Item 6-J

Council Meeting: May 25, 1999 Santa Monica, California

TO: Mayor and City Council

FROM: City Staff

SUBJECT: City Council Resolution to Establish 1999 Maximum Allowable Income, Rents and Purchase Prices for On Site Affordable Housing Units

 

INTRODUCTION

This report recommends City Council adoption of a resolution establishing the maximum allowable incomes, rents, and purchase prices for on site affordable housing units developed under Ordinance 1918, the Affordable Housing Production Program. Ordinance 1918 requires that the City Council set maximum income, rent, and purchase prices each year.

BACKGROUND

On November 6, 1990, the voters of the City of Santa Monica approved Proposition R. Proposition R requires that not less than 30% of all multifamily residential housing newly constructed in the City each year 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 household 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 household size.

On July 21, 1998, the City Council replaced the former Inclusionary Housing Program (Ordinance 1615) with Ordinance 1918, the Affordable Housing Production Program. Under Ordinance 1918, a developer may satisfy the City=s affordable housing obligation by paying an affordable housing fee, by constructing affordable housing units on site or off site, or by choosing among other options. When the developer chooses to build affordable units on or off site, the affordable units may be either rented or sold. The rents and purchase prices of these units and the household incomes of occupants are regulated and monitored annually by the City. Ordinance 1918 requires that the City Council establish each year by resolution the maximum allowable rents, household incomes, and purchase prices for on site affordable units.

Annual adjustments to income, rent, and purchase price limits are timed to coincide with the release of income limits set forth by the U.S. Department of Housing and Urban Development (HUD). Each year HUD estimates area median family income for use in determining income eligibility and rent limits for the Section 8 housing program. Pursuant to Section 9.56.020 of Ordinance 1918, the City uses the HUD income limits as a basis for the income, rent, and purchase price limits under the Affordable Housing Production Program. The methodology used by the City to calculate these limits is discussed below.

Methodology for Calculating Maximum Rent, Income, and Purchase Prices

The 1999 HUD Los Angeles area median income for a four person household is $51,300. This HUD income limit has not changed since 1995. As a result, the maximum rents and household incomes have been the same each year since 1995 and once again will not change in 1999.

However, due primarily to changes in mortgage interest rates, the maximum purchase price will change for 1999. Attachment 1 to Exhibit 4 summarizes the maximum 1999 rent, income, and purchase price limits for on site affordable housing units.

Maximum Allowable Income

The calculation of income limits for on site affordable units in Santa Monica starts with the 1999 HUD income limit for a four-person household, which is $51,300. The income is first adjusted by a bedroom factor used by HUD to account for the number of persons residing in the household. For example, the adjustment factor for a 1-person household is 0.7. To calculate the income limit for a one-person household, the median income for a four person household ($51,300) would be multiplied by the adjustment factor of 0.7, which would total $35,910.

Another adjustment is made based upon the targeted income group. Under Ordinance 1918, there are three targeted income groups: Avery low-income@, meaning that the household income cannot exceed 50 percent of the area median, adjusted by household size; Alow-income@, meaning that the household income cannot exceed 60 percent of the area median, adjusted by household size; and Amoderate-income@, meaning that the household income cannot exceed 100 percent of the area median income, adjusted by household size. For example, the income limit for a very low-income household is calculated by taking 50% of the HUD median income for the appropriate household size. Thus, the income limit for a very low-income, four person household is 50% of $51,300, or $25,650.

Exhibit I shows how the 1999 HUD area median household income of $51,300 is adjusted by the HUD adjustment factor for household size and by the targeted income category to determine the income limits for on site affordable housing units.

Maximum Allowable Rents

The Los Angeles area median income for a four person household is also used as a basis for calculating maximum rents. Exhibit 2 shows the formula used in this calculation. The factors contained in the formula include: a) the targeted income category, b) an Aaffordability standard@, and c) a bedroom adjustment factor.

The targeted income categories are 50, 60, and 100 percent of the Los Angeles area median income, as specified by Ordinance 1918. A A50 percent@ four person household has an income of $25,650 (0.5 X $51,300).

The Aaffordability standard@ relates to the proportion of household income available to pay rental housing costs, after other expenses--such as food, clothing, transportation, and medical expenses--are paid. The real estate industry generally uses an affordability standard of 30 percent. This is the standard used by HUD and the City.

Finally, the bedroom adjustment factor takes into account the number of bedrooms in the unit. The bedroom adjustment factors are the same as those used by HUD for purposes of calculating rents for the Section 8 housing program. In deriving the bedroom adjustments factors, HUD makes certain assumptions about the average number of persons occupying a unit of a given size, and the bedroom adjustment factors are very similar to the HUD adjustment factors for household size. For example, the bedroom adjustment factor for a 1 bedroom unit is 0.7Bthe same as the income adjustment factor for a one-person household. The HUD bedroom adjustment factors are as follows:

0 Bedroom 0.7

1 Bedroom

0.8
2 Bedroom 0.95
3 Bedroom 1.085
4 Bedroom 1.225

The maximum rent for a low-income, two-bedroom unit is calculated as follows:

(Median Income for 4-Person Household X Targeted Income Category (60%) X Affordability Standard (30%) X Bedroom Adjustment Factor (0.95)) / 12 Months

or,

($51,300 X 60% X 30% X 0.95) / 12 = $731.00

During 1999, maximum rents for inclusionary units developed under Ordinance 1918 cannot exceed the limits spelled out in Exhibit 2.

Maximum Purchase Price

Staff is in the process of developing Administrative Guidelines for the implementation of Ordinance 1918 which will include a revised methodology for calculating maximum purchase prices. In the interim, staff has relied upon the methodology set forth in the Inclusionary Housing Program Guidelines prepared in relation to Ordinance 1615.

The maximum purchase price calculation starts with a determination of the applicable household income. Household income is the basis for determining how much a household can afford in monthly payments, including mortgage, taxes, insurance, and other relevant costs. It is assumed that a household can afford to expend 30 percent of its monthly income on housing costs.

Other assumptions are as follows:

For the 1998/99 period, the homeowners association fees are based upon the average homeowners fee assumed in the financial feasibility pro forma prepared in relation to Ordinance 1918.

The maximum allowable purchase prices for low income and moderate income units for 1999 are shown on Exhibit 3. The maximum purchase price for a very low income, two-bedroom unit is $56,483; for a low income, two-bedroom unit is $73,202; and for a moderate-income, two-bedroom unit is $140,081.

ADMINISTRATION

Maximum allowable rents and maximum purchase prices are available to the public from the Housing and Redevelopment Division and at the City Planning counter.

BUDGETARY FINANCIAL IMPACT

There 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 on-site affordable units per the requirements of Ordinance 1918 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
Tad Read, Senior Administrative Analyst

 

Exhibits:

  1. 1999 Maximum Allowable Income Levels for Inclusionary Housing

  2. 1999 Maximum Rents for Inclusionary Housing

  3. 1999 Maximum Purchase Prices for Inclusionary Housing

  4. Resolution Establishing the 1999 Maximum Allowable Rents and Maximum Allowable Purchase Prices for the Affordable Housing Production Program