EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: February 15, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Jaime M. Fontes, City Manager
BY: Rachel Horst, Housing and Economic Development Manager Elena Lee, Planning Manager
SUBJECT: 990 Garden St. Inclusionary Housing Alternative Compliance Option Recommendation
Conduct a public hearing and adopt a Resolution:
1. Finding that the proposed Alternative Compliance Option for the residential development project (“Project”) located at 990 Garden Street to provide, instead of a single-family dwelling and attached ADU with In-Lieu Fee payment equivalent to .4 units, two attached units: one four-bedroom Inclusionary Unit and one three-bedroom Inclusionary Unit, to be sold separately to households at or below 80% of Area Median Income and an In-Lieu Fee payment equivalent to .4 units, satisfies the requirements of Section 18.37.080(D) of the East Palo Alto Municipal Code; and
2. Directing the City Manager to execute all standard documents, in a form approved by the City Attorney, associated with the Inclusionary Housing requirements of the Project.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 6: Create a Healthy and Safe Community
Background
990 Garden St. Residential Development Project
990 Garden St. (“Project”) is an eight-parcel subdivision residential development on a currently vacant lot of 1.32 acres. The Project applicant is Garden Place, LLC (“Applicant”). The Project area is zoned as Single-Family Residential Zone (R-LD). The proposal is to subdivide the Project parcel into seven residential lots and one infrastructure lot for the roadway that would serve the subdivision. The Applicant’s original proposal was to build seven (7) six-bedroom single-family dwellings with attached carports and accessory dwelling units (“ADUs”).
This project qualifies as a Medium project – Staff Level Approval1 under the City’s Community Outreach Policy.
Please find a timeline of the project below:
Table 1. Project Timeline
8/14/2020 First submittal
12/1/2020 First round comment letter
3/9/2021 Second round comments
5/15/2021 Third round comments
2/7/21 Inclusionary Housing Plan submittal
Pending Complete Planning application re-submittal
Inclusionary Housing Requirement
All residential development projects are subject to the requirements of Chapter 18.37 of the East Palo Alto Municipal Code - Inclusionary Housing Ordinance (“IHO”), adopted by City Council on November 19, 2019.
The IHO requires an Inclusionary Housing Plan to be approved by the Housing Division prior to scheduling the first Planning Commission hearing or Planning approval. The content of the Inclusionary Housing Plan is incorporated into the Housing Division conditions of approval.
In the Inclusionary Housing Plan, applicants must select from a list of options (“Inclusionary Housing Compliance Options”) that demonstrate how a project will meet the inclusionary requirement. The Applicant completed an Inclusionary Housing Plan and selected the “Other” Alternative Compliance Option, as shown in Attachment 2.2 Under the IHO, all alternative compliance options require City Council approval. This alternative is discussed in detail in the analysis section below.
The purpose of this staff report is for Council to consider the Project applicant’s request, as further described below, to provide an Alternative Compliance Option under the IHO.
The Project’s proposed entitlements, which include Design Review, Tentative Parcel Map, and Lot Merger, will be considered separately at a Planning Commission hearing. The date will not be confirmed for Planning Commission hearing until the Inclusionary Housing Plan is approved.
Analysis
Standard Inclusionary Housing Requirements
All residential projects that create net new units are required to provide 20% of the base number of units in the project at affordable rental or sales prices, as defined in the IHO 1 The City’s Community Outreach Policy may be viewed here:
https://www.cityofepa.org/sites/default/files/fileattachments/community_amp_economic_development/page/2971/community_outrea ch_policy_with_attachments_final_7.1_201907021227554801.pdf and also see handout of the process:
https://www.cityofepa.org/sites/default/files/fileattachments/community_amp_economic_development/page/2981/handouts_medium _at_staff.pdf
2 Please note that at the time of publication, the Applicant was revising the plans to reflect the proper square footage of all the units in the Project, including the “Inclusionary Duplex,” as it is labeled in the plans attached to the Inclusionary Housing Plan. The square footages cited elsewhere in the Inclusionary Housing Plan provided in this staff report are the most up-to-date. (“Inclusionary Units”), on the same site as the market-rate units in the project (“On-Site Requirement”).
Affordability requirements for Inclusionary Units are shown in the table below:
Table 2. On-Site Inclusionary Requirement Affordability Summary On-Site Requirement (20%) Obligation
For-Sale 10% of units at 80% AMI
10% of units at 120% AMI
Rental 5% of units at 35% AMI
10% of units at 50% AMI
5% of units at 60% AMI
An In-Lieu Fee requirement applies in projects larger than 5 units, when the inclusionary requirement does not result in a whole number, e.g., 1.4 units, as with this Project. An applicant may round up the fractional unit and choose to build one on-site unit instead of paying the In-Lieu Fee, but this is not required.3
Inclusionary Housing Alternative Compliance Options
The IHO allows the applicant of a residential development to propose an alternative to the OnSite Requirement. Any Alternative Compliance Option requires the approval of the City Council. The IHO identifies three Alternative Compliance Options4:
1. An In-Lieu Fee payment equal to 25% of the units in the project;
2. Providing Inclusionary Units off-site equal to 25% of the units in the project; or
3. Other alternative compliance options as proposed the applicant. This is the compliance option the Applicant is proposing and staff is presenting for consideration to City Council.
Inclusionary Housing Standards
Section 18.37.060 describes the standards for Inclusionary Units. These standards are relative to the market-rate units in a project and include:
• Comparability in exterior appearance and overall quality of construction (to the marketrate units) • Comparability in average bedroom mix and unit size
• Dispersion of Inclusionary Units throughout the project, rather than a single location • Same amenities (access to common open space, parking, storage, etc.) The purpose of these standards is to ensure that the Inclusionary Units are indistinguishable from the market-rate units and well-integrated into the project. 990 Garden Inclusionary Housing Requirement
3 The current Inclusionary In-Lieu Fees of $197,880 per for-sale unit and $255,000 per rental unit were adopted by via City Council Resolution No. 141-2020, effective December 20, 2020. In-Lieu Fee payments, if applicable, must be made prior to the issuance of a Building Permit.
4 Although the City’s Inclusionary Housing Ordinance provides options for a developer to satisfy a project’s affordable housing obligation, staff prefer to identify a solution that will lead to the creation of deed-restricted affordable housing units.
As a proposed seven-unit subdivision, the Project’s On-Site Requirement is to provide 1.4 units on-site, with one (1) six-bedroom single-family dwelling comparable to the market-rate single-family dwellings, to be sold at a price affordable to a household at or above 80% Area Median Income (“AMI”)5. The lot with the Inclusionary Unit also would include an ADU, in conformance with the market-rate lots in the Project. The .4 unit would be provided in the form of an In-Lieu Fee payment of $79,152 (.4 x $197,880).
For reference, the 2021 household income limits at 80% AMI are shown below.
Table 3. Household Income Limits at 80% Area Median Income (2021)6 Household
Size
1 2 3 4 5 6 7
80% AMI
Max
Income
$102,450 $117,400 $131,750 $146,350 $158,100 $169,800 $181,500 The On-Site requirements are summarized below:
• One six-bedroom single-family dwelling for sale to a household at or below 80% AMI7 • One attached ADU
• In-Lieu Fee of $79,152
Please note that, since the IHO does not apply to ADUs, any potential ADUs are not included in the number of base units for the purpose of calculating the Project’s inclusionary obligation.
The basis for including an ADU as part of the Project’s inclusionary obligation is to achieve equivalency with the market-rate lots in the Project, which, as shown above, include comparable sizing and amenities.
Proposed Alternative Compliance Option
Instead of the On-Site Requirement described above, the Applicant proposes to provide two units within the same building footprint, with one side containing a unit with four-bedrooms and the other containing a unit with three-bedrooms. These adjacent Inclusionary Housing Units would be sold separately as condominiums, each to an income-eligible household at or below 80% AMI. The Applicant would also include an In-Lieu Fee of $79,152, equal to .4 units.
This proposal is summarized below:
• One four-bedroom unit (condominium) for sale to an 80% AMI household • One three-bedroom unit (condominium) for sale to an 80% AMI household • In-Lieu Fee of $79,152
SB 9 Applicability
The proposed design for this Alternative Compliance Option is not compliant with the development standards for the Residential Low Density (R-LD) zoning designation. 5 In the IHO, households at or below 80% AMI are also referred to as “Median-Income Households.” 6 These are derived from State Income Limits: income-limits-2021.pdf (ca.gov) Specifically, the proposed lot for the Inclusionary Units would be too small to allow more than one unit per the density requirement.
However, staff believe that Senate Bill 98(SB 9), a new state law from the 2020-22 legislative session that took effect on January 1, 2022, may be applied to the Project. Among other changes to existing law, SB 9 requires jurisdictions to allow at two (2) units on a parcel zoned for single-family dwellings through a ministerial approval process.9“Ministerial” approval means that jurisdictions may only use objective zoning, design, and subdivision standards in their review of a residential development project.
The Project could utilize SB 9 to build a two-unit structure, or duplex, on the same lot. If this Alternative Compliance Option is approved by City Council, the Applicant would be required to submit an application for ministerial approval for the lot containing these Inclusionary Units following design review and final map approval of the market-rate portion of the Project.
Planning would conduct an initial review through the Zoning Clearance process to confirm the project qualifies for the SB 9 process.
Following that, the applicant would submit an application for a Building permit. As a ministerial process, the Building permit for the lot with the Inclusionary Units would not require Planning Commission approval. The Applicant would subsequently submit an application for a subdivision of the lot containing the Inclusionary Units to allow for the creation of condominiums for sale to income-eligible households.
Evaluation of the 990 Garden Alternative Compliance Option Section 18.37.080 of the East Palo Alto Municipal Code describes that an Other Alternative Compliance Option can be approved by the City Council based on findings that the alternative will provide as many or more inclusionary units at the same or lower income levels or will otherwise provide greater public benefit than would provision of the inclusionary units on-site.
The On-Site Requirement and Alternative Compliance Option are summarized again below:
• On-Site Obligation– 1 unit plus ADU and partial In-Lieu Fee: Provide one sixbedroom Inclusionary Unit on-site for sale to a household at or below 80% AMI, with an attached ADU, and an In-Lieu Fee of $79,152.
• Alternative Compliance Option– 2 units and partial In-Lieu Fee: Provide one fourbedroom Inclusionary Unit and one three-bedroom Inclusionary Unit on-site for sale to two separate households at or below 80% AMI, and an In-Lieu Fee of $79,152.
The Applicant maintains that the purpose of building six-bedroom single-family dwellings and ADUs is to provide for “intergenerational living,” and that the requirement to build an Inclusionary Unit and an ADU on the same lot, together with the In-Lieu Fee, is infeasible. This is primarily due to the fact that the ADU cannot be sold as a separate unit and adds cost to the Project beyond the subsidy required to sell the unit to a large household at or below 80% AMI.
For the purposes of comparison, the On-Site Requirement and Alternative Compliance Option are shown side-by-side with the market-rate units in the chart below. 8 See https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB9 9 Please note that SB 9 provisions supersede local requirements, such as minimum lot size, by allowing for two units on a parcel, but a project must still meet all objective standards to qualify.
Table 4. Inclusionary and Market-Rate Unit Overview
On-Site (20%) Alternative Compliance
(25%)
Market-Rate Units
# Inclusionary
Units Required
1.4 1.7 n/a
Units 1 six-bedroom
1 attached ADU (700
sq ft)
1 four-bedroom
1 three-bedroom
6 six-bedroom
6 attached ADU (700
sq ft)
Size 3,160 sq ft
3,860 sq ft total with
ADU
1,550 sq ft (unit 1)
2,315 sq ft (unit 2)
3,860 sq ft (total)
3,000-3,480 sq ft
3,320 sq ft (average)
3,700-4,180 sq ft total
with ADU
AMI Levels 80% AMI 80% AMI (unit 1)
80% AMI (unit 2)
n/a
In-Lieu Fee $79,152
(.4 x $197,880)
$79,152
(.4 x $197,880)
n/a
Total Units in
Project
7, plus 7 attached
ADUs (700 sq ft)
8, plus 6 attached ADUs
(700 sq ft)
n/a
Required Number of Units. Table 4 shows that the number of Inclusionary Units required for the Alternative Compliance Option is 1.7. The proposed Alternative Compliance Option exceeds that requirement by providing two Inclusionary Units.
Bedroom Count and Size. The On-Site Requirement, with a six-bedroom single family dwelling and ADU, would provide an exceptionally large Inclusionary Housing Unit for a single household at or below 80% AMI.10 This reflects the size and bedroom composition of the market-rate units in the Project. While the two units in the Alternative Compliance Option would each be smaller than the market-rate units and attached, they would be designed for sale to two different households with four and five members, respectively, and within the same building footprint as the six-bedroom single family dwelling plus ADU layout.11 The total number of bedrooms in this Alternative Compliance Option would be seven (7), compared to six (6) plus a 700-square foot ADU in the On-Site Requirement.12 Comparability. The three-bedroom and four-bedroom Inclusionary Units would contain identical or comparable exterior and interior finishes and amenities, with equal access to common areas and comparable private open space.
Affordability- AMI. As noted in Table 3 above, when an inclusionary requirement results in two units, the first unit must be restricted for sale to households at or below 80% AMI, while the second unit must be restricted for sale to households at or below 120% AMI (defined as “Moderate-Income Households”). In the Alternative Compliance Option, both Inclusionary Units 11 The calculation of household size is based upon the number of bedrooms plus one. For example, the household size for a threebedroom unit is four. 12 ADUs are not included in the base number of units (or bedrooms, or square footage) when calculating a project’s inclusionary requirements because they are not subject to the IHO.
are restricted for sale to households at or below 80% AMI.
In-Lieu Payment. Finally, while the Alternative Compliance Option does not include an attached ADU, this is partially offset by the fact that it does include the same In-Lieu Fee payment amount as would be provided for the On-Site Requirement.
Staff Recommendation
Based on the above considerations, staff believe that the above-described proposal to provide two attached units for sale to households at or below 80% AMI, with In-Lieu Fee payment, fulfills the requirements of Section 18.37.080, and recommend that the City Council approve this Alternative Compliance Option.
Construction of Units in Alternative Compliance Option
If the City Council approves the provision of two Inclusionary Units as an Alternative Compliance Option for the Project, the standard requirements of the IHO would apply. Prior to the issuance of a Building Permit, the City would execute an Inclusionary Housing Agreement that holds the developer responsible for constructing the Inclusionary Units concurrently with the market-rate units in the project and for selecting a qualified buyer.13 This Inclusionary Housing Agreement is recorded against the entire Project.
Prior to issuance of a certificate of occupancy, a deed restriction would be recorded against each Inclusionary Unit to ensure that they remain affordable in perpetuity, in accordance with the requirements of the IHO for for-sale units. Please note that this affordability restriction, which requires owner-occupancy and requires the unit to be re-sold at an affordable sales price to an income-eligible buyer in the future, will also include a provision that the City has the right to purchase the unit upon resale.
The City or its designated entity, such as EPACANDO, would be responsible for ongoing compliance monitoring. As with all units created and income-restricted under the Inclusionary Housing program, these units would remain part of the City’s Below Market-Rate (“BMR”) portfolio.
Next Steps
If the City Council determines that the proposed Alternative Compliance Option is sufficient to fulfill the Project’s inclusionary obligation, City staff will incorporate the Inclusionary Housing Plan into the Project conditions of approval and the Project will proceed to Planning Commission hearing for entitlements review.
Pending Planning approval of the market-rate portion, including the subdivision, of the Project, a public hearing will be scheduled for final parcel map approval by City Council for subdivision of the subject lots. Staff will also prepare the required documents and work with the developer to execute and record an Inclusionary Housing Agreement against the Project. As noted above, the lot containing the Inclusionary Units will separately receive Zoning Clearance via a ministerial approval process enabled by SB 9.
To allow for the separate sale (rather than rental) of the Inclusionary Units, the Applicant would apply for a condominium subdivision. The condominium subdivision process, as provided in 13 The developer may work with EPACANDO, as the City’s Inclusionary Housing Administrator, to select a qualified buyer. the City’s Municipal Code, requires approval of a tentative parcel map by the Planning Commission and final parcel map by City Council. In this case, the Applicant would submit an application immediately following the Building permit issuance of the two Inclusionary Units.
The condominium subdivision process, as provided in the City’s Municipal Code, requires approval of a tentative parcel map by the Planning Commission and final parcel map by City Council. In this case, the Applicant would submit an application immediately following the Building permit issuance of the two Inclusionary Units.
Staff would like to note that, in all cases, the Inclusionary Housing Agreement will ensure the Project complies with Section 18.37.070 of the Municipal Code, which requires concurrent construction and issuance of final inspection or certificates of occupancy for the Inclusionary Units and market-rate units.14 In-Lieu Fee payment must also be received prior to issuance of any Building permits for the Project.
Fiscal Impact
As noted above, if the City Council approves the Alternative Compliance Option, the Applicant would provide an In-Lieu Fee payment of $79,152, the equivalent of .4 units, in addition to providing the two Inclusionary Units. This payment would be deposited into the Housing InLieu Fund.
All BMR units are managed by the City’s current BMR Administrator, EPACANDO. Addition of units to the portfolio will not generate additional administrative costs, as these are funded through a combination of Housing TOT (Transient Occupancy Tax, F207) and Housing Successor (F220) funds under the Agreement with EPACANDO, which is effective through May 2023.
Public Notice
The public was provided notice by publishing a notice in the February 4, 2022 Palo Alto Daily News and by posting the agenda and report on the City’s website and at the San Mateo Co.
Library located at 2415 University Avenue, East Palo Alto.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(5), in that it is a government administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Resolution
2. 990 Garden Inclusionary Housing Plan
14 Section 18.37.070 provides that Building permits for more than 50% of the market-rate units shall not be issued until all Building permits have been issued for all (100%) of the Inclusionary Units. Final inspections or certificates of occupancy shall not be approved for more than 50% of the market-rate units until final inspections or certificates of occupancy have been issued for all (100%) of the Inclusionary Units.