ORDINANCE NO NOW THEREFORE, BE IT ORDAINED BY THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA: Section 1

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1 ORDINANCE NO AN ORDINANCE OF THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA REPEALING CHAPTER 10, ARTICLE 8 OF THE BOZEMAN MUNICIPAL CODE, ADOPTING A NEW ARTICLE REGARDING AFFORDABLE HOUSING TO TERMINATE ONLY UPON THE OCCURRENCE OF CERTAIN CONTINGENCIES, AND ADOPTING AN ARTICLE REGARDING AFFORDABLE HOUSING TO BE EFFECTIVE ON THE OCCURRENCE OF SPECIFIC CONTINGENCIES AND PROVIDING EFFECTIVE DATES NOW THEREFORE, BE IT ORDAINED BY THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA: Section 1 Chapter 10, Article 8 of the Bozeman Municipal Code is repealed in its entirety. Section 2 A new article shall be added to Chapter 38, BMC to be entitled Affordable Housing to read as follows: [(Temporary) ARTICLE 43 DIVISION 1. FINDINGS AND PURPOSE Legislative findings. The city commission hereby finds: A. The Bozeman Community Plan establishes a goal to encourage an adequate supply of affordable housing and land for affordable housing in Bozeman. A lack of affordable housing affects the ability of many residents to find housing which is adequate for their basic housing needs. A lack of adequate housing affects health, social stability, and other Page 1 of 39

2 issues which can have negative and intergenerational effects. To fulfill this goal, the Community Plan establishes an objective to promote the development of a variety of housing types, designs, and costs to meet the wide range of needs of Bozeman residents. B. The Affordable Housing Action Plan: (Action Plan) analyzed housing needs and existing market conditions and determined housing affordability has become an acute problem as demonstrated by the number of households paying over 30% of their incomes for housing. A 2015 update to the city s housing needs analysis (Action Plan Update) concluded that the group of homebuyers with significant affordability gaps have incomes at or below 80% of the area medium income and are in need of subsidies and/or belowmarket home prices. The Action Plan Update also determined that buying opportunities are increasingly scarce for homebuyers with incomes between 60% and 100% of AMI, and that housing and land prices have increased faster than incomes for many of Bozeman s residents. C. Since the adoption of the Bozeman Community Plan and the Action Plan, the median sales price of housing has continued to climb. According to the Action Plan Update, as of the end of November 2014, the median home price was $287,000. D. The Action Plan Update states that the number of detached homes priced below $250,000, a rough indicator of housing affordability for a family of three at 100% of AMI, has fallen from 48.4% of the market in 2012 to just 18.6% in E. There is a critical shortage of for-sale housing affordable to Bozeman households with incomes at and below the area median income, as currently calculated by the U.S. Department of Housing and Urban Development. As a result, some residents pay excessive amounts of income for housing, reducing the amounts available for other necessities and a decent and adequate standard of living. F. Limited housing opportunities within the city requires households to seek housing outside of the city limits which has a negative impact on transportation infrastructure by adding unnecessary trips to the network. Increased driving distance to affordable housing also negatively impacts air and water quality. To maintain a sufficient resident workforce in all Page 2 of 39

3 fields of employment, and to ensure the public safety and general welfare of the residents of the city of Bozeman, affordable housing needs must be addressed. G. The city can achieve its goals of promoting the development of more affordable housing and its goal of achieving an economically balanced community only if part of the new housing built is affordable to households with low and moderate incomes. H. The inclusionary housing regulations codified in this ordinance will substantially advance the city s legitimate interest in assuring that additional housing is built in the city that is affordable to residents, including low- and moderate-income households and dispersed throughout the city in order to encourage economic integration of the city s residents. I. This ordinance is adopted pursuant to the city s self-governing powers and the city s independent general police power to protect public health, safety, and welfare. Encouraging the construction of affordable housing within certain developments is consistent with the community s housing goals of protecting the public welfare by fostering an adequate supply of housing for persons at all economic levels and maintaining both economic diversity and geographically dispersed affordable housing. J. Providing housing affordable to low and moderate-income households is reasonably related to the impacts of newly created market-rate housing projects because: 1. Rising land prices are a key factor in preventing development of new affordable housing. New market-rate housing construction in Bozeman has generally created strong and increasing demand for a finite stock of unbuilt land within the city, and thus continues to drive up the price of remaining land. New development without affordable units reduces the amount of land development opportunities available for the construction of affordable housing. 2. New residents of market-rate housing place demands on services provided by both public and private sectors, creating a demand for new employees. Some of these public and private sector employees needed to meet the needs of the new residents earn incomes only adequate to pay for affordable housing. Because affordable housing is in short supply in the city, such employees may be forced to live in less than adequate housing within the city, pay a disproportionate share of their incomes to live in adequate Page 3 of 39

4 housing in the city, or commute ever increasing distances to their jobs from housing located outside the city. These circumstances harm the city's ability to attain employment and housing goals articulated in the Community Plan and place strains on the city's ability to accept and service new market-rate housing development Purpose. The purpose of this article is to promote the public health, safety, and welfare by encouraging the creation of affordable housing for the residents of Bozeman. In addition, the purpose of this article is to promote the dispersal of quality affordable housing throughout Bozeman s neighborhoods for households of a variety of income levels including low- and moderate-income residents to meet the goals of the Community Plan and the Action Plan by encouraging a mix of housing types throughout the city and integrating affordable housing so as to not concentrate affordable housing in a particular area. In addition, the ordinance is intended to alleviate the impacts that would result from the use of available residential land solely for the benefit of households that are able to afford market-rate housing and to mitigate the service burden imposed by households in new market-rate residential developments by making additional affordable housing available for service employees. The ordinance is also intended to mitigate environmental and other impacts that accompany new residential development by reducing traffic, transit and related air quality impacts, promoting jobs/housing balance and reducing the demands placed on transportation infrastructure. The ordinance provides incentives for housing developers to ensure houses are constructed and sold in a manner that furthers the city s affordable housing goals. DIVISION 2. APPLICABILITY AND DEFINITIONS Applicability. This article applies to developments seeking to use incentives to develop affordable housing. Page 4 of 39

5 Definitions. 1. Affordable housing or affordable home A dwelling for purchase by an owner-occupant that requires no more than 33% of a household s income for housing payments and meets the definition of a lower-priced home or moderate-priced home. 2. Area Median Income or AMI As calculated by the U.S. Department of Housing and Urban Development (HUD), AMI is the median income for a family of four within a specific geographical area, such as Gallatin County. For each such region, HUD adjusts this AMI calculation for households of different sizes and updates the calculations annually based on estimated changes in area incomes. For purposes of this article, the city hereby adopts HUD s AMI calculations as an equitable and reasonable method to determine affordability, based on percentages of AMI specified in this article. 3. Developer For purposes of this article, a developer is the person or legal entity, or their successor(s) in interest who: (a) submits an affordable housing plan for a subject property along with other submissions required for land use approvals, zoning, or permit reviews by the city, and/or (b) is the owner of property subject to this article during the development phase or a successor in title, such as a builder, obligated to implement an approved affordable housing plan with respect to one or more lots or parcels of land and/or (c) receives incentives for the production of affordable housing. 4. Lower-priced home Newly created dwelling for purchase, determined by the city in accordance with this article to be affordable to a household with an income between 65% and 80% of AMI. 5. Market-rate home Any dwelling subject to this article which is not an affordable home, including detached dwellings, attached town houses, and condominium units but not including housing units that are developed for exclusive use as a rental. 6. Moderate-priced home Newly created dwelling for purchase, affordable to a household with an income between 81% and 100% of AMI. Page 5 of 39

6 DIVISION 3. Reserved Pricing of affordable homes. A. The city will calculate on an annual basis the maximum sales price a developer may charge for each category of affordable home included in a developer s affordable housing plan as follows: 1. Lower-priced homes. The sales price for lower-priced homes affordable to buyerhouseholds with incomes from 65% to 80% of AMI will be calculated based on a household income of 70% of AMI. 2. Moderate-priced homes. The sales price for moderate-priced homes affordable to buyer-households with incomes from 81% to 100% of AMI will be calculated based on a household income of 90% of AMI. B. Affordable home sales price schedule. 1. The city will annually publish a schedule of sales prices for low-priced homes and moderate-priced homes within 30 calendar days of the HUD s annual publication of updated AMI calculations. The sales price schedule will be effective on the date of publication by the city. The new sales price schedule will apply to applications for building permits received after the effective date of the new sales price schedule. A developer may request that a new sales price schedule apply to the sale of an affordable home approved under a previous sales price schedule. 2. The city, at the city s sole discretion, may recalculate the sales price schedule if prevailing mortgage interest rates have increased by 50 basis points or more over the assumption used for the previous schedule. 3. Considerations. The following factors will be considered by the city in calculating the sales price schedule. The Planning Director may make de minimis exceptions to application of these factors: a. AMI for the Bozeman area; b. Gross monthly income will be calculated as the appropriate HUD AMI calculations income divided by 12; Page 6 of 39

7 c. The maximum monthly payment will be 33% of gross monthly income. The maximum monthly payment will include costs directly applicable to a mortgage such as payment of principal, interest, as well as assumptions for typical costs of taxes, public assessments, property insurance premiums, mortgage insurance premiums (assuming the higher of either government or private mortgage insurance), and homeowner/condominium association fees; d. The interest rate will be determined by the city by a survey of at least three local mortgage lenders, averaging their current rates for loans for homes with price ranges within the low-priced homes range and the moderate-priced homes range; e. The financing will be a conventional or government-insured fixed-rate loan with a term of 15 to 30 years; and f. A borrower will typically provide a down payment of 3% of the purchase price. C. Household occupancy assumptions. To determine the maximum sales prices of affordable homes with different numbers of bedrooms, the city will base its calculation on the AMIs for households of different sizes, as follows: 1. Zero bedroom or studio unit AMI for a one-person household; 2. One bedroom unit AMI for a two-person household; 3. Two bedroom unit AMI for a three-person household; and 4. Three bedroom unit or larger AMI for a four-person household Timing of delivery of affordable homes. Affordable homes included in an approved affordable housing plan must be provided in accordance with the following: A. In each development in which more than one affordable home is proposed to be sold, the affordable housing plan shall specify that affordable homes are to be sold concurrently and in proportion to the sale of unimproved lots or market-rate homes. Such timing will be represented in an affordable homes pricing and delivery schedule as described in section Page 7 of 39

8 B. A developer may sell affordable homes earlier than required in an affordable housing plan Minimum design and construction standards for affordable homes. A. Required numbers of bedrooms in affordable homes. In each development subject to the requirements of an approved affordable housing plan, affordable homes shall represent a mix of bedroom sizes as similar as possible (given rounding of numbers) to the mix of bedroom sizes of the market-rate homes in the development. B. Standards for design and construction. The city shall define reasonable standards for the design and construction of affordable homes to ensure livability and compatibility with nearby market-rate homes in the development. Affordable homes may have different interior finishes and features than other dwellings within the development, as long as the finishes and features are functionally equivalent and of good quality. Finishes include, but are not limited to, design and materials, the provision of appliances, cabinets, and floor treatment. Features include, but are not limited to, the numbers of bathrooms, garages and parking areas, mechanical equipment and hookups, and green building features. C. Amenities. Affordable homes shall have the same amenities as the market-rate homes in the development, including the same access to and enjoyment of common open space and facilities in the development Submission of affordable housing plan; approval. A. Affordable housing plan. The applicant for any development seeking to utilize the incentives to create affordable housing must submit an affordable housing plan in a form provided by or approved by the city that describes how the provisions of this article will be satisfied. When approved by the city, the affordable housing plan must be incorporated by reference in the recorded subdivision plat, site plan or annexation agreement. B. Affordable housing plan as binding agreement. An affordable housing plan approved by the city will be considered a binding contract between the developer and the developer s successors in interest to the lot or dwelling. Such plan will be included in a separate recorded written agreement between the developer and the city, or incorporated into Page 8 of 39

9 another recorded document wherein the developer is required to implement the affordable housing plan. C. Contents of affordable housing plan. The affordable housing plan submitted by the developer must include, at a minimum: 1. Number of affordable homes proposed in each affordable home category; 2. The number of bedrooms in each affordable home; 3. Number of market-rate homes in the development; 4. The number of bedrooms in each market-rate home; 5. Location of affordable homes in the development (lots in the plat or units within a site plan); 6. Timing of delivery of the affordable homes in relation to the market-rate homes in the development; 7. Marketing plan describing how affordable homes will be offered to the public; and 8. Any other information that is reasonably necessary to evaluate the compliance of the affordable housing plan with the requirements of this article. D. Pricing and delivery schedules in affordable housing plans. The affordable homes pricing and delivery schedule shall be in the form of a chart that contains the numbers of required affordable homes by bedroom size and affordable home category, and shall indicate the current affordable home prices as calculated by the city. E. Approval of affordable housing plan. The affordable housing plan will be reviewed as part of the initial application approval process for the type of development proposed. A condition shall be attached to the approval of any subdivision plat or site plan to require recordation of the affordable housing plan or other separate agreement obligating the developer to meet the requirements of this article Marketing, sales and occupancy of affordable homes. Developers subject to this article shall market and sell affordable homes in accordance with provisions described in the city s published instructions for preparing affordable housing plans. Page 9 of 39

10 These provisions will address factors such as waiting list management, marketing materials, responsibilities for marketing affordable homes, actions to be taken in the event of inability to identify qualified buyers, procedures for certification of buyer eligibility, purchase contracts, and full disclosures to buyers of their obligations and rights under this article Recording requirements upon sale of affordable home. A developer selling an affordable home shall cause to be recorded in the offices of the Gallatin County Clerk and Recorder, simultaneously with the recording of the deed of conveyance, a restrictive covenant, deed of trust or other legal instrument, approved as to form by the Bozeman City Attorney that fulfills the resale and recapture requirements described in section DIVISION 4 INCENTIVES Incentives available for affordable housing. Developers may apply for incentives in conjunction with a development application by submitting an affordable housing plan pursuant to section Page 10 of 39

11 Incentives Description Lower-priced homes Moderatepriced homes 70% AMI 80% AMI 90% AMI Impact fee subsidy Full or partial subsidization of impact fees, paid from municipal funds if such funds are available; such subsidization must be secured with a lien instrument due upon sale, transfer or non-rate/term refinance of the home. Down payment assistance Subject to the availability of funds, the city will provide on a first-come first-served basis, down payment assistance not to exceed $10,000 per home benefiting households. Down-payment assistance will only be provided directly to the qualifying homebuyer. This assistance shall be secured with a lien instrument due upon sale, transfer or non-rate/term refinance of the home. Waiver of subdivision preapplication Waive pre-application for subdivision when 10% of units are designated for lower price homes. Reduction of parkland 1 Allow a 1:1 square foot reduction in the amount of parkland dedication required per square foot of lot size for lower homes. If a developer provides more than the required number of lower priced homes, the lot area square footage of the additional lower priced homes shall not further reduce the required parkland dedication. Reduced Minimum Lot Sizes Per the provisions in this chapter, affordable homes may utilize reduced setback requirements and reduced sized lots. The reduction in lot size shall be allowed to create an increase in maximum unit density beyond the maximum currently allowed in a given zoning district. 1 This incentive is available only until the city has approved affordable housing plan(s) that include the number of lower-priced homes at 70% AMI as established by commission resolution. In addition, a developer seeking to use Page 11 of 39

12 Incentives Description Lower-priced homes Moderatepriced homes 70% AMI 80% AMI 90% AMI Concurrent infrastructure housing construction Concurrent construction of infrastructure and housing development at the installation of gravel-base roads, provided the developer has provided assurance through a performance bond, letter of credit or other financial security acceptable to the City Attorney ensuring the completion of infrastructure. Expedited review for affordable housing 1+1 Detached homes and attached homes in groups of less than 6 units will receive expedited (3 business day) building permit review for affordable housing. For each building permit for an affordable home, a market rate unit will receive the same expedited review. Reduced parking requirements Reduced parking requirement of two spaces per three-bedroom dwelling. DIVISION 5 BUYER QUALIFICATION AND SUBSIDY RECAPTURE Qualification of buyers of affordable homes. A. Lower-priced homes. To qualify for purchase of a lower-priced home, a buyer must meet the following criteria: 1. A household income in the 65%-80% AMI range, as verified and certified by the city; such certification must have been provided no more than one year prior to the closing date of the purchase. Income verification will be performed using HUD s online income certification tool or a similar method that meets Code of Federal Regulations this incentive may only do so if the affordable homes at 70% AMI constitute no more than 10% of the total units in a development or the unit is to be constructed on a single lot wherein the parkland dedication requirement has not previously been provided. Page 12 of 39

13 (CFR) 24 part 5, as amended, which adjusts gross incomes based on extraordinary expenses and imputation of assets to income. 2. Maximum assets of $25,000. Assets will be determined using 24 CFR part 5.603, as amended. 3. The household occupying the lower-priced home must meet the definition of Household in The buyer must meet one of the following definitions of First-Time Homebuyer : a. An individual who has had no ownership interest in a principal residence during the 3-year period ending with the date of purchase; or b. A single parent whose only prior home was owned with a former spouse while married; or c. An individual who is a displaced homemaker and has only owned with a spouse; or d. An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations; or e. An individual who has only owned a property that was not in compliance with state, local or model building codes and which cannot be brought into compliance for less than the cost of construction a permanent structure. 5. The buyer must contribute at least three percent of the home purchase price towards the purchase of the home unless waived in writing by the city because of extraordinary circumstances, such as death of primary or secondary income earner or qualification as displaced homemaker. 6. The buyer must utilize conventional or government-insured fixed-rate first-mortgage financing with a term of 15 to 30 years. 7. The household in a lower-priced home must occupy the home as its primary residence. Lower-priced homes may not be rented to another party, since the intent of the program is to provide these homes only for income-qualified owner occupants, with the exception of rentals for a limited period of time necessitated by a family hardship Page 13 of 39

14 or a temporary move for one year or less, if approved in advance by the city. B. Moderate-priced homes. To purchase a moderate-priced home, a buyer must occupy the home as his primary residence. The developer must provide evidence satisfactory to the city verifying the initial owner will use the home as their primary residence at time of sale Subsidy recapture for lower-priced homes. To ensure that the community investment in affordable housing is perpetuated and that beneficiaries of affordable housing programs do not receive a windfall financial benefit, the city requires repayment of subsidies as follows: A. Requirement for repayment of cash subsidy. The buyer of a lower-priced home that received cash support in the form of funds from the Affordable Housing Fund or other funding through the city, including but not limited to down payment assistance, impact fee payment, or other funding shall be required to repay the subsidy, at 0% interest, when the dwelling or property is sold, transferred, refinanced or when the initial buyer who qualified for the subsidy has failed to abide by the requirements of this article. The subsidy will be recorded as a lien against the property at the Gallatin County Clerk and Recorders office. B. Requirement for repayment of non-cash subsidy. Because most or all lower-priced homes will be sold at a discount from market value, defined as the difference between the appraised value and the maximum allowed price of a lower-priced home at the time of the initial sale to a qualified buyer, the city commission finds that it gives a subsidy with cash value to the initial buyer which may be recaptured under certain circumstances. Therefore, upon resale or transfer of a lower-priced home, the city aims to further its housing affordability goals by recapturing the principal amount of the subsidy by use of a lien in favor of the city in that amount, which will be due and payable to the city, at 0% interest, when the home is sold or transferred or when the initial buyer who qualified for the affordable home has failed to abide by the terms of this article. The appraisal used to calculate the amount of subsidy may be the appraisal obtained by the buyer s mortgage lender or, if that is not available, a professional appraisal provided by the purchaser. C. Use of repayments to the city. The city shall only use repayments of the lien amounts to fund: Page 14 of 39

15 1. Down payment assistance for buyers of new or existing homes in Bozeman with household incomes at or below 80% of AMI; 2. Affordable rental opportunities for residents of Bozeman with incomes at or below 60% of AMI; or 3. Any other use approved by the city commission that increases affordable homeownership opportunities for residents of Bozeman with income at or below 80% of AMI. DIVISION 6 ADMINISTRATION AND ENFORCEMENT Administration. A. Planning director authority. The planning director or an agent designated by the city commission shall have authority to promulgate and enforce all reasonable rules and regulations and take all actions necessary to the effective operation and enforcement of this article, unless such authority is expressly reserved to the city commission or another city official, including but not limited to: 1. Reviewing a developers affordable housing plan for compliance with this article; 2. Adopting all forms and prescribing the information to be given therein; 3. Monitoring developers compliance with their approved affordable housing plan, notifying the developer of noncompliance, and ordering compliance; 4. Imposing any and all sanctions permitted by this article; and 5. Calculating the annual pricing targets for affordable homes and causing a sales price schedule to be published. The planning director may make de minimis exceptions to the factors considered in calculating the price targets. B. Administrative manual. The city will publish administrative rules and instructions approved by the city commission, including but not limited to instructions for completing the affordable housing plan, valuations required by this article, and the distribution of the required number of affordable homes between the two affordable home categories and required number of bedrooms. Such distribution by affordable home category shall be Page 15 of 39

16 based primarily upon an assessment by the city of housing needs among the income groups corresponding to each affordable home category, but shall take into account the economic impact on developments subject to the requirements of this article. C. Verification of sales prices and income certification prior to closing. The City Manager may create standards for documentation the city will use to verify the sale price of a home created pursuant to this article. For the initial sale of an affordable home, the seller must provide the city with a copy of the HUD-1 form prepared by an attorney or title company indicating the sales price. The final sales price on the HUD-1 form may not exceed the maximum price for a specific affordable home as described in the current price schedule pursuant to section plus an allowed maximum of $3,000 in buyer selected upgrades, if allowed by the first mortgage lender underwriters. In addition, the city shall require certification satisfactory to the city of homebuyer income qualification. D. Monitoring completed sales. Upon receipt of a settlement statement for an affordable home, the city will determine if the completed affordable home sale complies with the approved affordable housing plan and the requirements of this article, and if not, respond to the noncompliance as provided in section Noncompliance; sanctions. A. Cancellation of incentives provided. If a developer fails to comply with the terms of the approved affordable housing plan or any other recorded documentation obligating developer to comply with this article, the developer must, prior to the release by the city of the dwelling from the affordable housing plan or binding agreement, pay the city the cash in lieu fee for each unconstructed dwelling or any dwelling not sold to an income qualified household as defined in this article. B. Discovery of noncompliance. If the city determines a developer subject to an affordable housing plan has failed to comply with any terms or conditions of the affordable housing plan or this article, the planning director or authorized agent shall notify the developer of the noncompliance in writing and order compliance by the most reasonable and expeditious means as determined by the city. Notification shall describe a date certain by which the developer must be in full compliance (which may not be less than one week or more than Page 16 of 39

17 one year from the date of the notice), and shall describe: (i) the exact nature of the noncompliance; and (ii) the possible sanctions for noncompliance with this notification. C. Sanctions for noncompliance. In addition to other remedies available to the city pursuant (temporary)] to this article, if on a date certain by which compliance has been ordered by the planning director or authorized agent, the developer remains in noncompliance, the planning director or authorized agent shall notify the City Attorney of the noncompliance and request that sanctions be imposed. The city shall have the authority to impose one or more sanctions including but not limited to the following which the city deems most effective and appropriate considering the nature of the noncompliance: 1. Withholding or revoking building permits, 2. Issuing stop-work orders, and/or 3. Withholding or revoking certificates of occupancy. Section 3 A new article shall be added to Chapter 38, BMC effective upon the occurrence of contingencies as stated in Section 10 of this Ordinance to be entitled Affordable Housing to read as follows: [(Effective upon the occurrence of the contingencies provided for in Section 10 of this Ordinance) ARTICLE 43 DIVISION 1. FINDINGS AND PURPOSE Legislative findings. The city commission hereby finds: A. The Bozeman Community Plan establishes a goal to encourage an adequate supply of affordable housing and land for affordable housing in Bozeman. A lack of affordable housing affects the ability of many residents to find housing which is adequate for their basic housing needs. A lack of adequate housing affects health, social stability, and other issues which can have negative and intergenerational effects. To fulfill this goal, the Page 17 of 39

18 Community Plan establishes an objective to promote the development of a variety of housing types, designs, and costs to meet the wide range of needs of Bozeman residents. B. The Affordable Housing Action Plan: (Action Plan) analyzed housing needs and existing market conditions and determined housing affordability has become an acute problem as demonstrated by the number of households paying over 30% of their incomes for housing. A 2015 update to the city s housing needs analysis (Action Plan Update) concluded that the group of homebuyers with significant affordability gaps have incomes at or below 80% of the area medium income and are in need of subsidies and/or belowmarket home prices. The Action Plan Update also determined that buying opportunities are increasingly scarce for homebuyers with incomes between 60% and 100% of AMI, and that housing and land prices have increased faster than incomes for many of Bozeman s residents. C. Since the adoption of the Bozeman Community Plan and the Action Plan, the median sales price of housing has continued to climb. According to the Action Plan Update, as of the end of November 2014, the median home price was $287,000. D. The Action Plan Update states that the number of detached homes priced below $250,000, a rough indicator of housing affordability for a family of three at 100% of AMI, has fallen from 48.4% of the market in 2012 to just 18.6% in E. There is a critical shortage of for-sale housing affordable to Bozeman households with incomes at and below the area median income, as currently calculated by the U.S. Department of Housing and Urban Development. As a result, some residents pay excessive amounts of income for housing, reducing the amounts available for other necessities and a decent and adequate standard of living. F. Limited housing opportunities within the city requires households to seek housing outside of the city limits which has a negative impact on transportation infrastructure by adding unnecessary trips to the network. Increased driving distance to affordable housing also negatively impacts air and water quality. To maintain a sufficient resident workforce in all fields of employment, and to ensure the public safety and general welfare of the residents of the city of Bozeman, affordable housing needs must be addressed. Page 18 of 39

19 G. The city can achieve its goals of providing more affordable housing and its goal of achieving an economically balanced community only if part of the new housing built is affordable to households with low and moderate incomes. H. The inclusionary housing regulations codified in this ordinance will substantially advance the city s legitimate interest in assuring that additional housing is built in the city that is affordable to residents, including low- and moderate-income households and dispersed throughout the city in order to encourage economic integration of the city s residents. I. This ordinance is adopted pursuant to the city s self-governing powers and the city s independent general police power to protect public health, safety, and welfare. Requiring affordable housing within certain developments is consistent with the community s housing goals of protecting the public welfare by fostering an adequate supply of housing for persons at all economic levels and maintaining both economic diversity and geographically dispersed affordable housing. J. Requiring developers of newly created market-rate housing to provide some housing affordable to low and moderate-income households is reasonably related to the impacts of their projects because: a. Rising land prices are a key factor in preventing development of new affordable housing. New market-rate housing construction in Bozeman has generally created strong and increasing demand for a finite stock of unbuilt land within the city, and thus continues to drive up the price of remaining land. New development without affordable units reduces the amount of land development opportunities available for the construction of affordable housing. b. New residents of market-rate housing place demands on services provided by both public and private sectors, creating a demand for new employees. Some of these public and private sector employees needed to meet the needs of the new residents earn incomes only adequate to pay for affordable housing. Because affordable housing is in short supply in the city, such employees may be forced to live in less than adequate housing within the city, pay a disproportionate share of their incomes to live in adequate housing in the city, or commute ever increasing distances to their jobs from housing Page 19 of 39

20 Purpose. located outside the city. These circumstances harm the city's ability to attain employment and housing goals articulated in the Community Plan and place strains on the city's ability to accept and service new market-rate housing development. The purpose of this article is to promote the public health, safety, and welfare by ensuring that the affordable housing needs of the residents of Bozeman are addressed. In addition, the purpose of this article is to ensure that quality housing is dispersed throughout Bozeman s neighborhoods for households of a variety of income levels including low- and moderate-income residents to meet the goals of the Community Plan and the Action Plan by encouraging a mix of housing types throughout the city and integrating affordable housing so as to not concentrate affordable housing in a particular area. In addition, the ordinance is intended to alleviate the impacts that would result from the use of available residential land solely for the benefit of households that are able to afford market-rate housing and to mitigate the service burden imposed by households in new market-rate residential developments by making additional affordable housing available for service employees. The ordinance is also intended to mitigate environmental and other impacts that accompany new residential development by reducing traffic, transit and related air quality impacts, promoting jobs/housing balance and reducing the demands placed on transportation infrastructure. The ordinance provides residential developers with a menu of options from which to select alternatives to the construction of inclusionary units on the same site as market-rate residential developments, and provides incentives for housing developers to ensure houses are constructed and sold in a manner that furthers the city s affordable housing goals. Finally, the ordinance provides incentives for housing developers who are not legally required to comply with the requirements for construction of inclusionary housing, but nevertheless choose to construct affordable housing. DIVISION 2. APPLICABILITY AND DEFINITIONS Applicability. A. This article applies to: Page 20 of 39

21 1. Subdivisions and site plans which propose 10 or more market-rate homes, to be created through development, new construction, substantial improvement or reuse. 2. Annexations where the net developable area of the annexing parcel when considering the applicable zoning could result in 10 or more dwellings. In such a case, the annexation agreement shall require the provision of affordable housing pursuant to this article. 3. Developments seeking to use incentives to develop affordable housing. B. Contiguous tracts under common ownership and control. A developer may not avoid the requirements for construction of affordable homes by submitting piecemeal applications for development. At the time of the initial application for approval of a subdivision or site plan, the developer shall identify all contiguous property under common ownership and control in the affordable housing plan required by section C. Development applications approved prior to the effective date of this article. A site plan or subdivision having received sufficiency approval as of the effective date of this article or a preliminary site plan or preliminary plat granted approval prior to the effective date of this article may apply for one or more of the incentives described herein. Only that portion of the amended preliminary plat or site plan pertaining to the request for approval of one or more incentives will be subject to review. The requirements of section for the amendment of plans will not apply. D. Newly proposed residential developments which include affordable housing in excess of this article s requirements for building affordable homes are eligible for incentives as provided in section Such request shall require the preliminary plat or site plan to evidence compliance with all other requirements of this article. E. Exemptions. Developments comprised exclusively of rental housing units are exempt from these requirements Definitions. 1. Affordable housing or affordable home A dwelling for purchase by an owner-occupant that requires no more than 33% of a household s income for housing payments and meets the definition of a lower-priced home or moderate-priced home. Page 21 of 39

22 2. Area Median Income or AMI As calculated by the U.S. Department of Housing and Urban Development (HUD), AMI is the median income for a family of four within a specific geographical area, such as Gallatin County. For each such region, HUD adjusts this AMI calculation for households of different sizes and updates the calculations annually based on estimated changes in area incomes. For purposes of this article, the city hereby adopts HUD s AMI calculations as an equitable and reasonable method to determine affordability, based on percentages of AMI specified in this article. 3. Common ownership or control Common ownership or control refers to property owned or controlled by the same person, persons, or entity, or by separate entities in which any shareholder, partner, member, or family member of an investor of the entity owns ten percent (10%) or more of the interest in the property. 4. Developer For purposes of this article, a developer is the person or legal entity, or their successor(s) in interest who: (a) submits an affordable housing plan for a subject property along with other submissions required for land use approvals, zoning, or permit reviews by the city, and/or (b) is the owner of property subject to this article during the development phase or a successor in title, such as a builder, obligated to implement the affordable housing plan required by this article with respect to one or more lots or parcels of land and/or (c) receives incentives for the production of affordable housing. 5. Lower-priced home Newly created dwelling for purchase, determined by the city in accordance with this article to be affordable to a household with an income between 65% and 80% of AMI. 6. Market-rate home Any dwelling subject to this article which is not an affordable home, including detached dwellings, attached town houses, and condominium units but not including housing units that are developed for exclusive use as a rental. The number of market-rate homes in a development is used to determine the required number of affordable homes, as described in this article. 7. Moderate-priced home Newly created dwelling for purchase, affordable to a household with an income between 81% and 100% of AMI. DIVISION 3. REQUIREMENTS. Page 22 of 39

23 Requirement to build and sell affordable homes. All development subject to this article must include affordable homes Number of affordable homes required. The number of affordable homes a developer is required to build is a percentage of the total dwellings in the development plan. A. The developer may: 1. Build and sell low-priced homes. 10% of the total dwellings constructed within the subdivision or site plan must be built and sold at price targets as established by the city pursuant to section to households with incomes at or below 80% of AMI; or 2. Build and sell moderate-priced homes. 30% of the total dwellings proposed must be sold at price targets as established by the city pursuant to section to households with incomes from 81% to 100% of AMI; or 3. Build and sell a mix of both types of homes. If a developer proposes a mix of both lowpriced and moderate-priced homes, the developer starts with the 10% calculation for low-priced homes. For each low-priced home eliminated from the resulting number, the developer may substitute three moderate-priced homes. The distribution of homes between the two categories of affordable homes will be identified in the affordable housing plan required by section In some cases, the city may prescribe the distribution of affordable homes to be built between the two categories pursuant to section B. Fractions. If the calculation of the required number of affordable homes results in a fraction of a home, this obligation will be satisfied by payment of a fee-in-lieu pursuant to section or by providing an additional moderate-priced home. C. Calculating number of affordable homes in phased developments. It is anticipated that in developments being built in phases, the number of market-rate homes may not be certain at the time the developer submits the affordable housing plan pursuant to section In such cases, the developer must estimate the number of market-rate homes and number Page 23 of 39

24 of affordable homes required for all phases. If the number of homes in the first phase of such development is certain at the time of the city s approval of the affordable housing plan, a separate affordable homes pricing and delivery schedule for that phase shall be incorporated in the affordable housing plan at the time of development or construction of each subsequent phase. As the number of homes in future phases becomes certain, the affordable housing plan shall provide for subsequent affordable homes pricing and delivery schedules for future phases of the development, consistent with the affordable housing plan and section B Pricing of affordable homes. A. The city will calculate on an annual basis the maximum sales price a developer may charge for each category of affordable home required by this article as follows: 1. Lower-priced homes. The sales price for lower-priced homes affordable to buyerhouseholds with incomes from 65% to 80% of AMI will be calculated based on a household income of 70% of AMI. 2. Moderate-priced homes. The sales price for moderate-priced homes affordable to buyer-households with incomes from 81% to 100% of AMI will be calculated based on a household income of 90% of AMI. B. Affordable home sales price schedule. 1. The city will annually publish a schedule of sales prices for low-priced homes and moderate-priced homes within 30 calendar days of the HUD s annual publication of updated AMI calculations. The sales price schedule will be effective on the date of publication by the city. The new sales price schedule will apply to applications for building permits received after the effective date of the new sales price schedule. A developer may request that a new sales price schedule apply to the sale of an affordable home approved under a previous sales price schedule. 2. The city, at the city s sole discretion, may recalculate the sales price schedule if prevailing mortgage interest rates have increased by 50 basis points or more over the assumption used for the previous schedule. Page 24 of 39

25 3. Considerations. The following factors will be considered by the city in calculating the sales price schedule. The Planning Director may make de minimis exceptions to application of these factors: a. AMI for the Bozeman area; b. Gross monthly income will be calculated as the appropriate HUD AMI calculations income divided by 12; c. The maximum monthly payment will be 33% of gross monthly income. The maximum monthly payment will include costs directly applicable to a mortgage such as payment of principal, interest, as well as assumptions for typical costs of taxes, public assessments, property insurance premiums, mortgage insurance premiums (assuming the higher of either government or private mortgage insurance), and homeowner/condominium association fees; d. The interest rate will be determined by the city by a survey of at least three local mortgage lenders, averaging their current rates for loans for homes with price ranges within the low-priced homes range and the moderate-priced homes range; e. The financing will be a conventional or government-insured fixed-rate loan with a term of 15 to 30 years; and f. A borrower will typically provide a down payment of 3% of the purchase price. C. Household occupancy assumptions. To determine the maximum sales prices of affordable homes with different numbers of bedrooms, the city will base its calculation on the AMIs for households of different sizes, as follows: 1. Zero bedroom or studio unit AMI for a one-person household; 2. One bedroom unit AMI for a two-person household; 3. Two bedroom unit AMI for a three-person household; and 4. Three bedroom unit or larger AMI for a four-person household Timing of delivery of affordable homes. Required affordable homes must be provided in accordance with the following: Page 25 of 39

26 A. In each development in which more than one affordable home is required to be sold, the affordable housing plan shall specify that affordable homes are to be sold concurrently and in proportion to the sale of unimproved lots or market-rate homes. Such timing of compliance will be represented in an affordable homes pricing and delivery schedule as described in section B. A developer may sell affordable homes earlier than required in an affordable housing plan Minimum design and construction standards for affordable homes. A. Required numbers of bedrooms in affordable homes. In each development subject to the requirements of this article, affordable homes shall represent a mix of bedroom sizes as similar as possible (given rounding of numbers) to the mix of bedroom sizes of the marketrate homes in the development. B. Standards for design and construction. The city shall define reasonable standards for the design and construction of affordable homes to ensure livability and compatibility with nearby market-rate homes in the development. Affordable homes may have different interior finishes and features than other dwellings within the development, as long as the finishes and features are functionally equivalent and of good quality. Finishes include, but are not limited to, design and materials, the provision of appliances, cabinets, and floor treatment. Features include, but are not limited to, the numbers of bathrooms, garages and parking areas, mechanical equipment and hookups, and green building features. C. Amenities. Affordable homes shall have the same amenities as the market-rate homes in the development, including the same access to and enjoyment of common open space and facilities in the development Submission of affordable housing plan; approval. A. Affordable housing plan. The applicant for any development seeking to utilize the incentives to create affordable housing or subject to the requirements of this article must submit an affordable housing plan in a form provided by or approved by the city that describes how the requirements of this article will be satisfied. When approved by the city, the affordable housing plan must be incorporated by reference in the recorded subdivision Page 26 of 39