HomeMy WebLinkAbout2022-10-11; City Council; ; Report on possible programs to help entry-level homebuyers purchase homes in CarlsbadCA Review _RK_
Meeting Date: Oct. 11, 2022
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Jeff Murphy, Community Development Director
jeff.murphy@carlsbadca.gov, 442-339-2783
Mandy Mills, Housing & Homeless Services Director
mandy.mills@carlsbadca.gov, 442-339-2907
Subject: Report on possible programs to help entry-level homebuyers purchase
homes in Carlsbad
District: All
Recommended Action
Receive the staff report and provide direction, as appropriate.
Executive Summary
The median detached single-family home price in Carlsbad was roughly $1.5 million in August
2022 according to the real estate pricing website Zillow. Yet most middle-income families, those
often comprised of entry-level professionals in teaching, nursing and accounting, do not make
enough money to comfortably afford a market-rate home in the city. In fact, more than 70% of
San Diegans currently cannot afford a median-priced home in today’s housing market.
On March 22, 2022, the City Council approved a motion directing staff to identify possible
housing programs that could increase first-time homebuyer opportunities. In response, this
staff report and the report attached as Exhibit 1, provide several options for programs that
focus on either improving housing affordability, housing delivery or the availability of entry-
level homes for sale.
However, due to concerns further discussed in these reports, staff do not recommend
implementing most of the identified programs. This is because of the significant city financial
and administrative commitments they would entail, concerns about the long-term stability of
the programs and their cost/benefit ratio, and the risk that these programs may frustrate
existing housing programs that are designed to increase the number of low and very low-
income housing units in the city.
Oct. 11, 2022 Item #9 Page 1 of 29
Discussion
Background
On March 22, 2022, after approving an item related to housing and affordable housing,1 the
City Council passed a motion by Council Member Norby, seconded by Council Member Bhat-
Patel, directing staff to investigate ways to create first-time homebuyer opportunities and
incentives for home ownership and bring back a report to the City Council within six months,
unless circumstances arise to shift the timeline.
In response to this direction, and for City Council consideration, staff developed the attached
report, Increasing Entry-level Housing in Carlsbad, (Exhibit 1), which discusses the challenges
and offers possible options to creating homeownership opportunities for first-time homebuyers
in Carlsbad.
Report structure
The attached report is structured to cover four main topic areas, as reflected below.
• The introductory section provides an overview of the various constraints and challenges
facing affordable housing not just in Carlsbad, but the entire state.
• The next section covers the approach used in developing the possible housing program
options; namely, improving housing affordability, delivery and availability.
• The third section provides a synopsis of the roughly dozen programs that attempt to
create more for-sale housing that is affordable to moderate-income families.2 Each
program summary includes a listing of key program components, the resources and
funding needed to implement it, estimated timeline and the department that would
lead the effort.
• The final section provides staff’s conclusions and recommendations.
Program challenges
Housing affordability, particularly when it comes to the affordability of for-sale housing, is not a
local problem, but a growing issue that jurisdictions throughout the state are trying to address.
Ideally, families should spend 30% or less of their monthly gross income on their monthly
housing costs (e.g., principal, interest, taxes and insurance), according to the U. S. Department
of Housing and Urban Development and most lending institutions. Unfortunately, roughly 70%
of families in San Diego spend more than 30% of their income on monthly housing costs,
resulting in less money for other essential living expenses such as food, clothing and utilities.
1 The City Council approved amendments to the city’s inclusionary housing in-lieu fee, which is collected from
developers in lieu of their building affordable housing units and used to fund affordable housing everywhere. The
City Council also consolidated and amended Council policy statements Nos. 57, 58 and 68 into a single policy
document, No. 57. The purpose was to help streamline permit application, clarify confusing language, and
memorialize longstanding processing practices related to inclusionary housing compliance for low-income units. At the conclusion of the City Council meeting, a minute
2 A family is considered “moderate income” when it makes 120% of the Area Median Income of the region. The
median income for a family of four is $106,900, so a moderate-income family of four has an annual household
income of roughly $128,300.
Oct. 11, 2022 Item #9 Page 2 of 29
While the various programs listed in attached report may provide some positive effect on the
availability of housing for moderate-income families, they are not without significant limitations
and risks, causing most of them to be infeasible to implement. For example:
• The most effective programs that help with home affordability involve subsidies,
typically in the form of government financing, to help either “buy down” the mortgage
amount or assist families in monthly mortgage payment support. Given the high cost of
housing, such programs result in a significant government financial and administrative
commitment, which will likely only assist a small handful of families.
To buy down a mortgage, staff estimate that the city would need to subsidize roughly
$300,000 for one moderate-income family of four to afford a detached single-family
home in Carlsbad. An estimated $200,000 would be needed for that family to afford a
townhome in the city. For monthly financial assistance programs to work, the program
needs to be available for the duration of the mortgage period, which can be up to 30
years. So, a $500 monthly mortgage stipend for one family could cost the city upward of
$180,000 (unadjusted for inflation).
• There are no assurances or guarantees that those programs in the report that are
designed to streamline project reviews, or facilitate the construction of more housing
units, will translate into market-rate housing that will be affordable to first-time
homebuyers.
• For the current Housing Element, the part of the city’s General Plan that focuses on
housing, the city’s housing allocation for moderate-income units is 749, or 19% of the
city’s total Regional Housing Needs Assessment.3 Conversely, for low and very low-
income units, the city’s housing allocation is 2,095, 54% of the city’s total housing needs
assessment.
Programs listed in the attached report that incentivize or mandate a percentage of
moderate-income units in new developments will likely compete with and take away
from the city’s existing inclusionary housing programs that help generate housing for
low-income families, the affordability level that cities historically struggle the hardest to
provide housing for.
Recommendations
Considering the significant city financial and administrative commitments, concerns about long-
term program stability concerns, a lopsided cost/benefit ratio, and the risks that these
programs may hamper existing housing programs that were designed to increase the number of
low and very low-income housing units in the city, staff recommend that only the following
proposed programs be considered and further investigated:
3 The California Department of Housing & Community Development is responsible for developing statewide housing production goals. These goals represent the total number of housing units to be built within an eight-year
housing cycle for varying income groups. These production goals are distributed and assigned to local jurisdictions
who must develop plans and programs to show how their share of housing units will be accommodated. This is
referred to as the Regional Housing Needs Assessment process.
Oct. 11, 2022 Item #9 Page 3 of 29
Housing Element sites
As part of the General Plan comprehensive update in 2015, any property owner that
was allowed to build a project with a greater density than would normally be permitted
is required to meet one of the following inclusionary housing requirements.
o At least 20% of the total residential units are restricted for low-income households
o At least 15% of the total residential units are restricted for low-income households
and an additional 10% are restricted for moderate-income households
o At least 15% of the total residential units are restricted for very low-income
households
Staff recommend applying those affordability requirements when the city carries out
the rezoning of certain sites called for in the Housing Element.
Since 2015, five of the seven sites that were allowed a greater density for residential
development have been constructed (Exhibit 2). The developers of three projects
elected to set aside 20% of their units for low-income families and one developer set
aside 15% of their project’s units for very low-income families.
The developer of the fifth project set aside 25% of its units for moderate and low-
income families. Most of the affordable units are rentals. While the moderate-income
units in that project are rentals, it is an affordability level that developers can
incorporate into their development when given the option, and a housing affordability
type that will help the city achieve its housing need assessment requirements.
Because of this, as part of the Housing Element rezoning effort, which is scheduled for
City Council action early next year, staff will be recommending that any properties
receiving a density increase must comply with the same inclusionary housing
requirement options that were adopted as part of the 2015 General Plan update.
Priority to city-owned sites
There are properties the city owns that are suitable for residential development. When
making these sites available for sale or lease, the city could require affordability levels
that would last for a specified time, with resale restrictions as a condition of buying the
property. Under this strategy, the city is essentially underwriting the cost of the land to
the developer. The city could maintain a financial interest against the property and
transfer benefit to moderate-income buyers in the form of a second deed of trust that
is does not need to be paid during their occupancy to keep the sales prices lower.
City staff can review city-owned land and recommend opportunities suitable for this
use. The type of home and the percentage of units affordable to moderate-income
buyers would be a condition placed on the purchase or lease of city-owned land.
Recorded covenants restricting future sales prices allow buyers modest appreciation
while maintaining affordable prices for future buyers. The city would need to have
approval from the state Department of Housing and Community Development that this
Oct. 11, 2022 Item #9 Page 4 of 29
approach is a suitable strategy to meet moderate housing needs, even though the
Surplus Lands Act requires they be made available for low-income housing.4
Fiscal Analysis
There is no direct fiscal impact associated with the preparation of this report because existing
staff resources were already budgeted. However, each program identified in Exhibit 1 includes
an estimate of the resources and funding needed to implement it. Because the market is not
readily producing affordable homeownership opportunities at entry levels, most programs
identified in the attached report require substantial financial commitment from the city’s
General Fund. Further pursuit of the implementation of these programs may require redirecting
funding – and possibly staffing – from existing priorities and budgeted projects.
The city’s Housing Trust Fund may be a possible alternative funding resource for these
programs. However, additional analysis and consultation with the City Attorney’s Office would
be needed to determine potential legal limitations. Amendments to City Council Policy No. 90 –
Administration of the Housing Trust Fund – may also be required to use the funding for
moderate-income housing programs and/or projects.
Next Steps
If City Council directs staff to pursue any of the programs identified, city staff will bring back any
necessary policy changes or funding appropriations for City Council approval.
Environmental Evaluation
This action is exempt from the California Environmental Quality Act under CEQA Guidelines,
Section 15262, which allows for a project involving only feasibility or planning studies for
possible future actions that have not been approved, adopted or funded. The action being
considered by City Council involves discussion and possible direction to pursue the programs
identified in the attached report that are designed to help entry-level homebuyers purchase a
home in Carlsbad. Any such direction will not have any legally binding effect on later activities
or actions.
This determination is predicated on Section 15004 of the guidelines, which provide direction to
lead agencies on the appropriate timing for environmental review. The programs identified in
the attached report may require preparation of an environmental document in accordance with
CEQA Guidelines before they can be implemented.
Public Notification
This item was noticed in keeping with the state's Ralph M. Brown Act and it was available for
public viewing and review at least 72 hours before the scheduled meeting date.
Exhibits
1. Increasing entry-level housing in Carlsbad, October 2022
2. Housing Element sites
4 California’s Surplus Land Act requires local governments to offer surplus land for sale or lease to affordable home
developers and certain other entities before selling or leasing the land.
Oct. 11, 2022 Item #9 Page 5 of 29
Exhibit 1
INCREASING ENTRY-LEVEL
HOUSING IN CARLSBAD
A REPORT ON THE CHALLENGES AND POSSIBLE PROGRAM OPTIONS TO
UNLOCKING HOMEOWNERSHIP OPPORTUNITIES FOR MANY ASPIRING
FIRST-TIME HOMEOWNERS IN CARLSBAD
City of Carlsbad
Community Development Department | Housing & Homelessness Services Department
October 2022
Oct. 11, 2022 Item #9 Page 6 of 29
2
Contents
EXECUTIVE SUMMARY ...........................................................................................................3
INTRODUCTION .....................................................................................................................4
Background ................................................................................................................................ 4
Constraints facing affordable housing ....................................................................................... 4
Financing constraints ........................................................................................................ 4
Government constraints ................................................................................................... 5
Development constraints .................................................................................................. 5
Economic constraints ........................................................................................................ 6
Environmental constraints ................................................................................................ 6
STRATEGIES ...........................................................................................................................8
Improving housing affordability ................................................................................................ 8
Improving housing delivery ....................................................................................................... 9
Improving housing availability ................................................................................................... 9
PROGRAM OPTIONS............................................................................................................. 10
Middle Income Density Bonus ................................................................................................. 10
Micro-unit housing .................................................................................................................. 11
Streamlined environmental review ......................................................................................... 12
California Dream for All Program ............................................................................................ 13
Housing everyday heroes ........................................................................................................ 14
Housing our educators ............................................................................................................ 15
Land bank ................................................................................................................................ 16
Affordable resale program ...................................................................................................... 17
Housing Element sites ............................................................................................................. 18
Inclusionary Housing Ordinance .............................................................................................. 19
Priority for city-owned sites .................................................................................................... 20
CONCLUSION & RECOMMENDATION .................................................................................... 21
Oct. 11, 2022 Item #9 Page 7 of 29
3
EXECUTIVE SUMMARY
Over the past several decades, new housing development has not kept
pace with job or population growth, resulting in housing costs that have
increased at a much faster rate than income levels. With a growing
population and a median home price in Carlsbad of roughly $1.5 million,
more and more families are finding it increasingly difficult to find an
affordable place to live in the city. Additionally, many economic analysts
have reported that the single greatest threat to our region’s economy is
the high cost of local housing.
Since 1993, the City of Carlsbad has implemented actions and programs
aimed at providing more housing for lower income families. Programs
like the city’s inclusionary housing regulations and Housing Trust Fund
have made a positive difference in providing locally affordable housing
for families making less than 80% of the Area Median Income, which is
currently around $106,000 for a family of four. In fact, from 1995 to
2020, the city produced more than 19,000 housing units, of which
roughly 13% were restricted as affordable to low-income families, an
affordability level that cities historically struggle to provide housing for.
Unfortunately, this means that most new housing units produced are
priced at the top of the market. In fact, the median home price in
Carlsbad was roughly $1.5 million in July 2022 according to the real
estate pricing website Zillow. Many middle-income families, families
making over 120% of the Area Median Income and often comprised of
schoolteachers, nurses, and emergency responders, neither qualify for
low-income housing, nor do they make enough money to afford a
market-rate home in the city. More than 70% of San Diegans cannot
afford a median priced home in today’s housing market.
On March 22, 2022, the City Council approved a motion directing staff
to investigate ways within housing programs to increase entry-level
homebuyer opportunities.
This report is in response to City Council direction and provides several
program options that focus on either improving housing affordability,
delivery or availability.
However, due to concerns further discussed in this report related to
potential significant city financial and administrative commitments
needed to implement each program, the long-term sustainability of the
programs, the limited number of families that would benefit and the
risk that these programs may negatively impact existing housing
programs that target the delivery of low and very low-income housing,
staff recommend that the City Council only pursue certain programs
(see page 23).
Oct. 11, 2022 Item #9 Page 8 of 29
4
INTRODUCTION
Background
On March 22, 2022, following actions taken to update the city’s
inclusionary housing policies and in-lieu fee, the City Council approved a
minute motion directing staff to investigate ways to increase entry-level
homebuyer opportunities and incentives for home ownership and bring
back a report to the City Council within six months, unless
circumstances arise to shift the timeline.
This report is intended to satisfy this City Council direction.
Constraints facing affordable housing
Before developing potential programs and policies that attempt to
tackle housing affordability for entry-level homeowners, it is important
to understand the influences behind why housing costs are so high.
Several factors can constrain the availability and affordability of
residential development. These include market constraints, such as
development costs and interest rates, and governmental constraints,
which include land use controls, fees, and processing times, among
others. The city’s coastal location and mesa/canyon topography also
impose physical and regulatory constraints, and results in high land
costs that present challenging market constraints. In addition,
environmental and infrastructure constraints can also impede
residential development. This section provides an overview of these
constraints that affect housing.
Financing constraints
Access to mortgage loans has tightened in the wake of the financial
crisis of 2007-08 and finance reform. The new lending environment can
have a substantial impact on prospective purchasers. An additional
obstacle for homebuyers continues to be the down payment required
by lending institutions. These factors often affect demand for ownership
housing, driving up or depressing housing prices. Under the federal
Home Mortgage Disclosure Act, lending institutions must disclose
information on the disposition of loan applications by the income,
gender, and race of the applicants. This applies to all loan applications
for home purchases and improvements, whether financed at market
rate or through government-backed programs. The primary concern in a
Oct. 11, 2022 Item #9 Page 9 of 29
5
review of lending activity is to see whether home financing is generally
available to all income groups in the community.
A moderate-income household of four people with a household
income of approximately $128,000 would need approximately
$200,000 to put down on a $680,000 townhome. The townhome
represents one of the least expensive units that sold in the last few
months in Carlsbad. Currently the low end of the market has
condominium units in the $800,000 range. A household at 140% of
the median income earning approximately $150,000 per year would
need over $250,000 to put down to afford an entry level attached
home. A family of four earning $250,000 per year would need to put
down at least $300,000 to be able to afford a detached single-family
home in Carlsbad. Considering interest rates and market availability
it is realistic that only above moderate-income households or
middle-income households with significant cash to put down on a
home will be in a financial position to be able to purchase market
rates homes in Carlsbad.
Government constraints
Land development policies and regulations set by government agencies,
particularly at the state and local level, can impact the affordability of
housing. For example, local codes may limit the areas where housing
can be developed, thus making it difficult to meet the demand for
affordable housing and limiting supply both locally and in a region.
While the city has no control over state and federal laws that affect
housing, regulations related to environmental protection, building
codes, and other topics can potentially have significant, adverse,
impacts on housing cost and availability due to increased development
standards.
Development constraints
Development costs include the price of land, which is affected by land
supply and construction costs, in addition to development processing
and impact fees, which are discussed in the “government constraints”
section. In Carlsbad, location is the single greatest factor determining
land prices. Carlsbad is a highly desirable place to live, and many
properties have coastal views. Available land zoned for residential use
varies substantially depending upon location in the city and can range in
price from $1 million to $6 million per acre based on information from
Zillow. The lack of availability and the cost of vacant residential land in
Carlsbad is a substantial market constraint to the production of new
affordable housing in the market.
Oct. 11, 2022 Item #9 Page 10 of 29
6
Economic constraints
Roughly 63%1 of the total cost of producing a new residential building in
California over the past decade is accounted for in hard construction
costs, or materials and labor costs. By comparison, 19% of total
development costs are accounted for in soft costs (e.g., legal and
professional fees, insurance, development fees), 10% is accounted for in
conversion (title fees, operating deficit reserve), and 8% is accounted
for in acquisition costs (land and closing costs). As a result, hard
construction costs play a significant role in the financial feasibility of
housing construction, even more than land costs.
Between 2014 and 2018, construction costs in California rose nearly
44%, a large contributor being the cost of materials. The cost of wood,
plastics, composites, finishes and concrete have all increased since
2014, although the cost of metals has decreased. Wages have also
increased over the last decade, although once accounting for inflation,
wages have only risen 3.4% since 2006. However, the construction labor
market has been tight since the recession in 2008, which shows in the
mismatch between the growing number of permitted units (430%
between 2009 and 2018) and the growth of the construction sector
(32% between 2009 and 2018).
Generally, the complexity of funding projects (including associated
prevailing wage and local hiring requirements) and increased design
requirements have driven up the cost of affordable housing
development. In 2018, the average hard construction cost was $222 per
square foot, according to the 2020 Terner Center report on
construction. If this is applied to the housing typology assumed for the
2020 Building Industry Association of San Diego County Fee Survey, a
single-family home with 2,700 square feet of living space would cost
about $599,400 to construct, not including fees.
Environmental constraints
Environmental constraints to residential development typically relate to
the presence of sensitive habitat, flooding, topography, and other
natural and physical characteristics that can limit the amount of
development in an area or increase the cost of development, as reflect
more below.
• Carlsbad contains many areas where native habitat hosts
endangered or sensitive species. Protection of many of the
species is mandated by Federal and State laws and the
presence of sensitive or protected habitat and/or species can
constrain the amount of developable land.
1 The Hard Costs of Construction: Recent Trends in Labor and Materials Costs for Apartment Buildings in California, Terner Center Report (March 2020)
Oct. 11, 2022 Item #9 Page 11 of 29
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• Certain topographic conditions can limit the amount of
developable land and increase the cost of housing in
Carlsbad. Where residential development is permitted on
moderate slopes, the cost of improvement and construction
in these areas increases and can affect the end price of the
unit.
• Residential development is not allowed in areas designated
for open space and conservation easements, which
constrains the available land for residential development.
• To protect the ability of the McClellan-Palomar Airport to
operate safely, there are specific prohibitions and
restrictions to residential development within certain
airport’s safety zones located near the airfield and within
certain projected noise contours.
• Not allowing residential development in areas with potential
flooding hazards constrains the available land for residential
development.
• Fire hazard severity zones designate the range of fire hazard,
based on three key factors: fuel, slope, and weather.
Residential developments located in these zones must be
built using ignition resistant development standards and fuel
management zones, which restrict where development can
be located.
Oct. 11, 2022 Item #9 Page 12 of 29
8
STRATEGIES
Cities and non-profit organizations throughout the state have
developed and employed numerous policies and programs to help
address housing affordability. While some of these programs have
been very successful, they are not enough to have a long-term effect
on overall housing affordability in the region, particularly on for-sale
housing products.
Considering the constraints, addressing housing affordability for
entry-level homeowners will require a combination of independent
but overlapping strategies. Each strategy will need to include a clear
purpose, which can be used as the foundation for program and
policy development. Ideally, implementation of these strategically
created programs will collectively help improve housing affordability
for entry-level homeowners.
In keeping with this approach, staff have identified the following
housing affordability strategies:
• Improving housing affordability
• Improving housing delivery
• Improving housing availability
Improving housing affordability
Housing in the San Diego region has become extremely unaffordable.
More than 70% of San Diegans cannot afford a median priced home.
San Diegans are spending a significant percentage of their paychecks on
housing costs making this one of the most unaffordable markets in the
nation. In fact, according to a report published by OJO Labs in January
2022, San Diego bypassed both San Francisco and Los Angeles to
become the nation’s least affordable metro areas by comparing median
home price to local incomes.2 At the time of the report, the median
price for a home sold in San Diego was $764,000. According to Zillow,
that figure has since climbed to $1 million in June 2022. In Carlsbad, the
median home price was roughly $1.5 million.
Under this strategy, program and policy opportunities should focus on
reducing the purchase price of the home to reduce the anticipated
mortgage obligations for entry-level homeowners.
2 https://email.ojo.com/san-diego-passes-san-francisco-as-nations-least-affordable-metro
Oct. 11, 2022 Item #9 Page 13 of 29
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Improving housing delivery
Evidence has shown that the cost of delivering new housing units can be
greatly impacted by government processes. Uncertain timelines,
burdensome regulations, and exhaustive discretionary review make it
harder to develop new housing stock quickly and inexpensively.
Under this strategy, program and policy opportunities should focus on
streamlining our development standards and creating certainty in the
process.
Improving housing availability
The laws governing supply and demand are still an economic reality ---
when the supply of housing inventory is low, and the demand for
housing is high, housing prices increase. Increasing housing entitlement
and production could help prices, making housing more affordable to
more households.
Under this strategy, program and policy opportunities should focus on
incentives or inducements that encourage the development of more
housing affordable to middle-income families.
Oct. 11, 2022 Item #9 Page 14 of 29
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PROGRAM OPTIONS
The following programs and policies, which align with one or more of the
strategies, are being provided for City Council consideration. Each program
includes a general description, a summary of key program components, a
listing of the resources, funding, and time schedule required to implement,
identification of the department(s) that will lead and/or support the
initiative
Middle Income Density Bonus
The state’s Density Bonus Law allows a developer to increase density on a
property above the maximum set under a city’s local land use plan by as much
as 50%. In addition, applicants can also receive reductions in required
development standards when those standards prevent the applicant from
achieving the density allowed under state law. In exchange, a certain number of
the new dwelling units within the proposed project must be reserved for lower-
income households. Following this state model, a local ordinance can be
developed that offers similar incentives in exchange for reserving for-sale units
for moderate-income households. [Strategy: Improving housing availability]
Key components
• Applies to for-sale product only, citywide
• Projects may receive up to a 35% density bonus above the maximum
density allowed
• 35% of all units (density bonus units included) reserved for families
making no more than 120% of the Area Median Income
• 25% deviation in development standards affecting parking, setbacks
and building height
• Units must be reserved affordable for no less than 55 years
• Counted towards the city’s inclusionary housing requirements
• Cannot be combined with State Density Bonus
Resource needs and timeframe
• Approximately $250,000 onetime cost for environmental review
• Would require about half of one current full-time equivalent
position
• May be combined with a micro housing program (below)
• About 18 to 24 months to complete, plus Coastal Commission
approval
Responsible department
• Community Development (lead)
• Housing & Homeless Services (support)
• City Attorney’s Office (support)
Oct. 11, 2022 Item #9 Page 15 of 29
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Micro-unit housing
Micro units have widely varying definitions, but they generally consist of a
one- or two-room living space designed to include seating, a bed, a
bathroom, storage and a kitchenette, with possible access to communal
amenities, and can range in size from 250 to 600 square feet. The appeal of
micro units is largely about economics, where costs can be 20% to 30%
below that of a conventionally sized unit. To help generate market-rate
affordable for-sale housing for people like college graduates and young
adults just starting out, a local ordinance can be developed that
incentivizes local micro unit development in the city. [Strategy: Improving
Housing Availability]
Key components
• The project must be comprised of micro-units, with the median
size of combined units not exceeding 600 square feet, and no
single unit exceeding 1,000 square feet
• Only available for sale, not for rent
• Projects may receive up to a 100% density bonus above the
maximum density allowed
• Must comply with all applicable development standards (no
deviations from standards, except for parking when located near
a transit center)
• Must pay inclusionary in-lieu fee for every unit that exceeds 600
square feet
• Cannot be combined with State Density Bonus
Resource needs and timeframe
• Approximately $250,000 onetime funds for environmental review
• Would require about half of one current full-time equivalent
position. May be combined with middle income density bonus
(above)
• Would take about 18 to 24 months to complete, plus the state
Coastal Commission’s approval
Responsible department
• Community Development (lead)
• Housing & Homeless Services (support)
• City Attorney’s Office (support)
Oct. 11, 2022 Item #9 Page 16 of 29
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Streamlined environmental review
California Environmental Quality Act Guidelines Section 15183 allows a
streamlined environmental review process for public and private
development projects that are consistent with the densities established by
existing zoning, community plan or general plan policies for which an
environmental impact report was certified. Projects that rely on this
process benefit from the cumulative analysis contained within the
environmental impact report so long as the project complies with the
report’s predefined mitigation and avoidance measures. The City of
Carlsbad is in the process of preparing a supplemental environmental
impact report for the rezoning of several sites throughout the city as part
of the 2021-2029 Housing Element. Any future development that is
consistent with the densities and use characteristics considered in the
supplemental environmental impact report may qualify for the CEQA
streamlining under Section 15183. [Strategy: Improving Housing Delivery]
Key components
• Certify the Housing Element Supplemental environmental impact
report
• Develop Informational-Bulletin describing the program
• Develop streamlining checklist form
Resource needs and timeframe
• Housing Element Supplemental environmental impact report
scheduled for City Council consideration in spring 2023
• Would take about wo months to develop an info-bulletin and
checklist
Responsible department
• Community Development (lead)
• City Attorney’s Office (support)
Oct. 11, 2022 Item #9 Page 17 of 29
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California Dream for All Program
The California Dream for All Program, proposed by Senate President Pro-
Tempore Toni Atkins, would help qualifying entry-level homebuyers of
color achieve the dream of homeownership by providing significant down
payment assistance to qualifying individuals. [Strategy: Improving
Housing Affordability]
Key components
As of the preparation of this report, details of the program are still being
developed, but this is what is known so far:
• As currently proposed, the state would allocate $1 billion per year
for 10 years toward a revolving loan program
• Funds will be available to qualifying families of color
• It is anticipated that this level of funding will assist roughly 8,000
entry-level homeowners per year by providing up to 17% for the
purchase price of the home
• It is anticipated that this contribution could reduce the down
payment and lower monthly mortgage payments as much as 30%,
saving the homebuyer an estimated $12,000 per year
• Once the homeowner sells, transfers, or refinances the home,
they would reimburse the state an amount equal to the 17%
share of the home’s current market value
Resource needs and timeframe
• Minimal city staff costs and resources anticipated to be needed to
market and promote the program)
Responsible department
• Housing & Homeless Services (lead)
• Community Development (support)
Oct. 11, 2022 Item #9 Page 18 of 29
14
Housing everyday heroes
The affordable housing crisis not only affects recent graduates and new
families, it also hits local service professionals such as medical workers,
emergency responders, educators and social workers. In fact, many of
these young service professionals are unable to afford a home in the
community they are charged with serving. To promote the value of
homeownership and the importance of living in the community you serve,
a pilot revolving fund program can be developed where the city provides
one-time financial assistance to moderate families buying a home in
Carlsbad [Strategy: Improving Housing Affordability]
Key components
• Similar to the California Dream Program, the city could allocate $1
million per year from the city’s General Fund for five years to the
revolving loan program
• It is anticipated that this level of funding could assist roughly
seven entry-level moderate-income homeowners per year by
providing up to 15% towards the purchase price of the home
• It is anticipated that this contribution could reduce the down
payment and lower monthly mortgage payments as much as 20
to 30%
• Once the homeowner sells, transfers, or refinances the home,
they would reimburse the city an amount equal to the original
city share of the home’s current market value
Resource needs and timeframe
• $1 million per year for five years
• Would require about half of one current full-time equivalent
position
• Would take about 18 to 24 months to complete
Responsible department
• Housing & Homeless Services (lead)
• Community Development (support)
Oct. 11, 2022 Item #9 Page 19 of 29
15
Housing our educators
Like the two previous programs, the city can work with the Carlsbad
Unified School Direct to assess the feasibility of a voucher program in
which teachers and school administrators who wish to locate in the City of
Carlsbad would be given a monthly stipend to assist in their mortgage
costs. [Strategy: Improving housing affordability]
Key components
• A city/district allocation of $1.2 million per year for five years
• It is anticipated that this level of funding could assist roughly 200
homeowners per year by providing up to $500 per month
Resource needs and timeframe
• Coordinate with the school district to determine interest, financial
commitment
• $1.2 million per year for five years
• About 25% of one current full-time equivalent position
• About 12 to 18 months to develop program
Responsible department
• Carlsbad Unified School District (lead)
• Housing & Homeless Services (lead)
Oct. 11, 2022 Item #9 Page 20 of 29
16
Land bank
As explained, a significant piece of the new home price is the high cost of
land in Carlsbad. A public/private partnership through which the city buys
and holds the land could significantly reduce delivery costs. Holding onto
the land through a land lease could maintain an inventory of affordable
housing for future buyers, a land bank. The use of city-owned land that is
suitable for affordable residential development is an option through the
Surplus Lands Act.3
Key components
• Dependent on market availability of land suitable for a
residential project
• Costs are unknown currently as it is dependent on market forces
• It is anticipated that this contribution could reduce the housing
cost by as much as $300,000/unit
• A covenant restricting future sales prices allows the buyer
modest appreciation while maintaining affordable prices for
future buyers
Resource needs and timeframe
• One time purchase, amount unknown
• About 25% of one current full-time equivalent position
• Timeframe depends on market availability
Responsible department
• Housing & Homeless Services (lead)
• Community Development (support)
• City Attorney (support)
3 The Surplus Land Act, California Government Code Section 54220, requires local governments to offer
surplus land for sale or lease to affordable home developers and certain other entities before selling or
leasing the land.
Oct. 11, 2022 Item #9 Page 21 of 29
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Affordable Resale Program
The city’s inclusionary housing program has provided units available to
low and very low-income households, but the market does not currently
provide housing affordable for moderate- and middle-income households.
The city could purchase entry level housing units and create a resale
program for moderate- and middle-income households. The city would
buy the units at market prices and sell them at a reduced price with a
silent second mortgage recorded against the property, restricting future
resale prices.4 When the city sells the units, the proceeds go back into the
fund. This would provide a small inventory of affordable housing in the
marketplace for future buyers.
Key components
• Dependent on market availability
• Costs are currently unknown as it is dependent on market forces
• Anticipated that this contribution could reduce the housing cost
by as much as $300,000 a unit
• A covenant restricting future sales prices allows the buyer
modest appreciation while maintaining affordable prices for
future buyers
Resource needs and& timeframe
• $1M per year for five years
• About 25% of one current full-time equivalent position
• About 12-18 months for first units to come online
Responsible department
• Housing & Homeless Services (lead)
• Community Development (support)
• City Attorney (support)
4 A silent second mortgage is a second mortgage placed on an asset such as a home for down payment funds that
are not disclosed to the original lender on the first mortgage.
Oct. 11, 2022 Item #9 Page 22 of 29
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Housing Element sites
As part of the General Plan comprehensive update in 2015, any property
owner that received a density increase is required to reserve 20% of the
units of their project for low-income families (as opposed to the 15%
required by the city’s Inclusionary Housing Ordinance). Staff are also
recommending that a similar 20% requirement be imposed on those
properties that are receiving a density increase as part of the rezoning
effort called for in the city’s Housing Element, which is underway.
Key components
• In exchange for the increased density, the city will require that
any future development on the site meet one of the following
inclusionary housing requirements.
o At least 20% of the total residential units are restricted for
low-income households
o At least 15% of the total residential units are restricted for
low-income households and an additional 10% are
restricted for moderate-income households
o At least 15% of the total residential units are restricted for
very low-income households
Resource needs and timeframe
• About 25% of one current full-time equivalent position
• Six to nine months following adoption of the Housing Element
rezone
Responsible department
• Community Development (lead)
• City Attorney (support)
Oct. 11, 2022 Item #9 Page 23 of 29
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Inclusionary Housing Ordinance
The city’s Inclusionary Housing Ordinance (Carlsbad Municipal Code
Section 21.85) was passed by the City Council in 1993 and established the
legal basis for requiring 15% of new housing developments of seven units
or more be reserved for low-income families. Since its implementation,
the program has proven to be extremely effective. From 1995 to 2020, the
city produced 19,026 housing units, of which roughly 13% were made
affordable. The ordinance may be amended to include moderate income
units.
Key components
• The ordinance could be modified to maintain the requirement
that 15% of the total residential units be restricted for low-
income households, but require that an additional 5% of the
units be restricted for moderate-income households.
Resource needs and timeframe
• Approximately $150,000 one-time cost
• About 25% of one current full-time equivalent position
• 12 to 18 months
Responsible department
• Community Development (lead)
• City Attorney (support)
Oct. 11, 2022 Item #9 Page 24 of 29
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Priority for city-owned sites
There are instances where the city owns land suitable for residential
development. When making these sites available for sale or lease, the city
could require a certain type of housing be built and any resale restrictions
as a condition of acquisition. Under this strategy, the city is essentially
underwriting the cost of the land to the developer. The city could
maintain a financial interest on the property and transfer the benefit to
moderate income buyers in the form of a second deed of trust that is not
payable during occupancy to keep the sales prices lower.
Key components
• A housing product type and percentage affordable to moderate
income buyers affordable housing requirement can be a
condition of purchase or lease of city owned land.
• City needs to clear approvals with the state Housing and
Community Development Department that this approach is a
suitable strategy to meet moderate housing needs even though
the Surplus Lands Act requires that such properties be made
available for low-income housing.
• A covenant restricting future sales prices allows the buyer
modest appreciation while maintaining affordable prices for
future buyers
Resource needs and timeframe
• About 25% of one current full-time equivalent position
• Six to nine months following identification of sites
Responsible department
• Community Development (lead on site identification)
• Real Estate Manager (lead on site sale or lease)
• Housing & Homeless Services (lead on resale)
• City Attorney (support)
Oct. 11, 2022 Item #9 Page 25 of 29
21
CONCLUSION & RECOMMENDATION
While the various programs listed in this report may provide some
positive effect on the availability of housing for moderate-income
families,5 they are not without significant limitations and risks causing
most of them to be infeasible to implement. For example:
• The most effective programs that help with home
affordability involve subsidies, typically in the form of
government financing, to help either “buy down” the
mortgage amount or assist families in monthly mortgage
payment support. Given the high cost of housing, such
programs result in a significant government financial and
administrative commitment, which will likely only assist a
handful of families. To buy down a mortgage, staff estimate
that the city would need to subsidize roughly $300,000 for
one family of four to afford an entry-level detached single-
family home in Carlsbad. An estimated $200,000 would be
needed for that family to afford a townhome in the city. For
monthly financial assistance programs to work, the program
needs to be available for the duration of the mortgage
period, which can be up to 30 years. As such, a $500 monthly
mortgage stipend for one family could cost the city upwards
of $180,000 (unadjusted for inflation).
• There are no assurances or guarantees that those programs
in this report that are designed to streamline project
reviews, or facilitate the construction of more housing units,
will translate into market-rate housing that will be affordable
to entry-level homebuyers.
• For the current Housing Element, the city’s housing
allocation for moderate income units is 749, or 19% of the
city’s total Regional Housing Needs Assessment.6 Conversely,
for low and very low-income units, the city’s housing
allocation is 2,095, or 54% of the city’s total housing needs
assessment. Programs listed in this report that incentivize or
mandate a percentage of moderate-income units in new
development will likely compete with and take away from
5 A family is considered “moderate income” when they make 120% of the Area Median Income of the region. The median
income for our region is $106,900. As such, a moderate-income family of four has an annual household income of roughly
$128,300.
6 The California Department of Housing & Community Development is responsible for developing statewide housing production
goals. These goals represent the total number of housing units to be built within an eight-year housing cycle for varying income
groups. These production goals are distributed and assigned to local jurisdictions who must develop plans and programs to
show how their share of housing units will be accommodated. This is referred to as the Regional Housing Needs Assessment.
Oct. 11, 2022 Item #9 Page 26 of 29
22
the city’s existing inclusionary programs that help generate
housing for low-income families.
Considering the significant city financial/administrative commitments,
long-term program stability concerns, lopsided cost/benefit ratio, and
the risks the programs may impose on existing housing programs that
attempt to increase the number of low and very low-income housing
units in the city, staff recommend that only the following proposed
programs be considered and further investigated.
Housing Element Sites
• As part of the General Plan comprehensive update in 2015,
any property owner that received a density increase is
required to meet one of the following inclusionary housing
requirements.
o At least 20% of the total residential units are
restricted for low-income households; or
o At least 15% of the total residential units are
restricted for low-income households and an
additional 10% are restricted for moderate-income
households; or
o At least 15% of the total residential units are
restricted for very low-income households
Since 2015, five of the seven sites that were granted greater density for
residential development have been constructed --- three projects elected
to set aside 20% of their units for low-income families and one project
set aside 15% of their units for very low-income families.
The fifth project set aside 25% of the units for moderate and low-income
families (Exhibit 2). While the moderate-income units in that project are
rental, it is an affordability level that developers can incorporate into
their development when given the option, and a housing affordability
type that will help the city achieve its RHNA requirements.
As such, as part of the Housing Element rezoning effort, which is
scheduled for City Councill action early next year, staff will be
recommending that any properties receiving a density increase must
comply with the same inclusionary requirement options that were
adopted as part of the 2015 General Plan update.
Priority to City-Owned Sites
There are instances where the city owns land suitable for residential
development. When making these sites available for sale or lease, the
city could require product tenure and affordability levels with any resale
restrictions as a condition of acquisition. Under this strategy, the city is
essentially underwriting the cost of the land to the developer. The city
Oct. 11, 2022 Item #9 Page 27 of 29
23
could carry back a financial interest against the property and transfer
benefit to moderate income buyers in the form of a second deed of
trust that is not payable during occupancy to keep the sales prices
lower.
City staff can review city owned land and recommend redevelopment
opportunities suitable for this use. Product type and percentage
affordable to moderate income buyers affordable housing requirement
would be a condition of purchase or lease of city owned land. Recorded
covenants restricting future sales prices allows the buyer modest
appreciation while maintaining affordable prices for future buyers. City
needs to clear approvals with State HCD that this approach is a suitable
strategy to meet moderate housing needs even though the Surplus Lands
Act requires availability for low-income housing.
Oct. 11, 2022 Item #9 Page 28 of 29
Exhibit 2
Background
As part of the comprehensive update of the General Plan, the Planning Commission passed Resolution 7114 on July 24,
2015. The resolution recommended City Council approve an allocation of excess dwelling units for specific properties
described in the resolution and for which a residential land use change was recommended for approval per Planning
Commission Resolution 7112. These properties are shown in the table above.
In addition, Resolution 7114 contained specific wording regarding affordability requirements for those properties
receiving an allocation of excess units:
The density increases provided in Table A herein are substantial and well above the density bonus limits
established by Carlsbad Municipal Code (CMC) Section 21.86.030.B, and constitute an “offset” as defined by
Carlsbad Municipal Code (CMC) Section 21.85.020. In exchange for making such offset available, the city
council finds it is appropriate to require, in accordance with Carlsbad Municipal Code (CMC) Section
21.85.100, any residential development (rental or for-sale) on the properties identified in Table A of this
resolution to enter into an affordable housing agreement with the City of Carlsbad to provide a minimum of
20 percent of the total housing units on the site of the residential development as affordable to lower
income households at 80% or below the San Diego County Area Median Income. At the sole discretion of the
City of Carlsbad and following completion of an alternate public benefit analysis, any residential development
(rental or for-sale) on the properties identified in Table A of this resolution may be permitted to produce
affordable housing units on the site of the residential development that meet one of the following minimum
requirements as an alternative to satisfy the lower income affordable housing requirement set forth above:
1.A minimum of 15 percent of the total projects housing units shall be affordable to lower income
households at 80% or below the San Diego County Area Median Income and an additional 10 percent
shall be affordable to moderate income households at 100% or below of the San Diego County Area
Median Income; or
2.A minimum of 15 percent of the total project housing units shall be affordable to very low income
households at 50% or below the San Diego County Area Median Income.
Status of Properties Subject to Planning Commission Resolution 7114
Project or Site Name Unit number
(total/affordable) Unit Type Development
Status
Details
Basin BJ (Cannon Rd/College
Blvd) N/A N/A No project
proposed N/A
Robertson Ranch PA 22 (Casa
Aldea) 98/20 Apt. Completed 20% of units set aside as low
income - Rental
Sunny Creek Commercial (aka
Walmart property) N/A N/A No project
proposed N/A
Marja Residential (Marja Acres) 294/46 Apt. Under
construction
15% of units set aside as very low
income - Rental
La Costa Town Square 95/19 Condo Approved 20% of units set aside as low
income - Ownership
Aviara Farms (now Aviara Apts.) 329/81 Apt. Approved
25% of units set aside as
affordable (12 moderate and 69
ex. low, very low-, and low-income
units) - Rental
Ponto Residential and Mixed
Use (now Ponto Beachfront) 136/28 Condo Proposed 20% low-income ownership
proposed - Ownership
Oct. 11, 2022 Item #9 Page 29 of 29
Increasing Entry-Level
Housing in Carlsbad
Jeff Murphy, Community Development Director
Mandy Mills, Housing & Homeless Services Director
Oct. 11, 2022
BACKGROUND
•Minute motion made March 22, 2022
•Followed approval of inclusionary policy changes and fees
•Identify housing programs that could increase first-time
homebuyer opportunities.
•Return to City Council for discussion
ITEM 9: Homebuyer Programs
REPORT
•Housing constraints & challenges
•Approach to program identification & development
–Affordability
–Delivery
–Availability
•Possible programs identified
•Staff recommended programs
ITEM 9: Homebuyer Programs
PROGRAM CHALLENGES
•Not unique to Carlsbad
•Significant city financial/admin commitments
•Lopsided cost/benefit ratio
•Long-term program stability concerns
•No assurance permit streamlining will result in affordable units
•Programs will compete with current inclusionary programs
ITEM 9: Homebuyer Programs
RECOMMENDED PROGRAMS
•Increased inclusionary requirements
for Housing Element Sites
•Specialized affordability requirements
for City-Owned Sites
ITEM 9: Homebuyer Programs
HOUSING ELEMENT SITES
•Applied to 2015 General Plan Update
–20% low-income
–15% low-income & 10% moderate
–15% very-low income
•One utilized low-income/moderate option (12 moderate units)
•Apply same requirements to Housing Element Update sites
ITEM 9: Homebuyer Programs
PRIORITY TO CITY-OWNED SITES
•Applies to city-owned properties
•Require product tenure and affordability levels
•City could carry-back financial interest against the property
•Transfer benefit to moderate income buyers in the form of a
second deed of trust
•Not payable during occupancy to keep the sales prices lower
ITEM 9: Homebuyer Programs
Increasing Entry-Level
Housing in Carlsbad
Jeff Murphy, Community Development Director
Mandy Mills, Housing & Homeless Services Director
Oct. 11, 2022