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5B - Potential amendments to Title 9, B.R.C. changing the name "Inclusionary Zoning" to "Inclusionary Housing"
CITY OF BOULDER PLANNING BOARD AGENDA ITEM MEETING DATE: July 16, 2009 AGENDA TITLE: Public hearing and Planning Board feedback concerning potential amendments to Title 9, B.R.C. 1981, Inclusionary Zoning including; changing the name "Inclusionary Zoning" to "Inclusionary Housing"; mitigation of cash-in-lieu increases on smaller projects; modifications to criteria allowing alternative methods of compliance to inclusionary requirements; pricing sheet changes; and minor code updates for consistency with current practices. PRESENTERS: Karen Rahn, Director, Housing and Human Services Robert Ray, Housing Division Manager Michelle Allen, Housing Planner 1. EXECUTIVE SUMMARY The Affordable Housing Program Review consists of three phases: Phase I - Goals and Strategies Review Phase II - Regulatory Review Phase III - New Initiatives The Affordable Housing Program review is currently in Phase II, Regulatory Review, which focuses on inclusionary zoning. Background information is provided concerning the Housing Excise Tax and possibilities for funding affordable housing (no action is requested at this time for this item) as well as on the general inclusionary zoning requirements, program elements, and results of the program since its adoption in 2000. Planning Board feedback is requested concerning the department of Housing and Human Services proposed name change for the Inclusionary Zoning Program from "Inclusionary Zoning" to "Inclusionary Housing." For many people the term inclusionary zoning may not indicate that the propose of the program is to acquire affordable housing for the community. Included in this memo is information on specific Council direction or motions for modifications to the inclusionary zoning program concerning: 1) raising the cash-in-lieu (CIL) amount for a required affordable housing unit 15% per year until 75% of the affordability gap is reached; 2) retaining the current 50% on-site requirement; 3) modifying the land dedication option; and 4) applying inclusionary zoning to redevelopment projects with five or more units. AGENDA ITEM # PAGE 1 This memo also includes a summary of the social policy review and information about City Council's motions to retain the 10% goal for very low, low and moderate income households, the associated rental and ownership priorities and the addition of a new goal to have 450 permanently affordable housing units available to middle income households. The issues and options presented to City Council for these items are included in the March 31 Study Session and June 2 City Council meeting memos. The March 31 study session memo was previously provided to the Planning Board as an attachment to the update memo presented at the Board's May 7, 2009 meeting. The June 2 City Council memorandum is provided here as Attachment A. Planning Board feedback is also requested for proposed inclusionary zoning modifications for which staff has received general City Council direction on: 1. Mitigation of cash-in-lieu increases for smaller projects; 2. Language and criteria modifications for alternative means of compliance to the inclusionary zoning on-site requirement; 3. Two proposed pricing sheet changes and; 4. Code clean-up items addressing such issues as the requirements concerning distribution of affordable units within a project, construction concurrency for affordable units, and the required open marketing period for affordable units. (City Council has provided direction on some but not all code clean-up issues.) A brief discussion regarding the discrepancy in inclusionary requirements for projects with the same amount of square footage but different size units is also included in this memorandum. No Planning Board recommendation is requested on this issue at this time. Staff anticipates returning to Planning Board on September 17, 2009 with draft code language and draft administrative regulation language to implement all inclusionary zoning policy changes and will return to City Council on October 20, 2009 for first reading. II. STAFF RECOMMENDATION Housing Division staff request Planning Board feedback on: 1. The proposed program name change from "Inclusionary Zoning" to "Inclusionary Housing"; 2. Mitigation of cash-in-lieu increases on projects with one to four units by increasing cash-in-lieu on these size projects 7% per annum compounded; 3. Changes to the rounding rule for the on-site requirement to round down if a percentage of a unit is less than .5% and round up if a percentage of a unit is .5% or more; AGENDA ITEM # 6 PAGE 2 4. Modifications to criteria allowing alternative methods of compliance to the 50% on- site inclusionary requirement; 5. Proposed price sheet changes; and . 6. Other "code clean-up" items as recommended in this memo. III. PUBLIC FEEDBACK Staff initiated the social policy review of the affordable housing program in July 2008 The process included small group discussions with targeted stakeholders (civic groups, developers, and service providers) and one public meeting held on August 14, 2008, which was sponsored by the Community Foundation. See Attachment B for attendees and comments. A Spanish language public notice was produced and distributed to groups working with the Latino immigrant conummity and translation was provided for the public meeting. The city also contracted with RRC Associates, Inc., a private consulting firm, to survey current residents in affordable units and mobile home residents. An online survey of employers and employees (with particular emphasis on commuters) was also undertaken. Staff also consulted with the Boulder Economic Council, PLAN Boulder, the Human Relations Commission and the University of Colorado during the process. Five public meetings have been held during Phase II of the Affordable Housing Review. Two public meetings were held on Dec. 12, 2008 and Dec. 15, 2008 and a roundtable discussion on January 26, 2009 prior to the March 31, 2009 study session. A second roundtable discussion and one additional public meeting were held on June 4' and June I0`h respectively. A summary of these two June meetings are included as Attachment C. All emails and letters received by staff concerning this project are included with this memo as Attachment D. At the recent public meetings held in June, there was general concern about raising the cash- in-lieu amounts and the emphasis placed upon requiring on-site units. Developers present at these meetings were in agreement that the affordable program is best served by cash-in-lieu payments which can be leveraged with other funds to reduce the city's subsidy per affordable unit and that off-site acquisitions can, in some cases, meet the housing needs of households with dependents better than units acquired on-site through inclusionary zoning. Participants also discussed the discrepancy between the affordability gap for a rental unit versus a homeownership unit and suggested that the city should eliminate or mitigate the affordable housing requirement for rental projects reasoning that by its nature rental housing contributes to the affordable housing stock. Participants were informed that a review of affordable housing rental policies is scheduled for Phase III of the Affordable Housing Review. There was general support at the meetings for a future tax ballot initiative to provide funding for the affordable housing programs paid for by the entire community. There was also sentiment expressed that the city should try to use incentives to achieve community goals instead of penalties. AGENDA ITEM # 1- 19 PAGE 3 IV. BACKGROUND The city Housing Division initiated the Social Policy review of the affordable housing program in July 2008. The process included small group discussions with targeted stakeholders (civic groups, developers, and service providers) and one public meeting. The social policy review focused on the current affordable housing goals, priorities and progress towards achieving the goals. Participants were asked: "Is the 10% goal adequate?" and "Should priorities for incomes to be served and homeownership versus rentals be changed?" The resulting recommendations were included in the December 2, 2008 City Council meeting materials. At that time the agenda item was postponed at City Council's request and subsequently presented to City Council on June 2, 2009. At its June 5, 2008 study session, City Council agreed with the overall goal of the affordable housing programs: To preserve Boulder's socio-economic diversity by offering a range of housing options. City Council requested that Phase II, regulatory policies focus on revising the cash-in-lieu amounts and re-examining the on-site requirements of inclusionary zoning. City 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) many of which will be addressed in Phase III when the regulatory review is substantially completed. At a March 31, 2009 Study Session City Council was in general agreement that the program should continue to be flexible and balance the provision of affordable units within development projects with maximizing the number of affordable housing units obtained. City Council agreed that the current one-size-fits-all program may not work given the variation in costs and value in the community. Staff presented options on the following four issues for modifications to the inclusionary zoning program and requested City Council feedback: 1. 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; 2. The on-site requirement and how it is administered; 3. Serving middle income households through inclusionary zoning; and 4. Modifications to the land dedication option. City Council generally endorsed moving forward as soon as possible with some change to the cash-in-lieu amounts and requested that staff and the city attorney provide feedback about basing inclusionary zoning requirements on location, size or value of the units in a project. Some City Council members also supported phasing in any increases in cash-in-lieu amounts and exploring mitigation for smaller projects. City Council generally favored retention of the 50% on-site requirement and showed support for continuing to allow the option to build fewer units on-site when, in the city's determination, on-site units are not desirable. City 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 and requested additional information regarding serving middle income households to help them make AGENDA ITEM # S)S PAGE 4 policy decisions concerning this demographic. City Council was in general agreement that staff could proceed with the recommended modifications to the land dedication option. A. Who pays for affordable housing? The underlying concept for funding affordable housing in Boulder is that both existing residents and new residential and non-residential development should contribute to affordable housing solutions for the community. In 2000 the Affordable Housing Task Force identified three mechanisms for funding the affordable housing goal: 1) Inclusionary zoning; 2) Tax for affordable housing; and 3) Commercial linkage. In November, 2000 a tax for affordable housing failed at the ballot. The tax was a key program funding mechanism. The tax failed by a margin of 52% to 48%. The measure would have added an additional $3,000,000 in affordable housing funds annually. Residents currently contribute to affordable housing through a property tax of 8/1 Oths of a mil. The development community has been involved in affordable housing since 1985 when the city established the Moderate Income Housing Program (MIHP). This program generally required that 15% of the total units in a project be sold to moderate income households. In 1991, the city discontinued the mandatory MIHP and replaced it with the Community Housing Assistance Program (CHAP), a voluntary program that provides subsidy funds to developers of permanently affordable housing as well as to non-profits to acquire existing housing. CHAP is funded through the collection of 8/1 Oths of a mil from the property tax and a housing excise tax (HET) on all new residential and non-residential development. In 1995, the city revised its Residential Growth Management System (RGMS). Projects that included at least 20% permanently affordable and 35% restricted units were able to receive the required RGMS residential development approvals, known as allocations, faster than those projects that contained market rate units exclusively. In 1997, the city established the first cash-in-lieu option for developers of projects that were in progress at the time the new RGMS was adopted. Approximately $13M was generated from this option. In 2000 the city simultaneously amended the RGMS to remove the affordable housing components and adopted the present inclusionary zoning program requiring that 20% of all new residential development be permanently affordable for low and moderate income households. The program provides options for meeting the inclusionary zoning requirement, including paying a cash-in-lieu amount for a portion of the required permanently affordable units. The current Housing Excise Tax (HET) is levied on all new development on a per square foot basis. The 2009 rates are $0.23 per square foot for residential and $0.49 per square foot for non-residential development. The HET has generated between $100,000 and $400,000 per year over the last ten years. These fimds have been used to acquire, construct or rehabilitate permanently affordable housing for households earning between 15% - 60% of the Area Median Income (AMI) defined as the "working poor" in the ordinance. The city has well- established programs and funding sources that secure permanently affordable housing from new residential construction and existing market rate housing. However, the funds generated by the current HET are not adequate to meet the demand for affordable housing generated by new non-residential development. AGENDA ITEM # PAGE 5 The 2009 Development Excise Tax Study by TischlerBise recommends that the city eliminate the HET on residential development and increase the HET for non-residential development. TischlerBise recommends that the Housing Excise Tax be set at rates that more accurately mitigate the demand for affordable housing generated by the various types of non- residential development. This recommendation recognizes that funding for affordable housing solutions should be shared by existing residents and new growth, both residential and non-residential as the entire city benefits from the retention of economic diversity in the city. At the July 7 City Council meeting three options were presented for changes to the Housing Excise Tax (the staff memo from this meeting is included as Attachment E): • Option 1: A phased-in TischlerBise model, including elimination of Housing Excise Tax (HET) on residential development and varying rate based on use; • Option 2: Maintain current HET rates for non-residential development, with elimination of HET on residential development; • Option 3: A phased-in increase to HET rates with no differentiation by use, and elimination of HET on residential development. For all options, staff recommended eliminating the HET on residential development since residential development already helps through inclusionary zoning to meet the demand for affordable housing. Phased TischlerBise Rates 2010 2011 2012 2013 2014 Retail/Restaurant $2.50 $4.00 $5.50 $6.65 $6.65 Office $2.50 $4.00 $5.50 $8.00 $9.10 Light Industrial $2.50 $3.57 $3.57 $3.57 $3.57 Business Park $2.50 $3.16 $3.16 $3.16 $3.16 Hospital $2.50 $3.38 $3.38 $3.38 $3.38 School $2.14 $2.14 $2.14 $2.14 $2.14 Mini-Warehouse $0.09 $0.09 $0.09 $0.09 $0.09 Warehouse $2.50 $2.97 $2.97 $2.97 $2.97 Projections 2010 2011 2012 2013 2014 Retail/Restaurant $45,000.00 $72,000.00 $99,000.00 $119,700.00 $119,700.00 Office $180,000.00 $288,000.00 $396,000.00 $576,000.00 $655,200.00 Light Industrial $75,000.00 $107,100.00 $107,100.00 $107,100.00 $107,100.00 Total Projected HET Revenue $300,000.00 $467,100.00 $602,100.00 $802,800.00 $882,000.00 Since this is a tax, it requires approval from a vote by the electorate. Placing a housing excise tax on the 2009 or future year ballot would complement the proposed revisions to the inclusionary zoning ordinance. Both inclusionary zoning and the HET are intended to address the growth related demand for affordable housing in the community; inclusionary zoning through a requirement for a percentage of new residential units to be permanently affordable, and the HET through a tax on non-residential development. At it's July 7, 2009 meeting, City Council requested that ballot language for implementing Option I be presented to them at the July 21, 2009 meeting. AGENDA ITEM #i 9A PAGE 6 La/ B. Inclusionary Zoning Adopted in 2000, inclusionary zoning is one element of Boulder's overall affordable housing program and 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 all 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 all 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 alternative methods of compliance may be granted to allow fewer on-site units. Criteria and guidelines for approval of alternative methods of compliance to the 50% on-site requirement may be found on page 17 of this memo. Properties annexed into the city are subject to the Boulder Valley Comprehensive Plan policy that requires parcels with substantial development potential to provide a significant amount of community benefit. For residential parcels, the highest priority community benefit is defined as permanently affordable housing. Past residential annexations have included between 45% and 65% of the total units as permanently affordable to low and middle income households. The percentage of low income permanently affordable units required through residential annexations has exceeded that required by inclusionary zoning. Projects that include four or fewer- units usually pay twice the applicable inclusionary zoning cash-in-lieu amounts. Inclusionary zoning serves households with a maximum income equal to the HUD low income limit plus 10%, or around 80% of the AMI'. This equates to the low/moderate income group. HUD bases its income estimates on data specific to Boulder County. Attachment F contains detailed profiles of very low, low/moderate and middle income groups including income ranges, household profile and demographics and existing 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 the federal government or HUD and is presented in terns 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 HUD low-income limit is approximately 70.7% of the AMI or $55,350 for a three person household. AGENDA ITEM # J L PAGE 7 C. Cash-in-Lieu Contributions In certain cases, money may be paid in-lieu 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 options for meeting the requirement include payment of the in-lieu fee, provision of comparable units off-site or provision of land sufficient to build the required number of affordable units. Since 2000 through December 2008, the city has collected approximately $9.05M in cash-m- lieu payments, which are pooled with other affordable housing program funds and distributed during the annual affordable housing funding allocation process. Cash-in-lieu funds are the only funding source available for housing activities, such as land purchases, that can be borrowed against without obligating city-wide funds. These funds are 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% AMI. Homeownership fund activities include down payment assistance and development and acquisition of for sale affordable units for households with incomes between 50%-80% AMI. Inclusionary zoning has produced 359 on-site homes and five single family homes 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'h and Pearl and a smaller site in Palo Park that combined have potential for another 115-170 affordable units). Units acquired on-site through inclusionary zoning are located in areas of new development. Thus, most of the on-site units are on the north side of the city; four are in the downtown area. 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. Applicants for affordable units are income and asset qualified and must work a minimum of 3/4 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 on occasion they have qualified to buy an affordable home. In other cases, households with one working member and one student have qualified. D. Proposed Program Name Change to "Inclusionary Housing" Staff proposes that as part of the review of inclusionary zoning, Planning Board and City Council consider changing the name of the inclusionary zoning prograrn to inclusionary housing. This name change would better indicate the function and purpose of the program to acquire permanently affordable housing for the community. AGENDA ITEM # 6j ,6j PAGE 8 The term inclusionary zoning was originally coined because the concept was meant to directly counteract past exclusionary policies that were often codified in local zoning codes. One example were communities that enacted zoning exclusively for large lot, large home development targeted to higher income households. In these cases no zoning was put in place for smaller lot or multifamily development specifically meant to house lower income households. This type of zoning was seen as "exclusionary." The name inclusionary zoning however, can be confusing. This name does not give any indication that the program is for the provision of affordable housing. In addition, the word "zoning" often does not convey the specific, intended meaning to many residents. Inclusionary housing better defines the program by indicating what the program does. The program makes available permanently affordable housing to insure that all members of the community are included. This name also provides continuity with the current name by retaining the word "inclusionary." V. SPECIFIC CITY COUNCIL DIRECTION To date City Council has provided specific direction on affordable housing program elements concerning retention of the on-site requirement, raising the cash-in-lieu amount, modifications to the land dedication option and applying inclusionary zoning to redevelopment projects with five or more units. A brief summary of the issues previously presented to City Council and Council's direction for each is provided below. A. The On-site Requirement At the March 31, 2009 Study Session City Council was in agreement that the program should continue to be flexible and balance the provision of affordable units within development projects with maximizing the number of affordable housing units obtained. City Council favored retention of the 50% on-site requirement and supported continuing to allow the option to build fewer units on-site when, in the city's determination, on-site units are not desirable or when adequate additional affordable housing benefit can be achieved. City Council did not request any changes to this element of the inclusionary program. 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. The code goes on to say that at least one half of the required units must be provided on-site. Alternative methods of compliance 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. 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 specific but over time has become a more attractive option than the provision of on-site units. AGENDA ITEM # 5e PAGE 9 At the March 31 study session City Council agreed that staff should allow alternative means of compliance to the on-site requirement only when clear, identifiable, and documented additional community benefit is acquired. Recommended modifications to the criteria are proposed for Planning Board feedback on page 19 of this memo. B. Cash-in-lieu While half of the inclusionary zoning requirement should be provided on-site, the other half may be provided by way of paying cash in lieu of a unit. Cash-in-lieu amounts are often based on the affordability gap which generally represents the cost to obtain a similar housing unit to the one that would have been provided on-site. The affordability gap is the difference between what an affordable buyer (based on income) can buy and market prices. Initial cash-in-lieu amounts were set in 2000 and were intentionally set lower than the then existing affordability gap. Although adjusted annually based on the median price of market rate homes, the cash-in-lieu amounts have not kept pace with the growing affordability gap. Due to relatively flat buying power and rising housing costs, the affordability gap has risen significantly over the last nine years. 2 Yet ytz - o- KKJ~y/q[ a.t 110, A : .a~l'+~ oo-~h'~~~,f•' :+'.p a _ The average annual percent change in cash-in-lieu for the nine years of the program was 7.1 % for single family homes and 7.2% for multi-family homes. To determine possible adjustments to the cash-in-lieu amounts staff began by determining the current 2009 affordability gap as a benchmark. At the March 31" study session two methodologies were presented for determining the gap, cost to purchase and cost to construct. Both resulted in similar affordability gaps equal to approximately double the currently applied cash-in-lieu amounts. Since cash-in-lieu amounts based on the to construct tends to be more volatile, the cost to purchase methodology (i.e. the "affordability gap") was recommended. AGENDA ITEM # PAGE 10 At the March 31" study session Economic and Planning Systems (EPS) who have been hired as economic consultants for the Affordable Housing Review, presented preliminary analysis indicating that, assuming a 12% return on development, both land values and market prices would need to adjust to support any increases in cash-in-lieu. In addition, the large discrepancy between the current cash-in-lieu and the 2009 affordability gap, combined with current difficulties in obtaining financing for development projects, would suggest a phased- in approach to any cash-in-lieu increases. On June 2, 2009 City Council passed a motion adopting the following phased-in approach for adjusting cash-in-lieu: 1. Use 75% of the affordability gap as the target amount to be reached for phasing in the cash-in-lieu; 2. Raise the current 2009 cash-in-lieu amount 15% compounded annually until the target is reached; and 3. Once the target is reached, adjust the cash-in-lieu annually, based on an annual affordability gap analysis. The tables below show the cash-in-lieu amounts for the next five years for attached housing and the next four years for detached housing. The tables end in the year that the 15% increase catches up with 75% of the affordability gap in a given year. Cash-in-lieu Increases Phased-in at 15% per year for Multi-family Homes Attached Housing Annual increase of 15% per year` 2009 CIL $110,178 2010 $126,705 2011 $145,710 2012 $167,567 2013 $192,702 2014 $209,894* *Equates to 75% of the estimated affordability gap projected for that year. Cash-in-lieu Increases Phased-in at 15% per year for Single Family Homes Detached Housing Annual increase of 15% per year 2009 CIL $119,922 2010 $137,910 2011 $158,597 2012 $182,386 2013 $203,211' *Equates to the estimated affordability gap projected for that year. C. Land Dedication Currently there are two land dedication options available for meeting the off-site half of the inclusionary requirement: "land at equivalent value" and "land to construct equivalent units." For both options inefficiencies inherent in the development process would not result in provision of the number of affordable units that the land dedication is intended to provide AGENDA ITEM # 518 PAGE 11 without additional subsidy. In addition, neither option insures that the resulting affordable units would be of equivalent size or type to that which would have been built on-site had the land dedication not been approved. At the March 31 study session, City Council generally agreed with staff to 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 dedication option: 1. Must be with-in the city limits; 2. 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 independent of the land dedication option; 3. Must allow for provision of units of equivalent size and type to that which would have been built on-site; and 4. Location of the proposed land dedication site to be approved by the City Manager. D. Applying Inclusionary Zoning to Larger Redevelopment Projects Residential demolitions remove housing that is relatively more affordable from the city's housing stock replacing it with more expensive homes. In 2000 when inclusionary zoning was initially adopted, an administrative decision was made to treat dwelling units that were built in place of demolished units the same as they are treated in the RGMS; i.e. the inclusionary zoning requirement for redeveloped units is waived if a building permit is applied for within one year of the demolition permit. This has resulted in a very small number of redeveloped units subject to inclusionary zoning requirements. Since 2000 there have been a total of 365 demolished units. Thirty-four of those units were multifamily units and 331 were single family units. In all cases where a certain number of residential units are demolished but a greater number of units redeveloped, inclusionary zoning is applied to the additional units. Demolition and redevelopment are defined as all redeveloped units that require a demolition permit, demolition RGMS allocation and meet the definition of "redevelopment" in the land use code. With a limited vacant land supply, the community is likely to experience more redevelopment of existing units over time. Typically, smaller, relatively more affordable units are torn down in order to build much more expensive units. And since in most cases the redevelopment occurs within a year of issuance of the demolition permit, this represents a loss of relative market affordability to the community without the offset of any permanently affordable housing. At the June 2 meeting, City Council passed a motion to apply inclusionary zoning, without regard to when a building permit is applied for, to the demolition and redevelopment of multifamily projects with five or more units. Projects with four or fewer units will maintain the current practice of applying inclusionary zoning to demolitions in the event that a building pen-nit is not applied for within one year of demolition permit approval. In cases where a certain number of residential units are demolished but a greater number of units redeveloped, inclusionary zoning will continue to be applied in all cases to the additional units. AGENDA ITEM # PAGE 12 VI. SOCIAL POLICY REVIEW In January 1999, City Council accepted The Comprehensive Housing Strategy and appointed a task force to review the city's housing goals and to identify, analyze, and prioritize options for increased the production and acquisition of permanently affordable housing and other housing programs. In 2000, City Council accepted the recommendations of the task force. These recommendations include a 10-year time frame for reaching the Boulder Valley Comprehensive Plan (BVCP) goal to have at least 10% of the total housing stock as permanently affordable. The task force recognized that the 10% goal would not fully address the demand for affordable housing, especially in light of job growth projections for Boulder and the surrounding area. However, achieving the 10% goal in 10 years was recognized as a significant, incremental step toward maintaining economic diversity in the community. Fulfillment of the goal within ten years required passage of an affordable housing tax ballot measure. The measure would have added an additional $3,000,000 in affordable housing funds annually. The measure was not approved by voters. The following table indicates the percentage targets adopted in 2000for the 10% goal for household incomes, homeownership versus rental, and new versus existing acquisition. A. 2000 Task Force Objectives Priorities 2000 Goals* 1~) Incomes ~ , Income for households below 30% 390 (14%0) AMI Income for households between 30 - 6 1,320(48%) AMI Income for households between 60 - 8 1,040(38%) AMI 2) Rental ys: Homeownership Rental 1,652(61%) Home Ownership 1,098(39%) 3) New Construction vs. Existing Inventory,'' New Construction 1,240(45%) Existing Inventory 1,510(55%) *Number/percent of the additional 2,750 units needed to meet the 10% goal Although this table has been used extensively in the past when discussing the 10% goal, it can be confusing in that it shows the percentages desired for the remaining affordable stock to be acquired after 2000 but not the final percentages that would exist once the 10% goal is met. To better reflect the goals of the program and the existing inventory, staff has made the following modifications regarding how the 10% goal and the three priorities are reported for units acquired after the year 2000: • Present the data to show the final percentages desired for each priority; • Present data to show the number of middle income units currently in the inventory; AGENDA ITEM # 5)3 PAGE 13 • Separate permanent affordable and likely to remain affordable units to accurately'reflect progress on the goal. See Attachment G for more information on "permanent affordability" versus "likely to remain affordable;" and Separate the priority for acquisition via new construction versus existing inventory. B. Affordable Housing Priorities Affordable Housing Current 2009 Current 2009 Current 2009 Final Housing Priorities Housing Unit Iinventory: Housing Unit Inventory Housing Unit Unit Inventory Likely to Remain Permanently Affordable Affordable (PA) Inventory 10% Goal or Subtotal: Subtotal: Total: 4,500 Units 1,102 1,753 2,855 1) Incomes Households below Shelter and group Shelter and group 485(17%) 1,575(35%) 30% home beds home beds Area Median Income H4 238 ousing units Housing units (AMI) 216 27 "very low income" Households between 787 921 1,708(60%) 1,800(40%) 30 - 60% AMI "low income" Households between 95 567 662(23%) 1,125(25%) 60 - 80% AMI "moderate income" Households between 0 118 118 N/A 80 - 120% AMI (not included in (not included in "middle income" total, as there is total, as there is no current goal) no current goal) -2),Rental vs. .Homeownership. Rental 1,067 1,055 2,122(74%) 3,285 (73%) Home Ownership 35 698 733(26%) 1,215 (27%) Staff initiated the social policy review of the affordable housing program in July 2008. The process included small group discussions with targeted stakeholders (civic groups, developers, and service providers) and one public meeting held on August 14, 2008, sponsored by the Community Foundation. See Attachment B for attendees and comments. Staff also consulted with the Boulder- Economic Council, PLAN Boulder, the Human Relations Commission and the University of Colorado during the process. At the June 2 meeting, City Council unanimously voted to retain the goal to have 10% of the city's housing stock be permanently affordable to very low, low and moderate income households. City Council also retained the goal of having 73% of the affordable units be rentals and 27% available for homeownership. City Council did not retain the goal concerning the percentage of affordable units acquired through acquisition and new construction. In addition, City Council adopted a new numeric goal to have 450 housing units, in addition to the 10% goal for lower income households, permanently affordable to middle income households. AGENDA ITEM # PAGE 14 During the social policy review there was public sentiment expressed that the city pays too little attention to the impact on the people served by its programs. The question was posed: "How are these programs working for them?" It was suggested that staff ask questions of the people in the affordable housing programs to understand the impact on their lives around transportation, social and housing issues. As part of the social policy review, RRC Associates, Inc. was contracted to conduct survey- based studies of local residents. The surveys were fielded in September, 2008 to the following segments of the community: • Owners of deed restricted housing purchased in Boulder; • Renters in Boulder Housing Partners rental housing; • Mobile home residents; and • Employers and employees in Boulder (including both in-commuters and local residents). Five-hundred permanently affordable homeowners were sent surveys with a 41 % response rate; 500 affordable renter households were surveyed with a 23% response rate; 280 mobile home residents were surveyed with a 27% response rate; and 250 employers were surveyed with an 18% response rate. A summary of survey results may be found on-line at: www.boulderaffordablehomes.com, click on CHAT'S: A Review of Boulder's Affordable Housing Programs. VII. GENERAL CITY COUNCIL DIRECTION City Council has provided staff with general direction on a number of issues including support for mitigation of the impacts of cash-in-lieu increases on smaller projects, increases to the cash-in-lieu premium for varying the 50% on-site requirement, and clarification of affordable unit distribution within a project. Staff is requesting Planning Board feedback on the following specific proposals. A. Mitigating Impacts of Cash-in-lieu Increases on Smaller Projects Some communities with inclusionary zoning programs make a distinction between smaller and larger projects due to the lack of economies of scale in smaller projects. At the March 31 study session, City Council agreed in concept to mitigate the impacts of any cash-in-lieu increases for owner/builders of smaller projects. At the June 2, 2009 meeting City Council approved an annual compounded increase in cash- in-lieu of 15%. Staff recommends that for projects with one to four units, the annual increase in cash-in-lieu be set at 7% per year. 7% is the average increase in inclusionary zoning cash- in-lieu amounts for the past nine years. In addition, staff recommends that the baseline cash-in-lieu amounts for projects with 1, 2, 3 or 4 total units should be equal to 20%, 40%, 60% or 80% respectively of the revised cash-in- lieu amount. This language provides a cap for some time in the future if the mitigated amounts catch up to the existing cash-in-lieu for a given year. This proposal holds the cash- in-lieu increases for single family homes and small projects with 1 to 4 units to the historic annual increases and would be approximately half the annual increase of 15% that City Council has approved, The following table shows the impacts of cash-in-lieu amounts at the AGENDA ITEM # M PAGE 15 proposed increase of 7% for detached and attached homes respectively as compared to the cash-in-lieu amounts that would be due with no mitigation and a 15% annual increase. Single Family - detached homes'- . `PROPOSED - 7% annual increase compounded; 2009 CIL = $119,922 Amounts shown below are per affordable unit or 5 market units Year CIL amount 1 Unit 20% 2 Units 40% 3 Units 60% 4 Units 80% 2009 N/A $23,984 $47,969 $71,953 $95,938 2010 N/A $25,663 $51,327 $76,990 $102,654 2011 N/A $27,459 $54,920 $82,379 $109,839 2012 N/A $29,381 $58,764 $88,146 $117,528 2013 N/A $31,438 $62,878 $94,316 $125,755 Single Family - detached homes NO MITIGATION -15% annual increase compounded 2009 CIL = $119,922 * Amounts shown below are per affordable unit or 5 market units Year CIL amount 1 Unit 20% 2 Units 40% 3 Units 60% 4 Units 80% 2009 119,922 $23,984 $47,969 $71,953 $95,938 2010 137,910 $27,582 $55,164 $82,746 $110,328 2011 158,597 $31,719 $63,439 $95,158 $126,878 2012 182,386 $36,477 $72,954 $109,432 $145,909 2013 203,211- $40,642- $81,284* $121,927- $162,569* Multifamily - attached homes PROPOSED- 7% annual increase compounded 2009 CIL = $110,178 Amounts shown below are per affordable unit or 5 market units Year CIL amount 1 Unit (20./.) 2 Units 40% 3 Units 60% 4 Units 80% 2009 N/A $22,036 $44,071 $66,107 $88,142 2010 N/A $23,579 $47,156 $70,734 $94,312 2011 N/A $25,229 $50,457 $75,686 $100,914 2012 N/A $26,995 $53,989 $80,984 $107,978 2013 N/A $28,885 $57,768 $86,653 $115,536 2014 N/A $30,907 $61,812 $92,718 $123,624 Multifamily - att ached homes NO MITIGATION -15% annual increase compounded Year CIL amount 1 Unit 20% 2 Units 40% 3 Units 60% 4 Units 80% 2009 $110,178 $22,036 $44,071 $66,107 $88,142 2010 $126,705 $25,341 $50,682 $76,023 $101,364 2011 $145,710 $29,142 $58,284 $87,426 $116,568 2012 $167,567 $33,513 $67,027 $100,540 $134,054 2013 $192,702 $38,540 $77,081 $115,621 $154,162 2014 $209,894- $41,979- $83,958- $125,936- $167,915- B. Changes to the Rounding Rule for Determination of the On-site Requirement The city's current rounding policy for determination of on-site units is based on inclusionary zoning ordinance language which says that "at least' 50% of the required affordable units must be provided on-site. Standard rounding would, in some cases, result in technically less than half of the units on-site. Since a percent of a unit cannot be provided any percentage of a required on-site affordable unit is rounded up to a full unit required on-site. This method for AGENDA ITEM # YR PAGE 16 determining on-site units does not follow standard rounding expectations and has a disproportional impact on smaller projects. Staff proposes to change the rounding policy for determining the on-site requirement. This change can, in particular, mitigate cash-in-lieu increases for smaller projects of approximately 5 - 24 units. Since on-site units are more costly and time consuming for a developer to provide, the difference between one or two units on-site can be particularly difficult for smaller projects where the developer's entire profit may be reflected in only one or two units. The following example illustrates the different rounding methodologies. Example: 12-unit project with a total affordable requirement of 2.4 units (12x 20%) Current methodology - rounding up half on-site = 1.2 rounded up to 2 half paid as cash-in-lieu =.4 Proposed methodology - standard rounding half on-site = 1.2 rounded down to I half paid as cash-in-lieu = 1.4 With the proposed standard rounding a portion of an on-site unit, less than 0.5 would round down while any portion 0.5 or more would round up. Code language would be amended to say that 50% of the affordable units be provided on-site subject to standard rounding. This change would assist smaller projects and is a more standard equation. This change would result in slightly less units being required on-site and less cash-in-lieu in for certain projects. Staff estimates that this change would affect approximately one project per year. C. Modifications to Criteria for Approving Alternative Methods of Compliance At the March 31, 2009 study session City Council discussed the requirement that 50% of all required affordable units be provided on-site and indicated that they did not want to change this policy. They did, however, indicate a desire to modify the approval criteria so that the cash-in-lieu premium is competitive with the cost of an on-site unit so as to encourage compliance with the on-site requirement. In response to this feedback, staff has instituted a formal request procedure including an application, written staff recormnendation, Housing Management Team review and Housing and Human Services Department Director approval. Staff proposes to change the review period for alternative method of compliance requests from 10 days to 30 days and will reference all alternative methods of compliance to inclusionary zoning requirements, listed below, under a "Process" section of the inclusionary zoning chapter of the land use code and in the mclusionary zoning administrative regulations. These alternative methods of compliance are currently found in separate subsections of the land use code and administrative regulations (each is explained in greater detail at the end of this memo section): 1. 50% on-site construction requirement; 2. Total floor area requirement for the project; 3. Rental projects; 4. Construction tinning; 5. Alternate methods of compliance to cash-in-lieu for a single family home; and 6. Alternative distribution ratios. Q AGENDA ITEM # 46 PAGE 17 Staff proposes to retain, with minor modifications, the current code language for approval of alternative methods of compliance for the 50% on-site requirement: Developers of permanently affordable units may request that the city manager allow them to provide permanently affordable units off-site, in a number greater than that allowed by Chapter 9-13, B.R.C. 1981. Such a var.ane request may be granted only upon a finding by the city manager that one of the following conditions applies: • Providing more than fifty percent of the total permanently affordable units off-site will provide housing benefits to the city in addition to those that would be provided by constructing at least fifty percent of the required permanently affordable units on-site; or - • Zoning, environmental or legal restrictions make it unfeasible to provide the required number of on-site units. In addition, staff proposes the following administrative regulation changes to the criteria and guidelines for approving alternative methods of compliance to the 50% on-site requirement: a. Include the following as guidelines for approvals: i. Provision of larger more desirable units provided off-site than would be provided on-site such as detached homes or town homes in lieu of condominiums may be considered an additional affordable housing benefit. ii. A request which would result in a net increase in permanently affordable units over what would have been provided on-site may be considered an additional affordable housing benefit. iii. A request which would result in a net increase in the total floor area of permanently affordable units may be considered an additional affordable housing benefit. iv. In cases where the request includes some on-site units, provision of additional parking spaces, provision of additional accessible units, targeting lower incomes i.e. lower selling prices, and mitigation of high HOA fees may be considered an additional affordable housing benefit. It. Include the following as presumptive clauses2 for approvals: i. A request which would result in a net increase of at least fifty percent more permanently affordable units. ii. A request which would result in a net increase of fifty percent in the total floor area of permanently affordable units. iii. A minimum of 50% percent more or a maximum of 100% more (amount to be determined) than the standard cash-in-lieu amount for the half of the permanently affordable units required on-site but not built on-site. The above guidelines and presumptive clauses are based on the affordable housing needs of the community as defined in the goals, strategies and policies contained in the 1999 Affordable Housing Goals and Strategies report. " A presumption clause assumes that if the standard is met, the request will be granted. AGENDA ITEM # JK.~ PAGE 18 Minor changes will be proposed for other alternative methods of compliance other than the on-site requirement when staff returns to Planning Board with code language recommendations. Below is the list of inclusionary requirements for which alternative methods of compliance may be requested. New language for minor changes are not included below but will be proposed along with other code and regulatory changes. 1. On-Site Construction Requirement (B.R.C. 9-13-6 (b) and IZ Administrative Regulations 7.1) Developers of for-sale projects are required to build at least 50% of the required permanently affordable units on-site. Developers may request a variance to provide less than 50% of the required units on-site if doing so would result in additional affordable housing benefits for the city or if zoning, environmental or legal restrictions make 50% on-site impossible. 2. Total Floor Area Requirement for the Project (B.R.C. 9-13-4 (c) (3) and IZ Administrative Regulations 5.2) A developer or property owner may request to build a lesser amount of total square footage than that required by the inclusionary zoning ordinance if doing so would accomplish additional affordable housing benefits for the city. In addition, a developer may substitute two square feet of unfinished floor area for each one square foot of required finished floor area up to a maximum of 400 unfinished square feet per dwelling unit. (IZ Administrative Regulations 5.1). 3. Rental Projects (B.R.C. 9-13-7 (a) (3) and IZ Administrative Regulations 8.1) Developers of rental projects may request a variance to satisfy their inclusionary requirement in ways not listed in the ordinance as long as such a proposal would result in additional affordable housing benefits to the city. 4. Construction Timing (B.R.C. 9-13-9 (a) and IZ Administrative Regulations 10.1) Permanently affordable units are required to be constructed such that they are able to be marketed concurrently with the market-rate units. A developer may request an alternative phasing arrangement if doing so would result in additional affordable housing benefits for the community. 5. Alternate methods of compliance to cash-in-lieu fora single family home (B.R.C. 9- 13-5 (b) (3)) Developers may propose an alternate method of compliance for meeting the inclusionary requirement so long as the value of that consideration is equivalent to or greater than the cash-in-lieu contribution required and the city manger finds that the proposed alternative will result in additional affordable housing benefits to the city. 6. Alternative Distribution Ratios (B.R.C. 9-13-3 (f) (3) The on-site affordable housing units shall be provided in proportional numbers by type, to the market rate units with-in each project. Alternate distribution may be may be approved if doing so would accomplish additional affordable housing benefits for the city or if approved pursuant to a site review resulting in better site design. AGENDA ITEM # ~9 PAGE 19 D. Pricing Sheet Changes Staff proposes two changes to the inclusionary zoning pricing sheet: Allow an increase in the maximum allowable sale price for any permanently affordable unit that includes an enclosed garage, and adding a category for loft units. 1. Increase the maximum allowed price of any permanently affordable unit that includes an enclosed garage. The focus of the affordable housing program is to provide affordable housing and not an affordable place to keep a car. However, garages also serve as storage and are desirable for affordable owners. Allowing an increase to the sales price might encourage developers to provide garages, which do have utility and add value. An approximate $10,000 price increase was calculated based on preliminary research of construction costs, sales prices for garages where they have been sold separately, discussions with appraisers about valuing garages, and the monthly cost of comparably sized storage units. Adding an estimated $10,000 to the current affordable prices leaves a large enough "window" that the units will still be affordable to the target population. Ten thousand dollars is a preliminary estimate. Staff will refine the allowed price increase for garages when we return to Planning Board in September with final code language recommendations. To be eligible, the garage must be a fully enclosed structure designed to house one or more automobiles owned as part of the unit and with access controlled by the unit owner. 2. Include pricing for loft units. Recent multifamily projects have included both market rate and permanently affordable loft units. Lofts do not have a distinct bedroom; they typically contain on large kitchen, living, sleeping area, a bathroom and closet space. Staff will determine an appropriate price based on the pricing formula used for other configurations of affordable units. E. Code "Clean-up" Items When this issue returns to Planning Board in September, reorganization of some portions of the inclusionary zoning section of the land use code and the related administrative regulations will be proposed. These changes will be designed to improve readability and provide consistency. More specifically, the following code clean up items will be included: a. Clarify the expectation that in developments with a mixture of unit types, that the unit type distribution for the market rate units should be the same for the permanently affordable units. Define what is meant by unit type and include consideration of the number of bedrooms in each unit type. b. Update all ordinance references to be consistent with the current Boulder- Revised Code. c. Reduce the required open marketing period from 30 to 14 days. This would make the marketing period for resales consistent with the marketing agreement negotiated in 2008 with the Boulder Area Board of Realtors in return for reduced realtor costs for affordable resales. d. Require that permanently affordable units be constructed concurrently with market rate units. (The current regulatory language requires that the affordable units be marketed concurrently with the market rate units.) AGENDA ITEM # PAGE 20 e. Remove the transition provisions which were put in place to help with the transition from the previous affordable housing program to inclusionary zoning. f Change the description of price setting from the current average price within a development to setting the maximum allowable sale price, which reflects how price setting actually is implemented. g. Clarify the distinction between the definition of "floor area" used in inclusionary zoning for pricing permanently affordable units versus calculating cash-in-lieu amounts. Staff anticipates that additional minor code and regulatory changes may be proposed when we return to Planning Board with recommendations in September. F. Discrepancies in Inclusionary Zoning Related to Unit Size Inclusionary zoning is currently applied by unit. Twenty percent of all units in a project are required to be made available as permanently affordable regardless of size. For example, a project with ten large units averaging 3,000 square feet each would be required to provide two affordable units. While the same project of 30,000 square feet might have twenty-five units that average 1,200 square feet and would be required to provide five affordable units. There is concern that this may encourage the development of fewer larger units, particularly in the downtown area. A study of housing unit sizes in the downtown zones was undertaken as part of the downtown density bonus work for the December 2, 2008 City Council memo. The average size of the 109 market rate units built downtown after implementation of inclusionary zoning in 2000 is approximately 1,660 square feet, and the average size of the 124 units that are currently under construction or review is approximately 1,600 square feet. The data do not indicate that inclusionary zoning has produced overly large units. There exist conflicting goals around the desired sizes of housing units in the community. In general, City Council has supported smaller units in the downtown area while larger units are needed to house larger households with dependents. Because the affordable homes acquired through inclusionary zoning are a portion of what is being built in the market, and the majority of what is being built are smaller stacked flats or condos, fewer housing units acquired through the program meet the needs and desires of larger households with dependents. Consequently, in some areas of the city, larger housing units may be more desirable and without specific policies will not be obtained in sufficient numbers under current inclusionary policies. In the example above, a project with ten large units averaging 3,000 square feet each would be required to provide two affordable units. While the same project of 30,000 square feet might have twenty-five 1,200 square foot units and would be required to provide five affordable units. At first glance this seems problematic but the two larger units equal the five smaller units in square footage provided to the affordable program - 4,800 square feet each 3. In the first case, the program receives two units that may be appropriate for larger households with dependents, while the five smaller units would most likely have only one or two bedrooms. The bigger discrepancy is for the possible cash-in-lieu owed. In the first project above, if one unit were provided on-site, only cash-in-lieu for one unit not on-site would be 3 The affordable units can be, on average, no less than 80% of the average square footage of the market rate units. 6,000* .8 = 4,800 AGENDA ITEM # -S8 PAGE 21 owed. The second project would provide three units on-site and cash-in-lieu for the remaining two. Any proposed changes to the program should address the cash-in-lieu discrepancy while not discouraging different sized units which may be appropriate for a range of household sizes. Additional analysis is needed to develop a workable approach. VIII. NEXT STEPS Adoption of modifications to the inclusionary zoning ordinance and administrative regulations follow these steps: A. Ordinance Modifications: 1. Staff develops draft ordinance language; 2. City Attorney review; 3. Recommendation on proposed ordinance language by Planning Board; 4. First reading by City Council ; and 5. Second reading by City Council. B. Administrative Regulation Modifications: 1. Staff develops draft regulation language; 2. City Attorney review; 3. Published in the Daily Camera; and 4. City Manager signs and adopts. In the past, though this was not required, substantive changes to the inclusionary zoning administrative regulations were reviewed by the Planning Board prior to city manager adoption. Although the city manager is responsible for final decisions concerning any inclusionary zoning administrative regulation changes, staff will solicit Planning Board feedback and comments prior to city manager adoption. Staff expects to take the complete package of inclusionary zoning ordinance language modifications to Planning Board on September 17, 2009 and expects to return to City Council in the fourth quarter 2009 for final approval. C. Future Work Program Items The following is a list of possible work items for the next phase, Phase 111, of the Affordable Housing Review: 1. Explore new funding sources; 2. How best to serving middle income households: a. Review annexation policies b. Employer assisted housing, tax incentives and other strategies c. Consider loan programs: equity sharing (soft seconds), rehabilitation of single family homes, down payment assistance d. Preserve older multifamily housing stock as relatively affordable e. Accessory dwelling units (ADU's) as market rate housing available to middle income households; 3. Congregate care and assisted living: increase affordable options for seniors; AGENDA ITEM # 6 PAGE 22 - 4. Annexations: establish affordable housing policies for substantially undeveloped properties; 5. Rental policies: funding, pricing, acquisition; 6. Mobile Home Park strategies and policy assessment; and 7. Explore requiring affordable housing benefits from rental conversions to condominiums. Approved L Karen Rahn Director, Housing and Human Services Attachment A - June 2, 2009 City Council Memo Attachment B - August 14, 2008 Public Meeting Attendees and Comments Attachment C - Phase II public meeting notes Attachment D - Correspondence Attachment E - July 7 City Council Memo Concerning the Housing Excise Tax Attachment F - Income Profiles; very low, low and moderate households Attachment G - Permanent and Likely to Remain Affordable AGENDA ITEM # OP PAGE 23 ATTACHMENT A CITY OF BOULDER CITY COUNCIL AGENDA ITEM MEETING DATE: June 2, 2009 AGENDA TITLE: Items relating to hnclusionary Zoning: 1. Consideration of a motion to amend the Affordable Housing goals and policies; and 2. Consideration of a motion directing staff to draft an ordinance increasing the cash-in-lieu amounts and applying Inclusionary Zoning affordable housing requirements to multi-family residential projects. PRESENTERS: Jane S. Brautigam, City Manager Stephanie A. Grainger, Deputy City Manager Paul J. Fetherston, Deputy City Manager Karen Rahn, Interim Director, Housing and Human Services Robert Ray, Housing Division Manager Michelle Allen, Housing Planner 1. EXECUTIVE SUMMARY 1. The Affordable Housing Program Review consists of three phases: Phase I - Goals and Strategies Review Phase R - Regulatory Review Phase III - New Initiatives The Affordable Housing Program review is currently in Phase II, Regulatory Review, which focuses on Inclusionary Zoning. This memo includes information relevant to: Determining the cash-in-lieu (CIL) amount of an affordable housing unit; initial proposals for the application of cash-in-lieu; recommendations for applying Inclusionary Zoning to redevelopment projects; possible modifications to include middle income households in the (10%) goal; related modifications to the income, ownership and acquisition priorities associated with the 10% goal; and the Housing Excise Tax and possibilities for funding affordable housing, Staff recommends the following approach for adjusting cash-in-lieu: 1. Determine a target amount to be reached for increases to cash-in-lieu; 2. Phase-in the increase annually by a set percentage; and 3. Once the target is reached, adjust the cash-in-lieu annually based on an annual affordability gap analysis. Two target amounts are proposed as options for consideration: The current affordability gap or 75% of the affordability gap. Phase-in options include annual increases of 15, 20, or 25% over current cash-in-lieu amounts. To address the size issue (a project with fewer larger units has a smaller Inclusionary Zoning requirement than a project with more smaller units), staff recommends a combined approach that calculates the requirement by unit but determines cash-in-lieu based on average square footage. Projects with higher average square footage would pay more cash-in-lieu than those with a lower average square footage. Additional analysis is needed to refine this approach. In addition, staff recommends applying AGENDA ITEM # PAGE 24 ATTACHMENT A Inclusionary Zoning immediately to any redevelopment projects (demolition and rebuild) with five or more units. Included in this memo is a summary of the Social Policy Review which includes a review of the current goal to have 10% of the city's housing permanently affordable to very low, low and moderate income households and an option for adding a goal to serve middle income households. In response to Council's request at the March study session, information is provided concerning Inclusionary Zoning variances. Information is also provided about the First Home Grant program and H2O down payment assistance program. Staff anticipates presenting options for Inclusionary Zoning modifications to Planning Board on July 16, 2009 and returning to City Council in September with final recommendations. H. STAFF RECOMMENDATION Staff requests council consideration of the social policy recommendations and take action in the form of the following motion: Motion to accept the staff recommendation to: Amend the affordable housing goals and policies to: 1. Retain the goal to have.10% of the total housing stock as permanently affordable to very low, low, and moderate income households. 2. Retain the 10% goal to result in: 35 % serve households with incomes below 30% Area Median Income (AMI); 40 % serve households with incomes between 30 - 60%AMI; 25% to serve households with incomes between 60 - 80% AMI; 3. Retain the objective for the 10% goal to result in: 2701o of permanently affordable units for homeownership; 73% of permanently affordable units as rentals. 4. Retain the objective for the 10% goal to have: 50% of new permanently affordable units come from new construction; 50% of new permanently affordable units from the acquisition of existing housing. 5. Add a numeric goal to add 450 permanently affordable housing units for middle income households through the affordable housing program to serve households between 80 -120% AM[ for annexations and 80-100% AM[ for the remaining units Motion to direct staff to develop ordinance language to: 1. Increase cash-in-lieu amounts 15%, compounded annually until 75% of the affordability gap in any given year is reached, thereafter to annually adjust the cash-in-lieu to be equal to 75% of the affordability gap each year. 2. Apply Inclusionary Zoning affordable housing requirements with no grace period to multi family residential projects with five or more units that are demolished and redeveloped. III. COMMUNITY SUSTAINABILITY ASSESSMENTS AND IMPACTS • Economic: The availability of affordable housing enhances Boulder's economic vitality by assisting business' recruitment and retention of employees. The development of affordable AGENDA ITEM # PAGE 25 ATTACHMENT A housing also contributes to state and local sales tax revenues. Offering affordable housing choices to families with modest incomes also provides a stepping stone for gaining economic self-sufficiency in lower paid job sectors by providing a firm foundation for the working poor. • Environmental: Housing and human services contributes to the health, viability, livability and diversity of the broad community. Providing affordable housing makes it possible for employees to live in the community in which they work, which helps to reduce commuting, traffic congestion and sprawl. • Social: Affordable housing provides an opportunity to positively affect the lives of low and moderate-income residents and to enhance the social fabric of the city. Housing for people with special needs addresses a core challenge for vulnerable members of the community. IV. OTHER IMPACTS • Fiscal: The cost of consultants for Phase I and II was $57,3800, budgeted for in the 2008 and 2009 HHS budget. Additional costs for facilitation of public process are estimated at $1,500 and are budgeted within the 2009 budget. • Staff time: HHS provides project management for the social policy review and regulatory review. This work is included in the 2008 and 2009 Housing Division work plans. V. PUBLIC FEEDBACK A memo was received on May 5, 2009 from the Housing Opportunity Committee, Clove Berger, Chair, of the Boulder Area Realtor@ Association. It is included with this memo as Attachment A. VI. BACKGROUND At its 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 offering a range of housing options. Council requested that Phase II, regulatory policies 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 when the regulatory review is substantially completed. The Social Policy recommendations were included in the December 2, 2008 meeting materials. At that time the agenda item was postponed at council's request. At the March 31, 2009 Study Session council was in general agreement that the program should continue to be flexible and balance the provision of affordable units within development projects with maximizing the number of affordable housing units obtained. Council agreed that the current one-size-fits-all program may not work given the variation in costs and value in the community. Staff presented options on the following four issues for modifications to the Inclusionary Zoning program and requested council feedback: 5. 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; AGENDA ITEM # t!~4 PAGE 26 ATTACHMENT A 6. The on-site requirement and how it is administered; 7. Serving middle income households through Inclusionary Zoning; 8. Modifications to the land dedication option. Council generally endorsed moving forward as soon as possible with some change to the cash-in-lieu amounts and requested that staff and the city attorney provide feedback on basing inclusionary zoning requirements on location, size or value of the units in a project. Some council members also supported phasing in any increases in cash-in-lieu amounts and exploring mitigation for smaller projects. Council generally favored the 50% on-site requirement and supported continuing to allow the option to build fewer units on-site when, in the city's determination, on-site units are not desirable. 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 and requested additional information regarding serving middle income households through Inclusionary Zoning to help them make policy decisions concerning this demographic. Council was in general agreement that staff could proceed with the recommended modifications to the land dedication option. Council requested that staff return to them as soon as possible, recognizing that all issues and questions may not be addressed in the relatively short amount of time. VII. WHO PAYS FOR AFFORDABLE HOUSING? The underlying concept for funding affordable housing in Boulder is that both existing residents and new growth and both residential and non-residential, should contribute to affordable housing solutions for the community. In 2000, the Affordable Housing Task Force identified three mechanisms for funding the affordable housing goal: 1) Inclusionary Zoning; 2) A tax for affordable housing; 3) A commercial linkage. In November, 2000 a tax for affordable housing, failed at the ballot. The tax was a key program funding mechanism. The tax failed by a vote of 52% to 48%. The measure would have added an additional $3,000,000 in affordable housing funds annually. Residents currently contribute to affordable housing through a property tax of 8/10ths of a mil. The development community has been involved in affordable housing since 1985 when the city established the Moderate Income Housing Program (M1HP). This program generally required that 15% of the total units in a project be sold to moderate income households. In 1991 the city discontinued the mandatory MW and replaced it with the Community Housing Assistance Program (CHAP), a voluntary program that provides subsidy funds to developers of permanently affordable housing as well as to non-profits to acquire existing housing. CHAP is funded via an 8/10ths of a mil from the property tax and a housing excise tax (HET). In 1995, the city revised its Residential Growth Management System (RGMS). Projects that included at least 20% permanently affordable and 35% restricted units were able to receive the required RGMS residential development approvals, known as allocations, faster than those projects that contained market rate units exclusively. In 1997 the city established its first cash-in-lieu option for developers of projects that were in progress at the time the new RGMS was adopted. Approximately $13M was generated from this option. AGENDA ITEM # 56 PAGE 27 ATTACHMENT A In 2000 the city simultaneously amended the RGMS to remove the affordable housing components and adopted the present Inclusionary Zoning program requiring that 20% of all new residential development be permanently affordable for low and moderate income households. The program provides options for meeting the Inclusionary Zoning requirement, including paying a cash-in-lieu amount for a portion of the required permanently affordable units. The current Housing Excise Tax (HET) is levied on all new development on a per square foot basis. The 2009 rates are $0.23 per square foot for residential and $0.49 per square foot for non-residential development. Combined, the HET has generated between $100,000 and $400,000 per year, over the last ten years, in funds to acquire, construct or rehabilitate permanently affordable housing for households within 15% - 60% AMI, defined as the "working poor" in the ordinance. The city has well- established programs and funding sources that secure permanently affordable housing from new residential construction and existing market rate housing. However, the funds generated by the current HET are not adequate to meet the demand for affordable housing generated by new non-residential development. The 2009 Development Excise Tax Study by TischlerBise recommends that the city eliminate the HET on residential development and increase the HET for non-residential development. TischlerBise recommends that the Housing Excise Tax be set at rates that more accurately mitigate the demand for affordable housing generated by the various types of non- residential development. This recommendation recognizes that funding for affordable housing solutions should be shared by existing residents and new growth, both residential and non-residential as the entire city benefits from the retention of economic diversity in the city. Since this is a tax, it would require a vote by the electorate. Placing a housing excise tax on the 2009 or future year ballot would complement the proposed revisions to the Inclusionary Zoning ordinance. Both Inclusionary Zoning and the Housing Excise Tax are intended to address the growth related demand for affordable housing in the community; one through a requirement for a percentage of new residential units to be permanently affordable, and one through a tax on non-residential development. VIII. CASH-IN-LIEU While half of the hiclusionary Zoning requirement should be provided on-site, the other half may be provided by way of paying cash in lieu of a unit. Cash-in-lieu amounts are often based on the affordability gap which generally represents the cost to obtain a similar housing unit to the one that would have been provided on-site. The affordability gap is the difference between what an affordable buyer (based on income) can buy and market prices. Initial cash-in-lieu amounts were set in 2000 and were intentionally set lower than the then existing affordability gap. Although adjusted annually based on the median price of market rate homes, the cash-in-lieu amounts have not kept pace with the growing affordability gap. Due to relatively flat buying power and rising housing costs, the affordability gap has risen quickly over the last nine years. AGENDA ITEM # 6)3 PAGE 28 ATTACHMENT A aF* r s T A M' d The following table indicates cash-in-lieu initial amounts and the resulting increase based on the average increase in housing each year. Cash-in-lieu Ad'ustments 2000-2009 Single Family Multi-Family Detached Attached Cash-in-Lieu Cash-in-Lieu Housing Housing Per Affordable Per Affordable Detached Home Attached Home %Change %Change 1999 n/a n/a n/a n/a 2000 $66,000 $60,000 22.4% 20.2% 2001 $80,816 $72,126 11.1% 16.8% 2002 $89,773 $84,211 1.3% 4.5% 2003 $90,918 $88,000 1.2% 1.4% 2004 $92,040 $89,263 10.0% 8.0% 2005 $101,234 $96,421 12.0% 5.5% 2006 $113,367 $101,747 6.5% 1.4% 2007 $120,719 $103,158 2.0% 2.9% 2008 $123,134 $106,149 -2.6% 3.8% 2009 $119,922 $110,178 n/a n/a Average change 7.1% 7.2% AGENDA ITEM # 58 PAGE 29 ATTACHMENT A The average annual percent change in cash-in-lieu for the nine years of the program was 7.1% for single family homes and 7.2% for multi-family homes. The affordability gap has increased, on average, 5.4% and 11.5% respectively. Current increases in cash-in-lieu will not keep pace with the growing affordability gap. hi part, the discrepancy occurs because the initial cash-in-lieu amount was intentionally set low, at $66,000 for single-family homes and $60,000 for multi-family homes. The actual gap for single family homes in 2000 was $153,000 for single family homes and $93,000 for multi-family. The low initial cash-in-lieu amounts, combined with a low annual percent change has resulted in a large discrepancy between current cash-in-lieu amounts and the affordability gap. To determine possible adjustments to the cash-in-lieu amounts staff began by determining the current 2009 affordability gap as a benchmark. At the March 3 study session two methodologies were presented for determining the gap, cost to purchase and cost to construct. Both resulted in similar affordability gaps equal to approximately double the currently applied cash-in-lieu amounts. Since cash-in-lieu to construct tends to be more volatile the cost to purchase methodology is recommended. See Attachment B for details on the affordability gap analysis. The following table shows the current cash-in-lieu amounts as compared with the 2009 affordability gap for attached and detached housing. 2009 Cash-in-lieu Compared to the 2009 Affordability Gap Single Family Home Multi family home 2009 Cash-in-lieu 119,922 110,178 2009Affordability Gap 231,400 226,765 At the March 3 study session Economic and Planning Systems (EPS) who have been hired as economic consultants for the Affordable Housing Review, presented preliminary analysis indicating that, assuming a 12% return on development, both land values and market prices would need to adjust to support any increases in cash-in-lieu. In addition, the large discrepancy between the current cash-in-lieu and the 2009 affordability gap, combined with current difficulties in obtaining financing for development projects, would suggest a phased- in approach to any cash-in-lieu increases. At the study session council asked EPS to provided answers to two specific questions: 1. Q. If no affordable units were required on-site, would it be feasible to raise cash-in- lieu? A. No, not up to the proposed cash-in-lieu amounts. 2. Q. Would it be feasible to lower the 20% overall requirement but raise cash-in-lieu? A. Yes. A 15% requirement and cash-in-lieu amounts based on the current affordability gap provides an approximate 12% developer return for all scenarios. The answer to question number two above indicates that, at this time, to insure developer return on investment cash-in-lieu could be raised to the gap amount only if the overall affordable housing requirement were reduced to 15%. Possible offsets such as density bonuses were discussed. EPS indicated that a density bonus is of limited use in Boulder due to the height restriction. EPS also indicated in the current market the ability to adjust for higher cash-in-lieu amounts will be a timing issue and AGENDA ITEM # 56 PAGE 30 ATTACHMENT A 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. (See Attachment C for more information on offsets.) Staff suggests the following phased-in approach for adjusting cash-in-lieu: 1. Determine a target amount to be reached for phasing in the cash-in-lieu such as the affordability gap. 2. Raise the current cash-in-lieu amount annually by a set percentage. 3. Once the target is reached, adjust the cash-in-lieu annually based on an annual affordability gap analysis. Two target amounts are proposed for consideration: 1. The projected affordability gap ; or 2. 75% of the projected affordability gap Some communities use the affordability gap to set cash-in-lieu amounts and others adjust the gap downward, The approach to be adopted depends on a number of issues including, politics, economics, financial viability for development projects and the structure of individual affordable programs. Often the full gap amount is used for cash-in-lieu when the program is structured so that most affordable units are required to be built on-site. In these communities the cash-in-lieu may be set at a high level intentionally with the understanding that it will rarely be used. Boulder's program calls for a split, with half of the units required on-site and an option of providing the other half off-site. While the affordability gap or some percent of the gap is often used as a benchmark to set cash-in-lieu amounts, it is not expected to be an exact indicator of the number of housing units that could be obtained with the funds. There is also a need to recover costs to administer the Inclusionary Zoning program. The Housing Division utilizes approximately 10% of revenues for Inclusionary Zoning administration. The average percent change in the affordability gap over the last nine years of Inclusionary Zoning was 5.4 % for detached (single family) homes and 11.5% for attached (multi-family) homes. The greater increase in the gap for multi-family attached housing is unlikely to continue and could be an anomaly. For illustration purposes the target gap shown in the table below is based on a conservative annual increase in cash-in-lieu of 5.4% for both types of housing. These provide an approximate number of years before the gap or 75% of the gap would be closed. In application, the actual annually determined affordability gap would be used once the phase-in period is complete. (See Attachment D for details on the change in the affordability gap since 2000.) 2009 Affordability Gap and 75% of the Affordability Gap Single Family Home Multi family home Affordabilit Ga 231,400 226,765 75%of the Affordabilit Gap 173,550 170,074 The chart below shows the target gaps. Once the cash-in-lieu hits the target gap it would no longer be adjusted based on a percentage, but rather adjusted annually based on a gap analysis for that year. Target Affordability Gaps AGENDA ITEM # ~ PAGE 31 ATTACHMENT A Detached Housing Attached Housing (Single Family Homes) (Multi-family Homes) 5.4% compounded 5.4% compounded 75% of the Affordability Affordability Affordability 75%ofthe Gap Gap Gap Affordability Gap 2009Ga 231,400 173,550 226,765 170,074 2010 243,896 182,922 239,010 179,258 2011 257,066 192,799 251,917 188,938 2012 270,948 203,211 265,520 199,140 2013 285,579 214,184 279,858 209,894 2014 301,000 225,750 294,971 221,228 2015 317,254 237,940 310,899 233,174 2016 334,386 250,789 327,688 245,766 2017 352,442 264,332 345,383 259,037 2018 371,474 278,606 364,034 273,025 The following two charts show the approximate amount of time it would take to reach the gap or 75% of the gap amount if current cash-in-lieu amounts were raised 15, 20, or 25% per year. Cash-in-lieu Phased-in for Multi-Family Homes Attached Housing 100%Affordabili Gap 75% of the Affordability Gap Year 15% 20% 25% 15% 20% 25% 2009 CIL 110,178 110,178 110,178 $110,178 110,178 110,178 2010 126,705 132,214 137,723 $126,705 132,214 137,723 2011 145,710 158,656 172,153 $145,710 158,656 172,153 2012 167,567 190,388 215,191 $167,567 190,388 204,803* 2013 192,702 228,465 265,520* $192702 221,187* 2014 221,607 274,158 $209,894' 2016 254,848 294,971 2017 293,076' *Equates to the estimated affordability gap projected for that year. Cash-in-lieu Phased-in for Single Family Homes Detached Housing 100%Affordability Gap 75% of the Affor ability Gap Year 15% 20% 25% 15% 20% 25% 2009 CIL 119,922 119,922 119,922 $119,922 119,922 119,922 2010 137,910 143,906 149,903 $137,910 143,906 149,903 2011 158,597 172,688 187,378 $158,597 172,688 182,922* 2012 182,386 207,225 234,223 $182,386 192,799* 2013 209,744 248,670 270,948* $203,211 2014 241,206 285,579* 2015 277,387 2016 317,254* 1 1 1 F~J *Equates to the estimated affordability gap projected for that year. In summary, the two variables to be determined are: AGENDA ITEM # 59 PAGE 32 ATTACHMENT A 1. Should the cash-in-lieu target be based on the affordability gap or 75% of the affordability gap? 2. Should the amount be phased in annually at a 15, 20, or 25% compounded increase of current cash-in-lieu amounts? These variables can be the same for multi-family and single family homes or can be determined independently. Staff recommends that the variables be the same for both housing types and that cash-in-lieu increases be phased in at 15% compounded increase in cash-in-lieu per year until 75% of the affordability gap is reached. The proposed 15% annual increase equates to approximately double the current annual adjustment of 7%. Staff estimates that it would take four years for the cash-in-lieu for single family detached housing and five years for multi-family attached housing for the cash-in-lieu amounts to equal the discounted gap amounts. Applying Cash-in-lieu What issues are we are trying to address? 1. The affordability gap varies by location. 2. Variability of off-site options. 3. Projects have a variety of market prices. 4. Policies can influence housing unit size. 5. Inclusionary Zoning should be applied to larger redevelopment projects. 1. Differences in the affordability gap based on location One approach for applying cash-in-lieu is to have different amounts based on geographic variations in the affordability gap. The most obvious geographic breakdown is the downtown area and the rest of the city. This approach requires that the basis for the differing cash-in- lieu amounts be specific to the area such as higher land values or zoning requirements that result in higher costs. The other requirement is that any cash-in-lieu monies collected in a specific area be spent in that area. While the first requirement could be met for the downtown area, the requirement to spend the money in the downtown would pose significant difficulties. Though it may be possible to spend monies collected in downtown in that area, it would eliminate many of the efficiencies realized from funding the non-profits and require significant program modifications for a relatively few number of affordable units. In addition, the city would have only local funds to invest. All other funds require that our community partners provide matching funds, therefore increasing our buying power. The city is fortunate in that we have capable community partners who are expert at maintaining and leasing residential rental properties. The Telluride decision makes it illegal for the city to directly control rents. See Attachment E for more information on the Telluride decision. Non-profits annually propose varying projects to be funded throughout the city. This is referred to as the annual fund round. See Attachment F for details about the fund round. Their choices of locations for acquisition of new units are primarily based on efficient use of funds, opportunities for acquisition, maintenance and management efficiencies and capacity AGENDA ITEM # PAGE 33 ATTACHMENT A in any given year to take on additional projects. As it stands it is challenging for the local non-profits to find appropriate projects when they have the entire city to look at. While requiring a different amount of cash-in-lieu in the downtown may result in additional funds, the resulting inefficiencies, cost, and difficulty of instituting a new program for a relatively small number of units may not be a desirable trade-off. See Attachment G for more background and analysis on varying Inclusionary Zoning by location. Rather than modifying hnclusionary Zoning, staff recommends that the residential density bonus in the downtown area could be used to bridge the affordability gap discrepancy between downtown and other areas of the city. 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. For example, a developer in the downtown area that would like to avail themselves of the additional density offered by the bonus could be required to provide a higher percentage of the resulting additional housing as affordable. Work on this project is scheduled to begin in July, 2009 and will incorporate any Inclusionary Zoning regulatory changes that result from the current Affordable Housing Program review. 2. Off-Site Options At the March 315` study session several council members suggested that when units are provided off-site they be provided within a certain geographic distance from the original project. Some suggestions were that the units be provided within the same school catchment area or within the same zone district. In general, council finds that the off-site option has resulted in acceptable results. In particular, the provision of family friendly homes, either single family or multi-family but of a type and in a location amenable to families, in lieu of less family friendly condominiums was seen as beneficial. Developers of for-sale projects, regardless of project size, may, under current program guidelines, provide up to half of the required permanently affordable units in the form of an off-site option. These housing units can be located anywhere in the city subject to staff approval. Since private sector rent controlled units are illegal in Colorado, private sector developers of rental projects may provide for the entire inclusionary zoning requirement off- site. Any developer may propose to either purchase or build half of the required units off-site. The housing units must be of comparable size and quality to those that would have been provided. In general the number of units must be equivalent but can be adjusted down if the off-site units provide additional benefits such as more square feet, or they are more desirable, such as single family homes in-lieu of condominiums. Current barriers to exercising this option are it involves additional time and risk for the developer since they must find units acceptable to the city, possibly need to remodel to meet the livability standards, and insure that the restrictive covenants are in place before they submit for a building permit. Providing affordable units off-site involves an investment of money for the developer early on in the development phase, additional time and administrative costs and some additional risk. Limiting options to smaller areas would most likely make it that much less desirable and difficult for a developer to exercise this option. An analysis of the school catchment areas AGENDA ITEM # 5 PAGE 34 ATTACHMENT A shows that the catchment areas for elementary, middle, and high schools are all different, and all encompass fairly small areas. In addition several schools do not have attendance areas at all. Limiting options to specific zones can likewise encompass fairly small areas. In both cases, this would restrict the number of possible off-site units available for purchase at any given time. To date one developer has chosen the off-site option to meet their Inclusionary Zoning requirement. Modifications to the program to reduce barriers and lower risk would most likely be needed to encourage the provision of units off-site and achieve the desired results. 3, Market Value I iclusionary Zoning and all of the affordable programs are designed to provide affordable housing to the community. The program requires that 20% of any residential development regardless of market value of the housing units contribute to the affordable housing program. Thus Inclusionary Zoning is not related to the market value of any individual project. 4, Housing Unit Size hnclusionary Zoning is currently applied by unit. Twenty percent of all units in a project are required to be made available as permanently affordable regardless of size. For example a project with six large units of 4,000 square feet each would be required to provide 1.2 affordable units. While the same project of 24,000 square feet might have twenty 1,200 square foot units and would be required to provide four affordable units. There is concern that this may encourage the development of fewer larger units, particularly in the downtown area. Results of a study of housing unit sizes in the downtown zones was undertaken as part of the downtown density bonus work for the Dec. 2, 2008 council memo. The average size of the 109 market rate units built downtown after implementation of hnclusionary Zoning in 2000 is approximately 1,660 square feet, and the average size of the 124 units that are currently under construction or review is approximately 1,600 square feet. The data does not indicate that Inclusionary Zoning has produced overly large units. In the downtown area (DT zones) larger units are less desirable as the primary goal is workforce housing, not specific to families since the location and type of housing typically found in downtown is not considered "family friendly." Family friendly homes are defined as single-family homes, town homes, or homes in multi-family buildings that are not stacked with at least three bedrooms between 1,000 and 2,500 finished square feet depending on family size, and with a yard or common area that offers a safe play area for children. As is often the case, there are conflicting goals around sizes of the affordable units. In general, smaller units should be encouraged in less family friendly locations while larger units should be encouraged in family friendly locations. Council has also expressed a desire to find ways to serve families. This requires larger affordable family friendly housing. Because Inclusionary Zoning housing is a portion of what is being built in the market, and the majority of for sale permanently affordable homes are smaller stacked flats or condos, few housing units acquired through the program meet the AGENDA ITEM # JB PAGE 35 ATTACHMENT A needs and desires of families. Consequently, in some areas of the city larger family friendly housing units may be more desirable and without specific policies will not be obtained in sufficient numbers under current inclusionary policies. A combination of a unit calculation with square foot consideration could be used to address the size issue. The Inclusionary Zoning program has in place a variation of this approach that could be modified to discourage larger units. When calculating cash-in-lieu for a given project, the amount is the lesser of the per unit amount, or a per square foot amount which is used when the market rate units average less than 1,200 square feet. This calculation favors projects with smaller units. Additional analysis is needed to develop this approach. 5. Applying Inclusionary Zoning to Larger Redevelopment Projects Residential demolitions remove housing that is relatively more affordable from the city's housing stock replacing it with more expensive homes. In 2000 when Inclusionary Zoning was initially adopted, an administrative decision was made to treat dwelling units that were built in place of demolished units the same as they are treated in the Residential Growth Management System (RGMS). That is the Inclusionary Zoning requirement for redeveloped units is waived if a building permit is issued within one year of the demolition permit. This has resulted in a very small number of redeveloped units subject to Inclusionary Zoning requirements. Since 2000 there have been a total of 365 demolished units. Thirty-four of those units were multifamily units and 331 were single family units. In cases where a certain number of residential units are demolished but a greater number of units redeveloped, Inclusionary Zoning has only been applied immediately to the net increase in the number of units. Demolition and redevelopment are defined as all redeveloped units that require a demolition permit, demolition RGMS allocation and meet the definition of "redevelopment" in the BRC. With a limited vacant land supply, the community is likely to experience more redevelopment of existing units over time. Typically, smaller, relatively more affordable units are torn down in order to build much more expensive units. And since in most cases the redevelopment occurs within a year of issuance of the demolition permit this represents a loss of relative market affordability to the community without the offset of any permanently affordable housing. Inclusionary Zoning could be applied immediately with no grace period to the demolition and redevelopment of investment properties, i.e., multifamily projects with five or more units. For projects with four or fewer units staff recommends maintaining the current practice of only applying Inclusionary Zoning to demolitions in the event that a building permit is not applied for within one year of demolition permit approval. This approach addresses the most commonly expressed concern regarding the loss of relatively affordable attached housing that is then replaced by much less affordable attached housing. It should be noted that to date very few multifamily buildings have been demolished in order to build new and larger multifamily buildings. AGENDA ITEM # PAGE 36 ATTACHMENT A Residential Demolition and Redevelopment Pros/Cons Option Pros Cons Apply Inclusionary Zoning - Has public support - Limited impact given the small immediately only to multi- - Addresses the loss of number of demolished multi- family projects with 5 or relatively more affordable family projects more units multifamily housing - Could inhibit the redevelopment of dilapidated multi-family housing Staff recommends applying Inclusionary Zoning immediately to multi-family residential projects with five or more units that are demolished and redeveloped. For projects with four or fewer units staff recommends maintaining the current practice of only applying Inclusionary Zoning to demolitions in the event that a building permit is not applied for within one year of demolition permit approval. Inclusionary Zoning would continue to be applied immediately to any redevelopment projects that add additional units over what was demolished. IX. SOCIAL POLICY REVIEW The Social Policy review was originally prepared for the Dec. 2, 2008 City Council meeting. At council's request the item was removed from the agenda for later consideration. Most of the original memo is included in the information that follows but much of the data has been updated and additional information concerning middle income households has been added. 1. Overview In January 1999, City Council accepted The Comprehensive Housing Strategy ("Strategy"). Development of the Strategy included extensive dialogue with Boulder residents. The Strategy was intended to mobilize all segments of our community around a continuum of housing choice and need. Since 2000, the city has demonstrated its commitment to the Strategy by continuing to provide funding for the development of affordable housing, and through land use policies that support the entire spectrum of needs for affordable housing. As of Dec. 315`, 2008, there were 2,855 affordable units in the city or approximately 6.3% of the total housing stock, including 187 shelter beds and 55 group home beds. Approximately 1,650 affordable units are needed to meet the goal to have 10% of the city's housing as permanently affordable. The priorities set in 2000 by the Affordable Housing Task Force include meeting the needs of very low income populations. These needs are primarily met through the provision of shelter and group home beds. When the 10-year timeframe was discussed, Boulder's housing inventory was projected to be 45,000 units by 2011, which would result in 4,500 permanently affordable units necessary to meet the 10% goal. The task force recognized that the 10% goal would not fully address the demand for affordable housing, especially in light of job growth projections for Boulder and the surrounding area. However, implementing the 10% goal in 10 years was recognized as a significant, incremental step toward maintaining economic diversity in the community. The AGENDA ITEM # S~ PAGE 37 ATTACHMENT A 10% goal included in the inventory all existing types of affordable housing - rentals (owned and operated by various entities), homeownership units, and shelter and group home beds. These diverse housing types meet the needs of a diverse range of incomes and special needs groups. Fulfillment of the goal within ten years required passage of an affordable housing tax ballot measure. The measure would have added an additional $3,000,000 in affordable housing funds annually. The measure was not approved by voters. Inclusionary Zoning was implemented in 2000 requiring that all new residential development provide the equivalent of 20% of the total housing units as permanently affordable. Non- profit organizations and faith-based groups contribute to developing and maintaining affordable housing in Boulder by constructing and rehabilitating housing units, and managing units as landlords. The private sector contributes to affordable housing through payment of a housing excise tax that is levied against all new development and through a portion of their property taxes. There were 1,750 affordable housing units in the city when the 10% goal was accepted. In order to achieve the 10% goal, approximately 2,750 units were needed. Since 2000, the city has increased the number of permanently affordable units available in the community by more than 1,100 units. The following table indicates the percentage targets for incomes, homeownership versus rental, and new versus existing acquisition adopted in 2000. 2000 Task Force Objectives Priorities 2000 Goals* Income for households below 30% 390(14%) Area Median Income' (AMI) Income for households between 30 - 6 1,320(48%) AMI Income for households between 60 - 8 1,040(38%) AMI Rental 1,652(61%) Home Ownership 1,098(39%) New Construction 1,240(45%) Existin Inventory 1,510(55%) *Number/percent of the additional 2,750 units needed to meet the 10% goal Although this table has been used extensively in the past when discussing the 10% goal, it can be confusing in that it shows the percentages desired for the remaining affordable stock to be acquired after 2000 but not the final percentages that would exist once the 10% goal was met. To better reflect the goals of the program and the existing inventory. Staff has made the following modifications as to how the 10% goal and the three priorities are reported: a. Present the data to show the final percentages desired for each priority. a. Present data to show the number of Middle Income units currently in the inventory. AGENDA ITEM # 5~ PAGE 38 ATTACHMENT A a. Separate permanent affordable and likely to remain affordable units to accurately reflect progress on the goal. See Attachment H for more information on "permanent affordability" versus "likely to remain affordability." a. Separate the priority for acquisition via new construction versus existing inventory. This was only applied to the remaining units to be acquired after 2000. As such, there are no historic numbers for the units acquired pre-2000. Affordable Housing Priorities Affordable Housing Vent 2009 Current 2009 Current 2009 Final housing Priorities housing unit inventory: housing unit inventory: housing unit unit inventory Likely to Remain Permanently inventory 10% Goal met Affordable Affordable (PA) Subtotal: Subtotal: Total: 4,500 1,102 1,753 2,855 wpm Households below Shelter and group Shelter and group 485(17%) 1,575(35%) 30% home beds home beds 4 238 Area Median Income' Housing units Housing units (AMI) 216 27 ,'very low income" Households between 787 921 1,708(60%) 1,800(40%) 30 - 60% AMI "low income" Households between 95 567 662(23%) 1,125(25%) 60 - 80% AMI "moderate income" Households between 0 118 118 N/A 80 - 120% AMI (not included in (not included in total, as there is total, as there is "middle income" no current goal) no current goal) Rental 1,067 1,055 2,122(74%) 3,285 (73%) Home Ownership 35 698 733(26%) 1,215 (27%) Staff initiated the social policy review of the affordable housing program in July 2008. The process included small group discussions with targeted stakeholders (civic groups, developers, and service providers) and one public meeting held on August 14, 2008, which was sponsored by the Community Foundation. See Attachment I for attendees and comments. A Spanish language public notice was produced and distributed to groups working with the Latino community and translation was provided for the public meeting. Following a presentation on the current goal, priorities and progress towards achieving the goal, participants were asked "is the 10% goal adequate? And should priorities for incomes to be served and homeownership versus rentals be changed?" The city also contracted with RRC Associates, Inc., a private consulting firm, to survey current residents in affordable units and mobile home residents. An online survey of employers and employees (with particular emphasis on commuters) was also undertaken. AGENDA ITEM # 5.76 PAGE 39 ATTACHMENT A Staff also consulted with the Boulder Economic Council, PLAN Boulder, the Human Relations Commission and the University of Colorado during the process. 2. Goal and policy recommendations a. Ten percent goal: Policy Recommendation: retain the goal to 10% of the total housing stock as permanently affordable to very low, low, and moderate income households. Under current trends, it is estimated that that there will be 3,500 units of affordable housing (including shelter and group home beds) by 2011, an increase of 1,750 units since 2000, but fewer than the original goal of 4,500 units. The Boulder Valley Comprehensive Plan provides that "the city will increase the proportion of permanently affordable housing units to an overall goal of at least ten percent of the total existing housing stock through regulations, financial subsidies and other incentives" During the review process, the need for affordable housing in the community was not debated. There was some sentiment that the need was far greater than the 10% goal could address. It was also recognized that it is going to be difficult to reach the 10% goal and that any increase in the goal would be even more challenging. There was some confusion about the final make up of the affordable housing stock once the 10% goal was met. New reporting clarifies those final percentages. b. Income Priorities Policy Recommendation: Retain the 10% goal to result in: 35 % serve households with incomes below 30% Area Median Income (AMI) 40 % serve households with incomes between 30 - 60%AMI; 25% to serve households with incomes between 60 - 80%AMI; While there was some public sentiment expressed that the greatest need for affordable housing in the community is at the lower income levels, it was also acknowledged that needs exist across the housing spectrum beyond what is provided by all affordable housing programs combined. Since the needs of any one group are not able to be completely addressed, all of the above income goals serve populations in need. Attachment J provides more demographic information regarding the need and supply of housing by income group. Currently the 10% goal is to meet the needs of very low, low and moderate income households and does not include middle income households. Council may want to add a goal for serving middle incomes through the affordable housing program. Attachment K provides more information regarding middle income households. Another approach is to not serve middle income households through the affordable housing program but pursue options to assist the market to provide housing for middle income households. Even without a stated goal, the city will continue to acquire a limited number of housing units for middle income households through annexations and land use agreements. Adding these to the goal as part of the income breakdown would reflect current practices. AGENDA ITEM # Q PAGE 40 ATTACHMENT A Three options are presented for council consideration: Policy Options: Option 1 Do not add an official goal for serving middle income households through the affordable housing program. Focus on assisting the market to provide housing for middle income households. Option 2 Add a goal of adding 225 permanently affordable housing units for middle income households between 80 -120% AMI through the affordable housing programs. Option 3 Add a goal of adding 450 permanently affordable housing units for middle income households through the affordable housing program to serve households between 80 - 120% AMI for annexations and 80-100% AMI for the remaining units. Options 2 and 3 would establish an official goal for the existing 118 middle income homes already in the affordable program priced across the middle income range and the additional middle income priced homes expected through current polices. The proposed options only apply to housing produced or acquired through affordable housing programs. In Phase III of the affordable housing review staff will consider strategies to provide affordable housing for middle income households including both affordable program approaches and strategies to assist the market to provide housing for this group: a. Review annexation policies. b. Explore employer assisted housing and tax incentives. c. Consider loan programs: equity sharing (soft seconds), rehabilitation of single family homes, down payment assistance. These would require additional funding sources. d. Preserve older multifamily housing stock as relatively affordable. e. Accessory dwelling units (ADU's) as market rate housing available to middle income households. f. Land use changes to allow increased density (ADU and OAU type units.) The following table outlines the pros and cons of each option and assumes current funding levels. Pros and Cons for Options for Goals to Serve Middle Income Households Option - Pros Cons 1. Do not add an official goal - Does not reduce the amount of funding - No goal would he in place to for serving middle income and number of housing units available to reflect current practices for households through the low and moderate income households acquisition of middle income affordable housing program. Fo units through annexation on assisting the market policies and other development to provide housing for middle agreements income households. - Does not result in additional AGENDA ITEM # -15? PAGE 41 ATTACHMENT A housing units for middle income over those expected through current practices 2. Add a goal of 225 housing - Goal reflects current practice - Does not result in additional units for middle income househ - Does not reduce the amount of funding housing units for middle income between and number of housing units available to over those expected through 80 - 120% AMI low and moderate income households current practices - Goal includes middle income units currently obtained through annexations and other development agreements 3. Add a goal of 450 housing - Goal increases the number of middle - A higher goal will take longer units for middle income income units above what would be to achieve households between obtained through current practice - Would require new funding 80 - 120% AMU. Additional - Does not reduce the amount of funding sources to meet goal objectives units not acquired through and number of housing units available to annexations would target low and moderate income households 80-100% AMI - Goal includes middle income units currently expected through annexations and other development agreements - Directs staff to expand current programs and/or add new programs to acquire or fund additional middle income units Staff recommends option three which accounts for the middle income homes which have been and will be acquired through annexations and land use agreements and increases that number by approximately 225 units. c. Homeownership vs. Rental Policy Recommendation: Retain the objective for the 10% goal to result in: 27% of permanently affordable units for homeownership; 73% of permanently affordable units as rentals There were approximately 1,750 affordable units in the city when this objective was accepted. The majority of these (92%) were rental units. Since 2000, 45% of the new permanently affordable units added to the city's affordable housing inventory have been homeownership units. Currently 26% of affordable housing units are homeownership units and 74% are rental and shelter units. There was public sentiment expressed that the city should re-examine this priority. The Leeds School of Business's Affordable Housing Report and Boulder Area Board of Realtors Board of Directors reason that homeownership subsidies are higher than subsidies required for renter households and question whether the amount of subsidy necessary for homeownership is worth the community benefit. The Leeds analysis of homeownership subsidies did not include units created without the direct investment of subsidy funds, i.e. Inclusionary Zoning units, and the question should be considered in this context. There is also a perception that there is little demand for homeownership units. The Division of Housing's marketing data show: C-W AGENDA ITEM # 3 ID PAGE 42 ATTACHMENT A 1. Since 2004, the average days to contract for re-sales in the city's program has ranged from 22 to 53. In comparison to sales of market-rate attached homes, on average, permanently affordable homes sell twice as fast. 2. Ninety-nine percent of newly constructed units sell prior to completion. 3. Resales in two developments account for most of the homes that have not sold within 60 days. Another indication of demand for the city's programs is that on average, over the past six years, almost twice (1.81) as many households applied to the city's program as purchased homes through the city's program. d. New Construction vs. Acquisition of Existing Units Policy Recommendation: Retain the objective for the 10% goal to result in: 50% of new permanently affordable units come from new construction 50 % of new permanently affordable units from the acquisition of existing housing This guideline was established by the task force and City Council in 2000 as a performance measure for affordable units acquired after 2000. There was little public sentiment expressed regarding the split of new construction vs. acquisition at the meetings. New affordable homeownership units are primarily acquired through development projects subject to Inclusionary Zoning requirements. The rate and amount of which is dependent on the rate and amount of residential construction in city. Acquisition of existing units is primarily facilitated by city funding to local non-profits who primarily focus on the provision of rental housing. 3. Surveys There was public sentiment expressed that the city pays too little attention to the impact on the people we serve. How are these programs working for them? It was suggested that we ask questions of the people in the affordable housing programs to understand the impact on their lives around transportation, social and housing issues. As part of the social policy review, RRC Associates, Inc. was contracted to conduct survey- based studies of local residents. The surveys were fielded in September, 2008 to the following segments of the community: • Owners of deed restricted housing purchased in Boulder • Renters in Boulder Housing Partners rental housing • Mobile home residents • Employers and employees in Boulder (including both in-commuters and local residents) 500 permanently affordable homeowners were sent surveys with a 41% response rate; 500 affordable renter households were surveyed with a 23% response rate; 280 mobile home residents were surveyed with a 27% response rate; and 250 employers were surveyed with an 18% response rate. A summary of survey results may be found on-line at: AGENDA ITEM # e PAGE 43 ATTACHMENT A www.boulderaffordablehomes.com, click on CHAT'S: A Review of Boulder's Affordable Housing Programs. X. ADDITIONAL INFORMATION First Home Grants Council requested that staff develop strategies for housing low and moderate income families in Boulder. In response staff will institute a pilot program for the First Home grant that will limit uses of the grant to larger households with two or more dependants less than 18 years of age. See Attachment L for more information. Inclusionary Zoning Variances At the March 31, 2009 study session council was particularly interested in the variance that would allow a reduction in the size of the affordable units off-set by a cash-in-lieu payment. There are several variances to the general inclusionary requirements for which a developer or property owner may apply and which may or may not be granted at the discretion of the city manager. See Attachment M for more information on Inclusionary Zoning variances. XI. NEXT STEPS Amendment Processes Adoption of modifications to the Inclusionary Zoning ordinance and administrative regulations follow these steps: Ordinance Modifications: 6. Staff develops draft ordinance language 7. City Attorney review 8. Recommendation on proposed ordinance language by Planning Board 9. First reading by City Council 10. Second reading by City Council Administrative Regulation Modifications: 5. Staff develops draft regulation language 6. City Attorney review 7. Published in the Daily Camera 8. City Manager signs and adopts In the past, though not required, substantive changes to the Inclusionary Zoning administrative regulations were reviewed by the Planning Board prior to city manager adoption. Staff intends to bring all changes to the Inclusionary Zoning administrative regulations that result from this process to Planning Board for final review prior to city manager adoption. Staff expects to take the complete package of Inclusionary Zoning program modifications to Planning Board on July 16, 2009 and expects to return to City Council in September 2009 for approval of final recommendations. Final code language will then be brought to the Planning Board for a recommendation prior to a first reading with council. AGENDA ITEM #4A PAGE 44 ATTACHMENT A The following is a list of possible work items for the next phase, Phase III, of the affordable housing review: 8. Explore new funding sources 9. Serving middle income households: a. Review annexation policies b. Employer assisted housing, tax incentives and other strategies c. Consider loan programs: equity sharing (soft seconds), rehabilitation of single family homes, down payment assistance d. Preserve older multifamily housing stock as relatively affordable e. Accessory dwelling units (ADU's) as market rate housing available to middle income households 10. Congregate care and assisted living: increase affordable options for seniors 11. Annexations: establish affordable housing policies for substantially undeveloped properties 12. Rental policies: funding, pricing, acquisition 13. Mobile Home Park strategies and policy assessment 14. Require affordable housing benefits from rental conversions to condominiums Staff will present staffing, budgeting, and approximate time frames for completing each Phase III item and will ask council direction on priorities when phase II is substantially complete in the fall of 2009. Changes to the administrative regulations will commence as soon as possible after adoption of any ordinance changes and may be proposed concurrently if feasible. As outlined in the March 31 study session staff will provide council with quarterly Housing Division weekly information packet update. These updates will provide details on Inclusionary Zoning projects, sales of affordable units, and funding issues. The first update will be provided to council in June. Proposed Public Process Staff will conduct a public process to communicate proposed affordable housing program modifications based on council direction from this meeting to the community prior to the July meeting with Planning Board. Details will be provided to council through a weekly information packet update. Approved By: Jane S. Brautigam, City Manager Attachment A - Correspondence Attachment B - 2009 Affordability Gap Analysis Attachment C - Inclusionary Zoning offsets Attachment D - Changes to the Affordability Gap 2000-2009 Attachment E - Rent Control and the Telluride Decision Attachment F - The Housing Funding Process Attachment G - Issues with Varying Inclusionary Zoning by Location Attachment H - Permanent and Likely to Remain Affordable AGENDA ITEM # '56 PAGE 45 ATTACHMENT A Attachment I - August 14, 2008 public meeting attendees and comments Attachment J - Boulder Demographics Attachment K - Middle Income Household Information Attachment L - First Home Grants and the H2O program Attachment M - Inclusionary Zoning Variances AGENDA ITEM # S~ PAGE 46 ATTACHMENT A Correspondence From: Ken Hotard [mailto:khotard@barastaff.com] Sent: Tuesday, May 05, 2009 10:37 AM To. Council; boulderplanningboard Subject: Affordable Housing Regulatory Tools MEMORANDUM TO: Mayor, City Council and Planning Board Members FR: Housing Opportunity Committee, Clove Berger, Chair Boulder Area Realtor® Association RE: Affordable Housing Regulatory Tools DATE: May 5, 2009 The purpose of this memorandum is to inform you of our recommendations regarding Affordable Housing Regulatory Tools currently under review and consideration for action. Our comments focus on four topics: on site units, downpayment assistance, cash-in-lieu, and middle income housing assistance. On Site Units-We recommend that you retain flexibility to exempt some or all on site units in any given development. Some developments simply are not best suited for affordable family units, e.g., within neighborhoods substantially populated by students, developments with high HOA fees, areas that lack services or are not convenient to public transportation and nearby schools, among others. Down payment Assistance-In the current market it may be wise to consider increasing downpayment assistance as a way to enable buyers to access credit and qualify for affordable housing mortgages with a priority on families with dependents. Current downpayment assistance levels should be considered for increases up to 40 percent of the purchase price. Ca~h-In-Lieu-The consultant's financial analysis of the CIL policies shows that substantial increases in the CIL is unworkable and would reduce the likelihood of improving the production of on site units. Importantly, the current CIL brings in needed revenue that supports many vital permanently affordable housing activities. Middle Income Housine Assistance While it may be desirable to consider middle income housing assistance at some point in the future, the current economic climate suggests that you should focus limited existing resources on 80 percent AMI and below. Slowed real estate sales and lower sales prices currently available are meeting the needs of today's middle income buyers in Boulder area markets. Thanks you for your consideration of our comments and recommendations. We look forward to constructive and helpful changes in the City's affordable housing regulatory tools. AGENDA ITEM # 2 PAGE 47 ATTACHMENT A 2009 Affordability Gap Analysis 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. 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 Inclusionary 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, cash-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. The initial cash-in-lieu amounts for Inclusionary Zoning were set by looking at the difference between the affordable price for various unit types and the market rate price. The following 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 intentionally 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. The program objective is to provide a cash-in-lieu 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. AGENDA ITEM # , PAGE 48 ATTACHMENT A Cash-in-lieu funds have been used to fund a variety of important community projects, from the Boulder Shelter for the Homeless to the Holiday Neighborhood, and have been used by the city's non-profit housing providers to secure permanently affordable rental 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. Options for Modifications 1. AffordabiltyGau 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. This 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 reflects the 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 significantly raises the amount of cash-in- lieu from current levels. Option 01 Affordability Gap Single Family Multifamily Median Sale Price $409,000 $369,665 (all market SF units < 2,000 sq. ft. & 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 Change to Current Amounts +$111,478 +$116 ,587 +93% +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 not act as the developer). 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 funds tend to be used to purchase existing housing rather than construction of new units. During the development of hiclusionary Zoning, it was recognized that new construction alone could not AGENDA ITEM # 55 PAGE 49 ATTACHMENT A solve the affordable housing needs of the community, 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 s ft 1,000 s It 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 +$113,366 +104%, +103% AGENDA ITEM # PAGE 50 ATTACHMENT A Inclusionary Zoning Offsets Municipalities that have adopted mandatory Inclusionary Zoning (IZ) requirements for their jurisdictions often provide compensation to the market rate housing developers that are contributing a share of their newly developed units to be affordable. These "offsets" are meant to compensate developers for revenue that could be lost due to the requirements of the IZ ordinance. These cost offsets typically include waiving certain regulatory requirements or adding more flexibility to the development approval process. Currently, developers who choose to provide a greater number of affordable units or serve lower income households may benefit by development application fee subsidies, Development Excise Tax (DET) waivers, and subsidies from city-administered grants. Current Inclusionary Zoning Options for Developers The city of Boulder offers options to developers that include: • Paying a cash amount, providing off-site units, or dedicating vacant land in lieu of contributing affordable on-site units, as a way to meet up-to-half of a project's requirement. • Applying for a partial fee subsidy for projects that provide more than the required number of affordable units in a project. • Marketing space on the city's Housing Division website and an invitation to attend new homeowner orientations to advertise their available home. Drawbacks of Offsets Since the Inclusionary Zoning ordinance was adopted in 2000, the city of Boulder housing program has not offered offsets to developers. According to the Lincoln Institute of Land Policy there are identifiable drawbacks in offering offsets: • Offsets for individual projects in the form of density bonuses can be likened to spot zoning. In addition, the density in an area is effectively changed from that allowed under the existing zoning with little or no public comment or involvement. • Offsets can be taken away, especially during recessionary periods. • Financial incentives are paid directly by taxpayers, either through appropriations at the federal, state, or local level, or by redirecting revenues that would otherwise go into the city's general fund. • When a project doesn't pay its full cost, the city must make up the lost revenue or allow infrastructure or service levels to decline. In either case, the public bears the cost. Description of Offsets Following is a list of offsets offered by municipalities throughout the country, which could be explored in greater detail. Density Bonus. There is a limited ability to utilize this opportunity in Boulder due to the height limit. It is most attractive to developers and most problematic to the residents and business owners, and could have significant but unanticipated impacts on neighborhoods. First, they undermine existing regulations, undoing land use planning and zoning regulations without the associated processes that usually accompany zoning changes. Second, they may lower the level of service of public facilities and infrastructure in the area due to additional AGENDA ITEM # PAGE 51 ATTACHMENT A density. Third, they frustrate citizen participation in the planning process with these enacted outside of that process. Zoning Variance. These could include reductions in requirements for open space, parking, height, setbacks, design standards, landscaping, unit size, and housing type. Currently, these types of variances are not considered as an off-set for inclusionary zoning requirements. Expedited Permits. A fast-tracking of the development review process tends to require additional government personnel to process the plans, while lengthening delays for projects that do not benefit from the fast track. Financial Compensation. These could include reduced or waived fees for construction permits, roads, schools, and utilities, loans for or deferred payment of system development charges, secondary financing, tax abatement, and cash subsidies. AGENDA ITEM # PAGE 52 ATTACHMENT A Changes to the Affordability Gap 2000-2009 1) Single Family, total enclosed square feet <=2000 sf (including unfinished and garages), permanently affordable excluded, non-arms-length excluded. Regardless of age of unit. Percent change Year Median sale Amt. change from from previous sold price Affordable Price Gap previous year year 2000 $307,750 $155,000 $152,750 2001 $328,950 $171,000 $157,950 $5,200 3.4% 2002 $337,000 $174,000 $163,000 $5,050 3.2% 2003 $335,000 $185,000 $150,000 -$13,000 -8.0% 2004 $338,000 $193,000 $145,000 -$5,000 -3.3% 2005 $370,500 $188,100 $182,400 $37,400 25.8% 2006 $414,000 $181,100 $232,900 $50,500 27.7% 2007 $400,000 $167,400 $232,600 -$300 -0.1% 2008 $406,250 $168,800 $237,450 $4,850 2.1% 2009 $409,000 $177,600 $231,400 -$6,050 -2.5% Avg % change 5.4% 2) Multi-family, total enclosed square feet <=1500 sf (including unfinished and garages), permanently affordable excluded, non-arms-length excluded. Age of unit 10 years or less at time of sale. Percent change Year Median sale Amt. change from from previous sold price Affordable Price Gap previous year year 2000 $204,900 $112,000 $92,900 2001 $240,800 $118,000 $122,800 $29,900 32.2% 2002 $235,000 $118,000 $117,000 -$5,800 -4.7% 2003 $250,000 $150,000 $100,000 -$17,000 -14.5% 2004 $266,200 $156,000 $110,200 $10,200 10.2% 2005 $295,000 $154,900 $140,100 $29,900 27.1% 2006 $317,400 $147,400 $170,000 $29,900 21.3% 2007 $305,050 $131,100 $173,950 $3,950 2.3% 2008 $345,000 $134,100 $210,900 $36,950 21.2% 2009 $369,665 $142,900 $226,765 $15,865 7.5% Avg % change 11.4% AGENDA ITEM # PAGE 53 ATTACHMENT A Rent Control & the Telluride Decision Section 38-12-301, C.R.S., titled "Local Control of Rents Prohibited" states the following: "The general assembly finds and declares that the imposition of rent control on private residential housing units is a matter of statewide concern; therefore, no county or municipality may enact any ordinance or resolution which would control rents on private residential property. This section is not intended to impair the right of any state agency, county, or municipality to manage and control any property in which it has an interest through a housing authority or similar agency." The Town of Telluride enacted an inclusionary zoning ordinance for non residential property developments that allowed property owners to comply with the ordinance by either building new units with fixed rents, by paying fees in lieu of building new units, or by conveying land to the town for affordable housing. In the case that went to the Colorado Supreme Court, a non-residential development was required to create permanently affordable rental housing for 40% of the employees generated by the new development. The court found that Telluride's inclusionary zoning ordinance was a form of rent control prohibited by the state legislature, and held that the ordinance was invalid and unenforceable. Despite being a "home rule municipality" with broad powers over local matters, according to the court, Telluride lacked the authority to impose rent controls because the legislature determined that rent control was not merely a local issue, but one that might affect other jurisdictions as well: "Ordinances like Telluride's can change the dynamics of supply and demand in...the housing market. A consistent prohibition on rent control encourages investment in the rental market and the maintenance of high quality units. Although economic conditions may vary in housing markets across the state, the legislature has seen fit to enact a uniform ban on rent control as a matter of public policy." The city of Boulder, as a result of advice from the City Attorney's office, can only accept permanently affordable rental units if they are owned by the housing authority or a non-profit with which we have executed a "similar agency" agreement that states that the non-profit is an agency that functions similar to that of the housing authority. As a result of the Telluride decision and advice from the City Attorney's office, the city of Boulder has done the following in order to minimize the risk of a legal challenge: 1. Executed an agreement for use with the Housing Authority that generally spells out services the Housing Authority provides for the City. 2. Had the Housing Authority pass a resolution recognizing other non-profits as agencies providing similar services to the Housing Authority. 3. Executed agreements with existing housing non-profits that states that they are a housing agency similar to the Housing Authority. 4. Include language in the covenants for non-profit rental projects conveying an undivided one one-hundredth interest in the Property for the purpose of establishing the city ownership interest. (in progress) We have focused the city's efforts to maintaining and creating permanently affordable rental units through non-profit agencies. The Housing Division determined that the city would not AGENDA ITEM # '96 PAGE 54 ATTACHMENT A pursue options for private sector rent controlled housing since: 1. It is unlikely that a private developer could be considered a "like" or "similar" agency to the Housing Authority. 2. It is also be unlikely that a private developer would be willing to convey the ownership interest portion to the city. 3. The city may not want the liability involved with partial ownership of a private sector rental project. 4. While it is possible that a property owner could "volunteer" to limit rents, if that owner or a subsequent owner decided to stop limiting rents, the city would have no recourse since rent control is illegal. Private sector rental developers may choose other options to satisfy the affordable housing requirements of Inclusionary Zoning such as, making a cash-in-lieu payment, making the units homeownership units, purchasing existing units and making them deed restricted homeownership units, land dedication, or partnering with a housing non-profit that could own and manage the permanently affordable rental units. Typically, a developer would look to sell the permanently affordable rental units to the non-profit, which would then need a source of funds to complete the transaction. AGENDA ITEM # PAGE 55 ATTACHMENT A ATTACHMENT F The Housing Funding Process The Division of Housing administers an annual competitive funding allocation process to support affordable housing projects in Boulder. This annual process is referred to as the "fund round." Every summer, Requests for Proposals (RFP's) are advertised to the local development community, including Boulder Housing Partners, non-profit organizations, and for-profit developers, who are invited to submit grant proposals to fund their acquisitions and new construction projects that will increase the amount of permanently affordable housing in Boulder. Applicants may also request funding for capital improvements and maintenance projects for their existing properties. After purchase or construction, the new units are owned and operated by the non-profit. By providing local support, the funds allocated by the city to Boulder Housing Partners and other non-profit organizations enhance their ability to secure other funding available to community housing developers. This leveraging allows city dollars to realize far more benefit than what a direct subsidy alone would purchase. The non-profits use the initial investment, typically referred to as equity grants, to obtain additional grants, loans, or tax credits. Sources of subsequent funding often want to see "local dollars" in a project before they will consider putting in money. The city's return on the fund investment is the preservation of existing affordable inventory and the creation of permanently affordable housing units. For all funding projects, covenants are placed on rental and homeownership housing units which preserve permanent affordability. Annual monitoring by staff assures the units are in compliance with the terms of the covenants and with any federal or state requirements. The city grant funds are matched or leveraged by other local, state, federal and/or private fund sources, which allows for the public dollars to realize a far greater benefit than what a direct subsidy alone would purchase. As part of the annual housing fund round process, and to ensure a more technical evaluation of proposals, a community review group works with staff to evaluate proposals and make fund recommendations to the City Manager. The Technical Review Group (TRG) members are appointed by the City Manager. Members have backgrounds in affordable housing finance, real estate, real estate law and legal issues, and housing development. The TRG is convened annually in the fall for several meetings Funding allocated through the annual fund round is targeted for the following populations: • Households who live or work in Boulder • Families with children • Special population groups, including: - physically and/or developmentally disabled - chronically mentally ill - frail elderly - homeless individuals and families Funding decisions are made based on the amount of funds the city of Boulder anticipates will be available for dispersal. Funding sources include: AGENDA ITEM # ~J) PAGE 56 ATTACHMENT A Affordable Housing Fund (AHF) • Funded through Inclusionary Zoning cash-in-lieu payments and an annual allocation from the general fund • Generates between $500,000 - $1, 500,000 annually with significant fluctuations depending on development activity • Targeted to households with annual incomes up to approximately 80% of the Area Median Income ($65,700 for a three-person household in 2009) Community Housing Assistance Program (CHAP) • Funded through property tax and a tax on new development, called the Housing Excise Tax (HET) • Generates between $1,000,000 - $1,500,000 annually • Policy requires leveraging of $2 for every dollar of CHAP funds allocated • Targeted to households with annual incomes between 15% - 60% of the Area Median Income ($12,045 to $48,200 for a three person household in 2009) Community Development Block Grant (CDBG) • Federal program (U.S. Department of Housing and Urban Development), in existence since 1975 • May be used for a variety of housing and community development activities that benefit low-income people • Provides between $800,000 - $900,000 annually • Approximately 40% of each year's allocation is spent on housing • Targeted to households with an annual income up to approximately 70% of the Area Median Income ($57,600 for a three-person household in 2009) HOME • Federal program in place since 1992 • The city is the lead agency for a regional HOME Consortium that includes all of Boulder and Broomfield counties. • Provides approximately $600,000 to Boulder annually • Requires funding to Community Housing Development Organizations (CHDOs) and leveraging of 25 percent of the HOME allocation, which must be satisfied with non- federal funds • Targeted to households with an annual income up to approximately 70% of the Area Median Income ($57,600 for a three-person household in 2009) Housing Fund Allocation Oversight The City Manager-appointed Technical Review Group (TRG) works with Housing Division staff to evaluate proposals and make fund recommendations to the City Manager. The TRG is comprised of volunteers with experience in affordable housing finance, real estate, real estate law, and housing development. The group convenes each fall over a two-month period of time. Funding Allocation Selection Process A standardized grant application which streamlines the housing funding process, is required for consideration of the funding requests. AGENDA ITEM # PAGE 57 ATTACHMENT A Six major steps are involved in the review of proposals: 1. Staff previews all proposals to ensure that the application is complete and the basic mandatory evaluation criteria are met. The mandatory criteria are designed to meet local, state and federal compliance requirements, the 10% affordable housing goal, and the Housing Division mission statement. Incomplete applications and proposals that do not meet the criteria are ineligible for further consideration. In addition to the funding process, projects seeking Planning Department approvals are subject to the provisions of the land use review process. Evaluation Criteria • Provides permanently affordable housing. • Project provides maintenance of existing permanently affordable housing inventory as safe, decent, and sanitary housing units. All of the following must be met: • Management Capacity: successful completion of past projects on time and on budget. • Community Benefit: proposed project primarily benefits low and/or moderate income persons - at or below approximately 80% AMI for owner housing, and/or at or below 50% AMI for rental housing. • Cost effectiveness: the applicant is encouraged to describe the cost effectiveness of the proposed activity. • Documented need for the project • Documented need for city financing, and proof of financially feasibility, evidenced through a financial statement. • Can be completed within stated time frame. • Leveraging: CHAP funds should be matched on at least a 2:1 basis; HOME funds must be matched on a.25:1 basis. • Housing units must conform to the city of Boulder Livability Guidelines. • Building Green: proposal demonstrates a reduction in long term operating and maintenance costs and/or include design or materials which enhance energy efficiency of units. • Other funding is in place or there are documented efforts to secure other funding • No displacement will occur if acquiring existing rental or owner property 2. Applicants make a presentation to Housing Division staff and the Technical Review Group. 3. Proposals are evaluated based on how well they fulfill community goals and completeness of the information provided in the application package. Housing Division staff use information included in the application, including assumptions in the project pro forma, to develop preliminary fund recommendations for the TRG's consideration. The TRG's recommendations are forwarded to the city manager for approval. The following specific community goals were identified by Housing Division staff and the TRG for the 2009 fund allocation process: a) Rental units affordable to households below 50% AMI (only nonprofit applicants or for-profit developments with nonprofit partners are eligible to receive assistance for rental projects.) AGENDA ITEM # 5U PAGE 58 ATTACHMENT A b) Acquisition/Development of homeownership units appropriate for families with incomes between 50%-70% AMI. c) Transitional housing units are for homeless individuals and families who are working toward self sufficiency. Generally, transitional housing is provided from three months up to two years. d) Special needs housing for people with disabilities. 4. The City Manager and Housing Division staff send a WIP to council informing them of the housing fund allocations. Proposals recommended for more than $450,000 in CHAP funds will be considered by council prior to the release of funds. 5. Documents (restrictive covenants to secure the permanent affordability of the proposed housing and/or HOME agreements) are executed. The city reserves the right to incorporate reasonable contractual provisions into the final documents. 6. Federal funding is dispersed to projects, on a reimbursement basis, once the written agreements and or covenants are executed and Housing Division staff determine that the project meets all compliance requirements. Since 2000 through the end of 2008, the city has collected approximately $9.05M in cash-in- lieu payments, which are pooled with other affordable housing program funds and distributed during the annual affordable housing funding allocation process. These funds are used to support: • Construction of new affordable housing • Rehabilitation of existing affordable housing • Acquisition of existing housing for affordable programs • Transitional housing and the homeless shelter • Special needs housing (e.g. housing for people with AIDS or those with a physical or mental disability.) Inclusionary, zoning has produced 359 on-site homes and five single family homes 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`h and Pearl and a smaller site in Palo Park that combined have potential for another 115-170 affordable units). The table below summarizes the $1.9 million dollars allocated in 2009 for city affordable housing needs and $588 thousand allocated in 2009 to the city's regional consortium partners. Summa 2009 City Affordable Housing Allocations and Consortium Allocations Amount Available $648,635 $819,529 $130,000 $346,134 $1,944,298 APPLICANT Use HOME CHAP AHF CDBG Award Boulder City Advocates for Transitional Housing Capital ImrovementPro ram Rehabilitation $21,000 $21,000 AGENDA ITEM # PAGE 59 ATTACHMENT A Homeownership Boulder C Housing Authority Counseling $28,000 $28000 Boulder Cty Housing Authority, Longs Peak Energy Conserv Rehabilitation $105,000 $105,000 Boulder Housing Partners Boulder Mobile Manor Redevelopment $400,000 $400,000 Boulder Housing Partners Brid ewalk Rehabilitation $228,000 $228,000 Boulder Housing Partners Capital Capital Improvement. Program Improvements $200,000 $200,000 Down Payment First Home Assistance $180,000 $180,000 Habitat for Humanity CHDO CHDOOperating $15,000 $15,000 Habitat for Humanity Vojta Farm Development $250,000 $250,000 Imagine! Redevelopment $150,000 $150,000 Thistle Community Housing Capital Improvement Program Rehabilitation $29,000 $29,000 Thistle Community Housing New Development Development $200,000 $40,000 $240,000 Opportunity Fund Acquisition $3,635 $1,529 $73,000 $20,134 $98298 TOTALS $648,635 $819,529 $130,000 $346,134 $1,944,298 2009 HOME Consortium $587,582 Applicant - Project Type Award Boulder County Acquisition $234,000 City/County of Broomfield - Acquisition $67,000 City/County of Broomfield Rental Assistance $10,000 Longmont CIP Rehabilitation $251,582 Rental Longmont Christian Housing Rehabilitation $25,000 TOTAL $587,582 AGENDA ITEM # J6 PAGE 60 ATTACHMENT A Issues with Varying Inclusionary Zoning by Location The affordability gap is not consistent throughout the city. Most noticeably it is much larger in the downtown area. Economic & Planning Systems (EPS) concludes that downtown cash- in-lieu as a percentage of the affordability gap differs by nearly 30% from attached units outside of downtown. This indicates that the current policy, as applied to downtown, satisfies neither the original goals of the program nor current concerns regarding affordability gap growth. In order to fully understand how the cash-in-lieu could be set, it is important to understand how the funds are used. Currently, the city does not buy housing units directly for the affordable program. Homeownership housing units are acquired through on-site provision in Inclusionary Zoning. Affordable rental units are acquired indirectly by city funding of local non-profit affordable housing providers. Approximately 10% of funding is used to administer Inclusionary Zoning and other affordable housing programs. The city is fortunate in that we have capable community partners who are expert at maintaining and leasing residential rental properties. They have the intake, marketing, maintenance and financial staff, programs, software and compliance systems to work directly with the tenants and report to the funding agencies. Regardless, the Telluride decision makes it illegal for the city to directly control rents. See Attachment D for more information on the Telluride decision. One approach for applying cash-in-lieu is to have different amounts based on geographic variations in the affordability gap. The most obvious geographic breakdown is the downtown area and the rest of the city. This approach requires that the basis for the differing cash-in- lieu amounts be specific to the area such as higher land values or zoning requirements that result in higher costs. The other requirement is that any cash-in-lieu monies collected in a specific area be spent in that area. While staff thinks that the first requirement could be met for the downtown area, the requirement to spend the money in the downtown would pose significant difficulties. Though it may be possible to spend monies collected in downtown in that area, it would eliminate many of the efficiencies realized from funding the non-profits and require significant program modifications for a relatively few number of affordable units. In addition, the city would have only local funds to invest. All other funds require that our community partners provide matching funds, therefore increasing our buying power. The non-profits annually propose varying projects to be funded throughout the city. This is referred to as the annual fund round. (See Attachment E for details about the fund round) Their choices of locations for acquisition of new units are primarily based on efficient use of funds, opportunities for acquisition, maintenance and management efficiencies and their capacity in any given year to take on additional projects. As it stands it is challenging for the local non-profits to find appropriate projects when they have the entire city to look at. Restricting the money to a geographic area could have several negative outcomes including: 1. A Reduction in funding to the non-profits for new projects in other areas. 2. A Reduction in funding to the non-profits for on-going projects. 3. A Reduction in rental housing acquired. AGENDA ITEM # 5B PAGE 61 ATTACHMENT A 4. Holding funds that cannot be spent in a reasonable time period. 5. Inefficient use of the funds. The city does not own and operate any affordable housing (with the occasional exception for avoiding loss of affordability through foreclosure); rather we work with community partners whose mission is consistent with the goals of the affordable housing program. The question has been asked, "Why doesn't the city buy housing units directly for the affordable program?" There are a number of reasons including: 1. The city does not currently have the capacity or in-house ability to evaluate and purchase property in a maximally effective way. 2. The market risk of "speculating" and liability of ownership precludes direct city ownership. 3. The liability of ownership until the property is sold including maintenance, lawn upkeep, snow removal, and insurance precludes direct city ownership. 4. In the past, City Council did not want to engage in direct public intervention in the private market. 5. If the city were to buy housing units directly there would be several inefficiencies: a. City ownership would double the closing costs; both upon purchase and sale. b. City ownership would require additional staffing to purchase properties, market the units, once sold, prepare a disposition of property memo to City Council, prepare closing documents, and attend both the purchase and sale closings. c. The city would have only local funds to invest. All other funds require that our community partners provide matching funds, therefore increasing our buying power. 6. Homebuyers are able to leverage relatively small amounts of the city investment with home loans. The city gets far more units with our limited funding than if we buy property out right. As part of the analysis of the downtown residential density bonus, an estimate of potential residential build-out in the downtown area was completed. This information was included in the December 2, 2008 Council memo. The analysis concluded that if all currently underutilized parcels identified in the analysis were to develop at the maximum allowable floor area ratio (FAR), a maximum of approximately 355 new residential units may result. The 20% Inclusionary Zoning requirement would result in approximately 71 affordable units, 36 on-site and 36 paid for by cash-in-lieu. In summary, while requiring a different amount of cash-in-lieu in the downtown may result in additional funds, the resulting inefficiencies, cost, and difficulty of instituting a new program for this number of units may not be a desirable trade-off. Rather than modifying hiclusionary Zoning, staff suggests that the residential density bonus in the downtown area could be used to bridge the affordability gap discrepancy between downtown and other areas of the city. 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. For example, a developer in the downtown area that would like to avail themselves of the additional density offered by the bonus could be required to provide a higher percentage of the resulting additional housing as affordable. Work on this project is scheduled to begin in July, 2009 and will incorporate any hiclusionary Zoning regulatory changes that result from the current Affordable Housing Program review. AGENDA ITEM # 56 PAGE 62 ATTACHMENT A AGENDA ITEM # 58 PAGE 63 ATTACHMENT A "Permanently Affordable" and "Likely to Remain Affordable" In 2000, City Council accepted the recommendations of the Affordable Housing Task Force as a blueprint for the city's policies and funding allocations towards the development of affordable housing. These recommendations included a 10-year time frame for reaching the Boulder Valley Comprehensive Plan (BVCP) goal to have at least 10% of the total housing stock as permanently affordable. In addition, priorities were set for income targets, proportions of affordable housing units available for rental or homeownership and proportions of affordable housing units acquired through new construction and acquisition. These priorities were set for the remaining units needed to reach the 10% goal. Most of the 1,750 affordable housing units acquired prior to the year 2000 were not permanently affordable, that is, secured by a covenant with rent limits or resale price restrictions. Of the 1,750 affordable units in existence in the year 2000, 520 (including 122 shelter or group home beds) were secured by covenant, the remainder, 1,230, consisted of public housing units or units owned by other community agencies deemed likely to remain affordable. While these "likely to remain affordable" units make an important contribution to the city's housing stock, there is the possibility that they may not remain affordable in the future. They are not secured by a covenant which means that the community agencies that own them could raise the rents or sell them in the future. Occasionally, the number of affordable housing units may decline due to the loss of some of these units. The term "permanently affordable" is used when the housing unit is secured by a covenant. The term "likely to remain affordable" is used when there is no covenant and there is a possibility that they may not remain affordable in the future. Since 2000, the city has increased the number of permanently affordable units available in the community by more than 1,200 units. This exceeds the addition of approximately 1,100 units because some formerly "likely to remain affordable" units now have covenant restrictions as a result of receiving funding from the city. The city's policy is to require a permanent affordability covenant for any funded units. As of 2009, the city has 1,753 permanently affordable units secured by covenant. AGENDA ITEM # L ~ PAGE 64 ATTACHMENT A City of Boulder CHATS Thursday, August 14, 2008 The Community Foundation Present: Liz Black - League of Women Voters Lou Della Cava - Boulder Tomorrow Jane Engel - Boulder Valley Rotary Detre Godinez - BCU, Bias-Incident Hotline Josie Heath - The Community Foundation Ken Hotard - Boulder Area Realtors Association Scott Rodwin - Blueprint Boulder Bill Roetker - Sierra Club Morgan Rogers - The Community Foundation Pat Shanks - PLAN Boulder County Jeanette Wilson - League of Women Voters India Wood - Boulder Valley Rotary Jeff Yegian - City of Boulder Opening Comment: Regional approach to affordable housing not the topic of the day, but we should keep it in mind while we focus on the City's program Process: • Feedback will be given to Council with recommendations made by staff this fall Presentation: Background: • It's been almost 10 years since the City did a comprehensive review of affordable housing needs and strategies in BC • 98-99 An affordable housing task force researched strategies and made recommendations to Council • 2000 Inclusionary Zoning adopted by Council • 2000 Ballot initiative for affordable housing did not pass in the City • Many civic groups currently working on affordable housing in Boulder • About 15% of pop spending more than 30% of their gross income on housing costs - does not include transportation • Gap between what.people can afford and the cost of housing has grown between 2000 and 2007 - price of homes has gone up 3.7 times faster than median income • Housing Bridge ranges from homeless shelters to homeownership • 81% of AMI is max income allowed to participate in the City's affordable housing units • Priority was to serve lower and moderate income people - 45% intended to be new construction; 55% intended to come from existing housing stock Current goal: To make 10% of houses in Boulder permanently affordable either through rent control or through limiting the resale cost by 2010. That means 2700 additional units. AGENDA ITEM # (!0 PAGE 65 ATTACHMENT A How did the city choose 10%? • They wanted something achievable and ambitious - • Seemingly somewhat arbitrary. Comments: People don't have a problem finding housing in the County - they choose where they are going to live, based on job or something else. Why didn't the City look outside the City boundaries to add to the affordable housing supply some time ago? If we're going to have the best program we can, we might need to rethink the problem as we define it - and think beyond the current resources we're looking at. Who are we trying to benefit? How are we defining our goals? Seems like we need more focus. Should we look regionally? Going outside the City to the County? Jobs shed and the housing shed - it may bleed over into other counties (Broomfield, etc.) Use a different definition of area and a better definition of the problem we're trying to solve by having affordable housing - is it commuting distances? Having a certain group of workers in Boulder? Artistic and educational goals? We need to clearly lay these out. Affordable housing for teachers, police officers, etc. is important to have so they can touch the people they are serving - makes them better at serving their communities. It is important to provide for the more general service worker because it's better for the environment - public transportation outside of the City is not as good - and lower income folks have less money to spend on transportation. They may be able to afford something outside the City but it will cost more to get into the City for work It's not just about the numbers; it's about the program and what it does for people. The intention was to provide a `stepping stone' to help folks get into market rate housing - but that doesn't happen with resale restrictions. Even if their income rises moderately over time, they decrease their ability to get into market rate housing because that's rising so much faster. 13 years ago I had a better ability to buy into market housing when I was an intern than I do now as a principal of my firm. There was a 4 year period when the resale of my unit didn't go up at all. We must consider seniors/retired folks, too - can't just tie it to the workers of the community. There are 3 constituencies that need housing assistance: the truly needy, the elderly/retired, and the workforce. The older units in the permanently affordable program are hard to sell compared to newer units. Brand new units are competing with 15 year old product - competing in same price range ...what's going to sell? That challenges the notion of permanent affordability in an ownership program. When the program was established, priorities were different - shopping patterns/school choice have changed. This has changed how we choose community. How much can we build within a sustainable community? Within the nonprofit sector, workers can't afford to buy. As communities around the County develop their own sense of community, there are a whole set AGENDA ITEM # 6Q PAGE 66 ATTACHMENT A of factors. We need to look at the level of the Consortium of Cities, Commissioners, etc. We shouldn't have folks living here who don't work here (through the program) because that doesn't build community. Boulder County is one of the fastest growing communities for older people - a lot are moving in from other areas to live near their families - not because they're retiring here. This should be regional discussion - and the County is looking at affordable housing, too. It's hard to define the problem. The City has done a good job at trying to look at the problem. Extrapolating the present into the future is not the best way to look at the issue - the price of gasoline/use of car has totally changed in the last few years. We need to look at this with a changing future not just using current housing/transportation trends. Other populations that are not being well served are the `higher end' folks - $250-400K/ `entry-level' market housing. What we have available is moving toward extremes - we're moving middle of market to either end. `Initially Affordable Housing' program came through many years ago, but people were abusing it. Could we change the way that program was built? We should look for an adaptation of the current program. `Moderate income housing program' was done before - through the late 80s, much of the affordable housing provided went into the market place. We came up with CHAT program - but then the housing market started to rock. We later came back to Inclusionary Zoning (that was limited before through CHAT program). What if affordable housing program increased `cash in lieu' above a certain threshold (say 3000 square feet)? That would incentivize people to build smaller houses, and keep them more affordable. We should consider an incentive approach and reconsider Inclusionary Zoning. Perhaps some portion of permanently affordable and a percentage of affordable market rate homes. This would bring a better mix of incomes. It may slow down progress toward the goal, but you begin to target more of the workforce. Consider the energy cost on housing and the cost of maintaining your owned home. There is an initiative on County ballot this fall that says front end cost on home improvements can be amortized to your mortgage? The front end costs are high so how do we incentivize making those changes? We don't want an `entitlement' program - want incentives; City is considering LEED rating system so we can benchmark the green element. How do we incentivize owners of rental units to make it cheaper for renters to live in energy efficient homes? Do you want to provide affordable housing? Energy efficient affordable housing? Or do you want to make the market work - without unintended consequences? Higher cost housing is subsidizing affordable units and perpetuating the problem. At some point we're going to run out of the ability to produce housing and then we will have to go back to taxing the existing population. The more we tack on more policies, the more complicated it gets and there's a finite life to it. We're never going to solve the whole problem. Inclusionary Zoning will not last. AGENDA ITEM # Se PAGE 67 ATTACHMENT A Rotary is focusing on helping the low-income housing population. Where is the City's current priority? Current priority is half in HUD very low to low. The real estate market is changing in Boulder. The biggest change is in sales volume but prices are holding. Availability of credit is difficult now, too. If the nation is in a recession for long enough, it will effect us, too. On the goal of 10%, we ought to reconsider rental vs. ownership mix that we've been pursuing. Can we help significantly more people by focusing on rental? Are subsidized renters better off financially in the long run? There may be reasons to have an ownership program, but if we're trying to aid them financially, helping with rent might be better. We should consider investing in transportation at a greater level, not just looking at housing. Helping to expand the Ecopass program or something similar to give workers more options on where they live, but making it more affordable to get them into the City. The City doesn't own and operate any rental housing. It's owned and operated by nonprofits (BHP, Thistle, and a few others). When people earn more than the income limits, they have to leave the rental or pay more. For ownership program there's no checking of income after you buy. Land costs drive housing costs. Do we need more public education and advocacy? Why haven't affordable housing folks stepped up to encourage increased density in some new developments (ie. Transit Village)? City of Boulder spends a lot of money on alternative transportation already. The regional system is lacking outside of the City. We need better connections between surrounding cities to Boulder. There's a big gap between where we are now and the acceptance/implementation of alternative transportation. It's hard to change behavior. Single occupancy vehicles will continue to be popular. Technology will overcome the cost of transportation. There's little attention paid to the impact on the people who we're intending to serve. How are these programs working for them? Have we asked folks? We haven't talked that much about the needy population. What are the social implications? There are complaints with the policies of the current programs (ie. eviction policy of BHP). If we build very dense housing, do we have the policies in place to build community among those residents? What about sustainability and maintaining the housing we already have that's affordable (ie. bedbugs, Orchard Grove). We need to talk to residents and get their feedback. This especially impacts people from diverse communities. Consider who is making decisions for other people. We have a history of people who don't need the programs designing them. We have to hear from the people in these programs to understand the impact on their lives - transportation, social impacts, etc. AGENDA ITEM # ~J~ PAGE 68 ATTACHMENT A If we focus on identifying the problem, it will help. Right now, the solution is pre-ordained. We need to talk to the people we're trying to help - what are their problems? What are we trying to solve? We also need to ask people, what happens after you leave the program? We would need a higher rate of hiclusionary Zoning to truly get to 10% goal of affordable housing. To what extent should City resources be going to people in the middle income range? • Typically down payment systems work for that income group to help them get into market rate housing. We're moving into a `wealthy-poor' community - are we going to reverse that? How much can we socially engineer bringing in a middle class community? • We have so many factions fighting over this issue: an anti-population growth faction, a pro-sustainability faction, a pro-transportation faction... depending on your priority list, that's how you look at the world. The group that brings recommendations needs to be broad enough to look at all priorities, and accept that some compromises need to be made. The housing staff is responding to the goals imposed upon them by the council at the time. Is it time to ask the general population to provide a tax base to support this worthy cause? • The private sector took a look at this through the Boulder Tomorrow study. We would like to see some action in response to it, but it's not a council priority. How do we push the council to tweak the program? You might achieve initial goal, but then what? • From a political context, this issue does not appear to be very high on the council's agenda. We need to confront them with some bold initiatives for changes to this program so they will focus their energy on addressing this program. Otherwise we will peck around the edges and will not accomplish much. • It's time to do something. Many groups are following the issue. The current city council is interested in doing something. • Council has just been putting out fires - can we all urge a long-term vision for housing to grab their attention? AGENDA ITEM # 5~3 PAGE 69 ATTACHMENT A Boulder Demographics Sources for information about Boulder's household income are limited. The U.S. Census, which is completed annually at the beginning of each decade, and the related American Community Survey, which is the U.S. Census Bureau's ongoing statistical survey, are considered the most reliable sources of data. Other sources for data include household projections from the Colorado Department of Local Affairs and data on rental units from the Boulder County Housing Authority and Boulder Housing Partners. Unless otherwise noted, the following data is from the U.S. Census Bureau, 2007 American Community Survey. HOUSEHOLDS AND FAMILIES: In 2007 there were 38,000 households in Boulder. The average household size was 2.2 people. Families, which are defined as households with related occupants, made up 42 percent of the households in Boulder. This figure includes both married-couple families (34 percent) and other families (8 percent). Non-family households made up 58 percent of all households in Boulder. Most of the non-family households were people living alone, but some were comprised of people living in households in which no one was related to the householder. INCOME: These income sources are not mutually exclusive; that is, some households received income from more than one source: • Median income of households in Boulder - $52,759 • Percent of households receiving earnings - 86% • Percent of households that received retirement income other than Social Security - 12% • Percent of households that received Social Security - 13% (average income from Social Security was $16,150). Income and Benefits (2007 dollars) • 28.1% of households earned between $10,000 - $24,999 • 18.3% of households earned between $25,000 - $49,999 • 16.9% of households earned between $50,000 - $74,999 • 9.5% of households earned between $75,000 - $99,000 • 27.2% of households earned more than $100,000 Families (42% of households) • 8.7% earned between $10,000 - $24,999 • 11.8% earned between $25,000 - $49,999 • 20.7% earned between $50,000 - $74,999 • 12.6% earned between $75,000 - $99,000 • 46.2% earned more than $100,000 HOUSEHOLDS WITH CHILDREN: AGENDA ITEM # PAGE 70 ATTACHMENT A In 2007, 18.3 percent of Boulder families had children under 18 years of age. HOUSING CHARACTERISTICS: In 2007, Boulder had a total of 41,000 housing units, 8 percent of which were vacant. Of the total housing units: • 53 percent was in single-unit structures • 44 percent was in multi-unit structures, and • 3 percent was mobile homes. Sixteen percent of the housing units were built since 1990. OCCUPIED HOUSING UNIT CHARACTERISTICS: In 2007, Boulder had 38,000 occupied housing units: 20,000 (53 percent) owner occupied and 18,000 (47 percent) renter occupied. Eight percent of the households did not have telephone service and 7 percent of the households did not have access to a car, truck, or van for private use. Multi Vehicle households were not rare: thirty-six percent had two and another 14 percent had three or more vehicles. HOUSING COSTS: In 2007, the median monthly housing costs for mortgaged owners was $1,835, non- mortgaged owners $430, and renters $888. Thirty-eight percent of owners with mortgages, 11 percent of owners without mortgages, and 59 percent of renters in Boulder spent 30% or more of household income on housing. POVERTY AND PARTICIPATION IN GOVERNMENT PROGRAMS: In 2007, 21% of all people in Boulder were in poverty. Eleven percent of related children under 18 were below the poverty level, compared with 5 percent of people 65 years old and over. Five percent of all families and 18 percent of families with a female householder and no husband present had incomes below the poverty level. According to the 2005 Regional Needs Assessment, an estimated 19,426 Boulder households (nearly 46% of all households) are low income. Over 70% of low-income households in Boulder have unmet housing needs (live in overcrowded conditions, pay 30% or more of their income on housing and/or have incomplete kitchens and plumbing.) Number of Boulder Low-Income Households with Unmet Needs by Area Median Income (2005) AMI Range <30% 3050% 50-80% TOTAL Percent of Total Low Income Households AGENDA ITEM # A8 PAGE 71 ATTACHMENT A 6,806 3,928 3,026 13,760 70.8% As the following table indicates, the lack of affordability is a more prevalent problem than overcrowding. Number of Cost-Burdened and Overcrowded Households (2005) Cost-Burdened Severely Cost-Burdened Overcrowded* (>30% of income (>50% of income spent on housing) spent on housing) Number of Percent Number of Percent Number of Percent Households of Total Households of Total Households of Total 1,556 3.6% 14,212 37.4% 8,195 19.2% *Overcrowding is measured per HUD using persons per room, persons per bedroom, unit square footage per person and persons per room cross tabulated by unit square footage per person. As noted in the City's Human Services Master Plan, Boulder is both affluent and poor. In 2007, just over 8% of all households in Boulder had incomes above $200,000; a total of 4.1% of the State's households had 2007 incomes above $200,000. At the other end of the household distribution spectrum, about 12.6% of Boulder households had incomes below $10,000; 6.5% of households in the State had incomes below $10,000. In 1999, 19% of Boulder households were defined as "High Moderate Income". The AMI range for the high moderate-income household was 80 - 120% (up to $75,000). In 2007, households earning 80 -120% of AMI (up to $99,000) are defined as middle- income households; 9.5% of all Boulder households are in this category. AGENDA ITEM # c5d-3 PAGE 72 ATTACHMENT A Middle Income Household Information The 2009 Area Median Income (AMI) for a family of three in Boulder is $80,300. Therefore, half of Boulder households earn more and half earn less than this amount. The middle income group straddles the median, with households earning between 81% and 120% of AMI. This translates into an annual income of $63,000 to $94,000, with a total household wage of up to $48 per hour. Approximately 9,900 of Boulder's total 40,000 households, or a quarter of the households in Boulder, are included in this income range. Following are the 2009 Income Limits, with 100% as the Area Median Income. Currently, the city's Affordable Housing program aims to serve households earning up to 80% of AMI (shaded area in chart). 2009 Income Limits AMI % 1 Person 2 Person 3 Person 4 Person Middle Income 120% $75,000 $85,560 $96,360 $107,040 100% $62,500 $71,300 $80,300 $89,200 Some council members have expressed concern about the city's declining middle class. The middle class can be characterized as households with pre-tax income of between $25,000 and $75,000. American Community Survey results for 2005, 2006 and 2007 for the city of Boulder show a decline in number of households of this income group between the years 2005 to 2007. The following data shows number of middle income households as a percentage of total households: • 36.4% in 2007 • 36.7% in 2006 • 38.5% in 2005 Previous to those years, the data was gathered for the Primary Metropolitan Statistical Area of Boulder and Longmont and show the percentage of middle class for this larger geographical area as fluctuating: • 42.0% in 2004 • 43.7% in 2003 • 41.4% in 2002 On a national level, the percentage of middle class households has decreased steadily from 47.6% in 2002 to 44.1% in 2007. Middle income households tend to have higher paying, professional occupations. The occupations of heads of middle income affordable households at the newly-constructed Northfield Commons development are categorized as professional/ technical, self-employed, executive/ manager, research, teaching and engineering. AGENDA ITEM # !~b PAGE 73 ATTACHMENT A Home affordability requires that no more than 30% of a household's income is allocated to housing costs. For those renting, this includes utility payments; for those buying this includes principal, interest, taxes and insurance. Rental A household earning 80% AMI can afford to pay $1,440 per month in rent, a household earning 100% AMI household can pay $2,000, and a household earning 120% AMI household can afford to pay $2,400. The currently inventory of four single family rental homes with two or more bedrooms in Boulder ranges in price from $1900 to $3500, with an average price of $2500. Apartments or town homes with two or more bedrooms range in price from $695 to $1750, with an average price of $1300.4 Therefore, most middle income income households could afford to rent an apartment or town home in Boulder, while more than half might be priced out of the market for single family home rentals. Homeownership In March 2009, the median sales price for a single family home in Boulder was $445,000. Based on income and the requirements for home affordability, households earning between 80% and 120% of AMI can afford to pay a mortgage for a home priced between $170,000 and $270,000. The financing gap ranges from $275,000 to $175,000 making the single family home market out of reach for middle income buyers. The median sales price for condominiums and town homes is approximately $260,000. Households in the higher range of the middle income category earning between 100 and 120% of AMI can afford this price point. Households in the lower range of the middle income category earning between 80 and 100% of AMI can afford to pay a mortgage for a home priced between $170,000 and $220,000. With a gap of $90,000 to $40,000, lower middle income households without access to significant downpayment funds are priced out of this market. March 2009 Rental and Sales Affordability Ga HOME TYPE PRICE MAXIMUM PRICE AFFORDABILITY FOR 80-120% AMI GAP HOUSEHOLD 4 Rentals.com website 5/12/09 AGENDA ITEM # 4;A PAGE 74 ATTACHMENT A AVERAGE RENT Single Family Home $2,500 $1,440 - $2,400 $1,060 - $100 (MO) Apartment/ Town House $1,300 $1,440 - $2,400 $0 MEDIAN SALE Single Family Home $445,000 $170,000 - $270,000 $275,000 - $175,000 Condominium $260,000 $170,000 - $270,000 $90,000-$0 Homeownership can be divided into two categories: entry-level ownership/first-time home buyers and move-up buyers. • Entry-level ownership/first-time home buyer households typically earn in the low to middle income range (60 to 120 percent AMI). These households currently rent (or otherwise do not own a home) and are looking to purchase their first home. • The move-up buyers are households earning in the middle to upper income range (about 120 percent AMI or higher) that currently own a home (possibly in a neighboring community) and are looking to purchase a new or different home for a variety of reasons, such as relocation, growing family (e.g., having children) and shrinking family (e.g., empty-nesters). Both lower income and middle income households have few, if any options in Boulder if they want to purchase a single-family home. Condominiums and some town homes are available to the higher end of the middle income household group. Lower income households have choices for renting in Boulder, or in neighboring communities if they can afford the added expense of a commute. Although renting is currently an option for middle income households in Boulder, homeownership is the more likely the goal for most households. According to the Pew Research Center's chart on income and homeownership (Feb 2008), more than three-quarters of "middle class" survey respondents own their homes. The city currently has 118 affordable ownership housing units for middle income households and expects to eventually add approximately 110 more through annexations. Housing Preferences Boulder's housing stock is comprised of approximately 48% multi-family housing and 62% single family homes. The 2008 Leeds School of Business report on Affordable Housing in Boulder details the types of homes in the city: TOTAL PERCENT OF TYPE NUMBER INVENTORY Single family homes 24,000 62.0% Duplex/ Triplex 975 2.5% Town homes 2,600 7.0% Condominiums 8,700 22.0% 5 RRC Associates, Town of Avon's 2006 Housing Needs Assessment. AGENDA ITEM # j~ PAGE 75 ATTACHMENT A About half of all housing in the city is rental and half homeownership. Based on discussions between Housing Division staff and prospective affordable homebuyers, housing type is very important to middle income households. Middle income households, and particularly those with children, are primarily interested in single family homes or town homes with adjacent yards. These households are financially able to rent their preferred home in town or buy in nearby communities, with a commute, and may be less likely to choose a deed-restricted multi-family home with limited appreciation. Stacked flat condominium units make up the majority of new construction in Boulder, yet they tend to be less appealing to middle income households than town houses and single family homes. A review of statistics on Boulder's building permits over the past 10 years shows that 812 single family homes and 1391 multi-family units were built. Since 2001, new construction has tended toward multi-family housing, whereas before that time, single family homes considerably out-built multifamily units.6 Boulder's policy is to "grow up, not out" and this has resulted and will continue to result in a high percentage of multifamily homes and very few new single family homes. The challenge for Boulder in attracting and retaining middle income households is to create denser housing that offers amenities and conveniences such as convenient access to services and employment and a quality of living that can compete with the benefits of owning a single family home elsewhere, but that requires a stressful and time consuming commute to the employment opportunities in Boulder. We are doing a good job at creating housing that appeals to young professionals, couples and empty nesters but are producing few larger size housing with other amenities such as outdoors "kid" spaces, additional parking, and nearby access to day care desired by larger households. A 2009 study done by Robert Charles Lesser and Co. real estate advisors, "Market and Demographic shift, Boomers and Gen Y," shows that housing preferences are changing and moving away from single family homes with labor intensive yards and long commute distances. Their findings are consistent in that about a third of the market prefers denser New Urbanist, transit-oriented, and conservation minded communities. This preference spans multiple generations, including empty-nesters, single people, and families. Other considerations beside price and housing type can go into the decision on where to live. Two adults working in different communities may try to locate their housing convenient to both jobs. In a scenario of one couple with one spouse working in Boulder and the other spouse working in Denver, their ideal home might be located in a community like Superior, Louisville, or Broomfield along the I-36 corridor. Middle income housing is often left out of federal and state government funding programs, including tax credit financing, which aim to serve people that earn less than 60% of AMI. Instead, middle income households are often the beneficiaries of middle income "workforce housing" initiatives adopted by local municipalities that aim to ensure the availability of housing for the local community workforce. These initiatives could include a rewrite of existing local codes, the organization of a regional planning effort, the institution of public/private partnerships, and direct benefits to workforce families, including special mortgage products and resources and homeownership education. 6 City of Boulder, 2009 Building Permit Data AGENDA ITEM # ~58 PAGE 76 ATTACHMENT A The city of Davis, California conducted a study of middle income housing needs, impacts, and options and found results similar to those observed in Boulder: • The housing market is not providing adequate ownership housing opportunities for middle income households. • Middle income households cannot afford to purchase even the least expensive market rate housing being developed and cannot qualify for affordable housing units provided for low and moderate income households. • Serving middle income households would have cumulatively beneficial effect by providing housing opportunities for the local workforce, thereby reducing traffic congestion and air pollution by workers who otherwise would live outside the city and commute longer distances to work. This study resulted in the addition of a standard middle income housing requirement for developers of residential ownership developments consisting of twenty-six or greater units to provide, to the extent feasible, units offered to middle income households. All required middle income units must be constructed on-site and sold as middle income ownership units. In summary, most middle income income households can afford to rent an apartment or town home in Boulder, while more than half might be priced out of the market for single family home rentals. Households in the higher range of the middle income category can afford to buy a condominium or town home while lower middle income households without access to significant downpayment funds are priced out of this market. AGENDA ITEM Q PAGE 77 ATTACHMENT A First Home Grants and the H2O Program First Home Grants Council requested that staff develop strategies for housing low and moderate income families in Boulder. In response staff will institute a pilot program for the First Home grant that will limit uses of the grant to larger households with two or more dependants less than 18 years of age. As reported to City Council at the March 31" study session, the majority of for sale permanently affordable homes provided through Inclusionary Zoning tend to be smaller stacked flats or condominiums that do not meet the needs and desires of families. The First Home grant provides down payment assistance that allows for the purchase of "family friendly" homes. Family friendly homes are defined as single family homes, town home, or homes in multi-family buildings that are not stacked, have at least three bedrooms, are more than 1,000 finished square feet, and have a yard or common area that offers a safe place for children to play. The First Home program is only available to first time home buyers (those who have not owned a home within the last three years). Applicants must be working within the city limits. Homes purchased using First Home grants become permanently affordable and are governed by an affordability covenant with the same restrictions on appreciation and resale as Inclusionary Zoning homes. Funds for First Home are earmarked each year through the Housing Opportunity Fund, which utilizes Affordable Housing Funds and other funds made available through federal HOME funding. Since 1993, the city has administered this program to enable low and moderate income households of all sizes to purchase market rate homes within the city limits. Previously there was no restriction on the type of homes that could be purchased through this program. In 2004, the grant was increased for households of three or more people to 30% of purchase price, up to $90,000. This increase was, in part, meant to compensate for the rapidly escalating housing prices. Prior to this change the maximum assistance available to larger households was 20% of purchase price capped at $56,000. In 2006, $90,000 was made available to three-person households or larger buying a "family friendly" home, again in response to the increasing gap between affordability and actual housing prices. The increase in the First Home grant in 2004 proved popular with households that had dependants, resulting in seven low and moderate income households purchasing market rate homes: three single family and four town homes were purchased. Five of these households had dependants, including one family with four children and another with three children. In the years since, there has been a decline in interest in the First Home grant due to the increasing costs of market rate homes. Since 2005, the majority of homes purchased using these grants have been condominiums or smaller town homes. The table below shows the affordability gap between what a low moderate income household can afford and the median sales price of a three-bedroom home in Boulder today. The $90,000 grant is not adequate to close the gap for larger households. 2009 Affordability Gap for Low/Moderate Income Homebuyers AGENDA ITEM # PAGE 78 ATTACHMENT A Affordability Gap Low Mod households Single Family Multifamily Median Sale Price $409,000 $369,665 (all market single family units < 2,000 sq. ft. & all multi family units < 1,500 sq. ft. built within last ten ears) Affordable Price $177,600 $142,900 Affordability Gap $231,400 $226,765 In response to council's direction to better serve families through the affordable housing program, Staff has developed a policy to limit First Home grants to households with two or more dependants less than 18 years of age. In addition the grant has been increased to 40% of the purchase price, up to $150,000. The home must be either a single family home or "family friendly" town home or duplex. The increased grant amount more accurately reflects actual costs to acquire market units. This change to the program increases options for larger households and directs limited funds for the sole use of this underserved group. In addition this will increase the number of larger family friendly homes in the affordable housing portfolio. The impact on smaller households should be minimal as there are Inclusionary Zoning housing units available to meet their needs, as well as H2O down payment assistance if they chose to purchase a market rate home. Due to the small amount of funds currently available for First Home the impact will be limited to assistance for approximately two to three households per year. If demand is high, additional funds could be allocated to this program. H2O In addition to the First Home grant, the city administers the House to Home Ownership (1120) Down Payment Assistance Program, which is offered in partnership with Funding Partners for Housing Solutions, a Fort Collins based non-profit that provides down payment assistance for affordable housing. H2O is a shared appreciation deferred loan with the appreciated grant due upon sale of the home or at the end of 15 years. The homes purchased with H2O do not become permanently affordable and appreciation is not limited. Fifteen percent (15%) of the purchase price is available as down payment assistance, up to $50,000. The H2O program is most popular with single and two-person households as the amount does not bridge the affordability gap for larger households needing larger homes. AGENDA ITEM # PAGE 79 ATTACHMENT A Inclusionary Zoning Variances At the March 31, 2009 study session council was particularly interested in the variance that would allow a reduction in the size of the affordable units off-set by a cash-in-lieu payment. There are several variances to the general inclusionary requirements for which a developer or property owner may apply and which may or may not be granted at the discretion of the city manager. Variances must be approved or denied prior to signing the Determination of Inclusionary Zoning Compliance form. Either the applicant or the city Housing Division may initiate the variance request. In March 2009 staff instituted a formal review process. The process includes a formal application, staff review and recommendation, department head approval, and quarterly reports to City Council. Current criteria for granting variances vary but generally depend on the applicant providing additional affordable housing benefits. Staff will propose modifications to the variance criteria once council approves Inclusionary Zoning modifications. Variances allowed in the Inclusionary Zoning Ordinance On-Site Construction Requirement Developers of for-sale projects are required to build at least 50% of the required permanently affordable units on-site. Developers may request a variance to provide less than 50% of the required units on-site if doing so would result in additional affordable housing benefits for the city, or if zoning, environmental or legal restrictions make 50% on-site impossible. Details for the on-site variance may be found in section 7.1 of the Inclusionary Zoning Ordinance Administrative Regulations. Total Floor Area Requirement for the Proiect A developer or property owner may request to build a lesser amount of total square footage than that required by the Inclusionary Zoning Ordinance if doing so would accomplish additional affordable housing benefits for the city. Rental Proiects Developers of rental projects may request a variance to satisfy their inclusionary requirement in ways not listed in the ordinance as long as such a proposal would result in additional affordable housing benefits to the city. Construction Timing Permanently affordable units are required to be constructed such that they are able to be marketed concurrently with the market-rate units. A developer may request an alternative phasing arrangement if doing so would result in additional affordable housing benefits for the community. Alternate methods of compliance Developers may propose an alternate method of compliance for meeting the inclusionary requirement so long as the value of that consideration is equivalent to or greater than the AGENDA ITEM # 6B PAGE 80 ATTACHMENT A cash-in-lieu contribution required and the city manger finds that the proposed alternative will result in additional affordable housing benefits to the city. Alternative Distribution The on-site affordable housing units shall be provided in proportional numbers by type, and size, to the market rate units with-in each project and shall be distributed throughout the project to achieve integration and avoid concentration or segregation of the affordable households. Alternate distribution may be may be approved if doing so would accomplish additional affordable housing benefits for the city or if approved pursuant to a site review resulting in better site design AGENDA ITEM # PAGE 81 ATTACHMENT B City of Boulder CHATS Thursday, August 14, 2008 The Community Foundation Present: Liz Black - League of Women Voters Lou Della Cava - Boulder Tomorrow Jane Engel - Boulder Valley Rotary Detre Godinez - BCU, Bias-Incident Hotline Josie Heath - The Community Foundation Ken Hotard - Boulder Area Realtors Association Scott Rodwin - Blueprint Boulder Bill Roetker - Sierra Club Morgan Rogers - The Community Foundation Pat Shanks - PLAN Boulder County Jeanette Wilson - League of Women Voters India Wood - Boulder Valley Rotary Jeff Yegian - City of Boulder Opening Comment: Regional approach to affordable housing not the topic of the day, but we should keep it in mind while we focus on the City's program. Process: • Feedback will be given to Council with recommendations made by staff this fall Presentation: Background: • It's been almost 10 years since the City did a comprehensive review of affordable housing needs and strategies in BC • 98-99 An affordable housing task force researched strategies and made recommendations to Council • 2000 Inclusionary zoning adopted by Council • 2000 Ballot initiative for affordable housing did not pass in the City • Many civic groups currently working on affordable housing in Boulder • About 15% of pop spending more than 30% of their gross income on housing costs - does not include transportation • Gap between what people can afford and the cost of housing has grown between 2000 and 2007 _ price of homes has gone up 3.7 times faster than median income • Housing Bridge ranges from homeless shelters to homeownership • 81 % of AMI is max income allowed to participate in the City's affordable housing units • Priority was to serve lower and moderate income people - 45% intended to be new construction; 55% intended to come from existing housing stock Current goal: To make 10% of houses in Boulder permanently affordable either through rent control or through limiting the resale cost by 2010. That means 2700 additional units. How did the city choose 10%? AGENDA ITEM # ,~a PAGE 82 ATTACHMENTB • They wanted something achievable and ambitious - • Seemingly somewhat arbitrary. Comments: People don't have a problem finding housing in the County - they choose where they are going to live, based on job or something else. Why didn't the City look outside the City boundaries to add to the affordable housing supply some time ago? If we're going to have the best program we can, we might need to rethink the problem as we define it - and think beyond the current resources we're looking at. Who are we trying to benefit? How are we defining our goals? Seems like we need more focus. Should we look regionally? Going outside the City to the County? Jobs shed and the housing shed - it may bleed over into other counties (Broomfield, etc.) Use a different definition of area and a better definition of the problem we're trying to solve by having affordable housing - is it commuting distances? Having a certain group of workers in Boulder? Artistic and educational goals? We need to clearly lay these out. Affordable housing for teachers, police officers, etc. is important to have so they can touch the people they are serving - makes them better at serving their communities. It is important to provide for the more general service worker because it's better for the environment - public transportation outside of the City is not as good - and lower income folks have less money to spend on transportation. They may be able to afford something outside the City but it will cost them more to get into the City for work It's not just about the numbers, it's about the program and what it does for people. The intention was to provide a `stepping stone' to help folks get into market rate housing - but that doesn't happen with resale restrictions. Even if their income rises moderately over time, they decrease their ability to get into market rate housing because that's rising so much faster. 13 years ago I had a better ability to buy into market housing when I was an intern than I do now as a principal of my firm. There was a 4 year period when the resale of my unit didn't go up at all. We must consider seniors/retired folks, too - can't just tie it to the workers of the community. There are 3 constituencies that need housing assistance: the truly needy, the elderly/retired, and the workforce. The older units in the permanently affordable program are hard to sell compared to newer units. Brand new units are competing with 15 year old product - competing in same price range... what's going to sell? That challenges the notion of permanent affordability in an ownership program. When the program was established, priorities were different - shopping pattems/school choice have changed. This has changed how we choose community. How much can we build within a sustainable community? Within the nonprofit sector, workers can't afford to buy. As communities around the County develop their own sense of community, there are a whole set of factors. We need to look at the level of the Consortium of Cities, Commissioners, etc. We AGENDA ITEM # 6~S PAGE 83 ATTACHMENTB shouldn't have folks living here who don't work here (through the program) because that doesn't build community. Boulder County is one of the fastest growing communities for older people - a lot are moving in from other areas to live near their families - not because they're retiring here. This should be regional discussion - and the County is looking at affordable housing, too. It's hard to define the problem. The City has done a good job at trying to look at the problem. Extrapolating the present into the future is not the best way to look at the issue - the price of gasoline/use of car has totally changed in the last few years. We need to look at this with a changing future not just using current housing/transportation trends. Other populations that are not being well served are the `higher end' folks - $250-400K/ `entry-level' market housing. What we have available is moving toward extremes - we're moving middle of market to either end. `Initially Affordable Housing' program came through many years ago, but people were abusing it. Could we change the way that program was built? We should look for an adaptation of the current program. `Moderate income housing program' was done before - through the late 80s, much of the affordable housing provided went into the market place. We came up with CHAT program - but then the housing market started to rock. We later came back to inclusionary zoning (that was limited before through CHAT program). What if affordable housing program increased `cash in lieu' above a certain threshold (say 3000 square feet)? That would incentivize people to build smaller houses, and keep them more affordable. We should consider an incentive approach and reconsider inclusionary zoning. Perhaps some portion of permanently affordable and a percentage of affordable market rate homes. This would bring a better mix of incomes. It may slow down progress toward the goal, but you begin to target more of the workforce. Consider the energy cost on housing and the cost of maintaining your owned home. There is an initiative on County ballot this fall that says front end cost on home improvements can be amortized to your mortgage? The front end costs are high so how do we incentivize making those changes? We don't want an `entitlement' program - want incentives; City is considering LEED rating system so we can benchmark the green element. How do we incentivize owners of rental units to make it cheaper for renters to live in energy efficient homes? Do you want to provide affordable housing? Energy efficient affordable housing? Or do you want to make the market work - without unintended consequences? Higher cost housing is subsidizing affordable units and perpetuating the problem. At some point we're going to run out of the ability to produce housing and then we will have to go back to taxing the existing population. The more we tack on more policies, the more complicated it gets and there's a finite life to it. We're never going to solve the whole problem. Inclusionary zoning will not last. AGENDA ITEM # 5~S PAGE 84 ATTACHMENTB Rotary is focusing on helping the low-income housing population. Where is the City's current priority? Current priority is half in HUD very low to low. The real estate market is changing in Boulder. The biggest change is in sales volume but prices are holding. Availability of credit is difficult now, too. If the nation is in a recession for long enough, it will effect us, too. On the goal of 10%, we ought to reconsider rental vs. ownership mix that we've been pursuing. Can we help significantly more people by focusing on rental? Are subsidized renters better off financially in the long run? There may be reasons to have an ownership program, but if we're trying to aid them financially, helping with rent might be better. We should consider investing in transportation at a greater level, not just looking at housing. Helping to expand the Ecopass program or something similar to give workers more options on where they live, but making it more affordable to get them into the City. The City doesn't own and operate any rental housing. It's owned and operated by nonprofits (BHP, Thistle, and a few others). When people earn more than the income limits, they have to leave the rental or pay more. For ownership program there's no checking of income after you buy. Land costs drive housing costs. Do we need more public education and advocacy? Why haven't affordable housing folks stepped up to encourage increased density in some new developments (ie. Transit Village)? City of Boulder spends a lot of money on alternative transportation already. The regional system is lacking outside of the City. We need better connections between surrounding cities to Boulder. There's a big gap between where we are now and the acceptance/implementation of alternative transportation. It's hard to change behavior. Single occupancy vehicles will continue to be popular. Technology will overcome the cost of transportation. There's little attention paid to the impact on the people who we're intending to serve. How are these programs working for them? Have we asked folks? We haven't talked that much about the needy population. What are the social implications? There are complaints with the policies of the current programs (ie. eviction policy of BHP). If we build very dense housing, do we have the policies in place to build community among those residents? What about sustainability and maintaining the housing we already have that's affordable (ie. bedbugs, Orchard Grove). We need to talk to residents and get their feedback. This especially impacts people from diverse communities. Consider who is making decisions for other people. We have a history of people who don't need the programs designing them. We have to hear from the people in these programs to understand the impact on their lives - transportation, social impacts, etc. AGENDA ITEM # PAGE 85 ATTACE MENT B If we focus on identifying the problem, it will help. Right now, the solution is pre-ordained. We need to talk to the people we're trying to help - what are their problems? What are we trying to solve? We also need to ask people, what happens after you leave the program? We would need a higher rate of inclusionary zoning to truly get to 10% goal of affordable housing. To what extent should City resources be going to people in the middle income range? • Typically down payment systems work for that income group to help them get into market rate housing. We're moving into a `wealthy-poor' community - are we going to reverse that? How much can we socially engineer bringing in a middle class community? • We have so many factions fighting over this issue: an anti-population growth faction, a pro-sustainability faction, a pro-transportation faction... depending on your priority list, that's how you look at the world. The group that brings recommendations needs to be broad enough to look at all priorities, and accept that some compromises need to be made. The housing staff is responding to the goals imposed upon them by the council at the time. Is it time to ask the general population to provide a tax base to support this worthy cause? • The private sector took a look at this through the Boulder Tomorrow study. We would like to see some action in response to it, but it's not a council priority. How do we push the council to tweak the program? You might achieve initial goal, but then what? • From a political context, this issue does not appear to be very high on the council's agenda. We need to confront them with some bold initiatives for changes to this program so they will focus their energy on addressing this program. Otherwise we will peck around the edges and will not accomplish much. • It's time to do something. Many groups are following the issue. The current city council is interested in doing something. • Council has just been putting out fires - can we all urge a long-tern vision for housing to grab their attention? AGENDA ITEM # c5 b PAGE 86 ATTACHMENT C CHATS Regulatory Review June 4, 2009 West Senior Center Round Table Notes Attendees: Andy Allison, Liz Black, Gary Calderon, Lou Della Cava, Bruce Dierking, Stuart Grogan, Dick Harris, Ken Hotard, Stephanie Iannone, Jim Leach, John Lovell, Phil Shull, Ardie Sehulster, Bob Walker Housing and Human Services Division Staff: Michelle Allen, Pamm Gibson, Robert Ray, Heather Shea, B.J. Suter, Jeff Yegian, Clay Fong, Facilitator (City of Boulder Mediation Program), Margo, Facilitator's Assistant (City of Boulder Mediation Program) A. INTRODUCTIONS/OPENING/STAFF PRESENTATION 1. Facilitator, Clay Fong, welcomed participants and introductions were made. 2. Robert Ray, City of Boulder Division of Housing Manager, updated attendees on the Community Housing Affordability Talks (CHATS) review, which currently is in Phase u of a three-phase process. Staff hopes to begin Phase III in the fall of 2009 and make significant progress by the end of the year. He then reviewed the Housing Excise Tax proposal that was brought to City Council on June 2, 2009. He noted that Council supported the idea of eliminating the residential tax, but did not support the proposal in full. Staff will present additional options to City Council at their July 7 meeting. He clarified that today's presentation would cover the affordable housing elements that were presented to City Council at their June 2 meeting. The discussion will be presented to Planning Board on July 16 and then will go back to council in October or November. 3. Michelle Allen, Housing Planner with the City of Boulder Division of Housing, presented a review of the Inclusionary Zoning and affordable housing programs, along with a timeline regarding council direction. B. QUESTIONS AND COMMENTS 1 - Question: The proposed cash-in-lieu (CIL) affordability gap - based on a single-family home's median price of $370,000 - is higher than the value of an apartment. Will the CIL calculation be different for apartments? Staff response: The CIL calculation does not vary. The purpose is to obtain sufficient funding to be able to get a comparable replacement unit. 2 - Comment: The best way to generate the greatest number of units of affordable housing is to incentivize rental units. The ceiling on rental units is much lower than homeownership and will meet the objective of moderate and middle income households. The city should look at providing incentives to produce rental units that are to remain as rentals for a specified number of years. The problem with the Inclusionary Zoning (IZ) program is that the whole philosophy seems to be to penalize the people who buy the housing, because developers pass along the cost to the buyers of the market rate units. AGENDA ITEM # PAGE 87 ATTACHMENT C Is it possible to exclude rental housing from IZ or offer an incentive for developers choosing to produce rental housing? Perhaps they could pay a lower amount of CIL and have that CIL money directly subsidize low and moderate rental units. Staff response: The next phase of the IZ is to look at the whole rental piece, since it has unique needs and dynamics. 3 - Comment: Lafayette, CO provides incentives to developers for bringing in very low income units, for example a developer can realize a lower IZ requirement by working with non-profits like Habitat for Humanity to bring in units. Show of hands: The majority of the attendees were in favor of the idea of providing incentives to developers for the production of low and moderate income units. 4 - Comment: At least one participant thinks progress is being made to increase the number of affordable units in town, but is concerned with the premise that "on-site is good" vs. "off- site is bad." The problem with the on-site units is that the type of homes being produced and the property location may not meet the needs of family buyers because what's left to build in Boulder is smaller, stacked flats which won't provide the product needed by this demographic. Also, the majority of affordable housing is located in certain neighborhoods and is not well-integrated. It would be foolish to have a strict on-site requirement. Staff response: This is the intention of the variance process, to be able to work with developers to get the type of product needed. 5 - Question: Will the city be adopting specific standards or will it be staff-negotiated? Staff response: We want a balance of some specific products, but also options for creative solutions. 6 - Question: Why the unpopularity of CIL? CIL has brought in about the same number of units as those provided on-site. Comment: CIL allows for social-economic diversity and CIL can be leveraged. Comment: The developer buy-out requirement is worded in a way that gives the impression that developers are trying to "get away" with something. Comment. CIL is a tremendous tool and very significant to the affordable housing program. It provides funding to projects that the city won't get anywhere else, specifically related to location and incomes served. There is a short-fall every year in meeting the affordable housing need in the community. Any program changes that diminish the CIL are not the best benefit to the community. If there is a way to insure the CIL is spread around in the community, it will improve the perception. Also, if a developer builds smaller price-point units, the one time tax (CIL) is paid by residents that are buying or building homes in Boulder. Comment: At the Washington School project, the goal was to provide on-site affordable units. It's frustrating to think that if we could have afforded to pay the full CIL, it would have dropped the price of the market units. I suggest that if developers provide affordable units on-site, there should be a way for the developers to tap into the CIL pool to do more affordable units. I agree that more incentives should be provided for builders of affordable units. 7 - Question/Comment: Who should be paying for affordable housing? Now it's typically the new buyers in Boulder. Developers support affordable housing, but feel the whole community should help pay for it. Also we don't feel that we're doing a service to the affordable buyer by limiting appreciation. AGENDA ITEM # PAGE 88 ATTACHMENT C Staff clarification: IZ is not the only source of affordable housing funds in Boulder. Funds come from a variety of sources, including federal, state, local property tax, and the Housing Excise Tax. 8 - Comment/Question: Several of us in this room had served on the Affordable Housing Taskforce in 1999/2000. The strong feeling at that time was that affordable housing benefits the whole community, so the whole community should step up and pay for it. We suggested putting the affordable housing tax on the ballot in 2000, which failed 48% to 52%. We need widespread support to put such a tax back on the ballot. Is this something that will be looked at in Phase III? Staff response: Yes. 9 - Comment: Other funding sources, in general, are not local funds, so the community has not bought into supporting affordable housing. I think there would only be weak support for a property tax, and maybe support for a sales tax increase. Eighty percent of the city's revenue comes from sales tax, and it is a source that has been entirely ignored by council. 10 - Comment: I am strongly in favor of CIL. One of the outcomes of CIL is meeting a goal to provide housing to a range of incomes in the community. I am also skeptical about getting a property tax passed. Boulder Tomorrow's 2007 study demonstrated that the people who purchase affordable homes are worse-off financially than those in rental housing. 11- Comment: CIL supports non-profit providers of affordable housing, provides rentals, and reaches lower Area Median Incomes (AMIs) for homeownership. On-site affordable housing is geographically limited, while CIL can go anywhere. 12 - Question: Are both CIL and off-site options for annexations? They should be. 13 - Comment: Regarding the calculation of CIL. We need to come to terms with the affordability gap. Staff response: It has been determined to raise the CIL to 75% of the affordability gap. It will increase by 15% per year starting in 2010 until the gap has been reached. We will be keeping the 50% on-site option with CIL for the balance of the option. 14 - Comment. Some households at 40-60% AMI are not currently being served. 15 - Comment. I don't think CIL should be discontinued. The money is really needed (by non-profit agencies and the housing authority) and it would be a mistake to compromise that. 16 - Comment: I agree that the whole community should bear the cost of affordable housing. One of the simplest methods currently is illegal: the real estate transfer tax. It could be easily paid by sellers realizing a profit on the sale of their home. As a community we could try to eliminate the state-wide law that prohibits this tax. Also, we could implement a sales or property tax. Community members have interests other than affordable housing, so tradeoffs would be needed. There's also a big opposition to development in town. Comment: The idea that the cost of a real estate transfer tax could easily be borne by sellers is not completely accurate. Most real estate deals are done on a string with very few sellers making a bundle because they're going somewhere else; likewise on the property tax. About 51% of the residents in the community are renters and AGENDA ITEM # PAGE 89 ATTACHMENT C wouldn't participate in a property tax. The only way to reach the whole community is through a sales tax. I don't think it would be possible in the current economic climate. Comment. It is an awkward time to discuss a sales tax, but it would be good to plan for the future. 17 - Question: Half of the population rents; isn't that who we're trying to serve? Comment: No. A huge proportion of renters in Boulder are students (whose parents are paying) or people who can afford market rate rentals and have plenty of money. 18 - Comment. When the cost of building a new home is increased, it basically raises the price of all houses in Boulder. Is there a way to be more equitable? Look at ways to get the cost of housing down by providing incentives such as more density. 19 - Comment: This comment is in regard to paying 75% of the affordability gap for CIL. In a housing "bubble" the price of housing rises artificially. The assumption is that a homeowner is making money, but in reality he or she will have to buy somewhere else. I agree incentives are needed that would be equal to CIL. What incentives would developers want that would make this feasible? 20 - Comment: Ultimately a real estate transfer tax that will be passed along to the buyer from the seller is not a good idea. 21- Comment/Question: I am anxious to get the Phase III discussion going. IZ isn't going to get us where we want to go. How will the middle income goal be accomplished? Staff response: We expect to get about half (225 units) of the 450 unit goal through annexation. Our job is to come up with methods to obtain the other 225 units. 22 - Comment: In a diminishing market with deed restrictions, is there a way to give the homeowners more, for example offering them the ability to keep capital improvements? 23 - Comment: A lot of details are already imbedded in the assumptions of IZ. For example, 75% of the gap... what is the gap? This is a real deal breaker. We need to talk about how this will apply to hotels and senior housing. We need to work out the details now, not later. We need to look at assumptions. The idea to incentivize middle income units is great. For the variance, who is deciding... council, Planning Board, or staff? Regarding basing CIL on the size of units, there is already a luxury tax. 24 - Comment: Boulder Housing Partners is redeveloping Boulder Mobile Manor. Is there some learning that could be captured in this process? I suggest having an incentive that could allow a project to jump the queue when providing affordable housing and meeting certain requirements? 25 - Comment. Regarding the notion that the CIL can be ratcheted up and have no effect, we created the problem in part through the IZ program. Boulder's appreciation rates are much higher than statewide, and it is not sustainable. The IZ program will fall when no more housing is being produced. AGENDA ITEM # SS PAGE 90 ATTACHMENT C 26 - Staff comment: The average AMI for IZ homeowners is 46%. Regarding concerns that middle income won't sell, one of the newer middle income resale units just sold right away. It was purchased by a family with one child and both parents lived/worked in Boulder. C. FINAL COMMENTS 27 - Facilitator: Any areas of conversation not being addressed? 28 - Comment: We need to be very careful to not dis-incentivize CIL payments. They're they only way to serve very, very low income people. 29 - Comment: Regarding subsidizing middle income, in today's market a lot of product is available, nearby if not in Boulder. A lot is being invested in public transportation that makes commuting less of an issue. I question the value of subsidizing middle income units over lower AMI units. There may be a negative effect in reaching middle income. Comment: I concur. I would like to see examples of successful middle income programs in other communities. I'm glad that the decision was made to not require all units on site and fear that raising the CIL will price out developers and result in more on-site units. Compared to other communities, our current CIL is pretty high. Let's focus on whether or not we get more benefit from getting units off-site and create something that results in more benefit to the community rather than "punishes" developers. Comment: I'm concerned with the middle income goal, especially since staff provided council with options and council selected the highest number goal. The Affordable Housing Taskforce looked at middle income and decided that there's so little money that we shouldn't dilute resources. Also I don't know if the middle income proposal will work. I'm comfortable with more CIL, but I caution against raising it too high. Comment: What I heard at the council meeting was that while there was support for middle income, it was by no means strong support. Council did direct staff to prepare code/ordinance changes, but didn't say they would pass them. Council didn't want middle income to reduce assistance to lower income. Staff response: The middle income goal wasn't an easy decision for council. They did adopt a goal, but it won't be in the ordinance. It could be included in the comprehensive plan update. 30 - Comment: In talking to Realtors© who assist with the marketing and sales of the affordable homes, the most consistent comment is that we are not producing the product that buyers want. Homes are too small and units are stacked flats. 31 - Comment: Applying IZ to redevelopment feels like jumping in an opposite policy direction. Staff clarification: What was adopted was to apply IZ on redevelopment only when more than five units have been demolished and are being rebuilt. Currently IZ applies to any number of units being added to a redeveloped site. D. WRAP-UP There will be other opportunities for feedback. After prior public meetings and roundtables, concerns have been expressed by attendees that public meeting comments don't get to AGENDA ITEM # gB PAGE 91 ATTACHMENT C Planning Board and City Council. Comments have been summarized in the body of council study session and meeting memos and detailed comments are included as attachments. In addition, people can also provide input directly to Planning Board and Council. 32 - Comment: It would be helpful to have something available (such as what HUD provides) that says here are the comments we received, here's what we decided. 33 - Comment. I want to acknowledge staff. The review of IZ started off "wrong-headed." Thanks to staff it is now only partially wrong-headed. I recommend getting a consensus from the people in this room. 34- Comment: Regarding the variance procedure, it needs to be nuanced enough to deal with a variety of issues, but simple enough to understand. Consistence and clarity is very important. AGENDA ITEM # & PAGE 92 ATTACHMENT C CHATS Regulatory Review June 10, 2009 West Senior Center Community Meeting Notes Attendees: Elizabeth Borden, JV DeSousa, Stuart Grogan, Dick Harris, Phil Hernandez, Jonathan Hondorf, Beth Hondorf, Lynn Segal, Linda Stelzer, Tim Wheat Housing and Human Services Division Staff: Michelle Allen, Janet Fulton, Pamm Gibson, Cindy Pieropan, B.J. Suter, Jeff Yegian, Clay Fong, Facilitator (City of Boulder Mediation Program), Margo, Facilitator's Assistant (City of Boulder Mediation Program) Spanish Translator: German Velasco A. INTRODUCTIONS/OPENING/STAFF PRESENTATION 1. Facilitator, Clay Fong, welcomed participants and introductions were made. 2. Michelle Allen, Housing Planner with the City of Boulder Division of Housing, updated attendees on the Community Housing Affordability Talks (CHATS) review, which currently is in Phase II of a three-phase process. Staff hopes to begin Phase III in the fall of 2009 and make significant progress by the end of the year. She then reviewed the Housing Excise Tax proposal that was brought to City Council on June 2, 2009. She noted that Council supported the idea of eliminating the residential tax, but did not support the proposal in full. Staff will present additional options to City Council at their July 7 meeting. She clarified that today's presentation would cover the affordable housing elements that were presented to City Council at their June 2 meeting. The discussion will be presented to Planning Board on July 16 and then will go back to council in October or November. Finally, she presented a review of the Inclusionary Zoning and affordable housing programs, along with a timeline regarding council direction. B. QUESTIONS AND COMMENTS 1 - Question: Has anyone chosen the land dedication option? Answer: No - the requirement language was too vague and therefore not an attractive option. 2 - Question: Wouldn't it be better to do away with cash-in-lieu (CIL) if the goal is to have as much affordable housing as possible? Answer: There has been a lot of discussion about this and the dynamics of CIL. CIL is distributed through a grant fund round to non-profits who provide primarily low income rental housing. Colorado law prohibits rent control, so there is no way for the city to ensure affordable rents. It provides a good balance; non-profits can acquire, maintain, and manage affordable rental units in the city and they have access to other funding sources so CIL can be leveraged. 3 - Question: Is this rental housing permanently affordable? Answer. Yes. The city applies covenants to properties making them permanently affordable. Some early units were built before these covenants went into effect, but AGENDA ITEM # PAGE 93 ATTACHMENT C are likely to remain affordable since they're owned by non-profits serving low income households. Now all units get covenants. 4 - Comment: I recommend the city adopt a "visitability" standard, especially for single family homes: no step entrance, 36" wide doors, ground floor bathroom and bedroom. This would have a great impact on the community. Staff response: To date, the city has gone by federal accessibility standards, not beyond. Comment: There are no federal standards for visitability on single family homes. Lafayette, CO has adopted a standard for their city. Comment. This is an idea that is gaining ground. Thistle Communities has talked about doing this on all units; it is very inexpensive to do when included at original planning stage. 5 - Question: What percentage of housing is dedicated under Inclusionary Zoning (IZ)? Is there a minimum number of units to which this applies? Answer: Yes. 20% of all residential development must be permanently affordable. 6 - Question: Where are the affordable units, especially in the downtown area? Between Iris and Baseline? Answer: There are a few ownership units in One Boulder Plaza and one at 28`h and Pearl. There are quite a few rentals, for example at Baseline and Broadway and 20`h Street. Boulder Housing Partners (BHP) has some rentals at 6`h and Pearl and 2160 Broadway. 7 - Comment: It seems that the lower income, for-purchase units are not making it into the city center area. Will this be addressed in any way for people who need to live near public transportation and businesses and services, and in the downtown area? Staff response: We also have some other homeownership grants and downpayment assistance programs available for lower income buyers. Also, IZ is one tool in the affordable housing program and is not the answer to everything. The key is for developers to have options. Also, Boulder is about 90% built-out. 8 - Comment: It seems like CIL is a good deal for developers. Staff response: Council has had concerns with CIL and is looking at how to deal with those issues. One way is to increase the CIL amount. We have received some on-site homeownership units downtown. Question: Will the CIL increase be applied uniformly across the city? Answer: The CIL increase is slated to go up 15% per year (about double the current increase) until it reaches 75% of the affordability gap. It will be applied across the city. Other ideas being considered include looking at using a downtown residential density bonus to get more affordable housing. The idea is if developers want extra density, they must do some affordable housing on-site. We will start the review of this next month. Facilitator: We want to make sure we accurately get your comment. Is the concern about the availability of for-purchase affordable units in downtown?" Response: Yes. 9 - Comment. Regarding the $1.4 million sales price mentioned for some luxury units downtown, the profit is probably not anywhere close to the sales price. AGENDA ITEM PAGE 94 ATTACHMENT C 10 - Comment: I propose transferring development rights to private lots, for example an owner could dedicate land on their property to an affordable unit. It would help keep affordable units from clumping together in developments. Staff question: Are you talking about increasing density in your neighborhood? Response: Yes, partly. Staff response: Council is interested in this concept, but it is not on the immediate list for review. At the staff level, we are looking at how to prioritize to get social integration. CIL is a very important tool to get units on the ground. 11 - Comment: Land dedication and off-site units would happen quickest if developers could provide those outside of the city. Also, the development of a reasonable approach to the affordability gap is needed; will be different for different products in different parts of town? Having the cost per square foot of a house be the top gap is not fair. We need to look at understanding the equation. Staff response: We did look at the type of housing affordable to affordable buyers. The attached unit gap was based on comparables. The June 2 Council memo lays out a lot of this information. If CIL were closer to the actual cost of putting a unit on the site, would that seem fairer? Participant response: Not necessarily. It's harder to integrate affordable units into development downtown. 12 - Comment: I've been working in the area of senior housing in Boulder for a number of years. Regarding Phase III, there are three senior housing types not current covered by IZ: nursing homes, assisted living, and congregate care. I understand you are going to be looking at congregate care under IZ. I want to oppose congregate care paying IZ. The average sales price of an assisted living unit in Boulder county is $160,000. Staff response: We haven't started down that road yet. We will be looking at each with the approach of "what's the concern?" One is that some senior units (congregate care) being built are not really for low income households. Comment: I see this as potentially harming the legitimate senior housing providing services. Staff response: Our intention is to be very careful not to harm the ability of provider of legitimate senior housing that's addressing low income housing. Comment. I like the idea of looking at a legitimate provision of senior housing and services, not as a loophole. Staff response: This is something we're going to study, and would love to have you involved. Comment: The definition of "congregate care" has to be very specific. For example, there is "congregate care" at CU for students. In co-housing there is some difference. True congregate care does not have kitchens in individual units. 13 - Comment: I'm concerned about CIL. Is EPS looking at analyzing the CIL increase to 75%? I want to see evidence that the increase won't change development dynamics. Staff response: The assumptions made for future markets are different from the current market. We will be monitoring the CIL increases carefully to make sure it doesn't get out of whack. Comment: Seems we'd want to test the model ahead of time. AGENDA ITEM # 6~? PAGE 95 ATTACHMENT C Staff response: Council was aware that the increase could push a lot of units on site and reduce CIL, and chose to adopt it. 14 - Comment: As an architect, I have a lot of exposure to developers and projects. I don't know that it will be possible to get the CIL high enough to get units on site given the dynamics of the market right now. There was a project being recently considered by a developer, and the economics of the model to provide one unit on site pushed the price of the market units from $700,000 to $900,000 each. I am concerned that IZ is driving up the affordability gap. Also I am concerned that people in the middle income range are getting pushed out, so we will end up with a community of ultra wealthy and lower income households needing services. There is a lot of uncertainty in the city. City Council is changing so many rules - IZ and the Compatible Development component - that a lot of developers are holding off on development. If changes could be date certain, it would give developers the ability to plan for them. Staff response: How IZ may be affecting market prices has been a big concern throughout the process 15 - Comment: The IZ affordable housing program currently has one level of assistance, and a second level of assistance (middle income) is being discussed. In areas where land cost is even more expensive than in Boulder (California for example), they have different levels of affordable housing assistance. Staff response: A variation of this is that affordable home owners, when they sell, still can't afford a unit to step up to. City Council's recently adopted goal of 450 middle income units is the first step into looking at this problem. 16 - Question: Regarding the concern that higher CIL will push units all on-site and there's less money for non-profits, is it a problem if affordable housing units are being gained? Participant response: CIL has leveraged several times more units that would have been provided on-site. Also, it is the major driver of getting affordable rental housing. We want a rational, clear choice recognizing the consequences. 17 - Comment. Another logical flaw in IZ is that a number of people in town would like to see no more units developed. Should Boulder reach build-out, IZ will bring in neither units nor CIL. Staff response: IZ is not the only funding for affordable housing programs. The city gets other local and federal funding. 18 - Comment: If Boulder reaches build-out, then we'll need to increase density, such as converting large units to multiple units. Lots of seniors want to stay in their homes, and could afford to do so if they could build an additional unit on site or have an Accessory Dwelling Unit. 19 - Comment: The land prices are a function of supply and demand; if developers won't buy land, the price of the land will go down. 20 -Comment. I hope we captured the idea of more incentives for builders around density and height for more affordable housing. Also increase occupancy levels. Pops and scrapes are taking affordable housing off of the market. It's okay with owners who are going to live in, but if being built for speculation (large homes) they should be paying a percentage of the profit. AGENDA ITEM #,.~O PAGE 96 ATTACHMENT C Staff response: This was one of the conversations with Council, to look at the need to do an impact study, which would be required legally. An impact study would be very expensive, and with the current city budget concerns, it is precluded for this year. However, there is interest in this study. 21- Comment. Would this include people building additions? Staff response: It becomes complicated. We don't want to penalize people for wanting to maintain or add to their homes to meet their growing needs. There is a difference for large additions. 22 - Comment: How do we control the number of people per square foot? Staff response: There is no legal way, to do that. 23 - Comment: This has been talked about before and keeps getting dropped: We need to look at other funding sources and other ways long term to get affordable housing. Every time more regulations are made to get affordable housing, it raises the general cost of housing, and makes it harder to get affordable housing across the board. More flexibility is needed in the code for allowing changes in families/mixed use/higher density in neighborhoods. Politically this is a very hot issue. C. WRAP-UP There are other opportunities for feedback via comment form, mail, e-mail and telephone. The next step is to take the current package to the Planning Board on July 16, 2009 for input and recommendations. Thanks to everyone who participated in tonight's meeting. AGENDA ITEM # PAGE 97 ATTACHMENT D From: Macon Cowles Sent: Monday, December 15, 2008 9:24 PM To: Pomerance, Stephen Cc: Council; Brautigam, Jane Subject: Re: inclusionary zoning Steve, I agree with the points that you make: that IZ should be placed under planning, and I think that it will after the new Planning guy arrives next month. The sliding scale concept is also worthwhile. I will keep this in mind as the issue moves forward. The next time that Council will see it is on Feb. 24. Macon Cowles Boulder City Council Member On Dec 12, 2008, at 11:56 AM Steve Pomerance wrote: To the Council: I went to the staff-organized meeting on inclusionary zoning this morning. I was struck by a couple of things. One very practical thing was that the inclusionary zoning process seems to fit more in Planning rather than HHS. It appears to me that the implementation of inclusionary zoning is very much a regulatory/land use/exaction issue, and not a "human services" issue, and so should and could be easily included in/moved to Planning. Aside from this simply making a whole lot more sense, especially with the "one stop shopping" objective, there can't be but a few staff to move, and the process is essentially about dealing with developers anyway. On the more abstract side of things, in reading through the list of items to be discussed, there was no real attention paid to the underlying questions, which were part of the initial discussions about IZ, as to who pays and how much they pay. There was, as usual when there are a bunch of developers in the room, some discussion about the community paying more, but none about the developers paying more, or about including the commercialrndustrial side of development paying jobs need housing, etc. or about how to deal with the proliferation of utterly useless overpriced housing downtown (useless that is from a community perspective.) As a part of this missing discussion, you might consider that a $5 million condo pays the same fee-in-lieu as a $300,000 unit. So what about charging on a sliding scale? For example, think about 10% of every dollar in price over $250,000. For a $500,000 unit, which I suspect is around the average price for a housing unit in Boulder, that would be .10x250,000=25,000, not much more than the current figure of $100,000 per 5 units. Or make it 15% to encourage on- site provision of units, which has some benefit in terms of geographic diversity, and actually getting units. Such an approach seems to me to be eminently defensible as a fee in lieu, given the objectives of maintaining economic diversity, especially if you make the on-site requirements more realistic in terms of places that normal people would actually WANT to live. There is lots more to say, but that's enough for now. Steve Pomerance AGENDA ITEM # PAGE 98 ATTACHMENT D Hello Michelle - I attended the December 12th, 2008 Inclusionary Zoning Review Community Meeting. I thought it was a great forum I wish that we had had at least twice as long to discuss the issues that were raised during the session. As you requested, these are comments on some of the additional agenda items that we were not able to get to during the discussion. I was particularly concerned about item #8 - Changes to pricing methodology. We have run into some pricing challenges on our homes when we have worked with HHS. Some of this has occurred because we had different assumptions regarding HOA dues etc. but Jeff Yegian has been good in working with us to get the right assumptions in place. I was not aware that you did not look at the actual square footage of a home or the presence of a garage in your pricing formula. At Flatirons Habitat, we try to follow a philosophy of making sure that our homes "fit in" with the surrounding structures and that other neighbors essentially don't know they are Habitat partner families. I would think that this would be a goal of Inclusionary Zoning - creating dwellings that fit within the neighborhoods and don't draw attention to someone's lower economic status. So to specifics, besides the fact that a garage does provide storage, it also provides protection for a family's second most valuable asset - their car. If you don't include this in your pricing structure you are ignoring an important value to the homeowner and to creating a more inclusionary community. Your pricing models should also be based on the real square footage of the dwelling. Our recent experience at Habitat suggests that there is a growing need for larger family units (3 bedroom facilities) not single or two bedroom homes. We currently have 18 families that we could place in 3 bedroom facilities on our waiting list while we had a difficult time finding a qualifying family for a two bedroom unit we had available. Your pricing structure suggests a penalty for putting families into homes though I'm sure that is not the intention. As I stated in the meeting, I hope that any revision to the program will include incentives for developers to work with organizations such as Habitat to build affordable housing. Some cities in Boulder County offer extra credit to developers for working with Habitat to provide reduced cost or free land on which to build homes. As you know, Habitat serves the 35-49% AMI range and these communities value Habitat's ability to service this economic range. Should the City of Boulder consider this type of incentive to developers here? The other issue I raised in the meeting was the City's progress toward the mix of housing (apartment vs. mobile homes vs. permanent housing) that was envisioned initially. Someone raised the question of the value of homeownership vs. apartment rental. Needless to say this is a critical question to Habitat for Humanity on a national level. One book I would direct you to is "Until It's Gone" by Scott C. Miller. Chapter 6 deals with the fact the low cost homeownership provides a stable foundation for those transitioning out of poverty. " I wish I could say that paying rent is a better scenario, but that's not the case. In fact, it's often worse because, in contrast to mortgage payments, there's no tax break for rent payments, nor does capital accumulate for future use. This is why obtaining affordable housing is such a crucial milestone in the journey out of poverty." If you need additional supporting documentation as to the value of home ownership, I would be happy to supply you with a wide range of studies available through Habitat International. Thanks for the opportunity to share our thoughts as these new policy decisions are being considered. My hope is that Flatirons Habitat for Humanity will become a reliable partner for the City of Boulder as we mutually work to transform the lives of people with safe, decent, affordable housing. John Lovell Executive Director Flatirons Habitat for Humanity AGENDA ITEM # i PAGE 99 ATTACHMENT D Alien, Michelle From: Bob Walker Sent: Tuesday, January 27, 2009 620 PM To: Allen, Michelle- Cc: Yegian, Jeffrey-, bwalker@indra.com Subject: Iz Meeting Michelle- Thanks for the invitation to attend the work session. You have a challenging task and your effort to maximize community input is appreciated. I remain very concerned about the impact of even higher cash-in-lieu payments on moderately priced mixed income developments. The result world be either a further increase in the price of market units or an economically unfeasible project. Both would he counter productive to the twin goals of more affordably priced market housing and more restricted housing. I strongly suggest modifying the program in a more %armts and stick' approach. Projects which produce additional °market` inventory priced below the median price qualify for lower cash in lieu payments and/or higher AMI requirements on the `restricted" units provided. Absent a policy which recognizes the benefit of smaller, less expensive market housing, a simple across the board increase In cash-in-Ilou will discourage the type of market housing the City wants and encourage the type of housing It doesn't want Looking forward to further discussion. Bob Walker Peak Properties & Development Corp. AGENDA ITEM # s~j PAGE 100 ATTACHMENT D From: Ken Hotard Sent: Tuesday, May 05, 2009 10:37 AM To: Council; boulderplanningboard Subject: Affordable Housing Regulatory Tools MEMORANDUM TO: Mayor, City Council and Planning Board Members FR: Housing Opportunity Committee, Clove Berger, Chair Boulder Area Realtor® Association RE: Affordable Housing Regulatory Tools DATE: May 5, 2009 The purpose of this memorandum is to inform you of our recommendations regarding Affordable Housing Regulatory Tools currently under review and consideration for action. Our comments focus on four topics: on site units, downpayment assistance, cash-in-lieu, and middle income housing assistance. On Site Units We recommend that you retain flexibility to exempt some or all on site units in any given development. Some developments simply are not best suited for affordable family units, e.g., within neighborhoods substantially populated by students, developments with high HOA fees, areas that lack services or are not convenient to public transportation and nearby schools, among others. Downnavment Assistance-In the current market it may be wise to c onsider increasing downpayment assistance as a way to enable buyers to access credit and qualify for affordable housing mortgages with a priority on families with dependents. Current downpayment assistance levels should be considered for increases up to 40 percent of the purchase price. Cash-hi-Lieu-The consultant's financial analysis of the CIL policies shows that substantial increases in the CIL is unworkable and would reduce the likelihood of improving the production of on site units. Importantly, the current CIL brings in needed revenue that supports many vital permanently affordable housing activities. Middle Income Housing Assistance-While it may be desirable to consider middle income housing assistance at some point in the future, the current economic climate suggests that you should focus limited existing resources on 80 percent AMI and below. Slowed real estate sales and lower sales prices currently available are meeting the needs of today's middle income buyers in Boulder area markets. Thanks you for your consideration of our comments and recommendations. We look forward to constructive and helpful changes in the City's affordable housing regulatory tools. AGENDA ITEM # ddS PAGE 101 ATTACHMENT D From Bob Walker To: Allen, Michelle: Subject: RE: [hhs-chats-affordable-housing- review] City of Boulder AffordableHousing Review Date: Friday, June 05, 2009 10:53:02 AM Michelle- Thanks for organizing yet another roundtable discussion of this very important issue. As i mentioned, we will all be very interested in participating in the Phase III discussions. I believe the key point made yesterday is that CIL is a very valuable and innovative tool for HHS to provide funds which provide for (1) more geographic and resident diversity than on site development and (2) more efficient leveraging. Based on the annual requests which come before the TRC, it is obvious that current funding levels are substantially below what the community needs. It is mind boggling that the City Council is contemplating a policy which would deliberately reduce this funding. One way to look at this is in terms of the City's affordable housing policy to encourage geographical diversity and balance. In neighborhoods with over 20- 30% affordability, CIL should be encouraged. In neighborhoods below 30-40% affordability, on site development should be encouraged. I don't envy you your task. It's very complicated but I fail to understand why Council remains so unaware of the value of CIL funds to HHS. Bob AGENDA ITEM PAGE 102 ATTACHMENT D From: jv DeSousa Sent: Thursday, June 11, 2009 10:59 AM To: Allen, Michelle Subject: Re: 3626 Broadway Follow Up Flag: Follow up Flag Status: Flagged Michelle: It was very nice to get to speak to you last night. I wanted to follow up with you about the timing of the proposed policy changes. As I noted at the meeting I have had several projects stop because of the uncertainty of when policy changes might go into effect. My understanding is that after the council meeting on June 2nd Planning staff are writing language for code revisions based upon the portions of the staff recommendations that were approved by council. Staff is to take the proposed revised code language to Planning Board in September. After that the proposed language will go to council for first and second readings before approval and enactment. What is the likey timeframe for these council meetings? Could the first and second readings happen some time in October or might it extend into November or even December? Also, as I suggested last night it would be very helpful if there were a date certain that the changes would be implemented. I would suggest a date like 1 March 2010. That will allow people who are planning projects now to move forward knowing when the changes are coming and to either plan for the current rules or the forthcoming future rules. Would it be more appropriate for me to take this idea to Robert Ray? Should I also send this information to a couple of council members to see if I can get some support for this idea? A couple of extra questions - How many affordable units have been added during each of the previous couple of years? Will the proposed HET shift from residential to commercial construction extend to commercial renovation/tenant finish work as well? Thanks so much for your time. jv jv DeSousa, LLC Architecture + Design AGENDA ITEM # ~5S PAGE 103 ATTACHMENT E CITY OF BOULDER CITY COUNCIL AGENDA ITEM MEETING DATE: July 7, 2009 AGENDA TITLE: Direction and Consideration of a motion to place on the ballot of the Nov. 3, 2009 general municipal coordinated election an increase to the housing excise tax PRESENTERS: Jane S. Brautigam, City Manager Paul J. Fetherston, Deputy City Manager Bob Eichem, Finance Director/Acting Executive Director of Administrative Services Karen Rahn, Housing and Human Services Director Robert Ray, Housing Division Manager Peggy Bunzli, HHS Administrative Analyst Cindy Pieropan, Housing Planner EXECUTIVE SUMMARY The purpose of this item is to request Council direction regarding placement on the Nov. 3, 2009 general election of a ballot issue increasing the Housing Excise Tax (HET) and eliminating the existing residential portion of that tax. Currently, residential development is charged an HET of $0.23/square foot, and non-residential development $0.49/square foot, which combined have generated between $100,000 and $400,000 per year over the past ten years. The HET, has not been updated since its adoption in 1990 and the current rates for non- residential development do not adequately address the demand for affordable housing created by the addition of new jobs within the city. Further, with the existing inclusionary zoning program, it is no longer necessary to collect the HET from residential development, as the demand for affordable housing is met through the requirements of inclusionary zoning. Adopting a stronger non-residential linkage to affordable housing would complement the current revisions to inclusionary zoning being considered by Council. The staff analysis beginning on page four provides a context within which to consider the cost of providing affordable housing for low wage earners within the community. It is estimated that 60% of Boulder's jobs fall within the "Low Income" category (see Attachments A and B), with approximately 215 new low-income jobs added annually, resulting in a need for 199 low income housing units each year. The cost of providing affordable housing for new workers ranges from $1101square foot for business park development, to $274/square foot for retail uses. The result is an average per-square-foot cost of $195 to fully mitigate the cost of non-residential demand for affordable housing. AGENDA ITEM # ZJ3 PAGE 104 ATTACHMENT E On June 2, 2009 Council directed Housing & Human Services staff to provide options for increasing the HET, in addition to the recommended option (Option 1) provided at that meeting. Based on additional data collection and analysis staff is providing three options (the original and two additional options) for Council consideration: • Option 1: A phased-in TischlerBise model, including elimination of Housing Excise Tax (HET) on residential development and varying rate based on use; • Option 2: Maintain current HET rates for non-residential development, with elimination of HET on residential development; • Option 3: A phased-in increase to HET rates with no differentiation by use, and elimination of HET on residential development. Key Issues 1. Does City Council support the staff recommendation of placing Option 1 on the Nov. 3, 2009 general municipal coordinated election ballot? 2. Does City Council concur with the annual HET rates as proposed within Option P STAFF RECOMMENDATION Suaaested Motion Laneuaee Staff recommends council consideration of this matter and action in the form of the following motion: Motion to place on the ballot of the Nov. 3, 2009 general municipal coordinated election Option 1, including elimination of Housing Excise Tax (HET) on residential development and introducing a varying rate based on use, and directing staff to return to Council with an ordinance to that effect at the next regularly-scheduled City Council meeting on July 21, 2009. COMMUNITY SUSTAINABILITY ASSESSMENTS AND IMPACTS • Economic: The housing excise tax contributes to the provision of affordable housing that serves both employees associated with new development and existing residents. If there is insufficient revenue from the existing housing excise tax and other sources to provide affordable housing for Boulder's workforce, the jobsthousing imbalance will not be redressed and lower-wage workers will continue to seek housing outside the community. • Environmental: The establishment of a source of funding that will contribute to the provision of affordable housing would result in an increasing number of workers living within the community; with more workers living within Boulder the number commuting from other communities decreases, and thus contributes to a reduction in traffic volume and use of fossil fuels. • Social: A secure and steady source of funding for affordable housing will contribute to a more diverse community, social equity by addressing the needs of the under- AGENDA ITEM # S6 PAGE 105 ATTACHMENT E served, and enhance community liveability by providing programs and services that address the needs of the community. OTHER IMPACTS • Fiscal: The shift of other city excise taxes to impact fees may increase the cost to produce permanently affordable housing. While the city has in the past had the ability to waive Development Excise Taxes (DET) for permanently affordable housing in excess of that required by inclusionary zoning, or that which served very low income households, impact fees cannot be similarly waived. It is possible that permanently affordable housing developers may request additional subsidy funds to defray the cost of new impact fees. Depending on the HET option chosen by Council and the resulting amount of increased revenue generated, however, such revenue could help offset the increased costs of producing affordable housing resulting from the change to impact fees. PUBLIC FEEDBACK The Housing Division solicited input from stakeholders regarding the potential housing ballot issue. Specifically, staff met with members of the development community and affordable housing providers to discuss the rationale for the HET, and options for its amendment. General support was expressed for the concept of non-residential development helping to mitigate the demand for affordable housing in the community created by the addition of new jobs, as well as elimination of the residential portion of the HET. There was also general agreement that uses should be charged differently, since the demand for affordable housing vanes by use. There was consistent concern expressed regarding the timing of the HET ballot issue, however, considering the current unfavorable financial climate and the resulting difficulties for development. Feedback also suggested additional study into alternative methods for either increasing revenue, or providing offsetting incentives (e.g., density bonuses), as part of a community-wide review of the affordable housing issue during 2010 might ultimately prove more effective than the proposed HET. As a result, a consensus as to a reasonable new HET rate has not been reached. BACKGROUND The current HET was approved by City Council on Oct. 23, 1990 and is levied on all new development on a per square foot basis. The 2009 rates are $0.23 per square foot for residential and $0.49 per square foot for non-residential development, and are increased annually by CPI. Combined, the HET has generated between $100,000 and $400,000 per year over the last ten years to acquire, construct or rehabilitate permanently affordable housing for households within 15% - 60% AMI, defined as the "working poor" within the ordinance. In January 1999, City Council accepted The Comprehensive Housing Strategy, which called for the appointment of a Task Force to review the city's housing goal and to identify, analyze, and prioritize opportunities and funding options for increased production and acquisition of housing and other housing programs to meet this goal. AGENDA ITEM PAGE 106 ATTACHMENTE In 2000, City Council accepted the recommendations of the Task Force as a blueprint for the city's policies and funding allocations toward the development of affordable housing. These recommendations included a 10-year time frame for reaching the Boulder Valley Comprehensive Plan (BVCP) goal to have at least 10% of the total housing stock as permanently affordable. Fulfillment of the goal in the timeframe required passage of an affordable housing ballot measure. The measure would have added an additional $3,000,000 annually in affordable housing funds, but was not approved by voters in 2000. The Strategy was intended to mobilize all segments of our community around a continuum of housing choice and need, and provide an equitable method for obtaining funding In 2000, the city adopted an inclusionary zoning ordinance that requires all new residential development to contribute at least 20% of the total new units as permanently affordable housing. However, the HET has not been updated since its adoption and the current rates for non-residential development do not adequately address the demand for affordable housing created by the addition of new jobs in the city. Further, with the existing inclusionary zoning program, it is no longer necessary to collect the HET from residential development, as the demand for affordable housing is met through the requirements of inclusionary zoning. Adopting a stronger non-residential linkage to affordable housing would complement the current revisions to inclusionary zoning being considered by Council. The creation of new jobs is a direct driver of the demand for affordable housing. A significant portion of the city's economy is made up of the retail and service industry sectors. Jobs in these sectors are typically low wage jobs, which increases the demand on the city's limited amount of housing that is affordable to low and moderate income households. TischlerBise apportioned responsibility of an additional 750 permanently affordable housing units to the projected additional 19,650 jobs at build out. TischlerBise (Attachment C) further identified different HET rates for non-residential development, depending upon the type of non-residential use. These rates range from a low of $0.09 per square foot for a mini-warehouse to a high of $9.10 per square foot for an office building. With the exception of the TischlerBise recommendation for mini-warehouses, all of these potential new HET rates would result in a significant increase from the current HET. Attachment D includes an updated chart comparing development-related tax and fee changes with other Front Range Communities. Option I of Attachment D represents implementation of impact fees. Option lI has been updated to reflect Council's direction on June 2 and includes: implementation of impact fees (Option I), allocation of development excise tax capacity for transportation and park land (increase of the transportation DET on non-residential development from $1.79 per sq. ft. to $2.48 per sq. ft., and on multi-family residential from $1,245 per unit to $1,528 per unit, park land DET of $1,060 per single family unit and $737 per multi-family unit) and no longer charging the Education Excise Tax. Option III has been updated to include Option II as updated and the staff recommendation on the Housing Excise Tax (first year phase in). A new column has been added to reflect the full phase-in of Plant Investment Fees and the staff recommendation for the Housing Excise Tax. ANALYSIS Context AGENDA ITEM PAGE 107 ATTACHMENT E The City of Boulder has two basic means of creating affordable housing within the community: through regulations, such as inclusionary zoning; and through financial subsidies. The City uses a variety of fund sources to support its affordable housing programs. These sources are illustrated below: COB Affordable Housing Program Funding Sources 2010 Projections Interest, 1.6% General Fund, 9.1% Loan repayments, 14.4% Property Tax - Non Residential, 14.2% HUD grants, 19.4% HET non-res, 0.80% Property Tax - e::: Residential, 11.6% HET res, 1.6% Cash-in-lieu, 27.40% The current Housing Excise Tax (HET) was adopted in 1990, along with a portion of the property tax, to fund the Community Housing Assistance Program (CHAP). CHAP was designed to provide permanently affordable housing for households earning less than 60% of the Area Median Income. The concept behind CHAP was that all segments of the community, both new and existing, would contribute to the provision of affordable housing in the community. As shown above, in terms of directly attributable sources, new and existing residential development contributes 40.5% of the funds for affordable housing while new and existing non-residential development contributes 15% (on-site affordable units provided in new residential developments have not been factored into this information). There is a direct relationship between the creation of new jobs and the need or demand for affordable housing. As shown in Attachment B, 60% of Boulder's employment base consists of jobs that pay low income wages, while 32% are considered high income and 8% middle income. While many of those working in jobs paying low income wages live outside Boulder, one goal of the affordable housing program is to provide housing for those workers as well; doing so would not only strengthen the social fabric of the community, but mitigate transportation-related issues as well. The demand for affordable housing in the community for workers earning low income wages can be estimated using the following data, with the results in the table below: • Average annual amount of projected non-residential development • Number of jobs per 1,000 square feet of retail, office and industrial uses • Percentage of low income wages paid for retail, office and industrial employment AGENDA ITEM # PAGE 108 ATTACHMENT E • Percentage of affordable housing applicant households with one or two wage earners (this assumes that 85% of low-income affordable housing applicants are single-wage earner households, while 15% are two-wage earner households based on actual applicant data) Low Income Wage Jobs & Demand for Affordable Housing Number of Annually Number of Low Projected Low Income Jobs Income Housing Units Needed Retail 48 45 Business Park 39 36 Office 65 60 Industrial 63 59 Totals 215 199 The recommended option for increasing the HET could net an additional 10 - 15 permanently affordable units per year, when fully implemented. Discussion of Options Staff have developed three options for Council to consider: Option 1 is a phased-in TischlerBise model, which includes elimination of the Housing Excise Tax (HET) on residential development and introduces varying rate based on use; Option 2 maintains the current HET rates for non-residential development, but eliminates the HET on residential development; and, Option 3 proposes a phased-in increase to HET rates with no differentiation by use, and eliminates the HET on residential development. (Please refer to Attachment E for data pertaining to each option, and to Attachment F for data pertaining to the number of affordable units that might be provided through HET funding.) It should be noted that, based on data developed by the Community Planning Department, development is expected to occur only within the retail/restaurant, office and light industrial uses and thus all projections are based upon this and related assumptions. Categories of uses will be determined in accordance with the definitions and use tables of Title 9, the City of Boulder Land Use Code. All three options address the concern that residential development is already paying its fair share through inclusionary zoning and a portion of the property tax, and it is no longer appropriate to charge HET on residential development. Option 1 is a phase-in of the new rates recommended by TischlerBise, which addresses the concerns that different uses of commercial development create varying affordable housing needs within the community. It also addresses the issue that non-residential development has not historically shared equitably in the burden of providing affordable housing. Although the increases are, for most commercial uses, considerable when considered as percentages, TischlerBise found these increases to be only an initial step towards non-residential development paying for the affordable housing needs it creates. Specifically, it recognizes that full impact recovery would be unreasonably burdensome to non-residential developments, and attempts instead to establish a rate that might reasonably be borne by non- residential developers. The phase-in plan further helps ease the burden on non-residential developers, by increasing the rates over a period of five years. Staff recommends a starting AGENDA ITEM # ~ PAGE 109 ATTACHMENT E rate up to $2.50 per square foot in order to maintain the current level of funding to the affordable housing program from HET. Based on staff calculations that, with removal of the existing residential portion of the HET, a "break even" point (revenue neutral) of approximately $2.50/square foot can be established, this option establishes the initial HET in 2010 at $2.50/square foot. During 2010, then, the HET would be expected to result in approximately $300,000 in revenue for affordable housing, increasing annually through 2014 to the maximum rates recommended by TischlerBise, and resulting in an estimated $882,000 for that year. Over the five-year period, this option would provide approximately $3,054,000 for affordable housing. Option 2 reduces the HET charged to residential development to zero and maintains the existing rates for non-residential development. In this scenario, no ballot issue would be required and Council could simply agree to reduce the HET on residential development. While the simplest to implement of the options presented, this option does not address the issue that non-residential development has not historically shared equitably in the burden of providing affordable housing. It also significantly reduces the funding level to the affordable housing program from HET. As additional sources of revenue would then be needed, but are in fact unlikely to be found, the current service levels of the affordable housing program would not be sustainable; it would thus take longer to reach the 10% permanently affordable housing goal. In order to not increase the existing $0.49/square foot for non-residential development, this option proposes a continuation of the existing flat rate for all development, with annual increased based on CPI. At this level, funding would be significantly less than is currently collected for all five years, resulting in a (five-year) total estimated collection of slightly more than $312,000 dollars. Option 3 partially addresses the issue that non-residential development has not historically shared equitably in the burden of providing affordable housing, by increasing current HET rates on non-residential development. It also addresses the concerns voiced by Council that the proposed rates in option 1 were too high and could have a negative financial repercussion on the non-residential development community, possibly reducing development options within Boulder. As in Option 2, a flat rate addresses the concerns voiced by some residents that differentiating by use is inherently problematic, as use can be difficult to determine and can change over the course of development. As an alternative to either of the preceding options, this option also is based on a flat rate for all uses, but is initiated at the level of $1.00/square foot in 2010, resulting in some $120,000 in funds. Increasing the HET to $5.00/square foot in 2014 would yield an estimated $600,000 annually, or $1,800,000 over the five year period; revenue in 2010 and 2011, however, would be below the $300,000 per year threshold established as the "break even" point for revenue purposes. MATRIX OF OPTIONS 1. Approve Option 1 as recommended by staff for placement on the Nov. 3, 2009 general municipal coordinated election ballot. AGENDA ITEM # PAGE 110 ATTACHMENTE 2. Approve Option 1 as may be amended by Council for placement on the Nov. 3, 2009 general municipal coordinated election ballot. 3. Approve Option 2 or Option 3, as may be amended by Council, for placement on the Nov. 3, 2009 general municipal coordinated election ballot. 4. Do not include the Housing Excise Tax on the Nov. 3, 2009 general municipal coordinated election ballot. Approved By: Jane S. Brautigam, City Manager ATTACHMENTS Attachment A: Job Categories Table Attachment B: Boulder Jobs by Income Category Attachment C: TischlerBise Affordable Housing Excise Tax Study Attachment D: Fee Comparison with Other Communities Attachment E: HET Revenue Projections for Each Option Attachment F: Potential Number of Affordable Units with Projected HET Revenue AGENDA ITEM # PAGE III ATTACHMENT E Job Categories Table Types of Boulder Jobs by Income Category Low Income, Average Hourly Average <$51051 per Year Wage Annual Wa e Food Preparation Workers $10.15 $21,109 Cashiers $10.88 $22,627 Child Care Workers $12.10 $25,175 Receptionists $13.15 $27,353 Tellers $13.29 $27,647 Security Guards $11.14 $23,178 Team Assemblers $13.08 $27,206 Bus Drivers $16.41 $34,128 Production Workers $11.05 $22,984 Middle Income, $51052 to $63,643 per Year Machinists $26.89 $55,934 Precision Equipment Repairer $27.08 $56,336 Auto Repairer $30.39 $63,213 Sales Representative $29.69 $61,754 Physical Science Technician $25.24 $52,502 Civil Engineering Technician $27.52 $57,240 Health Educator $26.28 $58,832 Commercial & Industrial Designer $28.28 $58,832 Credit Analyst $29.24 $60,813 High Income, + $63,644 per Year Education Administrator $41.30 $85,898 Medical & Health Services Manager $42.35 $88,079 Chemist $43.36 $90,184 Psychologist $39.38 $81,917 Computer Software Engineer $52.95 $110,126 Market Research Analyst $31.63 $65,784 Sales Engineers $40.51 $84,268 Securities & Financial Services Sales Agents $36.40 $75,092 First Line Mechanics Supervisors $31.20 $64,898 AGENDA ITEM # PAGE 112 ATTACHMENTE Boulder Jobs by Income Category 60.0% 50.0% 40.0% 32% 30.0% 20.0% h0k 10.0% 0.0% Porn 5tate V Miomoo Depanryierit ol Labor Data for Mulder AGENDA ITEM # S~ PAGE 113 ATTACHMENT E DEVELOPMENT EXCISE TAX STUDY City of Boulder, Colorado AFFORDABLE HousiNG i Residential and nonresidential development in the City of Boulder currently pays a Housing Excise Tax (HET) to help provide permanent affordable housing in the City. As part of the Impact Fee/Excise Tax Study, TischlerBise was asked to calculate an impact fee or excise tax for Affordable Housing. Due to limitations in the State Impact Fee Act and inpact fee case law, TischlerBise recommends an excise tax for Affordable Housing. If this Development Excise Tax is approved by the voters, the current HET should be repealed. The City's current adopted goal for provision of permanent affordable housing is 10 percent of the City's housing stock. The breakdown of units by income category is 35 percent of units for very low-income households (<30% of Area Median hcome (Alvin); 40 percent for low-income households (30-68% AMn and 25 percent for moderate income households (69- 80% AMI). The City's current inventory of approximately 2,800 permanently affordable units is short by approximately 1,700 units. The City will continue to pursue adding these units to the inventory to meet the current need through a variety of means such as funding, policies and plauuung, direct services, and asset management.' • Funding is currently from a variety of grants and loans-approximately $3.5-45 million annually-provided to non-profit and for-profit agencies and housing developers. Public investment is used toward acquisition, rehabilitation. and/or new construction of permanently affordable rental or for-sale housing. Funding and financing sources include locally-controlled funds such as Affordable Housing Funds (from the General Fund and Cash-in-Lieu); Community Housing Assistance Program (CHAP); property tax dedicated mill levy; Housing Excise Tax; CDBG (federal funds); HOME (federal funds); and Private Activity Bonds (tax-exempt bond allocation that may be used to finance affordable housing). State and Federal funds and financing are available as well. • Policies and Planning: Design, development and implementation of policies that increase affordable housing inventory. Planning efforts focus on identification of future housing needs and mechanisms to address them. Planning staff also implements the city's Indusionary Zoning Ordinance, which requires that at least 20 percent of new residential development is committed as permanently affordable. Discussion below from, City of Boulder Affordable Housing Report. February 2008. Twhlefffise 16 AGENDA ITEM 68 PAGE 114 ATTACHMENT E DEVELOPMENT EXCISE TAX STUDY City of Boulder, Colorado If the City were to stop growing today, the affordable housing goal would still be pursued through the above means. However, the City will not stop growing and additional units will be required to meet the needs of future development. To meet the City's fuhue affordable housing needs, TischlerBise recommends implementation of a development excise tax for affordable housing, paid orrly by nonresidential development. Nonresidential development should pay the affordable housing excise tax because employment is the most direct generator of affordable housing needs. The recommended DET component uses a plan- based methodology driven by the City's adopted goal for affordable housing and the average cost to the City to subsidize the provision of affordable units. It should be noted, that impact fees or development excise taxes on new residential development can be waived for affordable units. If the City were to adopt impact fees, the amount waived or foregone would have to be covered through other means (such as from the General Fund) to make each impact fee account -whole. This should be addressed in the ordinance that adopts the fee. Without this waiver, the proposed impact fees will add to the cost of an affordable housing unit. Furthermore, the consultant recommends that the existing dedicated property tax for housing and other existing finding sources be used to correct the existing deficiency in LOS and cover housing-related operating costs. With this finding strategy, Boulder will be able " to correct the existing deficiency in affordable housing with property tax revenue and other means such as inclusionary zoning, while meeting its future growthrelated affordable housing heeds through the updated development excise tax. Nonresidential development -will be assessed the tax per square foot of gross floor area, or based on unique demand indicators, such as the number of rooms in a hotel. The tax rate is derived by multiplying the affordable housing cost per employee by the munber of employees per demand indicator. Figure 13 summarizes the demand for affordable housing units through 2030. The c urent employment base of 97,750 jobs is projected to increase to 117,400 jobs by 2030. Residential development is projected to increase by 7,500 units. Assuming the City's current target of 10 percent as permanently affordable, an additional 750 units are needed to accommodate future affordable housing needs brought about by nonresidential development in the City. The 750 units are fnnther broken down by income category, per the City `s targets at 35 percent for very low income, 40 percent for low income, and 25 percent for moderate income. The projected net increase of 19,650 jobs is used as the denominator in the LOS calculation for affordable housing. TwhIefBim 17 AGENDA ITEM # 52 PAGE 115 ATTACHMENT E DEVELOPMENT EXCISE TAX STUDY City of Bouldw, Colorado figure 13. Affordable Housing Demand Demand Units Base Year 2030 Met 2008 Projection Increase Jabs in Boulder 97,750 117,400 19,650 Housing Units* 45,000 52,500 7,500 %ofdff. Units" 35% Very Low Income All. Units (r30% AMI) 262 40% Low Income Aff. Units (30-680' AMI) 300 25% Moderate Income Aff Units (69-80%AMI) 187 TOTAL 750 `CLrroit affordable housinggoal is based on 45, 000 total housing unta, therefore this is baseivar figure "City ofBmddir adopted targets. Figure 14 provides detail on total subsidy required for each affordable housing unit income category and the City's estimated share of the subsidy. Income levels and affordable prices are from 2008 housing data, provided by City staff. City subsidy estimates were provided by City of Boulder staff based on recent practice. The City share of the subsidy is the basis for the excise tax calculation. However, it should be noted that staff notes that the external sources of subsidy that are used to leverage financing-namely Federal fiords, foundation money, donations to non-profits, tax credits, etc-are not anticipated to increase to meet additional future demand generated by new nonresidential development. If this is the case and the City share increases commensurately, the methodology used to calculate the Affordable Housing excise tax, which is based on current practice, may not fully cover future costs. This should be monitored for potential refinement in future updates. Thwhl W is Rv.2SryrnacL RMna(['mfalYM1[ AGENDA ITEM # 5~ PAGE 116 ATTACHMENT E DEVELOPMENT EXCISE TAX STUDY City of Boulder. Colorado Figure td_ Affordable Housing Costs / Subsidy Requirement ianlncanre 3e&&nderate7nconee @ Lawltxante ; YavLoty Brcmrre %of lrW (rrmgo)-- 100344 69-804 3468% r30%% AssImted lncorne tier Household Size $79,300 $59,265 i $39,150 = $23,56 Affordable AiceofAttachedUmt** $22D,600 $156,7001 $84,078: $36,5( Me&anPrice ofAttached Unit $250,000 $250,0003 $250,000; $2540( a Taal S7ilaidyRegtarei $29,400 X3,300 € $160,422 ; $213,56 Oty S6areof5iibsidy*"' $0 ;022? $6D,000? S7g06 i * City cf Baddw, 2008Hmang atd br m o Date- assume 3 pin housahold Oly ofBouldw,, 200BAausingandbrcon isDaia, assumes Attached Unt Llry ofBatddler The City's total share of the cost to provide permanently affordable housing due to new nonresidential development between 2008 and 2030 is estimated to be approximately $45.8 million. The estimated cost was derived from the projected increase in the need for affordable units and the current estimated City subsidy per unit. Based on the projected increase in employment from 2008 to 2030 of 19,650, the cost per job is $2,328. Detail is provided in Figure 15. Figure 15. Projected Future Affordable Housing Costs Cost ofAffordable Hauling City Cast Affordable Total Par Umt* Units Y"d** Very Lam Income Aff. Units(<30%AMI) $70,000 262 $18,375,000 Low Income Aff Units (30-6W6 AMI) $60,000 300 $18,000,000 Moderate Inge Aff Uinta (69-80% AIvII) $50,000 187 $9,375,000 TOTAL $45,750,000 Net Increase in Jobs (2008 thin Buildout) 19.650 Net City Cart per Additional lob in Boulder $2,338 ' See "Subsidy Requirement 7, rspmenis the es6malad City share afgap be wem median prxa and affardabla prioafor adacbed ants Based on not increase in affordable unit needs by incamamtegory multiplied by eslimared City share ofsnbsrdy reyarred To derive the affordable housing development excise tax per square foot, the City cost per job is multiplied by the number of employees per demand unit. For example for retail establishments, the cost per job of $2,328 is multiplied by 186 employees per 1,000 square feet and divided by 1,000 ($2,328 x 2.86 11,000 = $6.65 per square foot). As shown in Figure 16, the resulting affordable housing excise tax for office development is 19 times the City's current adopted tax rate of $0.49 per square foot of nonuesidential development. Twhie0we 19 AGENDA ITEM"'# PAGE 117 ATTACHMENTE DEVELOPMENT EXCISE TAX STUDY Cily of Boulder. Colorado figure 16. Affordable Housing Development Excise Tax Calculation Lava Ofservlre Per AffbrdsbleHanmgQtyCast Jcb $2,328 RE Fjnp'gxarPer EkaseTar Code 1,000SgFt pw•SgFt D6nrerider?iallFlmrdrvd 8 20 2.86 $6.65 77 HasnesS Paris 3.16 $7.35 72 Of5¢ 3.91 $9.10 61 Hasixtal 338 $7.86 52 Schad 0.92 $214 151 i4T=Waeharse 0.04 $0.09 15 Wareha rmg 1.28 9.."1.97 110 LightJnrimbial 2.31 $537 Erase Taxpar Othw•Nomaridmfurl LlanmdIn wfor 62 Nicsng1ioax(pabed) 0.36 $838 565 LRry tyre (per audart) 0.I6 $3P_ 320 I.adgiog (per roam) 0.44 $1,024 Twhiefte 20 AGENDA ITEM # PAGE 118 Front Range Tax & Fee Comparisons Boulder Boulder Boulder Boulder Boulder (Full phase. Current (Option 1) (Option n) (Option In) in) Broomfield FLCollins Longmont Louisville Loveland Westminster Building Permit Fees $6,314 $6,314 $6,314 $6,314 .$6,314 $2,944 $1,796 $3,455 $4,406 $4,492 $2,496 Plan Check Fee $2,077 $2,077 $2,077 $2,077 $2,077 $1,914 $865 $2,245 $2,278 $1,953 $1,622 Sales and Use Taxes $9,315 $9,315 $9,315 $9,315 $9,315 $9,522 $8,719 $9,005 $9,235 $8,719 $8,833 Development Excise Tax $18,423 $13,329 $18,423 $18,423 $18,423 n/a n/a da n/a n/a da Impact Fees n/a $4,056 $4,056 $4,056 54,056 its n/a da n/a n/a da Housing Excise Tax $3,641 $3,641 $3,641 $18,575 $37,967 da n/a da da n/a n/a Education Excise Tax n/a n/a da n/a n/a n/a n/a n/a n/a n/a n/a Electric Community Investment Fee n/a n/a n/a Ida n/a n/a n/a $2,037 n/a $900 n/a School District Impact Fees da n/a n/a n/a n/a n/a n/a da n/a n/a da Service Expansion n/a da n/a n/a n/a da da n/a n/a n/a da Capital Expansion/Community Investment Fees n/a da n/a da n/a da $4,309 $2,638 $632 $4,458 n/a Street Oversizing(Imasportation Capital Expansion Fees n/a n/a n/a n/a n/a n/a $28,160 $7,607 $17,981 $20,767 n/a Parkland Fees/Parks Development Fees da da n/a n/a n/a n/a n/a n/a n/a n/a da Public Arts Fee n/a da n/a n/a n/a n/a da n/a n/a n/a ads Land Dedication Fees da n/a da ads n/a n/a da n/a n/a n/a da Y Water Plant Investment Fees $10,219 $10,219 $10,219 $10,219 $13,632 $14,877 $20,590 $19,990 $42,440 $23,360 $40,135 Wastewater Plat Investment Fees $3,292 $3,292 $3,292 $3,292 $5,317 $7,792 $16,361 $8,770 $21,120 $13,900 $9,645 Stormwaler/Flood Plant Investment Fees $22,343 $22,343 $22,343 $22,343 $37,812 da $2,039 $2,211 n/a $2,836 da y Irrigation PIF $12,508 $12,508 $12,508 $12,508 $17,357 $14,489 $6,970 $11,950 $0 $5,890 $1,049 y Water Rights Fee da da da n/a n/a n/a $25,350 $22,084 da $47,895 n/a L?1 Permits, Taps, Inspections and Meter Fees $3,900 $3,900 $3,900 $3,900 $3,900 $1,269 $1,058 $803 n/a $833 $791 / Total $92,032 $90,995 $96,088 $111,022 $156,170 $52,807 $116,217 $92,795 $98,091 $136,003 $64,571 (aW~Jle, Sales and Use T. Rates (City &Comty 4.060% 4.150% 3.800% 3.925% 4.025% 3.800% 3.850% y H r~+ H v ~ ATTACHMENT E HET Revenue Projections for Each Option Total Option 1 - Phased Tischer Estimated 5 Rates 2010 2011 2012 2013 2014 Year Revenue Retail/Restaurant $2.50 $4.00 $5.50 $6.65 $6.65 Office $2.50 $4.00 $5.50 $8.00 $9.10 Light Industrial $2.50 $3.57 $3.57 $3.57 $3.57 Business Park $2.50 $3.16 $3.16 $3.16 $3.16 Hospital $2.50 $3.38 $3.38 $3.38 $3.38 School $2.14 $2.14 $2.14 $2.14 $2.14 Mini-Warehouse $0.09 $0.09 $0.09 $0.09 $0.09 Warehouse $2.50 $2.97 $2.97 $2.97 $2.97 Projections 2010 2011 2012 2013 2014 Retail/Restaurant $45,000.00 $72,000.00 $99,000.00 $119,700.00 $119,700.00 Office $180,000.00 $288,000.00 $396,000.00 $576,000.00 $655,200.00 Light Industrial $75,000.00 $107,100.00 $107,100.00 $107,100.00 $107,100.00 Total Projected HET Revenue $300,000.00 $467100.00 $602,100.00 $802,800.00 $882,000.00 $3,054,000.00 Option 2 - Current HET w/o Residential Component Rates 2010 2011 2012 2013 2014 Retail/Restaurant $0.50 $0.51 $0.52 $0.53 $0.55 Office $0.50 $0.51 $0.52 $0.53 $0.55 Light Industrial $0.50 $0.51 $0.52 $0.53 $0.55 Business Park $0.50 $0.51 $0.52 $0.53 $0.55 Hospital $0.50 $0.51 $0.52 $0.53 $0.55 School $0.50 $0.51 $0.52 $0.53 $0.55 Mini-Warehouse $0.50 $0.51 $0.52 $0.53 $0.55 Warehouse $0.50 $0.51 $0.52 $0.53 $0.55 Projections 2010 2011 2012 2013 2014 Retail/Restaurant $8,934.66 $9,113.35 $9,359.41 $9,612.12 $9,871.65 Office $35,738.64 $36,453.41 $37,437.65 $38,448.47 $39,486.58 Light Industrial $14,891.10 $15,188.92 $15,599.02 $16,020.20 $16,452.74 Total Projected HET Revenue $59,564.40 $60,755.691 $62,396.09 $64,080.79 $65,810.97 $312,607.93 Option 3 - Phased Flat Rate Ratea 2010 2011 2012 2013 2014 Retail/Restaurant $1.00 $2.00 $3.00 $4.00 $5.00 Office $1.00 $2.00 $3.00 $4.00 $5.00 Light Industrial $1.00 $2.00 $3.00 $4.00 $5.00 Business Park $1.00 $2.00 $3.00 $4.00 $5.00 Hospital $1.00 $2.00 $3.00 $4.00 $5.00 School $1.00 $2.00 $3.00 $4.00 $5.00 Mini-Warehouse $1.00 $2.00 $3.00 $4.00 $5.00 Warehouse $1.00 $2.00 $3.00 $4.00 $5.00 Projections 2010 2011 2012 2013 2014 Retail/Restaurant $18,000.00 $36,000.00 $54,000.00 $72,000.00 $90,000.00 Office $72,000.00 $144,000.00 $216,000.00 $288,000.00 $360,000.00 Light Industrial $30,000.00 $60,000.00 $90,000.00 $120,000.00 $150,000.00 Total Projected HET Revenue $120,000.00 $240,000.00 $360,000.00 $480,000.001 $600,000.00 $1,800,000.00 AGENDA ITEM # PAGE 120 ATTACHMENT E Potential Number of Affordable Units with Projected HET Revenue Average Per Unit Housing Subsidy: HET Average Annual Revenue Projections - Non Residential $45,000 $75,000 $18,000 $10,000 120,000 Sq. FV Projected Mobile Per Square Foot Annual Home- Shelter Home Amount Revenue ownership Rental Beds Spaces $0.49 $58,800.00 1.3 0.8 3.3 5.9 $0.55 $66,000.00 1.5 0.9 3.7 6.6 $1.00 $120,000.00 2.7 1.6 6.7 12 $2.00 $240,000.00 5.3 3.2 13.3 24 $2.50 $300,000.00 6.7 4 16.7 30 $3.00 $360,000.00 8 4.8 20 36 $4.00 $480,000.00 10.7 6.4 26.7 48 $5.00 $600,000.00 13.3 8 33.3 60 $6.00 $720,000:00 16 9.6 40 72 $7.00 $840,000.00 18.7 11.2 46.7 84 $8.00 $960,000.00 21.3 12.8 53.3 96 $9.00 $1,080,000.00 24 14.4 60 108 AGENDA ITEM # ~Se PAGE 121 ATTACHMENT F Housing and Income Profile Low Income Very Low Income and Middle Income Households in the City of Boulder, 2008 Income Groups: Very low income (50% of AMI) residents earn up to $39,150 for a family of three. Approximately 13,500 of Boulder's households are in this income range. Total household wage is up to $18 an hour. Low to Moderate incomes (60% to 80.7% of AMI) residents earn up to $63,200 for a family of three. Approximately 6,000 of Boulder's households are in this income range Total household wage is up to $25 an hour. Middle income (81% to 120% of AMI) residents earn up to $94,000 for a family of three. Approximately 9,900 of boulder households are in this income range. Total household wage is up to $43 an hour. Household Profile and Demographics: Very Low Income households include the following groups: seniors; people with disabilities; households on assistance; the chronically mentally ill; low wage earners and the homeless. Many of these households rely on public assistance to help pay for shelter. Employed persons in the Very Low to Low Income households are often referred to as the working poor. Affordable rents for this target group range from $600 for a one person household to $1,100 to a three person household. Market rental units that fall into this range are often occupied by student households. Home ownership is out of reach for most of these households. Households in the upper end of this income range might be able to purchase an attached housing unit; a very small percentage of the for-sale housing in Boulder would be affordable to this group. According to the Multiple Listing Service (MLS) in February 2009 there was one two bedroom property, 20 years old or less with a purchase price of up to$143,000. Households in the Middle Income range have some housing opportunities in Boulder. According to the MLS in 2009 there were fifteen two bedroom attached properties, 20 years old or less, with a. purchase price of up to $269,700. The purchase of a single-family detached home is out of reach for this income group. Approximately 5% of the population of Boulder is disabled. Over 60% of disabled adults are in the workforce and may not be considered low income, but they still may have special housing needs. There are 51 housing units for the chronically mentally ill in the city. It is estimated that there at least 150 chronically mentally ill persons at risk of becoming homeless. AGENDA ITEM #,-J75 PAGE 122 ATTACHMENTF Approximately 1,000 unduplicated people were served by the city's homeless shelter in 2008. The 2007 Point In Time count (over a period of two weeks volunteers canvass the community homeless) found 1,400 homeless people in Boulder County. There are 197 shelter beds in the city. Twelve percent of Boulder's population are seniors. There are 2,100 beds dedicated for seniors, including assisted and independent living, nursing homes, and Housing Authority units. The existing supply of housing for very low and low income households through current programs is not adequate to provide for the demand in Boulder. There is some uncertainty around federal programs, such as Section 8 certificates and vouchers as private owners are exiting from the program, thus reducing the number of potentially affordable units available. Following is a list of programs which are funded with the City's Housing Fund; Community Development Block Grant (CDBG), the Community Housing Assistance Program (CHAP) and the HOME program. Boulder Housing Partners (BHP) directs much of its effort to assuring that at least 1,000 rental housing units remain affordable to households whose incomes range from 30% AMI up to 80% AMI. Boulder Housing Partner's wait list is currently at 492. The number of families and individuals applying for the program has increased every year since the program's inception. BHP receives CHAP and CDBG funds for its programs. Of the total number of units BHP manages, 25 units are accessible. Thistle Community Housing owns and manages 276 permanently affordable rental units subsidized through funds from CHAP, CDBG, and HOME programs. Thistle also has 169 homeowner units (including 120 Mapleton Mobile homes) in its Community Land Trust which was subsidized through funds from CHAP and HOME programs. Of that number Thistle manages 45 accessible units. Mobile Home Rehabilitation. The Mobile Home Assistance Program provides grants of up to $7,500 to very low and low income mobile home owners to correct life and housing code safety problems, increasing energy efficiency and help extend the useful life of the home. Approximately 191 homes have been rehabilitated since the inception of the program. The program is funded with CDBG program funds. 2. Center for People with Disabilities Removal of Architectural Barriers Program. CDBG funds are allocated to make homes occupied by persons with mobility impairments accessible. Funds are used to widen doors, lower counter tops and install roll-in showers. Mental Health Center of Boulder County. CDBG funds are allocated for the purchase of group homes for the chronically mentally ill. Boulder Shelter for the Homeless, Boulder County Safehouse, Attention Inc., WomenSource and Emergency Family Assistance Association (EFFA). Each of these agencies provides emergency shelter and services to the homeless. Operating support is provided to the agencies through the Department's Human Services AGENDA ITEM # Qe PAGE 123 ATTACHMENTF Fund; CDBG funds are allocated to address the capital needs of each facility. Funding from these sources will be critical to maintaining the existing supply of affordable and accessible units in the city. Affordable Housing Programs The city began using federal funds to subsidize affordable housing in 1979. In 1991, the City of Boulder's Division of Housing began using local and federal funds to subsidize permanently affordable housing. The city has been able to increase the amount of such housing as well as to target very low income households. Permanently affordable units are funded by the City of Boulder's Housing Fund Program. Very Low Income Most of the housing available to the very low income group is subsidized, primarily by the federal government. Federally Subsidized Section 8 Program. This is a federal rental assistance program for low income households living in privately owned market rate rental units. If the rent is within HUD's definition of Fair Market Rent (FMR), the certificate and voucher program pays the difference between 30 percent of a tow income household's gross income and the rent. In Boulder there are approximately 606 certificate and voucher holders living in private market units. Low Income Programs which are targeted to low income working households include the following: Permanently affordable low to moderate income units. In 1991, the city began using local and federal funds to subsidize permanently affordable housing. Through funding and Inclusionary zoning, the city has been able to provide approximately 600 units for low to moderate income households. H2O (House to Home). A deferred loan program that requires no payments for 15 years or until the owner decides to sell or refinance the home. The loan is then due in its entirety plus the prorated percentage of the increase in value of the home. The maximum loan amount is $50,000. There is no re-sale restriction, so the home may be sold at market-rate to any buyer. Rehabilitation Loan Program. The Rehabilitation Loan Program provides low interest loans of up to $20,000 to single family homeowners to correct safety and housing code problems and generally enable the homeowner to remain in their home under decent, safe and sanitary conditions. This program has been especially helpful to seniors and single parents on fixed incomes and has often meant the difference between allowing them to remain in their home or being placed in some form of public or institutionalized housing. The program is designed to act as a revolving loan fund, so that as loans are repaid, those proceeds are used for new loans. First Home Grant. The city grants from 20 - 30% of the purchase price (up to $90,000) thorough the First Home Program, to low and moderate income households in order to buy down the price of a home so that the household can qualify for a mortgage. In exchange for this assistance, a covenant is recorded on the property to insure that the home remains permanently affordable to future buyers. What this means to the recipient is that appreciation of the home is capped at approximately 3.5% per year. AGENDA ITEM # 50 PAGE 124 ATTACHMENT F Private Activity Bonds. The City's 2003 allocation of private activity bonds was used to rehabilitate 150 apartments at San Juan Del Centro. In partnership with the Colorado Housing Finance Authority, the city was able to maintain the property as a Project Based Section 8 community, which requires families pay no more than 30% of their income for housing and utilities. The property will remain affordable for a 40 year term. Reduced Rent Program. Boulder Housing Partners (BHP) operates a workforce Housing program, targeting low and moderate income households. This program includes one, two and three bedroom apartments at rents below market rate. These discounts typically result in a savings of $100-400 per month for residents. The program is designed to help families whose income may be too high to qualify for federally assisted programs, but who would benefit from a reduced rent. Boulder Housing Partners currently has 202 workforce units. Residential Growth Management (RGMS). Approximately 103 permanently affordable units have been created through RGMS. The RGMS increases the amount of permanently affordable housing provided through new construction. It has produced mixed income projects where previously there would have been entirely market rate units. Middle Income Permanently affordable middle income units. Middle income units are produced by developers who are developing land under an annexation agreement. The city currently has 64 housing units available for middle income households. AGENDA ITEM # PAGE 125 ATTACHMENT G "Permanently Affordable" and "Likely to Remain Affordable" In 2000, City Council accepted the recommendations of the Affordable Housing Task Force as a blueprint for the city's policies and funding allocations towards the development of affordable housing. These recommendations included a 10-year time frame for reaching the Boulder Valley Comprehensive Plan (BVCP) goal to have at least 10% of the total housing stock as permanently affordable. In addition, priorities were set for income targets, proportions of affordable housing units available for rental or homeownership and proportions of affordable housing units acquired through new construction and acquisition. These priorities were set for the remaining units needed to reach the 10% goal. Most of the 1,750 affordable housing units acquired prior to the year 2000 were not permanently affordable, that is, secured by a covenant with rent limits or resale price restrictions. Of the 1,750 affordable units in existence in the year 2000, 520 (including 122 shelter or group home beds) were secured by covenant, the remainder, 1,230, consisted of public housing units or units owned by other community agencies deemed likely to remain affordable. While these "likely to remain affordable" units make an important contribution to the city's housing stock, there is the possibility that they may not remain affordable in the future. They are not secured by a covenant which means that the community agencies that own them could raise the rents or sell them in the future. Occasionally, the number of affordable housing units may decline due to the loss of some of these units. The term "permanently affordable" is used when the housing unit is secured by a covenant. The term "likely to remain affordable" is used when there is no covenant and there is a possibility that they may not remain affordable in the future. Since 2000, the city has increased the number of permanently affordable units available in the community by more than 1,200 units. This exceeds the addition of approximately 1,100 units because some formerly "likely to remain affordable" units now have covenant restrictions as a result of receiving funding from the city. The city's policy is to require a permanent affordability covenant for any funded units. As of 2009, the city has 1,753 permanently affordable units secured by covenant. AGENDA ITEM # 64y~Z PAGE 126