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Home My WebLink About10 INCLUSIONARY HOUSING POLICY AND IN-LIEU FEEAgenda Item 10 AGENDA REPORT Reviewed City Manager Finance Director�`% MEETING DATE: APRIL 17, 2018 TO: JEFFREY C. PARKER, CITY MANAGER FROM: ECONOMIC DEVELOPMENT DEPARTMENT SUBJECT: INCLUSIONARY HOUSING POLICY AND IN -LIEU FEE SUMMARY: Ordinance No. 1491 proposes to add Chapter 9B to Article 9 (Land Use) of the Tustin City Code (TCC), relating to Inclusionary Housing and Resolution 18-28 adopts an Inclusionary Housing In -Lieu Fee. Although on March 27, 2018, the Planning Commission denied Resolution No. 4358, recommending that the Tustin City Council adopt Ordinance No. 1491, staff is recommending the City Council adopt Ordinance No. 1491. RECOMMENDATION: It is recommended that the City Council: 1. Open and, after public testimony, close the public hearing; and 2. Introduce and have the first reading of Ordinance No. 1491, adding Chapter 9B to Article 9 Chapter 1, relating to Inclusionary Housing; and set a second reading for the next City Council meeting. 3. Adopt Resolution 18-28, adopting an Inclusionary Housing In -Lieu Fee that shall become effective concurrently with the effective date of Ordinance No. 1491. FISCAL IMPACT: Ordinance No. 1491 is a City Council -initiated project, in response to requirements of State law. There is no direct fiscal impact to the General Fund. CORRELATION TO THE STRATEGIC PLAN: The proposed Inclusionary Housing Ordinance furthers the objective of the Goal A: Economic and Neighborhood Development, enhancing the vibrancy and quality of life in the community. Agenda Report April 17, 2018 Page 2 APPROVAL AUTHORITY: The TCC Section 92958 authorizes the City Council to adopt Code amendments following a recommendation by the Planning Commission and a public hearing. SUMMARY OF ORDINANCE: There is a shortage of affordable housing in the state, county and City. Inclusionary Housing policies are adopted by cities as one tool to address affordable housing. Ordinance No. 1491 would add Chapter 913 to the Tustin City Code entitled "Inclusionary Housing", requiring Inclusionary Housing to occur where an application has been submitted to the City for the following: (1) rezone a property from an industrial or commercial district, where appropriate, to a residential district; (2) change a property's zoning designation from one lower -density residential district to another higher -density residential district; or (3) to develop residential uses within any specific plan area through the utilization of Residential Allocation Reservations, and where the project would create new, additional or modified units. Residential or mixed-use residential developments that are required to comply can satisfy the requirement through one of the following four options: (1) Provide affordable units on-site. 15% of the total units are made available as affordable to specific income levels.' Of these affordable units, 6% must be available to very low-income households, 4.5% must be available to low- income households, and 4.5% must be available to moderate -income households. Alternatively, 12.5% of the total dwelling units in the residential project may be available at an affordable price, provided 7.5% of these units are available to very low-income households, and 5% are available to moderate - income households; (2) Provide affordable units off-site within City limits; (3) Pay an in -lieu fee (to be established by separate resolution of the City Council); or - 1 The proposed ordinance's inclusionary housing requirements mirror those upheld by the California Supreme Court in California Building Industry Association v. City of San Jose, 61 Cal.4�' 435 (2015) discussed below. Agenda Report April 17, 2018 Page 3 (4) Propose an alternate option deemed acceptable by the City (e.g., the dedication of land for affordable housing). In -lieu fees collected will be deposited into a separate account designated as the City of Tustin Inclusionary Housing Fund. Monies deposited in the Inclusionary Housing Fund will be expended exclusively to provide housing affordable to extremely low, very low, low, and moderate -income households in the City of Tustin, and for administration and compliance monitoring of the inclusionary housing program established by the proposed ordinance. Rezoning, increasing density, and introducing residential units into commercially zoned retail properties addresses the concept of "modernizing zoning" as recommended by Building Industry Association ("BIA") of Orange County and these tools will incentivize development while allowing the City to address affordable housing through an inclusionary policy. In short, the ordinance would apply to those projects that experience the benefit of increased property values as a result of City approvals. BACKGROUND AND DISCUSSION: In January 2016 Strategic Plan Workshop, the City Council directed staff to prepare an Inclusionary Housing ordinance for City Council consideration. The expressed desire was for a policy that required for -sale residential developers to pay an In -Lieu fee and for rental developers to provide affordable housing on-site. Staff has reviewed numerous inclusionary policies in order to prepare an ordinance that complies with state law while providing the City with an additional tool that is flexible in addressing affordable housing. Planning Commission Public Hearing — February 13, 2018 On February 13, 2018, the Planning Commission held a Public Hearing on the adoption of Resolution No. 4358, recommending that the Tustin City Council adopt Ordinance 1491. After a staff presentation, public comments and discussion, the Planning Commission noted their concerns and moved to continue the item for six weeks and directed staff to include "tools" that would incentivize development as part of the Ordinance. Planning Commission Public Hearing — March 27, 2018 On March 27, 2018, the Planning Commission held a Public Hearing on the adoption of Resolution No. 4358, recommending that the Tustin City Council adopt Ordinance 1491. After a staff presentation, public comments and discussion, the Planning Commission Agenda Report April 17, 2018 Page 4 denied Resolution No. 4358, recommending that the Tustin City Council adopt Ordinance No. 1491. During the deliberation, Commissioners expressed the following regarding the proposed ordinance: • Inclusion of Tustin Legacy in the ordinance. • Definition of residential projects in the proposed ordinance was inadequate. • The Red Hill Specific Plan and Downtown Commercial Core Plan have not been adopted; therefore, the Residential Allocation Reservation would not apply. • The proposal ordinance is deficient in its language to accomplish the goals. • Concern that the policy would discourage development. In response to the concerns raised, staff has revised the Ordinance as follows: • Tustin Legacy would not be exempt. • The definition of residential projects has been refined. • The proposed Ordinance no longer calls out all Specific Plans but only those that receive a Residential Allocation Reservation. With the adoption of Ordinance 1491, the Planning Commission and City Council will know when approving a Residential Allocation Reservation for a Specific Plan area that applicants will be required to comply with the policy. Inclusionary Housing in Orange County Several Orange County cities have adopted Inclusionary Housing requirements and offered an In -Lieu fee as an option for developers to satisfy the requirement. The following table lists those cities: Agenda Report April 17, 2018 Page 5 Santa Ana 15% All Development 20 units or more = $15 Very Low (<50%of MFI) 283 23% square foot; less than 20 195 16% Moderate Income (80-120% of MFI) units = $5 square foot Huntington 10% All Development $16,420 to $51,466/unit, Beach 1,227 100% depends upon the number of units San 15% or 4% All Development Conflicting information, Clemente currently under review San Juan 10% Developments of Rental fees and Capistrano 2 units or more ownership fees are calculated differently CONSISTENCY WITH REGIONAL HOUSING NEEDS ASSESSMENT: The RHNA is mandated by State Housing Law as part of the periodic process of updating local housing elements of the General Plan. The RHNA quantifies the need for housing within each jurisdiction during specified planning periods. The most recently completed RHNA planning period is from October 2013 to October 2021. The State expects cities to use the RHNA in land use planning, prioritizing local resource allocation, and in deciding how to address identified existing and future housing needs resulting from population, employment and household growth. The RHNA does not necessarily encourage or promote growth, but rather allows communities to anticipate growth, so that collectively the region and sub -region can grow in ways that enhance quality of life, improve access to jobs,'promotes transportation mobility, and addresses social equity, fair share housing needs. Below is the City of Tustin share of the RHNA allocation. The specific RHNA number for a jurisdiction is important because State law mandates that each jurisdiction provide sufficient land to accommodate a variety of housing opportunities for all economic segments of the community to meet or exceed this number of housing units. Table 1 City of Tustin Regional Housing Need 2014-2021 Income Level Number of Units Percentage Very Low (<50%of MFI) 283 23% Low Income (50-80% of MFI) 195 16% Moderate Income (80-120% of MFI) 224 18% Upper Income (>120% of MFI) 525 43% Total 1,227 100% Agenda Report April 17, 2018 Page 6 As noted in Table 1 above, the Regional Housing Needs Assessment ("RHNA") for Tustin during the 2014-2021 Housing Element requires 283 very low-income units, 195 low-income units, 224 moderate -income units, and 525 above moderate -income units, totaling 702 affordable units. Table 2 below indicates what the City achieved in 2006- 2013 and how the City is doing in 2014-2021. To date, 274 affordable units of the 702 affordable units have been produced (39%). Implications the City consider in complying with RHNA. The City's Housing Element could be subject the City to: • Potential lawsuits; • Disqualification from applying for State grants; • Disqualification from getting State grant funding; • Suspending the authority to issue building permits or any other related permits for residential housing; • Suspending the authority to grant zoning changes, variances, or both; • Court ordered housing projects over which the City has no control; • Excessive attorney's fees — If a jurisdiction faces a court action stemming from its lack of compliance and either loses or settles the case, it often must pay attorney fees to the plaintiffs attorneys; and • Carryover unfulfilled RHNA allocation to the next Housing Element cycle if the City fails to identify or make available adequate sites to accommodate its RHNA assignment. Table 2 City of Tustin RHNA Actual 2014-2021 Income Level Goal Actual % of the Goal Very low 283 98 35% Low 195 74 38% Moderate AffordableTotal 224 102 46% .% Above Moderate 525 1,046 199% TOTAL 1,227 1,320��h Implications the City consider in complying with RHNA. The City's Housing Element could be subject the City to: • Potential lawsuits; • Disqualification from applying for State grants; • Disqualification from getting State grant funding; • Suspending the authority to issue building permits or any other related permits for residential housing; • Suspending the authority to grant zoning changes, variances, or both; • Court ordered housing projects over which the City has no control; • Excessive attorney's fees — If a jurisdiction faces a court action stemming from its lack of compliance and either loses or settles the case, it often must pay attorney fees to the plaintiffs attorneys; and • Carryover unfulfilled RHNA allocation to the next Housing Element cycle if the City fails to identify or make available adequate sites to accommodate its RHNA assignment. Agenda Report April 17, 2018 Page 7 In addition, HCD may: • Revoke Housing Element compliance; • Refer the violation to Attorney General; or • Require Cities to exercise streamline approval process of projects without CEQA and public hearings (SB 35). The City, as the fee owner of Tustin Legacy, can require the development of affordable housing and insure the City moves in a positive direction towards the RHNA goals. To date the City has provided affordable housing at Tustin Legacy as noted earlier. In order to affect development of affordable housing outside of Tustin Legacy, the 15% Inclusionary Housing requirement will assist the City in meeting these goals,. is consistent with RHNA, and will encourage the development of affordable housing outside of Tustin Legacy. INCLUSIONARY HOUSING IN -LIEU FEE ANALYSIS: In 2017, the City contracted with Keyser Marston & Associates (KMA) to conduct an Inclusionary Housing In -Lieu Fee Analysis (attached). The KMA analysis focused on the in -lieu fee option offered by the Draft Ordinance. To estimate the in -lieu fees supported under current market and financial conditions, KMA prepared pro forma analyses of prototype apartment and ownership residential projects based on the City's draft policy The KMA in -lieu fee recommendations are based on a conservative set of assumptions and represent the maximum amounts that can be charged by the City based on current market and financial conditions. Based on their analysis, KMA recommends an in -lieu fee of $17,600 per unit or $17 per square foot of GBA. However, the City has the discretion to set the in -lieu fees at less than the maximum amounts determined in the KMA analysis. Staff is recommending the following fee schedule: Staff is recommending the fee be adjusted annually, using the Consumer Price Index ("CPI") published by the U.S. Bureau of Labor Statistics for Los Angeles- Riverside - Orange County, CA, all urban consumers index. The CPI is typically released 10-15 days into the following month. The previous year's fee shall apply for any project # of Units Fee per Unit Fee 11; / / / per square foot, if average unit size is less than 800 square feet ' • ,• off , 20 units or • - Staff is recommending the fee be adjusted annually, using the Consumer Price Index ("CPI") published by the U.S. Bureau of Labor Statistics for Los Angeles- Riverside - Orange County, CA, all urban consumers index. The CPI is typically released 10-15 days into the following month. The previous year's fee shall apply for any project Agenda Report April 17, 2018 Page 8 approved before the CPI calculation is released and the In -Lieu fee adjusted accordingly. The fee is to be paid at the time the applicant pulls permits. In the event this index ceases to be published, the Consumer Price Index shall be another index as determined by the City Manager that is reasonably comparable to the Consumer Price Index. ENVIRONMENTAL ANALYSIS: Ordinance No. 1491 is not subject to the California Environmental Quality Act ("CEQA"; Cal. Pub. Resources Code Section 21000 et seq.). The proposed ordinance will not commit the City to approve any particular project, or any aspect of any particular project, now or any time in the future. Any project subject to the proposed ordinance will require its own review for CEQA compliance. As a result, the proposed ordinance does not have any reasonably foreseeable environmental consequences or commit the City to a definite course of action. Thus, the proposed ordinance is not a "project" subject to CEQA. (Public Resources Code § 21065; CEQA Guidelines § 15378(a); CEQA Guidelines § 15352(a).) Further, to the extent the proposed ordinance establishes the inclusionary housing fund, the proposed ordinance is, a government funding mechanism expressly excluded from CEQA's definition of "project." (CEQA Guidelines § 15378(b)(4).) Even if the proposed ordinance were construed to be a project, it can be seen with certainty that there is no possibility that the proposed ordinance may have a significant effect on the environment for the foregoing reasons and thus falls within CEQA's "common sense" exemption. (CEQA Guidelines § 15061(b)(3).) CITY ATTORNEY REVIEW: The City Attorney has reviewed the content and form of Ordinance No. 1491. PUBLIC NOTICE: A public notice was published in the Tustin News on April 5, 2018, informing the public of proposed code amendment and in the Orange County Register on April 6, 2018, informing the public of the proposed In -Lieu Fee. CONCLUSION: In both Planning Commission meetings, concern has been expressed that the proposed ordinance will halt or chill development. Based on input received from the Planning Commission, the proposed ordinance has been modified. The proposed Ordinance will only apply to projects that benefit financially from the City through a zoning action that rezones the property for a more intensive use. Agenda Report April 17, 2018 Page 9 The proposed ordinance is a tool for providing more affordable housing, geographically distributing, and addressing regional housing requirements mandated by SCAG. LJohn Buchanan Jerry Craig for of Economic Development / Deputy Dirge or o c mic Development Attachments: A. Draft Ordinance No. 1491 B. Resolution 18-28, Adopting Inclusionary Housing In -Lieu Fee C. March 27, 2018 Planning Commission Draft Minutes D. Keyser Marston & Associates Inclusionary Housing In -Lieu Fee Analysis E. The Legal Authority for Inclusionary Housing Ordinances