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  CITY COUNCIL AGENDA ITEM NO. 19

Meeting Date: March 12, 2002

Subject/Title: Amendment of KB Home California Orchard Affordable Housing Guidelines

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

Approved by: John Stevenson, City Manager


RECOMMENDATION

Provide direction to staff on whether to amend the affordable housing guidelines for KB Home, California Orchard Tract 8199 and specify what changes need to be made.

PREVIOUS ACTION

In June 2001, the Council approved the affordable housing guidelines for KB Homes California Orchard subdivision (TSM 8199). The adopted guidelines are attached. On February 12, 2002, the Council discussed two aspects of the guidelines: 1) the length of the required affordability of each affordable home and 2) the minimum household size. Council continued the matter to March 12, 2002 and directed staff to research the length of the affordability controls.

BACKGROUND

The Mayor originally requested this item be brought to Council to address the concern that the three-person minimum household size requirement described in Guideline 1 is creating a barrier for otherwise eligible households to participate in the California Orchard affordable housing program. The concern expressed is that low-income single persons or single parents with one child are currently ineligible to participate in the program. At the Mayor’s request, the guidelines were brought back to the Council to eliminate the minimum household size requirement and allow one- and two-person low income households to participate in the affordable housing program.

At the February 12, 2002 meeting, Councilman Petrovich expressed concern about the required length of the affordability controls and wanted staff to research this matter. Specifically, he wanted to review the required 30-year affordability controls period. During the same meeting, several Council members were concerned about allowing one-person households to be eligible to purchase the affordable units due to the limited number of opportunities and the desire to help low-income households with children.

DISCUSSION

Minimum Household Size

Staff and KB Homes have been contacted by interested prospective buyers with household sizes of less than three persons. Currently, six out of the twenty affordable units have been purchased. The proposed change to eliminate or decrease the minimum household size would expand the number of low-income households who could be eligible to apply for the remaining fourteen 
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affordable homes. All affordable units have three bedrooms. The idea is to have these units available to low income people, many of whom may be young, single people, just starting out. 

Length of Affordability Controls

The 30 year affordability control requirement was originally set forth in the development agreement between the City and KB Home which included the provision for a density bonus of 145 units. Under State law (State Government Section 65915 et seq.), when a city provides a density bonus in exchange for affordable housing, the controls are required to be set in place for a minimum of 30 years or longer. Affordability controls provide the mechanism to ensure long-term affordability of a portion the City’s housing stock. In the case of affordable ownership opportunities, the control period is intended to benefit as many low-income households as possible and prevent one household from reaping a large windfall for a home that has been subsidized. Low-income homebuyers still benefit from appreciation of their homes because the maximum income limits for low-income households rise over time. Thus, a future low-income household will have a higher income and will be able to afford a more expensive sales price than the initial low-income homebuyer.

Staff contacted approximately 15 cities throughout the State that are operating affordable housing ownership programs. All cities require a minimum housing affordability length of 30 years except for four cities. Two of these cities require a 55-year term of affordability and two cities require controls in perpetuity that limit future appreciation. Contacts at these cities cited the long-term need for affordable units in their community as the reason for the length of affordability controls. Contacts were also asked about whether length of the controls hindered the ability to get financing from lenders. No cities mentioned that this was a problem in their community because appreciation is allowed to occur with each resale transaction as is the case with the KB Home California Orchard project and current guidelines. 

Staff will return with modified affordable housing guidelines once the Council specifies the necessary changes. 

FISCAL IMPACT

None

Attachments:

1. Vicinity Map
2. Adopted Affordable Housing Guidelines

Attachment 2

ADOPTED 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.

Affordable Housing Guidelines
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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 unless lending requirements require a shorter resale restriction period. Under no circumstances shall resale restrictions be in place for less than twenty (20) years. Any resale restrictions regardless of the term shall be 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.