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Home My WebLink AboutItem 11c - Text Amendment No. TA 25-01 (Inclusionary Housing Ordinance) DATE: April 15, 2025 TO: Honorable Mayor and City Council FROM: Jason Kruckeberg, Assistant City Manager/Development Services Director Prepared by: Jeramie Brogan, Management Analyst SUBJECT: ORDINANCE NO. 2402 RELATED TO TEXT AMENDMENT NO. TA 25-01 ADDING A NEW SECTION 9103.16 TO ARTICLE IX, CHAPTER 1 (DEVELOPMENT CODE) OF THE ARCADIA MUNICIPAL CODE PERTAINING TO AN INCLUSIONARY HOUSING ORDINANCE AND ASSOCIATED IN-LIEU DEVELOPMENT FEE CEQA: Exempt Recommendation: Adopt SUMMARY At its regular meeting of April 1, 2025, the City Council introduced Ordinance No. 2402, adding a new Section 9103.16 to Article IX, Chapter 1 (Development Code) of the Arcadia Municipal Code to adopt an Inclusionary Housing Ordinance and associated in-lieu development fee. The City Council voted 4-0, with one member abstaining, to introduce the Ordinance with amendments. The amendments include revising the Ordinance effective date to July 1, 2025, and revising the sliding scale for the in-lieu development fee applicable to rental residential projects between 10 and 20 units. The in-lieu development fee, as amended, will be applicable to rental residential projects between 10 and 30 units. In-lieu fees can be provided for all ownership projects comprised of 10 or more residential units. Refer to “Exhibit A” of Attachment No. 1 for the final text amendment under Ordinance No. 2402. ENVIRONMENTAL ANALYSIS The Text Amendment is exempt from the requirements of CEQA pursuant to Section 15061(b)(3), as it can be seen with certainty that it will not have a significant effect on the environment and, thus, is not subject to CEQA review. Adoption of Ordinance No. 2402 – TA 25-01 April 15, 2025 Page 2 of 2 RECOMMENDATION It is recommended that the City Council adopt Ordinance No. 2402 related to Text Amendment No. TA 25-01 adding a new Section 9103.16 to Article IX, Chapter 1 (Development Code) of the Arcadia Municipal Code pertaining to an Inclusionary Housing Ordinance and associated In-Lieu Development Fee; and find this action to be exempt under the California Environmental Quality Act (“CEQA”). Attachment No. 1: Ordinance No. 2402 Attachment No. 2: City Council Staff Report (with no attachments), dated April 1, 2025 ORDINANCE NO. 2402 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF ARCADIA RELATED TO TEXT AMENDMENT NO. TA 25-01 ADDING A NEW SECTION 9103.16 TO ARTICLE IX, CHAPTER 1 (DEVELOPMENT CODE) OF THE ARCADIA MUNICIPAL CODE PERTAINING TO AN INCLUSIONARY HOUSING ORDINANCE AND ASSOCIATED IN-LIEU DEVELOPMENT FEE WHEREAS, the Development Services Department has initiated Text Amendment No. TA 25-01 to add a new lnclusionary Housing Ordinance as Section 9103.16 to Article IX, Chapter 1 of the Arcadia Municipal Code (referred to as "Text Amendment"); and WHEREAS, California State Housing Element Law establishes the requirements for Housing Elements and California Government Code Section 65588 requires that local government review and revise the Housing Element of their comprehensive General Plans not less than once every eight years. Additionally, the California State Legislature identifies overall housing goals for the State with the goal of ensuring every resident has access to housing and suitable living environments; and WHEREAS, the updated Housing Element was adopted by City Council on February 15, 2022, and again, at the request of the State Department of Housing and Community Development, on November 1, 2022, and WHEREAS, the City is required to implement actions and policies within the approved and certified Housing Element, including the provision of affordable housing, and compliance with the Regional Housing Needs Allocation ("RHNA") for the City of Arcadia; and WHEREAS, the proposed Text Amendment would effectuate Housing Element Implementation Action No. 5-19 by adopting an lnclusionary Housing Ordinance as shown in Exhibit "A" of this Ordinance; and 1 Attachment No. 1 WHEREAS, on February 27, 2025, Planning Services completed an environmental review of the proposed Text Amendment and determined that the project is exempt from review under the California Environmental Quality Act ("CEQA") pursuant to Section 15061 (b)(3) of the CEQA Guidelines because it can be seen with certainty that the Text Amendment would not have a significant effect on the environment and, thus, is not subject to CEQA review; and WHEREAS, on March 11, 2025, the Planning Commission held a duly noticed public hearing and considered the staff report, recommendations by staff, and public testimony concerning the Text Amendment; and WHEREAS, after considering the evidence presented, the Planning Commission voted 4-1 to recommend to the City Council approval of Text Amendment No. TA 25-01; and WHEREAS, on April 1, 2025, the City Council held a duly noticed public hearing concerning the Text Amendment, at which time all interested persons were given full opportunity to be heard and to present evidence. NOW, TH EREFORE, the City Council of the City of Arcadia does ordain as follows: SECTION 1. The recitals above are each incorporated by reference and adopted as findings by the City Council. SECTION 2. The City Council finds, based upon the entire record: 1.The proposed • Development Code Amendment is consistent with the goals, policies, and objectives of the General Plan and any applicable specific plan(s). FACT: The proposed Text Amendment No. TA 25-01 aligns with the goals and policies of the General Plan Housing Element. The Text Amendment ensures that 2 Implementation Action No. 5-19 of the Housing Element is met, demonstrating the City's commitment to providing capacity for affordable housing units within the City. To accommodate the number of affordable housing units identified in the City's Regional Housing Needs Allocation ("RHNA"), and meet the specified levels of affordability, this Text Amendment is necessary. The Text Amendment is consistent with the following General Plan Housing Element Goals and Policies: Housing Element Policy H-2.4: Maintain development standards, regulations, and design features that are flexible to provide a variety of housing types and facilitate housing that is appropriate for the neighborhoods in which they are located. Goal H-3: A range of housing choices for all social and economic segments of the community, including housing for persons with special needs. Policy H-3.2: Facilitate homeownership opportunities for lower and moderate income households. Policy H-4.1: Review and modify as appropriate development standards, regulations, and processing procedures that may constrain housing development, particularly housing for lower-and moderate income households and for persons with special needs. The proposed Text Amendment No. TA 25-01 will add a new Section to the Development Code related to lnclusionary Housing. This amendment will be consistent with all other portions of the adopted General Plan. 1.The proposed amendment is internally consistent with other applicable provisions of this Development Code. 3 EXHIBIT "A" Section 9103.16 of the Development Code, lnclusionary Housing Ordinance Subsections: 9103.16.010 Purpose and Intent 9103.16.020 Applicability 9103.16.030 Definitions Section 9103.16-lnclusionary Housing 9103.16.040 Affordable Unit Requirements 9103.16.050 Alternatives 9103.16.060 Incentives 9103.16.070 Exemptions 9103.16.080 Standards and Procedures 9103.16.090 Affordable Housing Plan and Agreement 9103.16.100 Enforcement 9103.16.110 Affordable Housing Trust Fund 9103.16.010 Purpose and Intent The purpose of this Chapter is to require and facilitate the construction of below market-rate housing to provide a variety of housing types and opportunities for extremely low, very low, low-and moderate-income households in Arcadia. The goal of this Chapter is to expand the affordable housing stock in proportion with the overall increase in residential units by establishing standards and procedures that encourage the development of extremely low to moderate-income housing and to assist in meeting the City's regional share of housing needs and implementing the goals and objectives of the general plan, including the Housing Element and any applicable specific plans. 9103.16.020 Applicability A.The requirements of this Chapter shall apply to any new mixed-use or multi-family development project or condominium conversion projects comprised of ten or more dwelling units. All affordable units required by this Chapter shall be sold· or rented in compliance with this Chapter. B.The total number of dwelling units shall be used to determine applicability for multi-phased residential projects and any development project that is comprised of less than ten dwelling units but appears to be a part of a larger residential project. 9103.16.030 Definitions Adjusted for Household Size Appropriate for Unit. A household of one person in the case of a studio unit, two persons in the case of a one-bedroom unit, three persons in the case of a two-bedroom unit, four persons in the case of a three-bedroom unit, five persons in the case of a four-bedroom unit, six persons in the case of a five-bedroom unit, and seven persons in the case of a six bedroom unit. Affordable Housing Costs. The maximum costs that can be paid by a qualifying household based on the requirements imposed by California Health and Safety Code Section 50052.5 for owner-occupied housing, and the affordable rent for rental units as defined by California Health and Safety Code Section 50053, as applicable. Affordable Housing Trust Fund. Any in-lieu fees or equity share payment collected as a result of requirements of this Chapter shall be deposited in the City's Affordable Housing Trust Fund to be used exclusively to develop and retain the supply of housing affordable to extremely low, very low, low, and moderate-income households. Affordable Unit. A dwelling unit that will be offered for sale or rent to an extremely low-income household, a very low-income household, a low-income household, or a moderate-income household, at an affordable housing cost, in compliance with this Chapter. Area Median Income (AMI). The annual median gross income adjusted for household size in Los Angeles County as determined by the United States Department of Housing and Urban Development (HUD) and published by the California Department of Housing & Community Development (HCD), in the California Code of Regulations, Title 25, Section 6932. Condominium Conversion. Converting an existing market rate condominium and apartments into affordable housing. Converted condominiums and apartments shall be offered for sale or rent to an extremely low-income household, a very low-income household, a low-income household, moderate-income household, or workforce household at an affordable housing cost, in compliance with this Chapter. Density Bonus. As defined in California Government Code Section 65915 et seq. Equity Share Agreement. An agreement by which appreciation on the value of an inclusionary unit from the time of the original purchase at an affordable price to the time of resale shall be shared between the purchaser of the inclusionary unit and the City. Such an agreement shall be a condition of sale of the inclusionary unit. Low-Income Househol d. As published and periodically updated by HCD pursuant to Health and Safety Code Section 50079.5. Market Rate Unit. Dwelling unit in a residential development that can be purchased or rented at market rates. These units are not considered to be affordable units. Moderate-Income Household. As published and periodically updated by HCD pursuant to Health and Safety Code Section 50093. Offsite Construction. The development of required number of affordable units at a site different than the site of the residential project. Phasing Plan. A detailed plan provided by a developer that outlines each segment or phase of construction including housing units and site improvements to be developed in a new residential project. Residential Project. A subdivision, a development project, and/or a condominium conversion project resulting in the creation of ten (10) or more residential lots or ten (10) or more residential dwelling units. Rehabilitation. Improvement of a unit in substandard condition to a decent, safe, and sanitary level. Units are in substandard condition when, while they may be structurally sound, they do not provide safe and adequate shelter, and in their present condition endanger the health, safety, or well-being of the occupants. Total Housing Costs. The total monthly or annual recurring expenses required of a household to obtain shelter. For a rental unit, total housing costs shall include the monthly rent payment and utilities paid by the tenant (excluding telephone and television). For an ownership unit, total housing costs shall include the mortgage payment (principal and interest), insurance, homeowners' association dues (if applicable), private mortgage insurance (if applicable), taxes, maintenance costs, and utilities. Very Low-Income Household. As published and periodically updated by HCD pursuant to Health and Safety Code Section 50105. 9103.16.040 lnclusionary Unit Requirement A.The commonly used income categories are approximately as follows, as published and periodically updated by HCD pursuant to Health and Safety Code Sections 50105, 50079.5, and 50093, respectively. Income categories are subject to variations for household size and other factors: •Very low income: 30% to 50% of AMI •Low income: 50% to 80% of AMI •Moderate income: 80% to 120% of AMI B.All residential proj ects subject to requirements of this Chapter shall provide affordable units as shown in Table 3-18. 2 Total Percentage of Affordabl Units Re uired minimum 11) 5% 9% 11% 14% 20% Notes: Table 3-18 Affordable Unit Re uirements for Residential Pro·ects Minimum Affordability Level of Required Units Ownership Units II required affordable units shall be sold to moderate-income households, at a cost affordable to uch household. Rental Units IAII required affordable units shall be rented to very low-income households, at a cost affordable to isuch household. V\t least 5% of the total number of units in the residential project shall be rented to very low-income hOuseholds, at a cost affordable to such household. The remaining 6% shall be rented to low ·ncome households, at a cost affordable to such household. IA! least 14% of the total number of units in the residential project shall be rented to low-income households, at a cost affordable to such household. lA.11 required affordable units shall be rented to moderate-income households, at a cost affordable to isuch household. (1) of the total number of units in the residential project. C.An applicant may request to deviate from the number and affordability level provisions required by this Chapter if the proposed deviation provides the same or greater level of affordability required and the same or greater number of affordableunits required by this Chapter. Such request requires an approval of the Director subject to the provisions of Section9103.16.040 of this Chapter. D.When a residential development includes both ownership and rental units, the provisions of this Chapter that apply to ownership residential development shall apply to that portion of the development that consists of ownership dwelling units,while the provisions of this Chapter that apply to rental residential development shall apply to that portion of the developmentthat consists of rental dwelling units. E.Affordable units required by this Chapter can be used to qualify for a density bonus under California Government Code Section 65915 (State Density Bonus). F.Notwithstanding any other provision of this Chapter, any residential project subject to this Chapter that results in the displacement of existing affordable unit(s) shall be required to replace each displaced affordable unit at the same or greater level of affordability of the existing unit, in addition to providing the number of affordable units required by this Chapter. 9103.16.050 Alternatives An applicant may also satisfy the requirements of this Chapter through one of the following alternatives: A.Offsite Construction. An applicant may satisfy the requirements of this Chapter by developing the required number of affordable units at a site different than the site of the residential project. An applicant may develop the affordable units required by this Chapter if they satisfy the following conditions: 1.The number of units to be developed offsite shall be consistent with the requirements of this Chapter. 2.Offsite affordable units shall contain the same number of bedrooms, square footage, overall unit mix, appearance, finishedquality, materials, and distribution as the non-affordable units in the project. 3.Offsite affordable units shall be developed concurrently with the main project and certificate of occupancy will be contingent on final approval and inspection of the affordable units. 4.Offsite affordable units shall be located within the City. 5.Offsite affordable units shall be subject to the same requirements, standards, and procedures as onsite affordable units. 3 B.In-Lieu Fees. 1.Ownership Units. Applicants with development proposals of ten (10) or more units may choose to comply with the requirements of this Chapter through payment of a fee, in-lieu of providing the required affordable units on site. 2.Rental Units. Applicants with development proposals between ten (10) and thirty (30) units may choose to comply with therequirements of this Chapter through payment of a fee, in-lieu of providing the required affordable units on site. Applicants with development proposals greater than thirty (30) units must comply with the requirements of this Chapter by providing the required affordable units on-or off-site. 3.The amount of the fee shall be calculated using the fee schedule established by resolution of the City Council. 4.One-half of the in-lieu fees shall be paid prior to the issuance of a building permit for the project with the remaining fees due prior to the issuance of a certificate of occupancy. 5.Any fractional unit resulting from the calculation of the inclusionary requirement referenced in this Chapter will be roundedup to the next whole number or the developer may elect to pay the appropriate in-lieu fee for the fractional unit. 6.Fees collected in-lieu of developing affordable units pursuant to this Chapter shall be placed in the City's Affordable HousingTrust Fund. 9103.16.060 Incentives A.An applicant that meets the requirements of this Chapter may request the incentives identified in Table 3-19 below. The number of incentives provided shall be at the City's discretion. Table 3-19 Types of Incentives and Review Authority Incentives Review Authority Special Provisions Streamlined Entitlement Plan Check Director May also include pre-application meetings. Review and Buildinq Plan Check Review Deferral of Developer Impact Fee Director Such deferred impact fees shall be fully paid prior to the Payments issuance of a certificate of occupancy. Partial or full waiver of building permit Director fees Partial or full waiver of required Planning Commission development fees Reasonable alternatives Planning Commission City Council approval required if the requested alternative has budgetary implication to the City B.If the residential project subject to this Chapter is also utilizing State Density Bonus provisions, such project is eligible torequest the number and types of incentives allowed in this Chapter and by State Density Bonus provisions. C.At the discretion of the City Council, the City may offer a financial incentive using funds from the Affordable Housing Trust Fund. 9103.16.070 Exemptions The provisions of this Chapter shall not apply to the following: A.Residential developments with nine (9) or fewer units. B.Residential projects that obtain entitlement approvals prior to the adoption of this Chapter. C.Reconstruction of structures which have been damaged by fire, flood, wind, earthquake, or other unforeseen force, asdetermined by the Director or designee. 4 D.Residential projects that are exempt from this Chapter by State law. E.Units approved as accessory dwelling units or junior accessory dwelling units. 9103.16.080 Standards and Procedures The applicant of a project subject to the provisions of this Chapter must submit an Affordable Housing Plan which shall indicate the scheduling and phasing of construction of the required affordable units. The Affordable Housing Plan requirements can be found in Section 9103.16.090. Additionally, projects pursuant to this Chapter must comply with the following standards. A.All affordable units in a residential project or phases of a residential project shall be constructed prior to the issuance of a certificate of occupancy for the project or phase of the project B.All affordable units shall be reasonably dispersed throughout the project site unless approval for an off-site location has been granted. C.The affordable units shall contain the same number of bedrooms and bedroom size as the market rate units in the project.The unit mix for bedroom count shall be proportional to the unit mix of market rate units in the project. D.The materials and finished quality of the affordable units shall be comparable with the market rate units. E.Affordable units shall have the same access to amenities as the market-rate units, including common spaces, parking, laundry rooms, fitness centers, and other facil ities in the residential development. F.Affordable units required under this Chapter shall be retained as affordable units as follows: 1.For sale units: Cumulative forty-five (45) years or until sold or transferred with an equity share, whichever occurs first. 2.Rental units: Cumulative fifty-five (55) years. G.The affordability period begins upon the initial sale or rental of the unit. H.An equity share agreement for any inclusionary units that are for-sale shall be in a form approved by the Director and CityAttorney in conformance with this chapter. 9103.16.090 Affordable Housing Plan and Agreement A.Affordable Housing Plan. 1.An application for a residential development shall include an Affordable Housing Plan describing how the development will comply with the provisions of this Chapter. The Director or their designee is the reviewing authority for reviewing and approving an Affordable Housing Plan. No application for a residential development may be deemed complete unless an Affordable Housing Plan is submitted in conformance with this Chapter. The City has the ability to attach conditions ofapproval to an Affordable Housing Plan, if determined necessary. 2.An approved Affordable Housing Plan may be amended prior to issuance of any building permit for the residentialdevelopment or project phase. A request for a minor modification may be granted by the Director or their designee if themodification is in substantial compliance with the original Affordable Housing Plan and conditions of approval. If significantmodifications are requested, a new Affordable Housing Plan may be required. 3.An Affordable Housing Plan shall include, but not be limited to, the following: a.The number of affordable units proposed, with calculations; b.The proposed location of the affordable units; 5 c.Level of affordability for affordable units; d.The unit square footage, and number of bedrooms for market rate and affordable units and tenure (ownership or rental); e.Amenities and services provided, such as common spaces, parking, laundry rooms, fitness centers, and other facilities in the residential development; f. Construction schedule for all units; g.Alternatives requested, if applicable; h.Incentives requested, if applicable; and i.Evidence to justify any requested alternative or incentive, if applicable. B.Affordable Housing Agreement. 1.An applicant shall enter into an Affordable Housing Agreement with the City. The Affordable Housing Agreement shall be approved by the City Attorney, and executed by the City Manager or their designee, to ensure that all the requirements of this Chapter are satisfied. The Affordable Housing Agreement shall be recorded against the residential development prior to final subdivision map approval, or, where a subdivision map is not being processed, prior to issuance of any building permits, with the exception of demolition permits for such parcels or units. The agreement shall be recorded with the office of the Los Angeles County Recorder. The Affordable Housing Agreement shall be binding on the applicant and all future owners and successors in interest thereof. 2.The Affordable Housing Agreement shall include all information requested in the Affordable Housing Plan and any other provisions necessary to ensure that the requirements of this Chapter are satisfied. 3.The Affordable Housing Agreement shall include the procedures for income verification of potential purchasers or renters. 9103.16.100 Enforcement A.The Director, or their designee, may suspend, revoke, or deny any building permit or other approval upon finding a violation of any provision of this Chapter. The provisions of this Chapter shall apply to all owners, agents, and successors of an applicant proposing a project. No entitlement approval, grading permit, building permit or certificate of occupancy shall be issued if it is found in noncompliance with the provisions of this Chapter. B.Any individual or entity who sells or rents an affordable unit in violation of the provisions of this Chapter shall be required to forfeit all monetary gains obtained through noncompliance. Recovered funds shall be deposited into the Affordable Housing Trust Fund. C.The City may use any appropriate legal actions or proceedings necessary to ensure compliance with this Chapter, including but not limited to: 1.Actions to revoke, suspend, or deny any grading permit, building permit, certificate of occupancy, or discretionary approval. 2.Any other action, civil or criminal, authorized by law or by any regulatory document, restriction, or agreement in this Chapter. D.The City shall be entitled to recover its reasonable attorney's fees and costs. 9103.16.110 lnclusionary Housing Trust Fund Any in-lieu fees or equity share payment collected as a result of requirements of this Chapter shall be deposited in the City's Affordable Housing Trust Fund to be used exclusively to develop and retain the supply of housing affordable to extremely low, very low, low, and moderate-income households. The City shall provide ongoing implementation programs utilizing funds deposited in the Affordable Housing Trust Fund for the benefit of extremely low, very low, low, and moderate-income households. 6 DATE: April 1, 2025 TO: Honorable Mayor and City Council FROM: Jason Kruckeberg, Assistant City Manager/Development Services Director SUBJECT: TEXT AMENDMENT NO. 25-01 PERTAINING TO AN INCLUSIONARY HOUSING ORDINANCE AND ASSOCIATED IN-LIEU DEVELOPMENT FEE ORDINANCE NO. 2402 RELATED TO TEXT AMENDMENT NO. TA 25-01 ADDING A NEW SECTION 9103.16 TO ARTICLE IX, CHAPTER 1 (DEVELOPMENT CODE) OF THE ARCADIA MUNICIPAL CODE PERTAINING TO AN INCLUSIONARY HOUSING ORDINANCE AND ASSOCIATED IN-LIEU DEVELOPMENT FEE CEQA: Exempt Recommendation: Introduce RESOLUTION NO. 7621 ESTABLISHING AN INCLUSIONARY HOUSING IN-LIEU DEVELOPMENT FEE AS AN ALTERNATIVE TO PROVIDING AFFORDABLE HOUSING UNITS REQUIRED BY THE INCLUSIONARY HOUSING ORDINANCE; AND FINDING THAT THIS RESOLUTION IS EXEMPT FROM THE REQUIREMENTS OF THE CALIFORNIA ENVIRONMENTAL QUALITY ACT (“CEQA”) CEQA: Exempt Recommendation: Adopt SUMMARY As part of the adoption of the City’s Housing Element, the City is responsible for providing the capacity to build affordable housing units. The Housing Element sets forth goals, policies, and programs that address future housing needs for all income levels over a planning period of 2021-2029, which coincides with a unit count established by the Regional Housing Needs Assessment (“RHNA”). The RHNA is mandated by State Housing Law as part of the periodic process of updating Housing Elements of the General Plan, and Arcadia was allocated 3,214 housing units for the 2021-2029 planning period. Of these units, 71% are slated to provide some level of affordability. One of the prime strategies identified to provide the capacity for this number of affordable units is the adoption of an Inclusionary Housing Ordinance. Attachment No. 2 Inclusionary Housing Ordinance April 1, 2025 Page 2 of 12 Inclusionary Housing refers to policies and/or regulations that require residential developments to include affordable housing units as part of their unit mix. This is a common tool utilized as part of the development process to create affordable housing. The City has prepared an Inclusionary Housing Ordinance (“IHO”), and an associated development fee payable in-lieu of providing affordable units, as an important step in the adoption and implementation of the Housing Element. Therefore, it is recommended that the City Council introduce Ordinance No. 2402 approving Text Amendment No. 25-01, adding Section 9103.16 to the Arcadia Municipal Code pertaining to an Inclusionary Housing Ordinance, and adopt Resolution No. 7621 approving an associated in-lieu development fee. BACKGROUND The City Council adopted the Housing Element Update on February 15, 2022. However, after several iterations of review, on January 6, 2023, the State Department of Housing and Community Development (“HCD”) determined that the City needed to adopt specific rezoning strategies and complete other actions in order to receive certification of the Housing Element. The rezoning strategies were adopted by the City Council on February 6, 2024, and the Housing Element Update was certified by HCD on February 9, 2024. An important component of the Housing Element is compliance with the RHNA allocation. The RHNA is the process by which each city is assigned a share of the region’s additional housing units during the next Housing Element planning period (2021-2029). RHNA allocations are determined for Arcadia by the Southern California Association of Governments (“SCAG”) based on criteria established by State law. The City’s RHNA allocation is in Table 1 below: Table 1 Income Category Number of Units Percentage Very Low-Income Units 1,102 34% Low-Income Units 570 18% Moderate Income Units 605 19% Above-Moderate Income Units 937 29% Total 3,214 100% To be eligible for housing units in any of the affordability categories listed, applicants must qualify for the unit based on their income. Table 2 below shows the 2024 Los Angeles County income requirements at each level of affordability, based on family size. A wide variety of professionals qualify for these units and most of the units can be considered “workforce housing” as a result. Inclusionary Housing Ordinance April 1, 2025 Page 3 of 12 Table 2 Los Angeles County Income Limits 2024 (Based on Household Size) 1 2 3 4 5 6 7 8 Extremely Low 29,150 33,300 37,450 41,600 44,950 48,300 51,600 54,950 Very Low Income 48,550 55,450 62,400 69,350 74,900 80,450 86,000 91,550 Low Income* 77,700 88,800 99,900 110,950 119,850 128,750 137,600 146,500 Median Income 68,750 78,550 88,400 98,200 106,050 113,900 121,750 129,600 Moderate Income 82,500 94,300 106,050 117,850 127,300 136,700 146,150 155,550 *In high-cost areas, such as Los Angeles County, HCD makes adjustments to the Low-Income limits which may result in the Low-Income limit exceeding the Countywide median income. As mentioned, the Housing Element must demonstrate site development capacity to facilitate the construction of a variety of housing types for all income levels. It is important to note that the City is not responsible for the production of these units, rather, the City is obligated to provide adequate sites for the development of units through appropriate General Plan land use and zoning designations, or through zoning or regulatory changes to accommodate these units. Whether or not housing actually gets built, and what type of housing gets built, is largely up to the property owners and the housing market. It was determined through a review of projects within the pipeline, as well as growth patterns in general, that the City’s allocation of “above moderate” units would be met through existing zoning and current policy. However, in order to meet the City’s RHNA requirement for affordable units, additional housing programs and strategies were needed. For example, only 96 affordable units are currently in Arcadia’s pipeline without any new policies or strategies. As a result, strategies were developed through the Housing Element Update process that expanded high density zones, increased the allowed density in various areas, allowed residential overlay zones in predominantly commercial or industrial areas, and created policies to encourage affordable housing and a range of additional housing types. In keeping with the City’s overall direction of the last 15 years or so, growth and density continues to be directed into areas with adequate infrastructure and away from single-family neighborhoods. Inclusionary Housing Ordinance April 1, 2025 Page 4 of 12 All of the above policies set the framework for the provision of more affordable units, but the most important policy provided in the Housing Element is the adoption of an Inclusionary Housing Ordinance (“IHO”). The primary goal of an IHO is to require that a portion of new residential developments are affordable to lower and moderate-income households. These units are integrated into proposed residential development projects and are essentially the same as any other multi-family unit, except they are only available to qualifying renters or owners at various levels of affordability. Based on Arcadia’s RHNA and the options available, an IHO is likely the only alternative available to the City that will meaningfully provide the capacity needed for these affordable units. In alignment with the goals of the adopted Housing Element, the City has prepared a Draft IHO, intended to encourage and facilitate the construction of below market-rate housing in Arcadia. The program was included in the Housing Element Implementation Plan as Program 5-19 (Inclusionary Housing Policy). It was originally intended that the development of an IHO would be the first action taken following the certification of the Housing Element. However, HCD required the City to undertake a major rezoning effort first, which was completed early in 2024. Since that time, several Study Sessions with both the Planning Commission and City Council have been held, which have provided a substantial amount of information to the public on this effort. This represents the last major implementation action to effectuate the approved Housing Element for the 2021-2029 cycle. ANALYSIS As mentioned, Inclusionary Ordinances are a common tool to facilitate the provision of affordable housing. There are 21 other jurisdictions throughout Los Angeles County that have IHOs and several others that are currently working toward adoption of an Ordinance. Each City has unique circumstances related to the built environment, land values, the presence of city-owned properties, and unique funding opportunities that inform what types of regulations will work best to provide housing. The adoption of an IHO is viewed as the best way to provide affordable housing for the City of Arcadia, for the following reasons: • Funding Limitations. There is no other public funding source dedicated to the provision of affordable units for the City to utilize. In the past, the City had access to Redevelopment Funds (as part of the former Arcadia Redevelopment Agency). Twenty percent of the funding received through Redevelopment was REQUIRED to be used for affordable housing projects, of which Arcadia completed several. When Redevelopment was dissolved at the State level, this important source of funding for affordable housing was eliminated. • Lack of City-owned land and public housing. Some cities have underutilized publicly-owned land that can be utilized for affordable housing projects. Arcadia does not have such property. Inclusionary Housing Ordinance April 1, 2025 Page 5 of 12 • Integrates Units into Larger Developments. The IHO provides a mechanism for integrating affordable units into larger market-rate projects, creating coordinated and cohesive developments. This approach is preferable to relying solely on 100% affordable projects, which are extremely challenging to finance and unlikely to occur in Arcadia without significant external subsidies. • Provides Most “Bang for the Buck”. The IHO can work in conjunction with State density bonus laws and other development incentives to create projects that provide both affordable units and are financially viable for the development community. In fact, most of the new development projects the City receives already include some amount of affordable units, in order to take advantage of financing and density bonus incentives that are available to developers. Although there are similarities between all IHOs, each one is specifically tailored to address the housing situation of the jurisdiction. The Draft IHO is included as an Exhibit to Ordinance No. 2402 (Attachment No. 1). In developing the IHO, it is important for the City to ensure that any regulation considered does not become overly restrictive or otherwise limit development. It is essential to strike the right balance between providing affordable housing units and maintaining a regulatory framework that encourages property development and redevelopment. The Ordinance was drafted with the assistance of long-time Housing Element consultant, Kimley Horn and Associates, to achieve the following purposes: • Create a structure that provides for the provision of units at all levels of housing affordability. • Allow for affordable units in rental (apartment) and ownership housing options. • Create alternatives for the provisions of units. This is a State requirement for inclusionary ordinances; tools such as in-lieu fees and off-site provision of units must be considered. • Provide exemptions for smaller projects that do not meet the economies of scale necessary to provide affordable units. • Create simple and streamlined approval, monitoring, and enforcement processes Additionally, the Development Services Department held several Study Sessions with the City Council and Planning Commission to obtain feedback and overall direction regarding the Draft Ordinance. To ensure that the Draft Ordinance met the established goals and put forward a balanced regulation, the City contracted with Keyser Marston Associates (“KMA”) to complete an economic analysis (Attachment No. 3). KMA based their analysis on general parameters for IHOs that came out of a California Supreme Court Case (California Building Industry Association v. City of San Jose), which imposed the following limitations on the requirements of these Ordinances: Inclusionary Housing Ordinance April 1, 2025 Page 6 of 12 1. Inclusionary Housing requirements cannot be confiscatory; and 2. Inclusionary Housing requirements cannot deprive a property owner of a fair and reasonable return on their investment. The Financial Evaluation provided by Keyser Marston establishes prototype housing projects in various zones in Arcadia to evaluate the economic reality of building affordable units. Variables such as the size of the project, density, height, parking requirements, and land values are included to develop representative development types in both the Downtown Mixed Use Zone and along the Live Oak/Las Tunas corridor. Pro Formas were then created to evaluate the land value supported by a 100% market rate project, as well as the value enhancement that was created by the City’s recent zoning changes. To assess whether providing affordable units is feasible, the portion of the value increase that could reasonably go toward creating inclusionary units in a market-rate development was determined. This is based on the determination of an “affordability gap” for each level of affordability designated by Los Angeles County. The affordability gap can generally be defined as the difference between the market-rate rent or sales price and the allowable rent or sales price for affordable units. Table 3 below provides the percentage of units within both rental and ownership projects that can be financially supported by development projects, at various rates of affordability. Please see Attachment No. 3 for the full methodology used to support this recommendation. Table 3 Notes: (1) of the total number of units in the residential project. Proposed Affordable Unit Requirements for Residential Projects Total Percentage of Affordable Units Required (minimum)(1) Minimum Affordability Level of Required Units Ownership Units 5% Moderate Income Only Rental Units 9% Very Low Income Only 11% 6% Low Income + 5% Very Low Income = 11% 14% Low Income Only 20% Moderate Income Only Inclusionary Housing Ordinance April 1, 2025 Page 7 of 12 The IHO recommends the sliding scale above for the number of affordable units required within a rental project, based on the proposed level of affordability. Due to the very large affordability gaps for ownership projects in Arcadia, the requirements for inclusionary units in ownership projects are much lower. Developers can choose the most appropriate option based on the economics of their site, along with any additional financial incentives or parameters specific to their project. The proposed requirements recommended for the City are similar to those in neighboring jurisdictions such as the Cities of Alhambra, Burbank, El Monte, Pasadena, and South Pasadena, as well as Los Angeles County. A full Inclusionary Housing Program Survey is included as part of Attachment No. 3. To ensure fairness to smaller projects, the Ordinance includes exceptions for certain situations. Recognizing that smaller projects may be more significantly impacted than larger projects, due to fewer market units to offset the impact, the IHO will only apply to projects with 10 or more units. Projects with nine (9) or fewer units will be exempt. This approach is also consistent with the practices of other cities with Inclusionary Ordinances (although some Ordinances apply to projects with as few as three units, a more common minimum threshold is 10 or more units). While the goal of the IHO is to build affordable units as a part of new development projects, State law requires that IHOs must include alternatives to the provision of these units. The most common alternatives are offsite construction and the establishment of an in-lieu development fee. Both options are included within the Draft IHO. The offsite construction option allows a developer to provide the required number of affordable units at a different location within the City. While this option is unlikely to be used often, it could be deployed in a situation where a developer owned multiple properties within the City, or an adjacent or separate site was more suitable for the units. A far more common alternative is the in-lieu fee. In-lieu fees are an option a developer can choose in certain circumstances, whereby payment is made into an established Affordable Housing Trust Fund rather than physically providing the units. The Trust Fund would be maintained by the City and the monies within the Fund would be used to provide affordable housing elsewhere in the City. To establish a fair and realistic in-lieu fee, the City contracted with KMA to provide an In- Lieu Fee Analysis (Attachment No. 4). The study quantifies the fee amounts corresponding to the affordability gaps identified in the economic analysis described above. The same prototype developments utilized in the economic analysis were included to determine the appropriate in-lieu fee, and the recommended fees are based on weighted averages between the prototypes. Table 4 below outlines the recommended in- lieu fees based on the inclusionary housing unit recommendations. The table provides both a per unit in-lieu fee and a per square foot fee, based on total leasable or saleable floor area. It is recommended that the per square foot in-lieu fees be adopted, as this methodology accounts for the varying affordability gaps that will exist based on unit size. Inclusionary Housing Ordinance April 1, 2025 Page 8 of 12 Table 4 Recommended Base In-Lieu Fee Payment Amounts Residential Developments with 20 or More Units Affordability Gap Analyses Apartment Development Per Inclusionary Unit $403,000 Per Square Foot of Total Leasable Area in the Development $43.80 Ownership Housing Development Per Inclusionary Unit $701,300 Per Square Foot of Total Saleable Area in the Development $23.30 As an example of how the fee would work, one of the prototype developments is for an apartment development in the Downtown Mixed-Use area with a density of 64 units per acre. In this example, the developer has elected to apply the 14% Low Income affordable requirement to a project with a total of 48 units and 45,600 square feet of leasable area. This would require seven (7) affordable units. Using the leasable area recommendation, the total in-lieu fee for the project would be just under $2 million (45,600sf x $43.80/sf = $1,997,280). Because inclusionary housing requirements can have a disproportionate impact on smaller projects, KMA recommends a sliding scale for the in-lieu fee for rental residential projects between 10 and 20 units. This provides a level of fairness for these projects where the cost of the fee increase is consistent with the size of the development, as shown in Table 5 below. The recommendation is that in-lieu fees can be provided for all ownership projects and for those rental projects up to 20 units. Beyond that, the physical units would need to be provided, unless the City Council authorizes in-lieu fees to be paid for a specific project where a hardship can be proven. Inclusionary Housing Ordinance April 1, 2025 Page 9 of 12 Table 5 Recommended Discounted In-Lieu Fee Schedules Measured Per Square Foot of Leasable or Saleable Area in the Residential Development Number of Units Apartment Development Ownership Housing Development 10 $3.98 $2.12 11 $7.96 $4.24 12 $11.95 $6.35 13 $15.93 $8.47 14 $19.91 $10.59 15 $23.89 $12.71 16 $27.87 $14.83 17 $31.85 $16.95 18 $35.84 $19.06 19 $39.82 $21.18 20+* $43.80 $23.30 *In lieu fees are only allowed for apartment projects of more than 20 units upon specific Council approval. It should also be noted, the IHO includes a provision for projects that provide physical units, that when the inclusionary housing calculation results in a fractional unit “remainder”, the developer should be able to pay an in-lieu fee that is consistent with that fraction of a unit, rather than the entire unit cost. Similar to the sliding scale above, the fractional unit cost increases as the fractional requirement increases. For example, if the mathematical calculation resulted in the requirement for 8.2 inclusionary housing units, the developer would provide the 8 units and pay a prorated cost based on 0.2 of a unit. This is a common approach in other IHOs and provides a level of fairness in the process. Finally, the Ordinance includes the requirements for an Inclusionary Housing Plan, which will be required of all eligible developments, and the enforcement actions that the City will be authorized to take if any approved housing plan is not carried out. The Inclusionary Housing Plan would establish rules and regulations for the development to ensure that affordability and non-discrimination standards are maintained over time. Overall, the proposed Ordinance achieves the desired balance of providing a method to require affordable housing, while acknowledging the financial realities of Arcadia and creating protections for the development community. The attached Ordinance introduces the Inclusionary Housing Ordinance and the Resolution approves the associated in-lieu Inclusionary Housing Ordinance April 1, 2025 Page 10 of 12 fee. It is important to separate the fee from the Ordinance to allow the City to evaluate the fee annually, ensuring it remains consistent with the cost of development. By approving a separate Resolution for the fee, the fee can be changed over time more efficiently. FINDINGS Pursuant to Section 9108.03.060(B) of the Municipal Code, an amendment to the Development Code may be approved only if the following findings are made: 1. The proposed Development Code amendment is consistent with the goals, policies, and objectives of the General Plan; and any applicable specific plan(s). Facts to Support the Finding: The proposed Text Amendment No. TA 25-01 aligns with the goals and policies of the General Plan Housing Element. The Text Amendment ensures that Implementation Action No. 5-19 of the Housing Element is met, demonstrating the City’s commitment to providing capacity for affordable housing units within the City. To accommodate the number of affordable housing units identified in the City’s Regional Housing Needs Allocation (“RHNA”), and meet the specified levels of affordability, this Text Amendment is necessary. The Text Amendment is consistent with the following General Plan Housing Element Goals and Policies: Housing Element • Policy H-2.4: Maintain development standards, regulations, and design features that are flexible to provide a variety of housing types and facilitate housing that is appropriate for the neighborhoods in which they are located. • Goal H-3: A range of housing choices for all social and economic segments of the community, including housing for persons with special needs. • Policy H-3.2: Facilitate homeownership opportunities for lower and moderate- income households. • Policy H-4.1: Review and modify as appropriate, development standards, regulations, and processing procedures that may constrain housing development, particularly housing for lower- and moderate income households and for persons with special needs. The proposed Text Amendment No. TA 25-01 will add a new Section to the Development Code related to Inclusionary Housing. This amendment will be consistent with all other portions of the adopted General Plan. 2. The proposed amendment is internally consistent with other applicable provisions of this Development Code. Inclusionary Housing Ordinance April 1, 2025 Page 11 of 12 Facts to Support the Finding: The proposed Text Amendment will add a new Section 9103.16 to the Development Code. The Inclusionary Housing Ordinance will require a certain percentage of units in qualifying multi-family residential and mixed- use development projects to be designated as affordable housing units. This amendment aligns with the City's recent 2024 rezoning efforts, which included upzoning several areas to allow for additional density and to permit residential units in areas where they were previously not allowed. The Inclusionary Housing Ordinance complements these zoning efforts to create the capacity necessary for residential units, in accordance with the City’s RHNA as set forth by the State of California. Therefore, the proposed Text Amendment is consistent with all other sections of the Arcadia Development Code. ENVIRONMENTAL ANALYSIS The proposed Text Amendment is exempt from the requirements of the California Environmental Quality Act (“CEQA”) pursuant to Section 15061(b)(3) because it can be seen with certainty that it will not have a significant effect on the environment, and thus, is not subject to CEQA review. PUBLIC COMMENTS/NOTICE Notice for this project was provided in multiple formats. On February 27, 2025, and on March 20, 2025, notice was published in both the Arcadia Weekly and Pasadena Star- News. Additionally, direct email notice was provided to all individuals on the City’s interested party list relative to the Housing Element and all housing projects. Notice was also provided on the City’s website and social media releases on X, Facebook, Instagram, and WeChat. Finally, articles about the Ordinance were provided in the City’s “Hot Sheet” and Newsletter. As of the publication of this Staff Report, several questions have been asked and answered, but no substantive public comments have been received. PLANNING COMMISSION The Planning Commission held a public hearing on this item at their meeting on March 11, 2025. The Planning Commission had a variety of questions for Staff and the City’s consultants regarding the potential impacts of an IHO on development. Specifically, the Commission had questions on the economic analysis and how the numbers were derived. One member of the public representing the group Creative Housing Options in Arcadia (“CHOA”), spoke in favor of the IHO. Following discussion, the Commission recommended that that City Council approve Text Amendment No TA 25-01 on a vote of 4-1, with Commissioner Hui dissenting. Inclusionary Housing Ordinance April 1, 2025 Page 12 of 12 RECOMMENDATION It is recommended that the City Council approve Text Amendment No. 25-01 pertaining to an Inclusionary Housing Ordinance and associated In-Lieu Development Fee, by taking the following actions: Introduce Ordinance No. 2402 related to Text Amendment No. TA 25-01 adding a new Section 9103.16 to Article IX, Chapter 1 (Development Code) of the Arcadia Municipal Code pertaining to an Inclusionary Housing Ordinance and associated In-Lieu Development Fee; and find this action to be exempt under the California Environmental Quality Act (“CEQA”); and Adopt Resolution No. 7621 establishing an Inclusionary Housing In-Lieu Development Fee as an alternative to providing affordable housing units required by the Inclusionary Housing Ordinance; and find that this Resolution is exempt from the requirements of the California Environmental Quality Act (“CEQA”). Attachment No. 1: Ordinance No. 2402, with Draft Inclusionary Housing Ordinance as Exhibit “A” Attachment No. 2: Resolution No. 7621, In-Lieu Development Fee Attachment No. 3: Financial Evaluation for Inclusionary Housing, dated February 18, 2025 Attachment No. 4: Inclusionary Housing In-Lieu Fee Analysis, dated February 18, 2025 Attachment No. 5: CEQA Notice of Exemption