Item 6-C
Council Meeting: 8/12/97 Santa Monica, CA
TO: City Council
FROM: City Staff
SUBJECT: City Council Resolution to Establish 1997/1998 Maximum
Allowable Income, Rents and Purchase Prices for
Inclusionary Housing Units
INTRODUCTION
This report recommends City Council adoption of a resolution
establishing the maximum allowable income, rents and purchase
prices for inclusionary housing units subject to Ordinance 1615.
The ordinance provides for City Council to set these maximum
rents and purchase prices annually. City staff calculates these
maximum allowable rents and purchase prices based on a defined
method as set forth in the Inclusionary Housing Program
Guidelines ("the program guidelines").
BACKGROUND
On November 6, 1990, the voters of the City of Santa Monica
approved Proposition R, adding Section 630 to the City Charter.
Proposition R provides that the City shall require that not less
than 30% of all multifamily residential housing newly constructed
in the City on an annual basis be permanently affordable to and
occupied by low and moderate income households. A low income
household, is defined as a household whose income does not exceed
60% of L.A. County median income, adjusted by family size. A
moderate income household is defined as a household whose income
does not exceed 100% of the L.A. County median income, adjusted
by family size. At least 50% of the required affordable units
must be affordable to low income households. On March 3, 1992,
the City Council adopted Ordinance 1615 to implement Proposition
R.
On December 14, 1993, City Council took further action
implementing Ordinance 1615 by approving the Inclusionary
Housing Program Guidelines and adopting a resolution to establish
maximum allowable rents and purchase prices for inclusionary
units. Ordinance 1615 provides that the City Council is to
establish maximum allowable rent and purchase prices for
inclusionary units annually.
On August 13, 1996 the City Council adopted a resolution
establishing the 1996-97 maximum rents, purchase prices and
income eligibility limits for the Inclusionary Housing Program.
The maximum rents and eligibility figures for 1997-98 are the
same as last year's because the median income figure for Los
Angeles County did not change. The maximum purchase prices,
however, have changed due to a minor increase in the interest
rate factor. These issues are discussed in more detail below.
DISCUSSION
Maximum Allowable Income
To be eligible for an inclusionary unit, households shall not
earn more than the maximum allowable income for a low and
moderate income household adjusted by household size. The
1997/1998 maximum allowable income for low and moderate income
households is shown in Exhibit 1.
Maximum Allowable Rents
The Inclusionary Housing Program Guidelines (Ordinance 1615) set
forth the method for calculating the maximum rent for all rental
inclusionary units. The maximum rent for low income households
is equal to 30% of the monthly income for households earning 60%
of the median income for a four person household, as published by
the U. S. Department of Housing and Urban Development (HUD), and
adjusted for unit size (i.e. number of bedrooms). The maximum
rent for moderate income households is equal to 30% of the
monthly income for households earning 100% of the median income
for a four person household, as published by HUD and adjusted for
unit size. A bedroom adjustment factor is used in establishing
maximum rents per Ordinance 1615 as shown in Exhibit 2.
The maximum allowable rents for low and moderate income units for
1997/1998 are shown on Exhibit 2. For 1997, the maximum
allowable rent for a low income household renting a one-bedroom
unit is $616 and the maximum allowable rent for a two-bedroom
unit is $731. The maximum rents for a moderate income 1-bedroom
unit and 2-bedroom unit are $1,026 and $1,218 respectively.
Maximum Purchase Price
The mortgage amount is calculated on the basis of maximum
allowable income, interest rates, typical homeowner association
fees, property taxes and private mortgage insurance assuming a
10% down payment. In order to set the maximum purchase prices,
the program guidelines require staff to assume an interest rate
for fixed rate loans using the midpoint between the high and low
required yield as set by Fannie Mae during the prior twelve
months. Additionally, homeowner association fees are calculated
on the basis of an annual survey of fees for newly constructed
condominiums in the City. As reflected in Exhibit 3, the
calculations assume the following: (1) Interest Rate at 8.05%;
(2) Homeowner Association Fees at $200 per month; (3) Property
Taxes at the assessment year rate of 1.25%; (4) Private Mortgage
Insurance calculated at 0.52% of the loan amount. In setting the
maximum purchase prices, a calculation for a four-person
household at both 60% and 100% of median income is prepared.
These purchase prices are then adjusted by the unit size (i.e.
bedroom adjustment factor), which incorporates assumptions of
household size.
The maximum allowable purchase prices for low income and moderate
income units for 1997/98 are shown on Exhibit 3. The maximum
purchase price for a low income household buying a one-bedroom
unit is $56,477 and the maximum purchase price for a two-bedroom
is $67,067. The maximum purchase price for a moderate income
household buying a one-bedroom unit is $107,352, while the
maximum purchase price for a two-bedroom unit is $127,480.
ADMINISTRATION
Maximum allowable rents and maximum purchase prices are available
to the public from the Housing Division and at the Planning
counter.
BUDGETARY FINANCIAL IMPACT
The are no financial or budgetary impacts.
RECOMMENDATIONS
It is recommended that the City Council adopt a resolution
establishing the maximum allowable income levels, maximum
allowable rents and maximum allowable purchase prices for
inclusionary units per the requirements of Ordinance 1615 as
shown in Exhibit 1, Exhibit 2 and Exhibit 3 of this staff report.
Prepared by: Jeff Mathieu, Resource Management Director
Bob Moncrief, Housing Manager
Johanna Gullick, Housing Coordinator
Jim Kemper, Senior Administrative Analyst
Exhibits (available at the City Clerk's Office in Santa Monica
City Hall or at any of the Santa Monica Public Libraries):
1 1997 Maximum Allowable Income Levels for
Inclusionary Housing
2 1997 Maximum Rents for Inclusionary Housing
3 1997 Maximum Purchase Prices for Inclusionary
Housing