Item 10-A

Council Meeting: September 28, 1999 Santa Monica, California

To: Mayor and City Council

From: City Staff

Subject: Recommendation to Conduct a Public Hearing, Deliberate Upon and Approve the Draft Administrative Guidelines for the Affordable Housing Production Program

This report recommends that the City Council conduct a public hearing, deliberate upon and approve the Draft Administrative Guidelines for the Affordable Housing Production Program.

Background/Discussion

Section 9.56.160 of the Municipal Code requires that administrative rules and regulations (i.e., Administrative Guidelines) pertaining to the program be brought before the City Council for adoption within a year of Program adoption.

The purpose of the Administrative Guidelines is twofold: 1) to provide a concise summary of the Program requirements for use by the public, and 2) to expand upon the provisions of Chapter 9.56 regarding certain provisions of the Program which are described only in general terms in Chapter 9.56, including the following:

Constructing affordable housing units off-site;

Satisfying the program requirements through dedication of land;

Establishing sales price and resale requirements for affordable condominiums;

Tenant selection procedures.

Section 1 of the Draft Administrative Guidelines contains the introduction to the document, explaining its purpose and contents. Sections 2 and 3 describe the fee option and on-site option, respectively. These two sections merely restate the requirements of Chapter 9.56; no new requirements are added. Expanded requirements dealing with the off-site option, the land dedication option, affordable condominium requirements, and tenant selection procedures are included in Sections 4 through 7. The contents of each section are summarized below.

The Draft Administrative Guidelines were reviewed and approved by the Housing Commission on September 9, 1999 and by the Planning Commission on September 15, 1999.

Consistent with Chapter 9.56, this section explains that the fee amount depends upon the type of project (i.e., apartments versus condomimiums), applicable zone district, and site characteristics. The per-square-foot fee is currently $6.14 for apartments and $7.13 for condominiums and may be adjusted periodically by the City Council to reflect changes in market and other conditions. Fee reductions are provided for vacant, residentially zoned parcels and for parcels in industrial and commercial districts where no existing housing will be removed (except if removed through a Category C removal permit).

This section explains three different methods for satisfying the affordable housing obligation on-site, including: constructing 10 percent of the units for very low-income households; constructing 20 percent of the units for low-income households; or, in commercial or industrial districts only, constructing 100 percent of the units for moderate-income households. Various zoning incentives for constructing affordable housing units on-site are summarized. Other requirements for on-site affordable housing, such as income and rent requirements, are also described.

Section 4: Off-Site Option

Chapter 9.56 stipulates general requirements for satisfying the affordable housing obligation off-site. These requirements include:

the number of off-site units must be the same as the number of units required if constructed on-site;

the off-site units must be located within a one-quarter mile radius of the market rate units, unless an exception is approved by the Planning Commission and is found to better accomplish the goals of the Affordable Housing Production Program;

subject to City review, the applicant must own or have site control over the alternative site.

Section 4 of the Draft Administrative Guidelines elaborates the factors that may be used by the applicant to justify an off-site location beyond the one-quarter mile radius. These factors include, but are not limited to: the lack of available sites within a quarter-mile radius; dispersal of affordable housing throughout the City; providing more affordable housing units than would otherwise be required; and/or, providing a deeper level of affordability.

Section 4 further stipulates that the off-site units must be located within the City no more than 1 mile from the market rate project and must precede or commence at the same time as construction of the market rate units.

Section 5 describes the requirements for dedicating land, selling land at below-market rate, or optioning land on behalf of the City or an eligible non-profit affordable housing developer. Minimum site characteristics such as minimum zoning requirements, minium land value, and locational requirements are established; and, criteria for evidence of site control are presented.

Under the former program, when an affordable on-site unit became available for sale, none of these factors could be varied on a case-by-case basis depending upon individual borrower circumstances or changes in market conditions. Although the factors were adjusted approximately once each year (subject to adoption by City Council resolution), once they were adjusted they would again remain fixed until the next year.

Because mortgage loans for affordable condominiums must be sought and approved by private lenders, a more flexible method of calculating the sales price is necessary in order to allow for consideration of the types of factors that private lenders actually consider, such as changing interest rates, different homeowner association fees, and unique debt/credit circumstances of borrowers.

Notwithstanding, under the new sales price calculation methodology, certain terms will remain fixed. These required terms include:

Loan Term: 30 Years

Interest Rate: Fixed

Minimum Down payment: 5%

Min./Max. Front End Debt-to-Income Ratio: 33% min./38% max.

Maximum Back End Debt-to-Income Ratio: 41%

The Draft Administrative Guidelines require that the lending criteria used by the private lender be subject to review and approval by the City.

Section 6 gives the City the first right of refusal to purchase the affordable unit upon resale. This section also allows for increased equity for the buyer when the buyer stays in the unit for longer time periods (e.g., at least 10 years) and provides for shared appreciation by the City when the buyer remains in the unit for at least 10 years.

Section 7: Tenant and Purchaser Eligibility Requirements and Procedures

Section 7 establishes procedures for qualifying tenants and purchasers for affordable units. More specifically, the Guidelines establish procedures whereby the Santa Monica Housing Authority creates a Waiting List and refers persons from this Waiting List to developers.

This section also sets forth priorities for persons who may occupy affordable units. These priorities include the following:

1) First Priority

Persons who have been permanently displaced or face permanent displacement from their housing units in Santa Monica as a result of any of the following:

A) Ellis Act, owner-occupancy, or removal permit eviction

B) Earthquake, fire, flood, or other natural disaster

C) Cancellation of Section 8 contract by property owner

D) Governmental Action, such as Code enforcement

2) Second Priority

Persons who are either:

A) Residents of Santa Monica and/or

B) Working in Santa Monica at least 36 hours per week for at least six months

In July, 1999, City staff established a new waiting list for inclusionary housing in the City that will be used to fill vacant affordable units. This list contains approximately 2,000 names.

In their meetings on September 9 and September 15, the Housing Commission and the Planning Commission both approved the Draft Administrative Guidelines with minor changes. These changes have been incorporated into the draft that is before the City Council.

There will be no budgetary or financial impacts associated with adoption of these Administrative Guidelines.

Staff recommends that the City Council:

1) Conduct a public hearing on the Draft Administrative Guidelines; and,

2) Deliberate upon and approve the Draft Administrative Guidelines.

Prepared by:
Jeff Mathieu, Director of Resource Management
Bob Moncrief, Housing and Redevelopment Manager
Tad Read, Housing Coordinator