HomeMy WebLinkAbout2021-09-23_MHCACKeyIssue4Memo 2021 Middle Housing Code Advisory Committee0.`i I
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Key Issue #4 Memo: Affordability & Accessibility
September 23, 2021 ~' AP V �- O
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ISSUE
Affordability and accessibility of middle housing.
The City Council has directed the MHCAC to recommend approaches to encourage middle housing
developed under HB 2001 to meet specific housing needs of the community. The two primary needs that
have been identified are for units that are affordable to lower or moderate-income households and for
units that are accessible for people with disabilities, older individuals, or others who otherwise have
needs that may not be met by current housing options.
KEY QUESTIONS
The remainder of this memo addresses the following key considerations and questions:
1. Financial Incentives for Affordable and/or Accessible Housing
o Should the City provide financial incentives such as SDC waivers or deferrals and property
tax exemptions intended to increase production of middle housing or meet certain housing
needs?
o Should the City revise its SDC exemption policy so that it applies to middle housing
developments?
o Should the City provide property tax exemption for middle housing developments?
o Should the City institute a Construction Exercise Tax to help fund affordable housing
incentives and programs?
2. Regulatory Incentives for Affordable and/or Accessible Units
o Should the City offer regulatory incentives for projects that include affordable and/or
accessible units in middle housing developments?
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 1 of 9
KEY CONSIDERATIONS
1. Defining Affordability and Accessibility
The City Council has directed the MHCAC to recommend approaches to encourage middle housing
developed under HB 2001 to meet specific housing needs of the community. The two primary needs that
have been identified are for units that are affordable to lower or moderate-income households and for
units that are accessible for people with disabilities, older individuals, or others who otherwise have
needs that may not be met by current housing options. For this discussion, the terms "affordable" and
"accessible" are defined as follows:
• Affordable housing is a dwelling unit that is rented or sold at a cost that is affordable to a
household earning a specified maximum income level. Housing costs are considered affordable if
they account for less than 30%of household income. Household income is usually expressed as a
percentage of the Area Median Income (AMI), which is set by the federal Housing and Urban
Development (HUD) department. Commonly used income levels are 60%of AMI (very low income)
or 80% of AMI (low income). Affordability requirements are usually enforced through a deed
restriction that requires the unit(s) to be rented at the income-restricted rate or a minimum
number of years (typically 10-30 years).
• Accessible is used broadly in this context to refer to a dwelling unit that may meet certain
minimum standards for the unit to be accessible or visitable for a person with a disability. There
are several building code classifications and certifications from private organizations that set
minimum standards for accessibility, ranging from fully accessible (intended to be used by a
person with a disability) to visitable (intended to accommodate a person with a disability). For this
discussion, we do not define a certain level of accessibility that would be required. Accessibility
requirements are enforced during the building permit review, but units are not usually restricted
to being occupied by people with disabilities.
2. Financial Incentives for Affordable and/or Accessible Housing
Perhaps the most effective strategy to encourage the development of affordable and/or accessible
housing is for the City to offer a financial incentive for developers that provide said units. HB 2001
requires cities to consider strategies to increase the affordability of middle housing when the City adopts
code and plan amendments to comply with the new law. These strategies include waivers or deferrals of
System Development Charges (SDCs), property tax abatements, and implementation of a Construction
Excise Tax (CET) that could fund an affordable housing program. The law does not require cities to adopt
any of these incentives, only to consider them. These same incentives could be applied to accessible units.
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 2 of 9
The scope of this project does not include a detailed analysis of each of these financial incentive options
or strategies to produce more affordable/accessible housing in general. Instead, the MHCAC is being
asked to provide higher-level guidance on the types of incentives—which include financial and regulatory
incentives—that the City should explore. A future working group would need to take up the question of
which specific type of financial incentive would be most appropriate and effective.
We would first like the committee to consider the general pros and cons of offering financial incentives to
middle housing projects that could potentially be tied to income-restrictions and/or accessibility
requirements, in addition to the question of whether middle housing should be incentivized more broadly
—even if not tied to affordable or accessible units. These pros and cons are summarized below.
Pros of providing financial incentives for Cons of providing financial incentives for
middle housing middle housing
• Lower upfront development costs that • Lower revenue collected through SDCs and
exclude SDCs and/or property taxes can property taxes may need to be balanced
be directly passed on to renters and with other sources.
homebuyers in the form of lower rental • Requires deed restriction if attached to
and sales prices. income-restricted units, which restricts
• A higher number of affordable and/or
future use of the property and increases
accessible units are likely to be produced administrative burden
if incentives are offered.
• Potential for wider distribution of middle
housing, particularly in zones where
multi-family housing is not currently
permitted
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 3 of 9
POLLING QUESTION: Should the City provide financial incentives such as SDC waivers or
deferrals and property tax exemptions intended to increase production of middle
housing or meet certain housing needs?
Response Options (may select multiple):
1. Yes, all middle housing developments should be eligible for financial incentives.
2. Yes, for projects that include a minimum number or percentage of income-restricted
affordable units.
3. Yes, for projects that meet certain accessibility standards.
4. No, financial incentives should not be offered for any middle housing projects.
If there is support for adoption of financial incentives that apply to middle housing, there are two
relatively straightforward policy changes that are recommended to encourage more middle housing
projects in Lake Oswego to include affordable units, which also could potentially apply to accessible units.
These are explored in more detail below.
3. System Development Charge (SDC) Exemptions
Lake Oswego's existing SDC exemption policy for affordable housing (LOC 39.06.105(5)) applies to ADUs
as well as to multi-family projects with more than 20 units where 10% of the units are affordable to
households earning less than 80% of area median income. The 20-unit minimum of the existing policy
effectively excludes all middle housing projects. Though the specific details of financial incentives that
could apply to middle housing are beyond the scope of the committee's charge, it is assumed that if the
City chose to apply financial incentives to the development of affordable middle housing, that the income
and affordability targets of those incentives would be similar to the targets of existing incentives.
The City has the option to attach conditions such as accessibility, project size, location and affordability
requirements to an SDC exemption targeting middle housing. There are several potential benefits to
including affordable or accessible units in smaller, middle housing projects. They can be more widely
distributed across neighborhoods and contribute to equity and inclusion goals. More affordable or
accessible units may be produced overall by allowing the incentive to provide to smaller projects on more
sites.
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 4 of 9
Pros of applying the SDC exemption to Pros of applying the SDC exemption to
middle housing middle housing
• Potential for wider distribution of • Lower revenue collected as these "impact
affordable middle housing, particularly in fees" for development may need to be
zones where multi-family housing is not balanced from other sources
currently permitted • Requires deed restriction if attached to
• A higher number of affordable units may income-restricted units, which restricts
be produced if this incentive is extended future use of the property and increases
to smaller projects. administrative burden
POLLING QUESTION: Should the City revise its SDC exemption policy so that it applies to
middle housing developments?
Response Options (may select multiple):
1. Yes, for all middle housing developments.
2. Yes, for projects that include a minimum number or percentage of income-restricted
affordable units.
3. Yes, for projects that meet certain accessibility standards.
4. No, SDC exemptions should not be offered for any middle housing projects.
4. Property Tax Exemption
Property tax exemptions are another financial incentive that is available to lower the costs of housing.
Lake Oswego could adopt a property tax exemption targeting middle housing that, for example, lowers or
eliminates property taxes for up to 10 years with the goal of making projects feasible that otherwise
would not be.
Eugene currently offers 10-year property-tax exemptions for eligible multiple-unit housing (5+ units)
projects in targeted areas. Newport currently offers a 10-year property tax exemption for eligible
multiple-unit housing (3+ units) in targeted areas.
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 5 of 9
Pros of property tax exemption Cons of property tax exemption
• Can make middle housing projects feasible • Lower revenue collected may need to be
to build that otherwise would not be balanced from other sources
• Lower property taxes can be directly • Requires deed restriction, which restricts
passed on to renters and homebuyers in future use of the property and increases
the form of lower sales and rental prices. administrative burden
• More overall housing for rent and for sale
may be produced if this incentive is
created, and more income-restricted
affordable and/or accessible units may be
produced if the policy is targeted as such.
POLLING QUESTION: Should the City provide property tax exemption for middle housing
developments?
Response Options (may select multiple):
1. Yes, for all middle housing developments.
2. Yes, for projects that include a minimum number or percentage of income-restricted
affordable units.
3. Yes, for projects that meet certain accessibility standards.
4. No, property tax exemptions should not be offered for any middle housing projects.
5. Construction Excise Tax(CET)
The Oregon Legislature passed Senate Bill 1533 in 2016, allowing cities to adopt a construction excise tax
levied on the value of residential, commercial, and industrial improvements. A CET may be assessed on
residential development, commercial/industrial development, or both. Some other cities in the Metro
region—such as Milwaukie and Portland—have adopted a CET to raise revenue to fund affordable
housing programs. These programs may include or augment the financial incentives noted above.
A local jurisdiction can levy a CET of up to 1 percent of the permit value on residential construction. There
is no cap to the tax rate for commercial and industrial construction. State statute allows the City to retain
up to 4% of CET funds to cover administrative costs. Remaining funds from a residential CET must be
allocated as follows:
■ 50%for development incentives (e.g. development fee and SDC waivers, property tax
exemption, etc.)
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 6 of 9
• 35% used flexibly for affordable housing programs, as defined by the jurisdiction.
• 15%to Oregon Housing and Community Services to fund down payment assistance programs
benefitting the local jurisdiction.
For a CET on commercial or industrial uses, 50% of the funds must be used for housing programs, and the
remaining 50% are unrestricted. The City could exempt projects that include affordable and/or accessible
units from the CET.
Pros of CET Cons of CET
• Somewhat flexible and designed to fund • Increases development costs for market
locally defined developer incentives and rate residential, commercial, and industrial
affordable housing programs projects.
• Can offset revenue gaps created by SDC • Revenue is tied to construction cycles and
waivers and property tax exemptions therefore may not be consistent year to
• More construction directly creates more year.
revenues to fund affordable housing
programs and developer incentives
POLLING QUESTION: Should the City institute a Construction Exercise Tax to help fund
affordable housing incentives and programs?
Response Options:
1. Yes
2. No
3. I'm not sure
6. Regulatory Incentives for Affordable and/or Accessible Units
To further encourage affordable and/or accessible housing units in middle housing developments, the City
could consider implementing a regulatory incentive. A regulatory incentive is a concession or modification
to a zoning standard that is provided in exchange for the development including a minimum percentage
or number of affordable and/or accessible units. This may include a density bonus, maximum floor area
bonus, lot coverage bonus, minimum parking reduction, or reduction in minimum setbacks.
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 7 of 9
Further study is needed to determine which of these incentives is likely to be most effective. In similar
contexts elsewhere, the incentives that are most effective are those that would allow for additional units
that would otherwise not be allowed on the site, such as a density bonus or parking reduction.
For example, a lot coverage or FAR bonus may also be effective if it enables enough floor area to be built
on the site to accommodate additional allowed units.
For example, Portland's Residential Infill Project requires one unit to be visitable when 3 or more units are
constructed on the site. To meet this requirement, units need at least 200 square feet of living area on
the same level as the unit entrance and must meet building code "Type C" visitability standards that
require:
• A zero-step route and entry to ensure easy access to the unit. The slope of the route can be no
steeper than 12.5%.
• Bathroom (sink and toilet) on the floor with the visitable entrance
• Living area with space to entertain and socialize
• Doorways that are at least 34 inches wide. This provides adequate clearance considering the width
of the door itself when open.
Pros of regulatory incentives for affordable Cons of regulatory incentives for affordable
and/or accessible middle housing units and/or accessible middle housing units
• More income-restricted affordable units • Offering the concession must be balanced
may be produced. with policy goal to ensure that new
• Provides more flexibility to property developments are consistent with existing
owners and developers looking to build neighborhood character.
middle housing • Affordable units require a deed restriction,
• Can be paired with a requirement that which restricts future use of the property
the project comply with additional and increases administrative burden
accessibility, design and/or landscaping • There is no guarantee that units would be
standards to mitigate for the impact of rented or sold to people seeking accessible
the concession units.
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 8 of 9
POLLING QUESTION: Should the City offer regulatory incentives for projects that include
affordable and/or accessible units in middle housing developments?
Response Options (may select multiple):
1. Yes, for projects that include a minimum number or percentage of income-restricted
affordable units.
2. Yes, for projects that meet certain accessibility standards.
3. No, regulatory incentives should not be offered for any middle housing projects.
Middle Housing Code Advisory Committee Key Issue#3 Memo Page 9 of 9