EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: June 6, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Shekhar Dubbani,
Karen Camacho, Housing & Economic Development Manager
Elena Lee, Planning Manager
SUBJECT: Inclusionary Housing Alternative Compliance Option for 1201 Runnymede (APN 063-271-090)
Recommendation
Conduct a public hearing and adopt a Resolution:
1. Finding that the proposed Alternative Compliance Option for the residential development project located at 1201 Runnymede (APN 063-271-090) to provide on a vacant property one deed-restricted unit for a Median-Income Household, one deed-restricted unit for ModerateIncome Households and paying an Inclusionary Housing In-Lieu Fee for three units fulfills the project’s inclusionary housing obligation under Section 18.37.080 of the East Palo Alto Municipal Code in that it provides 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;
2. Finding that the project does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment;
3. Authorizing 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
1201 Runnymede Residential Development Project
The project located at 1201 Runnymede, APN 063-271-090 (“Project”), is a proposed residential development on a currently vacant lot of 40,598 square feet. The Project applicant is Carrasco & Associates representing Village One LLC (“Applicant”). The Project area is zoned as Urban Residential (“UR”). The original proposal was to build 32 units and provide the standard inclusionary housing obligation, which is discussed more fully below. The applicant is now proposing changes to the previously entitled project and an alternative compliance option.
Prior Project and Proposed Changes
On August 20, 2020, the Housing Division received an Inclusionary Housing Plan for a 32-unit for-sale/ownership multi-family residential development at 1201 Runnymede. Per the City’s Inclusionary Housing Ordinance (IHO), the developer was to provide six Inclusionary Units onsite. Given that the developer proposed to comply with the on-site inclusionary requirement, the Inclusionary Housing Plan was approved by Housing Division staff. On November 16, 2020,1 the 32-unit project was entitled by the Planning Commission.
In February 2023, the Applicant returned to the Planning Division with a lower-density 20-unit proposal for this previously entitled site due to higher than anticipated construction costs. The previously approved 32-unit project in a flood plain zone had a concrete parking structure on the first floor with units above the parking podium. According to the Applicant, this configuration made the per square foot cost for each unit above the projected market price.
According to the Applicant, additional per square foot costs in the previously approved project came from the cost of shared common areas such as the concrete podium structure, the large landscaped common area, common corridors, and the east facing two-story window wall and elevator. The previously approved project had a mix of unit types in terms of number of bedrooms and bathrooms. Under the new 20-unit proposal consisting of all 3-bedroom units, all proposed townhomes have the same floor plan layout; variations have been introduced to create a stepped façade with varied window treatments, but the material specifications for each unit remain the same. The new design has no decks on the second or third floor, which were part of the 32-unit proposal, and all private and common areas are provided on the first floor.
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, 2019.2
The IHO requires an Inclusionary Housing Plan to be approved by the Housing Division prior to scheduling the project for Planning Commission action. 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. Upon staff’s request, the Applicant agreed to select “Other” and proposes an 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.
1 See November 16, 2020 Planning Commission hearing at:
http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1337 . 2 See November 19, 2019 City Council meeting at:
http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1271 An Alternative Compliance Option requires that City Council approve the Applicant’s Inclusionary Housing Plan prior to the development proposal. The purpose of this staff report is for Council to reconsider this new Alternative Compliance Option due to the changes in the development proposal. If the Inclusionary Housing Plan is approved, the project’s entitlements, which include a Design Review and Tentative Map, would be scheduled for approval by the Planning Commission once the project is ready for a decision.
See the Applicant’s Inclusionary Housing Plan and tentative design plan in Attachment 2.
The timeline for the project is:
Table 1. Project Timeline
February 6, 2023 Applicant Submitted Project Packet
March 15, 2023 Menlo Fire Reviewed Project
May 19, 2023 Applicant Submitted Inclusionary Housing Plan Pending Planning Commission Hearing
Pending Final Map
Analysis
Standard Inclusionary Housing Requirements
Pursuant to the City of East Palo Alto Municipal Code Chapter 18.37 – Inclusionary Housing, a developer of an ownership residential development with five or more units must provide twenty percent (20%) of the dwelling units in the residential development as Inclusionary Units upon the same site as the residential development, with 50 percent of the Inclusionary Units available at an affordable sales price to households at 70% of the Area Median Income (“Median-Income Households”) and 50 percent of the Inclusionary Units available at an affordable sales price to households at 110% of the Area Median Income (“Moderate-Income Households”).3 Fractions of an Inclusionary Unit shall be provided by the payment of an In-Lieu fee as established in Section 18.37.050.B.
The In-Lieu Fee for ownership/for-sale residential units for Fiscal Year 2022-23 is $190,000 per unit, but the fee is scheduled to be updated for the Fiscal Year 2023-2024. The fee is applicable upon issuance of a building permit. Therefore, this project would be liable to pay the In-Lieu Fee before it is issued a building permit.4
1201 Runnymede Inclusionary Housing Requirement
The proposed Project consists of 20 ownership/for-sale 3-bedroom units which requires the following: 1) four Inclusionary Units on-site, with two units at an affordable sales price to a Median-Income Household and two units at an affordable sales price to a Moderate-Income Household.
3 See footnotes 1 and 2.
4 The updated fees and Inclusionary Housing Guidelines were adopted by City Council at the June 7, 2022 public hearing. Chapter 3 (updated In-Lieu Fees for Ownership/For-Sale Units) and Chapter 4 (updated In-Lieu Fees for Rental Units) can be found under “Supporting Documents” at:
https://www.cityofepa.org/housing/page/inclusionary-housing.
Inclusionary Housing Alternative Compliance Options
Section 18.37.080 allows a developer to pursue an Alternative Compliance Option with approval by the City Council. The IHO identifies two Alternative Compliance Options:5
1. Build 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 Option 2 and is proposing an Other Alternative Compliance Option for consideration by City Council that is further discussed below.
Inclusionary Housing Standards
Section 18.37.060 of the EPAMC 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 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.
Proposed Alternative Compliance Option
If an applicant selects Option 1, 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 must demonstrate equivalent or greater public benefit than Option 1, and this is the basis upon which the proposal is evaluated.
Because the revised project consists of 20 units, the Alternative Compliance Option must provide five (5) ownership/for-sale inclusionary housing units.
On April 17, 2023, the applicant provided that they would like to pay the In-Lieu Fee in full, which would amount to $950,000 for the five (5) inclusionary units under the Alternative Compliance Option requirement. On May 15, 2023, the applicant met with Housing Division staff to discuss Alternative Compliance Options given that Council would prefer to see inclusionary units be built.
The Applicant proposes to provide two inclusionary housing units on-site, one to be sold at an affordable price for a Median-Income Household and one to be sold at an affordable price for Moderate-Income Households. The applicant proposes to pay an InLieu fee for the remaining three units, equal to $570,000 if it were paid in Fiscal Year 5 Although the City’s Inclusionary Housing Ordinance provides options for a developer to satisfy a project’s affordable housing obligation, staff would prefer to identify a solution that will lead to the creation of deed-restricted affordable housing units.
2022-2023.6
To put concrete numbers on the affordability level proposed by the applicant, Table 2 below demonstrates the income limits for Median and Moderate-Income Households based on the City’s 2022 state income limits.7
Household Size 1 2 3 4
Median Income $91,350 $104,400 $117,450 $130,500
Moderate Income $139,450 $159,350 $179,300 $199,200
Based on the City’s 2022 household income limits and January 2022 market data, the FY 2022-2023 affordable sales price for the three-bedroom inclusionary units would be approximately $788,500 for Median-Income Households and just over $1.1 million for Moderate-Income Households.8 The market sales price would approximate $1.4 million.9 The future sales price will be based on most current available data (e.g. most current interest rates, homeowner association dues, utilities, and property insurance).
Evaluation of the 1201 Runnymede 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.
Also, Inclusionary Units shall meet the City’s Inclusionary Housing Standards, including that they be comparable in appearance and quality of construction to the market-rate units in the same development. Interior finishes, features, and amenities may differ from those provided in the market-rate units; but they shall be durable, of good quality, compatible with the marketrate units, and consistent with the California Building Codes Standards.
For the purposes of comparison, the market-rate units and Inclusionary Units are shown sideby-side in the chart below. 6 As previously mentioned, the fee is scheduled to be updated for the Fiscal Year 2023-2024. The developer would be liable to pay the In-Lieu Fee before issuance of a building permit. 7 East Palo Alto’s 2022 Income Limits calculated using Chapters 3 and 4 of the Inclusionary Housing Ordinance guidelines, available at https://www.cityofepa.org/housing/page/inclusionary-housing, and the 2022 State Income Limits, available at https://www.hcd.ca.gov/docs/grants-and-funding/inc2k22.pdf.
Rounded to the nearest 50th.
8 FY 2022-2023 affordable sales price calculated using Chapter 3 of the Inclusionary Housing Guidelines, available at https://www.cityofepa.org/housing/page/inclusionary-housing. The final sales price will be calculated by the City’s Below Market Rate administrator using most current market data. 9 The $1.4 million market sales price is based on most recent market data for comparable semi-new homes (constructed between 2000-2003) of similar lot size, house size, and bedroom count in East Palo Alto. This does not take into account the added cost of new construction and projected market conditions.
Table 3. Inclusionary and Market-Rate Unit Overview
Inclusionary Units Market-Rate Units
Units Two 3-bedroom units
(Units 4 and 13)
Eighteen 3-bedroom units
(Units 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12, 14,
15, 16, 17, 18, 19 and 20)
Size 1,526 sq ft*
(Unit 4)
1,439 sq ft *
(Unit 13)
1,470 sq ft
(Units 1, 10, 11 and 20)
1,439 sq ft
(Units 2, 3, 8, 9, 12, 18 and 19)
1,526 sq ft
(Units 7, 14 and 17)
1,464 sq ft
(Units 5, 6, 15 and 16)
AMI
Levels**
1 x Median Income
1 x Moderate Income
All market-rate
* Rounded to nearest whole number.
**The IHO defines “median income” as 70% of the Area Median Income (“AMI”) and “moderate income” as 110% AMI.10
Code Required Number of Units. The number of Inclusionary Units required for this Project are four on-site Inclusionary Units. The proposed Alternative Compliance Option of five Inclusionary Units meets the requirement by providing two Inclusionary Units on-site, and an In-Lieu Fee payment equal to three ownership/for-sale Inclusionary Units.
Bedroom Count and Size. The Inclusionary Units proposed would be three-bedroom 1,526 and 1,439 sq ft units, comparable to the eighteen other three-bedroom market rate units.
Comparability. The 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 Tables 2 and 3 above, one Inclusionary Unit would be restricted for sale to households at or below median income, and one Inclusionary Unit would be restricted for sale to households at or below moderate income. 10 State income limits define “median income” as 80% area median income (“AMI”) and “moderate income” as 120% AMI. The City’s Inclusionary Housing Ordinance defines “median income” as 70% AMI and “moderate income” as 110% AMI. “Median income” and “80% AMI” are therefore sometimes used interchangeably, but for the City’s inclusionary housing purposes, it means 70% AMI. Similarly, “moderate income” and “120% AMI” are sometimes used interchangeably, but for the City’s inclusionary housing purposes, it means 110% AMI.
Staff has concluded that building one Inclusionary Unit for a “Median-Income Household” and one for a “Moderate-Income Household” on-site, and paying an In-Lieu fee equal to three ownership/for-sale Inclusionary Units, as an Alternative Compliance Option, is an equal or greater public benefit than a fee payment for five inclusionary required units.
The following table shows that the City’s recommended option of building four onsite inclusionary housing units is not feasible for the Applicant, as it costs $6.2 million to complete the project, according to the Applicant’s estimates. The second option to pay the In-Lieu Fee for five units only adds funds to the City’s account but fails to add immediate value to the public. Staff recommends the Alternative Compliance Option that would provide a $2.48 million benefit for the two units to be constructed on-site, and a $570,000 In-Lieu Fee payment.
Table 1: Summary Comparison of Compliance Options
Standard Inclusionary Requirement:
(20% On-Site) (25% Requirement)
No. of
Units
Required Construction Cost Per Unit
Or
In-Lieu Fee
1 $ 1,240,000 $ 190,000
2 $ 1,240,000 $ 190,000
3 $ 1,240,000 $ 190,000
4 $ 1,240,000 $ 190,000
5 N/A $ 190,000
Total $ 6,200,000 $ 950,000
Proposed Alternate Compliance:
(20% On-Site) (25% Requirement)
No. of
Units
Required Construction Cost Per Unit In-Lieu Fee
1 $ 1,240,000 N/A
2 $ 1,240,000 N/A
3 N/A $ 190,000
4 N/A $ 190,000
5 N/A $ 190,000
Total $ 2,480,000 $ 570,000
= $3,050,000
public benefit
Based on 2021 United States Census Data, the average area median household income for the City of East Palo Alto is $96,349; having one Median-Income unit, one Moderate-Income unit, and an In-Lieu Fee payment of $570,000 for the remaining three units is of equal or greater public value than the Alternative Compliance Option of an In-Lieu Fee payment of $950,000 for five required off-site inclusionary units. Also, the construction cost of each unit is estimated by the Applicant to be $1.24 million, which is higher than the For-Sale/Ownership InLieu Fee for FY 2022-23 of $190,000 per unit. Therefore, building one Median-Income unit, one Moderate-Income unit, and an In-Lieu Fee payment for three units is of greater public value.
Staff finds this Alternative Compliance Option preferable in terms of both subsidy amount and timing, as the additional Inclusionary Unit 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 additional Inclusionary Unit would increase the City’s affordable housing stock of moderate-income units and will help the City advance on its 6th Regional Housing
Needs Allocation cycle (“RHNA 6”) requirements, as it will be deed-restricted in perpetuity for Moderate-Income Households. The City’s 2023-2031 Housing Element has identified a strong need to meet moderate-income unit requirements in East Palo Alto. City efforts to build moderate-income units will be key to meet RHNA 6 goals.
Staff Recommendation
Based on the above considerations, staff believes the Applicant's proposal to provide one deed-restricted unit for a Median-Income Household and one for Moderate-Income Households, and to pay an In-Lieu Fee equal to three Inclusionary Units, 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 the two Inclusionary Units and the In-Lieu fee payment for three ownership/for-sale Inclusionary Units as an Alternative Compliance Option for the Project, the standard requirements of the IHO will still 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.11 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 ownership 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 11 The developer may work with EPACANDO, as the City’s Inclusionary Housing Administrator, to select a qualified buyer.
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 on the Project. As noted above, the Project, including the Inclusionary Units, will be subject to the planning entitlement process, including the approval of a Design Review and Tentative Map. A Final Map would be required afterwards to complete the subdivision process.
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.12 In accordance with Chapter 3 of the IHO Guidelines, the Affordable Sales Price will be calculated within 90 days before the date of the first close of escrow for an Inclusionary Unit and the values of the Affordable Sales Price and Fair Market Value, as defined in the IHO, will be updated every 90 days thereafter.
Fiscal Impact
There is no immediate fiscal impact associated with this staff report.
As noted previously, if the City Council approves the Alternative Compliance Option, the Applicant would not provide four Inclusionary Units, but instead would provide one on-site Inclusionary Unit for a Median-Income Household and one on-site Inclusionary Units for a Moderate-Income Household, and an In-Lieu Fee payment equal to three ownership/for-sale units.
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 2024.
Public Notice
The public was provided notice by publishing a notice in the May 26, 2023 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 proposed action does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment. Additionally, CEQA clearance for the 12 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.
underlying project will be addressed by the Planning Commission when the project applicant seeks approval to amend the original project
Attachments
1. 1201 Runnymede Inclusionary Housing Plan
2. Resolution