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Item 11 Staff Report Conceptually Approve Expenditure of Below Market Price Housing In-Lieu Funds to Reduce Re-Sale PricesMEETING DATE: 9-15-97 ITEM NO. 1 COUNCIL AGENDA REPORT DATE: September 10, 1997 TO: MAYOR AND TOWN COUNC FROM: TOWN MANAGER SUBJECT: CONCEPTUALLY APPROVE EXPENDITURE OF BELOW MARKET PRICE HOUSING IN -LIEU FUNDS TO REDUCE RE -SALE PRICES. RECOMMENDATION: Conceptually approve expenditure of Below Market Price housing in -lieu funds to reduce re -sale prices. 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. The program includes 22 owner -occupied units; four more units are expected to be ready for occupancy within the next year. An additional 33 BMP units are rented at below market rents. One of the Program's primary challenges is to keep owner -occupied units affordable. In contrast to many cities throughout the State, Los Gatos requires that the units remain within the Program at resale. Despite corrections to the deed restrictions, the resale prices sometimes move out of the range of affordability for the income targeted families. This report presents Council with an option for keeping the units affordable. DISCUSSION: The BMP Housing Program is one of several programs adopted by the Town to meet mandated housing goals. The Program is generally successful: • 35 households have been able to purchase housing through the program; • At 22 owner -occupied units, the Town compares favorably with other communities of our size; • 5 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. Sixteen BMP units were constructed during or prior to 1985. The deed restrictions recorded with these units coupled with flattened housing prices resulted in resale prices reaching market price. As a result, two BMP units were lost from the pool. To remedy this problem, Council adopted improved deed restrictions in 1988. (See attachment 1 for more background.) PREPARED BY: Regina A. Falk Community irector Reviewed by: Attorney '% Fi ' . nce Revised: 9/10/97 10:30 am Reformatted: 10/23/95 PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: CONCEPTUALLY APPROVE EXPENDITURE OF BELOW MARKET PRICE HOUSING IN - LIEU FUNDS TO REDUCE RE -SALE PRICES. September 10, 1997 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; staff anticipates cases in which units are out of the range of affordability for targeted income groups. Staff recommends that the Council conceptually approve using in -lieu funds to "write down" the resale price through a double escrow process: the Town purchases the unit at the price calculated in accordance with the deed restrictions and sells the unit at a price affordable to the targeted income group. An alternative is to provide second mortgage loans to eligible applicants; although at resale, the high purchase figure is inflated again at resale and the problem continues. The double escrow process would also allow us to 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 (120% of median for a family of four is $84,250). CONCLUSION:: The Town will continue to be faced with the prospect of attempting to resell BMP units with prices that are at market and/or out of the range of affordability. The resolution guiding the Program's administration (1989-53) states that 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. A potential solution is for the Town to purchase the unit at the required price and re -sell the unit at a reduced price. By investing $10,000 to $40,000/unit, as needed, the Town can promote continued affordability. Staff will solicit Council's approval on a case by case basis. ENVIRONMENTAL ASSESSMENTS: This is not a project defined under CEQA, and no further action is required. FISCAL IMPACT: The BMP fund (216) has an estimated year end (6/30/97) balance of approximately $269,630. RAF:kv CSD3 8A:\cnclrpts\spend.bmp Attachments: 1. Re -sell Calculations, Example Distribution: Ray Tovar, Community Housing Developers 1981 DEED RESTRICTIONS 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. ATTACHMENT 1 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. Method 4. The above example four figures. Under $121,723 $47,400 $64,200 $16,800/.35 or 35% $164,330 Increase in CPI Housing Component Purchase Price (11/88) $121,723 (*)Consumer Price Index (11/88) 128.5 (*)Consumer Price Index (5/95) 154.4 Difference/Percent Increase 25.9/20% Sales Price ($121,723 x 1.20) $146,068 (*) Housing Component/All Urban Consumers The maximum affordable to a family of four at 100% of the county median income is 155,364. shows that the resale price was established at $146,068 (Method 2) which is the lowest of the the 1981 deed restrictions, the unit would have sold at $164,330. csd38A:\cncIrpts\spend 1. bmp 1 Town Council Minutes September 15, 1997 Los Gatos, California UNDERGROUNDING UTILITIES/BLOSSOM HILL ROAD (09.28) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council accept report regarding undergrounding of utilities on Blossom Hill Road. Carried by a vote of 4 ayes. Mr. Blanton abstained due to possible conflict of interest. BUS DEPOT/RIDERSHIP/SCHEDULE/ALTERNATIVE LOCATIONS (10.44) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council accept report on bus depot ridership, schedule, and possible alternative locations. Carried unanimously. BELOW MARKET PRICE HOUSING/IN-LIEU FUNDS/RE-SALE PRICES (11.19) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council conceptually approve expenditure of Below Market Price Housing In -Lieu Funds to reduce re -sale prices. Carried unanimously. SOLID WASTE MANAGEMENT PROGRAM/AB939/INTERN (12.14) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council approve incorporation of several new projects into the Town's Solid Waste Management Program; approve hiring an intern to work part-time to organize the programs; and authorize budget adjustments in the Solid Waste Management Program. Carried unanimously. SOLID WASTE MANAGEMENT/WEST VALLEY JOINT POWERS AUTHORITY RESOLUTION 1997-102 (13.14) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council adopt Resolution 1997-102 entitled, RESOLUTION OF THE TOWN OF LOS GATOS AUTHORIZING THE TOWN MANAGER TO EXECUTE A JOINT EXERCISE OF POWERS AGREEMENT FORMING THE WEST VALLEY SOLID WASTE MANAGEMENT AUTHORITY. Carried unanimously. 9517 PROJECT/LOS GATOS CREEK TRAIL/BRIDGE AT LARK AVENUE RESOLUTION 1997-103 (14.35) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council adopt Resolution 1997-103 entitled, RESOLUTION OF THE TOWN OF LOS GATOS ACCEPTING WORK OF COLLISHAW CONSTRUCTION. INC. - PROJECT 9517 - LOS GATOS CREEK TRAIL AT LARK AVENUE AND AUTHORIZING THE TOWN MANAGER TO EXECUTE CERTIFICATE OF ACCEPTANCE AND NOTICE OF COMPLETION FOR RECORDING BY TOWN CLERK. Carried unanimously. CLASSIFICATION PLAN AMENDMENTS/RESOLUTION 1997-104 (15.10) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council adopt Resolution 1997-104 entitled, RESOLUTION OF THE TOWN OF LOS GATOS AMENDING THE POSITION AND CLASSIFICATION PLAN TO CHANGE CRIME ANALYST DESIGNATION TO TOWN EMPLOYEES ASSOCIATION (TEA) FROM CONFIDENTIAL, CREATE A TEMPORARY FACILITY ATTENDANT POSITION, CREATE TEMPORARY SKILLED AND APPRENTICE TRADE POSITIONS, AND CHANGE SENIOR PLANNER TO ASSISTANT PLANNING DIRECTOR. Carried unanimously. 9715 PROJECT/TREE PRUNING AND REMOVAL/RESOLUTION 1997-105 (16.35) Motion by Mrs. Lubeck, seconded by Mr. Hutchins, that Council adopt Resolution 1997-105 entitled, RESOLUTION OF THE TOWN OF LOS GATOS APPROVING SPECIFICATIONS FOR PROJECT 9715 - TREE PRUNING AND REMOVAL. Carried unanimously. TC:09: MM091597 3 LOS S GATOS GLEN `y LOS GATOS BELOW MARKET PRICE HOMES 5 HOMES NOW AVAILABLE Ohlone Court at Roberts Road Los Gatos, California Open House: Sunday, August 11, 1996 - 1:00 to 4:00 pm. Application Deadline: August 30, 1996, at 4:00 pm. SummerHill Homes is the developer of this unique new home community at Los Gatos Glen. Standard features include: designer coordinated fixtures and hardware, oak cabinetry, General Electric appliances, rear yards, plumbing for ice -maker, and many other features. HISTORIC NINO HOUSE LOT 25 $167,000* INCOME LIMIT 120% OF MEDIAN 2 DUETS (DUPLEXES) LOT 11 $76,000* INCOME LIMIT 80% OF MEDIAN 2 DUETS (DUPLEXES) LOT 1 $115,000* INCOME LIMIT 100% OF MEDIAN INCOME LIMITS: HOUSEHOLD SIZE 80% 100% 120% 1 29,100 47,200 56,650 2 33,300 53,900 64,700 3 37,450 60,650 72,800 4 41,600 67,400 80,900 5 44,950 72,800 87,350 6 48,250 78,200 93,850 Contact: Nancy Hendee Community Housing Developers 255 N. Market Street, Suite 290 San Jose, CA 95110 (408) 279-7656 *Subject to resale restrictions RerAse, route,. )Ntf app kao n PeAcq,bork\co& Cep: THE TOWN OF LOS GATOS BELOW ET PRICE PROGRAM To assist low and moderate income Los Gatos families in purchasing homes, the Town of Los Gatos has developed the Below Market Price Housing Program (BMP), through which a limited number of homes are sold at prices substantially below market value. Program homes are targeted at a variety of income groups and come in a variety of sizes and configurations. Community Housing Developers (CHD) is a consultant to the Town and will not be representing the buyer or seller. CHD maintains a list of households that are interested in qualifying for a home under the program. Anyone who would like to be considered for a BMP unit must apply to the program. Applications may be submitted at any time. When a new or resale unit becomes available, a package containing a new application, a program description and information on the unit is mailed to all households on the list. Applications for a given unit are accepted up until a designated deadline. This deadline is stated in the application package and in advertisements and/or public service announcements in the local paper. Applications received before the deadline are rated and ranked according to criteria established by the Town Council. Households who work and/or reside in Los Gatos have priority. Senior citizens, single parents, the physically challenged and other resident groups also get extra points. In the case of any ties, a blind drawing establishes priority. Applications received after the deadline are eligible but will be considered only after all other applicants have had a chance to obtain a unit. Eligibility for the purchase of a BMP home is based on household income, Buyers under the BMP Program are responsible for obtaining their own financing and down payment. A buyer must have sufficient cash for a down payment and the ability to obtain adequate financing in order to be eligible for a unit. To ensure affordability for future buyers, a deed restriction is placed on all homes in the BMP program. Units remain in the program upon resale to help other -households, and units must be owner -occupied. The resale price is limited to the lowest of: (1) the original purchase price multiplied by the percentage increase in the Santa Clara County median income, during the period between purchase and resale, (2) the original purchase price multiplied by the percentage increase in the Consumer Price Index, (3) a market value appraisal, or (4) the maximum affordable price, according to a formula established by a Town Council resolution. The value of substantial additions to the property will be added to this price and the cost of substantial damage will be subtracted. If you are interested in applying to the program or have any questions, please contact Nancy Hendee at Community Housing Developers (408/279-7652).