EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: July 19, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Karen Camacho, Housing Project Manager
Rachel Horst, Housing and Economic Development Manager
Michelle Huang, Associate Planner
SUBJECT: Inclusionary Housing Alternative Compliance Option for Development Project on Lincoln St.
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 Lincoln Street (APN 063-186-270) to provide two residential units with a detached accessory dwelling unit (“ADU”) on a vacant property and a deed restricted attached ADU affordable to a household at 35% of the area median income ("AMI”) fulfills the project’s inclusionary obligation under Section 18.37.080(D) of the East Palo Alto Municipal Code; and
2. Directing the City Manager to execute all required documents, in a form approved by the City Attorney, associated with the Inclusionary Housing requirements of the Project.
Background
Lincoln St. Residential Development Project
The project located at Lincoln St. with APN 063-186-270 (“Project”) is a residential development on a currently vacant lot of 5,149 square feet (“sq ft”). The Project applicant is Namit Raisurana (“Applicant”). The Project area is zoned as Single-Family Residential Zone (“R-LD”). The proposal is to build a two-story residential rental development, with one unit on the first floor and one unit on the second floor, utilizing Senate Bill 9 (“SB 9”). The applicant is also proposing a 727-sq ft detached ADU and a deed-restricted 511 sq ft ADU. See the Applicant’s Inclusionary Housing Plan and tentative design plan in Attachment 2.
Consistent with the recently approved SB 9 this development proposal, located in the R-LD zoning district, must be approved via a ministerial process. However, as explained below, the Inclusionary Housing Plan must be approved by City Council prior to the development proposal because the applicant is requesting an Alternative Compliance Option.
Please find a timeline of the project below:
Table 1. Project Timeline
May 5, 2022 SB 9 Plan Submittal
June 3, 2022 Inclusionary Housing Plan submittal
Pending Planning Issuance of Compliance Letter
Pending Ministerial Building Permit
Inclusionary Housing Requirement
All residential development projects are subject to the requirements of Chapter 18.37 of the East Palo Alto Municipal Code (“EPAMC”) 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. 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 to provide an Alternative Compliance Option under the IHO. If the Inclusionary Housing Plan is approved, the approval for the proposed development proposal would be processed via a ministerial building permit.
Analysis
Standard Inclusionary Housing Requirements
All residential projects that create net new units of fewer than 5 units are required to pay an InLieu Fee equivalent to 20% of the base number of units in the project. Below is the fee schedule for projects with fewer than 5 units.
Table 2. In-Lieu Fee for Projects with Fewer than 5 Units Project Size For-Sale Rental
1 unit $38,000 $51,800
2 units $76,000 $103,600
3 units $114,000 $155,400
4 units $152,000 $207,200
Lincoln St. Inclusionary Housing Requirement
As a proposed two-unit rental development project, the Project’s inclusionary requirement is to pay an In-Lieu Fee for .4 Inclusionary Units for a total of $103,600.
Since the Project is a development of fewer than five units, the IHO also allows applicants the option to provide one Inclusionary Unit on-site.
Inclusionary Housing Alternative Compliance Options
The IHO allows the applicant of a residential development of fewer than 5 units to propose an alternative to the In-Lieu Fee requirement. Any Alternative Compliance Option requires the approval of the City Council. The IHO identifies two Alternative Compliance Options:
1. Provide Inclusionary Units off-site equal to 25% of the units in the project at the lowest affordability level; or
2. Other Alternative Compliance Options as proposed by the applicant.
The applicant has chosen to go with Option 2 and is proposing an Other Alternative Compliance Option for consideration by City Council that will be further discussed below.
Inclusionary Housing Standards
If the Applicant were to choose Option 1, section 18.37.060 describes the standards for Inclusionary Units off-site. 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 market-rate unit)
· 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. Please note that, because the IHO does not apply to ADUs, any proposed ADUs are not included in the base count for the purpose of calculating the inclusionary obligation.
Proposed Alternative Compliance Option
Also, if the applicant chooses Option 1 of providing units off-site, the requirement is to provide the equivalent of 25% of the total number of units. Any proposed “Other” Alternative Compliance Option should demonstrate equivalent or greater public benefit than this amount, and this is the basis upon which the proposal is evaluated.
Since the Project is a development of fewer than five units, the Applicant also has the option to provide one Inclusionary Unit on-site as an “Other” Alternative Compliance Option.
The Applicant proposes one attached ADU, to be rented at a price affordable to a household at or below 35% Area Median Income (“AMI”). Based on 2022 household income limits, the Inclusionary Unit would rent at $1,005.25 per month for a two-person household in this ADU.
For reference, the 2022 household income limits at 35% AMI are shown below.
Table 3. 2022 Household Income Limits at 35% Area Median Income Household Size 1 2 3 4
35% AMI Max
Income
$45,668.00 $48,930.00 $58,716.00 $65,240.00
SB 9 Applicability
The current, proposed design of this Project, including this “Other” Alternative Compliance Option, is not compliant with the development standards for the Residential Low Density (RLD) zoning designation. The R-LD zoning only allows for the development of a single-family dwelling on each parcel.
However, Senate Bill 9 (“SB 9”), a new state law from the 2020-22 legislative session that took effect on January 1, 2022, applies to the Project to allow the development of up to two units in single-family zoning districts, such as the R-LD designation. SB 9 requires jurisdictions to allow through a ministerial approval the development of up two (2) units, not including ADUs, on each parcel zoned for single-family dwellings. Consistent with the previous legislative changes in 2019, ADUs must also be allowed through a ministerial process. “Ministerial” approval means that jurisdictions may only use objective zoning, design, and subdivision standards in their review of a residential development project, without discretionary review or a public hearing.
The Applicant proposes to utilize SB 9 to build a two-unit residence on the one lot. Planning has conducted an initial review to confirm the project could qualify for SB 9.
Upon the Planning Division’s issuance of a Zoning Clearance confirming that the project is subject to SB 9, the applicant would file for a Building permit. As a ministerial process, the Project would not be subject to a design review permit, including Planning Commission approval.
Evaluation of Lincoln St. SB 9 Compliance
Since the Project is proposing two units via SB 9, each unit would be allowed to have one ADU. The ADUs are required to meet the development standards under EPAMC 18.96.040 - Development Standards - Lots with Two-Family and Multiple-Family Dwellings. The two-unit SB 9 project with the attached and detached ADUs are consistent with all the applicable Accessory Dwelling Unit development standards.
A. Multiple accessory units may be allowed within the existing portion of two-family or multiple-family dwellings that are not used as livable space, including, but not limited to, storage rooms, boiler rooms, passageways, attics, basements, or garages, if each unit complies with the current Building and Fire Codes for dwellings. The project is a new development on a vacant lot. The applicant proposes two accessory dwelling units for a two- unit development that would be permitted via SB 9 in the R-LD Single-Family Residentialzoning district.
B. At least one accessory unit may be allowed within an existing multiple-family dwelling, subject to requirements in subsection A of EPAMC 18.96.040. Attached accessory units may be allowed up to twenty-five percent (25%) of the existing number of units within the site. The proposal to construct one 511 sq. ft. attached ADU and one 727 sq. ft. detached ADU meets the requirements.
C. No more than two detached accessory units may be allowed on a lot zoned for twofamily or multiple-family dwellings. A detached accessory unit shall not exceed 16 feet in height, in addition to any required elevation for floodproofing pursuant to Section 15.52.070(A) of the EPAMC, as well as minimum rear and side setbacks of four (4) feet. The applicant proposes one detached accessory dwelling that would have a maximum height of 14’-11” and the attached ADU would have a maximum height 12’-9”; both proposed ADUs would meet the maximum 16 ft. height threshold. The detached ADU would also meet the minimum four-foot side and rear setbacks and the minimum six-foot separation required between the main dwelling and the ADU.
D. Accessory units shall comply with the provisions of Section 18.96.030, as applicable.
The ADU parking spaces are exempt since the parcel is located within one-half mile walking distance of a public transit opportunity (i.e., a bus stop). The ADUs would not be submitted to impact fees because all proposed ADUs are less than 750 sq. ft. in size. The detached ADU matches the overall architectural features of the proposed main dwelling - colors, materials, appearance, roofing, and windows.
Evaluation of the Lincoln St. 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.
For the purposes of comparison, the market-rate units and inclusionary unit are shown side-byside in the chart below.
Table 4. Inclusionary and Market-Rate Unit Overview
Inclusionary Unit Market-Rate Units
Units 1 1-bedroom
attached ADU
1 3-bedroom (Unit 1) 1 4-bedroom (Unit 2) 1
2-bedroom detached ADU
Size 511 sq ft 1,030 sq ft (Unit 1) 1,424 sq ft (Unit 2) 727 sq ft (ADU) 2,454-3,181 total with ADU
AMI Levels 35% AMI All market-rate
Required Number of Units. The number of Inclusionary Units required for this Project is a fraction of a unit (.4). The proposed Alternative Compliance Option exceeds that requirement by providing one Inclusionary Unit.
Bedroom Count and Size. The Inclusionary Unit proposed would be a one-bedroom 511 sq ft attached ADU, while the detached ADU and two units would range from 727 to 1,424 sq ft.
While the maximum allowable size for an attached or detached ADU is 1,000 sq. ft., the proposed ADUs are smaller due to constraints such as setback and parking requirements.
Comparability. The one-bedroom Inclusionary Unit would contain identical or comparable exterior and interior finishes and amenities (e.g., washer and dryer), with equal access to common areas and comparable private open space.
Affordability- AMI. As noted in Table 2 above, in an inclusionary requirement for a project of five or fewer units, the In-Lieu Fee must be paid. In the Alternative Compliance Option, the unit would be restricted for sale to households at or below 35% AMI.
Rather than focusing on the Applicant providing an Inclusionary Unit that is equivalent to one of the market-rate units, staff evaluated whether the provision of this 511 sq ft ADU at 35% AMI is an equal or greater public benefit than a fee payment representing a fraction of a subsidized prototypical unit.
Based on the methodology of the Rental In-Lieu Fee calculation, the fee payment of $103,600 represents .4 times the gap financing for an “average” unit (calculated as weighted average of 35%, 50%, and 60% AMI). Providing one unit that will rent at 35% AMI, or $1,005.25 per month, compared to $1,900 for a market-rate ADU, could immediately provide a per-month “subsidy” of $894.75.
In addition, based on the UC Berkeley Center for Community Innovation, ADUs in the San Francisco Bay Area region are the most expensive to build, with a median construction cost of $329 per sq ft. The proposed inclusionary unit would cost approximately $168,119 to build, which is greater than the In-Lieu Fee of $103,600.
Staff finds this Alternative Compliance Option preferable in terms of both subsidy amount and timing, as the ADU will become available when construction of the Project is completed, rather than funds accumulating in the Affordable Housing Fund to support affordable units at a later time. In addition, this unit would increase the City’s affordable housing stock as it will be deedrestricted in perpetuity at 35% AMI for a household size of two people.
Staff Recommendation
Based on the above considerations, staff believes the above-described proposal to provide one ADU to a household at or below 35% AMI fulfills the requirements of Section 18.37.080 and recommends the City Council approve this Alternative Compliance Option.
Construction of Units in Alternative Compliance Option
If the City Council approves the provision of Inclusionary Unit as an Alternative Compliance Option for the Project, the standard requirements of the IHO will 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. 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 the Inclusionary Unit to ensure that it remains affordable in perpetuity, in accordance with the requirements of the IHO for rental units.
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 permit issuance process.
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 project, including the Inclusionary Units, will be permitted via a ministerial approval process enabled by SB 9 and the EPAMC.
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 EPAMC, which requires concurrent construction and issuance of final inspection or certificates of occupancy for the Inclusionary Units and market-rate units.
Fiscal Impact
There is no immediate fiscal impact associated with this staff report.
As noted above, if the City Council approves the Alternative Compliance Option, the Applicant would not be required to pay the In-Lieu Fee payment of $103,600, the equivalent of .4 units, but instead would provide the Inclusionary Unit at 35% AMI.
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 July 8, 2022 Palo Alto Daily News and by posting the agenda and report on the City’s website and at the City Hall 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. Lincoln St Inclusionary Housing Plan