TITLE
Recommendation to receive and file the report from MuniFinancial pertaining to the Housing Trust Fund. (Citywide)
DISCUSSION
In conjunction with the City Council's discussion about a proposed condominium conversion fee on January 23, 2007, staff was instructed to update the 2003 Housing Trust Fund study. Specifically, City Council requested the following:
1. Update the 2003 inclusionary housing study;
2. Update the 2003 commercial linkage fee study;
3. Examine Long Beach's condo conversion market and make recommendations regarding appropriate condo conversion fee levels in converted buildings;
4. Examine Long Beach Redevelopment Agency funds and make recommendations regarding the adequacy of our existing redevelopment housing set-aside; and
5. Provide advice on approaches to an inclusionary zoning ordinance.
Staff circulated a Request for Proposal for the study and entered into a contract with MuniFinancial in May 2007 to review and perform the tasks listed above. The consultant gathered relevant information and conducted a community meeting on May 29, 2007 to hear stakeholders' concerns and issues relevant to the study.
The data verification and analysis took longer than anticipated. MuniFinancial submitted a draft report in October 2007, which included findings and recommendations. However, because of the volatility of the real estate market, specifically the dramatic changes to the housing market in 2007 and early 2008, staff directed MuniFinancial to review its assumptions and revalidate its findings and recommendations. In June 2008, MuniFinancial submitted the attached report.
MuniFinancial's Findings and Conclusions:
MuniFinancial's study showed that if the City Council so decides, the City could:
1) Adopt an inclusionary zoning policy for new residential developments that would require developers to set aside 10 percent of total new homeownership units for moderate-income households and set aside 5 percent of new rental units for lowincome households, and provide an in-lieu fee option;
2) Charge a commercial linkage fee for new non-residential development, i.e. office, hotel and retail; and
3) Impose an inclusionary zoning policy on condominium conversions similar to that of new residential homeownership developments.
_____________________________________________________________________
Table 1: Proposed Fee Levels
______________________________________________________________________________
Residential Inclusion a Zoning % of units Affordable to In-lieu Fee
Rental Development 5% Low Income Households $ 10.78 per square foot
Owner-Occupied Development 10% Moderate Income Households $ 10.10 per square foot
Condominium Conversions
Apply Inclusionary Zoning Policy 10% Moderate Income Households $ 10.10 per square foot
Commercial/Industrial Linka e Fee
Office $ 4.00 per square foot
Retail $ 2.00 per square foot
Hotel $ 4.00 per square foot
Industrial None
_______________________________________________________________________________
Based on permits issued by the Department of Development Services in the last five years (2002-2006), the fees recommended by MuniFinancial could have generated an annual revenue of $2.95 million in inclusionary housing in-lieu fees, and $600,000 in commercial linkage fees. Assuming an annual average of 200 converted condominium units, revenues generated from condominium conversion fees could have been as much as $2 million a year. However, the number of building permits and condominium conversions in 2007 are not consistent with prior years' projections.
The study also gathered information on the fees (plan check fees, permit fees, development impact fees and affordable housing fees, if any) charged by other cities comparable to Long Beach, such as Santa Ana, Anaheim, Los Angeles, Huntington Beach, San Diego, and San Jose. The survey showed that Long Beach's existing fees for a prototype multi-family residential development are the highest among the surveyed cities, measured in terms of the fee burden as a percentage of the development's market value. For office and retail developments, Long Beach is in the middle of the range of fees charged by the comparable cities. With the addition of proposed affordable housing fees, Long Beach's total fees would be significantly highest among the surveyed cities for the same prototype multi-family residential and office development, while total proposed fees for a retail development would be at the higher end of the range of fees charged by comparable cities.
As for the Redevelopment Agency (RDA) funds, MuniFinancial found that 66 percent of RDA's revenues are earmarked for housing set-aside, revenue sharing with the County of Los Angeles and other agencies, and debt service. The remaining 34 percent are used to support other redevelopment purposes. Given the demands on the RDA's finances, MuniFinancial found it difficult to evaluate if the RDA could designate a larger portion of its tax increment revenues for affordable housing. To evaluate whether the RDA could increase its contributions to affordable housing would necessitate the review of capital improvement project lists and the economic impacts of forgoing enhancement projects within the project areas.
On November 20, 2008, staff asked MuniFinancial if their conclusions in the study would change, given the recent economic downturn and the fact that the report was submitted six months ago. MuniFinancial responded as follows: "Given the volatility in the real estate market, it is very hard to say what a snapshot six months ago would look like now. Under more normal market conditions, we could be more definitive, but not under these conditions. However, we would still stand behind the study's findings on the economic impact of the proposed policies, even if not a precise measure of the impacts in today's market. We would emphasize the study's recommendation for an appropriate phase-in of the proposed policies to accommodate a rebound of the housing market."
Staff's Response to the Study:
Like the rest of the country, Long Beach is experiencing' dramatic changes in the housing market and a significant downturn on development overall, based on new construction permits. While MuniFinancial recommends a phased-in imposition of additional fees for all new construction of multi-family housing, retail and office development, staff is concerned that any fee increases could have an adverse impact on that new development, and consequently, further slow down our struggling economy. As indicated in the report, Long Beach already has the highest fee burden for housing construction of the comparable cities surveyed. It is near the top of fees for office and retail development, and would have the highest fees in all three areas of development if the fee recommendations were to be imposed. In fact, the proposed housing construction fee burden, if and when fully implemented, would increase from 3.35 percent to 6.11 percent, almost double the City of Anaheim's fees, the next highest comparable city cited in the report.
It is important to note that the reason for updating the Housing Trust Fund study is to examine additional revenue sources for affordable housing. While the potential amount of revenues that could be generated may seem substantial, the impact of the proposed fees on new development may be problematic, especially in the current real estate market, and may be challenging, given the City's desire to attract new development and need to impose special taxes/fees for other City purposes.
On the other hand, if the City Council is interested in considering the additional fees recommended by MuniFinancial, it could direct staff to use them for a number of other community priorities including public safety, street and sidewalk repairs, and other unfunded capital needs. Staff is confident that affordable housing funding, while it could always be increased, is at a level now that is generating a significant number of new and rehabilitated housing units.
Staff would like to point out that for FY 08-09, the City, acting through The Long Beach Housing Development Company (LBHDC) has almost $112 million in resources for the provision of affordable housing. These funds come from redevelopment housing setaside funds, Federal HOME funds, and housing bond proceeds that can only be used for the provision of affordable housing. Staff also continues to pursue State and Federal funds to augment the LBHDC's current resources. The LBHDC uses its funds to leverage millions more in State and Federal tax credits, county and state bond funds, private developer funds and other resources to create a mix of ownership and rental housing for very low, low, and moderate-income families and individuals. Moreover, both the Central and North Redevelopment Project Areas, covering almost one-third of the City, have inclusionary affordable housing requirements for all new housing developments in those project areas.
The table below lists the resources available to the LBHDC in FY 09, as well as the budgeted and proposed expenditures. The funds will be spent starting in FY 09.
This letter was reviewed by Deputy City Attorney Richard F. Anthony on December 1, 2008, and Budget Management Officer Victoria Bell on December 1, 2008.
TIMING CONSIDERATIONS
City Council action on December 16, 2008 is not critical.
FISCAL IMPACT
None.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
DENNIS J. THYS
DIRECTOR
DEPARTMENT OF COMMUNITY DEVELOPMENT
|
NAME |
APPROVED: |
|
TITLE |
|
|
|
|
|
|
PATRICK H. WEST |
|
|
CITY MANAGER |