PLANNING COMMISSION MEETING DATE:
June 17, 2024
SUBJECT:
Title
CONSIDERATION OF EXISTING LAND USE REGULATION ADDRESSING INCLUSIONARY HOUSING REQUIREMENTS AND ASSOCIATED DENSITY BONUS CALCULATIONS FOR RESIDENTIAL RENTAL PROJECTS AND INCLUSIONARY HOUSING AGREEMENTS
LOCATION/APN:
City-wide
CASE NUMBER:
CATEGORICAL EXEMPTION (EX24-007), TEXT AMENDMENT (TA 24-0002)
Body
Recommendation
Recommend to the City Council APPROVAL of the following in the order set forth below:
1. APPROVE the proposed Resolution PC 24-5401, recommending that the City Council adopt an ordinance amending the City’s inclusionary housing ordinance and Categorical Exemption EX24-007.
Body
Introduction
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.
Discussion
The City’s inclusionary housing ordinance establishes “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.” Section 20.310.030 of the ordinance 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 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 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 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. 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 Planning Commission recommend that the City Council amend the SMMC to remove the exemption for residential rental projects.
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 but as that process was initiated but delayed, the City has decided to seek these amendments on a standalone basis. In compliance with AB 1505, which was codified as Government Code 65850 et seq., the proposed Resolution 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 Resolution also recommends that the City Council clarify other language under 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 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 Resolution 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 municipal code currently provides 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 municipal code and ordinance 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. Council will consider an in-lieu fee of $20,000 to $30,000 per market-rate unit, or between $20 and $30 per square foot of market-rate residential living area. If adopted by City Council, the updated fee would then be applied to both for-sale and rental residential developments.
Environmental Review
The proposed Resolution 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.
Public Comment
The proposed ordinance changes are clarifying existing allowances for when to apply the inclusionary housing requirement consistent with State law; in this case now to rental projects. Outreach will occur with applicable stakeholders to discuss the proposed new in-lieu fees for projects prepared in the KMA Inclusionary Housing In-Lieu Fee Study prior to the study being presented to the City Council.
Attachment(s)
Adopting Resolution:
1. PC RESOLUTION 24-5104: A RESOLUTION OF THE PLANNING COMMISSION OF THE CITY OF SAN MARCOS RECOMMENDING CITY COUNCIL APPROVAL OF AN 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
Exhibit A - Ordinance Amending SMMC Title 20 - Clean Version
Exhibit B - Ordinance Amending SMMC Title 20 - Redlined Version
Prepared by: Punam Prahalad, Deputy City Attorney
Reviewed by: Sylvia Daniels, Housing and Neighborhood Services Manager
Submitted by: Joseph Farace, Planning Division Director