Housing Element Program and Density Bonus Ordinance

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On January 13, 2014, the Palo Alto City Council passed two ordinances modifying CN-15 zoning (Neighborhood Commercial) and implementing the state mandated Density Bonus Law. A comprehensive discussion of California’s Density Bonus Law is provided on these pages with references to Palo Alto Staff Reports and California Code.

The last page of this article provides access to the video transcript of the meeting, including presentations by PASZ members Bob Moss, Susan Fineberg, Cheryl Lilienstein, Fred Balin and Joe Hirsh.

Dealing with California’s Density Bonus Law in Palo Alto

A Residents Report

Prepared by Fred Balin 1/9/14

A proposed Palo Alto implementation of the state’s Density Bonus Law (DBL) will come before the full city council this Monday, January 13 for discussion and possible adoption. (Staff Report available)

The DBL allows a density bonus, a parking reduction, and 1, 2, or 3 concessions for any project which meets a minimum threshold of “below market rate” (BMR) residential units, a generic acronym I will use throughout this report.

Because of its negative impacts on a predictable and well-planned zoning code, the DBL is disconcerting for many residents.

Even though Palo Alto has a long-standing and generous inclusionary zoning program that has led to the development of over 1,800 BMR rental units and an ownership total I do not know, but may be in the hundreds, it carries no weight within the state’s DBL.

Moreover not only is local implementation required, but until it occurs, the more general state code remains in effect and completely controls, which may be making matters worse, as detailed later in this report.

The goal in crafting a local density bonus ordinance is to make the best of a bad situation.

This report is designed to provide residents with background on this important yet complex item.

Unfortunately many sections of the local DBL implementation are fixed by state law, but there are areas where Palo Alto can, and via its process has, customized it. Now I hope you will evaluate those areas as well as familiarize yourself with other key facets of the proposed ordinance, which will be vetted on Monday, unless the meeting runs late and council calls it a night before reviewing this final item.

The city process on this issue has been “go-slow-go.” A very informative and productive hearing at the Planning Commission in October of 2011, then nothing for 13 months, then two more meetings in 2013 concluding in front of a minority of faces still on the commission from the 1st meeting.

Next, in late summer, the too-familiar jolt of a Wednesday evening (or later) realization that a complex item will come to council on the following Monday. Fortunately residents pushed back – way too much to swallow, way too little time to digest – and council correctly referred the item to its Regional Housing Mandate Subcommittee, which held two substantive meetings (September and November).

This report picks up as well as draws from two articles I wrote just prior to that first council subcommittee meeting. 

Once again the window for evaluation is short, and I have tried to create this report to help inform you as an adjunct, or as an alternative, to the staff report.

It strives to be as objective as I can be from a resident’s perspective and leaves it to the reader to arrive at best conclusion between it and the council meeting.

Toward that end, feel free to post your comments with corrections, important omissions, and/or needed additions.

Public Hearings

How to find the minutes of public hearings on this matter, if they are available:

Regional Housing Mandate Committee

No minutes from either other two RHMC are included in the staff report

As of this writing, the minutes of the most RHMC recent (11/14/13) is also not available
via the RHMC website.

Minutes of the first RHMC meeting  (i.e., 11/14/13) is posted on the RHMC site via:

 

Planning & Transportation Commission

 

What is the State’s Density Bonus Law?

California’s Density Bonus Law (DBL) is intended to “contribute significantly to the economic feasibility of lower income housing …” (California Government Code 65917).

As its name states, the DBL grants a density bonus (i.e., an increase in the number of housing units per acre above the maximum allowed under the zoning at the time of an application) when minimal thresholds of “very low,” “lower,” or “moderate-income” housing units are included in a project that contains at least 5 residential units.

The magnitude of the density bonus is directly related to the percentage of BMR units at or above a minimal threshold for a specific type of unit.

In addition, once a BMR threshold is reached, the project applicant is entitled to a parking exception and also up 1, 2, or 3 other “incentives” or “concessions,” interchangeable terms in the city’s draft ordinance and within this report. The number of concessions beyond the parking exception also depends on the percentage of BMR units.

We’ll get into detail of the bonuses and concessions shortly.

Density Bonus Law History

California’s density bonus law was enacted in 1979 and modified in 1989 to require all cities and counties to adopt a local ordinance based on it.

It was significantly altered in 2004 under Senate Bill 1818 by reducing below market rate thresholds and increasing the density bonuses and number of concessions.

Additional modifications followed: SB 435 in 2005, and AB 2280 in 2008, and most recently AB 806 in 2012, which went into effect on January 1 of this year. 

The aggregate of the initial law and its amendments is codified within California Government Code Sections 65915 to 65918.

Thanks to resident Herb Borock, who not only provided this link, but also pointed out that inclusions of this government code in earlier staff reports were not current.

The proposed implementation of the state code into the Palo Alto zoning ordinance is contained as Attachment A, of the staff report #4329.

 

Density Bonuses

 

Many elements of the state code cannot be changed, including the specific density bonuses.

 

The table below shows minimum thresholds required to take advantage of the density bonus aspect of the law for each type of below market rate unit and how the density bonus increases, as more BMR units of the same type are included.

 

Type of
BMR Unit
Minimum UnitThreshold MinimumDensity Bonus Increment in Density Bonus For Each % Increase in Type of Unit MaximumDensity Bonus % of BMRs needed for Maximum Density Bonus
Very Low Income 5% 20% 2.5% 35% 11%
Low Income 10% 20% 1.5% 35% 20%
Moderate Income 10% 5% 1% 35% 40%

 

Note: A 20% density bonus can also be granted to a senior citizen housing development or mobile home park that limits residency based on age requirements (i.e., for older persons).

 

Note also: A qualifying project that includes a childcare facility can receive a density bonus equal to the square footage of that facility or an additional concession.

 

Here are some hypothetical implementations based on the table above.

 

Note: To avoid much of the mathematics for these or your own hypotheticals, refer to the complete density bonus chart for each type of unit found within the government code section 65915.

 

Hypothetical Project 1 (Minimum Threshold of Very Low Income Units)

 

An applicant with a 1-acre property in a zone with a maximum of 40 residential units per acre proposes to build a 40-unit residential project with 5% (i.e., 2) of the units as very low income.

 

From the table above: the density bonus will be 20%,

 

Math: The applicant can elect to build up to 8 (20% x 40) additional units above the 40 allowed in the zoning.

 

Summary: 38 market rate units, 2 very low-income units. Density bonus: 8 units.

 

Hypothetical Project 2 (Greater Than Minimum Threshold of Low Income Units)

 

An applicant with a 1-acre property in a zone with a maximum of 40 residential units per acre proposes to build a project with 20% (i.e., 8) of the units as low income.

 

Math: 20% is above the minimum threshold for low-income units. Therefore the density bonus for this type of unit will be 20% + (8 x 1.5%) = 20% +12% = 32%. The applicant can elect to build up to 13 additional units (32% x 40 = 12.8, rounded up to 13) above the 40 allowed in the zoning.

 

Summary: 32 market rate units, 8 low-income units. Density bonus: 13 units.

 

Hypothetical Project 3 (Maximum Build-Out Via Moderate Income Units)

 

An applicant with a 1-acre property in a zone with a maximum of 40 residential units per acre wants to build a project with the maximum density bonus of 35% on the site via the addition of moderate-income units.

 

The maximum density bonus for each of the 3 BMR units is 35%,

 

Math: 35% x 40 = 14.

 

As per the table above the applicant would need to build 40% of the units as moderate income.

 

Math: 40% x 40 units per acre is 16 units.

 

Summary: 24 market rate units, 16 low-income units: Density bonus: 14 units.

 

Are the Above Density Bonus Scenarios Likely?

 

Will applicants make use of the density bonus aspect of the DBL, and if so to what extent?

 

Normally, multi-family developments in Palo Alto fall below the maximum density allowed in the zone, because specific development standards for that zone place constraints via height, setbacks, floor area ratio, open space, daylight plane, private and public open space, on-site parking requirements, and/or other zoning elements.

 

And while staff, commission, board, and council can waive some of these requirements, the density bonus law opens up another, and potentially easier path, to all of these exceptions as well as others.

 

Applicants seeking a maximum return on investment through the use of the density bonus law may opt to focus on concessions to maximize the size of the residential units they would build.

 

So let’s move to the topic of concessions.

 

Parking Exception

 

Applicants who meet a minimum density bonus threshold are entitled to a parking requirement that is less than the city’s code for multi-family residential buildings.


Specifically the parking requirement for the qualifying project can be no more than:

 

  • 1 on-site parking space for units up to 1-bedroom in size,
  • 2 on-site parking spaces for 2 and 3-bedroom units, and
  • 2 and one-half parking spaces for four and more bedroom units.

 

Also, any disability or guest-parking space is to be included within the maximum totals above and not added in addition.

 

These maximum parking ratios and totals apply to all housing units in the development and not just the affordable units.

 

The language of this concession cannot be changed by the city.

 

In addition, the parking exception is not counted as part of the 1, 2, or 3 other concessions an applicant can choose.

 

Determining The Number of Additional Concessions Beyond Parking

 

In addition to the density bonus and parking exception, a qualifying project under the density bonus law is entitled to receive 1, 2, or 3 concessions from applicable development or architectural standards.

 

It could also, as specifically stated in the DBL, include the right to build housing within a commercial zone, which is being utilized in developer Harold Hohbach’s 195 Page Mill Road (at Park Boulevard) a 100% commercial, turned mixed used site, that is under construction.

 

And, also as stated in the DBL, it also could include something else that the developer specifically requests, and that is the way things work currently.

 

Finally, and of note, the city process to date has added its own special concession for 100% affordable housing projects which we will come to later.

 

Let’s look at the thresholds for the number of concessions an applicant can receive beyond the parking exception.

 

Type of Unit 1 Concession Threshold 2 Concession Threshold 3 Concession Threshold
Very Low Income 5% 10% 15%
Low Income 10% 20% 30%
Moderate Income 10% 20% 30%

 

As indicated in the table, at least one concession is available when a project reaches the minimum threshold of below market rate units, i.e., 5% of the units set aside as very low income or 10% set aside as either low income or moderate income.

 

Then just double or triple your concessions by doubling or tripling the percent of BMR units.

 

The “Menu” of Concessions

 

While the number of concessions available to qualifying applicants is mandated, the city does have some flexibility in its mechanism for approving concessions.

 

While an applicant can propose just about anything, and have a more than reasonable chance of getting it if she or he has the requisite time, money, and will, the hope is instead to steer applicants to less impactful options that would be granted immediately.

 

In that regard and after discussions at the planning commission, the city’s plan is to follow a Santa Monica model in which viable options appear on a menu from which the developer can choose and without any requirement for further city review.

 

A menu of nine items came through the Planning Commission and staff and on to two Regional Housing Mandate Subcommittee meetings (with Mayor Greg Scharf, Chair Karen Holman, Council Members Mark Berman and Greg Schmid).

 

The challenge expressed at the meeting was to provide a reasonable set of menu concessions that would protect residential areas, meet common requests from developers, and avoid a longer process in which a developer would ask for even greater concessions.

 

Toward that end, the list of nine was trimmed to six, of which several saw significant modifications. Among the factors influencing them, may have been an evaluation of DBL concession already approved.

 

You can view the menu of concessions and changes via markup on Page 11 of the Draft Ordinance within Attachment A of the staff report

 

Note however, there is an error in the wording of concession (ii), it should read “25%” not “50%” and be consistent with (i). I have informed city staff.

 

Below are sections that group one or more to of the original nine menu concessions. They are labeled Setback, Height, Floor Area Ratio, Daylight Plane, Site Coverage and Open Space.

 

Below each heading are three subsections: What is coming to the council on Monday; What changed from the Original Version, and Information on any project that has used the concession.

 



Setback Concessions

 

  • Menu Item(s) Coming to Council on Monday:
    • One concession for a reduction in either a side yard or a rear yard setback of up to 25% unless adjacent to low density-residential zone
    • Note: Staff report shows rear set back reduction still as 50%, but this an error.
  • Changes from Original:
    • 50% reduction changed to 25%.
    • Separate concession for 50% front yard setback reduction eliminated completely.
  • Previously Approved Project:
    • 801 Alma Street (Eden Housing 100% BMR) was granted a reduction in all four setbacks including a reduction to zero on Alma Street and 2 feet on Homer and it was all covered under one blanket concession.

 

Height Concession

 

  • Menu Item to Council on Monday:
    • Increase in height equal to density bonus percentage eligible [i.e., somewhere between 5 and 35 feet] if needed and with a maximum increase of one foot per BMR unit, unless adjacent to low-density residential and not to exceed 50 feet.
  • Change from Original:
    • Restriction for adjacency to low-density residential added

 

Floor Area Ratio Concession

 

  • Menu Item to Council on Monday:
    • Increase of up to 50% or up to the square footage of the BMR units, whichever is less, and only applied to the residential portion of the mixed-use project
  • Change from Original:
    • Removal of option for increase in floor area to apply to the commercial part of a mixed-use project.
  • Previously Approved Project:
    • 195 Page Mill Road received a concession to triple the floor area ratio.
    • 801 Alma Street receive a concession to increase the floor area ratio by 60%
    • 3159 El Camino Real (We Fix Macs site) was granted a concession for floor area that applied to both the commercial and residential areas.

 

Daylight Plane Concession

 

  • Menu Item to Council on Monday:
    • Reduction in daylight to a maximum of 25% of the adjacent lot line, unless adjacent to low-density residential.
  • Changes from Original:
    • Changed from 50% to 25% and restriction for adjacency to low-density residential added.
    • Note: Daylight plane relates to the amount light that passes between buildings and is dependent on the distance between them and the height of each building.

 

Site Coverage Concession

 

  • Menu Item to Council on Monday:
    • Up to 50% increase over maximum or up to square footage of the BMR units, whichever is less.
  • Changes from Original:
    • none

 

Open Space Concession Concessions

 

  • Menu Items to Council on Monday:
    • None, as the two concessions were removed They were:
      • (1) Concession for up to 50% reduction in private open space.
  • Previously Approved Project:
    • 801 Alma receive a concession that eliminated all private open space.
      • (2) Concession for up to 50% reduction in public open space.

Concessions Not on The Menu

An applicant can also present their own concession(s), which the city study must evaluate, and which is the way all concessions request outside of the parking and mixed-use exception are handled now.

The state law defines this concession category as “other regulatory incentives, which actually result in identifiable and financially sufficient cost reductions.”

To deny the concession, the city would have to show that the concession is not required to provide for the affordable units, that it is contrary to state law, or that it impacts health and or a historic property and that there is no feasible mitigation.

Menu Choice or ”Go Custom”

Will the menu of options steer applicants to quick and easy choices to move a project forward or will they submit applications for “custom concessions” and be prepared to wait through the process?

Here are some of the steps that a developer must pass through with a custom choice:

  • Submittal of a project “proforma” to the Planning Director providing evidence that the requested concessions result in identifiable, financially sufficient, and actual cost reductions.
  • Evidence that cost reductions allow the applicant to provide affordable rents
  •  Other information, including financial information, requested by the planning director
  • Reimbursement costs to the city, including hiring a consultant, to review the material

Will that be enough?

The epic, years-long  struggle over 195 Page Mill Road between Bob Moss and developer Harold Hohbach, lends support to the view that some developers may be willing to “go the distance” to get what they want via DBL concessions.

Even Other Concessions

There are two other important, potential concessions to be aware of: one related to 100% affordable units and the other to mixed used projects.

100% Affordable Concessions

Somewhere in between its menu of concessions and one or more “custom concessions” that the applicant can request, the city has included a section on concessions geared specifically to 100% “restricted affordable units,” such as 801 Alma Street, which is built, and the Maybell Avenue project, which was denied via referendum. It reads:

“For Developments that propose to construct one hundred percent (100%) of the dwelling units (except a manager’s unit) as Restricted Affordable Units that are affordable to Very Low and/or Lower Income households, the Council may grant additional Concessions or Incentives or exceed the limits set forth in (i) to (ix) above if the Council finds that such Concessions or Incentives are required to provide for affordable housing costs, as defined in Section 50052.3 of the Health and Safety Code and are in the interest of the public health, safety, or welfare.”

(Underlining for emphasis is mine)

As I bring up Maybell in this context, let’s also touch on the question of Planned Community zonings in relation to the DBL. At the committee’s request, staff inserted specific wording that neither a density bonus or concessions apply to PCs.

 Mixed Use Concession

I mentioned earlier that a concession can be obtained to change a property from commercial only to mixed use, and that this occurred at the 195 Page Mill Road site.  There may be a few other sites that still retain the specific GM zone of 195 Page Mill, and therefore do not automatically allow residential development.

Closing and Beginning

Hope this gives you enough to successfully plow into.  Send me questions and corrections as they arise. Talk it up with your colleagues.

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