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CITY COUNCIL AGENDA ITEM NO. 39

Meeting Date: June 12, 2001

Subject/Title: Affordable Housing Guidelines—KB Homes, California Orchard, Tract 8199

Submitted by: Mitch Oshinsky, Community Development Director
Winston Rhodes, Senior Planner

Approved by: Jon Elam, City Manager

RECOMMENDATION

The City Council Housing Sub-Committee and staff recommend adoption of the attached resolution relating to affordable housing guidelines for KB Homes, California Orchard Tract 8199.

PREVIOUS ACTION

The General Plan Housing Element adopted in November 1998 required that 10% of the homes on KB Homes California Orchard site (see Attachment 1) be affordable to lower income households to partially address the over-concentration of affordable housing in the eastern portion of Brentwood and disperse housing for all income groups throughout the City. During the preparation of the Housing Element Update, the Housing Advisory Committee frequently cited interspersing affordable units amongst market rate units to achieve a desirable housing policy outcome. Policies 3.1 and 3.4 of the Housing Element reflect this housing policy approach.

In May 1999, the Council approved a Development Agreement between the City and KB Homes, which, in exchange for a very large (145 dwelling unit) density bonus included a requirement that at least 10% of the 196 homes within the subdivision (20 homes) be offered at sales prices affordable to low income households (defined annually by the State Department of Housing and Community Development as households earning between 51% and 80% of median income for Contra Costa County adjusted for household size). The inclusionary units are required to be dispersed throughout the development and have an exterior appearance substantially similar to the market rate units. A declaration of these housing restrictions are also required to be recorded against the affordable housing units which will provide for re-sale restrictions as allowed, or required by law, necessary to provide long term affordable housing ownership opportunities within the City. 

On May 22, 2001 the Council decided to continue this item to provide additional time to review this matter.

BACKGROUND

As this is the first approved single family project with required affordable housing, City staff and KB Homes have met several times and exchanged information about the implementation 
TSM 8199 Affordable Housing Guidelines Council Report
Page 2 of 3

of the Development Agreement. Issues discussed have included the location of the affordable homes within the subdivision, the number of affordable model types available, the affordable 
homes sales price, the timeframe for affordable home price controls, and the eligibility criteria for purchase of the affordable homes.

Recently KB Homes at the request of Councilman Petrovich suggested that an in lieu fee be accepted by the City rather than requiring construction of the affordable homes (see Attachment 2). This action would require a Council amendment to the Development Agreement and amendment to the General Plan Housing Element. This issue was taken to the City Council Housing Sub-Committee (comprised of Mayor McPoland and Councilman Hill) for discussion on May 1, 2001. The Housing Sub-Committee has recommended that the affordable homes be constructed as called for in the Development Agreement.

Subsequent to the preparation of the May 22, 2001 staff report regarding this item, it was brought to staff’s attention that a decision took place on the request (described in Attachment 2 of the staff report) made by KB Homes to Mayor McPoland and Councilman Petrovich in late March 2001. On May 1, 2001 the Housing Sub-Committee comprised of Mayor McPoland and Councilman Hill discussed the same request and reached a different decision on this matter.

DISCUSSION

Provision of Affordable Housing Units 

The existing Development Agreement formalized a policy direction within the Housing Element to encourage mixed income neighborhoods, disburse affordable housing amongst market rate units and include affordable housing units on the California Orchard site. In addition, K B homes offered to provide inclusionary housing and cited much expertise with building it.

An in lieu fee, no matter what the amount, would not necessarily produce any housing, or achieve the specific policy objectives identified in the Housing Element for this project site. Currently, affordable single family units are in short supply and are necessary to attract skilled low-income workers to Brentwood (e.g. entry-level teachers and paramedics).

Affordable Housing In lieu Fee

Payment of an in lieu fee is commonly an option under inclusionary housing programs. The in lieu fee is usually utilized for smaller projects (less than 10 total units) which have narrower profit margins to subsidize below market rate units with profits from the market rate units. The amount of the fee can be established based on a variety of methods and often includes dollars to administer a City affordable housing development fund. Three of the most common methods are the 1) differential cost method, 2) full development cost method, and 3) the partial development cost method. 

v Differential Cost Method - this method sets a in lieu fee based on the difference between the sales price of a market rate unit and a subsidized affordable unit.

TSM 8199 Affordable Housing Guidelines Council Report
Page 3 of 3

v Full Development Cost Method – this method sets the fee based upon the cost to purchase land for the affordable units, construct the units, and pay for development fees.

v Partial Development Cost Method – this method sets the fee based upon the cost to purchase the land, a small portion of the construction cost, the amount of applicable development fees

Affordable Housing Guidelines

City staff, with extensive input from KB Homes, has prepared the Affordable Housing Guidelines for California Orchard, Tract 8199 (see Exhibit A of Attachment 3). These guidelines provide the mechanism necessary to implement the affordable housing requirements of the Development Agreement. The guidelines define the household eligibility requirements to facilitate homeownership opportunities for low-income working families. The guidelines include marketing provisions to encourage ownership by eligible local school district and fire district personnel. 

The guidelines also establish an initial sales price for the affordable homes. The sales price listed in the guidelines assumes below market interest rates, a 10 percent down payment, and limited personal debt beyond the anticipated mortgage. Staff has concerns that the terms may make it difficult to find eligible buyers. Consequently, the guidelines include a provision for additional review and modification to the guidelines by the City if qualified low income households cannot be found. The Council may wish to explore deferring or subsidizing certain development fees in order to reduce the sales price of affordable units if available interest rates rise during the project’s build-out period.



Attachments:

1. Vicinity Map
2. KB Homes In Lieu Fee Proposal
3. Resolution
4. Affordable Housing Fact Sheet

Attachment 3

RESOLUTION NO.


A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD APPROVING THE AFFORDABLE HOUSING GUIDELINES FOR KB HOMES CALIFORNIA ORCHARD SUBDIVISION (TSM 8199)

WHEREAS, Policies 3.1 and 3.4 of the General Plan Housing Element call for the integration of lower income households within residential areas of the City and to proactively encourage the development of affordable housing; and

WHEREAS, the General Plan Housing Element specifically identified the KB Homes California Orchard project site for the provision of lower income housing and specifies that in order to exceed the mid-range allowable density, a minimum of ten percent of the total dwelling units on the site be affordable to lower income households; and 

WHEREAS, on May 11, 1999, by Resolution No. 99-120, the City Council of the City of Brentwood approved the Tentative Subdivision Map 8199 for the subdivision of approximately 87.34 acres into 196 single family residential lots and four future office parcels, with conditions; and

WHEREAS, on May 25, 1999 the City of Brentwood, Frank Sciortino and the Estate of Theodore Sciortino and Kaufman and Broad of Northern California, Inc. entered into a Development Agreement which included provisions: requiring at least ten percent of the units in the residential project (20 units) be offered at sales prices affordable to low income households, requiring the affordable housing units be dispersed throughout the residential project, and requiring the affordable units to be constructed so as to have an exterior appearance substantially similar to the other housing units in the residential project; 

WHEREAS, City staff has reviewed the Development Agreement and prepared guidelines necessary to implement the affordable housing provisions of the Development Agreement.

NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Brentwood does hereby approve the Affordable Housing Guidelines attached as Exhibit A to implement affordable housing provisions of the Development Agreement entered into on May 25, 1999.

b by the City Council of the City of Brentwood at a regular meeting on the 12th day of June 2001 by the following vote:

AYES: 
NOES: 
ABSENT: 
________________________________
Michael A. McPoland, Sr. Mayor
ATTEST:


__________________________________
Karen Diaz, CMC
City Clerk


EXHIBIT A

AFFORDABLE HOUSING GUIDELINES



1) In order to qualify, the household size shall be a minimum of three persons.

2) The head of household must be a first-time homebuyer or a single parent with at least two children who has primary or 50% joint custody of the children. For purposes of the guidelines, a first-time homebuyer shall be defined as a head of household who has not owned a home during the last four years, except there shall be no time limitation for the qualified single parent. 

A. Three (3) weeks prior to the release of an affordable unit, the developer shall provide priority application processing to East Diablo Fire Protection District personnel and any individuals employed by a school district operating within Brentwood. This first priority list shall remain valid for a two-year period. 

B. After the three-week period has passed, a second priority list shall be created by the developer for any qualified household currently living or working in Brentwood.

C. After five weeks from the release of an affordable unit, a third priority list shall be created by the developer for any qualified household not included in guideline #2A or #2B. All affordable housing unit marketing literature shall be forwarded for review and approval by the City Attorney prior to distribution.

3) Household expenses devoted to all home mortgage, homeowner insurance, homeowner association payments, mortgage insurance payment, and property tax payments shall not exceed 40% of the household’s gross monthly income and all household debt shall not exceed 41% of the household’s gross monthly income, except that this criteria may be permitted to be varied depending on the household’s respective credit acceptable to participating lenders and the Community Development Director.

4) The City's intent is to provide 20 homes affordable to households earning between 50% and 80% of the Contra Costa County median income. This shall be accomplished by requiring all 20 affordable homes to be priced at a level affordable to persons earning 65% of the Contra Costa County median household income adjusted for household size and based on available mortgage interest rates .

5) KB Home shall instruct potential homebuyers that all Plan 1 homes are restricted to first-time homebuyers and single parents who meet the income and household size criteria.

6) The initial home price shall be based upon a 4-person household and will be adjusted annually based upon the most recent income limit information provided by the State Department of Housing and Community Development and available 30-year fixed mortgage interest rates.

7) No sale shall be made to any relative or employee of KB Homes in the first or second degree of kinship.

8) Thirty (30) – year resale restrictions shall be required to be recorded against the affordable housing units prior to sale, subject to the City Attorney’s approval.

9) The home sale price shall be initially set at $200,000. However, if there is difficulty qualifying eligible buyers, City staff shall return with recommended changes to the affordable housing guidelines for further City Council action.


SINGLE FAMILY OWNER-OCCUPIED  INCLUSIONARY HOUSING PROGRAM SURVEYFACT SHEET

CityContacted Inclusionary HousingStrategy Inclusionary UnitsDeveloped Term of Affordability In Lieu FeeOption Availability
Clayton Requires 10% of units to be affordable low income households either on-site, off-site, or through rehabilitation of existing units 10 units built by developer 25 years Available but discouraged.

Livermore Requires 10% of units to be affordable for low income households. Council approval is needed to utilize the in lieu fee option. Developers do not make this request because the City meters the number of annual building permits and the provision of affordable units is necessary to be competitive for a building permit. 15 –20 units annuallybuilt by developers 30 years Available but strongly discouraged. Fee amount is 10% of the difference between the cost of constructing a market-priced unit and the maximum affordable purchase price up to $10,000 / unit

Palo Alto Requires 10% of units to be provided at prices affordable to low and moderate income households. Requirement may be satisfied through construction of affordable units either on or off-site 144 units from 1974 –1997.Approximately 10 units annually built by developers since 1997. 59 years Available. The amount for projects of more than 10 units is the actual sales price for each market unit multiplied by 5% and multiplied by the total number of “for sale units” in the project.. Fee is due at close of escrow for each market rate home.

Pleasanton Requires 20% of units for very low, low, and /or moderate income households. Affordable housing incentives available include fee waivers/deferrals, design modifications or reduced development standards. 60 units built by developers with 50 more units required to be built by developers 40 years Available $3,023 per unit

San Rafael Requires 10% of units to be affordable to low income households. Will allow off-site provision of affordable units or donation of land for future affordable unit construction if on-site provision is not practical. Density bonuses frequently utilized to encourage development of housing for lower income households. Considering raising the requirement to 20 –25% later this year. Has built 75% of low and moderate income units needed during past 6 years. 40 years Available but highly discouraged. Fee is approximately $100,000 per unit. Include land cost when calculating in lieu fee.

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