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HomeMy WebLinkAbout1998-02-03; City Council; 14540; HOUSING PRODUCTION REPORT FY 1996-1997b HOUSING PRODUCTION REPORT FY 1996-1997 That the Council ACCEPT the staff report on housing production for the reporting perioc 1996 to June 30, 1997. ITEM EXPLANATION: Description: This Agenda Bill brings to the City Council staffs fourth annual report on the the City is making in housing production. This report is an information item only. No The report consists of a memorandum to the City Manager, attached as Exhibit 1. The housing, and b) regional share needs (housing affordable to the four income groups id state law). The original five-year housing cycle, begun in July, 1991, has been extend state legislature to run through 1998. This report includes a discussion of cumulative pro: the six-year period to date. Data are included for market-rate housing and the City's in1 housing programs. This report also complies with the state law requirement for an annui report to the Council. The report includes: definitions of very-low-, low-, and "other"- income households, the housing affordable to these groups, statistics on the affordability of new housing for both t and prior reporting periods, and observations and conclusions about our housing productio Report conclusions: The City has seen significant results in recent years from its commitrr development of housing affordable to lower income families. This commitment is evider policy framework, the allocation of its own resources, and its efforts to pursue creative pa with the private sector in all aspects of housing production. Despite this ongoing cot however, last year no construction on new lower-income projects was initiated. In conjunc concerned with new housing construction only. It provides statistical information for: a homes affordable to higher-income groups is on the increase (some 556 units), as the CUI of the economic cycle provides the conditions necessary for both production and purchai with subject: Housing Production FY 1996-1 997. 0 0 EXHIBIT 1 January 5,1998 TO: CITY MANAGER From: Principal Planner HOUSING PRODUCTION REPORT FY 1996-1997 This document constitutes the fourth annual report on the City’s progress in housing production for both a) overall housing production, and b) towards regional share needs (housing affordable to the four income groups identified in state law). Reporting periods This one-year reporting period is for fiscal year 1996-1997, which marks the end of the sixth year of the current Housing Element cycle. By state law, this cycle was originally supposed to have extended from July 1, 1991 to June 30, 1996, a period of five years. However, in 1994, 1995, and again in 1996, as part of the annual budget reconciliation acts, the state legislature extended the housing cycle by an additional year. Consequently, the original five-year housing cycle will now be an eight-year cycle, running through June 30, 1999. The numerical objectives remain the same, however. An updated housing element and new five-year performance objectives will be prepared prior to the beginning of the next housing cycle in 1999. Report Format The City’s progress is presented through data contained in seven tables. Table 1 defines the four income groups. Tables 2 and 3 set out the qualifying income levels for the four income groups and the corresponding prices during FY ‘96-’97 at which housing was considered to be affordable. Table 4 provides the counts of new housing units, by income group and type of housing stock, which completed construction this last fiscal year. Table 5 shows changes in median prices over the last two years. Table 6 gives annual and total housing counts for the last six years. Last, Table 7 compares our cumulative progress to the original five-year housing objectives. Housing Cycle Objectives You will recall that the determinations of housing need for each jurisdiction in California are derived from the Regional Housing Needs Assessments prepared by the regional councils of government (COG) before the beginning of eack housing cycle. Based upon these assessments of need the cities are supposed to adopr housing objectives in the housing elements of their general plans. The regional assessment of need is an estimate of the total need for new housing construction in the region due to growth which has been forecast to occur during the five- year cycle. The over-all housing need is then broken out by four income groups: very low low, moderate, and other (as defined by HUD). The regional needs are then allocated tc Income Group Very Low Low Moderate Other Definition* New (% of County Construction Median Income) Needs Less than 50% 1,443 50 - 80 % 1,066 80 - 120% 1,317 120% + 2,447 CITY MANAGER e 0 HOUSING AFFORDABILITY REPORT FY 1996 - 1997 Page 3 Table 2: FY 96-97 Qualifying Limit On Annual Income Persons Per Household Source: HUD annual affordability limits effective 1/97 Implementing the 30% rule for market-rate housing, on the other hand, is considerably more difficult, Builders of market-rate, for-sale housing do not set prices based upon an individual buyer’s ability to pay. Rather, the prices are set to what the market will bear. Determining to what income group a given market-rate house is affordable is not a trivial matter. Neither state nor federal regulations provide a formula. A multitude of factors are potentially involved. First, buyers don’t pay the hll price of a house in cash. Instead, they take out one of many types of mortgages, subject to many variables (fixed or variable interest rate, down payment, pay-back period, mortgage insurance, loan origination fees, etc.). In addition, other housing costs should be factored in, including property taxes, insurance, utilities, and homeowners association dues. All of these factors are recognized “housing costs” and determine how much a family can pay each month under the 30%-of- income rule. Only the principal and down payment, however, relate directly to the sales price of the house. Lacking guidance from state or federal law, an ad hoc committee of many of the nineteen SANDAG member agencies developed a simple formula in 1993 for use in determining the affordability of market-rate for-sale houses. The formula follows a rule-of-thumb used by many mortgage lending institutions. It was subsequently reviewed by the SANDAG Board and the California Department of Housing and Community Development. Definition: Affordable sales price = 3.0 x maximum allowed annual income for class: adjusted for household size. Based upon this formula, Table 3 gives the qualifying purchase price for housing for the four income groups for FY ’96 - ‘97. The adjustment for household size is done via a conversion to the number of bedrooms. The formula assumes that each bedroom car accommodate two persons. To illustrate, a two-bedroom house costing less than $72,90C would be affordable to a very-low-income family. This price is three times the upper limii for a very-low-income family of four, at $24,300 (from Table 2). Income Group to Which Units Are Affordable very low low moderate Number of Bedrooms 1 2 3 4 5 $58,350 $72,900 $84,600 $96,300 $1 19,550 $93,300 $1 16,700 $135,300 $153,900 $191,400 $139,950 $174,900 $202,950 $230,850 $286,800 Other Unknown* * Totals 53 1 25 0 0 0 0 556 1 0 0 0 0 0 1 60 1 41 0 0 8 1 651 Structure Median Sales Prices Type FY '96 - '97 FY '95 - '96 Single-Family $3 10,000 $3 16,900 CondoiTownhouse $20 1,990 $203,990 Annual Percent Change Change -$6,900 -2.2% -$2,000 -1 .O% CITY MANAGER 0 0 HOUSING AFFORDABILITY REPORT FY 1996 - 1997 Page 6 U.S. median of 153,000 it is high. If the data last year for Carlsbad’s 556 single-family homes were merged with the data for its 41 condominium townhouses, the median price would drop only slightly to $300,000, still very high by comparison. Fig. I: Median Prices of New Single-Family Houses in 1996 Carlsbad (SF only) C‘bad (SF & Condo) United States West South Midwest Northeast c 0 ,I m B $0 $50 $100 $150 $200 $250 $300 $2 Sales Prices ($1,000) Data source for areas outside Carlsbad: U.S. Bureau of the Census, 1997 Cumulative Progress Table 6 shows our progress last year added to what we have done in the previous five years. Unfortunately, during the first two years of the Housing Element cycle (7/91 to 6/93) two factors combined to preclude determining the affordability of units built during these years: a) the City did not have a process in place to collect the price information necessary to determine the affordability of units, and b) affordability formulas for market-rate housing were not defined until late 1993 (see earlier discussion). Our total during these two years was 678 units, all of which were constructed by the private sector Based upon historical trends, it is likely that most, if not all, of these units were affordable only to “other” income classes. Using this assumption, over the six-year period we buil 244 units affordable to very low-income families (of which 241 were associated with Vilk Lorna), 106 units affordable to low-income families (1 03 associated with Villa Lorna), 1 1 : units affordable to moderate income families, and 1,432 units affordable to “other” incomc families. Altogether we built 2,580 new dwelling units. e 0 CITY MANAGER Page 7 HOUSING AFFORDABILITY REPORT FY 1996 - 1997 Table 6: Newly Constructed Units - Annual Progress By Income Class * Because the required information (rentfprice, no. of bedrooms) was not obtainable for some units during the reporting periods, it was not possible to determine accurately to what income groups these units were affordable. In some cases these were custom builder-occupied homes and the owners declined to provide cost information. There is a fair probability that these units should be placed in the “other” category. In addition, data on sales prices for market-rate housing were not collected at all during the period 7/91 - 6/93. Historical trends for this period (type of stock produced, typical prices) suggest that little if any of this stock was affordable to classes below “other”. There was no new rental or assisted housing produced during the ‘91-’93 reporting periods. Table 7 compares our progress during the six years of the Housing Element cycle with the original regional share needs figures (from Table 1). Our over-all construction met about 41 percent of the over-all forecast need during the six-year period. We achieved slightly more than 17 percent of the need for very-low-income families, 10 percent of the need for low-income families, nearly 9 percent of the need for moderate-income families, and 59 percent of the need for “other” income groups (87 percent, if the “unknown” units are included). b 2,116 2,447 86.5% Unknown 0 m CITY MANAGER Page 9 HOUSING AFFORDABILITY REPORT FY 1996 - 1997 4. Six-year lower-income production The estimated need for lower-income housing for the original five-year cycle was 2,509 units (or 40% of total need). The City’s production of new lower-income units over six years has been 350 units (or about 14%) of over-all production. While the 14% percentage production is low relative to the original estimate of need, it is about equal to the City’s inclusionary policy of 15 percent. This is remarkable given that it took several years to establish the policies and ordinances for the inclusionary programs, and more time to bring the first actual development projects on-line. With a number of approved inclusionary projects on the books and about to begin construction, there is promise of more lower-income affordable units to come. On the other hand, it is significant that the private sector has produced no market-rate housing affordable to lower-income families during the entire six-year period, other than a handful of individual second dwelling units. 5. Moderate-income housing production During the six-year period 115 units (3.8% of total production) have been produced which are affordable to moderate income families. The original regional share estimate of need indicated that 1,3 17 moderate- income units were needed (or 21% of total need). When the City considered including a moderate-income requirement as part of its inclusionary housing ordinances, the requirement was set aside when the private sector assured the City that it would produce moderate-income housing without inclusionary requirements. Based upon this assurance, the City made a conscious decision to focus its own resources and efforts on lower-income housing during the five-year period. The industry’s production figures do not stand up well to its earlier assurances. On the other hand, 85 of the 115 market- rate moderate-income units produced over six years were produced just this last year. Perhaps economic and market trends will lend themselves to producing more moderate- income affordable housing in subsequent years. 6. “Other”-income housing production The market-rate median prices of both detached and attached housing produced in Carlsbad last year ($310,00 and $201,990, respectively) are affordable primarily only to “other” income classes. Clearly, Carlsbad’s private sector continues to produce primarily upscale housing. A number of factors contribute to this trend: Tax incentives for producing more affordable housing are few; litigation against builders of multi-family housing projects continues to act as a significant disincentive; despite lower interest rates in recent years, per- square-foot production costs remain high, so that profit margins on more affordable housing is low; and, in many desirable areas, demand for higher-end housing remain3 relatively strong. In conclusion, the City has seen significant results from its commitment to the development of housing affordable to lower income families. This commitment i3 evidenced in its policy framework, the allocation of its own resources, and its efforts tc pursue creative partnerships with the private sector in all aspects of housing production Despite this commitment, however, last year the City was unable to initiate construction or 0 e CITY MANAGER Page 10 new lower-income projects. In conjunction with a near-total dearth of private sector lower- income units (one second dwelling unit), it was a disappointing year for lower-income housing production: only nine lower-income units were produced. The need for housing affordable to very-low-, low-, and moderate-income families continues to outstrip the community’s collective ability to produce it, in terms of absolute numbers, as a fraction of total production, and as a fiaction of estimated need. At the same time, total production of new homes affordable to higher-income groups is on the increase, as the current swing of the economic cycle provides the conditions necessary for both production and purchases of new housing. HOUSING AFFORDABILITY REPORT FY 1996 - 1997 -----IlLa5GL=-~. DENNIS A. TURNER DATi