Staff Report - April 2, 2002 - Agenda Item

This memorandum is for the purpose of presenting the City Council and Redevelopment Agency (hereinafter jointly referenced as the Agency) background information on Burbank�s affordable housing needs and a strategy to expand the supply of affordable housing.

BACKGROUND

In 1999, a Housing Needs Assessment was prepared in order to provide a profile of the community housing stock that updated 1990 census data. The Housing Needs Assessment became a guide in determining the adequacy of existing housing programs and the catalyst for developing new programs. The study also served as the basis for several essential housing documents for the City required by state or federal law: the City�s Housing Element required by State Law; the Redevelopment Agency Implementation Plan also required by state law; and the Consolidated Plan required by the Federal government for fund grantees. Due to the dynamic nature of the housing market, and the available 2000 census data, the Needs Assessment was updated in December 2001 by the Housing Profile, which more specifically evaluated the impact of the City�s escalating housing demand on Burbank�s residents and workforce, and laid the groundwork for identifying gaps in the City�s current affordable housing programs. Both studies were intended to increase the Agency�s understanding of local market conditions, and led to the creation of the Blue Ribbon Task Force on Affordable Housing.

The three plans described below are required either by the State or Federal government. All are interconnected by a common set of housing principals that include a multi-faceted approach to developing and preserving affordable housing in the City of Burbank, geographical targeting of resources into focus neighborhoods, and working with the Burbank Housing Corporation (BHC) to acquire and rehabilitate substandard units as affordable rental properties.

q Housing Element

Adopted June 2001, the Housing Element of the General Plan is a State mandated policy document that details Burbank�s affordable housing needs and sets forth policies for the City to encourage and facilitate both public and private sector development of affordable housing. The Housing Element acknowledges that both public and private sector efforts are needed to address Burbank�s affordable housing needs.

q Implementation Plan

In conformance with California Redevelopment Law (Section 22390), the Implementation Plan sets forth the means for instituting the Plan�s goals and objectives for housing preservation and production, as well as meeting the statutory requirement for setting aside tax increment funds for housing purposes. The Plan further describes the Agency�s inclusionary and replacement housing obligations and the expenditure of the Low and Moderate-Income Housing Fund. In December 2002, the Agency approved the mid-cycle update to the Plan.

q Consolidated Plan

As a prerequisite to receive federal entitlement funds (e.g., Community Development Block Grant or CDBG and HOME Investment Partnerships Act or HOME funds) and to be eligible to apply for other federal sources, the City Council approved the most recent Consolidated Plan in April 2003. This document is a multi-year strategic plan for addressing Burbank�s low and moderate-income housing and community development needs and explaining how federal, State and local sources will be used to carry out programs responding to identified local needs.

In order to localize affordable housing goals and objectives through community outreach, in April 2002, the Agency appointed a Blue Ribbon Task Force on Affordable Housing (Task Force) charged with taking a comprehensive look at the City�s affordable housing needs and providing recommendations to increase Burbank's stock of affordable housing. The intent of the task force was to incorporate public participation into the housing strategy process. Over a period of six months and eight committee meetings, the Task Force took a comprehensive look at Burbank�s affordable housing needs and developed a consensus report recommending implementation of a series of 16 housing programs, including adoption of an Inclusionary Housing Ordinance to integrate affordable units within market rate developments. Following is a list of the goals and implementing programs developed by the Task Force.

� Program: Adopt inclusionary zoning to integrate affordable units within market rate developments

� Program: Site assembly and reuse of existing structures in Downtown for mixed-income development

� Program: Adopt mixed-use zoning standards, including live/work options and standards for small lot development

� Program: Acquire scattered vacant residential sites/distressed properties for in-fill development

� Program: Buy-down of debt on existing apartment buildings in exchange for affordability covenants

� Program: Continue acquisition/rehabilitation activities in focus neighborhoods

� Program: Provide housing for special needs populations, including the disabled, large families, single-parent households, seniors and victims of domestic violence.

� Program: Extend financial assistance to property owners and tenants for accessibility improvement sin existing rental housing

The pronounced increase in housing costs in Burbank over the past several years has occurred throughout Southern California, and is the result of a housing market characterized in the Housing Profile as one of �limited new construction and [a] low vacancy rate�. During the 1990s, Los Angeles County witnessed a growth in household population that outpaced new housing construction by approximately 300 percent. Similarly, Burbank�s housing stock only grew by about four percent, whereas the total number of households increased by 12 percent during the same period of time.

Therefore, during the 1990s, when the private sector developed few residential units, Agency investment made up a significant portion of total residential development in Burbank. Between the years of 1990 and 2002, a total of 1,505 residential units were permitted, 36 percent (542 units) of which were Agency assisted. It is important to note that 494 of those 542 units were developed as senior housing.[1] The following graph shows the Agency contribution to the overall total of developed residential units.

Even with the several Agency-assisted residential developments, there remains a need for additional affordable housing. When housing is scarce, the amount of affordable housing is seriously reduced. Burbank�s vacancy rate, a key indicator in measuring the relative balance of housing supply to housing demand, continues to fall below healthy housing norms. Two percent for owner housing and five percent for rental units are typically cited as acceptable vacancy rates. Burbank has for several years, however, averaged one percent for owner housing and two percent for renter housing. As noted in the 2001 Housing Profile, �A low vacancy rate or a particularly �tight� market may�lead to high competition for units, raising rental and housing prices substantially.�

Furthermore, rents and home prices increase or decrease based upon housing supply and demand. Burbank, as elsewhere in southern California, is experiencing a tight housing market caused by an under-production of housing. Demand for housing in Burbank is further increased by the desirability of Burbank as a place to live and work because of its high quality neighborhoods, schools and municipal facilities. Since June 1998, housing prices have escalated in Burbank from a median home sales price of $202,000 to a median home price in 2001 of $279,000, a 35 percent increase in three years. By the end of 2002, home prices had further increased to average $368,000, a 24 percent increase since 2001 and almost a 50 percent increase since 1998. The Housing Profile observed that this �substantial price jump among homes in traditionally more moderately priced neighborhoods� is another reflection of the, �strong demand for housing in the city, resulting in escalated housing prices among more affordably priced homes.�

Housing supply continues to lag behind housing demand. Rents have increased dramatically, with many renters forced to combine households or move out of the City to lower cost areas (see Median Apartment Rents table on the next page). Combined with a demographic shift towards a greater number of large families with children, Burbank has witnessed a significant increase in overcrowding among its renter population. For-sale housing prices have similarly escalated, rendering homeownership out of reach for all but upper income households.

Housing Production Goals

Under State law, local jurisdictions are mandated to provide for a portion of a region's housing needs. The Southern California Association of Governments or SCAG requires that a Regional Housing Needs Assessment (RHNA) be conducted which calculates housing growth rates over a five-year period for jurisdictions within its area. The following chart reflects RHNA housing production goals for Burbank distributed over four income levels for the period of 2000-2005.

Between 2000 and 2002, Agency-assisted projects completed or under development include 39 residential units affordable to very low-income households, 45 units affordable to low-income households and 31 units affordable to moderate-income households. Housing developments currently being facilitated by the Redevelopment Agency include 32 units for very low-income households, 19 units for low-income households, and 24 moderate-income units. A summary of all Agency-assisted residential development between 2000 and 2003 is listed below.

Availing itself of the State density bonus law, the recently completed 183-unit Olive Plaza Senior Apartments included, without an Agency subsidy, 46 units affordable to moderate-income seniors. The Agency and private sector have succeeded in reducing RHNA production goals for Fiscal 2003-04 and 2004-05 as follows:

Though this memorandum relates to increasing affordable housing, it is important to recognize that the Agency has leveraged its funds to produce an additional 305 market rate units for above moderate-income households (another RHNA goal). Increasing the supply of market rate housing may, arguably, contribute to the trickling down of housing costs as housing supply increases.

Affordable Housing Implementation

The following housing strategy, comprised of programs recommended by the Blue Ribbon Task Force, is proposed to respond, over the next two fiscal years, to the remaining RHNA and Agency affordable housing production goals. An implementation status for each program is included. For a complete description of programs, please refer to the Blue Ribbon Task Force on Affordable Housing Report.

Implementation Status: The Agency has integrated a new activity center into the Peyton-Grismer project and is working with the Burbank Housing Corporation, City Parks and Recreation Department and local nonprofit agencies to upgrade services at the Verdugo activity center.

Implementation Status: The Building Division is evaluating Sustainable Building Guidelines that address green building practices, such as urban runoff, water and energy conservation. Adopted by other jurisdictions, the Building Division is to report to the City Council.

Program: Adopt inclusionary zoning to integrate affordable units within market rate developments

Implementation Status: In May 2003, a stakeholder�s committee was established comprised of members of the local development, real estate and planning community to elicit the opinions and insights of community partners during development of the Ordinance. A Citywide community workshop will also be conducted to solicit public input on the draft Inclusionary Housing Ordinance. Finally, public hearings will be conducted before the City Council prior to Ordinance adoption.

Program: Implement an affordable housing incentives ordinance

Staff is drafting this ordinance that would delineate the kinds of additional regulatory incentives the City would offer, e.g., reduced on-site open space, reduced setbacks for semi-subterranean garages and increased lot coverage.

Program: Site assembly and reuse of existing structures in Downtown for mixed-income development

Implementation Status: Potential developable sites include Opportunity Site 6A east of First Street between Orange Grove and Palm and Opportunity 6B west of First Street between Magnolia and Orange Grove.

Implementation Status: Staff is taking inventory of older strip commercial corridors that are of marginal quality and are unable to sustain economic viability to develop with small lot single-family residential developments, similar to the Cottages. These developments could be introduced mid-block complemented by commercial and higher density mixed-use development, such as Burbank Village Walk.

Program: Adopt mixed-use zoning standards, including live/work options and standards for small lot development

Implementation Status: In conjunction with the Agency�s participation in site assembly, the Task Force commented that �having appropriate zoning tools can be critical to facilitating mixed-use and in-fill development�, and that creation of a mixed-use zone district and attendant standards might ease such projects.

Program: Acquire scattered vacant residential sites/distressed properties for in-fill development

Implementation Status: A total of 16 vacant residential parcels have been identified. In addition, staff and the Burbank Housing Corporation are working to identify severely distressed residential properties for potential acquisition within focus neighborhoods.

Program: Buy-down of debt on existing apartment buildings in exchange for affordability covenants

Implementation Status: The Agency is looking to extend a loan to reduce or �buy-down� the mortgage debt on an owner�s existing multifamily property in exchange for affordability covenants. By doing so, the owner can realize a greater cash flow (reduced debt) to offset reduced rental income resulting from the Agency attaching affordability covenants onto the owner�s property.

Program: Continue acquisition/rehabilitation activities in focus neighborhoods

Implementation Status: The Agency has initiated steps to increase funding to the Burbank Housing Corporation to support its ongoing actions to acquire and rehabilitate properties in focus neighborhoods. Since its inception in 1997, the Burbank Housing Corporation has assembled 110 properties that will increase to 180 units with the acquisition of the pending Peyton and Grismer project.

Implementation Status: The Agency underwrites an active rehabilitation assistance program for private property owners. This program consists of the following components: deferred loans that provide below-market interest rates (BMIR) to lower-income owner-occupants of single-family dwellings that postpone the payment until the property is conveyed and multifamily loans offering BMIR deferred loans that are partially forgiven at the end of the 15-year period in exchange for 20 percent of the units being affordable to lower-income households. The Agency also funds grants to very low-income owner-occupants for minor rehabilitation to single-family dwellings.

Implementation Status: Through site assembly and other assistance, the Agency is currently assisting in development the following mixed income ownership developments:

Site assembly in the downtown, on commercial corridors and scattered residential sites can all be used to support development of mixed income ownership housing. In addition, adoption of an Inclusionary Housing Ordinance can also serve to provide affordable ownership opportunities in within market rate developments.

Implementation Status: The Agency currently provides homeownership assistance through its Mortgage Assistance Program (MAP), designed to assist moderate- income families with the monies necessary to bridge the gap between the mortgage amount a homebuyer can qualify for and the actual purchase price of a single-family detached home, townhouse, or condominium in Burbank.

Due to rising home prices, the Agency is looking at increasing the current maximum purchase price of $250,000 to increase levels of program participation. The Agency has also recently paired homebuyer assistance through the MAP program with Agency assisted ownership developments. For example, the 20-unit Riverside Drive project included MAP loans to 10 moderate-income homebuyers, and similarly the 20-unit Burbank Cottages will offer assistance to 10 moderate-income purchasers.

Program: Provide housing for special needs populations, including the disabled, large families, single-parent households, seniors and victims of domestic violence

Implementation Status: The City is looking to encourage new construction of special needs housing through an Affordable Housing Incentives Ordinance, as well as through Agency financial assistance and site assembly. Integration of community-serving uses with housing (e.g., the Burbank Accessible Apartments project) also provides needed support services to allow special needs populations to live independently.

The Agency is looking to address the needs of large family renters through incentives crafted as part of the Inclusionary housing ordinance, as well as through conversion of existing rentals to large family units in conjunction with Agency supported acquisition/rehabilitation activities.

Program: Extend financial assistance to property owners and tenants for accessibility improvement in existing rental housing

Implementation Status: The Agency currently funds the Home Secure Program, which provides free home safety and security services to homeowners, and renters on fixed incomes, including grab bars, hand-held shower hoses, and adjustable shower chairs. The Agency is also considering application for a pending grant administered by the California Department of Housing and Community Development entitled the �Accessibility Grants for Renters� to fund accessibility improvements for disabled renters.

Each of these programs can be funded by a variety of funding sources including but not limited to: 20% Housing Set-Aside funds, HOME funds, CDBG funds, HUD Section 108, 102 and 211 funds, State Housing Bonds, Tax Credits and In-Lieu fees from an Inclusionary Housing Ordinance (see Exhibit A).

The Agency is asked to consider implementing over the next two years, the affordable housing strategy articulated in this memorandum and as initially presented by Task Force. Many of the proposals are in fact already underway, e.g., acquisition-rehabilitation projects and integration of community serving uses undertaken in concert with the Burbank Housing Corporation, the MAP and residential projects along key corridors illustrated by the Senior Artists Colony or in the downtown exemplified by the Burbank Village Walk projects. Other Task Force programs, such as an inclusionary housing ordinance, are being prepared for future Agency action.

This strategy is intended to strike a balance between the needs of the community reflected in the goals and programs outlined above and the Agency�s funding resources described below.

In recent years, the Agency has typically relied on two primary sources of funds to support affordable housing activities:

These two funds may be supplemented or layered[2] on a project-by project basis, with other sources to increase housing production: Community Development Block Grant (CDBG) funds may be used to assist in housing development through, for instance, land assembly activities; the federal Section 202 (for senior

housing) and Section 811 (for disabled persons) both subsidize construction costs and tenant rents; multifamily housing revenue bonds and tax credits both fund eligible development costs (generally both sources require a fully affordable project targeted to very low or low-income persons) along with State sources (generally awarded through a competitive application process, not by formula allocations) allocated under Proposition 46.

Another means to augment the supply of affordable housing is by providing inducements to the private sector. The Task Force�s recommendations included, for instance, creation of an inclusionary housing ordinance requiring privately financed residential developments include a specific percentage of residential units affordable for lower and moderate-income households.

Over the remaining two fiscal years left in the current RHNA schedule, it is estimated that the Agency could leverage its HOME and LMI sources to produce 75 additional affordable units (see the chart below).[3] Acquisition/rehabilitation and new construction are two activities that produce affordable units. The Agency also funds other on-going housing activities, such as the MAP and rehabilitation programs. Though targeted to income eligible households, these programs do not produce units (except to the extent MAP funding is connected to an Agency-assisted new construction project) [4]and are not included in the following chart.

Activity	Estimated Allocations *(FY 03/04 and FY 04/05)*	Affordable Units
Acquisition/Rehabilitation $80,000 a unit)	$ 2,900,000	36
New Construction ($102,000 a rental unit/$153,000 per owner unit)	4,400,000	39
Total	$ 7,300,000	75

Using these conservative projections for construction and acquisition-rehabilitation activities, the Agency would generate the following affordable units during a five-year span.

The Agency may later consider adopting other programs recommended by the Task Force not now budgeted, such as the debt buy-down program. If so, funding would need to be allocated from funds detailed in the above chart. Other programs recommended by the Task Force, such as an inclusionary housing ordinance, would be privately financed and would not ostensibly require Agency assistance.

The Agency will again see a blueprint for expanding affordable housing opportunities in Burbank in subsequent years: 1) The Agency�s Implementation Plan is effective until December 2004, 2) the Consolidated Plan extends until 2008, and 3) the adopted Housing Element is due for updating until 2005.

As presented in this memorandum, the City Council was aware of the need to provide affordable housing in the City of Burbank, and therefore created the Blue Ribbon Task Force on Affordable Housing. Staff will continue to implement the goals/objectives and programs outlined by the Blue Ribbon Task Force, and will continue to update the City Council and the community on the City�s efforts to provide affordable housing in the City with the plans described herein.

[1] The Agency is now required under State law (AB 637) to meet a proportionality test. The amount of LMI expenditures must be in the same proportion as Burbank�s housing needs (RHNA) for very low, low and moderate-income households that represent 64 percent of Burbank�s population. The proportionality test also applies to senior housing developments. No more than 13 percent of the Agency�s Low and Moderate-Income (LMI) funds, equivalent to the size of Burbank�s senior population, may be spent on senior housing projects between the 2002-2014 compliance period.

[2] Under SB 975, �layering� funding sources will trigger State prevailing wage requirements.

[3] A recent study by Keyser Marston determined that the estimated affordability gap (the difference between the cost to produce a market unit and one with income and price/rent restrictions) to produce an owner unit affordable to a moderate-income household would require an Agency contribution of $153,000 and a rental unit affordable to very low and low-income households would require an Agency contribution of $101,500.

[4] Based on current funding levels and current underwriting standards, the MAP could assist 42 homebuyers and the residential rehabilitation program could rehabilitate 60 affordable units

[i] In addition to current redevelopment LMI housing resources, Agency could bond LMI fund to increase funds available to support future housing activities.

[ii] Tax credits serve as a form of developer equity often associated with Agency or Housing Authority issued mortgage revenue bonds.

[iii] $80,000/unit based on average local subsidy necessary to gap finance very low and low income rental housing. $120,000/unit based on average subsidy provided by Burbank Redevelopment Agency on recent moderate income ownership projects.

[iv]Cost estimates for debt buydown on two-bedroom unit restricted for 30 years to very low income ranges from $51,000-$73,000. Three-bedroom low-income unit ranges from $64,000-$91,000.

[v] Use of HOME or CDBG funds would restrict participation to very low and low income buyers, requiring a higher subsidy than currently provided for moderate income buyers using LMI funds.

AFFORDABLE HOUSING STUDY SESSION

Tuesday, July 29, 2003

BACKGROUND

q Housing Element

q Implementation Plan

q Consolidated Plan

Housing Production Goals

Affordable Housing Implementation

Program: Implement an affordable housing incentives ordinance

HOUSING

GOALS