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HomeMy WebLinkAboutMemo - Mail Packet - 7/25/2023 - Memorandum From Meaghan Overton And Susan Beck-Ferkiss Re: Updates On Inclusionary Housing: Hb21-1117 Legislation And Policy Implications For Fort Collins Social Sustainability 222 Laporte Ave. PO Box 580 Fort Collins, CO 80522 970.221.6758 MEMORANDUM DATE: July 17, 2023 TO: Mayor and City Council THRU: Tyler Marr, Deputy City Manager Jacob Castillo, Chief Sustainability Officer Beth Yonce, Social Sustainability Director FROM: Meaghan Overton, Housing Manager Susan Beck-Ferkiss, Social Policy and Housing Program Manager RE: Updates on Inclusionary Housing: HB21-1117 Legislation and Policy Implications for Fort Collins Bottom Line: This memo provides information about the 2021 Inclusionary Housing legislation (HB21-1117) passed at the State level and explores possible policy implications for Fort Collins, including the feasibility of implementing an Inclusionary Housing Ordinance (IHO) for new construction. It also summarizes the City’s 2020 Feasibility Study for Inclusionary Housing and Affordable Housing Linkage Fees and includes a 2021 update to the study that recommends exploration of IHO in Fort Collins (attachment). Staff proposes a phased approach to designing an IHO policy, beginning with the housing-related Land Use Code (LUC) changes currently in progress. Background: HB21-1117 This bill is the Colorado General Assembly’s response to the Colorado Supreme Court’s ruling in the 2000 case Town of Telluride v. Lot Thirty-Four Venture, L.L.C., in which the Court ruled that a local land use ordinance enacted by the town to create affordable housing by requiring a developer to build deed-restricted, affordable units as part of a new development (often called an Inclusionary Housing Ordinance, or IHO) was “rent control” in violation of a state statute that prohibits local governments from enacting any ordinance or resolution that would control rent on private residential property. The Court noted that its holding would not prevent the General Assembly from amending the rent control statute to permit local ordinances like Telluride’s in the future. HB21-1117 was signed into law on May 28, 2021 and took effect on September 6, 2021. The legislation clarified the Telluride decision, stating that local governments are now permitted to require affordable rental units in new developments or redevelopments if two conditions are met:  The owner/developer must have a choice of options or alternatives to building the affordable units on the project site. (Example: an option to pay a fee in lieu or build off-site)  The local government must have already taken one or more other actions to increase the number and density of housing units, or to promote or create incentives for building affordable units, in its jurisdiction. A list of the acceptable actions that would qualify are listed on pages 3-4 of the attached bill text. HB21-1117 permits IHO only on newly constructed or developed housing units and cannot be applied to existing private residential units. As written, the bill does not define affordability or place DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 2 limits on the percentage of units that are required to be affordable. These definitions and criteria are instead the purview of individual municipalities such as the City. Policy Implications for Fort Collins The City has already implemented one or more Land Use Code (LUC) or Municipal Code provisions from the list of acceptable actions in the bill, including: maintaining a robust land bank program (condition k in footnote 1); providing incentives for affordable housing such as a density bonus, fee credit, and impact fee delay (conditions i, j, l); and permitting accessory dwelling units or carriage houses (condition c). It is also important to note, however, that the City is currently updating LUC regulations to further increase housing supply and improve housing affordability. Coordinating policy development for an IHO policy with the pending LUC changes will help staff more accurately assess the impact of an IHO policy, evaluate potential tradeoffs, and ensure that these complementary efforts are designed carefully to reinforce and support the City’s adopted housing goals. Implementing an IHO policy would require City Council to adopt an Ordinance that outlines the key elements of the policy. There are several critical choices that will need to be considered and evaluated:  What amount (%) of affordable housing will be required for new developments?  What income levels (% AMI) should the required affordable units serve?  Should developments under a certain size or number of units be exempt?  Will the City adopt a separate impact fee for nonresidential and/or exempt developments?  What options does the City wish to provide in lieu of building the required affordable units on site? (Examples: fee in lieu or building offsite units)  What kinds of additional incentives does the City wish to offer? (Example: density bonus)  How will the City administer and monitor compliance with this requirement? 2020 Feasibility Study for Inclusionary Housing and Affordable Housing Linkage Fees In August 2020, Economic & Planning Systems, Inc. (EPS) conducted a Feasibility Study that analyzed the economic viability of implementing IHO and established a rational nexus for adoption of an Affordable Housing Linkage Fee for residential and nonresidential development. EPS created a financial model that measured the impact of affordability requirements and incentives (e.g., number of units required to be set-aside, level of affordability by AMI, density bonus, and amount of property tax abatement) on the Internal Rate of Return (IRR) across a variety of project types including single-unit, townhome, 3-story, 5-story, and 10-story. The study investigated both for-sale and rental models in anticipation of the State’s passage of HB21-1117. The Feasibility Study showed that various housing types could feasibly support set-asides at the 60% AMI level of between 4-12% (e.g., requiring that 4-12% of units be affordable to renters who make 60% of Area Median Income or lower – see Table 35, page 68). DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 3 At the time of the study in August 2020, EPS found that conditions in Fort Collins did not support successful implementation of an IHO policy for several reasons (page 73). At a work session in April 2021, City Council reviewed the study findings and recommendations from the Feasibility Study. Council supported staff’s recommendation to pursue an impact fee alongside capital expansion fee updates and to monitor conditions and periodically evaluate policy appropriateness of IHO. Staff did not recommend the development of an IHO policy at that time. Capital improvement and transportation expansion fees will undergo study updates in 2023. 2022 Updated Considerations on Inclusionary Housing and Linkage Fees In January 2022, Staff requested a memorandum from EPS that contained updated recommendations following the passage of HB21-1117. This memorandum has been included as an attachment. EPS noted in their recommendations that the City should strongly consider developing an IHO policy, and suggested a set-aside of 10% at 60% AMI for rental units and 10% at 100% AMI for ownership units. The consultants also noted that there are a number of policy decisions the City will need to consider in the design of an IHO program. Next Steps The passage of HB21-1117 means that the legal conditions from the August 2020 Feasibility Study have changed, and that another evaluation of an IHO policy is appropriate. Staff proposes a phased approach to exploration and design of an IHO policy, beginning with the housing-related Land Use Code (LUC) changes currently in progress. Affordable housing incentives are a key topic of the LUC updates project and will set the foundation for future policy decisions about appropriate set-asides, applicability of an IHO policy, fees in lieu, impact fees, program administration, etc. Attachments Updated Considerations on Inclusionary Housing and Linkage Fees (memorandum) HB21-1117 bill text DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 $32253ca00dde$C0ACF9F3010C4A8A8D31A1B1BFBEA849.docx M E M O R A N D U M To: Sue Beck-Ferkiss, Social Policy and Housing Program Manager Meaghan Overton, Housing Manager From: Brian Duffany, Principal Subject: Updated Considerations on Inclusionary Housing and Linkage Fees Date: January 3, 2022 This memorandum provides updated housing market data and policy considerations for implementing inclusionary housing (also referred to as inclusionary zoning) and affordable housing linkage fees. This memorandum was prepared as a follow up to the study “Feasibility for Inclusionary Housing and Affordable Housing Linkage Fees” (Study) prepared by EPS for the City of Fort Collins in 2020. The findings were presented to City Council on March 24, 2020, two weeks after a national emergency was declared and two days before Governor Polis issued a mandatory shelter in place order in response to the COVID-19 pandemic. Two key factors warrant this update and a reconsideration of the Report’s recommendations by the City: a change in State Law to expand the allowed application of inclusionary zoning (IZ) to rental housing, and the continued and accelerated escalation of housing costs during the pandemic. DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 Memorandum: IHO/Linkage Study Update Page | 2 Inclusionary Zoning Law In 2021 HB 21-1117 was signed into law. This law provided a legislative reversal of the Colorado Supreme Court’s “Telluride Decision” that banned IZ as applied to rental housing. The Court previously ruled that rental inclusionary zoning was a form of rent control which is illegal in Colorado. This new law specifically allows inclusionary zoning to be applied to new rental and for-sale housing. This is significant as many housing experts believe that IZ is most needed in rental housing and is most effective and economically feasible in higher density housing types such as apartments. When the Study’s recommendations were drafted, IZ was only allowed to be applied to new for-sale housing in Colorado. At that time EPS did not recommend that the City adopt an IZ ordinance to be applied to for-sale housing and we could not recommend IZ for rental housing due to the law at the time. EPS’ recommendation was based on the overlap of pricing expected between deed restricted (and appreciation-capped) units created from IZ and the pricing of market rate units. There was, in EPS’ opinion, too much overlap in pricing and potential buyers of IZ units would likely determine that they were better off competing in the free market which would then allow them to benefit from potential appreciation gains. Now, IZ can be applied to new for-sale and rental housing which broadens options for the City. Housing Costs The Foreword to the 2020 Study referred to speculation that the pandemic would result in a recession and softening of housing demand which is often accompanied by higher vacancy rates and lower prices. While the economy did slow, it has rebounded to near pre-pandemic levels in many areas of the state. Continued in-migration, job growth, and a shortage of materials and labor all combined forces to increase housing costs dramatically over the past 2 years. Since the first quarter of 2020, average rents in Fort Collins increased by 12 percent or nearly $160 per month (Table 1). While the supply of apartments increased by 3.8 percent (+635 units), the vacancy rate dropped to 3.9 percent. Anything below 5.0 percent is considered a tight market with a supply shortage. Table 1. Apartment Market Indicators, Q1 2020 through Q4 to date 2021 Fort Collins Apartments 2020 Q1 2021 Q3 2021 Q4 Change % Change QTD Inventory (units)16,610 17,245 17,245 635 3.8% Avg. Monthly Rent $1,285 $1,440 $1,442 $157 12.2% Vacancy 5.6%4.0%3.9%-1.7%--- Source: CoStar; Economic & Planning Systems Z:\Shared\Projects\DEN\2019 Projects\193158-Fort Collins IZ and Linkage Study\Data\2021 Update\[193158-CoStar Data_10-15-21.xlsx]Table DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 Economic & Planning Systems, Inc. Page | 3 The for-sale market also experienced large price increases. From 2019 through 2020, the median single family home price in Fort Collins increased from $430,000 to $455,000 or 5.8 percent (Table 2). From 2020 through September 2021, the median single family price increased by 17.6 percent to nearly $535,000. Townhouse and condominium sale prices increased 11.9 percent from 2020 through September 2021. Table 2. Median Home Price, Fort Collins, 2019-Sept. 2021 Home Price Distribution A major reason for the recommendation against IZ in the Study was the overlap between deed restricted prices and free market housing prices. The assumption is that most affordable housing produced through IZ regulations will be deed restricted to incomes in the 60 to 100 percent of AMI range (or potentially up to 120 percent of AMI) and appreciation capped (2.0 to 3.0 percent per year typically). The issue is that when there is housing available on the free market that overlaps with the income targets for IZ housing, deed restricted housing is less appealing and less marketable. Buyers who can afford housing in those price ranges will likely compete in the free market to take advantage of potential appreciation and no restrictions on re-sale. In Figure 1, the sales data from 2019 is re-analyzed and combined with 2021 sales data through September. In 2019, 22 percent of the sales were priced at levels affordable to people earning 100 percent of AMI or less. Combined with the likelihood that some buyers would also chose to commute from more affordable areas, the Study recommended against for-sale IZ because of this price overlap. So far in 2021, the price appreciation has reduced this overlap. Now only 12 percent of housing is priced at levels affordable to households earning 100 percent of AMI or less. EPS believes there is a stronger case now for for-sale IZ than in 2019. There are however two considerations. We do not know if we are in a housing price bubble like in 2008-2010. The pandemic has seen dramatic rapid home price appreciation over a very short time period. That said, desirable places in Colorado have tended to maintain value. Median Home Price 2019 2020 Sept. 2021 Change % Change Single Family Detached $430,000 $455,000 $534,978 $104,978 24.4% Ann. % Change 5.8%17.6% Townhouse/Condo $299,900 $315,000 $352,500 $52,600 17.5% Ann. % Change 5.0%11.9% Source: Economic & Planning Systems Z:\Shared\Projects\DEN\2019 Projects\193158-Fort Collins IZ and Linkage Study\Data\2021 Update\[193158 Median Home Price Update 12-21-2021.xlsx]Sheet1 DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 Memorandum: IHO/Linkage Study Update Page | 4 Figure 1. Affordable Home Sales by AMI Range, 2019 and 2021 YTD (Sept.) Recommendations The City can now apply IZ to rental housing and should strongly consider doing so. The Study found that the need for affordable rental housing is twice as great as the need for affordable for-sale housing. EPS suggests a set aside of 10 percent at 60 percent of AMI or based on the results of the feasibility modeling completed in the 2019 study (page 68, Table 35). For ownership housing, a 10 percent set aside is recommended at 100 percent of AMI or less. There are a number of other considerations the City will need to address in designing and IZ programs in for-sale or rental projects.  Fee in lieu – should the program require the provision of on-site units or allow for a fee-in-lieu payment? The City will also need to determine the appropriate fee-in-lieu based on the financing gap to construct affordable units. That was not fully addressed in the 2020 Study.  On-site or off-site – Must the developer provide units within the project or can they be provided by acquiring other existing units or constructing them off-site?  Threshold – Should the project apply to all sized rental or for-sale projects or have a project size threshold? For example, a threshold of 10 units would exempt smaller developments and “missing middle” housing, but not necessarily incentivize affordability as those projects are not necessarily less expensive to develop and can still command premium sale prices and rents.  Linkage fees – The City and County of Denver is considering a policy to require on- site affordable housing of 8 to 12 percent in projects of 8 units or larger. For projects 7 units or smaller, the Denver would apply linkage fees if the policy is adopted. Fort Collins could consider a similar approach. The 2020 Study recommended linkage fee levels of $5.00 per square foot for residential and $1.00 to $2.00 per square foot for nonresidential development. DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 HOUSE BILL 21-1117 BY REPRESENTATIVE(S) Lontine and Gonzales-Gutierrez, Kipp, Weissman, Bacon, Benavidez, Bernett, Bird, Caraveo, Cutter, Duran, Esgar, Exum, Froelich, Herod, Hooton, Jackson, Jodeh, Kennedy, McCluskie, McLachlan, Michaelson Jenet, Ortiz, Roberts, Sirota, Tipper, Titone, Valdez A., Valdez D., Woodrow, Young, Garnett; also SENATOR(S) Gonzales and Rodriguez, Buckner, Danielson, Fields, Jaquez Lewis, Kolker, Lee, Moreno, Pettersen, Story, Winter. CONCERNING THE ABILITY OF LOCAL GOVERNMENTS TO PROMOTE THE DEVELOPMENT OF NEW AFFORDABLE HOUSING UNITS PURSUANT TO THEIR EXISTING AUTHORITY TO REGULATE LAND USE WITHIN THEIR TERRITORIAL BOUNDARIES. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly finds, determines, and declares that: (a) In 2000, in Town of Telluride, Colorado v. Lot Thirty-Four Venture LLC, 3 P.3d 30 (Colo. 2000), the Colorado supreme court held that a local land use ordinance enacted by the town of Telluride to promote affordable housing in new developments violated a state statute that Capital letters or bold & italic numbers indicate new material added to existing law; dashes through words or numbers indicate deletions from existing law and such material is not part of the act. DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 prohibited counties and municipalities from enacting any ordinance or resolution that would control rent on private residential property or private residential housing units; except that, in that decision, the supreme court made clear that, although the Telluride ordinance constitutes rent control, the general assembly is not prevented from amending the rent control statute to permit local ordinances such as the ordinance at issue in that case. (b) Nothing in this act is intended to affect voluntary agreements to promote affordable housing stock entered into pursuant to section 38-12,301 (2), or any land use regulation adopted prior to the effective date of this act that meets the requirements of this act. SECTION 2. In Colorado Revised Statutes, 29-20-104, add (1)(e.5), (1)(e.7), and (1)(e.9) as follows: 29-20-104. Powers of local governments - definition. (1) Except as expressly provided in section 29-20-104.5, the power and authority granted by this section does not limit any power or authority presently exercised or previously granted. Each local government within its respective jurisdiction has the authority to plan for and regulate the use of land by: (e.5) REGULATING DEVELOPMENT OR REDEVELOPMENT IN ORDER TO PROMOTE THE CONSTRUCTION OF NEW AFFORDABLE HOUSING UNITS. THE PROVISIONS OF SECTION 38-12-301 SHALL NOT APPLY TO ANY LAND USE REGULATION ADOPTED PURSUANT TO THIS SECTION THAT RESTRICTS RENTS ON NEWLY CONSTRUCTED OR REDEVELOPED HOUSING UNITS AS LONG AS THE REGULATION PROVIDES A CHOICE OF OPTIONS TO THE PROPERTY OWNER OR LAND DEVELOPER AND CREATES ONE OR MORE ALTERNATIVES TO THE CONSTRUCTION OF NEW AFFORDABLE HOUSING UNITS ON THE BUILDING SITE. NOTHING IN THIS SUBSECTION (1)(e.5) IS CONSTRUED TO AUTHORIZE A LOCAL GOVERNMENT TO ADOPT OR ENFORCE ANY ORDINANCE OR REGULATION THAT WOULD HAVE THE EFFECT OF CONTROLLING RENT ON ANY EXISTING PRIVATE RESIDENTIAL HOUSING UNIT IN VIOLATION OF SECTION 38-12-301. (e.7) NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, A LOCAL GOVERNMENT SHALL NOT EXERCISE THE AUTHORITY GRANTED BY SUBSECTION (1)(e.5) OF THIS SECTION UNLESS THE LOCAL GOVERNMENT DEMONSTRATES, AT THE TIME IT ENACTS A LAND USE REGULATION FOR THE PURPOSE OF EXERCISING SUCH AUTHORITY, IT HAS TAKEN ONE OR MORE OF PAGE 2-HOUSE BILL 21-1117 DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 THE FOLLOWING ACTIONS TO INCREASE THE OVERALL NUMBER AND DENSITY OF HOUSING UNITS WITHIN ITS JURISDICTIONAL BOUNDARIES OR TO PROMOTE OR CREATE INCENTIVES TO THE CONSTRUCTION OF AFFORDABLE HOUSING UNITS: (I) ADOPT CHANGES TO ITS ZONING AND LAND USE POLICIES THAT ARE INTENDED TO INCREASE THE OVERALL DENSITY AND AVAILABILITY OF HOUSING, INCLUDING BUT NOT LIMITED TO: (A) CHANGING ITS ZONING REGULATIONS TO INCREASE THE NUMBER OF HOUSING UNITS ALLOWED ON A PARTICULAR SITE; (B) PROMOTING MIXED-USE ZONING THAT PERMITS HOUSING UNITS TO BE INCORPORATED IN A WIDER RANGE OF DEVELOPMENTS; (C) PERMITTING MORE THAN ONE DWELLING UNIT PER LOT IN TRADITIONAL SINGLE-FAMILY LOTS; (D) INCREASING THE PERMITTED HOUSEHOLD SIZE IN SINGLE FAMILY HOMES; (E) PROMOTING DENSER HOUSING DEVELOPMENT NEAR TRANSIT STATIONS AND PLACES OF EMPLOYMENT; (F) GRANTING REDUCED PARKING REQUIREMENTS TO RESIDENTIAL OR MIXED-USE DEVELOPMENTS THAT INCLUDE HOUSING NEAR TRANSIT STATIONS OR AFFORDABLE HOUSING DEVELOPMENTS; (G) GRANTING DENSITY BONUSES TO DEVELOPMENT PROJECTS THAT INCORPORATE AFFORDABLE HOUSING UNITS; OR (H) ADOPTING POLICIES TO PROMOTE THE DIVERSITY OF THE HOUSING STOCK WITHIN THE LOCAL COMMUNITY INCLUDING A MIX OF BOTH FOR-SALE AND RENTAL HOUSING OPPORTUNITIES; (II) MATERIALLY REDUCE OR ELIMINATE UTILITY CHARGES, REGULATORY FEES, OR TAXES IMPOSED BY THE LOCAL GOVERNMENT APPLICABLE TO AFFORDABLE HOUSING UNITS; (III) GRANT AFFORDABLE HOUSING DEVELOPMENTS MATERIAL PAGE 3-HOUSE BILL 21-1117 DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 REGULATORY RELIEF FROM ANY TYPE OF ZONING OR OTHER LAND DEVELOPMENT REGULATIONS THAT WOULD ORDINARILY RESTRICT THE DENSITY OF NEW DEVELOPMENT OR REDEVELOPMENT; (IV) ADOPT POLICIES TO MATERIALLY MAKE SURPLUS PROPERTY OWNED BY THE LOCAL GOVERNMENT AVAILABLE FOR THE DEVELOPMENT OF HOUSING; OR (V) ADOPT ANY OTHER REGULATORY MEASURE THAT IS EXPRESSLY DESIGNED AND INTENDED TO INCREASE THE SUPPLY OF HOUSING WITHIN THE LOCAL GOVERNMENT'S JURISDICTIONAL BOUNDARIES. (e.9) THE DEPARTMENT OF LOCAL GOVERNMENT SHALL OFFER GUIDANCE TO ASSIST LOCAL GOVERNMENTS IN CONNECTION WITH THE IMPLEMENTATION OF THIS SECTION. SECTION 3. Act subject to petition - effective date. This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly; except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within the ninety-day period after final adjournment of the general assembly, then the act, item, section, or part will not take effect unless PAGE 4-HOUSE BILL 21-1117 DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6 approved by the people at the general election to be held in November 2020 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. aA,....'""".... Alec Garnett SPEAKER OF THE HOUSE OF REPRESENTATIVES L_ 1 )) obin Jones CHIEF CLERK ' THE HOUSE OF REPRESENTATIVES APPROVED Leroy M. Garcia PRESIDENT OF THE SENATE eti) -de- -Cie Thattecaa Cindi L. Markwell SECRETARY OF THE SENATE 1, 2_07.1 ,O d 0--03 W (Date and Ti Jared i GO OR OF PAGE 5 -HOUSE BILL 21-1117 \ STATE OF COLORADO DocuSign Envelope ID: DAEB79C6-D3BA-4311-8436-3A1223A152B6