City of Sunnyvale
Agenda Item
23-0411 Agenda Date: 3/21/2023
2023 COUNCIL STUDY ISSUE
NUMBER
CDD 23-01
TITLE
Consider Increasing Inclusionary Housing Requirements to 20% in New Residential Development, and Review and Update the Housing In-Lieu Fees for Rental and Ownership Housing
BACKGROUND
Lead Department: Community Development
Support Departments: Office of the City Manager
Office of the City Attorney
Sponsor(s): Housing and Human Services Commission
History: 1 year ago: N/A
2 years ago: N/A
SCOPE OF THE STUDY
What precipitated this Study?
At the February 16, 2023 Study Issues/Budget Proposals Workshop, the City Council supported combining CDD 23-03, Review and Potentially Update the Housing In-Lieu Fees for Rental and Ownership Housing, with CDD 23-01, Consider Increasing Inclusionary Housing Requirements to 20% in New Residential Development.
With the affordable housing crisis worsening annually, one of the City’s best tools to create new affordable housing is using an inclusionary housing requirement. Inclusionary housing is when a market rate developer has a required percentage of units that must be deed restricted as affordable housing, for either ownership or rental units. The City currently requires 15% of new units be deed restricted as affordable housing. For ownership units, 15% of new units must be sold to moderate income households (those earning between 81-120% of the Area Median Income (AMI)). For rental developments, 5% of new units must be rented to very low income households (those earning 31- 50% AMI) and 10% of units rented to low income households (earning 51-80% AMI). In addition, the City’s Regional Housing Needs Assessment (RHNA) for the next 8-year planning cycle of the Housing Element provides that the City must accommodate nearly 12,000 new residential units, with nearly 6,000 of those units designated as moderate and lower income units.
If a residential developer receives approval, at the City Council’s discretion, for alternate compliance (i.e., to not build on-site inclusionary units), one option is to pay an in-lieu fee. Part of this Study would examine whether higher residential housing in-lieu fees for rental and ownership housing developments are justified and desirable to meet the growing demand for affordable housing and the rising development costs. The Rental Housing In-Lieu Fee (Sunnyvale Municipal Code (SMC) Chapter 19.77) and Below Market Rate (BMR) ownership in-lieu fee (SMC Section 19.76.100)
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23-0411 Agenda Date: 3/21/2023
programs offer the ability for a market rate developer to pay the in-lieu fee for residential developments at the sole discretion of the City Council through an Inclusionary Housing “Alternative Compliance Plan”. The cost to develop one unit of affordable housing is nearly $850,000, and this cost increases over time. The City should regularly analyze, using a formal feasibility study, the current fee structures to ensure that the in-lieu inclusionary fees for all residential development effectively support the City’s efforts by using these funds to create new loans for non-profit affordable housing developers. The construction of affordable housing is needed to help meet the City’s Regional Housing Needs Allocation. The fees are currently as follows:
What are the key elements of the Study?
The Study would focus on two deliverables: (1) a feasibility study for analyzing an increase of the inclusionary requirement from 15% to 20%, and identifying whether higher in-lieu fees for residential housing is appropriate and whether such fees can be used as a tool to incentivize developers to provide units rather than request to pay an in-lieu fee; and (2) an updated ordinance which would be needed to implement the results of the feasibility study. · Deliverable 1:
A feasibility study would be prepared to identify whether increasing the City’s inclusionary housing requirement from 15% to 20% for both for-sale and rental housing will allow the City to capture additional affordable units and make progress towards meeting the RHNA. The Study would analyze appropriate income levels for these requirements based on feasibility and will also evaluate requirements based on residential product types (e.g., townhome, single family detached home). Under Assembly Bill (AB) 1505, any inclusionary ordinance that requires more than 15% inclusionary requirement is subject to review by the California Department of Housing and Community Development (HCD) and subject to an economic feasibility study; therefore, the City would proactively complete the feasibility study with an outside consultant. As part of this feasibility study, to merge the two previously separate Study Issues, the existing residential in-lieu fee structure will also be analyzed to determine if its current rate is or is not accurate based on today’s economic climate, and whether it is achieving its goal of supporting the City to be able to provide funds to non-profit developers to build affordable housing. This Study Issue would require significant public and stakeholder outreach, especially with local market rate residential developers, to ensure an increase to inclusionary percentages would not hinder new residential development. The Study would also analyze local inclusionary requirements of nearby cities to ensure that Sunnyvale aligns with or
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23-0411 Agenda Date: 3/21/2023
does not greatly exceed the requirement for these communities. · Deliverable 2:
Depending on the outcome of the feasibility study, an updated ordinance would be prepared to increase residential inclusionary percentages as identified. The City would ensure adequate legal review is included in this ordinance revision because of the new level of review by the State.
Estimated years to complete study: 1 year
FISCAL IMPACT
Cost to Conduct Study
Level of staff effort required (opportunity cost): Moderate Funding Required for Non-Budgeted Costs: $225,000
Funding Source: Will seek budget supplement
One feasibility study for both the 20% inclusionary analysis and the reviewing of residential fees will be prepared by a consultant. A consultant would be
required to perform the work, along with significant outreach to developers and stakeholders. The Study will focus on various aspects, such as what affordability level is feasible, what product types are feasible, and what in-lieu fees are feasible and appropriate, causing a higher cost than that of a typical feasibility study. As part of the Study, an analysis of neighboring jurisdictions’ fees will be conducted as well. Lastly, the cost will include outside legal guidance on a draft Ordinance.
Cost to Implement Study Results
Minimal or no cost expected to implement.
EXPECTED CITY COUNCIL, BOARD OR COMMISSION PARTICIPATION Council-Approved Work Plan: No
Council Study Session: Yes
Reviewed by Boards/Commissions: Housing and Human Services Commission, Planning Commission
STAFF RECOMMENDATION
Support. This policy issue merits discussion at the 2023 Study Issues Workshop.
It is recommended to review the inclusionary housing and residential housing in-lieu fees from time to time. With increasing housing demands and a drastically increased sixth cycle RHNA, supporting affordable housing development is more important than ever. Potentially increasing the inclusionary percentage and in-lieu fees can make a huge difference in the affordable housing supply in the coming years. While the current questionable economic climate may have a direct impact on the result of the feasibility study, the City should stay proactive in analyzing these key tools on a regular basis.
Prepared by: Jenny Carloni, Housing Officer
Reviewed by: Trudi Ryan, Director, Community Development Reviewed by: Teri Silva, Assistant City Manager
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23-0411 Agenda Date: 3/21/2023
Approved by: Kent Steffens, City Manager
Attachment 3