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Home My WebLink About2020-12-08; Council Policy No. 73 - City Option to Purchase Resale Affordable HousingCity of Carlsbad Attachment A Policy No. 73 Date Issued: 12-08-2020 Effective Date: 12-08-2020 Resolution No. 2020-234 Cancellation Date: N/A Supersedes No. 73, issued 1/22/08 Council Policy Statement Category: AFFORDABLE HOUSING Specific Subject: City Option to Purchase Resale Affordable Housing PURPOSE: To provide procedural guidelines for staff when exercising the city's option to purchase restricted affordable housing ownership units that were created under the Inclusionary Housing Program. The city's primary interest in exercising its option to purchase affordable units is to preserve, extend and enhance affordability covenants to subsequent lower-income purchasers and to provide additional housing opportunity to underserved populations. The policy will establish the authority, selection criteria, and resale requirements for the identification, acquisition and disposition of these affordable units. BACKGROUND: The city's Inclusionary Housing Ordinance requires developers of residential projects with more than six units to provide fifteen percent of the homes to lower income households at an affordable price. Developers may satisfy the ordinance requirements by providing rental or for sale (ownership) units. Ownership units produced under the Inclusionary Housing Program have affordability restrictions for 30 years. Under the initial requirements of the Inclusionary Housing Program, low-income homebuyers were required to execute resale agreements that allowed them to sell their homes at market rate to a non-low-income homebuyer if they repaid the city any outstanding loan amounts and paid the city a share of the equity from the sale. This initial policy resulted in the loss of many of the for-sale affordable units in the city. To more effectively implement inclusionary housing requirements (CMC 21.85.040(E)), the policy was changed to require a restricted unit to be sold to another low -income household during the first 15 years of the 30-year affordability term. In year 16 and later, the home could be sold to a non-low-income household with the repayment of the city subsidy loan with a share of equity (also referred to as contingent interest). The revised policy also required that the city would be given an option, or first right of refusal, to purchase the affordable unit at a restricted price upon notice of intent to sell from the owner. The city could also assign its option to a "city-designated purchaser", defined as another public agency, a nonprofit corporation, or an eligible low-income purchaser. The restricted price option to purchase or assign is a requirement for participation in the homeownership program and applies throughout the entire 30-year term of the loan. For the restricted affordable housing ownership units, if the city declines its option to purchase the unit or to assign the option to a city-designated purchaser, the owner is required to resell the Page 1 of 3 Policy No. 73 affordable home to another low-income household during the first 15 years of ownership at a restricted affordable price established by the city. After the initial 15 years, and if the city declines to exercise its option to purchase or to assign its option to a city-designated purchaser, the resale agreement permits the owner to sell the unit at market value to a non-low-income buyer and the city recaptures its subsidy together with shared equity (contingent interest) up through the 30th year of the resale agreement. The revenue from the loan payoff and shared equity is deposited into the city's Housing Trust Fund to create additional opportunities for affordable housing within the city. POLICY: By adopting this policy, the City Council grants authority to the City Manager, or designee, to accept or decline the option to purchase a restricted affordable housing ownership unit at a restricted low- income price during the full term of the resale agreement. This policy shall apply to all units restricted under a Resale Restriction Agreement and Option to Purchase in order for a housing development to comply with the requirements of the city's Inclusionary Housing Program. The decision to accept or decline the option to purchase a restricted affordable housing ownership unit will be guided by the following principles: 1. The unit would be at-risk of conversion to market rate if the city declines its option to purchase it; or 2. The public interest is served well through purchase of the unit by the city and resale to a qualified lower-income household; or 3. An underserved population will benefit greater from the city's purchase and resale of the unit; or 4. An affordable housing opportunity will be enhanced through the city's purchase and resale of the unit; and 5. Special funding (such as CDBG, HOME, Successor Housing Agency funds) is available and/or is required to be expended in a timely manner and the city's purchase of the unit is a qualified expenditure of these funds; or 6. When special funding is unavailable, sufficient Housing Trust Fund dollars are available to purchase the unit. The City Manager, or designee, will consider options to purchase as written notices of intent to sell from restricted affordable housing ownership units are received. If the city receives notices of intent to sell from multiple owners at a given time, the City Manager, or designee, may rank order them based on the principles above. For example, an affordable unit that is at-risk of conversion to market rate (i.e., can be sold to a market rate purchaser after 15 years) will be prioritized for acquisition over a unit that is not at-risk (i.e., must be sold to a low-income buyer). Other factors, such as purchase price, amount of available funding, size, location and condition of the unit may be taken into account when rank ordering multiple options to purchase units. Upon a decision by the City Manager, or designee, to exercise the option to purchase a restricted affordable housing ownership unit, the City Manager, or designee, will proceed accordingly to complete the purchase transaction and present it to the City Council for consideration and final action, accepting the Grant Deed for the property. Page 2 of 3 Policy No. 73 Upon approval of the City Council of the acquisition and completion of the purchase transaction, the restricted affordable housing ownership unit will be resold by the city according to the Affordable Housing Resale Program Guidelines recommended for approval by the Housing Commission and approved by the City Council, and which may be amended from time to time to update policies, process and/or resale priorities. As an alternative to accepting the option to purchase the restricted affordable housing ownership unit, the City Manager, or designee, is authorized to assign the city's option to an eligible low-income purchaser. This alternative is appropriate when: a) there is insufficient funding available or there are higher priority uses for the available funding; and b) the unit would be at-risk of conversion to market rate if the city declines its option to purchase it. In such a case the City Manager, or designee, will assign the city's purchase option to an eligible purchaser drawn from a waiting list maintained in accordance with the Affordable Housing Resale Program Guidelines. Assignment of the city's purchase option to another public agency, nonprofit corporation, or an eligible purchaser not on the waiting list will require City Council approval. If the city is unable to accept or assign its option to a city-designated purchaser, then the City Manager, or designee, is authorized to decline the option and allow the restricted affordable housing ownership unit to be sold according to the terms of the resale agreement. The City Manager's, or designee's, decision to decline the option to purchase will be valid for no more than 180 days. If the unit owner has not completed the sale of their home within this time frame, the unit owner will be required to file another notice of intent to sell and grant the city another opportunity to exercise or assign its option to purchase the unit at an affordable price. All sales of city-owned restricted affordable housing ownership units require City Council approval. Page 3 of 3