PISMO BEACH CITY COUNCIL STAFF REPORT
Agenda Item #12.C
Meeting Date: July 1, 2025
TITLE:
Review of Housing In-Lieu Regulations, Including Use of In-Lieu Fee Funds RECOMMENDATION:
1.Receive an overview of the City’s current housing in-lieu policies/regulations, including approved uses for Housing In-Lieu Fee funds;
2.Provide direction on desired updates to the housing in-lieu regulations and/or use of in-lieu funds.
DISCUSSION:
On May 20, 2025, the City Council directed staff to return at a future meeting to provide an overview of the City’s Inclusionary Housing Requirements and Affordable Housing Incentives. The provisions for both Inclusionary Housing and Affordable Housing Incentives can be found in Chapter 17.26 of the Pismo Beach Municipal Code (PBMC), adopted by the City Council in 2000 and provided as Attachment 1 to this staff report.
Sections 17.26.020, 17.26.022 and 17.26.050.D of the PBMC outline methods for meeting the City’s inclusionary housing requirements, including use of in-lieu fees for new residential and commercial development.
To assist the City Council in discussion and direction to staff on any potential changes, below are the relevant PBMC sections related to Housing In-lieu fees, an overview of recent in-lieu fund activity, including programs the in-lieu fund has supported.
Relevant Municipal Code Sections
17.26.020 Inclusionary housing requirements.
The provisions of this chapter shall apply to all new residential and commercial projects within, and to be annexed to, the city.
A. Methods of Meeting Inclusionary Housing Requirements. New development projects shall satisfy the inclusionary housing requirement, as specified in Section 17.26.022 contained herein. To meet the inclusionary housing requirements, the developer shall comply with one or more of the following methods:
1. Construct the required number of affordable housing units, as specified in this chapter; or
2. Pay an in-lieu fee as described in this chapter; or
3. Dedicate existing dwelling units for affordable housing equal to or greater than the equivalent value to the applicable in-lieu fee which would otherwise be required by this chapter and table; or
Council Agenda 7-1-2025 12.C-1
4. Dedicate real property for affordable housing equal to or greater than the equivalent value to the applicable in-lieu fee which would otherwise be required by this chapter; or
5. Use a combination of the above methods subject to the approval of the city council.
17.26.022 Applicability.
The provisions of this chapter shall apply to the following types and numbers of development projects:
A. Residential Developments. Residential development shall provide housing as set out below.
Fraction units less than 0.5 shall be rounded down to the first whole number unit, and fractional units of 0.50 percent or greater shall be rounded up to the next higher number unit.
For residential projects consisting of custom built dwelling units which are to be constructed subsequently to the completion of the subdivision, building valuation shall be determined by using the average building permit value of five recently constructed comparable dwelling units. Under circumstances where recent construction values cannot be used, the average value of constructed dwelling units listed as property improvements on the assessor's roll shall be used in calculating in-lieu fees.
1. For each ten residential units provide one affordable unit; or
2. For five or more residential units provide in-lieu fees equal to or more than five percent of building permit value; or
3. For each ten residential units dedicate one used dwelling or real property equal to or more than the applicable in-lieu fee; or
4. A combination of the above methods subject to city council approval;
5. Projects which involve subdivision of residential lots only shall be required to either:
a. Dedicate a number of lots equal to ten percent of the total, or an equivalent land area, to the city for future development of low and moderate income housing; or
b. Pay in-lieu housing fees established by the city ordinance; or c. A combination of the above methods subject to city council approval; d. Residential projects in which the total development on the property is more than one unit but less than twenty units shall be require to either provide affordable units on the same percentage bases specified in item 1 or to pay in-lieu fees as established by city ordinance. If affordable units are to be provided, the city may permit those units to be developed elsewhere at other appropriate sites within the city.
Council Agenda 7-1-2025 12.C-2
e. The percentages of this housing set aside shall apply to the total development project and be proportionally included in annual phasing.
B.Commercial Developments in the City and for Annexed Properties Designated for Commercial Use. Commercial developments in the City or to be annexed shall:
1. For each five thousand sq. ft. of commercial area, provide one affordable unit; or
2. For a commercial building five thousand sq. ft. or greater, provide in- lieu fees equal to or more than two percent of building permit value; or
3. For each five thousand sq. ft. of commercial building provide one used dwelling or real property equal to the value of, or more than, the applicable in-lieu fee; or
4. A combination of the above methods subject to city council approval.
17.26.050.D In-lieu fee method/procedures.
D. Affordable Housing Fund. An in-lieu fee paid and collected pursuant to this chapter shall be deposited into an affordable housing fund. The affordable housing fund shall be administered by the city's finance director, and shall be used exclusively to provide funding for the provision of affordable housing and for reasonable costs associated with the development of affordable housing, at the discretion of the city council.
Recent Housing In-Lieu Fee Activity for FY 2021 to FY 2025 Provided below are the housing in-lieu fee revenues and expenditures for FY 2021 through year-to-date FY 2025 as well as the current fund balance.
Description Amount Balance
FY 2021 to FY 2025 Revenue
Housing In Lieu Fee Revenues $270,998
Net Interest Earnings $120,657
FY 2021 to FY 2025 Revenue Total $391,655
FY 2021 to FY 2025 Expenditures
Biological Analysis at 4th Street Lot ($6,600)
Overhead Expenses ($6,798)
Contributions to Outside Agencies ($64,600)
HASLO SB 2655 Road Project ($1,133,731)
People’s Self Help Housing Project
855 N. 4th Street ($2,500,000)
Council Agenda 7-1-2025 12.C-3
FY 2021 to FY 2025 Expenditure Total ($4,711,729)
Current Housing In-Lieu Fee Fund Balance $601,710
In-Lieu Fund Program Uses
Housing in-lieu funds have been used for the following programs in the recent past:
• Construction/Rehabilitation: Building new affordable housing units, creation of special needs housing, transitional housing or renovating existing affordable units ensuring they remain safe, habitable and affordable.
• Local Matches: Contributing to the local match requirements for federal affordable housing grants.
• Property/Unit Acquisition: Purchasing property to build affordable housing or purchasing units to convert to or maintain as affordable housing • Supporting San Luis Obispo County Housing Trust Fund: In-lieu fees assist the Housing Trust Fund to increase the supply of affordable housing for very low, low and moderate income households, including households with special needs.
Other programs/uses for the funds:
• Smart Share Housing Solutions (SSHS). Program connects people and homes.
SSHS is a non-profit that administers three programs: HomeShare SLO, ADU SLO and Co-Living Collaborative.
• Peoples Self-Help Housing Solutions. Provides safe, healthy housing, and quality supportive health service for low-income residents and helps prevent homelessness among city residents.
• CAPSLO Energy Services Home Repair program. Provides low-income residents with minor home repairs so they can stay in their homes. • Rental Assistance. Funds can be used to establish a rental assistance program for low-income residents that are having difficulty making their rent payments. • Housing in-lieu funds may be disbursed, collateralized, or otherwise employed, but not limited to the following purposes: assistance to housing development corporations, equity participation loans, grants, pre-home ownership co- investment, pre-development loan funds, participation leases, or other public/private partnership arrangements. The affordable housing fund may be applied to the benefit of rental or owner-occupied housing or housing services. • Administration Costs. Funds may also be used to cover reasonable administrative expenses not reimbursed through processing or other fees, including: reasonable consultant and legal expenses related to the establishment and/or administration of the affordable housing fund; reasonable expenses for administering the process of calculating, collecting, and accounting for in-lieu and housing impact fees, and city administrative costs for the development, permitting, and the ongoing Council Agenda 7-1-2025 12.C-4
monitoring of affordable housing projects constructed with affordable housing fund moneys.
Recommendation
Staff recommends that the City Council provide direction to on any desired changes to the City’s housing in-lieu policies or the way the City dispenses in-lieu funds. This may include modification of the existing ordinance, adopting a future resolution that outlines the policy direction of the City Council, or other actions as directed by the City Council.
FISCAL IMPACT:
There is no direct fiscal impact related to staff’s recommendation. If the City Council desires to direct staff to amend the City’s housing in-lieu regulations and/or policies for use of in-lieu fee funds, the fiscal impact of the action will be analyzed at the time the item is presented to the City Council for action.
ATTACHMENTS:
1. Inclusionary Housing Requirements and Affordable Housing Incentives, PBMC Chapter 17.26
Submitted by:
Scot Graham, Community Development Director
City Manager Approval:
Council Agenda 7-1-2025 12.C-5
! !"#$%$&'
!
"
#
$
%
!
%
% %
& '
(
!
% $
!
%
)%
*
+&
+,&
+,+
$
-
. &/
'0
$$
$
!
&()(($)%
1
1
21
"
"
%
(
1
"
1
1
%
*
1
"
3
1
.
0
%
%
4
1
"
56
1
%
6
7
'
1
"
8
1
%
*
7
*
7 9
*
3
(
:
%
;
8
(
*
)
*
56
1
%
6
%%
.
%
%
%
9
*
"
4
(
1
.
%
%
0
9
*
)
5
%
%
)%
*
+,+ $
!
4%
56
1
%
%
!
.>
3
1
%
?
>2>!
"
1
"
*
+ ,
+%
0
>
-
*
6
@
%
A
?
;:
;
-
?
2?
!
"
0
.
>
-
*
6
@
%
5
#
5
>
%
0
%
B
#
54
1
%
0
%
%
#
#
56
1
%
6
%
2
%
%2;
:>2:>!
"
1
"
*
+ +%
0
>
-
*
6
@
%
-
. &/
'0
$$
$
!
!)'*#%($)+$#%(),-#(.)%
%
6
0
1
?
?
!
"
#
A
%
6
%
C
*
D
5
.
D
&
4
0
%
%
.
D
E
4
%
%
.
D
+
8
%
6
%
(
!
"
1
*
*
4%
;%
%
%
-
. &/
Attachment 1
Council Agenda 7-1-2025 12.C-6
'0
$$
$
!
*('/(*(+
%
%
6 C
1
#
4%
#
%
%
3
+
+
0
3
6
%
%
%
%
%
8
%
%
%
%
7
.
3
%
D
3
%
%
.
%
%
D
&
3
.
D
E
1
%
6
%
D
+
56
%%
%
C
4
%
%
D
5
.
D
1
%
6
%
D
#
6
%
%
.
!
%
%
%
6
(
*
4%
*
1
0
5
4
*
8
*
%
*
0
C
3
%
%
D
3
%
%
.
%
D
&
3
%
%
%
.
D
E
1
%
6
%
-
. &/
'0
$$
$
!0!1'*#%($)%$()'*#%($)+$#%(),-#(.)%
%
%
6 C
1
#
6
D
(
A
6
%
D
*
#
%
;
0
6
%
%
6D
4
#
%
%.
D
'
*
%
0
%
D
3
1
6 D
)
'
6 6
D
"
4%
6
.
.
%
%
@
D
!
56
;
1
$
D
<
1%
6
%
%
0
-
. &/
'0
$$
$
!2!&&$3/*$#%(),#)(%.$34$'3#%
1
1
"
8
A4
!
#
6
%
%
%
'
%
%
%
(
#
!
"
#
C
D
0
D
&
3
%
%
D
E
(
6
D
Attachment 1
Council Agenda 7-1-2025 12.C-7
+
1
%
@
%
%
-
. &/
'0
$$
$
!5!)6*(#&.$34$'3#%
1
5
!
.>
3
1
%
%
2
.
3
(
1
?
5
!
.>
3
.
*
#
!
"
#
.
%
C
%
D
%
%
%
D
&
-
D
E
(
6
D
+
1
%
%
%
4
1
"
3
1
.
7
0
%%
%
%
-
. &/
'0
$$
$
!
!
7**(),#)(33('($).$34$'3#%
1
!%
-4
4
8
1
%
.
%
;
%
0
%
6
%
.
0
%
'0
!
%
%
%
.
;
C
:
0
%
D
3
%
0
%
(
'0
4
8
:
%
0
%
*
1
2
#
4
8
4
#
*
>
-
C
%
6D
5
%
D
&
(
6
D
E
1
%
%
4
4
8
4
'0
%
7
%
0
%%
%
0
%
%
'
*
%
#
8
*
%
%
%
%
3
* 4
*
%
-
. &/
'0
$$
$
!
!*$+33('($).$34$'3#%
1
!%
-4
#
5
1
%
.
%
;
%
%
.
%
!
%
.
;
C
:
2
%
%
D
2
%
@
D
&
3
%
%
(
#
5:
%
%
*
1
2
#
#
54
#
*
>
-
C
%
6D
5
%
D
Attachment 1
Council Agenda 7-1-2025 12.C-8
&
(
6
D
E
1
%
%
4
#
54
#
%
7
%
0
%%
1
%
0
%
%
'
* 4
*
%
-
. &/
'0
$$
$
!8!&&$3/*$#%(),$9'*('($)
1
?
1
1
%
6
6
%7
C
1
.
0
D
1
D
&
5
0
%
;
;%
D
E
1
0
%
% D
+
%
%
(
*
4%
4
#
1
%
%7
%
6
%
2
%7
7
C
D
%
%
;
.
;
D
&
-
. &/
'0
$$
$
!:!&&$3/*$#%(),,.)
1
1
"
1
1
6 6
%
%
%
%
3
%
%
6
(
1
#
*
1
"
3
%
6
C
D
@
$
D
&
D
E
D
+
%
%
D
F
2
%
D
*
1
#
5
!
.>
3
1
0
%
6
.
4
1
4
8
#
54
3
%
6
0
C
%
%
D
.
$
%
6
D
&
5%
D
E
%
%
D
+
-
. &/
'0
$$
$
!!&&$3/*$#%(),*(,(/(*(+
1
'
-
%
3
(
'
%
%
%
#
%
%
5
%
%
%
-
. &/
'0
$$
$
!&&$3/(*(+%('($)%
Attachment 1
Council Agenda 7-1-2025 12.C-9
4%
%
C
'
6
.
$D
5
-
. &/
'0
$$
$
!3-#(+#'%$,.
8
!
7
%
7 %
C
1
7
;%
%
7
;%
D
(
F
%
%
7
;
%
8
7
-
. &/
'0
$$
$
0!*(,(/(*(+&$/$)#%)3()')(;%
!
%
%
6
C
1
*
%
D
(
(
C
"
*
+ ,
+D
%
"
*
+ +D
&
3
@
$
+
*
%
*
*
@
%$D
*
%
9
*
-
. &/
'0
$$
$
2!
+$&/$)#%)3()')(;%**$73
1
6
%
%
!
2
%
%
9
*
@
%
%
%
%
1
4
(
.
%
@
6
A
6
(
-!
%
1
%
%
)%
*
+,+ $
%
%
%
%
;
%
)%
*
+,+ $
1
%
9
*
;%
2
;
D
1%
0
. @
6
6
.
6
.
6
%
D
&
-
%
%
-
. &/
'0
$$
$
5!$)()#3;(*/(*(+
6
%
C
1
56
*
3
56
%
%
%
%
($
E
%
)%
*
+,+ $
+,
D
(
5
%
56 ..4
(
-
5
%
.
6
%
%
%
-
. &/
'0
$$
$
!$'($))3'$.(/(*(+$&3)%(+/$)#%#)(%
1
)%
*
+,+ $$
6
%
6
"%
6
%
6
-
. &/
'0
$$
$
!"$'%%(),$&3)%(+/$)#%-#%
5
6
%
%
C
1
!
#%
4
(
#
%
%
6
6
D
(
*
*
*
@
%
$
D
*
3
1%
!
%
*
E
5
1%
4
%
$
%
C
6
@
%
D
Attachment 1
Council Agenda 7-1-2025 12.C-10
%
0
D
&
1
%
0
%
%
D
E
!
%
%
)%
*
+,+
%
"
*
+ +
+
)%
*
+,+ $D
+
%
4
1
1
%
*
+E
1
$
-
. &/
'0
$$
$
Attachment 1
Council Agenda 7-1-2025 12.C-11