HomeMy WebLinkAbout4ACITY COUNCIL STAFF REPORT
DATE: APRIL 8, 2021 UNFINISHED BUSINESS
SUBJECT: INCLUSIONARY HOUSING PROGRAM
FROM: David H. Ready, Esq., Ph.D., City Manager
BY: Jeffrey S. Ballinger, City Attorney
SUMMARY:
To encourage the development of more affordable housing within the City of Palm
Springs, the City may require housing developers to provide a percentage of their units
at affordable levels, through an inclusionary-housing ordinance.
This agenda item provides the City Council with an opportunity to discuss inclusionary
housing ordinance, so that the City Council can provide direction to City Staff and the
City Attorney with regard to any such program.
RECOMMENDATION:
1. Discuss inclusionary housing program and provide direction to City Staff and City
Attorney.
STAFF ANALYSIS:
"lnclusionary housing" ordinances adopted by cities and counties require market-rate
housing developments or rental housing developments to include a specified
percentage of homes that are affordable to low-and moderate-income households.
These ordinances often establish a standard requiring that between 5 and 25 percent of
the residential units constructed be available to low-and moderate-income households.1
The primary reason for adopting an inclusionary-housing ordinance is to encourage the
development of more affordable housing throughout a community. State law does not
yet require cities to adopt an inclusionary-housing ordinance, but many cities consider
1 California Land Use Practice (Cal CEB 2019), § 6.2. L\~ l1'BM NO._-.:-..... -
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an inclusionary-housing ordinance to be vital to satisfying their state-required housing
obligations. 2
For over 50 years, State law has required cities like Palm Springs to "adopt a
comprehensive, long-term general plan for the physical development of the ... city."3
Through its general plan and otherwise, the City must "facilitate the improvement and
development of housing to make adequate provision for the housing needs of a//
economic segments of the community,"4 including the City's allocated share of regional
housing needs for "extremely low, very low, low-, and moderate-income households. "5
The State requires cities to "provide incentives, such as density bonuses, to developers
who voluntarily include affordable housing in their proposed development projects. "6
These ·incentives help, but are often not enough to ensure that needed affordable
housing gets built. So, many cities choose to adopt an inclusionary-housing ordinance.
As of 2019, more than 170 cities and counties in California have inclusionary housing
ordinances. 7
There are several options that the City should consider in contemplating an inclusionary
housing ordinance, such as:
• Should the City focus on affordable rental units or for-sale units, or both?
• Should the City prioritize the integration of affordable units into market-rate
projects?
• How much of a project does the City want to require be set aside for affordable
housing?
For-sale units or affordable rental units, or both?
This choice affects some of the City's other options. such as whether it may require
affordable units to be provided on-site.
2 See generally California Building Industry Assn. v. City of San Jose (2015) 61 Cal.4th 435 ("CBIA"),
444 446.
3 Cal. Gov. Code§ 65300, enacted by Stats. 1965, ch. 1880, § 5, pp. 4334, 4336, operative Jan. 1, 1967.
4 Gov. Code § 65580, subd. (d), emphasis added; see also § 65583.
5 Gov. Code§ 65853, subds. (a)(1) & (c)(2).
6 CB/A, supra, at 445, citing Gov. Code§ 65915.
7 California Land Use Practice (Cal CEB 2019), § 6.2; CB/A, supra, at 446.
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For-Rent Considerations
The City may require that a certain percentage of rental units be made affordable. But,
the City may not require the developer to provide the units on-site without including
alternative means of compliance, such as paying an in-lieu fee, making a land donation,
off-site construction, or acquiring and rehabilitating existing affordable units. 8 Thus, the
City must allow the developer to opt-out of providing the affordable rental units on-site.
If the Council wishes to consider a new inclusionary housing requirement, it would be
useful to analyze how the proposed percentage of affordable units required would
dovetail with the qualifying percentages of affordable housing under the density bonus
statute (Government Code § 65915) and what the ramifications would be.
For-Sale Considerations
The City has more flexibility in imposing inclusionary-housing requirements on for-sale
projects. Namely, the City does not have to allow the developer to opt out of providing
affordable units on-site, though the City must allow the developer the option of providing
the on-site affordable units as rental units, even though the rest of the project is for-
sale.9
Whether the affordable units are built on-site merits particular consideration by the
Council.
On-site or Off-site?
Another issue that the City should consider is whether to require the affordable units to
be located on-site (i.e., integrated into the new development) or off-site. This choice
has significant legal implications. If the City requires affordable units to be located on-
site, then the requirement may be imposed as a land-use restriction and price control
under the City's police power. since the mandate to provide a certain percentage of the
units for lower-income households is a restriction on the use of land.10 However, if the
City does not require affordable units to be provided on-site, but instead allows a
developer to pay an in-lieu fee or dedicate land elsewhere, that fee or dedication would
8 Government Code § 65850 and subd. (g).
9 Gov. Code § 65589.8. The statute appears to allow the City to require that rental units be built on-site
when the developer elects to provide affordable rental units instead of affordable for-sale units in a for-
sale project, as it emphasizes that the city may require "constructionD of the units as determined by the
city.
1° CB/A, supra, at 444.
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likely be deemed an "exaction", subject to all the nexus and proportionality requirements
that a city must satisfy to justify a fee and avoid an unconstitutional taking.11 The City
shoulders less of a legal burden in justifying the inclusionary-housing requirement if it
limits itself to requiring affordable units on-site (at least as to for-sale units), instead of
requiring the payment of in-lieu fees -though allowing fees as an alternative (instead
of requiring fees as the only option) can avoid the exaction problem. If there is at least
one, non-exaction alternative available to the developer, the City does not have to
shoulder the higher legal burden of justifying any of the alternatives as an exaction.
In addition to the legal issues just discussed, the choice of on-site versus opt-out
alternatives also has significant policy implications. Federal and state governments
recognize that affordable housing is often better implemented in a community when the
affordable housing is distributed throughout the community. "This integration of
affordable units into market-rate projects creates opportunities for households with
diverse socioeconomic backgrounds to live in the same developments and have access
to the same types of community se_rvices and amenities."12 Allowing for an in-lieu fee or
off-site dedication means less diversity within a particular development and can result in
less diversity in the City too, as fees and off-site alternatives are aggregated and used
to develop affordable housing in only particular parts of the City.
The City can encourage the development of on-site, affordable units by directly
requiring it for for-sale projects and by incentivizing it in all projects, whether for-sale or
for-rent. One of the best ways to incentivize it in a for-rent project is to offer a "discount"
on the percentage of required affordable units, if the units are built on-site.
How much to require?
As noted above, some cities require 25 percent of a new housing project to be
affordable units. Palm Springs may set its own percentage. To incentivize the
production of on-site units integrated into market-rate projects, the City may establish a
lower percentage of units if provided on-site (e.g., 15 percent), and a higher percentage
for off-site alternatives (e.g., 20 or 25 percent).13
In certain situations, the City will have to justify anything more than 15 percent with
specific findings and support those findings with a robust economic feasibility study. If
the City both: (1) requires that more than 15 percent of rental units in a project be made
11 Any such fee would need to be justified by a study, conducted by a consultant, to demonstrate he
nexus and proportionality requirements imposed by caselaw.
12 CB/A, supra, at 462.
13 E.g., CB/A. supra, at 450-51.
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affordable for households with 80 percent or less of the area median income: and (2)
either (a) does not meet at least 75 percent of its regional housing needs allocation for
above-moderate housing, or (b) fails to submit its annual housing element report for two
consecutive years, then the State Department of Housing and Community Development
("HCD") has a right to review the City's inclusionary housing ordinance and require the
City to make justifying findings, supported by a study.
If the Council wishes to explore an inclusionary requirement for rentals in an amount
greater than 15 percent, it might consider also commissioning an economic feasibility
study. This would forestall any surprises in the event of an HCD request for such a
study.
The primary constraints on how much to require are practical ones, based on project
economics and market incentives. The more units that the City requires, the less
appealing the project might be to developers to actually carry out. But, this can be
offset by providing other compensating incentives, particularly under the City's state-
mandated density-bonus ordinance. Any affordable units that the City might require
through its inclusionary-housing ordinance will also count toward the thresholds for
density-bonuses and related incentives and concessions under state law, which can be
significant.14
Therefore, the City Council should discuss these issues and provide direction to City
staff as to whether, and what type of inclusionary housing program to bring back to
Council for further consideration.
ENVIRONMENTAL ASSESSMENT:
This action is not subject to environmental review under the California Environmental
Quality Act, since it constitutes only a study at this point. Should the City Council
ultimately adopt an inclusionary housing ordinance, such ordinance may be subject to
further environmental review.
FISCAL IMPACT:
An inclusionary housing ordinance is not likely to have any direct financial impact on the
City. If the City establishes an in-lieu fee, a study will be necessary to justify the amount
of that fee. Such studies typically run approximately $50,000.
In addition, to the extent the City Council establishes lower development impact fees for
affordable housing, the establishment of an inclusionary housing program will increase
14 Latinos Unidos Del Valle De Napa Y Solano v. County of Napa (2013) 217 Cal.App.4th 1160, 1168-69.
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the number of affordable· units, thereby reducing the amount of development impact
fees that are collected.
SUBMITTED BY:
Director of Development Services
David H. Ready, ESQ.,~
City Manager
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