EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: December 6, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Karen Camacho, Housing Project Manager
Elena Lee, Planning Manager
Hansom Hom, Deputy Manager, Special Projects
SUBJECT: Discussion of Possible Zoning Amendments and Other Measures to Incentivize the Construction of ADUs
Recommendation
Provide feedback on possible measures to incentivize the construction of Accessory Dwelling Units (ADUs), and direct staff to return in early 2023 with recommendations on: 1) an updated ADU Ordinance; 2) fee waivers or reductions and other financial incentives; 3) development review streamlining measures; and 4) other approaches to facilitate the construction and legalization of ADUs.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 3: Increase Organizational Effectiveness and Efficiency Priority No. 6: Create a Healthy and Safe Community
Background
Overview
California has witnessed a housing shortage for several decades. Most of the housing that is being built occurs in bedroom communities that are far from most jobs. This pattern contributes to a worsening commute-time traffic, automobile-generating pollution, and attendant build-up of green-house gases, as well as a loss of productivity due to the long hours spent commuting between work and residences.
Research has shown that in the last couple of decades housing supply in California has lagged far behind demand. This has resulted in an astronomical rise in housing costs with the average household having a harder time, more than ever before, in accessing affordable housing. The San Francisco Bay Area has especially experienced constrained housing production that has not kept pace with employment and population growth. The insufficiency of housing to meet the demand has escalated both sales prices and market rents for housing units.
Recognizing that California is experiencing a housing crisis, the state legislature and various local government agencies have been looking beyond the traditional modes of housing production to expand housing types. One housing type, Accessory Dwelling Units (ADUs), has received much attention as a viable, cost-effective way to combat the housing crisis and provide affordable units.
ADUs (also known as second units, in-law quarters, granny units, etc.) have been around for a long time. In the past, cities and counties regulated them very differently; some had zoning ordinances that prohibited them altogether. Recent state legislative actions allow ADUs “by right,” which means cities cannot require discretionary approval of these units if certain standards are met. This has streamlined the processing of ADU applications statewide.
An ADU is accessory to a primary residence and has complete independent living facilities for one or more persons. ADUs can be new living spaces, detached or attached, to the primary residence. Existing space within a primary dwelling, an accessory structure, or an attached or detached garages may be converted to an ADU. This form of housing has enormous benefits for both renters and homeowners. Such units are considered natural affordable housing as market rents tend to be lower.
These units also provide more flexible housing options for extended families, such as aging parents and adult children. ADUs also offer a solution for seniors to “age-in-place" while creating rental income to cover housing and living costs.
State ADU Legislation
During the past decade, the California Legislature has passed multiple laws to allow ADUs by right in single-family and multi-family zoning districts. The objective of these laws is to facilitate the supply a relatively affordable rental housing type within all residential communities in California. The state legislation is challenging to follow and has evolved over the years. As soon as a city updates its ADU regulations, a new state law is passed. East Palo Alto last amended its ADU regulations in 2020, but further amendments are necessary to conform with state law enacted in 2022. Attachment A provides a chronology of state legislation on ADUs enacted from 2016 to 2022. The latest bill is SB 897 was signed by the Governor in September 2022 and will be effective January 1, 2023. The key provisions of this bill are listed in Attachment A. City ADU regulations that need to be updated to conform with SB 897 are noted in Table A in the Analysis section.
City ADU Regulations
In June 2014, the City Council adopted Ordinance 380 to allow second units/ADUs, garage conversions to habitable space, and guest houses to promote local affordable housing options.
Ordinance 380 was the subject of extensive community engagement and reflects the City’s interest in supporting these types of developments. (See Attachment B for a summary of Community Engagement efforts on ADUs)
In January 2017, the City Council amended the ADU Ordinance to bring the regulations into compliance with the 2016 ADU legislation. The updated ADU regulations were codified in Chapter 18.96 of the East Palo Alto Municipal Code (EPAMC) as part of the comprehensive Development Code updates in 2018.
In November 2020, the city revised its ADU ordinance (“Current ADU Ordinance”) and brought the City's ADU regulations into compliance with then-current state legislation on ADUs. The 2017 ADU Ordinance was a critical reference point for the Current ADU Ordinance. It provided a baseline of requirements that were adjusted for conformance with state legislation, as well as to reflect the City Council’s approach on such issues as the maintenance of community character through neighborhood compatibility. Some of the changes in the 2020 ordinance were the following:
· JADU Size. Defined and codified the size limitations of a Junior Accessory Unit (JADU). · Minimum Lot Size. An attached ADU is allowed on a parcel zoned residential or mixeduse with a lot size consistent with the requirement of the underlying zoning district. · Unit Size. The maximum size of an ADU living area, inclusive of habitable basement and attic, may not exceed 1,000 square feet (sf). If there is an existing single-family dwelling, the total floor area of the attached ADU may not exceed 50% of the existing primary dwelling
· Site Coverage and Floor Area Ratio (FAR). The total floor area of the main dwelling and the ADU shall not exceed the permissible floor area ratio or lot coverage for the underlying zoning district provided at least an 800-square foot accessory unit is allowed. · Open Space. A minimum of fifty percent (50%) of the remaining rear yard or 750 square feet of open space, whichever is less restrictive, must be provided and maintained as usable rear yard open space with no permanent hardscape for life of the project on the lot.
· Parking. A minimum of one (1) uncovered off-street parking space must be provided for the ADU in addition to the off-street parking spaces required for the main dwelling.
Covered parking is not required.
· Exceptions to Parking Requirements. No parking requirement shall be imposed for the construction of an Accessory Dwelling Unit if:
o The unit is within ½ of transit
o The unit within an architecturally or historically significant historic district. o The unit is part of an existing primary dwelling or existing accessory structure o On-street parking permits are required but not offered to the occupants of the unit o There is a car share vehicle within one block of the unit · Replacement Parking. Replacement parking shall not be required when a garage or covered carport is demolished in conjunction with the construction of an ADU, or conversion of that parking structure into an ADU
· Access. The ADU shall be served by the same driveway access to the street as the existing main dwelling. Access via an alley may be allowed to a detached ADU when a property abuts a public alley.
· Common Entrance. If the ADU is attached to the main dwelling, both the ADU and the main dwelling unit must be served by a common entrance or a separate entrance to the ADU must be located on the side or at the rear of the main dwelling, whenever feasible. · Setback for Accessory Structure or Garage Conversion. No setback may be required for a legally constructed accessory structure converted to an ADU. Junior ADUs are not allowed in an accessory structure.
· Height. Any ADU may not exceed 17 feet in height in addition to any required elevation for floodproofing pursuant to Section 15.52.070.A of the Municipal Code. · Additional Provisions Applicable to Junior Accessory Dwelling Units were included.
· Zoning Clearance for Accessory Unit. Review of an application for a Zoning Clearance for an accessory unit is ministerial in nature.
Analysis
Staff continues to hear from applicants expressing an interest in legalizing previously converted garages or detached accessory structures into ADUs without benefit of permits.
There also is interest among staff and the development community to streamline the permitting process for ADUs to improve efficiency and reduce processing time. There has been a gradual uptick in the number of inquiries about, and subsequent applications for, ADUs in the City over the last five (5) years. Over that period there have been 68 Zoning Clearance and 72 Permit approvals by the Planning and Building Divisions’ respectively. While the review times vary depending on the underlying issues, such as existing Code Enforcement cases and applicants' preference to combine ADUs with other improvements, etc., these projects received Zoning Clearance within 30-days on the average, which matches the 30-day review cycle for Building Permit application. It should be noted, however, that the State mandated 60-day ministerial review period for ADU’s applies solely to the Building permit stage, after the Zoning Clearance.
A breakdown of the approvals is provided in Attachment C.
Additionally, there is the need to review and realign the Municipal Code to bring it into conformance with the latest legislative changes resulting from the approval of State Senate Bill SB 897 as previously mentioned. Staff suggests that additional measures beyond permit streamlining and zoning amendments for state law compliance could be considered to further promote and incentivize the construction of ADUs, provided that life and safety requirements are met.
Options for City Council consideration to facilitate the construction of ADUs can be grouped into the following categories and topics. Additionally, the Council may suggest other options for staff to explore.
A. Amendments to ADU Zoning Regulations
1. Comprehensive Code Clean-Up/State Law Compliance
Staff recommends the Council direct staff to proceed with a comprehensive amendment of the Development Code ADU regulations to bring its provisions and requirements into conformance with current state ADU legislation. Staff recommends these changes include the following:
a. Clean up the Code to clarify that an ADU within an existing or proposed primary dwelling or attached or detached unit built within standard buildable areas may be constructed on the second floor.
b. Incorporate language about conversions, including from attached garages, detached accessory structures, etc.
c. Clarify the height/other requirements for detached and attached ADUs. d. Clarify requirements for ADUs in multi-family dwellings.
Table A summarizes the key elements of the current East Palo Alto ADU regulations including those for which amendments are necessary. The State regulations apply a minimum standard.
The City has the option to be more permissive.
Table A
Key Differences Between East Palo Alto and State ADU Regulations
2. Setback Reductions or Exceptions
Inquiries have been received regarding the ability of the City to relax the required rear and side setbacks, at times with a request for a zero side and/or rear setback. ADUs have been constructed as a new detached structure in the rear yard and also through conversions of existing legal detached accessory structures. Under the Current ADU Ordinance, detached ADUs must have minimum rear and side yard setbacks of four feet. The Development Code requires that detached accessory structures (larger than 120 sf) have a minimum rear yard setback of six feet and side yard setback of three feet. However, some homeowners have chosen to convert existing accessory structures located less than four feet from side and rear property lines. While conversions are allowed to have less than the four-foot setbacks, the original structure must have been legally constructed.
Verifying the legal status of existing accessory structures has been difficult due to the lack or permit history, particularly for structures constructed before the City was incorporated in 1983. Reducing the setback requirements would allow more unverified or unpermitted accessory structures to be potentially eligible for conversion to ADUs.
While an estimate of the number of these structures is uncertain until further research is conducted, staff has encountered several cases where converting the structure could not be approved under current setback standards because of the inability to verify the structure had previously been approved or permitted.
Staff reviewed the ordinances of several neighboring cities (San Bruno, Menlo Park, Redwood City, and South San Francisco) to understand their code requirements with respect to an ADU. In all cases the setbacks were the same, the only difference occurring with accessory structures (see Table B). Staff is aware that some other cities have reduced setbacks or even allowed zero rear setbacks for accessory structures on condition that those structures meet the code requirements for building and fire safety on the property line. If Council determines that relaxing the setback requirement would facilitate the development of detached accessory structures in the city, it could direct staff to include such a change for future Council consideration.
3. Flexibility in Open Space Requirement
The 750-sf requirement for open space should be reviewed and clarified for consistency with the recent legislative changes included in SB 897, especially for an ADU which is no larger than 800 square feet. If setback requirements are met, flexibility could be considered in requiring the 750-square foot requirement.
4. Driveway Exceptions: Second Driveways for Corner Lots EPAMC Section 18.30.080.A.5 states that properties in the single-family zoning district (RLD) can have only one driveway. Staff has received requests for a second driveway for ADUs on corner lots, with applicants arguing that it would enable more parking on their properties. An exception could be considered to allow a second driveway on corner lots, provided design and safety requirements are met.
5. Objective Design Standards
SB 897 provides that cities can only impose objective design standards for reviewing ADUs. Standards cannot be subjective or uncertain. While ADUs are allowed by right and subject to ministerial review only, objective design standards may establish measures to mitigate concerns of neighbors and reduce the potential impacts of ADUs on adjacent properties, particularly if reduced setbacks are allowed. A future work program item for Planning is preparing objective design standards for all residential development, and it would be appropriate to include specific design standards for ADUs as part of these objective standards.
B. Development Review Streamlining
1. Process Improvements
The current process for approval an ADU involves two applications: an initial Zoning Clearance process by the Planning Division, prior to a subsequent Building Permit approval by the Building Division. A shorter, streamlined process could fold the Zoning Clearance process in the Building Permit approval where the Planning staff will review the Building Permit application to ensure that the ADU complies with objective development and design standards, as well as other Development Code requirements.
To facilitate this transition and ensure the cost recovery of Planning Services, however, the Building Division staff would be required to collect the applicable Planning fees at the Building Permit intake. Alternatively, the City Council can waive the applicable Planning fees if it concludes that doing so would further facilitate the development of Accessory Dwelling Units in East Palo Alto (see discussion below).
Another option, if the Council desires to maintain the current two-step application process for an ADU, is to rename the processing of Zoning Clearance to a different nomenclature. This would separate the ADU process from other Zoning Clearance applications and thus help to clarify that the ADU approval process is ministerial and not appealable.
2. Pre-Review/Approval of ADU Model Plans
With the growing interest among homeowners to construct ADUs, the design and construction industry have responded with model architectural plans and prefabricated or modular units for ADUs which provide “off-the-shelf" design options for homeowners.
These options can reduce the cost of hiring an architect or designer to prepare a customized plan for a client. While these plans still require a building permit from the City (or for prefabricated or modular units a state certification), the permit process can be simplified and streamlined. A further streamlining measure is having the City preapprove model plans; homeowners would then have greater assurance that these plans meet building and fire code standards. It should be noted however that Zoning Clearance and a Building Permit are still required to confirm conformance with zoning standards and to review the foundation design, electrical, mechanical, and plumbing work.
3. Design Assistance/Permit Facilitation
While permit streamlining and simplification of the approval process for ADUs can facilitate the construction of ADUs, homeowners may find that the process of preparing design plans, obtaining financing and permits, and constructing an ADU is still a daunting project. An option considered by some cities is offering the services of a thirdparty designer, architect, or contractor to assist homeowners in constructing an ADU.
The third-party firm or individual would be familiar with the City’s zoning and building standards and review process. With establishment of program criteria and insurance requirements, the services can be offered to homeowners at a nominal or affordable fee by the designer, architect or contractor.
C. Financial Incentives or Assistance for Construction of ADUs
1. Waiver or Reduction of Permit Processing Fees
Planning and Building permit processing fees can be a disincentive for homeowners to construct an ADU. The City Council can consider reducing planning and building fees.
Various fee waivers or reductions can be considered, such as based on the size of ADU. A fee waiver could be considered for nonprofits and homeowners willing to build an ADU with a deed restriction (i.e., that the unit will be rented and maintained as an affordable unit). Fee waivers should be balanced with the financial impact of reducing revenue that covers staff operating costs for permit processing.
Existing Planning and Building Permit Fee Costs
Homeowners, nonprofit organizations, and developers wishing to build an ADU currently pay between $5,000 to $10,000 in Planning, Building, and other permit processing fees depending on the size and building valuation of the ADU. Table C provides a summary of common ADU fees that are charged at the Planning entitlement stage and later at the Building permit stage.
Table C
ADU Fees Permit Processing Fees
As an example, the City’s ADU Working Group found in 2022 that the permit costs for a sample ADU project in the City was nearly $10,000 as itemized below:
Building Fee (October 2021): $3,116.22
EPASD Permit: $525
Planning Fee (October 2021): $586
Fire Fee: $220
CCTV DVD: $5
Encroachment Permit (January 2022): $764
Lateral Repair: $4,500
Total Cost: $9,711.22
Existing City Financial Assistance
The City has a CalHome ADU/JADU loan program (“CalHome Program”) to provide low-interest loans of up to $80,000 to income-qualified homeowners interested in building ADU/JADUs, in exchange for renting their units to income-eligible East Palo Alto households. The California State Department of Housing and Community Development (“HCD”) awarded the City with the CalHome program award in an amount of $2 million in July 2020.
On October 19, 2021, via Resolution No. 141-2021, the City issued an agreement with East Palo Alto Community Alliance and Neighborhood Development Organization (“EPACANDO”) to help administer the CalHome program until June 2024. The City worked with EPACANDO, HCD, and Meriwest Credit Union (“Meriwest”) to establish program guidelines and launched the program on January 19, 2022 via a webinar. The City account with Meriwest for loan disbursement was finalized at the end of September 2022. On October 6, 2022, EPACANDO and the City held another informational webinar to seek more potential eligible applicants. The CalHome Program helps pay for plans and permits, necessary site upgrades, and construction costs. Table D shows the loan assistance amounts:
Table D
CalHome ADU/JADU Program
Junior
ADU
Attached
ADU
Detached
ADU
Maximum Award Total1 $70,000 $75,000 $80,000
Plans & Permits2
Reimbursement of plan design
costs and city application fees
$25,000 $25,000 $25,000
Necessary Site Upgrades3
Reimbursement of infrastructure
cost upgrades needed to
complete the project
$25,000 $25,000 $25,000
Construction Assistance
Reimbursement of construction
costs
$20,000 $25,000 $30,000
¹ Maximum assistance shall not exceed fifty percent (50%) of total project cost ² ³Up to $25,000 or 20% of project cost; whichever is smaller Since the program launch, EPACANDO has been working with several potential applicants who have reached the building phase and who are income-qualified.
EPACANDO has worked with over 77 East Palo Alto households through its “CANDO ADU” program and identified a pipeline of potential CalHome applicants, has assisted over 16 potential CalHome applicants in identifying pre-qualification, has successfully pre-qualified five households, and is currently working with four pre-qualified households. One household’s application will proceed to Merwiest for underwriting, pending a building permit. The second household that was going to proceed to Meriwest underwriting dropped out due to family issues unrelated to the program. There are also three other households awaiting Building permits before taking the next step.
The majority of applicants began with code enforcement cases for unpermitted second units or other conditions, and are working with City Code Enforcement staff on corrective measures, or working on getting their units to meet the planning requirements. These conditions do not preclude the owner from pursuing the CalHome Program, but rather, has introduced a level of complexity that challenged City staff.
Knowing the universe of CalHome Program applicants and their overlap with code enforcement issues has led the City to consider other ways to support rehabilitation/repairs and formalize a City legalization program through development code and design review changes.
A second challenge that EPACANDO and the City have encountered is incomequalifying residents. Pre-qualification barriers include: being over-income; having a high debt-to-income ratio; having a high loan-to-value ratio; and lacking the primary financing needed to build the ADU or JADU. City timelines and fees have served as a disincentive for potential CalHome applicants.
Additional Financial Incentives Needed
Staff conducted initial research on cities that have waived or reduced permit processing fees for ADUs. Table E lists jurisdictions such as Milpitas, Dublin, Fremont, County of Marin, City of San Diego, Encinitas, Vista, and San Diego County that have adopted either fee waivers or fee reductions to incentivize the construction of ADU’s. These fee approaches reduce an impediment to providing lower-income and “missing middle” affordable housing opportunities. “Missing middle” affordable housing is moderateincome housing consisting of multi-unit or clustered housing types compatible in scale with single-family homes that help meet the growing housing needs.
Table E
Permit Processing Fee Waivers and Reductions for Selected Cities Jurisdiction Fee Policy
Milpitas Zero Permit Fees for all ADUs. Paid through ARPA (American Rescue Plan Funding).
Dublin Plan check and permit fee waiver for 750 sf or less and if greater than 750 sf w/ deed-restricted.
Fremont Pre-approved ADU program and the plan check fees are fixed at $1000.
County of Marin Incentives varying on renter’s income level.
City of San Diego Low Income Construction Financing Program.
Encinitas All development and services fees are waived.
Vista Fees are waived if certain conditions are met.
San Diego County Pre-approved ADU Program. Fees waived.
2. Waiver or Reduction of Development Impact Fees
In addition to permit processing fees, the City also collects development impact fees to fund capital infrastructure project or public facilities costs attributable to development impacts. These impact fees are substantial and can present a formidable obstacle for construction of ADUs. Development impact fees are typically due at the time of building permit issuance. The legal requirements for enactment of an impact fee program are set forth in Government Code Sections §66000 - 66025 (the “Mitigation Fee Act”), commonly referred to as AB 1600. Waiver or reducing impact fees would be a decision to subsidize the cost for infrastructure costs attributed to these projects to achieve a City policy objective.
In July 2020, the City Council adopted Resolution No. 108-2020, the first major revision of the City’s Comprehensive Fee Schedule, effective September 20, 2020.
Development impact fees are adopted separately from user and regulatory fees and are generally amended annually by the change in the Construction Cost Index, or CCI, published by Engineering News Record. Since 2020, the City’s development impact fees have risen annually by the CCI amount. Most recently, in FY 2022-23, development impact fees increased by 8.9%, in accordance with CCI. The authorizing Municipal Code section and resolution adopting each fee is summarized in Table F.
Table F
Authorizing Municipal Code and Resolution by Fee Type
Table G shows the types of development projects subject to each of the development impact fees that apply to residential projects in FY 2022-23. It should be noted that state law exempts development impact fees for ADUs less than 750 sf in size and the City’s does not impose impact fees on attached ADUs, so the ADU fees listed below only apply to detached ADUs exceeding 750 sf. Additionally, ADUs fees are set based on a proportion of the fees charged for new single-family dwellings.
Table G
Development Impact Fees for Residential Projects (FY 2022-23)
The City Council can consider waiving or reducing the development impact fees for detached ADUs over 750 square feet to reduce the financial barrier for producing these types of ADUs. If this is an option the City Council would like to explore, staff would evaluate possible approaches and contact surrounding cities to compare the impact fees assessed on ADUs for possible guidance.
3. Affordable Housing Deed Restriction
While ADUs are recognized as providing a good option for affordable housing, it does not guarantee that an ADU will be offered at an affordable rent or that the ADU will be available as a rental unit. Homeowners may choose to build an ADU to create more living space for an extended or growing family without the intent of generating income from the unit.
Policy discussions have included offering financial incentives if a homeowner, non-profit organization, or other entity is willing to record a deed restriction on a property to maintain an ADU as an affordable rental or ownership unit for a defined time period.
Discussions have included targeting these units for veterans, disabled individuals, atrisk youths, unhoused persons, or other special needs populations. Incentives could include waiving both permit processing fees and development impact fees.
In addition to the existing CalHome ADU/JADU Loan Program that is administered by EPACANDO, additional financial incentives through grants or loans could be considered to assist in funding the design and construction of ADUs. The total cost to design and construct an ADU can easily exceed $250,000, and the $80,000 loan limit, while sizable, is still insufficient for many homeowners. Local funds could be considered for supplemental financing such as Measure HH or Measure O funds, or the City could explore funding availability from state housing programs.
Next Steps
Based on City Council discussion and direction on the options outlined in this staff report, staff will draft a work program and recommendations that could include zoning amendments, development streamlining measures, and financial incentives to facilitate the construction of ADUs consistent with the latest state legislation where applicable. Community input will be sought, and recommendations will be presented to the Planning Commission before presenting to the City Council for consideration.
Questions for the City Council
1. Does the City Council support the relaxation of zoning standards particularly pertaining to reduction of side and rear setbacks, but also including flexibility or exceptions to open space, driveways, or other standards to reduce zoning impediments for facilitating the construction of ADUs?
2. Does the City Council support development streamlining options for review and approval of ADU applications, such as consolidation of Planning and Building review, pre-approval of ADU model plans, or third-party design and permit assistance?
3. Does the City Council support offering financial incentives and assistance for constructing ADUs, such as waiver or reduction of permit processing fees or development impact fees, or financial assistance for ADUs which may include the recordation of a deed restriction?
4. What other options should be considered for facilitating or promoting the production of ADUs in the City?
Fiscal Impact
There is no fiscal impact with the items described in this staff report. If City Council wishes to explore the options of consolidating Planning and Building processes, and of waiving or reducing Building fees, there may be a reduction in revenue generated from fees.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website.
Environmental
The items described in this staff report are not considered a project under the provisions of the California Environmental Quality Act (CEQA).
Attachments
A. Chronology of State Legislations on ADUs (2016-2022) B. Past Community Engagement on ADUs
C. ADU Approvals from 2018-2022