DATE:
January 17, 2023
TO:
Adam Politzer, Interim City Manager
FROM:
Charles S. Bryant, Community Development Director
SUBJECT:
Resolution Of The City Council Of The City Of Emeryville Adopting The Revised 2022 Housing Affordability Table Pursuant To The Affordable Housing Program (Article 4 Of Chapter 5 Of The Planning Regulations) Recommendation
Staff recommends that the City Council adopt the above-entitled resolution revising the 2022 Housing Affordability Table pursuant to the Affordable Housing Program (Article 4 of Chapter 5 of the Planning Regulations). The revised table decreases the maximum estimated resale price for affordable ownership units based on rising interest rates. The maximum monthly gross rental rate for affordable rental units is not changed.
BACKGROUND
The City’s Affordable Housing Program (AHP) was adopted in 1990 and updated in 2014. Prior to 2014, the ordinance required that new residential and live-work developments of thirty or more units (rental or for-sale) include a set-aside of Below Market Rate (BMR) units. In the case of for-sale developments, twenty percent of the units were to be set aside at the moderate-income level. In the case of rental developments, six percent of the units were to be set aside at the very low-income level and nine percent of the units were to be set aside at the moderate-income level. In both rental and ownership projects, the AHP allowed the developer to apply to the City to provide low income units in lieu of all or some portion of their moderate-income unit requirement. In 2014, the AHP was updated to require that new ownership residential projects of ten or more units have a set-aside of twenty percent of the units at the moderate-income level. For FY22-23, the AHP requires an impact fee of $33,478 per rental unit or an in-lieu production requirement of eight percent of the units at the low-income level and four percent at the very low-income level.
Because of the AHP, the City’s current BMR inventory includes 984 units, comprised of 746 rental units and 238 ownership units. Additionally, 186 BMR rental units have received entitlements or are under construction. The income levels of the City’s existing BMR units are as follows:
Tenure
Very Low Income
Low Income
Moderate Income
Total
Rental
495
124
127
746
Ownership
34 61
143*
238
Total
529
185
270
984
*Includes units that were originally sold as Very Low or Low-Income but which have a requirement to be re-sold as Moderate Income units.
Affordable Housing Cost
Pursuant to the AHP, maximum housing costs are calculated in compliance with Section 50052.5 of the California Health and Safety Code. The City of Emeryville utilizes the published Area Median Income (AMI) for Alameda County to calculate the affordable sales prices and affordable rents for each income level as identified below. The chart below shows the maximum amount that may be spent on total housing costs from a household’s income for owner-occupied and renter-occupied housing.
For owner-occupied housing, total housing costs include monthly mortgage principal and interest, property taxes and assessments, home-owners insurance, homeowner association fees where applicable, an allowance for utilities, property maintenance and repairs and private mortgage insurance (PMI).
For renter-occupied housing, total housing costs includes the monthly rent, and an allowance for utilities, fees or service charges charged to all tenants.
Income Level
Ownership Housing
Rental Housing (gross rent)
Moderate income
35% of 110% AMI
30% of 110% AMI
Low income
30% of 70% of AMI
30% of 60% of AMI
Very low income
30% of 50% of AMI
30% of 50% of AMI
The 2022 Alameda County Area Median Income limits by household size, as published by HCD, are as follows:
1-person
2-person
3-person
4-person
Moderate (120%)
$119,950
$137,100
$154,200
$171,350
Low (80%)
$76,750
$87,700
$98,650
$109,600
Very Low (50%)
$50,000
$57,150
$64,300
$71,400
On June 21, 2022, the City Council adopted Resolution No. 22-078, which adopted the 2022 Housing Affordability Table, as summarized below. Under the AHP, the sales prices are set at moderate, median and low-income levels, and the rent levels are set at the moderate, low, and very low-income levels. 2022 Gross Monthly Rents
Studio
One-Bedroom
Two-Bedroom
Three-Bedroom
Moderate Income
$2,749
$3,142
$3,534
$3,927
Low Income
$1,499
$1,714
$1,928
$1,142
Very Low Income
$1,249
$1,428
$1,606
$1,785
2022 Maximum/Affordable Sales Prices
Studio
One-Bedroom
Two-Bedroom
Three-Bedroom
Moderate Income
$420,743
$485,546
$542,680
$598,927
Median Income
$332,300
$387,269
$426,379
$470,532
Low Income
$200,171
$232,823
$256,508
$281,757
The maximum affordable sales price listed in the Affordable Housing Table are an estimate only, as staff calculates the actual maximum affordable sales price for each unit individually, based on the actual HOA fees charged to the unit.
Ownership Housing Assumptions
For ownership housing, it is necessary to make assumptions about several factors that influence the affordable sales price. These assumptions are the interest rate and term, the down payment level, the homeowner association fees, and utilities and homeowners’ insurance allowances.
In past years, some buyers have been able to access loans with interest rates as low as four percent. However, because moderate and low-income households are often first-time purchasers and may not have a strong credit history, they may be subject to higher interest rates on their first mortgages than what is seen on average in the market. For the interest rate assumption, staff has used the 52-week average of the Freddie Mac 30-year interest rate (including points), which currently calculates to 4.25 percent when rounded to the nearest 0.25 percentage point.
Staff estimated that the PMI on a mortgage on a condominium unit is approximately 0.5094% of the first mortgage amount when PMI is charged.
Finally, the table includes assumptions about utilities, homeowners’ insurance cost, and homeowner association fees. These levels are based on staff’s assessment of recent condominium projects that have been subject to the AHP as well as data from the Housing Authority of the County of Alameda. Over the past few years, utility costs have risen. The increased incomes mean that buyers can afford to spend more on housing, which causes the maximum resale price to rise; however, that is offset slightly by the increase in the utility costs. The assumption of the cost of homeowners’ insurance is based on the estimated monthly cost of HO6 Condo Insurance cost in 2017 (adjusted for inflation) published by the California Department of Insurance.
When the City is contacted by a BMR homeowner who wishes to list their unit for sale, staff obtains the estimated homeowner association fees for that project and calculates the maximum sales price accordingly.
DISCUSSION
Change in Market Conditions
Interest rates have more than doubled in the past 12 months. According to Freddie Mac, the average 30-year, fixed-rate mortgage increased from 3.10% on November 24, 2021 to 6.58% as of November 23, 2022 (see Attachment 1). When the affordable housing table was adopted by the City Council in June 2022, the fixed-rate mortgage interest rate utilized for assumptions was 4.25%, 2.33 % less than the current interest rate. This change in interest rates is impacting the maximum sales price for which a BMR homebuyer can qualify, as identified in the table below. This prolongs the time required to identify an income eligible homebuyer, which must occur within the required 150-day marketing period. The following table illustrates the effect of rising interest rates on maximum affordable sales prices.
Change in Maximum Affordable Sales Prices at 120% AMI, based on Interest Rate Assumption Methodology Timeframe
Interest Rate
Studio
1 Bedroom
2 Bedroom
3 Bedroom
12 Month Average (July 2021-June 2022)
4.25%
$365,844
$420,849
$469,501
$517,660
12 Week Average
Sept 8-Nov 23, 2022)
6.50%
$300,101
$345,222
$385,131
$424,636
4 Week Average
(Nov 3-Nov 23, 2022)
6.75%
$293,872
$338,056
$377,136
$415,821
Impact to BMR Resales
Per the BMR Resale Agreement, the City is to provide the maximum affordable sales price to the owner prior to listing, and the owner then has 90 days to identify an income eligible homebuyer to purchase the home. If the seller has not identified an income eligible homebuyer in 90 days, the City has the option to assist with marketing the home for an additional 60 days. If an income eligible homebuyer is not identified by the end of the City-assisted marketing period, the City can choose to purchase the BMR unit or to allow the Seller to sell the unit to an over-income household.
Several BMR homeowners have taken it upon themselves to lower the sales price of their units based on changes in the market; however, this has not been the case for all BMR sellers, thus requiring the City to consider acquiring the unit or allowing the homeowner to sell the unit to an over-income household.
To address the change in market conditions, staff is recommending that the City Council adopt a revised 2022 Affordable Housing Table that changes the interest rate assumption method from the 52-week average currently used to a 90-day average, which will have the effect of lowering the maximum sales prices. The maximum affordable sales price listed in the Affordable Housing Table will still be an estimate only, as staff will calculate the actual maximum affordable sales price for each unit individually, based on the actual HOA fees charged to the unit and the most recent 90 day average 30-year fixed rate mortgage interest rate. The revised assumptions will be utilized to calculate all new BMR resale prices and will also be shared with the BMR homeowners that currently have their units on the market for sale, so that they can decide if they want to lower the price of their BMR unit.
Fiscal Impact
Adoption of the Revised 2022 Housing Affordability Table has no fiscal impact.
Staff Communication with the Public
Staff had planned to present this item to the Housing Committee on December 7, 2022; however, the meeting was not held due to the lack of a quorum.
Conclusion
Staff recommends that the City Council approve the attached resolution adopting the Revised 2022 Housing Affordability Table.
PREPARED BY: Valerie F Bernardo, Community & Economic Development Coordinator II REVIEWED BY: Chadrick Smalley, Deputy Director of Community Development Approved and Forwarded to the
City Council of the City of Emeryville
Adam Politzer, Interim City Manager
Attachments
Attachment 1 – Freddie Mac Primary Mortgage Market Survey Draft Resolution, including Exhibit A, Revised 2022 Housing Affordability Table Revised 2022 Housing Affordability Table
City Council Meeting | January 17, 2023
City of Emeryville
CALIFORNIA
MEMORANDUM