. The program offers second mortgage loans to assist buyers to bridge the gap between the sales price (less a minimum down payment) and the maximum amount of a primary mortgage the buyer could afford. C, Mortgage Credit Certificates (MCC). Since Alameda County already administers the MCC program no new administrative structure would be needed. Developers participate in the MCC program, that, in turn, issues the certificates to eligible homebuyers. The homebuyers use these certificates to reduce their effective mortgage rates by approximately two percentage points. The subsidy works through the income tax system, by providing income tax credits for a portion of the mortgage interest (up to 20%). 22 3. New For-Sale Housing Construction Examples: a. A low- to moderate-income homeownership project has been proposed in Fremont that will be developed by Eden Housing. Persons that work in retail, government, and other members of the workforce that meet income requirements will be eligible. b, The City of Menlo Park is considering several moderate-income ownership projects. Since many types of workers, such as teachers, police officers, and fire fighters, fall into the moderate-income category, they could access Menlo Park's housing programs. 4. Acquisition/Rehabilitation of Existing Housing Examples: a. Allied Housing is in the process of acquiring and rehabilitating a rental project in Livermore that will house income-eligible members of the workforce. Other non-profits, such as Mid-Peninsula Housing and Eden Housing, routinely acquire and rehabilitate properties in the bay area to increase the supply of rental housing. Dublin could work with a non-profit similar to Eden or Mid-Peninsula Housing that acquires and rehabilitates existing property and makes it affordable to City staff and other members of the workforce. 5. New Rental Housing Construction Example: a. Teacher Housing in the City of San Francisco. San Franciso recently announced plans to build an apartment complex for teachers. San Francisco obtained low interest loans and mortgage insurance from the U.S. Department of Housing and Urban Development for this program. Due to the small number of teachers in Dublin that would be assisted, it might be more cost-effective for Dublin to join with other Tri-Valley cities in administering such a program. The City could modify and expand San Francisco' s teacher housing model to accommodate Dublin's workforce and not only teachers. Example: b. Teacher Housing in San Jose. The City of San Jose is providing financing for an all- affordable rental housing development and has set one half of the units aside for entry-level teachers. Dublin could mimic this program in concept but expand the target group to incorporate Dublin's workforce. 23 6. Direct Rental Subsidies Examples: a. "Moving in for Less". The Tri-County Apartment Association in the South Bay is operating a "Moving in for Less" program that targets classroom teachers. On a voluntary basis, property owners agree to reduce the security deposit charged to teachers. b, Teacher Assistance. In the past, the San Mateo Unified School District provided grants to new teachers to help defray the cost of housing. Dublin could choose to provide grants to all income-eligible members in the workforce. The workers in Dublin may prefer direct cash assistance (or reduced move-in costs) to direct housing provision, since it provides them with more flexibility. A sample of programs is given below under "Housing Program Options" followed by a summary table that notes which income groups best suit the programs listed. Table 4: Summary Table of Housing Programs' Target Income Groups Housing Programs Income Target Groups RENTAL HOUSING New Rental Housing Construction Acquisition/Rehabilitation Existing Housing Direct Rental Subsidies Inclusionary Units--Rental and Ownership FOR-SALE HOUSING Down Payment Assistance Assistance with Closing Costs Silent/Deferred Second Mortgages Mortgage Credit Certificates New Housing Construction Inclusionary Units--Rental and Ownership Very Low-Income Lower-Income Moderate-Income (50%) (80%) (120%) X X X X X X X X X X X X X X X X X X X X X 24 H. CONCLUSION What direction could the City Council take in implementing affordable housing programs? The City Council, in selecting and implementing an affordable housing program, must first determine the level of involvement the City will have in program implementation. Fifty-nine (59) affordable housing units were produced in the past two years. Fifty-seven (57) of the 59 units produced did not involve action from the City. If this sporadic and uneven rate of affordable housing production continues, the City could produce less than 300 affordable units (assuming that 59 units are produced every two years). Under its current affordable housing policies, the City will not meet ABAG's goals. The $11.6 million projected in-lieu fees that could be used to fund the new programs in this report woutd not generate many units, even if the City leveraged the $11.6 million with outside funding (See charts on pages 9, 12-13). Subsidizing any type of new construction involves high land, development, and construction costs. If used for rental subsidies or down payment assistance, the $11.6 million would only be able to assist a few households or in the case of rent subsidies, a few households for a short period of time (assuming the potential for monthly rent increases). However, if the City Council decides to continue with its current Inclusionary Regulations, then leveraging the in-lieu fees with for-profit or non-profit developers' funding sources for the new programs mentioned in this report would generate more units than if the City acts as a lone entity. The fees could be leveraged to projects based on the Inclusionary Regulation' s allocations: 40% to very-low-income households, 40% to low-income households, and 20% to moderate-income households. The City has recently been approached by a non-profit interested in acquiring and rehabilitating units targeted for very-low and low-income households. The non- profit is currently bargaining with the owner over the purchase price and pulling together funding sources. Once the deal had been finalized, the non-profit will request a grant form the City to close escrow. If executed, this deal will produce 60 units. Although opportunities similar to the fore-mentioned one for the City to leverage in-lieu fees and produce permanently affordable housing will be scattered, the potential to produce units exists. If the City wants to pursue new programs and work toward meeting ABAG's goals, either through leveraging or as a lone entity, additional staff resources and amended funding options would be required. The new programs mentioned in this report were as follows: 1. Provide Down Payment Assistance for Inclusionary Units (silent second mortgage or closing cost assistance). 2. Subsidize new construction of small lot, for-sale single family residences. 25 3. Acquire and rehabilitate existing rental properties. 4. Subsidize new construction of multi-family housing. 5. Encourage developers to participate in and use in-place processes and or existing programs to build affordable housing. 6. Provide Rent Subsidies. In order to meet ABAG goals and increase affordable housing production, the City Council may want to consider amending and strengthening the Inclusionary Regulations to generate more affordable housing funding and units. The funding options presented do not cost the City any money to implement, as they are policy-oriented and could be implemented through affordable housing development agreements and permitting processes. To recap, the funding options presented consisted of: 1. Continuing to require a per square foot in-lieu fee but increase the amount. 2. Increasing the current in-lieu fees by imposing a flat in-lieu fee assessed per inclusionary unit. 3. Increasing the percentage of inclusionary units required, thereby increasing the amount of in-lieu fees collected. 4. Implementing a Commercial Linkage Fee. Dublin' s current in-lieu fees, $0.75/square foot for multi-family and $1/square foot for single family households, are low in comparison to the cost of building units. The in-lieu fee resulting from a 2,000 square foot single family residence is $2,000, but the cost to house a low-income or very low income family under any option other than down payment assistance far exceeds $2,000 per unit. If the City wants to review and or reconsider its in-lieu option, it may want to increase the in-lieu fee to an amount where it becomes revenue neutral to the developer and the City. In other words, the in-lieu fee should be sufficient for bridging the affordability gap for target income households. Options for strengthening Dublin's inclusionary regulations included the following: 1. Removing the in-lieu fee option and requiring developers to build units. 2. Changing the percentage of inclusionary units required to increase the number of units produced and requiring that developers provide the units. Requiring that developers provide units exclusively without an in-lieu fee option under current inclusionary requirements could result in the production of 255 units at no cost to and with 26 minimal staff resources from the City (from 5,100 units projected over the next 5 years x the 5% inclusionary requirement). Forty- percent (40%) or 102 inclusionary units would be affordable to low-income households and 40% or 102 would be affordable very low-income households, while 20% or 51 of the inclusionary units would be affordable to moderate-income families. By requiring units instead of using in-lieu fees for new construction of multi-family housing projects, the City more than doubles its affordable housing production for low-income households by a factor of 2.37. However, 255 units represent only 9.2% of ABAG's 2,768 total unit requirement for low-income, very low-income, and moderate-income households. Doubling or Tripling the inclusionary requirement to 10% or 15% doubles or triples the 255 unit production rate to 510 or 765 respectively bringing the City closer to meeting ABAG's goals. Implementing some or all of the new programs, increasing the inclusionary requirement, and increasing affordable housing funding options provides Dublin with the chance to maximize opportunities for affordable unit production. What target groups should Dublin's affordable housing programs serve? Based on 1990 Census data, low- and very low-income households comprise less than 10% of Dublin' s population. However, many of these households contain potential target group members: seniors, disabled persons, and low-income reuters, and members of Dublin's workforce. All of these possible target groups could benefit from potential rental assistance programs and the expansion of Dublin's existing programs, such as Dublin's Second Unit Regulations. However, for-sale housing best serves possible target group households within the moderate-income categories. Incomes of seniors, disabled persons, and members of the workforce vary with respect to the County median income of $67,600, so a variety of programs that serve a range of target income groups could be beneficial. The target groups discussed were 1. First-time home buyers 2. Seniors 3. Persons with Disabilities 4. Low-Income Renters 5. Workforce members What Steps should the City take after choosing a direction and designating target groups? This report acknowledges the City' s flexibility in incorporating a variety of programs and funding options. The options (components) can be tailored to meet Dublin's needs and target 7 The "2.3" factor is a result of dividing the 204 units produced under a required inclusionary unit requirement by "68", the units produced from the City using in-lieu fees to subsidize new construction of a muki-family housing development. 27 groups. For instance, Dublin can require units for very-low income target households, restrict acquisition-rehabilitation to serving low-income households, and set aside purchase of inclusionary units for moderate-income and above moderate-income households. Whatever funding options, target group selection criteria, and housing program options the City chooses will have fiscal implications. If the City decides to manage programs and the eligibility process and produce, additional staff and resources will be required. If the City decides to take an indirect approach and ftmd existing programs, the administration costs would be lower, but the City would have reduced control over the implementation process. In fLmding existing programs, the City would only have to monitor the grants and contracts, but devising and implementing programs requires more attention. Other cities that are involved in creating and managing affordable housing programs, such as Livermore and Pleasanton, found they had to dedicate full- time staff to operate their affordable housing programs. Final Considerations The options mentioned in this report are not mutually exclusive and could complement one another under certain scenarios. Affordable housing production occurs using a multitude of options available that can maximize any given opportunity. Dublin could incorporate the program options listed in this report, bringing the City closer to meeting ABAG requirements, but not without measures to strengthen the inclusionary requirement and not without amending current or implementing new funding options. Also, Dublin does not have to act as a lone entity in implementing chosen options. The City could coordinate with other parties involved in affordable housing production and maintenance. By leveraging its funds, i.e. working with existing private and non-profit agencies or other cities that utilize the same or similar options, the City could reduce its administrative costs for program implementation. The components of Dublin' s affordable housing plan, including the target groups, should be chosen with following considerations: 1) ABAG has dictated that Dublin produce 531 low-income and 796 very low-income housing units over the next six years due to the critical shortage of housing in the bay area. The City may not be able to reach the 2,768 requirement for very 10w-income, low-income, and moderate-income households, but it can come closer than the 59 units produced under current policies. 28 2) Program options that do not meet ABAG goals could be combined with other programs that do satisfy ABAG requirements. For instance, units purchased using down payment assistance along with a buy-down option provided by the City, could be counted toward ABAG's requirement. 3) Money generated from in-lieu fees could be used in conjunction with other private and government funding sources to produce and or maintain affordable housing units. (Leveraging) 4) The City could give certain workforce groups or other target groups preferential access to affordable dwellings. The preferred target groups can vary for the different program options selected. 29