New in-lieu housing fee concept approved

Owners of multi-family properties who don’t want to include affordable units in the development of new housing units will pay less under a proposed method of calculating in lieu fees, but the fees will be higher for replacement of affordable or rental housing.

The council approved at the Oct. 20 meeting the concept of the financing gap method of calculating fees paid in lieu of including affordable housing in new residential projects of three or more units on existing building sites or when two or more lots or units are subdivided.

The method was recommended by a consultant and the Planning Commission, as a more accurate reflection of the costs to provide affordable housing or to replace units.

“Of the five methods considered, this is conceptually the simplest,” Commissioner Norm Grossman said.

The gap is the difference between the total land and development costs and the prices that low and moderate income households can afford to pay either to rent or buy, city Principal Planner Carolyn Martin said.

“In lieu fees are paid when a property owner or developer either cannot or does not want to include affordable housing on the site of the project,” Grossman said.

“For instance, there is nothing affordable at Montage. The prevailing idea was to create a high-end, five star resort, so it was preferable [to pay into a fund] to build affordable housing off-site.”

The city requirement of a minimum 25% affordable units would have resulted in about 12 units being built on the old Treasure Island Mobilehome Park site, called inclusionary in planner-speak.

“The inclusionary money was used for Alice Court, which has more than twice as many units and is in a better location for people working in the city,” Grossman said.

In lieu fees are also paid when existing affordable units are removed or converted to another use, or when rental units that conform to the density of the zone are removed.

Currently, the replacement housing fee is $179 per square foot for multi-family housing that does not replace low or moderate income housing or rentals.

The fee represents the cost of constructing housing units of equal size, but does not include the cost of land at another site, according to Martin’s analysis of the In lieu Housing Fee Program for the Planning Commission.

It is based on the building “valuation fee” the city uses to calculate building permit fees.

In her analysis, Martin said the scarcity of vacant land in town made it imperative to consider an alternative fee schedule. Gap financing includes both land and construction costs.

The new replacement in lieu housing fee would be about $221 per square foot, an increase of about $42 per square foot.

The total fee for a 10-unit rental development would be about $594,000 higher if the current calculation method is used.

The total in-lieu fee for a 10-unit, for-sale project would be about $422,000 less under the financing gap method.

“If you set the fees too high, no one builds,” Grossman said.

“We want the fee to cover the cost, but not be so large that no one will develop and no money will go into the in-lieu fund.”

Projects with two to 10 units are eligible to pay the fees rather than build affordable units on- or off-site.

“No in-lieu fees are charged if affordable units are built,” Grossman said.

“It is a means to encourage developers to build rather than buy their way out.”

The financing gap method will be incorporated into the Housing Element and a new Housing Ordinance to be undertaken by the Planning Commission and City Council.

For more information about the financing gap method, visit www.lagunabeachcity.net and click on the Oct. 20 City Council Agenda, Item 14.