DATE: February 21, 2023
TO: Mayor and City Council
FROM: Assistant City Manager
SUBJECT
Title
Affordable Housing Ordinance: Discuss Findings from Affordable Housing Ordinance Feasibility Study and Proposed Modifications of the Affordable Housing Ordinance
RECOMMENDATION
Recommendation
That the City Council reviews and provides comments on the findings from the Affordable Housing Ordinance Feasibility Study and proposed Modification to the Affordable Housing Ordinance.
End
SUMMARY
In early 2020, with the intention of increasing the supply of affordable housing, Council directed staff to evaluate the existing Affordable Housing Ordinance (AHO) as part of the adoption of the “Preserve, Protect, Produce Housing for All” Priority in the Strategic Road Map and the Incentives to Housing Production work plan. In March 2022, the Homelessness Housing Task Force (HHTF) and the Planning Commission reviewed the outcomes and performance of the existing AHO and provided direction to staff regarding the goals and target populations to be served by any future revisions to the AHO. In consideration of the feedback established by the HHTF and the Planning Commission and in order to ensure economic feasibility of any proposed changes to the City’s AHO, the City contracted with Strategic Economics Inc (the Consultant) to conduct a feasibility study. On September 28, 2022 and December 8, 2022, Strategic Economics presented preliminary finding to the HHTF and the Planning Commission respectively to discuss preliminary findings of the feasibility study and receive feedback. The purpose of the report is to discuss the findings and recommendations of the feasibility study and prior feedback.
Findings related to the current AHO show that:
• While Hayward had lower inclusionary housing requirements than other comparable jurisdictions, Hayward produced more inclusionary units than most of the other comparable jurisdictions;
• There is some capacity for increasing affordable housing requirements for low density ownership housing project types;
• The sensitivity analysis illustrates how slightest negative change in development conditions can result in projects becoming infeasible; and
• Most rental housing types are financially infeasible with or without City affordable housing requirements.
The Consultant conducted a feasibility analysis in consultation with a Technical Advisory Committee (TAC) that was comprised of developers to ensure assumptions were consistent with current market conditions. Based on this analysis, the consultant proposed recommendations related to both the on-site affordable housing requirements and the rate of the affordable housing in-lieu fee as listed below.
On-site affordable housing recommendations:
• For-sale single-family homes and townhomes: Increase the inclusionary requirement to 12% of the total units setting affordability levels for half of the units at low-income and the other half at moderate income and maintain current requirements 7.5% of units for high density condominiums.
• Rental: Maintain existing affordable housing requirements for rental property due to infeasibility of developing most rental housing product types.
Affordable housing in-lieu fee recommendations:
• Rental: Maintain existing fee ($21.64)
• Ownership:
o Maintain existing fee ($17.85) for high density condominiums (35 dwelling units per acre or greater)
o Increase fee for lower density ownership projects from $21.64 to $26 per square foot.
Supporting analysis for these findings is included Hayward Affordable Housing Ordinance Study (Attachment II) prepared by the Consultant.
In addition to the recommendations provided by the Consultant, it is important to note that the TAC expressed a preference to maintain current compliance flexibility allowed under the AHO. Also, the TAC cautioned that increasing affordable housing requirements are ultimately paid by the market rate renter or purchaser thus increasing housing prices.
In addition to the recommendations that resulted from the feasibility study, staff recommends making modifications to the AHO to improve implementation by clarifying language, better aligning some of the requirements with the development process to streamline, and to conform requirements with existing affordable housing agreements and resale restrictions. A full list of proposed administrative changes are included in Attachment III.
Furthermore, staff seeks feedback from Council regarding timing for implementing changes to the AHO - should changes to the ordinance only apply to new applications not currently in the application process? Developers determine project feasibility prior to submitting applications for entitlement. Changing requirements during the entitlement application can impact project feasibility.
Lastly, to ensure that the AHO produces units that meet the diverse housing needs of Hayward community members, the AHO must both produce: 1) inclusionary units providing ownership opportunities for moderate- and low-income households (as proposed); and 2) generate fee revenue to subsidize the development of affordable housing for low, very low, and extremely low-income households. Furthermore, increases in construction costs combined with increasing interest rates will further challenge the development of market rate housing; therefore, there is concern that an aggressive increase in requirements under the AHO may further delay recovery from these market challenges.
ATTACHMENTS
Attachment I Staff Report
Attachment II Feasibility Study
Attachment III List of Proposed Administrative Modifications