Expectations for including affordable housing in rezoning applications o 15% of units or o comparable contributions cash

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1 AFFORDABLE HOUSING PROFFER POLICY Planning Commission Work Session September 15, 2015 Staff Report prepared by Ron White, Chief of Housing Purpose The work session is intended to focus on the proffer policy and implementation practices associated with affordable housing and includes information regarding status of existing proffers. Discussion will include some of the more recent issues that are tending to impact the success of the policy. Input from the Planning Commission, staff, and industry groups may lead to proposing revisions to the affordable housing section of the newly-adopted Comprehensive Plan and implementation strategies. Background Affordable Housing Policy was adopted in 2004 and included several strategies to promote affordable housing in the County. Many of the original strategies were retained in the Housing section of the revised Comprehensive Plan adopted by the Board of Supervisors in June 2015 (ATTACHMENT A). Objective 6 of this section particularly relates to affordable housing options. The policy defines affordability as housing that did not cost more than 30% of a household s income but further stated that County programs and policies would focus on those households with incomes below 80% of the area median income. Strategies specific to the rezonings included Expectations for including affordable housing in rezoning applications o 15% of units or o comparable contributions cash Use of proffers to achieve expectations (ATTACHMENT B) Since 2004 approximately 1,250 units of affordable housing have been proffered (ATTACHMENT C). These include For-sale, Rental, and Accessory units. In addition, approximately $1.5 million in cash has been proffered. Specific criteria for each housing type is expected in approved proffers. For-sale housing has a maximum sales price to qualify as affordable o Maximum Sales Price based on incomes at 80% of the area median income o Notification/Availability Period Rental Properties (generally multifamily) o Maximum Rents o Reporting Leases for x number of years (5, 10) o Periodic reporting as requested by the County Accessory Unit o No specific requirements o Type of unit deemed to meet the affordable criteria (rent) Cash o Amount equals 10% of the affordable sales price o Schedule for pay-in Some proffers also include language that allows the County and/or the developer to request/propose cashin lieu of units at the site plan stage.

2 PC Work Session Page Two Production Initial production was positive with the first nine for-sale units selling almost immediately. Ninety-five affordable rental units were produced with 88 of those having long-term affordability requirements through the use of federal low-income housing tax credits. Activity was very limited from 2007 until more recently. The attachment provides information on developments completed and those currently active. To summarize o 37 for-sale units have received COs with 27 sold to qualifying families o 95 affordable rentals were built o 61 accessory units were built It is important to note that when the first proffered, for-sale units were built builders were typically building speculatively. These units were marketed for sale to qualified homebuyers, some of whom worked through the Housing Office and some through Piedmont Housing Alliance (PHA). Most of the purchasers were identified by sales agents for the respective development. At that time, the Housing Office had a homebuyer counselor and the County was funding a down payment assistance program through PHA. In the past year, we have experienced a number of units not sold during the notification period and ultimately sold on the open market. Developers get to count these as meeting the proffer requirements. Most of these units have sold at a price within the maximum affordable sales price limits but not to a qualified purchaser. This trend could continue as circumstances beyond the control of the developer, builder, and County continue. The following identifies some of the issues that have come to light over the past year. In addition to unit production, the County has received over $800,000 in cash for affordable housing initiatives from both proffers and special use conditions. $300,000 was used to provide down payment assistance, $111,385 supported some rehab activities undertaken by the Albemarle Housing Improvement Program, PHA, and Habitat for Humanity. $30,000 was used to leverage and $700,000 federal grant to rehab 25 homes in the Orchard Acres subdivision. (ATTACHMENT D) Issues Market-related Issues o Building to contract vs. speculation o Overall costs (land may be stabilized for now but other costs are up) o Changes in mortgage qualifying requirements Credit scores Higher Scores (generally above 700) Down payment Fewer low down payment loans Twenty percent down to avoid mortgage insurance Mortgage insurance premiums ($140/month for life of loan) Limitations on subordinate deeds of trust Must by FHA approved Governmental programs usually okay but resources limited

3 PC Work Session Page Three Calculating Affordability o Use of VHDA sales price limits as benchmark Avoids calculating based on actual family income o Does not consider cost of Homeowner Association fees ($190/month) Mortgage Insurance Premiums Resources o Housing Counselor/Proffer Coordinator for-sale properties Sales of the first proffered units were coordinated by a Housing Counselor in the Housing Office. This position no longer exists. o Lack of down payment assistance Federal sources (HOME) program and Community Development Financial Institution (CDFI) have been reduced. Current budget in Senate essentially eliminates the HOME program. The County invested over $1.5 million, including $300,000 in proffer funds for down payment assistance from 2000 through Use of housing units o Affordability of for-sale houses is only required for the first homebuyer o Control of accessory units Addressing these issues and possibly others will be difficult for those proffers already approved. However, we want to use this work session to at least begin the discussion for revising the implementation strategies of the affordable housing policy. Addressing the known issues and anticipating future issues will likely require a policy with sufficient flexibility to accommodate changes that can be impacted by policy. Unfortunately, changes in the real estate market and mortgage industry are not easily anticipated nor do we have control over them. Note that we still have existing proffers to manage that can only be changed by actions of the developer and approved by the Planning Commission and Board. However, we should consider revising our implementation practices including proffer language to avoid some of the known issues and attempt to have more flexibility as the market changes. To start this process, it would be helpful to consider some key questions. What are the goals to be achieved? Two apparent goals are increasing affordable housing stock and having an economic mix of homeowners and renters. While these two goals are not mutually exclusive the former does not guarantee the latter. Are proffers the best way to achieve the goal(s)? Proffers may be a better way to achieve an increase in affordable housing stock short of having an ordinance requiring affordable housing. Albemarle County has enabling authority under Virginia Code to establish such an ordinance. Fairfax County is often cited as a model for an affordable housing ordinance. Their ordinance requires that the County provide incentives to the developer in exchange for getting affordable housing units. The

4 PC Work Session Page Four County sets the maximum sales price annually for the units and utilizes its Housing Authority to coordinate the sales, provide financial assistance, monitor long-term deed restrictions, and purchase units. Fairfax s ordinance also uses a formula based on the current minimum and maximum densities and the proposed minimum and maximum densities. The formula results are used in a sliding scale to determine the percentage of units necessary to comply with the affordable housing ordinance. An ordinance in Albemarle County similar to the one in Fairfax County will not likely produce the number of units due to the existing density provisions in Albemarle County s development areas and the typical development has not, to date, achieved that maximum density. Proffers are proving somewhat problematic in addressing the socio-economic aspect intended by the policy. As previously mentioned, many of the more recent issues, previously noted, are associated with elements that are not within the control of the County. Are there other programs/initiatives/investments that could better achieve the goals? If the goal is to increase affordable housing stock, developers would need to proffer both sales price and expected appraised value. If a unit is built appraising for more than the affordable sales price and is sold at a discounted price to meet the proffer, no affordable unit has been produced. Although proffers run with the land, it is not always evident that a successor owner (builder) understands the requirements for including affordable housing. To assist in compliance developers should include the affordable housing proffers as an addendum to the sales contract. If the priority is to provide housing to one or more specific populations (income groups), simply building the units and offering them for sale is not a guarantee that this goal will be met. Current proffers generally do not require a builder to hold an affordable unit more than thirty (30) days after receipt of the certificate of occupancy. After that time the unit can be sold at whatever the market will allow. The County may have to become more active in promoting the County s affordable housing program including contact information for developers and builders providing affordable units. The County could also consider providing some level of downpayment assistance for the homebuyer which could set maximum sales prices and appraised values and require future sales to be to the same population by allowing the balance of the downpayment assistance to be assumed by a future purchaser. Down payment assistance will vary from one purchaser to another based in part on requirements of the funding source. However, to avoid mortgage insurance premiums, a twenty percent (20%) down payment would be required. At this level, a one million dollar investment would help twenty homebuyers. Promoting partnerships between developers/builders with not-for-profits such as the Community Land Trust and Habitat could achieve a number of objectives. Not-for-profits generally target lower-income homebuyers but also have mechanisms to control the initial sales price and future sales prices so that units will remain affordable. Such mechanisms include, in the case of the Land Trust, the ownership of the underlying land and affordability controls built into the lease. For both the Land Trust and Habitat, the use of restrictive covenants, deeds of trust, and buy-back options can help with long-term affordability. Initial discussions with these two groups indicate that they would need some assistance to purchase developed lots. This could be a consideration for use of proffered funds.

5 PC Work Session Page Five Staff recommendations Staff requests that the Planning Commission receive and discuss this report providing feedback for further review and discussion. Staff also believes that a lot of work is needed with the real estate industry including developers, builders, and lenders before any significant changes are proposed to the proffer policy for affordable housing but first the County needs to have clear goal(s) and objective(s). To that end, staff would like some direction on the following questions to develop the next steps. 1. What is the County s goal with respect to the affordable housing policy? Is the priority producing units to add to the housing stock or is it to proactively target particular income groups for the purchase/rental of affordable units? 2. Should the development of an ordinance be a consideration given that developers still have to voluntarily participate in an affordable housing program? 3. Should the County consider financial assistance to targeted homebuyers? 4. Should proffered funds be used to support any affordable housing initiative or should they be restricted to creation of new affordable housing? 5. Should proffered funds provided by one developer be provided to an organization that helps another developer meet his proffers? 6. Will the PC members actively participate in one or more roundtables with industry representatives over the next few months? 7. Should the County increase staffing to support and coordinate the implementation of affordable housing proffers? (Strategy 6d)

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