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HomeMy WebLinkAboutApprove Zoning Text Amendment (ZTA) No. 19-004 by Approving Mwo VEb Frg AWPTION �s�TE>ZSUIV-i1JD� ��-��/7j City of Huntington Beach 11121121 APYW-avt-D FW 4020 81/c7)M �PE7Z>zsDn/-No) File #: 21-720 MEETING DATE: 10/5/2021 REQUEST FOR CITY COUNCIL ACTION SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Oliver Chi, City Manager PREPARED BY: Ursula Luna-Reynosa, Director of Community Development Subject: Approve Zoning Text Amendment (ZTA) No. 19-004 by adopting Ordinance No. 4235 amending Section 230.26 (Affordable Housing) of the Zoning and Subdivision Ordinance - Vote: 6-1 (Peterson - No) Statement of Issue: Ordinance No. 4235 approved for introduction on September 21, 2021 , requires adoption. Financial Impact: Not applicable. Recommended Action: Adopt Ordinance No. 4235 "An Ordinance of the City Council of the City of Huntington Beach Amending Section 230.26 of the Huntington Beach Zoning and Subdivision Ordinance Titled Affordable Housing" (Attachment No. 2). Alternative Action(s): The City Council may make the following alternative motions: 1 . Do not adopt Ordinance No. 4235. Analysis: A. PROJECT PROPOSAL: Applicant: City of Huntington Beach Zoning Text Amendment (ZTA) No. 19-004 is a request to amend Section 230.26 - Affordable Housing of the Huntington Beach Zoning and Subdivision Ordinance to update and expand the options for projects to meet affordable housing requirements and provide an updated in- lieu fee schedule and methodology to reflect current market conditions. A description of the proposed ZTA as well as a General Plan and Zoning conformance City of Huntington Beach Page ' of 7 Printed on 10 7,2021 File #: 21-720 MEETING DATE: 10/5/2021 analysis can be found in the August 24, 2021, Planning Commission staff report (Attachment No. 6). B. BACKGROUND: The existing Affordable Housing ordinance is codified as Section 230.26 - Affordable Housing within the Huntington Beach Zoning and Subdivision Ordinance. The City's Affordable Housing policies were established in the mid 1990's and codified in 2005. The current affordable housing ordinance requires new residential projects proposing three or more units to provide at least 10 percent of the total units as affordable to either moderate or lower income households. The existing ordinance provides several options for a project to meet the affordable housing obligation. A project may provide affordable units within the proposed project for onsite compliance. Further, the affordable units are permitted to be provided at an off-site location, and may be new construction or substantial rehabilitation of existing units. Preservation of at-risk units identified in the Housing Element may also satisfy the affordable housing obligation. All off-site inclusionary units must be constructed or rehabilitated prior to or concurrently with the primary project. The City has contracted with an economic consultant, Keyser-Marston Associates (KMA), to assist in technical analysis (Attachment No. 5) and proposes the following changes to the ordinance: • Updates and expands the options for projects to meet affordable housing requirements. • Revises the in-lieu fee payment option and fee calculation methodology for ownership and rental housing projects. Notably, the option to pay in-lieu fees is recommended to be expanded for ownership projects of any size and rental projects with up to 100 units. Currently, the in-lieu fee option is limited to projects consisting of 30 units or less. • Clarifies that rental projects must provide affordable units at the lower income level. • Overall minor clarifications and revisions, including adding a "Definitions" section. The City's inclusionary housing program is not mandated by the State. The program is a policy tool that the City has utilized since the 1990's to produce housing units affordable to all economic segments of the community. All residential development proposals must comply with the inclusionary housing requirements; however, approval of an updated ordinance itself does not propose or permit the construction of any new dwelling units. The KMA report recommends updating the existing in-lieu fee methodology. The current in- lieu fee is calculated on a per-unit basis. The KMA report recommends calculating the fee on a per square-foot of net saleable or leasable area. The City engaged with the development community and Building Industry Association early on and throughout the process of developing revisions to the in-lieu fee methodology. Staff recommends to cap the total in-lieu fee for ownership units over 2,000 square feet at the total fee for a 2,000 square foot unit. The draft revised affordable housing in-lieu fee methodology and calculations are provided in the KMA study (Attachment No. 5). City of Huntington Beach Page 2 of 7 Printed on 10/7/2021 powered by Legistar'• File #: 21-720 MEETING DATE: 10/5/2021 C. PLANNING COMMISSION MEETING AND RECOMMENDATION: On August 24, 2021, the Planning Commission held a public hearing on the ZTA. There was one public speaker at the public hearing and approximately 214 written comments were received. The comments discussed issues relating to local control, rezoning parcels, and rights of charter cities. Staff recommended approval of the ZTA because it is consistent with the general land uses, programs, goals, and policies of the General Plan. In addition, it addresses a community need to update the existing ordinance to implement Housing Element programs, facilitate the provision of housing opportunities for all economic segments of the community, and reflect current market conditions. Although the updated fee schedule in Resolution No. 2021-50 is not subject to the discretionary action or recommendations by the Planning Commission, information about the revised fee methodology and calculation was included for informational purposes. The Planning Commission discussed that the proposed updates would not change the zoning designation of any parcel, updates an existing program that has been codified for approximately 15 years, and no new development would be constructed as part of the proposed changes. The Planning Commission recommended approval of the request to the City Council with a modification to revise the term 'low-income" to "lower income" in Section 230.26(A)(1) for consistency with the definitions section. Planning Commission Action on August 24, 2021 : A motion was made by Scandura, seconded by Perkins, to find and determine that the project is exempt from the California Environmental Quality Act, recommend approval of ZTA No. 19- 004 with a modification to revise the term 'low-income" to 'lower income" in Section 230.26(A) (1) for consistency with the definitions section, and forward to the City Council for consideration carried by the following vote: AYES: Perkins, Scandura, Acosta-Galvan, Rodriguez NOES: Ray ABSTAIN: None ABSENT: Mandic MOTION PASSED D. STAFF ANALYSIS AND RECOMMENDATION: The proposed updates to Section 230.26 do not change the Zoning designation of any property or construct any housing units on any property. The following provides a review of the proposed amendments. 1. General Reorganization and Renumbering The existing ordinance requires the public to read through several sections to gather all the information needed. The proposed update reorganizes the ordinance into a few key sections: Definitions, Applicability, On-Site Options, Alternatives to On-Site Options, and Miscellaneous City of Huntington Beach Page 3 of 7 Printed on 10/7/2021 powered by Legistar'• File #: 21-720 MEETING DATE: 10/5/2021 Provisions. Notably, several requirements that were previously in the Miscellaneous Provisions section have been reorganized under each applicable section in order to increase readability for the public. For example, each option that permits a phasing plan to construct the market rate units and affordable units in phases is proposed to state this within its section. 2. Applicability The existing ordinance requires that a minimum of 10% of all new residential projects proposing three or more units shall be affordable housing units. There is no proposed change to the minimum percentage of affordable units, except for the following options: • Minimum 15% inclusionary requirement: Off-site production • Minimum 20% inclusionary requirement: Acquisition/rehabilitation projects and land dedication An applicant would only be required to provide more than 10% affordable units if they were to choose one of the above options to fulfill the inclusionary requirement. Projects located in Specific Plan areas will defer to the inclusionary requirements of each Specific Plan, if applicable. 3. On-Site Affordable Housing The existing ordinance includes provisions for fulfilling the inclusionary requirements on-site within a market rate project. The existing ordinance permits rental units to be made available to low-income or moderate-income households and ownership units to moderate-income households. The proposed amendments would require rental units to be made available to lower income households, which is inclusive of low, very low, and extremely low-income households. The revised ordinance proposes more specific provisions for the existing options to provide affordable units on-site, including the following items: Ownership Units • Affordable to moderate-income households • Bedroom mix shall be proportional to the bedroom mix of the market rate units • Affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units • Exterior and interior improvements, finishes, appliance packages, etc of the affordable units must be comparable to the base level market rate units Rental Units • Affordable to lower income households • Bedroom mix shall be proportional to the bedroom mix of the market rate units • Affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units • Interior improvements shall comply with the Low-Income Housing Tax Credit (LIHTC) minimum construction standards City of Huntington Beach Page 4 of 7 Printed on 10/7/2021 powered by Legistar1° File #: 21-720 MEETING DATE: 10/5/2021 The revised ordinance proposes to expand the on-site affordable housing option to permit construction of affordable rental units within a market rate ownership housing project. If a developer chooses this option, they may create a separate affordable housing parcel within the market rate project site for the affordable rental units. The developer may enter into an agreement with an Affordable Housing Developer to construct, own, and operate the affordable housing units. Several provisions for the affordable units are proposed, such as a minimum of 40% of the units shall include at least two bedrooms and the Affordable Housing Developer shall enter into an Affordable Housing Agreement with the City. 4. Alternatives to On-Site Affordable Housing The existing ordinance includes three alternative options to onsite production for fulfilling the inclusionary requirements. The existing ordinance permits offsite production of affordable units, acquisition and rehabilitation of existing units, and payment of in-lieu fees. The revised ordinance proposes specific provisions for each of these options and updates each option in response to market trends. A new option to dedicate land in-lieu of constructing affordable units is also proposed. OKsite Production of Affordable Units The existing ordinance permits offsite construction of affordable units. The proposed update expands this section to include the following provisions: • Minimum 15% inclusionary requirement • Minimum 40% of units shall include at least two bedrooms • Bedroom mix of affordable units shall be proportional to the bedroom mix of the market rate units that generated the inclusionary requirement • Affordable units can be a maximum of 20% smaller than the average size of the market rate units Acquisition and Rehabilitation of Existing Units The existing ordinance permits acquisition and rehabilitation of deed-restricted affordable units identified as at-risk of conversion to market rate units in the Housing Element. Units are typically identified as at-risk if affordability restriction periods are set to expire within the next five years. The proposed update expands this section to include the conversion of motels to rental units. It is also proposed for the inclusionary requirement to be set at 20% for developers choosing this option. Land Dedication The existing ordinance does not include a land dedication option to fulfill inclusionary housing requirements, although this option is available in the existing density bonus ordinance. The proposed land dedication option allows the City Council the discretion to approve a developer's proposal to dedicate property in-lieu of constructing affordable units. Several provisions are proposed regarding land dedication, including the following: • Minimum 20% inclusionary requirement • The property shall be located within the City of Huntington Beach • The developer shall convey the property to the City at no cost City of Huntington Beach Page S of 7 Printed on 1 0/712 0 2 1 powered by Legistar'• File #: 21-720 MEETING DATE: 10/5/2021 • The existing General Plan and zoning standards shall allow for a residential use at a density sufficient to allow for the required number of affordable units to be constructed • The site shall be suitable in terms of size, configuration, and physical characteristics to allow for the required number of affordable units to be developed on a cost efficient basis • The developer shall provide a title report, appraisal, Phase I Environmental Site Assessment (ESA), and conceptual site plan and narrative describing a potential affordable development project at the site In-Lieu Fee Payment The existing ordinance permits the affordable housing obligation to be satisfied through the payment of in-lieu fees for new residential construction projects up to 30 units. As such, the current ordinance also includes provisions for the methodology, collection, and use of the affordable housing in-lieu fees. The option to pay in-lieu fees is recommended to be expanded to include all ownership projects of any size and rental projects with up to 100 units. KMA recommends a revised in-lieu fee methodology to calculate fees on a per square foot basis instead of the existing per unit methodology. The proposed fee will be calculated on a per square-foot basis of net saleable of leasable area. Ownership units over 2,000 square feet are proposed to be capped at the total fee for a 2,000 square foot unit. The draft revised affordable housing in-lieu fee methodology and fee calculations are provided in Resolution No. 2021-50 (Attachment No.4). Background information regarding the proposed methodology is included in the KMA study (Attachment No. 5). In-lieu fees paid to fulfill inclusionary requirements are placed in the City's Affordable Housing Trust Fund (AHTF). There are no proposed changes to this section of the ordinance. The existing ordinance provides several provisions for using the AHTF monies, including the following: • Constructing residential projects with a minimum 50% of units affordable to very low and low-income households • Units constructed using AHTF monies must be affordable for a minimum of 55 years • City Council has discretion to use AHTF for other related costs such as gap financing, predevelopment costs, rehabilitation, and administrative costs 5. General Clarifications and Revisions The proposed updates to the ordinance include several clarifications and revisions. Definitions Section The existing affordable housing ordinance and proposed update include several technical terms that do not appear elsewhere in the HBZSO. The proposed definitions section is included in order to define existing and new terms in the ordinance. Reduced Fees for Affordable Housing The existing affordable housing ordinance includes section 230.26(G), which states that City of Huntington Beach Page 6 of 7 Printed on 1017/2021 powered by Legistar*" File #: 21-720 MEETING DATE: 10/5/2021 projects exceeding the minimum inclusionary requirement on site would be eligible for reduced city fees pursuant to adoption of an Affordable Housing Fee Reduction Ordinance by the City Council. This section was effectively completed through adoption of the Development Impact Fee (DIF) ordinances, which included fee exemptions for affordable housing units made available to lower income households. As such, this section is proposed to be deleted. Accessory Dwelling Units Recent state laws have expanded the option and ability of property owners to construct accessory dwelling units (ADU) on single-family or multi-family properties. The proposed update includes a provision which notes that construction of an ADU does not satisfy the inclusionary housing requirement nor do they generate an affordable housing obligation. ADUs are typically much smaller in size than the associated market rate units. It can also become burdensome to ensure that all affordable housing monitoring and compliance regulations are adhered to. For example, deed-restricting an ADU as an affordable unit when it is on the same property as a market rate single-family residence would require the single-family property owner to income qualify each tenant of the ADU. E. SUMMARY: Staff and the Planning Commission recommend approval of ZTA No. 19-004 based on the following: 1. It is consistent with general land uses, programs, goals, and policies of the General Plan, as described in the attached findings and Planning Commission staff report. 2. It addresses a community need to update the existing ordinance to implement Housing Element programs, to facilitate the provision of housing opportunities for all economic segments of the community, and reflect current market conditions. Environmental Status: ZTA No. 19-004 does not propose directly or indirectly development that would result in physical changes to the environment. As such, ZTA No. 19-004 would also be exempt pursuant to Section 15061(b)(3) of the CEQA Guidelines, which exempts activities where it can be seen with certainty that there is no possibility that the activity may have a significant effect on the environment. Strategic Plan Goal: Economic Development & Housing Attachment(§): 1. Suggested Findings of Approval ZTA No. 19-004 2. City Council Ordinance No. 4235 3. Legislative Draft for Ordinance 4235 4. Resolution No. 2021-50 5. Exhibit A to Resolution 2021-50 - Keyser Marston and Associates Report 6. August 24, 2021 Planning Commission Staff Report City of Huntington Beach Page 7 of 7 Printed on 101712021 powered by Legistar" ORDINANCE NO. 4235 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF I-IUNTINGTON BEACH AMENDING SECTION 230.26 OF "FHE HUNTINGTON BEACH ZONING AND SUBDIVISION ORDINANCE TITLED AFFORDABLE HOUSING (ZONING TEXT A.-MENDMENT NO. 19-004) NVFIERI:AS, the Huntington Beach Planning Commission and Huntington Beach City Council have held separate, duly noticed public hearings to consider Zoning Test Amendment No. 19-0004, which amends Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance related to an updated, and clarified, "inclusionary housing ordinance'. After clue consideration of the findings and recommendations of the Plaiming Commission and all other evidence presented, the City Council finds that the aforesaid amendment is proper and consistent with the General Plan; NONV, THEREFORE; the City Council of the City of Huntington Beach hereby ordains as follows: SECTION 1. Section 230.26 of the Huntington Beach Zoning Code is amended to read as follows: A. Purpose. I. The purpose of this chapter is to create an Inclusionary I-tousing Ordinance to enhance the public welfare and implement the goals, objectives and policies of the City's General Plan, including its Housing Element. It is intended to encourage the supply of extremely low, very low, lower, and moderate- income housing, on sites that are integrated, compatible with and complements adjacent uses. 2. This Inclusionary }-lousing Ordinance is a tool the City utilizes to meet its commitment to provide housing affordable to all economic sectors. B. Definitions. I . Affordable Housing Cost. The percentage of income that shall be utilized to determine the maximum housing related costs as calculated in accordance with California Health and Safety Code (H&SC) Section 50052.5 (standards for ownership units) and 1-I&SC Section 50053 (standards for rental units). 2. Affordable Housing Unit. A dwelling unit required by this Chapter to be affordable to Extremely Low, Very Low, Lower, or Moderate Income Households. Accessory 21-10164/263922 ORDINANCE NO. 4235 dwelling units (ADUs) do not satisfy the affordable housing obligation nor do they trigger the affordable housing obligation. J. Area Median Income. The midpoint of a County's gross income distribution adjusted for household size as determined by the California Housing and Community Development Department (I-ICD) annually. 4. Extremely Low-Income. Households whose incomes meet the standards defined by the I-ISSC Section 50106, or a successor statute. 5. Lower Income. Households whose incomes meet the standards defined by the H&SC Section 50079.5, or a successor statute. 6. Moderate-income. Households whose incomes meet the standards defined by the H&SC Section 50093, or a successor statute. 7. New Residential Project. Development that includes the creation of three or more new dwelling units, conversion of nonresidential uses to dwelling units, or the conversion of a use from a residential rental development to a residential ownership development. S. Ownership Units. Dwelling units constructed as part of a New Residential Project, or contained within a rehabilitation project, offered for individual unit sale, including, but not limited to, single-family detached or attached homes, condominiums, or cooperatives. 9. Phasing Plan. A detailed plan provided by a developer that outlines each segment or phase of construction including housing units and site improvements to be developed in a New Residential Project. 10. Very Low-Income. Households whose incomes meet the standards defined by the I-I&SC Section 50105, or a successor statute. C. Applicability. Unless otherwise specified in the Specific Plan, this Section shall apply to New Residential Projects of three or more units in size. i. Affordable Housing Obligations. All New Residential Projects must be restricted. as set for herein, to contain a minimum of 10% of Affordable Housing Units. In the event a fractional unit is established. the Affordable Housing Unit count shall be ORDNANCE NO. 4235 rounded up, unless paragraph (C)(2) of this section applies. For projects providing affordable units onsite, an equivalent in-lieu fee may be paid instead of rounding up. 2. Developers of residential projects may elect to fulfill the affordable housing obligations imposed by this Section by providing Affordable Housing Units at the New Residential Project site pursuant to subsection D below (onsite production) or through an applicable attemative compliance option as provided by subsection E below (alternatives to onsite production). 3. For purposes of determining the required number of Affordable Housing Units; only new units shall be counted. Construction of an accessory dwelling unit does not trigger the affordable housing obligation. 1). Options for Fulfilling Affordable Housing Obligations: On-Site Production I. Affordable Ownership Housing Units a. Pursuant to section 230.26(F), New Residential Project Owners or Developers shall place an affordability covenant on Ownership Units that is set at the Moderate-Income Household affordability level. b. The Affordable Mousing Units shalt be built concurrently with the market rate units as provided with an approved Phasing Plan. c. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. All exterior and interior improvements, finishes, appliance packages, etc., for the affordable units shall be comparable to the base level market rate units. 2. Affordable Rental Housing Units within an Ownership Housing Project a. The affordability covenant placed on Rental Units is set at the Low-Income level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income level- b. A Market Rate Developer may create a separate affordable housing parcel within the New Residential Development site and enter into an agreement with an Affordable Housing Developer to construct, own, and operate the affordable 3 ORDINANCE NO. 4235 housing units. The Affordable Housing Developer is required to enter into an Affordable Housing Agreement with the City, subject to the following: i. The Affordable Housing Developer shall have recent relevant experience and be approved by the Community Development Director or their designee. ii. The Affordable Housing Developer and/or Market Rate Developer may not request any financial assistance from the City. c. The bedroom mix is not required to match the unit mix provided in the market rate ownership housing project. At least 40% of the affordable units shall include at least two bedrooms. d. The affordable units shall be built concurrently with the market rate project. The Affordable Housing Units may be constructed in phases if the market rate project is developed in phases, with an approved Phasing Plan. 3. Affordable Rental Housing Units a. Pursuant to section 230.26(P), New Residential Project owners or developers shall place an affordability covenant on Rental Units at the Low-Income Household affordability level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income Household affordability level. b. The affordable units shall be built concurrently with the market rate project. The Affordable Housing Units may be constructed in phases if the market rate project is developed in phases, with an approved Phasing Plan. c. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. The minimum construction standards for interior improvements of the affordable units shall be the same as those imposed by the Low Income Housing Tax Credit (LIHTC). 4 ORDINANCE NO. 4235 E. Options for 1,ulfillin„ Affordable Housing Obligations: Alternatives to On-Site Production 1. Off-Site Production of Affordable Housing Units a. Except as may be required by the California Coastal Act or Government Code Section 65590 or a successor statute, developers may provide the required-Affordable housing Units off-site, at one or several sites, within the City of Huntington Beach. b. Pursuant to Section 230.26(F), New Residential Project owners or developers shall place an affordability covenant on the off-site units that is set at 15% of the total number of units included in the New Residential Project that generated the affordable housing obligation. The affordability covenant placed on the off-site Affordable Housing Units shall be at the Low-Income Household affordability level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income Household affordability level. The affordability covenant shall specify the off-site Affordable Housing Units shall be rental units. c. "fhe provision of the off-site Affordable Housing Units shall not create an over concentration of Affordable Housing Unites in any specific area. d. The design, building quality, and maintenance standards shall be the requirements imposed by the LIi-ITC minimum construction standards. e. The bedroom mix for the affordable units is not required to match the mix provided in the market rate project that is subject to the affordable housing obligations. At minimum, 40% of the affordable units shall include at least two bedrooms. f. Pursuant to Section 230.26(F), a market rate developer may enter into an agreement with an affordable housing developer to construct, own and operate the off site affordable housing project. The affordable housing developer is required to enter into an Affordable Housing Agreement with the City, subject to the following: 5 ORDINANCE NO. 4235 i. The Affordable Housing Developer shall have recent relevant experience and be approved by the Community Development Director or their designee. ii. The Affordable Housing Developer and/or Market Rate Developer may not request any financial assistance from the City. iii. All off-site affordable units shall be constructed prior to or concurrently with the market rate project that generated the affordable housing obligation. If the market rate project is developed in phases, with an approved Phasing Plan; the affordable units may be developed along with the first phase of the market rate 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. 2. Existing Units Acquisition and Rehabilitation Projects The City Council has the discretion, but not the requirement, to approve a developer's request to acquire, rehabilitate, and place affordability covenants on existing off-site units. The request shall meet either of the following threshold requirements in order to fulfill a project's affordable housing obligation: a. The project(s) shall be identified as at-risk in the City's Housing Element; or b. The project is a motel that can be adaptively reused as residential units. Additional requirements for acquisition and rehabilitation projects: a. The developer or owner shall place an affordable housing covenant on the Affordable Housing Units that are equal to at least 20% of the units in the New Residential Project that trigged the affordable housing obligation. b. The rents charged for the rehabilitated units shall be set at the lesser of the H&SC 50053 rents or at least 10% discount from the achievable market rents for the units, subject to annual monitoring and reporting. 6 ORDINANCE NO. 4235 c. If there are more units in the acquisition and rehabilitation project than are required to fulfill the affordable housing requirement, those units may be rented at market rate. 3. Land Dedication. The City Council has the discretion, but not the requirement, to allow a developer to dedicate property in lieu of constructing Affordable Housing Units. The following requirements are applicable to any property proposed to be dedicated: a. The property shall be located within the City of Huntington Beach. b. The developer shall convey the property to the City at no cost. c. The property proposed to be dedicated shall yield a minimum of 20% of the total units constructed within the market rate project: i. The site's existing General Plan and zoning standards shall allow for a residential use at a density sufficient to allow for the requisite number of affordable units to be developed without a density bonus request. ii. The site shall be suitable in terms of size, configuration, and physical characteristics to allow for the requisite number of affordable units to be developed on a cost efficient basis. iii. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. The developer shall provide evidence of the following when the land dedication proposal is submitted: i. A title report showing the developer/owner has lien-free, fee simple title. Any encumbrances or easements that adversely impact the property's title shall be disclosed and will be factored into the estimated value of the interests proposed to be conveyed to the City. ii. An appraisal dated within 30 days of the application by a Member Appraisal Institute (MAI) appraiser. 7 ORDINANCE NO. 4235 iii. A Phase I Environmental Site Assessment and a Phase 11 Environmental Site Assessment if the Phase I report indicates that hazardous materials were potentially previously used on the site. iv. The property shall not contain any hazardous materials at the time the land dedication proposal is submitted. If hazardous materials were previously remediated, a site closure letter from the appropriate regulatory agency showing evidence that the site was remediated to residential standards is required. e. The property shall not have been improved with any residential use for at least five years prior to the submission of a land dedication proposal. f. Payment in full of all taxes and/or assessments shall have been made when the proposal is submitted; and again prior to conveyance of the property to the City. g. The construction of affordable units on the property shall not create an over concentration of low income housing in any specific area. It. The property shall be fully served by the necessary infrastructure prior to conveyance to the City. i. To assist the City in evaluating land dedication proposals, the developer shall submit a conceptual site plan and narrative description of a project that could be developed on the property. 4. Pee Payment in Lieu of Construction a. Developers of the following New Residential Project types may pay an in-lieu fee to fulfill Affordable Housing Obligations: i. Ownership residential projects proposing any number of units. ii. Rental residential projects proposing 100 units or fewer. b. The amount of the in-lieu fees shall be calculated using the fee schedule established by Resolution of the City Council. c. A project may be permitted to pay in-lieu fees if it does not meet the eligibility standards of this section if the City Council determines, at its discretion, that tine requirement to provide affordable housing units would impose an extreme hardship on the developer. 3 ORDINANCE NO. 4235 d. One hundred percent of the fees required by this section shall be paid prior to issuance of a building permit. However; for phased projects the developer may pay a pro rata share of the in-lieu fee concurrently with the issuance of building permits for each development phase; as approved by a Phasing Plan. e. 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 F of this section. f. Fees paid as a result of new residential projects shall be based upon the total number of the new residential units which are to be constructed prior to the grant of any density bonus. F. D7iscellancous Provisions. I. An Affordable Housing Agreement placing a covenant that runs with the land and outlining all aspects of the Affordable Housing Obligations, including but not limited to the affordability term for the restricted units, shall be executed between the applicant and the City and recorded with the Orange County Recorder's Office. 2. The Affordable Housing Agreement shall specify an affordability term of not less than 55 years for rental units or 45 Years for ownership units. 3. in general, the Affordable Housing Trust Funds shall be used for projects which have a minimum of 50% of the dwelling units affordable to very low- and low-income households, with at least 20% of the units available to very low-income households. Concurrent with establishing the annual fee schedule pursuant to subsection C•' of this section, the City Council shall by resolution set forth additional permitted uses of Affordable Housing Trust Funds. To obtain Affordable Housing Trust Funds, the recipient shall enter into an affordable housing agreement as set forth above, and shall maintain the affordability of the units for a minimum of 55 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. 4. New affordable units shall be occupied in the following manner: 9 ORDINANCE NO. 4235 a. Any existing residents shall be allowed to occupy their units until six months before the start of construction activities with proper notice. b. The developer shall provide relocation benefits to the occupants of the affordable units that are displaced. c. 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 a comparable unit available in the new housing development affordable to the household at an affordable rent (e.g. Extremely-Low Income, Very-Low Income, Low-Income, Moderate Income, Market Rate). d. 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. G. Annual Program Review and Periodic Adjustment of the Fee. Within 180 days after the last day of each fiscal year, the City Council shall review the status of the City's Affordable 1-lousing Trust Fund, including the amount of fees collected, expenditures from the Affordable Housing Trust Fund, and the degree to which the fees collected pursuant to this chapter are assisting the City to provide and encourage low- and moderate-income housing. The fee shall be updated annually using the Real Estate and Construction Report published by the Real Estate Research Council of Southern California. The fee change shall be based on the percentage difference in the ncxv home prices in Orange County published in the fourth quarter report for the then current year versus the immediately preceding year. 10 ORDINANCE NO. 4235 PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the , day of �GfDbe+� ; 2021. Mayor ATTEST: APPROVZ- City Clerk City Attorney '�A,I 7 R IF UED r\ND 'ROVED: INITIATED AND APPROVED: M City Manager Director of Community Development ll Ord. No. 4235 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss: CITY OF HUNTINGTON BEACH ) 1, ROBIN Es'fANISLAU, the duly elected, 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 September 21, 2021, and was again read to said City Council at a Regular meeting thereof held on October 5, 202 L and was passed and adopted by the affirmative vote of at least a majority of all the members of said City Council. AYES: Bolton, Delgleize, Carr, Moser, Kalmick NOES: Peterson ABSENT: Posey ABSTAIN: None I,Robin Estanislau,CITY CLERK of the City of Huntington Beach and ex-o(Lcio Clerk of the City Council,do hereby certify that a synopsis of this ordinance has been published in /) the Huntington beach Wave on October 14,2021. In accordance with the City Charter of said City. r Robin Estanislau, City Clerk City Clerk and ex-officio Clerk Deputy City Clerk of the City Council of the City of Huntington Beach, California ;J , . APPRU✓Eli F6- / (PET�oN -Ne) City of Huntington Beach ASIMHENWD131 sc File #: 21-615 MEETING DATE: 9/21/2021 REQUEST FOR CITY COUNCIL ACTION SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Oliver Chi, City Manager PREPARED BY: Ursula Luna-Reynosa, Director of Community Development Subject: Approve Zoning Text Amendment (ZTA) No. 19-004 by approving for introduction Ordinance No. 4235 amending Section 230.26 (Affordable Housing) of the Zoning and Subdivision Ordinance and adopt Resolution No. 2021-50 updating the affordable housing in-lieu fee schedule and methodology Statement of Issue: Transmitted for your consideration is Zoning Text Amendment No. 19-004. a City-initiated request to amend Section 230.26 (Affordable Housing) of the HBZSO to provide updated and additional options for projects to meet affordable housing requirements and revise the in-lieu fee payment option and fee calculation methodology for ownership and rental housing projects. Notably, the option to pay in- lieu fees is recommended to be expanded for ownership projects of any size and rental projects with up to 100 units. Currently, the in-lieu fee option is limited to projects consisting of 30 units or less. The Planning Commission and staff recommend approval of the request. Financial Impact: Not applicable. Recommended Action: PLANNING COMMISSION AND STAFF RECOMMENDATION: A) Find that Zoning Text Amendment (ZTA) No. 19-004 is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) (General Rule) of the CEQA Guidelines because there is no potential for the project to have a significant effect on the environment (Attachment No. 1 ). and. B) Approve ZTA No. 19-004 and approve for introduction Ordinance No. 4235 "An Ordinance of the City Council of the City of Huntington Beach Amending Section 230.26 of the Huntington Beach Zoning and Subdivision Ordinance Titled Affordable Housing" (Attachment No. 2). and. C) Adopt Resolution No. 2021-50, "A Resolution of the City Council of the City of Huntington Beach Adopting an Affordable Housing In-Lieu Fee Pursuant to Ordinance No. 4235, and Repealing City of Huntington Beach Page 1 of 8 Pnrteo on 9r 15:2021 2G5 File #: 21-615 MEETING DATE: 9/21/2021 Resolution Nos. 2007-71, 2008-43, and All Supplemental Resolutions Thereto." (Attachment No. 4). Alternative Action(s): The City Council may make the following alternative motions: 1. Do not approve Zoning Text Amendment No. 19-004 and Resolution No. 2021-50. 2. Continue Zoning Text Amendment No. 19-004 and Resolution No. 2021-50 and direct staff accordingly. Analysis: A. PROJECT PROPOSAL: Applicant: City of Huntington Beach Zoning Text Amendment_(ZTA) No. 19-004 is a request to amend Section 230.26 - Affordable Housing of the Huntington Beach Zoning and Subdivision Ordinance to update and expand the options for projects to meet affordable housing requirements and provide an updated in- lieu fee schedule and methodology to reflect current market conditions. A description of the proposed ZTA as well as a General Plan and Zoning conformance analysis can be found in the August 24, 2021, Planning Commission staff report (Attachment No. 6). B. BACKGROUND: The existing Affordable Housing ordinance is codified as Section 230.26 - Affordable Housing within the Huntington Beach Zoning and Subdivision Ordinance. The City's Affordable Housing policies were established in the mid 1990's and codified in 2005. The current affordable housing ordinance requires new residential projects proposing three or more units to provide at least 10 percent of the total units as affordable to either moderate or lower income households. The existing ordinance provides several options for a project to meet the affordable housing obligation. A project may provide affordable units within the proposed project for onsite compliance. Further, the affordable units are permitted to be provided at an off-site location, and may be new construction or substantial rehabilitation of existing units. Preservation of at-risk units identified in the Housing Element may also satisfy the affordable housing obligation. All off-site inclusionary units must be constructed or rehabilitated prior to or concurrently with the primary project. The City has contracted with an economic consultant, Keyser-Marston Associates (KMA), to assist in technical analysis (Attachment No. 5) and proposes the following changes to the ordinance: • Updates and expands the options for projects to meet affordable housing requirements. • Revises the in-lieu fee payment option and fee calculation methodology for ownership and rental housing projects. Notably, the option to pay in-lieu fees is recommended to City of Huntington Beach Page 2 of 8 Printed on 9/15/2021 p0\ver(M Legistar°V File #: 21-615 MEETING DATE: 9/21/2021 be expanded for ownership projects of any size and rental projects with up to 100 units. Currently, the in-lieu fee option is limited to projects consisting of 30 units or less. • Clarifies that rental projects must provide affordable units at the lower income level. • Overall minor clarifications and revisions, including adding a "Definitions" section. The City's inclusionary housing program is not mandated by the State. The program is a policy tool that the City has utilized since the 1990's to produce housing units affordable to all economic segments of the community. All residential development proposals must comply with the inclusionary housing requirements; however, approval of an updated ordinance itself does not propose or permit the construction of any new dwelling units. The KMA report recommends updating the existing in-lieu fee methodology. The current in- lieu fee is calculated on a per-unit basis. The KMA report recommends calculating the fee on a per square-foot of net saleable or leasable area. The City engaged with the development community and Building Industry Association early on and throughout the process of developing revisions to the in-lieu fee methodology. Staff recommends to cap the total in-lieu fee for ownership units over 2,000 square feet at the total fee for a 2,000 square foot unit. The draft revised affordable housing in-lieu fee methodology and calculations are provided in the KMA study (Attachment No. 5). C. PLANNING COMMISSION MEETING AND RECOMMENDATION: On August 24, 2021, the Planning Commission held a public hearing on the ZTA. There was one public speaker at the public hearing and approximately 214 written comments were received. The comments discussed issues relating to local control, rezoning parcels, and rights of charter cities. Staff recommended approval of the ZTA because it is consistent with the general land uses, programs, goals, and policies of the General Plan. In addition, it addresses a community need to update the existing ordinance to implement Housing Element programs, facilitate the provision of housing opportunities for all economic segments of the community, and reflect current market conditions. Although the updated fee schedule in Resolution No. 2021-50 is not subject to the discretionary action or recommendations by the Planning Commission, information about the revised fee methodology and calculation was included for informational purposes. The Planning Commission discussed that the proposed updates would not change the zoning designation of any parcel, updates an existing program that has been codified for approximately 15 years, and no new development would be constructed as part of the proposed changes. The Planning Commission recommended approval of the request to the City Council with a modification to revise the term "low-income" to "lower income" in Section 230.26(A)(1) for consistency with the definitions section. Planning Commission Action on August 24 2021: A motion was made by Scandura, seconded by Perkins, to find and determine that the project is exempt from the California Environmental Quality Act, recommend approval of ZTA No. 19- City of Huntington Beach Page 3 of 8 Printed on 9/1 512 0 2 1 oowerE2T11 Legistar,w File #: 21-615 MEETING DATE: 9/21/2021 004 with a modification to revise the term 'low-income" to "lower income" in Section 230.26(A) (1) for consistency with the definitions section, and forward to the City Council for consideration carried by the following vote: AYES: Perkins, Scandura, Acosta-Galvan, Rodriguez NOES: Ray ABSTAIN: None ABSENT: Mandic MOTION PASSED D. STAFF ANALYSIS AND RECOMMENDATION: The proposed updates to Section 230.26 do not change the Zoning designation of any property or construct any housing units on any property. The following provides a review of the proposed amendments. 1. General Reorganization and Renumbering The existing ordinance requires the public to read through several sections to gather all the information needed. The proposed update reorganizes the ordinance into a few key sections: Definitions, Applicability, On-Site Options, Alternatives to On-Site Options, and Miscellaneous Provisions. Notably, several requirements that were previously in the Miscellaneous Provisions section have been reorganized under each applicable section in order to increase readability for the public. For example, each option that permits a phasing plan to construct the market rate units and affordable units in phases is proposed to state this within its section. 2. Applicability The existing ordinance requires that a minimum of 10% of all new residential projects proposing three or more units shall be affordable housing units. There is no proposed change to the minimum percentage of affordable units, except for the following options: • Minimum 15% inclusionary requirement: Off-site production • Minimum 20% inclusionary requirement: Acquisition/rehabilitation projects and land dedication An applicant would only be required to provide more than 10% affordable units if they were to choose one of the above options to fulfill the inclusionary requirement. Projects located in Specific Plan areas will defer to the inclusionary requirements of each Specific Plan, if applicable. 3. On-Site Affordable Housing The existing ordinance includes provisions for fulfilling the inclusionary requirements on-site within a market rate project. The existing ordinance permits rental units to be made available to low-income or moderate-income households and ownership units to moderate-income households. The proposed amendments would require rental units to be made available to lower income households, which is inclusive of low, very low, and extremely low-income households. City of Huntington Beach Page 4 of B Printed on 911512021 powereVig Legis;a," File #: 21-615 MEETING DATE: 9/21/2021 The revised ordinance proposes more specific provisions for the existing options to provide affordable units on-site, including the following items: Ownership Units • Affordable to moderate-income households • Bedroom mix shall be proportional to the bedroom mix of the market rate units • Affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units • Exterior and interior improvements, finishes, appliance packages, etc of the affordable units must be comparable to the base level market rate units Rental Units • Affordable to lower income households • Bedroom mix shall be proportional to the bedroom mix of the market rate units • Affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units • Interior improvements shall comply with the Low-Income Housing Tax Credit (LIHTC) minimum construction standards The revised ordinance proposes to expand the on-site affordable housing option to permit construction of affordable rental units within a market rate ownership housing project. If a developer chooses this option, they may create a separate affordable housing parcel within the market rate project site for the affordable rental units. The developer may enter into an agreement with an Affordable Housing Developer to construct, own, and operate the affordable housing units. Several provisions for the affordable units are proposed, such as a minimum of 40% of the units shall include at least two bedrooms and the Affordable Housing Developer shall enter into an Affordable Housing Agreement with the City. 4. Alternatives to On-Site Affordable Housing The existing ordinance includes three alternative options to onsite production for fulfilling the inclusionary requirements. The existing ordinance permits offsite production of affordable units, acquisition and rehabilitation of existing units, and payment of in-lieu fees. The revised ordinance proposes specific provisions for each of these options and updates each option in response to market trends. A new option to dedicate land in-lieu of constructing affordable units is also proposed. Offsite Production of Affordable Units The existing ordinance permits offsite construction of affordable units. The proposed update expands this section to include the following provisions: • Minimum 15% inclusionary requirement • Minimum 40% of units shall include at least two bedrooms • Bedroom mix of affordable units shall be proportional to the bedroom mix of the market rate units that generated the inclusionary requirement City of Huntington Beach Page 5 of 8 Printed on 9/152021 oowercN3 Leg,star" File #: 21-615 MEETING DATE: 9/21/2021 • Affordable units can be a maximum of 20% smaller than the average size of the market rate units Acquisition and Rehabilitation of Existing Units The existing ordinance permits acquisition and rehabilitation of deed-restricted affordable units identified as at-risk of conversion to market rate units in the Housing Element. Units are typically identified as at-risk if affordability restriction periods are set to expire within the next five years. The proposed update expands this section to include the conversion of motels to rental units. It is also proposed for the inclusionary requirement to be set at 20% for developers choosing this option. Land Dedication The existing ordinance does not include a land dedication option to fulfill inclusionary housing requirements, although this option is available in the existing density bonus ordinance. The proposed land dedication option allows the City Council the discretion to approve a developer's proposal to dedicate property in-lieu of constructing affordable units. Several provisions are proposed regarding land dedication, including the following: • Minimum 20% inclusionary requirement • The property shall be located within the City of Huntington Beach • The developer shall convey the property to the City at no cost • The existing General Plan and zoning standards shall allow for a residential use at a density sufficient to allow for the required number of affordable units to be constructed • The site shall be suitable in terms of size, configuration, and physical characteristics to allow for the required number of affordable units to be developed on a cost efficient basis • The developer shall provide a title report, appraisal, Phase I Environmental Site Assessment (ESA), and conceptual site plan and narrative describing a potential affordable development project at the site In-Lieu Fee Payment The existing ordinance permits the affordable housing obligation to be satisfied through the payment of in-lieu fees for new residential construction projects up to 30 units. As such, the current ordinance also includes provisions for the methodology, collection, and use of the affordable housing in-lieu fees. The option to pay in-lieu fees is recommended to be expanded to include all ownership projects of any size and rental projects with up to 100 units. KMA recommends a revised in-lieu fee methodology to calculate fees on a per square foot basis instead of the existing per unit methodology. The proposed fee will be calculated on a per square-foot basis of net saleable of leasable area. Ownership units over 2,000 square feet are proposed to be capped at the total fee for a 2,000 square foot unit. The draft revised affordable housing in-lieu fee methodology and fee calculations are provided in Resolution No. 2021-50 (Attachment No.4). Background information regarding the proposed methodology is included in the KMA study (Attachment No. 5). In-lieu fees paid to fulfill inclusionary requirements are placed in the City's Affordable Housing City of Huntington Beach Page 6 of 8 Printed on 911 51`2 0 2 1 pmer(27Q Legistar'- File #: 21-615 MEETING DATE: 9/21/2021 Trust Fund (AHTF). There are no proposed changes to this section of the ordinance. The existing ordinance provides several provisions for using the AHTF monies, including the following: • Constructing residential projects with a minimum 50% of units affordable to very low and low-income households • Units constructed using AHTF monies must be affordable for a minimum of 55 years • City Council has discretion to use AHTF for other related costs such as gap financing, predevelopment costs, rehabilitation, and administrative costs 5. General Clarifications and Revisions The proposed updates to the ordinance include several clarifications and revisions. Definitions Section The existing affordable housing ordinance and proposed update include several technical terms that do not appear elsewhere in the HBZSO. The proposed definitions section is included in order to define existing and new terms in the ordinance. Reduced Fees for Affordable Housing The existing affordable housing ordinance includes section 230.26(G), which states that projects exceeding the minimum inclusionary requirement on site would be eligible for reduced city fees pursuant to adoption of an Affordable Housing Fee Reduction Ordinance by the City Council. This section was effectively completed through adoption of the Development Impact Fee (DIF) ordinances, which included fee exemptions for affordable housing units made available to lower income households. As such, this section is proposed to be deleted. Accessory Dwelling Units Recent state laws have expanded the option and ability of property owners to construct accessory dwelling units (ADU) on single-family or multi-family properties. The proposed update includes a provision which notes that construction of an ADU does not satisfy the inclusionary housing requirement nor do they generate an affordable housing obligation. ADUs are typically much smaller in size than the associated market rate units. It can also become burdensome to ensure that all affordable housing monitoring and compliance regulations are adhered to. For example, deed-restricting an ADU as an affordable unit when it is on the same property as a market rate single-family residence would require the single-family property owner to income qualify each tenant of the ADU. E. SUMMARY: Staff and the Planning Commission recommend approval of ZTA No. 19-004 based on the following: 1 . It is consistent with general land uses, programs, goals, and policies of the General Plan, as described in the attached findings and Planning Commission staff report. 2. It addresses a community need to update the existing ordinance to implement Housing Element programs, to facilitate the provision of housing opportunities for all economic segments of the community, and reflect current market conditions. City of Huntington Beach Page 7 of 8 Printed on 9/15/2021 cowere2T5 legistar'^ File #: 21-615 MEETING DATE: 9/21/2021 Environmental Status: ZTA No. 19-004 does not propose directly or indirectly development that would result in physical changes to the environment. As such, ZTA No. 19-004 would also be exempt pursuant to Section 15061(b)(3) of the CEQA Guidelines, which exempts activities where it can be seen with certainty that there is no possibility that the activity may have a significant effect on the environment. Strategic Plan Goal: Economic Development & Housing Attachment(§): 1 . Suggested Findings of Approval ZTA No. 19-004 2. Draft City Council Ordinance No. 4235 3. Legislative Draft for Ordinance 4235 4. Draft Resolution No. 2021-50 5. Exhibit A to Resolution 2021-50 - Keyser Marston and Associates Report 6. August 24, 2021 Planning Commission Staff Report City of Huntington Beach Page 8 of 8 Printed on 9/15/2021 power[27.G Lemsiar" City Council/ ACTION AGENDA September 21, 2021 Public Financing Authority Recommended Action: Adopt Ordinance No 4222 An Ordinance of the City of Huntington Beach Amending Chapter 8 40 of the Huntington Beach Municipal Code Relating to Noise Control" Approved 7-0 PUBLIC HEARING 16. 21-615 Approved Zoning Text Amendment (ZTA) No. 19-004 by aPproving for introduction Ordinance No. 4235 amending Section 230.26 (Affordable Housing) of the Zoning and Subdivision Ordinance: and, adopted Resolution No. 2021-50 updating the affordable housing in-lieu fee schedule and methodology Recommended Action: PLANNING COMMISSION AND STAFF RECOMMENDATION A) Find that Zoning Text Amendment (ZTA) No 19-004 is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) (General Rule) of the CEQA Guidelines because there is no potential for the project to have a significant effect on the environment (Attachment No 1), and, B) Approve ZTA No 19-004 and approve for introduction Ordinance No 4235 An Ordinance of the City Council of the City of Huntington Beach Amending Section 230 26 of the Huntington Beach Zoning and Subdivision Ordinance Titled Affordable Housing" (Attachment No 2), and. C) Adopt Resolution No 2021-50, "A Resolution of the City Council of the City of Huntington Beach Adopting an Affordable Housing In-Lieu Fee Pursuant to Ordinance No 4235. and Repealing Resolution Nos 2007-71. 2008-43, and All Supplemental Resolutions Thereto." (Attachment No 4) Supplemental Communications (2) Public Speakers - None Approved 6-1 (Peterson-No) as amended by SC(Revised Ordinance No. 4235) 17. 21-674 Approved Fiscal Year 2020-2021 Consolidated Annual Performance S Evaluation Report (CAPER) Recommended Action: A) Conduct the Public Hearing to hear comments and approve the FY 2020-2021 Consolidated Annual Performance and Evaluation Report (CAPER) for Community Development Block Grant (CDBG) CARES Act CDBG Coronavirus (CDBG-CV) and HOME Investment Partnerships Act (HOME) Federal funds. and. B) Authorize the City Manager to transmit this report to the United States Department of Housing and Urban Development (HUD) by September 28. 2021 ATTACHMENT NO. 1 SUGGESTED FINDINGS OF APPROVAL ZONING TEXT AMENDMENT NO. 19-004 FINDINGS FOR PROJECTS EXEMPT FROM CEQA: ZTA No. 19-004 does not propose directly or indirectly development that would result in physical changes to the environment. As such, ZTA No. 19-004 would also be exempt pursuant to Section 15061(b)(3) of the CEQA Guidelines, which exempts activities where it can be seen with certainty that there is no possibility that the activity may have a significant effect on the environment. FINDINGS FOR APPROVAL - ZONING TEXT AMENDMENT NO. 19-004: 1. Zoning Text Amendment (ZTA) No. 19-004 to amend Section 230.26 (Affordable Housing) of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) is consistent with the objectives, policies, general land uses and programs specified in the General Plan including: Land Use Element Goal LU-4: A range of housing types is available to meet the diverse economic, physical, and social needs of future and existing residents, while neighborhood character and residences are well maintained and protected. Policy LU-4 (A): Encourage a mix of residential types to accommodate people with diverse housing needs. Housing Element Goal 3: Enhance housing affordability so that modest income households can remain an integral part of the Huntington Beach community. Policy 3.1: Housing Diversity. Encourage the production of housing that meets all economic segments of the community, including lower, moderate, and upper income households, to maintain a balanced community. Program 10: Inclusionary Housing Program and Housing Trust Fund Objective. Continue to utilize the Inclusionary Housing Ordinance as a tool to integrate affordable housing within Attachmer111 0. 1.1 market rate developments, or alternatively, to generate fees in support of affordable housing in off-site locations. Establish an in-lieu fee amount for projects with between 10-30 units. Re-evaluate the Ordinance consistent with case law and to reflect market conditions and adopt an amendment to the Ordinance in the first half of 2020. Since the City has already addressed its moderate income RHNA allocation, the City will implement a City-wide policy to require at least half of on-site inclusionary units to be provided at levels affordable to lower income households. The proposed ZTA ensures that affordable units constructed on-site in market rate rental housing projects would be provided for lower income households. In addition, the proposed ZTA would allow all ownership housing projects to pay an in-lieu fee to satisfy the affordable housing requirement. If affordable units are provided within a market rate ownership housing project, the affordability level is set at moderate income. If in-lieu fees are paid by the developer of a market rate ownership housing project, those fees would be utilized for affordable housing projects that would provide deeper levels of affordability at low, very low and extremely low income levels. The proposed ZTA would therefore facilitate production of housing that meets all economic segments of the community consistent with General Plan Housing Element goal and policies. In addition, providing more options for developers to comply with affordable housing requirements furthers General Plan Land Use Element policies to encourage a mix of residential housing types and accommodate the diverse housing needs of the community. 2. Zoning Text Amendment No. 19-004 is compatible with the uses authorized in, and the standards prescribed for, the zoning district for which it is proposed because it does not propose any new land uses or revise development standards. The requirements provided in the Affordable Housing Ordinance are applicable to all residential projects of three or more units in any zoning district. The proposed amendments maintain this requirement and do not change land use controls or development standards for any zoning district. 3. A community need is demonstrated for the changes proposed because the proposed amendments will continue to facilitate the provision of affordable housing for all economic segments of the City. Additionally, the proposed amendments will further the production of affordable housing for lower income households through updated requirements for on-site affordable rental units and allowances for the payment of in-lieu fees. 4. Its adoption will be in conformity with public convenience, general welfare and good zoning practice because ZTA No. 19-004 ensures the code is clear, current, consistently adapting to market trends, and reflective of the City's ongoing effort to enhance housing affordability to modest income households. Attachme 17Ao. 1.2 ORDINANCE NO. 4235 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF HUiNTINGTON BEACH AiMENDING SECTION 230.26 OF THE HUNTINGrON BEACH ZONING AND SUBDIVISION ORDINANCE TrrLED AFFORDABLE HOUSING (ZONING TEXT ANIENDIMENT NO. 19-004) WHEREAS, the Huntington Beach Planning Commission and Huntington Beach City Council have held separate, duty noticed public hearings to consider Zoning Test Amendment No. 19-0004, which amends Chapter 230 of the Huntington Beach Zoning and Subdivision Ordinance related to an updated, and clarified, "inclusionary housing ordinance". After due consideration of the findings and recommendations of the Planning Commission and all other evidence presented, the City Council finds that the aforesaid amendment is proper and consistent with the General Plan; NOW, THEREFORE, the City Council of the City of Huntington Beach hereby ordains as follows: SECTION 1. Section 230.26 of the Huntington Beach Zoning Code is amended to read as follows: A. Purpose. I. The purpose of this chapter is to create an Inclusionary Housing Ordinance to enhance the public welfare and implement the goals, objectives and policies of the City's General Plan, including its Housing Element. It is intended to encourage the supply of extremely low, very low, lower, and moderate- income housing, on sites that are integrated, compatible with and complements adjacent uses. 2. This Inclusionary Housing Ordinance is a tool the City utilizes to meet its commitment to provide housing affordable to all economic sectors. B. Definitions. i. Affordable Housing Cost. The percentage of income that shall be utilized to determine the maximum housing related costs as calculated in accordance with California Health and Safety Code (I-1&SC) Section 50052.5 (standards for ownership units) and H&SC Section 50053 (standards for rental units). 2. Affordable Housing Unit. A dwelling unit required by this Chapter to be affordable to Extremely Low, Very Low, Lower, or Moderate Income Households. Accessory 21-10164/263922 ORDINANCE NO. 4235 dwelling units (ADUs) do not satisfy the affordable housing obligation nor do they trigger the affordable housing obligation. 3. Area Median Income. The midpoint of a County's gross income distribution adjusted for household size as determined by the California Housing and Community Development Department (FICD) annually. 4. Extremely Low-Income. Households whose incomes meet the standards defined by the H&SC Section 50106, or a successor statute. 5. Lower Income. Households whose incomes meet the standards defined by the H&SC Section 50079.5, or a successor statute. 6. Moderate-Income. Households whose incomes meet the standards defined by the H&SC Section 50093, or a successor statute. 7. New Residential Project. Development that includes the creation of three or more new dwelling units, conversion of nonresidential uses to dwelling units, or the conversion of a use from a residential rental development to a residential ownership development. S. Ownership Units. Dwelling units constructed as part of a New Residential Project, or contained within a rehabilitation project, offered for individual unit sale, including, but not limited to, single-family detached or attached homes, condominiums, or cooperatives. 9. Phasing Plan. A detailed plan provided by a developer that outlines each segment or phase of construction including housing units and site improvements to be developed in a New Residential Project. 10. Very Low-Income. Households whose incomes meet the standards defined by the H&SC Section 50105, or a successor statute. C. Applicability. Unless otherwise specified in the Specific Plan. this Section shall apply to New Residential Projects of three or more units in size. 1. Affordable Housing Obligations. All New Residential Projects must be restricted, as set for herein, to contain a minimum of 10% of Affordable Housing Units. In the event a fractional unit is established, the Affordable Housing Unit count shall be ORDINANCE NO. 4235 rounded up, unless paragraph (C)(2) of this section applies. For projects providing affordable units onsite, an equivalent in-lieu fee may be paid instead of rounding up. 2. Developers of residential projects may elect to fulfill the affordable housing obligations imposed by this Section by providing Affordable Housing Units at the New Residential Project site pursuant to subsection D below (onsite production) or through an applicable alternative compliance option as provided by subsection E below (alternatives to onsite production). 3. For purposes of determining the required number of Affordable Housing Units, only new units shall be counted. Construction of an accessory dwelling unit does not trigger the affordable housing obligation. D. Options for Fulfilling Affordable Housing Obligations: On-Site Production 1. Affordable Ownership Housing Units a. Pursuant to section 230.26(F), New Residential Project Owners or Developers shall place an affordability covenant on Ownership Units that is set at the Moderate-Income Household affordability level. b. The Affordable Housing Units shall be built concurrently with the market rate units as provided with an approved Phasing Plan. c. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. All exterior and interior improvements, finishes, appliance packages, etc., for the affordable units shall be comparable to the base level market rate units. 2. Affordable Rental Housing Units within an Ownership Housing Project a. The affordability covenant placed on Rental Units is set at the Low-Income level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income level. b. A Market Rate Developer may create a separate affordable housing parcel within the New Residential Development site and enter into an agreement with an Affordable Housing Developer to construct, own, and operate the affordable 3 ORDINANCE NO. 4235 housing units. The Affordable Housing Developer is required to enter into an Affordable Housing Agreement with the City, subject to the following: i. The Affordable Housing Developer shall have recent relevant experience and be approved by the Community Development Director or their designee. ii. The Affordable Housing Developer and/or Market Rate Developer may not request any financial assistance from the City. c. The bedroom mix is not required to snatch the unit mix provided in the market rate ownership housing project. At least 40% of the affordable units shall include at least two bedrooms. d. The affordable units shall be built concurrently with the market rate project. The Affordable Housing Units may be constructed in phases if the market rate project is developed in phases, with an approved Phasing Plan. 3. Affordable Rental Housing Units a. Pursuant to section 230.26(F), New Residential Project owners or developers shall place an affordability covenant on Rental Units at the Low-Income Household affordability level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income Household affordability level. b. The affordable units shall be built concurrently with the market rate project. The Affordable Housing Units may be constructed in phases if the market rate project is developed in phases, with an approved Phasing Plan. c. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. The minimum construction standards for interior improvements of the affordable units shall be the same as those imposed by the Low-Income Housing "fax Credit (LIHTC). 4 ORDINANCE NO. 4235 E. Options for Fulfilling Affordable Housing Obligations: Alternatives to On-Site Production 1. Off-Site Production of Affordable Housing Units a. Except as may be required by the California Coastal Actor Government Code Section 65590 or a successor statute, developers may provide the required-Affordable Housing Units off-site, at one or several sites. within the City of Huntington Beach. b. Pursuant to Section 230.26(F), New Residential Project owners or developers shall place an affordability covenant on the off-site units that is set at 15% of the total number of units included in the New Residential Project that generated the affordable housing obligation. The affordability covenant placed on the off-site Affordable Housing Units shall be at the Low-Income Household affordability level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income Household affordability level. The affordability covenant shall specify the off-site Affordable Housing Units shall be rental units. c. The provision of the off-site .Affordable Housing Units shall not create an over concentration of Affordable Housing Unites in any specific area. d. The design, building quality, and maintenance standards shall be the requirements imposed by the LIHTC minimum construction standards. e. The bedroom mix for the affordable units is not required to match the mix provided in the market rate project that is subject to the affordable housing obligations. At minimum. 40% of the affordable [nits shall include at least two bedrooms. f. Pursuant to Section 230.26(F), a market rate developer may enter into an agreement with an affordable housing developer to construct, oxvn and operate the off-site affordable housing project. The affordable housing developer is required to enter into an Affordable Housing Agreement with the City, subject to the following: 5 ORDI-IANCE NO. 4235 i. The Affordable Housing Developer shall have recent relevant experience and be approved by the Community Development Director or their designee. ii. The Affordable Housing Developer and/or Market Rate Developer may not request any financial assistance from the City. iii. All off-site affordable units shall be constricted prior to or concurrently with the market rate project that generated the affordable housing obligation. If the.market rate project is developed in phases, with an approved Phasing Plan, the affordable units may be developed along with the first phase of the market rate 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. 2. Existing Units Acquisition and Rehabilitation Projects The Citv Council has the discretion, but not the requirement; to approve a developer's request to acquire, rehabilitate, and place affordability covenants on existing off-site units. The request shall meet either of the following threshold requirements in order to fulfill a project's affordable housing obligation: a. The project(s) shall be identified as at-risk in the City's Housing Element; or b. The project is a motel that can be adaptively reused as residential units. Additional requirements for acquisition and rehabilitation projects: a. The developer or owner shall place an affordable housing covenant on the Affordable Housing Units that are equal to at least 20% of the units in the New Residential Project that trigged the affordable housing obligation. b. The rents charged for the rehabilitated units shall be set at the lesser of the H&SC 50053 rents or at least 10% discount from the achievable market rents for the units, subject to annual monitoring and reporting. 6 ORDINANCE NO. 4235 c. If there are more units in the acquisition and rehabilitation project than are required to fulfill the affordable housing requirement, those units may be rented at market rate. 3. Land Dedication. The City Council has the discretion. but not the requirement; to allow a developer to dedicate property in lieu of constructing Affordable Housing Units. The following requirements are applicable to any property proposed to be dedicated: a. The property shall be located within the City of Huntington Beach. b. The developer shall convey the property to the City at no cost. c. 'I'he property proposed to be dedicated shall yield a minimum of 20% of the total units constructed within the market rate project: i. The site's existing General Plan and zoning standards shall allow for a residential use at a density sufficient to allow for the requisite number of affordable units to be developed without a density bonus request. ii. The site shall be suitable in terms of size; configuration, and physical characteristics to allow for the requisite number of affordable units to be developed on a cost efficient basis. iii. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. The developer shall provide evidence of the following when the land dedication proposal is submitted: i. A title report showing the developer/owner has lien-free; fee simple title. Any encumbrances or easements that adversely impact the property's title shall be disclosed and will be factored into the estimated value of the interests proposed to be conveyed to the City. ii. An appraisal dated within 30 days of the application by a Member Appraisal Institute (MAI) appraiser. 7 ORDINANCE NO. 4235 iii. A Phase I Environmental Site Assessment and a Phase 11 Environmental Site Assessment if the Phase I report indicates that hazardous materials were potentially previously used on the site. iv. The property shall not contain any hazardous materials at the time the land dedication proposal is submitted. If hazardous materials were previouslv_reniediated, a site closure letter from the appropriate regulatory agency showing evidence that the site was remediated to residential standards is required. e. The property shall not have been improved with any residential use for at least five years prior to the submission of a land dedication proposal. f. Payment in full of all taxes and/or assessments shall have been made when the proposal is submitted; and again prior to conveyance of the property to the City. g. The construction of affordable units on the property shall not create an over concentration of low income housing in any specific area. h. The property shall be fully served by the necessary infrastructure prior to conveyance to the Cite. i. To assist the City in evaluating land dedication proposals, the developer shall submit a conceptual site plan and narrative description of a project that could be developed on the property. 4. Fee Payment in Lieu of Construction a. Developers of the following New Residential Project types may pay an in-lieu fee to fulfill Affordable Housing Obligations: i. Ownership residential projects proposing any number of units. ii. Rental residential projects proposing 100 units or fewer. b. The amount of the in-lieu fees shall be calculated using the fee schedule established by Resolution of the City Council. c. A project may be permitted to pay in-lieu fees if it does not meet the eligibility standards of this section if the City Council determines, at its discretion, that the requirement to provide affordable housing units would impose an extreme hardship on the developer. 8 ORDINANCE NO. 4235 d. One hundred percent of the fees required by this section shall be paid prior to issuance of a building permit. However, for phased projects the developer may pay a pro rata share of the in-lieu fee concurrently with the issuance of building permits for each development phase, as approved by a Phasing Plan. c. Fees paid to fulfill the requirements of this section shall be placed in the City's Affordable Housing "Dust Fund, the use of which is governed by subsection F of this section. f. Fees paid as a result of new residential projects shall be based upon the total number of the new residential units which are to be constructed prior to the grant of any density bonus. F. Miseellancous Provisions. I. An Affordable Housing Agreement placing a covenant that runs with the land and outlining all aspects of the Affordable Housing Obligations, including but not limited to the affordability term for the restricted units, shall be executed between the applicant and the City and recorded with the Orange County Recorder's Office. 2. The Affordable Housing Agreement shall specify an affordability terni of not less than » years for rental units or 45 years for ownership units. 3. In general, the Affordable Housing Trust Funds shall be used for projects which have a minimum of 50% of the dwelling units affordable to very low- and low-income households. with at least 20% of the units available to very low-income households. Concurrent with establishing the annual fee schedule pursuant to subsection E of this section, the City Council shall by resolution set forth additional permitted uses of Affordable Housing Trust Funds. To obtain Affordable Housing Trust Funds, the recipient shall enter into an affordable housing agreement as set forth above; and shall maintain the affordability of the units for a minimum of>j 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. 4. New affordable units shall be occupied in the following manner: 9 ORDINANCE NO. 4235 a. Any existing residents shall be allowed to occupy their units until six months before the start of construction activities with proper notice. b. The developer shall provide relocation benefits to the occupants of the affordable units that are displaced. c. 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 a comparable unit available in the new housing development affordable to the household at an affordable rent (e.g. Extremely-Low Income, Very-Low Income, Low-income, Moderate Income, IN9arket Rate). d. 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. G. Annual Program Review and Periodic Adjustment of the Fee. Within 180 days after the last day of each fiscal year, the City Council shall review the status of the City's Affordable Housing Trust Fund, including the amount of fees collected, expenditures from the Affordable Housing Trust fund, and the degree to which the fees collected pursuant to this chapter are assisting the City to provide and encourage low- and moderate-income housing. The fee shall be updated annually using the Real Estate and Construction Report published by the Real Estate Research Council of Southern California_ The fee change shall be based on the percentage difference in the new home prices in Orange County published in the fourth quarter report for the then current year versus the immediately preceding year. 10 ORDINANCE NO. 4235 PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the day of 12021. Mayor ATTEST: APPROVED AS ORi, City Clerk Ciry Attorney f� � IE VED AND ROVED: NITIA"fED AND APPROVED: Ai S Q L�— City Manager Director of Community Development 11 Z-&-(j/.5Zf477t/r WC.t� A b . ass' 230.26 Affordable Housing A. Purpose. 1. The purpose and intent of this chapter is to create an Inclusionary Housing Ordinance to enhance the public welfare and implement the goals,objectives and policies of the City's General Plan, including its Housing Element. It is intended to encourage the supply of extremely low, very low, loweerand moderate-income housing_whiah isimegmted, 2. This Inclusionary Housing Ordinance is ww a tool the City utilizes to meet its commitment to provide housing affordable to all economic sectors,: B. Definitions. I. Affordable Housing Cost. The percentage of income that shall be utilized to determine the maximum housing related costs as calculated in accordance with California Health and Safety Code(H&SC) Section 50052.5 (standards for ownership units)and H&SC Section 50053 (standards for rental units). 2. Affordable Housing Unit. A dwelling unit required by this Section to be affordable to Extremely Low, Very Low, Lower, or Moderate Income Households. Accessory dwelling units(ADUs) do not satisfy the affordable housing obligation nor do they trigger the affordable housing obligation. 3. Area Median Income. The midpoint of a County's gross income distribution adiusted for household size as determined by the California Housing and Community Development Department (HCD)annualh. 4. Extremely Low-Income. Households whose incomes meet the standards defined by the H&SC Section 50106, or a successor statute. 5. Lower Income. Households whose incomes meet the standards defined by the H&SC Section 50079.5. or a successor statute. 6. Moderate-Income. Households whose incomes meet the standards defined by the H&SC Section 50093, or a successor statute. 7. New Residential Project. Development that includes the creation of three or more new dwelling units, conversion of nonresidential uses to dwelling units, or the conversion of a use from a residential rental development to a residential ownership development. 8. Ownership Units. Dwelling units constructed as part of a New Residential Project, or contained within a rehabilitation project, offered for individual unit sale, including, but not limited to, single-family detached or attached homes, condominiums, or cooperatives. 9. Phasing Plan. A detailed plan provided by a developer that outlines each segment or phase of construction including housing units and site improvements to be developed in a New Residential Project. 10. Very Low-Income. Households whose incomes meet the standards defined by the H&SC Section 50105, or a successor statute. R-C. Applicability. Unless otherwise specified in a Specific Plan, Tkis seetien this Section shall apply to New Residential Projects of three or more units in size. I I. Affordable Housing! Obligations. All New Residential Proiects must be restricted, as for herein,to contain a A minimum of 100/6of Affordable Housing Units. e4lflew Fes ident+al An S In the event a fractional unit is established, the Affordable Housing Unit count shall be rounded up unless paragraph(B C,X4 2)of this section applies. For oroiects providing affordable units onsite. Aerfraetieaal equivalent in-lieu fee may be paid instead of rounding up. S 2. Developers of residential projects may elect to previde fulfill the affordable housing obligations imposed by this Section by providing Affordable Housing Units at the tiew Residential Proiect site pursuant to subsection D below (onsite production) or through an applicable alternative compliance option as provided by subsection E below(alternatives to onsite production). 63. . For purposes of determining the required number of Aaffordable Hlausing Uonits,only new units shall be counted. Construction of an accessory dwelling unit does not trigger the affordable housing obligation. A{'C„-d..Ll.. Ll.�..,.:..,. 'f-..... L'....A •6.. ,.f..,6:,.6 :�HSO ..............d b.. S,,b.aa;L... V. ,.f rl.:< 1 a L...:I.l:.,., .,e-..,:. vvanvmtc'Pc�+�++�- 7 u...,,:.,R49FI o_.,,.t, ...,:.,. :a.....:a..a :.. ,b., u,.....:..,. ne..,e... ,.. ..,.,b:c, h,_.RON FAR, c.. .....,a .,.:...:. .h:.. F D. Options for Fulfilling Affordable Housing Obligations: On-Site Production 1. Affordable Ownership Housina Units a. Pursuant to Section 230.26(F), New Residential Project Owners or Developers shall place an affordability covenant on Ownership Units that is set at the Moderate- Income Household affordability level. b. The Affordable Housing Units shall be built concurrently with the market rate units. as Provided for with an approved phasing plan. c. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. The exterior and interior improvements, finishes, appliance packages, etc for the affordable units shall be comparable to the base level market rate units. 2. Affordable Rental Housiny, Units within an Ownership Housing Project a. The atordability covenant placed on the rental units is set at the Low-Income Household affordability level, but the developer may choose to fulfill the affordable housing requirement with units at the Ven-Low or Extremely-Low Income Household affordability level. b. A market rate developer maN create a separate affordable housing parcel within the New Residential Project site and enter into an agreement with an affordable housing developer to construct, own, and operate the affordable housing units. The affordable housing developer is required to enter into an Affordable Housing Agreement with the City, subject to the following; 3 i. The affordable housing developer shall have recent relevant experience and be approved by the Community Development Director or their designee. ii. The affordable housing developer and,'or market rate developer may not request am' financial assistance from the Citv. c. The bedroom mix is not required to match the unit mix provided in the market rate ownership housing project. At least 40% of the affordable units shall include at least two bedrooms. d. The Affordable Housing Units shall be built concurrenth' with the market rate project. The Affordable Housing Units may be constructed in phases if the market rate project is developed in phases, with an approved phasing plan. 3. Affordable Rental Housing Units a. Pursuant to Section 230.26(F), New Residential Project owners or developers shall place an affordability covenant on rental units at the Low-Income Household affordability level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremely-Low Income Household affordability level. b. The Affordable Housing Units shall be built concurrently with the market rate project. The Affordable Housing Units may be constructed in phases if the market rate project is developed in phases, with an approved Phasing Plan. c. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units. d. The minimum construction standards for interior improvements of the Affordable Housing Units shall be the same as those imposed by the Low-Income Housing Tax Credit (LIHTC) program. E. Options for Fulfilling Affordable Housing Obligations: Altematives to On-Site Production I. Off-Site Production of Affordable Housing Units a. Except as may be required by the California Coastal Act or Govemment Code Section 65590 or a successor statute, developers may provide the required Affordable Housing Units off-site, at one or several sites, within the City of Huntington Beach. b. Pursuant to Section 230.26(F), New Residential Project owners or developers shall Place an affordability covenant on the off-site units that is set at 15%of the total number of units included in the New Residential Project that generated the affordable housing obligation. The affordability cotenant placed on the off-site Affordable Housing Units shall be at the Low-Income Household affordabilitti level, but the developer may choose to fulfill the affordable housing requirement with units at the Very-Low or Extremeh-Low Income Household affordability level. The affordability covenant shall specify the off-site Affordable Housing Units shall be rental units. b. The provision of the off-site Affordable Housing Units shall not create an over concentration of Affordable Housing Units in am specific area. 4 C. The design, building quality, and maintenance standards shall be the requirements imposed by the LIHTC minimum construction standards. d. The bedroom mix for the affordable units is not required to match the mix provided in the market rate project that is subject to the affordable housing obligations. At minimum, 40%of the affordable units shall include at least two bedrooms. e. Pursuant to Section 230.26(F), the market rate developer may enter into an agreement with an affordable housing developer to construct, own and operate the off-site affordable housing project. The affordable housing developer is required to enter into an Affordable Housing Agreement with the Cite, subject to the following: i. The affordable housing developer shall have recent relevant experience and be approved by the Community Development Director or their designee. ii. The affordable housing developer and/or market rate developer may not request any financial assistance from the City. iii. All off-site affordable units shall be constructed prior to or concurrently with the market rate project that generated the affordable housing obligation. If the market rate project is developed in phases, with an approved Phasing Plan, the affordable units may be developed along with the first phase of the market rate 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. 2. Existing Units Acquisition and Rehabilitation Projects The City Council has the discretion, but not the requirement, to approve a developer's request to acquire, rehabilitate, and place affordability covenants on existing of(-site units. The request shall meet either of the following threshold requirements in order to fulfill a proiect's affordable housing obligation: A. The proiect(s)shall be identified as at-risk in the CiWs Housing Element: or b. The project is a motel that can be adaptively reused as residential units. Additional requirements for acquisition and rehabilitation projects: a. The affordable housing requirement is equal to at least 20% of the units in the project that trigged the affordable housing obligation. b. The rents charged for the rehabilitated units shall be set at the lesser of the H&SC 50053 rents or at least 10% discount from the achievable market rents for the units, subject to annual monitoringand nd reporting. c. If there are more units in the acquisition and rehabilitation pro ect than are required to fulfill the affordable housing requirement, those units may be rented at market rate. 3. Land Dedication. 5 The Cite Council has the discretion, but not the requirement, to allow a developer to dedicate propem in lieu of constructing Affordable Housing Units. The following requirements are applicable to am propem proposed to be dedicated: L. The yroyer N shall be located within the City of Huntington Beach. b. The developer shall cortvev the propem to the City at no cost. c. The proper proposed to be dedicated shall yield a minimum of 20%of the total units constructed within the market rate project: i. The site's existing General Plan and zoning standards shall allow for a residential use at a density sufficient to allow for the requisite number of affordable units to be developed without a density bonus request. ii. The site shall be suitable in terms of size, configuration, and physical characteristics to allow for the requisite number of affordable units to be developed on a cost efficient basis. iii. The bedroom mix for the affordable units shall be proportional to the bedroom mix of the market rate units. The affordable units may he no more than 20% smaller in square footage than the average square footage of the market rate units. d. The developer shall provide evidence of the following when the land dedication proposal is submitted: i. A title report showing the developer/owner has lien-free, fee simple title. Am encumbrances or easements that adversely impact the property's title shall be disclosed and will be factored into the estimated value of the interests proposed to be conveved to the City. ii. An appraisal dated within 30 days of the application by a Member Appraisal Institute(MAI) appraiser. iii. A Phase 1 Environmental Site Assessment and a Phase II Environmental Site Assessment if the Phase I report indicates that hazardous materials were potentially_previousIN used on the site. ice. The property shall not contain any hazardous materials at the time the land dedication proposal is submitted. If hazardous materials were previously remediated, a site closure letter from the appropriate regulatory agency showing evidence that the site was remediated to residential standards is required. e. The vrovem shall not have been improved with am residential use for at least five years prior to the submission of a land dedication proposal. f. Pavment in full of all taxes and/or assessments shall have been made when the proposal is submitted, and again prior to conveyance of the property to the C aN. !£ The construction of affordable units on the propem shall not create an over concentration of low income housing in am specific area. h. The propem shall be fully served by the necessan infrastructure prior to conveyance to the City. i. To assist the City in evaluating land dedication proposals, the developer shall submit a conceptual site plan and narrative description of a eject that could be developed on the property. 4. Fee Payment in Lieu of Construction 6 A. Developers of the following New Residential Project types may pay an in-lieu fee to fulfill affordable housing obligations: i. Ownership residential projects proposing any number of units. ii. Rental residential projects proposing 100 units or fewer. b. The amount of the in-lieu fees shall be calculated using the fee schedule established by resolution of the City Council. c. AAproiect may be permitted to pay in-lieu fees if it does not meet the eligibility standards of this section if the City Council determines, at its discretion, that the requirement to provide affordable housing units would impose an extreme hardship on the developer. d. One hundred percent of the fees required by this section shall be vaid prior to issuance of a building permit. However, for phased pro'ects the developer may pay a pro rata share of the in-lieu fee concurrently with the issuance of building Mrmits for each development phase, as approved by a Phasing Plan. e. Fees paid to fulfill the requirements of this section shall be placed in the Citv's Affordable Housing Trust Fund,the use of which is governed by subsection F of this section. f. Fees paid as a result of new residential projects shall be based upon the total number of the new residential units which are to be constructed prior to the grant of any density bonus. E F. Miscellaneous Provisions. Cede and 1. An Affordable Housing Agreement placing a covenant that runs with the land and outlining all aspects of the&Affordable hHousing pFevisiensObligations, including but not limited to the affordability term for the restricted units,shall be executed between the applicant and the City and recorded with the Orange County Recorder's Office. 3 2. The Affordable Housing aAAgreement shall specify an affordability term of not less than 55 years for rental heusi&g units or 45 years for ownership heasiag units. FRAFkAl FAIR ORO@, materials and finished quality. 63. In general, the Affordable Housing Trust Funds shall be used for projects which have a minimum of 500/0 of the dwelling units affordable to very low-and low-income households, 7 with at least 200/6 of the units available to very low-income households.Concurrent with establishing the annual fee schedule pursuant to subsection t: E of this section,the City Council shall by resolution set forth the additional permitted uses of Affordable Housing Trust Funds. All MR 15 ;hot To obtain Affordable Housing Trust Funds,the recipient shall enter into an affordable housing agreement as set forth above, and shall maintain the affordability of the units for a minimum of 55 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. 4. New affordable units shall be occupied in the following manner: a. Any existing residents shall be allowed to occupy their units until six months before the start of construction activities with proper notice. ab. The developer shall provide relocation benefits to the occupants of the affordable units that are displaced. b,r, 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 e&rdeble a comparable units}available in the new housingdevelopment evelopment affordable to the household at an affordable rent (e.g. Extremely-Low Income, Very-Low Income, Low-Income, Moderate Income, Market Rate). e�. 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. G #. Annual Program Review and Periodic Adjustment of the Fee. Within 180 days after the last day of each fiscal year, the City Council shall review the status of the City's Affordable Housing Trust Fund, including the amount of fees collected,expenditures from the Affordable Housing Trust Fund, and the degree to which the fees collected pursuant to this chapter are assisting the City to provide and encourage low-and moderate-income housing. The fee shall be updated annually using the Real Estate and Construction Report published by the Real Estate Research Council of Southern California.The fee change shall be based on the percentage difference in the new home prices in Orange County published in the fourth quarter report for the then current year versus the immediately preceding year.(3687-12/04, 38274/09, 3829-6/09,3879-6/10, 4040-12/14) 8 RESOLUTION NO. 2021-50 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH ADOPTING AN AFFORDABLE HOUSING IN-LIEU FEE PURSUANT TO ORDINANCE NO. 4235. AND REPEALING RESOLUTION NOS. 2007-7I, 2008-43, AND ALL SUPPLEMENTAL RESOLUTIONS THERETO WHEREAS, on November 1, 2004. the City Council of Huntington Beach adopted Ordinance No. 3687 adding Zoning & Subdivision Ordinance Section 230.26 relating to Inclusionary Housing; and WHEREAS, on September 21 , 2021, the City Council of Huntington Beach adopted Ordinance No. 4235 amending and updating Zoning & Subdivision Ordinance Section 230.26. WHEREAS, as part of Ordinance No. 4235, the City Council received a report from Keyser Marston Associates dated May 6, 2020, which includes an analysis pertaining to the City's methodology for calculating the payment of Inclusionary Housing fees. A copy of this report is attached hereto as Exhibit A. WHEREAS, pursuant to Section 230.26(E)(4), notwithstanding applicable requirements of Specific Plans, developers of residential ownership projects proposing any number of housing units and residential rental projects proposing one hundred (100) housing units or fewer may elect to pay a fee in-lieu of providing the required affordable units on site to fulfill the City's requirement of the Inclusionary Housing Ordinance, NOW, THEREFORE, the City Council of the City of Huntington Beach does hereby resolve as follows: I. The Keyser Marston Associates report attached hereto as Exhibit A is approved and filed. 2. The proposed affordable housing in-lieu fee shall be as follows: 21-10164/265557 Resolution No. 2021-50 A. In-Lieu Fee Schedule: Calculated Per Square Foot of Net Saleable Area or Net Leasable Area (up to 2,000 s.f.) # of Units Fee Per Square Fee Per Square Foot: Foot: Rental Ownership Apartments Housing 3 52.54 $3.58 4 53.38 54.77 5 54.23 55.97 6 $5.07 $7.16 7 $5.92 58.35 8 $6.76 $9.55 9 $7.61 $10.74 10 $8.45 SI1.93 Il 59.30 $13.13 12 510.14 $14.32 13 510.99 $15.51 14 $11.84 $16.71 15 $12.68 517.90 16 513.53 519.09 17 514.37 520.29 18 $15.22 $21.48 19 S 16.06 $22.67 20 $16.91 $23.87 21 $17.75 525.06 22 $18.60 526.25 23 $19.44 527.45 24 520.29 528.64 25 521.13 529.83 26 $21.98 S31.O3 27 $22.83 $32.22 28 $23.67 533.41 29 524.52 534.61 30+ $25.36 I S35.80 B. The in-lieu fee calculation for ownership housing units in excess of 2,000 square feet per unit shall be capped at the total fee for a 2,000 square foot unit. 3. All deposits of in-lieu fees paid pursuant to Zoning K Subdivision Ordinance Section 230.26 shall be placed in the City's Affordable Housing Trust Fund. Interest shall accrue to the fund. No other funds shall be commingled with the Trust Fund. Resolution No. 2021-50 4. The Affordable Housing In-Lieu Fee shall be adjusted annually on July I" of each year, as outlined in Zoning R Subdivision Ordinance Section 230.26. 5. The City Manager or their designee shall administer the Affordable Housing Trust Fund and shall provide an annual report to the City Council; which shall include the beginning balance, ending balance; and a description of the projects funded or to be funded each fiscal year. 6. Resolution Nos. 2007-71 and 20OS-43 are hereby repealed. PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the2lst day of September . 2021. N9ayor ATTEST: APPROVED AS TO FORAC � City Clerk }1 City Attorney IE�VED AND APPRT INITIATED AND APPROVED: -e LxM'a 3, a City tManager Director of Community Development EXg/ 14- > �� o Na . KEYSER MARSTON ASSOCIATES_ ADV150RS IN PIIRLIC/PRIVATE REAL ESTATE DEVELOPMENI MEMORANDUM AUviso Rs IN: Real Estate To: Ursula Luna-Reynosa, Community Development Director Affordable Housing Economic Development City of Huntington Beach BERKELEv A.Jerry Keyser From: Kathleen Head Timothy C.Kelly Debbie M.Kern David Doezema Date: May 6, 2020 Kevin Feeney Los ANGELES Kathleen H.Head Subject: Inclusionary Housing :Policy & Implementation Recommendations James A.Rabe Gregory D.Soo-Hoo Kevin E.Engstrom Julie L.Romey Keyser Marston Associates, Inc. (KMA) was engaged by the City of Huntington Beach Tim R.Bretz (City) to assist in updating the requirements imposed by the Inclusionary Housing SAN DIEGO Ordinance. The update was undertaken for the following reasons: Paul C.Marra 1. To evaluate the impacts created by real estate economic changes and increases in the unmet need for affordable housing that have occurred since the Inclusionary Housing Ordinance requirements were last modified in 2011. 2. To modify the Inclusionary Housing requirements with the intention of achieving the following goals: a. To maximize the program's efficiency; and b. To match the requirements to the types of housing being developed. KMA prepared the accompanying Financial Analysis: Inclusionary Housing Ordinance Update (Financial Analysis) to evaluate the economic characteristics of the Inclusionary Housing program as implemented since 2011. 1 The Financial Analysis serves as the foundation KMA used for creating a package of Inclusionary Housing policy and implementation recommendations. I Capitalized terms used throughout this memorandum are defined in the Financial Analysis. 500 SOUTH GRAND AVENUE,SUITE 1480 - LOS ANGELES,CALIFORNIA 9DO71 % PHONE 213.622.8095 2004014.HB:KHH W W W.KEYSE RMARSTON.COM 14066.011.001 301 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 2 BACKGROUND Based on the results of the Financial Analysis, KMA reached the following key conclusions: 1. Current Inclusionary Housing Requirements: a. The 10% moderate income requirement for ownership housing development continues to be supportable. b. The 10% low income requirement for rental apartment projects is supportable. There is no need to provide an option for moderate income units to be used as a substitute when the units are provided on site within a market rate project. 2. The maximum in-lieu fee amounts that can currently be supported on a financially feasible basis were estimated as follows: Maximum Financially Feasible In-Lieu Fees Ownership Rental Housing Apartments Inclusionary Housing Requirement 10% Moderate 10% Low Income Income In-Lieu Fee Amounts Per Affordable Unit $504,700 $332,000 Per Total Unit $50,470 $33,200 Per Square Foot of Saleable/Leasable Area $25.36 $35.80 Recommended Policy and Implementation Package The Inclusionary Housing policy and implementation recommendations package consists of the following components: 1. The minimum residential project size that triggers an Inclusionary Housing obligation. 2004014.HB:KHH 14066.011.001 302 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 3 2. The income and affordability requirements that will be applied to ownership housing and rental apartment projects. 3. The covenant periods under which the income and affordability standards should be imposed for ownership housing and rental apartment projects. 4. To mitigate the financial impacts created by the imposition of Inclusionary Housing requirements options need to be provided that are tailored to the type of housing being developed. The following options are proposed to be offered under specified circumstances: a. On-site production; b. Off-site production; C. In-Lieu Fee Payment; d. Land Dedication; and e. Acquisition and rehabilitation of existing apartment units. S. Implementation activities that should be undertaken by the City. Case Studies To assist the City in evaluating the proposed policy and implementation recommendations KMA prepared comparisons of the Inclusionary Housing options that could potentially be applied to a hypothetical project. Hypothetical projects are analyzed for an ownership housing project and a rental apartment project. RECOMMENDED POLICY AND IMPLEMENTATION PACKAGE Threshold Project Size The majority of Inclusionary Housing programs in California include a threshold project size below which projects are not subject to the affordable housing production requirements. Common thresholds fall between three and 10 units. KMA recommends that the threshold project size be maintained at the three unit standard imposed by the City's existing Inclusionary Housing Ordinance. 2004014.HB:KHH 14066.011.001 303 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 4 It is important to understand that Inclusionary Housing requirements create a significant impact on smaller projects, because the financial impact created by the affordable housing requirement is spread over a small number of market rate units. The other issues to consider are: 1. Given the magnitude of the Affordability Gaps associated with ownership housing projects, small infill projects are disproportionately impacted by an affordable housing production requirement.' 2. Small rental apartment projects are often self-managed by owners that do not have experience owning and operating affordable housing units. 3. Monitoring and administering Inclusionary Units in small projects that are scattered throughout Huntington Beach will be a labor intensive obligation for City staff. It is KMA's recommendation that projects with fewer than 100 units should be allowed to pay a fee in lieu of developing the required number of Inclusionary Housing units. At a 10% Inclusionary Housing requirement, a 100 unit project would generate a 10-unit Inclusionary Housing obligation. This is a sufficient number of affordable housing units to support the efficient management and administration of the units. KMA recommends that a graduated in-lieu fee schedule continue to be offered in the updated Inclusionary Housing Ordinance. The recommended in-lieu fee payment structure is discussed further in the Inclusionary Housing production option section of this memorandum. Income and Affordability Standards An Inclusionary Housing program's income and affordability standards should be set at levels that do not constrain residential development. Based on the results of the Financial Analysis, KMA determined that the following Inclusionary Housing requirements can be supported. z The Affordability Gap is defined as the difference between the achievable market rate sales prices or rents and the Affordable Sales Prices or Affordable Rents for the Inclusionary Housing units. 2004014.HB:KHH 14066.011.001 304 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 5 Ownership Housing Projects lnclusionary Housing Requirement KMA recommends that the City continue to designate moderate income units as the affordable housing type for ownership housing projects. Based on the Financial Analysis, KMA recommends that the affordable housing requirement remain at 10% of the units in an ownership housing project. Affordable Sales Price Calculation Methodology KMA strongly recommends that the City make modifications to the methodology used to estimate the Affordable Sales Prices. The specific issues relate to the methodology used to set the benchmark mortgage interest rate and the allowable range of home buyer down payments. Benchmark Mortgage Interest Rate In practice, the City has been using the lowest interest rate published during the preceding three month period. As an example, the rate being applied by the City in April 2020 is 2.46%. This rate is significantly lower than the rates for which typical moderate income home buyers will be able to qualify. Common reasons for this are: 1. Credit history and scores that do not fall within the exceptional level required to obtain the lowest interest rate available in the marketplace; 2. Back-end ratios that are often higher than the typical ratios applied in conventional lenders' underwriting standards for the lowest interest rate mortgages; 3. The lowest published interest rate is often a teaser rate that will ultimately adjust to a higher rate that will be unaffordable to the moderate income home buyer; and 4. There is a limited pool of mortgage lenders that are willing to provide loans on homes that are subject to long-term irrevocable resale restrictions. These lenders do not generally offer the lowest interest rates available in the marketplace. 2004014.HB:KHH 14066.011.001 305 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 6 The use of the lowest published interest rate is not required by the Inclusionary Housing Ordinance or by the Affordable Ownership Housing Regulations. The application of this metric generates extremely high Affordable Sales Prices, which can actually only be achieved by home buyers with the ability to make an extraordinarily large down payment. KMA recommends that the City modify the policy being used to set the mortgage interest rate that is applied in the Affordable Sales Price calculations. KMA typically uses the Bankrate sitewide average annual percentage rate (APR) for 30-year fixed interest rate mortgages. In addition, KMA recommends that the benchmark interest rate be set on the on the first day of each calendar quarter. Range of Allowable Home Buyer Down Payments The Affordable Ownership Housing Regulations set the maximum home buyer down payment at 50% of the Affordable Sales Price. The high end of this range was established when it became apparent that typical moderate income home buyers could not qualify for the mortgage loans required to support the Affordable Sales Prices being set by the City. The Inclusionary Housing program is intended to target home buyers that could otherwise not afford to purchase a home in Huntington Beach. Moderate income home buyers who have sufficient resources to fund a 50% down payment likely have other available opportunities to purchase a home. KMA recommends that the down payment requirements be modified as follows: 1. The minimum home buyer down payment amount should be set at 5% of the Affordable Sales Price. a. This down payment amount must be provided from the home buyer's own funds. b. These funds cannot be provided using gifts or loans obtained by the home buyer. 2004014.HB:KHH 14066.011.001 306 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 7 2. The maximum down payment amount should be set at 20% of the Affordable Sales Price. Gift funds may be used for the down payment amount that falls between 5% and 20% of the Affordable Sales Price. Rental Apartment Projects The existing Inclusionary Housing Ordinance applies a 10% low income affordable housing requirement to rental apartment projects. However, the Inclusionary Housing Ordinance gives the City discretion to permit a developer to substitute moderate income units for the low income requirements. Based on the City's RHNA targets, and the results of the Financial Analysis, KMA recommends that the updated Inclusionary Housing Ordinance should maintain the 10% low income housing requirement. The moderate income option should be eliminated. A significant number of large scale apartment projects that have been developed in Huntington Beach have made use of the Government Code Sections 65915 — 65918 (Section 65915) density bonus. It should be assumed that developers will continue to use this approach as a means of mitigating the financial impacts created by an Inclusionary Housing requirement. Covenant Periods Ownership Housing Projects KMA recommends that the covenant period for affordable ownership housing units continue to be set at one cumulative 45-year period. Within that one 45-year period the home must be sold and resold to moderate income households at the then current Affordable Sales Price. Rental Apartment Projects KMA recommends that the covenants for the Inclusionary Housing rental apartment units should remain in place for as long as the property is developed with a residential use, but for not less than 55 years. Following the 55-year term, the covenant should only be removed if at some point the property is rezoned and subsequently put to a non-residential use. 2004014.HB:KHH 14066,011.001 307 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 8 Options for Fulfilling Inclusionary Housing Obligations On-Site Production of Inclusionary Housing Units Ownership Housing Projects By right, developers of ownership housing projects can fulfill the project's Inclusionary Housing obligations on site within the market rate project. Developers that wish to fulfill the Inclusionary Housing obligations on site should be provided with option to select one of the following fulfillment structures: Development of Affordable Ownership Housing Units The following standards mirror the Inclusionary Housing requirements currently being imposed by the City. These development parameters fall within the typical range for Inclusionary Housing programs throughout California, and KMA recommends that they be included in the updated Inclusionary Housing Ordinance. 1. The Inclusionary Housing obligation is set at 10% of the total number of units to be constructed on the site. 2. The following income and affordability standards are applied: a. The affordability requirement is set at the moderate income level. b. The Affordable Sales Prices must be calculated using the H&SC Section 50052.5 standards. 3. The affordable housing units must be built concurrently with the market rate project. The affordable units can be constructed in phases if the market rate project is being developed in phases. 4. The affordable housing units must comply with the following development scope requirements: a. The bedroom mix for the affordable units must be proportional to the bedroom mix of the market rate units. However, the affordable units may be smaller in square footage than the market rate units. 2004014.HB:KHH 14066.011.001 308 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 9 b. The exterior improvements for the affordable units must be comparable to the exterior improvements for the market rate units. C. The interior improvements for the affordable units must meet the following standards: i. The interior finished must be comparable to the base level interior finishes provided in the market rate units; and ii. The appliance packages must be the same as the packages provided in the base level market rate units. Development of Affordable Rental Apartments within an Ownership Housing Project If the developer of an ownership housing project is willing to fulfill the project's Inclusionary Housing requirement with rental apartment units, KMA recommends that the following requirements be applied in the updated Inclusionary Housing Ordinance: 1. The developer should be allowed to create a separate affordable housing parcel within their development site to fulfill the project's Inclusionary Housing obligations. 2. The developer of the market rate project can enter into an agreement with an affordable housing developer to construct, own and operate the affordable housing units: a. The affordable housing developer must have relevant recent experience, and must be approved by the City. b. The affordable housing developer may not request any financial assistance from the City. 3. The Inclusionary Housing obligation should be set at 10% of the total number of units to be constructed on the site. 4. The Inclusionary Housing obligation should be required to be fulfilled with rental apartment units that embody the following characteristics: 2004014.HB:KHH 14066.011.001 309 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 10 a. The threshold affordability standard is set at the low income level, but the developer should be provided with the discretion to fulfill the 10% requirement with very low income units. b. The rents must calculated using the H&SC Section 50053 standards. 5. The bedroom mix should not be required to match the unit mix provided in the market rate ownership housing project. However, at least 40% of the Inclusionary Housing units should be required to include at least two bedrooms. Rental Apartment Projects KMA recommends that the updated Inclusionary Housing Ordinance apply the following standards to the on-site fulfillment of the Inclusionary Housing requirements imposed on rental apartment projects: 1. The Inclusionary Housing obligation should be set at 10% of the total number of units to be constructed on the site. 3 2. The following income and affordability standards should be applied: a. The threshold affordability standard is set at the low income level, but the developer should be provided with the discretion to fulfill the requirement with very low income units. b. The Affordable Rents must be calculated using the H&SC Section 50053 standards. 3. The affordable housing units should be required to be constructed concurrently with the market rate project, and they must be dispersed throughout the project. 4. The affordable housing units should be required to comply with the following development scope requirements: 3If a developer chooses to use a Section 65915 density bonus the Inclusionary Housing obligation must be set at the lesser of 10%of the total number of units to be constructed on the site or 10%of the total number of units allowed by the site's base zoning standards. 2004014.HB:KHH 14066.011.001 310 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 11 a. The bedroom mix for the affordable units must be proportional to the bedroom mix of the market rate units. However, the affordable units may be smaller in square footage than the market rate units. b. The interior improvements of the Inclusionary Housing units must comport with defined quality standards such as those applied by the Tax Credit program The market rate units in the project can include enhanced interior improvements. Off-Site Production of Inclusionary Housing Units KMA recommends that the updated Inclusionary Housing Ordinance allow a developer to fulfill the Inclusionary Housing obligations in an off-site location under the following conditions: 1. The development parcel should be required to be located within one mile of the market rate project that is subject to the Inclusionary Housing obligations. 2. The development must not create an over concentration of deed restricted affordable housing units in any specific neighborhood.' 3. Irrespective of the market rate project's tenure, the Inclusionary Housing obligation should be required to be fulfilled with rental apartment units. 4. The Inclusionary Housing obligation should be set at 15% of the total units included in the market rate project that generated the Inclusionary Housing requirements 5. The following income and affordability standards should be applied: a. The affordability standard should be set at the low income level, but developers should be provided with the discretion to fulfill the obligation with very low income units. 'Over concentration is defined as more than 50 covenanted very low or low income units within mile, or more than 200 such units within % mile of the of the proposed affordable housing site. 2004014.HB:KHH 14066.011.001 311 tt Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 12 b. The Affordable Rents must be calculated using the H&SC Section 50053 standards. 6. Design, building quality and maintenance standards should be based on a defined standard such as the requirements imposed by the Tax Credit program. 7. The bedroom mix should not be required to match the unit mix provided in the market rate single family home project. However, at least 40% of the units should be required to include at least two bedrooms. 8. Under the following circumstances the developer of the market rate project can enter into an agreement with an affordable housing developer to construct, own and operate the affordable housing project: a. The affordable housing developer must have recent relevant experience, and be approved by the City. b. The affordable housing developer may not request any financial assistance from the City. C. The developer may apply to use the Section 65915 density bonus and the statutorily established number of incentives or concessions. 9. The affordable housing project should be required to be constructed prior to or concurrent with the market rate project that triggered the Inclusionary Housing obligation. If the market rate project is proposed to be developed in phases, the affordable housing project should be required to be developed along with the first phase of the market rate project. In-Lieu Fee Payment Option As currently implemented, the City allows developers of projects that include 30 or fewer units to pay a fee in lieu of producing affordable housing units. The in-lieu fee can also be paid to fulfill a fractional unit affordable housing obligation. KMA recommends that the updated Inclusionary Housing Ordinance should encourage the use of an in-lieu fee payment options for premium priced ownership housing and rental apartment projects. The key advantages of this strategy are: 2004014.HB:KHH 14066.011.001 312 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 13 1. The City can target the use of the in-lieu fee revenue to projects undertaken by developers that have specific expertise in the development and operation of affordable housing projects. 2. The in-lieu fee revenues can be used as a leveraging source for dedicated affordable housing projects that have access to outside public funding sources. This leveraging creates a more cost-efficient way to achieve deeper affordability than can be supported by an Inclusionary Housing requirement alone. In-Lieu Fee Payment Thresholds KMA recommends that the in-lieu fee payment option be updated to allow developers to pay the fee by right in the following circumstances: 1. Single family home developments of any size should be provided with the option to pay an in-lieu fee. 2. Condom inium/townhome ownership housing projects and rental apartment projects with fewer than 100 units should be allowed to pay an in-lieu fee. 3. An In-lieu fee payment option for a fractional affordable housing obligation should continue to be offered by the City. 4. For projects that do not meet the defined standards, the City Council should be provided with the discretion to allow an in-lieu fee to be paid if hardship circumstances are demonstrated. In-Lieu Fee Schedules The existing Inclusionary Housing Ordinance provides a graduated in-lieu fee schedule to reflect the fact that Inclusionary Housing requirements have a disproportionate impact on smaller projects. KMA recommends that a graduated in-lieu fee schedule continue to be offered in the updated Inclusionary Housing Ordinance. It is KMA's opinion that an in-lieu fee measured against the square footages of the units corresponds more closely to the Affordability Gap associated with the market rate units being developed. As such, it is KMA's recommendation that the in-lieu fee schedules in 2004014.HB:KHH 14066.011.001 313 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 14 the updated Inclusionary Housing Ordinance be based on the net saleable area for ownership housing projects and the net leasable area for rental apartment projects. KMA created recommended in-lieu fee schedules that discount the in-lieu fee on a pro rata basis for projects with between three and 30 units. For projects with more than 30 units the in-lieu fee is a fixed dollar amount per square foot of saleable or leasable area. Based on the results of the Financial Analysis, KMA recommends that the following in- lieu payment schedules be applied in the first year following the adoption of an updated Inclusionary Housing Ordinance: Recommended In-Lieu Fee Schedules Per Square Foot of Net Saleable Area or Net Leasable Area d of Ownership Rental # of Ownership Rental Units Housing Apartments Units Housing Apartments 3 $2.54 $3.58 17 $14.37 $20.29 4 $3.38 $4.77 18 $15.22 $21.48 5 $4.23 $5.97 19 $16.06 $22.67 6 $5.07 $7.16 20 $16.91 $23.87 7 $5.92 $8.35 21 $17.75 $25.06 8 $6.76 $9.55 22 $18.60 $26.25 9 $7.61 $10.74 23 $19.44 $27.45 10 $8.45 $11.93 24 $20.29 $28.64 11 $9.30 $13.13 25 $21.13 $29.83 12 $10.14 $14.32 26 $21.98 $31.03 13 $10.99 $15.51 27 $22.83 $32.22 14 $11.84 $16.71 28 $23.67 $33.41 15 $12.68 $17.90 29 $24.52 $34.61 16 $13.53 $19.09 30+ $25.36 $35.80 2004014.HB:KHH 14066.011.001 314 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 15 In-Lieu Payment Timing Developers should be required to pay the in-lieu fee when building permits are obtained for the project. However, for phased projects the developer should be allowed to pay a pro rata share of the in-lieu fee concurrently with the issuance of building permits for each development phase. Land Dedications The City Council should have the discretion, but not the requirement, to approve a developer's proposal to dedicate property in lieu of producing Inclusionary Housing units. KMA recommends that the following threshold requirements should be imposed for any property put forth for City Council consideration: 1. The developer must be willing to convey the property to the City at no cost. 2. The developer must provide evidence of the following when the land dedication proposal is submitted: a. The developer must have site control with lien-free title. Any encumbrances or easements that adversely impact the property's title must be disclosed and factored into the estimated value of the interests proposed to be conveyed to the City. b. The property cannot contain any hazardous materials at the time the land dedication proposal is submitted: i. The developer must disclose whether any hazardous materials were previously contained on the site; and ii. If hazardous materials were previously remediated, the developer must provide evidence that the cleanup was performed in accordance with applicable law- C. The property cannot have been improved with any residential use for at least five years prior to the submission of a land dedication proposal. 2004014.HB:KHH 14066.011.001 315 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 16 d. Payment in full of all property taxes and special taxes must have been made when the proposal is submitted, and again prior to conveyance of the property to the City. 3. The property must embody the following characteristics: a. The property must be located within one-mile of the project that is subject to the Inclusionary Housing obligation. b. The construction of affordable housing units on the property must not create an over concentration of low income housing in any specific neighborhood. C. The number of units that must be able to be developed on a land dedication site should be set at 20% of the total units being constructed within the market rate project: 1. The site's existing General Plan and zoning standards must allow for a residential use at a density sufficient to allow for the requisite number of affordable units to be developed. ii. The site must be suitable in terms of size, configuration, and physical characteristics to allow for the requisite number of affordable units to be developed on a cost efficient basis. d. The property must be fully served by the necessary infrastructure prior to conveyance to the City. 4. It is the City's goal to convey dedicated properties to developers with experience developing affordable rental apartment projects targeted to very low income households. To assist the City in evaluating land dedication proposals, the developer should be required to submit the following documents: a. A conceptual site plan and narrative description of a project that could be developed on the property. 2004014.HB:KHH 14066.011.001 316 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary, Housing: Policy & Implementation Recommendations Page 17 b. A pro forma analysis that quantifies any financial gap associated with the identified development scope, and describes how this financial gap will be filled. C. If a Section 65915 density bonus will be required, the terms of the necessary density bonus must be identified. Prior to submitting a proposal to the City Council for consideration, the City staff should independently evaluate the information submitted by the developer. Based on that review the City should determine whether the proposal meets the threshold standards proposed to be included in the updated Inclusionary, Housing Ordinance. Acquisition and Rehabilitation Projects The Inclusionary Housing Ordinance is one tool the City is using to assist in meeting its RHNA targets. The only way that the acquisition and rehabilitation of existing units can be used to obtain RHNA credit is if the following conditions are met: 1. The project(s) must be identified in the City's Housing Element; and 2. The units must be in need of substantial rehabilitation as defined by H&SC Section 33413 (2) (A) (iv). For projects that meet both of these requirements, the City Council should have the discretion, but not the requirement, to approve a developer's acquisition and rehabilitation proposal. KMA recommends that this option only be approved if the proposed acquisition and rehabilitation project provides more affordable units at deeper affordability than would be achieved under any of the other Inclusionary Housing options discussed in this memorandum. The additional threshold requirements that should be imposed on acquisition and rehabilitation projects are: 1. The project must meet one of the following criteria: a. The project includes affordable units that are at risk of being converted to market rate units within a five year period; or b. The project is a motel that can be adaptively reused as residential units. 2004014.HB:KHH 14066.011.001 31 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary, Housing: Policy & Implementation Recommendations Page 18 2. The Inclusionary Housing requirement is equal to at least 20% of the units in the project that trigged the Inclusionary Housing obligation: a. The rents charged for the Inclusionary Housing units must be set at the lesser of the H&SC 50053 rents or an at least 10% discount from the achievable market rents for the units. b. If there are more units in the acquisition and rehabilitation project than are required to fulfill the Inclusionary Housing requirement, those units may be rented at unrestricted market rate rents. 3. Any very low or low income households currently residing in the project must be provided with the following benefits: a. They must be allowed to stay in place following the acquisition and rehabilitation. b. The rents charged to these tenants must comport with the requirements imposed by H&SC Section 50053 for the tenant's income level. C. Any temporary relocation costs incurred during the rehabilitation period must be paid for by the developer. d. These tenants can only be evicted on a just cause basis. Implementation Recommendations As part of the implementation process for the updated Inclusionary Housing Ordinance, the City should take the following actions: Section 65915 Density Bonus The City's Section 65915 density bonus ordinance does not currently include all of the amendments the State Legislature has made between 2006 and 2019. Given that the Section 65915 density bonus is intended to reduce the financial impact created by the imposition of Inclusionary Housing requirements, KMA recommends that the City update Zoning Code Title 23, Chapter 230, Article I, Section 230.14 to reflect the current requirements. 2004014.HB:KHH 14066.011.001 318 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 19 Affordable Housing Regulations The following Inclusionary Housing Ordinance regulations documents should be updated: 1. Affordable Ownership Housing Regulations: Developer Requirements; 2. Affordable Ownership Housing Regulations: Owner Requirements; and 3. Affordable Rental Housing Regulations. Inclusionary Housing Program Updates The Inclusionary Housing program should be updated at regular intervals: 1. The entire program should be re-evaluated at least every five years. 2. To allow in-lieu fees to keep pace with changes in the market place during the intervening periods, the in-lieu fees should continue to be adjusted each year based on the percentage change in new home prices in Orange County as published annually by the Real Estate Research Council (RERC). Implementation Activities A staffing plan should be created for managing the development process and the ongoing monitoring of the Inclusionary Housing units once they are built. CASE STUDIES Background The following section of this memorandum describes case studies for a hypothetical ownership housing project and a hypothetical rental apartment project. Both projects include 250 units, but they are assumed to be developed at different densities and with different unit mixes. 2004014.HB:KHH 14066.011.001 319 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 20 The case studies identify each of the options available for fulfilling the Inclusionary Housing requirements. It is important to note that these case studies are based on the policy recommendations provided in this memorandum. If the City ultimately chooses to apply different requirements these case studies will need to be modified accordingly. Fulfillment Options that Vary Between Ownership Housing and Rental Apartments The following Inclusionary Housing fulfillment options vary between ownership housing and rental apartment projects: 1. Production of the Inclusionary Housing units on site within the market rate project; and 2. A fee payment in lieu of producing affordable housing units. The ownership housing and rental apartment project case studies are organized as follows: 1. The development scope assumptions are described. 2. The requirements associated with providing the Inclusionary Housing within the market rate projects are detailed. 3. An in-lieu fee payment estimate is provided for the hypothetical development. Standardized Fulfillment Options The other three fulfillment options for Inclusionary Housing requirements carry the same responsibilities irrespective of the market rate project's tenure. The options are: 1. Production of the Inclusionary Housing Units in an off-site location; 2. Dedication of land to the City in lieu of producing affordable housing units; and 3. Acquisition and rehabilitation of existing units. 2004014.HB:KHH 14066.011.001 320 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 21 The descriptions of the three other fulfillment options include the following information: 1. The development scope assumptions that guide the Inclusionary Housing requirements; 2. The affordability requirements associated with each option; and 3. The unit mix standards applied to each option are presented. Ownership Housing Project: On-Site Production and In-Lieu Fee Options Development Scope Assumptions—Ownership Housing Project The development scope used the ownership housing hypothetical are: 1. The 250 unit project is developed on a 12.5-site. This represents a density of 20 units per acre. 2. The Inclusionary Housing obligation is equal to 25 units, which represents 10% of the units in the market rate project. 3. The project is developed in five phases. 4. The unit mix is detailed in the following table: Unit Mix Number of Number of Square Feet Bedrooms Units Per Unit 3 50 1,900 3 75 2,300 4 50 2,600 4 75 3,000 Total 250 622,500 2004014.HB:KHH 14066.011.001 321 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 22 On-Site Production Options—Ownership Housing Project As discussed previously in this memorandum, KMA recommends that developers be provided two alternative methods for fulfilling the Inclusionary Housing requirements on site within a market rate project. Both of these options can be selected by developers by right. The two alternatives can be described as follows: On-Site Production of Affordable Ownership Units In this alternative, the Inclusionary Housing obligation is fulfilled with ownership housing units that are interspersed throughout the market rate project. 1. The Inclusionary Housing requirement is set at 10% of the total number of units to be constructed on the site. This equates to 25 units out of the 250 proposed units. 2. The income restriction is set at the moderate income level. 3. The bedroom mix required to be applied to the Inclusionary Housing units is based on pro rata shares of the three- and four-bedroom units in the market rate project, allocated to the smaller of the unit types in each bedroom category. For the hypothetical project, the Inclusionary Housing units are distributed as follows: a. 13 three-bedroom units with saleable area of 1,900 square feet; and b. 12 four-bedroom units with saleable area of 2,600 square feet. 4. The project is assumed to be developed in five phases. Assuming the 250 units are divided equally across the five phases, five affordable units must be constructed in each phase. On-Site Production of Affordable Rental Apartment Units In this alternative the developer creates a separate parcel to accommodate the required Inclusionary Housing units. To exercise this option, the developer must agree to fulfill the Inclusionary Housing requirement with affordable rental apartment units. 2004014.HB:KHH 14066,011.001 322 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 23 1. The Inclusionary Housing requirement is set at 10% of the total number of units to be constructed on the site. This equates to 25 units out of the 250 proposed units. 2. The income restriction is set at the low income level. 3. The affordable units developed on the separate parcel are not required to match the unit mix provided in the market rate project. Instead, the following requirements are applied in this hypothetical case study: a. A maximum of 15 units (60%) can be studio or one-bedroom units; and b. At least 10 units (40%) must include two or more bedrooms. 4. All 25 affordable rental apartment units must be constructed prior to or concurrent with the construction of the first phase of the market rate ownership housing project. In-Lieu Fee Payment Option For the hypothetical 250 unit ownership housing project, a developer can use the in-lieu fee option under the following conditions: 1. A project that consists of single family homes can select the in-lieu fee option by right. 2. A condominium or townhome project would be required to obtain City Council approval in order to be allowed to use the in-lieu fee options Based on the in-lieu fee schedule being recommended by KMA, the hypothetical ownership housing project would generate the following in-lieu fee payment obligation: 1. The total saleable area of the 250 unit market rate project is 622,500 square feet. 2. The in-lieu fee for projects that include 30 or more units is $25.36 per square foot of saleable area. 5 A condominium or townhome project with up to 100 units can select the in-lieu fee option by right. 2004014.HB:KHH 14066.011.001 323 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 24 3. The resulting total in-lieu fee is $15.8 million, which equates to approximately $63,151 per unit in the market rate project. Rental Apartment Project: On-Site Production and In-Lieu Fee Options The development scope used the rental apartment project hypothetical are: 1. The 250 unit project is developed on a five acre-site. This represents a density of SO units per acre. 2. The Inclusionary Housing obligation is equal to 25 units, which represents 10% of the units in the market rate project. 3. The unit mix is presented in the following table: Unit Mix Number of Number of Square Feet Bedrooms Units Per Unit Studio 35 600 1 120 800 2 75 1,000 3 20 1,200 Total 250 216,000 On-Site Production of Affordable Rental Apartment Units A developer may select the on-site production option by right. The requirements associated with this alternative are: 1. At a 10% Inclusionary Housing requirement, 25 affordable units must be provided. 2. The income restriction is set at the low income level. 3. To match the distribution of the bedroom types included in the market rate project, the affordable units must be provided in the following mix: 2004014.HB:KHH 14066.011.001 324 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 25 Number of Number of Bedrooms Units Studio 4 1 12 2 8 3 1 Total 25 4. The affordable units must be dispersed throughout the market rate project and developed concurrently with the market rate project. In-Lieu Fee Payment Option Under the recommended structure, a 250 unit rental apartment project would not be allowed to pay a fee to fulfill the Inclusionary Housing obligation. However, if the developer can prove a financial hardship, the City Council has the discretion to approve the payment of an in lieu fee. Based on the in-lieu fee schedule being recommended by KMA, the hypothetical rental affordable housing project would generate the following in-lieu fee payment obligation: 1. The total leasable area of the 2S0 unit market rate project is 216,000 square feet. 2. The in-lieu fee for projects that include 30 or more units is $35.80 per square foot of leasable area. 3. The resulting total in-lieu fee is $7.7 million, which equates to approximately $30,900 per unit in the market rate project. Other Inclusionary Housing Obligation Fulfillment Options Each of the three remaining Inclusionary Housing obligation fulfillment options includes the following common assumptions: 2004014.HB:KHH 14066.011.001 325 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 26 1. The market rate project that triggered the Inclusionary Housing requirement includes 250 units; and 2. The Inclusionary Housing obligation must be fulfilled with rental apartment units. Off-Site Production Option The City has approval rights over the following: 1. The development site proposed to be used; and 2. The affordable housing developer proposed to undertake the development of the Inclusionary Housing units. The off-site production option includes the following additional requirements: 1. The Inclusionary Housing requirement is set at 15% of the units included in the market rate project. 2. At 2S0 units the market rate project generates a requirement for 38 affordable units. 3. The affordability standard is set at the low income level. 4. The affordable units are not required to adhere to the bedroom mix included in the market rate project. The standards that are imposed on the off-site development option are: a. No more than 60% of the units (23) can be studio or one-bedroom units; and b. At least 40% of the units (15) must include two or more bedrooms. S. The Inclusionary Housing obligation must be fulfilled prior to or concurrent with the first phase of the market rate development. 2004014.HB:KHH 14066.011,001 326 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 27 Land Dedication Option City Council approval is required for the use of the land dedication option. Proposals must meet all the following requirements in order to be presented to the City Council for consideration. 1. The Inclusionary Housing obligation is set at 20% of the units being constructed in the market rate project. 2. A 50 unit affordable housing unit requirement is imposed on the hypothetical 250 unit market rate project. 3. At an assumed allowable density of 50 units per acre, the dedicated site must include at least 43,560 square feet of land area. 4. The affordability standard is set at the very low income level. 5. The unit mix requirements are: a. No more than 50% of the units can be studio or one-bedroom units; and b. No fewer than 50% of the units must include two or more bedrooms. 6. The developer must submit a conceptual plan and a pro forma analysis to demonstrate that a 50 unit project targeted to very low income households will be feasible with no financial contribution from the City. Acquisition and Rehabilitation Option The acquisition and rehabilitation option can only be exercised under very limited circumstances, and then only with City Council approval. Only projects that fulfill the following requirements will be presented to the City Council for consideration: 1. The Inclusionary Housing requirement is set at 20% of the units being constructed in the market rate project. 2. To fulfill the affordable housing requirement a developer would need to acquire and rehabilitate existing projects that include a total of at least 50 units. 3. The affordability standard is set at the very low income level. 2004014.HB:KHH 14066.011.001 327 Ursula Luna-Reynosa, City of Huntington Beach May 6, 2020 Inclusionary Housing: Policy & Implementation Recommendations Page 28 4. The rehabilitation scope must comport with the following requirements: a. The improvements must have a value equal to at least 25% of the after rehabilitation value of the units, which includes the value of the land.6 b. It is required that at least 50% of the acquired and rehabilitated units include at least two bedrooms. This may require reconfiguration and conversion of some units in the projects that are acquired. SUMMARY The preceding memorandum presented KMA's policy and implementation recommendations related to updating the City's Inclusionary Housing Ordinance. The recommended affordable housing requirements are based on the results of the accompanying Financial Analysis and on an evaluation of the array of fulfillment options that can be made available to the developers of market rate residential projects. It is the City's goal to update the Inclusionary Housing Ordinance in ways that balance the interests of property owners and developers against the public benefits associated with increasing the inventory of affordable housing units in the community. To that end, KMA identified financially feasible Inclusionary Housing production requirements and provided a mix of alternative methods for fulfilling the requirements. b H&SC Section 33413 (2) (a)(iv). 2004014.HB:KHH 14066,011.001 328 D.G�ff. ,D KEYSER MARSTON ASSOCIATES.. FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE Prepared for: City of Huntington Beach Prepared by: Keyser Marston Associates, Inc. May 6, 2020 329 TABLE OF CONTENTS I. OVERVIEW ..................................................................................................................... 1 A. Key Court Cases.................................................................................................................... 3 B. Legislation: AB 1505............................................................................................................ 5 C. Inclusionary Housing Program Characteristics.................................................................... 7 D. State Density Bonus and Inclusionary Housing Requirements............................................ 9 II. SUPPORTABLE INCLUSIONARY HOUSING REQUIREMENTS............................................. 10 III. METHODOLOGY ........................................................................................................... 11 A. Inclusionary Housing Requirements that are Currently Being Imposed ........................... 11 B. Regional Housing Needs Assessment (RHNA) ................................................................... 14 C. Financial Analysis Organization ......................................................................................... 16 IV. OWNERSHIP HOUSING ANALYSIS.................................................................................. 16 A. Supporting Documents: Ownership Housing Analysis...................................................... 17 B. Condominium Prototype ................................................................................................... 18 C. Projected Market Rate Sales Prices................................................................................... 19 D. Affordable Sales Price Calculations.................................................................................... 19 E. Pro Forma Analyses............................................................................................................ 23 F. In-Lieu Fee Analysis: Ownership Housing.......................................................................... 26 V. RENTAL APARTMENT ANALYSIS.................................................................................... 27 A. Supporting Documents: Rental Apartment Analysis ........................................................ 28 B. Rental Apartment Prototypes............................................................................................ 28 C. Projected Market Rents..................................................................................................... 30 D. Affordable Rent Calculations............................................................................................. 3D E. Pro Forma Analyses............................................................................................................ 32 F. In-Lieu Fee Analysis: Rental Apartments........................................................................... 34 VI. SUMMARY ................................................................................................................... 36 A. Existing Inclusionary Housing Requirements..................................................................... 36 B. Residential Development Prototypes................................................................................ 37 C. Conclusions ........................................................................................................................ 38 Financial Analysis: Inclusionary Housing Ordinance Update Page i Keyser Marston Associates, Inc. 1908014.HB May 6, 2020 330 ATTACHMENTS ATTACHMENT 1 — INCLUSIONARY HOUSING PROGRAM SURVEY ATTACHMENT 2 —OWNERSHIP HOUSING ANALYSES Appendix A: Condominium Analyses Exhibit I: Pro Forma Analysis: Existing 10% Production Alternative Exhibit II: Pro Forma Analysis: Existing In-Lieu Fee Payment Alternative AppendixB: Affordability Analyses Exhibit I Affordable Sales Price Calculations Exhibit II In-Lieu Fee Analysis Appendix C: Home Sales Survey ATTACHMENT 3 — RENTAL APARTMENT ANALYSES Appendix A: Pro Forma Analyses— 10% Inclusionary Units Exhibit I: Moderate Income Alternative— Density @ 50 Units Per Acre Exhibit II: Low Income Alternative— Density @ 50 Units Per Acre Exhibit III: Very Low Income Alternative —35% Density Bonus: 67.5 Units Per Acre Appendix B: Affordability Analyses Exhibit I: Affordable Rent Calculations Exhibit II: In-Lieu Fee Analysis Appendix C: Rent Survey Financial Analysis: Inclusionary Housing Ordinance Update Page ii Keyser Marston Associates, Inc. 1908014.HB May 6,2020 331 I. OVERVIEW The City of Huntington Beach (City) has imposed Inclusionary Housing requirements on residential development since the early 1990's. During the intervening period the City Council has taken the following actions related to the Inclusionary Housing policy: 1. In October 2005 the City Council adopted an Inclusionary Housing Ordinance to codify the affordable housing policy. 1 The key requirements imposed by the Inclusionary Housing Ordinance can be summarized as follows: a. Projects with three or more units are subject to a 10% Inclusionary, Housing requirement: i. Projects with between three and 10 units were allowed to pay a fee in lieu of producing affordable units. ii. Under specified circumstances the affordable housing requirements could be fulfilled in off-site locations with new development or the acquisition and rehabilitation of existing units. b. The following income standards were applied: i. For ownership housing projects the requirement was set at very low, low or median income at the City's discretion; and ii. For rental apartment projects the requirement was set at very low or low income at the City's discretion C. The covenant period was set at 60 years for both ownership housing and rental apartment projects. 'The Inclusionary Housing Ordinance is codified in Zoning Code Title 23,Chapter 230,Article I, Section 230.26. Financial Analysis: Inclusionary Housing Ordinance Update Page 1 Keyser Marston Associates,Inc. 1908014.HB May 6, 2020 332 2. In July 2009 the City Council approved the following changes to the Inclusionary Housing Ordinance:' a. The in-lieu fee payment option was expanded to include projects with up to 30 units b. The household income limits were modified as follows: i. For ownership housing projects the requirement was set at the moderate income level; and ii. For rental apartment projects the requirement was set at the low income level. However, with City approval affordable units built within the market rate projects can fulfill the obligation with moderate income units. C. The affordable units must have a bedroom mix that is proportionate to the market rate unit mix. However, the smallest units of each bedroom type can be used. d. In August 2011 the City published the following regulations that detail the Inclusionary Housing Ordinance requirements: i. Affordable Ownership Housing Regulations: Developer Requirements; ii. Affordable Ownership Housing Regulations: Owner Requirements; and iii. Affordable Rental Apartment Regulations. The Inclusionary Housing Ordinance has not been amended to reflect the approved changes. However, in practice,the City has been implementing the changes. Financial Analysis: Inclusionary Housing Ordinance Update Page 2 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 333 The City engaged Keyser Marston Associates, Inc. (KMA) to assist in updating the requirements imposed by the Inclusionary Housing Ordinance. This update is being undertaken because conditions have changed since the Inclusionary Housing Ordinance requirements were last modified in 2011. The following Financial Analysis: Inclusionary Housing Ordinance Update (Financial Analysis) evaluates the following topics: 1. The appropriateness of the 10% affordable housing requirement; 2. The fee amounts that can be supported for projects that are permitted to pay a fee in lieu of producing affordable housing; and 3. Alternative means of fulfilling the affordable housing requirements imposed by the Inclusionary Housing Ordinance. This Overview section describes the basic parameters that guide Inclusionary Housing programs throughout California. A. Key Court Cases It is important to review the key legal cases and State legislation that guide the implementation of Inclusionary Housing programs. A chronological summary of the relevant issues follows. Palmer Case In 2009, the California Court of Appeal ruled in Palmer/Sixth Street Properties L.P. v. City of Los Angeles, 175 Cal. App. 4t' 1396 (Palmer), that the local affordable housing requirements being imposed by the City of Los Angeles violated the Costa-Hawkins Rental Housing Act (Costa- Hawkins). Specifically, Costa-Hawkins allows landlords to set the initial monthly rent for a new unit, and then to increase the monthly rent to the market level each time a unit is vacated. The Court found that the imposition of long-term income and affordability restrictions on rental residential units is a violation of this provision. Financial Analysis: Inclusionary Housing Ordinance Update Page 3 Keyser Marston Associates,Inc. 1908014.H8 May 6,2020 334 It is commonly believed that the Palmer ruling prohibited jurisdictions from requiring developers to construct affordable rental apartment units as a part of their Inclusionary Housing program. In an effort to comply with Palmer, jurisdictions generally took one of the following actions: 1. The jurisdiction eliminated the requirement that market rate rental apartment projects provide affordable rental apartment units; or 2. The jurisdiction replaced affordable housing production models with a linkage or impact fee methodology; or 3. The jurisdiction imposed affordable housing requirements as part of negotiated Development Agreements for rental apartment projects. San Jose Case In 2015, the California Supreme Court ruled in California Building Industry Association v. City of San Jose, 61 Cal 41h 43S (San lose) that Inclusionary Housing programs should be viewed as use restrictions that are a valid exercise of a jurisdiction's zoning powers. Specifically, the Court found that Inclusionary Housing requirements are a planning tool rather than an exaction. This is interpreted to mean that an in-lieu fee payment option that is included in an Inclusionary Housing program, that includes an affordable housing production requirement, is not subject to the AB 1600 nexus requirements imposed by the "Mitigation Fee Act".3 Price controls imposed by Inclusionary Housing programs must meet the following criteria: 1. The requirements cannot be "Confiscatory'; and 2. The requirements cannot deprive a property owner of a fair and reasonable return on their investment. a The Mitigation Fee Act is codified in California Government Code §66000 et seq. Financial Analysis: Inclusionary Housing Ordinance Update Page 4 Keyser Marston Associates,Inc. 1908014.HB May 6, 2020 335 The San Jose ruling that Inclusionary Housing programs are not an exaction applies to both ownership housing and rental apartment development. However, the San lose case did not overturn the limitations Palmer imposed on Inclusionary Housing programs for rental apartment projects. The San lose case is also relevant to rental apartment projects, because former Governor Brown publicly stated that he would not sign a "Palmer Fix" bill unless and until the California Supreme Court ruled in favor of the City of San Jose. As such, the San Jose ruling opened the door for the subsequent passage and adoption of Assembly Bill (AB) 1505 in September 2017. B. Legislation: AB 1505 AB 1505, which is otherwise known as the "Palmer Fix", was signed into law on September 29, 2017. AB 1505 amends Section 65850 of the California Government Code and adds Section 65850.01. This legislation provides jurisdictions with the ability to adopt programs that impose affordable housing requirements on rental apartment projects. Role of the California Department of Housing and Community Development (HCD) Section 65850.01 does not place a cap on the percentage of units that can be subject to income and affordability restrictions. However, Section 65850.01 (a) gives HCD the authority to review the restrictions imposed by an Inclusionary Housing program on rental apartment developments if it requires that more than 15% of the units to be restricted to households earning less than 80% of the area median income (AMI), and if one of the following conditions applies: 1. The jurisdiction has failed to meet at least 75% of its Regional Housing Needs Assessment (RHNA) allocation for above moderate income units. This test is measured on a pro-rated basis over the planning period, which is set at a minimum of five years; or 2. HCD finds that the jurisdiction has not submitted their housing element report for at least two consecutive years. Financial Analysis: Inclusionary Housing Ordinance Update Page 5 Keyser Marston Associates, Inc. 1908014.HB May 6,2020 336 As of December 31, 2019, the City has exceeded the RHNA goal for above moderate income housing. The City received Housing Element approval from HCD in March 2020, but prior to that HCD had deemed the City out of compliance since 2015. Since the City has not submitted their housing element report for at least two consecutive years HCD has the right to require an economic feasibility study if more than 15% of rental apartment units in a project are required to be restricted at less than 80% of AM I. It is likely that this Financial Analysis meets the economic feasibility study standards defined in Section 65850.01 (b). However, if the City chooses to impose a greater than 15% affordability requirement and/or deeper affordability standards on rental apartment projects, HCD can intervene in the Inclusionary Housing Ordinance update process. This could extend and complicate the approval process for updates to the Inclusionary Housing Ordinance being considered by the City. Additional AB 1505 Requirements Section 65850 (g) requires jurisdictions to provide alternative means of fulfilling the affordable housing requirements imposed on rental apartment projects by an Inclusionary Housing program. Options that can be provided to developers include, but are not limited to: 1. Off-site construction of affordable units; 2. Payment of a fee in-lieu of producing affordable housing units; 3. Land dedication; and 4. The acquisition and rehabilitation of existing units. Financial Analysis: Inclusionary Housing Ordinance Update Page 6 Keyser Marston Associates,Inc. 1903014.HB May 6,2020 337 C. Inclusionary Housing Program Characteristics Over 170 jurisdictions in California currently include an Inclusionary Housing program as a component in their overall affordable housing strategy. While the unifying foundation of these programs is the objective to attract affordable housing development, the characteristics of these programs vary widely from jurisdiction-to-jurisdiction. To assist the City in evaluating options for updating the Inclusionary Housing Ordinance it is useful to identify the elements that are typically included in Inclusionary Housing programs being implemented in California jurisdictions. To that end, KMA compiled information on 64 Inclusionary Housing programs being implemented throughout California. The survey information is presented in Attachment 1 and is summarized in the following sections of this Financial Analysis. 1. In California, the majority of Inclusionary Housing programs include a threshold project size below which projects are not subject to the affordable housing requirements. Common thresholds fall between three and 10 units. The average threshold project size found in the program survey is eight units. 2. The income and affordability standards imposed by Inclusionary Housing programs vary widely throughout California. The majority of programs have established standards in the range of 10% to 20% of the units in projects that will be subject to the requirements. However, the following policy variations are commonly found: a. The threshold standards are varied as a reflection of the depth of the affordability being provided. b. Inclusionary Housing requirements have a disproportionate impact on smaller projects, because there are fewer market rate units available to spread the impact created by the income and affordability standards. A sliding scale requirement is sometimes used to mitigate these impacts. Financial Analysis: Inclusionary Housing Ordinance Update Page 7 Keyser Marston Associates,Inc. 1908014.1-18 May 6,2020 338 C. The length of the covenant period imposed on Inclusionary Housing units varies from jurisdiction-to-jurisdiction. The California Health and Safety Code (H&SC) Section 33413 standards of 45 years for ownership housing units and 55 years for rental apartment units is commonly used. However, both shorter and longer covenant periods are imposed throughout Inclusionary Housing programs in California. Inclusionary Housing programs focus on the production of affordable housing units by imposing specific affordable housing requirements on new development. To comply with the findings in the San lose case, and the requirements imposed by Sections 65850 and 65850.01, Inclusionary Housing programs must offer developers a range of options for fulfilling the affordable housing requirements. The most common options offered to developers are: 1. Construction of a defined percentage of income restricted units within new market rate residential projects; 2. Construction of a defined percentage of income restricted units in a project located in an off-site location; 3. Payment of a fee in lieu of producing affordable housing units in which the revenues will subsequently be used by the jurisdiction to assist in the development of affordable housing units within the community; 4. The dedication of land to the jurisdiction that is appropriate for the development of affordable housing; and S. The acquisition and rehabilitation of existing units. The requirements imposed by the City's existing Inclusionary, Housing Ordinance can be considered typical within the context of the surveyed programs. As such, the focus of this KMA evaluation is on updating the Inclusionary Housing Ordinance to reflect current market and financial conditions. Financial Analysis: Inclusionary Housing Ordinance Update Page 8 Keyser Marston Associates,Inc. 1908014.HB May 6, 2020 339 D. State Density Bonus and Inclusionary Housing Requirements A tool that is commonly used to reduce the financial impact associated with the imposition of Inclusionary Housing requirements is the density bonus provided by California Government Code Sections 65915-65918 (Section 65915). Section 65915 requires jurisdictions to provide density bonuses based on a sliding scale ranging from 5% to 35% depending on the magnitude of the income restrictions being imposed. In July 2013 the First District Court of Appeal held that jurisdictions must agree to count the affordable units used to fulfill the Section 65915 density bonus requirements towards the Inclusionary Housing requirements that will be imposed on a project.' Based on that ruling, a developer must be allowed to use the same affordable units to fulfill both the Inclusionary Housing requirements and the Section 65915 requirements. However, in order to exercise this option, the developer must apply the more stringent of the two programs' requirements. The Section 65915 density bonus can act to materially reduce the financial impacts created by Inclusionary Housing requirements. For that reason, the City should recognize that when Inclusionary Housing requirements are imposed it is highly likely that many developers will make use of Section 65915 density bonuses. It is also important to understand that the City is required to grant a developer's request for the statutorily established density bonus along with the requisite number of concessions and incentives, as well as any necessary development standards reductions or waivers.' Section 65915 requires the City to adopt an ordinance that specifies how it will comply with the State mandated density bonus requirements. The City adopted a density bonus ordinance in 2005 and it has amended the ordinance four time6.6 However, the City's density bonus 'Latinos Unidos del Valle de Napa y Solana v. County of Napa, 217 Cal. App.Wh 1160(Napa). 6 Section 65915 (d)(1) identifies three conditions under which requested incentives or concessions can be denied. However, this does not relieve the City of the obligation to grant the number of incentives or concessions that the project is entitled to under Section 65915 (d) (2). 6 The density bonus ordinance is codified in Zoning Code Title 23,Chapter 230,Article I,Section 230.14. Financial Analysis: Inclusionary Housing Ordinance Update Page 9 Keyser Marston Associates, Inc. 1908014.HB May 6, 2020 340 ordinance has not been updated to reflect several modifications that have been made by the State Legislature to Section 65915 over time. Until such time as the modifications are amended into the City's density bonus ordinance, State law will automatically prevail over any inconsistencies between State law and the City's ordinance. II. SUPPORTABLE INCLUSIONARY HOUSING REQUIREMENTS As discussed previously, the court in the San lose case found that the imposition of Inclusionary Housing requirements is a valid exercise of the City's zoning powers rather than an exaction. Sections 65850 and 65850.01 amended the California Government Code to expressly allow Inclusionary Housing requirements to be imposed on rental apartment projects. It is important for the City to consider the following caveats when updating the Inclusionary Housing Ordinance 1. Inclusionary Housing requirements cannot be confiscatory or deprive an owner of a fair and reasonable return. However, recognizing that the courts have not defined these terms, the City has some discretion in establishing evaluation parameters. 2. California Government Code Section 65583 (a) (Section 65583 (a)) requires the City to analyze potential and actual constraints being placed on the development of housing. Within that context, it is important to recognize that the requirements imposed by the Inclusionary Housing Ordinance can only be expected to fulfill a small portion of the unmet need for affordable housing in Huntington Beach. As mentioned previously, the City has been imposing Inclusionary Housing requirements on residential development since the early 1990's. As such, residential developers and owners of residentially zoned land are fully aware of the financial impacts created by the affordable housing requirements. Given that building permits were obtained for 2,915 housing units between 2013 and 2018 it can safely be concluded that to date the Inclusionary Housing Ordinance has not acted as a constraint to development. Financial Analysis: Inclusionary Housing Ordinance Update Page 10 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 341 The key factors that should be considered in updating the Inclusionary Housing Ordinance are: 1. The requirements should balance the interests of property owners and developers against the public benefit created by the production of income restricted units; and 2. The Inclusionary Housing requirements cannot be confiscatory or deprive an owner of a fair and reasonable return on their investment. III. METHODOLOGY The purpose of this analysis is to assist the City in updating the Inclusionary Housing Ordinance. The evaluation is comprised of the following steps: A. Inclusionary Housing Requirements that are Currently Being Imposed Basic Requirements 1. The Inclusionary Housing requirements apply to residential projects that include three or more units. 2. The affordable housing units must be built concurrently with the market rate project. The units can be constructed in phases if the market rate project is being developed in phases. 3. The affordable housing units must comply with the following development scope requirements: a. The bedroom mix for the affordable units must be proportional to the bedroom mix of the market rate units. However, the affordable units may be smaller in square footage than the market rate units. b. The exterior improvements for the affordable units must be comparable to the exterior improvements for the market rate units. Financial Analysis: Inclusionary Housing Ordinance Update Page 11 Keyser Marston Associates,Inc. 1908014.H8 May 6,2020 342 C. The interior improvements for the affordable units must be comparable to the base level interior finishes provided in the market rate units. Income and Affordability Covenants The Inclusionary Housing requirement is set at 10% of the units in ownership housing and rental apartment development projects. The specific income and affordability standards that are currently being applied are as follows: Ownership Housing Projects: 1. The affordable units must be sold to moderate income households. 2. The H&SC Section 500S2.5 calculation methodology is used to set the "Affordable Sales Prices'. 3. The covenant period is set at one cumulative total of 45 years. Within that one 45-year period the home must be sold and resold at an Affordable Sales Price to moderate income households. Rental Apartment Projects: 1. Under the current policy, the affordable units are to be rented to low income households. However, moderate income units may be allowed to be used to fulfill the requirement if the units are provided on site within the market rate project. 2. The H&SC Section 50053 calculation methodology is used to establish the "Affordable Rents" each year. 3. The covenant period is set at 55 years. Financial Analysis: Inclusionary Housing Ordinance Update Page 12 Keyser Marston Associates,Inc. 1908014.H8 May 6,2020 343 Alternative Inclusionary Housing Requirement Fulfillment Options Developers currently have the option to fulfill the Inclusionary Housing requirements in the following ways: In-Lieu Fees An in-lieu fee can be paid to fulfill a fractional affordable unit obligation. An in-lieu fee can also be paid by projects with between three and 30 units. Restrictions applied to the in-lieu fee are: 1. The City Council establishes the in-lieu fee schedule each year. 2. The in-lieu fee must be paid when the building permits for the project are issued. 3. The in-lieu fee revenue is deposited into the "Inclusionary Housing Trust Fund". The City must allocate at least 20% of these funds to assist very low income households, and at least 50%of the total funds must be used to assist very low and low income households. Off-Site Affordable Housing Production The Inclusionary Housing requirements can currently be fulfilled in off-site locations under the following criteria: 1. Newly constructed units must fulfill the same development scope requirements that are applied to affordable units constructed within the market rate project. 2. The affordable units can be provided in existing projects that meet the following criteria: a. The units must not be subject to existing income and affordability covenants unless the units are at risk of being converted to unrestricted market rents. b. The units must require substantial rehabilitation, which is defined as one-third of the value of the existing improvements, excluding land. Financial Analysis: Inclusionary Housing Ordinance Update Page 13 Keyser Marston Associates,Inc. 1908014.H8 May 6,2020 344 3. Mobile homes can be used to fulfill the affordable housing requirement. B. Regional Housing Needs Assessment (RHNA) To assist in creating updates to the existing Inclusionary Housing Ordinance it is useful to identify the composition of the City's unmet need for housing. One measurement is the RHNA, which is used as a tool in the Housing Element process. The most recent RHNA covers the period between 2013 and 2021. At the end of 2019 the City's progress towards fulfilling the defined RHNA targets is presented in the following table: City of Huntington Beach RHNA Information 2013 — 2021 Progress as of December 31, 2019 Unfilled RHNA Targets Building RHNA Permits Entitled Income Category Targets Issued Units Total % Very Low 313 50 0 263 84% Low 220 47 1 172 78% Moderate 248 274 9 (35) 0% Above Moderate 572 2,574 266 (2,649) 0% Totals 1 1,353 2,945 276 435 82% As can be seen in the preceding table, the above moderate income target has been exceeded by a significant margin, and 35 more units were produced than the current moderate income target. g This indicates that the Inclusionary Housing Ordinance should focus on the attraction of very low and low income units. However, this goal needs to be balanced against the 'The Total Unfilled RHNA Target and the Percentage of Remaining RHNA Target calculations exclude the excess number of moderate and above-moderate income units that have been permitted. 8 The Southern California Association of Governments(SCAG) staff recommended RHNA allocation for 2021 -2029 totals 13,337 units. No credit will be provided for units produced in excess of the 2013 -2021 targets. Financial Analysis: Inclusionary Housing Ordinance Update Page 14 Keyser Marston Associates,Inc. 1908014.1-18 May 6,2020 345 requirement that the Inclusionary Housing Ordinance cannot be structured in a way that places an onerous financial burden on the developers of market rate housing. Recognizing that the vast majority of housing that has been constructed in Huntington Beach over the past five years has been premium priced ownership housing units and rental apartments, it may be advantageous to update the Inclusionary Housing Ordinance requirements to encourage off-site production and in-lieu fee payment options. The key advantages of this strategy are: 1. The affordable housing units can be developed by developers that have specific expertise in the development and operation of affordable housing projects. 2. Dedicated affordable housing projects have access to public funding sources that provide a more cost-efficient way to achieve deeper affordability than can be supported by an Inclusionary Housing requirement. A representative sample of programs that are targeted to dedicated affordable housing projects are: a. Low and Moderate Income Housing Asset Funds (LMIHAF) that are under the control of the City, which acts as the Housing Successor to the former Huntington Beach Redevelopment Agency; b. HOME Program funds that are awarded to the City by the United States Department of Housing and Urban Development (HUD); C. The federal and state Low-Income Housing Tax Credits (Tax Credits) offered under Internal Revenue Code Section 42; d. State funding sources such as the Affordable Housing and Sustainable Communities (AHSC) Program; and e. The funds allocated to the City by HCD under the Permanent Local Housing Allocation (PLHA) for Senate Bill 2 (Chapter 364, Statutes of 2017). Financial Analysis: Inclusionary Housing Ordinance Update Page 15 Keyser Marston Associates,Inc. 1908014.HB May 6, 2020 346 C. Financial Analysis Organization The financial analyses are organized as follows: Step Analysis 1 Creation of residential prototypes that are representative of new market rate development in Huntington Beach. 2 A survey of representative projects to estimate the achievable market rate sales prices and rents for the prototype units. 3 Estimation of the Affordable Sales Prices and Affordable Rents. 4 An evaluation of the existing 10% Inclusionary Housing requirement: a. For ownership housing projects KMA prepared a pro forma analysis for a prototype condominium project that includes a 10% moderate income requirement and a pro forma analysis for the same project assuming that the 2019 in-lieu fee amount is paid. b. For rental projects KMA prepared pro forma analyses for a prototype rental apartment project under three alternative income and affordability standards. S Projection of the in-lieu fees per square foot of net saleable or leasable area that can be supported. Iv. OWNERSHIP HOUSING ANALYSIS The Inclusionary Housing Ordinance requires 10% of the units in ownership housing projects to be allocated to moderate income households. Imposing a moderate income requirement on ownership housing units reflects the fact that these households are likely to have more discretionary income to devote to the ongoing costs associated with home ownership than that of lower income households. Recent new ownership housing development in Huntington Beach has been focused largely on detached single family home projects, with scattered development of condominiums and Financial Analysis: Inclusionary Housing Ordinance Update Page 16 Keyser Marston Associates, Inc. 1908014.HB May 6,2020 347 townhomes.1 However, for the following reasons the prototype ownership housing project created by KMA for the pro forma analysis is a condominium project: 1. For single family homes, the weighted average gap between the market rate price and the Affordable Sales Price for a moderate income household is approximately $1.74 million.10 2. It is clear that exercising an option to pay an in-lieu fee or to provide off-site affordable housing units could be structured to produce more affordable units at a deeper affordability level than fulfilling the Inclusionary Housing requirement within a market rate single family home project. 3. Higher density condominium projects are currently being proposed for development in Huntington Beach. The gap between the market rate prices and the Affordable Sales Prices for this product type is significantly smaller than the gap exhibited by single family homes. Therefore, the potential for fulfilling Inclusionary Housing obligations on site merits evaluation. A. Supporting Documents: Ownership Housing Analysis The documents that support the ownership housing analysis are presented in Attachment 2. The following condominium pro forma analyses are used to evaluate the existing moderate income affordable housing production requirements and to estimate the supportable in-lieu fees per square foot of net saleable building area. The analyses are organized as follows: a To compile sufficient data the home sales survey for condominiums and townhomes had to be extended to projects built as early as 1990. Comparatively, it was possible to limit the survey of single family home sales to projects constructed after 2010. 10 See Attachment 2—Appendix 3—Exhibit II. Financial Analysis: Inclusionary Housing Ordinance Update Page 17 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 348 Financial Analysis—Ownership Housing Appendix A Condominium Analyses Appendix B Affordability Analyses Appendix C Home Sales Survey B. Condominium Prototype KMA created a prototype based on a review of condominium projects proposed for development and existing condominium projects in Huntington Beach. The key characteristics of the condominium prototype used in the pro forma analyses are: Condominium Prototype Site Area (Square Feet) 43,560 Total Number of Units 40 Density (Units Per Acre) 40 Unit Mix Two-Bedroom Units 20 Three-Bedroom Units 10 Four-Bedroom Units 10 Average Unit Sizes (Square Feet) Two-Bedroom Units 1,530 Three-Bedroom Units 1,900 Four-Bedroom Units 3,000 Parking Total Number of Spaces 110 Parking Spaces Per Unit 11 2.75 Parking Type Subterranean " Based on the citywide parking standards of 2.0 spaces for two-bedroom units; 2.5 spaces for three-and four- bedroom units;and .5 guest spaces per unit. Financial Analysis: Inclusionary Housing Ordinance Update Page 18 Keyser Marston Associates, Inc. 1908014.118 May 6,2020 349 C. Projected Market Rate Sales Prices It is important to note that the prototype analysis is intended to reflect average or typical ownership housing projects rather than any specific project. It should be expected that specific projects will vary to some degree from the prototype. To assist in projecting the achievable market rate sales prices, KMA compiled sales data for condominiums sold in Huntington Beach between March 2019 and March 2020 (Attachment 2 —Appendix Q. This information is used to establish the average sales price per square foot of saleable area for two-, three- and four-bedroom condominium units. Based on the results of the surveys, KMA estimated the market rate sales prices as follows: Projected Market Rate Sales Prices—Ownership Housing % of Total Units Average Price Two-Bedroom Units 50% $842,500 Three-Bedroom Units 25% $1,001,700 Four-Bedroom Units 25% $1,348,100 Average Price / SF of Net Saleable Area 100% $500 D. Affordable Sales Price Calculations The Affordable Sales Prices calculations are presented in Attachment 2 —Appendix B — Exhibit I. The calculations are based on the following assumptions: Financial Analysis: Inclusionary Housing Ordinance Update Page 19 Keyser Marston Associates, Inc. 1908014.HB May 6,2020 350 1. The household income information used in the calculations is based on 2020 income statistics for Orange County as a whole. The household incomes for moderate income households are produced and distributed annually by HCD.12 2. The Affordable Sales Price estimates are based on the calculation methodology imposed by H&SC Section 50052.5. The calculations include the elements described in the following sections of this report. Household Size The household incomes applied in the Affordable Sales Price calculations are set at the number of bedrooms in the home plus one. For example, the imputed household size for a three- bedroom home is four persons. H&SC Section 50052.5 refers to this as "the household size appropriate for the unit." However, this is not meant to be an occupancy cap; it is simply a benchmark used to create a consistent methodology for calculating the Affordable Sales Price. Household Income For moderate income households, H&SC Section 50052.5 uses 110% of AMI for a household size equal to the number of bedrooms in the home plus one. This measurement is only used for setting the Affordable Sales Prices. Households with incomes of up to 120% AMI would qualify to reside in moderate income units. Income Allocated to Housing-Related Expenses H&SC Section 50052.5 allocates 35% of the benchmark household income to the payment of housing-related expenses. 12 As of April 23, 2020 HCD had not yet published 2020 income information. For the purposes of this Financial Analysis KMA estimated the moderate income amounts based on an extrapolation from the Orange County median income published by HUD on April 1, 2020. It is possible that the information published by HCD for 2020 may vary somewhat from these estimates. Financial Analysis: Inclusionary Housing Ordinance Update Page 20 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 351 Housing-Related Expenses Based on research undertaken by KMA, the variable housing related expense assumptions used in this analysis are presented in the following table: Variable Housing Related Expenses—Ownership Housing Monthly HOA, Monthly Utilities Insurance & Allowances 13 Maintenance Two-Bedroom Units $171 $500 Three-Bedroom Units $226 $550 Four-Bedroom Units $281 $575 The property tax expense estimate is based on 1.08% of the home's estimated Affordable Sales Price. This Affordable Sales Price is applied as the assessed value due to the fact that an irrevocable long-term resale restriction covenant is imposed on the home. Supportable Mortgage Amount The mortgage amounts used in the Affordable Sales Price calculations are estimated using the income available after the other housing-related expenses are paid. The Affordable Ownership Housing Regulations state the following: The Maximum Mortgage Amount is equal to the present value of the Income Available for Mortgage Payments over a 30-year term. The discount rote used to determine the present value is set at the Mortgage Interest Rate. The Mortgage Interest Rate will be posted on the City's website, and will be updated monthly. 13The utilities allowances are based on the assumption that the home owners utilities costs are comprised of gas heating, cooking and water heating; basic electric;water;and trash and sewer services.The allowances are based on the Orange County Housing Authority schedule effective October 1, 2019. Financial Analysis: Inclusionary Housing Ordinance Update Page 21 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 352 In practice, the City has been using the lowest interest rate published during the preceding three month period. As an example, the rate being applied by the City in April 2020 is 2.46%. This rate is significantly lower than the rates for which typical moderate income home buyers will be able to qualify. Common reasons for this are: 1. Credit history and scores that do not fall within the exceptional level required to obtain the lowest interest rate available in the marketplace; 2. Back-end ratios that are often higher than the typical ratios applied in conventional lenders' underwriting standards for the lowest interest rate mortgages; 3. The lowest published interest rate is often a teaser rate that will ultimately adjust to a higher rate that will be unaffordable to the moderate income home buyer; and 4. There is a limited pool of mortgage lenders that are willing to provide loans on homes that are subject to long-term irrevocable resale restrictions. These lenders do not generally offer the lowest interest rates available in the marketplace. The use of the lowest published interest rate is not required by the Inclusionary Housing Ordinance or by the Affordable Ownership Housing Regulations. The application of this metric generates extremely high Affordable Sales Prices, which can actually only be achieved by home buyers with the ability to make an extraordinarily large down payment. KMA strongly recommends that the City modify the policy being used to set the mortgage interest rate being applied in the Affordable Sales Price calculations. The mortgage terms used in this pro forma analysis are based on a SO basis points premium applied to the April 20, 2020 Bankrate site average APR for 30-year fixed interest rate mortgages. This results in a 4.24% interest rate. Financial Analysis: Inclusionary Housing Ordinance Update Page 22 Keyser Marston Associates, Inc. 1908014.118 May 6,2020 353 Benchmark Down Payment KMA set the down payment at 10% of the Affordable Sales Price. This represents a benchmark percentage based on the standards set forth in the Affordable Ownership Housing Regulations. The benchmark down payment is only used for the purpose of setting the Affordable Sales Price. The actual down payment amount can vary from a minimum of 5% to a maximum of 50% of the Affordable Sales Price. However, it is important to understand that the down payment amount does not impact the Affordable Sales Price. Rather, the actual down payment contributed by a home buyer is subtracted from the defined Affordable Sales Price to establish the allowable first trust deed mortgage amount. Affordable Sales Prices The Affordable Sales Price estimates for moderate income units are: Affordable Sales Price Estimates—Ownership Housing Two-Bedroom Units $432,800 Three-Bedroom Units $475,200 Four-Bedroom Units $509,700 E. Pro Forma Analyses KMA prepared two pro forma analysis, which can be described as follows: 1. A pro forma analysis was prepared for a project that includes 40 condominium units. Four of the units are set aside for moderate income households and 36 units are unrestricted market rate units (Existing 10% Production Alternative). 2. A pro forma analysis was prepared for a 40 unit condominium project in which a fee is paid in lieu of producing any affordable units. The analysis is based on the 2019 in-lieu fee schedule, which is currently being applied (Existing In-Lieu Fee Payment Alternative). Financial Analysis: Inclusionary Housing Ordinance Update Page 23 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 354 The pro forma analyses are organized as follows: Ownership Housing Pro Forma Analyses Table 1: Estimated Development Costs Table 2: Projected Net Sales Revenue Table 3: Projected Developer Profit Existing 10% Production Alternative— Ownership Housing The pro forma analysis for the Existing 10% Production Alternative is presented in Attachment 2 —Appendix A— Exhibit I. In this alternative 90% of the units are sold at unrestricted market rate prices and 10% of the units are sold to moderate income households at Affordable Sales Prices. Existing In-Lieu Fee Payment Alternative—Ownership Housing The pro forma analysis for the Existing In-Lieu Fee Payment Alternative is presented in Attachment 2—Appendix A— Exhibit II. In this alternative 100% of the units are sold at unrestricted market rate prices, and the in-lieu fee is paid when building permits are issued. A comparison of the pro forma analyses follows: Pro Forma Comparison—Ownership Housing Existing In- Existing 10% Lieu Fee Production Payment Alternative Alternative Difference Development Costs Property Acquisition Costs $7,623,000 $7,623,000 --0-- Direct Costs 18,392,000 18,392,000 --0-- Indirect Costs 3,940,000 6,406,000 (2,466,000) Financing Costs 1,733,000 1,938,000 ($205,000) Total Development Costs $31,688,000 $34,359,000 ($2,671,000) Financial Analysis: Inclusionary Housing Ordinance Update Page 24 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 355 Pro Forma Comparison —Ownership Housing Existing In- Existing 10% Lieu Fee Production Payment Alternative Alternative Difference Net Revenue $35,658,000 $37,678,000 ($2,020,000) Developer Profit $3,970,000 $3,319,000 $651,000 As a % of Development Cost 12.5% 9.7% As can be seen in the preceding table, under current conditions, the Existing 10% Production Alternative generates a higher developer return than the Existing In-Lieu Fee Payment Alternative. This is attributable to the following factors: 1. The total development costs for the Existing In-Lieu Fee Payment Alternative are $2.67 million higher than the total development costs for the Existing 10% Production Alternative. The differences are largely explained by the following factors: a. The scheduled in-lieu fee payment totals $2,349,000. Under the existing Inclusionary Housing Ordinance terms, this payment must be made when building permits are issued. b. The additional carrying costs associated with the in-lieu fee payment are estimated at $205,000. 2. The net revenue generated by the Existing In-Lieu Fee Payment Alternative is $2.02 million higher than the net revenue for the Existing 10% Production Alternative. 3. The resulting net profit is $651,000 higher for the Existing 10% Production Alternative than for the Existing In-Lieu Fee Payment Alternative. Financial Analysis: Inclusionary Housing Ordinance Update Page 25 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 356 Based on the findings of the comparative pro forma analyses it would seem likely that developers would choose to fulfill the Inclusionary Housing requirement on site within the market rate project. However, historically, ownership housing developers have typically requested the right to pay the in-lieu fee. It is likely that this option is selected for the following reasons: 1. The in-lieu fee amount is fixed when building permits are obtained for the project. Developers place a value on certainty. 2. The upside potential for market rate prices can be achieved for 100% of the units in the project. 3. It can be difficult to attract home buyers who meet both the income qualification standards and lenders' underwriting criteria and are willing to purchase a home that is subject to long-term resale restrictions. F. In-Lieu Fee Analysis: Ownership Housing In general terms, the financial impact associated with fulfilling Inclusionary Housing requirements within market rate projects is equal to the difference between the achievable market rate sales prices or rents and the Affordable Sales Prices or Affordable Rents for the Inclusionary Housing units. This is known as the "Affordability Gap." The Affordability Gap represents the maximum in-lieu fee that should be charged as part of an Inclusionary Housing program. KMA prepared Affordability Gap analyses for a condominium/townhome project and a single family home project (Attachment 2 —Appendix B — Exhibit II). These analyses apply the weighted average Affordability Gaps to the bedroom mixes identified in the home sales survey. As discussed previously, the home sales survey demonstrated significantly higher prices for the single family homes than for condominiums/townhomes. This is partially attributable to the fact that the single family homes are larger than the condominiums/townhomes, and also that Financial Analysis: Inclusionary Housing Ordinance Update Page 26 Keyser Marston Associates, Inc. 1908014.HB May 6,2020 357 a premium is typically paid for detached homes. In the survey, the weighted average sales price per square foot of net saleable area was 38% higher for the single family homes than for the condominiums/townhomes. As shown in Attachment 2 —Appendix B— Exhibit II, the weighted average Affordability Gaps, and the resulting in-lieu fees, are as follows: In-Lieu Fees Based on Affordability Gaps—Ownership Housing Condominiums & Single Family In-Lieu Fee Townhomes Homes Per Moderate Income Unit $504,700 $1,635,900 Per Total Unit in the Project $50,470 $163,590 Per SF of Net Saleable Area $25.36 $55.34 As can be seen in the preceding table, the in-lieu fee based on the Affordability Gap is estimated at $50,470 per total unit in the condominium and townhome project. Comparatively, the 2019 in-lieu fee under the existing Inclusionary Housing Ordinance is set at $58,736 per total unit in the project. Thus, the currently supportable in-lieu fee for condominium and townhome projects is estimated to be approximately 14% lower than the in- lieu fee applied by the existing 2019 schedule. It is important to note that the in lieu fee based on the Affordability Gap for single family homes is estimated at $163,590 per total unit in the project. A fee of this magnitude is significantly higher than the in-lieu fee charged in any Southern California city. V. RENTAL APARTMENT ANALYSIS The existing Inclusionary Housing Ordinance effectively allows developers to fulfill the affordable housing requirements by allocating 10% of the units in a market rate project to moderate income households. Therefore, KMA applied this requirement as the base case in the analysis. KMA also prepared pro forma analysis for the following alternatives: Financial Analysis: Inclusionary Housing Ordinance Update Page 27 Keyser Marston Associates, Inc. 1908014.1-18 May 6,2020 358 1. A 10% low income requirement for a project at the density allowed by zoning; and 2. A Section 65915 density bonus alternative that allocates 11% of the units allowed by the site's zoning to very low income households. The rental apartment pro forma analyses are used to estimate the financial impacts created by the modifications to the affordability standards that are being tested. The analysis is also used to estimate the supportable in-lieu fees. A. Supporting Documents: Rental Apartment Analysis The documents that support the rental apartment analysis are presented in Attachment 3. The pro forma analyses for rental apartment projects are organized as follows: Financial Analysis— Rental Apartments Appendix A Pro Forma Analyses Appendix B Affordability Analyses Appendix C Rent Survey A variety of tools are available to reduce the financial impact associated with the imposition of income and affordability restrictions on rental apartment projects. For example, the Section 65915 density bonus program is commonly used by the developers in jurisdictions that impose Inclusionary Housing requirements. As discussed previously, under the findings of the Napa case, a developer must be allowed to fulfill Inclusionary Housing and Section 65915 density bonus requirements with the same affordable units as long as the affordable units meet the more restrictive of the standards imposed by the two programs. B. Rental Apartment Prototypes The rental apartment prototypes used in this analysis were created based on the results of the KMA market surveys, and a review of projects that have recently been constructed in Financial Analysis: Inclusionary Housing Ordinance Update Page 28 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 359 Huntington Beach. The KMA market surveys were also used to estimate the achievable market rate rents for the prototype units. The prototypes used in this analysis reflect the characteristics of recently constructed projects. These prototypes are described in the following table: Rental Apartment Project Prototypes Moderate & Low Very Low Income Income Density Bonus Alternatives Alternative Site Area (Acres) 8.0 8.0 Total Number of Units 400 540 Density (Units Per Acre) 50 67.5 Unit Mix Studio Units 60 81 One-Bedroom Units 200 270 Two-Bedroom Units 120 162 Three-Bedroom Units 20 27 Average Unit Sizes (Sp Ft) Studio Units 620 620 One-Bedroom Units 820 820 Two-Bedroom Units 1,160 1,160 Three-Bedroom Units 1,550 1,550 Parkin Total Number of Spaces 14 750 729 Parking Spaces Per Unit 1.88 1.35 Parking Type Wrap Wrap The citywide and Section 65915 parking standards require 1.0 space for studio and one-bedroom units;and; 2.0 spaces for two-bedroom units. For three-bedroom units the citywide requirement is 2.5 spaces and the Section 65915 standard is 2.0 spaces. The Moderate and Low Income Alternatives include .5 guest spaces per unit. No guest spaces can be required under the Section 65915 standards. Financial Analysis: Inclusionary Housing Ordinance Update Page 29 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 360 C. Projected Market Rents In February 2020, KMA surveyed rental apartment projects in Huntington Beach that received four or more stars in the Costar quality ranking system (Attachment 3 —Appendix C). The purpose of this survey was to derive estimates of the currently achievable market rents for the types of projects likely to be constructed in Huntington Beach. However, the characteristics of actual projects will vary to some degree from the prototypes. The market rate monthly rent estimates that are used in this pro forma analysis are: Projected Monthly Market Rate Rents— Rental Apartments Average Monthly Rent Per Unit Studio Units $2,652 One-Bedroom Units $3,189 Two-Bedroom Units $4,856 Three-Bedroom Units $5,501 Average Monthly Rent Per SF of Net Leasable Area $4.01 D. Affordable Rent Calculations The Inclusionary Housing Ordinance calls for Affordable Rents to be calculated using the methodology imposed by H&SC Section 50053. The calculations are presented in Attachment 3 —Appendix B — Exhibit I, and the assumptions and results can be summarized as follows: Financial Analysis: Inclusionary Housing Ordinance Update Page 30 Keyser Marston Associates,Inc. 1908014.HB May 6, 2020 361 1. The household income information used in the calculations is based on 2020 income statistics for Orange County as a whole. The household incomes are published annually by HUD and are distributed by HCD. is 2. The household size appropriate for the unit is based on the H&SC Section 50052.5 standard of the number of bedrooms in the home plus one. As was the case in the Affordable Sales Price calculations, this is a benchmark, not an occupancy cap. 3. The household incomes used in the Affordable Rent calculations are set as follows:16 a. Moderate income at 110% of AMI; b. Low income at 60% of AMI; and C. Very low income at 50% of AMI. 4. Thirty percent (30%) of defined household income is allocated to housing- expenses. 5. KMA's calculations are based on the assumption that the tenants will be required to pay for gas heating, cooking and water heating; and basic electric services. The October 1, 2019 Orange County Housing Authority utilities allowances were applied to this analysis. The resulting Affordable Rents are presented in the following table: 15 As of April 22, 2020 HCD had not yet published 2020 income information. For the purposes of this Financial Analysis KMA estimated the very low, low and moderate income amounts based on extrapolations from the Orange County median income published by HUD on April 1, 2020. It is possible that the information published by HCD may vary somewhat from these estimates. "The percentages of the AMI used in the Affordable Rent calculations are benchmarks established by H&SC 50053. The incomes limit used to qualify households to occupy moderate income units is based on 120%of AMI as defined in H&SC 50093. The low income limit is defined in H&SC 50079.5 and the very low income limit is defined in H&SC 50105. These limits are meant to reflect 80%and 50%of AMI, respectively. However, HUD adjusts the income levels for Orange County to account for conditions that warrant special consideration. As a result,the current income qualification limits exceed 80%and 50%of AMI. Financial Analysis: Inclusionary Housing Ordinance Update Page 31 Keyser Marston Associates,Inc. 1908014.H8 May 6,2020 362 Affordable Rent Calculations— Rental Apartments Moderate Very Low Income Low Income Income Studio Units Maximum Monthly Housing Cost $1,983 $1,082 $901 (Less) Monthly Utility Allowance (Si) (Si) (51) Affordable Rent $1,932 $1,031 $850 One-Bedroom Units Maximum Monthly Housing Cost $2,266 $1,236 $1,030 (Less) Monthly Utility Allowance (61) (61) (61) Affordable Rent $2,205 $1,175 $969 Two-Bedroom Units Maximum Monthly Housing Cost $2,549 $1,391 $1,159 (Less) Monthly Utility Allowance (80) (80) (80) Affordable Rent $2,469 $1,311 $1,079 Three-Bedroom Units Maximum Monthly Housing Cost $2,833 $1,545 $1,288 (Less) Monthly Utility Allowance (103) (103) (103) Affordable Rent $2,730 $1,442 $1,185 E. Pro Forma Analyses Moderate Income Alternative— Rental Apartments The Moderate Income Alternative is based on the existing Inclusionary Housing Ordinance mix of 90% unrestricted market rate units and 10% moderate income units. This provides a baseline against which to measure the impacts associated with imposing stricter affordability requirements than are imposed by the existing Inclusionary Housing Ordinance. Financial Analysis: Inclusionary Housing Ordinance Update Page 32 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 363 The pro forma analysis is presented in Attachment 3 — Appendix A— Exhibit I, and it is organized as follows: Moderate Income Alternative Rental Apartments Table 1: Estimated Development Costs Table 2: Estimated Stabilized Net Operating Income Table 3: Estimated Developer Return The estimated stabilized developer returns on total investment derived from the Moderate Income Alternative analysis is 6.1%. Supportable Inclusionary Housing Production Requirements The pro forma analyses for the Low Income Alternative and the Very Low Income Density Bonus Alternative are presented in Attachment 3—Appendix A— Exhibits II and III, respectively. The analyses are organized as follows: Low Income Alternative and Very Low Income Density Bonus Alternative Rental Apartments Table 1: Estimated Development Costs Table 2: Estimated Stabilized Net Operating Income Table 3: Inclusionary Housing Impact The pro forma analyses for the Low Income Alternative and the Very Low Income Density Bonus Alternative are presented in Attachment 3—Appendix A— Exhibit II and Exhibit III, respectively. The results of the analyses are summarized in the following table: Financial Analysis: Inclusionary Housing Ordinance Update Page 33 Keyser Marston Associates,Inc. 1908014.HB May 6,2020 364 Inclusionary Housing Impacts Analyses Rental Apartments Enhanced / Return on Total (Reduced) Value Investment Moderate Income Alternative N/A 6.1% Low Income Alternative ($6,300,000) 5.9% Very Low Income Density Bonus Alternative $4,505,000 6.2% The results of the Inclusionary Housing impacts analyses for rental apartments indicate the following: 1. The imposition of a 10% low income Inclusionary Housing requirement is estimated to reduce the prototype rental apartment project's value by $6.3 million. This represents an approximately 14% reduction in the property acquisition costs that can be supported, which is well within the range of impacts typically created by Inclusionary Housing requirements. 2. The Very Low Income Density Bonus Alternative is actually stronger from a financial perspective than the Moderate Income Alternative. If a developer can efficiently make use of the 35% density bonus provided by Section 65915, this alternative clearly presents the most efficient method for fulfilling the City's Inclusionary Housing requirements. F. In-Lieu Fee Analysis: Rental Apartments KMA estimated the supportable in-lieu fee amounts for rental apartment projects based on the Affordability Gaps associated with the on-site development of Inclusionary Housing units within market rate rental apartment projects. In-lieu fee analyses were only prepared for the Moderate and Low Income Alternatives. Projects that make use of the Section 65915 density bonus must produce the requisite number of affordable housing units. Financial Analysis: Inclusionary Housing Ordinance Update Page 34 Keyser Marston Associates,Inc. 1908014.HB May 6, 2020 365 The Affordability Gaps for rental apartments are estimated in Attachment 3 - Appendix B— Exhibit II using the following methodology: 1. The analysis is based on the assumption that 10% of the total units in a market rate rental apartment project would be subject to Inclusionary Housing requirements. 2. The differences between the estimated achievable market rate monthly rents and the defined Affordable Rents are calculated for studio, one-bedroom, two-bedroom and three-bedroom units. 3. KMA assumed that the property taxes for projects that include designated affordable housing units would be based on a lower assessed value due to the reduction in net operating income that would be generated by the project. KMA deducted this lower property tax expense from the estimated rent difference. 4. The estimated annual Affordability Gap is equal to the net rent difference minus the property tax savings. S. The total Affordability Gaps are estimated by capitalizing the annual Affordability Gaps at the threshold returns derived from a pro forma analysis of a market rate development. The results of these calculations are defined as the Net Affordability Gaps. 6. The Net Affordability Gaps are translated into the supportable in-lieu fees per affordable unit and per square foot of net leasable area. The results of the in-lieu fee analysis are summarized in the following table: Financial Analysis: Inclusionary Housing Ordinance Update Page 35 Keyser Marston Associates, Inc. 1908014.HB May 6,2020 366 In-Lieu Fees Based on Affordability Gaps— Rental Apartments Moderate Income Low Income In-Lieu Fee Alternative Alternative Per Affordable Unit $192,000 $332,000 Per Total Unit in the Project $19,200 $33,200 Per SF of Net Leasable Area $20.70 $3S.80 vI. SUMMARY The following section summarizes the results of this Financial Analysis. The findings provide the basis for KMA's recommendations for updating the Inclusionary Housing Ordinance. A detailed set of policy recommendations are presented in a separate memorandum. A. Existing Indusionary Housing Requirements The Inclusionary Housing requirements that were evaluated in this Financial Analysis can be summarized as follows: 1. The requirements are imposed on all new residential development with three or more units. 2. A 10% affordable housing requirement is imposed on residential development that is subject to the Inclusionary Housing requirements. The existing income restrictions are: a. Ownership housing developments are subject to a moderate income unit requirement; and b. The base requirement for rental apartment projects is for low income units. However, at the City's discretion affordable units that are built on site within a market rate projects can fulfill the requirement with moderate income units. Financial Analysis: Inclusionary Housing Ordinance Update Page 36 Keyser Marston Associates, Inc. 1908014.HB May 6,2020 367 B. Residential Development Prototypes The development scopes for the residential development prototypes that were evaluated in this Financial Analysis are presented in the following table: Residential Development Prototypes: Development Scopes Ownership Housing Rental Apartments Very Low Moderate & Income Density Condominium Low Income Bonus Alternative Alternatives Alternative Site Area (Acres) 1.0 8.0 8.0 Total Number of Units 40 400 540 Density (Units Per Acre) 40 50 67.5 Unit Mix Studio Units 60 81 One-Bedroom Units 200 270 Two-Bedroom Units 20 120 162 Three-Bedroom Units 20 20 27 Four-Bedroom Units 10 Average Unit Sizes (Sq Ft) Studio Units 620 620 One-Bedroom Units 1,530 820 820 Two-Bedroom Units 1,900 1,160 1,160 Three-Bedroom Units 3,000 1,550 1,550 Parking Total Number of Spaces 110 750 729 Parking Spaces Per Unit 2.75 1.88 1.35 Parking Type Subterranean Wrap Wrap Financial Analysis: Inclusionary Housing Ordinance Update Page 37 Keyser Marston Associates, Inc. 1908014.Ha May 6,2020 368 The ownership housing sales price and rental apartment rent estimates applied in this analysis are provided in the following table: Residential Development Prototypes: Sales Prices and Rents Ownership Rental Housing Apartments Unit Mix Studio Units $2,652 One-Bedroom Units $3,189 Two-Bedroom Units $837,000 $4,856 Three-Bedroom Units $991,300 $5.501 Four-Bedroom Units $1,321,000 Sales Price/Rent Per Square Foot $501 $4.01 C. Conclusions Based on the results of the preceding Financial Analysis, KMA reached the following conclusions: 1. Inclusionary Housing Requirements: a. The 10% moderate income requirement for ownership housing development continues to be supportable. b. The 10% low income requirement for rental apartment projects is supportable. There is no need to provide an option for moderate income units to be used as a substitute when the units are provided on site within a market rate project. 2. The maximum in-lieu fee amounts are currently estimated as follows: Financial Analysis: Inclusionary Housing Ordinance Update Page 38 Keyser Marston Associates, Inc. 1908014.HB May 6, 2020 369 Supportable In-Lieu Fees Ownership Rental Housing Apartments 17 In-Lieu Fee Amounts Per Affordable Unit $504,700 $332,000 Per Total Unit $50,470 $33,200 Per Square Foot of Saleable/Leasable Area $25.36 $35.80 Based on a 10%low income unit Inclusionary Housing Requirement. Financial Analysis: Inclusionary Housing Ordinance Update Page 39 Keyser Marston Associates, Inc. 1908014.HB May 6, 2020 370 ATTACHMENT 1 INCLUSIONARY HOUSING PROGRAM SURVEY FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 371 File name:Inclusionary Survey 5 6 20 Page 1 of 5 ti N C) N N N m Cl A N N .Ni N N o 0 0 d > 0 O d LL d d d U U U N < r O N N N r N O O N O m O O 3 o in O � y u v L O F d m o N N N N O O 0 c d d ¢ m ¢ d ° vo d O O d a a u a E u v N < o N N N r N o N o m o 0 � L r � V u d L O ~ a` X o 0 0 o o O O o 0 0 0 0 0 0 z z z > z z T z z z z z z z z z c > O o o o o N N ^{ C L L L ^ L C O J O O O O J U O O O ° V C u .y. v . v E d W � C a jp E � �p C a O v o v u o u o v v o `o `o `o = o 12 "-' o `o o m ti u `o a `o - `o 12 o 2 o z E y C C C C C C C C C C C C C Ur C J 00 J J cE J DO O p 00 J J m J = n J V J .. J J J o0 p 00 J a .. .. .. .. .. .. .. .. .. ... .. ... 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C C C C C C C O J J 00 O OG J J O ° J J J m J 6 J J J J J y Z GI U C U C N U U C U d N _N U S U N U U N N U zp C R C L C C C � ^ N C C C t C C C C C C _ C O O — 0 0 0 � 0 0 0 � 0 O O O m 0 0 0 0 0 0 O Y ✓ R 7 I'J '; V R R '-' R � fJ R ✓ '-' fJ R f0 1p R R R IE C � ¢ Z a v a u cxi u cxi u u u ai u O u u u U u V U u u v v° u = O' O C N O 0 vl O C a J LL U N z Z U O V N 3 C O J T _ z Q Q p 7 P N (0 C V R ° p .O U C LD Q 7 Q - a LL G G m d > a a a a o o u v 3 O N O L V d d L O c o � d G d o G a E u a o � > o o ae ¢ n d E o r N w '-� o in V1 V U d L O F � d 9 0 0 0 0 0 0 Z > z y z z z z 0 c > 0O o 0 L O a L -C C Q d � C N 0 T V .] U > n n n n m _ d o n c m d c 9 a n ¢ U U �. G C 9 ` d 6 ^ G _ d O d .E E F d C E U _ U C y 1 in �n vi L r G J J T J y J C JU J ¢ O p d � a � 0 .S O U ¢ Z p d Y T Y u 0 C �0 d C C C C C C Vr ❑ J J 'U p p p p J 00 J o0 J u Y Z E d CJ d = d U u U d d N d C d G a. C C O C _ L C C C C C L 0 0 O �n 0 o 0 0 0 O O C Q ¢ p 3 w ZZ Z a` V u V d a O u u u u u u C 7 Ow a J d n N a Z ¢ E E a T z u 3 0 E 0 i. = = c O =O Q g 0 N o p m 'O E A 9 W Z J O O O x — U a c E as �n in vi vn vOi ¢ l� H f n n k u Z ¢ z LL ATTACHMENT 2 OWNERSHIP HOUSING DEVELOPMENT FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 376 Fite Name:HB Own I nclus ion a ry5 6 20;Condo Titles Page 1 of 17 APPENDIX A CONDOMINIUM PROTOTYPE OWNERSHIP HOUSING DEVELOPMENT FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 377 File Name:HO Own Inclusionary 5 6 20;Cando Titles Page 2 of 17 APPENDIX A - EXHIBIT I CONDOMINIUM PROTOTYPE OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING 10% PRODUCTION ALTERNATIVE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 378 File Name:HB Own Inclusionary 6 6 20;Pf Mod Base Page 3 of 17 APPENDIX A-EXHIBIT I-TABLE 1 ESTIMATED DEVELOPMENT COSTS CONDOMINIUM PROTOTYPE:OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING 30%PRODUCTION ALTERNATIVE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Property Acquisition Costs t 43,560 Sf of Land $175 /Sf of land $7,623,000 II. Direct Costs z On-Site Improvements/Landscaping 43,560 Sf of Land $20 /Sf of Land $871,000 1st Level Subterranean Parking Spaces 3 110 Spaces $25,000 /Space 2,750,000 Building Costs ' 93,647 Sf of GBA $125 /Sf of GBA 11,706,000 Contractor/DC Contingency Allow 20% Other Direct Costs 3,065,000 Total Direct Costs $18,392,000 III. Indirect Costs Architecture, Engineering&Consulting 6.0% Direct Costs $1,104,000 Public Permits& Fees 6 40 Units $20,000 /Unit 800,000 Taxes,Insurance, Legal&Accounting 3.0% Direct Costs 552,000 Marketing 40 Units $2,500 /Unit 100,000 Developer Fee 6 40 Units $29,900 /Unit 1,196,000 Soft Cost Contingency Allowance 5.0% Other Indirect Costs 188,000 Total Indirect Costs $3,940,000 IV. Financing Costs Interest During Construction t $1,284,000 Loan Origination Fees 60.0% Loan to Cost 2.5 Points 449,000 Total Financing Costs $1,733,000 V. Total Construction Cost 40 Units $602,000 /Unit $24,065,000 Total Development Cost 40 Units $792,000 /Unit $31,688,000 Estimated based on a survey of the sales of residentially zoned land in Huntington Beach between June 2016 and August 2019. z Based on the estimated costs for similar uses. 3 Based on 2.0 spaces for Two-Bedroom Units;2.5 spaces for Three-Bedroom Units;2.S spaces for Four-Bedroom Units;and 0.50 spaces per unit for guest parking. Includes contractors'fees,general requirements,builder's risk insurance and a direct cost contingency allowance. s Based on estimates prepared for other projects within Huntington Beach. 6 Based on the Developer Fee per unit that would be anticipated for a project in which 100%of the units are sold at unrestricted market rate prices. 7 Assumes a 6.0%interest cost for debt;an 18 month construction period;a 5 month absorption period;30%of the units are presold and close during first month after completion;and 2.5 points for loan origination fees. Prepared by:Keyser Marston Associates,Inc. 379 File Name:HB Own Inclusionary 5 6 20;Pf Mod Base Page 4 of 17 APPENDIX A-EXHIBIT I-TABLE 2 PROJECTED NET SALES REVENUE CONDOMINIUM PROTOTYPE:OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING 10%PRODUCTION ALTERNATIVE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Gross Sales Revenue Market Rate Units t Two-Bedroom Units 18 Units @ $837,000 /Unit $15,066,000 Three-Bedroom Units 9 Units @ $991,300 /Unit 8,922,000 Four-Bedroom Units 9 Units @ $1,321,700 /Unit $11,895,000 Moderate Income Units Two-Bedroom Units 2 Units @ $432,800 /Unit 866,000 Three-Bedroom Units 1 Unit @ $475,200 /Unit 475,000 Four-Bedroom Units 1 Unit @ $509,700 /Unit 510,000 Total Gross Sales Revenue $37,734,000 If. Cost of Sales Commissions 3.0% Gross Sales Revenue $1,132,000 Closing Costs 2.0% Gross Sales Revenue 755,000 Home Buyer Warranties 0.5% Gross Sales Revenue 189,000 Total Cost of Sales ($2,076,000) III. Net Revenue $35,658,000 Based on a sales survey undertaken by KMA in February 2020(See APPENDIX Q.For the two-and three-bedroom units a 15%premium is added for new construction. The four-bedroom units in the survey were constructed recently,so no premium was applied.The weighted average sales price equates to$501 per square foot of saleable area. r See APPENDIX B-EXHIBIT I. Equal to the lesser of the calculated affordable sales price or a 30%discount from the projected market price. Prepared by:Keyser Marston Associates,Inc. 380 File Name:HB Own Inclusionary 5 6 20;Pf Mod Base Page 5 of 17 APPENDIX A-EXHIBITI-TABLE 3 PROJECTED DEVELOPER PROFIT CONDOMINIUM PROTOTYPE:OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING 10%PRODUCTION ALTERNATIVE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Net Revenue $35,658,000 If. Total Development Cost See APPENDIX A-EXHIBIT I-TABLE 1 $31,688,000 III. I Developer Profit 12.5% Total Development Cost $3,970,000 Prepared by:Keyser Marston Associates,Inc. 381 File Name:HB Own Inclusionary 5 6 20;Pf Mod Base Page 6 of 17 APPENDIX A - EXHIBIT II CONDOMINIUM PROTOTYPE OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING IN-LIEU FEE PAYMENT ALTERNATIVE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 382 File Name:HB Own Inclusionary 5 6 20;Pf ILF Page 7 of 17 APPENDIX A-EXHIBIT II-TABLE 1 ESTIMATED DEVELOPMENT COSTS CONDOMINIUM PROTOTYPE:OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING IN-LIEU FEE PAYMENT ALTERNATIVE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Property Acquisition Costs t 43,560 Sf of Land $175 /Sf of Land $7,623,000 1L Direct Costs I On-Site Improvements/Landscaping 43,560 Sf of Land $20 /Sf of Land $871,000 1st Level Subterranean Parking Spaces 3 110 Spaces $25,000 /Space 2,750,000 Building Costs 93,647 Sf of GBA $125 /Sf of GBA 11,706,000 Contractor/DC Contingency Allow ° 20% Other Direct Costs 3,065,000 Total Direct Costs $18,392,000 III. Indirect Costs Architecture, Engineering&Consulting 6.0% Direct Costs $1,104,000 Public Permits& Fees s 40 Units $20,000 /Unit 800,000 In-Lieu Fee 5 40 Units $58,736 /Unit 2,349,000 Taxes,Insurance, Legal&Accounting 3.0% Direct Costs 552,000 Marketing 40 Units $2,500 /Unit 100,000 Developer Fee 3.0% Gross Sales Revenue 1,196,000 Soft Cost Contingency Allowance 5.0% Other Indirect Costs 305,000 Total Indirect Costs $6,406,000 IV. Financing Costs Interest During Construction 7 $1,452,000 Loan Origination Fees 60.0% Loan to Cost 2.5 Points 486,000 Total Financing Costs $1,938,000 V. Total Construction Cost 40 Units $668,000 /Unit $26,736,000 Total Development Cost 40 Units $859,000 /Unit $34,359,000 t Estimated based on a survey of the sales of residentially zoned land in Huntington Beach between June 2016 and August 2019. 1 Based on the estimated costs for similar uses. 3 Based on 2.0 spaces for Two-Bedroom Units;2.5 spaces for Three-Bedroom Units;2.5 spaces for Four-Bedroom Units;and 0.50 spaces per unit for guest parking. 4 Based on the profit as a percentage of Total Development Cost estimated to be generated by the s Based on estimates prepared for other projects within Huntington Beach. 6 Based on the 2019 In-Lieu Fee for a 40 unit project. 7 Assumes a 6.0%interest cost for debt;an 18 month construction period;a 5 month absorption period;30%of the units are presold and close during first month after completion;and 2.5 points for loan origination fees. Prepared by:Keyser Marston Associates,Inc. 383 File Name:He Own Inclusionary 5 6 20;Pf ILF Page 8 of 17 APPENDIX A-EXHIBIT II-TABLE 2 PROJECTED NET SALES REVENUE CONDOMINIUM PROTOTYPE:OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING IN-LIEU FEE PAYMENT ALTERNATIVE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Gross Sales Revenue t Two-Bedroom Units 20 Units @ $837,000 /Unit $16,740,000 Three-Bedroom Units 10 Units @ $991,300 /Unit $9,913,000 Four-Bedroom Units 10 Units @ $1,321,700 /Unit $13,217,000 Total Gross Sales Revenue $39,870,000 II. Cost of Sales Commissions 3.0% Gross Sales Revenue $1,196,000 Closing Costs 2.0% Gross Sales Revenue 797,000 Home Buyer Warranties 0.5% Gross Sales Revenue 199,000 Total Cost of Sales ($2,192,000) III. INet Revenue $37,6787000 t Based on a sales survey undertaken by KMA in February 2020(See APPENDIX Q. For the two-and three-bedroom units a 15%premium is added for new construction. The four-bedroom units in the survey were constructed recently,so no premium was applied.The weighted average sales price equates to$501 per square foot of saleable area. Prepared by:Keyser Marston Associates,Inc. 384 File Name:HB Own Inclusionary 5 6 20;Pf ILF Page 9 of 17 APPENDIX A-EXHIBIT II-TABLE 3 PROJECTED DEVELOPER PROFIT CONDOMINIUM PROTOTYPE:OWNERSHIP HOUSING DEVELOPMENT PRO FORMA ANALYSES EXISTING IN-LIEU FEE PAYMENT ALTERNATIVE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Net Revenue See APPENDIX A-EXHIBIT II-TABLE 2 $37,678,000 j II. Total Development Cost See APPENDIX A- EXHIBIT II-TABLE 1 $34,359,000 ICI III. I Developer Profit 9.7% Total Development Cost $3,319,000 Prepared by:Keyser Marston Associates,Inc. 385 File Name:HB Own Inclusionary 5 6 20;Pf ILF Page 10 of 17 APPENDIX B OWNERSHIP HOUSING DEVELOPMENT AFFORDABILITY ANALYSES FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 366 File Name:HB Own Inclusionary 5 6 20;App B Titles Page 11 of 17 APPENDIX B-EXHIBIT I AFFORDABLE SALES PRICE CALCULATIONS MODERATE INCOME HOUSEHOLDS 2020 INCOME STANDARDS OWNERSHIP HOUSING DEVELOPMENT FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA Two-Bedroom Three-Bedroom Four-Bedroom Units Units Units I. Income Information Area Median Income ' $92,700 $103,000 $111,250 Household Income @ 110%Median z $101,970 $113,300 $122,380 Income Allotted to Housing @ 35%of Income $35,690 $39,660 $42,830 II. Expenses Annual Utilities Allowance 3 $2,052 $2,712 $3,372 HOA,Maintenance& Insurance 6,000 6,600 6,900 Property Taxes @ 1.08%of Affordable Sales Price " 4,670 5,130 5,510 Total Expenses $12,722 $14,442 $15,782 III. Income Available for Mortgage $22,968 $25,218 $27 048 IV. Affordable Sales Price Supportable Mtg @ 4.24%Interest S $389,500 $427,700 $458,700 Home Buyer Down Payment @ 10%Aff Sales Price " 43,300 47,500 51,000 Affordable Sales Price $432,800 $475,200 $509,700 ' Based on the 2020 Orange County median incomes published by the California Housing&Community Development Department(HCD). The benchmark household size is set at the number of bedrooms in the unit plus one. z Based on the California Health& Safety Code Section 50052.5 calculation methodology. 3 Based on the Orange County Housing Authority utility allowances effective as of 10/1/19. Assumes:Gas Cooking,Gas Heating,and Gas Water Heater;Basic Electric;Water,Trash/Sewer. 4 Based on the August 15,2011 Inclusionary Housing Regulations. s Based on a 50 basis points premium applied to the April 20,2020 Bankrate site average for 30-year fixed interest rate mortgages. Prepared by: Keyser Marston Associates 387 File name: HB Own Inclusionary 5 6 20;ASP APPENDIX B-EXHIBIT II IN-LIEU FEE ANALYSIS AFFORDABILITY GAP APPROACH-MODERATE INCOME OWNERSHIP HOUSING DEVELOPMENT FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA Condominium& Townhome Units Single Family Homes I. Sales Price Difference A. Two-Bedroom Units Market Rate Units $837,000 Affordable Sales Price 1 432,800 Difference $404,200 B. Three-Bedroom Units Market Rate Units $991,300 52,371,400 Affordable Sales Price 1 475,200 475,200 Difference $516,100 $1,896,200 C. Four-Bedroom Units Market Rate Units $1,321,700 $1,949,100 Affordable Sales Price 1 509,700 509,700 Difference $812,000 $1,439,400 II. Distribution of Affordable Units Two-Bedroom Units 2 Three-Bedroom Units 1 48% Four-Bedroom Units 1 52% III. Net Affordability Gap Per Moderate Income Unit Affordability Gap Per Moderate Income Unit $534,100 51,658,700 (Less)Reduced Cost of Sales Per Affordable Unit z (29,400) (22,800) Net Affordability Gap Per Moderate Income Unit $504,700 $1,635,900 IV. In-Lieu Fee Per Total Unit $50,470 $163,590 Per Square Foot of Net Saleable Area $25.36 $55.34 1 See APPENDIX B-EXHIBIT I. r The Cost of Sales consist of:Commissions @ 3.0%;Closing Costs @ 2.0%;and Home Buyer Warranties @ 0.50%. Prepared by:Keyser Marston Associates,Inc. 388 File Name:H8 Own Inclusionary 5 6 20;ILF Page 13 of 17 APPENDIX C OWNERSHIP HOUSING DEVELOPMENT HOME SALES SURVEY FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 389 File Name:HB Own Inclusionary 5 6 20;App C Titles Page 14 of 17 APPENDIX C HOME SALES SURVEY FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA Sales Price Address Zip Code Unit Size(SF) Total Per SF Year Built I. Condominium&Townhome Units Two-Bedroom Units 21383 Kennedy Ln 92646 1,472 $379,949 $258 2012 17552 Van Buren Ln 92647 1,271 $538,500 $424 1995 20171 Sealpoint Ln#206 92646 1,421 $570,000 $401 1999 20191 Sealpoint Ln 9202 92646 1,332 $575,000 $432 1999 20171 Sealpoint Ln#105 92646 1,246 5580,000 $465 1999 415 Townsquare Ln 4302 92648 1,038 $580,000 $559 1990 20171 Sealpoint Ln 4107 92646 1,174 $594,000 $506 1998 8312 Atlanta Avenue#102 92646 1,316 $600,000 $456 1991 8306 Atlanta Ave#102 92646 1,242 $610,000 $491 1991 415 Townsquare Ln 4103 92648 1,038 $635,000 $612 1990 1516 Pacific Coast#101 92648 1,300 $685,000 $527 1992 18858 Milos Cir 92648 1,794 $695,000 $387 1993 4392 Lahaina Dr#30 92649 1,400 $711,000 $508 2019 376 Sth St 92648 1,810 $875,000 $483 1999 21386 Armilla Cir 92648 1,843 $940,000 $510 2005 7976 Aldea Cir 92648 1,843 $950,000 $515 2005 21339 Cieza Cir 92648 1,843 $950,000 $515 2005 21387 Armilla Cir 92648 1,843 5960,000 $521 2004 19335 Brooktrail Ln 92648 2,245 $950,000 $423 1991 21387 Armilla Cir 92648 1,843 $960,000 $521 2004 7967 Osuna Cir 92648 1,877 $975,000 $519 2005 Minimum 1,038 $379,949 $258 1990 Maximum 2,245 $975,000 $612 2019 Average 1,533 $729,200 $476 1999 Three-Bedroom Units 7545 Shady Glen Cir 92648 1,407 $464,648 $330 1998 18775 Chapel Ln 92646 1,773 $678,000 $382 1991 16432 Poipu Ln 92649 1,512 $707,000 $468 2014 7675 Timber Cir#2 92648 1,846 $745,000 $404 2003 8158 Constantine Or 92646 2,132 $745,000 $349 1997 6227 Pacific Pointe Or 930 92648 1,993 $850,000 $426 2002 8243 Noelle Or 92646 2,035 $980,000 $482 2013 21445 Hayley Ln 92646 1,926 $1,010,000 $524 2013 19331 Brooktrail Ln 92648 2,027 $1,025,000 $506 1991 19262 Surfwave Dr 92648 2,430 $1,085,000 $447 1997 16377 26th St 4102 90742 1,837 $1,200,000 $653 2016 Minimum 1,407 5464,648 5330 1991 Maximum 2,430 $1,200,000 5653 2016 Average 1,902 $862,700 $454 2003 Source:Redfin.The survey includes executed sales that occurred between March 2019 and March 2020. Prepared by:Keyser Marston Associates,Inc. 390 File name:HB Own Inclusionary 5 6 20;Sales Survey Page 15 of 17 APPENDIX C HOME SALES SURVEY FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA Sales Price Address Zip Code Unit Size(SF) Total Per SF Year Built Four-Bedroom Units 21396 Abigail Ln 92646 2,431 $1,094,000 $450 2013 8255 Kendall Dr 92646 2,431 $1,099,000 $452 2013 8373 Sage Or 92646 2,431 $1,108,000 $456 2010 8389 Noelle Dr 92646 2,606 $1,150,000 $441 2013 8237 Kendall Dr 92646 2,778 $1,170,000 $421 2013 8200 Noelle Dr 92646 3,604 $1,375,000 $382 2013 8318 Noelle Dr 92646 3,604 $1,375,000 $382 2012 8220 Noelle Dr 92646 3,604 $1,415,000 $393 2013 21254 Baeza Cir 92648 3,055 $1,534,500 $502 2004 21307 Andalucia Ln 92648 3,459 $1,897,000 $548 2004 Minimum 2,431 $1,094,000 $382 2004 Maximum 3,604 $1,897,000 $548 2013 Average 3,000 $1,321,800 $441 2011 If. Single Family Homes t Three-Bedroom Units 4861 Coveview Dr 92649 2,000 $1,212,500 $606 2011 627 Frankfort Ave 92648 3,407 $1,565,000 $459 2012 1009 California St 92648 3,333 $1,650,000 $495 2019 61017th St 92648 2,952 $1,740,000 $589 2014 624 14th St 92648 2,875 $1,900,000 $661 2018 622 14th St 92648 2,875 $1,950,000 $678 2018 615 13th St 92648 2,900 $2,075,000 $716 2019 512 Bth St 92648 2,875 $2,090,000 $727 2019 61313th St 92648 2,900 $2,095,000 $722 2019 1004 Huntington St 92648 3,285 $2,100,000 $639 2018 623 13th$t 92648 2,900 $2,149,900 $741 2020 314 3rd St 92648 2,875 $2,150,000 $748 2018 514 11th St 92648 2,853 $2,150,000 $754 2016 414 9th St 92648 2,900 $2,225,000 $767 2019 412 9th St 92648 2,875 $2,225,000 $774 2019 312 3rd St 92648 2,850 $2,250,000 $789 2019 310 3rd St 92648 2,850 $2,270,000 $796 2019 809 Huntington St 92648 3,350 $2,295,000 $685 2018 314 3rd St 92648 2,850 $2,425,000 $851 2019 124 7th 92648 2,875 $2,725,000 $948 2020 Minimum 2,000 $1,212,500 $459 2011 Maximum 3,407 $2,725,000 $948 2020 Average 2,929 $2,062,100 $704 2018 Source:Redfin.The survey includes executed sales that occurred between March 2019 and March 2020. Prepared by:Keyser Marston Associates,Inc. 391 File name:HB Own Inclusionary 5 6 20;Sales Survey Page 16 of 17 APPENDIX C HOME SALES SURVEY FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA Sales Price Address Zip Code Unit Size(SF) Total Per SF Year Built Four-Bedroom Units 17315 Wareham Ln 92649 1,995 $1,170,000 $586 2010 17301 Wareham Ln 92649 2,200 $1,175,000 $534 2010 10242 Thompson Dr 92646 2,926 51,212,000 $414 2015 17321 Wareham Ln 92649 2,089 $1,249,900 $598 2010 10241 Patch Dr 92646 2,693 $1,290,000 $479 2015 10192 Thompson Dr 92646 2,926 $1,335,000 $456 2015 19741 Wardlow Ln 92646 3,435 $1,450,000 $422 2015 505 16th St 92648 2,875 $1,500,000 $522 2010 9211 Sheridan Dr 92646 3,253 $1,514,900 $466 2015 17322 Osterville Ln 92649 2,758 $1,530,000 $555 2013 627 Frankfort Ave 92648 3,407 $1,565,000 $459 2012 624 13th St 92648 2,910 $1,645,000 $565 2015 1009 California St 92648 3,333 $1,650,000 $495 2019 609 17th St 92648 2,870 $1,700,000 S592 2019 61117th St 92648 2,870 $1,750,000 $610 2019 17472 Oakbluffs Ln 92649 3,569 $1,888,000 $529 2015 4862 Orleans Dr 92649 3,555 $1,998,000 $562 2016 5108th St 92648 2,875 $1,999,999 $696 2018 4891 Orleans Dr 92649 3,628 $2,050,000 $565 2015 1019 California St 92648 3,374 $2,160,000 $640 2018 1737 Park St 92648 3,176 $2,554,000 $804 2018 1217th St 92648 2,877 $2,900,000 $1,008 2015 Minimum 1,995 $1,170,000 $414 2010 Maximum 3,628 $2,900,000 $1,008 2019 Average 2,982 $1,694,900 $568 2015 ' Due to lack of sales,the condominium/townhomes sales survey is limited to homes built after 1990, z The of single family home sales survey is limited to homes built after 2010. Source:Redfin.The survey includes executed sales that occurred between March 2019 and March 2020. Prepared by:Keyser Marston Associates,Inc. 392 File name:HB Own Inclusionary 5 6 20;Sales Survey Page 17 of 17 ATTACHMENT 3 RENTAL APARTMENT DEVELOPMENT FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 393 File name:HB Rent Inclusionary 5 6 20;ATT 3 TITLE Pagel of20 APPENDIX A RENTAL APARTMENT DEVELOPMENT PRO FORMA ANALYSES FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 394 File name:HR Rent Inclusionary 5 6 20;App A Titles Page 2 of 20 APPENDIX A - EXHIBIT I RENTAL APARTMENT DEVELOPMENT PRO FORMA ANALYSES 10% INCLUSIONARY UNITS - MODERATE INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 395 File name:NB Rent Inclusionary,5 6 20;PF Mod Page 3 of 20 APPENDIX A-EXHIBIT I-TABLE 1 ESTIMATED DEVELOPMENT COSTS RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-MODERATE INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Property Acquisition Costs t 348,480 Sf of Land $150 /Sf of Land $52,272,000 II. Direct Costs E On-Site Improvements/Landscaping 348,480 Sf of Land $20 /Sf of Land $6,970,000 Above-Ground Parking Spaces 3 750 Spaces 525,000 /Space 18,750,000 Building Costs 464,250 Sf of GBA $125 /Sf of GBA 58,031,000 Contractor/DC Contingency Allow 20% Other Direct Costs 16,750,000 Total Direct Costs 464,250 Sf of GBA $216 /Sf of GBA $100,501,000 III. Indirect Costs Architecture, Engineering&Consulting 8% Direct Costs $8,040,000 Public Permits&Fees 4 400 Units 520,000 /Unit 8,002,000 Taxes,Insurance,Legal&Accounting 3% Direct Costs 3,015,000 Marketing 400 Units $5,000 /Unit 2,001,000 Developer Fee 5% Direct Costs 5,025,000 Soft Cost Contingency Allowance 5% Other Indirect Costs 1,304,000 Total Indirect Costs $27,387,000 IV. Financing Costs Interest During Construction Land 6 $52,272,000 Cost 3.6% Avg Rate $2,823,000 Construction 6 $137,441,000 Cost 3.6% Avg Rate 4,453,000 Loan Origination Fees 60% Loan to Cost 2.0 Points 2,277,000 Total Financing Costs $9,553,000 V. Total Construction Cost 400 Units $344,000 /Unit $137,441,000 Total Development Cost 400 Units $474,000 /Unit $189,713,000 3 Estimated based on a survey of the sales between 2016 and 2018 of residentially zoned land. ' Based on the estimated costs for similar uses. 3 Based on 1.0 spaces for Studio Units; 1.0 spaces for One-Bedroom Units;2.0 spaces for Two-Bedroom Units;2.5 spaces for Three-Bedroom Units; and 0.50 spaces per unit for guest parking. 4 Based on estimates prepared for other projects within Huntington Beach. 5 Based on an 18 month construction period and a 100%average outstanding loan balance. 6 Based on an 18 month construction period and a 60%average outstanding loan balance. Prepared by:Keyser Marston Associates,Inc 396 File name:HB Rent Inclusionary 5 6 20;PF Mod Page 4 of 20 APPENDIX A-EXHIBIT I-TABLE 2 ESTIMATED STABILIZED NET OPERATING INCOME RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-MODERATE INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Gross Income A. Market Rate Units t Studio Units 54 Units @ $2,652 /Unit/Month 51,719,000 One-Bedroom Units 180 Units @ $3,189 /Unit/Month 6,888,000 Two-Bedroom Units 108 Units @ $4,856 /Unit/Month 6,293,000 Three-Bedroom Units 18 Units @ $5,501 /Unit/Month 1,188,000 B. Inclusionary Units: 30%of Units 2 Studio Units 6 Units @ $1,932 /Unit/Month 139,000 One-Bedroom Units 20 Units @ $2,205 /Unit/Month 529,000 Two-Bedroom Units 12 Units @ $2,469 /Unit/Month 356,000 Three-Bedroom Units 2 Units @ $2,730 /Unit/Month 66,000 C. Laundry&Miscellaneous Income 400 Units @ $25 /Unit/Month 120,000 Total Gross Income $17,298,000 Vacancy&Collection Allowance 5% Gross Income (865,000) II. Effective Gross Income $16,433,000 III. Operating Expenses General Operating Expenses 400 Units @ $4,500 /Unit $1,800,500 Property Taxes 400 Units@ $7,400 /Unit 2,949,000 Replacement Reserve Deposits 400 Units @ $150 /Unit 60,000 Total Operating Expenses ($4,809,500) IV. 15tabilized Net Operating Income 511,623,500 • Based on the rent survey undertaken in February 2020 and presented in APPENDIX C. The weighted average monthly rent equates to$4.01 per square foot of leasable area. 2 The Inclusionary rent calculations are based on household income at 110%of AMI,with 30%of income allotted to housing related expenses. See APPENDIX D-EXHIBIT I. Prepared by:Keyser Marston Associates,Inc. 397 File name:HB Rent Inclusionary 5 6 20;PF Mod Page 5 of 20 APPENDIX A-EXHIBIT I-TABLE 3 ESTIMATED DEVELOPER RETURN RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-MODERATE INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Stabilized Net Operating Income See APPENDIX A-EXHIBIT I-TABLE 2 $11,623,500 Il. Total Development Cost See APPENDIX A-EXHIBIT I-TABLE 1 $189,713,000 III. Return on Total Investment 6.1% Prepared by:Keyser Marston Associates,Inc. 398 File name:HB Rent Inclusionary 5 6 20;PF Mod Page 6 of 20 APPENDIX A - EXHIBIT II RENTAL APARTMENT DEVELOPMENT PRO FORMA ANALYSES 10% INCLUSIONARY UNITS - LOW INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 399 File name:HB Rent Inclusionary 5 6 20;PF Low Page 7 of 20 APPENDIX A-EXHIBIT II-TABLE 1 ESTIMATED DEVELOPMENT COSTS RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-LOW INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Property Acquisition Costs t 348,480 Sf of Land $150 /Sf of Land $52,272,000 II. Direct Costs 2 On-Site Improvements/Landscaping 348,480 Sf of Land $20 /Sf of Land $6,970,000 Above-Ground Parking Spaces 3 750 Spaces $25,000 /Space 18,750,000 Building Costs 464,250 Sf of GBA $125 /Sf of GBA 58,031,000 Contractor/DC Contingency Allow 20% Other Direct Costs 16,750,000 Total Direct Costs 464,250 Sf of GBA $216 /Sf of GBA $100,501,000 III. Indirect Costs Architecture,Engineering&Consulting 8% Direct Costs 58,040,000 Public Permits&Fees 4 400 Units $20,000 /Unit 8,002,000 Taxes,Insurance, Legal&Accounting 3% Direct Costs 3,015,000 Marketing 400 Units $5,000 /Unit 2,001,000 Developer Fee 5% Direct Costs 5,025,000 Soft Cost Contingency Allowance 5% Other Indirect Costs 1,304,000 Total Indirect Costs $27,387,000 IV. Financing Costs Interest During Construction Land s $52,272,000 Cost 3.6% Avg Rate $2,823,000 Construction 6 $137,441,000 Cast 3.6% Avg Rate 4,453,000 Loan Origination Fees 60% Loan to Cost 2.0 Points 2,277,000 Total Financing Costs $9,553,000 V. Total Construction Cost 400 Units $344,000 /Unit $137,441,000 Total Development Cost 400 Units $474,000 /Unit $189,713,000 1 Estimated based on a survey of the sales between 2016 and 2018 of residentially zoned land. z Based on the estimated costs for similar uses. 3 Based on 1.0 spaces for Studio Units; 1.0 spaces for One-Bedroom Units;2.0 spaces for Two-Bedroom Units;2.5 spaces for Three-Bedroom Units; and O.SO spaces per unit for guest parking. ' Based on estimates prepared for other projects within Huntington Beach. s Based on an 18 month construction period and a 100%average outstanding loan balance. 6 Based on an 18 month construction period and a 60%average outstanding loan balance. Prepared by:Keyser Marston Associates,Inc. 400 File name:HB Rent Inclusionary 5 6 20;PF Low Page 8 of 20 APPENDIX A-EXHIBIT 11-TABLE 2 ESTIMATED STABILIZED NET OPERATING INCOME RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-LOW INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Gross Income A. Market Rate Units ' Studio Units 54 Units @ $2,652 /Unit/Month 51,719,000 One-Bedroom Units 180 Units @ $3,189 /Unit/Month 6,888,000 Two-Bedroom Units 108 Units @ $4,856 /Unit/Month 6,293,000 Three-Bedroom Units 18 Units @ 55,501 /Unit/Month 1,188,000 B. Inclusionary Units:10%of Units 2 Studio Units 6 Units @ $1.,031 /Unit/Month 74,000 One-Bedroom Units 20 Units @ $1,175 /Unit/Month 282,000 Two-Bedroom Units 12 Units @ $1,311 /Unit/Month 189,000 Three-Bedroom Units 2 Units @ $1,442 /Unit/Month 35,000 C. Laundry&Miscellaneous Income 400 Units @ $25 /Unit/Month 120,000 Total Gross Income $16,788,000 Vacancy&Collection Allowance 5% Gross Income (839,000) II. Effective Gross Income $15,949,000 III. Operating Expenses General Operating Expenses 400 Units @ $4,500 /Unit $1,800,500 Property Taxes 400 Units@ $7,100 /Unit 2,851,000 Replacement Reserve Deposits 400 Units @ $150 /Unit 60,000 Total Operating Expenses (54,711,500) IV. IStabilized Net Operating Income 511,237,500 1 Based on the rent survey undertaken in February 2020 and presented in APPENDIX C. The weighted average monthly rent equates to$4.01 per square foot of leasable area. ' The Inclusionary rent calculations are based on household income at 60%of AMI,with 30%of income allotted to housing related expenses. See APPENDIX D-EXHIBIT I. Prepared by:Keyser Marston Associates,Inc. 401 File name:HB Rent Inclusionary 5 6 20;PF Low Page 9 of 20 APPENDIX A-EXHIBIT II-TABLE 3 INCLUSIONARY HOUSING IMPACTS RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-LOW INCOME ALTERNATIVE DENSITY @ 50 UNITS PER ACRE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Supportable Investment Stabilized Net Operating Income See APPENDIX A-EXHIBIT II-TABLE 2 $11,237,500 Threshold Return on Total Investment ' 6.1% Total Supportable Investment $183,413,000 It. Total Development Cost See APPENDIX A-EXHIBIT II-TABLE 1 $189,713,000 III. Reduced Value ($6,300,000) Return on Total Investment 5.9% Based on the Developer Return estimated to be generated by the DENSITY @ 50 UNITS PER ACRE:MODERATE INCOME ALTERNATIVE. Prepared by:Keyser Marston Associates,Inc. 402 File name:HB Rent Inclusionary 5 6 20;PF Low Page 10 of 20 APPENDIX A - EXHIBIT III RENTAL APARTMENT DEVELOPMENT PRO FORMA ANALYSES 10% INCLUSIONARY UNITS - VERY LOW INCOME ALTERNATIVE 35% DENSITY BONUS: 67.5 UNITS PER ACRE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 403 File name:HB Rent Inclusionary 5 6 20;PF Vl DB Page 11 of 20 APPENDIX A-EXHIBIT III-TABLE 1 ESTIMATED DEVELOPMENT COSTS RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-VERY LOW INCOME ALTERNATIVE 35%DENSITY BONUS:67.5 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Property Acquisition Costs ' 348,480 Sf of Land $150 /Sf of Land 552,272,000 If. Direct Costs 2 On-Site Improvements/Landscaping 348,480 Sf of Land $20 /Sf of Land $6,970,000 Above-Ground Parking Spaces 3 729 Spaces $25,000 /Space 18,225,000 Building Costs 626,738 Sf of GBA $150 /Sf of GBA 94,011,000 Contractor/DC Contingency Allow 20% Other Direct Costs 23,841,000 Total Direct Costs 626,738 Sf of GBA $228 /Sf of GBA $143,047,000 III. Indirect Costs Architecture,Engineering&Consulting 8% Direct Costs $11,444,000 Public Permits& Fees ' 540 Units $20,000 /Unit 10,800,000 Taxes, Insurance, Legal&Accounting 3% Direct Costs 4,291,000 Marketing 540 Units $5,000 /Unit 2,700,000 Developer Fee 5% Direct Costs 7,152,000 Soft Cost Contingency Allowance 5% Other Indirect Costs 1,819,000 Total Indirect Costs $38,206,000 IV. Financing Costs Interest During Construction Land 6 $52,272,000 Cost 3.6% Avg Rate 52,823,000 Construction 6 5193,285,000 Cost 3.6% Avg Rate 6,262,000 Loan Origination Fees 60% Loan to Cost 2.0 Points 2,947,000 Total Financing Costs $12,032,000 V. Total Construction Cost 540 Units $358,000 /Unit $193,285,000 Total Development Cost 540 Units $455,000 /Unit $245,557,000 3 Estimated based on a survey of the sales between 2016 and 2018 of residentially zoned land. ' Based on the estimated costs for similar uses. 3 Based on 1.0 space for Studio Units; 1.0 space for One-Bedroom Units; 2.0 spaces for Two-Bedroom Units;and 2.5 space for Three-Bedroom Units. No guest spaces are provided. ' Based on estimates prepared for other projects within Huntington Beach. 6 Based on an 18 month construction period and a 100%average outstanding loan balance. 6 Based on an 18 month construction period and a 60%average outstanding loan balance. Prepared by:Keyser Marston Associates,Inc. 404 File name:HB Rent Inclusionary 5 6 20;PF VL DB Page 12 of 20 APPENDIX A-EXHIBIT III-TABLE 2 ESTIMATED STABILIZED NET OPERATING INCOME RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-VERY LOW INCOME ALTERNATIVE 35%DENSITY BONUS:67.5 UNITS PER ACRE FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Grass Income A. Market Rate Units t Studio Units 74 Units @ $2,652 /Unit/Month $2,355,000 One-Bedroom Units 248 Units @ $3,189 /Unit/Month 9,490,000 Two-Bedroom Units 149 Units @ $4,856 /Unit/Month 8.682,000 Three-Bedroom Units 25 Units @ $5,501 /Unit/Month 1,650,000 B. Density Bonus:11%Base Zoning Units r Studio Units 7 Units @ $850 /Unit/Month 71,000 One-Bedroom Units 22 Units @ $969 /Unit/Month 256,000 Two-Bedroom Units 13 Units @ $1,079 /Unit/Month 168,000 Three-Bedroom Units 2 Units @ $1,185 /Unit/Month 28,000 C. Laundry&Miscellaneous Income 540 Units @ $25 /Unit/Month 162,000 Total Gross Income $22,862,000 Vacancy&Collection Allowance 5% Gross Income (1,143,000) II. Effective Gross Income $21,719,000 III. Operating Expenses General Operating Expenses 540 Units @ $4,500 /Unit $2,430,000 Property Taxes 540 Units @ $7,200 /Unit 3,887,000 Replacement Reserve Deposits 540 Units @ $150 /Unit 81,000 Total Operating Expenses ($6,398,000) IV. IStabilized Net Operating Income $15,321,000 t Based on the rent survey undertaken in February 2020 and presented in APPENDIX C. The weighted average monthly rent equates to$4.01 per square foot of leasable area. The Inclusionary rent calculations are based on household income at 50%of AMI,with 30%of income allotted to housing related expenses. See APPENDIX D-EXHIBIT I. Prepared by:Keyser Marston Associates,Inc. 405 File name:HB Rent Inclusionary 5 6 20;PF VL DB Page 13 of 20 APPENDIX A-EXHIBIT III-TABLE 3 INCLUSIONARY HOUSING IMPACTS RENTAL APARTMENT DEVELOPMENT 10%INCLUSIONARY UNITS-VERY LOW INCOME ALTERNATIVE 35%DENSITY BONUS:67.5 UNITS PER ACRE FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA I. Supportable Investment Stabilized Net Operating Income See APPENDIX A-EXHIBIT III-TABLE 2 $15,321,000 Threshold Return on Total Investment ' 6.1% Total Supportable Investment $250,062,000 If. Total Development Cost See APPENDIX A-EXHIBIT III-TABLE 1 $245,557,000 III. Enhanced Value $4,505,000 Return on Total Investment 6.2% ' Based on the Developer Return estimated to be generated by the DENSITY @ 50 UNITS PER ACRE:MODERATE INCOME ALTERNATIVE. Prepared by:Keyser Marston Associates,Inc. 406 File name:HB Rent Inclusionary 5 6 20;PF VL DB Page 14 of 20 APPENDIX B RENTAL APARTMENT DEVELOPMENT AFFORDABILITY ANALYSES FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 407 File name:HB Rent Inclusionary 5 6 20;App B Titles Page 15 of 20 APPENDIX D-EXHIBIT I AFFORDABLE RENT CALCULATIONS 2020 INCOME STANDARDS RENTAL APARTMENT DEVELOPMENT FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA One-Bedroom Two-Bedroom Three- Studio Units Units Units Bedroom Units I. General Assumptions Area Median Income(AMI) 3 $72,100 $82,400 $92,700 $103,000 Monthly Utilities Allowance z $51 $61 $80 $103 II. Affordable Rent Calculations 3 A. Moderate Income-Rent Based on 110%AMI Benchmark Annual Household Income $79,310 $90,640 $101,970 $113,300 Percentage of Income Allotted to Housing Expenses 30% 30% 30% 30% Monthly Income Available for Housing Expenses $1,983 $2,266 $2,549 $2,833 (Less)Monthly Utilities Allowance (51) (61) (80) (103) Maximum Allowable Rent $1,932 $2,205 $2,469 $2,730 B. Low Income-Rent Based on 60%AMI Benchmark Annual Household Income $43,260 $49,440 $55,620 $61,800 Percentage of Income Allotted to Housing Expenses 30% 30% 30% 30% Monthly Income Available for Housing Expenses $1,082 $1,236 $1,391 $1,545 (Less)Monthly Utilities Allowance (51) (61) (80) (103) Maximum Allowable Rent $1,031 $1,175 $1,311 $1,442 C. Very Low Income-Rent Based on 50%AMI Benchmark Annual Household Income $36,050 $41,200 $46,350 $51,500 Percentage of Income Allotted to Housing Expenses 30% 30% 30% 30% Monthly Income Available for Housing Expenses $901 $1,030 $1,159 $1,288 (Less)Monthly Utilities Allowance (51) (61) (80) (103) Maximum Allowable Rent $850 $969 51,079 $1,185 t Based on the 2020 Orange County household incomes published by the California Housing&Community Development Department (HCD). The benchmark household size is set at the number of bedrooms in the unit plus one. t Based on the Orange County Housing Authority utility allowance schedule effective as of 10/1/19. Assumes:Gas Cooking,Gas Heating, and Gas Water Heater;and Basic Electric. 3 Based on the California Health&Safety Code Section 50053 calculation methodology. Prepared by: Keyser Marston Associates 408 Filename: HB Rent Inclusionary 5 6 20;Aff Rent Page 16 of 20 APPENDIX D-EXHIBIT II IN-LIEU FEE ANALYSIS RENTAL APARTMENT DEVELOPMENT FINANCIAL ANALYSIS:INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH,CALIFORNIA Moderate Income Low Income I. Rent Difference A. Studio Units Market Rate Units $2,652 $2,652 Affordable Units 1,932 1,031 Difference $720 $1,622 B. One-Bedroom Units Market Rate Units $3,199 $3,189 Affordable Units 2,205 1,175 Difference $984 $2,014 C. Two-Bedroom Units Market Rate Units $4,856 $4,856 Affordable Units 2,469 1,311 Difference 52,387 $3,545 D. Three-Bedroom Units Market Rate Units $5,501 $5,501 Affordable Units 2,730 1,442 Difference $2,772 $4,059 II. Distribution of Total Units z Studio Units 15% 15% One-Bedroom Units 50% 50% Two-Bedroom Units 30% 30% Three-Bedroom Units 5% 5% III. Annual Affordability Gap Per Affordable Unit $17,455 $30,201 Less:Property Tax Difference 3 (4,430) (7,660) Annual Affordability Gap Per Affordable Unit $13,025 522,541 IV. Net Affordability Gap Per Affordable Unit ' $192,000 $332,000 V. In-Lieu Fee Per Total Unit 6 $19,200 $33,200 Per Square Foot of Net Leasable Area 6 $20.70 535.80 r The market rents are drawn from the pro forma analyses. See APPENDIX D-EXHIBIT I:The affordable rents are based on the H&SC Section 50053 calculation methodology. z Based on the unit mix distribution applied in the pro forma analysis. 3 Based on the rent differential capitalized at a 4.3%rate to establish the value,and a 1.1%property tax rate. ' Based on the Annual Affordability Gap Per Affordable Unit capitalized at the Threshold Return on Total Investment. ' Based on the Affordability Gap Per Affordable Unit multiplied times the total number of units in the project. 6 Based on the Affordability Gap Per Affordable Unit divided by the average net leasable area per unit. Prepared by: Keyser Marston Associates 409 File name: HB Rent Inclusionary 5 6 20;ILF Page 17 of 20 APPENDIX C RENTAL APARTMENT DEVELOPMENT RENT SURVEY FINANCIAL ANALYSIS: INCLUSIONARY HOUSING ORDINANCE UPDATE HUNTINGTON BEACH, CALIFORNIA Prepared by:Keyser Marston Associates,Inc. 410 File name:HB Rent Inclusionary 5 6 20;App C Titles Page 18 of 20 O `o .m. m — o 0 0 0 o O0 m a v r u � n �+ N d n m � Y � f�J > d � 4. W VI Vl m W m m c T O m N T Ot W C1 n N .-+ M m m 01 N C W m w Ol C W tD W ti C V1 C T T N N N C r1 N N N N T T N M T d Vl N N N N N V) V1 N N N N N �A H Vl N S d C� 2 V U p0 w C T O Q1 W C w W M O Q1 r O r N Cl C ti N T N tU l0 tD �� n N N N N N N N t+1 N T N a m w o m M r < n n e r e o n o W r m e W e ry E m m OT O 9 J WV N W O � 9 ry T > > IO u u 3 F ? o ¢ m p V e w a c c u u O O > J U > T > > p U' V O m w m Q m > G < Q m > m V V yt Q > C N ` N L > QV EO N pVp Q OVO OVO U .V Q E E45 p m o o O o p m M E x m Z N F T 2 W O G 6 W Z ¢ z a 2 Z V w Q ¢ O c ` w F f a Z U x W V O w 5 w x 0 -Op- El a d Z Z Z p n y u r iv V V O m m o, c Q 2 K w x Z 0 N O O U N m J �2 m Q A O } N C V � C U V1 O. m a C U Y a N > D. m r T 0 vn w r m m m 0 ✓f m li Q IT In M o vi .+ m .+ r N � � N �n .. C N N N N T N Q N C N N N M N T T U to N an to U1 N V1 N V1 Vl N N N aA V1 K y U 6 V N U C tO C O\ V1 Q Q Q V1 l0 C C lD Q C � m r Q m m vl Q V1 m n V1 �l1 .y v1 O m r �J m o m rn m Q r 16 Q W m v N N N N T 4!1 N V1 M T T 16 m to Q .� � VI to N N N V1 N V1 Vl h N N V1 V1 N Q U N LL N O Q ti Cl Ol m r �D T tP M M Q 0 0 r O r N Ot Q Ol C Qt V1 Q Q V1 C V1 V1 C N F o c o m ° O 3 v a n > > G 3 3 W � J 00 00 r ° Q J J > L U J J ... d C C d V J N y C C N U N U J N C m pp U W A W G ¢ m m a V ¢ ¢ V Z N U Lj 01 y :J Q U N :C Q 2 p w w ti U w .. m E x m O a N Vl m w Q 0 N 0 C f0 U l7 Z h 0 O x Z } z w w a ¢ ¢ oZ O ¢ P o a Z W 6 W Z V < v~f W S W Cl U m V m V } C Z Z O m V w a ¢ O '.' oo v m m x x > � ¢ v w v U E a w w Z 7 m U U _ n m D a z x z 3 w o a> d LL Res. No. 2021-50 STATE OF CALIFORNIA COUNTY OF ORANGE ) ss: CITY OF HUNTINGTON BEACH ) I, ROBIN ESTANISLAU, the duly elected, 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 resolution was passed and adopted by the affirmative vote of at least a majority of all the members of said City Council at a Regular meeting thereof held on September 21, 2021 by the following vote: AYES: Bolton, Delgleize, Carr, Posey, Moser, Kalmick NOES: Peterson ABSENT: None RECUSE: None City Clerkand ex-officio Clerk of the City Council of the City of Huntington Beach, California City of Huntington Beach File #: 21-577 MEETING DATE: 8/24/2021 PLANNING COMMISSION STAFF REPORT TO: Planning Commission FROM: Ursula Luna-Reynosa, Director of Community Development BY: Nicolle Aube, AICP, Senior Analyst SUBJECT: ZONING TEXT AMENDMENT NO. 19-004 (AFFORDABLE HOUSING ORDINANCE) REQUEST: To amend Section 230.26 - Affordable Housing of the Huntington Beach Zoning and Subdivision Ordinance. LOCATION: Citywide APPLICANT: City of Huntington Beach PROPERTY OWNER: Not applicable BUSINESS OWNER: Not applicable STATEMENT OF ISSUE: 1. Does the project satisfy all the findings required for a Zoning Text Amendment? 2. Has the appropriate level of environmental analysis been determined? RECOMMENDATION: That the Planning Commission take the following actions: A) Find that Zoning Text Amendment (ZTA) No. 19-004 is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) (General Rule) of the CEQA Guidelines because there is no potential for the project to have a significant effect on the City of Huntington Beach Page 1 of 8 Printed on 8/1 912 0 2 1 powerL4t3 Legrstar'- File #: 21-577 MEETING DATE: 8/24/2021 environment (Attachment No. 1). B) Recommend approval of Zoning Text Amendment No. 19-004 with findings (Attachment No. 1) by approving draft City Council Ordinance No. 4235 and forward to the City Council for consideration (Attachment No. 2). ALTERNATIVE ACTION(S): A) Do not recommend approval of Zoning Text Amendment No. 19-004 to the City Council; or B) Continue Zoning Text Amendment No. 19-004 and direct staff accordingly. PROJECT PROPOSAL: Background: Zoning Text Amendment No. 19-004 represents a request to amend Section 230.26 - Affordable Housing of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO). In conjunction with ZTA No. 19-004, an update to the in-lieu fee is proposed. However, the in-lieu fee update is subject only to City Council approval and will be provided via a draft resolution for City Council consideration along with the zoning text amendments proposed as part of this ZTA No. 19-004. The City has contracted with an economic consultant, Keyser-Marston Associates (KMA), to assist in technical analysis and proposes the following changes to the ordinance: • Updates and expands the options for projects to meet affordable housing requirements. • Revises the in-lieu fee payment option and fee calculation methodology for ownership and rental housing projects. Notably, the option to pay in-lieu fees is recommended to be expanded for ownership projects of any size and rental projects with up to 100 units. Currently, the in-lieu fee option is limited to projects consisting of 30 units or less. • Clarifies that rental projects must provide affordable units at the lower income level. • Overall minor clarifications and revisions, including adding a "Definitions" section. The existing Affordable Housing ordinance is codified as Section 230.26 -Affordable Housing within the Huntington Beach Zoning and Subdivision Ordinance. The City's Affordable Housing policies were established in the mid 1990's and codified in 2005. The current affordable housing ordinance requires new residential projects proposing three or more units to provide at least 10 percent of the total units as affordable to either moderate or lower-income households. The existing ordinance provides several options for a project to meet the affordable housing obligation. A project may provide affordable units within the proposed project for onsite compliance. Further, the affordable units are permitted to be provided at an off-site location, and may be new construction or substantial rehabilitation of existing units. Preservation of at-risk units identified in the Housing Element may also satisfy the affordable housing obligation. All off-site inclusionary units must be constructed or rehabilitated prior to or concurrently with the primary project. The proposed revisions to the ordinance expand the options to satisfy the affordable housing obligation such as providing an affordable housing parcel within a larger market-rate project and dedicating land to the City for construction of affordable housing. The draft ordinance also includes City of Huntington Beach Page 2 of 8 Printed on 8/19/2021 powerMA Legisfac' File #: 21-577 MEETING DATE: 8/24/2021 specific compliance requirements for each option, such as providing an appraisal and Phase I Environmental Site Assessment for land to be dedicated to the City to fulfill the affordable housing obligation. Construction of affordable units off-site will also be subject to specific standards, such as a 15% inclusionary requirement, the units shall be a rental product type, and 40% of the units shall contain at least two bedrooms. The current ordinance establishes an affordability term for affordable units. Affordable housing units are required to be available at an affordable housing cost for a 55 year term for rental units and 45 years for ownership units. The proposed revisions to the ordinance clarify that rental units are required to be made available to lower-income households and ownership units to moderate income households. The existing ordinance also permits the affordable housing obligation to be satisfied through the payment of in-lieu fees for new residential construction projects up to 30 units. As such, the current ordinance also includes provisions for the methodology, collection, and use of the affordable housing in-lieu fees. The option to pay in-lieu fees is recommended to be expanded to include all ownership projects of any size and rental projects with up to 100 units. KMA recommends a revised in-lieu fee methodology to calculate fees on a per square foot basis instead of the existing per unit methodology. Although not part of Zoning Text Amendment No. 19-004, the draft revised affordable housing in-lieu methodology and fee calculations are provided in the KMA study for information purposes only (Attachment Nos. 4 and 5). Study Session: The Planning Commission held a study session for ZTA No. 19-004 on August 10, 2021. The Commission asked staff to return with information regarding the following items: • Section 230.26(E)(3)(d)(iii) - (vi): Redundancy among environmental requirements for land dedication option. Staff has revised the legislative draft to remove items (v) and (vi) as they are duplicative of item (iv). • What is the City's progress towards production of the 51h Cycle RHNA? See Table B of Attachment No. 6 - 2020 Housing Element Annual Progress Report. • Has an applicant previously utilized the land dedication option to fulfill the affordable housing requirements? A search of City records indicates that an applicant has not previously dedicated land to fulfill the affordable housing requirements. The land dedication option is not provided in the existing ordinance, although it is an option in the existing density bonus ordinance. • Is there risk to the City in accepting donated land? There could be some risk to the City in accepting a vacant property for affordable housing. However, risk would be mitigated through the City's due diligence process, and ultimately, City of Huntington Beach Page 3 of 8 Printed on 8/19/2021 oc.em415 Legisar° File #: 21-577 MEETING DATE: 8/24/2021 acceptance of the property would be at the City Council's discretion. ISSUES AND ANALYSIS: General Plan Conformance: The proposed ZTA is consistent with the goals and policies of the City's General Plan including: Land Use Element Goal LU-4: A range of housing types is available to meet the diverse economic, physical, and social needs of future and existing residents, while neighborhood character and residences are well maintained and protected. Policy LU-4 (A): Encourage a mix of residential types to accommodate people with diverse housing needs. Housing Element Goal 3: Enhance housing affordability so that modest income households can remain an integral part of the Huntington Beach community. Policy 3.1 : Housing Diversity. Encourage the production of housing that meets all economic segments of the community, including lower, moderate, and upper income households, to maintain a balanced community. Program 10: Continue to utilize the Inclusionary Housing Ordinance as a tool to integrate affordable housing within market rate developments, or alternatively, to generate fees in support of affordable housing in off-site locations. Establish an in-lieu fee amount for projects with between 10-30 units. Re -evaluate the Ordinance consistent with case law and to reflect market conditions and adopt an amendment to the Ordinance in the first half of 2020. Since the City has already addressed its moderate income RHNA allocation, the City will implement a City-wide policy to require at least half of on-site inclusionary units to be provided at levels affordable to lower income households. The proposed ZTA ensures that affordable units constructed on-site in market rate rental housing projects would be provided for lower income households. In addition, the proposed ZTA would allow all ownership housing projects to pay an in-lieu fee to satisfy the affordable housing requirement. If affordable units are provided within a market rate ownership housing project, the affordability level is set at moderate income. If in-lieu fees are paid by the developer of a market rate ownership housing project, those fees would be utilized for affordable housing projects that would provide deeper levels of affordability at low, very low and extremely low income levels. The proposed ZTA would therefore facilitate production of housing that meets all economic segments of the community consistent with General Plan Housing Element goal and policies. In addition, providing more options for developers to comply with affordable housing requirements furthers General Plan Land Use Element policies to encourage a mix of residential housing types and accommodate the diverse housing needs of the community. Zoning Compliance: The proposed updates to Section 230.26 do not change the Zoning designation of any property. The City of Huntington Beach Page 4 of 8 Printed on 8/19/2021 oowere415 Leoistar"' File #: 21-577 MEETING DATE: 8/24/2021 following provides a review of the proposed amendments. 1. General Reorganization and Renumbering The existing ordinance requires the public to read through several various sections to gather all the information needed. The proposed update reorganizes the ordinance into a few key sections: Definitions, Applicability, On-Site Options, Alternatives to On-Site Options, and Miscellaneous Provisions. Notably, several requirements that were previously in the Miscellaneous Provisions section have been reorganized under each applicable section in order to increase readability for the public. For example, each option that permits a phasing plan to construct the market rate units and affordable units in phases is proposed to state this within its section. 2. Applicability The existing ordinance requires that a minimum of 10% of all new residential projects proposing three or more units shall be affordable housing units. There is no proposed change to the minimum percentage of affordable units, except for the following options: • Minimum 15% inclusionary requirement: Off-site production • Minimum 20% inclusionary requirement: Acquisition/rehabilitation projects and land dedication An applicant would only be required to provide more than 10% affordable units if they were to choose one of the above options to fulfill the inclusionary requirement. Projects located in Specific Plan areas will defer to the inclusionary requirements of each Specific Plan, if applicable. 3. On-Site Affordable Housing The existing ordinance includes provisions for fulfilling the inclusionary requirements on-site within a market rate project. The existing ordinance permits rental units to be made available to low-income or moderate-income households and ownership units to moderate-income households. The proposed amendments would require rental units to be made available to lower-income households, which is inclusive of low, very low, and extremely low-income households. The revised ordinance proposes more specific provisions for the existing options to provide affordable units on-site, including the following items: Ownership Units • Affordable to moderate-income households • Bedroom mix shall be proportional to the bedroom mix of the market rate units • Affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units Rental Units • Affordable to lower-income households • Bedroom mix shall be proportional to the bedroom mix of the market rate units • Affordable units may be no more than 20% smaller in square footage than the average square footage of the market rate units • Interior improvements shall comply with the Low-Income Housing Tax Credit (LIHTC) minimum construction standards The revised ordinance expands the on-site affordable housing option to permit construction of City of Huntington Beach Page 5 of 8 Printed on 8/19/2021 powerA17,,Leg,starl- File #: 21-577 MEETING DATE: 8/24/2021 affordable rental units within a market-rate ownership housing project. If a developer chooses this option, they may create a separate affordable housing parcel within the market-rate project site for the affordable rental units. The developer may enter into an agreement with an Affordable Housing Developer to construct, own, and operate the affordable housing units. Several provisions for the affordable units are proposed, such as a minimum of 40% of the units shall include at least two bedrooms and the Affordable Housing Developer shall enter into an Affordable Housing Agreement with the City. 4. Alternatives to On-Site Affordable Housing The existing ordinance includes general provisions for fulfilling the inclusionary requirements through options alternative to providing the affordable units within the market rate project. The existing ordinance permits offsite production of affordable units, acquisition and rehabilitation of existing units, land dedication, and payment of in-lieu fees. The revised ordinance proposes specific provisions for each of these options and updates each option in response to market trends. Ofisite Production of Affordable Units The existing ordinance permits offsite construction of affordable units. The proposed update expands this section to include the following provisions: • Minimum 15% inclusionary requirement • Minimum 40% of units shall include at least two bedrooms • Bedroom mix of affordable units shall be proportional to the bedroom mix of the market rate units that generated the inclusionary requirement • Affordable units can be a maximum of 20% smaller than the average size of the market rate units Acquisition and Rehabilitation of Existing Units The existing ordinance permits acquisition and rehabilitation of deed-restricted affordable units identified as at-risk of conversion to market-rate units in the Housing Element. Units are typically identified as at-risk if affordability restriction periods are set to expire within the next five years. The proposed update expands this section to include the conversion of motels to rental units. It is also proposed for the inclusionary requirement to be set at 20% for developers choosing this option. Land Dedication The existing ordinance does not include a land dedication option to fulfill inclusionary housing requirements, although this option is available in the existing density bonus ordinance. The proposed land dedication option allows the City Council the discretion to approve a developer's proposal to dedicate property in-lieu of constructing affordable units. Several provisions are proposed regarding the dedication of land, including the following: • Minimum 20% inclusionary requirement • The property shall be located within the City of Huntington Beach • The developer shall convey the property to the City at no cost • The existing General Plan and zoning standards shall allow for a residential use at a density sufficient to allow for the required number of affordable units to be constructed • The site shall be suitable in terms of size, configuration, and physical characteristics to allow for the required number of affordable units to be developed on a cost efficient basis City of Huntington Beach Page 6 of 8 Printed on 8/1 912 0 2 1 oowert418 Legisar'• File #: 21-577 MEETING DATE: 8/24/2021 • The developer shall provide a title report, appraisal, Phase I Environmental Site Assessment (ESA), Phase II ESA if the Phase I report indicates hazardous materials were previously used on the site, and a site closure letter from the appropriate regulatory agency showing the site was remediated to residential standards if hazardous materials were previously remediated In-Lieu Fee Payment The existing ordinance permits all residential projects proposing up to 30 units to pay an in-lieu fee to fulfill the inclusionary housing requirement. The existing methodology calculates the fee on a per-unit basis. The proposed updates to the ordinance extends in-lieu fee eligibility to ownership projects proposing any number of units and rental projects up to 100 units. In-lieu fees paid to fulfill inclusionary requirements are placed in the City's Affordable Housing Trust Fund (AHTF). There are no proposed changes to this section of the ordinance. The existing ordinance provides several provisions for using the AHTF monies, including the following: • Constructing residential projects with a minimum 50% of units affordable to very low and low- income households • Units constructed using AHTF monies must be affordable for a minimum of 55 years • City Council has discretion to use AHTF for other related costs such as gap financing, pre- development costs, rehabilitation, and administrative costs 5. General Clarifications and Revisions The proposed updates to the ordinance include several clarifications and revisions. Definitions Section The existing affordable housing ordinance and proposed update include several technical terms that do not appear elsewhere in the HBZSO. The proposed definitions section is included in order to define existing and new terms in the ordinance. Reduced Fees for Affordable Housing The existing affordable housing ordinance includes section 230.26.G., which states that projects exceeding the minimum inclusionary requirement on site would be eligible for reduced city fees pursuant to adoption of an Affordable Housing Fee Reduction Ordinance by the City Council. This section was effectively completed through adoption of the Development Impact Fee (DIF) ordinances, which included fee exemptions for affordable housing units made available to lower income households. As such, this section is proposed to be deleted. Accessory Dwelling Units Recent state laws have expanded the option and ability of property owners to construct accessory dwelling units (ADU) on single-family or multi-family properties. The proposed update includes a provision which notes that construction of an ADU does not satisfy the inclusionary housing requirement. ADUs are typically much smaller in size than the associated market rate units. It can also become burdensome to ensure that all affordable housing monitoring and compliance regulations are adhered to. For example, deed-restricting an ADU as an affordable unit when it is on the same property as a market rate single-family residence would require the single-family property owner to income qualify each tenant of the ADU. City of Huntington Beach Page 7 of 8 Printed on 8/19/2021 powerc419 Legistar` File #: 21-577 MEETING DATE: 8/24/2021 Urban Design Guidelines Conformance: Not applicable. Environmental Status: ZTA No. 19-004 does not propose directly or indirectly development that would result in physical changes to the environment. As such, ZTA No. 19-004 would also be exempt pursuant to Section 15061(b)(3) of the CEQA Guidelines, which exempts activities where it can be seen with certainty that there is no possibility that the activity may have a significant effect on the environment. Coastal Status: The proposed amendment will be forwarded to the California Coastal Commission as a minor Local Coastal Program Amendment for certification. Design Review Board: Not applicable. Other Departments Concerns and Requirements: ZTA No. 19-004 was prepared with input from the Housing Division of the Community Development Department and reviewed by the City Attorney's Office. Public Notification: Legal notice was published in the Huntington Beach Wave on August 12, 2021 and notices were sent to individuals/organizations requesting notification (Planning Division's Notification Matrix). As of August 16, 2021, no communications regarding the request have been received. Application Processing Dates: DATE OF COMPLETE APPLICATION: MANDATORY PROCESSING DATE(S): Not applicable. Legislative Action - Not Applicable. SUMMARY: Staff recommends approval of ZTA No. 19-004 based on the following reasons: 1. It is consistent with the general land uses, programs, goals, and policies of the General Plan. 2. It addresses a community need to update the existing ordinance to implement Housing Element programs, to facilitate provision of housing opportunities for all economic segments of the community, and reflect current market conditions. ATTACHMENTS: I. Suggested Findings of Approval - ZTA No. 19-004 2. Draft City Council Ordinance No. 4235 3. ZTA No. 19-004 Legislative Draft 4. KMA Report 5. KMA Financial Analysis 6. 2020 Housing Element Annual Progress Report City of Huntington Beach Page 8 of 8 Printed on 8/19/2021 powere420 Legis:ar7° 'Aa CITY OF HUNTINGTON BEACH Inter-Department Communication Community Development Department TO: Honorable Mayor and City Council Members VIA: Oliver Chi. City Manager [I UZ FROM: Ursula Luna-Reynosa. Director of Community Development DATE: September 20 2021 SUBJECT: SUPPLEMENTAL COMMUNICATION — AGENDA ITEM NO. 16 CITY COUNCIL AGENDA 9121/21— AFFORDABLE HOUSING ORDINANCE AND IN-LIEU FEE UPDATE (ZTA NO. 19-004) Upon discussion with the City Attorneys office. Staff is recommending the following revision to draft City Council Ordinance No 4235 for ZTA No 19-004 The current proposed language in Huntington Beach Zoning and Subdivision Ordinance (ZSO) Section 230 26 states C. Applicability. This lid Section shall apply to New Residential Projects of three or more units in size not located in a Specific Plan Projects located within a Specific Plan shall defer to the Specific Plan for affordable housing requirements The proposed language in ZSO Section 230 26 is revised to state: C. Applicability. Unless otherwise specified in a Specific Plan. Tku6 sestiAn this Section shall apply to New Residential Proiects of three or more units in size. The recommended revision clarifies that ZSO Section 230.26 applies to all new residential projects of three or more units unless other specific details, provisions, or requirements for affordable housing are outlined in a Specific Plan This revision will eliminate potential conflicts with any Specific Plans that may not include or address affordable housing requirements Staff is recommending that a motion to approve the recommended actions include the above- referenced revision xc Michael Gates, City Attorney SUPPLEMENTAL Robin Estanislau. City Clerk COMMUNICATION Executive Team I G:\ADMIMAdmLrrk2021\09.20.21 NBA Affordablc Housing I rpdarc Supplcmcntal Communication docv ORDINANCE NO. A235 dwelling units (ADUs) do not satisfy the affordable housing obligation nor d they trigger the affordable housing obligation. 3. Area Median Income. The midpoint of a County's gross income distctbution adjusted for household sire as determined by the California Housing and/ommunity Development Department (FICD) annually. 4. Extremely Low-Income. Households whose incomes meet th standards defined by the H&SC Section 50106, or a successor statute. 5. Lower Income. Households whose incomes meet the st /dirds defined by the H&SC Section 50079.5. or a successor statute. 6. Moderate-Income. Households whose incomes inet the standards defined b% the I-l&SC Section 50093, or a successor statute. 7. New Residential Project. Development that i eludes the creation of three or more new dwelling units. conversion of nonre dential uses to dwelling units, or the conversion ol'a use from a residential renta development to a residential ownership development. 8. Ownership Units. Dwelling units constructed as part of a New Residential Project, or contained within a rehabilitation project. offered for individual unit sale. including, but not limited to, sin , /etwnily detached or attached homes. condominiums. or cooperative . 9. Phasing Plan. A details plan provided by a developer that outlines each segment or phase of constrfiction including housing units and site improvements to be developed in a New Re idential Project. 10. Very Low-Inca ie. Households whose incomes meet the standards defined by the H&SC Section 0105. or a successor statute. C. Applicability. Thi Section shall apply to New Residential Projects of three or more units in sire not loc, ed in a Specific Plan. Projects located within a Specific Plan shall defer to the Specif Plan for affordable housing requirements. 1. Afforda a Housing Obligations. All New Residential Projects must be restricted, as set for tier in. to contain a minimum of 10% of Affordable Housing Units. In the event a fractional unit is established. the Affordable Housing Unit count shall be 2 Qi"Zrni�cE/1�V. ��•3J 230.26 Affordable Housing A. Purpose. I. The purpose t»iI ++t zrrt of this chapter is to create ;tn Inclusionan- housing Ordinance to enhance the public weltaic and implement the goals. objectives and policies of the by's General Plain. including its Flousing Element. It is intended to encourage the su Ov of esucnich low. very low, lowtr'-and moderate- income housing., '— is .:zzer. j 2. 'Phis Inclusionary Housing Ordioancc ''h• flf OFdg' '& hOusing PFO �•• is Otte a tool the City utilizes to meet its commitment to provide housing affordable to all economic sectors, .. _ . 11 3. !c a reSilk Of6xin_ 10CMed Y it{t+tt .r+edeNel-^.•.", 11^ "/ Spec Pc of , B. Definitions. 1. Affordable Housing Cost. The oerceotaee of inCume th t shall be utilized to determine the maximum housing related costs as calculated in accor(idnce with California Health and Safety Code (H&SC) Section 50052.5 (standards for&-nership units) and H&SC Section 500.3 wa idards for rental units). 2 Affordable housing Unit. A dwelling unit reouirFcl by this Section to be affordable to E.xtremel\, Low. Very Low. Lower. or Moderatchcome Households. Acccssory dwellirw units (ADUs) do not satistl the affordable housing obligation nor do the\, trigger the affordable housing obligation. Area Median Income. The naidnoint Of,' ,ountv's gross income distribution adiustc(I for household size as determined b\, the Calif inia Housim, and Communit\, Development Depanment 1IiCD) ammaliv. 4. Extremely Lot%-Income. Flouscholds,vhose incomes meet the standards defined by the H&SC Section 50100. or a successor s{ntute_ Lower Income. Households whose ir1comes meet the standards defined by the H&SC Section 500795. or a successor statt'ite. G. Moderate-Income. Households v)!hose incomes meet the standards defined by the H&CSC Section j0093. or a Successor steatite. 7. Net\ Residential Proem. Devglopment that includes the creation of three or more ncav dwelling units. Conversion of Wonresidential uses to dwelling units. or the conversion of a use from a residential rental development to a residential ownership development S. Ownership Units. Dtcrllin_ units constructeCI as part ofa New Residemial Proicct or contained within a rehabilitation project, offered for individual unit sale. includim but not limited to. single-famil, detached or attached homes condominiums_ or cooperatives 9. Phasing Plan. A detailed plan provided by a dc\,eloper that outlines each segment or phase of construction including housing units anii Site improvements to be developed in a New Residential Project 10. Ver% Lot%-Income. Households whose incomes meet the standards defined by the H CSC Section COIN. or a successor statute. I 290 P,C. Applicability. This seeti6n Section shall apply to nev, iesideiitial .._,: , \Iexy Residential Projects of three or more units in size not located in a Specific Plan. protects located within it Specific Plan shall defer to the Specific Plan for affordable housing requirements. I. Affordable Housing Ohlieations. All NOV Residential Project: must be.restricted. as for herein, to conwjn a A minimum of 10% of Affordable I lousjng Units. atxe4 In the event a fractional unit is established, the Affordable Housing Unit count shall be rounded up unless paragraph (4 C:)(4 ?)of this section applies.sf�rgjccts_prQi ling affovdahlc uniti / -it Fraetiow l ... : ' . ..' 1 with h an equivalent in-lieu fee may be paid instcadol' ountfing . i Developers of residential projects may elect to pra+ide fulfill the affOT_dablc housing obligations imposed by this Section by provi ng Affordable Housing Units at the New Residential Project site pursuant to subsccti it D below onsite production) or through an applicable alternative compliance option dorovided by suhsection [ belov1' hlternniyes to onsne production). Fes Z I iflOkId@ 08114IRleii(311 81'RH elitiHIV HeW iffEt"­ : .d&d to n ex sting pf.ai?et. For purposes of determining the required number of ,\affordable Hhousine Uanil/only new units shall be counted. CilnSlrnc11011 Of an accessory d{yelljng unit does not triegc�' the affordable housing obligntion. r 1. Pet!-, FBid t8 ivdf li the FegUiFi'ffl iiis E44his shall k�I , . 1 h e i-' c�.�c rrr..�rirrr,-�ccr(c�rr.�rnrrr-c�' {�cii�-rri-Frtc-c-rrrr _. 1-5- {l}(Hh} {fa}IRbk2ti.-:?..; -a+TiH`r}r.4(t-±-=-}+u...�-:_lh�rnry4rnlx7.-alrirr .4lka }�n�mmtHr.raaiH-llr�ek.Nn?..wNHrywl.l-Fag..{ 7 291 4. Fee. lid as it ll - f;ie lential pi-Ltjeei shall he bas-diH}$I-IH#�ft"�� P. Off Site G .,...rtJet .,.. ..f ♦rp,fd a le U.,'.. !;Wept .,,.,.. be Ft?qH'-2d 1, . 11,-, 0A,silL pi-(�ee!s maN. be ilek, OF substawial f-elikil,iiii-Iii(mi. A f-./A .. .. . . J ditble / . //4h flite non itlelkiionap. umfN D. Onions for Fulfilling Affordable Housing Oblieati/� 011slle Production I. _Affordable Ownership Housine Unit a. Pursuant 10 Section 23016 F1. New siden6al Project Others or Developers shall place an affordability covenant on kiership Units that is set at the Nioderate- Income Household affordability ev6Cl. b. The Affordable Housine Unit ;h;ill be brill concurrently with the market rate units, a�rovided fiu with an a prayed phasing plan. c_ The bedroom nli.x for the a ff ordablc units >Imll be pro onional to the bedroom mix of the marker rate units.flie affordable units may be no more than 20% smaller in square footaee than I IV, tverase square footage of the market rate units. il. The exterior and interior lillplowilleills, finishes- appliance packaaes. etc for the affordable unils S114 be comparable to the base level market rate unit. 2. Affordable Rental How ing Units within an Ownership I-IPtlSing Project a. The afforcability covenant placed on the rental unit is set at the Low-Income Household affordability level. but the developer may choose to fulfill the affordable housing requirement with units al the Very-Low or Extremely-Low Income Household affordability level. b. A market rate developer may create a separate affordable housing parcel within the V'cpy Residential Proiect site and enter into an agreement with an affordable housing developer to consinlct. own, and operate the affordable hptiSing units. The 3 292 at housing developer is required to enter into an Affordable Floe ing Agreement with the Cliy, subject to the tollowing: i. The affordable 11OWS1111 developer shall have recent rcleyam experience and be :mproyed by the Conurtunity Deyelo)ntent Director or their desi nee. ii. The affordable housing developer and/or market rate developerbav not request any financial assistance from the City. c. The bedroom mix is not required to match the unit mix provided idthe market rate ownership housing project. At least 40% of the affordable units ohall include at least two bedrooms. d. The Affordable HOWSImI Units shal! be built concurrently with/e market rate project. The AtTordable HOWSjng Units may be consnvcted 11i phases if the market rate project is developed in phases. with an approved pha4lu plan. Affordable Rental Housing Units a. PWrSWant to Section 230?6(F). New Residential Prozct wners or developerS shall place an affordability covenant on rental units at t Low-Income Household affordability level. but the developer may choos to fulfill the affordable housine' requirement with units at the A%cry-Low or Es /catch,-Lo%y Income Household affordability level. b. The Affordable Housing Units shall be bui concurrently with the market rate project. The Affordable F!ousing Units i av be constructed in phases if the market rate project is developed in phases. wit vt :mproyed Phasinu, Plan. c. The bedroom mix for the affordable Aits shall be proponional to the bedroom mix of the market rate units. The afford• le units may be no more than 20%, smaller in square footage than the a\craee s um'e footage of the market rate units. d. The minimum construction St,1111,11CIS for interior jm proyements of the Affordable HouSim Units shall be the sa c us those im)osed by the Low-Income Housing Tax Credit (LIIITC) program. E. Options for Fulfilling Affordabble Housing Oblj+,aeons: Alternatives to On-Site ProdWCIIPn I. Off-Site Production Of:4 foiclable Housing Units a. Excc m as may be ' Quired by the California Coastal Act or GoVrrnmcnt Code Section 6i40 or a successor statute. developers may _ro%ide therequired Affordable Host .ing Units off-site, at one or several sites, within the City of Huntington Re ch. b. Pm'Sttapl to Section 23016(F). New Residential Project owner or developers shall place an affordability covenant on the Oft'site units that is set at I�°/. of the total number of units ineluded in the New Residential Project that ecnerated the affordable housing obligation. The affordability covenant placed on the off-site Affordable Housin_ Units shall be at the Low-Income Household affordability level. bat the developer may choose to fulfill the affordable housing requirement with units at the \%cn-Low or Extremch-Low Income Household affordability level. The aftixdability covenant shall spccifb the off-site Affordable 1-10usjng Units shall be rental Wilts. 4 293 b. The provision oft lie off-site Affordable I lousing Units shall not create an ovu concentration of Affordable (lousing Units in anys-xcific ;u'ea. c. The design, building quality. and maintenance standards shall be the reguircinc•nts inuxOSed by the Llf-ITC minimum construction standards- d. The bedroom mix for the affordable units is not required to match the a provided n the market rate project that is subject to the affordable housing ob6uations. At mininwm. 40% of the affordable units shall include at least two bedrooms. e. Pursuant to Section 2:0?61E1. the market rate developer may enter into an agreement with an affordable housing developer to construct. own and operate ehc off-site affordable housim pmjcci. The affordablc housing de lover is required to enter into an Affordable I lousinu Agreement with the Con•, su jcci to the following: i. The affordable housing developer shall have recent eel •ant experience and be approved by the Conuuunity Development Director o their designee. ii. 'fhc• afloidablc housing developer and/or market ra e develo xr may not ralucst am financial assistance from the Citv. iii. All off-site affordable units shall be constructed rior to or concurrently with the market rate project ilmi generated the aff'ordabic housing obligation. If the market rate project is developed in phases. with ail approyeLI Phasing Plan, the affordable units may be developed alot�h the first phase of the market rate proiCCt. Pinal approval (occupancvl of tilt first market rate residential unit Shall be contingent upon the completion and 4blic availability. or evidence of the applicant's reasonable progress tcm;trds attainment ofcompletion. of the affordable units. 2. Existing Units ACC uisition and Rehabilitation Pro cis file City Council has the discretion. but not the r guiremem. to approve a developer's request to acquire. rehabilitate. and dace affordability covenants on existins off-site units. The request shall meet either of the following threshold re uir tents in order to fulfill a projects affordable housing obligation: a. file ro'ect s) sh;dl bC identiff d as at-risk in the Cin s Housing Element: or b. The project is a motel that ca be adapuyely reused as residential uniu. Additional requirements foracguisitien and rehabilitation projects: a. The affordable housing re/iirement is equal to at least 2M/o of the uniu in the proicci that trieged the affirdablc housing obligaiicnt. b. The rents charecd for the rehabilitated units shall be set ai the lesser of the HRSC 5005 rents of m least 10% discount from the achievable market rents for the units. subject to annual monitoring and renorting. c. If there are more units in the acquisition and rehabilitation project than are required to fulfill the affordable housing requirement, those units may be rented at market rate. Land Dedication. 5 294 The City C OUI!CII hats the discretion, but nln the IegUirennent. to a1IILM a dlcyelimer 10 dCL ieate property in lieu ofcon:tructin_ Affordable I-lousine Uni[S. The fOHOwln3 requirements arc applicable to anv L�ropert\ propo>ed to be dediCWed: a. The property shall be located within the Citv of f luntineton Beach. b. The dcyeloper shall convev the property to [he Cite at no cost. c. -file oropem, moposeci to be dedicated shall yield a minimum of?U'%i nfrhe final units constructed [vithin the market rate pro ect: i. The site's e.xistins Clencial Plan and zonin_ standards ;hall alh y for a residential use at a density sullicient to allow for the requisite number of affordable units to be developed without a density bonus rev ul cst. ii. The site shall be suitable in terms of sir_c, confieuration. a cl phvsic•al characteristic; to allow for the requisite number of affordable units to be deyeloned on a cost efficient basis. iii. The bedroom MIX for the affordable units shall be -r- ponionad to the bedroom mix of the market rate units. The affordable units i ay be no more than 20% smaller in square foota,c than the ayeraee sc uare foota,c of the market rate unitS. d. The developer shall provide evidence of the follow. _e cyhen the land dedication proposal is submit[ed: i. A title report shtmina the developer/o per has lien-tiec. fec simple title. Any encumbrances or e:ue..ents that adv• sch impact the pro perty"s title shall be disclosed and will be facu>red into e estimated value of the interests proposed to be conveyed to tine C y. ii. An appraisal dated within 30 clan/1 of the application by a Nfcmber Appraisal Institute (\-I:AI) ampraiscr. iii. A. Phase I Environmental SitZssessnnent and a Phase II Environmental Site :Assessment if the Phase I iLIP011 indicates that h:nza I'd OLIS tnatel'MIS nacre potentiall,previously us d on the site. iv. The proxrty Shall not Vonuun any hazardous nfatCI-MIS at the time the land dedication proposal i submitted. If hazardous nnaterials were prexiOUSIV remediated. a site c sure letter from the a pro rime reeulator . auencv showin, ep'idenc, hat the site was remediated to residential standards is required. e. The property shall not nave been inn roved with am, residential use for at least five years prior to the Sub fission of a land dedication proposal. f'. Payment in full of a tares and/or assessments shall have been made pa hen the proposal iS Submitted. and av'ain ivior to c•onv'eyance of the properly to the Cite. The construction of affordable unitS on the property shall not create an over concentration of jiffy income housin, in ❑ w Specific area. h. The property shall be fully served by the necessary infrastructure prior to conveyance to the City. i. To assist the CIIV in eyalu261112' land dedication proposals. the developer shall submit a Conceptual Site palm and narrative description ofa project that could be cleyeloped on the progeny. 4. Pee Payment in Lieu of•Constztction 6 295 a. Developers ofthe tollowing New Residential Project tvpes may pay an in-lieu fee to fulfill affordable hOIISIitg obligations: i. Ownership residential projects proposing any number of units. ii. Rental residential pi ects proposing, 100 units or fewer. b. The amount of the in-lieu lies shrill be calculated using the fee schedule establishe by resolution of the Cite Council. c. A project may be permitted to pay in-lieu fees if it does not meet the eligibility s and2rds of this section if the City Council determines. at its discretion. that the requirem nt to provide affordable housing units would impose an extreme hardship on the develo)er d. One hundred percent of the fees required by this section shall be paid priuo o issuance of a buildine permit. However. fees phased proiccis the developer may pay a u4o rasa share of the in-lieu Ice concurrently with the issuance of buildine permits for ea, t decopment phase. ;ts aln]-mcd by a Phasing, Plan. c. Pees paid to fulfill the requirements of this section shall he placed i the City's Affordable Housing Trust Fund, the use of which is governed by subsection P of this -Section. f. Pees paid as a result of new residential projects shall be based upon the total number of the new residential units which arc to be constnutcd prior to the yr<mI of;ury density bonus. F- F. Miscellaneous Provisions. / falio iww item T b. the !I Inbe!- el,affi3m-dalbl. Gave--mn� � ` I. An Affordable Housing Agreement/41acinu a covenant that rums with the land and outlining all aspects ofthe aAffordable lousing,pravisiont Obligations, including but non limited to the affordabilit- term for the est icted units, shall be executed between the applicant and the City and recorded with the O nge Count%, Recorder's Office. PF the fippl eable in lieu. The Affordable Housim_ a greement shall specify an affordability term of not less than 55 years for rental heusitiu unit. or 45 years for ownership housin units. 4 All effort /' Final appt:o�- 1 fiFS! MaFket Fate FeSidelitial tinit shall be eantingent upon the 5. maFket Fate HH45 IH !he PFE�eeh Hild ShHll 138 COMPaFable With flie fflafliet Fate Bilks iH teMIS Of 63. In general. the Affordable Housing Trust Funds shall be used for projects which have a minimum of 50% of the dwelling units affordable to very low- and low-income households. 7 296 with at least 20% of the units available to very loNy-income households. Concurrent with establishing the annual fee schedule pursuant to subsection G F of this section, the Cit Council shall by resolution set forth the additional permitted uses of Affordable Hat Ins!Trust Funds. but To obtain Affordable Housing Trust Funds. the rcci dent sha enter into an affortlablc hou;in_ agreement as set forth above. and shall maintain [he affordability of the units for a minimum of>j years. The funds may, at the discretion of the City Council, be used for pre-development costs, land or air rights acquisition, rehabilitation, land.ivrite downs. /. administrative costs, gap financing, or to lower the interest rate of construction loans or permanent financing. 7 4. New affordable units shall be occupied in the following manner: a. Any existin!, residents shall be allowed to occupy their units until six months bet-ore the start of construction activities with proper notice. fib. The developer shall provide relocation benefits to ih cupants of the affordable units that arc displaced. b-c, If residential rental units are being demolished and the existing tenant(s) meets the eligibility requirements, he/she shall be given th�fight of first refusal to occupy t#e af(erdHble it comparable unit(4,available in the new housim_development aflixdable to the household at an affordable rent (e.g. Extreinely-Low Income. Very-Loty Income. Low-Income. Moderate Income. Market Rate). al. If there are no qualified tenants, or i�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. �._ ; upon ftdOPiiO!1 bv tile G N. Annual Program Review and Periodic Adjustment of the Fee. Within 180 days after the last day ofeach fiscal year, the City Council shall review the status of the City's Affordable Housing Trust Fund, includi g the amount of fees collected. expenditures from the Affordable Housing Trust Fund, and th degree to which the fees collected pursuant to this chapter are assisting the City to provide and encourage low- and moderate-income housing. The fee shall be updated annually using the Real Estate and Construction Report published by the Real Estate Research Council of Southern California. The fee change shall be based on the percentage difference in the new home prices in Orange County published in the fourth quarter report for the then current year versus the immediately preceding year, (3(587-I2/04. 3827-4/09.. 3829-6/09, 3879-6/10, 4040-12/14) 8 297 9/21/2021 ZONING • 114 Affordable Ordinance CouncilCity Public Hearing September • 1 �- Purpose and Background • Affordable Housing policies established in the mid 1990 s • HBZSO Section 230.26 - Affordable Housing codified in 2004 and last updated in 2009 • 5th Cycle Housing Element (2013 - 2021) program to reevaluate ordinance and propose revisions consistent with current market conditions • City contracted with Keyser Marston Associates (KMA) to provide analysis for proposed amendments SUPPILEMENIAL COMMUNICATION pride ftm sia, 1 lD (a l -(0 1 55 9/21/2021 Request • Updates and expands the options for projects to meet affordable housing requirements • Revises in-lieu fee payment option and fee calculation methodology for ownership and rental housing projects • Clarifies that rental projects must provide affordable units at the Lower Income level (Low. Very-Low. Extremely-Low) • Overall minor clarifications and revisions Inclusionary Requirements • Existing New residential projects proposing 3 or more units shall provide at least 10% of the total units as affordable to either moderate or lower income households • Proposed revisions for certain options to fulfill requirements. • Offsite production Min 15% Inclusionary requirement • Acquisition/rehabilitation projects and land dedication Min 20% mclusionary requirement 2 9/21/2021 Onsite Affordable Housing Affordable ownership units Affordable rental units within an ownership project Affordable rental units Onsite Affordable Housing 1. Affordable ownership units • 10% inclusionary requirement • Moderate Income affordability • Bedroom mix of affordable units proportional to bedroom mix of market rate units • Affordable units max 20% smaller than average size of market rate units • Exterior and interior improvements (finishes. appliances. etc) comparable to base level market rate units 3 9/21/2021 nsite Affordable Housing 2 Affordable rental units within an ownership project • May create separate affordable housing parcel within the market rate project • Min 40% of affordable units to include at least two bedrooms • Market-rate developer may enter into agreement with affordable housing developer to construct, own. operate the offsite affordable units • Affordable developer required to enter into Affordable Housing Agreement with City Onsite Affordable Housing 3. Affordable rental units • 10% inclusionary requirement • Lower Income affordability (Low Very-Low. Extremely-Low) • Bedroom mix of affordable units proportional to bedroom mix of market rate units • Affordable units max 20% smaller than average size of market rate units 4 9/21/2021 Alternatives to Onsite Affordable Housing Offsite production of affordable units 2. Acquisition and rehabilitation of existing units 3. Land dedication 4. In-lieu fee payment mom- Alternatives to Onsite Affordable Housing 1 . Offsite production of affordable units • Min 15% inclusionary requirement • Min 40% of affordable units to include at least two bedrooms • Bedroom mix of affordable units proportional to bedroom mix of market rate units • Affordable units max 20% smaller than average size of market rate units • Market-rate developer may enter into agreement with affordable housing developer to construct, own operate the offsite affordable units • Affordable developer required to enter into Affordable Housing Agreement with City 5 9/21/2021 Alternatives to Onsite Affordable Housing 2. Acquisition and rehabilitation of existing units • Preservation of at-risk units identified in the Housing Element • Motel conversion • 20% minimum inclusionary requirement • Units exceeding 20% minimum requirement may be rented at market rates JPIV �t Alternatives to Onsite Affordable Housing 3 Land Dedication City Council has discretion, not requirement to allow a developer to dedicate land in-lieu of constructing affordable units 20% minimum inclusionary requirement Site's existing GP/Zoning designations size. configuration. physical configuration must allow for construction of requisite number of affordable units Title report. appraisal. Phase I ESA. conceptual site plan and narrative describing potential affordable project 6 9/21/2021 u Fee PaymentA I et rnative • Existing Eligibility • All projects up to 30 units • Proposed Eligibility. • Ownership projects of any size • Rental projects up to 100 units • Existing Methodology: • Fee calculated on a per-unit basis • Proposed Methodology • Fee calculated on a per square foot basis (net saleable or leasable area) • Ownership units over 2.000 square feet per unit capped at the total fee for a 2.000 square foot unit Use of In-Lieu Fees • No changes proposed to this section of the ordinance • In-Lieu fees are placed in the City s Affordable Housing Trust Fund (AHTF) • AHTF can be used for. • Projects with a min 50% of units affordable to very low- and low- income households • AHTF units must be affordable for a minimum of 55 years • City Council has discretion to use AHTF for several items, Including Pre-development costs Gap financing Rehabilitation • Administrative costs 9/21/2021 7A.dd ions & Revisions ns section ting and new terms/acronyms within the section aryaconstruction of an ADU does not fulfill the inclusionary requirements • Delete existing 230.26(G)— Reduced Fees for Affordable Housing • Prior HE program completed through the adoption of reduced Development Impact Fees (DIF) • Clarify affordable rental units be available to lower income households and affordable ownership units to moderate-income households • General reorganization and renumbering to increase readability • Supplemental communication • Revise proposed language 230 26(C) for clarity regarding Specific Plan applicability Analysis • Providing more options for developers to comply with affordable housing requirements supports General Plan Land Use Element policies • Encourage a mix of residential housing types • Accommodate diverse housing needs of the community • Expanding in-lieu fee eligibility enables City to utilize AHTF for comprehensive affordable housing developments providing deeper levels of affordability • Overall update facilitates production of housing for all economic segments of the community consistent with General Plan Housing Element goals and policies 8 9/21/2021 Public Comments • Received approx 200 public comment emails prior to PC Public Hearing • ZTA No. 19-004 does not propose to change the zoning designation of any property or construct any development • Housing Element Update is a separate process • Public Engagement for HEU: • Held 2 virtual Community Meetings 1 Spanish outreach event. Public Input Survey over 2k responses. SEIR Scoping Meeting • Upcoming Public comment period on Public Review Draft HE Document. Community Meeting #3. PC/CC Study Sessions and Public Hearings Huntingtonbeacnca gov/housingelement Planning Commiss on and Staff Recommendation Approve ZTA No 19-004 with a modification to revise the term low-income" to "lower income in Section 230 26(A)(1) for consistency with the definitions section. Staff modification to 230 26(C), approve for introduction Ordinance No 4235, and adopt Resolution No 2021-50 based upon the following • Consistent with the general land uses. programs. goals. and policies of the General Plan • Addresses a community need to • Implement Housing Element programs • Facilitate housing opportunities for all economic segments of the community • Reflect current market conditions 9 -e ; 9/g� NOTICE OF PUBLIC HEARING BEFORE THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH NOTICE IS HEREBY GIVEN that on Tuesday. September 21, 2021 , at 6:00 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 items: 1 ZONING TEXT AMENDMENT NO. 19-004 (AFFORDABLE HOUSING ORDINANCE AND IN-LIEU FEE UPDATE) Applicant: City of Huntington Beach Request: To amend Section 230 26 — Affordable Housing of the Huntington Beach Zoning and Subdivision Ordinance (HBZSO) to provide updated and expanded options for projects to meet affordable housing requirements and provide an updated in-lieu fee schedule and methodology to reflect current market conditions. The Planning Commission held a public hearing on this item on August 24 2021, and recommended approval to the City Council with modification Location: Citywide City Contact: Nicolle Aube NOTICE IS HEREBY GVEN that Item #1 is categorically exempt from the provisions of the California Environmental Quality Act NOTICE IS HEREBY GIVEN that Item #1 will require a Local Coastal Program Amendment certified by the California Coastal Commission. ON FILE: A copy of the proposed request is on file in the Community Development Department, 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 or on line at http //www huntingtonbeachcagov on Thursday. September 16, 2021 ALL INTERESTED PERSONS are invited to attend said hearing and express opinions or submit evidence for or against the application as outlined above If you challenge the City Council's action in court. you may be limited to raising only those issues you or someone else raised at the public hearing described in this notice, or in written correspondence delivered to the City at, or prior to, the public hearing If there are any further questions please call the Community Development Department at (714) 536-5271 and refer to the above items. Direct your written communications to the City Clerk Robin Estanislau, City Clerk City of Huntington Beach 2000 Main Street, 21tl Floor Huntington Beach, California 92648 714-536-5227 http://huntingtonbeachca qov/HBPublicComments/ Moore, Tania From: Christine Gonzalez <cgonzales@scng.com> Sent: Tuesday, August 31, 2021 1:11 PM To: Moore, Tania Subject: Re: PH Notice - Zoning Text Amendment No. 19-004 Attachments: 1148SS86.pdf Cost $280.00, pub 9/9 HB Wave PLEASE NOTE Early Labor Day Deadline for all community papers. Publication Sept. 9, 2021: Submission deadline for all ads, Wednesday Sept. 1, 2021 at 3:00 p.m. Hard deadline for approval and changes Sept. 2, 10:00 am. OC Register Legal Advertising Chrissy Gonzalez 1771 S. Lewis St. Anaheim, CA 92805 714-796-6736 M-F 8:00 a.m. -4:30 p.m. Lunch 12 Noon to 1:00 p.m. Closed Sat. and Sun On Tue, Aug 31, 2021 at 12:16 PM Moore, Tania<Tania.Moore(asurfcity-hb.org> wrote: Good afternoon Chrissy, Please publish the attached PH Notice in The Wave, on September 9, 2021. Thank you, Tania Moore Deputy City Clerk City Clerk's Office 714-536-5209 t tan ia.moore(o)su rfcity-hb.orq 2 PROOF OF SERVICE OF PAPERS STATE OF CALIFORNIA ) ) ss COUNTY OF ORANGE ) I am employed in the County of Orange State of California I am over the age of 18 and not a party to the within action, my business address Is 2000 Main Street. Huntington Beach CA 92648 Pursuant to Code of Civil Procedure § 1094 6, on September 9, 2021, 1 served the foregoing documents described as: Zoning Text Amendment No. 19-004 (Affordable Housing Ordinance and In-Lieu Fee Update) on the interested parties in this action by placing a true copy thereof in a sealed envelope addressed as follows 149 Addresses — see label list a [X] BY MAIL -- I caused such envelope to be deposited In the mall at Huntington Beach California I am readily familiar" with the firm s practice of collection and processing correspondence for mailing It is deposited with U S Postal Service on that same day in the ordinary course of business, with postage thereon fully prepaid I am aware that, on motion of a party served service is presumed invalid if postal cancellation date or postage meter date is more than 1 day after date of deposit for mailing in the affidavit b [ ] BY MAIL -- By depositing a true copy thereof in a sealed envelope with postage thereon fully prepaid in the United States mail at Huntington Beach. California. addressed to the address shown above c. [ ] BY DELIVERY BY HAND to the office of the addressee d. [ J BY PERSONAL DELIVERY to the person(s) named above. e. [ J BY FAX TRANSMISSION to No I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on September 9, 2021. at Huntington Beach. California Deputy City Clerk g Mollowupiletters/proof of mailing doc � 2 J HB Chamber of Commerce Orange County Assoc of Realtors Amigos De Bolsa Chica President Dave Stefamdes President 16787 Beach Blvd 0202 25552 La Paz Road PO Box 1563 Huntington Beach,CA 92647 Laguna Hills. CA 92653 Huntington Beach.CA 92647 4 4 5 Sunset Beach Community Assoc Sunset Beach Local Coastal Program Huntington Beach Tomorrow President Advisory Board-County of Orange President PO Box 215 PO Box 746 PO Box 865 Sunset Beach, CA 90742 Sunset Beach,CA 90742 Huntington Beach.CA 92648 6 6 8 Building Industry Assoc of South Calif Buiiding Industry Assoc. of South Calif ETI.Corral 100 Michael Balsamo,CEO.OC Chapter Adam S.Wood.Director of Gout Affairs Jean Kimbrell, Treasurer 24 Executive Park.Suite 100 24 Executive Park. Suite 100 P O Box 2298 Irvine, CA 92614 Irvine. CA 92614 Huntington Beach,CA 92647 INTEROFFICE-9 10 12 Environmental Board Huntington Harbor PDA Rutan 8 Tucker,LLP Tess Nguyen en 16899 Algonquin St,Suite C Jeffrey Bl , 14th Floor n 9 y Huntington Beach.CA 92649 3rn Floor Costa Anton Blvdd 4th Mesa. CA 92626-1950 13 14 19 Newland House Museum Historic Resources Board Chair O C Ping 8 Dev Services Dept Pres, H 8. Historical Society Kathie Schey Director 19820 Beach Blvd. 3612 Rebel Circle P 0 Box 4048 Huntington Beach.CA 92648 Huntington Beach.CA 92649 Santa Ana.CA 927023048 19 21 25 O C Planning 8 Develop Dept City of Fountain Valley California Coastal Commission Michael Balsamo Planning Director Teresa Henry. South Coast Area Office P 0 Box 4048 10200 Slater Ave 200 Oceangate, 10th Floor Santa Ana, CA 92702-4048 Fountain Valley.CA 92708 Long Beach, CA 92802-4302 25 26 27 California Coastal Commission Department of Transportation. Dist 12 Local Solid Waste Ent Agy South Coast Area Office Scott Shelley, Senior Planner O C Health Care Agency Director 301 E. Ocean Blvd . Suite 300 1750 E 4"Street#100 1241 E. Dyer Road, Suite 120 Long Beach,CA 90802 Santa Ana.CA 92705 Santa Ana.CA 92705 40 57 60 Hearthside Homes Kathleen HarborBelohos Paula Leonard 27285 Las Rambias, Surte 210 9ngt Five Harbors 9 4951 Hilo Circle Mission Viejo. CA 92691 Huntington Beach, CA 92646 Huntington Beach.CA 92647 63 Cindy Nguyen 216 Walnut Ave Huntington Beach. CA 92648 mot- t Z!A t.�o• �q.(7�1 (�o Na�S� fYo��'Tr-Gctt,� .- . Rebecca Newman, President City Ventures Elizabeth Hansburg League of Women Voters OC 3121 Michelson Dr Suite 150 People for Housing OC PO Box 1065 Irvine, CA 92612 P.O. Box 6942 Huntington Beach,CA 92647 Fullerton CA 92834 Homeless United Huntington Beach Homeless United Huntington Beach Homeless United Huntington Beach 605 19th St. 6551 Warner Ave#149 7715 Newman Ave.Apt 301 Huntington Beach,CA 92648 Huntington Beach CA 92647 Huntington Beach,CA 92647 Homeless United Huntington Beach Homeless United Huntington Beach Red Oak Investments LLC 8932 Modesto Circle, Unit 1209E 18531 Bentley Ln. 4199 Campus Drive#200 Huntington Beach.Ca 92646 Huntington Beach,CA 92648 Irvine CA 92612 Province Group Building Industry Association- Orange Building Industry Association -Orange 26 Corporate Plaza, Suite 260 County Chapter County Chapter Newport Beach, California 92660 17192 Murphy Ave,#14445 17744 Sky Park Circle, #170 Irvine, CA 92623 Irvine, CA 92614-4441 �� • • HB Chamber of Commerce Kerry Smith 16787 Beach Boulevard,Suite 202 NAI Brian Childs Harbinger Homes Huntington Beach,CA 92647 Capital Orange County 1920 Main Street, Suite 100 2728 1" Street Attn: Sheik Sattaur 92 Irvine,CA 92614 Huntington Beach,CA 92648 Red Oak Investments Dick Harlow Michael C. Adams Associates 4199 Campus Drive, Suite 200 1742 Main Street PO Box 382 Irvine,CA 92612 Huntington Beach,CA 92648 Huntington Beach,CA 92648-0382 Attn: Alex Wong Bijan Sassounian Dick and Kevin Kelter Jeff B Design/Construction 21190 Beach Blvd. 18281 Gothard Street, Suite 201 Team Main street, Suite Son Huntington Beach,CA 92648 Huntington Beach,CA 92648 221 Main street, Suite S Huntington Beach,CA 92648 Orange County Assoc. of Realtors Keith Dawson Gil Aousizerat Dave stefamdes 15581 Placid Circle 17912 Gothard Street 25552 La Paz Road Laguna HMIs,CA 92653 Huntington Beach, CA 92647 Huntington Beach,CA 92647 President Building Industry Assoc.of South Calif HB Tomorrow Adam S Wood,Director of Gov Affairs Orange Housing Development Corp. PO Box 865 24 Executive Park, Suite 100 414 E. Chapman Avenue Huntington Beach,CA 92648 Irvine.CA 92614 Orange,CA 92866 Steve LaMotte Joe Gergen BIA_OC Related California 211-B Main Street 24 Executive Park, Suite 100 18201 Von Kaman Avenue, Suite 900 Huntington Beach,CA 92648 Irvine,CA 92614 Irvine,CA 92612 Richard Spicer John& Kathy Z,ehnder SCAG Sunset Beach Community Assoc 818 West T", 12"Floor President 17441 Encino Circle PO Box 215 Huntington Beach, CA 92647 Los Angeles,CA 90017 Sunset Beach,CA 90742 Linda Lang Barry Cottle OC Association of Realtors C&C Development Chelsea Investment Corp. 25552 LaPaz Road 6339 Paseo Del Lago Tustin, CAA 92780 Laguna Hills,CA 92653 Tustin, Y Street Suite 200 Carlsbad,CA 92011 Shea Homes Vickie Talley Shelly Amendola 2 Ada OC Housing Providers OC Housing Providers Irvine,CA 92618 25241 Paseo de Alicia, Suite 120 25241 Paseo de Alicia, Suite 120 Laguna Hills, CA 92653 Laguna Hills,CA 92653 The Olson Company Dave MacLeod Planning Director 3010 Old Ranch Parkway, Suite 100 19671 Beach Blvd., Suite 101 City of Westminster Seal OldBea R nc 9 Parkway, S Huntington Beach,CA 92648 8200 Westminster Blvd. Westminster,CA 92683 r Brian Geyer ADRC of Orange Counh John Kingsley Sares-Regis Group Dayle McIntosh Center Dolphin Partners, Inc. 18825 Bardeen Avenue 501 N. Brookhurst St., #102 18818 Teller Avenue, Suite 200 Irvine, CA 92612 Anaheim,CA 92901 Irvine,CA 92612 Alex Pratt Carol Hansen Henry Garcia,Greystar AMCAL Multi-Housing Ocean View Elementary School District 620 Newport Center Drive 30141 Agoura Road, Suite 100 17200 Pinehurst Lane 15d' Floor Agoura Hills,CA 91301 Huntington Beach,CA 92647 Newport Beach, CA 92660 Marc Planning Director Planning Director City of Seal Beach City of Fountain Valley Fountainin Superintendent Valley Elementary School a District 211 Eighth Street 10200 Slater Avenue Fount Slater Avenue Seal Beach,CA 90740 Fountain Valley,CA 92708- Fountain Valley,CA 92708 Jeffrey M. Oderman Planning Director Greg Super. HB Rutan&Tucker, LLP City of Newport Beach City E Elelementary School District 8750 Dorsett(hive 611 Anton Blvd., 10 Floor PO Box 1768 Huntington Beach,CA 92646 Costa Mesa,CA 92626-1950 Newport Beach,CA 92663-8915 Ocean View School District Goldenwest College John Ely Attn. Cindy Putter.Admm Services Janet Hoolfian,Vice President 22102 Rockport Lane 17200 Pinehurst Lane 15744 Goktenwesl St. Huntington Beach.CA 92646 Huntington Beach.CA 92647 Huntington Beach,CA 92647 ner Greg Plutko Habitat For Humanity of O.C. Mario ee Ho HB Union High School District 2200 S. Ritchey Street Jamboree Housing Corp. 5932 Bolsa Avenue Santa Ana,CA 92705 17701 Cowan Avenue, Suite 200 Huntington Beach,CA 92647 Irvine,CA 92614 Nora Mendez Run Money Norman Ward Orange County Community Housing Pathways to Independence Five Points Seniors, LP Corp. PO Box 43 18561 Florida Street 501 N.Golden Circle, Suite 200 Los Alamitos,CA 90720 Huntington Beach,CA92649 Santa Ana,CA 92705 Orange County United Way Five Points Plaza LLC Colette's Children's Home 18012 Mitchell Avenue South 1180 S. Beverly Drive 7372 Prince Drive, Suite 106 Irvine CA 92614 Los Angeles,CA 90035 Huntington Beach,CA 92647 Richard Loy Huntington Beach Interval House 9062 Kahului Drive Council on Aging P.O. Box 3356 Huntington Beach,CA 92646 c%Community Services Department Seal Beach,CA 90740 Julie Paik Fair Housing Council of OC Mental Health Association of OC Huntington Beach 2021 E. 41h Street, Suite 122 822 Town&Country Road Mobile Home Advisory Board Santa Ana, CA 92705 Orange,CA 92968 Sharon Christenbury Harry Alcock, UDR DJM Capital Partners 21002 HB, LLC 922 Laguna Street 2200 Biscayne Boulevard 1745 Shea Center Drive, State 200 Santa Barbara,CA 93101 Miami, FL 33137 Highlands Ranch, CO 80129 Thomas Grable Jacqui Kerce Christopher Homes Regional Center of Orange County 23 Corporate Plaza Drive, Suite 246 Tri Pointe Homes, LLC Community Outreach Coordinator Newport Beach, CA 92660 5 Peters Canyon Road, Suite 100 P-O. Box 22010 Irvine, CA 92606 Santa Ana,CA 92702-2010 LILAC Housing Mercy Housing California Bridge Housing 3590 Elm Avenue 1500 S. Grand Avenue,Suite 100 1301 Dove Street,Suite 920 Long Beach,CA 90907 Los Angeles,California 90015 Newport Beach,CA 92660 AIDS Service Foundation—Orange Karen-Williams HomeAid-Orange County County OC Partnership 24 Executive Park, Suite 100 17982 Sky Park Circle,Suite J 1505 E. 17th Street, Suite 108 Irvine,CA 92614 Irvine,CA 92614-6482 Santa Ana,CA 92705 Kennedy Commission Ms.Carol Hansen,Superintendent CHRI-OC Cesar Covarrubias Ocean view school Dist Joseph Singh 17701 Cowan Avenue,Suite 200 17200 Pinehurst Lane 17701 Cowan Avenue, Suite 200 Irvine,CA 92614 Huntington Beach.CA 92647-5569 Irvine,CA 92614 California Coastal Commission Department of Transportation, Dist. 12 Local Solid Waste Ent Agy. South Coast Area Office Ryan Chamberlain, District Director O.C.Health Care Agency 301 E. Ocean Blvd., Suite 300 1750 E.41"Street,Suite 100 Director Long Beach,CA 92802 Santa Ana,CA 92705 P.O. Box 355 Santa Ana,CA 92702 OC Sanitation District Gabrieleno/rongva Tribal Council Juaneno Band of Mission Indians 10844 Ellis Avenue Chairperson Acjachemen Nation Fountain Valley,CA 92708 PO Box 693 31411 La Matanza Street San Gabriel,CA 91778 San Juan Capistrano,CA 92675-2625 Frannie Hemmelgam,Development Intem Matt Reams Rutan&Tucker,LLP Abode Communities Pacifica Companies Jeffrey M.Oderman 701 East 3rd Street,Suite 400 Director of Acquisitions 611 Amon Blvd., 146 Floor Los Angeles,California 90013 1775 Hancock Street,Suite 200 Costa Mesa,CA 92626-1950 San Diego,CA 92110 Yamada Shigeru Randy Coe,CCIM Cindy Nguyen Senior Vice President 216 Walnut Ave 7942 Speer Drive Land Advisors OrganaaWn Huntington Bea&.CA 92648 Huntington Beach,CA 92647 too Spectrum Dine. Suite 1400 Irvine,CA 92618 Paula Leonard SEIU-United Service Workers West Michael Cintron 4951 Hilo Circle Arthur Saenz 200 Spectrum Center Drive. Suite 1800 Huntington Beach CA 92647 4001 El Cajon Blvd,Ste 211 Irvine, CA 92618 San Diego,CA 92105 19 0 + Sn• r r• Mr Edmond M. Conner Ms Susan Whittaker SEIU-32BJ Connor, Fletcher&Hedenkamp Whittaker Planning Services Alex Hecht 2211 Michelson Drive, Suite 1100 34006 Selva Road#389 25 W 18r Street Irvine, CA 92612 Dana Point,CA 92629 New York. NY 10011 Del Mar Estates Briggs Law Corporation Andrew Salas,Chairman Ron Grundy. states nt Attn Valerie A Mosqueda Gabneleno Band of Mission Indians-K¢h Nation 1 on wncly.Pre Street 99 East-C'Street,Suite 11 PO Box 393 Upland, CA 91786 Covina. CA 91723 Huntington Beach,CA 92646-2%0 San Gabriel Band of Mission Indians Soboba Band of Luiseno Indians HB Downtown Residents Association orales,Chef Joseph Ontiveros,Cull Res Director 412 Olive Ave N493 Anthonyy PO Bos 487 Huntington Beach.CA 92648 PO Box 693 San Jacinto,CA 92581 San Gabriel,CA 91778 HB Coastal Communities Assoc. Sue Johnson Krsten Berg David Guido 19671 Quiet Bay Lane 18870 Kithira Circle 143 E Meats Avenue Huntington Beach,CA 92648 Huntington Beach,CA 92648 Orange,CA 92865 Mercy Housing California Avalon Bay Communities Milo Peinemann 2050 Main Street. Suite 1200 American Family Housing 480 S Batavia Street Irvine. CA 92514 15161 Jackson Street Orange, CA 92868 Midway City,CA 92655 Innovative Housing Opportunities Meta Housing Mark Hyatt 501 N. Golden Circle, Suite 100 11150 W Olympic Blvd .Suite 620 KDF Communications. LLC Los Angeles, CA 90064 230 Newport Center Drive. Sucre 210 Santa Ana, CA 92705 Newport Beach,CA 92660 Richance HB, LCC John Pelochino Hong Nguyen 18199 Summer Avenue 1705 Lake Street 19431 Beach Blvd Huntington Beach,CA 92W Huntington Beach,CA 92648 Artesia, CA 90701-3912 Archstone 3 MacArthur Place, Trite 600 Santa Ana, CA 92707 Attn: Kenneth Keefe Huntington Beach Wave PROOF OF PUBLICATION 1771 S. Lewis Street Anaheim, CA92805 Legal No. 0011485586 714-796-2209 NOT ICE OF PUBLIC HEARING BEFORE THE CITY COUNCIL OFTHE __-CITY OF HUNTINGTONBEACH— NOTICE IS HEREBY GIVEN that on Tuesday, September 21, 2021, at 6:00 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 items: 5190751 1. ZONING TEXT AMENDMENT NO.19-004 AFFORDABLE_ HOUSING ORDINANCE--AND IN-LIEU—FEE UPDATE) Applicant: City of Huntington Beach Request: To amend settidn HUNTINGTON BEACH, CITY OF 230.26- Affordable Housing of the Huntington Beach Zoning and CITY CLERK DEPARTMENT subdivision Ordinance (HBZSO) to provide updated and expanded options for proiects to meet affordable housing requirements and 2000 MAIN ST Provide an updated in-lieu fee schedule and methodology to reflect current market conditions. The Planning Commission held a HUNTINGTON BEACH, CA 92648-2763 public hearing on this Item an August 24, 2021, and reEmmepded approval to the City Council with modification. Location: Citywide City Contact:_Nicolle Aube NOTICE IS HEREBY GVEN that Item al is categgorically exempt from FILE NO. ZTA 19-004 CC Legal 9-21-21 theprovlsionsof the California Environmental Quo ITYAct. NOTICE Is HEREBY GIVEN that Item xl will require a Local Coastal Program Amendment certified by the California Coastal Commission. AFFIDAVIT OF PUBLICATION ON FILE: A copy of the proposed request is on file in the Community Development Department, 2" Main Street, Huntington Beach, STATE OF CALIFORNIA, California 92648, for inspection by the public. A copy of the staff report will tx avails a to inter00sted parties at the City Clerk's Office or on line tlip://www. untingtonbegchco.gov on Thursday,September 16,2021. Ss. at h County of Orange ALL INTERESTED PERSONS are Invited to attend said hearing and express opinions or submit evidence for or against the application as outlined above. If you challenge the City Council's action in court, you may be limited to raising only those Issues you or someone else raised at the public hearing described in this notice, or in written correspondence delivered to the City at, or prior to, the public hearing. If there are any further questions please call the Community Development Department I am a citizen of the United States and a resident of the at (714) 536-5271 and refer to the above items. Direct your written County aforesaid; I am over the age of eighteen years, and communications to the City Clerk not a party to or interested in the above entitled matter. I Robin Estanislau,City Clerk am the principal clerk of the Huntington Beach Wave, a 2000Man street,2nd Floor Huntington Beach,California 92648 newspaper that has been adjudged to be a newspaper of 714-536-5227 general circulation by the Superior Court of the County of http:hNgtingtonbeochcq.ggv(HBPublicComments_I Orange, State of California, on July 1, 1998, Case No. Published Huntington Beach wave Sept.9,2021 11485586 A-185906 in and for the City of Huntington Beach, County of Orange, State of California; that the notice, of which the annexed is a true printed copy, has been published in each regular and entire issue of said newspaper and not in any supplement thereof on the following dates, to wit: 09/09/2021 I certify(or declare) under the penalty of perjury under the laws of the State of California that the foregoing is true and correct: Executed at Anaheim, Orange County, California, on Date: September 09, 2021. 0,�Iza-,�U7�j Signature 101.1V 5 1 Moore, Tania From: Christine Gonzalez <cgonzales@scng.com> Sant Friday, September 10, 2021 11:30 AM To: Moore, Tania Subject Re: PH Notice - Zoning Text Amendment No. 19-004 Attachments: 11485586.pdf affidavit OC Register Legal Advertising Chrissv Gonzalez 1771 S. Lewis St. Anaheim, CA 92805 714-796-6736 M-F 8:00 a.m. - 4:30 p.m. Lunch 12 Noon to 1:00 p.m. Closed Sat. and Sun. On Tue, Aug 31. 2021 at 1:10 PM Christine Gonzalez <ct;onzales a scng.com> wrote: Cost $280.00, pub 9/9 HB Wave PLEASE NOTE Early Labor Day Deadline for all community papers. Publication Sept. 9, 2021: Submission deadline for all ads, Wednesday Sept. 1, 2021 at 3:00 p.m. Hard deadline for approval and changes Sept. 2. 10:00 a.m. OC Register Legal Advertising Chrissy Gonzalez 1771 S. Lewis St. Anaheim, CA 92805 714-796-6736 M-F 8:00 a.m. -4:30 p.m. Lunch 12 Noon to 1:00 p.m. Closed Sat. and Sun On Tue, Aug 31, 2021 at 12:16 PM Moore, Tania<fania.Moore(&.surfcity-hb.org> wrote: 1 Good afternoon Chrissy. Please publish the attached PH Notice in The Wave, on September 9, 2021. Thank you. Tania Moore Deputy City Clerk City Clerk's Office 714-536-5209 tania.moore4surfcity-hb.org 2 Moore, Tania From: Cesar C <cesarc@kennedycommission.org> Sent: Tuesday, September 21, 2021 S:06 PM To: CITY COUNCIL; supplementalcomm@surfcity-hb.org; Luna-Reynosa, Ursula Subject: Item 16 Affordable Housing Ordinance Amendment Attachments: Ltr_H B_I H O_U pdate_9.21.2021.pd f Please see attached the Kennedy Commission's comment letter on Item 16 - Affordable }-lousing Ordinance amendment on the City Council agenda. Cesar Covarrubias fAecutive Director t � wKeinnedy September 21, 2021 COM MISSION www kcnm-dy cummiawn o% 17701 Cowin Ave,Sure 200 Imm CA 92614 949 250 0909 Mayor Carr and Councilmembers City of Huntington Beach Council Chambers 2000 Main Street Huntington Beach,CA 92649 RE: Item 16- Zoning Text Amendment No. 19-M(Affordable Housing Ordinance) Dear Mayor Carr and Councilmembers: The Kennedy Commission (the Commission) is a broad-based coalition of residents and community organizations that advocates for the production of homes affordable for families earning less than $27.000 annually in Orange County. Formed in 2001,the Commission has been successful in partnering and working with Orange County jurisdictions to create effective housing and land-use policies that has led to the new construction of homes affordable to lower income working families. As the current planning period comes to an end, the 6th cycle RHNA numbers have been allocated to jurisdictions throughout the county. The City of Huntington Beach has been allocated 13,386 housing units,of which 5,948 are required to be lower-income units. In 2012, the city was allocated 1,353 units,of which 533 were required to be lower-income units. We ask that the city focus its efforts and resources on addressing the dire affordable housing needs that have not been met in Huntington Beach. According to Huntington Beach's 2013-2021 Housing Element, 601/o of all lower-income owner households and 73%of all lower-income renter households in the city were overpaying(>30% income) for housing. The incidence of severe overpayment(>50a/a income on housing) overall was 17% for all owners and 21%percent for all renters. The last Housing Element also pointed out that the Oak View neighborhood in central Huntington Beach showed the highest levels of overcrowding, with 38%of renter households severely overcrowded.' The city has not addressed housing development in a balanced and equitable manner. To date in the 2013-2021 period, the city has built only 117 units, or 22%, of the 533 low and very low-income units required. In comparison, the city has exceeded its moderate and above-moderate RHNA requirements. The city has approved 294 units or 119a/o of the 248 moderate RHNA requirement and 2754 units or 491%of the above moderate RHNA requirement of 572 units2. In addition to the current deficit in housing for lower-income households,the city will have to plan for the allocation of new units affordable to lower-income housing households. As mentioned in the KMA consultant report, the existing Inclusionary Housing Ordinance applies a 10a/o low-income affordable housing requirement to rental apartment and home ownership projects. However, for rental apartment projects, the current Inclusionary Housing Ordinance gives the city City of Huntington Brach 2013-2021 !busing Ekment CM of Huntington Beach 2019 Annual Progma Report 2020 Page 2 of 2 discretion to permit a developer to substitute moderate-income units instead of the low-income requirements if the moderate-income units are located on site within the project.The Ordinance also only requires that for-sale units in projects be available at the moderate-income level. This policy has been ineffective in creating affordable housing and in helping the city to meet its lower income housing needs. We support the city's proposed amendments to the Inclusionary Housing Ordinance,that remove the moderate-income substitution option for rental units, requiring low-income units be built regardless of whether those units are on site or off site. However, the city's draft retains the moderate-income affordability level for ownership units, which, as discussed below, is inconsistent with its programmatic commitments in its current Housing Element. Furthermore, the draft carries over the 10% low-income affordable housing requirement for projects. In order to provide housing in a more balanced manner, the Commission recommends that the city update its Inclusionary Housing Ordinance to focus its affordable housing requirements on the production of the lower income segments. We request that the Inclusionary Housing Ordinance require 15% of units in home ownership and rental developments to be affordable to extremely low-,very low-, and low-income households to truly address housing needs not being addressed by the market in Huntington Beach. We also support the recommended In-Lieu Fee Schedule proposed to ensure the city will have the funding needed to leverage federal and state resources to increase affordable housing options for all residents. Our proposed amendments to strengthen the City of Huntington Beach's Inclusionary Housing Ordinance are vital to remain in compliance and meet the Housing Element commitments and affordable housing goals for lower income households. Specifically,the recommendation to require home ownership and rental developments that are affordable to lower income households is consistent with the city's 5'Cycle Housing Element's program commitment to"implement a city- wide policy to require at least half of on-site inclusionary units to be provided at levels affordable to lower income households""[s]ince the city has already addressed its moderate income RHNA allocation." In contrast, the current Ordinance and the amendment proposed by the city do not comply with the program. We note that if the city does not further amend the Ordinance to provide for lower-income affordability levels for ownership units, the city will likely be out of compliance with state law, which requires cities to implement their programmatic commitments in their housing elements. See Cal. Gov. Code § 65593(h)& § 65587(d). Therefore, we urge the city to make our proposed changes. The Commission looks forward to partnering with the city to increase housing opportunities for lower-income residents in Huntington Beach. Please keep us informed of any updates and meetings regarding strategies to increase affordable homes for lower-income households in the city. If you have any questions, please feel free to contact me at(949)250-0909 or cesarc(a':kennedvcommission.org. Sincerely, e �__ — Cesar Covarrubias Executive Director Moore, Tania From: Cesar C <cesarc@kennedycommission.org> Sent: Tuesday, October 5, 2021 6:15 PM To: CITY COUNCIL, supplementalcomm@surfcity-hb.org, Luna-Reynosa, Ursula Subject: Fwd: Item 16 Affordable Housing Ordinance Amendment Attachments: Ltr-H B-I HO_U pdate_9.21.2021.pdf Please see attached the Kennedy Commission's comment letter on Item 20 - Affordable Housing Ordinance amendment on the City Council agenda. We are re-submitting the comment letter sent on 9/21/21 for the Huntington Beach City Council. Cesar Covarrubias ---------- Forwarded message -------- From: Cesar C <cesarc(&,kennedycommission.org> Date: Tue, Sep 21, 2021 at 5:06 PM Subject: Item 16 Affordable Housing Ordinance Amendment To: <City.Council(asurfcitN-hb.org>, <SuvolementalComm(a-surfcity-hb.org>. <ursula.luna-reynosa'ci surfcit% hborg> Please see attached the Kennedy Commission's comment letter on Item 16- Affordable Housing Ordinance amendment on the City Council agenda. Cesar Covarrubias Executive Director Cesar Covarrubias Executive Director t wKennedy September 21. 2021 www keno d,,ommuauui org 17701 Cowen Ave.Suite 200 Inure.CA 92614 949 250 0909 Mayor Carr and Councilmembers City of Huntington Beach Council Chambers 2000 Main Street Huntington Beach, CA 92648 RE: Item 16- Zoning Text Amendment No. 19-004(Affordable Housing Ordinance) Dear Mayor Carr and Councilmembers: The Kennedy Commission (the Commission) is a broad-based coalition of residents and community organizations that advocates for the production of homes affordable for families earning less than $27,000 annually in Orange County. Formed in 2001, the Commission has been successful in partnering and working with Orange County jurisdictions to create effective housing and land-use policies that has led to the new construction of homes affordable to lower income working families. As the current planning period comes to an end,the 6th cycle RHNA numbers have been allocated to jurisdictions throughout the county. The City of Huntington Beach has been allocated 13,386 housing units, of which 5,848 are required to be lower-income units. In 2012. the city was allocated 1,353 units,of which 533 were required to be lower-income units. We ask that the city focus its efforts and resources on addressing the dire affordable housing needs that have not been met in Huntington Beach. According to Huntington Beach's 2013-2021 Housing Element.60%of all lower-income owner households and 73%of all lower-income renter households in the city were overpaying(>30% income) for housing. The incidence of severe overpayment(>50% income on housing) overall was 17%for all owners and 21%percent for all renters.The last Housing Element also pointed out that the Oak View neighborhood in central Huntington Beach showed the highest levels of overcrowding, with 38%of renter households severely overcrowded.' The city has not addressed housing development in a balanced and equitable manner. To date in the 2013-2021 period, the city has built only 117 units, or 22%, of the 533 low and very low-income units required. In comparison, the city has exceeded its moderate and above-moderate RHNA requirements. The city has approved 294 units or 1 19%of the 248 moderate RHNA requirement and 2754 units or 481%of the above moderate RHNA requirement of 572 units2. In addition to the current deficit in housing for lower-income households, the city will have to plan for the allocation of new units affordable to lower-income housing households. As mentioned in the KMA consultant report, the existing Inclusionary Housing Ordinance applies a 10% low-income affordable housing requirement to rental apartment and home ownership projects. However, for rental apartment projects, the current Inclusionary Housing Ordinance gives the city ON of Huntington Bach 2013-2021 Homing Element Cmm of Hwungtoo Bach 2019 Amm1 Progress Report.2020 Page 2 of 2 discretion to permit a developer to substitute moderate-income units instead of the low-income requirements if the moderate-income units are located on site within the project. The Ordinance also only requires that for-sale units in projects be available at the moderate-income level.This policy has been ineffective in creating affordable housing and in helping the city to meet its lower income housing needs. We support the city's proposed amendments to the Inclusionary Housing Ordinance,that remove the moderate-income substitution option for rental units, requiring low-income units be built regardless of whether those units are on site or off site. However, the city's draft retains the moderate-income affordability level for ownership units, which, as discussed below, is inconsistent with its programmatic commitments in its current Housing Element. Furthermore, the draft carries over the 101/6 low-income affordable housing requirement for projects. In order to provide housing in a more balanced manner,the Commission recommends that the city update its Inclusionary Housing Ordinance to focus its affordable housing requirements on the production of the lower income segments. N'e request that the Inclusionary Housing Ordinance require 15% of units in home ownership and rental developments to be affordable to extremely low-,very low-, and low-income households to truh address housing needs not being addressed by the market in Huntington Beach. We also support the recommended In-Lieu Fee Schedule proposed to ensure the city will have the funding needed to leverage federal and state resources to increase affordable housing options for all residents. Our proposed amendments to strengthen the City of Huntington Beach's Inclusionary Housing Ordinance are vital to remain in compliance and meet the Housing Element commitments and affordable housing goals for lower income households. Specifically, the recommendation to require home ownership and rental developments that are affordable to lower income households is consistent with the city's 51 Cycle Housing Element's program commitment to"implement a city- wide policy to require at least half of on-site inclusionary units to be provided at levels affordable to lower income households""[sJince the city has already addressed its moderate income RHNA allocation:' In contrast,the current Ordinance and the amendment proposed by the city do not comply with the program. We note that if the city does not further amend the Ordinance to provide for lower-income affordability levels for ownership units,the city will likely be out of compliance with state law, which requires cities to implement their programmatic commitments in their housing elements. See Cal. Gov. Code § 65583(h)& § 65587(d).Therefore, we urge the city to make our proposed changes. The Commission looks forward to partnering with the city to increase housing opportunities for lower-income residents in Huntington Beach. Please keep us informed of any updates and meetings regarding strategies to increase affordable homes for lower-income households in the city. If you have any questions, please feel free to contact me at(949)250-0909 or cesarc(i%kennedvcom m ission.org. Sincerely, e Cesar Covarrubias Executive Director