HomeMy WebLinkAboutStaff Report 422-08TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER
DATE:
REPORT TYPE:
SUBJECT:
NOVEMBER 3, 2008
CONSENT CALENDAR
DEPARTMENT: PLANNING AND
COMMUNITY ENVIRONMENT
CMR: 422:08
Policy And Services Committee Recommendation To Approve Below
Market Rate (BMR) Program Resale Price Formula Policy To Continue
The Existing Consumer Price Index (CPI) Formula With An Annual
Maintenance And Replacements Credit Program
RECOMMENDATION
The Policy and Services Committee and staff recommend that the City Council approve a Below
Market Rate (BMR) ownership program resale price formula policy to continue the current one-third
of the percentage change in the Consumer Price Index (CPI) together with the annual maintenance
and replacements credit, which was approved by Council on March 24, 2008.
BACKGROUND
Alternative methods for BMR unit appreciation were analyzed by Keyser Marston Associates
(KMA) in their BMR Study report, which was released in March 2007. Since then the issue has been
under review and discussion by the Palo Alto Housing Corporation (PAHC), the Haman Relations
Commission (HRC), Planning and Transportation Commission (PTC), the Policy and Services
Committee (P&S) and Council. On March 24, 2008, the Council considered changes to the
appreciation formula for existing BMR owners. Rather than change the formula for existing BMR
units to the full CPI as recommended by the PTC, the Council approved a $2,000 annual
Maintenance and Replacements Credit for each year of ownership for units with the one-third CPI
formula. This change took effect immediately. For future new and resale traits, Council voted in
support of an Area Median Income-based formula and directed staff to return with an analysis and
recommendation for Council approval. In a July 7, 2008, report (CMR: 298:08) staff recommended
approval of a formula that calculated appreciation based on the 80 percent of the percentage change
in the AMI as described in the KMA Study. This formula included both a cap and a floor on resale
prices to keep units within the moderate income affordability range. At that meeting, Council
referred the matter back to P & S for further discussion and analysis of potential problems that could
occur with the AMI formula if it resulted in older units having resale prices close to the prices of new
BMR units. The staff reports for the July 7 and.September 9 meetings are attached (Attachments D
and E).
CMR: 422:08 Page 1 of 3
DISCUSSION
At its meeting of September 9, 2008, the Policy & Services Committee discussed the policy
implications of various AMI and CPI-based formula alternatives for the appreciation of new and
resale BMR units. Based on previous Council direction in favor of an AMI based formula, staff had
recommended further limiting appreciation to 70 percent of the percentage change in the AMI in
order to increase the difference in resale unit prices compared to the prices of new units (CMR:
355:08, September 9, 2008).
Prior to the September 9 meeting, PAHC sent a letter to the City indicating that the combination of
the one-third CPI formula in conjunction with the Maintenance and Replacement Credit was the best
policy to meet multiple BMR program objectives. The letter explained that BMR sellers have
responded well to the credit program since it has been in place and that the credit, combined with the
one-third of CPI formula, is easy to explain. It also provides a strong incentive for owners to
maintain their units in good condition. PAHC recommended that the current one-third of CPI
formula, in combination with the new Maintenance and Replacements Credit of up to $2,000 per
year, be approved by Council as City policy for all new and resale units going forward in time.
At the meeting, representatives from PAHC emphasized, as current administrators of the program,
that the appreciation formula approved by Council should support the key primary policies of the
BMR ownership program as it was originally envisioned. Specifically, PAHC stated that the formula
should:
Emphasize maintaining affordability of the BMR housing stock over time, rather than equity
building for BMR owners;
Result in a range of resale prices to provide units affordable to both moderate and lower
income households;
¯Be easy for owners to understand and for PAHC to administer; and
¯Incorporate a significant financial incentive for good maintenance, repairs and capital
improvements of BMR units.
The Committees discussed the PAHC letter and proposal to continue the current one-third of CPI
formula in conjunction with the $2,000 annual credit and concluded that the proposal met BMR
program objectives better than any of the formulas discussed to date. The Committee unanimously
voted to support the revised recommendation and forwarded its recommendation to Council. A
description of the credit (but not the amount) may be incorporated into the new BMR deed
restrictions, when those are drafted. As suggested by PAHC, the credit amount will be subject to
periodic Council review and adjustment as needed in order to balance the dual goals of protecting
long term affordability and providing a maintenance incentive for BMR owners.
RESOURCE IMPACT
The combination of the one-third of CPI appreciation formula together with the credit program
should preserve the City’s housing funds. This will occur by reducing the likelihood of the City
having to buy down the resale price of units in order to keep them within a price range that is
attractive to prospective qualified BMR buyers. The credit program will encourage good
maintenance, repairs and needed capital improvements and limit the needs for City funds to upgrade
older units.
CMR: 422:08 Page 2 of 3
POLICY IMPLICATIONS
Approval of the one-third of CPI resale price formula continues past Council policy that emphasized
the long-term affordability of the City’s BMR housing stock over higher appreciation for BMR
owners. With this formula, BMR unit resale prices should keep the units well within the moderate
and lower income affordability range. In addition, the financial incentives and rewards offered by
the credit program provide the opportunity for a reasonable return to sellers.
ENVIRONMENTAL REVIEW
The administration of the BMR housing program is categorically exempt under Section 15326 of the
California Environmental Quality Act (CEQA).
PREPARED BY: ~
CATHERINE SIEGEL
Advance Planning Manager
CURTIS WILLIAMS
Interim Director of Planning and Community Environment
CITY MANAGER APPROVAL:
City Mana ~/
ATTACHMENTS
A. Comparison of One-Third CPI with Credit, Full CPI and 70% of AMI BMR Resale Prices
B. Letter Dated September 9, 2008 from PAHC
C. Minutes of September 9, 2008 Policy and Services Committee Meeting, Item #3
D. CMR 298:08, dated July 7, 2008 (w/o attachments)
E. CMR 355:08, dated September 9, 2008(w/attachments)
CC:Palo Alto Housing Corporation, Candice Gonzalez, Executive Director
Bonnie Packer, Palo Alto Housing Corporation Board of Directors
Lani Wheeler, Palo Alto Housing Corporation Board of Directors
Silicon Valley Association of Realtors
Home Builders Association of Northern California, Southern Division
CMR: 422:08 Page 3 of 3