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A Developers Guide to the Mixed-Income Housing Ordinance of the City of Sacramento Establishing an Inclusionary Housing Program

Introduction

The City of Sacramento adopted a Mixed Income Housing Policy on June 27, 2000, as part of its Housing Element of the General Plan. That policy was implemented by adoption of a Mixed Income Housing Ordinance on October 3, 2000, that established what is commonly called an inclusionary housing program. Chapter 17.190 , added to Title 17 (zoning) of the City Code, sets forth specific information on the requirements and operation of the program.

The purpose of the program is to assist the City achieve a diverse and balanced community with housing available for households of all income levels.

In this guide, you may view the following attachments:

• Income Levels and Maximum Housing Payments (Sacramento Area - 2000)
• Home Ownership Affordability Estimates
• Maximum Allowable Rents in Developments with Low-Income Housing Tax Credits
• Application for Inclusionary Incentives
• Checklist for an Inclusionary Housing Plan
• Projected Linkages Between Market Rate and Inclusionary Housing Development Process

Applicability: New Growth Areas

The ordinance applies to residential development in new growth areas, defined as follows: A "New Growth Areas" means

1. the newly developed communities identified on the map at the end of the ordinance;
2. major redevelopment opportunity areas, including the Railyards Special Planning District and Curtis Park West Railyards site as identified on the map;
3. any future annexation areas of the City of Sacramento.

Exemptions from the obligations of the ordinance are listed in Chapter 17.190.070. The most general categories exempted are listed below; the ordinance contains the complete description of all exemptions:

• Residential projects with nine or fewer residential dwellings in one location (a defined term);
• Rehabilitation of existing residential dwellings;
• Market rate units produced as a density bonus;
• Residential projects which had approved Development Agreements before June 20, 2000.

Number and Affordability of Inclusionary Housing Units

The affordable units produced to meet a development's inclusionary housing obligation may be either single family or multifamily, ownership (for-sale) or rental housing. An affordability chart for rental and for-sale housing is attached to this guide. The United States Department of Housing and Urban Development annually provides the income data used in this chart and in the following definitions:

Low Income Obligation

Five percent (5%) of all residential units in a real estate development project that includes market rate housing must be affordable to and occupied by low income households. A low income household is one whose gross income does not exceed eighty percent (80%) of the Sacramento area median income, adjusted for family size.

Very Low Income Obligation

Ten percent (10%) of all residential units in a real estate development project that includes market rate housing must be affordable to and occupied by very low income households. A very low income household is one whose gross income does not exceed fifty percent (50%) of the Sacramento area median income, adjusted for family size.

For example, a real estate development project with 100 residential units planned would provide 10 units for very low income households and 5 for low income households. Eighty-five (85) units would be market rate.

Affordable Rent

• A unit whose occupancy is restricted to a low income household has a monthly rent that does not exceed one-twelfth of thirty percent (30%) of eighty percent (80%) of the Sacramento area median income, adjusted for family size.
• A unit whose occupancy is restricted to a very low income household has a monthly rent that does not exceed one-twelfth of thirty percent (30%) of fifty percent (50%) of the Sacramento area median income, adjusted for family size.

Affordable Sales Price

The price at which low income or very low income households, as defined above, can qualify for the purchase of for-sale units within thirty percent (30%) of the gross annual household income of the given income group. For purposes of calculation, housing expenses include mortgage principal and interest, taxes, insurance, and other related assessments.

Location of Inclusionary Housing Units

Inclusionary housing units should be built on the site of the development project (exception below). To avoid overconcentration, the housing units should be dispersed to the maximum extent feasible, taking financing requirements into account.

In multifamily housing, buildings of more than eight (8) units that contain more than fifty percent (50%) of inclusionary or otherwise assisted units for very low or low income households (and have local public funding) should not be located adjacent to another such project. The Planning Director can modify this policy only to the extent that financing or land use designations require it. (Section 17.190.050)

Alternatives to On-site Construction, with Planning Director Approval

• Land dedication: a developer can dedicate land to the Sacramento Housing and Redevelopment Agency (SHRA) at no cost, passing the responsibility for construction of inclusionary housing on to the Agency.
• Off-site development: for exclusively single family development projects, inclusionary units may be built on a site outside of the development project but within a new growth area. Land dedication is also permitted with this off-site alternative. An "exclusively single family development project" is one where land is zoned for single family residential use and where land, if any, zoned for or permissive of multifamily residential use is insufficient to accommodate the very low income component of the inclusionary housing obligation. The exclusively single family development must be at "One Location", meaning that it includes all adjacent land owned or controlled by the same owner or related owner.

Standards for the Approval of These Alternatives: (Section 17.190.060)

• The site must be superior (e.g., access to transportation or other planning criteria) or provide a more cost-efficient solution to the standard inclusionary housing obligation;
• The site must be suitable in size and physical characteristics for the housing required and be identified early in the entitlement process, at the time of the Inclusionary Housing Plan;
• It must receive its legislative entitlements no later than those entitlements are received by the development project that generated the inclusionary obligation;
• If dedication, an irrevocable offer must be submitted to SHRA before the Inclusionary Housing Agreement is negotiated;
• If an off-site location, the developer must own or control the site to ensure its contemporaneous development with that of the market rate housing in the development project. The Inclusionary Housing Agreement will be recorded against both sites.

Inclusionary Housing Standards: Phasing, Design, and Length of Affordability

Inclusionary units must be built concurrently with market rate units in the development project. The Planning Director may approve adjustments for reasons of financing, economies of scale, and infrastructure needs. The actual construction phasing of the inclusionary units is proposed by the developer in the Inclusionary Housing Plan and is finalized in the Inclusionary Housing Agreement.

The design of the inclusionary housing units shall be compatible with the design of the total project in terms of appearance, materials, and finished quality. The inclusionary units will provide a mix of bedrooms to accommodate different family sizes.

The term of affordability for rental inclusionary housing units is 30 years. For-sale units will be sold initially at an affordable housing price to a low or very low income household who is a first-time home buyer. An SHRA 30-year note governs the home's resale, allowing SHRA 90 days to refer an income-eligible buyer after notification of the owner's intent to sell. If an income-eligible purchaser is not found, the home may be resold at market price to a household that is neither low nor very low income, provided that SHRA recaptures the difference between the home's market value and its affordable housing price as well as other City or SHRA financial contributions. The owner-occupant will receive his or her initial equity in the home and a portion of the home's appreciated value. (Section 17.190.090)

Incentives: Financial and Regulatory

The City and SHRA will provide incentives to help offset the cost of providing the inclusionary housing units. The incentives include fee waivers or deferrals, priority processing for building and planning approvals, unit size reductions to reduce development costs, density bonuses, and local public funding. The City will provide $4,000 per unit in fee reductions for eligible very low income inclusionary housing units and $1,000 per unit for low income inclusionary units. In addition, the City will assist the developer to obtain school facility fee reimbursements through the California Housing Finance Agency and regional sanitation fee waivers or deferrals through the County of Sacramento.

The developer may apply to SHRA for multifamily (rental) and homebuyer financing to assist in the development of the inclusionary housing obligation. Such local funding may also facilitate the allocation of Low Income Housing Tax Credits, tax-exempt mortgage revenue bonds, or other state and federal assistance which is not controlled by local government. The sources of locally administered funds are the City of Sacramento Housing Trust Fund (now merged with the North Natomas Housing Trust Fund), federal HOME Investment Partnership Program funds, redevelopment area tax increment funds set aside for housing, and to a lesser extent, federal Community Development Block Grant funds (which are not generally used for new housing construction).

Multifamily (Rental) Funding

SHRA accepts applications for multifamily financing the first Wednesday of every month. Applications require such information as the number and bedroom size of units, rent schedules and affordability, detailed development and operation budgets, evidence of site control, a 30-year financial proforma, sources and uses of funds, and experience and financial capability of the development and property management team. SHRA's “Multifamily Lending Guidelines and Application” and “ Mortgage Revenue Bond Policies and Application” are available from its Development Services Department, 630 I Street, 2nd Floor.

For-Sale Financing

SHRA's financial assistance for homeowners is undergoing change. Currently, first-time home buyers who are very low and low income households may apply for downpayment and closing cost assistance and for Mortgage Credit Certificates (individual tax credits). Mortgage assistance - funds needed to help write down the cost of a modest home to affordable levels - may be available through the State Department of Housing and Community Development through its new Cal-HOME program, and is being considered locally to adapt to rising home prices.

Application for Inclusionary Incentives (PDF - 268 KB)

Administration of the Program: (1) The Inclusionary Housing Plan

The inclusionary housing process begins with the developer's submission of a draft Inclusionary Housing Plan. It is submitted with the developer's application for the first legislative entitlement (general and community plan designation or amendment, PUD schematic plans and guidelines, master parcel map, zonings and rezonings, etc.).

The draft Inclusionary Housing Plan lays out the developer' proposal for meeting the inclusionary housing obligation. It should include, at a minimum, information on the number, housing type (rental and/or for-sale), unit mix, location, affordability, and phasing plan. If land dedication or off-site location is proposed, the draft Plan must include information on the site location, suitability, development constraints, and the number of units assigned (see checklist). The draft plan is reviewed by SHRA and forwarded to the Planning Director with recommendations.

The final Plan will be incorporated into the terms and conditions of the applicable entitlements and project-specific approvals. Where the developer has made significant progress toward the implementation of its inclusionary housing obligation by the time of the draft Plan's submission, the City and SHRA may begin negotiations on the Inclusionary Housing Agreement, collapsing the time between the draft Plan and the more detailed Agreement that includes the package of City/SHRA incentives.

Administration of the Program: (2) Inclusionary Housing Agreement

The Inclusionary Housing Agreement is a legally binding agreement between the developer and the City that is recorded against the land of the entire development project to ensure that the inclusionary obligation is satisfied. The Agreement establishes, among other things, the number of inclusionary units, unit sizes, location, affordability, tenure, terms and conditions of affordability, phasing and production schedule, and the developer of the inclusionary units. If land dedication or off-site production of inclusionary units is planned, the site information and control requirements described above under “Alternatives” must be included. The Agreement also incorporates City and SHRA commitments of local public subsidies and regulatory incentives.

Information needed from the developer includes the identification of the affordable housing developer, plans, schematics, and details of phasing of the residential development as a whole and its inclusionary housing component, as well as financial information on the inclusionary housing component.

Because Development Agreements, particularly in North Natomas, are being submitted with initial legislative entitlements, the Mixed Income Housing Ordinance Section 17.190.110(C) has been amended to eliminate the requirement that the Inclusionary Housing Agreement be executed and recorded as a condition of Development Agreement approval. The Inclusionary Housing Agreement will be negotiated concurrently with the processing of an application for the first project-specific approval; that project-specific approval will not be issued without the Inclusionary Housing Agreement's execution and recordation. Exceptions will be permitted for tentative maps and parcel maps if the Developer has obtained an approved Inclusionary Housing Plan that contains a phasing program with enforceable conditions for the production of the inclusionary housing units.

Projected Linkages Between Market Rate and Inclusionary Housing Development Process

Further Information

For more information on the Inclusionary Housing Plan or Agreement, contact the following persons at SHRA, 630 I Street, Sacramento 95814: Beverly Fretz-Brown, 916-440-1357; Darren Bobrowsky, 440-1328. Copies of the Agency's mortgage revenue bond policies and multifamily lending guidelines may be obtained at 630 I Street, 2 nd Floor, Development Services Department, or by calling 916-440-1328.

For more information on land entitlement questions, contact the Sacramento City Planning Department, 1231 I Street, Sacramento 95814, telephone 916-808-5656, and ask for the lead planner for either the North Area or South Area Planning Team.