Report Prepared by: Scott McBride, Director of Development Services, Development Services Department.
Title
SUBJECT: Report to Consider Adoption of a Resolution Approving a Regional Housing Needs Allocation (RHNA) Unit Production Plan to Support the Production of Affordable Housing Units
REPORT IN BRIEF
Pursuant to City Council Policy direction, consider Merced City Council Resolution 2022-15 approving a Regional Housing Needs Allocation Unit Production Plan requiring new residential development projects which require specific discretionary land use entitlements to produce ten percent (10%) of the total proposed residential units as affordable housing allocated to Extremely Low, Very Low-, Low, and Moderate income levels, considers exemptions or exclusions to the policy, sets affordability terms, provides other options to meet the affordability goals, outlines potential City assistance programs; and, consider any modifications to the plan such as increasing the affordability requirement up to fifteen percent (15%), and should the Council seek to increase the affordability requirement past (15%) provide direction to initiate a Request for Proposals (RFP) to seek a consultant to prepare a Feasibility - Nexus Study for legal compliance.
RECOMMENDATION
City Council - Adopt a motion:
A. Adopting Resolution 2022-15, a resolution of the City Council of the City of Merced, California, approving a Regional Housing Needs Allocation Unit Production Plan to support the production of affordable housing units; and,
B. Consider modifications to the recommended Plan such as increasing the affordability requirement up to fifteen percent (15%); and,
C. Consider providing direction to initiate a Request for Proposals (RFP) to prepare a Feasibility - Nexus Study for legal compliance purposes.
Body
ALTERNATIVES
1. Approve, as recommended by Staff; or,
2. Approve subject to conditions other than recommended by Staff (identify specific findings and/or conditions amended to be addressed in the motion); or,
3. Deny; or,
4. Continue to a future meeting (date and time to be specified in the motion).
AUTHORITY
Merced City Charter, Section 200.
CITY COUNCIL PRIORITIES
Fiscal Year 2021/22 Adopted Goals & Priorities, 4. Housing & Homelessness, ii. Policy Direction.
DISCUSSION
Background
On September 20, 2021, the City Council of the City of Merced discussed a variety of Pro Housing Policy topics (File ID 21-758), attached for reference. One area of discussion included tools to assist in the production or implementation of affordable housing units. The stated intent was to help provide for affordable housing units to meet the Regional Housing Needs Allocation (RHNA). Members of the public also provided public comments in support of potential tools and enforcement - accountability mechanisms.
The State requirements related RHNA are outlined in the Housing Element and are updated as part of each new Housing Element Cycle. The Merced County Association of Governments (MCAG) is currently working on RHNA for the next Housing Cycle which begins in 2023.
The City’s requirements under RHNA are not related to production of units. They are more specifically tied to demonstrating the availability of adequate land and sites zoned to accommodate the RHNA units. As part of the discussion and direction the City Council sought to utilize tools to move beyond identifying land or sites with appropriate zoning and into affordable housing unit production.
The Council discussion was focused on developing a mechanism or accountability process requiring the production of affordable housing units as part of new market rate development projects. The intent was to utilize a tool which would achieve this goal, but not through an Inclusionary Zoning Ordinance. The Council’s direction was to require the provision of affordable housing when certain discretionary land use entitlement actions would be considered by the City Council.
Regional Housing Needs Allocation Unit Production Plan
As part of the discussion on September 20, 2021, the City Council did not provide specific direction on a set percentage allocation of affordable housing units. Discretion and the ability to negotiate the number of units under various income levels was to be deferred to Staff. City Staff did reference a Land Use Policy Goal within the Merced County General Plan as a potential target. That policy language implied a development project would be allocated based on the County’s RHNA allocation across all income levels. Since that discussion City Staff with assistance from the City Attorney’s Office has conducted additional research and analyzed the legal framework associated with this topic.
Additionally, research was done on programs in use or under consideration by other agencies which require affordable housing as part of a market rate development projects.
|
Jurisdiction |
Inclusionary Percentage |
|
Campbell |
15% |
|
Los Altos |
15% |
|
Santa Clara |
15% |
|
Cupertino |
15% |
|
San Jose |
15% |
|
Mountain View |
15% general 15 to 20% for townhomes |
|
Sunnyvale |
12.5% |
|
Palo Alto |
15% |
|
Davis |
10-25% |
|
Ripon |
5-10% |
|
Morgan Hill |
10-15% |
|
Yolo |
10-25% |
Staff with assistance from the City Attorney’s Office has prepared a Regional Housing Needs Allocation Unit Production Plan for consideration by the City Council. It is Staff’s recommendation that the percentage of affordable housing units that the City should require as part of a private development project be set at ten percent (10%). The City Council has the discretion to consider up to fifteen percent (15%) without enacting an Inclusionary Zoning Ordinance. However, anything above that level requires a Feasibility - Nexus Study and may also be subject to review by the State of California Department of Housing and Community Development (HCD).
Within the proposed Plan the total number of affordable housing units shall be spread across the Extremely Low, Very Low-, Low-, and Moderate-income levels. A project developer may voluntarily provide a higher percentage of affordable housing units.
These production requirements shall apply to both rental and ownership projects or any combination projects containing both unit types. They also apply to multifamily and single-family residential as well as mixed use - containing commercial or other nonresidential uses.
The production plan will be facilitated on a project-by-project basis where the City Council has discretionary authority over specific land use entitlements. More specifically the production of affordable units would be implemented when land use entitlements require the execution of the following discretionary actions:
• Pre-Annexation Development Agreement (PADA)
• Development Agreement (DA)
• Legislative Action Agreement
Project implementation would be facilitated in the specific agreement document for each project. The City already has zoning code requirements or other policies in effect. More specifically, the PADA and DA process is articulated in Chapter 20.86 of the City’s Zoning Code. The use of a PADA is a standard requirement for any new land territory to be annexed and pre-zoned into the City. A DA may be enacted when requested by a private developer for assistance to implement a development project.
Legislative Action agreements are specified in Chapter 20.72.040 of the Zoning Code. They are required when specific land use entitlements are requested. Those include:
• General Plan Amendment
• Zoning Ordinance Amendment - Zone Change
• Establishment of a Planned Development District (PD) and Site Utilization Plan specific to that (PD) also a modification to a PD or Site Utilization Plan
• Other legislative actions subject to the applicant entering into an agreement with the City of Merced.
Exemptions - Exclusions
The following land use entitlements would not be subject to the requirement of affordability production under the production plan:
• Any instance where an executed DA or PADA limit or exclude applying any new entitlement requirements to the project
• When an amendment to a DA or PADA is only for the purposes of a Time Extension or a Minor Amendment as defined with the DA or PADA
• Approval of a Site Utilization Plan or Revision to an existing PD which involves only nonresidential uses
• Any Permitted, “By Right,” Site Plan, Conditional Use Permit (CUP), and non-discretionary entitlements
• Any residential development project undertaken by a public entity separate from the City of Merced
• Any proposed project wherein the City Council at their sole discretion determines that meeting the production requirements is infeasible due to costs or other factors such as health and safety issues
• A proposed project which consists of less than thirty-six (36) Multi Family Units
• A proposed project which consists of less than 60 Single Family Residential Units
The City Council has discussed size limits for the requirements to provide for affordable housing production. The two provided, 36 units for Multi Family and 60 for Single Family are suggested for consideration. They were chosen based on the General Plan Density and size of a project to accommodate the maximum density. For example, a High Density Multi Family project may develop up to 36 units per acre so therefore a project of one acre or less would potentially be exempt. For Single Family Residential in an R-2 location, which is still low density residential, up to 12 units per acre is the General Plan maximum. A project of five acres at 12 units per acre would be 60 units.
Affordability Term
To ensure affordability of the units remains in place over time, regulatory agreements or covenants will be included as part of the PADA, DA, or Legislative Action Agreement. Those shall be in a term of a minimum of 55 years for rental units and 45 years for ownership units.
Other Options to meet RHNA Production Goals
Direction was also provided by the City Council to allow for a variety of options to help meet RHNA production goals. In addition to the production of housing units by the project developer other means of satisfying the requirement may also include:
• Land Dedication within the development project area to an affordable housing nonprofit which shall also include a production plan, and development schedule
• Purchase - Acquisition of regulatory covenants on existing housing units within the City of Merced - must meet affordability term
• Rehabilitation of existing housing units in exchange for regulatory covenants within the City of Merced - must meet affordability term
• Payment of an In-Lieu Fee to be determined on a case-by-case basis which shall be defined based on a Nexus Study prepared by the City
• Other means subject to City Council Approval
These options may be combined along with unit production to leverage the maximum benefit to the City towards meeting RHNA production goals. The City Council at their sole discretion will determine if a Density Bonus can be combined with payment of an In-Lieu Fee.
The City will need to initiate a Nexus Study to determine the appropriate amounts of an In-Lieu Fee. They are most often developed for both ownership and rental housing type by each income level and by single family and multi-family type. This activity looks to be consistent with proposed activities within the HCD awarded LEAP (local early action planning grant). With Council consent Staff will seek guidance from HCD on undertaking this activity.
Funds derived from the payment of an In-Lieu Fee for mitigation shall be held in a specific Fund to support affordable housing. The City Council at their sole discretion will determine eligible activities and commitment amounts as well as the form of support from the fund.
City Assistance
To assist in the production of Affordable Housing under the Production Plan the City is committed to cooperate with project developers. That may be in the form of entitlement streamlining as well as other activities which may assist in affordable unit financing. The following is a current list of some financial assistance programs and is provided for representative purposes.
Financial Assistance Programs - HCD
Programs administered by the State of California Department of Housing and Community Development (HCD). These may include over the counter and competitive based funding programs. The developer shall bear the cost to prepare any applications materials and the City shall assist in the processing.
Tax Exempt Financing issued by the California Tax Credit Allocation Committee (CTAC) and Bond Financing issued by the California Debt Limit Advisory Committee (CDLAC)
The City shall support those efforts including holding a TEFRA hearing if necessary and executing other documents which may be necessary as a sponsor.
Community Facilities District Financing (CFD)
The City has adopted resolutions authorizing financing under the SCIP and BOLD programs. These programs allow eligible public infrastructure and some fees to be financed and repaid through the use of Community Facility Districts (CFD).
Density Bonus
The developer of any project may seek a Density Bonus consistent with Chapter 20.56 of the Zoning Code and the most recent state statutes. This tool may allow the project to exceed the General Plan density to provide for greater economy of scale to help meet the RHNA project goals. The tool can also assist in providing waivers or concessions to City standards or other provisions which may ordinarily inhibit the production of affordable housing units.
City Programs
• Affordable Housing Development projects may seek a Waiver of and/or Deferral of Public Facility Finance Program fees (PFFP) consistent with Administrative Policy A-32.
• Other City fees may be modified and deferred on a project-by-project basis through the use of PADA or DA process.
• As an entitlement community, the City receives an annual allocation directly from the United States Department of Housing and Urban Development (HUD). Projects in eligible census tracts or meeting income-based qualifications may request financial assistance to support affordable housing units subject to program qualifications, underwriting, environmental, and funding availability.
• The City receives on going resources in support of affordable housing under SB2 through the City Permanent Local Housing Allocation - PLHA administered by HCD. Project developers may request financial assistance subject to program qualifications, underwriting, environmental, and funding availability.
• As the Housing Successor Agency to the former Redevelopment Agency, the City retained some assets which may assist in affordable housing production. Use of funding is limited to qualifying projects underwriting, environmental, and funding availability.
• Financial Assistance from the collected In-Lieu Fee for mitigation for the RHNA Unit Production Plan subject to program qualifications, underwriting, environmental, and funding availability.
IMPACT ON CITY RESOURCES
None.
ATTACHMENTS
1. City Council Resolution No. 2022-15
2. Administrative Report for File 21-758, September 20, 2021 Implementation and/or Accountability Elements Related to the Prior Pro-Housing Policy Discussion.
3. Presentation