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HomeMy WebLinkAboutagenda.council.worksession.20180521 CITY COUNCIL WORK SESSION May 21, 2018 5:00 PM, City Council Chambers MEETING AGENDA I. Housing Mitigation and Certificate Program update and discussion P1 DRAFT – not for distribution Housing Credits Work Session May 21, 2018 Page 1 of 5 MEMORANDUM TO: Mayor Skadron and City Council FROM: Jessica Garrow, Community Development Director Mike Kosdrosky, APCHA Director MEETING DATE: May 21, 2018, 5PM RE: Certificates of Affordable Housing Credit update and discussion REQUEST OF COUNCIL: The purpose of this work session is to provide an update on the Certificate of Affordable Housing Credits Program (here after referred to as Housing Credits). Council is asked to weigh in on a number of policy options related to the program and provide staff with feedback on potential changes to the program. BACKGROUND: The City of Aspen created the Certificates of Affordable Housing Credits in 2010 to encourage the private sector to assist in the creation of affordable housing. Five (5) Housing Credits projects have been completed, and another three (3) are approved but not yet completed. To date, the five built projects have created certificates for 66.25 FTEs, with another 99.5 FTEs as part of the approved, but not yet built projects. The program allows a private developer to build voluntary affordable housing units, and then receive a certificate from the City indicating how many FTEs were housed. The developer can then sell those certificates (aka Housing Credits) to other developers who have their own housing mitigation requirements. The developer who purchases the credits would then use them to satisfy their affordable housing mitigation requirement, rather than using a cash-in-lieu payment or building their own affordable housing units. In January 2018, Council held an initial work session on the Housing Credits Program, which included discussion of locational requirements for Housing Credits projects, a review of cash-in- lieu numbers, and a summary of the process to buy-out ADUs. At that work session, Council directed staff to update the cash-in-lieu numbers, but not to move forward with any changes related to the other items. The cash-in-lieu numbers were updated and increased by 7% in March and are now in effect. City Council also directed staff to complete a more thorough review and analysis of the cash-in-lieu figures in 2019, which will be proposed as part of the 2019 budget process. P2 I. DRAFT – not for distribution Housing Credits Work Session May 21, 2018 Page 2 of 5 ISSUES FOR DISCUSSION: Staff requests Council feedback regarding emerging issues related to the Housing Credits Program. Based on Council direction, changes to the Land Use Code and/or Housing Guidelines will likely by required. 1. Buy-Down Units. Recently, an applicant approached the City with a request to convert an existing free-market multi-family housing complex into housing credits. Rather than tear the building down and create new product, this option enables an existing building to be reused and updated and then deed-restricted as affordable housing. Because they are voluntarily being converted to affordable housing units, they qualify for credits.1 As part of the approval process with P&Z and the APCHA Board, a detailed analysis of the existing structure and its overall life-cycle was required. This ensures that if an older building is converted to affordable housing units, the units meet basic building and energy code requirements, and have a life-cycle similar to that of new construction. Under the current program, conversion of older stock and new stock have the same monetary value and sale or rental price, but the older stock may require more maintenance over time. Because of this, staff recommends requiring basic upgrades to existing units as a pre-requisite for converting the units for housing credits. Staff recommends retaining the buy down option, with extensive requirements for capital reserves and basic capital improvements prior to the creation of the associated housing credits. While this process was followed for the recent application, staff recommends more clearly including this in the codes governing housing credits conversion projects. Questions for Council: A. Does Council support retaining the buy-down options, and if so are there any requirements Council desires be updated? 2. Lending and Rental Requirements. Rental projects are permitted when a project is 100% affordable housing, or under limited circumstances in a mixed-use building with an additional deed restriction. This has raised some concerns from APCHA staff related to the affordability of lending for sales units in projects where there is a mix of both for-sale and for-rent units. For instance, based on information from local deed restricted lenders, a maximum of 49% of a project’s units can be rental before impacting the ability of the purchasers of other owner-occupied units to find conventional financing. Similarly, a maximum of 10% of a project’s units can be in the same ownership before impacting the ability of the purchasers of other units to obtain conventional financing. For these reasons, staff recommends Council consider some limitations on the mix of rental and for-sale units in a single project, or consider limiting future affordable housing projects to either all rental or all for-sale. Short of limiting affordable housing projects to either all rental or all for-sale, staff would propose at minimum that the Guidelines be 1 For projects that are upgrading a free-market complex and not choosing to convert to affordable housing units, but desire to replace the existing free-market units, the new project will require Multi-Family Replacement at 50% of the units, bedrooms, and net livable space as affordable housing, and then all existing units could be replaced on site as free-market. P3 I. DRAFT – not for distribution Housing Credits Work Session May 21, 2018 Page 3 of 5 updated to allow no more than 49% of units as rental. Additionally, staff recommends some language be added to the Guidelines to address single ownership of no more than 10% of the total units in a multi-family deed restricted project or whatever limitations specified by federal conventional lending standards. Questions for Council: B. Should the percentage of rental and for-sale units in a single project be limited to reflect federal lending requirements for traditional loans, or limit projects to either all rental or all for-sale? C. Should the percentage of units in single ownership in any one multi-family affordable housing project be limited to no more than 10% of the total units, or whatever the federal lending requirements for traditional loans? 3. Rental Unit Sales Prices. Recently, individuals creating housing credits units have requested to build deed restricted rental units that they could then sell to local employers to meet their general housing needs. The code currently allows this system, which ensures that the renters are qualified under APCHA requirements and that rents meet the levels included in the APCHA Guidelines. The sale to local employers is not restricted to a specific price. A possible outcome of the continuation of this trend may be increased tendency for developers of housing credits project to sell their product directly to employers, as opposed to putting them into the lottery system. Over time, this could lower the number of units made available directly to the general workforce housing market, while providing an advantage to employers with the capacity to buy such units over smaller employers that may not have the same financial means. Additionally, the developer of the affordable housing is generating a credit for the unit and selling the unit above deed-restricted rates, further incentivizing a developer to sell the units to local employers to increase margins on Housing Credits development. Staff believes that there should be an option for employers to purchase rental units for their employees.2 The end user of the unit would be a qualified local working resident, which meets the requirements and goals of the City’s workforce housing program. Staff proposes that the program be updated to set the purchase price as opposed to allowing a business to buy these units at something higher than the regular sales prices outlined in the guidelines. This will ensure a level playing field between employers and employees. This system would mirror how the City of Aspen provides for-sale units to their employees. The City may rent or sell one of their units to a qualified employee, and that employee is required to sell the unit back to the city when they decide to sell, or vacate the rental unit when they leave employment with the City. The unit category is able to fluctuate 2 This would be outside of a mitigation requirement to ensure no “double-dipping” related to a developer’s mitigation requirements. For instance, if a developer had a mitigation requirement they could not use their purchase of a housing credit unit to meet that mitigation. Instead, they could purchase the unit for their own business operation, but their mitigation requirement would require them to also purchase Certificates of Affordable Housing Credit or pay the cash-in-lieu fee. P4 I. DRAFT – not for distribution Housing Credits Work Session May 21, 2018 Page 4 of 5 based on the employee living in it at that time. If this were used for private developers, staff recommends that the sales price be limited to the highest category in the Guidelines to enable flexibility in the employees that can live there. Questions for Council: D. Should employers be able to purchase affordable housing units to be used as housing for their qualified workers? E. If so, should there be a maximum sales price to the employer for that unit? 4. Project Completion and Bonding. The current program only allows Housing Credits to be issued when a project has received their Certificate of Occupancy (CO). Of projects that have been completed, nearly all of the certificates have been sold and landed. While there are a number of projects that have land use approval, they are not yet under construction and are years from being completed. This may result in a time period where the demand for certificates continues to exist, but there are no credits available. One housing credits developer has suggested that the city explore a way to bond for the completion of a project while allowing credits to be issued. There are important details to consider, including how to ensure completion of the housing units. Staff has reviewed this idea briefly with the City Attorney and there is likely a way to create bonding mechanisms that protect the city’s interest in ensuring the completion of projects while focusing mitigation to the use of housing credits over cash- in-lieu. Questions for Council: F. Does Council support exploring amendments to allow bonding for housing credits projects that would enable the sale of credits prior to completion of the project? 5. Governance. The current Housing Credits program includes a variety of requirements – some in the Land Use Code and some in the Housing Guidelines. For any project, a recommendation from the APCHA Board regarding category and bedroom mix is forwarded to the P&Z, with the final decision on these items resting with P&Z. APCHA governs the deed restrictions, and recognizes that by the time a project receives a CO the supply and demand for category for-sale and rental units may have changed and may require a change in categories, if agreeable to the developer. Because these are issues typically included in the P&Z approval, changing them requires an amendment with P&Z, rather than simply changing it with the APCHA Board. Staff proposes examining areas where roles and responsibilities between the different boards could be clarified and/or streamlined. If Council supports this direction, significant work and outreach with those boards, as well as the individuals involved in housing credits projects will be conducted. Questions for Council: G. Does Council support exploration of changes to the APCHA Guidelines and/or Land Use Code to create a more consistent and predictable review process? P5 I. DRAFT – not for distribution Housing Credits Work Session May 21, 2018 Page 5 of 5 6. Tracking. Currently, the City does not have any data on the sales prices of individual certificates. The code states: “The sale, assignment, conveyance or other transfer or change in ownership of a Certificate of Affordable Housing Credit shall be recorded in the real estate records of the Pitkin County Clerk and Recorder and must be reported by the grantor to the City of Aspen Community Development Department within five (5) days of such transfer. The report of such transfer shall disclose the Certificate number, the grantor, the grantee and the total value of the consideration paid for the Certificate. Failure to timely or accurately report such transfer shall not render the Credit void.” As the language states, there is no mechanism in the code to withhold the issuance or landing of a certificate if the information on a sale is not disclosed, nor is there any impact on the validity of the certificate. To date, no credit holder has ever disclosed the price of their Affordable Housing Certificate sales to the City. In preparation for this work session, staff searched the Pitkin County Clerk and Recorder records of Affordable Housing Certificate transitions. In that search transactions appear to have been recorded with the certificate number and the FTE and Category information, but no transaction listed a sales price beyond “$10 and other good and valuable considerations.” When the Housing Credits chapter was created, it was modeled after the Historic TDR Chapter, which includes the same language. The City does have tracking of many TDR transactions, but because there is no mechanism to require disclosure, staff believes there have been TDR transactions that have not been reported. Staff is interested in hearing from City Council if the City should explore options to codify reporting mechanisms and/or penalties for not disclosing specific dollar and goods information related to the sale of credits. Questions for Council: H. Should staff explore code amendments to require disclosure of all Housing Credits sales in a more direct way than the current code language lists? I. If so, should there be any penalties for individuals not meeting disclosure requirements? NEXT STEPS: Based on Council direction, staff will return with additional information and/or proposed code amendments in the fall or winter of 2018. Additional outreach with stakeholders, as well as the P&Z and APCHA Board will also be conducted as part of any future work. ATTACHMENTS: Exhibit A: History of Affordable Housing Credits Program P6 I. Exhibit A – History of Affordable Housing Certificates Program May 21, 2018 Council Work Session Page 1 of 2 Affordable Housing Credits Program History Introduction In 2010, The City of Aspen, working with local developer Peter Fornell, created a unique program to encourage the involvement of the private development community in the creation of affordable housing units. While Aspen had been a leader in the development of employee housing since the late 1970s, the Affordable Housing Credit (AH Credits) program launched Aspen’s housing program in an entirely new direction. This program is dependent on three central ideas. First is the idea (and therefore the necessary direct nexus) that the building of any new square footage generates new employees and the need to house employees. Second, Aspen has a long established history of requiring developers to mitigate for this generation of employees when new development occurs. Lastly, through a series of studies over the years, Aspen has established a codified dollar figure (cash-in-lieu) of what it costs to create housing for each employee generated. With this necessary foundation in place, the basic idea of the AH Credit program is simple: If a developer creates an approved, deed restricted affordable housing unit, a credit is issued to the developer that can then be sold to another developer who uses the credit to provide required mitigation for employee generation on a separate project. The sale value of the credit becomes an important revenue stream, along with rental income or the sale of the unit, in determining the financial viability of developing affordable housing units. Since the creation of the AH Credits program, while employee units continue to be generated through other available alternatives, the program has been an important tool in adding to the deed-restricted, employee housing stock in Aspen. Original Affordable Housing Credits Program, Ordinance 6, Series of 2010 This Amendment to the Land Use Code (LUC) created the basic framework of the AH Credits program. Essential to creating value in the market for the credits, two important changes were made to the Growth Management provisions in the LUC. First, in the sections that described the options available for mitigating new development, the extinguishment of AH Credits was provided as an option. Secondly, and perhaps most importantly, the amendment limited the mitigation that could be satisfied by a cash- in-lieu payment. In doing so, developers had to seek out AH Credits for required mitigation, unless they were creating on-site units or purchasing buy down units off-site. Previously most mitigation was satisfied with cash-in-lieu payments, now, AH Credits became the primary mechanism. The AH Credits program was defined by two sections of the Code. As previously mentioned, the Growth Management (26.470) established the relationship of the credits to affordable housing mitigation, in general. The functioning of the program was described in a new chapter of the LUC, 26.540, Certificates of Affordable Housing Credits. In the 2010 amendment, the basic framework was established including the procedures surrounding the establishing a credit – including the LU application, the review process and criteria for the Planning and Zoning Commission, and the procedures for extinguishing a credit. Later amendments would provide more clarification to these procedures, but the essential nature of the program remains the same moving forward. Important aspects of the program at this point: 1) In 26.470.070.4.b (2010 Code), at the initial conception of the credit program, the threshold for allowing by right Cash-in-Lieu payment was set at “less than one full unit”. If the required mitigation were greater than this, AH credits (or actual units) were required – although a request P7 I. Exhibit A – History of Affordable Housing Certificates Program May 21, 2018 Council Work Session Page 2 of 2 could be made to City Council to allow cash-in-lieu on a case by case basis. While this threshold did create demand and established value for AH Credits, significant development, particularly single family residences and duplexes were generally under the threshold and typically paid cash-in-lieu. 2) In 26.470.070.5.c (2010 Code), an important incentive was created in the generation of AH units and corresponding credits. In Multi-family replacement, one of the options is 100% Affordable Housing Replacement – meaning that if multifamily housing units were demolished, the developer could replace the units (and create additional units) of affordable housing – and establish AH Credits for the new units. 3) Certificates for Credits were issued in .05 increments. Program Changes, Ordinance No. 32, Series of 2012: The major change in the amendment provided the process to exchange AH Credits between different categories as needed in providing the necessary mitigation for a particular development project. Credits are issued based on the category established in the deed restriction, but the required mitigation on the extinguishing site may be of a different category. This amendment provided the process to resolve this logistical issue that was unforeseen at the time that the program was established. Other organizational and terminologies were added to provide clarification to the program. Additionally, the Certificates for Credit were now issued in .01 increments rather than .05 increments. Program Changes, Ordinance No. 34, Series of 2015 Several changes gave further definition to the program: 1) Public sector and non-profit entities that use public funds were restricted from establishing housing credits in the creation of AH units 2) Dormitory units were not eligible to generate housing credits 3) AH Units in mixed use buildings were required to be “for sale” units. In projects that were 100% affordable housing projects, units could be “for sale” or “for rent”. 4) If a developer built on-site units to provide mitigation – any excess units or fraction of FTEs beyond that required, could be eligible for establishing a housing credit for the excess FTEs housed. 5) Category limitations – Credits could be established for a unit deed restricted at a category for which a cash-in-lieu rate had been codified (1-7). Program Changes, Ordinance No. 35, Series of 2015 This amendment provided changes to several aspects of the Growth Management chapter and the ADU chapter, but one change made a significant difference to the AH Credits program. The threshold for by right cash-in-lieu payment was dropped to .1 FTE. Now, any addition of floor area beyond very minimal renovations, would require the extinguishment of AH Credits in providing mitigation (unless on- site or off-site units were the selected alternative). This new figure captured the development of single family and duplex development and greatly added to the demand for housing credits. Council could still approve Cash-in-Lieu on a case by case basis, but the review criteria was made more restrictive. P8 I.