DATE:
July 5, 2023
TO:
Paul Buddenhagen, City Manager
FROM:
Charles S. Bryant, Community Development Director
SUBJECT:
Resolution Of The City Council Of The City Of Emeryville Adopting The 2023 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 adopting the 2023 Housing Affordability Table pursuant to the Affordable Housing Program (Article 4 of Chapter 5 of the Planning Regulations).
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 Fiscal Year 2023-24, the AHP requires an impact fee of $33,999 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 1,069 units, comprised of 831 rental units and 238 ownership units. Additionally, 167 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 (50%)
Low Income (80%)
Moderate Income (120%)
Total
Rental
515
154
162
831
Ownership
34 61
143*
238
Total
549
215
305
1,069
*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.
Typically, the State of California Housing and Community Development Department (HCD) releases the income limits for each county between February and April of each year. This year, HCD released the income limits on June 6, 2023. A copy of the State’s release is found in Attachment 1. After the State releases its annual income limits for Alameda County, staff updates the “Housing Affordability Table” which is used to provide the maximum sales prices and gross rent levels that are eligible under the AHP. Section 9-5.403(a) of the Planning Regulations requires the City to establish sales prices, and staff is therefore bringing the updated table to the City Council for consideration and adoption.
DISCUSSION
Applicable Income Limits
The Alameda County Area Median Income limits by household size, as published by HCD, are as follows:
1-person
2-person
3-person
4-person
5-person
Moderate (120%)
$124,250
$142,000
$159,750
$177,500
$191,700
Area Median
$103,550
$188,300
$133,100
$147,900
$159,750
Low (80%)
$78,550
$89,750
$100,950
$112,150
$121,150
Very Low (50%)
$51,800
$59,200
$66,600
$73,950
$79,900
Extremely Low (30%)
$31,050
$35,500
$39,950
$44,350
$47,900
Acutely Low (15%)
$15,550
$17,750
$20,000
$22,200
$24,000
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, homeowners 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
Extremely low income
NA
30% of 30% of AMI
Implementation of the AHP
As part of a development’s entitlement process, the City places conditions of approval on the project to direct its design and development, as required by the AHP. For ownership projects of 10 or more units, the Planning Commission imposes a condition of approval requiring the applicant to enter into an Affordability Agreement that is approved by the City Council before the project may receive its building permits. For rental projects that choose the in-lieu production requirement instead of the Affordable Housing Impact fee, or that request development bonuses and are therefore required to include affordable units in the project, the Planning Commission imposes a condition of approval requiring the applicant to enter into an Affordability Agreement that is approved by the City Council before the project may receive its building permits.
The Affordability Agreement implements the requirements of the AHP, including the duration of the affordability covenants (45 years for ownership projects and 55 years for rental projects), the developer’s requirements for marketing the BMR units, the designation of the BMR units within the project, the required resale restriction documents (for ownership projects), the required compliance documents (for rental projects), and the initial sales prices or rent levels for the affordable units.
Staff determines the initial sales prices or rents on a project-by-project basis, applying the State definition of affordable housing cost, but applying the specific project’s estimate for homeowner dues and/or maintenance and utility costs.
Annual Housing Affordability Table
While each project’s sales or rent levels are set individually and contained as an exhibit within that project’s Affordability Agreement, staff also produces the Housing Affordability Table in conjunction with the release of the income limits by HCD.
This table is used for reference purposes and is distributed to developers of projects subject to the AHP so that they may conduct project financial analyses. The calculations in the table are based on the State affordable housing cost definitions and the amounts are adjusted for family size. The table assumes a household size one more than the number of bedrooms. For example, the one-person household income limit is applied for studios, the two-person household income limit is applied for one-bedroom units, the three-person household income limit is applied for two-bedroom units, and so forth.
Actual sales and rent levels of BMR units may be less than the sales prices and rents in the table, which estimate the maximum sales price or rent that could be charged based on statutory requirements. As noted above, actual maximums will be based on project specific information such as condominium fees and utility and maintenance costs. Furthermore, BMR units may be priced below the maximum as the developer, or seller in the case of resales, responds to market conditions.
A moderate income unit’s sale price or rent level may be close to the market price. In this case, there may be little incentive for a household to buy or rent the unit, given the administrative burden on the household to qualify for a BMR unit. To sell or rent the unit, the developer may further discount the price. In general, market rate studio, one, two and three bedroom rents are higher than the maximum moderate income rents allowed for BMR units under the AHP. When rents increase, BMR rent restrictions will increasingly make apartments more affordable to very low, low and moderate income households. The same pattern is true in ownership units; the larger the unit, the more likely it is that the market price will be higher than the maximum moderate income price allowed for BMR units under the program. In addition, moderate income buyers currently have difficulty competing against all-cash offers for market rate units and are more likely to apply to purchase BMR units.
Rental Housing Assumptions
The Housing Affordability Table calculates gross rents. Developers are required to deduct from the gross rent any charges or fees required to be paid by the tenants, and an allowance for utilities paid by tenants in accordance with the most recent utility allowances published by the Housing Authority of the County of Alameda (HACA).
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.
For the interest rate assumption, staff historically used the 52-week average of the Freddie Mac 30-year interest rate (including points); however with the recent change in market conditions leading to an increase in mortgage interest rates from 4.99% to 7.08% earlier this year, staff recommended the interest rate assumption be changed from a 52-week average to a 13-week average interest rate, so that the maximum sales price for which a BMR homebuyer can qualify can be based on current market conditions. On January 17, 2023, the City Council adopted Resolution No. 23-07, which adopted a Revised 2022 Housing Affordability Table reflecting the changed methodology for calculating interest rates. The most recent 13-week average interest rate calculates to 6.16 percent. For the 2023 Housing Affordability Table, staff is recommending implementing a 0.8 percent interest rate stabilization factor to reflect current market conditions, for a current rate of 6.86 percent.
Staff currently estimates that the PMI on a mortgage on a condominium unit is approximately 0.65% 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 HACA. 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.
Again, when the City is preparing an Affordability Agreement for an individual project, staff will obtain the estimated homeowner association fees for that project and calculate the maximum sales prices accordingly.
Historical Trend of Housing Affordability Table
The graph below illustrates the change in maximum income and sales price for a 2-person moderate-income household, in a 1-bedroom unit, between 2019 and 2023. Between 2022 and 2023, moderate household income has increased 3.6%, while moderate-income sales prices have decreased 14.1%.
The graph below illustrates the change in maximum rental rates from 2019 to 2023, for moderate, low and very low-income households residing in 1-bedroom units. Increases in an actual tenant’s rental rate could be greater than or less than the amount depicted below based on the rental rate actually charged from year to year. Between 2022 and 2023, rental rates have increased 3.5% at all income levels.
The graph below illustrates the change in maximum income limits from 2019-2023 for a household of two. Between 2022 and 2023, maximum income limits have increased 3.6% for very low-income households, 3.3% for low-income households, and 3.6% for moderate-income households.
Summary of 2023 Housing Affordability Table
The chart below provides a summary of the maximum sales prices and rent levels for 2023, by unit size and income level. Under the Affordable Housing Program, 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. It should be noted that, because maximum resale prices are calculated using the actual HOA dues for a given unit rather than the value assumed in the table, it is possible that that the actual sales price for a specific unit could be higher or lower than what is published in the Housing Affordability Table. 2023 Maximum/Affordable Sales Prices
Studio
One-Bedroom
Two-Bedroom
Three-Bedroom
Moderate Income
$361,944
$416,843
$465,258
$511,620
Median Income
$266,371
$309,090
$340,362
$373,748
Low Income
$160,107
$185,574
$203,772
$221,971
2023 Gross Monthly Rents
Studio
One-Bedroom
Two-Bedroom
Three-Bedroom
Moderate Income
$2,848
$3,253
$3,660
$4,067
Low Income
$1,553
$1,775
$1,997
$2,219
Very Low Income
$1,294
$1,479
$1,664
$1,849
Fiscal Impact
Adoption of the 2023 Housing Affordability Table has no fiscal impact.
Staff Communication with the Public
Staff presented this item for recommendation to the Housing Committee on June 27, 2023. The results of the Housing Committee’s action were not available as of the publication of this report.
Conclusion
Staff recommends that the City Council approve the attached resolution adopting the 2023 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
Paul Buddenhagen, City Manager
Attachments
Attachment 1 - State HCD Income Limits Release for 2023 Draft Resolution, including Exhibit A, 2023 Housing Affordability Table 2023 Housing Affordability Table
City Council Meeting | July 5, 2023
City of Emeryville
CALIFORNIA
MEMORANDUM