DATE: September 1, 2015
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
Vernon Gerth, ACA Community and Economic Development
Chris Bridgewater, Director BNS
Kathleen Sauseda, Housing Development Coordinator
SUBJECT:
Review of Inclusionary Housing Initiatives.
Purpose
The purpose of this memorandum is to request consideration by the Board of Mayor and Aldermen (BOMA) of several housing strategies that were highlighted in the recently completed Housing Needs Assessment, two Community Housing Summits, and continuing work by the Franklin Housing Commission which are intended to promote housing diversity in our community. Understandably, Inclusionary Housing as discussed in this memorandum is one of many strategies that require thoughtful consideration when considering the complex issue of maintaining a healthy mix of housing types in our community.
Background
In June, Alderman Pearl Bransford requested the Board of Mayor and Aldermen consider replenishing the Housing Reserve with $250,000 since the aldermen had recently authorized the majority of the funds be assigned to redevelopment activities undertaken by the Franklin Housing Authority and Hard Bargain Association. The City’s current Inclusionary Housing Ordinance, which is applied to previously-approved planned developments that increase density, was adopted in 2010 and has generated a total of $270,000. Through the accepting of fees-in-lieu of building affordable units, the various developers increased density with their respective developments by 261 buildable lots. The current balance in the Housing Reserve is $46,813.
Currently, the Nashville Metropolitan Statistical Area (MSA) that includes 14 counties, states the affordable maximum home price for a family of four (4) is $181,501, and the price for a workforce housing family of four (4) is $340,314. The average sales price for a home in the City of Franklin is $446,000.
Recommended Strategies for Consideration
1. The Housing Needs Assessment recommended the City articulate its vision of affordable and workforce housing by creating housing diversity targets and development goals that are measured periodically. One example may include endorsement of a goal that maintains the current housing mix that exists in our community today or, committing to a policy that requires 10%, 15%, or other percentage of dwelling units within new residential developments that fall within the range of workforce housing priced at $250,000 to $350,000.
2. In response to Aldermen Bransford’s request to replenish the Housing Reserve and to ensure it is self-sustaining, staff proposes an ordinance amendment that:
• Amends City’s existing Inclusionary Housing Ordinance to apply to all new development projects with five (5) or more residential units.
• Increases the fee-in-lieu from 2.5% of the appraised value of the lots to $85,000 per required affordable unit for 10% of all approved units (in a 100 lot subdivision this equates to $8,500 per unit which equals $850,000 for 10 affordable units). The $85,000 per unit, fee-in-lieu figure is based on the affordability of a family of four in the Greater Nashville MSA. A family of four (4) can reasonably afford a dwelling that is priced at $181,500. Therefore, a $300,000 home would require an $118,500 subsidy ($300,000 - $181,500) if constructed by a not-for-profit. Currently local not-for-profit entities building homes in Franklin require subsidizes ranging from $40,000 up to $110,000 to build an affordable home which results in a loss for the non-for-profit entity. The $85,000 fee is within this range and used in a similar ordinance in Chapel Hill, NC.
• Revises the deed restriction from 40 years to 30 years with a renewable clause if the home is transferred prior to the expiration of the 30-year period.
Based on projects approved between January 1, 2012 through December 31, 2014 (three years), an Inclusionary Housing Ordinance as described above after full build-out of 100% of the approved units would result in $19,295,000 (2262 unit x 10% = 227 x $85,000) deposited into the Housing Reserve if all developers paid the fee as opposed to building units within the affordable or workforce range. Realistically, during this same three year period an average of 754 dwelling units were constructed City-wide, annually. Therefore, until such time an Inclusionary Housing Ordinance is adopted, new developments are vested under the Ordinance, and construction commences it would be several years before any fees-in-lieu are deposited into the Housing Reserve or, developer-built deed restricted affordable housing is realized. This calculation is simply intended to illustrate the fees-in-lieu collected in the event an inclusionary Housing Ordinance is implemented and all developments are vested under this type of ordinance. It will take many years for existing developments to be completed. Equally important, the City’s current Inclusionary Housing Ordinance for existing developments has not resulted in a single developer-built deed restricted affordable dwelling.
3. The City of Franklin Housing Commission and City staff have discussed and the Housing Commission recommends consideration of the following strategy:
The Housing Commission recommends an ordinance that attempts to address both affordable and workforce priced housing and pertains to all residential developments of five (5) or more dwelling units. This proposal requires at least fifteen (15%) percent of the total number of approved units to be priced in the affordable housing price range. If a developer elects not to build at least 15% of the required affordable units, on- or off-site, a fee-in-lieu is recommended to be established at $85,000 per each required affordable housing unit. This would result is a fee-in-lieu level of approximately $12,750 per fee level.
In addition, for those dwellings constructed as affordable the Housing Commission recommends a ninety-nine (99) year deed restriction from the initial sale of the dwelling unit. Any and all property transfers that occur prior to the end of the ninety-nine (99) year time period will require a new deed restriction.
Another element included in the Housing Commissions recommendation encourages development by right of the “missing middle” i.e. workforce housing units that sell for $300,000 or less. New developments that include 100% of deed-restricted workforce priced housing units shall be exempt from inclusionary housing requirements.
Lastly, the Housing Commission recommends the building permit and plan reviews be waived for the entity constructing the required, deed-restricted affordable units. Currently this wavier is limited to not-for-profit entities building deed-restricted affordable housing.
Financial Impact
Over time staff finds the fees generated from an Inclusionary Housing Ordinance should be structured to ensure new development is maintaining the current mix (ratio) of housing in our community. In other words, a developer of a new residential development should only be required to maintain the current mix (ratio) of housing in our community at the time the development was approved. Staff recognizes increasing property values has led to a noticeable decline in affordable and workforce housing types being constructed. Staff finds an Inclusionary Housing Ordinance that changes the current mix (ratio) of housing in Franklin should be incentivized through other mechanisms, including land use and development policies beyond an Inclusionary Housing Ordinance.
Recommendation
First, staff recommends the BOMA endorsing the goal of maintaining the current housing mix in our community and adopting measurable benchmarks that are reviewed every two (2) years to assess the effectiveness of the City’s development regulations and ordinances that affect housing diversity.
Second, staff recognizes the importance of a self-sustaining Housing Reserve that provides funding to entities desiring to construct affordable and workforce housing priced housing to off-set the cost discrepancy. The City’s current Inclusionary Housing ordinance for existing developments has not resulted in a single developer-built deed-restricted affordable dwelling since inception and therefore, if the BOMA determines to amend the existing ordinance, staff recommends the formula be increased from 2.5% of land value to $85,000 per required affordable unit and, to reassess this ordinances effectiveness every two (2) years to ensure the current mix (ratio) of housing is unchanged.
Staff supports the Housing Commission’s recommendation that attempts to address both affordable and workforce housing with the condition the City closely monitor (every two years) the fees-in-lieu collected and housing units developed after the proposed ordinance is adopted to ensure the goal of maintaining the current mix (ratio) of housing in our community is unchanged.
Finally, the adoption of a revised Inclusionary Housing Ordinance would only apply to existing developments that increase density and, for new developments approved after the effective date of a new Ordinance. As a result, it is likely to take several years before construction commences and fees-in-lieu are deposited into the Housing Reserve or, developer-built deed restricted affordable housing is realized.