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HomeMy WebLinkAboutZoning Text Amendment 04-04 - Public Hearing - Amending Chap - Af 4jo . PROOF OF PUBLICATION STATE OF CALIFORNIA) _ ) ss. CITY OF MOST RECENT AF- HUNTINGTON BEACHFORDABLE HOUSING COUNTY OF ORANGE ) LEGAL NOTICE AGREEMENTS AP- PROVED BY'-THE CITY. ORDINANCE NO.3687 THE RENTAL AND FOR- Ad Adopted b the City COUntil SALE SECTIONS HAVE oP y ty BEEN SEPARATED FOR I am a Citizen of the United States and a on NOVEMBER 1,2004 BETTER CLARITY GIVEN "AN ORDINANCE OF THE THAT DIFFERENT IN- CITY OF HUNTINGTON COME RESTRICTIONS resident of the County aforesaid; I am BEACH AMENDING THE APPLY TO EACH TYPE HUNTINGTON BEACH OF PRODUCT UNDER over the age of eighteen years, and not a ZONING AND SUBDIVI- THE CITY'S CURRENT SION. ORDINANCE BY POLICY MEMO. party to or interested in the below entitled ADDING NEW SECTION -COPIES OF THIS OR- 230.26 THERETO ENTI- DINANCE ARE AVAIL- matter. I am a principal clerk of the TLED "AFFORDABLE ABLE IN THE CITY HOUSING" CLERK'S OFFICE. HUNTINGTON BEACH INDEPENDENT, SYNOPSIS:THE CITY OF HUN- byP ASS the DCoADOPuncil ED ngton a newspaper of general circulation REQUIRED N BEACH HAS Beach�tyatf auregular FORDABLE HREQUIRED THAT AF- meetingBE held November printed and published In the City of PROVIDED INOUSING CONJUNC- 1, 2004 by the following TION WITH,RESIDENTIAL roll call vote: Huntington Beach, County of Orange, PROJECTS FOR OVER 14 AYES: Sullivan, Hardy, YEARS: ZONING TEXT Boardman,Winchell State of California and that attached AMENDMENT (ZTA) NO. NOES:Green,Coerper 04-04 IS A CITY-INITI- ABSENT:Hardy Notice Is a true and complete copy as AHED ZTA REQUIRING This ordinance is THE PROVISION OF, effective 30 days after AFFORDABLE HOUSING I adoption. was printed and published In the IN CONJUNCTION WITH' CITY OF THE CONSTRUCTION OF HUNTINGTON BEACH Huntington Beach Issue of said NEW RESIDENTIALi 2000 MAIN STREET PROJECTS CONSISTENT HUNTINGTON BEACH, CA92648 newspaper to wit the Issue(s) of: WITH EXISTING CITY POLICY.THE ORDINANCE 714-536-5227 REQUIRES THE EQUIVA- JOAN L.FLYNN, LENT OF 10 PERCENT CITY CLERK OF A PROJECT WITH Published Huntington THREE OR MORE UNITS' Beach Independent No- TO BE AFFORDABLE TO -vember 11,2004 112-205 VERY LOW, LOW OR MEDIAN NOVEMBER 11, 2004 HOUSEHOLDS�NCOME THE AFFORDABLE HOUSING ORDINANCE IS INTENDED TO CODIFY EXISTING POLICY.,THE 1993 ORDINANCE WAS IUSED AS A PLATFORM, WITH MODIFICATIONS TO REFLECT CURRENT POLICY AND PROVI- I declare, under penalty of perjury that MENS. THE KEY 1993 ELE- , MENTS OF THE I993 the foregoing is true and correct. ORDINANCE REMAIN AND INCLUDE: (1) RE- QUIRE THAT 10 PERCENT OF THE UNITS IN A PROJECT BE AFFORD- Executed on NOVEMBER (11, 2004 UNITS MA)Y BE AFFORDABLE LOCATTED OFF-SITE; (3) DEVEL- at Costa Mesa, California. OPERS MAY PAY AN FEE, TO BEE ES- TABLISHED AT A LATER DATE; (4) IN-LIEU FEES ARE TO BE USED FOR PROJECTS THAT HAVE AT LEAST 50 PERCENT OF THE UNITS AS AF- Signature FORDABLE. THROUGHOUT THE ORDINANCE THERE ARE SUBSTANTIVE CHANGES. LANGUAGE HAS BEEN ADDED TO CLARIFY INCOME REQUIREMENTS CONSISTENT WITH THE I 1A) Cn t /0A Council/Agency Meeting Held: 0 Deferred/Continued to: / 0 I j Approved ❑ Conditionally Approved ❑ Denied aFAC7Y ity ler s Signat r Council Meeting Date: October 18, 2004 Department ID Number: PL04-22 CITY OF HUNTINGTON BEACH o REQUEST FOR CITY COUNCIL ACTION Q �- SUBMITTED TO: HONORABLE MAYOR AND CITY CQUNCIL MEMB RS F71 r SUBMITTED BY: PENELOPE CULBR H-G M City Admini or o � � v PREPARED BY: HOWARD ZELEFSKY, Director of Planning SUBJECT: APPROVE ZONING TEXT AMENDMENT NO. 04-04 (AFFORDABLE HOUSING) (0t d : / o/ 3(a97 Statement of Issue,Funding Source, Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s) Statement of Issue: Zoning Text Amendment No. 04-04 is a City-initiated amendment to Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) to require affordable housing in conjunction with the construction of new residential projects. The proposed ordinance would require the equivalent of 10 percent of a project with three or more units to be affordable to very low, low or median income households consistent with existing City policy. Staff recommends the City Council approve Zoning Text Amendment No. 04-04 because it codifies current City practice, strengthens the City's commitment to affordable housing and is consistent with the City's General Plan Housing Element. Funding Source: Not applicable. Recommended Action: "Approve Zoning Text Amendment No. 04-04 with findings for approval (ATTACHMENT NO. 1) and adopt Ordinance No. (ATTACHMENT NO. 2) , 1 REWEST FOR CITY COUNCIL At, PION MEETING DATE: October 18, 2004 DEPARTMENT ID NUMBER: PL04-22 PLANNING COMMISSION ACTION ON AUGUST 24, 1993: THE MOTION MADE BY GORMAN, SECONDED BY DETTLOFF, TO APPROVE THE AFFORDABLE HOUSING ORDINANCE (CODE AMENDMENT NO. 93-2) CARRIED BY THE FOLLOWING VOTE: AYES: COOK, BOURGUIGNON, DETTLOFF, GORMAN, INGLEE, RICHARDSON NOES: NONE ABSENT: BIDDLE ABSTAIN: NONE MOTION PASSED Alternative Action(s): The City Council may make the following alternative motion(s): 1. "Continue Zoning Text Amendment No. 04-04" 2. "Deny Zoning Text Amendment No. 04-04 with findings for denial." Analysis: A. PROJECT PROPOSAL: Applicant: City of Huntington Beach, 2000 Main Street, Huntington Beach, CA 92648 Location: Citywide Zoning Text Amendment No. 04-04 is a request to amend Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO). The request is a City-initiated zoning text amendment to require the provision of affordable housing in conjunction with the construction of new residential projects consistent with existing City policy. The proposed ordinance would require the equivalent of 10 percent of a project with three or more units to be affordable to very low, low or median income households. B. BACKGROUND: In September 1991, the City Council formed the Affordable Housing Task Force to recommend an affordable housing strategy to implement the City's adopted Housing Element. The work of the Task Force culminated in an affordable housing ordinance, which was approved by the Planning Commission in August 1993. In October 1993, the City Council considered the ordinance but continued the item. In August 2004, the City Council directed staff to agendize the proposed ordinance for City Council consideration (ATTACHMENT NO. 5), along with appropriate modifications to reflect any necessary updates. PL04-22 -2- 10/4/2004 3:07 PM RAEST FOR CITY COUNCIL A%, PION MEETING DATE: October 18, 2004 DEPARTMENT ID NUMBER: PL04-22 C. PLANNING COMMISSION MEETING AND RECOMMENDATION: The Planning Commission approved an affordable housing ordinance in August 1993. There were three speakers at the public hearing: two speakers representing a realtors' association and the Building Industry Association were opposed; and one member of the Task Force who indicated that the best compromise had been reached. D. STAFF ANALYSIS AND RECOMMENDATION: The City of Huntington Beach has required that affordable housing be provided in conjunction with residential projects for over 14 years. The City's current inclusionary housing requirements are set forth in a Planning Department policy memo (ATTACHMENT NO. 3). The genesis for these requirements stems from state law and the City of Huntington Beach General Plan Housing Element, which establishes goals that speak to providing a variety of housing opportunities in terms of size, cost and type and specifically to assist in the development of affordable housing. The State of California sets housing production goals (Regional Housing Needs Assessment, or RHNA) by income category for all jurisdictions. Part of the purpose of a housing element is to demonstrate how those goals can be realized and, to that end, what a jurisdiction will do to remove development constraints and encourage or require certain types of housing. A specific program of the City of Huntington Beach Housing Element is to implement inclusionary housing. The recommended affordable housing ordinance is intended to codify existing policy. The 1993 ordinance was used as a platform, with modifications to reflect current policy and other provisions of the ZSO. Attachment No. 4 consists of the 1993 ordinance with strikeout/added text for easy comparison. The key elements of the 1993 ordinance remain and include: 1) Require that 10 percent of the units in a project be affordable; 2) Affordable units may be located off-site; 3) Developers may pay an in-lieu fee, to be established at a later date; and 4) In-lieu fees are to be used for projects that have at least 50 percent of the units as affordable. Throughout the ordinance, however, there are substantive changes. For example, the City's current policy is to require that affordable for-sale housing be no higher than median income level, whereas previously it was proposed at moderate (120 percent of median) income levels. A summary of the other substantive changes, by section title, is provided below. Applicability: - Language has been added to clarify income requirements consistent with the most recent affordable housing agreements (covenants) approved by the City. - The rental and for-sale sections have been separated for better clarity given that different income restrictions apply to each type of product under the City's current policy memo. PL04-22 -3- 10/4/2004 3:07 PM REwUEST FOR CITY COUNCIL At, (ION MEETING DATE: October 18, 2004 DEPARTMENT ID NUMBER: PL04-22 - Projects that may pay an in-lieu fee are limited to those that consist of nine or fewer units. This provides greater flexibility to smaller projects while recognizing that it is preferable to have the private development community build housing. Off-Site Construction of Affordable Units: - The provision that required the number of off-site affordable units to be equal to or greater than the number of on-site units is recommended for deletion based on previous City Council comments in order to provide greater flexibility to developers. Incentives for Providing Affordable Housing: - This section, which spoke to density bonus provisions, has been deleted in its entirety given that there are existing density bonus provisions in Section 230.14 of the ZSO. Miscellaneous Provisions: -Added a requirement that the affordability period be a minimum of 60 years. - Restrict the use of Housing Trust Funds to very low and low-income households instead of allowing the use of the funds for moderate-income households as well. Staff believes that these changes strengthen the ordinance and make it more consistent with recent City Council direction. Staff recommends the City Council approve Zoning Text Amendment No. 04-04 because it codifies current City practice, strengthens the City's commitment to affordable housing and is consistent with the City's General Plan Housing Element. If approved, the amount of the in-lieu fee for projects consisting of nine or fewer units will be presented at a later hearing for approval. Environmental Status: The proposed project is categorically exempt pursuant to Class 20, City Council Resolution No. 4501, which supplements the California Environmental Quality Act. Attachment(s): City Clerk's Page Number • Description 1. Findings for Approval 2. Ordinance No. 3(-8,7 3. Existing Affordable Housing Policy Memo 4. 1993 Affordable Housing Ordinance with strikeout/added text to reflect currently proposed ordinance 5. Draft City Council Minutes dated August 16, 2004 6. Power Point Slide Presentation RCA Author: MBB PL04-22 -4- 10/4/2004 3:07 PM ATTACHMENT 1 SUGGESTED FINDINGS FOR APPROVAL - ZONING TEXT AMENDMENT NO. 04-04: 1. Zoning Text Amendment No. 04-04 to add requirements for the provision of affordable housing in conjunction with the construction of new residential projects is consistent with the objectives,policies, general land uses and programs specified in the General Plan and any applicable specific plan. The City of Huntington Beach Housing Element Goal HE 3 is to "Assist in the Development of Affordable Housing." Housing Element Implementation Program HE-19 is to specifically implement inclusionary housing. 2. In the case of a general land use provision, the zoning text amendment is compatible with the uses authorized in, and the standards prescribed for, the zoning district for which it is proposed. The proposed amendment would not alter nor conflict with any adopted development standards. 3. A community need is demonstrated for the change proposed. There is a general need for more affordable housing within the City of Huntington Beach as evidenced by rising prices. The proposed ordinance would assist in meeting that need by requiring the provision of affordable housing. 4. Its adoption will be in conformity with public convenience, general welfare and good zoning practice. The text amendment will result in housing that is more affordable, which benefits the general welfare of the community. 5. The City Council finds that the project will not have any significant effect on the environment and is exempt from the provisions of the California Environmental Quality Act (CEQA) pursuant to Class 20, City Council Resolution No. 4510,which supplements CEQA, because the amendment is a minor text amendment that does not result in a change in development intensity or standards that will create an environmental impact. ATTACHMENT 2 ORDINANCE NO. 3687 AN ORDINANCE OF THE CITY OF HUNTINGTON BEACH AMENDING THE HUNTINGTON BEACH ZONING AND SUBDIVISION ORDINANCE BY ADDING NEW SECTION 230.26 THERETO ENTITLED "AFFORDABLE HOUSING" WHEREAS,the City Council of the City of Huntington Beach does hereby ordain as follows: SECTION 1. That the Huntington Beach Zoning and Subdivision Ordinance is hereby amended by adding new Section 230.26 thereto, entitled"Affordable Housing," said chapter to read as follows: 230.26 Affordable Housing A. PUMoSe. 1. The purpose and intent of this Chapter is to implement the goals, objectives and policies of the City's Housing Element. It is intended to encourage very low, low-and median income housing, which is integrated, compatible with and complements adjacent uses, and is located in close proximity to public and commercial services. 2. The affordable housing program is one tool the City utilizes to meet its commitment to provide housing affordable to all economic sectors, and to meet its regional fair- share requirements for construction of affordable housing. B. Applicability. This section shall apply to new residential projects three (3) or more units in size. 1. A minimum of ten(10)percent of all new residential construction shall be affordable housing units. 2. Rental units included in the project shall be made available to very low or low- income households based on the Orange County Median Income, adjusted for appropriate family size, as published by the United States Department of Housing and Urban Development or established by the State of California, pursuant to Health and Safety Code Section 50093, or a successor statute. 3. For sale units included in the project shall be made available to very low, low or median income level households based on the Orange County Median Income, adjusted for appropriate family size, as published by the United States Department of Housing and Urban Development or established by the State of California, pursuant to Health and Safety Code Section 50093, or a successor statute. 4. Developers of residential projects consisting of nine or fewer units may elect to pay a fee in lieu of providing the units on-site to fulfill the requirement of the Section, unless the affordable housing requirement is outlined as part of a specific plan Document3 Ordinance No. 3687 project. 5. Developers of residential projects may elect to provide the affordable units at an off- site location pursuant to subsection B unless otherwise outlined as part of a specific plan project. If affordable units are off-site, they must be under the full control of the applicant, or other approved party. 6. New residential projects shall include construction of an entirely new project or new units added to an existing project. For purposes of determining the required number of affordable housing units, only new units shall be counted. C. Fees in Lieu of Construction. 1. Fees paid to fulfill the requirements of this Section shall be placed in the City's Affordable Housing Trust Fund,the use of which is governed by subsection E. 2. The amount of the in-lieu fees shall be calculated using the fee schedule established annually by resolution of the City Council. 3. One hundred (100) percent of the fees required by this Section shall be paid prior to issuance of a building permit. 4. Fees paid as a result of new residential projects shall be based upon the total number and size of the new residential units which are to be constructed. D. Off-Site Construction of Affordable Units. Except as may be required by the California Coastal Act and/or the California Government Code Section 65590 or a successor statute, developers may provide the required affordable housing off-site, at one or several sites, within the City of Huntington Beach. 1. Off-site projects may be new construction or major physical rehabilitation, equal to more than one-third the value of the existing improvement, excluding land value, of existing non-restricted units conditioned upon being restricted to long-term affordability. "At Risk"units identified in the Housing Element or mobile homes may be used to satisfy this requirement. 2. All affordable off-site housing shall be constructed or rehabilitated prior to or concurrently with the primary project. Final approval (occupancy) of the first market rate residential unit shall be contingent upon the completion and public availability, or evidence of the applicant's reasonable progress towards attainment of completion, of the affordable units. E. Miscellaneous Provisions. 1. The conditions of approval for any project that requires affordable units shall specify the following items: Document3 Ordinance No. 3687 (a) `density bonus being provided pursuan, <o Section 230.14, if any; (b) The number of affordable units; (c) The number of units at each income level as related to Orange County Median Income; and (d) A list of any other incentives offered by the City. 2. An Affordable Housing Agreement outlining all aspects of the affordable housing provisions shall be executed between the applicant and the City and recorded with the Orange County Recorder's Office prior to issuance of the first building permit. 3. The Agreement shall specify an affordability term of not less than sixty(60) years. 4. In a project requiring an in-lieu fee,the applicant shall execute and record an Agreement to pay an Affordable Housing In-Lieu Fee. 5. All affordable on-site units in a project shall be constructed concurrently with or prior to the construction of the primary project units unless otherwise approved through a phasing plan. Final approval (occupancy) of the first market rate residential unit shall be contingent upon the completion and public availability, or evidence of the applicant's reasonable progress towards attainment of completion, of the affordable units. 6. All affordable units shall be reasonably dispersed throughout the project unless otherwise designed through a master plan, shall contain on average the same number of bedrooms as the market rate units in the project, and shall be comparable with the market rate units in terms of exterior appearance, materials and finished quality. 7. Affordable Housing Trust Funds shall be used for projects which have a minimum of fifty(50)percent of the dwelling units affordable to very low- and low- income households,with at least twenty(20)percent of the units available to very low- income households. Concurrent with establishing the annual fee schedule pursuant to subsection C,the City Council shall by resolution set forth the permitted uses of Affordable Housing Trust Funds. All units that obtain Affordable Housing Trust Funds shall maintain the affordability of the units for a minimum of sixty(60) years. The funds may,at the discretion of the City Council, be used for pre-development costs, land or air rights acquisition,rehabilitation, land write downs, administrative costs, gap financing, or to lower the interest rate of construction loans or permanent financing. 8. New affordable units shall be occupied in the following manner: (a) If residential rental units are being demolished and the existing tenant(s) meets the eligibility requirements,he/she shall be given the right of first refusal to occupy the affordable unit(s); or DocumenB Ordinance No. 3687 (b) If there are no qualified tenants, or if the qualified tenant(s) chooses not to exercise the right of first refusal, or if no demolition of residential rental units occurs,then qualified households or buyers will be selected. F. Price of Affordable Units. Affordable units shall be sold or rented at prices affordable to very low, low- or median-income households pursuant to terms of the Affordable Housing Agreement. SECTION 2. This ordinance shall become effective thirty(30)days after its adoption. PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the_1 day of November 32004 t ayo ATTEST: 5 _ City Ill.rk REVIE)WED AND PR V jAP ROVED AS TO FORM: City Administrator {�CGt Attorneyfl'flvl IUipi INITI ED AND APPROVED: D6e&or of Planning Document3 Ord. No. 3687 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss: CITY OF HUNTINGTON BEACH ) I,JOAN L. FLYNN, the duly appointed, qualified City Clerk of the City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do hereby certify that the whole number of members of the City Council of the City of Huntington Beach is seven;that the foregoing ordinance was read to said City Council at a regular meeting thereof held on the 18th day of October, 2004, and was again read to said City Council at a regular meeting thereof held on the 1st day of November, 2004, and was passed and adopted by the affirmative vote of at least a majority of all the members of said City Council. AYES: Sullivan, Boardman, Cook, Winchell NOES: Green, Coerper ABSENT: Hardy ABSTAIN: None 1,Joan L Flynn,CITY CLERK of the City of Huntington Beach and ex-officio Clerk of the City Council,do hereby certify that a synopsis of this ordinance has been published in the Huntington Beach Fountain Valley Independent on November 11,2004. �d In accordance with the City Charter of said City Joan L. Flynn. City Clerk Citiklerk and ex-officio rk Deputy City Clerk of the City Council of the City of Huntington Beach, California ATTACHMENT 3 PP83(R). CITY OF HUNTINGTON BEACH F7OB INTER-DEPARTMENT COMMUNICATION TO: Planning Staff FROM: Howard Zelefsky, Director of Planning DATE: October 22, 2003 SUBJECT: AFFORDABLE HOUSING REQUIREMENT Since City Council direction in 1992, an Affordable Housing Agreement Plan has been required by the Zoning Administrator, Planning Commission, and City Council on new residential projects consisting of three or more units. The following is an updated condition of approval for a conditional use permit or tract map: "An Affordability Agreement" shall be submitted to the Planning Department for review and approval. The agreement shall be reviewed and approved as to form and content by the Director of Planning and City Attorney, and recorded with the Orange County Recorder's Office prior to issuance of the first building permit for the project. The contents of the agreement shall include the following: 1) The agreement shall provide for affordable housing for a period of 60 years. 2) The number of units to be affordable shall be a minimum ten percent (10%) of the total approved units for the project. 3) Affordable "for sale" units shall be restricted to families with less than the average moderate-income levels (less than 100% of Orange County median) as defined by the California Department of Housing and Community Development. A range of housing affordability between 80% to 100% of the OC median shall be incorporated in the plan. Affordable "for rent" units shall be restricted to families with less than the average low-income levels (less than 80% of Orange County median) as defined by the California Department of Housing and Community Development. A range of housing affordability between 50% to 80% of the OC median shall be incorporated in the plan for rental units. 4) A detailed description of the type, size, location and phasing of the affordable units. Units shall be located throughout the project. 5) If affordable units (new or rehabilitated) are off-site, they must be under the full control of the applicant, or other approved party. (GAP1anning\Po1icyMemo\PP83 (R) PP83(R) 6) The affordable units shall be constructed prior to or concurrent with the primary project. Final approval (occupancy) of the first residential unit in the tract or project shall be contingent upon the completion and public availability, or evidence of the applicant's reasonable progress towards attainment of completion, of the affordable units." The purpose of this requirement is to fulfill the City's goals of the Housing Element of the General Plan. Note: For condominium conversions, please see Chapter 235 Residential Condominium Conversions of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) for affordable housing requirements. For Density Bonus requirements, please see Chapter 230.14 Affordable Housing Incentives/Density Bonus of the HBZSO. (GAP1anning\Po11cyMemo\PP83(R) ATTACHMENT 4 COMPARISON OF 1993 DRAFT ORDINANCE AND CURRENT PROPOSAL ORDINANCE NO. ..� AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH AMENDING THE HUNTINGTON BEACH ZONING AND SUBDIVISION ORDINANCE CODE BY ADDING NEW ARTICLE 966SECTION 230.26 THERETO ENTITLED "AFFORDABLE HOUSING" WHEREAS, the City Council of the City of Huntington Beach does hereby ordain as follows: SECTION 1. That the Huntington Beach Zoning and Subdivision Ordinance Eoce is hereby amended by adding new ^~4i�966Section 230.26 thereto, entitled "Affordable Housing," to read as follows: 9"SECTION 230.26 Affordable Housing Sections: 9660 A. Purpose 9660.1 B. Applicability 9660.2 C. Fees in Lieu of Construction 9668-3 D. Off-site Construction of Affordable Units 9660.5 E. Miscellaneous Provisions 9660.E F. Sale of Affordable Units 9660A.Purpose. (a) 1.The purpose and intent of this Chapter is to implement the goals, objectives and policies of the City's Housing Element. It is intended to encourage very low, low-and moderate median income housing, and housing for-elder fesidents which is integrated, compatible with and complements adjacent uses, and is located in close proximity to public and commercial services. (b)2.The affordable housing program is one tool the City utilizes to meet its commitment to provide housing affordable to all economic sectors, and to meet its regional fair-share (Ord/04/10/25/04) requirements for construction of affordable housingaff-er-dable to low and meder-ate ineeme households. 9660.B. Applicability. This sections shall apply to anew residential projects three (3) or more units in size. A developer shall have the option of addressing the affordable housing requirements in one of the following ways: (a) 1_A minimum often(10) percent of all rental units included in the project shall be made available to very low; and low -income households based on the Orange County Median Income, adjusted for appropriate family size, as defined published by the United States Department of Housing and Urban Development or established by the State of California,pursuant to Health and Safety Code Section 50093, or a successor statute. 034 2.A minimum often (10) percent of all for sale units included in the project shall be made available up to median income level households based on the Orange County Median Income, adjusted for appropriate family size, as published by the United States Department of Housing and Urban Development or established by the State of California pursuant to Health and Safety Code Section 50093, or a successor statute. Va40 3.Developers of residential projects consisting of nine or fewer units may elect to pay a fee in lieu of providing the units on-site to fulfill the requirement of the Section, unless the affordable housing requirement is called out as part of a specific plan project. `"'� 4.Developers of residential projects may elect to provide the affordable units at an off-site location pursuant to Section ? unless otherwise outlined as part of a specific plan project. If affordable units are off-site, they must be under the full control of the applicant or other approved party. fie} 5.New residential projects shall include construction of an entirely new project or new units added to an existing_project. For purposes of determining the required number of affordable housing units, only new units shall be counted. 9660.2 C.Fees in Lieu of Construction (a3 1_Fees paid to fulfill the requirements of this ai4iele shall be placed in the City's Affordable Housing Trust Fund, the use of which is governed by$subsection E 96603(f). (b) 2.The amount of the in-lieu fees shall be calculated using the fee schedule established annually by resolution of the City Council. (e-) 3.One hundred (100)percent of the fees required by this Section shall be paid prior to issuance of a building permit. (d) 4.Fees paid as a result of new residential projects shall be based upon the total number and size of the residential units which are to be constructed. (Ord/04/10/25/04) (e)Gemmefi interest developments er-eated thfough the eenvefsien of existing r-esidefifial housing shall eithef make available ten (10)pereent of all the units in the pr-ej eet to low and ,.derate ineeme households, or-pay lie fee a a1eulate d in Seel ,.„ 9660 2(b.) 3 D. Off-Site Construction of Affordable Units. Except as ma•• b�quired by the California Coastal Act and/or the California Government Code Section 65990 or a successor statute,l3developers ^�.-esi dentin „ is of thfee (3) ^ o o „k-s may provide the required affordable housing off-site, at one or several sites,within the City of Huntington Beach. Cal The number- of „its :,de d off site equal toor- eater-than+b.o number-required \"/ v aauuawi vx on site. Vb4(44 l.Off-site projects may be new construction or major physical rehabilitation, equal to more than one-third the value, of existing non-restricted units conditioned upon being restricted to long-term affordability. "At Risk"units identified in the Housing Element or mobile homes may be used to satisfy this requirement. e 2. All affordable off-site housing shall be constructed or rehabilitated prior to or concurrently with the primary project. an44Final approval (occupancy) of the preje first market rate residential unit shall be contingent upon the completion and ublic availability, or evidence of the applicant's reasonable progress towards attainment of completion, final a„„..^.,.,1 of the affordable units. are designed to eneoufage new a&r-dable he Ls tha4 are not subjeet to 14unfing4en Beaeh Ordinanee Seetion 9637 et seq. r-elating density bentis and other-ineentives. in order-to in order-to eneour-age new eensti-detion of affordable housing, various density bentises shall be pefmitted. The), shall take into aeeetmt the tmdeflying zoning, the need for-speeialized types a housing and the paftietilar eper-a4ing needs of non profit housing providers. it is the intent 0 these p-, yi i ,„� +. „ idemaximum design f1 :b ifit J while. still maintaininghi i, quality Y„ uu design ,tan. ..«vs for-affordable ni vnii-(a)Ne deasity bentis may be used in eenjunefien with a pr-0jeet paying a fee in lieu ef providing a&r-dable units. No density bentis may be used with or-added to another-density beaus. !.The Planning Commis with > appropriate findings, tmde.lying zoning, if the pr-ejeet eemplies with Seetio 9637 + seq.f*L. Huntington Beaeh Ol=wee-Code, relating to density benus a +b. (b) The Planning Commission > grant density bentis equal to few4een (14)more units Yer aer-e than that allowed ^f in R2 and R3 zoning , pr-eyid Y a th o + „lie •+b.�� 11 of the following er-iter-i Y Y� J m � (Ord/04/10/25/04) 1 '1'b. pr-ejeet's 4 „ b elevations are to e as.m pat:b.le with it and eemplvmont the ale and a a«aeta„ f the adjoining lands uses; 2 -he p et i ost«:ate to the m m height allowed b y the , nder-1 i . �v •---- Y-"J--- _.. _:..--____� _� ____ ___�______�_______a___ _____ -. ___ _� ____ _��-aa�-�.a�iii�c �,. •ice, 3 A + of e ; et .li«aatly attributable to the denser bonus : m:4i^nted, n»:a 7 a w CAN 11 of the bonus units n permanen ly dedieated to low and moiler-ata o a and/or older-residents as defined by the (:eyefwnen4 (`ode (e) The Planning Commission may grant a density bentis equal to fifty (50) per-eent of the per-sons, or-a bonus s equal to 100 n nt of all of the units in the R3 or un ^ ^ .d:st„:nos :f 100 na ot n f all efthe , nits in pr-ej eet a permanen ). .de diante d to IOW nA tl iu moderate ineeme per-sons, :f the n eet a +..lion with the falle grin^ a«iter-i!.The p eet's exterior-elevations shall be designed to be a natib,le witl�fb,o eemplement the s No and eha„aa4o«of the adjoining land uses. (d)Residenfial pr-qjeets that offer- 0 not f the n«ange County Median me ma ,defined b y 14 D f^„ rl f 30 vrv-vrcxxa�xurrg�cvurzc�-zTrccrrarrrxxcvrrrc-ccsucna r-crpcnvcry x�v yeafs may be eligible for- n r-e d„etien in .development stan.dn„.ds as fells.�::�• !.Site !`over-age seventy m five (75) n +�,t- a o � 2:Eefnmen open spaeo events ( 70) pe nt if„eplaee d by private open spaee (r-eef.deeks m be used to satisfy n s.„4ien of this requirement); 3.Minimum unit size: Stdi 200 square feet, One '�oedroom 40sguare &-et Twe (2) bedfoom 800 squar-e €eet 4.Densiyyt A t4ee„afea ratio f 1.0 m be n„b.ntit„to,d f«+ nits per- 9669.166 E. Miscellaneous Provisions. (a4 1.The conditions of approval for any project+,that requires affordable units shall specify the following items: 4-_LalThe density bonus being provided pursuant to Section 230.14, if any; 2-.-(12IThe number of affordable units; (Ord/04/10/25/04) 3-S c ZThe number of units at each applieable sales priee rent level income level as related to Orange County Median Income; and 4_(�LA list of any other incentives offered by the City. (b) 2.An Affordable Housing Agreement outliningall ll aspects of the affordable housing provisions shall be executed between the applicant and the City and recorded with the Orange County Recorder's Office prior to issuance of the first buildings permits 3.The Agreement shall specify an affordability term of not less than six1y(60) years. !.Prior-to issuanee of building pe fmi 'I 4. In a project requiring an in-lieu fee, the applicant shall execute and record an Agreement to pay an Affordable Housing In-Lieu Fee. (e� 5. All affordable on-site units in a project shall be constructed concurrently with or prior to the construction of the mangy-primary project units unless otherwise approved by the Dl.,.,ning C,,.,... iss *through a phasing plan. Final approval (occupancy) of the first market rate residential unit shall be contingent upon the completion and public availability, or evidence of the applicant's reasonable progress towards attainment of completion, of the affordable units. (4) 6. All affordable units shall be reasonably dispersed throughout the project unless otherwise designed through a master plan, shall contain on average the same number of bedrooms as the market rate units in the project, and shall be comparable with the market rate units in terms of exterior appearance, materials and finished quality. Cam/ ev is appfeved by the City, requir-ed affordable units shall be Yi v v iuvu equally Affordable Housing Trust Funds shall be used pr-imafily for projects which have a minimum of fifty (50)percent of the dwelling units affordable to very low- and low- a d moderateincome households, with at least twenty (20) percent of the units available to very low-income households. Concurrent with establishing the annual fee schedule pursuant to Section 230.? the City Council shall by resolution set forth the permitted uses of Affordable Housing Trust Funds All units•that obtain Affordable Housing Trust Funds shall maintain the affordability of the units for a minimum of thk4y(38}sixty (60) years. The funds may, at the discretion of the City Council, be used for pre-development costs, land or air rights acquisition, rehabilitation, land write downs, administrative costs, gap financing, or to lower the interest rate of construction loans or permanent financing. s (9) ain p i .,,on+ 1,ie : market r-a42-m it -r�, Affordable Hatising T + Funds shall only be provide to assist ' t iti + ti f these -it r- � ,a vv i affefdable to low and moderate ineeme households. Units whieh have reeeived City (Ord/04/10/25/04) i h�8_New affordable units shall be occupied in the following manner: 1. If residential rental units are being demolished and the existing tenant(s) meets the eligibility requirements, he/she shall be given the right of first refusal to occupy the affordable unit(s); or 2. If there are no qualified tenants, or if the qualified tenant(s) chooses not to exercise the right of first refusal, or if no demolition of residential rental units occurs,then qualified households or buyers will be selected4eff *he-C tyl affordable housing waiting lis . 9660.6966 F. S*WPrice of Affordable Units. Affordable units shall be sold or rented at prices affordable to very low, low- or mmedian-income households pursuant to terms of the Affordable Housing_Agreement.at e that will re tilt in the total anffual debt se the Geufi4y of Orange. Affordable'nits ,fist be offered to eligible'btiyer-sLwer SECTON 2. That this ordinance shall become effective thirty (30) days after its adoption. PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the_day of , 19932004. Mayor ATTEST: APPROVED AS TO FORM: City Clerk City Attorney REVIEWED AND APPROVED: INITIATED AND APPROVED: City Administrator Director of Planning (Ord/04/10/25/04) ATTACHMENT 5 (18) August 16, 2004 - Council/Agency Minutes - Page 18 FC(City Council) Directed Staff to Amend the Affordable Housing Ordinance and Return to ouncil (120.90) The City Council considered communication from Councilmember Connie Boardman transmitting the following Statement of Issue: The City of Huntington Beach has had an affordable housing policy with respect to requiring new residential subdivisions to provide 10% of their units for low and moderate-income households. This policy implements the housing goals spelled out in the city's certified Housing Element. In 1993, the Planning Commission approved an Affordable Housing Ordinance that codified the policy that has been in place for 15 years, however, the ordinance was never formally adopted by the City Council. A motion was made by Boardman, second Cook to direct staff to return to the City Council with the Affordable Housing Ordinance along with the appropriate modifications to reflect the necessary updates. The motion carried by the following roll call vote: LYES: Sullivan, Coerper, Green, Boardman, Cook, Houchen OES: None ABSENT: Hardy (City Council) Councilmember Coerper Recognized the Police Chief, the Fire Chief, and Staff (120.85) Councilmember Coerper thanked Police Chief Kenneth Small for his outstanding work in regards to the public hearing. He also thanked Fire Chief Duane Olson and his staff for the Weapons of Mass Destruction Study Session. (City Council) Mayor Green Offers Condolences to the Winstein Family. (120.85) Mayor Cathy Green offered condolences to the Winstein Family for their loss. Adjournment—City Council/Redevelopment Agency Mayor Green adjourned the regular meetings of the City Council/Redevelopment Agency of the City of Huntington Beach to Monday, August 23, 2004, at 5:00 p.m., in the Council Chambers, Civic Center, 2000 Main Street Huntington Beach, California. City Clerk and ex-officio Clerk of the City Council of the City of Huntington Beach and Clerk of the Redevelopment Agency of the City of Huntington Beach, California ATTEST: City Clerk-Clerk Mayor-Chairman ATTACHMENT 6 REQUEST ■ City-initiated proposal to codify affordable ZONING TEXT AMENDMENT housing requirements: NO. 04-04 •Apply to new residential projects with 3 or Affordable Housing Ordinance more units • Requires affordability at very low, low or median income levels • Implements existing City policy BACKGROUND ANALYSIS ■ In 1991,City Council appointed an Affordable Housing Task Force. ■ Key 1993 Ordinance Concepts Carried ■ The Task Force developed an Affordable Forward in Proposed Ordinance: Housing Ordinance. .New residential projects with 3 or more units to ■ In 1993, Planning Commission approved the provide 10%of the units,either on-site or off-site,as Ordinance, but it was continued by the City affordable Council. Allows projects to pay an in-lieu fee(fee to be ■ In Aug.2004,City Council directed staff to established at later date) agendize the Ordinance,with any necessary ,In-lieu fees to be used for projects with at least 50% updates,for consideration. of units as affordable ANALYSIS (cont'd) ANALYSIS (cont'd) ■ Existing City Policy added to 1993 ■Additional Modifications to Proposed Ordinance: p Ordinance: •For-sale projects are restricted to Median Income levels(100%of County Median)or lower(1993 Only projects with 9 or fewer units may pay an version allowed Moderate Income) in-lieu fee •Rental projects must be Very Low(31-50%of In-lieu fees may only be used for Very Low Median)or Low Income(51-80%of Median)(1993 and Low Income Units and not Median Level version allowed for Very Low and Low but also units allowed rentals at Moderate levels) •Affordable units are required to maintain affordability for 60 years(1993 version required 30 years) 1 RECOMMENDATION Staff recommends that Zoning Text Amendment No. 04-04 be approved because: ✓It codifies current City practice; END OF SLIDE SHOW ✓Strengthens the City's commitment to affordable housing; and ✓It is consistent with the City's General Plan Housing Element. 2 RCA ROUTING ?HEET INITIATING DEPARTMENT: Planning SUBJECT: ZONING TEXT AMENDMENT NO. 04-04 AFFORDABLE HOUSING COUNCIL MEETING DATE: October 18, 2004 RCA ATTACHMENTS STATUS Ordinance (w/exhibits & legislative draft if applicable) Attached Resolution (w/exhibits & legislative draft if applicable) Not Applicable Tract Map, Location Map and/or other Exhibits Not Applicable Contract/Agreement (w/exhibits if applicable) (Signed in full by the City Attome Not Applicable Subleases, Third Party Agreements, etc. (Approved as to form by City Attome Not Applicable Certificates of Insurance (Approved by the City Attome Not Applicable Financial Impact Statement (Unbudget, over $5,000) Not Applicable Bonds (If applicable) Not Applicable Staff Report (If applicable) Not Applicable Commission, Board or Committee Report (If applicable) Not Applicable Find in s/Conditions for Approval and/or Denial Attached EXPLANATION FOR MISSING ATTACHMENTS REVIEWED RETURNED FORW RDED Administrative Staff Assistant City Administrator Initial City Administrator Initial City Clerk EXPLANATION FOR RETURN OF ITEM: (Below • . For Only) RCA Author: HTJSH/MBB (14) November 1, 2004 -Co►...cil/Agency Agenda - Page 14 F. Administrative Items -None G. Ordinances G-1. Ordinances for Adoption G-1a. (City Council) Adopt Ordinance No. 3688 Amending the Huntington Beach Municipal Code by Adding Chapter 14.56 Relating to the Control and Regulation of Fats. Oils and Grease (FOG) Discharged by Food Service Establishments into the Sewer System (1020.60) - Ordinance No. 3688— "An Ordinance of the City of Huntington Beach Amending the Huntington Beach Municipal Code by Adding Chapter 14.56 Entitled Control and Regulation of Fats, Oils and Grease Discharged into the Sewer System." (Approved for introduction as amended at the 10/18/04 Public Hearing.) Recommended Action: After the City Clerk reads by title, adopt Ordinance No. 3688, by roll call vote. Adopted 6-0-1 (Hardy absent) G-1b. (City Council) Adopt Ordinance No. 3689 Amending Chapter 234 of the Huntington Beach Zonina and Subdivision Ordinance Pertainina to Mobilehome Park Conversions (450.20) -Ordinance No. 3689— "An Ordinance of the City of Huntington Beach Amending Chapter 234 of the Huntington Beach Zoning and Subdivision Ordinance Pertaining to Mobilehome Park Conversions." (Approved for introduction as amended at the 10/18/04 Public Hearing.) Approved to continue to Adjourned Regular Meeting of November 8, 2004 at 6:00 p.m. 6-0-1 (hardy absent) G-1c. (City Council) Adopt Ordinance No. 3687 Amending the Huntington Beach Zoning and Subdivision Ordinance by Addina New Section 230.26 on Affordable Housing (450.20) - Ordinance No. 3687 - "An Ordinance of the City of Huntington Beach Amending the Huntington Beach Zoning and Subdivision Ordinance by Adding New Section 230.26 thereto Entitled "Affordable Housing." (Approved for introduction as amended at the 10/18/04 Public Hearing.) Recommended Action: After the City Clerk reads by title, adopt Ordinance No. 3687, by roll call vote. Motion to delay 30 days—Failed 2-4-1 (Sullivan, Boardman, Cook, Winchell No, Hardy absent) Adopted 4-2-1 (Green, Coerper No; Hardy absent) G-2. Ordinances for Introduction - None (7) October 18, 2004 - Counci...,gency Agenda - Page 7 D. PUBLIC HEARINGS Anyone wishing to speak on an OPEN public hearing is requested to complete the attached pink form and give it to the Sergeant-at-Arms located near the Speaker's Podium. D-1. (City Council) Public Hearing to Consider Approval of Zoning Text Amendment (ZTA) No. 04-04 Amending Chapter 230 of the Zoning and Subdivision Ordinance (HBZSO) by Adding a New Section Entitled "Affordable Housing" Relating to the Construction of Residential Projects with Three or More Units—Approve Introduction of Ordinance No. 3687 (450.20) Applicant: City of Huntington Beach Request: To amend Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) to include provisions for affordable housing. The proposed amendment would codify requirements to provide affordable housing in conjunction with construction of residential projects that consist of three or more units. Location: Citywide Environmental Status: Notice is hereby given that this agenda tem is categorically exempt from the provisions of the California Environmental Quality Act. ON FILE: A copy of the proposed request is on file in the City Clerk's Office, 2000 Main Street, Huntington Beach, California 92648, for inspection by the public. A copy of the staff report will be available to interested parties at the City Clerk's Office on (Thursday before meeting)October 14, 2004. ALL INTERESTED PERSONS are invited to attend said meeting and express opinions or submit evidence for or against the application as outlined above. If there are any further questions please call the Planning Department at 536-5271 and refer to the above item. Direct your written communications to the City Clerk 1. Staff report 2. City Council discussion 3. Open public hearing 4. Following public input,close public hearing Recommended Action: Motion to: 1. Approve Zoning Text Amendment No. 04-04 with Findings for Approval (ATTACHMENT NO. 1); and 2. After the City Clerk reads by title, approve introduction of Ordinance No. 3687- "An Ordinance of the City of Huntington Beach Amending the Huntington Beach Zoning and Subdivision Ordinance by Adding New Section 230.26 thereto Entitled 'Affordable Housing." (8) October 18, 2004 -Councl,,,%gency Agenda - Page 8 Planning Director Howard Zelefsky presented orally and Senior Planner Mary Beth Broeren presented Power Point report Planner Broeren referred to Late Communications received on this hearing. Staff responded to Council inquiries regarding the communication from the Kennedy Commission, the Building Industry Association (BIA) and the Chamber of Commerce. Director Zelefsky announced the percentages of the city with regards to affordability levels. City Clerk Joan L. Flynn restated Late Communications for the record as they pertain to this public hearing. Mayor Green asked if it was possible to give preferential treatment to Huntington Beach residents for affordable housing, to which Planning Director responded in the affirmative, suggesting an ordinance could be crafted. Council inquired when the city has approved an affordability provision of less than 60 years and what other differences in requirements had been. Motion made to amend recommended action to add setting percentages: -moo' very low o low; and ° -per rental unit and with changes of code defining value of construction and not land. Councilmember Sullivan expressed opposition to median level as the City already exceeded that amount. Councilmember Boardman amended her own motion to which the second agreed to remove median level and remove set percentages. Mayor Green requested maker of the motion to add preferential treatment for Huntington Beach residents. Councilmember Sullivan suggested another motion be taken after motion on the table is voted upon. Approved for introduction as amended. 5- 1 (Green No) Councilmember Sullivan made a motion for staff to report back ordinance of preferential treatment for Huntington Beach residents for affordable housing. Councilmember Cook requested that preferential treatment also include those who work within the City and that a study of other cities be made to be added to the motion, to which the maker of the motion agreed. Approved 6-0 ORDINANCE NO. 6, 7 AN ORDINANCE OF THE CITY OF HUNTINGTON BEACH AMENDING THE HUNTINGTON BEACH ZONING AND SUBDIVISION ORDINANCE BY ADDING NEW SECTION 230.26 THERETO ENTITLED "AFFORDABLE HOUSING" WHEREAS, the City Council of the City of Huntington Beach does hereby ordai as follows: SECTION 1. That the Huntington Beach Zoning and Subdivision Ordinance is hereby amended by adding new Section 230.26 thereto, entitled "/plementthe said chapter to read as follows: 230.26 Affordable Housing A. Purpose. 1. The purpose and intent of this Chapter is to objectives and policies of the City's Housing Element. It 's intended to encourage very low, low- and median income housing, which is i grated, compatible with and complements adjacent uses, and is located in close oximity to public and commercial services. 2. The affordable housing program . one tool the City utilizes to meet its commitment to provide housing affordable all economic sectors, and to meet its regional fair- share requirements for const ction of affordable housing. B. Applicability. This section shal apply to new residential projects three (3) or more units in size. A developer shall have e option of addressing the affordable housing requirements in one of the following ways: 1. A minimum oft (10)percent of all rental units included in the project shall be made availabl o very low and low-income households based on the Orange County Median Inco e, adjusted for appropriate family size, as published by the United States De p ment of Housing and Urban Development or established by the State of Californi , pursuant to Health and Safety Code Section 50093, or a successor statute. 2. A mi mum of ten(10)percent of all for sale units included in the project shall be made available up to median income level households based on the Orange County Median Income, adjusted for appropriate family size, as published by the United States Department of Housing and Urban Development or established by the State of /California, pursuant to Health and Safety Code Section 50093, or a successor statute. 3. Developers of residential projects consisting of nine or fewer units may elect to pay a I ee in lieu of providing the units on-site to fulfill the requirement of the Section, unless the affordable housing requirement is outlined as part of a specific plan project. 04 ord/04zoning/230-26 affordable housing/10/4/04 1 4. Developers of residential projects may elect to provide the affordable units at an off- site location pursuant to subsection B unless otherwise outlined as part of a specific plan project. If affordable units are off-site, they must be under the full control of the applicant, or other approved party. 5. New residential projects shall include construction of an entirely new project or new units added to an existing project. For purposes of determining the required ber of affordable housing units, only new units shall be counted. C. Fees in Lieu of Construction. 1. Fees paid to fulfill the requirements of this Section shall be pl ed in the City's Affordable Housing Trust Fund, the use of which is gove by subsection E. 2. The amount of the in-lieu fees shall be calculated usi the fee schedule established annually by resolution of the City Council. 3. One hundred (100)percent of the fees requir by this Section shall be paid prior to issuance of a building permit. 4. Fees paid as a result of new residenti projects shall be based upon the total number and size of the new residential unit hich are to be constructed. D. Off-Site Construction of Affordable nits. Except as may be required by the California Coastal Act and/or the California overnment Code Section 65990 or a successor statute, developers may provide the req red affordable housing off-site, at one or several sites, within the City of Huntington each. 1. Off-site projects y be new construction or major physical rehabilitation, equal to more than one-t ' d the value, of existing non-restricted units conditioned upon being restricte to long-term affordability. "At Risk" units identified in the Housing Element or bile homes may be used to satisfy this requirement. 2. All affor ble off-site housing shall be constructed or rehabilitated prior to or concurr tly with the primary project. Final approval (occupancy) of the first market rate r idential unit shall be contingent upon the completion and public availability, or e dence of the applicant's reasonable progress towards attainment of completion, Of e affordable units. E. Misce neous Provisions. 1. The conditions of approval for any project that requires affordable units shall specify the following items: (a) The density bonus being provided pursuant to Section 230.14, if any; 04 ord/04zoning/230-26 affordable housing/10/4/04 2 (b) The number of affordable units; (c) The number of units at each income level as related to Orange County Median Income; and (d) A list of any other incentives offered by the City. 2. An Affordable Housing Agreement outlining all aspects of the affor le housing provisions shall be executed between the applicant and the City recorded with the Orange County Recorder's Office prior to issuance of the st building permit. 3. The Agreement shall specify an affordability term of not ss than sixty(60) years. 4. In a project requiring an in-lieu fee,the applicant sh execute and record an Agreement to pay an Affordable Housing In-Lie ee. 5. All affordable on-site units in a project shall e constructed concurrently with or prior to the construction of the primary pr ' ct units unless otherwise approved through a phasing plan. Final approval ccupancy) of the first market rate residential unit shall be contingent up the completion and public availability, or evidence of the applicant's reasonab progress towards attainment of completion, of the affordable units. 6. All affordable units shall be re onably dispersed throughout the project unless otherwise designed through master plan, shall contain on average the same number of bedrooms as the market ate units in the project, and shall be comparable with the market rate units in term of exterior appearance, materials and finished quality. 7. Affordable Housing st Funds shall be used for projects which have a minimum of fifty (50) percent o e dwelling units affordable to very low- and low- income households, with Least twenty (20)percent of the units available to very low- income househ s. Concurrent with establishing the annual fee schedule pursuant to subsection C, e City Council shall by resolution set forth the permitted uses of Affordable using Trust Funds. All units that obtain Affordable Housing Trust Funds shal maintain the affordability of the units for a minimum of sixty (60)years. The fund may, at the discretion of the City Council, be used for pre-development costs, 1 d or air rights acquisition, rehabilitation, land write downs, administrative costs, ap financing, or to lower the interest rate of construction loans or permanent fin ing. 8. w affordable units shall be occupied in the following manner: (a) If residential rental units are being demolished and the existing tenant(s) meets the eligibility requirements, he/she shall be given the right of first refusal to occupy the affordable unit(s); or a 04 ord/04zoning/230-26 affordable housing/10/4/04 3 (b) If there are no qualified tenants, or if the qualified tenant(s) chooses not to exercise the right of first refusal, or if no demolition of residential rental units occurs, then qualified households or buyers will be selected. F. Price of Affordable Units. Affordable units shall be sold or rented at price fordable to very low, low- or median-income households pursuant to terms of the ordable Housing Agreement. SECTION 2. This ordinance shall become effective thirty(3 . days after its adoption. PASSED AND ADOPTED by the City Council of the Cit f Huntington Beach at a regular meeting thereof held on the day of , 200_ Mayor ATTEST: City Clerk REVIEWED AND APPROVED: APPROVED AS TO FORM: ity Ad inistrator it Attorne �� INIT TED AND APPROVED: Di ector of Planning 04 ord/04zoning/230-26 affordable housing/l0/4/04 4 let >t T�W — Ia/4/0 y1 NOTICE OF PUBLIC HEARING BEFORE THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH NOTICE IS HEREBY GIVEN,that on Monday, October 18, 2004, at.7:00 p.m._in the City Council Chambers, 2000 Main Street, Huntington Beach, the City Council will hold a public hearing on the following planning and zoning item: ❑ 1. ZONING TEXT AMENDMENT NO. 04-04 (AFFORDABLE HOUSING): Applicant: City of Huntington Beach Request: To amend Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) to include provisions for affordable housing. The proposed amendment would codify requirements to provide affordable housing in conjunction with construction of residential projects that consist of three or more units. Location: Citywide Project Planner: Mary Beth Broeren NOTICE IS HEREBY GIVEN that Item No. 1 is categorically exempt from the provisions of the California Environmental Quality Act. ON FILE: A copy of the proposed request is on file in the City Clerk's Office, 2000 Main Street, Huntington Beach, California 92648, for inspection by the public. A copy of the staff report will be available to interested parties.at the City Clerk's Office on (Thursday before meeting) October 1.4, 2004. ALL INTERESTED PERSONS are invited to attend said meeting and express opinions or submit evidence for or against the application as outlined above. If there are any further questions please call the Planning Department at 536-5271 and refer to the above item. Direct your written communications to the City Clerk Joan L. Flynn, City Clerk City of Huntington Beach 2000 Main Street, 2nd Floor Huntington Beach, California 92648 (714) 536-5227 (g:legals:CCLGFRM2a) CITY CO UNCIL/REDEVELOPMENT AGENCY PUBLIC HEARING REQUEST SUBJECT: JG, Qq- O'-( �6), .k-\j� DEPARTMENT: MEETING DATE: CONTACT: i2a PHONE:oC<-�;�C) N/A YES NO ( ) W ( .) Is the notice attached? ( ) (X) ( ) Do the Heading and Closing of Notice reflect City Council(and/or Redevelopment Agency)hearing? ( ) (X) ( ) Are the date, day and time of the public hearing correct? If an appeal, is the appellant's name included in the notice? ( ) ( ) If Coastal Development Permit, does the notice include appeal language? ( ) ( ) ( Is there an Environmental Status to be approved by Council? ( ) ( ) ( Is a map attached for publication? ( ) ( ) Is a larger ad required? Size Is the verification statement attached indicating the source and accuracy of the mailing list? tag (:5 to t s ( ) ( ) Are the applicant's name and address part of the mailing labels? Are the appellant's name and address part of the mailing labels? ( ) ( ) If Coastal Development Permit, is the Coastal Commission part of the mailing labels? ( ( ) ( ) If Coastal Development Permit, are the Resident labels attached? ( ) ( ) Is the33343 report attached? (Economic Development Dept. items only) Please complete the following: 1. Minimum days from publication to hearing date �® 2. Number of times to be published 1 3. Number of days between publications NI'V Jam Free Printing N�L11 1"'—June 4 vex con Use Avery®.TEMPLATE 5960TM" G: is\Public1-800- O-AV AVERY®5960TM" P g Director 24 James Jones 31 HB Hampt s HOA 38 City o Ocean View emeatary Progressive ommuaity�igmt 21 t St School Distri 27405 Pue Real,#300 Seal Beach,CA 90740 17200 Pineh t Lane Mission Vie o,CA 92691 Huntington B ch CA 92647 California Coastal Commission 25 Jon iVL Ar ald 32 Sally G 39 Theresa Henry Westminster chool District Meadowl Area South Coast Area Office 14121 Ce d Avenue 5161 Gel ' Circle 200 Oceangate,loth Floor Westminster 92683 Huntingto Beach,CA 92649 Long Beach,CA 92802-4302 California Coastal Commission 25 Patricia Ko 33 Cheryle Br caning 39 South Coast Area Office HB Union School Disrict Meadow Area 200 Occangate,loth Floor 10251 Yorkt own Avenue 16771 Ro sevelt Lane Long Beach,CA 92802-4302 Huntington each,CA 92646 Huatingto Beach,CA 92649 Robert Joseph 26 CSA,Inc. 34 Hearthside Homes 40 Caltran Marshall p,President 6 Executive Circle,Suite 250 chelson Drive, 80 204 Nata Irvine,CA 92614 Irvine,C A 92612-1699 Newport B ch,CA 92660 Director 27 Goldenwest College 35 Bolsa Chi Land Trust 41 Local Solid W to Enf.Agy. Attn:Fred s 5200 Warn Avenue,Ste.108 O.C.Health C e Agency 15744 Gold west St Huntingto Beach,CA 92649 P.O.Box 355 Huntington ch CA 92647 Santa Ana, 92702 New Growth oordinator 28 OC County. ors,Beach 36 Bolsa Land Trust 41 Huntington ach Post Office and Parks ept Evan H ,President 6771 Warner ve. P.O.Box 1812 Po Tiffin Place Huntington each,CA 92647 Santa Ana, 92702-4048 Newpo Beach,CA 92660 Marc Ecker 29 Huntington each Mall 37 Steve H mer,Chairperson 42 Fountain V Elem.School Dist Attn:Pat RolLaude SEHB 17210 Oak S reet 7777 Edinga Ave.#300 P.O.%x 5696 Fountain Val ey CA 92708 Huntington each CA 92647 Hunting on Beach,CA 92615 Dr.Gary Ru erford,Super. 30 Country Vi Estates HOA 38 OC Saai lion District 42 HB City El entary School Dist Carrie Th 10844 s Avenue 20451 Crain Lane 6642 Trotter rive Foun Valley CA 92708 Huntington each,CA 92648 Huntington each CA 92648 David Perm 30 Country Vi Estates HOA 38 Ed Black ord,President 42 HB City El entary School Dist Gerald Cha AES H tiagton Beach,LLC 20451 Crain Lane 6742 Shire a 21730 N d Street Huntington each,CA 92648 Huntingto Beach CA 92648 Huntington Beach CA 92646 w.L096S ®AU3AV S MRAV-09-008-L wi096S 31VIdW31 ekaw asn wow(jane nnnnnn 6unuua aaja wer runLi� nrr+ic11vL3�vvairi�niiv,v iir�a�Ltui L Jam Free Printing MAII NFEWLS / ���y��'`� * AVERY@ 5960T"" Use Avery®TEMPLA3E 5960TM G:La%!5TMIs\Pub1ic E[e8ftG0-AVER`: President 1 Hun�Bo 1 �19�O7�4 10 Sue)o 16 H.B.Chamber of Commerce P.O19671 'et Bay19891 Beach Blvd.,Ste. 140 S s , on Beach,CA 92 Huntington Beach,CA 92648 Betty Jo Woollett 2 William D.Holman 11 Edna Littlebury 17 Orange County Assoc.of Realtors PLC Gldn St Wob.Hm.Owners Leag. 25552 La Paz Road 19 Corporate Plaza Drive 11021 Magnolia Blvd. Laguna Hills,CA 92653 Newport Beach CA 92660-7912 Garden Grove,CA 92642 Presiden 3 Tom Zan* 12 Paa ast Archaeol 18 Amigos De Bol a New est Society,Ia 1653 a h*ca Street, ' e 312 520 100 P. . ox 10926 Huntington Beach,CA 92649 Monica,CA 01 Costa Mesa,CA 92627 Attu:Jane Gothold Sunset Beach unity<Assoc4 Pres.,H.B.H*st Society 13 Director 19 Pat Thies,PresidentC/O Newland House Museum O.C.Ping. S s eptPO Box 215 19820 Beach Blvd. P.O.Box Sunset Bea 90742-0Huntington Beach,CA 92648 S a,CA 92702-4048 President : 5 Community Services Dept. 14 Vicky L 19 Huntington Beach Tomorrow Chairperson O.C.Public Fa '' es.Dept PO Box 865 Historical Resources Bd. P.O. ox 4048 Huntington Beach,CA 92648 Santa Ana,CA 92702-4848 Julie Vandermost 6 Council on Aging 15 Pl' irector 20 BIA-OC 1706 Orange Ave. City of Costa 17744 Sky Park Circle,#170 Huntington Beach,CA 92648 P.O. 00 Irvine CA 926144441 Costa Mesa,CA 92628-1200 !81:8 ice= 7 Jeff Metz e 16 P1ana*ng Director 21 G Seacliff HOA City o tain V 12th Floor 19391 Shad or Circle 10200S vAngeles,CA 90017 Hun ' on Beach,CA 92648 F Valley,CA 92 E.T.I.Corral 100 8 John Roe 16 Planning-Director 22 Mary Bell Seacliff HOA City of Newport 20292 Eastwood Cir. 19382 S e Lane P.O.Box 1768 Huntington Beach,CA 92646 Huntington Beach,CA 92648 Newpo each,CA 92663-8915 Al Hendricker 9 Lou. e 16 ;820=5tEinster ctor 23 Environmental Board Chairman Seacliff HOA 8452 Grace Circle 19821 an Bluff Circle Blvd.Huntington Beach,CA 9264G Huntington Beach CA 92648 nster,CA 92683 wa0965 ®AZJ�d AMAV-09-008-1, ■� wa0965 31VIdW31�anv asn w03-AJane-mmm 6UIIUUd 8W4 wer NOTICE OF PUBLIC HEARING BEFORE THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH NOTICE IS HEREBY GIVEN that on Monday, October 18, 2004, at 7:00 p.m. in the City Council Chambers, 2000 Main Street, Huntington Beach, the City Council will hold a public hearing on the following planning and zoning item: ❑ 1. ZONING TEXT AMENDMENT NO. 04-04 (AFFORDABLE HOUSING): Applicant: City of Huntington Beach Request: To amend Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) to include provisions for affordable housing. The proposed amendment would codify requirements to provide affordable housing in conjunction with construction of residential projects that consist of three or more units. Location: Citywide Proiect Planner: Mary Beth Broeren NOTICE IS HEREBY GIVEN that Item No. 1 is categorically exempt from the provisions of the California Environmental Quality Act. ON FILE: A copy of the proposed request is on file in the City Clerk's Office, 2000 Main Street, Huntington Beach, California 92648, for inspection by the public. A copy of the staff report will be available to interested parties at the City Clerk's Office on (Thursday before meeting) October 14, 2004. ALL INTERESTED PERSONS are invited to attend said meeting and express opinions or submit evidence for or against the application as outlined above. If there are any further questions please call the Planning Department at 536-5271 and refer to the above item. Direct your written communications to the City Clerk Joan L. Flynn, City Clerk City of Huntington Beach 2000 Main Street, 2nd Floor Huntington Beach, California 92648 (714) 536-5227 (g:1ega1s:CCLGFRM2a) PROOF OF PUBLICATION STATE OF CALIFORNIA) ) s s. NOICE OF PINSIJt 11E IG COUNTY OF ORANGE sEFoUTNEfRIfc CITY OF Nl&OTtNI I am a Citizen of the United States and a BEACN NOTICE IS HEREBY d I am GIVEN that on Monday, October 18, 2004, at resident of the County aforesaid; 7:00 p.m. in the City over the age of eighteen years and not a Council Chambers, 2000 Huntington � Main Street, Huntington party to or interested in the below entitled Beach, the City Gearing will hold a public hearing matter. I am a principal clerk of the on the fo and zoning owing planning item: HUNTINGTON BEACH INDEPENDENT AMEN , 1 MENT ZONING TEXT D NO. 04- 04 (AFFORDAR.LE a newspaper of general circulationr HOUSING): lton Ba City of Huntington Beachch Request: To amend printed and published in the City of Chapter 230 of the Huntington Beach, County of Orange, Huntington Beach Zoning and Subdivision Ordi- nan State of California, and that attached clude (rovisi s in- clude provisions for Notice is a true and complete copy as affordable housing. The proposed amendment would codify- require- ments to ',provide af- was printed and published in the fordable housing in Huntington Beach issue of said conjunction with con- struction of residential newspaper to wit the Issue(s) of. three or mo projects that rere'.1 if3 of 'units. Location:Citywide Project Planner: Mary Beth Broeren NOTICE IS HEREBY GIVEN that Item, No. 1 is categorically exempt from the provistioliz+,uf Oct . 7, 2004 the, California Environ- mental Quality Act. ON FILE: A copy of the proposed request is on file in the Ci(,y,,CWk's. Office,2000 Main Street, Huntington Beach'r Call- fornia 92648,: for .in- spection by the public.' A copy of the staff declare under penalty of perjury that report will be available to interested parties,at r the City Clerk's` Office on (Thursday '.before the foregoing is true and correct. meeting) October 14, 2004. ALL INTERESTED PER- SONS are invited to Executed on October 7 i 2004 attend said meeting and express opinions or submit evidence for,or at Costa Mesa, California. against,the application as outlined above. If there are any further questions please call the Planning Department at 536-5271 and refer to the above item. Direct your written communi- ignature cations to the City Clerk Joan L.Flynn,City Clerk City of Huntington Beach 2000 Main Street,2nd Floor,Huntington Beach, California 92648 .' (714)536-5227 Published Huntington Beach Independent Oc- tober7,2004 101-057; PROOF OF PUBLICATION STATE OF CALIFORNIA) NOTKE OF PUBLK HUM ) s s. BEFORE THE CITY COUNLH COUNTY OF ORANGE ) OF THE ` Cn %HUNTBrG* . BEACH NOTICE 1S HEREBY, I am a Citizen of the United States and a GIVEN that on Monday, , October 18, 2004, at resident of the County aforesaid; I am 7:00 p.m. in the City Council Chambers, 2000 over the age of eighteen years� and not a Main Street, Huntington Beach, the City Council party to or interested in the below entitled will hold ll public hearing on the following planning matter. I am a principal clerk of the and zoning TEXT HUNTINGTON BEACH INDEPENDENT, AMENDMENT D LE 04 (AFFORDABLE HOUSING): Applicant: a newspaper of general circulation City of Huntington Beach � Request: To amend Chapter 230 of the printed and published in the City of Huntington Beach Zoning and Huntington Beach, County of Orange, nanceS(HBZSO)n to rin- dude provisions for State of California, and that attached affordable housing. The proposed amendment Notice is a true and complete copy as would codify require- ments to provide af- fordable was printed and published in the con unctionh withngcon- struction of residential Huntington Beach issue of said projects that consist of three or more units. newspaper to wit the Issue(s) of. Location:Citywide Project Planner: Mary Beth Broeren NOTICE IS HEREBY GIVEN that Item No. 1 is categorically exempt from the provisij)Nl Of the California Enviroa- Oct. 7, 2004 mental Quality Act. ON FILE: A copy of the proposed request is on file in the City Clerk's Office,2000 Main Street,. Huntington Beach, Cali- fornia 92648, fore in- spection by the public. A copy of the staff report will be available to interested parties at declare, under penalty of perjury, that the on (Thu Clerk rsday�befo�re the foregoing is true and correct. 2OO4�ng} October 1a, ALL INTERESTED PER- SONS are invited to attend said meeting and Executed on October 7, 2004 express opinions or submit evidence for or against the application at Costa Mesa, California. as outlined above. If there are any further questions please call the Planning Department at 536-5271 and refer to the above item-,Direct ---w �--'' your written communi- cations to the City Clerk Signature loan L.Flynn,City Clerk City of Huntington Beach 2000 Main Street,2nd Floor,Huntington Beach, California 92648 (714)536-5227 Published Huntington Beach Independent Oc- tober 7,2OO4 101-057 OCT-1.87-2004 MON ,04:52-MUCC FAX NO, 949-49.4. 3154 P, 02/03 t�ELLIVLU CITY` CLERK ITI/ o- HUNTINGTON BEACH, CA The Kennedy zoou ocl- 8 P 5: 1 r Commission August 18, 2004 Mayor,Cathy.Green City of Huntington Beach 2000 Main-Street Huntington, CA 92648 Re. -Public Comment in1lefereace to-PropoLsed-Affordable Housing Ordinance Dear.Mayor Green: The Kennedy-Cornn-iission,is-a collaborative of.coiiiiiiunity-.manitiers.atid..organizatioiis that strives to increase the production of housing for Orange County's I owest income households. The f6lldwing serves as the Cornniission's-comments on-the lyroposed-Affoydable Housing-, Ordinance. First- we applaud the-City7s-proactive approach at helping taincrease-the.supply.of affordable housing. There is no doubt that Orange County is experiencing a housing crisis. Simply put, h6usihg production has not kept pace-With-need, leaving low4rYcame-families-with-few.or no-, options. The result of this lack of pi-oduction illlClUdes forcing thousands of families to live far from their jobs in the County, overpay f6ri*their housing, survive in crowded conditions-to keep their.rent aff6rdab1c,or—_ in.the worst case---beconie-horrieless. Some important statistics include: * The average-rent-for a-two-bedroom.apartmcat in-flie-,Counly.is $1,25.0/mopfli. 0 Based on federal guJdelines of spending no more than 30%of gross income on rent,the average wage.needed to-afford-thT s apartm ent$21 00/houn 'This--is--in comparison-to--U e State minimum wage of$6,75/hour and-the average wage of the majority of new jobs created: $1 0.00/hour. Over.1 65,0000fange Cditnty households earn less than- $10.00/hpur. The current vacancy ratc,:(2004).for rental hou&iiig,in_Oran&6.County.is Linder 3%, creating enoilli'OLIS Upward-pressure on Tents, • -11e average sald-price of'a siriglc-farnilylrousc'in 0n,ng&County is-approaching-, The-use of-a mandatory affordable housing set-aside in,a4l.new conuruction.devel'opments is a very efficient and cost effective.method of increasing,affordable housing supply. ..In fact, th6usand§of units of been d I evelc(pe'd in Orange-Cottnty-under similar programs: Weofferthe-, following,comnients.and.sliggestions for improving your proposed ordinance: 0 Secs. 3.1- and B.2. We suggest that the Ordinance specifically define the low-income definitions used: For example:"very-low-income" typicalty.mcam.50%.of ae-median. and"low income"typically means 80%of the median. Since the greatest need for aff6fddbl-6 housing is authe"extremely low income' level (3-5%of mediwi), Working-for systernicchange.resulting.in the production of housing for Orange County's extremely-low.income,households. 23861 El Toro Road. Suite-401. Lake Forest. CA 92630 - T: 949.470.9134 - F: 949. 859.9277 - l(ennedycommission.org L-rF7 J OCT-18-2004 MON 04:53 PM LBCC FAX NO, 949 494 3154 P. 03/03 Mayor Cathy Green August 18, 2004 Page I of 2 we recommend that a percentage of units also be set-aside for extremely low income households. Irr addition, the specific percentage of affordable units under each income category should be clearly defined.' For example, we recommend drat 151/o of all new units he set-aside as affordable, with 5% each at the extremely low (35%),very low (50%) and low income levels(80%). In order to avoid confusion, this section-should also- specify that the units are household income (based on household size) and rental rate restricted (based on dwelling unit size). • Sec. B.3. The allowance for the use of an in-lieu fee for small developments(nine units or fewer) is reasonable, We encourage the City to solicit in-put front the affordable housing community in detemainirrg the criteria for calculating the in-lieu fee formula. • Sec. D. While we do not encourage the construction of set-aside units off-site,we understand the desire for maximum flexibility in designing a developruent. We encourage the: City to establish a criteria for appropriate siting of the set-aside units. • Sec. E.3. The affordability term of 60 years is very important. You must clarify, however, how to manage Iong-term affordability in for-sale Etrtits. • Sec. F. Refers to "median"income households in contradiction to the definition under Sec. B.1. As stated above,we believe the income/rent restrictions should be set at the lowest possible levels to meet the greatest housing needs. In addition,please be aware that the Commission-(in partnership with faculty from UC. Irvine) is finalizing a study of the implementation of Inclusionary Housing ordinances in Orange County and will develop a model ordinance. We offer our assistance in sharing ottrdata and conclutsions in helping you to-implement the best possible Ordinance. In closing, we-sincerely appreciate your attention to this very important matter. Housing in Huntington Beach should be provided for all economic segments of our society. Sic - l � Scot -ell Execu ' e.Dtrector cc: Mayor Pro Ten Jilt Hardy Mary Beth Broeren,_Principal Planner Councilwanan_Connie Boardman Counci(man Gil Cooper Councilwoman Debbie Cook Councilman Dave Sullivan OCT-19-2004 04:20 P.01 r , L, �i- R CITY Oi HUNTlNGTCIN BEACH, CA 1004 OCT 18 P 4: 25 BIR i Omnge C'aunty I October 18, 2004 Chapter Building Iadutry Association Mayor Cathy Green via fax & US mail of Southern California City of Huntington)Beach 17744 Sky Park Circle ZOOO Main St. Suite 170Irvine,Califomia 92614 Huntington Beach, CA 92648 949.553.9.500 fax 949.553.9507 SUBJECT: AFFORDABLE HOUSING ORDINANCE 3697,ZTA 04- http://wvrw.biaoc.com 04, SUBDIVISION ORDINANCE SECTION 230, OCTOBER 18, 2004 PRESIDENT RICHARD DOuGL,1z CENTER HOMES Dear Mayor Green& Councilmembers: VICE PRESIDENT MITCHELL BRADFORD On behalf of the Orange County Chapter of the;Building Industry Association NEW WEST HOME of Southern California (BIA/OC), we are writing to you regarding the Public THOMASE6RESIDE91 Hearing this evening related to the proposed Affordable Housing Ordinance. WILLIAM LYON HOMES TREASURER/SECRETARY BlA/OC is a non-profit trade association representing more than 900 TIM MrSUNAS companies employing 112,000 people affiliated with the home building PARDEE HOMES industry. The BIA/OC mission is to promote proactive participation in the IMMEDIATEJON ROBSTRTSON EPR development of economic and community issues in Orange County. The CALIFORNIA PACIFIC HOMES BIA/OC is affiliated with the California BIA and the National Association of TRADE CONTRACTOR COUNCIL V,P, Home Builders. BRIAN MAAr; ORANGE COUNTY DWWALL The subject of affordable housing is vpr-��important to our Indust and to the ASSOCIATE VICE PRESIDENT very P Industry LAER PEARCE community at large. Typically the BIA is contacted in advance to collaborate LAER PEARCE AND ASSOCIATES on important issues that have a significant affect on our Industry. We MEMEER•AT,LARGE SILL WATT respectfully request that the City continue consideration of the Ordinance until BAYWOOD DEVELOPMENT such time as BIA/OC and other interested stakeholders have a fair opportunity MEMEER•AT-LARGE to review and comment on the draft Ordinance. ANDY BERNSTEIN JACKSON,DEMARCO &PECKENPAUGH Recent studies have shown that mandatory affordability requirements result in KRISTINE THALMAN reduced housing production and increased housing costs overall. We would CHIEF EXECUTIVE OFFICER welcome the opportunity to present more information on this issue at a later date. An /wiiiala r Thv Natiolial Asso(JaJ;Ion of Horrie Bslilsl,a andt: ljfolniaRuildin� ✓`"� ' Tn w�• Arm 5sor;iA1'_i,Qu OCT-19-2004 04:20 P.02 Thank you for your consideration. Sincerely, Michael E. Balsamo Director of Governmental Affairs Cc: City Council, City of Huntington Beach Kristine Thalman, CEO, BIA/OC BIA/OC Board of Directors BIA/OC Governmental Affairs Committee TOTAL P.02 h RECEIVED FROMI -1- L IAEETIN�+ AS PU""�cm D COINrC �OFEFIIK OFFICEv/MMFI_YW�C� B I A November 1, 2004 Orange County Chapter Ruilclin"hulu=t;N A- ociationi Mayor Cathy Green via fax & US mail of Southern Califonnia City of Huntington Beach 17744 Sk7 Park Circle 2000 Main St. Suite 170 Huntington Beach, CA 92648 Irvine,California 92614 $� 949.553.9500 fax 949.553.9507 SUBJECT: AFFORDABLE HOUSING ORDINANCE 3687,ZTA 04- http://www.biaoc.com 04, SUBDIVISION ORDINANCE SECTION 230, NOVEMBER 1, 2004 PRESIDENT RICHARD DOUGLASS CENTEX HOMES Dear Mayor Green& Councilmembers: VICE PRESIDENT MITCHELL BRADFORD On behalf of the Orange County Chapter of the Building Industry Association NEW WEST HOME of Southern California(BIA/OC), we are writing to you regarding the 2ND VICE PRESIDENT proposed Affordable Housing Ordinance on tonight's City Council agenda. w LLIAM LYONHOMES TREASURER/SECRETARY BIA/OC is a non-profit trade association representing more than 900 TIM McSUNAS companies employing 112,000 people affiliated with the home building PARDEE HOMES industry. The BIA/OC mission is to promote proactive participation in the IMMEDIATE PAST PRESIDENT JON ROBERTSON development of economic and community issues in Orange County. The CALIFORNIA PACIFIC HOMES BIA/OC is affiliated with the California BIA and the National Association of TRADE CONTRACTOR COUNCIL V.P. Home Builders. BRIAN MAAG ORANGE COUNTY DRYWALL Following up on our letter to the City Council dated October 18 2004 we are ASSOCIATE VICE PRESIDENT > > LAER PEARCE again requesting that the City delay adoption of the Affordable Housing LAER PEARCE AND ASSOCIATES Ordinance. We, along with other business groups,would like the City to MEMBER-AT-LARGE BILL WATT consider making changes to some of the substantive requirements of the BAYWOOD DEVELOPMENT Ordinance. MEMBER-AT-LARGE ANDY BERNSTEIN JACKSON,DEMARCO With this letter, we have enclosed a copy of a study published by the Reason &PECKENPAUGH Foundation entitled "Do Affordable Housing Mandates Work? Evidence KRISTINE THALMAN r from Los Angeles County and Orange County." The study is authored by Dr. CHIEF EXECUTIVE OFFICER Benjamin Powell and Dr. Adrian Moore of San Jose St. University. Some of the key findings are as follows: ■ Inclusionary zoning produces few units. Since inception(mid 1970's), LA and Orange County have combined to generate only 228 affordable units per year. An Affiliate of the National .".soeiation of Hume liuilde and the California Buildin" lndu-try 1",oclati011 M rd ■ Inclusionary zoning makes market-priced homes more expensive ■ Inclusionary zoning restricts the supply of new homes ■ Inclusionary zoning costs government revenue(due to lower assessed values) ■ Price controls do not address the cause of the affordability problem There is no demonstrated evidence that housing production in and of itself creates a need for affordable housing. The need is created by employment and general population growth. It is BIA's position that the free market should establish pricing of homes as it does for almost all other consumer products. If a community makes a policy decision to mandate affordable housing, the entire community at large should share in the cost, not solely the project proponent or landowner. Looking to the future, voluntary programs that involve public/private partnerships and incentives are preferred. With regard to the proposed Huntington Beach Affordable Housing Ordinance, we would offer the following initial comments: ■ The Ordinance does not make specific mention of any incentives for the production of affordable housing other than the State Density Bonus Law. Some examples of incentives could include: Reducing processing fees, fast track permitting, "by right zoning", master EIR preparation/clearance, flexible development standards(greater building height, FAR, reduced setbacks, parking relief). Economic incentives will often be necessary in conjunction with those listed above. BIA Orange County is currently exploring these issues and hopes to have specific recommendations next year. ■ If the City adopts this Ordinance, the in-lieu fee option should be available to all projects, not just those with nine or fewer units. For ownership projects, efficiencies may dictate that a greater number of affordable units could be achieved at an off-site rental location through the use of in-lieu fees. ■ BIA requests an opportunity to review the methodology for calculating the in-lieu fee, in the event the City adopts the program. ■ Requiring payment of 100%of the in-lieu fee prior to the issuance of the first building permit does not allow for any flexibility. Phasing of larger projects may warrant partial payments consistent with progress. ■ The 60 year term of affordability is excessive and should be justified. This term exceeds the State law requirement applicable to redevelopment areas. In addition, re-sale restrictions on ownership housing do not allow for owners to gain equity. We would encourage the City to consider programs that provide the owner with a graduated equity scale based on longevity in the home. The equity not dedicated to the purchaser could continue to be used by the City for other affordable housing purposes on or off-site. Thank you for your consideration. Sincerely, Michael E. Balsamo Director of Governmental Affairs Cc: City Council, City of Huntington Beach Kristine Thalman, CEO, BIA/OC BIA/OC Board of Directors BIVOC Governmental Affairs Committee - 11 O � �. Reawn Reason Public Policy Institute �division of the Los Angeles-based Reason Foundation, Reason ublic Policy Institute is a nonpartisan public policy think tank promoting choice, competition, and a dynamic market economy as the foundation for human dignity and progress. Reason produces rigorous, peer-reviewed research and directly engages the policy process,seek- ing strategies that emphasize cooperation,flexibility,local knowledge, and results.Through practical and innovative approaches to complex problems, Reason seeks to change the way people think about issues, and promote policies that allow and encourage individuals and volun- tary institutions to flourish. Reason Foundation Reason Foundation's mission is to advance a free society by develop- ing, applying, and promoting libertarian principles, including indi- vidual liberty, free markets, and the rule of law. We use journalism and public policy research to influence the frameworks and actions of poli- cymakers,journalists, and opinion leaders. Reason Foundation is a tax-exempt research and education organiza- tion as defined under IRS code 501(c)(3). Reason Foundation is sup- ported by voluntary contributions from individuals,foundations, and corporations.The views are those of the author, not necessarily those of Reason Foundation or its trustees. Copyright©2004 Reason Foundation. Photos used in this publication are copyright cQ 1996 Photodisc, Inc. All rights reserved. Policy Study No . 3 2 0 Do Affordable Housing Mandates Work? Evidence from Los Angeles County and Orange County By Benjamin Powell, Ph.D. and Edward Stringham, Ph.D Project Director: Adrian T. Moore, Ph.D Executive Summary California and many urban areas nationwide face a housing affordability crisis. New housing production has chronically failed to meet housing needs,causing housing prices to escalate. Faced with demands to"do something"about the housing affordability crisis,many local governments have turned to "inclusionary zoning"ordinances in which they mandate that developers sell a certain percentage of the homes they build at below-market prices to make them affordable for people with lower incomes. The number of cities with affordable housing mandates has grown rapidly,to about 10 percent of cities over 100,000 population as of the mid-90s,and many advocacy groups predict the trend will accelerate in the next five years.California was an early leader in the adoption of inclusionary zoning,and its use there has grown rapidly. Between 1990 and 2003,the number of California communities with inclusionary zoning more than tripled—from 29 to 107 communities—meaning about 20 percent of California communities now have inclusionary zoning. Inclusionary zoning attempts to deal with high housing costs by imposing price controls on a percentage of new homes. During the past 20 years,a number of publications have debated the merits of inclusionary zoning programs. Nevertheless,as a recent report observed,"These debates,though fierce,remain largely theoretical due to the lack of empirical research." Our recent report,Housing Supply and Affordability:Do Affordable Housing Mandates Work?,filled the empirical research void. We measured the actual performance of these ordinances in the San Francisco Bay Area. This study follows up on our previous study by examining data from communities in Los Angeles County and Orange County to evaluate the effects of inclusionary zoning and examine whether it is an effective public policy response to high housing prices. In Los Angeles and Orange Counties, 13 cities have an affordable housing mandate. These communities vary in size and density with different income levels and demographics,so they provide a good sample to tell us how inclusionary zoning is working in Southern California. These are our findings: Inclusionary Zoning Produces Few Units Since its inception,inclusionary zoning has resulted in few affordable units.The 13 Los Angeles and Orange County cities with inclusionary zoning have produced only 6,379 affordable units,with 70 percent of those units being produced in Irvine.After passing an ordinance,the median city produces less than eight affordable units per year.Inclusionary zoning cannot meet the area's affordable housing needs. Inclusionary Zoning Has High Costs Inclusionary zoning imposes large burdens on the housing market.For example,if a home could be sold for $500,000 dollars but must be sold for$200,000,the revenue from the sale is$300,000 less.In half the Los Angeles County and Orange County jurisdictions this cost associated with selling each inclusionary unit exceeds$575,000.In current prices the cost of inclusionary zoning in the average jurisdiction is$298 million,bringing the total cost for all inclusionary units in Los Angeles and Orange County to date to$3.9 billion. Inclusionary Zoning Makes Market-priced Homes More Expensive Who bears the costs of inclusionary zoning?The effective tax of inclusionary zoning will be bome by some combination of market-rate homebuyers,landowners,and builders.How much of the burden is borne by market-rate buyers versus landowners and builders is determined by each group's relative responsiveness to price changes. We estimate that inclusionary zoning causes the price of new homes in the median city to increase by $33,000 to$66,000.In high market-rate cities such as San Juan Capistrano and Laguna Beach we estimate that inclusionary zoning adds more than$100,000 to the price of each new home. Inclusionary Zoning Restricts the Supply of New Homes Inclusionary zoning drives away builders, makes landowners supply less land for residential use,and leads to less housing for homebuyers—the very problem it was instituted to address. We find that new housing production drastically decreases the year after cities adopt inclusionary zoning. For all 13 cities average production of housing fell the year following the adoption of inclusionary zoning. In the eight cities with data for seven years prior and seven years following inclusionary zoning, 17,296 fewer homes were produced during the seven years after the adoption of inclusionary zoning. In those cities 770 "affordable"units were produced.One must question whether 770 units are worth the cost in terms of 17,296 fewer homes.By discouraging production of 17,296 homes in those eight cities,$I 1 billion worth of housing was essentially destroyed. Inclusionary Zoning Costs Government Revenue Price controls on new development lower assessed values,thereby costing state and local governments lost tax revenue each year.Because inclusionary zoning restricts resale values for a number of years,the loss in annual tax revenue can become substantial. The total present value of lost government revenue due to Los Angeles and Orange County inclusionary zoning ordinances is upwards of$752 million. Price Controls Do Not Address the Cause of the Affordability Problem Price controls fail to get to the root of the affordable housing problem. Indeed,by causing fewer homes to be built they actually make things worse.The real problem is government restrictions on supply. Supply has not kept up with demand due to these artificial restrictions.One recent study found that 90 percent of the difference between physical construction costs and the market price of new homes can be attributed to land use regulation. The solution is to allow more construction.When the supply of homes increases,existing homeowners often upgrade to the newly constructed homes.This frees up their prior homes for other families with lower income. Inclusionary zoning restricts this upgrade process by slowing or eliminating new construction. With fewer new homes available,middle-and upper-income families bid up the price of the existing stock of homes,thus making housing less affordable for everyone. Conclusion Inclusionary zoning has failed to produce a significant number of affordable homes due to the incentives created by the price controls. Even the few inclusionary zoning units produced have cost builders, homeowners,and governments greatly. By restricting the supply of new homes and driving up the price of both newly constructed market-rate homes and the existing stock of homes,inclusionary zoning makes housing less affordable. Inclusionary zoning ordinances will continue to make housing less affordable by restricting the supply of new homes. If more affordable housing is the goal,governments should pursue policies that encourage the production of new housing. Ending the price controls of inclusionary zoning would be a good start. Policy Study No . 3 2 0 Table of Contents Introduction................................................................................................................1 The Housing Market and Inclusionary Zoning in Los Angeles and Orange Counties .....3 Costs Associated with Below-Market Units ..................................................................6 A. Estimating the Effects of Price Controls by City...................................................................................9 B.Who Bears the Burden of Inclusionary Zoning?................................................................................11 C.The Effect of Price Controls on Housing Construction......................................................................15 The Fiscal Cost of Price Controls to State and Local Government...............................18 Conclusion................................................................................................................21 Aboutthe Authors.....................................................................................................22 Related Reason Foundation Studies...........................................................................23 Endnotes...................................................................................................................24 DO AFFORDABLE HOUSING MANDATES WORK? I 1 Part I Introduction The number of cities with affordable housing mandates has grown rapidly,to about 10 percent of cities over 100,000 population as of the mid-90s,and many advocacy groups predict the trend will accelerate in the next five years.' California was an early leader in the adoption of inclusionary zoning,and its use there has grown rapidly. Between 1990 and 2003,the number of California communities with inclusionary zoning more than tripled—from 29 to 107 communities—meaning about 20 percent of California communities now have inclusionary zoning.Z Thirteen cities in Los Angeles and Orange Counties have inclusionary zoning. The median price of new housing is$450,000 in Los Angeles County and$660,000 in Orange County.; Such high prices affect all but the wealthiest families'chances of buying a new home.Of metropolitan areas with more than one million residents,the Los Angeles-Long Beach Metropolitan Area and the Orange County Metropolitan Area respectively rank five and six as the least affordable areas in the nation. Table 1: Least Affordable Metropolitan Metro Area Least Affordable Share of Homes Affordable Family Income Metropolitan Areas for Median Incomes San Francisco,CA PMSA* 1 9.2% $86,100 San Josh,CA PMSA 2 20.1% $96,000 San Diego,CA MSA 3 21.6% $60,100 Oakland,CA PMSA 4 23.9% $74,500 Los Angeles-Long Beach, CA PMSA 5 34.4% $55,100 Orange County,CA PMSA 6 37.7% $75,600 Sacramento,CA PMSA 7 43.7% $57,300 Portland-Vancouver, OR-WA PMSA 1 8 46.6% $57,200 Boston,MA-NH PMSA 9 48.2% $74,200 Riverside-San Bernardino, CA PMSA 10 49.6% $50,300 New York,NY PMSA 11 49.9% $62,800 Miami,FL PMSA 12 58.1% $48,200 Denver,CO PMSA 13 59.6% $69,900 Bergen-Passaic, NJ PMSA 14 61.5% $78,900 Newark,NJ PMSA 15 61.1% $78,700 Source:Data are from the "Housing Opportunity Index:First Quarter 2002"(Washington,D.C.:National Association of Homebuilders),*PMSA and MSA are census designations meaning,respectively,Primary Municipal Statistical Area and Municipal Statistical Area. Faced with demands to"do something"about the region's housing affordability crisis,many local r governments have turned to inclusionary zoning ordinances.Inclusionary zoning is a name for artificially 2 I Reason Public Policy Institute lowering the price,and therefore the value,on a percentage of new homes.Builders and subsequent owners are forced to sell the homes so that they are"affordable"to specific income levels. The price controls are set using different formulas so that the"inclusionary"units will be affordable to either "Very Low,""Low,"or"Moderate"income households,or some combination thereof."Very Low"income is most often classified as up to 50 percent of county median income,"Low"as 50-80 percent of median,and "Moderate"as 80-120 percent of median.The percentage of units targeted as inclusionary units varies by jurisdiction,ranging from 5 to 25 percent of the new homes constructed in a project.Typically,the inclusionary units must be constructed within the project and be of the same size and quality as the market- rate units.Some jurisdictions exempt small developments while others require builders to pay an in-lieu fee for developments of 10 homes or fewer to get out from under the price controls. Still others allow in-lieu fees for projects of all sizes. Ostensibly, some jurisdictions also offer incentives for compliance. These can take the form of"density bonuses"(giving builders the option to increase the density of their developments instead of making more of the units affordable),fast-track permitting(speeding up the process of issuing permits for new development),fee waivers,or exemptions from growth controls. In a few voluntary inclusionary programs,incentives are offered in exchange for a builder committing to sell at the price- controlled rates. But most inclusionary zoning programs are mandatory,requiring all builders to participate. The proliferation of inclusionary zoning raises important public policy questions: ■ is it effective—does inclusionary zoning lead to a substantial increase in affordable housing production? ■ Is it efficient—how do inclusionary zoning's costs compare to its benefits? ■ Is it equitable—does inclusionary zoning fairly apportion the cost of providing affordable housing? Until recently these questions had not been adequately addressed.During the past 20 years a number of publications debated the merits of inclusionary zoning programs. Nevertheless,as the 2003 report Inclusionary Housing in California:30 Years of Innovation observed,"These debates,though fierce,remain largely theoretical due to the lack of empirical research.A Without knowing the economic and other real- world consequences of inclusionary zoning,policymakers have difficulty assessing the merits or faults of inclusionary zoning. Our recent report,Housing Supply and Affordability:Do Affordable Housing Mandates Work?,filled the empirical research void.s We measured the actual performance of these ordinances in the San Francisco Bay Area. We found that the San Francisco Bay Area inclusionary ordinances produced few"affordable"units, drove up the price of market-rate homes,and dramatically decreased the supply of new construction. Paradoxically,in the Bay Area,"affordable"housing mandates actually made most housing more expensive. The track record of affordable housing mandates in the Bay Area is consistent with the predictions of economic theory. Inclusionary zoning ordinances act like a tax on new development. Taxes decrease the supply of new housing and increase prices of the few homes that are built. This basic economic model should apply in other regions as well.6 This study follows up our prior one to see if the empirical record of inclusionary zoning is consistent with economic theory in another region of California. We use data from communities in Los Angeles County and Orange County to evaluate the effects of inclusionary zoning and examine whether it is an effective public policy in Southern California. We include in our analysis all the cities in these counties with inclusionary ordinances. Included are:Agoura Hills,Brea,Huntington Beach,Irvine,Laguna Beach,Long Beach, Monrovia,Pasadena,Rancho Palos Verdes,San Clemente,San Juan Capistrano,Santa Monica and West Hollywood. These communities have various sizes and densities with different income levels and demographics,so they provide a good sample to measure the effects of inclusionary zoning in Southern California. DO AFFORDABLE HOUSING MANDATES WORK? + 3 Part 2 The Housing Market and Inclusionary Zoning in Los Angeles and Orange Counties Anumber of studies document high housing prices and the affordability crisis in California.'Offering a temperate climate,cultural and natural resources,and job growth,Los Angeles County and Orange County have become increasingly desirable places to live. The percentage of homes affordable to a family earning median income is only 34.4 percent for Los Angeles-Long Beach Metro and 37.7 percent for Orange Metro!Families earning less than median income have even fewer homes available in their price range. In response to the affordable housing crisis, 13 local governments in Los Angeles and Orange County have adopted inclusionary zoning requirements(Figure 1)and remaining cities now face loud calls from planners and advocacy groups to adopt inclusionary zoning as well. Figure 1: Number of Los Angeles County and Orange County Cities with Inclusionary Zoning 14 Number of Los Angeles County and Orange County Cities with Inclusionary Zoning 12 -- -- ----- ...-- - - 10 -----—-- -------- --- ------ 8 . .__._.... -------- ---------- -- -- 6 . . .. ...- ----- ---- 4 ----- - ----- - 2 ---- ---- — --------------- -- - - -- 0 CD 1— M M O N M V U-) CD I— W M CDN M C Cf� CD f— M M CD CO O O T O O O O O M [n O rn 07 rn M C7> rn O M M O CT O O O O 4 I Reason Public Policy Institute Table 2 shows the jurisdictional requirements and the number of price-controlled units produced by city. Several communities could not report how many affordable units had been produced under the program, demonstrating a simple unwillingness by city officials to keep track of how effective the policy is in spite of its costs. Our calculations of averages and costs exclude these cities. Table 2:Southern California Cities with Indusionary Zoning City Year Percent of il Target levels Number of price- Average number of ! imposed new units ! VL=Very Low; controlled units price-controlled under price L=Low; produced by units produced per controls ! M=Moderate program year since program inception Agoura Hills 1987 10 M 50 3.1 Brea + 1993 10 VL, L,M 278 27.8 Huntington Beach 2001 10 ! L 313 156.5 Irvine 1977 5 VL,L,M 4,469 171.9 Laguna Beach 1985 25 VL, L,M 139 7.7 Long Beach i 1992 5 M Monrovia 1990 20 M 280 21.5 Pasadena 1991 15 L,M 14 1.2 Rancho Palos 1997 5 i VL,L Verdes I San Clemente i 1980 4 VL 627 27.3 San Juan Capistrano ! 1995 30 VL,L 196 24.5 Santa Monica j 1985 10 i VL, L West Hollywood ! 1986 20 ! L,M 13 0.8 Sources:California Coalition for Rural Housing and Non-Profit Housing Association of Northern California, Inclusionary Housing in California, (Sacramento,CA:California Coalition for Rural Housing),2003;.and Calavita and Grimes,'Inclusionary Zoning in California:The Experience of Two Decades."Journal of the American Planning Association v 64 no.2,1998,p.152. *Inclusionary Housing in California does not report any units for these cities. Advocates of inclusionary zoning herald price controls as the solution to the affordability crisis. They point to the inclusionary units produced and declare the program to be a success. While the program has been a boon to the few families who luck out on getting the artificially reduced homes,the ripple effect distortion in the market caused by inclusion zoning is overwhelming,costing far more. Obviously,a more thorough assessment of inclusionary zoning is necessary.From an overall production perspective,how effective has inclusionary zoning been?The numbers do not look good.Compared to the region's overall affordable housing needs for this period,inclusionary zoning clearly has not made a significant contribution to solving the region's affordable housing crisis. For the 13 cities,the Southern California Association of Governments projects the current 7.5 year affordable housing need for very low,low,and moderate income households to be 12,460.9 But in the 27 years that inclusionary zoning has been implemented in Los Angeles and Orange Counties,inclusionary zoning has resulted in the production of only 6,379 affordable units.Of those,4,469 were in Irvine,which built a number of the units to settle a lawsuit for not providing"affordable"housing.That averages to only 236 units per year,with 165 in Irvine and 71 in all other cities.Controlling for the length of time each program has been in effect,the average jurisdiction with inclusionary zoning produces only 34 units each year since adoption of its inclusionary zoning requirement. DO AFFORDABLE HOUSING MANDATES WORK? I 5 The disparity between the regional housing need and inclusionary zoning production is shown in Figure 2. In Figure 2,the front(red)columns represent the average yearly production of affordable housing reported by cities(only for years when cities had inclusionary zoning)multiplied times 7.5,and the back(green) columns represent the 7.5 year need for affordable housing in the cities with inclusionary zoning.The number of units expected from inclusionary zoning does not meet most cities'needs for affordable housing. Huntington Beach is the most notable exception. Figure 2: Housing Needs Versus Expected Units Produced under Inclusionary Zoning ®"Affordable"units produced through inclusionary zoning.(Calculated for 7.5 years by multiplying average units per year produced under inclusionary zoning times 7.5.) El 7.5 year housing needs according to the Southern California Association of Governments"Regional Housing Needs Assessment." 6,000 77 5,000 ...........-_. .. 4,000- I 3,000 ; 2,000-- 1,000-- 0-, cc m a, HE o o _-r._. _ coAMW m :> m O d s s �7----- y m Co cc `_J a CM m o, m Co c c _ C.J O t N C O O M E U d W J �, d Cod c U Co c c rL c m c m N m From an overall production standpoint,inclusionary zoning has not been effective. Some advocates of inclusionary zoning respond to this poor record by calling for more vigorous and numerous restrictions. Instead,jurisdictions need to fundamentally reexamine if price controls are an effective way of producing more affordable housing. Policymakers should analyze the actual consequences of inclusionary zoning and judge whether the poor results achieved by inclusionary zoning are caused by the very nature of these laws. Looking at the number of below-market units created by programs only begins to reveal inclusionary zoning's effect on affordability. Our findings suggest that inclusionary zoning actually leads to less housing and higher prices. 6 I Reason Public Policy Institute Part 4 Costs Associated with Below-Market Units Supporters often promote inclusionary zoning as a costless way of providing affordable housing.Many highlight the number of units produced under inclusionary zoning and then claim the program to be a success. But the costs of these units and programs are often missed. For example,West Hollywood has had inclusionary zoning since 1986,and the program has led to 13 affordable units.The initial reaction might be to consider the program worthwhile simply because 13 units were built. But accurately judging the efficacy of a program requires looking at its costs.What were the costs of producing each of those units? We all agree that the goal is to help low-income households,but we must recognize that some ways are better than others. If two methods cost the same amount but one helps more,we should choose the one that yields greater benefits.Or,if two methods yield the same benefits but one costs less,we should support the one with lower costs.Even though many cities have adopted inclusionary zoning,to date no one has comprehensively estimated the program costs.Without looking at the costs of inclusionary zoning,one cannot determine if better ways to provide affordable housing exist. By definition,whenever sellers must sell a unit at a government-set price,they cannot sell that unit at the market price.For example,for a home to be"affordable"to a low-income household in West Hollywood,we estimate that the home must be sold for$147,000.If a new home could be sold for$588,000 but must be sold for$147,000,the revenue from the sale is$441,000 less.When someone forgoes one opportunity to take another,economists refer to this as the"opportunity cost."The opportunity cost of selling a"Low" priced unit for$147,000 is not selling the unit for$588,000,i.e.,$441,000.Keep in mind that this does not measure production costs.Rather,it represents the lost revenue per sale of price-controlled units. First,let us consider the cost associated with each inclusionary unit by city.We calculate the cost for each unit by subtracting the regulated price from the market price.10 Most inclusionary zoning ordinances mandate that homes be affordable to some combination of very low income,low income and moderate income households. Very low income is typically defined by up to 50 percent of median,low income is defined by up to 80 percent of median,and moderate income is defined by up to 120 percent of median.The California Department of Housing and Community Development provides income levels for four-person households (Figure 3).11 DO AFFORDABLE HOUSING MANDATES WORK? 7 Figure 3: 2003 Income Levels for Four-Person Households Defined by California Department of Housing and Community Development 0Very Low Income 0 Low Income ■Moderate Income $100,000 "� -y- �y $90,000- ---............ . $80,000 --....._.-- $70,000 - i $60,000 - -- - $50,000 $40,000 _ $30,000 $20,000- I $10,000 $0 I I o��ty I dos P�9e\esG a�geGo�t\�y pc I inclusionary zoning sets price controls such that homes can be"affordable"at the specified income levels. Table 3 indicates sample price controls for homes to be"affordable"to the four-person households in the respective income groups.We assume homes will be financed with 0 percent down, a 30-year fixed-rate mortgage,and an interest rate of 7 percent. We assume 26 percent of income will pay mortgage payments and 4 percent of income will pay for real estate taxes and other homeowner costs.This formula gives us how much a household in each income level could afford.We decided to use conservative assumptions so that we would not overestimate the costs of inclusionary zoning.Different jurisdictions use different formulas for calculating their price controls-,actual price controls will differ accordingly.To the extent that families can afford less than our calculations assume or that jurisdictions set price controls more stringently than we assume,the costs of inclusionary zoning will be significantly higher than our estimates. DifferentTable 3:Sample Price Controls for Homes to be"Affordable"to County Very Low Price Control Low Price Control Moderate Price Control Los Angeles County $91,837 $146,875 $215,265 Orange County $123,101 $184,001 $295,379 We can then compare the level of the price controls to the market price of homes.The more restrictive the price controls,the greater the cost for each unit. Figures 4, 5,and 6 compare the median price of existing homes in each county to our sample price controls.The heights of lower(red)bars represent the price controls:"very low"in Figure 4,"low"in Figure 5,and"moderate"in Figure 6.The top of the upper(green) 8 ( Reason Public Policy Institute bars represent the 2003 average market price of new homes by county.The difference between the market price and the price-controlled price(the height of the red bar)is the cost of providing the affordable unit. Figure 4: "Very Low"Price Controls Compared to Average Market Price by County ®"Very Low"price control ®Cost Associated with selling"Very Low"unit $700,000 $600,000 $500,000 - ---.....----- ---- --------- $400,000 ------ ---- -- $300,000 - ---- ------- I $200,000 —-- --- $100,000 -- 1-- ----- ---- - ------- I $0 j Los Angeles County Orange County Figure 5: "Low"Price Controls Compared to Average Market Price by County M"Low"price control m Cost associated with selling"Low"unit i $700,000 $600,000 --- ----- ----------- - ----- 4tl'' -- i $500,000 - ---------- -- -- -- - ---- $400,000 $300,000 --- — $200,000 - I $100,000 $0 I Los Angeles County Orange County Do AFFORDABLE HOUSING MANDATES WORK? I 9 Figure 6: "Moderate"Price Controls Compared to Average Market Price by County N"Moderate"price control.ID Cost associated with selling"Moderate"unit $700,000 $600,000 $500,000 - $400,000 $300,000 $200,000 -- ------- $100,000 $0 -i Los Angeles County Orange County Comparing the figures,the"moderate"price controls are not as restrictive as the"low"price controls and impose less of a cost.When price controls are at the market price we would not count them as costly.In reality price controls set near the market price also cause builders to lose revenue because the price controls come with other restrictions. Inclusionary zoning ordinances almost always impose restrictions on the resale price of below-market units. The reasoning seems straightforward:the subsidized units should remain affordable for future buyers,and the initial buyers should not be able to cash out on the windfall profits of acquiring a price-controlled unit.12 These affordability controls limit appreciation to some formula based on inflation,or they simply mandate that the home be"affordable"to the equivalent income groups calculated at the time of sale. Resale price controls typically last 30 years or more and are renewed upon each sale. Because home ownership is a long- term commitment and affordability controls last a number of years,price-controlled homes are simply less valuable. A. Estimating the Effects of Price Controls by City By comparing the market price to the average level of the price controls in each city,we can estimate the average cost of each price-controlled unit and the total costs for each city.Each ordinance targets different income levels,so each city's price controls will vary.For example,if a city in Orange County required that 15 percent of new units be"affordable"and its only target income group was"very low,"we assumed that 15 percent of units needed to be sold for$123,101 each. Or,if a city in Orange County required that 15 percent of new units be"affordable"and its only target income group was"low,"we assumed that 15 percent of units needed to be sold for$184,001. 101 Reason Public Policy Institute For cities with more than one target income group,for the sake of simplicity we took the average level of the price controls.For example,if a city in Orange County required that 15 percent of new units be"affordable" and the target income groups were"very low,""low,"and"moderate,"we assumed that 5 percent of the units needed to be sold for$123,101 each,5 percent for$184,001 each,and 5 percent for$295,379 each. Taking the average of those figures,we arrive at our estimate that 15 percent of units need to be sold for $200,827 each.Because many towns targeting multiple income groups do not target each income group equally,our estimates will not be 100 percent accurate.If a city targeting multiple income groups requires more"very low"units,our estimates of the costs of zoning will be on the low side.On the other hand,if a city requires more"moderate"units,our estimates will be on the high side-In addition,when a jurisdiction required 10 to 15 percent of units to be affordable,we always chose the lower bound and ignored the upper bound in order not to overestimate the costs of inclusionary zoning.13 Once we arrived at the average price control for each city,we then subtracted it from the market price for each city."For example,we estimate that a new home in West Hollywood could be sold for$588,530. West Hollywood requires that 10 percent of homes be priced at"low"and 10 percent at"moderate,"which we estimate at$146,875 and$215,265,an average of$181,070 per home.That means 20 percent of homes would need to be sold for$407,460 less than market price.In other words,the cost of providing each inclusionary unit in West Hollywood is$407,460.In high-priced jurisdictions these losses can be quite high. Figure 7 shows the average cost associated with selling a price-controlled unit based on the standards in those cities and the market prices.In cities with more restrictive price controls and higher land values,the cost is higher. In the median city the cost of providing each inclusionary unit is$577,726. Figure 7:Average Cost Associated with Selling Each Price-Controlled Unit $1,600,000 - $1,400,000 ------------- -___... --- - -- - $1,200,000 - $1,000,000 - --- --- - - - ---- $800,000 - —------------ — — $600,000 ---- --- --- — $400,000 - -- -- $200,000 J - $0 L ca _0 ca caO t O N a) co N t U '> O c T c L) c_ U a) U C ca m O a) •� a) O d N a) N y m c0 E m c c co c a c a) co o d cv o o CU cc= c J V 0) 0) C 5 LO CMto c C Q c0 f0 6. ca O = C N N O J '7 U co = C f0 cc U! � DO AFFORDABLE HOUSING MANDATES WORK? 111 The cost of each inclusionary unit is large.Next let us look at the cost per unit times the number produced in each city(Figure 8).15 This gives a measure of the aggregate cost of inclusionary units by city for those that report creating affordable homes under inclusionary zoning. Figure 8: Average Cost Associated with Selling Each Price-Controlled Unit Times the Number of Units Pasadena, $5,851,457 San Clemente, $519,491,982 Agoura Hills, $29,678,632 Irvine, - Monrovia, $1,000,000,000 $79,989,814 Brea,$124,456,235 West Hollywood, $5,296,977 Huntington Beach, San Juan Capistrano, Laguna Beach, $180,828,261 $110,050,263 $204,114,750 According to our estimates,the costs associated with producing inclusionary units in Los Angeles County and Orange County have been$3.8 billion.Combining data from Los Angeles and Orange Counties with data from cities in the Bay Area that just adopted their programs,we can get a more accurate estimate of the costs of inclusionary zoning. We find that the median city's cost of below-market units was more than$79 million. B. Who Bears the Burden of Inclusionary Zoning? The costs of inclusionary zoning are largely hidden.None of the costs imposed on the housing market shows up on any city's annual budget,but they still exist. Who ends up paying for that$3.8 billion for below- market rate homes?One can debate exactly who bears the costs,but they are necessarily bome by someone. Because they are imposed on the new housing market—and not paid for by government—the costs will be borne by some combination of developers,new homebuyers,and landowners. Exactly who shoulders more of the burden depends on market conditions and supply and demand. All theory and evidence suggest that the costs of inclusionary zoning,effectively a tax,will not be borne by builders but by new homebuyers and landowners.16 Construction is a competitive industry with relatively free entry. Local market conditions will determine exactly how the burden is split.If buyers are more sensitive than sellers to changes in price,then landowners will bear most of the tax.This happens when more 12 , Reason Public Policy Institute buyers have many options,such as living in similar or nearby areas.If sellers are more sensitive than buyers to changes in price,then new homebuyers will bear most of the tax.This happens when landowners have more options,such as being able to devote their land to commercial,industrial,or other endeavors. if profits are abnormally high, other builders will enter the market and undercut prices,thus bringing profits down. Conversely,if profits are abnormally low-it will drive would-be builders to invest in other endeavors. When a tax in the form of inclusionary zoning is placed on builders,it decreases the number of profitable projects that they want to undertake in that jurisdiction. Builders will vote with their feet and undertake fewer projects in jurisdictions with price controls and more in neighboring jurisdictions without price controls. The quantity of housing produced will decrease where there are price controls,but increase in other places where there are not price controls,pushing some homebuyers away from their first choice of locations,and for developers profit rates at the margin will remain the same. Price controls may not stop all development,but new construction will decrease.In order for development in a price-controlled city to be profitable enough to attract builders,one of two things has to happen. Either market-rate home prices must increase,or land prices must decrease to compensate the builder for his losses due to price controls.Even with price controls on a portion of development,builders can still earn the normal rate of return if other home prices increase or land prices decrease.The likely result will be some combination of the two. Both effects lead to a decrease in the quantity of new housing as market-rate buyers will be able to afford less housing and/or landowners will supply less land for residential development due to low market prices. Raising home prices for other new homebuyers creates a paradox because the alleged goal of inclusionary zoning is to make housing more affordable,not less.Decreasing land prices also decreases the quantity of new housing because it discourages landowners from providing their land for residential projects.Instead, more land will be put to uses in which the final product is not subject to price controls. Thus,the restriction on the supply of land restricts the supply of new homes. Advocates of inclusionary zoning tend to assume that the below-market rate units are subsidized out of builder profits,but economics predicts that builders are actually least likely to bear the burden. In the very short run,if builders own the land when the ordinance was passed,they would bear part of the burden. But in the long run,builders are most able to avoid the tax because they can simply move their construction to more profitable locations. The land cannot move,and buyers are often attached to living in a particular locale. Landowners and new homebuyers will end up paying for the subsidy on the price-controlled units. Inclusionary zoning effectively acts as a tax on the production of market-rate units because developers must sell a percentage of units at a loss to gain permits to sell market-rate units. If market prices went up by the exact amount of losses on the price-controlled units,buyers would bear the full burden of the tax. If market prices did not change at all,builders and landowners would bear the full burden of the tax. In most situations buyers and sellers each bear part of the tax burden. Regardless of who bears the burden,because some units are price-controlled and others are not,the losses from price-controlled units must be spread over some combination of buyers and sellers of the remaining units. We calculate the effective tax in each city by looking at the average cost associated with each inclusionary unit and the number of market-priced units over which the cost will be spread.To do this we multiply the cost of each inclusionary unit times the percentage mandated by each city and then divide by the percentage of market-rate homes.To illustrate,for San Juan Capistrano each price-controlled unit has an associated cost DO AFFORDABLE HOUSING MANDATES WORK? 113 of$561,480(Figure 7)and 30 percent of units must be sold at those price controls(Table 2).The calculation would be[($561,480)X(0.30)]/(0.70)=$240,634.To make it more concrete,if a project had 10 units,three must be sold at a loss of$561,480.Spreading the loss over the remaining seven units gives a tax of$240,634 per market-rate unit.Figure 9 shows the effective tax on new home purchases imposed by inclusionary zoning. Inclusionary zoning imposes sizeable taxes on each newly constructed home.The median city with inclusionary zoning is effectively imposing$65,952 of taxes on each market-rate home. Figure 9: Effective Tax Imposed on New Market-Rate Units Caused by Inclusionary Zoning $600,000 $500,000 - - --- - ----- - - — ...---- - --- ------ -- $400,000 - -- --— -------- - - --- ---- ---- --—----- - - $300,000 $200,000 -.. . - $100,000 -- ------ --- --.... — $0 U C O N N U N O C O U C U CD m E m D m l0 C N T cOO N m GI O C C U 00 (7 U = C C l0 ca c N Cities with higher land values and more restrictive price controls impose the highest effective tax on new homes.In Laguna Beach the equivalent tax on a market-rate home if a developer built and sold an affordable home is approaching $500,000 per newly constructed home. After having calculated the amount of the tax,we can approximate who bears the brunt of the tax.The California Department of Housing and Community Development(HCD)takes the position that inclusionary zoning translates into higher prices for new homebuyers. HCD has consistently held this position through both Republican and Democratic Administrations: Under most inclusionary programs,which typically include an in lieu fee[whereby the builder pays a fee to opt out of the inclusionary zone requirements]option, the cost of subsidizing low-income housing units is underwritten by the purchasers of market-rate units in the form of higher housing prices. This practice of cost shifting is particularly detrimental to a home buyer who marginally qualifies for a mortgage yet earns too much to receive governmental assistance.I' We have consistently...asked local jurisdictions to analyze an inclusionary program as a potential governmental constraint. The reasoning for this is that most programs of this sort impose a fee or dedication requirement upon developers which is passed on to consumers of new market rate housing, raising the price of the market rate housing.�a 141 Reason Public Policy Institute Others believe the brunt of the tax will be borne by some combination of builders and landowners.19 Figure 10 estimates price increases on new homes under the three scenarios.If the lower bound is accurate(when buyers only pay 50 percent of the tax),the price of new homes is increased by$30,000 or more in 8 of 13 cities- If the upper bound is accurate(when buyers pay all of the tax),the price of new homes is increased by $30,000 or more in 12 of the 13 Los Angeles County and Orange County cities with inclusionary zoning. Agoura Hills is the median city. Inclusionary zoning increases new home prices there by$32,976 in scenario one,$55,400 in scenario two,or$65,952 in scenario three.Although the goal is to produce more affordable housing,inclusionary zoning is actually producing the opposite effect.Inclusionary zoning translates into significantly higher prices for market-rate homebuyers.By creating price controls on a percentage of units,it taxes other new units and leads to higher housing prices. Figure 10: Increases in Price of New Homes Caused by Inclusionary Zoning (Under Three Different Assumptions About Who Bears the Costs) i 0 Assuming 50%of taxis borne by consumers ®Assuming 84%of taxis borne by consumers M Assuming 100%of tax is borne by consumers $500,000 I $450,000- - -- ------- ---------------- _ i $350,000 $300,000- - -- -- --- -- -- -- - ----- - ---- ----$250,000- ---- ------- - ------------------ i - - - - $200,000 --- - , ------------------ ------------------ --- $150,000 - -- - $100,000 ----------------- $50,000- PM -—-- z,: c0 cc co M CO Q� y N m = O d V C V C ci C 'O C co cC 1 O �--� N C O O co 3 c0O y i J ca c00 Of � d O G G m I O = C..0 .0 = N (O V O N C/) N c0 co C = O J Q C fn � DO AFFORDABLE HOUSING MANDATES WORK? I 1 S To the extent that sellers bear more of the burden of taxation,the housing market also faces negative consequences. Because builders can move to jurisdictions without inclusionary zoning,they will not bear the burden of the inclusionary zoning tax. Thus,landowners will bear most of the sellers'portion of the burden. Inclusionary zoning ordinances decrease the value for which landowners can sell undeveloped land to homebuilders. Because landowners receive lower prices,they will supply less land for residential development,and fewer homes will be built. Governments already give landowners incentives to supply land for commercial and industrial uses instead of residential ones. Since Proposition 13 limited increases in residential property taxes,governments began creating incentives for developing commercial real estate instead of residential because it generates more revenue. This has become known as the"fiscalization of land use." One study described how local governments responded to limits on property taxes this way: Local municipalities employ two primary methods for revenue generation:the imposition of heavier exaction fees for new development and the promotion of retail development in order to maximize sales tax revenues. This has had a direct,deleterious impact on new housing production.Rather than adopt land-use policies that advance or incentivize new housing production,developing new retail centers— such as big box developments,entertainment complexes,and shopping destinations—emerged as the primary approach for increasing local government revenue.Consequently,residential development(and other forms of development)suffered due to a lack of incentives or outright disincentives.20 Inclusionary zoning ordinances add yet another disincentive to provide land for residential development. When part of the burden of taxation is borne by landowners,we should expect inclusionary zoning to decrease the supply of new housing. C. The Effect of Price Controls on Housing Construction In addition to increasing prices,inclusionary zoning leads to a decrease in new housing.Economics clearly predicts that the quantity of construction will be lower after the adoption of inclusionary zoning.But advocates of inclusionary zoning advance an alternate hypothesis that the quantity of construction will be the same(or higher)after the adoption of inclusionary zoning.By looking at the data of housing construction, we can get an idea of which hypothesis is correct. One test is to look at the amount of new construction in years prior and years following the adoption of an inclusionary zoning law. We examined Construction Industry Research Board yearly housing permit data for single and multifamily dwellings to compute average construction pre-and post-ordinance.For example,San Clemente adopted its ordinance in 1980 and Long Beach adopted its ordinance in 1992.We would thus compare San Clemente housing construction in 1979 and 1981,and Long Beach housing construction in 1991 and 1993.We also can compare housing production for the seven years prior and the seven years following the ordinance,so for San Clemente we would compare housing production in 1973-1979 to housing production in 1981-1987 and for Long Beach we would compare housing production in 1984-1990 to housing production in 1992-1998.Because ordinances have been adopted throughout the past 26 years (Figure 1),economy-wide phenomena such as business cycles should not be biasing the data in either direction.For example,some cities adopted their ordinances during down times while others adopted their ordinances during up times. 16 I Reason Public Policy Institute The data indicate that inclusionary zoning does indeed lead to a decrease in new construction.For the one-, three-, five-and seven-year averages before and after the ordinances,the production of housing decreased after the adoption of inclusionary zoning. As price controls are in place for more time,the decrease in housing production adds up.Data on housing production seven years prior and seven years following the ordinance exist for 8 of the 13 cities.In those cities in the seven years prior to the adoption of inclusionary zoning 28,296 homes were produced,whereas in the seven years following the adoption of inclusionary zoning only 11,000 homes were produced.In those eight Los Angeles County and Orange County jurisdictions,inclusionary zoning appears to decrease housing by 17,296 units.That amounts to a decrease in housing production by 61 percent. If those 17,296 units would have been worth$650,000 per home,then the value of housing not built because of inclusionary zoning is approximately II billion dollars.For those jurisdictions,in only seven years the average destruction of value per city is$1.4 billion. Figure 11:Total Production of Housing 7 Years Prior and 7 Years Following the Ordinance for Eight Jurisdictions'Available Data 30,000 25,000 - -- - ------— --------- -- - 20,000 ----- - ---- -- -------- - -- ----- - 15,000 - --------- - ------ -- ---- .._.. --- -- -- 10,000 - --- - - - -------- 5,000 -- 0 Before After ' -- ------------- ---- --------...____..---------------- Recall that over 27 years inclusionary zoning in Los Angeles County and Orange County has only led to 6,379 affordable units,which amounts to 1,653 every seven years.In those eight jurisdictions only 1,534 units have been produced.Controlling for the length of time for each ordinance,those cities in total average 110 units per year since an ordinance has been adopted.Multiplying the yearly production rate by seven gives the expected number of"affordable"units over seven years,which amounts to 770 in all of those eight cities. Although those cities together had an estimated increase in 770"affordable"units the seven years following the adoption of inclusionary zoning,the total number of homes not built was 17,296(Figure 12).Is a policy that creates 770 "affordable"homes at the expense of discouraging 17,296 market-rate homes worth it? This is crucial because most entry into the housing market by lower-income families is by buying older homes freed up when middle-income families move into new homes.21 Reducing the overall production of DO AFFORDABLE HOUSING MANDATES WORK? 117 housing both drives up prices and means that the people crowded out of the housing market are the lower- income would-be homeowners. Figure 12: Comparing the Increase in"Affordable"Units to the Overall Decrease in New Construction Associated with Inclusionary Zoning 5,000 s 1 770 0 -- - -- - - - - ---- ---------- - - -- Inclusionary units produced (for j eight cities over seven years) i -5,000 _ --- - ----- - -- i -10,000 - - - - i i -15,000 _ . . . -. -17,296 ' -20,000 - - - -- - - - - ------ -- -------- --- - -- - - - - - - - - Decrease in overall new construction associated with inclusionary zoning -25,000 (for eight cities over seven years) Additional statistical work on inclusionary zoning is needed.The data indicate that the number of units pushed out of the market by inclusionary zoning is much larger than the number of"affordable"units built. Advocates of price controls must recognize that their programs lead to only a handful of below-market units coupled with a sharp decrease in market-rate homes.Because we cannot directly observe the thousands of homes never built,the costs of the program go largely unseen.Also unseen are those 17,296 families that cannot buy homes because inclusionary zoning prevented the construction of additional homes.Is a program that destroys over$10 billion worth of housing and prevents thousands more families from getting a home than it places in an"affordable"unit worth the high costs? 18 I Reason Public Policy Institute Part 5 The Fiscal Cost of Price Controls to State and Local Government Nof only do price controls lead to a decrease in the quantity of housing and an increase in prices for consumers,but price controls also lead to decreased revenue for both state and local government. Inclusionary zoning ordinances are often sold to policymakers as the proverbial free lunch,with proponents claiming"A vast inclusionary program need not spend a public dime."22 Even if market-rate buyers and landowners end up paying the price of the subsidy,so the argument goes,at least local governments need not spend revenue to create affordable housing. Proponents write,"From a local agency standpoint,inclusionary zoning provides affordable housing at no public cost"(emphasis added).23 The story,however,is not that simple.The advocates fail to take account that inclusionary zoning leads to direct losses in state and local government revenue. Inclusionary units demand and receive the same municipal services as market-rate homes. There is no evidence that providing municipal services to price-controlled homes is less costly than providing to market- priced homes.The cost of inclusionary zoning to governments comes from the fact that price-controlled homes cost the same to service but generate less revenue. Because the values of the homes are set at below- market rates,the assessed values are lower and so their property tax is lower. Thus,although governments may not spend"a public dime"to produce price-controlled homes,they take on an obligation of providing municipal services while receiving lower annual tax revenues. The cost to government from price-controlled units is the difference in the annual tax revenue that would have been generated had the same homes been assessed at market prices. If the real estate tax rate is I percent per year, a$700,000 dollar home generates$7,000 in government revenue,whereas a$200,000 home generates$2,000 in government revenue.To calculate the yearly tax revenue lost,we take the difference between current market price and the price-controlled price times 1 percent(for the property tax)for each unit. Multiplying times the number of units in each jurisdiction gives us a rough measure of the lost tax revenue per year. Biasing our numbers downward is the fact that we do not count the lost revenue from the homes never produced because of price controls.Biasing the numbers upward is the fact that not all market-rate homes are assessed at current prices due to Proposition 13.Also, many of the"affordable"units do not remain affordable if resale restrictions are absent.But the numbers illustrate the limit as homes are frequently resold and reassessed at current prices.They also approximate how much revenue would be gained if price-controlled units were reassessed at market rates.Figure 15 shows the yearly loss in combined state and local revenue due to price controls."to"lost state and local revenue combined become significant,as depicted in Figure 13. DO AFFORDABLE HOUSING MANDATES WORK? 119 We do not believe that the goal is to maximize tax revenue at the expense of low-income households,and we are not advocating raising real estate taxes for low-income residents.But before considering inclusionary ordinances,governments must look at their budgets and examine whether better ways of helping low-income households exist. Figure 13:Yearly Loss in Combined State and Local Government Revenue Due to Price Controls(Assuming All Units Are Assessed at Current Prices) Agoura Hills, $296,786 Monrovia,$799,898 West Hollywood, San Juan Capistrano $52,970 ,$1,100,503 Pasadena,$58,515 Brea,$1,244,562 Huntington Beach, $1,808,283 Laguna Beach, $2,041,148 ql!Ii San Clemente, $5,194,920 i Irvine,$26,162,480 Government would be well advised to consider these yearly costs before adopting inclusionary zoning.It is important to note that the lost tax revenue occurs not just in one year but every year that the price controls are in existence.The total present value of lost government revenue is upwards of$752 million(Figure 14).24 Although inclusionary zoning is often pitched to governments as a zero-cost method of creating affordable housing,the costs from lower assessed valuations are quite large. Both state and local governments bear some of the burden of lost tax revenue caused by inclusionary zoning. Property tax revenue goes to the state government,and a portion is rebated back to city and county governments. The exact amount returned to each jurisdiction varies significantly,so our above estimates measure the combined total of lost tax revenue without distinguishing the particular splits between local and state governments. Importantly this implies that although inclusionary zoning policies are usually debated and implemented at the city and county levels,state legislators should be concerned with these policies too. Each additional local inclusionary zoning ordinance adversely impacts the tax revenue not just of its own jurisdiction but also decreases the state's tax revenue. P 20 I Reason Public Policy Institute Figure 14: Present Value of Yearly Loss in State and Local Government Revenue Due to Price Controls (Assuming a Discount Rate of 3 Percent and that All Units Stay Assessed at Current Prices) Agoura Hills, San Juan Capistrano, $3,543,016 — West Hollywood, $16,372,700__ $1,671,031 _ Monrovia, Pasadena, $21,416,815 $1,566,694 __.._..._- -Brea,$24,393,971 Huntington Beach, $44,336,762 Laguna Beach, $48,666,401 San Clemente, :. $77,287,289 7. :;. Irvine,$512,796,153 DO AFFORDABLE HOUSING MANDATES WORK? 121 Part 8 Conclusion Inclusionary zoning should only be enacted if the goal is to make housing more expensive and decrease the quantity of new housing.Our findings in Los Angeles County and Orange County are consistent with the experience of the San Francisco Bay Area. Inclusionary zoning hurts homebuyers and will price out most low-income families.Despite the good intentions of those who support inclusionary zoning,economics tell us that price controls on new housing will have the unintended consequence of reducing the quantity of new homes built.Rather than helping, inclusionary zoning will actually make the affordability problem worse. We have shown that inclusionary zoning imposes significant costs on the housing sector.Those costs are passed on to landowners and buyers of market-rate homes.Higher housing prices will result. Something should be done about the affordability crisis,but price controls are not the answer and may be part of the problem. Southern California cities will never be able to rely on inclusionary zoning to meet their housing needs. In fact,inclusionary zoning has led to a decrease in housing production.Rather than continuing to impose these policies,jurisdictions would do well to eliminate them. By ending price controls on new construction,builders would have an incentive to supply more housing. The worst possible solution to the affordability crisis is to pass policies that result in restricting the supply of housing.Inclusionary zoning is one such policy. i 22 ( Reason Public Policy Institute I About the Authors Benjamin Powell is an Assistant Professor of Economics at San Jose State University and an Adjunct Scholar with Reason Foundation. He received his Ph.D.from George Mason University in 2003. He has numerous publications in scholarly journals,policy papers,and the popular press. Edward Stringham is an Assistant Professor of Economics at San Jose State University and an Adjunct Scholar with Reason Foundation.He received his Ph.D.from George Mason University in 2002.He is winner of the Paper of the Year Award from the Association of Private Enterprise,Best Article Award from the Society for the Development of Austrian Economics,and Second Prize from the Independent Institute Garvey Essay Contest.Stringham serves on the Executive Committee of the Society for the Development of Austrian Economics and on the Executive Committee of the Association of Private Enterprise Education. Powell and Stringham's other recent work on housing includes a policy study,"Estimating the Effects of Price Controls in the Redevelopment of the Fort Ord Military Base"and testimony before the Board of the Fort Ord Reuse Authority.Powell and Stringham also have the entry on"Housing"in the forthcoming Concise Encyclopedia of Economics. Note: The authors appreciate research assistance from Ilkay Pulan,Daocheng Zhu,and a research grant from the California Building Industry Association. DO AFFORDABLE HOUSING MANDATES WORK? 123 Related Reason Foundation Studies Supply and Affordability Do Affordable Housing Mandates Work?,by Benjamin Powell and Edward Stringham,Reason Foundation Policy Study No.318,April 2004,http://www.rppi.org/ps3l8.pdf Smart Growth in Action, Part 2: Case Studies in Housing Capacity and Development from Ventura County, California,by William Fulton,Susan Weaver,Geoffrey F.Segal,and Lily Okamura,Reason Foundation Policy Study No. 311,May 2003,http://www.rppi.org/ps3l l.pdf San Jose Demonstrates the Limits of Urban Growth Boundaries and Urban Rail,by Randal O'Toole,Reason Foundation Policy Study No.309,April 2003,http://www.rppi.org/ps309.pdf Smart Growth in Action:housing Capacity and Development in Ventura County,by William Fulton,Chris Williamson,Kathleen Mallory, and Jeff Jones,Reason Foundation Policy Study No.288,December 2001, http://www.rppi.org/ps288.pdf Smart Growth and Housing Affordability:Evidence from Statewide Planning Laws,by Sam Staley and Leonard C.Gilroy,Reason Foundation Policy Study No.287,December 2001, http://www.rppi.org/ps287.pdf Urban-Growth Boundaries and Housing Affordability:Lessons from Portland,by Samuel Staley,Reason Foundation Policy Brief No. 11,October 1999,http://www.rppi.org/urban/pbl l.pdf Repairing the Ladder: Toward a New Housing Paradigm,by Howard Husock,Reason Foundation Policy Study No.207,July 1996,http://www.rppi.org/ps207.pdf 24 I Reason Public Policy Institute i I Endnotes See the statements of the housing advocacy coalition National Housing Conference at www.nhc.org Z National Housing Conference,lnclusionary Zoning: The California Experience,Washington,D.C.: National Housing Conference,2004,http://www.nhc.orglnhcimages/California%201Z/CalZO4.pdf. 3 Meyers Group"Meyers Group Summary Statistics"January-March 2004. 4 California Coalition for Rural Housing and Non-Profit Housing Association of Northern California (2003).Inclusionary Housing in California:30 Years of Innovation,p.3. S Powell and Strin ham,Housing Supply and Affordability, i-v, 1-45. g g PPY .If ty,PP• � PP• 6 For an in depth explanation of the economics of inclusionary zoning see Housing Supply and Affordability:Do Affordable Housing Mandates Work?. This study also contains discussions about the long-term effects of affordability controls and the current debate on inclusionary zoning. Each of those sections is equally applicable to the Southern California market. Southern California Association of Governments State of the Region 2003,pp.35-42(Los Angeles: Southern California Association of Governments,2003) 8 National Association of Homebuilders, Housing Opportunity Index: First Quarter(Washington, D.C.: National Association of Homebuilders,2002). v Calculated by taking the 7.5 year Southern California Association of Governments 1998-2005 Regional Housing Need Assessment for the 13 cities and dividing by 7.5. 10 We are not measuring what economists refer to as social costs,which would include the value of the lost consumer and producer surplus associated with inclusionary zoning.We are simply estimating the monetary amount that a seller must forgo when selling at the restricted price. 11 Income categories are adjusted by household size.Compared to a four-member household,a household with five members can have an 8 percent greater income,a household with six members a 16 percent greater income,etc.Households with three members will have a 10 percent lower income,two members 20 percent lower and one member 30 percent lower according to the Department of Housing and Community Development.Because the four-member household is the baseline,we focus on four- member households throughout the paper. 12 Barbara Kautz,"In Defense of lnclusionary Zoning:Successfully Creating Affordable Housing" University of San Francisco Law Review,vol.36,2002,p. 1014,gives an additional legal reason:"An inclusionary ordinance that does not limit the resale prices of for-sale units(creating`premium pricing' for the first buyer)may be vulnerable to attack for`not advancing a legitimate state interest."' 13 For example,inclusionary zoning in Santa Monica requires 10-20 percent of units be affordable,and its target groups are"Very Low"and"Low."In this case we would assume only 10 percent needed to affordable and the share was split 5 percent for"Very Low' and 5 percent for"Low."Because data for specific requirements of each city are currently unavailable,we decided to make simplifying assumptions and again err on the side of lower costs of inclusionary zoning. 14 We estimate market price by city by comparing 2004 data of the average price of new homes by county compiled by Meyers Group and 2000 Census median price of existing homes by city.Because new homes in Los Angeles County and Orange County typically sell for more than the 2000 median price of DO AFFORDABLE HOUSING MANDATES WORK? 125 existing homes,and because new home price data by city is difficult to assemble,we adjust the 2000 Census city data based on each county's price differential for new homes.In Los Angeles County the ratio of the price of new homes to the price of existing homes is 2.2 and in Orange County that ratio is 2.6. For example,the 2000 Census median price of existing homes in the city of West Hollywood was $263,400.so we multiply that by 2.2 to estimate that a new home would be sold for closer to$588,530. 15 The figure looks at costs in today's prices.The divergence between current price controls and the price at which the units currently could sell gives us comparable numbers in today's dollars.It does not calculate the home price for the year the price-controlled units were built or calculate the price controls in that year. Donna Jones, "Homes,Good and Cheap:Low-income Buyers Get High-Quality Homes,"Santa Cruz Sentinel,January 10,2004,p.9.reports on one project built in 1998 that helps illustrates our assumptions.When homes were first sold,government set the prices at around$160,000.Today government sets their prices at$280,000,and"they would be worth at least$800,000 on the open market."For the purposes of our calculations,we would subtract the restricted price of$280,000 from the market price of$800,000 to arrive at the$520,000 difference.That price control(and that difference divergence between the market price and the restricted price)is no longer imposed on the initial seller but is now imposed on the current owner.If 10 homes were in a project,the equivalent cost from the price controls would be 10 times that number. 16 The requirement of subsidized housing has the same effect as a development tax.The developer makes zero economic profit with or without inclusionary zoning,so the implicit tax is passed on to consumers (housing price increases)and landowners(the price of vacant land decreases).In other words,housing consumers and landowners pay for inclusionary zoning."Robert Burchel and Catherine Galley, "Inclusionary Zoning:Pros and Cons,"in The California Inclusionary Housing Reader,(Sacramento: Institute for Local Government,2003),p.29. 17 California Department of Housing and Community Development letter to the city of Fairfield,July 16, 1996. 15 California Department of Housing and Community Development letter to the city of Fairfield,April 26, 2001. 19 Laura Padilla,"Reflections on Inclusionary Housing and a Renewed Look at its Viability"Hofstra Law Review,vol.23, 1995,p.576. 20 Joel Kotkin and Thomas Tseng,Rewarding Ambition:Latinos,Housing, and the Future of California (Malibu,California:Pepperdine University School of Public Policy,2002). 21 Howard Hussock,Repairing The Ladder: Toward a New Housing Policy Paradigm, Reason Foundation Policy Study No. 207(Los Angeles: Reason Foundation,July 1996). 22 Andrew G.Dieterich,"An Egalitarian Market: The Economics of Inclusionary Zoning Reclaimed" Fordham Urban Law Journal,vol. 24(1996)p.41. 23 Several studies emphasize the assertion that there is no direct cost. See Kautz,"In Defense of Inclusionary Zoning,"p.5;Robert Burchel and Catherine Galley,"Inclusionary Zoning:Pros and Cons," in The California Inclusionary Housing Reader(Sacramento:Institute for Local Government,2003), p.29; and Marc Smith,et.al.,"Inclusionary Housing Programs:Issues and Outcomes,"Real Estate Law Journal, Fall 1996. 24 We take into account the length that each city intends to impose price controls(30 years for the median city)and then calculate the present value,assuming a 3 percent discount rate. � i F • I �.. �„N ¢Of`.s.fix • f k.». �, ..x 5 w FS`�y��� vy�.r? sue.�. £ �� .2- � r����c •Y ..a _ OCT-27-2004 17:40 CITY OF HUNTINGTON BEACH 714 536 5233 P.01i01 i it .b CIF" OF ORANGE COUNTY i1W'i f ft4u 10t4 BEAC: i, CA ASSOCIATION OF RVMA.- Td�U OCT 28 A 8. 3 c ,r ski,di,a� October 26, 2004 The Honorable Cathy Green Mayor, City of Huntington Beach City Hall 2000 Main Street, 4"'Floor Huntington Beach, CA 92648 Subject: Proposed Ordinance No. 3687 Zoning for Axf'ordable Housing Dear Mayor Green: On behalf of the 11,000 members and affiliate members of the Orange County Association of RBAL.TORSt, T respectfully request Proposed Ordinance Number 3687 Zoning for Affordable Housing be held over until at least November 15, 2004, to allow enough time for our association and local members to properly consider the matter. Sincerely, Paula Cosenza President, Orange County Association of REALTORS9 Laguna Hilt OfRce_ 2WS2 u i Paz Road uaguna Hilic CA 02"3 940-SW.6600 1eK 949-$66.0082 urww,Ocdl.of6 muniingW Beach off/go: i3071 SWIG Avenue,Ste,240 ryuptington Dear=,GA 92647 717yg92 lax 77+0437b•9322 Coll www.acar.o*e TOTAL P.01 NOO-02-2004 03:44 P.!01 CITY OF HUN'FINGTO,4i BEAC[l, CA 1004 NOV - 1 P 3: 52 Bin November 1, 2004 Omnge ComilyChapter Building lndwitry As.wiatinn Mayor Cathy Green via,fax & US mail of outhern Culd omia City of Huntington Beach 1,77-U Sky Park Circle 2000 Main St. Suite 170 1 Irvine,California 92614 Huntington Beach, CA 92648 949-553.9500 fax 949,553.9507 SUBJECT: AFFORDABLE HOUSING ORDINANCE 3687,ZTA 04- littp://www.biao(,,,com 04, SUBDIVISION ORDINANCE SECTION 230, NOVEMBER 1, 2004 PRESIDENT RICHARD DOUGLAM Dear Mayor Green& Council members CENTER HOMES -. VICE PRESIDENT MITCHELL 6RADIFORE) On behalf of the Orange County Chapter of the Building Industry Association N:W WE3T HOME of Southern California(BIAJOC), we are writing to you regarding the 2NL)VICE PRESIDENI THOMAS G,CRASLE proposed Affordable Housing Ordinance on tonight's City Council agenda. WILLIAM LYON HOMES TREASURER/SECRETARY BIA/OC is a non-profit trade association representing more than 900 T;M,Mc:SUNAS companies employing 112,000 people affiliated with the home building PARDEE HOMES industry. The BIA/OC mission is to promote proactive participation in the IMMEDIATE PEST PRESIDENT JON ROBFRiSON development of economic and community issues in Orange County. The CALIFORNIA PACIFIC HOMES i BIA/OC is affiliated with the California BIA and the National Association of TRADE CONTRACTOR COUNCILVR Home Builders- ERIAN MAAG ORANGE COUNTY DRYWALL ASSOCIATE VICE PRESIDENT Following up on ouTletter to the City Council dated October 18, 2004, we are LAER PEA again requesting that the City delay adoption of the Affordable Housing LAER PEARCE AND ASSOCIATES Ordinance. We, along with other business groups,would like the City to MEMBER—AY—LARGE BILL wArr consider making changes to some of the substantive requirements of the BAYWOOD DEVELOPMENT Ordinance. MEMBER-Af,LARGE ANDY 9ZRNSTEIN JACKSON,DEMARCO With this letter, we have enclosed a copy of a study published by the Reason �PECKENPAUCH Foundation entitled "Do Affordable Housing Mandates Work? Evidence KRISTINE THALMAN from Los Angeles County and Orange County." The study is authored by Dr. CHIEF EXECUTIVE OFFICER Benjamin Powell and Dr. Adrian Moore of San Jose St. 'University, Some of the key findings are as follows: ■ Inclusionary zoning produces few units. Since inception(mid 1970's), LA and Orange County have combined to generate only 228 affordable units per year. AnAffjtj��.qlf_ihc '1\ A.,_,ncition of Hume F wilder 'jljd the. (,aliforrd�,j RtajU= lndllslrx_&,�socit LA-F,t CD9940VV1.CA_r1,9AJ NOU-02-2004 03:44 h.02 • Inclusionary zoning makes market-priced homes more expensive ■ Znclusionary zoning restricts the supply of new homes ■ Inclusionary zoning costs government revenue(due to lower assessed values) ■ Price controls do not address the cause of the affordability problem There is no demonstrated evidence that housing production in and of itself creates a need for affordable housing. The need is created by employment and general population growth. It is BIA's position that the free market should establish pricing of homes as it does for almost,a11 other consumer products. If a community makes a policy decision to mandate affordable housing, the entire community at large should share in the cast, not solely the project proponent or landowner. Looking to the future, voluntary programs that involve public/private partnerships and incentives are preferred. With regard to the proposed Huntington Beach Affordable Housing Ordinance, we would offer the following initial comments: ■ The Ordinance does not make specific mention of any incentives for the production of affordable housing other than the State Density Bonus Law_ Some examples of incentives could include: Reducing processing fees, fast track permitting, "by right zoning", master Eat preparation/clearance, flexible development standards(greater building height, FAR, reduced setbacks, parking relief). Economic incentives will often be necessary in conjunction with those listed above. BIA Orange County is currently exploring these issues and hopes to have specific recommendations;next year. ■ If the City adopts this Ordinance, the in-lieu fee option should be available to all projects, not just those with nine or fewer units. For ownership projects, efficiencies may dictate that a greater number of affordable units could be achieved at an off-site rental location through the use of in-lieu fees. ■ BIA requests an opportunity to review the methodology for calculating the in-lieu fee, in the event the City adopts the program. ■ Requiring payment of 10011/a of the in-lieu fee prior to the issuance of the first building permit does not allow for any flexibility. Phasing of larger projects may warrant partial payments consistent with progress_ ■ The 60 year term of affordability is excessive and should be justified. This term exceeds the State law requirement applicable to redevelopment areas. In addition, re-sale restrictions on ownership housing do not allow for owners to gain equity, We would encourage the City to consider programs that provide the owner with a graduated equity scale based on longevity in the home. The equity not dedicated to the purchaser could continue to be used by the City for other affordable housing purposes on or off-site- NOV-02-2004 03:44 P.03 Thank you for your consideration_ Sincerely, Michael E. Balsamo Director of Governmental Affairs Cc: City Council, City of Huntington Beach Kristine Thalman, CEO, BIA/OC BIA/OC Board of Directors BIA/OC Governmental Affairs Committee TOTaL P.03 J