That the City Council approve an Affordable Housing Agreement with Olson Urban V-La Habra 3, LLC, a Delaware limited liability company (Developer).

On January 10, 2022, the Planning Commission certified Mitigated Negative Declaration of Environmental Impacts 22-01, approved Design Review 21-01, Conditional Use Permit (CUP) 21-01, and approved Tentative Tract Map 19143 for a 117 multi-family residential development at 251-351 West Imperial Highway. The subject project is located in an R-4 Multi-Family Dwelling zone that allows 15-24 units per acre by right. The Developer is utilizing the State's Density Bonus Law to provide 12 affordable units among the 117 units that will be built, which will be made available to moderate-income households.  A moderate-income household is defined as one that earns no more than 120 percent of the Area Median Income (AMI). The 2022 AMI for a household of three in Orange County is $107,200 per year. 

In exchange for providing these moderate-income units, the State's Density Bonus Law grants the Developer certain affordable housing incentives that take the place of City design standards and codes. In this case, the Developer has opted to construct a six-foot wall within the front setback area (versus the back of the setback area the City would normally require) and to take advantage of State-mandated parking requirements, which will allow the Developer to provide 240 onsite parking spaces compared to the 401 onsite parking spaces the City would normally require. The affordable units and the associated housing incentives were approved through CUP 21-01, which included the following conditions:

The Applicant/developer shall enter into an affordable housing agreement with the City in accordance with LHMC Chapter 18.80 in form and substance acceptable to the City, as approved by the City Attorney. A draft copy of the agreement will be required prior to the issuance of a building permit. A final recorded copy of the affordable housing agreement will be required prior to the issuance of a Certificate of Occupancy or final permit.

The above-referenced Affordable Housing Agreement is the subject of this staff report. The 12 affordable units that are reserved for moderate-income households (units 4,6,7,9,16,18,19,30,31,41,83 and 93) each consist of two bedrooms and 2.5 bathrooms.  The units range in size from 1,103 square feet to 1,803 square feet.  These units are identified in Exhibit 2 of the attached Affordable Housing Agreement.
 
The moderate-income units are restricted to a maximum sales price based on household income criteria. The income criteria used to determine the Affordable Sales Price and Affordable Housing Cost is based on standards imposed by California Health and Safety Code Sections 50093 and 50052.5. Assumptions are used in calculating both the Affordable Housing Cost and Affordable Sales Price.  Affordable Housing Cost includes costs associated with owning a home such as:

The Affordable Sales Price for the units in the proposed project is set at $413,500 based on a presumed household size of three. Based on recent Census data, the average household size in La Habra is 3.3 persons.  The sales price is based on a target income level, not the income level of the actual homebuyers. The Affordable Sales Price is based on the number of bedrooms in the unit, not the actual size of the specific homebuyer's household.  This criterion allows the sales price to be set in advance of identifying a specific buyer for each unit. The sales price was determined by using a two-bedroom unit and a presumed household size of three within a moderate-income level.  

Based on an average household income of $107,200 in Orange County, some job classifications that typically meet these criteria are households with public school teachers, entry level managers, project managers, social workers, etc.  According to Salary.com, the average salary for a public school teacher in Orange County is $61,314, the average salary for a project manager is $86,578, and the average salary for a social worker is $75,690.

SB 1818 (State Density Bonus Law) requires affordable units to be sold initially to a moderate-income household at an affordable sales price; however, State law does not require those units to remain as "affordable housing" if they are subsequently resold on the open market. Upon resale or title transfer, the law requires that the initial purchaser be bound by equity sharing provisions with the City, as set forth in Government Code §65915(c)(2). Exhibit 5 of the Affordable Housing Agreement outlines a sample calculation of the equity share for this project. Upon resale of the unit, the initial purchaser pays to the City the sum of (a) the Initial Subsidy and (b) the City’s Proportionate Share of Appreciation (“Equity Share Payment”). The initial purchaser will get a credit for any down payment made at the time of the initial purchase of the unit, the value of any improvements made to the unit, and their proportional share of appreciation in the value of the unit.  

The following example is a sample calculation of the equity share the City would receive upon the resale or title transfer of an affordable unit by an initial buyer:
   

A	B	C	D	E	F
Sample Calculation	Down Payment	Affordable Purchase Price	Fair Market Value at Time of Initial Sale	Homeowner Capital Improvements After Closing (Remodeling, Flooring, etc.)	Sample Market Rate Resale Price (Net of Sales Costs)
Initial Buyer	$41,350	$413,500	$600,000	$10,000	$750,000

Initial Buyer

At the time the original affordable unit is resold, the initial buyer must pay the City the Initial Subsidy of $186,500, plus the City’s Proportionate Share of Appreciation of $43,400, for a total of $229,900.

Initial Subsidy = D - C:  $186,500
Appreciation = F – E – D: $140,000
City’s Proportionate Share of Appreciation = Initial Subsidy / D: 31% x Appreciation: $43,400

Approval of the Affordable Housing Agreement will have no impact on the City's General Fund. Once the 12 affordable units are resold, and consistent with all applicable equity share provisions that govern the reselling of units, the City will receive a portion of the equity and the initial investment for each unit sold. Any funds received by the City via an equity share will not be available to the General Fund, but will instead be deposited into the City's Housing Authority account and earmarked for reinvestment in other potential future affordable housing projects within the City of La Habra.

This recommended action achieves the following elements of the La Habra General Plan:

H 1.1 - Support State Housing Policy
H 1.3 - Support Private Sector Housing Production
H 1.4 - Variety of Housing
H 1.5 - Market and Non-Market Housing Production Needs
H 3.10 - Homeownership Assistance

This recommended action achieves the following element of the City of La Habra's FY 2022-23 Goals and Objectives:

Goal 6.E - Build and maintain partnerships with collaborations with other local government agencies, the business community, non-profit organizations and the faith-based community