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Discussion of Affordable HousingDATE: TO: FROM: SUBJECT: MEETING DATE: 9/16/02 COUNCIL STUDY SESSION REPORT September 10, 2002 MAYOR AND TOWN COUNCIL DEBRA J. FIGONE, TOWN MANAGER DISCUSSION OF AFFORDABLE HOUSING RECOMMENDATION: Staff seeks Council direction on the following key affordable housing issues: 1. What direction should staff take in spending the Redevelopment Agency's Affordable Housing Set -Aside Funds 2. Should changes be made to the Town's Below Market Rate (BMP) program to target Low Income persons? What should be the mix of ownership vs. rental units? 3. In order to help get State certification of the Town's Housing Element, should properties on Oka Road be considered for higher density zoning? BACKGROUND: Lack of affordable housing is one of the key regional issues impacting Silicon Valley and the Bay Area. The lack of available land, high construction costs, and difficulty in getting projects approved have resulted in a severe shortage of affordable housing. The high cost of housing forces many to live many miles from where they work, resulting in time consuming commutes. Companies often find it difficult to recruit employees who cannot afford to live in the area, despite good salaries. In turn, some companies relocate outside of the Bay Area because of this housing problem. Housing and transportation will continue to be the two most significant issues that Silicon Valley will have to address in order to continue to maintain its economic vitality and high quality of life. (Continued to Page 2) PREPARED BY: BUD N. LORTZ COMMUNITY DEVELOPMENT DIRECTOR Reviewed by: PSS Assistant Town Manager ('- Attorney Clerk Finance Community Development Revised: 9/12/02 5:06 pm Formatted 5/30/02 PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: DISCUSSION OF AFFORDABLE HOUSING September 12, 2002 DISCUSSION: All cities and towns in the Santa Clara Valley have a State mandated obligation to produce housing and affordable housing. The Town has its "Fair Share" housing obligations adopted in its General Plan Housing Element. Los Gatos, with its redevelopment agency, must spend 20 percent of all tax increment collected on affordable housing. Furthermore, the Town has its Below Market Price (BMP) program that requires new housing developments to set -aside a certain number of units as affordable, or pay an in -lieu fee. Developing affordable housing is challenging in Los Gatos for several reasons. First, the cost of land and construction is very expensive here. Second, there is very little land available for affordable housing or any other type of development. Finally, the approval process is often lengthy and highly scrutinized by residents. Despite the aforementioned obstacles, Los Gatos has been successful in developing a significant number of affordable housing units in the past. Because of the substantial redevelopment agency affordable housing funds the Town is accumulating, as well as BMP in lieu funds, it is important for the Town to develop a strategy to produce additional affordable housing. Affordable housing projects often take several years from inception to completion, consequently, planning needs to begin immediately. The purpose of the Affordable Housing Study Session is to review affordable housing issues with the Council in order that it can provide guidance to staff in terms of the direction to proceed with affordable housing issues as outlined in the ."Recommendation" section of this report.. The Study Session will focus on the following three areas: 1. Redevelopment Agency Affordable Housing Strategy 2. The Town's Below Market Rate (BMP) program 3. The General Plan's Housing Element 1. Redevelopment Agency Affordable Housing Strategy Attachment 1 provides the detailed draft Redevelopment Agency Affordable Housing Strategy that was recently prepared by staff. The Strategy provides information to the Council on: 1) Housing requirements and obligations; 2) Funding sources; 3) Types of affordable housing; 4) Potential sites for affordable housing projects, and: 5) Next steps. The Strategy is intended to provide the Council with necessary background information in order that it can provide direction to staff in terms of the types of affordable housing projects to investigate. The following is a summary of key points from the report: Redevelopment Law requires that all redevelopment agencies spend 20% of their tax increment revenues on affordable housing. The Los Gatos Redevelopment Agency (the "Agency") has approximately $2 million in its PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: DISCUSSION OF AFFORDABLE HOUSING September 12, 2002 20 % housing set -aside fund (the "Housing Fund"). The Town has approximately $1 million in its BMP fund. The Agency needs to begin to spend down its Housing Fund in the next three years to be in compliance with state law. Typically, the Town's funds would be leveraged with other funding obtained by a non-profit housing developer. In addition, the Agency could bond its housing set -aside revenues, however, there are a number of restrictions on use of the funds should the Agency decide to do so. • Redevelopment Housing Fund money can be spent on affordable housing within the Redevelopment Project Area (444 acres in and around the downtown) or elsewhere in the Town upon making certain findings. • The Agency has expended Housing Funds in the past on the 12 unit Los Gatos Creek (Miles Ave.) development and for the Habitat for Humanity house which should be under construction soon. • The Town has a number of choices in terms of how it wishes to spend its Housing Fund. Obtaining the Council direction in the following areas would be helpful: • Rental housing (most common form of affordable housing). • Ownership housing (requires very high subsidies in an expensive area such as Los Gatos). • Senior housing, family housing, special needs housing, public employee housing? • Large family vs small family development. • Rehabilitation vs. new construction (note: rehabilitation does not result in any "net new" housing units). • Size of projects: Large vs. small (greater economies of scale with larger projects)? • Working with non-profit developers(most common method for agencies in constructing or rehabilitating affordable housing). • Pooling of Town's RDA Housing Fund and BMP in -lieu fund. Staff has developed a list of several properties that may have some potential for affordable housing. All will have a variety of issues of deal with, however, they represent what appears to be some of the best possibilities for affordable housing developments: 20 Dittos Lane - 1.5 acres near downtown with a vacant historic building. Owner wishes to develop property and would consider affordable housing. Access to the site is difficult. Riviera Terrace Apartment Complex owned by Sobrato Development. Owner would like to seek density bonus to build additional units - many to be affordable. Los Gatos Mobile Home Park - An application for this 12.5 acre site was submitted by Barry Swenson to construct 60 town homes, with 19 of which being BMP. Existing use has 72 mobile home spaces. Site has a number of issues. • Vacant County Parcel adjacent to courthouse on Capri Ave. - County has indicated an interest in working to develop affordable housing. This would be a good location. County needs to determine that property is surplus. • Oka Rd./Yuki properties - several parcels ranging in size from 1 acre to 6 acres. Good location and adjacent to other higher density housing. Yuki has shown little interest in selling any of the properties. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: DISCUSSION OF AFFORDABLE HOUSING September 12, 2002 • 14561 Winchester Blvd. - north of Courtside Tennis Club. - this 2.3 acre site has two oldef homes on it. A number of issues concern this property. • Town owned property at Lark and Winchester - the property is vacant and about' acre in size and could accommodate a smaller affordable housing project. 15940 Blossom Hill Rd - Blossom Hill Rd. at Old Blossom Hill Rd. - two parcels totaling approximately 1 1 acres. Site could accommodate a moderately sized affordable project. A number of issues to deal with. • Villa Vasona Apartments on W. Parr Ave. - Affordability restrictions expire in November, 2004. Town intervention may be required to assure future affordability of units. • Next steps - Council to provide staff direction in terms of affordable housing opportunities to pursue. 2. Below Market Price Program (BMP) In addition to the redevelopment housing set aside requirements, a primary element of the Town's affordable housing program is the Below Market Price (BMP) Housing Program. Resolution 2000- 131 and Sections 29.10.3020 - 29.10.3040 of the Town Code (Attachments 3 and 4 respectively) set forth the elements of the Town's BMP Program. The objective of the BMP program is to require the construction of dwelling units such that persons and families of moderate income can afford to buy or rent , and that the resale prices and rents are restricted through recordation of deed restrictions such that the BMP unit(s) will remain in the Town's supply of affordable units. Through the BMP program, new residential units are made available to income eligible households for purchase or rent at below market rate prices. The program currently includes housing inventory of 29 owner occupied units; 4 additional units are due to be constructed within the next year. Also included in the program are 31 rental units (29 are part of The Terraces, a senior continuing care retirement facility); 47 additional rental units have been approved, 27 of which are included in the recently approved Los Gatos Gateway project. Attachment 5 provides a list of pending BMP units. Staff is in ate process of drafting policy recommendations regarding the BMP program in three primary areas and would like to obtain direction from Council. These areas are briefly described as follows: 1. Rental versus Owner -Occupied Units Currently, the Town allows the applicant to determine if the BMP units will be for sale or rental. The current and approved distribution of BMP units totals 33 units that are owner occupied (for sale units) and 78 that are rental occupied. The current percent distribution of approved BMP units include 30 % owner occupied and 70% rental. The adopted General Plan policy H.P. 2.2 states that "The Town shall attempt to maintain a range of 30-35 percent of the total town dwelling units as rental. PAGE 5 MAYOR AND TOWN COUNCIL SUBJECT: DISCUSSION OF AFFORDABLE HOUSING September 12, 2002 The staff would like direction from Council regarding the management of the distribution of BMP units. In essence, should staff direct and condition the "for sale" and "rental" distribution of development projects with BMP units and should the BMP program maintain General Plan policy H.P. 2.2.? 2. Household Incomes Under the current BMP program there are two income categories that include moderate income housing (80% - 100% of the County Median Income (($74,250 - $96,000 for a family of four)) and Low Income (80% of County Median Income). Page H-3 of the General Plan states the BMP program should be revised so that new BMP units are only affordable to very low or low income households. Staff is looking for direction from Council regarding the elimination of the moderate income category as an eligible income category for BMP units. Attachment 6 provides the most recent Housing and Urban Development (HUD) income distribution categories that define Low Income based on the County median income. Staff believes that making BMP units available for Low Income persons, versus Moderate Income, will better meet the affordable housing needs of the community. 3. Targeted Households To demonstrate "community benefit", developers have recently been proposing additional BMP units aimed at specific populations such as teachers and public safety employees. Currently, applications are ranked on a point system. A minimal number of points are awarded to Town employees. If Council wishes to broaden the targeted population, staff recommends that the guidelines be revised to allocate the same number of points to a general "worker housing" population group. This group would include teachers, municipal employees, and or private sector service industry workers as an example. Priority could be given for the worker housing category to those employed within the Town. Feedback is requested on what additional populations Council would like targeted and if more or fewer points to these populations are desired. Attachment 3, Resolution 2000 -131 provides the point system criteria. 3. The General Plan's Housing Element The Housing Element update began in Fall 2001. The Town hired a housing consultant, Melanie Shaffer-Freitas of Freitas + Freitas to prepare the new Housing Element. An administrative draft was completed in March 2002 and was sent to the State Department of Housing and Community Development (HCD) for review. Staff also presented the March 2002 Draft to the General Plan Committee (GPC) and then worked with a four member sub -committee of the GPC in reviewing the draft goals, policies and implementing strategies that will ultimately be incorporated into the General Plan. The consultant recently completed revisions in response to HCD comments received in late July 2002. The Housing Element public review period was advertised and began on September 4, 2002, and will end on October 21, 2002. The public hearing draft was forwarded to HCD for review and comments should be received prior to public hearings. PAGE 6 MAYOR AND TOWN COUNCIL SUBJECT: DISCUSSION OF AFFORDABLE HOUSING September 12, 2002 The next steps to be taken are as follows: • • September 25, 2002 - General Plan Committee will discuss the public hearing draft and formulate a recommendation to the Commission and Council. October 2, 2002 - Community meeting. Staff and the consultant will be available at that meeting to discuss the Draft Housing Element and to answer any questions from members of the public. October 9, 2002 - Planning Commission hearing. October 21, 2002 - Tentative Town Council hearing date. Among the July 2002 comments from HCD was a request that the Town rezone property to a higher density in order to meet housing production requirements. Following discussions with HCD the housing consultant recommended that the Town include a housing program to rezone at least five acres to high density. Staff suggested that the wording state that the Town will consider rezoning properties on Oka Road to a higher density. There is approximately 13 acres of R-1:8 zoned land in this area that could be rezoned to RM:5-12, thereby allowing for a higher density and more affordable housing units. Staff seeks Council direction on this issue. The Architectural Standards/Hillside Committee (ASC) has had some discussions about secondary dwelling units and accessory living quarters in the past year. The ASC suggested that accessory living quarters criteria be dropped and that secondary dwelling unit provisions be looked at to see if they can be modified to allow potential for more second units in the Town. The Committee has not forwarded a recommendation on this to the Commission or Council, but staff would like the Council's input on this topic in order to make a determination on whether it should be pursued. CONCLUSION: Affordable housing is an important issue in Los Gatos and Silicon Valley. The Study Session is intended to provide the Council with information regarding the Town of Los Gatos' affordable housing efforts and to seek direction from the Council on key issues. More specifically, the Study Session focuses on the following: 1. How to spend the Los Gatos' Redevelopment Agency's 20% Housing Funds 2. Whether some changes should be made to the Town's Below Market Price (BMP) program to better meet the needs of the community 3. The Los Gatos General Plan Housing Element, and the possibility of rezoning land on Oka Rd. to higher density ENVIRONMENTAL ASSESSMENT: Is not a project defined under CEQA, and no further action is required. PAGE 7 MAYOR AND TOWN COUNCIL SUBJECT: DISCUSSION OF AFFORDABLE HOUSING September 12, 2002 FISCAL IMPACT: The Study Session itself will have no direct fiscal impact. Affordable housing developments will be required to come before the Council/Agency Board for review and approval of any funding. Attachments: 1. Draft RDA Affordable Housing Strategy 2. Draft Housing Element 3. Resolution 2000-131 4. Town Code Sections 29.10.3020 - 29.10.3040 5. Pending BMP Units 6. HUD Income Limits 7. Town of Los Gatos Demographics Distribution: Department Heads BNL: mdc S:\affordable honsing.wpd