City Council Meeting: June 11, 2013

Agenda Item:  7-C  

To:               Mayor and City Council 

From:           Andy Agle, Director of Housing and Economic Development

Subject:        Amendments to the Affordable Housing Production Program

 

Recommended Action

Staff recommends that the City Council introduce for first reading the attached ordinance that would revise existing household income eligibility levels and rent limits for the Affordable Housing Production Program (AHPP), add an option for developers to provide affordable housing to households earning no more than 30 percent of the area median income ("AMI") to satisfy AHPP obligations, and make technical changes to reflect current ordinance administration.  

 

Executive Summary

This report discusses proposed amendments to the AHPP for the purpose of achieving greater affordability and maintaining Santa Monica’s economic diversity. The proposed revisions are consistent with Proposition R and include revising affordable housing categories, income-eligibility limits, and rent limits to be consistent with a widely used approach based on California state law. The proposed ordinance would also expand AHPP income categories to include households at the lowest end of the income scale, better replicate affordable housing options among for-sale and rental developments, and make technical updates to reflect current practices.

 

The net effect of these proposed changes would result in increased targeting of lower income households, lower rents, and conformity with federal and state income categories. The proposed amendments to the AHPP would be applicable to future multifamily housing developments. A copy of the proposed revisions to the AHPP is provided in Attachment 1.

 

Background

On December 11, 2012, Council directed staff to amend the AHPP to include opportunities for extremely low-income households, given that there are approximately 3,000 extremely low-income households who live or work in Santa Monica and whose needs are not addressed by the current AHPP.  On February 26, 2013, Council directed staff to consult with the Legal Aid Foundation of Los Angeles (LAFLA) and return with a draft ordinance amending the AHPP rent limit standards to achieve greater affordability. 

 

In preparation for Council’s consideration, the Housing Commission held two public meetings to discuss the relevant issues, including a panel discussion that featured legal and administrative experts and non-profit and for-profit housing developers.  In addition, a variety of community stakeholders have played a key role in illuminating the issues and options. Staff and the Housing Commission also worked with representatives of LAFLA in preparing the proposed rent and income limits.

 

Discussion

Recommended changes to the AHPP include changes in income eligibility and rent limits, expanded income categories to satisfy inclusionary requirements, and technical changes, as discussed below.

 

Income Eligibility and Rent Limits

The proposed ordinance would establish rent and income levels that are consistent with those established by the United States Department of Housing and Urban Development ("HUD") and the California Department of Housing and Community Development ("HCD") for state and federal affordable housing programs and the State density bonus law.  Most local jurisdictions with inclusionary housing programs use HUD and HCD methodology to calculate eligible income levels, maximum affordable rent levels, and maximum ownership housing costs.  Under the proposed ordinance, income levels and income categories would be adjusted to reflect those used by HUD and HCD. 

 

Specifically, the proposed ordinance would revise existing AHPP household income eligibility levels to target lower income households earning no more than 30 percent AMI (commonly referenced under federal and state programs as "extremely low"), 50 percent AMI (commonly referenced under federal and state programs as "very low"), and 80 percent AMI (commonly referenced under federal and state programs as "low"). The proposed ordinance also revises the current AHPP moderate-income level so that it does not exceed the moderate-income level published by HCD. (HUD does not publish a moderate-income level.) The proposed AHPP income levels would then match income levels published annually by HUD and/or HCD. The proposed revised and existing income eligibility levels are set forth in Attachment 2 for comparison purposes. 

 

Using the HUD and HCD methodology, proposed rent levels for future developments would be lower than those currently applied to AHPP housing. Revised AHPP rent limits for all income levels would not exceed levels established by State law for maximum affordable rents. The proposed revised and existing maximum rent levels are set forth in Attachment 3 for comparison purposes.

 

Expanding Targeted Income Categories

As discussed in this report, the proposed ordinance would align the AHPP income categories with HUD and HCD income categories. This includes adding the 30 percent of AMI category referred to as “extremely low-income” (ELI), pursuant to Council direction, with the associated HUD and HCD income and rent levels.  Additionally, the proposal would provide a development with the option to satisfy its onsite affordable housing obligation by restricting five percent of the apartments for ELI households. Similarly, the proposed revisions would duplicate the current and proposed onsite affordable housing options allowed for apartments, so that options for creating very low- and extremely low‑income rental housing in a condominium development are also available.  Finally, the current AHPP for-sale ownership formula would be revised to match the for-sale formula established by State law for affordable ownership housing.  The revisions would also restrict eligibility of for-sale housing to moderate-income households based upon established underwriting criteria.

 

Technical Changes

The consideration of amendments to the AHPP provides an opportunity to implement technical changes to ensure maximum effectiveness in implementation of the program.  The proposed revisions do not represent changes in policy.  The proposed changes are listed and described in Attachment 4.

Issues for Further Consideration

·       Moderate-Income Housing:  Staff previously questioned the need for moderate‑income rental housing because rent limits on smaller apartments were similar to market rents.  The revised rent and income levels recommended in this report would mean that moderate-income rents (for example, $1,296 for a one‑bedroom apartment) for smaller apartments, as well as larger apartments, would now fall below market-rate rents. Council may wish to consider whether incentives to encourage such housing should be revived if Council adopts the staff recommendation to lower rent limits and income-eligibility levels.   

 

·       Prop. R:  As the AHPP implements Proposition R, it is important to monitor Proposition R’s provision that 30 percent of all multifamily housing built annually is affordable to households at 100 percent AMI, of which at least half of the 30 percent should be affordable to households at 60 percent AMI.  With the dissolution of redevelopment (the City’s primary funding source for affordable housing), meeting these goals while complying with state mandates regarding housing production will be a great challenge.  Lowering rent levels means that the “loss” on the production of each affordable apartment will be greater, potentially reducing the total number of affordable apartments that can be produced by the private market.

 

Alternatives

As the City has discretion in establishing rent and income levels for AHPP housing within the parameters of Proposition R, Council could choose a variety of alternatives, including selecting rent and income levels that vary from those that are customarily used at the state level and among other jurisdictions.  Staff’s primary concern in pursuing such a strategy is that locally calculated rent and income levels may exceed HUD and HCD levels and, therefore, result in two tiers of affordability for those projects seeking a state density bonus, which requires compliance with state law.

 

Housing Commission Action

On May 16, 2013, the Housing Commission recommended that the City Council amend the AHPP and adopt the income and rent approach described in this report and reflected in the staff recommendation.  The Housing Commission held a wide-ranging discussion of the variety of factors involved in setting rent and income levels.  Attachment 5 provides a primer on the associated technical issues.

 

Financial Impacts & Budget Actions

The recommended action will not result in any financial impacts or budget implications. 

 

Prepared by: Jim Kemper, Housing Administrator

Approved:

 

Forwarded to Council:

 

 

 

 

 

 

Andy Agle, Director

Housing and Economic Development

 

Rod Gould

City Manager

 

ATTACHMENTS:

 

Attachment 1:         Proposed Ordinance Amending AHPP

Attachment 2:         Current and Proposed 2013 Income Eligibility Levels

Attachment 3:         Current and Proposed Maximum Rent Levels for 2013 

Attachment 4:         Summary of Proposed Technical AHPP Amendments

Attachment 5:         Primer on Income Eligibility and Rent Limits