After eight years of using inclusionary zoning to provide affordable housing in Folsom, the Folsom City Council decided it wasn’t working the way they thought it would. At the city council meeting on Jan. 11, the members unanimously voted to go in another direction.
Rather than talk about “affordable” housing, City Council members focused on their goal of providing housing for people who work in the retail and service sectors and cannot afford to live in Folsom. Council member Jeff Starsky emphasized the city’s commitment to providing “workforce” housing.
The top two housing goals in Folsom’s General Plan, adopted in June 2002, are: 1) to provide for the city’s regional share of new housing for all income groups; and 2) to encourage development of affordable housing.
Community Development Director David Miller, in his fact sheet on the issue, wrote, “Folsom is a regional retail center and has a large workforce that cannot afford housing in Folsom. We want to reduce vehicle miles traveled to and from work and want workers in Folsom to have the opportunity to live in Folsom.”
The method Folsom will use provides incentives to build single-family rental homes.
With the exception of Ernie Sheldon, who replaced Eric King in 2009, the current council members have witnessed Folsom’s experience with the inclusionary approach for the past eight years. Mayor Andy Morin spoke for the council when he said everyone had high hopes for what the inclusionary ordinance could do, but it has turned out to be a burden on homeowners and builders.
Inclusionary zoning was a popular trend in affordable housing when Folsom adopted it in 2002. Prices were rising and hundreds of homes were being built. The not-for-profit legal advocacy corporation Legal Services of Northern California filed a lawsuit against the city of Folsom charging its affordable housing program was inadequate. Folsom agreed to adopt inclusionary zoning in a settlement agreement, with the provision that the city could sunset it if need be.
The Inclusionary Housing Ordinance requires all residential development projects of more than 10 units set aside 15 percent as affordable (10 percent very low income, five percent low income.)
Since it was adopted in 2002, the city has aided in the creation of 264 affordable housing units. Of these, 72 are very low income, 176 are low income and 16 are moderate income.
Even in the heyday of residential construction and sales, there were problems with using inclusionary zoning. Because it was mandated, investors and builders did not receive tax credits for providing affordable housing.
Subsidies from the city came from two sources: 1) a 20 percent set-aside from property taxes in the Redevelopment area; and 2) a $1.20 per-square-foot fee on commercial development. The city subsidies did not make up for the lower prices, and it fell on the market-rate buyers in a project to make up the difference. The city estimates are that the subsidies from neighboring units amounted to between $26,000 and $30,000.
The owner could not realize any appreciation to the property for a period of 20 to 30 years under a restriction in the deed to the property. But if the owner could not sell it as a deed-restricted affordable unit, the city had first right to buy it back. If the city chose not to, the owner was free to sell the home at market price and enjoy the profit.
As prices have dropped, moderate and low-income buyers can buy an existing home at market price for about the same amount of money as a deed-restricted home. Miller reported that currently a typical low-income home in Folsom is listed for $180,000 and a typical moderate-income home is $300,000.
In 2010 there were 23 new home permits in Folsom, 435 in the entire county of Sacramento. Under inclusionary zoning, that would create four affordable units.
The inclusionary zoning ordinance was originally due to be reviewed three years from adoption, which would have been in 2005 at the height of the housing market. It was not until Nov. 23, 2010, when Community Development staff presented the council with information and options on its performance, that the council directed staff to “remove the inclusionary housing requirement and investigate incentive options for developers who support affordable housing.”
At the Jan. 11 meeting, the council discussed the impact of Gov. Jerry Brown’s announcement that his state budget reductions include wiping out all redevelopment agencies. Redevelopment agencies are a major source of funding for affordable housing. In Folsom’s case, it amounts to between $1.5 and $2 million.
At the hearing several advocates for low-income housing urged the council to suspend the inclusionary requirement, rather than sunset it, until the housing market rebounds. Some cited studies they said support their view that the ordinance works when the economy is back on track. Others, in the home building business, testified that inclusionary zoning is an inefficient tool for affordable housing and that the large subsidies could be better used to provide more units with rental housing.
Miller cited an example of a proposed 85-unit single-family rental home project. The subsidy would be $60,000 for low income, and $65,000 for very low income, compared with $95,000 and $200,000 respectively. As a 100 percent affordable project, the owner can compete for low-income housing tax credits and leverage other state and federal incentives and funding sources.
He also said new affordable housing must be close to public transit, shopping, schools and medical facilities.
At the end of the hearing, Miklos said the city is in 100 percent compliant with the Regional Housing Needs Assessment and with the Housing Element of the General Plan. “Plus, we’re actually building the housing,” he said.
Starsky added, “This council is taking a pro-active approach, producing units regardless whether market rate housing is produced or not. Folsom has an active affordable housing program and is sinking millions of dollars in it. It’s the right program for the economy.”
The council voted unanimously to sunset the inclusionary housing ordinance. “We could do a lot of great things if this isn’t there,” said Mayor Morin.
The second reading will be on Jan. 25 and the decision will take effect 30 days later.