Building Industry Association
of San Diego

Acting in response to a cautionary City Attorney’s opinion on a plan to change San Diego’s Inclusionary Zoning Ordinance the City Council has delayed action on a plan brought forward by the Housing Commission.   The City Attorney’s opinion was prompted by legal issues raised by the BIA that the changes violate a state appeals court ruling that prohibits inclusionary mandates on rental projects.  The Housing Commission sought to amend the current ordinance by changing the ”in-lieu’ fee and require all projects to pay the city unless they volunteered to provide deed restricted units  on site.  The BIA argued that the amendment amounted to nothing more than a name change and the policy ruled illegal by the courts was still in place.

The City Attorney opinion advises the council that the most prudent route would be to eliminate any language that requires rental projects to conform to inclusionary zoning requirements.  City officials will reassess to determine the appropriate course of action.

Your Paper’s coverage of the Oceanside City Council June 22nd action on lowering affordable housing fees as a cost component of new home construction failed to mention a key fact. The article reads as if Council Members Kern, Feller and Felien slashed the $10,375 per home fee mainly as a stimulus measure to jump start construction. While welcome news to 45,000 unemployed members of our industry as a measure of hope, the City had no choice.

The City hired Keyser Marston Associates (“KMA”) to prepare the fee study which would set a legally justified cost factor on a square foot basis. KMA is used by many cities Statewide to set these so-called Inclusionary Housing In-Lieu fees which are paid by new home buyers to subsidize the construction of homes for low – to moderate income families. KMA is required by law to use actual economic data.

KMA’s low fee calculation is the result of a very bad real estate market, record low housing values and low interest rates. Because the fee is pegged to the real market, it goes up and down as the market changes. Opponents to this action can jump up and down all they want. Record high housing affordability in Oceanside means that record low subsidies are needed, especially coming from new home buyers. Affordable housing advocates who work primarily with tax payer subsidies need to wake up to the new reality. Government no longer has funding and new construction which used to pay these fees is at a standstill. A proposed Density Bonus Program which follows state enforced global warming mitigation mandates is the only smart solution on the table. It is ironic that Council Member Esther Sanchez, a global warming believer, has not caught on yet.

The City of San Diego Land Use and Housing Committee spent the afternoon reviewing changes to its Inclusionary Zoning Ordinance that require builders to provide a portion of their housing units to low income households or pay an ‘in-lieu fee’ to the Housing Commission.  The changes were developed in response to a Los Angeles court case that successfully argued that requiring Inclusionary Zoning mandates on rental units violated state law.

Housing Commission staff testified that in order to get around the court ruling the city should no longer offer an ‘in-lieu fee” and instead require everyone to pay an ‘Affordable Housing Fee.” Any applicant who wishes to voluntarily provide 10% of their units to low income families would be granted a waiver from the fee.

The BIA expressed serious concern over the apparent fast-tracking of the ordinance and the 20% fee increase if the changes were adopted. The BIA also urged committee members to require the Housing Commission to meet with industry representatives to review the draft changes in more detail.

The committee took no action on the proposed changes and decided to forward it to the Planning Commission without recommendation.  They also directed the Commission to meet with the BIA and other interested stakeholders prior to any council action.

The Oceanside City Council voted to eliminate its inclusionary zoning mandate saying the current program is ineffective, punitive and impedes job creation.  The twenty-year-old mandate  requires builders to either include low income housing in their projects or pay what Councilman Jerry Kern and others called a ‘housing tax’ in excess of $10,000 for every home built.  That cost is ultimately paid by new home buyers and can exceed $40 thousand when financed over the life of a 30-year mortgage.

The BIA and other home building representatives testified that the housing tax makes  potential projects economically infeasible forcing them to delay construction and preventing job creation.  A majority of the council agreed pointing out that construction activity in Oceanside is at historic lows and unemployment remains in double digits.

The council cited the fact that the program has produce only 240 homes in 20 years which Kern called seriously flawed and inefficient.

The motion, which passed on a 3 – 1 vote with Councilmember Sanchez voting no, will end the current program and replace it with a series of incentives and regulatory reforms designed to make low income housing more economically feasible to build.  The BIA will join with other stakeholders to develop the new affordable housing incentive program.