Chapter 17.138 — INCLUSIONARY HOUSING REQUIREMENTS

The purpose and intent of this Chapter are: 1) to promote the public welfare by increasing the production and availability of affordable rental housing units; 2) to establish an inclusionary housing requirement which implements General Plan policies guiding land use and housing development; and 3) to ensure that affordable housing units established pursuant to the provisions of this Chapter are located in a manner that provides for their integration with market rate units.

• A. This Chapter shall apply to development projects consisting of five or more residential lots or new dwelling units, and to commercial development projects consisting of 2,500 square feet or more of gross floor area.

• B. The following types of development projects are excluded:

  1. Residential developments of four units or less;

  2. New commercial developments of less than 2,500 square feet of gross floor area;

  3. Residential and commercial building additions, repairs, or remodels, provided that such work does not increase the number of existing dwellings by four or more units or result in an increase in gross floor area of 2,500 square feet;

  4. The conversion of less than five dwelling units to condominiums within any five-year period;

  5. Commercial condominium conversions which do not result in the creation of new dwellings;

  6. Affordable housing projects in which 100 percent of the dwellings to be built will be sold or rented in conformance with the City’s affordable housing standards;

  7. Emergency projects or projects which the Council determines are necessary to protect public health and safety;

  8. Development projects which the Director determines are essentially noncommercial or nonresidential in nature, which provide educational, social, or related services to the community and which are proposed by public agencies, nonprofit agencies, foundations, and other similar organizations;

  9. Projects which replace or restore a structure damaged or destroyed by fire, flood, earthquake, or other disaster within three years prior to the application for the new structure(s);

  10. Projects for which an approved tentative map or vesting tentative map exists, or for which a construction permit was issued prior to the effective date of the ordinance codified in this chapter and the permittee has performed substantial work and incurred substantial liabilities and which continue to have unexpired permits.

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For the purposes of this Chapter, the following words and phrases shall have the meaning set forth below. For all other definitions, the provisions of Article 9 (Definitions) of this Title shall apply.

• A. “Affordable” means housing which can be purchased or rented by a household with very low-, low-, or moderateincome, as described in the City’s affordable housing standards.

• B. “Building valuation” shall mean the total value of all construction work for which a construction permit is required, as determined by the Chief Building Official using the Uniform Building Code.

• C. “Density bonus” means a density increase over the maximum density otherwise allowable under the Zoning Regulations.

• D. “Development project” shall mean an activity for which a subdivision map or construction permit is required, including new buildings and building additions or remodels as described in Section 17.xxx.xx , but not including changes in ownership, occupancy, management, or use. See also “Downtown Housing Conversion” in Article 9.

• E. “Expansion area” means a land area proposed for annexation to the City or annexed after the adoption date of the ordinance codified in this Chapter.

• F. “Housing Authority” refers to the Housing of Authority of San Luis Obispo (HASLO).

• G. “Inclusionary housing unit” means a dwelling which is built under the provisions of this Chapter, and which meets the City’s affordable housing standards.

• H. “Low-” or “lower-income households” shall have the meaning set forth in Health and Safety Code Section 50079.5; provided the income of such persons and families shall not exceed 80 percent of the median income within the County.

• I. “Market value” shall mean the highest price a willing buyer would pay and a willing seller would accept, both being fully informed and in an open market, as determined by an appraiser or other qualified professional.

• J. “Moderate-income households” shall include those persons and families whose incomes exceed 80 percent but are less than or equal to 120 percent of the median income within the County.

• K. “Real property” shall mean land and improvements, if any, including anything permanently affixed to the land, such as buildings, walls, fences, and paved areas.

• L. “Residential project” shall mean development projects which result in the subdivision of land and/or the construction or conversion of dwellings, including, but not limited to, single-unit attached or detached homes, apartments, condominiums, live/work studios, mobile homes, and group housing.

• M. “Very low-income” shall have the meaning set forth in Health and Safety Code Section 50105, defined as “persons and families whose incomes do not exceed the qualifying limits for very low-income families as established and amended from time to time in compliance with Section 8 of the United States Housing Act of 1937, and as published in the California Administrative Code.”

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• A. Methods of Meeting Requirements. New development projects shall satisfy the inclusionary housing requirements, as specified in Tables 2 and 2A of the General Plan Housing Element (also included below) which require that all nonexempt development projects shall contribute toward the production of affordable housing by constructing at least one affordable dwelling unit or paying an in-lieu fee. To meet the requirements, the developer shall comply with one or more of the following methods:

  1. Construct the required number of affordable dwelling units, as specified in Table 2 of the Housing Element, as adjusted by Table 2A of the Housing Element; or

  2. Pay an in-lieu fee as described in Table 2, as adjusted by Table 2A. For development projects in which the adjustment factor under Table 2A equals zero (“0”), the minimum adjustment factor shall be 0.25 (resulting in a minimum in-lieu fee of 1.25 percent of the building valuation for development projects and commercial developments in expansion areas, and 3.75 percent of building valuation for residential developments in expansion areas); or

  3. Dedicate real property for affordable housing; or

  4. Provide for the rehabilitation of existing housing units that are vacant and in poor physical condition or are otherwise uninhabitable; or

  5. Use a combination of the above methods, to the approval of the Director.

Housing Element Table 28-1 – Inclusionary Housing Requirement

Notes:

1. Residential developments of four or less dwellings, and commercial developments of 2,500 gross square feet of floor area or less are exempt from these requirements.

2. Affordable Dwelling Units must meet City affordability criteria listed in Goal 2.1 of the Housing Element.

3. Developer may build affordable housing in the required amounts, pay in-lieu fee based on the above formula, or dedicate real property, or a combination of these, to City approval.

4. "Building valuation" shall mean the total value of all construction work for which a permit would be issued, as determined by the Chief Building Official.

5. Low income includes the subsets of extremely low and very low-income categories.

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Notes:

1. Including allowed density bonus, where applicable.

2. Multiply the total base Inclusionary Housing Requirement (either housing or in-lieu percentage) by the adjustment factor to determine requirement. At least one enforceably restricted affordable unit is required per development of five or more units.

• B. Affordable Housing Standards . Affordable dwelling units constructed must meet City affordable housing standards and must be consistent with affordability policies in the General Plan Housing Element.

• C. Concurrent Development. The required inclusionary units shall be constructed concurrently with market value units unless the developer and the Director agree within an affordable housing agreement to an alternative development schedule.

• A. Fractional Numbers. In determining the number of dwellings that are required to be built pursuant to Table 2, fractional units shall be rounded up to the next higher whole number unit.

• B. Determining Adjustment Factor Using Project Density and Average Unit Size. To determine the adjustment factor in Table 2A, project density shall be calculated by dividing the total number of density units proposed (including density bonus where applicable) by the development project site’s net area. Average floor area shall be calculated by dividing the total gross floor area of all dwellings (excluding garages) within the development project by the total number of dwellings. Dedicated open space shall not be included in a site’s net area.

• C. Mixed-Use Development Projects. For mixed-use development projects with five or more dwellings, the inclusionary housing requirement is determined by: (1) using Table 2 to calculate the base inclusionary requirement for the commercial use, and (2) using Table 2A to adjust the base requirement based on project density and average unit size, as described in subsection (B) of this Section. For mixed-use development projects with fewer than five dwellings, the base inclusionary housing requirement for the commercial use shall apply.

• D. Timing. The inclusionary housing requirement shall be met prior to issuance of a Certificate of Occupancy for the first unit in a building, or the first building in a complex to be constructed or remodeled; or for subdivisions, prior to Final Map approval; or prior to building permit issuance, for projects for which a Certificate of Occupancy is not issued; or as otherwise agreed to by the Director as part of tentative map, rezoning, Minor Use Permit, Conditional Use Permit, or other development approval.

• E. Affordable Housing Agreement. To meet the requirement, the developer may enter into an agreement with the City, the Housing Authority of San Luis Obispo (HASLO), nonprofit housing provider, or other qualified housing provider approved by the Director to construct, refurbish, convert, operate, and maintain the required affordable housing. Such affordable housing agreements shall be to the approval of the Director and shall be in a form approved by the City Attorney.

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• A. Payment of In-Lieu Fee. The developer may, at his or her discretion, choose to pay a fee to the City in lieu of constructing affordable dwellings to meet this requirement.

• B. Amount and Method of Payment. The dollar amount and method of payment of the in-lieu fee shall be as described in Table 2 of Appendix N of the General Plan Housing Element, and where applicable, as adjusted by Table 2A in Appendix N of the General Plan Housing Element, as further described in Section 17.xxx.xx, to the approval of the Director. For subdivisions in which the construction valuation is not known, the Director shall estimate the average construction valuation based on lot area, land value, and applicable City development standards. The developer shall use the estimated average construction valuation to determine the amount of inlieu fees.

• C. Timing. In-lieu fees shall be paid prior to release of occupancy of the first dwelling within a residential development; or for residential subdivisions to be built out by others, prior to final subdivision map approval; or prior to occupancy for new commercial buildings or remodels; or prior to building permit issuance, for projects for which a certificate of occupancy is not issued; or as otherwise provided by written agreement between the developer and City, to the approval of the Director. For mixed-use developments, these regulations shall apply to whichever occupancy release is first issued.

The City hereby establishes an Affordable Housing Fund. The fund shall be administered by the Finance Director and shall be used exclusively to provide funding for the provision of affordable housing and for reasonable costs associated with the development of affordable housing, at the discretion of the Council. In-lieu fees collected shall be deposited into the Affordable Housing Fund, to the satisfaction of the Director of Finance.

• A. Irrevocable Offer to Dedicate Real Property. At the discretion of the Council, an irrevocable offer to dedicate real property equal or greater in value to the in-lieu fee which would otherwise be required may be offered to the City, or to an affordable housing provider designated by the City, instead of providing the required number of affordable dwellings or paying in-lieu fees. The City shall have the option of negotiating with the applicant regarding dedications of properties with greater value that the in-lieu fee to achieve an equitable dedication. In considering an offer to dedicate real property, the Council must find that the dedication of real property will provide equal or greater public benefit than constructing affordable units or paying in-lieu fees, based on the following criteria and additional criteria set forth in Government Code Section 65915(g)(2)(A-H):

  1. Valuation of the land and/or improvements to be dedicated relative to other methods of meeting the requirement;

  2. Suitability of the land and/or improvements for housing, including General Plan conformity, size, shape, topography, and location; and

  3. Feasibility of developing affordable housing, including General Plan consistency, and availability of infrastructure.

• B. Real Property Valuation. The valuation of real property offered in lieu shall be determined by the Director, based upon an appraisal made by a qualified appraiser mutually agreed to by the developer and the City. Costs

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associated with the appraisal, title insurance and transfer, recordation, and related costs shall be borne by the developer.

• C. Agreement and Timing. The real property dedication shall be by deed or other instrument acceptable to the City , and shall be completed by recordation through of the Office of County Clerk-Recorder prior to occupancy release of the first residential unit or commercial building in the development; or prior to building permit issuance, for projects for which a Certificate of Occupancy is not issued; or as otherwise provided by written agreement between the developer and the City.

• A. Eligibility for Incentives. The developer may be eligible to receive or to request development incentives in return for constructing affordable housing in connection with a development project, pursuant to Chapter 17.14 0Section 17.xx.xxx (Affordable Housing Incentives), as part of a City planning application. Incentives or other forms of financial assistance may be offered by the City to the extent that resources are available for this purpose and to the degree that such incentives or assistance will help achieve the City’s housing goals.

• B. Affordable Housing Agreement. Any incentives provided by the City, beyond those incentives to which a developer may be automatically entitled to under Chapter 17.14 0 Section 17.xx.xxx (Affordable Housing Incentives) shall require Council approval and shall be set out in an affordable housing agreement. The form and content of such agreement shall be to the approval of the City Attorney and the Director. Developers are further encouraged to utilize other local, State or Federal assistance, when available, to meet the affordable housing standards.

• A. Method of Application. An applicant/developer proposing a project for which affordable housing is required shall submit a statement with the standard planning application, describing the inclusionary housing proposal. The developer’s statement shall include:

  1. A brief description of the proposal, including the method chosen to meet the inclusionary housing requirement; number, type and location of affordable units; term of affordability; preliminary calculation of in-lieu fees; or offer of land dedication;

  2. How the proposal meets General Plan policies and inclusionary housing requirements;

  3. Plans and other exhibits showing preliminary site layout, grading, building elevations, parking and other site features, location of affordable dwelling units, and (where applicable) market value dwelling units;

  4. Description of incentives requested, including exceptions from development standards, density bonuses, fee waivers or other incentives; and

  5. Other information which the Director determines necessary to adequately evaluate the proposal, including but not limited to the method proposed to award occupancy of the affordable units.

• A. Submittal of an Affordable Housing Agreement . Applicants and developers for development projects subject to this Chapter shall, as a condition of development approval, submit an affordable housing agreement on forms provided by the City. The draft agreement shall be reviewed by the Director and City Attorney for compliance with project approvals, City policies and standards, and applicable codes. Following approval and signing of the agreement by the parties, the final agreement shall be recorded, and relevant terms and conditions shall be

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recorded as a deed restriction on those lots or affordable units subject to affordability requirements. The affordable housing agreement shall be binding to all future owners and successors in interest.

• B. Exemption for In-Lieu Fees Payment. An affordable housing agreement shall not be required for projects which meet their inclusionary housing requirement through the payment of in-lieu fees.

Only households qualifying as very low-, low-, or moderate income, pursuant to the affordable housing standards, shall be eligible to rent, purchase, or occupy inclusionary units developed or funded in compliance with this requirement. For-sale inclusionary housing units shall be owner-occupied for the term of the affordable housing agreement.

The Housing Authority or other housing provider designated by the City shall screen prospective renters or buyers of affordable units. Renters or buyers of affordable units shall enter into an agreement with the City. Occupants must be selected by means of an open, public process which ensures that individuals of a group of interested participants have equal probability of selection. Private selection of individuals by project owners is not permitted except for any affordable units.

Developers of affordable units for sale shall specify the type of affordability restriction to be applied. The developer shall choose to either: (1) participate in a shared equity purchase program, as described in Section 17.138.15 0xxx.xx , or (2) enter into an affordable housing agreement to ensure that affordability is maintained for the longest period allowed or required by State law, but not less than 30 years. Affordable rental units shall be affordable for the longest period allowed or required by State law, but not less than 30 years.

• A. Under this program, the qualified buyer of a designated affordable dwelling unit shall enter into a shared equity agreement with the City. Said agreement shall be recorded as a lien against the purchased property, at no interest, securing and stating the City’s equity share in the property. The City’s equity share shall be calculated by the Director, and shall be the decimal percentage of the property’s value resulting from:

  1. The difference between the property’s market value and the actual price paid by the homeowner, divided by the market value; and/or, when applicable,

  2. The amount of subsidy provided by the City to the homeowner to purchase the property, divided by the property’s market value.

• B. Upon sale, the City’s equity share shall be repaid to the City from the proceeds of the sale, less the City’s percentage share of title insurance, escrow fees, and documentary transfer taxes, at the close of escrow. The proceeds from the sale shall be deposited into the City’s Affordable Housing Fund and shall be used for the purposes set forth in Health and Safety Code § 33334.2(e).

In the event of “early resale,” owners of properties subject to the shared equity purchase program shall either: (1) pay an equity recapture fee to the City as described in the schedule below, in addition to the City’s equity share, or (2) sell

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the property to another eligible household. “Early resale” shall mean the sale, lease, or transfer of property within six years of the initial close of escrow. If the owner chooses to pay the equity recapture fee, the recapture fee shall be paid to the City upon resale at close of escrow, based on the following schedule:

Table 8- 13 : Percent of Equity Build-up Recaptured

The recapture amount shall be determined prior to the calculation of escrow closing costs.

Inclusionary rental units shall be managed and operated by the property owner, or the owner’s agent, for the term of the affordable housing agreement. Sufficient documentation shall be submitted to ensure compliance with this Chapter, to the satisfaction of the Director.

• A. Enforcement. No final subdivision map shall be approved, nor building permit issued, nor shall any other development entitlement be granted for a development project which does not meet these requirements. No inclusionary unit shall be rented or sold except in accordance with these requirements and the affordable housing standards.

• B. Appeals. The Director shall administer and interpret these requirements, subject to applicable codes and City procedures. Decisions of the Director are appealable, subject to the Zoning Regulations Chapter 17.12 6 Section 17.xxx.xx (Appeals).

If any provision of this Chapter or the application thereof to any person or circumstances is held invalid, the remainder of the Chapter and the application of the provision to other persons or situations shall not be affected thereby.

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