Honorable Mayor and Members of the Hermosa Beach City Council
Regular Meeting of October 10, 2023
Title
DISCUSSION OF PROPOSED LAND VALUE RECAPTURE
PROGRAM FOR DEVELOPMENT OF RESIDENTIAL
UNITS ON CERTAIN NON-RESIDENTIALLY
ZONED PROPERTIES
(Community Development Director Carrie Tai)
Body
Recommended Action:
Recommendation
Staff recommends City Council receive a staff presentation, provide opportunity for public input, and discuss the proposed Land Value Recapture Program for residential development on certain non-residentially zoned properties.
Body
Executive Summary:
The City’s adopted 2021-2029 Housing Element includes a set of implementation programs, one of which is the Land Value Recapture (LVR) Program that applies to residential development on non-residentially zoned properties to incentivize affordable housing in the City. This discussion item is intended to introduce City Council to the proposed Land Value Recapture Program and provide an opportunity for discussion and feedback. Staff anticipates returning to City Council with a public hearing item at its October 24, 2023 meeting.
Background:
During the development of the Housing Element programs from 2021 through 2023, staff conducted numerous meetings with the public, City Council, and Planning Commission to discuss ways to develop and implement the Housing Element. At a joint meeting held on February 20, 2021, the City Council and Planning Commission received a presentation from then-consultant John Douglas on general Housing Element principles, and also strategies to facilitate the development of affordable housing.
One such strategy, the Land Value Recapture (LVR) Program, was included in the Housing Element. Land Value Recapture is described as “capturing” a portion of the increased value of land that is “upzoned” or “intensified.” In the case of the Housing Element, it would pertain to non-residentially zoned properties permitted to develop residential uses as part of the Housing Element implementation. The adopted 2021-2029 Housing Element committed the City to performing a feasibility study on Land Value Recapture.
Staff secured the assistance of Kosmont Companies to evaluate a potential fee for the LVR program based on current land values for residential development, construction costs, and similar fees in other jurisdictions. Included in this evaluation was an analysis to ensure that the presence of an LVR Program would not disincentivize the development of residential development and, in fact, would promote development of affordable housing. Over the past several months, staff engaged the Planning Commission in discussions about the proposed LVR Program and provided City Councilmembers with a progress report. The Land Value Recapture Analysis prepared by Kosmont Companies is included as Attachment 1.
At its August 8, 2023 meeting, the City Council adopted the revised 2021-2029 Housing Element, which was forwarded to the California Housing and Community Development Department (HCD) for certification. The 2021-2029 Housing Element Sites Inventory included the list of sites within the City that are anticipated to accommodate the City’s Regional Housing Needs Assessment (RHNA) allocation. The majority of these sites are non-residentially zoned properties. Because the City is past the State deadline for certification of its Housing Element, State Law now requires the City to complete zone changes prior to certification of the Housing Element.
The City’s RHNA allocation is as follows, with corresponding percentages:
|
6th Cycle RHNA by Income Category-Hermosa Beach |
|
Income Level |
Very Low |
Low |
Moderate |
Above Moderate |
Total |
|
Units |
232 |
127 |
106 |
93 |
558 |
|
Percentage |
41.6% |
22.8% |
19% |
16.6% |
100% |
In order to be effective and to incentivize affordable housing units in any proposed residential developments, the LVR Program must accompany the Housing Element-related zoning changes that enable residential development on non-residentially zoned properties. The Planning Commission discussed the Housing Element-related zoning changes at its June 20, July 18, and August 15, 2023 meetings, providing input on the LVR Program each time. At its September 19, 2023 meeting, the Planning Commission forwarded a recommendation to City Council for approval of the program, details of which discussed in the section below.
Past Board, Commission, and Council Actions
|
Meeting Date |
Description |
|
February 3, 2021 |
The City Council and Planning Commission held a joint study session to provide an overview of the Housing Element update process, explanation of the State requirements for Hermosa Beach’s RHNA, to solicit comments regarding housing needs, and to receive feedback. |
|
December 21, 2021 |
City Council conducted a public hearing, adopted the 2021-2029 Housing Element, and authorized submission to HCD. |
|
June 20, 2023 |
Planning Commission conducted a public hearing and recommended the City Council adopt the Housing Element and also discussed zoning text amendments. |
|
July 18, 2023 |
Planning Commission conducted a study session to discuss the proposed Zoning Text Amendment for Housing Element implementation. |
|
August 8, 2023 |
City Council conducted a public hearing and adopted the revised 2021-2029 Housing Element. |
|
August 15, 2023 |
Planning Commission conducted a study session to discuss the proposed Zoning Text Amendment for the Housing Element implementation. |
|
September 19, 2023 |
Planning Commission conducted a public hearing and recommended the City Council adopt the Housing Element General Plan Map Changes, Zoning Map Changes, and Zoning Text Amendment, including the LVR Program. |
Discussion:
The Land Value Recapture Program applies to residential or mixed-use developments proposed on non-residentially zoned properties identified in the Housing Element that do not propose a certain percentage of housing affordable to very low-, low-, or moderate-income units, which are considered affordable.
After analysis, staff proposed thresholds for exemption are 10 percent very low income, 15 percent low income, or 20 percent moderate income units in a proposed residential or mixed-use development. This percentage of very low, low, and moderate units for inclusion in a residential project to qualify for exemption from the Land Value Recapture Program fee was established based on an evaluation of local market conditions in conjunction with City and State zoning and entitlement provisions. Factors evaluated include supportable lease and ownership values under the three affordability thresholds, local market rents, local dwelling unit bedroom counts and unit sizes, local property values, and State Density Bonus Law. Ultimately, the percentages were established at ratios that seek to balance the incentives to deliver one affordability threshold versus another and support the development of affordable housing units as part of a given project. The intent of the LVR program is to incentivize the development of affordable housing to meet the City’s RHNA allocation. LVR fees would be used by the City to fund potential affordable housing units or developments in the City.
The LVR Program is not formally considered an inclusionary housing ordinance since it does not mandate affordable housing. The LVR Program seeks to capture a portion of land value created by allowing residential development on certain eligible properties, with an exemption structure for when affordable housing is proposed.
Assembly Bill (AB) 1505, passed in 2018, authorizes cities to adopt inclusionary housing ordinances that require affordable housing. AB 1505 also includes provisions for HCD review of an inclusionary housing ordinance if it requires more than 15 percent of the total number of units to be in the low-income category. The proposed LVR Program would not trigger this requirement.
Proposed Zoning Text Amendment Language
The LVR Program would be implemented in the City’s Zoning Ordinance, in a newly created chapter that pertains to sites designated on the Housing Element Sites Inventory. These sites would be identified on the Zoning Map with a suffix (--HE) appended to the underlying zoning designation. For example, a property currently zoned C3 that is listed on the Housing Element Sites Inventory would be identified as C3-HE. The following excerpt from the proposed zoning text amendment details the applicability of the LVR Program to eligible properties.
17.39.050 Land Value Recapture for Affordable Housing
A. Sites designated as (--HE) that have underlying non-residential zones are subject to the City’s Land Value Recapture Program for Affordable Housing, as follows:
1. Proposed projects that are entirely non-residential are exempt.
2. Projects on sites with a Sites Inventory capacity are subject to the Land Value Recapture Program fee, as follows:
a. For sites on the Sites Inventory with a capacity of 5 or more units:
1. Projects proposing a minimum of 10 percent very low-income units, 15 percent low-income units, or 20 percent moderate income units, or combination thereof, (calculated from base density) are exempt from the fee; or
2. Projects proposing a portion of the above affordability requirements shall be subject to the corresponding proportional amount of the fee.
3. Projects not proposing affordable units are subject to the full fee.
b. For sites on the Sites Inventory with a capacity of 3 or 4 dwelling units:
1. Projects constructing to minimum density and proposing at least 1 affordable (very low, low, or moderate) income unit are exempt from the fee.
2. Other projects are subject to the fee.
c. For sites on the Sites Inventory with a capacity of 1 or 2 units:
1. Projects constructing to minimum density and consisting of 1 affordable unit (very low, low, or moderate) are exempt from the fee.
2. Other projects are subject to the fee.
Comparable Data from Other Jurisdictions
Over 30 percent of cities in the State of California have programs to facilitate the creation of affordable housing. Most are inclusionary housing ordinances, which mandate the inclusion of a certain percentage of affordable housing on residential developments. The following table lists select cities in Los Angeles and Orange Counties that have programs to require or incentivize affordable housing.
|
Affordable Housing Programs |
|
Jurisdiction |
Inclusionary |
Affordability Threshold |
Fee |
Fee Unit |
|
Rancho Palos Verdes |
Yes |
5-10% |
$308,716 |
Unit |
|
Santa Monica |
Yes |
5-30% |
$41.39-$48.35 |
Sq. Ft. |
|
Long Beach |
Yes |
11% |
$37.90-$38.50 |
Sq. Ft. |
|
Newport Beach |
Yes |
7% |
$33.80-$36.60 |
Sq. Ft. |
|
Laguna Beach |
Yes |
25% |
$247,317-$348,197 |
Unit |
|
Huntington Beach |
Yes |
10% |
$3-$36 |
Sq. Ft. |
Proposed Fee
If approved, the required fee(s) would be set by resolution of the City Council. The LVR Summary acknowledges the infancy of the program and uncertain market conditions. Similarly, after review of fees in similar jurisdictions, staff proposes a fee of $50 per square foot for space occupied by non-affordable residential units and would be pro-rated for any mixed-use developments.
The analysis considered the value of land with residential development potential, the likelihood for State density provisions to be used, construction costs, operational costs, and various types of affordable housing funding. The analysis indicated that a fee of $60 per square foot could be justified. However, in light of changing economic conditions and the inception of a new program, staff recommends a conservative approach to ensure that development potential would not be impacted.
Use of Land Value Recapture Funds
The use of funds generated through the LVR Program would be used to fund creation of affordable housing in the City. This could be in the form of development subsidies for construction of new affordable housing or funding towards conversion of existing units to affordable housing. All funds would be for the purpose of funding or subsidizing affordable housing and public services supporting added population from additional housing.
Furthermore, the City could also contribute to the South Bay Regional Housing Trust, which is in the process of being established by the South Bay Cities Council of Governments (SBCCOG). SBCCOG is pursuing grant funds to secure resources to form the Housing Trust, expected in late 2023. City Managers from cities within the South Bay, including Hermosa Beach, have worked for over a year on developing the framework and bylaws for a Housing Trust. The Housing Trust would be created to fund housing to assist the homeless populations and persons and families of extremely low, very low, and low income within the South Bay.
Next Steps
Following public input and City Council discussion, staff will present the LVR Program terms and fees as part of a public hearing to consider all Housing Element-related General Plan and zoning changes at its October 24, 2023 meeting. Adoption of these zoning changes to implement the Housing Element is required for the City to obtain certification of the Housing Element.
General Plan Consistency:
PLAN Hermosa, the City’s General Plan, was adopted by the City Council in August 2017. The adopted Housing Element becomes part of PLAN Hermosa. The Land Value Recapture Program implements Program 7 of the Housing Element, as follows:
Program 7. Land Value Recapture
• Program Description: When land is rezoned to allow higher intensity uses, the value of that property typically increases. Land value recapture refers to a policy requiring that a portion of the increased value be dedicated to a public benefit, such as affordable housing. In connection with the rezoning process required under Program 9, the City will conduct a feasibility study to determine whether a land value recapture program should be established for the properties to be rezoned, and if so, what specific requirements are appropriate.
Fiscal Impact:
There is no fiscal impact related to the recommended action.
Attachment:
1. Land Value Recapture Analysis - Kosmont Companies, October 5, 2023
2. Link to February 3, 2021 Joint City Council/Planning Commission meeting
3. Link to December 21, 2021 City Council meeting
4. Link to June 20, 2023 Planning Commission meeting
5. Link to July 18, 2023 Planning Commission meeting
6. Link to August 8, 2023 City Council meeting
7. Link to August 15, 2023 Planning Commission meeting
8. Link to September 19, 2023 Planning Commission meeting
Respectfully Submitted by: Carrie Tai, Community Development Director
Noted for Fiscal Impact: Viki Copeland, Finance Director
Legal Review: Patrick Donegan, City Attorney
Approved: Suja Lowenthal, City Manager