Item 4B Staff Report Below Market Pricing Housing ProgramMEETING DATE: 1-6-96
ITEM NO. L./ /6
DATE:
TO:
FROM:
SUBJECT:
COUNCIL AGENDA REPORT
December 21, 1995
MAYOR AND TOWN COUNCI
TOWN MANAGER
BELOW MARKET PRICE HOUSING PROGRAM
RECOMMENDATION:
Informational report.
BACKGROUND:
The Town's Inclusionary Zoning Ordinance was adopted in 1979. The ordinance requires developers to provide a
specified number of affordable owner -occupied or rental units, as appropriate. Fees can be paid in -lieu of constructing
units in some instances. In the case of rental developments, units must be made available for below market rents. Units
are managed in accordance with Council adopted guidelines.
Since the program's inception, 17 owner -occupied BMP units have been constructed and sold (Attachment 1). Eleven
more units are expected to be ready for occupancy within the next year. An additional 33 BMP units are rented at below
market rents (Attachment 2).
The Town contracts with Community Housing Developers, (CHD), a nonprofit housing development corporation, to
market and aid in facilitating unit sales.
The Program's primary challenges are to keep owner -occupied units affordable, minimize staff time devoted to
managing the Program, and to accommodate the needs of low/moderate income Program applicants. This report focuses
on these issues in terms of the Program's owner -occupied segment and presents a spectrum of Program improvements.
DISCUSSION:
The BMP Housing Program is one of several programs adopted by the Town to meet mandated housing goals. The
Program is generally successful:
• Twenty-seven households have been able to purchase housing through the program;
• At seventeen owner -occupied units, the Town compares favorably with other communities of our size;
• Five households have been able to stay or move to Los Gatos through the rental portion of the Program; and,
• Another 29 households will be able to live in a continuing care facility at reduced rates as a result of the Town's
inclusionary zoning ordinance.
The Town was one of the first municipalities in the State to adopt an inclusionary zoning ordinance. All but one of the
17 BMP units were constructed during or prior to 1985. The deed restrictions recorded with these units limited the resale
price to the lower of two figures: 1) the appraised value; or, 2) the price calculated by applying the rate (percent)
9
PREPARED BY: Regina A. Fal �I Lee Bowman
ommuniSe" Director Planning Director
Reviewed by: Attorney N Finance Revised: 12/21/95 12:02 pm
6
Reformatted: 10/23/95
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: BELOW MARKET PRICE HOUSING PROGRAM
December 21, 1995
increase in the median income to the previous purchase price. The deed restrictions were adopted at a time when housing
prices were rapidly increasing and it was anticipated that the restrictions adopted would keep resale prices below market
value. However, housing prices have since flattened and resale prices have reached market price. As a result, two BMP
units have been lost from the pool.
In 1988, when it was discovered that resale prices were hitting market prices, Council adopted a deed restriction that
further limits the resale price. Both the old and the improved deed restrictions allow the price to be increased by
improvements and decreased by the cost of necessary repairs.
1981 DEED RESTRICTIONS
Method 1
The price determined by an outside appraisal.
Method 2
The percent increase in the median income
applied to the purchase price.
1988 DEED RESTRICTIONS
Method 1
The price determined by an outside appraisal.
Method 2
The percent increase in the median income
applied to the purchase price.
Method 3
The percent increase in the housing component of the
CPI applied to purchase price.
Method 4
The price is not to exceed the maximum price
calculated as affordable to low and moderate income
households.
The improved deed restrictions effect can be shown with the following example:
Method 1.
Appraised value: $180,000
Method 2. Increase in Median Income
Purchase Price (11/88)
Median Income (11/88)
Median Income (1/95)
Difference/ Median Income Index
Sales Price ($121,723 x 1.35)
Method 3. Increase in CPI Housing Component
Purchase Price (11/88)
(*)Consumer Price Index (11/88)
(*)Consumer Price Index (5/95)
Difference/Percent Increase
Sales Price ($121,723 x 1.20)
$121,723
$47,400
$64,200
$16,800/.35 or 35%
$164,330
$121,723
128.5
154.4
25.9/20%
$146,068
(*) Housing Component/All Urban Consumers
Method 4. The maximum affordable to a family of four at 100% of the county median income is 155,364.
The above example shows that the resale price was established at $146,068 (Method 2) which is the lowest of the four
figures. Under the 1981 deed restrictions, the unit would have sold at $164,330.
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: BELOW MARKET PRICE HOUSING PROGRAM
December 27, 1995
Although the 1988 deed restrictions further limit resale prices, they are not a complete fix. Unfortunately, the resale
prices of all units are affected by the original deed restrictions which allowed prices to increase considerably. Even the
new deed restrictions must be applied to prices that were inappropriately high after the first resale. Six units have never
been sold and the old deed restrictions are recorded against the property.
Other Program challenges are meeting the needs of low/moderate income households with little or no experience with
home purchase and minimal funds for down payment. Also, the pool of applicants is limited by income, interest in
buying a unit with deed restrictions, and a sufficient down payment. Administratively, the Program is extremely Staff
intensive. At least one local nonprofit housing developer has stopped developing owner -occupied housing because it
doesn't provide enough housing in light of Staff and financial investments.
A number of actions can be taken to further improve the Program. For example, we have returned to the policy of
paying all CHD fees from the in -lieu fund to eliminate a financial hurdle for Program participants. (For a few years,
the fee was charged to buyers and sellers on a sliding scale.) This may allow buyers to increase funds available for the
down payment.
Other program improvements will be presented to Council for consideration prior to the end of the fiscal year.
1. Set up a revolving loan fund similar to that used in the Housing Conservation Program. BMP in -lieu funds
can be allocated specifically to provide second mortgage loans to eligible applicants. The Loan Review
Committee established to approve or deny loans to HCP applicants would perform the same function for the
BMP Loan fund. Loans could also be provided to low to moderate income households wishing to purchase
market rate units. Loan term guidelines would be established.
2. Use in -lieu funds to write down the resale price by making a payment to the seller for the difference between
an affordable price and the allowed resale price.
3. Restrict eligible households wishing to purchase new units to those earning less than 100 percent of the County
median income level. At this time, some units are available to households with incomes up to 120 percent of
the median income (currently $83,200 for a family of four). Because the program is so staff intensive, we
should focus on the lower income households.
4. Review and revise CHD's Scope of Services to best serve Program applicants and minimize Town Staff
involvement. For example, CHD could coordinate workshops for first-time home buyers. Staff does not
foresee issuing an Request for Proposal for services; CHD's performance is satisfactory.
5. In the 1995-96 budget, allocate a portion of the BMP in -lieu funds to oversee the program. The BMP Program
is Staff intensive: although CHD markets the units and is the primary contact for applicants, Town Staff is
in regular contact with CHD and other parties to facilitate the sales in a timely manner. Staff is also responsible
for negotiating initial sales prices with developers which is usually a lengthy process.
ENVIRONMENTAL ASSESSMENTS:
This is not a project defined under CEQA, and no further action is required.
FISCAL IMPACT:
The BMP fund has a balance of approximately $115,000. The only expenses to the fund are fees paid to CHD and costs
associated with sales (ads, mailings, etc.). Approximately $400,000 is expected to be added to the fund within two
years.
PAGE 4
MAYOR AND TOWN COUNCIL
SUBJECT: BELOW MARKET PRICE HOUSING PROGRAM
December 27, 1995
In -lieu fees can be used for the following:
program administration;
landbanking;
writing down the cost of owner occupied units to make them affordable to low -moderate income
households; and
purchasing rental units for renting to eligible tenants
RAF:dr
CSD21:A:\COUNCILR\BMP WORK.
Attachments:
1. BMP Owner -Occupied Units Summary List.
2. BMP Rental Units Summary List.
Distribution:
Community Housing Developers
MTTHCHiMIEN I 1
LOS GATOS BMP
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Phone: 356-1006
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Contact: Steven Ho
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Margaret Ransdell
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csdTLexcel:A: \Excel\Housing