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CITY CLERK
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: November 18, 2008
SUBJECT: PUBLIC HEARING: PA 08-041 Amendments to the City of
Dublin Inclusionary Zoning Regulations and Layperson's
Guide.
Report Prepared by John Lucero, Housing Specialist and John
Bakker, City Attorney
ATTACHMENTS: I) Ordinance Amending Chapter 8.68 of the Dublin Municipal
Code relating to Establishing Fixed Sales Prices for Owner-
. Occupied Inclusionary Units; Eliminating the Requirement to
Construct Owner-Occupied Very-Low Income Units; and,
Altering the For-Sale Inclusionary Unit Income Ratios.
2) Resolution Repealing Resolution No. 94-04 and Approving
Guidelines Implementing the Inclusionary Zoning
Regulations; Authorizing the City Manager to Subsequently
Amend the Guidelines; and, Authorizing the City Manager to
Execute Resale Restriction Agreements and all Legal
Documents that are consistent with the Council-Approved
Guidelines, with the current Layperson's Guide to the
Inclusionary Zoning Ordinance Regulations attached as
Exhibit A and the proposed Layperson's Guide to the
Inclusionary Zoning Ordinance Regulations attached as
Exhibit B.
3) Resolution No. 08-35, a Resolution of the Planning
Commission of the City of Dublin, Recommending that 'the
City Council Adopt an Ordinance Amending Chapter 8.68 of
the Dublin Municipal Code (The Inclusionary Zoning
Regulations) Relating to Establishing Fixed Sales Prices For
Owner-Occupied Inclusionary Units; Eliminating the
Requirement to Construct Owner-Occupied Very-Low-
Income Units; and Altering the For-Sale Inclusionary Unit
Income Ratios.
4) Chapter 8.68 of the Municipal Code.
5) Sample of the Fixed Sales Price of a Unit.
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COPY TO: Planning Commission
Housing Committee
Interested Developers
Page 1 of 7
ITEM NO.
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6) Housing Committee Meeting Draft Minutes dated October 9,
2008.
7) Planning Commission Meeting Draft Minutes dated October
28, 2008.
RECOMMENDATION: 1) Receive Staff presentation;
`~ 2) Open the public hearing;
3) Take testimony from the public;
4) Close the public hearing and deliberate;
~___. 5) Waive reading and introduce an Ordinance of the City of
Dublin Amending Chapter 8.68 of the Dublin Municipal
Code (The Inclusionary Zoning Regulations) relating to
establishing fixed sales prices for owner-occupied
inclusionary units; eliminating the requirements to construct
owner-occupied vary-low income units; and, altering the for-
sale inclusionary unit income ratios (PA 08-041); and
6) Adopt Resolution Repealing Resolution No. 94-04 and
Approving Guidelines Implementing the Inclusionary Zoning
Regulations; Authorizing the City Manager to Subsequently
Amend the Guidelines; and Authorizing the City Manager to
Execute Resale Restriction Agreements and all Legal
Documents that are consistent with the Council-Approved
Guidelines.
FINANCIAL STATEMENT: There would be no additional financial impact for Staff to administer
the proposed Amendments to Chapter 8.68, Inclusionary Zoning
Regulations.
PROJECT DESCRIPTION:
Background
On July 9, 1996, the City Council adopted the first version of the Inclusionary Zoning Regulations
(Ordinance 14-96). The purpose of the Regulations was to further the City's goal of making available an
adequate supply of housing for persons of all economic segments of the community, and contributing to
the attainment of this goal by increasing the production of residential units affordable to households of
very low-, low-, and moderate-incomes. There .was one project approved (Toll Brothers, The Terraces)
under this early version of the Regulations. Over the years, there have been modifications to the
Regulations which include changes to the amount that developers may pay as in-lieu fees; the required
percentage of affordable units a developer must build; the length of time units must remain affordable;
and the way the sales price and rent are calculated.
On May 21, 2002, the City Council substantially amended the Inclusionary Zoning Regulations which
included modifications to Section 8.68.020A, which established criteria on how rents and sales prices
were calculated (Attachment 4). Under Section 8.68.020A, the sales prices for owner-occupied
Inclusionary Units and rental Inclusionary Units are handled distinctly. With regard to owner-occupied
units, the Regulations provide that the prices for moderate- and low-income units are calculated on the
individual household's actual income. Each individual household price is calculated for an Inclusionary
Unit at a price that would allow an applicant, in the pertinent category, to pay no more than 35% of the
household income toward housing expenses (Section 8.68.020.A.2.). The result of the current calculation
process is that every Inclusionary Unit sold has a different sales price, with the exception of The Terraces,
which were approved under the first Inclusionary Zoning Regulations and has established sales prices.
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Because the prices are based on individual, household income, it was determined that when pricing avery-
low-income unit, the maximum income of the low-income category adjusted for household size is used.
By contrast, rents for Inclusionary Units are based on the maximum income within the very low-, low-,
and moderate-income levels published by the State (Section 8.68.020.A.1). The Regulations state that
annual rent for an Inclusionary Unit may not exceed 30% of the maximum income level for very low-,
low-, and moderate-income households, adjusted for household size.
Proposed Updates
Proposal to Calculate Sales Prices of Owner-Occupied Inclusionary Units Based on Fixed Income
Levels and Household Sizes.
As mentioned above, the procedure used to calculate the maximum sales price for each owner-occupied
Inclusionary Unit is determined by assuming that the original. homebuyer will pay no more than 35% of
their household income toward their total housing expense, including principal, interest, property taxes,
insurance, and homeowner's association dues. In addition, in the calculation it is assumed that the
prospective buyer will make a 5% down payment. When the house is resold by the original purchaser, the
sales price is not based on the new purchaser's income level. Rather, the sales price is based on the
original purchase price plus a percentage increase, if any, set by the State of California Income Limits for
that particular year. New purchasers are qualified based on their income, adjusted for household size. As
long as their income is below the maximum for the income category, they could be qualified to purchase
the home.
Based on Staff's experience over the last few years, the guidelines and procedures for calculating the
maximum sales price of an owner-occupied Inclusionary Unit should be updated in order to create pricing
that will facilitate implementation and monitoring of the Inclusionary Housing Program.
Staff proposes to establish set sales prices based on fixed income and household size assumptions within
each of the two income-levels (i.e. low and moderate). Staff and the development community have found
that establishing an individual sales price for each owner-occupied Inclusionary Unit is time consuming
and costly for both the City and the Developer. It also makes it difficult for Developers to market units,
since the price of the unit depends on the purchaser's household size and income level. Using afixed-
price approach based upon income categories would assist the Developer in creating financial statements
that reflect set sales prices instead of an average sales price for each income category and will save time
and resources for the City.
In moving to this fixed-price approach, Staff proposes to follow the provisions of Section 50052.5 of the
Health and Safety Code that apply to California redevelopment agencies. Under this proposed approach,
the Units would be priced based on a designated income point that would be affordable to a greater range
of households in each applicable income category. Staff proposes the following income points:
• For Low-Income Households (household income of between 50% and 80% of Area Median
Income), the sales price would be set at a level so that the total monthly housing payment would
not exceed thirty-five percent (35%) of one-twelfth of seventy percent (70%) of the Area Median
Income for Alameda County.
• For Moderate-Income Households (household income of up to 120% of Area Median Income); the
sales price would be set at a level so that total monthly housing payment would not exceed thirty-
five percent (35%) of one-twelfth of one hundred and ten percent (110%) of the Area Median
Income.
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The Area Median Income is the midpoint in the income distribution within a specific geographic area. By
definition, 50% of households earn less than the. median income, and 50% earn more. The U.S.
Department of Housing and Urban Development calculates Area Median Income levels for different
communities annually, with adjustments for family size. Area Median Income is used to determine the
eligibility of applicants for both federally and locally funded housing programs.
The fixed sales price approach would be based upon the number of bedrooms in the home instead of the
number of persons in the particular household. For example, if a developer is selling atwo-bedroom unit,
the sales price would be calculated under the "number of bedrooms, plus one" rule for the assumed
household size. In each case the sales price would be set based upon the following assumed household
sizes for the following sizes of residential units:
No. of Bedrooms Assumed Household Size
1 2
2 3
3 4
4 5
Thus, atwo-bedroom, moderate-income For-Sale Inclusionary Unit would have a set price calculated
using 110% of the Area Median Income for a household of three. In this example, see Attachment 5 for
methodology. The fixed sales price of the unit would be $327,307.
Proposal to Eliminate Owner Occupied Very-Low Income Units/Proposal to Alter For-Sale
Inclusionary Unit Income Ratios
The increase in housing ownership in the United States during the late 1990s and early 2000s was largely
driven by mortgage lenders relaxing credit standards. Instead of rationing credit based on a homebuyer's
ability to meet minimum underwriting standards, lenders began to price for greater risk. In effect, this
shifted access to credit from the ability to meet uniform standards to the willingness of borrowers to pay
higher interest rates in return for more liberal standards.
In the past year, the mortgage industry has turned from relaxed credit standards to stringent minimum
credit standards. Federal Housing Authority insured loans have replaced many of the mortgage products
for first time homebuyers. Federal Housing Authority loans and other mortgage loan programs now
require a down payment of at least three to five percent.
In addition, a majority of mortgage lenders have returned to using a maximum household debt-to-income
ratio of between 35%-40% in qualifying households for mortgage loans. Debt-to-income ratios are
determined by dividing the household's monthly gross income by the household's total monthly liabilities,
including the proposed total monthly housing payment plus all other debt.
Very-low-income households often struggle to remain current on mortgage payments and have less money
to spend for home maintenance, monthly incidentals, and cost of living expenses. Studies show that more
than half of homeowners with incomes under $20,000 did not spend any money on home improvements in
the prior 2-year period. Among those with incomes between $20,000 and $40,000, the median amount
spent expressed as a share of $1,000 of house value was only 1.0%, but for those with incomes of $40,000
to $60,000 it was 3.2% and over 5% for those earning between $80,000 and $120,000.
At the present time, the City has 18 entitled (planning approvals) very low income for sale units. Of these
units, 4 have been sold and occupied; 2 are for sale; and, 12 have not yet been built. Because of the
current market trends, developers are having difficulty finding very-low-income households that are able
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to qualify for a loan and who meet the requirements of the Inclusionary Zoning Regulations to purchase a
below market rate home. Very-low-income households typically do not have the required down payment
and/or closing costs to purchase a home. The City has seen a few applications from very-low-income
applicants, but most have been disqualified because of the inability to meet minimum lender requirements.
If households are able to qualify for a loan, it has been typical for households to exhaust all of their
financial resources to get into the home, leaving little or no reserves for emergencies or day-to-day
expenses that are required to maintain a mortgage and upkeep of a home.
After much research on how other jurisdictions handle the requirement to provide housing for very-low-
income households, Staff is recommending that the requirement to build owner-occupied for-sale very-
low-income units be eliminated, and the ratio for providing Inclusionary owner-occupied units be updated
to require the Developer to provide 60%moderate-income units and 40% low-income units.
Staff proposes the following ratios for owner-occupied units:
Existing: Proposed:
^ 50% to moderate-income households 60% to moderate-income households
^ 20% to low-income households 40% for low-income households
^ 30% to very-low-income households 0% for very-low income households
Ordinances can be changed, and it is important to note that should the market change and new loan
products become available, the City Council could revisit this issue in the future.
The current ratio for rental properties has not been a problem and appears to be acceptable within the
current market. Therefore, Staff is not proposing any changes. The ratios would remain:
^ 50% to moderate-income households
^ 20% to low-income households
^ 30% to very-low-income households
Revisions to Layperson's Guide to the Inclusionary Zoning Regulations and other Legal Documents
On June 1, 2004, the City Council approved the Layperson 's Guide to the Inclusionary Zoning Ordinance
Regulations (The Guide). The purpose of the Guide was to assist the layperson in interpreting the
Ordinance: The Guide was designed to assist developers early in the development process so that
Residential Development projects are sensitively designed from the beginning in compliance with the
requirements of the Inclusionary Zoning Regulations (Exhibit A to Attachment 2).
Based on its experience during the last several years implementing the Inclusionary Zoning Program, City
Staff has substantially revised the Guide with the result being the Guidelines to the Inclusionary Zoning
Ordinance (Exhibit B to Attachment 2), which is presented for City Council consideration and approval.
Many of the revisions are editorial. However, the following are the key policy changes and clarifications
to the program made by the proposed Guidelines:
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^ Various clarifications of the requirements for buyers of Below Market Rate Units. These include:
o A minimum credit score of 620 (FICO);
o A 3% down payment requirement; and
o A homebuyer education requirement;
o Clarification of the types of acceptable and unacceptable loan products:
^ For instance, 40-year mortgages are permissible, and variable-rate, no-down
payment, and negative amortizing loans are impermissible; '
o Adebt-to-income ratio requirement was established; and
o Detailed clarification of what constitutes household income for the purposes of
qualification.
^ Clarification of how capital improvements are handled. Under certain circumstances a below
market rate owner may increase the sales price of the below market rate unit to reflect the cost of
capital improvements made to the unit:
o The Guidelines include a list of capital improvements for which an owner will or will not
be eligible for an increase;
o The procedure for obtaining City approval for•Capital Improvements is outlined; and
o A cap on the total amount of Capital Improvements eligible for an increase is established.
^ Secondary Below Market Rate Units:
o Based on Staff's experience with the Secondary Units in the Positano Project, Staff
includes procedures and requirements for below market rate secondary units.
In the course of its use of the current version of the Guide and the implementation of the Inclusionary
Zoning Regulations, City Staff has found that new issues arise every day and that circumstances change
quickly in the residential housing and finance marketplace. Therefore, Staff. recommends that the City
Manager have the authority to amend the Guidelines to the extent that those amendments are consistent
with the purposes of the Inclusionary Zoning Regulations. The resolution approving the Guidelines
authorizes the City Manager to make changes to the Guidelines provided that they are consistent with the
Inclusionary Zoning Regulations. The Guidelines will become effective once the Ordinance amending the
Inclusionary Zoning Regulations becomes effective.
October 7, 2008 Development Community Meeting
On October 7, 2008, Staff met with members of the development community to go over the proposed
modifications to the Inclusionary Regulations and Layperson's Guide. Invitations to the meeting were sent
to Dublin's six active developers and their partners. The meeting attendees included Dale Garren with
Pinn Brothers, Mike Seeley with DHI Mortgage representing DR Horton, Kern Boch-Willmes with the
Tri-Valley Housing Opportunity Center and Charles McKeag with Citation Homes. All attendees
expressed support of Staff's proposals.
October 9, 2008 Housing Committee Meeting
At the October 9, 2008 Housing Committee meeting, members of the Committee received an
informational presentation from Staff regarding the proposed revisions to the Inclusionary Zoning
Regulations, and unanimously recommended the Planning Commission review the proposed revisions to
Dublin's Inclusionary Zoning Regulation (Attachment 6).
October 28, 2008 Planning Commission Meeting
At the October 28, 2008 Planning Commission meeting, members of the Commission received an
informational presentation from Staff regarding the proposed revisions to the Inclusionary Zoning
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Regulations, and unanimously approved Resolution No. 08-35, recommending that the City Council adopt
an Ordinance amending Chapter 8.68 of the Dublin Municipal Code (The Inclusionary Zoning
Regulations) relating to establishing fixed sales prices for owner-occupied Inclusionary Units; eliminating
the requirement to construct owner-occupied very-low-income units, altering the For-Sale Inclusionary
Unit income ratios. Attached are the Planning Commission Meeting Draft Minutes from October 28,
2008 (Attachment 7).
IMPLEMENTATION:
The City has adopted several form legal documents such as the Resale Restriction Agreement, Regulatory
Agreements for Rental Projects, and standard affordable housing agreements. These documents will be
updated to reflect the changes to the Inclusionary Zoning Regulations and the Guidelines. Once the
Ordinance becomes effective, Staff will begin using the revised legal documents. Several projects are
being constructed presently that may wish to take advantage of the amendments to the Inclusionary
Zoning Regulations. The proposed Ordinance provides that developers of existing projects with unsold
Inclusionary Units may seek an amendment to their affordable housing agreements to allow them conform
to the amended Ordinance and that the City Manager may execute such an amendment.
ENVIRONMENTAL REVIEW:
The proposed update to the Inclusionary Zoning Regulations is exempt from the California Environmental
Quality Act based on the following findings: The Inclusionary Zoning Regulations are not a "project"
within the meaning of Section 15378 of the State California Environmental Quality Act Guidelines,
because it has no potential for resulting in physical change in the environment, directly or ultimately. The
proposed Regulations do not, in itself, allow the construction of any building or structure.
CONCLUSION:
After several years of administering the Inclusionary Zoning Regulations, it has become necessary to
update the Regulations to provide easier implementation by both the development community and City
Staff. In addition, the update addresses difficulties in the marketing and sale ofvery-low-income units.
In addition, Staff recommends that the City Council adopt a Resolution approving the Guidelines and
authorizing the City Manager to amend from time to time the Guidelines and all other legal documents
implementing the Inclusionary Zoning Ordinance provided that such amendments are consistent with the
Inclusionary Zoning Regulations (Attachment 2).
RECOMMENDATION:
Staff recommends that the City Council: 1) Receive Staff presentation; 2) Open the public hearing; 3)
Take testimony from the public; 4) Close the public hearing and deliberate; 5) Waive reading and
introduce an Ordinance of the City of Dublin Amending Chapter 8.68 of the Dublin Municipal Code (The
Inclusionary Zoning Regulations) relating to establishing fixed sales prices for owner-occupied
inclusionary units; eliminating the requirements to construct owner-occupied vary-low income units; and,
altering the for-sale inclusionary unit income ratios (PA 08-041); and 6) Adopt Resolution Repealing
Resolution No. 94-04 and Approving Guidelines Implementing the Inclusionary Zoning Regulations;
Authorizing the City Manager to Subsequently Amend the Guidelines; and, Authorizing the City Manager
to Execute Resale Restriction Agreements and all Legal Documents that are consistent with the Council-
Approved Guidelines.
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ORDINANCE NO. - 08
AN ORDINANCE OF THE CITY OF DUBLIN AMENDING CHAPTER 8.68 OF
THE DUBLIN MUNICIPAL CODE (THE INCLUSIONARY ZONING
REGULATIONS) RELATING TO ESTABLISHING FIXED SALES PRICES
FOR OWNER-OCCUPIED INCLUSIONARY UNITS; ELIMINATING THE
REQUIREMENT TO CONSTRUCT OWNER-OCCUPIED VERY-LOW
INCOME UNITS; AND, ALTERING THE FOR-SALE INCLUSIONARY UNIT
INCOME RATIOS (PA 08-041)
The City Council of the City of Dublin does hereby ordain as follows:
Section 1. Amendment of Section 8.68.020: Subdivision A of Section 8.68.020 of the Dublin
Municipal Code is amended to read as follows:
"A. "Affordable Unit" means an ownership or rental-housing unit, including senior housing,
affordable to households with very-low, low, or moderate incomes as defined in this chapter.
Rental units are deemed affordable units if the annual rent does not exceed 30% of
maximum income level for low- and moderate-income households, adjusted for
household size and as defined below.
2. Owner-occupied units are deemed affordable units if the sales price results in annual
housing expenses that do riot exceed 35% of the maximum income level for very-low-,
low-, and moderate-income households, adjusted for household size and as defined
below.
Section 2. Amendment of Section 8.68.030. Subdivision B of Section 8.68.030 of the Dublin
Municipal Code is amended to read as follows:
"B. Allocation of Units to Income Levels. Affordable units provided pursuant to this
section shall be allocated to households with very-low, low-, and moderate-income
levels as follows:
Rental Units Owner-Occupied Units
Very-low-income households 30% 0%
Low-income households 20% 40%
Moderate-income households 50% 60%
Where the calculation of the allocation results in fewer units that would otherwise be
required pursuant to subdivision A above, one additional unit should be allocated to
the income level with a decimal fraction closest to 0.50."
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Section 3. Compliance with California Environmental Quality Act ("CEQA'): The City Council
declares that this ordinance is exempt from CEQA based on the following findings: This ordinance is not a
"project" within the meaning of Section 15378 of the State CEQA Guidelines, because it has no potential for
resulting in physical change in the environment, directly or ultimately. This ordinance does not, in itself,
allow the construction of any building or structure. This ordinance, therefore, has no potential for resulting
in physical change in the environment, directly or ultimately.
Section 4. Conforming Changes to Resale Restriction Agreement. Chapter 8.68 of the Dublin
Municipal Code, which contains the Inclusionary Zoning Regulations,requires purchasers of inclusionary
units to execute and record aCouncil-approved form Resale Restriction Agreement with Option to Purchase
("Resale Restriction Agreement"). The City Manager is hereby authorized to cause the Council-approved
form Resale Restriction Agreement to be revised to conform to amendments to Chapter 8.68 made by this
Ordinance and is further authorized to make non-material revisions to the same.
Section 5. Effect on Existing Affordable Housing Agreements with Developers. Developers
pursuing projects that are subject to existing Affordable Housing Agreements and that contain Inclusionary
Units that have not yet been sold may seek an amendment of the existing Affordable Housing Agreement to
conform to-the changes made by this Ordinance. The City Manager shall execute such amendments
provided that are consistent with this Ordinance. Any such amendment may not become effective sooner
than the date on which this ordinance becomes effective.
Section 6. Severability: In the event any section or portion of this ordinance shall be determined
invalid or unconstitutional, such section or portion shall be deemed severable and all other sections or
portions hereof shall remain in full force and effect.
Section 7: Savings Clause: All code provisions, ordinances, and parts of ordinances in conflict
with the provisions of this chapter are repealed. The provisions of this chapter, insofar as they are
substantially the same as existing code provisions relating to the same subject matter shall be construed as
restatements and continuations thereof and not as new enactments. With respect, however, to violations,
rights accrued, liabilities accrued, or appeals taken, prior to the effective date of this ordinance, under any
chapter, ordinance, or part of an ordinance shall be deemed to remain in full force for the purpose of
sustaining any proper suit, action, or other proceedings, with respect to any such violation, right, liability or
appeal.
Section 7. Effective Date and Posting of Ordinance: This ordinance shall take effect and be in force
thirty (30) days from and after the date of its passage. The City Clerk of the City of Dublin shall cause the
Ordinance to be posted in at least three (3) public places in the City of Dublin in accordance with Section
36933 of the Government Code of the State of California.
PASSED AND ADOPTED BY the City Council of the City of Dublin, on this day of
2008, by the following votes:
AYES:
NOES:
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ABSENT:
ABSTAIN:
MAYOR
ATTEST:
CITY CLERK
1166811.1
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