AGENDA #3a(1)

MEMORANDUM

TO:	Mayor and Town Council
FROM:	Inclusionary Zoning Task Force
DATE:	November 20, 2006
SUBJECT:	Final Report

In September 2005, the Town Council established a task force on inclusionary zoning with the following charge:

• To evaluate the data and reports collected by staff pertaining to the local housing market and need for additional affordable housing;
• To determine the need and justification for an inclusionary zoning ordinance;
• To evaluate ordinances that have been enacted or proposed in other communities; and
• To make a recommendation to the Town Council on the content of an inclusionary zoning program and ordinance for Chapel Hill.

In December 2005, a task force with representatives from various constituencies including the development and real estate communities, the business community, nonprofits engaged in providing affordable housing in Chapel Hill, and interested citizens, began meeting. (Efforts to recruit a citizen who needs affordable housing were unsuccessful.) We met regularly as a large group through June 2006. Over the remainder of the summer, a voluntary subcommittee, which had already formed, continued to meet to work on details. In September, the large group began meeting again to consider the subcommittee’s work and to come to final conclusions. Our last meeting was on November 8.

Upon evaluating the data provided by staff, including the Orange County, North Carolina Comprehensive Housing Strategy (2005), and weighing our own personal and professional understandings of current market dynamics, we determined that there is a compelling need and justification for an inclusionary zoning ordinance in Chapel Hill. Although the Town’s existing ordinances have led to a measurable level of success in the production of affordable housing, the current requirements fall short of being comprehensive (particularly when it comes to multifamily dwelling structures, of which the Town expects to see more in the future). We recognize that such an ordinance will not entirely eliminate the barriers that the high price of housing in the Town creates for those who would like to live here but lack the means. Further, some concerns were expressed about the overall cost-benefit of the imposition of a complex new set of rules. But on balance we believe that it is possible to structure an inclusionary zoning ordinance that significantly enhances the housing opportunities for those of low to moderate income while being fair to the developers who will be asked to build the housing units. 

To evaluate other ordinances, we began with those discussed in the booklet Locally Initiated Inclusionary Zoning Programs: A Guide for Governments in North Carolina (2004), edited by Anita Brown-Graham for the UNC School of Government. We focused most directly on the ordinance in place in Manteo, with some attention to that of Highland Park, Illinois, on which the Manteo ordinance was modeled. We also considered the inclusionary zoning discussion paper produced by consultant Mark White for the Town on Sept. 12, 2001. Further, we incorporated information from PolicyLink, a national nonprofit organization that focuses on (among other things) affordable housing. Council Member Greene participated in one of PolicyLink’s national conference calls in August. On the particularly difficult issue of managing condominium fees for affordable units, we benefited from the work of two students in the UNC Law School’s Community Development Clinic under the supervision of professor Tom Kelley, a member of the task force.

We recommend that the Town enact an inclusionary zoning ordinance that incorporates the ideas suggested in this report. As discussed further below, important elements in our proposed ordinance include the following:

• Comprehensive strategies for achieving affordable housing in developments involving five or more new housing units
• Allowance of density credits to offset costs
• Continued insistence on permanent affordability
• Expansion of mechanisms to ensure permanent affordability to include more than the land trust model
• Service to households below (and up to) 80 percent annual median income

As a preface, we want to make it clear that we found this issue much more complex than we anticipated. Numerous details of our proposed ordinance remain unresolved. Of those details, many hinge upon policy decisions that will need to be made ultimately by the Council, on consideration of broad public discussion. Still other details are left unresolved because they involve levels of data analysis that were beyond the abilities of committee members, given limitations of time and expertise. Accordingly, other recommendations of the task force include the following:

• Establishment of a new Town board to make ongoing recommendations on affordable housing-related issues
• Hiring of a consultant well versed in issues of municipal ordinances and inclusionary zoning to help the Town bring the draft ordinance to satisfactory final form

The following discussions move from background considerations to our proposed ordinance as drafted so far (see Attachment 1) to the details of our suggestions for next steps.

I. Background information

Before introducing our proposed draft outline of an ordinance, we want to highlight certain key issues.

Goals for the ordinance

Early on (March 1), the committee embraced the following goals:

• Permanent affordability
• Permanent affordability achieved through methods including but not limited to the land trust model
• Service to broad range of households reaching down below (and up to) 80 percent median income

On March 27, the voluntary subcommittee made its first report out to the whole committee (Attachment 2). Having reviewed the Comprehensive Plan’s ideas for affordable housing as well as the Manteo ordinance, the subcommittee proposed a set of “general goals and principles.” Upon discussion, these recommendations evolved into expanded goals embraced by the full committee, as follows. (The idea of a design competition was later dropped.)

• Adopt as an initial goal the development of affordable units within the fabric of the newly constructed residential development.
  • Exterior design and finish should be similar to and compatible with the market rate dwelling units.
  • The affordable dwelling units should be proportional by type of unit (1BR, 2BR, etc.) with the market rate units.
• Stay with the current community goal of 15 percent affordable housing units per development.  (When the mathematical calculation of 15 percent results in a fraction of a dwelling unit, the number of units to be provided shall be rounded down and an “Affordable Housing Fee” for the fractional part of a unit shall be paid to the Town.)
• Apply the ordinance uniformly and consistently to all development that creates five or more new dwelling units including subdivisions of five or more new lots, new multifamily developments of five or more dwelling units, and redevelopments that add five or more new dwelling units.
• Try to reach below 80 percent median income.
• Accept payments in lieu, offsite development, and other alternative community benefits only when building affordable units on site is not the best solution.
• Create an equitable formula for establishing density credits available for a development to offset the costs of and lost revenue from the development of inclusionary affordable dwelling units.
• Revise upward the amount of permitted floor area in districts in which multi-family housing can be developed so that the amount of development permitted in dwelling units per acre (e.g. 15 units per acre) can be achieved with current and future market designs with interior halls, elevators, common space, etc.
• Provide a municipal contribution to the reduction of cost for affordable units by including relief for certain fees (for the affordable units) and adjustments to other requirements, such as minimum parking requirements.
• Recognize that there are essentially three types of development situations that need different sets of detailed program standards and opportunities:
  • Downtown Chapel Hill – development and redevelopment
  • Multifamily development along primary roadway corridors (that correspond to the CH Transit system corridors).
  • Single-family, two-family, and townhouse developments on the limited amount of land available for this type of development.
• Create economic and regulatory predictability as well as offering some flexibility; avoid “one size fits all.”
• Create a new standing board for affordable housing-related issues. Such a board would, among other things, work with a developer prior to submission of a concept plan, if the developer is proposing a program other than inclusionary housing.
• Consider involving Empowerment and Habitat, even though they do not use the land trust model, through use of deed restrictions combined with an effective administrative system to ensure that the restrictions are followed.

Advice from professionals

Two guest speakers contributed valuable information: local real estate attorney David Rooks; and Anita Brown-Graham of the School of Government.

Rooks

Mr. Rooks spoke to the committee on March 1 on the subject of alternative methods to ensure permanent affordability. He said he believed that options other than the land trust model, through the use of such devices as deed restrictions and restrictive covenants, could work with proper and attentive administration.

Brown-Graham

For the committee, Council Member Greene posed to Ms. Brown-Graham the following questions: (1) Can permanent affordability be achieved using methods other than the land trust model? (2) How flexible should an ordinance be to be effective? (3) What are the ingredients that absolutely should be in an inclusionary zoning ordinance?

Ms. Brown-Graham spoke to the committee on April 12. A summary of her remarks is provided in Attachment 3 (“Summary of the April 12, 2006 Meeting of the Inclusionary Zoning Task Force”). For the essential elements, she listed the following:

• Clarify thresholds that will trigger the ordinance
• Clarify who will benefit from the ordinance
• Ordinance should be predictable and demonstrate how the obligation will be met, not rigid
• The period of affordability and how it will be monitored should be clear
• Design principles so that the affordable housing is compatible with the market-rate housing

Consistent with Mr. Rooks, she said that permanent affordability could be addressed with deed restrictions but that it was difficult to ensure that way, that monitoring was difficult.

II. Proposed ordinance

For our proposed ordinance as we have crafted it so far, please see Attachment 1, and please note the annotations.

III. Further subcommittee work

As is evident from the content of the draft, key issues remain to be resolved. During June-September 2006, the volunteer subcommittee met to examine these issues in further detail to see how the goals established above could be reached in the provision of inclusionary housing.  The major issues are discussed below.

Pricing of affordable dwellings

• Sales prices of affordable dwelling units should be predictable to the applicant and set based upon formulae that relate directly to income levels and family sizes that can live within a specific type of unit.
  • For example, a 2-bedroom dwelling could be occupied by a household (HH) of 2 – 3 persons with a price set for a HH of 2 at 70 percent of the median income.
  • The price paid to the developer for the dwelling unit should not include an additional “capital cost subsidy” from Orange Community Housing and Land Trust to underwrite a difference in price between that paid to the developer and the price set for the qualifying HHs.
  • Sales prices should be based upon the standard mortgage qualification requirements that examine percentage of income spent on housing, etc.
  • Homeowners and/or condominium fees can greatly reduce the mortgage a HH is eligible for and subsequently the purchase price that can be afforded.  Condominium fees will significantly affect the feasibility of 15 percent affordable units within developments in the downtown or in other development with structured parking without substantial dwelling unit credits to offset costs. Accordingly, there should be some mechanism to accommodate these fees so that the sale price is and remains affordable.

• Single-Tier Pricing

  Single-tier pricing would establish a single “sales price” for each dwelling unit of each type. (1BR flat, 2BR townhome, 3BR single family, etc.)

  • A low single-tier price – perhaps set at 65 percent median HH income – should theoretically result in a larger pool of qualified HH.
  • A lower HH income leaves less budget money available for dwelling unit maintenance and upkeep over time.
  • To support a one-tier low sales price per dwelling unit system, the amount of density credit needed to reach an equitable balance between developers HH costs vs. offsetting revenue needs to be larger.

• Two-Tier Pricing

  Manteo, N.C., the State of New Jersey, and other programs have established two-tier pricing.  And, in several of the developments that OCHLT has dwellings, the two-tier pricing approach has been used.  Conceptually, this means that some dwelling units are sold at “x” price and some at “y” price.

  • Two-tier pricing (perhaps at 65 percent and 75 percent median HH income) provides for an additional mixture of HH by income within a development.
  • OCHLT may have better resale conditions with a two-tier system.

• Sales price / mortgage examples

  Several pricing examples are provided in Attachment 4.

Floor Area Ratio Changes

The subcommittee examined a number of the newer multifamily developments in Chapel Hill and looked at plans of market rate units in other nearby communities.  With respect to multifamily development that is primarily in the form of flats [1], the subcommittee recommends that LUMO be amended to permit floor area ratios based upon an average floor area per flat of about 1,500 SF.  The majority of the new 2 bedroom apartments or condominiums examined had about 1,200 to 1,350 SF. This amount of floor area per unit has the following basic relationships:

PROPOSED FLOOR AREA RATIOS FOR CONSIDERATION
Average Floor Area of Dwelling Unit [2]	1,250 SF
Common Floor Area [3] at 20 percent of DU	250 SF
Average Floor Area per Dwelling Unit	1,500 SF

For comparison, the current LUMO floor area for the R-5 residential district permits an average SF per unit (if 15 units per acre are developed) as shown below.

EXISTING FLOOR AREA WITHIN R-5 RESIDENTIAL DISTRICT
Average Floor Area of Dwelling Unit [4]	734 SF
Common Floor Area [5] at 20 percent of DU	146 SF
Average Floor Area per Dwelling Unit	880 SF

Market Rate Density Credits Outside the Downtown

After looking at a number of basic case studies of one-  and two-tier pricing structures for affordable units and considering the cost and design layout of multifamily development with ground parking [6], the subcommittee developed two formula alternatives for establishing overall density and affordable to market rate unit relationships within any development.  Each starts with the following two principles:     

1. The minimum number of affordable units required within a development is established by multiplying the “base [7]” number of dwelling units permitted by zoning for the site by 15 percent (rounded down).
2. A density credit of two market rate units for each affordable unit shall be permitted within the proposed development.

The two alternatives for establishing the total amount of development permitted are:

1. The affordable dwelling units are provided within the “base” number of dwellings permitted on the site and the density credit units are added to the “base.”
2. The affordable dwelling units and the density credit units are both added to the “base” number of units permitted on the site.

The difference in effect of these two alternatives on a 5-acre site in the R-5 zoning district is shown below.  (The R-5 district is the most dense residential district outside the downtown (15 units per acre) and requires a 5-acre site for the construction of a multi-family development with more than 7 units.)

5 Acre Site 15 Units/Acre		ALT A AH within Base	ALT B AH added to Base
1	Zoning Base	75	75
2	AH Required [8]	11	11
3	Density Credit Units	22	22
4	Total Units (1+2)	97	108
5	Overall Density	19.4 du/acre	21.6 du/acre
6	Percent AH	11.3%	10.2%

Market Rate Density Credits Inside the Downtown

An examination of the floor area ratio and densities permitted in the Town Center and the several proposals currently in the review process for development in the downtown led quickly to the conclusion that the approach to density credits in the areas outside the downtown did not apply to the Town Center districts.

Because redevelopment in the downtown will involve structured parking – either above or below ground – the design standards for parking, setbacks, height, and other elements of the downtown need to be examined differently in order to determine if any density credit system will work downtown.

So far, all the applications for redevelopment seem to propose a higher floor area ratio than permitted currently and all seem to need height variances of some type.

The subcommittee believes that proposals for affordable housing within the Town Center need to propose changes to the floor area permitted as well as changes to height and parking requirements.  This examination needs a greater amount of detail than can be done without consultant help in understanding the relationships among the height, floor area, parking, market, and cost aspects of development with structured parking.  The Council in its consideration of the joint development proposal for Lot 5 and the Wallace Deck should have a considerable amount of existing information that could be used in a more detailed analysis of changes needed to promote affordable housing in the downtown.

New/amplified zoning districts and standards

The subcommittee undertook several design studies to examine the relationships between density, parking, building height, square feet within dwelling units and buildings, impervious surface areas, etc.  Copies of the color site plans done in this exercise are included as Attachment 5.

Some observations were:

1. Properties less than 5 acres in size (down to 1 acre) can be responsibly designed and developed with multi-family developments.
2. Impervious surface standards and parking requirements for properties outside the downtown have more effect on design than other standards such as setbacks and building heights.
3. Sites with few constraints can be designed to have 25 – 30 units per acre with surface parking in 4-story buildings with about 60 percent impervious surface coverage.
4. With surface parking provided below buildings, residential density in the range of 45 units per acre in 5-story buildings can be achieved.

Recommendations for Consideration

1. Create a new residential zoning district for use along the primary roadway and transit corridors that permits a greater density than the 15 units per acre in the current R-5 district, perhaps 25 units per acre and a floor area ratio of about .85, and
2. Establish specific development standards within the current TODD (Transit Oriented Development District) that permit 30 - 35 units per acre with a floor area ratio of about 1.2.
3. Each of these districts would be required to have a full 15 percent of the total units as affordable units.
4. Permit multifamily development on lots between 1 acre and 5 acres in size.

IV. Suggested next steps

The inclusionary zoning task force believes that it has fulfilled its charge to the extent that it has been able, given the time and resources available. To reiterate, the unresolved issues involve either policy choices that are appropriate for the Council to make upon due deliberation, or technical decisions that involve complex levels of data analysis. The task force recommends that the Council seriously consider the subcommittee’s suggestions stated above, including the recommendation that a consultant be hired to help bring the ordinance to a completed state. In addition to the issues discussed above, here are a few more issues that the committee acknowledged but did not comprehensively address:

• Maintenance of the housing stock over time
• Continuing need for public investment especially given the widening gap between incomes and housing costs
• Whether/how to impose affordable housing requirement on nonresidential or rental development (there is Chapel Hill precedent for doing this)
• How to address the upper tier (90-120 percent median income) and the lower (50 percent and below)
• How to address the effect of homeowners association fees on affordability (the report from the Community Development Clinic being a good head start; see Attachment 6)

The committee recommends that the Council entertain this report; consider hiring a consultant well versed in the details of planning and inclusionary zoning regulations; invite public conversation through public forums and the advice of Town boards, particularly the Planning Board; collect further staff commentary; and bring this draft to a point ready for adoption by the end of June 2007.

ATTACHMENTS

1. Draft Inclusionary Zoning Ordinance (p. 11).
2. March 27. 2006 Report from the Inclusionary Zoning Task Force Subcommittee (p. 20).
3. Summary of the April 12, 2006 Meeting of the Inclusionary Zoning Task Force (p. 34).
4. Pricing Examples (p. 36).
5. Site Plans Generated by the Subcommittee (p.38).
6. Condo fees memo (p. 31).

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[1] “Flats” is used to describe the physical type of development in which one dwelling unit is located on one floor, regardless of whether it is owned as a condominium or is a rented dwelling unit.

[2] Square feet of floor area within the dwelling unit

[3] Entryway, elevator, stairs, hallways, common storage, management office, interior recreation areas, etc.

[4] Square feet of floor area within the dwelling unit

[5] Entryway, elevator, stairs, hallways, common storage, management office, interior recreation areas, etc.

[6] Ground level parking includes: 1) open at grade, 2) within garage structures, or 3) at grade under buildings.

[7] The “base” number of dwelling units equals the maximum number of dwelling units that would be permitted on the site by the current or proposed zoning.

[8] 75 times .15 = 11.25 // rounded down to 11.