Inclusionary Housing Program Discussion
Redondo Beach Planning Commission
PRESENTED BY: KEYSER MARSTON ASSOCIATES, INC.
DECEMBER 15, 2022
What is
Inclusionary
Housing?
Inclusionary housing programs impose affordable
housing requirements on new development:
• The primary focus is on the production of affordable units within market rate projects.
• Options to production requirements must be provided.
The following standards need to be established:
• The required percentage of affordable units.
• The threshold project size that triggers the obligation. • The depth of the affordability requirements.
The standards are typically varied between
ownership and rental projects.
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What Does “Affordable” Mean?
Affordable housing is divided into the following categories which are published by the California Department of Housing and Community Development (HCD):
Generally, affordable housing cost is set at 30% of income. However, moderate income ownership affordable housing cost is set at 35% of income.
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Income Category % of Area
Median Income
4 Person
Household (2022)
Extremely Low <30% $35,700
Very Low 30% - 50% $59,550
Low 50% - 80% $95,300
Moderate 80% - 120% $109,300
Inclusionary
Housing as a
RHNA
Fulfillment Tool
Current RHNA defines housing targets ranging
from extremely low income to above moderate
income to be fulfilled between 2021 and 2028.
Inclusionary housing can assist in fulfilling a
portion of the RHNA targets while:
• Maintaining economic diversity in the community; and
• Dispersing affordable housing throughout the community. Program should balance property owner and
developer interests against the public benefit
created by production of affordable housing:
• Cannot be confiscatory;
• Cannot deprive a property owner or developer of a fair return on investment; and
• Cannot create a constraint to housing.
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Inclusionary Housing Program Survey:
Los Angeles and Orange County jurisdictions
Thresholds up to 20 units. Half the programs are 3 or fewer units. Over 80% of the programs impose a 10% and 20% requirement. Income and affordability covenants fall within the following ranges:
• Ownership projects: focused on moderate income.
• Rental projects: focused on very low and low income.
Common covenant periods: Ownership – 45 to 55 years and Rental – 55 years.
The programs all include an in-lieu fee option. The fee is generally tied to the affordability gap associated with the requirement.
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Parameters to
be Established
Target income and affordability standards.
The minimum project size that will trigger the
requirements.
Alternative options to the requirement for onsite production of affordable housing units:
• In-lieu fee option
• Off-site production option or creation of a separate
parcel
• Rental units to fulfill ownership housing requirements • Land dedication
• Acquisition and substantial rehabilitation of existing rental units.
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Financial
Evaluation
To assist in identifying supportable inclusionary
housing standards KMA prepared pro forma
analyses of prototype ownership and apartment
development projects.
The prototype projects were based on a
combination of:
• City staff reports for recently proposed projects;
• Development plans that had been submitted to the City; and
• Project types identified in KMA’s market surveys.
The prototypes are a composite of many factors.
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Section 65915 Density Bonus
State density bonus can potentially mitigate the impacts of affordable housing requirements by allowing an increased number of units plus one to three incentives or concessions such as height and floor area ratio increases. Larger scale developments will likely be able to use the Section 65915 density bonus on a cost efficient basis. While this will result in increased density, it will also require a greater percentage of restricted units at deeper affordability than will be required by the inclusionary housing program. Inclusionary housing requirements provide the City with the flexibility to establish development standards that the Section 65915 density bonus alone does not provide.
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Inclusionary
Housing
Program
Considerations
The legal standards are:
• The requirement cannot be confiscatory;
• The requirement cannot deprive a property owner or
developer of a fair return on investment; and
• The requirement cannot create a constraint to housing. The requirement should balance the interest of
the property owners and developers against the
public benefit created by the production of
affordable units.
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City Council Policy Direction
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Threshold Project Size
Inclusionary requirements are imposed on all developments with 2+ units. • The KMA financial evaluation indicated that a full affordable unit could not be supported for projects with fewer than 10 units.
• A sliding scale in-lieu fee payment schedule will be provided for project with 2-9 units. All projects with 10+ units:
• Inclusionary units are required (no in-lieu fee payment is allowed with the exception of extreme hardship).
• Fractional affordable unit requirement:
• The original City Council direction was for a fractional obligation to be rounded down to the nearest whole number.
• At their November 8, 2022 meeting, the City Council requested that an in-lieu fee schedule be created for fractional unit obligations generated by projects with 10+ units.
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Standards for Market Rate “For Sale" Projects
Inclusionary Obligation Fulfilled with For Sale Units on Site • Up to 19 Units 9% Moderate Income Required
• 20+ Units 15% Moderate Income Required
• One cumulative 55-year term covenant.
• When covenant term expires, City recaptures the Affordability Gap associated with the first market rate sale plus a share of the equity appreciation. • Owner must occupy unit as principal place of residence. • Cannot lease any portion of unit except caregiver or extreme economic hardship. Inclusionary Obligation Fulfilled with Rental Units
• On Site 15% Low Income Required Within project or on separate parcel on site • Off Site 15% Low Income Required Must be within 1/4 mile of site • Developer may choose to provide very low income units rather than low income units. • Covenant as long as residential use, no less than 75-year term.
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Standards for Market Rate Apartment Projects
Inclusionary Obligation Fulfilled with On Site Rental Units • Up to 19 Units 10% Moderate Income Required
• 20+ Units 15% Moderate Income Required
• Covenant as long as residential use, no less than 75-year term. Inclusionary Requirement Fulfilled with Off Site Rental Units • All Project Sizes 15% Low Income Required
• Must be within 1/4 mile of Market Rate Project
• Developer may choose to provide very low income units rather than low income units. • Covenant as long as residential use, no less than 75-year term.
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Updated Standards:
Market Rate Apartment Projects
The primary factors that influenced the results are:
• Increases in market rate rents; and
• Increases in construction costs.
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%
Obligation
AMI
(3 person hhld)
November 2021
Moderate Income 9% $79,200
Low Income 7% $43,200
November 2022
Moderate Income 8% $90,200
Modified Low Income 7% $65,600
Section 65915 Density Bonus
The following very low income inclusionary requirements can be supported when the project can efficiently use the Section 65915 density bonus:
AB 1505 and subsequent HCD guidance recommend limiting the requirement to 15% of the units to household earning no more than 80% of AMI (Modified Low Income).
The affordability requirement is measured against the number of units allowed by the site’s base zoning standards.
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For sale project that fulfills the affordable housing requirement with rental units 19% Apartment project that includes the maximum allowable density bonus 21% Standards for All Residential Projects
Inclusionary units made available prior to or concurrent with the market rate units. Phased project, inclusionary units provided proportionally within each phase. Comparable in construction quality and exterior design. Interior Finishes:
• For sale homes must include comparable interior finishes to the market rate units. • Rental Units must have interior finishes that meet the quality standards established by California Tax Credit Allocation Committee.
Same rights to amenities, including parking.
Reasonably dispersed throughout development, not clustered. Bedroom mix proportional to market rate. For rental, no more than 15% studio and at least 40% 2 or more bedrooms.
Extreme economic hardship request must be heard by City Council.
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Exemptions
One net new single family unit.
Accessory dwelling units and junior accessory dwelling units. Reconstruction of residential structures destroyed by act of nature. Residential building repairs, additions, remodels not increasing number of units.
Residential projects in accordance with development agreement approved before effective date of Inclusionary Housing Ordinance. Residential developments when planning application formally submitted and deemed complete before effective date of Inclusionary Housing Ordinance.
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