CARLSBAD — The Carlsbad City Council approved a change to the city’s inclusionary housing in-lieu fees during its March 22 meeting.
The city’s inclusionary housing regulations, created in 1993, require developers to build a certain number of affordable units (15%) in residential developments to provide more permanent housing opportunities for low-income households.
The city collects in-lieu fees when a residential development does not meet the threshold of affordable units. For example, for any project with six or fewer units, the developer pays a fee “in lieu” of building the mandatory affordable units. The fees are directed to the city’s Housing Trust Fund to support affordable housing units in projects throughout the city, according to Jeff Murphy, community development director.
To date, the city has received $1.7 million from in-lieu fees. Over the years, deposits to the Housing Trust Fund have totaled $39.5 million from a number of other sources, including housing credit purchases, impact fees, loan interest payments and federal and state grants.
The city’s original in-lieu fee, which was established “based on the difference between the cost of constructing a market-rate unit versus that of a lower-income affordable unit,” was $11,485 per market-rate unit, but was later reduced to $4,515.
During the March 22 meeting, the council adjusted the in-lieu fee for property owners building a single-family residence to $8,515 and other qualifying projects with two to six units at $15 per square foot. The fees will be adjusted annually based on the Consumer Price Index, or CPI.
Developers building residential projects with more than six affordable units can apply for housing credits to offset inclusionary requirements under the Housing Credit Purchase Program, Murphy said. Any project with seven to 50 units must include affordable housing or purchase credits.
“Over the past two years, the city has built 812 units with 116 as affordable under the program,” Murphy said.
In total, there are 2,300 affordable homes citywide. Between 1995 and 2020, 1,170 (or 13%) of 19,000 homes constructed in Carlsbad were affordable through the city’s inclusionary housing program, according to the staff report.
The Housing Credit Purchase Program policy allows the city to create a bank when a residential development project creates more affordable units than the city requires, however, any project over 50 units is not eligible to purchase credits and must actually build the affordable units.
“The rationale being is it is often easier for larger projects to incorporate affordable housing in their projects than it is for smaller developments,” Murphy said. “We’re also applying this logic to credit purchases where a sliding scale has been created.”
The Housing Credit program’s scale allows one credit for projects with 7 to 20 affordable units, 1.5 credits for 21 to 35 affordable units and two credits for 36 to 50 affordable units, however, Murphy said the program was never intended to act as an in-lieu fee. When the city contributes to an inclusionary housing project it’s in the form of a loan with interest, and if the city sells, the revenue is in addition to the loan repayment with interest.
“So, the city gets paid twice in the same investment,” Murphy said.
However, the Carlsbad Housing Commission differed from city staff in three areas. The commission recommended allowing residential projects with as many as 20 units the in-lieu fee payment option (instead of just six units or fewer), establishing a $20 per-square-foot flat rate for developments with at least two units and changing the housing credit purchase price to a flat rate of $177,000, according to Chairman John Nguyen-Cleary.
Nguyen-Cleary “encouraged” the council to adopt the housing commission’s recommendations, which was a compromise and more representative of cost increases, as opposed to the bare minimum presented by city staff.
“We think that it is important to pick something more than the bare minimum,” he said. “Choosing the bare minimum is a value statement by our city about affordable housing.”