MEETING DATE:
JULY 23, 2024
SUBJECT:
Title
ORDINANCE NO. 2024-1550 - ORDINANCE AMENDING SECTIONS 20.310.020, 20.310.030, 20.310.040, 20.310.050, 20.310.060, and 20.310.080 OF TITLE 20 OF THE SAN MARCOS MUNICIPAL CODE RELATIVE TO INCLUSIONARY HOUSING REQUIREMENTS AND ASSOCIATED DENSITY BONUS CALCULATIONS FOR RESIDENTIAL RENTAL PROJECTS AND INCLUSIONARY HOUSING AGREEMENTS
Body
Recommendation
Recommendation
INTRODUCE (First Reading) of an Ordinance amending the Section 20.310.020, 20.310.030, 20.310.040, 20.310.050, 20.310.060, and 20.310.080 of the San Marcos Municipal Code and finding that said amendments are categorically exempt from CEQA review, in the following order: a) Categorical Exemption (EX24-007) and b) Ordinance (TA24-0002) amending Title 20, Chapter 20.310 of the San Marcos Municipal Code.
Body
Board or Commission Action
On June 17, 2024, the Planning Commission voted 6-0-3 recommending approval of the proposed project to the City Council. The Planning Commission Meeting Minutes are provided as Attachment A.
Relevant Council Strategic Theme
Quality of Life
Planning for the Future
Good Governance
Executive Summary
AB 1505 went into effect on January 1, 2018, restoring local agency authority to adopt or amend an ordinance to require developers to provide affordable housing as a condition of constructing residential rental housing units. The proposed Resolution recommends that the City Council amend certain sections of the City’s existing inclusionary housing ordinance (SMMC Chapter 20.310) to delete the exemption for the construction of new residential rental projects and density bonus projects from Section 20.310.030, clarify that the inclusionary housing ordinance applies to density bonus projects in Section 20.310.020, and amend the requirements for residential rental units under Sections 20.310.040, 20.310.050, and 20.310.060.
Additional recommended changes to SMMC Chapter 20.310 are to clarify that the City does not intend to require that more than 15 percent of rental units be reserved for target households (low-, very low-, extremely low- or moderate-income households), unless a higher percentage is requested by the developer and identifying the income levels for new inclusionary rental units to align with the deficit identified in the City’s most recent Annual Housing Element Report.
The proposed Resolution also recommends that the City Council amend Section 20.310.080 to update requirements for inclusionary housing agreements consistent with state law.
Discussion
The inclusionary housing provisions of the SMMC establish “requirements for the inclusion of affordable housing units for low-, very-low-, extremely-low-, and moderate-income households in residential projects that require development plans.” SMMC section 20.310.030 provides exemptions for certain residential development projects, including, but not limited to, the construction of new residential rental projects, unless the developer has otherwise agreed by contract with the City to build affordable housing in consideration for a direct financial contribution or any other form of local assistance from the City.
The City adopted the exemption for the construction of new residential rental projects from inclusionary housing obligations consistent with the Court of Appeal’s 2009 ruling in the Palmer/Sixth Street Properties LP v. City of Los Angeles case. In that case, the court held that a City of Los Angeles ordinance requiring market rate residential rental developers to construct affordable housing units subject to rent restrictions for at least 30 years or pay an in-lieu fee towards building affordable housing elsewhere, violated the Costa-Hawkins Rental Housing Act. The court noted that requiring a rental housing project to provide affordable housing units at regulated rents, unless assistance is needed from the agency, is “clearly hostile” to a residential landlord’s rights to set rental rates at the start of a tenancy.
To comply with the Palmer decision, the City exempted the construction of new residential rental projects from the City’s inclusionary housing ordinance in SMMC Section 20.310.030(F), unless the developer received financial assistance from the City.
In 2017, the California Legislature adopted Assembly Bill (AB) 1505, effective January 1, 2018, to allow local agencies to impose affordable housing requirements on the development of residential rental units. The City intended to include these requirements with the General Plan update; however, as that process was initiated but delayed, and residential development projects continue to be processed, staff determined it was preferable to seek these amendments on a standalone basis.
Because the City is now permitted by law to require all residential developers to comply with the City’s inclusionary housing requirements, it is recommended that the City Council amend the inclusionary housing provisions of the SMMC to remove the exemption for residential rental projects. In compliance with AB 1505, which was codified as Government Code 65850 et seq., the proposed Ordinance recommends that the City Council delete the exemptions for the construction of new residential rental projects and density bonus projects from SMMC Section 20.310.030, clarify that the inclusionary housing ordinance applies to density bonus projects in SMMC Section 20.310.020, and amend the requirements for rental units under SMMC Section 20.310.040, 20.310.050, and 20.310.060.
The City has a compelling interest in regulating inclusionary housing requirements and updating the existing ordinance consistent with State laws, to continue protecting and preserving the health, safety and welfare of the City’s residents and businesses, and promoting the creation, maintenance, and preservation of affordable housing. The proposed Resolution recommends that the City Council delete the exemption for the construction of new residential rental projects so that SMMC Chapter 20.310 will apply to all residential projects including, but not limited to, the construction of new residential rental projects.
Under Government Code 65850, a local agency is only able to impose affordable housing requirements on residential rental projects if alternative means of compliance are provided. The existing SMMC Chapter 20.310 provides alternative means of compliance for residential developers, including the dedication of land or payment of a fee in lieu of reserving affordable units for target households.
The proposed Ordinance also recommends that the City Council clarify language within SMMC section 20.310.040 to require residential rental projects to reserve only 15 percent of units for target households as a condition of development, unless a higher percentage has been requested by the developer. The City currently requires rental projects of more than six units to reserve at least 15 percent of the units for target households. Because Government Code section 65850 grants the State Department of Housing and Community Development (HCD) the authority to review a local ordinance adopted or amended after September 15, 2017 if the ordinance requires, as a condition of the development of residential rental units, that more than 15 percent of the total number of units rented in a development be affordable to, and occupied by, target households, staff suggests clarifying that the requirement is limited to 15 percent.
It is recommended that the current requirement to reserve “at least 15 percent” of residential rental units for target households be amended to require “only 15 percent” of residential rental units be reserved for target households to avoid the time, procedures, and costs associated with a potential HCD review, including, but not limited to, the possibility of being required to conduct an economic feasibility study. The developer may still request that a higher percentage be reserved.
The proposed Ordinance further recommends that City Council modify SMMC Section 20.310.050 and 20.310.060 to clarify that all residential rental projects regardless of size are able to pay a fee in lieu of reserving units for target households, and that inclusionary units for new rental residential projects can be located on-site or at another site within the City.
Finally, the proposed Resolution recommends that City Council update requirements under SMMC section 20.310.080 for the inclusionary housing agreement, including allowing displaced tenants from another City affordable housing project to be placed on a waiting list for a new project, to provide guidelines for tenant relocation, and to provide the City with a copy of the annual lease agreement for affected units to facilitate monitoring for compliance with inclusionary housing requirements.
Housing In-Lieu Fee Study
As described above, under the City’s current inclusionary housing ordinance, the City may allow for-sale residential developments to pay an in-lieu fee to meet the requirements of the Ordinance. However, the current SMMC provisions state that an exemption may be available for certain residential development projects, which has prompted the City to amend the inclusionary housing ordinance to remove the exemption for the construction of new residential rental development projects so that SMMC Chapter 20.310 applies to all residential projects. The proposed SMMC revisions led to the review of the City's In-Lieu Fee calculation, to align with industry standards and regional best-practices.
The City engaged Keyser Marston Associates, Inc. (KMA) to prepare an Inclusionary Housing In-Lieu Fee Study (Study) to evaluate the potential of updating the inclusionary housing in-lieu fee for the City. As part of this effort, KMA reviewed the current in-lieu fee and impact fee levels charged in local jurisdictions and evaluated a range of approaches to determine appropriate housing in-lieu fee levels for the City. Staff will bring forward its recommendations for Council consideration on a per market-rate unit fee or a per square foot in-lieu fee at a future meeting. If adopted by City Council, the updated fee would then be applied to both for-sale and rental residential developments.
Environmental Review
The proposed Ordinance has been reviewed by the Development Services Department for compliance with the California Environmental Quality Act (CEQA). Staff recommends a finding of no physical effect and/or an exemption under CEQA, as the proposed Text Amendment is not a project within the meaning of Section 15378 of the CEQA Guidelines because there is no potential for it to result in a physical change in the environment, either directly or indirectly. Additionally, even if the proposed Text Amendment was considered a project subject to CEQA, it would be exempt pursuant to Section 15061(b)(3) of the CEQA Guidelines because it can be seen with certainty that there is no possibility it would have a significant effect on the environment.
Fiscal Impact
No direct fiscal impact is anticipated from adoption of this ordinance.
Attachment(s)
Ordinance
Exhibit A - Ordinance Amending SMMC Title 20, Chapter 20.310 - Clean Version
Exhibit B - Ordinance Amending SMMC Title 20, Chapter 20.310 - Redlined Version
Attachment A - Planning Commission Minutes
Prepared by: Punam Prahalad, Deputy City Attorney
Submitted by: Joseph Farace, Planning Division Director
Reviewed by: Sylvia Daniels, Housing and Neighborhood Services Manager
Approved by: Michelle Bender, City Manager