On Your Mark Get Ready Get Set GO!!!! Developing Model Inclusionary Housing Practices 2016 NALHFA Annual Conference Dallas, Texas April 14, 2016
Off to the Races Introductions An Overview of Inclusionary Housing An Inclusionary Housing Case Study: San Jose An Inclusionary Housing Case Study: Portland An Inclusionary Housing Case Study: San Francisco Questions & Answers 2
Preparing for the Race What You Need to Know About Inclusionary Housing
What is Inclusionary Housing/Zoning? Inclusionary Housing or Inclusionary Zoning broadly describes a set of policies and practices that work through local land use approvals to either offer incentives or require developers to make a share of otherwise market-rate housing affordable to low or moderate income households. 4
Growing National Interest States with Local Inclusionary Policies Source: Hickey, Sturtevant and Thaden, Achieving Lasting Affordability through Inclusionary Housing, Lincoln Institute of Land Policy, 2014. 5
Not all states laws are equal Need to check YOUR State s law Not all states have laws that allow inclusionary policies. *Oregon and Texas legally prohibit mandatory inclusionary requirements and other states local jurisdictions stay away from the policies because they are concerned about the potential of litigation. * Senate Bill 1533-B was signed into law April 1, 2016. Localities statewide may enact inclusionary policies after November 30, 2016. In June of this year, the California Supreme Court upheld Inclusionary Housing ordinance as valid exercise of police power in California Building Industry Associations v. City of San Jose. 6
What Should You Be Thinking About Inclusionary Housing Policy Development & Implementation Why Consider IH Policies High cost housing creating rent burdens Looking for tools to help hedge against neighborhood displacement Address concerns about the ability to provide affordable workforce housing near city centers Helps AFFH and disperses affordable housing in opportunity neighborhoods Requires less direct subsidy Highly flexible land use regulatory tool 7
What Should You Be Thinking About Inclusionary Housing Policy Development & Implementation Concerns When Implementing IH Fairness why should developers and purchasers on market housing bear the cost of affordable housing development? Concerns about the market impact (increased unit values) and developer profit loss NIMBY It is not a panacea for solving affordable housing needs Highly individualized for your locality Takes time for program to show impactful results 8
Training for the Win A Case Study of San Jose
San Jose What is there to know The Place 3 rd largest city in CA 10 th largest city in nation 180 square miles One of America s safest big cities Urban center for Silicon Valley 50% of the country's top patent producing cites; 40% of all capital investment in US invested in Silicon Valley companies The People 1,000,536 Residents Nearly 40% residents foreign born 43% of workforce has Bachelor s degree or higher Growth Projections: 470,00 new jobs 120,000 new housing units by 2040;
San Jose What is there to know about the housing market Market Average SJ Home Sales Price $825,000 minimum income: $109,000 Average SJ Condo Sales Price Average 1bd/1bth Rent Average 2bd/2bth Rent $465,000 minimum income: $160,000 $2,209/month minimum income: $88,360 $2,750/month minimum income: $110,000 2021 residential permits (70 for affordable housing) pulled in 2015
San Jose Why is affordable housing needed Affordable Housing Needs Housing Burden: 50% of renters, 40% of owners 17,000 on Section 8 waiting list 4,000 homeless on any given day 7th largest homeless population nationally; 32% chronically homeless Most mobile home parks in CA: 52 parks, 10,000+ homes 60% in occupations with median incomes in the lowincome category Citywide need 2014-2023: 34,721 homes 20,849 moderate and below Significant decline in resources
San Jose Staying the Course December 2007 January 2010 2010 2013 June 2015 February 2016 July 1, 2016 Study begins Council approves the Ordinance CBIA challenges the Ordinance CBIA wins during the trial but loses on appeal CA Supreme Court unanimously affirms the Court of Appeals U.S. Supreme Court declines to hear the petition Implement the Ordinance 13
San Jose What does the Inclusionary Housing Ordinance look like? REQUIREMENTS When building 20 or more homes, 15% on-site requirement for homeownership priced at 110% but sold to 120%, Equity Share NOT Deed Restriction ALTERNATIVES 20% requirement if an alternative is selected Build homes off-site Pay an In-lieu fee Dedicate land suitable for construction of IH homes Acquire and rehabilitate for lower income level INCENTIVES Density bonus, flexible parking, reduction in setbacks, alternative units & size, process assistance, non-city subsidies
Running the Race A Case Study of Portland, Oregon
Portland s Need What Does the Data Say? Persistent & intractable homelessness 1,880~ for 3 years Rapid inflation in the rental market: 30% in 5 years 15% in 2015 Sustained high occupancy rates 96.5% for 5 years Declining wages among low wage workers -5.4%/5 years Minimum wage increased to $14.75/hour by 2020 Citywide unmet housing need 24K low income households 10K more affordable housing units needed by 2035 16
Portland s Need Serving the Missing Middle 1 Person HH $30,900-$41,200 2 Persons HH $35,200-$47,050 3 Persons HH $39,720-$52,950 White Black Native American Asian Hawaiian- Pacific Islander Hispanic- Latino All Communities of Color 16% of all White Households 11% of all Black Households 9% of all NA Households 15% of Asian Households 28% of Hawaiian-Pacific Islander Households 19% of Latino Households 17% of all households within Communities of Color Portland s typical 60-80% MFI households Percentage of Different Communities Earning 60-80% MFI 17
Portland s Need Where Do They Live? Portland Housing Market Snapshot: July 2015 18
Portland s Current Approach Voluntary Inclusionary Housing Policy Voluntary Central City Bonus of 3:1 Base entitlement: 4:1 and 6:1 Recalibrated 18 density bonuses to 2: affordable housing and historic preservation Central City 2015-2035 Forecast: 24,000 housing units Benefit Up to 80% Median Family Income for 60 years Fee in Lieu Contribution: $32-$38/square foot paid to HIF Allow FAR Transfers for Historic Preservation purposes Evaluate costs every three years Report production annually in the Portland State of Housing EPS estimates 800-1,300 hard units in the Central City EPS estimates $120-$200 million fee in lieu in the Central City
Portland s Policy Actions and Proposals: Mandatory inclusionary housing legislation approved Up to 20% of units affordable at 80% MFI for 20+ unit Multi-Family & MXD Use projects Developer cost offsets: FAR transfers, property tax and SDC waivers, direct financing with TIF, CET or priority permitting processing November 30, 2016 enactment @ soonest Commercial and residential construction excise taxes (CET) authorized statewide beginning June 3, 2016 TIF set-aside for housing increased from 30% to 45%: $270 mm Commercial & Industrial development nexus study underway to determine linkage & fee rates AirBnB; VRBO revenue for housing approved, moving to securitize (estimate $14mm) in 2016 Design review process for affordable housing modified; compress permit process & establish internal city priority for publically-funded housing 20
Inclusionary Housing Case Study: Broadway Tower 19 story mixed-use hotel/office tower in Downtown Portland Seeking FAR bonus through city design review process Developer is exploring a market-rate/affordable housing development on adjacent property to meet bonus requirements
Crossing the Finish Line A Case Study of San Francisco
San Francisco s Affordability Crisis What Does the Data Say? Current Average Rent for 2-bedroom Apartment: $5,000 Annual Salary Needed to Afford Average Rent: $200,000 Percentage of Average Median Income: 250% for 2-person household 200% for 4-person household Source: https://www.zumper.com/blog/2015/10/zumper-national-rent-report-october-2015/ Current Average Sales Price: $1,080,750 Annual Salary Needed to Afford Average Sales Price: $200,000 (with 20% down payment) Percentage of Average Median Income: 250% for 2-person household 200% for 4-person household Source: Zillow, http://www.zillow.com/san-francisco-ca/home-values/ 23
San Francisco s Mandatory IH Policy What are the Requirements? All Projects with 10+ New Units Pay Fee at 20% OR Alternatives to Fee On-site Units at 12% Off-site Units at 20% Land Dedication in One Plan Area Ownership at 90% of AMI Rental at 55% of AMI Ownership at 70% of AMI & within 1 mile Rental at 55% of AMI 24
San Francisco s Mandatory IH What has been the Affordable Housing Production? All Completed Projects 1992-2015 Q3 Combo On/Fee 1% [CATEGORY NAME] Less than 1% Inclusionary Projects in the Pipeline as of 2015 Q2 Combo On/Fee 2% Land Dedication 1% Off-Site 4% Fee 19% On-Site 76% Fee 39% On-Site 58% Off-Site 0% Total Projects = 226 Total Projects = 83 On-site projects: 171 Off-site projects: 9 Fee projects: 43 Combo On/Fee: 2 Land Dedication: 1 Total projects: 226 On-site projects: 48 Off-site projects: 0 Fee projects: 32 Combo On/Fee: 2 Land Dedication: 1 Total projects: 83 25
Robert Hickey s Seven Lessons of IH 1 It doesn t kill the market (if designed well) 2 3 4 5 6 7 Mandatory has the best track record (strong incentives needed for voluntary to work) Apply it broadly Make it predictable Make it flexible Make it win-win (provide cost offsets) Make it long-term 26
Resources: Making Inclusionary Housing More Flexible: Four Ideas for Urban Settings, Center for Housing Policy, Robert Hickey The Effects of Inclusionary Zoning on Local Housing Markets, Furman Center for Real Estate & Urban Policy, NYU Inclusionary Up-zoning: Tying Growth to Affordability, Center for Housing Policy, Robert Hickey 27
For additional information, contact: Kurt Creager, Director Portland Housing Bureau Kurt.Creager@portlandoregon.gov David A. Jackson Visiting Advisor, Community & Economic Development Federal Reserve Bank of Atlanta David.A.Jackson@atl.frb.org Olson Lee Mayor s Office of Housing and Community Development Olson.m.Lee@sfgov.org Dawn J. Luke Senior Vice President, Community Development Invest Atlanta dluke@investatlanta.com Jacky Morales-Ferrand Director, Department of Housing City of San Jose Jack.Morales-Ferrand@sanjoseca.gov