HomeMy WebLinkAbout1998-11-03; City Council; 14915; ANNUAL HOUSING PRODUCTION REPORT FY 1997-1998.- 5 F= o
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DEPT.HD. - AB# lL(, (? 1 5
MTG. "-3 "i 8 CITY ATTY. (
DEPT. PLN @ CITY MGR -i
RECOMMENDED ACTION:
That the Council ACCEPT the staff report on housing production for the reporting perioc
1997 to June 30, 1998.
IT EM EXP LANATl ON :
Description This Agenda Bill brings to the City Council staffs fifth annual report on the pros
City is making in housing production. This report is an information item only. No action is re
The report consists of a memorandum to the City Manager, attached as Exhibit 1. The
concerned with new housing construction only. It provides statistical information for a)
housing, and b) regional share needs (housing affordable to the four income groups ider
state law). The original five-year housing cycle, begun in July 1991, has been extended by '
legislature to run through June 1999. This report includes a discussion of cumulative progre
the beginning of the cycle. Data are included for market-rate housing and the City's incl
housing programs. This report also complies with the state law requirement for an annual
report to the Council.
The report includes: definitions of very Iow-, low-, moderate-, and "other"- income househl
prices of housing affordable to these groups, statistics on the affordability of housing for
current and prior reporting periods, and observations and conclusions about the housing pr
data.
Report Conclusions: In recent years the City has seen significant results from its commitme
development of housing affordable to lower-income families. This commitment is evidenc
policy framework, the allocation of its own resources, and its efforts to pursue creative part
with the private sector in all aspects of housing production. Despite this commitment, how€
year the City was unable to complete construction on any new lower-income units involvir
assistance (and only eight such units have been produced in the last two years - with the la
344 units in Villa Loma Apartments). In conjunction with a very low rate of private sector pr
of lower-income units (32 second dwelling units), it was a disappointing year for lowei
housing. At the same time, total production of new homes affordable to higher-income grc
year hit the highest level in many years (879 units), as the current swing of the econorr
providedl the conditions necessary for both production and purchases of new high-end housi
homes were built affordable to moderate income families, mostly large 4- and 5-bedroom
Altogether, construction was completed on 1,037 new homes. In general, it appears that t
for housing affordable to very-low, Iow-, and moderate-income families continues to out
community's collective ability to produce it, in terms of absolute numbers, as a fraction
production, and as a fraction of estimated need.
FISCAL IMPACT:
None. This is an information report only.
%TY OF CARLSBAD - AGE 8 A BILL
TITLE:
ANNUAL HOUSING PRODUCTION REPORT FY 1997 - 1998 -
PAGE 2 OF AGENDA dl LL NO. JyW s 0
EXH IBlTS :
1. Memorandum from the Planning Department to the City Manager, dated Se
28, 1998, with the subject: Annual Housing Production Report - FY 1997 - 19
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EXHIBIT 1
September 28, 1998
TO: CITY MANAGER
FROM: Principal Planner
ANNUAL HOUSING PRODUCTION REPORT - FY 1997-1998
This document constitutes the fifth annual report describing the City’s progress in new
housing construction. It describes our progress both a) in terms of overall housing
production, and b) towards meeting regional share needs (housing affordable to the four
income groups identified in state law). Although the City has numerous housing programs
- involving housing preservation, acquisition, rental assistance, and others - this report is
concerned only with the construction of new homes, the bulk of which are produced by the
private sector.
Reporting periods This one-year reportiing period is for fiscal year 1997-1 998, which
marks the end of the seventh 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 eight tables.
Table 1 defines the four income groups. Tables 2 - 4 set out the qualifying income levels
for the four income groups and the corresponding rents and sales prices during FY ‘97-’98
at which housing was considered to be affordable. Table 5 provides the counts of new
housing units, by income group and type of housing stock, which completed construction
this last fiscal year. Table 6 shows changes in median prices over the last two years. Table
7 gives annual and total housing counts for the last seven years. Last, Table 8 compares
our cumulative progress to the original five-year housing objectives. General observations
and conclusions are provided at the end of this report.
Housing Cycle Objectives You will recall that the determinations of housing need for
each jurisdiction in California are derived from the Regional Housing Needs Statements
prepared by the regional councils of government (COG) before the beginning of each
housing cycle. Based upon these assessments of need the local jurisdictions are charged to
adopt housing objectives in the housing elements of their general plans.
Income Group
Very LOW
Low
Moderate
Other
Definition* New
(“A of County Construction
Median Income) Needs
Less than 50% 1,443
50 - 80 YO 1,066
80 - 120% 1,317
120% + 2,447
Income Group to
Which Units Are
Affordable
very low
low
moderate
Number of bedrooms
1 2 3 4
$508 $635 $736 $839
$813 $1,016 $1,179 $1,341
$1,219 $1,524 $1,768 $2,011
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Page 4
For-sale market-rate housing is even m.ore complicated. Neither state nor federal
regulations provide a formula to determine affordability. A multitude of factors are
potentially involved. First, buyers don’t pay the full 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 indirectly affect how imuch 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. All the others are related to financing and operating a house.
Lacking guidance from state or federal law, 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.
As with the rental formulas discussed earlier, it was subsequently reviewed by the
SANDAG Board and the California Department of Housing and Community Development.
Definition: Affordable sales price = 3 .O X maximum-allowed-annual-income for each
class, adjusted for bedroom count.
Based upon this formula, Table 3 gives the qualifying purchase price for housing for the
four income groups for FY 1997 - 1998. To illustrate, a two-bedroom house costing less
than $76,200 would be potentially affordable to a very-low-income family (at 50 percent of
median income). This price is three times tlhe upper limit for a very-low-income family of
four, at $25,400 (from Table 2).
ANNUAL HOUSING PRODUCTION FY 1997 - 1998
Table 4: FY 97-98 Qualifying Purchase Price, By Bedroom
( = 3X Annual Income*)
Which Units Are Number of Bedrooms
* 3X multiplier was developed by an ad hoc committee at SANDAG with subsequent approval by the
SANDAG Board in 1993. (There is no formula in state law.) The rule also assumes 2 persons per
bedroom to provide a correspondence back to HUDs affordability rules based upon persons per household
(as opposed to bedrooms). In 1997-1998 30 6-bedroom houses were built in Carlsbad. HUD tables do
not provide for 12 person households. Therefore, these homes were treated as if they were 5-bedroom
homes.
Income Group To
Which Units are
Affordable
Very Low
Low
Moderate
Type of Units
Market Rate Units Assisted Units
S.F. Rental Rental Second
Unit*
Condo For Sale Dwelling Totals Detached Apts Apts
0 0 0 0 0 0 0
0 0 0 0 0 32 32
113 11 2 0 0 0 126
Structure
Type Single-Family
CondoITownhouse
Median Sales Prices Annual Percent
FY ‘97 - ‘98 FY ‘96 - ‘97 Change Change
$336,750 $3 10,000 $26,750 8.6%
$228,090 $201,990 $26,100 12.9%
Housing Units Built in Reporting Period
Income
Group To
Which Units ’I97- 6/98
Are
Affordable
Very Low 0 1 243 0 0 0
Low 32 8 95 2 0 0
28 2 0 0 Moderate 126 85
Other 877 556 45 1 29 1 134 0
Unknown* 2 1 5 0 0 678
Totals 1,037 65 1 822 295 134 678
7/96 - 6/97 7/95 - 6/96 7194 - 6/95 7193 - 6/94 7191- 6/93 (current) Totals
244
137
241
2,309
686
3,617
CITY MANAGER 0 0
ANNUAL HOUSING PRODUCTION FY 1997 - 1998
Page 8
Table 8: Progress Vs Regional Share Objectives
Housing Cycle 7/91 to 6/98
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* "ObjeCtlVe" is from Regional Housing Needs Statement, prepared by SANDAG, July 1990
Observations and Conclusions
1. Last year's overall production Last year's overall housing production rate continues
the rebound begun during the 1994 - 1995 reporting period, with 1,037 new homes
completing construction. This is the most produced in one year since the mid-1980s.
All of these homes were produced by the private sector. No public assisted housing was
produced.
2. Seven-year overall production While Carlsbad's overall production of housing during
the seven-year period (3,617 units) was only slightly more than half of the original
regional share estimate of need forfive years (6,273 units), the lesser rate of production
was due primarily to the general economic downturn that occurred during the first three
years of the cycle. During this down period, growth throughout the state was flat, even
negative in some areas. Therefore, it is likely that the actual needs for housing
(statewide and locally) was significantly less than SANDAG's original estimates of
need. Carlsbad's production mirrors that of other jurisdictions throughout the state.
Our ]production in the last three years has rebounded strongly from the recession.
3. myear's lower-income housing production It was a bad year for lower-income
housing production. No housing was produced which is affordable to very-low income
families. Only 32 units were produced which are potentially affordable to low-income
families. All of these were second dwelling units produced in a new subdivision.
While rents for these second dwelling units are restricted to rates affordable to low-
0 0 CITY MANAGER
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ANNUAL HOUSING PRODUCTION FY 1997 - 1998
income persons (via an Affordable Housing Agreement), none of the units are actually
required to be rented to the market-at-large. Purchasers of the main homes to which the
units are attached may choose not to rent them at all. In addition, because of their
small size and limited number of bedrooms (typically a studio arrangement or one
bedroom for one or two people), second dwelling units do not often provide shelter for
families. Consequently, little significant progress was accomplished for lower-income
families.
4. Seven-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 seven years has been 381 units (or about
10.5 percent) of over-all production. This trails the City’s adopted inclusionary policy
of 15 percent. The seven-year figure was significantly affected by this year’s
production because of the very low rate for producing lower-income housing
accompanied by the record-breaking rate for producing housing for upper income
groups. In previous annual reports cumulative lower-income production has more
closely matched the 15% policy. These data may improve soon, however, in that two
inclusionary housing projects have now begun construction. These include Cherry
Tree Walk (42 for-sale town homes) and Laurel Tree (138 rental apartments). In
addition, Rancho Carrillo (1 16 rental apartments) should start construction within the
next half year. Nevertheless, as of the end of last fiscal year, lower-income production
lags the City’s objectives.
5. Moderate-income housing production During the seven-year period 24 1 units (6.7%
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. In addition, as is pointed out in the main
body of this report, at least some of the units produced in this category may not be truly
affordable to moderate-income families: five-bedroom homes, selling at nearly
$300,000, are technically affordable to the upper end of moderate-income families only
if they house 10 or more people. This type of production may not be meeting
Carlsbad’s real moderate income needs. On the other hand, over half (126 of 241) of
the market-rate moderate-income units produced over seven years were completed just
this last year. Perhaps economic and market trends will lend themselves to producing
more of the right kind of moderate-income affordable housing in future years.
6. “Other”-income housing production The market-rate median prices of both detached
and attached housing produced in Carlsbad last year ($336,750 and $228,090,
CITY MANAGER e 0
ANNUAL HOUSING PRODUCTION FY 1997 - 1998
Page 10
respectively) are affordable primarily only to “other” income classes. Clearly,
Carlsbad’s private sector continues to produce primarily up-scale 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 disincentive; despite lower interest rates in recent years, per-square-foot
production costs remain high, so that profit margins on more affordable housing are
low; and, in many desirable areas, demand for higher-end housing remains 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 is
evidenced in its policy framework, the allocation of its own resources, and its efforts to
pursue creative partnerships with the private sector in all aspects of housing production.
Despite this commitment, however, last year the City was unable to complete construction
on any new lower-income units involving public assistance (and only eight such units have
been produced in the last two years - with the last of the 344 Villa Loma units). In
conjunction with a very low rate of private sector production of lower-income units (32
second dwelling units), it was a disappointing year for lower-income housing. It appears
that 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 fraction of estimated need. At the same
time, total production of new homes affordable to higher-income groups last year hit the
highest level in many years, as the current swing of the economic cycle provided the
conditions necessary for both production and purchases of new housing.
--zc.IL-;/&TL
DENNIS A. TURNER
DAT/