6A - Update on the Affordable Housing Review
CITY 01,' BOULDER
PLANNING BOARD AGENDA I'CENI
MEETING DATE: May 7, 2009
AGENDA TITLE:
Update on the Affordable I lousing Review
REQUESTING DEPARTMENT:
Karen Rahn, Interim Director, Housing and I fuman Services
Robert Ray, Housing Division Manager
Michelle Allen, Housing Planner
The purpose of this item is to update Planning Board on progress to date and next steps for the
Affordable Dousing Review.
The Department of Housing and Human Services initiated a review of the city's affordable housing
pi ograms early in 2008. On February 27, 2008 staff submitted the Affordable Housing Report to City
Council to provide Council members and the community with information concerning Boulder's
current affordable housing goals and related demographic data.
The Affordable Housing Program Review consists of tliree Phases:
Phase I - Goals and Strategies Review
Phase II - Regulatory Review
Phase III - New Initiatives
At its June 5, 2008 study session City Council agreed with the overall goals and st ategies of the
affordable housing program: to preserve boulder's socio-economic diversity by offering u range of
housing options. Council requested Phase I be streamlined and followed as soon as possible by a
review of regulatory policies (Phase 11), with a focus on cash-in-lieu amounts and on-site
requirements of inclusionary zoning. Council also expressed a desire to explore a wide range of
affordable housing program elements, most of which will be addressed in Phase III when the
regulatory review is substantially completed.
On March 31, 2009 a study session was held for council feedback on proposed modifications to the
inclusionary zoning program. The study session memo is included as Attachment `A' and the
summary of the study session is included as Attachment W. A complete list of all meetings and
correspondence with council concerning this project is included as Attachment `C'.
The next meeting with council is scheduled for June _272009.
Staff is currently working on a work program and associated timelines for City Council adoption of
code changes, and anticipates presenting options for modifications to Title 9 of the Land Use Code,
AGENDA ITEM 4 6A t>a~;e t
(C'haplcr 1 i, 111CI11SiORC1l'V 1012ing) to Planning Board In ll1C ffaI I of ?009. A hook prof ram wIt11
lirllclincs will he includcd wilhill the ,1 ne ? cOuneil n1e111o.
The AITOrdable Ilousim, Rcport alul ,111 Council MOMS Mid WIPS C.OtICCI-111110 lhis project can be
1l1LIIlCI online at: 11d(I Cr2llTlydahIC110mcs.co111 click on ('11/1T' A Rin-it,it- ol~Roideler's
J%frrr~lul,lc~ Il~,rl.vill~~ I'rc>,~~1-crmc. - - -
AGENDA ITEM 4 6A Page 2
ATTACHMENT A
Boulder City Council
Study Session
March 31, 2009
6:oo - 9:oo p.m.
Affordable Housing Review
Phase II, Regulatory Tools
1777 Broadway
Municipal Building
City Council Chambers
Submit Written Comments to City Council
ATTN: Alisa Lewis, City Clerk
1777 Broadway, 2nd Floor
P.O. Box 791 Boulder, CO 80306
or Fax to 303-441-4478
or E-mail: council(a?bouldercolorado.got)
AGENDA ITEM 4 6A Page 3
Table of Contents
1. PURPOSE. Page 5
11. STUDY SESSION QUESTIONS Page 6
111, PUBLIC INPUT Page 6
IV. BACKGROUND Page 7
1. Correspondence with Council Page 7
2. 'I'he Inclusionary Zoning Program Page 7
a. Goals Page 8
b. Background Page 8
c. Cash in Lieu Contributions Page 10
d. Location of Inclusionary Zoning Units Page 1 I
e. Characteristics of Inclusionary Zoning Households Page 11
f. Who Oversees the Program Page 13
3. Downtown Density Bonus and Height Variance Page 14
V. ANALYSIS OF REGULATORY TOOLS Page 14
1. Cash in Lieu Page 15
2. On-Site Requirement Page 21
3. Serving Middle Income Through Inclusionary Zoning Page 25
4. Land Swap Page 31
5. Summary Chart Page 33
VI. ADDI'T'IONAL INFORMATION Page 35
1. Inclusionary Zoning and Site Review Page 34
2. Current Economic Conditions Page 35
3. The Effect of Affordable Mousing Program May have on the
4. Key Program Decisions for the Affordable Housing Program Page 36
5. The Need for Affordable Housing Page 36
6. What Other Communities are Doing Page 36
7. Update on December 16, 2008 Council Meeting Page 36
VII. NEXT STEPS Page 37
1. Phase III, New Initiatives Page 37
AGENDA ITEM # 6A Page 4
MEMORANDUM
TO: Mayor Appelbaum and Members of City Council
FROM: :lane S. Brautigatn, City Manager
Stephanie A. Grainger, Deputy City Manager
Karen Rahn, Ilousing and Iluman Services Interim Director
Robert Ray, Ilousing Division Manager
Michelle Allen, Housing Planner
DATE: March 31, 2009
SUBJECT: Study Session: Affordable Ilousing Program Review,
Phase lI - Regulatory Tools
1. PURPOSE
The purpose of this study session is to provide council with background information on
the city's Inclusionary Zoning Program and potential options for changes.
This memo provides City Council with background materials for the March 31, 2009
study session on Phase 11 of the Affordable Housing Program Review, which consists of
three Phases:
Phase I - Goals and Strategies Review
Phase 11 - Regulatory Review
Phase III - New Initiatives
At it's June 5, 2008 study session City Council agreed with the overall goals and
strategies of the affordable housing program: to preserve Boulder's socio-economic
diversity by gffering a range of housing options. Council requested Phase I be
streamlined and followed as soon as possible by a review of regulatory policies (Phase 11)
with a focus on cash-in-lieu amounts and on-site requirements of Inclusionary Zoning.
Council also expressed a desire to explore a wide range of affordable housing program
elements (e.g., market solutions to better provide housing for middle income households
and new funding sources) most of which will be addressed in Phase III in mid-2009,
when the regulatory review is completed. Details about Phase III can be found at the end
of this memo under "Next Steps."
During the Study Session, staff will present options for modifications to the Inclusionary
Zoning program listed in order from most to least feasible. The relative feasibility of
options presented is based on balancing a number of variables which include:
1. Balancing on-site and off-site requirements to meet goals of integration and
disbursement of units throughout the community
2. Maximizing the number of units
3. Serving a broad range of identified resident needs and incomes
AGENDA ITEM ft 6A Page 5
4. "Pipping point l'or economic viability of projects
Staff requests that council provide feedback on the options presented, including which
option is most feasible and to further develop and analyze.
Additional background information is provided in this memo on the following topics:
1. Current economic conditions that may affect the local affordable housing;
program;
2. The possible effects of the affordable housing program on the housing market;
3. Background information on key program decisions for the affordable housing
program;
4. Determining the need for affordable housing;
5. How other communities address Inclusionary Zoning and achieve on-site units;
6. Progress on the administrative and process changes discussed at the December
16, 2008 council meeting.
Council agenda items are tentatively scheduled for April 21, 2009 for review and
approval of the summary of this study session, and May 19, 2009 for a public hearing to
begin implementation of any Inclusionary Zoning ordinance changes. The May 19, 2009
council meeting will also include approval of social policy recommendations. Staff will
update Planning Board on this project at the May 7, 2009 meeting.
11. STUDY SESSION QUESTIONS
Staff suggests that council use the following questions to focus its discussion at the study
session.
1. Does council have questions or comments about the fnclusionary Zoning,(,oal to
require some of the affordable units on-site to meet social integration goals while
some may be provided through other options such as cash-in-lieu of units to meet
the goal of'maximizing the number of units obtained?
2. Does council have questions or feedback on the options proposed for:
a) flow the cash-in-lieu amount is determined and adjusted;
a. phasing in cash-in-lieu increases over time;
b. mitigating cash-in-lieu impacts on small projects,
b) The on-site requirement and how this requirement is administered;
c) Serving middle income households through Inc•lusionary Zoning;
d) Modifications to the land swap option?
Ill. PUBLIC INPUT
Three public meetings have been held to inform the community about the review of
Inclusionary Zoning, council's concerns with the program and options for changes and to
obtain feedback, comments and suggestions. A summary of comments received at these
meetings can be found in Attachment A. Two community meetings were held on
December 12, 2008 and December 15, 2008 with approximately 20 people attending each
AGENDA ITEM # 6A Pale 6
meeting. .A roundtable discussion was held on January 26, 2009 with 12 members of the
residential development and non-profit housing community. A summary of the comments
from the roundtable discussion can be found in Attachment B. Letters received from the
public are included as Attachment C.
A wide range of comments, questions and suggestions were received at the meetings
including:
1. The current program raises housing prices and increases the number of people
employed in Boulder who arc buying homes outside of the city.
2. Is current homeownership program attractive to buyers'? Is there demand?
3. The need for affordable housing is much higher than the goal of having 10% of
the city's housing stock permanently affordable.
4. "There is a need for affordable housing that meets the needs of families, especially
larger units and single family, detached homes.
5. The vast middle ground between those who qualify for affordable housing and
those who can afford housing in Boulder is not being served.
6. Look at who is paying for the affordable housing. Ten years ago a broad based tax
was proposed for affordable housing. Ask residents: do they want to pay for
affordable housing?
7. Cash-in-lieu is good because it provides flexibility and options for developers and
leverages other funds.
8. As an alternate option to cash-in-lieu: have developers partner with non-profits.
9. Provide incentives to provide the affordable units on-site.
10. Limited appreciation on permanently affordable units hinders wealth
accumulation and may discourage participation in the Affordable I lousing
program.
11. More rental housing is needed. The city should provide incentives to build rental
housing.
Thcsc comments and concerns are addressed in this memo.
IV. BACKGROUND
1. Correspondence with Council
The Department of Housing and Human Services initiated a review of the city's
affordable housing programs early in 2008. A summary of meetings and correspondence
with council can be found in Attachment D.
2. The Inclusionary Zoning Program
Guiding Question for City Council:
Does council have questions or comments about the Inclusionary "Zoning goal to
require some of the affordable units on-site to meet social integration goals while some
may be provided through other options such as cash-in-lieu of units to meet the goal of
AGENDA ITEM # 6A Paige 7
maximizin, the number of units obtained?
a. Goals
When the Inclusionary Zoning program was designed there was a policy debate regarding
whether affordable units should be created on or off site. Some policy makers maintained
that the overriding goal should be social, with the provision of on-site units benefiting the
community by integrating more and less affluent households within each and every
development project. Others maintained that maximizing the number of affordable units
created was the most important objective, whether or not those units were provided on-
site. This policy tension was resolved through a compromise that only one half of the
required affordable units must be provided on-site; the other half can be met through a
cash-in-lieu payment, acquisition or development of comparable off-site units or
providing land to build units. When this cornpromisc was crafted it was assumed that
some on-site affordable housing would consist of rental units. The subsequent Telluride
legal decision, however, prohibited rent control of residential properties by anyone other
than a housing authority or similar agency. As a result, when the city collects cash-in-lieu
monies it uses some ofthose funds to assist non-profit agencies to purchase develop and
maintain rental housing. This presents a new dimension to the on-site/off sitc policy
question.
b. Background
Adopted in 2000, Tnclusionary Zoning is one element of Boulder's overall affordable housing
prograrn. Inclusionary Zoning is based on the premise that as very expensive housing is
constructed, affordable housing options are reduced. Upward pressure is exerted on the costs
of all housing, with the result that the city's stock of affordable housing is decreased.
Inclusionary Zoning applies to Lill new residential construction within the city limits
regardless of the size of a project. It applies to single family homes as well as larger multi-
family projects. The general requirement is that 20% of al I newly constructed dwelling units
be permanently affordable to low and moderate income households. A minimum of one half
of the required affordable units must be built on-site, although a variance may be granted to
allow fewer. The variance is discussed in detail in section V. Analysis of Regulatory Tools.
Properties annexed into the city are not subject to Inclusionary Zoning but are subject to
annexation policy that requires community benefit of up to 60% of any residential
development be provided as affordable. Projects that include four or fewer units usually
pay cash-in-lieu for tyre percentage of one affordable unit owed.
The following table shows the total number of projects and resulting permanently
affordable units for the years 2000 2008.
AGENDA ITEM # 6A Page 8
Inclusionary Zoning
2000-2008
Total Projects 2000-2008:
171
48 Irom protects 5 units or more
123 from projects 4 units or less
r
Number of Project providing I Number of r:umbo of praluLtt,
rrntii~nxt -311 ~;`-m :Iew
projeUs providing some on-srtC projects providing
111 units on-site: off-site and some on-sile and 132
28 some cash in lieu: some cash-in-IlCU: 'S'roiPrss :•,:In t, 7 rojens v:im 4 units
tp unrf~ orrt-roie j oikss:
I 9 ~ I?3 I
NumbCr nt Psurntier of NumLei ns C dI m
:,ash n-heu I:eu
units: s+rgSe camdY UnirS a n~~tatt amount:
l$1 Ix,rrles: e 8 SG QSIvS SIM
5
Inclusionary Zoning serves households with a maximum income equal to I IUD low
income limit plus 10%, or around 80% of the area median income'. This equates to the
low/moderate income group. IIUD bases its income estimates on data specific to Boulder
C,)unty. Attachment E contains detailed profiles of very low, low/moderate and middle
income groups including income ranges, household profile and demographics and
existin-programs for each group.
The following table shows the maximum allowable incomes for various family sizes to
qualify to purchase an affordable home acquired through the Inclusionary Zoning
program.
2009 Maximum Allowable Incomes for Inclusionary Zoning Units
Household Size Maximum Income
1- - $49,130 _
2 ` -$56,170
3 $63,180
4 _ $70,200
5 $75,800
6 $81,450
Area Median Income (AMI). The AMI is annually established by tote federal government or HUD and is
presented in terms of household size. IIUD defines "low income" for the city of Boulder as a percentage of
the AMI. For example, the 2008 AM] for a household of three is $78,300 while the HUD low-income limit
is approximately 70.7"/ of the AMI or $55,350 for a three person household.
AGENDA TI'EM 4 6A Page 9
c. Cash-in-Lieu Contributions
In certain cases, money may be paid in lice of providing a permanently affordable unit.
In 2009, for each attached affordable unit not built, the 2009 cash-in-lieu amount is
$110,178. For each detached affordable unit not built, the 2009 cash-in-lieu amount is
$119,922. The inclusionary "Zoning ordinance states that a minimum of one half of the
required affordable units must be provided on-site; for the other half of the units the in-
lieu fee is acceptable. Developers may also provide comparable units off site or land
sufficient to build the required number of units. The Administrative Regulations contain
provisions for varying the on-site requirement if this results in additional community
benefit.
Since 2000, the city has collected approximately $9.05M in cash-in-lieu payments, which
are pooled with other affordable housing program fiinds and distributed during the annual
affordable housing funding allocation process. Cash-in-lieu monies arc the only f moillig
source available for housing activities, such as land purchases, that can be borrowed
against without obligating city-wide funds. "These funds arc used to support:
• New construction of housing
• Rehabilitation of existing affordable units
• Acquisition of existing housing
• Transitional housing and the homeless shelter
• Special needs housing (e.g. housing for people with AIDS or those with a
physical or mental disability.)
Preference is given to acquisition or development of rental housing targeted to
households at or below 50°/, AM. Homeownership fund activities include down payment
assistance and development and acquisition of for sale affordable units for households
with incomes between 50°/o-80% AMI.
IncluSiOnary Zoning has produced 359 on-site homes and five single family honics off
site to date. Funding in the form of cash-in-lieu leveraged by other sources has resulted in
an additional 315 homeowner and rental units, 120 mobile home pads, 75 shelter beds and
the acquisition of two properties (the Pollard site at 30"' and Pearl and a smaller site in Palo
Park that combined have potential for another 115-170 affordable units). As illustrated in
the graph below.
ACVNDA ITEM # 6A Paipe 10
N
Inclusionary Zoning, Cash-In-Lieu (CIL)
2000-2008
Total projects = 48
till on site: I Ccmtl n nn-Silr 3 All Qff-site, on-site &
~ cash-u,•lieu: rash-in-lieu: c.aslrin-Ilea: I
7FS, rc;;uts ,
lla prctlr;c;I; ~"r prnlr!r(s 1 prct~~~ct
l
Units Units raid by Single lamely
h:nll on-sa I cash•rn•Ireu: tWtes aCCAM 0
359 ~ ~li off-sae:
S6.05i'~I 5
C901 tram p-oleos %villt fr,wer
Than 5 unile: S3M
(no on-site ,iu:5 required)
Total Cash-rn ii tr for the
FAffordable Housing Fund:
5~. D51J1
Cash•in.lieu leveraged with additional funding sources:
Total = 557.3M
Cll. _ $9 05M - Leveraging = S43 25M1A
r
I I:inrr,vr.rv Rental hYOL•dc Homo $ht•ltry I ,rnJ
Uuirs, I Uuifs: Pads: 'teG; is n,_quisibon.
70 245 120 115.170
SI•:M 527141 S2!o1 ggp! potential units
r SS 2►,Q
For more details see Attachment G, summary of affordable housing fund projects and
expenditures for 2001 -2008.
d. Location of Units
Units acquired on-site through Inclusionary Zoning are located in areas of new
development. "TV~us, most of the on-site units are on the north side of the city; and four are
in the downtown area. A map showing the locations of the Inclusionary Zoning on-site
units and units acquired entirely or partially through the use of cash-in-lieu is provided as
Attachment F. Five single-family homes were provided in lieu of required units on-site
in the downtown area and are now deed restricted and owned by families with children.
e. Characteristics of Inclusionary Zoning Households
Nine out often (89%) of all inclusionary zoning homeowners lived in Boulder or Boulder
County prior to buying a home in the community.
AGENDA ITEM # 6A Pare 11
Where Inclusionary Zoning Home Buyers Lived
Out of State
Out of County 2% Unknown
6a
Boulder County
f7 '
Boulder
72%
Over one in ten (14%) households living in homes acquired through the Inclusionary Zoning
program include children as compared to 21 % of a]1 households in Moulder that include
children.
Inclusionary Zoning Households with Children
14%
Households
Willi Children
1 _
86%
Households
Without
Children
Owners of Inclusionary Zoning units work in a wide variety of occupations. As of February
2009:
• 13% of the households included a teacher;
• 21 % held administrative or managerial positions;
• 13% were service workers, mechanics or worked in transportation;
• 9% were professionals, technical workers or engineers.
Applicants for affordable units are income and asset qualified and must work a minimum of
three quarter time unless they are disabled or retired. For this reason, students do not
typically qualify for affordable housing. Graduate students may work 3/4 time or more, and
AGENDA ITEM # GA Page 12
on occasion they have qualified to buy an affordable horric. In other cases, households with
one working member and one student have qualified.
Inclusionary Zoning
Occupations of IZ Unit Homeowners
H-Ith Gm
Prolesso nak
3 h
Soll•[mp67eJ Me.1.1 nq, H. Fe±en..M1 Communieatwns
r- fFTyn _
Tea[hCr
` 13%
ServKeWor►er, ~l
Iron yu rl alien Gu vernmenl
] 7^.'p 5%
Professional, Techn"I,
Engineer
D-bkd, 1!e[IreJ g°/a
Sin Mherl Un K newn
Ad-not-t-, t 5%
Man a~e.ul, Leyl Socut R /roman Servi
21°io - WnrSers
I°h
f. Who Oversees the Inclusionary Zoning Program
The Housing and I luman Services Department, Ilousing Division and Planning &
Development Services, Land Use Review co-ordinate during the application phase of
affordable housing development. Areas of shared processes, services and forms include:
• The land use review application and development plans submitted to P&DS are
routed to Housing Division staff for the affordable housing review.
• Housing planners inform applicants of Inclusionary Zoning requirements at land
use pre-application meetings and through the land use review comment form.
• l lousing Division uses the P&DS computer system for tracking and mapping
projects in Land Link and Map fink.
• l lousing Division uses P&DS cashier services to collect monies due.
• Planning Hoard is informed of an applicant's method for meeting Inclusionary Zoning as
background information on residential development proposals.
Inclusionary Zoning policies to meet affordable housing goals are developed by the
Ilousing Division, based on City Council direction. The Planning Board reviews and
recommends changes to council pertaining to the Inclusionary Zoning section (9-13) of
the Land Use Code. The Land Use Code is implemented through the Inclusionary Zoning
Ordinance Administrative Regulations. These regulations are developed by the Housing
Division, approved as to form by the City Attorney's Office and approved by the City
Manager after a fifteen day public comment period. Processes and procedures to
implement both the codified policies and administrative regulations are developed by the
Ilousing Division and approved by the Division Manager and Department Director.
AGENDA ITEM # 6A Pa,_e 13
Inclusionary "Zoning is implemented by Housing and Human Service's Housing Division.
Housing planners work with residential developers to determine the location, size and
details of-the affordable units. They determine any cash-in-lieu amounts that maybe
applicable and detcrinine off site units or other options for meeting the Inclusionary
Zoning requirements that may be allowed. They are also responsible for seeing that
quality standards, as identified in the Livability Guidelines for Affordable Units, are met.
Housing planners work closely with the I lousing Division's Homeownership Program
staff to identify the needs of affordable buyers.
Once the building phase is near completion and the affordable units have been secured through
deed restrictions, the I lousing Division Homeownership Program staff assist the builder to
market the affordable units. Staff income qualifies affordable buyers and assist with resale of the
affordable units. Attachment H, flow chart of interface between housing and planning illustrates
the coordinated process.
3. Downtown Density Bonus and Ileipht Variance
Boulder's Inclusionary Zoning program is applied equally to all development throughout
the city. This citywide approach was adopted as the most defensible structure for the
Inclusionary Zoning ordinance should it be challenged in court. At the same time, council
has expressed concern about imbalances in application of program requirements in the
downtown area. The luxury condominiums being built downtown have a significantly
higher gap in affordability than the average affordability gap city-wide.
In order to better understand the impact and effectiveness of Inclusionary Zoning
policies, the Housing Division retained Economic & Planning Systems (EPS) to do
additional analysis on a number of issues pertinent to this review, including the
affordability gap in the downtown area. In their report they conclude that: "Conditions in
downtown Boulder have changed significantly over the life of...[Inclusionary
Zoning]... downtown cash-in-lieu as a percentage of the affordability gap differs by
nearly 30 percent from attached units outside of downtown. These unique attributes
indicate that the current policy, as applied to downtown, satisfies neither the original
goals of the program nor current concerns regarding affordability gap growth."
(Attachment I, EPS Report).
Per council request the Planning Department, in cooperation with Division of Housing
staff, will be analyzing the downtown density bonus and height variance to include a
provision of additional community benefit, which may include additional affordable
housing. These tools can be used effectively to lessen the imbalances for provision of
affordable housing in the downtown area. Work on this project is scheduled to begin in
July, 2000 and will incorporate any Inclusionary Zoning regulatory changes that result
from the current Affordable Housing Program review.
V. ANALYSIS OF RU:GULA`l'ORY TOOLS
AGENDA ITEM # 6A Pape 14
i
't'his section analyzes four elements of the Inclusionary Zoning program and provides an
analysis of the issues identified by council and suggests possible options for
modifications. Options are presented in the order that staff believes is most feasible.
Guiding Questions for City Council:
1. Does council have questions or feedbaclc on the options proposed.Jor:
a) how the cash-in-lieu ainount is determined;
a. phasing in cash-in-lieu increases over time;
b. mitigating cash-in-lieu impacts on small projects;
b) the on-site requirement and how this requirement is administered;
c) serving middle income households through Inclusionarv "Zoning,
d) modifications to the land swap option;
2. Are the most feasible options the correct ones to further develop and analyze?
1. CASIf-IN-LIEU AMOUNT
One option for meeting the Inclusionary Zoning requirement is to pay cash-in-lieu of
required affordable units. Each year, these amounts have been adjusted by the change in
the median sale price of detached and attached housing according to county assessor data.
The current amounts are $119,922 for each required single family permanently affordable
unit and $110,178 for each required multifamily permanently affordable unit.
Why is this being reviewed?
I . The current method for annually adjusting the cash-in-lieu amount has not
kept up with the increasing gap between what affordable buyers can pay and
the price of market rate housing.
2. Council has expressed concern that current cash-in-lieu amounts are too low,
given the price of market rate housing, making this the most attractive option
for developers.
3. Units in prime locations pay the same cash-in-lieu amounts as other market
units.
Background
Inclusionary zoning replaced a program where larger projects were essentially required to
provide 20% permanently affordable low income units and 35% initially affordable
middle income units on site. When hnclusionary Zoning was adopted in 2000, the
program was designed with the ability for developers to relatively easily provide one half
of the required permanently affordable units off-site, as either existing units or as a cash-
in-lieu payment. Flexibility and adaptability were seen as important features of
Inclusionary Zoning if it was to be successfully implemented. Further, casli-in-lieu funds
could be added to other funding sources to produce more affordable housing benefits than
could be realized by using only city housing funds.
AGENDA ]TV'M 4 6A Pag 1f
The initial cash-in-lieu amounts for hnclusionary Zoning were set by looking at the
difference between the affordable price for various unit types and the market rate price.
The 1011owing table is an excerpt from the 1999 information:
Single Duplex/ Town home MF Town MF Stacked
_ Family -Triplex home- Flats
Market Price $301,550 $222,550 $189,388 $174,126 $132,173
Affordable Price
(for 80% AMI) $134,721 $126,702 $126,702 $113,976 $113,976
Gap (Difference) $166,829 $ 95,848 $ 62,686 $ 60,450 $ 18,197
Council decided that the gap amounts for the single family and duplex/triplex units were
infeasible, and the amount for the stacked flats did not reflect the financial reality of the
funds needed to purchase an existing building and create permanently affordable rental
housing. Thus, the initial cash-in-lieu amounts were set using the city subsidy amounts in
effect at the time as a guide. The result was a $66,000 cash-in-lieu amount for each
required single family affordable unit, and $60,000 for each required multifamily
affordable unit.
Public Comment (2008-2009)
Most respondents believed that it was important to have a cash-in-lieu option, while a
few felt all required units should be provided on-site. Several participants noted that the
flexibility provided by the cash-in-lieu funds has produced a variety of permanently
affordable housing, both rental and for-sale, for a wide range of incomes. There were
only :i few comments on the cash-in-lieu amounts and those respondents indicated that
the current amounts were sufficient. Developers who participated in the public meetings
felt strongly that allowing at least some of the lnclusionary Zoning requirement to be paid
by cash-in-lieu was essential for retaining flexibility in the program and as a means to
provide affordable rental housing. Attachment. A, B & C contain detailed public
comments.
Analysis
The program objective is to provide a cash-in-lice option that enables either the
production or acquisition of a permanently affordable unit elsewhere in the community
that is roughly equivalent to the housing that would have been produced on-site.
:For the past few years, as a result of the increasing gap between the price of an affordable
unit and the cash-in-lieu amount for an affordable unit, the cash-in-lieu option has been a
more financially attractive option for developers. At the same time, the cash-in-lieu
amounts collected have not kept pace with the total per unit subsidy needed to buy down
the price of a market rate unit.
Cash-in-lieu funds have been used to Fund a variety of important community projects,
from the Boulder Shelter- f-or the Homeless to the Holiday Neighborhood, and have been
used by the city's non-profit housing providers to secure permanently affordable rental
AGENDA ITEM # 6A PaVe 16
units. The overall result has been a more widespread distribution and integration of
permanently affordable units throughout the community than would have been realized if
only on-site, permanently affordable units had been provided.
One concern is that units in prime locations pay the same cash-in-lieu amounts as other
market units. Economic & Planning Systems (EPS) looked at the affordability gap in
Boulder's downtown area and found that it differs by nearly 30% fiom attached units
outside of downtown, which suggests that the cash-in-lieu is significantly less effective at
closing the affordability gap in the downtown than elsewhere in the city. For the Full FPS
report see Attachment L
Beginning in July 2009, Planning Department and Division of Housing staff will analyze
the downtown density bonus and height variance regulations in order to explore the
possibility of, among other issues, addressing the discrepancy between the affordability
gap between units in prime locations and elsewhere in the city.
Options for Modifications
Options are presented in the order that staff believes is most feasible.
1. Affordabilty Gap
Base the cash-in-lieu amount on the gap between the affordable price and median market
price for smaller single family homes and newer multifamily homes-
Phis option increases the current cash-in-lieu amounts to a level that would ensure at least
one off-site permanently affordable unit was obtained for every on-site unit that would
otherwise have been provided, particularly in the case of single family units. This option
FeQects (lie actual gap between what a moderate income buyer can afford and the type of
home that is most likely to be purchased; a single family home less than 2,000 square feet
or a newer multifamily attached home. This option sign] ficantly raises the amount of
cash-in-lieu from current levels.
Option #1 Affordability Gap Single Family Multifamily~
Median Sale Price $409,000 $369,665
(all market SF units < 2,000 sq. it. & all MF units
< 1,500 sq. ft. and built within last ten years)
Affordable Price $177,600 $142,900
Proposed new cash-in-lieu amount (Gap) $231,400 $226,765
Current Cash-in-Lieu Amounts $119,922 $110,178
L Change to Current Amounts +$111,478 +$116,587
+93°/J +106%
2. Cost to Construct
Base on the gap between the costs to produce a market .rate unit and an affordable unit.
The cost to construct a unit includes the cost of purchasing land, constructing the unit,
and a developer fee (this analysis assumes the city does riot act as the developer).
AGENDA ITEM # 6A Pap_e 17
i
This option assumes that the cash-in-lieu will be used to help build permanently
affordable units elsewhere in the community and represents the cost to a developer of
providing a permanently affordable unit.
Given the limited land supply and the high cost of vacant land, cash-in-lieu fiends fetid to
be used to purchase existing housing, rather than construction of new units. During the
development of Inclusionary Zoning, it was recognized that new construction alone could
not solve the affordable housing needs of the community, and so options for acquiring
existing housing are a key component of the overall affordable housing strategy.
Option #2 Cost to Construct Single Family Multifamily
2,000 sq ft 1,000 sq ft
Cost to Construct $363,803 $269,000
(SF 2,000 sq. ft. stick construction & MF 1,000 sq.
ft. steel construction
Affordable Price $177,600 $142,900
Proposed new cash-in-lieu amt. (Gap) $244,313 $223,543
Current Cash-in-Lieu Amounts $119,922 $110,178
Change to Current Amounts +$124,391 +$113,365
(+104%) (+103%)
3. No Change
Do not make any changes to how the cash-in-lieu amounts are calculated today. Current
cash-in-lieu amounts are based on the original amounts for attached and detached housing
and adjusted each year by the change in the median sale price for attached and detached
housing.
This option would have the least impact on housing developers in Boulder, but does not
address the increasing gap between an affordable price and the market price for existing
units. However, given the increasingly difficult economic conditions for development,
particularly in the area of private sector financing, this option would not increase the
difficulties developers are facing today.
Given the corresponding concern that not enough on-site permanently affordable housing
is being included in new developments today, the no change option could be combined
with a change to the "premium" (discussed below) that is added to the cash-in-lieu
amounts that are assessed when no on-site permanently affordable units are included.
Staffing and Budgetary Impacts
All options can be implemented with existing FTE, and all options, except the no change
option, increase the current cash-in-lieu amounts, which could increase the city's ability
to acquire and maintain additional permanently affordable housing units.
AGENDA ITEM # GA Pape 18
Cash-in-lieu (CIL) Pro/Con Chart
(In order from most-to least Feasible) _
Option Pros Cons
1. Affordability Gap - Reflects cost to acquire - Substantially increases
Base CIL on the gap reasonably similar market current cash-in-lieu amounts
between affordable price and units for permanently
median market price for affordable housing across the
certain units range of housing programs
- Likely to result in
Detached: $231,400 substantially more on-site
(93% increase) units than with current cash-in-
Attached: $226,765 lieu amounts
i (106% increase)
2. Cost to Construct Reflects the subsidy needed Substantially increases
Base CIL on the gap to construct new permanently current cash-in-lieu amounts
between affordable price and affordable units -Based on new construction,
cost to construct a new - Likely to result in substantially not acquisition, which is the
permanently affordable unit more on-site units than with more likely and needed use of
current cash-in-lieu amounts cash-in-lieu funds
Detached: $244,313 - Based on market data that
(70a"/ increase) can either change rapidly or
Attached: $223,543 be somewhat subjective
(103% increase)
3. No change to current - Has the least impact on the - Does not address the
cash-in-lieu amounts development community increasing gap between
-No need for additional affordable prices and market
feasibility analysis prices
- Reduces city's ability to keep
up with community's
affordable housing needs
The following chart summarizes the cash-in-lieu options and show the percent change
from the 2009 cash-in-lieu amounts.
Cash-in-lieu Options Summary Chart
(In order from most to least feasible) _
Options Single Family Multi-Family
2009 Cash-in-Lieu Amounts _ $119,922 $1102178
1. Affordabilty Gap
Gap between affordable price and median market $231, 93/ increase 106/o increase
6% price
AGENDA ITEM tf 6A Pape 19
2. Cost to Construct $244,313 $223,543
Gap between affordable price and cost to construct 104% increase 103% increase
a new permanently affordable unit
3. No Change - - $119,922 $110,178
0% change 0% change
Summary
All options except the no change option would significantly increase the cash-in-lieu
amounts from current levels. One way that Inclusionary Zoning costs are absorbed by
development is by adjustments in land prices to account for the requirement. Both due to
current economic conditions and to let land prices adjust over time, council may want to
consider phasing any changes to the cash-in-lieu over time. In the past, for example,
when Plant Investment Fees were increased significantly, the city phased those increases
for permanently affordable units over a three year period.
Sonic communities with Inclusionary Zoning programs make a distinction between
smaller and larger projects due to the lack of economies of scale in smaller projects. If
cash-in-lieu amounts increase significantly, council may wish to consider discounting the
cash-in-lieu amounts for owner/builders of single family homes or projects with four or
fewer units. The following adjustments could be considered:
1 Unit '--I Units 3 Units 4 Units
% Reduction in New Cash-in-Lieu_Amt. 50%~ 1 30% 20% 10%
The table below shows what this scale would look like when applied to the three options
for changing cash-in-lieu amounts above. Please note that the one through [our unit
amounts below are given in terms of each market rate unit, as opposed to each
permanently affordable unit that is shown above2.
Proposed Discounts for Each Cash-in-Lieu Option for Projects with 4 Total Market
Rate Units or Less
_ Single Family Multifamily
Current $119,922 (per p.a unit or 5 market units) $110,178(per p.a unit or 5 market units
Amounts 1 Unit 2 Units 3 Units _4 Units 1 Unit 2 Units 3 Units 4 Units
$23,984 $47,9691 $71,953 $95,938 $22,036 $44,071 $66,107 $88,142
Option 1 Unit 2 Units 3 Units 4 Units 1 Unit 2 Units 3 Units 4 Units
#1, w/ $23,270 $65,156 $111,696 $167,544 $22,797 $63,830 $109,423 $164,135
discount
Option 1 Unit 2 Units 3 Units 4 Units 1 Unit 2 Units 3 Units 4 Units
#2, w/ $24,388 $68,287 $117,063 $175,594 11 $15,882 $44,470 $76,235 $114,352
discount
2 In a hive unit project, where the requirement would be one permanently affordable unit, the cash-in-lieu
amount for that one pcrmanentI-y affordable unit is $119,922. This amount is spread among the five market
rate units, for a pcr market rate unit cash-in-lieu amount of $23,984. ($2:3,984 x 5 units = $119,922)
AGENDA ITEM ft 6A Page 20
Moving forward with changes to the cash-in-lieu amounts requires analysis before
implementation to insure that residential development can achieve a reasonable return on
investment. In the interest of proceeding as soon as possible with possible Inclusionary
"Zoning code changes, EPS has been directed to conduct pro-forma analysis on cash-in-
lieu option (41) that staff has identified as most feasible and the three on-site options
outlined in the following memo section. Five development scenarios are being analyzed:
I . A downtown, premium sales price, high density project;
2. A moderate density project in the transit village area (TVA);
3. A high density project in a non-premium price location;
4. A moderate Density project outside of downtown and the TVA;
5. A low density project on vacant land.
It may be necessary to adjust the final cash-in-lieu amounts based on the results of the
analysis.
2. ON-SITE REQUIREMENT
The goal of the Inclusionary Zoning program is to attempt to preserve economic diversity
by requiring that a portion of all new housing be affordable. In pursuit of this goal, the
Inclusionary Zoning chapter of the Boulder Revised Code states that the provision of on-
site affordable units is the primary objective of the program.
B.R.C.9-13-1
(f) The primary objective of this chapter is to obtain on-site, privately owned,
pemanently affordable units. Some provisions of this chapter provide for alternatives to
the production of such on-site units. Those provisions recognize the fact that individual
site and cconornic factors can make on-site production less desirable than the alternatives
for particular developers. However, the intent and preference of this chapter is that
wherever possible, permanently af1bi-dable units constructed pursuant to these provisions
be located on-site and be privately produced, owned and managed.
The code goes on to say that at least one half of the required units must be provided on-
site. A variance for building less than one half of the required affordable units on-site is
allowed if off-site units will accomplish "additional benefits" for the city or if Zoning,
environmental or legal restrictions make it unfeasible to provide the required number of
units on-site.
Why is this being reviewed?
1. The intent of Inclusionary Zoning is to acquire a minimum of half of the required
affordable units on-site as part of every new residential development.
2. Some projects do not build the minimum of half of the required affordable
housing on-site, opting instead to "buy out" of the entire requirement by paying
cash-in-lieu of units built on-sits.
Background
Council has expressed concern that the Inclusionary Zoning program may see projects
AGENDA ITEM It 6A Page 21
that do not construct the minimum percent of the required units on-site. The 66110wing
table shows the number of projects built to date and the number of those projects that
provided all of the required affordable units on-site, some on-site units and some cash-in-
lieu of units and all cash-in-lieu. One project, One Boulder Plaza that provided sonic
units on-site, some off site and cash-in-lieu.
Inclusionary Zoning Provision of Affordable Units 2000 to 2008
Total number of All affordable Some on-site units, All On-site, off-site and
projects' _ units built onsite some cash-in-lieu cash-in-lieu cash-in-lieu
48 28 10 9 1
* Does not include 123 proicos with fotir or fever total units where no on-site affordable units would have
been required.
The following table shows a more detailed analysis ofprojects that provided some
affordable units on-site and paid some cash-in-lieu of affordable units. Slightly more than
half, 64, of the required affordable units were provided on-site.
Units Provided On-site and Some or All Cash-in-lieu: 2001- 2008*
- - - Units
accounted Cash-in-lieu
for received from
Total Half of Actual through projects > 5 Cash-in-lieu
Units the Units Cash-in- units (represents received from
Required required provided lieu units in previous projects with 4 All Cash-in-
-@-?0% _ -units on-site payment column _or less units'" lieu received
2008 59 30 30 29 $2,786,891.07 $444,875.72 $3,231,766.79
2007 4 2 0 _ 4 $266,766.30 $628,801.59 $895,567.89
2006 7 4 2 5 $722,406.22 $390,931.43 $1,113,337.65
2005 _ 18 9 10 8 $538,289.69 $547,521.16 $1,085,810.85
2004 20 10 16 4 $587,262.69 $323,202.34 $910,465.03
2003 2 1 0 2 $185,885.74 $320,307.41 $506,193.15
2002 1 1 _0 1 $137.028.00 $188,935.03 $325,963.03
2001 10 5 6 4 $378,438.22 $156,366.45 _ $534,804.67
Totals 121 62 64 57 $5,602,967.93 $3,00_0,941.13 $8,603,909.0.6
*Does not include projects that provided all units on-site.
'Projects with four or less units do not have an on-site requirement.
Based on a yearly affordability gap analysis, the $5.6 million in cash-in-lieu of on-site
units only (not including CIL for projects with four or less units) could have purchased a
total of 57.63 attached unit. A total of 57 units were actually acquired.
Total cash-in-lieu received, leveraged by other sources of funds has resulted in an
additional 315 homeowner and rental units, 120 mobile home pads, 75 shelter beds and the
acquisition of two properties, the Pollard site at 30t1i and Pearl and a smaller site in Palo
Park, that combined have potential for another 115-170 affordable units.
Public Comment (2008-2009)
Most meeting attendees indicated that it was important to have a cash-in-lieu option,
while a few felt all required units should be provided on-site. Several people indicated
AGENDA ITEM 9 6A Pat!c 22
thsit incentives such as density bonuses should be provided to assist with the provision of
on-site units. Developers who participated in the public meetings felt strongly that
allowing at least some of the Inclusionary Zoning requirement to be paid by cash-in-lieu
was essential for retaining flexibility in the program and as a means to provide affordable
rental housing. Attachments A, B and C contain detailed public comments.
Analysis of Issues
Several factors influence the decision to provide or not provide at least half of the
required affordable units on-site.
1. The ease and relative low cost of the cash-in-lieu alternative;
2. The difficulty and cost of providing units on-site;
3. The sire of the project.
When the Inclusionary "Zoning program was developed there was a conscious effort to
provide options for meeting the requirement and to have all options be clear and
unambiguous for developers. For this reason, the standard for providing less than one half
of the required affordable units on-site was defined as any alternative to provision of on-
site units that resulted in additional community benefit. "Additional community benefit"
was defined in the administrative regulations as any solution that resulted in 50% more
units than would have been provided on-site. This in lure was interpreted to mean that if
a developer paid 50% more cash-in-lieu than normally required (referred to as the
"premium") they would meet that standard. Early in the program, the premium was
prohibitively expensive, but as the price of market rate housing continued to climb, cash-
in-lieu, even with the 50% premium, became more attractive for developers.
Cash-in-lieu is meant to approximate the gap between what an affordable buyer can pay
and the price of a market unit. This does not take into account that for every affordable
unit not built on-site a market rate unit replaces it. Also, there is a desire to insure that on-
site affordable units are proportionally provided and distributed within each project and
are of good quality. The result for developers is that when affordable units are provided
on-site they have an additional process of negotiation and review by city staff. For these
reasons building on-site is more expensive, time consuming and difficult to provide than
the provision of cash-iii-lieu. The prospect of additional city review, relatively lower cost
of cash-in-lieu and ease of paying the premium made it an easier choice for developers
over time.
The size of the project also figures into a developer's decision to provide units on-site. In
some cases, smaller projects of less than 20 or so units are less able to absorb the cost and
relative difficulty of providing affordable units on-site. These projects have smaller profit
margins, often the equivalent of one or two units. Consequently, the predictability of a
cash-in-lieu payment is desirable. In addition, they are less likely to be required to go
through site review process and so are not looking for incentives i.e., on-site units to
make the project more attractive to Planning Board.
Not all of these issues can be addressed directly. The desire to insure that on-site
affordable units are proportionally provided and distributed within each project and are of
similar quality to the associated market rate units will continue to result in the provision
AGENDA ITEM # 6A Page 23
of on-site units being more expensive, time consuming and difficult than payment of
cash-in-lieu.
The ease and relative low cost of cash-in-lieu and possible mitigation for smaller projects
can be directly addressed. Staff is instituting a formal variance request procedure with
stricter criteria for requesting that less that one half of the required units be provided on-
site. The intent is to insure that the minimum percentage of affordable units desired on-
site are provided, while allowing for flexibility in those cases where and alternative may
be of benefit to the city, and thus warranted.
Variance Elements
1. Set the premium to be competitive with the cost of providing units on-site
including the fact that for every affordable unit not provided on-site a market rate
unit is substituted. This number is dependent on determination of the standard
cash-in-lieu amount.
2. Develop more stringent and clear criteria for granting the variance. This may
include provisions for mitigation for smaller projects.
3. Institute a formal review process to approve requests to provide less than the
minimum percentage of required units on-site. The process includes a formal
application, staff review and recommendation, department head approval and
quarterly reports to City Council.
By implementing these changes to the program, staff anticipates that a minimum on-site
requirement can be consistently achieved.
Adjusting the cash-in-lieu to be in line with the affordability gap may also reduce the
finaricial incentive for developers to choose off-site options such as cash-in-lice. The
following analysis assumes that under current rules most developers would provide only
50 % of all required affordable units on-site. Higher cash-in-lieu amounts may support a
decision to provide more than 50% and possibly all of the required affordable units on-
site.
Options for nzodifications:
All options assume the new variance procedures, criteria, and rules. Options range from
the current requirement of 50% of required affordable units built on-site to 70%. Options
are presented in the order that staff believes is most feasible.
1. No change to the current requirement that a minimum of 50% of the required
affordable units be provided on-site.
This option would provide the highest level of local funds for continued provision
of rental housing through subsidies to local non-profit agencies. Due to leveraging
AGENDA ITEM # 6A Page 24
it would result in the most affordable units, ownership and rental overall. Jt would
result in fewer on-site homeownership units being distributed in new development
than the other options.
2. Require that a minimum of'60% of the required affordable units be provided on-site.
This option increases the number of units required on-site. It may result in lower
levels of local funding f'or continued provision of rental housing through subsidies
to local non-profit agencies.
3_ Require that a minimum of 70% of the required affordable units be provided on-site.
This option increases the number of units required on-site and may increase staff
time required to administer. It may result in lower levels of local funding for
continued provision of rental housing through subsidies to local non-profit
agencies. Due to the leveraging power of funding, it would result in fewer net
units overall than option 1 and 2 and reduces options for compliance with
Inclusionary Zoning.
Staff and Budgetary Impacts
All proposed options would result in most projects including affordable units on-site.
Additional staff time may be required to oversee and administer the larger number of
projects including units on-site and variance. Staff estimates that .25 additional FTF may
be required. Due to the uncertain financial market for residential development, the full
impacts of any of the proposed options may not be felt immediately giving the
department time to absorb and anticipate the impacts on staffing.
On-site Options Pros/Cons
(In order from most to least feasible)
Options Pros Cons _
1. No change to current - insures adequate cash-in- -results in fewer on-site
requirement that a minimum lieu funding homeownership units than the other
of 50% of the required - results in the most subsidy options
affordable units be provided for provision of off-site rentals -results in fewer units distributed
on-site - would result in most units within each new development
overall
2. Require a minimum of - increases the number of may reduce cash-in-lieu
60% of the required units be units built on-site may reduce subsidy of off-site
provided on-site rentals
3. Require a minimum of - increases the number of - reduces cash-in-lieu
70% of the required units be units built on-site - may reduce subsidy of off-site
provided on-site rentals
- results in fewer units overall
- reduces options for compliance with
Inclusionary Zoning
On-site Options Summary
The current split requiring half of the required units be built on-site meets the goal of'
AGENDA ITEM # (,A Page 25
social integration and the more pragmatic goal of getting the most units possible by
leveraging with other affordable housing funds. It also meets the goals of increasing both
homeownership units and rental units. The concern about projects paying all cash-in-lieu
and not providing any units on-site could be adequately addressed by a revised variance
procedure and higher cash-in-lieu premium for building less than half of the required
affordable units on-site.
3. SHIWING MIDDLE INCOME HOUSEHOLDS THROUGH 1NCLUSIONARY
ZONING
Inclusionary Zoning units serve households earning 60% to 80% of the area median
income (AM1)3 and are not available to middle income households who earn between
80% and 120% AMI. The permanently affordable units obtained using Inclusionary
Zoning cash-in-lieu funds (Affordable Housing Fund) usually serve households with
incomes lower than 60% of AM1.
Staff has identified three basic approaches to provide affordable housing options to
middle income households:
1. Include middle income households in Inclusionary Zoning or other current
affordable housing programs.
2. Develop new affordable housing programs that target middle income households.
3. Encourage and assist market forces to provide housing for middle income
households.
For this phase of the affordable housing review the focus will be on the first approach;
the appropriateness of including middle incomes in Inclusionary Zoning or other existing
programs. As part of the next phase of work, staff will take a comprehensive look at all of
the remaining options. Promising approaches to be researched and anlayzed may include:
a. Review annexation policies concerning middle income units;
b. Employer assisted housing, tax incentives and other strategies;
c. Loan programs; equity sharing ("soft seconds"), rehabilitation of
single family homes, down-payment assistance;
d. Preserve older multi-family housing stock as relatively affordable;
e_ Accessory dwelling units (ADUs) as market rate housing available to
middle income hOLISCholds.
Why is this being reviewed?
1. There is concern about the growing gap between households that qualify for the
affordable program and those that can afford a market rate home.
2. The type of market rate housing affordable to middle income households, condos
or other multi-family style housing is perceived as not as attractive to families
Area Median Income (AM l). 77he AMI is amlually established by the federal government or HUD and is
presented in terms of household size. HUD defines "low income" for the city of Boulder as a percentage of
the AMI. For example, the 2008 AMI for a household of three is $78,300 while the IIUD low-income limit
is approximately 70.7% of the AMI or $55,350 for a three person household.
AGENDA ITEM # 6A Page 26
i
with children.
3. City Council is interested in how it can assist and support the creation or retention
of both affordable and market rate housing that is available to middle-incomc
households.
Public Comment (2008-2009)
Several people expressed concern that middle incomc households have very few options
if they want to purchase single-family homes in Boulder. There was sentiment expressed
that the gap between the people that qualify for low/moderate homeownership programs
and middle income households has grown and agreement among several people that the
city should consider targeting a higher income population- There was discussion on what
type of product is more appealing to middle income households, with some people
feeling that single-family homes were the most desired by this group. Several people
expressed concern that limited appreciation is a deterrent for middle income buyers.
Several participants commented that a number of middle income workers in Boulder live
in adjacent communities where they can buy cheaper homes. Attachments A, B and C
contain detailed public comments.
Back-round
The income limits for middle income households range between 80% and 120% of the
area median income (AMI). The following table shows incomes for middle income
households with one to four members.
2009 Middle Income Limits
AMI % 1 Person 2 Person 3 Person 4 Person
120% $73,000 $83,700 $94,000 $104,400
100% $60,800 $69,700 $78,300 $87,000
80% $48,700 $55,800 $62,700 $69,600
With few exceptions, the current inventory of middle income units is the result of
annexations into the city since there are no other programs that serve middle income
households. 'T'ypically, a residential property that is annexed will have between 45% and
60% of the total units as permanently affordable, with hal f of those units priced for low
income and half for middle income households. The city does not offer down payment
assistance to middle income buyers.
There are currently 64 units priced for middle income households in the Affordable
home-ownership Program: 20 single Family, 40 town homes and four duplexes. All are
permanently affordable. A recent annexation, Northfield Commons, accounts for 38 of
these units. Fifty-one of the middle income homes are two-bedroom units; of these two-
bedroom units, 20 have unfinished basements that offer the potential of adding another
bedroom.
The majority of middle income sales have occurred since January 2007, when Northfield
Commons began marketing its units. Since that time, 43 households have purchased
middle income permanently affordable homes; 80°/o of these middle income buyers
AGENDA ITEM 4 6A Page 27
worked in Boulder and 83%o lived in Boulder at time of purchase. As would be expected,
the middle income buyers tend to have the higher paying, professional occupations. The
occupations of-these households are shown in the table below.
Middle Income Head of Household Occupation
7
6 - I
4
3 - -
2
g~Gr~tO`rec Q`0 ~`,`4orc`oaAC~m~pa~~ GaR~oc~ ~~`oc
42 ; 46 mto `o m 0c ~c Qo
et ~ ti~ a~~ F cy
5¢ c~ GoF
`may
QUO
The most recent middle income sales were at Northfield Commons with prices ranging
Iron $225,895 for two-bedroom town homes with unfinished basements to $301,076 for
three-bedroom single family homes that also had unfinished basements. In addition, there
are 41 middle income affordable units planned, consisting mainly of two-bedroom town
homes some of which will have unfinished basements.
At time of purchase, 30% of all households had at least one dependant child living with
them. Four households were expecting a child and several others indicated that they
planned on expanding their household size now that they are homeowners. I lomeowners
are not surveyed to determine if their household size or makeup has changed after the
purchase of ail affordable home.
The average income and household size of middle income buyers is illustrated below.
Household Income Middle Income Household Size
Average income = $63,949
V - - 20 - - - - - -
'o~- - 15 -
~ i
5 -
10
-12 0
$35000- $41000 - $57000- $67000- $77000- 1 2 3 4+
$46999 $56999 $66999 $76999 $90000
Household Size
Twenty-five percent of the buyers had owned a home in the three years prior to
purchasing a middle income home. The majority of those buyers used all of the equity in
their home towards purchasing an affordable home. The average amount of cash put into
lhc purchase was $31,625, with a range of $5,000 to $64,000. Eight buyers that qualified
AGENDA ITEM tt 6A Page 28
for the lower priced low/moderate units in Northfield Commons purchased the higher
priced middle income units because of the type of unit. They preferred town homes rather
than the stacked condos that were available at lower- prices.
Limited appreciation for middle income affordable single-family homes and town homes
does not appear to have been a deterrent to buyers at Northfield Commons. The single-
family homes were over-subscribed at lottery and the middle income town homes all
went under contract before construction was completed.
Analysis
Middle income is typically defined as 80% to 120% of AMI. The greatest middle income
need and demand for affordable housing, based on customer interaction with the Housing
Division staff, is for households earning 80% to 100% of AMI.
Using data on homes currently for sale in Boulder and comparing them with current
affordability guidelines, the analysis shown below indicates the subsidy required to assist
middle income households. Staff looked at households at 80%, 100%, and 120% of AMT.
The homes used for this analysis are "mid-range" homes that do not require major
updating.
The following tables show the subsidy required for three person middle income
households to buy a mid-range home in Boulder at 80%,, 100% and 120% of AMI.
Single Family Town home MF Stacked
80% AMI _ 3BR 3 BR __Flats 213R
Market Price $446,000 $372,000 $220,000
~Allordable Price $169,000 $169,000 $169,000
ubsidy Required $277,000 $203,000 $51,000
Single Family Town home MF Stacked
100% AMI 3BR 3 BR Flats 2BR
Market Price $446,000 $372,000 $220,000
Affordable Price _ $221,000 $221,000 $221,000
Subsidy Required $225,000 $151,000 -$1,000
Single Family Town home MF Stacked Flats
120% AMI 3BR 3BR 213R
Market Price $446,000 $372,000 $220,000
Affordable Price $272,000 $272,000 $272,000
Subsidy Required $174,000 $100,000 -$51,000
Based on previous marketing experience, for middle income buyers to make the trade off
between limited appreciation and buying a home within commuter distance of Boulder,
the type of product is very important. For this reason, the majority of units currently
acquired on-site through Inclusionary Zoning (one and two bedroom stacked flat
condominiums) may be problematic for middle income buyers and result in difficulty
AGENDA ITEM # 6A Paee 29
with re-sales for middle income sellers- The depth of the middle income demand for
limited appreciation units is unknown and we have had very few re-sales to date to base
predictions on.
Rased on preliminary research, many communities are looking at middle income
households and identifying ways to assist them in homeownership. Seerlttachnient .l for
more detail on what other communities are doing to provide affordable housing for
middle income households.
Proposed Options:
Options are presented in the order that staff believes are most feasible.
1. Allow affordable housing funds, which include Inclusionary Zoning cash-in-lieu to
be used to obtain housing for middle income households.
Staff suggests formulating a set of proposals that would target the lower (80% -100% of
area median income) of the middle income range.
To implement this option staff would develop down payment program guidelines and use
an impact analysis to establish a limit of some reasonable percentage of the affordable
housing funds that could be used to serve middle-income households.
The likely use of this funding would be to provide down payment assistance to middle-
inconie households through existing city programs. As shown above, there is a major
shortfall between current market prices and affordability for households at 80% AMI for
condos, town homes and single family homes. Households at 80% AMI would need
substantial subsidy to make all types of market rate homes affordable. Households at
120% would not qualify for a subsidy for an attached unit but would qualify for a
detached home or town home.
Given limits on populations served, both mission-imposed and regulatory, existing non-
profits will likely not pursue middle income funding. If existing affordable housing
funds remain the same, this change would reduce the amount of affordable housing
funding available to serve low- and moderate-income households. It would also
increase support for homeownership over rental and shelter housing.
2. No Change, do not include middle-income in Inclusionary Zoning.
With this option, the city would still obtain some middle income affordable housing
through annexations. Existing funding would continue to serve low to moderate income
households. In next phase of the Affordable Housing review, staff would investigate
other options that may be available to provide assistance to middle income households.
3. Include middle incomes households at 80%-1000/o of AMI in the 20% requirement
for Inclusionary Zoning.
Require 15% of the units be priced for low/moderate incomes and 5% priced for middle
AGENDA ITEM # 6A Page 30
income. The total Inclusionary Zoning requirement would be 20%. Including middle
incomes households in on-site housing obtained through the 20% requirement for
Inclusionary Zoning would reduce the amount of resources currently directed towards
low and moderate households and effectively reduce the Inclusionary Zoning
requirement of developers as middle income homes have a higher sales price than
low/moderate homes. Some projects may not have permanently affordable product
attractive to middle-income households. Based upon the number of Inclusionary Zoning
units that were produced over the last five years, this would have resulted in six middle
income units.
Staff and or Budgetary Impacts
All options could be implemented with available staff and budget.
Serving Middle Income Through Inclusionary Zoning Options Pros/Cons
(In order from most to least feasible)
Options Pros Cons
1. Allow affordable - Does not reduce the number - Very limited impact given the small
housing funds, which of affordable housing units number of middle income subsidies
include cash-in-lieu to obtained on-site through IZ for current funding would support.
bu useu to obtain lower income households - Reduces the amount of funding
housing for middle - Addresses the need for available for subsidizing lower income
income households affordable housing for middle households
income households
2. No Change, do not - Does not reduce the number Does not address the need for
include middle-income of affordable housing units affordable housing for middle income
in Inclusionary Zoning obtained on-site through IZ for households
lower income households
Retains the amount of
funding available for
subsidizing lower income
households _ _ _ _ _ _ _
3. Include middle - Retains the amount of - Reduces the number of affordable
incomes households at funding available for housing units obtained on-site through
80%-100% of AMI in subsidizing lower income IZ for lower income households
the 20% requirement households - Limited impact given the small
for Inclusionary Zoning number of middle income units that
would be realized
- May result in affordable units that are
not desirable to prospective middle
income buyers
Summary
With limited resources, including middle incomes in Inclusionary Zoning reduces
resources available to provide affordable housing to lower income households. Staff has
identified a list of possible approaches to providing affordable housing for middle income
households that will be analyzed further in Phase III of the Affordable ]lousing review.
Staff anticipates moving into Phase III mid-year 2009.
4. I.AND SWAP
AGENDA ITEM 4 6A Face 31
Currently two variations on land donations are allowed as off=site options for meeting the
Inclusionary Zoning requirement:
1. Land at equivalent value
2_ Land to construct equivalent units
Why is this being reviewed?
Given current proposed changes to the Inclusionary Zoning program land swap option
may become more attractive and viable.
Public Comment (2008-2009)
There were no comments concerning this item.
Analysis
Neither option adequately addresses zoning, location or the desirability of the land in
question. In both cases, inefficiencies inherent in the development process would not
result in provision of the number of units the "swap" represents without additional
subsidy. Value of the land does not address any qualitative issues nor is there any
correlation with the ultimate provision of the required number or type of affordable units-
If the land is not appropriately zoned or desirable for housing, the only option would be
to sell the land and use the proceeds to acquire affordable units elsewhere.
Proposed modification:
Eliminate the "land at equivalent value" option and modify the "land to construct
equivalent units" option to include the following provisions for the proposed land:
a. Must be with-in the city limits;
b. Must be zoned so as to have sufficient development potential to result in an
equivalent number of units to the obligation being satisfied including those
affordable units that would have been required on the site had it been
developed outside of the land swap;
C. Must allow for provision of units of equivalent size and type to that which
would have been built on-site;
d. Land swap and location of site to be approved by the city Manager.
Staff and Budgetary Impacts
The proposed option can be implemented with available staff ing.
Land Swap Modification Pros/Cons
-Option Pros Cons
Modify the Land to Construct - Addresses zoning and location - Reduces land swap
Equivalent Units - Insures an equivalent number of options from two to one
units to what would have been built
on-site
Summary
The proposed option addresses zoning, location or the desirability issues and would result
in provision of the number of units the "swap" represents without additional subsidy.
AGENDA ITEM # 6A Page 32
5. SUMMARY CHART
Proposed Changes to Inclusionary Zoning
Cash-in-lieu _Options Pros _ Cons _ _
FMost 1. Affordability Gap - Reflects cost to acquire - Substantially increases
Feasible Base CIL on the gap reasonably similar market current cash-in-lieu
between affordable price units for permanently amounts.
Phase-in? and median market price affordable housing across the
for certain units range of housing programs.
- Likely to result in
Detached: $231,400 substantially more on-site
(93% increase) units than with current cash-in-
Attached: $226,765 lieu amounts.
(106% increase)
2. Cost to Construct -Reflects the subsidy needed - Substantially increases
Base CIL on the gap to construct new permanently current cash-in-lieu
between affordable price affordable units. amounts.
and cost to construct a - Likely to result in substantially -Based on new
new permanently more on-site units than with construction, not
affordable unit current cash-in-lieu amounts. acquisition, which is the
more likely and needed
Detached: $244,313 use of cash-in-lieu funds.
(104% increase) - Based on market data
Attached: $223,543 that can either change
(103% increase) rapidly or be somewhat
subjective
3. No change to current - Has the least impact on the - Does not address the
cash-in-lieu amounts development community increasing gap between
-No need for additional affordable prices and
feasibility analysis market prices
- Reduces city's ability to
keep up with community's
_ affordable housinqneeds
On-site Options
Most 1. No change to current - insures adequate cash-in-lieu -results in fewer on-site
Feasible requirement that a funding homeownership units than
minimum of 50% of the - results in the most subsidy for the other options
required affordable units provision of off-site rentals -results in fewer units
be provided on-site - would result in most units distributed within each new
overall development
2. Require a minimum of - increases the number of units - reduces cash-in-lieu
60% of the required units built on-site - may reduce subsidy of off-
_ia - be provided an-site site rentals
AGENDA ITEM # bA Pal!e 33
3. Require a minimum of - increases the number of units - reduces cash-in-lieu
70% of the required units built on-site - may significantly reduces
be provided on-site subsidy of off-site rentals
- results in fewer units
overall
- reduces options for
compliance with
Inclusionary Zoning
Middle Income in Inclusionary Pros Cons
Zoning Options
Most 1. Allow affordable housing - Does not reduce the number Very limited impact given
Feasible funds, which include cash- of affordable housing units the small number of
in-lieu to be used to obtain obtained on-site through IZ for middle income subsidies
housing for middle income lower income households current funding would
households - Addresses the need for support.
affordable housing for middle - Reduces the amount of
income households funding available for
subsidizing lower income
_ households
2. No Change, do not - Does not reduce the number - Does not address the
include middle-income in of affordable housing units need for affordable
Inclusionary Zoning obtained on-site through IZ for housing for middle income
lower income households households
- Retains the amount of
funding available for
subsidizing lower income
_ households
3. Include middle incomes - Retains the amount of - Reduces the number of
households at 80%-100% funding affordable housing units
of AMI in the 20% available for subsidizing lower obtained on-site through
requirement for Inclusionary income households IZ for lower income
Zoning households
- Limited impact given the
small number of middle
income units that would be
realized
- May result in affordable
units that are not desirable
to prospective middle
income buyers
_ Land Swap
Most Modify the Land to - Addresses zoning and - Reduces land swap
Feasible Construct Equivalent Units location. options from two to one
- Insures an equivalent
number of units to what would
have been built on-site
VI. ADDITIONAL INFORMATION
1. Inclusionary Zoning and Site Review
Council expressed an interest in exploring if .Inclusionary Zoning could be included as
part of site review. This could provide the ability to look at trade-offs in a project in a
AGENDA ITEM # 6A Page 34
more comprehensive way and to provide for oversight and transparency of the
Inclusionary Zoning Program by Planning Board and City Council.
How a particular project meets its Inclusionary Zoning requirement is addressed in the
ordinance and administrative regulations and is a legislatively set requirement applied
consistently throughout the city. This offers a high level of predictability for the
development community. It is a fundamentally different process than land use decisions
that are subject to case by case determination through some type of discretionary review
such as site review. A determination of Inclusionary Zoning compliance is required prior
to any land use approval including site review.
Without a complete redesign of the Inclusionary Zoning program, it is not viable to
include any part of the standard 20% Inclusionary Zoning requirement in site review as
site review criteria can be subject to trade-offs or case-by-case consideration. However, it
is possible to consider provisions of additional affordable housing, above and beyoyuf
affordable housing required by the Inclusionary Zoning ordinance in site review such as
an additional affordable housing requirement for the downtown residential density bonus
and height modification.
Staff proposes that issues of accountability and transparency be addressed by the Housing
Division through a quarterly update to council that details how the Inclusionary Zoning
requirement will be met for any projects in process including information on any requests
to provide less than the required percentage of affordable units on-site. This information
,xill be provided to City Council and posted on the HHS website for public review.
2. Current Economic Conditions
The economic recession, entering its second year, is already the longest on record in a
quarter century. Projections about when it will end are wide ranging. Some economists
predict it could be one of the longest recessions the country has ever experienced. More
optimistic economists believe that the federal government will jump start the economy
back to health by the third quarter of 2009.
While Boulder's real estate market and economy are faring better than most of the state
and nation, it will be impacted by the current recession. Banks are holding potential
homeowners to much stricter standards and many buyers are experiencing difficulty
qualifying for home mortgages. This trend could impact homebuyer's capacity to both
enter and move up in the market.
Housing development financing is also more difficult to obtain. Tax credits are frequently
used to provide equity to low-income rental housing projects. Projects apply for an
allocation of tax credits which are then sold to investors. Over the last six months, the
market for low income housing tax credits has fallen considerably. The amount that an
eligible project could receive has fallen from approximately $.97 on each $1.00 of tax
credit to as low as $.70 on each $1.00. The reduction in tax credit equity will affect the
ability of local non-profits to develop affordable projects. More specifically it could
impact Boulder Housing Partner's Boulder Mobile Manor redevelopment project.
AGENDA ITEM # 6A face 35
I
Other potential impacts to the Affordable Housing program of the recession include:
• Increase in unemployment
o Increase in foreclosures of affordable homes
o Default on purchase contracts of affordable units due to job loss
o Increase in resales; owners forced to sell their hornes due to job loss
0 Fewer potential affordable buyers able to qualify for mortgages
o Low/moderate income groups most affected
• 11igher down payment requirements
o Low/rnoderate income groups most affected
3. Affordable Housing Program impact on Market Price
The city contracted with Economic and Planning Systems, Inc. (EPS) to examine the
impact of the lnclusionary Zoning program on market prices over the 2000 2008 time
frame. The analysis concludes that the cash-iii-lieu payment has produced a minimal
effect on the price of market rate homes.
The entire CPS analysis is included as Attachment I. Also provided as background
information is a study done by the Lincoln Institute of Land Policy on how Inclusionary
Zoning may affect market prices (see Attachment K).
4. Key Program Decisions for the Affordable 11ousinp, Program
A complete history of the city's affordable programs including information on key
program decisions can be found in Attachment L. For a map of all affordable units in the
city including those acquired through lnclusionary Zoning, funding and annexations see
Attachment M.
5. The 11:eed for Affordable Housing
In 1999, the city of Boulder sponsored a Housing Needs Assessment with Boulder Housing
Partners, Thistle Community Housing, and the Enterprise foundation and in 2005, the city
sponsored a Regional }lousing Assessment in conjunction with Boulder County, Boulder
County Housing Authority, the City and County of Broomfield, Boulder Housing Partners,
Town of Erie, City of Lafayette, City of Longmont, Longmont Housing Authority, Longmont
Housing Development Corporation, "Town of Louisville, Town of Superior, and Thistle
Community I touring. For a summary of the results of these needs assessments see
Attachment N.
6. What Other Communities are Doing
Economic & Planning Systems, Inc (EPS) examined the Inclusionary Zoning ordinances
from a number of other communities to identify approaches to achieving on site units and
alternate calculation of in lieu fees. Each community examined has been successful at
achieving high rases of on-site affordable housing development.
AGENDA ITEM # 6A Pa--e 36
The'fiill CPS report is included as Attachment 1. As additional background information a
chart showing the details of the affordable programs for other communities with profiles
similar to boulder, our peer cities, and other Front Range communities is provided in
Attachment O.
7. Update on Administrative Changes Proposed at the Dvicemher 16. 2008 Cit>
Council Meeting
At the December 16, 2008 council meeting staff presented several administrative and
process changes that were being implemented independently. Since that meeting, staff
has been developing procedural changes with the intent of making the Inclusionary
Zoning process more accountable and transparent and strengthening the ability of the city
to realize the percentage of required affordable units on-site that the code indicates. More
information on the steps being implemented is available in Attachment P.
VII. NEXT STEPS
Moving forward with possible changes to the cash-in-lieu amounts and percentage of
affordable units required on-site requires feasibility analysis before implementation to
insure that residential development can achieve a reasonable return on investment. In the
interest of proceeding as soon as possible with possible Inclusionary Zoning code
changes, FPS has been directed to conduct pro-forma analysis on cash-in-lieu option #1
that staff has identified as most feasible and the three on-site options proposed. Five
development scenarios are being analyzed:
1. A downtown, premium sales price, high density project;
2. A moderate density project in the transit village area (TVA);
3. A high density project in a non-premium price location;
4. A moderate Density project outside of downtown and'the "f VA;
5. A low density project on vacant land.
It may be necessary to adjust the final cash-in-lieu amounts based on the results of the
analysis.
1. Phase III: New Initiatives
The following is a list of possible work items for the next phase of the affordable housing
review.
1. Explore new funding sources
2. Serving middle income households
a. Review annexation policies
b. Employer assisted housing, tax incentives and other strategies
c. Loan programs: equity sharing (soft seconds), rehabilitation of single
family homes, down payment assistance
d. Preserve older multifamily housing stock as relatively affordable
c. Accessory dwelling units (ADU's) as market rate housing available to
middle income households
3. Strengthen regional strategies
AGENDA ITEM # GA Pale 37
4. Congregate care and assisted living: increase affordable options fur seniors
5. Annexations: establish affordable housing policies for substantially undevelopcd
properties
6_ Increase community awareness about affordable housing needs and programs
7. Rental policies: funding, pricing, acquisition
8. Mobile Home Park strategies and policy assessment
9. Require affordable housing benefits from rental conversions to condominiums and
multi-family buildings that are demolished and redeveloped
Staff anticipates receiving council feedback on the issues presented at this study session
through approval of the study session summary on April 21, 2009. Staff will be returning
to City Council on May 19, 2009 for approval of final recommendations for changes to
the Inclusionary 'honing policies. Changes to the administrative regulations will
commence as soon as possible after adoptions of any ordinance changes. The May 19,
2009 council meeting will also include approval of social policy recommendations and
staff will present staffing, budgeting, and approximate time frames for completing each
Phase III item and will ask council direction on priorities. Stallanticipates that options
with regard to Phase 111, New Initiatives may be brought to council during the 4'h quarter
of 2009.Staff will update Planning Board on this project at the May 7, 2009 meeting.
ATTACHMENTS: All attachments are available online at:
http://www.bouldcraffordableliomes.com click on CIiAT's: A Review of Boulder's
Affordable Housing Programs.
A. Community Meetings: December 12, 2008 and December 15, 2008, summary
of comments
B. Roundtable Discussion, January 26, 2009, Summary Of Co1]lmeniS
C. Correspondence
D. Dates of Council Memos and Weekly Information Packets
F. Profile of Income Groups
F. Map of all Units and Cash-in-lieu Acquired Through Inclusionary Zoning
G. Atfordahlc Housing Fund Expenditures and Projects
H. Flow chart: I lousing Division and Planning Dept.
1. Economic and Planning Systems, Inc. study
J. Affordable Housing for Middle Incomes in Other Communities
K. Lincoln Institute of Land Policy: Inclusionary housing, incentives and land
value recapture
AGENDA ITEM # 6A Pale 38
L. 1 listorv of Aflardable Housing in Boulder
M. Mall of all I I0111cowncl-shi1) Ohits
N. Summary of the 1999 and 2005 Needs Assessments
Affordable Ilousing Profiles oi,Pccr C'itics and Colorado Communities
P. Update on the Dce. 16"' Council mcctiny
AGENDA I'I E.N'l # 0A fiat 19
ATTACIIMEN"f R
CITY ()F BO C; I, 1)f:R
CITY COUNCIL AGENDA ITEM
MEETING DATE: April 21, 2009
AGENDATITLE: Consideration ol'a motion to accept the March 31, 2009 Study
Session Summary regarding Affordable Housing Review Phase II regulatory tools
PRESENTER/S:
Jane S. Brautigam, City Manager
Stephanie A. Grainger, Deputy City Manager
Karen Rahn, Housing and Human Services Interim Director
Robert Ray, Housing Division Manager
Michelle Allen, I lousing Planner
EXECUTIVF. SUMMARY:
This agenda itern provides a summary of the March 31, 2009 City Council Study Session
on the Affordable I lousing Review: Phase 11, Regulatory Tools. The purpose of this study
session was to provide council with background information on the city's Inclusionary
Zoning Program and potential options for changes. The key questions for council
consideration were:
1. Does council have questions or comments about the Inclusionary "Zoning goal to
require sonic of the affordable units on-site to meet social integration goals while
some may be provided through other options such as cash-in-lieu of units to meet
the goal of maximizing the number of units obtained?
2. Does council have questions or feedback on the options proposed for:
a) I low the cash-in-lieu amount is determined;
a. phasing in cash-in-lieu increases over time;
b. mitigating cash-in-lieu impacts on small projects;
b) The on-site requirement and how this requirement is administered;
c) Serving middle income households through Inclusionary Zoning;
d) Modifications to the land swap option'?
Attached is a summary of council's discussion of the issues and questions that were
presented at the study session.
AGENDA ITEM 14 GA Page 40
STAFF RECOMMENDATION:
St:s;;;cstccl 1lutiun Lant;ua~~ - -
St"ff l-CCIuests C'oiulcil consideration ofthis summary and action in the form of the
Iollowirlg motion:
Mt lion to ~Iccept the study session summary fOr March 31, 2009 regarding the al 'or(table
hous;jng program review of Phasc 1l Regulatory TOMS.
Approved by:
Jane S. 13rautigam,
City Manager
Attachment:
A- March 31, 2009 Study SCSSiOll Summary for the Affordable Housing Review
Phase 11, Regulatory "fools
AGENDA ITEM #f_ 6A Pape 41
ATTACHMENT A
March 31, 2009
City Council Study Session Summary
Affordable Housing Program Review Phase Ii: Regulatory foots
PRESENT
City Council: Mayor Matthew Appelbaum, Crystal (fray, Suzy Ageton, Macon
Cowles, Angclique Espinoza, Lisa Morzel, Susan Osborne, and Ken Wilson
Staff: Jerry Gordon, City Attorney; Karen Rahn, Housing and Human Services
Interim Director; Robert Ray, Housing Division Manager; Michelle Allen,
Housing Planner; Heather Shea, Homeownership Program Manager;
Barbara Long, Finance
Consultants: Dan Guimond, and Josh Birks of Economic & Planning
Systems, Inc. (FPS)
PURPOSE
This study session was part of the city's Affordable Housing Review which consists of
three phases:
Phase I - Goals and Strategics Review
Phase lI - Regulatory Review
Phase III - New Initiatives
Staff is currently conducting, Phase 11, Regulatory Review of the city's affordable housing
programs. The purpose of the study session was to provide council with background
information on the city's Inclusionary "Zoning program and information concerning
potential options for changes to the Inclusionary Zoning Ordinance and Regulatory Rules.
Council was asked to provide feedback to staff on proposed options to modify Inclusionary
Zoning. Staff and the consultants from Economic & Plaiuiing Systems (EPS) developed
two alternative cash-in-lieu approaches based on affordability gap analysis and cost to
construct methodologies which, along with a no change option make up three possible
approaches for modifications to the cash-in-lieu amounts. Changes to the percentage of
affordable housing units required on-site, three possible options for including middle
income households in Inclusionary Zoning and one proposed modification to the land
dedication option were also presented. In addition, details of the Inclusionary Zoning
program were discussed including a variance procedure for requesting less than halfof the
required affordable units be built on-site, mitigation for smaller projects for any possible
cash-in-lieu increases, and phasing in possible cash-in-lieu increases.
AGENDA ITEM # GA Pa(.Ye 42
Additional background information was provided in the study session memo on the
fo'blowing topics:
I . Inclusionary Zoning and site review;
2. Current economic conditions that may affect the local affordable housing
program;
3. The possible effects of the affordable housing program on the housing market;
4. Background information on key program decisions for the affordable housing
program;
5_ Determining the need for affordable housing;
6. How other communities address Inclusionary Zoning and achieve on-site units;
7. Progress on the administrative and process changes discussed at the December
16, 2008 council meeting.
OVERVIEW OF THE PRESENTATION
The presentation was made by Karen Rahn, Housing and Human Services Interim
Director, Robert Ray, Housing Division Manager; Michelle Allen, Housing Planner, and
Dan Guimond and Josh Birks, consultants with }✓conomic and Planning Systems.
Karen Ralin introduced the speakers, reviewed the three phases of the Affordable Housing
Program Review and the agenda for the study session and provided details on the
feasibility process used in the development of the Inclusionary Zoning options being
presented. Robert Ray reviewed the basics of InclusionaryZ.oning and the results of both
the city-wide affordable housing program and the Inclusionary Zoning program. Robert
dcfincc'. area median income, explained the affordability gap and introduced the first key
question concerning the goals of the Inclusionary Zoning program. At this point in the
presentation council engaged in a discussion considering the first key question.
Michelle Allen provided details on why specific aspects of Inclusionary Zoning were being
called for review and the pros and cons for proposed modifications. She presented options
for changes to the cash-in-lieu amounts and on-site requirement. As part of this section of
the presentation she updated council on the proposed Planning and Housing Division
analysis of the downtown density bonus and height variance that would include a provision
for additional community benefit. She noted that these tools could be used effectively to
address the specific equity concern that housing units in the more expensive downtown
area have the same Inclusionary Zoning and cash-in-lieu requirements as housing units in
other areas of the city.
Two alternative cash-in-lieu approaches based on affordability gap analysis and cost-to-
construct methodologies along with a no change option were presented as the three
possible approaches for modifications to the cash-in-lieu amounts. The first two
methodologies resulted in an amount that would approximately double current cash-in-lieu
amounts, should either to be adopted outright. On-site options are dependent on the
AGENDA ITEM # 6A Page 43
ultimate cash-in-lieu amount and include retaining the 50 percent requirement or
increasing the requirement to 60 or 70 percent.
Dan Guimond and Josh Birks with EPS discussed their preliminary findings concerning
the effects of a substantial cash-in-lieu increase on development feasibility and the ability
of developers to achieve a reasonable return on investment.
After a brief council discussion on the EPS analysis and question and answer period with
staff and the consultants, staff finished the presentation of pros and cons for serving middle
income households through Inclusionary Zoning along with a possible modification of the
land dedication option. The analysis showed that including middle income households as
recipients of Inclusionary Zoning units would reduce benefits of housing and/or funding
that currently assist lower income households thereby extending the amount of time it
would take for the city to reach agreed upon goals for serving lower income groups.
COUNCIL DISCUSSION:
The Study Session memo provided two questions for council consideration:
1. Does council have questions or comments about the Inclusionary Zoning goal to
require soi11L' Of the affordable units on-site to meet social integration goals while
some may be provided through other options such as cash-in-lieu of units to meet
the goal .f maximizing the number of units obtained?
2. Does council have questions or feedback on the options proposed for:
a) How the cash-in-Lieu amount is determined;
a. phasing in cash-in-lieu increases over time;
b. mitigating cash-in-lieu impacts on small projects;
b) The on-site requirement and how this requirement is administered;
c) Serving middle income households through Inclusionary Zoning;
d) Modifications to the land swap option?
Council comments relative to each question are listed below.
1. Does council have questions or comments about the Inclusionary Zoning goal to
require some of the affordable units on-site to meet social integration goals whale
some may be provided through other options such as cash-in-lieu of'units to meet
the goal of maximizing the number of units obtained?
Council was in general agreement that the program should continue to be flexible and
balance the two goals of social integration with maximizing the numbers of housing units
obtained and also agreed that the current one-size-fits-all program may not work given the
variation in costs and value around the community.
Several council members expressed less concern about social integration on a project by
project basis, pointing out that integration could occur neighborhood wide. Most indicated
that acquiring more units off site than what would have been provided on-site was a good
AGENDA ITEM # 6A Pale 44
trade-off and acknowledged the benefit gained from the five single family homes build off-
site. Council requested staff provide additional information on leveraging; how other types
of funding relate to and increase the buying power of cash-in-lieu funds.
Council acknowledged that the study session would be somewhat circular and that the
overall goal of lnclusionary Zoning was relative to the cash-in-lieu (CIL) discussion and
decisions and as such could change. Several council members indicated they thought the
initial goal of the InclusionaryZ,oning program was to achieve social integration through
on-site units.
It was pointed out that due to the failed affordable housing tax, Inclusionary Zoning has
become a counted upon source for funding for affordable rentals and for maintenance of'
the existing affordable housing stock. Council generally agreed that it was important to
look at how affordable housing programs can help to keep families in Boulder and children
in their schools. There was interest expressed in financing and other methods for provision
of affordable housing being used by other cities.
2. Does council have questions or feedback on the options proposed.for:
a) flow the cash-in-lieu amount is determined;
a. phasing in cash-in-lieu increases over time;
b. mitigating cash-in-lieu impacts on small projects;
b) The on-site requirement and how this requirement is administered;
c) Serving middle income households through Inclusionaiy Zoning;
d) Modifications to the land swap option?
Cash-in-lieu
Council had a number of concerris and desires for possible modifications to the
Inclusionary Zoning prograrn and generally endorsed moving forward as soon as possible
with some change to the cash-in-lieu amounts. Some council members also supported
phasing in any increases in cash-in-lieu amounts and exploring mitigation for smaller
projects. Council requested that staff analyze and propose modifications to the
methodology used to make annual cash-in-lieu adjustments.
Council expressed interest in varying the cash-in-lieu and on-site requirements for different
geographic areas, sizes or values of housing units and requested the city attorney analyze
these approaches and any possible legal issues. Council requested that staff analyze an
approach that would require off-site units be provided within some identified proximity to
the new development project, such as within the school catchment area or within the same
neighborhood. Additionally, council wants to address a discrepancy in the Inclusionary
Zoning ordinance that imposes a lower requirement for fewer, larger units over more
smaller units built in the same space.
Several council members discussed development feasibility and a developer's reasonable
return on investment from their- project. Pointing out that while these are useful tools, they
AGENDA ITEM 11 6A Pale 45
don't necessarily define limitations as the market will adjust to higher costs over time by
either lowering land prices or increasing market values; most likely a combination of both.
Council discussed the possibility of decoupling the expectation of cash-in-lieu money
through the Inclusionary Zoning program as general funding for affordable housing. Sonic
council members thought that the current methodology is basically sound, but that there
should be a phased in increase to cash-in-lieu amounts. One council rnember suggested
involving community members that work in the housing industry such as developers, non-
profits, lenders, etc. in a discussion on how to best meet the community's affordable
housing goals and incentivize the construction of affordable housing.
During the presentation Dan Guimond and Josh Birks from EPS discussed their
preliminary findings concerning the effects of doubling the cash-in-lice amounts on
development feasibility and the ability of developers to achieve a reasonable return on
investment.
They found that the 2009 cash-in-lieu payment with no units provided on-site is feasible
across all development scenarios; an on-site requirement of more than half of the
affordable units provided on-site with an increased cash-in-lieu amount is not feasible
under any of the test scenarios (assuming a 12% required return); a 50% on-site
requirement and no change to the cash-in-lieu amounts is moderately feasible across all
scenarios-excluding the downtown area. If on-site units are not required, downtown can
achieve financial feasibility with higher cash-in-lieu amounts. They pointed out that the
impacts of the proposed increases are greater on smaller projects.
Possible incentives such as density bonuses were discussed. Josh Birks pointed out that a
density bonus is of limited use in Boulder due to tine height restriction- Josh added that the
impacts are different in the downtown area and suggested that the city should think about
structuring the program differently for the downtown area. lie also indicated that in the
current market the ability to adjust for higher- fees will be a timing issue and suggested that
council might want staff to explore other incentives to assist the development community
with any adjustments to the program that may result in additional impacts. EPS stressed
that its findings were preliminary and added that additional work would be done on
development feasibility pending the outcome of the study session.
On-site Requirement
Council generally favors the 50% on-site requirement and supports continuing to allow the
option to build fewer units on-site when, in the city's detennination, on-site units are not
desirable, such as projects with homeowner fees that make it difficult to maintain
affordability. Council requested that staff analyze whether off-site units could be provided
in the same geographic area as the site where they would have been provided on-site.
One council member expressed surprise that in come cases developers are allowed to build
smaller units than required and pay for the difference with cash-in-lieu. Council requested
that staff review the current rules that allow this buy-out of the size restriction.
AGENDA I'T'EM tt 6A Palze 46
Serving, Middle Income Throup_h Inclusionary Zoninp,
There was general agreement among council on the importance of saving middle income
households, however, there was no consensus on serving this demographic through
Inclusionary Zoning at this time. Some council members stated that serving middle income
households through Inclusionary Zoning was not as important to them as meeting the
needs of lower income households and could result in an adverse impact on the current
populations being served through Inclusionary Zoning. One council member thought there
might be some land use fixes for this dilemma, i.e., modifying zoning to allow additional
middle income units in some residential districts. Some council members also want to
explore the use of accessory dwelling units and owners accessory units to meet the needs
of middle income households-
Other council members stated that the problem of losing middle income households is of
the highest priority and should be addressed as soon as possible. These council members
wouldn't preclude using some housing funds to serve middle income households.
Council requested more information on the other types of programs and approaches it
might want to consider as they move toward a decision about whether and how to modify
the Inclusionary Zoning program.
Land Dedication Modification
Council was in general agreement that staff could proceed with the recommended
modifications to this option.
General Concerns
Council expressed concerns with the following issues and requested staff follow up:
• Conduct a needs assessment that includes middle income households and the need
for rental versus homeownership units.
• Establish priority for households with dependents for larger and family friendly
affordable homes.
• Review requirements for annexations.
• Analyze homeowner association fee impacts and possible mitigation for affordable
home owners.
• Assess the combination of all proposed development fee increases.
• Include substantive Inclusionary Zoning regulations and rules in the ordinance.
• Consider board oversight for the adoption of regulatory rules.
• Ensure that it is the city's option, rather than the developer's option, to allow fewer
than half of the affordable units be provided on-site.
• Develop an outline of possible new affordable housing program elements and make
an estimate of the funding that may result.
AGENDA ITEM # 6A Page 47
N1,XT S1 EPS:
Council requested that slaff return with options as soon as passible.
A council agenda itch is schcdulal Im May 19, 2000 for a public hearing to begin
implementation of any Incluslouary Zoning ordinance changes. The May 19.2009 Council
mccting will also include approval of social policy rocommendations and prioritization of
Phase 111 issues. Staft'will update Planning Board on this project at the May 7, 2009
meeting.
A(ANDA ITEM N 6A PaLv 48
ATTACHMENT C
Summary of Meetings and Correspondence with Council
The Department of Ilousing and Human Services initiated a review of the city's
affordable housing programs early in 2008. On February 27, 2008 staff-submitted the
//')rdable Housing Report to City Council to provide Council members and the
community with information concerning Boulder's CuIYent affordable housing goals and
related demographic data. The Affordable IIousing Report can be found online at:
littp://www.boulderaffordabIchonnes.corn click on CHAT's: A Review of' Boulder's
Affordable Housing Programs.
February 27, 2008 - A Weekly Information Packet item was submitted to kick off the
project.
April 9, 2008 - A Weekly Information Packet item was submitted to provide information
about the planned public process for the review.
April 15, 2008 - City Council meeting, council expressed a desire to discuss elements of
the public process with staff.
June 5, 2008 - Study Session to discuss public process.
October, 2008 - Phase 11, the review of regulatory tools.
December 2, 2009 - Staff submitted a memo to council presenting the results of Phase I,
the Social Policy review. Council asked that the memo be pulled from the agenda and
resubmitted at a later date.
December 2, 2008 - Council considered a related item on next steps in the analysis of the
downtown floor area ratio (FAR) residential bonus. One aspect of that analysis was to
look at the amount of affordable housing the city added in the downtown as a result of
m3hisionary zoning. Council requested that housing staff'return on December 16 with
clarification of hnelusionary Zoning (1Z) implementation and operational procedures.
December 16, 2009 Council meeting to clarify Inclusionary Zoning (IZ)
implementation and operational procedures.
March 31, 2009 - Study Session with Council to discuss modifications to the
inclusionary zoning program.
AGENDA ITEM 0 6A Pape 49