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HomeMy WebLinkAboutItem 02 SDC Waiver to Encourage Affordable HomeownershipAGENDA ITEM SUMMARY SPRINGFIELD CITY COUNCIL Meeting Date: Meeting Type: Staff Contact/Dept.: Staff Phone No: Estimated Time: Council Goals: 9/12/2022 Work Session Katie Carroll/DPW 541-726-3660 15 Minutes Promote and Enhance our Hometown Feel while Focusing on Livability and Environmental Quality ITEM TITLE: SDC WAIVER TO ENCOURAGE AFFORDABLE HOMEOWNERSHIP ACTION Provide direction on the design of a program to waive system development charges REQUESTED: (SDCs) for housing units sold affordably to income -qualified households. ISSUE Although the City has experienced significant residential construction in the last STATEMENT: few years, there remains a shortage of housing available that is accessible to households seeking affordable homeownership opportunities. ATTACHMENTS: Attachment 1: Council Briefing Memo — SDC Waiver for Homeownership Attachment 2: Draft Program Guidelines — SDC Waiver for Homeownership Attachment 3: Presentation slides — SDC Waiver for Homeownership DISCUSSION/ FINANCIAL System Development Charges (SDCs) are charges imposed on development to IMPACT: accumulate capital needed to provide sufficient capacity in infrastructure systems to accommodate the development. A waiver of City of Springfield SDCs reduces the funds available for capital projects for transportation, stormwater, and wastewater systems. The result is that the City will not be able to build as many infrastructure projects, or for wastewater and stormwater, ratepayers will bear more of the construction costs for future projects. Offering a waiver for SDCs reduces the cost of development and may incentivize types of development that would not otherwise happen. The City currently waives SDCs for Accessory Dwelling Units (ADUs) and has seen an increase in the number of ADUs permitted annually since the waiver was put in place. Waiving SDCs for affordable homeownership housing units reduces the cost of development, which can assist a developer to offer those units at a price that is affordable to income -qualified households. A program to waive City SDCs for affordable homeownership units could increase the number of housing units available to income -qualified buyers in Springfield. The potential fiscal impact of a SDC waiver will depend on how broadly available the program is. Habitat for Humanity's Fischer Village may apply for SDC waivers for up to ten affordable homeownership units in the next year, with an estimated impact of approximately $100,000 in waived SDC fees. Increasing the program's income threshold and allowing for-profit developers to access the waiver as recommended could increase the potential fiscal impact. MEMORANDUM City of Springfield Date: 9/12/2022 To: Nancy Newton COUNCIL From: Katie Carroll, Housing Analyst BRIEFING Sandy Belson, Interim Planning Section Manager Subject: SDC Waiver to Encourage Affordable MEMORANDUM Homeownership ISSUE: Although the City has experienced significant residential construction in the last few years, there remains a shortage of housing available that is accessible to households seeking affordable homeownership opportunities. COUNCIL GOALS/MANDATE: Promote and Enhance our Hometown Feel While Focusing on Livability and Environmental Quality BACKGROUND: At its May 9, 2022 work session, Council directed staff to design a program to waive System Development Charges (SDCs) for income -qualified housing units that are sold affordably to low-income households. SDCs are charges imposed on development to accumulate capital needed to provide sufficient capacity in infrastructure systems to accommodate the development. A waiver of City of Springfield SDCs reduces the funds available for capital projects for transportation, stormwater, and local wastewater systems. A City waiver of SDCs would not apply to those fees collected by or on behalf of the Willamalane Park and Recreation District, the Springfield Utility Board, and the Metropolitan Wastewater Management Commission. Offering a waiver for SDCs can incentivize types of development that might not otherwise happen. By waiving SDCs, the City could help increase the number of affordable homeownership units in Springfield by assisting developers to make projects pencil at a more affordable sales price, reduce developers' need for other subsidies, and help projects develop more quickly. At the May 9, 2022, work session, Staff recommended the following criteria for a program to waive SDCs for affordable homeownership units: • Require an affordability period of five (5) years • Limit availability to houses being sold affordably to households making 80% or less of the area median income (AMI) • Make the waiver available to non-profit organizations that target low-income homebuyers • Provide the waiver as a forgivable loan which must be repaid if the home is not resold affordably to a buyer making 80% or less of the AMI Attachment 1 Page 1 of 5 As federal HOME funds are available to pay for SDCs for income -qualified affordable rental housing, staff recommended limiting the waiver to homeownership units. Following the work session, staff conducted research, spoke with local developers, and further developed draft guidelines. The draft guidelines (attached) reflect staff s current recommendations for a potential program to waive SDCs for affordable homeownership units. Staff requests direction from Council on three questions related to program design. WAIVER PROGRAM OVERVIEW: Pilot Program Staff recommends offering the waiver as a three-year pilot program with a Council check-in at two years. The City must complete a State -mandated Housing Production Strategy by December 2026 detailing measures and policies the City will undertake to promote development and meet housing needs. A pilot would allow the City to evaluate the waiver prior to determining its inclusion in the upcoming Housing Production Strategy. Area Median Income (AMI) Level Staff recommends waiving SDCs for housing units that will be sold to households making no more than 100% of the area median income (AMI). Staff originally proposed setting the threshold at 80% AMI in alignment with the requirements of the City's federal CDBG funds. Based on feedback from local non-profit and for-profit developers, staff s recommendation is to increase the AMI threshold. Construction costs have gone up significantly, making it more difficult for developers to make affordable housing projects pencil. Some affordable housing developers are developing mixed - income projects with units offered at a range of AMI levels to help offset the cost of affordable units. Offering a SDC waiver at the 100% AMI level would allow developers increased access and thereby reduce development costs for a greater number of affordable homeownership units. Some developers will continue to add units at or below the 80% AMI level based on requirements from other subsidy sources and/or organizational mission. Making the waiver available at the 100% AMI level would also encourage the development of more workforce housing. Many federal and state subsidies for affordable housing limit AMI to 80%, leaving fewer resources available for the creation of below -market -rate housing available to households with incomes who have earnings less than the area median income but above the 80% AMI threshold. Household Income Limit Comparison Household Size 100% AMI Income Limits' 80% AMI Income Limits 1 $55,800 $44,600 2 $63,700 $51,000 3 $71,700 $57,350 4 $79,600 $63,700 5 $86,000 $68,800 1 Based on Department of Housing and Urban Development (HUD) annual CDBG limits. Calculated by City of Springfield by doubling the 50% AMI income limits. Attachment 1 Page 2 of 5 6 $92,400 $73,900 7 $98,800 $79,000 8 $105,100 $84,100 Source: HUD CDBG Income Limits for Eugene -Springfield, OR MSA FY2022 Question for Council: Should the City waive SDCs for affordable homeownership units offered to households whose income does not exceed 100% of the area median income (AMI)? Developer Eli ibg ility Staff recommends allowing both non-profit and for-profit organizations developing affordable housing to be eligible for the SDC waiver. Local non-profit developers building affordable housing for income -qualified homebuyers include DevNW, Habitat for Humanity of Central Lane, and SquareOne Villages. Of those, only Habitat is currently in development for affordable homeownership units in Springfield. Habitat's project, Fischer Village, will add twelve new homes when complete. Cultivate, Inc., a for-profit developer which developed the C Street Co-op in conjunction with SquareOne Villages, has expressed interest in submitting an application to the City for a below- market ownership development within the next year. There are very few developers locally building this type of housing. Allowing for-profit developers to access an SDC waiver will provide an incentivize to those interested in building needed housing in Springfield. Staff have designed the draft guidelines to require that developers satisfy additional requirements if they do not have other legally binding documentation in place that secures the affordability of a housing unit (such as a deed restriction or funding contract). Under the draft guidelines, if an applicant does not provide sufficient documentation to ensure the unit will be sold only to income -qualified households for five years, they will be required to submit the buyer's income and housing unit cost information for the City's review. This information would allow the City to ensure that the home is being sold to an income -qualified buyer at an affordable price. Question for Council: Should the City allow for profit developers in addition to non- profit developers to receive SDC waivers for affordable homeownership housing units? Compliance Pathways To minimize administration for an SDC waiver program, staff proposes that the waiver be offered under the following two compliance pathways: Option A. Housing Units with an Approved Affordability Requirement: For housing units with legally binding documentation in place guaranteeing affordable homeownership (such as a deed restriction or compliance agreement), the City would review that documentation to ensure it meets the program's household income qualifications and five-year affordability period. The documentation would also need to restrict resale of the housing unit within the affordability period to only income -qualified buyers. If the documentation met these requirements, the City would rely on it to enforce the program guidelines and would provide the SDC waiver as a grant. Attachment 1 Page 3 of 5 Most housing built by non -profits and other developers creating units intended for long-term affordability would likely fall under this pathway. These units generally have compliance and monitoring requirements they must meet for other subsidies and/or other mechanisms in place (such as a land trust) which secure affordability. Failure to meet affordability requirements can put a developer in jeopardy for future subsidy from both the City and other sources. Relying on the legal mechanisms already in place and providing the waiver as a grant reduces the City's administrative burden in these circumstances with relatively low risk. Option B. Other Housing Units: For housing units without affordability documentation meeting program guidelines, the City would grant the waiver as a forgivable loan with 20% forgiven per year of affordability. The City would require the applicant sign a promissory note and would record a lien against the property receiving the waiver to secure the City's interest. The applicant would need to submit the buyer's household income and housing unit cost information to the City before closing so it could verify that the housing unit receiving the waiver is being sold to an income -qualified household at an affordable price. The City would monitor that the housing unit receiving the waiver remains occupied by the qualified buyer for five years. If the buyer resells the house or no longer occupies it, the City would require repayment of the waived SDCs at a reduced amount based on time remaining in the affordability period. Staff originally proposed requiring repayment of waived SDCs if a housing unit did not remain the residence of a qualified home buyer. Structuring the program to require a homeowner to sell to another qualified buyer if selling within the five-year affordability period would add administrative effort, requiring more frequent monitoring and review of buyer information. This requirement may also pose additional complexity for homeowners trying to resell to find qualified buyers and meet program requirements. Conclusion: Providing the waiver as a grant in circumstances where other documentation secures affordability for five years (Option A) and requiring reduced repayment under resale or non -occupancy circumstance when there are not other affordability restrictions (Option B) simplifies the program and still provides meaningful opportunities to assist more income - qualified households to become homeowners. Question for Council: To minimize administration for this program, should the City offer the waiver as a grant in some circumstances (Option A), and a forgivable loan in other circumstances (Option B)? Fiscal Impact SDCs are charged at the time of issuance of a building permit. Habitat for Humanity has paid SDCs of approximately $10,000 each for unit already permitted in its Fischer Village development. Habitat could potentially submit SDC waiver applications for up to ten additional dwellings within the next year. The estimated fiscal impact of this project is approximately $100,000. Additionally, Cultivate Inc. is interested in developing approximately 8-16 homeownership units in Springfield and may be ready to apply for an SDC waiver within the next 6-12 months. This Attachment 1 Page 4 of 5 project would increase the expected fiscal impact of the waiver over the next year, but the project is still in early development so a dollar estimate is unavailable. Generally, staff estimates that a more broadly available program will have a higher fiscal impact as more developments for affordable homeownership would be potentially eligible for waivers of SDC charges. If implemented, staff can provide data on the actual fiscal impact of the program to Council. NEXT STEPS: Staff will return to Council with a draft resolution and updated draft guidelines based on Council direction for consideration and adoption. RECOMMENDED ACTION: Provide direction to staff in response to three questions: - Should the City waive SDCs for affordable homeownership units offered to households whose income does not exceed 100% of the area median income (AMI)? - Should the City allow for profit developers in addition to non-profit developers to receive SDC waivers for affordable homeownership housing units? - To minimize administration for this program, should the City offer the waiver as a grant in some circumstances (Option A), and a forgivable loan in other circumstances (Option B)? Attachment 1 Page 5 of 5 SDC Waiver for Affordable Homeownership Units Program Guidelines September 1, 2022 Draft Pumose of SDC Waiver To address the need for more affordable homeownership opportunities in Springfield, the City is waiving System Development Charges (SDCs) to encourage the development and sale of housing units affordable to homebuyers with household incomes of no more than 100% of the area median income (AMI). The City will waive transportation, stormwater, and local wastewater SDCs assessed during the permitting process. Metropolitan Wastewater Management Commission and Willamalane Park and Recreation District SDCs are still in effect. The waiver is available under two compliance pathways. For applicants with sufficient legal documentation in place to secure the housing unit's affordability per program guidelines, the SDC waiver will be a grant. For applicants without sufficient documentation to secure the housing unit's affordability, the waiver is structured as a forgivable loan with 20% forgiven after each year of the five (5) year affordability period. ProgramObjectives • Reduce up -front construction costs for developers who will sell homes at an affordable price to households with incomes of no more than 100% of the AMI. • Encourage the creation of homes that will provide for affordable homeownership for at least five years for income -qualified households (earning no more than 100% of AMI) by providing the waiver as a grant to qualifying applicants. • Facilitate housing stabilization and home equity for more income -qualified households by offering the waiver as a 5 -year forgivable loan for housing units that are initially sold affordably to a qualifying buyer, subject to owners' ongoing occupancy of home. Definitions For the purposes of this program, the following terms mean: Affordable Price: For purposes of this program, an affordable price means that at the time of sale, the qualified homebuyer will spend no more than 35% of their gross household monthly income on housing costs. Housing costs include all payments made toward the principal and interest of any mortgages on the unit, real property taxes, insurance, and any condominium association, homeowners' association, or housing cooperative payments (utilities are excluded). Approved Affordability Requirement: For purposes of this program, an approved affordability requirement is legally binding documentation (such as a deed restriction or compliance agreement) which requires that the housing unit be sold exclusively to income -qualified households for a period of at least five (5) years (the compliance period). The documentation Attachment 2 Page 1 of 4 must ensure that if the housing unit is resold within the compliance period, that it will only be sold to another qualified buyer belonging to an income -qualified household. The City will review documentation submitted by the applicant to determine if it meets program requirements and qualifies as an approved affordability requirement. Compliance Period: The compliance period is five (5) years. The period begins when the certificate of occupancy is issued or when a qualified homebuyer closes on the property, whichever is later; it ends five years from the date it began. Income -Qualified Household: For the purposes of this program, income -qualified households are those whose income does not exceed 100% of the area median income (AMI) for the Eugene Springfield Metropolitan Statistical Area, based on the Federal Department of Housing and Urban Development annual Community Development Block Grant Income Limits, adjusted for household size.' Income eligibility is determined by household adjusted gross income from the prior year, as well as income anticipated to be received during the coming twelve (12) month period. The gross income of all adults eighteen (18) and over who will be living in the housing unit is used to determine household income. The household's income may rise while they live in the property so long as the household was income -eligible when they first occupied the unit. Qualified Homebuyer: For the purposes of this program, qualified homebuyers are individuals who will be on the title and occupy the housing unit as their primary residence. Eli ibili • The housing unit for which the waiver is requested must be located within the City of Springfield city limits. • The applicant must have site control of the property. • The housing unit must meet all other development and code requirements. • The housing unit must be a legal dwelling unit. It may be part of a community land trust and/or cooperative ownership housing. • The housing unit for which the SDC waiver is requested may be part of a mixed -income development, however only units that meet program guidelines qualify for the waiver. • The applicant must verify with the City that the housing unit is being sold to a qualified buyer belonging to an income -qualified household at an affordable price; OR the housing unit must have an approved affordability requirement in place. • During the compliance period, the housing unit must remain occupied by a qualified homebuyer. The qualified homebuyer may rent out space in the housing unit, so long as they continue to occupy it as their primary residence. • Eligibility for this waiver program expires on June 30, 2025. All building permit applications related to an application for a SDC waiver under this program must be submitted by June 30, 2025 for the waiver to be granted. 1 100% AMI is calculated by City of Springfield by doubling the 50% AMI income limits. Attachment 2 Page 2 of 4 Compliance The SDC waiver may be granted under two pathways. For housing units with an approved affordability agreement, the SDC waiver will be a grant (Option A). For housing units without an approved affordability agreement, the waiver is structured as a forgivable loan with 20% forgiven after each year of the five (5) year compliance period (Option B). A housing unit for which the waiver is granted must be sold in accordance with the program guidelines within one (1) year of the issuance of the certificate of occupancy or it will be considered out of compliance and the full amount of waived SDCs must be paid. To remain compliant, the housing unit granted the waiver must continue to meet its approved affordability requirement (Option A) or be occupied by the qualified homebuyer whose income and housing unit price information have been verified by the City (Option B). Compliance Pathways Option A. Housing Units with an Approved Affordability Requirement For housing units that have legally binding documentation in place guaranteeing affordable homeownership (such as a deed restriction or compliance agreement), the applicant may submit this documentation to the City for verification of conformance with program guidelines. The documentation must ensure that the housing unit will be sold exclusively to qualified buyers belonging to income -qualified households for the length of the compliance period. The documentation must ensure that if the housing unit is resold within the compliance period, it will only be sold to another qualified buyer belonging to an income -qualified household. The City will determine if documentation submitted by the applicant qualifies as an approved affordability requirement. The City reserves the right to approve or deny a SDC waiver under this pathway if it determines that the documentation provided is insufficient to guarantee affordability per program guidelines. The City may conduct regular monitoring for compliance and reserves the right to request documentation to verify compliance with the approved affordability requirement and these program guidelines. Option B. Other Housing Units For housing units that do not have an approved affordability requirement in place, the applicant will be required to submit documentation required by the City to secure the unit's affordability per program guidelines. The applicant will also be required to submit income and housing unit price information to the City to verify program compliance before closing on the property with a buyer. The City will verify that the housing unit is being sold at an affordable price to a qualified buyer who belongs to an income -qualified household. During the compliance period, the qualified homebuyer must occupy the housing unit as their primary residence. The City will monitor that the qualified homebuyer lives in the housing unit. If a homeowner resells the property within the five (5) year compliance period or no longer occupies it as their Attachment 2 Page 3 of 4 primary residence, a portion of the waived SDCs must be paid by the owner. Amount due will be based on time remaining in the compliance period. The City will conduct regular monitoring during the compliance period and reserves the right to request documentation to verify the housing unit is occupied by a homebuyer who has been found to be qualified for the program by the City. Attachment 2 Page 4 of 4 Overview- System Development Charges Waiver for Affordable Homeownership Waives City SDCs: transportation, stormwater, local wastewater1 • Program Objectives: • Reduce up -front construction costs for development of homes offered for sale at an affordable price • Increase number of affordable homeownership units • Facilitate housing stabilization and home equity for qualifying households Attach" 1 of 7 .0 'A Overview - Draft Program Guidelines • 3 -year pilot program • Require affordability for five (5) years • Limited to units for homeownership • Households with incomes no more than 100 %AMI • Initial proposal- 80% AMI • Any developer may apply • Initial proposal- limit to non-profit • Waiver is a grant or forgivable loan depending on housing unit's qualifications • Initial proposal- loan AttachniS�� 2 of 7 Fiscal Impact 1. Would vary based on how broadly waiver is offered • Income Level of Qualified Household • Qualified Developers 2. Anticipated Impact • Fischer Village: 10 units, up to $100,000 • Cultivate Inc.: Approximately 8-16 units, impact unkno 3. Pilot would allow adjustments as -needed AttachniS�� 3 of 7 Should the City waive SDCs for affordable homeownership units offered to households whose income does not exceed 100°0 of the area median income? Household Size 100% AMI Income Limits* (2022) 80% AMI Income Limits (2022) 1 $55,800 $44,600 2 $63,700 $51,000 3 $71,700 $57,350 4 $79,600 $63,700 5 $86,000 $68,800 6 $92,400 $73,900 7 $98,800 $79,000 8 $105,100 $84,100 *Based on Department of Housing and Urban Development (HUD) annual CDBG limits. Calculated by City of Springfield by doubling the 50% AMI income limits. Attach 4 of 7 Should the City allow for-profit developers in addition to non-profit developers to receive SDC waivers for affordable homeownership housing units? AttachniS�� 5 of 7 Compliance Pathways Option A Approved Affordability Re ' 1. 2. City verifies affordak documentation • 100% AMI • Resell affordably • 5 years Waiver is a grant Option 6 Other Housing Units 1. City requires verification of qualified buyer and affordable price 2. City records security documents 3. Waiver is a forgivable loan • 20% forgiven per year • Initial buyer must occupy or repay AttachniS�� 6 of 7 To minimize administration for this program,, should the City offer the waiver as a grant in some circumstances (Option A), and as a forgivable loan in other circumstances (Option 8)? AttachniS�� 7 of 7