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HomeMy WebLinkAboutMin - CC - 2018.11.14 Burlingame City Council November 14, 2018 Approved Minutes 1 BURLINGAME CITY COUNCIL Approved Minutes Residential Impact Fee Study Session on November 14, 2018 1. CALL TO ORDER A duly noticed regular meeting of the Burlingame City Council was held on the above date in the City Hall Council Chambers. 2. PLEDGE OF ALLEGIANCE TO THE FLAG The pledge of allegiance was led by Community Development Director Kevin Gardiner 3. ROLL CALL MEMBERS PRESENT: Beach, Brownrigg, Colson, Keighran, Ortiz MEMBERS ABSENT: None 4. PUBLIC COMMENT There was no public comment. 5. STAFF REPORTS AND COMMUNICATIONS a. DISCUSSION OF RESIDENTIAL IMPACT FEES Mayor Brownrigg noted that the Council’s discussion on residential impact fees was an important part of the General Plan. He asked that the Council come to a decision so that the residential impact fees would be in place prior to the adoption of the updated General Plan. He added that it is important that affordable housing be an outcome of the General Plan. CDD Gardiner stated that in 2017, the City Council adopted an ordinance establishing commercial linkage fees for new commercial development in Burlingame. These fees were established to account for the impact that new commercial development has on housing for the workforce. CDD Gardiner stated that in February 2018, the City Council considered establishing residential impact fees. The Council asked staff to look at the economics of an onsite in-lieu option as an alternative to impact fees. Burlingame City Council November 14, 2018 Approved Minutes 2 The City’s consultant, Libby Seifel, stated that the purpose of the study her firm conducted was to determine how best to encourage developers to build affordable housing in lieu of paying fees. She noted that the cost of construction and land has made it more difficult to deliver housing in the Bay Area. Ms. Seifel stated that predevelopment is the most difficult part of the process. This is because at this stage in the project, capital is most expensive and requires significant returns to attract investment. For development to move forward, the cost has to be lower than the value of the development in order to provide a developer margin of return. Councilmember Keighran stated that the margin could be affected by the construction timeline. She noted that the construction timeline can often extend past its original date, which causes an increase in construction costs. Ms. Seifel replied in the affirmative. Ms. Seifel reviewed development costs. She stated that soft costs like environmental review, land issues, and parking are unpredictable. She explained that what a developer pays for the construction depends on the type of project. Two to five story developments are the least expensive, with eight stories and above being the most expensive because of the need for below-grade parking and reinforced structures. Ms. Seifel explained that generally the cost of parking increases dramatically the further below grade a project goes. She noted that it is much more cost effective to build parking on a podium above grade. Ms. Seifel discussed land acquisition costs. She explained that land value is determined by either the sales price, negotiated purchase based on appraised value, or residual land value analysis based on new development potential. She stated that from a property owner’s perspective, the value of the land is based on revenues generated. She added that the value of land in Burlingame ranges from $6.8 million to $16 million per acre. She stated that for this analysis, her team chose a conservative range of $200-260 per square foot (approximately $9 million per acre). Ms. Seifel explained that her team studied three typical development types: 1. Multifamily apartments on a 3-acre site (density range of 50-120 du/acre) Ms. Seifel explained that they looked at a 3-acre site with 150 units and at alternative densities of 210 and 360 units. She stated that in order to obtain institutional capital, the project usually needs to be more than 200 units. She explained that her team studied requiring 10% to 15% affordable housing as the in-lieu of fees option. Her team also looked at the effects of a project being done at 100% market rate. She noted that in Burlingame, the average unit size is 850 net square feet, and the market rate is approximately $3,750/month. She added that the parking ratio is 1.45 spaces per unit. Therefore, a project with 150 units would have 220 parking spaces. 2. Condominiums on a .5 acre site (50 du/acre) Ms. Seifel explained that for condominiums, her team studied a .5 acre site with 25 units, with the onsite option requiring 10% to 15% affordable. She noted that the average unit size was 1,000 net square feet, with an average sales price of $940,000, and a parking ratio of 2 spaces per unit. Burlingame City Council November 14, 2018 Approved Minutes 3 3. Single family attached homes on a 1.7 acre site (18 du/acre) Ms. Seifel explained that for single family attached developments, her team studied a 1.7 acre site with 31 units. The average unit size was 1,500 net square feet, average sales price is approximately $1.63 million, and the parking ratio is 2 spaces per unit. Ms. Seifel reviewed the housing fees in other San Mateo County jurisdictions. She stated that the middle range of fees is $15 to $25 per square foot for housing fees. She noted that the higher end of fees for apartments is $35 per square foot, and the lower end is $10 per square foot. She explained that her team reviewed the feasibility of the City adopting $10, $15, and $20 per square foot fees for apartments. Mayor Brownrigg stated that many of the cities in San Mateo County have inclusionary housing. He asked if other cities were giving developers the option of fees or onsite affordable housing. Ms. Seifel explained that because of the decision in Palmer/Sixth Street Properties L.P. v. City of Los Angeles, many jurisdictions were no longer able to have inclusionary housing over both rental and for sale. Therefore, many jurisdictions went through a nexus process and adopted a fee for their residential rental program. The impact fee could apply for rental and for sale, or just for rental. She noted that some jurisdictions had inclusionary housing requirements that have been in place for a long time, with the option of paying a fee in lieu of providing housing. CDD Gardiner added that jurisdictions that have both fees and inclusionary housing requirements often have tiered fees. For example, in Redwood City, the developer pays a fee for projects up to 20 units; if the project is more than 20 units, the developer must provide inclusionary housing. Councilmember Keighran asked if there are any cities that have a tiered fee system. Ms. Seifel responded that every city is unique. She explained that usually there is a threshold below which inclusionary housing does not apply. Councilmember Keighran asked about property values in Burlingame compared to other Peninsula cities. Ms. Seifel explained that her team didn’t obtain the best sample size of land transactions. She added that many of the commercial land owners have owned their property for a long time, thereby invoking Prop 13. She noted that for these land owners, there needs to be an incentive to sell. Ms. Seifel discussed apartment development feasibility at alternative housing fee levels. She stated that if there is a feasibility gap at the $15 impact fee level, it will get exacerbated if the fee is increased. She explained that the reason the 120 unit per acre project is penciling is because the developer is able to amortize the $10 million cost across more units. Ms. Seifel stated that in order to get to the density that is needed in Burlingame, the City will need to look at decreasing parking requirements. Ms. Seifel showed a slide that depicted developers’ return on costs for an apartment building. She explained that return on cost is how the developers are measuring their supportable project costs. She noted that the slide shows that the 50 dwelling units per acre or 70 units per acre aren’t penciling. However, if the density is increased to 120 dwelling units per acre, developers are able to obtain a return on costs and pay housing impact fees. Burlingame City Council November 14, 2018 Approved Minutes 4 Mayor Brownrigg stated that 120 dwelling units per acre is a seven story building. Ms. Seifel stated that with a tighter parking configuration, it could be six stories. Mayor Brownrigg stated that seven stories is approximately 75 feet and asked if the City would run into FAA limits in any areas of the city. CDD Gardiner replied in the negative and stated that the FAA height limit at the Bayfront is 160 feet, and at El Camino Real it is 130 feet. Ms. Seifel reviewed condominium development feasibility and single family attached developments at alternative housing fee levels. She stated that the fee is a relatively small piece of the total price, and there is little to no feasibility gap. Councilmember Beach asked Ms. Seifel to discuss how the State Density Bonus program impacted her findings. Ms. Seifel explained that under the 35% Density Bonus, a site that had been zoned for 50 dwelling units per acre could be increased to approximately 70 dwelling units per acre. She explained that when her team did this analysis, they assumed that every unit would be paying the fee regardless of whether or not it was density bonus. She added that if the developer chose the inclusionary housing in lieu of the fee, it would be on the base number of units, not the density bonus. Ms. Seifel reviewed a chart of the 2018 household income levels in San Mateo County. She explained that a studio unit is assumed to have a one-person household, a one bedroom unit is assumed to have a two-person household, and a two bedroom is assumed to have a three-person household. She stated that this is a standard that a lot of communities adopted. She pointed out that what the chart is saying is that a typical family of four earns $118,000. She explained that low income is typically 80% of the median income. However, on the chart 80% of median income for a family of four is $117,000. The reason for this is that the cost of housing has increased, and HUD has set the low income threshold to correspond with the housing costs and incomes. Therefore, low income levels have increased. Ms. Seifel stated that her team reviewed what households at various levels of income can afford to pay for rent. She explained that a household at 80% AMI can afford $2400 per month. Someone at 60% AMI can afford approximately $1700 per month. However, she stated that the average market rent in Burlingame is $3,750 per month. Ms. Seifel explained that every time developers have to provide affordable housing, they have to figure out how to make up the gap between market rate and affordable. Ms. Seifel stated that in reviewing the market value of an apartment unit, for 50% AMI, the restricted value is $275,000 while the market rate is $700,000. Therefore, it creates a gap of $425,000. She noted that the higher the AMI percentage, the smaller the gap. Mayor Brownrigg stated that if a project with 100 units was asked to build 15% affordable, the cost would be spread out over the entire project. Therefore, the gap would be smaller. Ms. Seifel replied in the affirmative. Ms. Seifel reviewed a chart that showed the apartment affordability gap at alternative onsite requirements. She stated that if the requirement was 10% of the units affordable at 110% AMI, it would equate to a fee of $20 per square foot. If 10% of the units were affordable at 50% AMI, it equates to approximately $50 per square foot. She noted that this analysis was undertaken because Council asked how the City can incentivize developers to build onsite rather than pay a fee. She added that developers typically prefer to pay the fee. Burlingame City Council November 14, 2018 Approved Minutes 5 Ms. Seifel stated that condominiums and single family homes can afford impact fees but not necessarily onsite housing. Ms. Seifel stated that after reviewing different scenarios, the main takeaway is that with increased density, the fees are more feasible because the costs are spread across more units. Additionally, if the City wants to incentivize onsite housing, it should be no more than a 10% requirement. Ms. Seifel reviewed the key findings from the apartment analysis: 1. Apartment rents are not keeping pace with construction and land cost increases 2. Depending on project costs, apartment projects do not yield sufficient returns to attract capital (feasibility gap) 3. Burlingame has a significant apartment affordability gap (gap between market rents and affordable rents) 4. Higher density alternatives are more feasible as cost of land can be spread across more units 5. 10% onsite affordable housing requirements focused on moderate income households (80% to 120% AMI) are most feasible and best correlate to housing fee levels between $15 to $25 per square foot. Ms. Seifel next reviewed the key findings from the for-sale analysis: 1. Housing prices have been increasing rapidly, but most buyers need significant cash or “trade-up” value in homes to afford new units 2. For-sale developments are more financially feasible than apartments given high price points 3. Housing fees at $25 per square foot on for-sale units can likely be supported by new development 4. For-sale housing affordability gap is significant particularly for large single family attached units 5. 10% onsite affordable housing requirements focused on households between 100% and 135% AMI are most feasible and best correlate to housing fee levels of about $25 per square foot. Ms. Seifel stated that the potential strategies to encourage onsite affordable housing are: 1. Develop a more streamlined and predictable process for land use and design review 2. Allow more housing units to be built in a development to encourage onsite units a. Density bonus and height modifications b. Incentives and concessions c. Allow smaller affordable unit sizes, especially for ownership d. Smaller parking space dimensions e. Significant parking reductions for residential and retail, especially near transit and public parking 3. Limit the total cost of City imposed permit, processing, and development impact fees to levels that are close to current levels 4. Provide developers with certainty regarding how much these fees will increase annually until building permits are pulled (e.g. link future increases to published inflationary indices). Councilmember Beach stated that one of the suggestions is to look at parking requirements near transit. She asked if the City was to loosen parking requirements in parts of the city would this be an added incentive for a developer to create affordable units onsite. Ms. Seifel explained that the parking ratio impacts how many units can be built under a city’s height limits. Therefore, by loosening the parking requirement, the developer would be able to build more units (potentially affordable housing) and also decrease construction costs and type. Burlingame City Council November 14, 2018 Approved Minutes 6 Councilmember Keighran asked if in Ms. Seifel’s experience, projects built close to transportation corridors require fewer parking spaces. Ms. Seifel responded in the affirmative. Mayor Brownrigg asked Ms. Seifel to talk about the State Density Bonus. Ms. Seifel explained that the California State Density Bonus allows developers to provide a certain amount of affordable housing in exchange for additional density. She added that the additional density must be onsite and includes special provisions for land dedication and senior housing. She explained that if a developer has 100 units, and 11 units are affordable to 50% AMI (very low income), the developer is eligible for a state density bonus of 35%. In this example, that would be an additional 35 units. Mayor Brownrigg asked if it was a by-right bonus entitlement. Ms. Seifel responded in the affirmative. Ms. Seifel stated that developers are mostly using the bonus for the very low income units. She explained that the requirement for low income is that 20% of the units must be affordable to 60% AMI for rental and 70% for owner. She added that for moderate income it is 40% of the units must be affordable to 110% AMI. Mayor Brownrigg asked if a city also created an incentive program for very low income units, can the developer use the same units for both State and local incentives. Ms. Seifel stated that if the developer provides units onsite that meet the requirements, they get the state density bonus. The city could do a density bonus that is above the state requirement. Mayor Brownrigg opened the item up for public comment. Burlingame resident Mario Muzzi discussed his concern about residential impact fees and how they might diminish a developer’s ability to build housing. Burlingame resident Vince Muzzi discussed his concern about residential impact fees and the updated General Plan. Housing for all Burlingame member Mike Denham stated that more housing needed to be created in Burlingame and asked that it be made a priority. Mayor Brownrigg closed public comment. Councilmember Keighran stated that there are good points made on all sides of this topic. She explained that part of the issue is that a developer may have something in mind that pencils out, but when it comes before the Planning Commission, it is remodeled and loses a few units. She suggested that because the General Plan is being updated, the City should focus on higher densities outside of the established communities. Councilmember Ortiz stated that he was thinking the City should have a tiered system for impact fees based on density, with different schedules for apartments, condominiums, and single attached homes. Burlingame City Council November 14, 2018 Approved Minutes 7 Mayor Brownrigg stated that the Council should go product by product for the conversation. He added that he was struggling with making decisions about condominiums versus apartments because it’s just a different ownership type. Vice Mayor Colson stated that the City has three projects (Bayswater, Summerhill, and Douglas) which all voluntarily included inclusionary housing. CDD Gardiner stated that typically the reason they’ve seen the projects come in with affordable units is not for the density bonus but for the concessions. He explained that the reason that projects are voluntarily including 10% at moderate income is because pursuant to State Density Bonus, this qualifies the project for a concession, such as additional height. Mayor Brownrigg stated that each of the projects had about 10% dedicated to moderate income. CDD Gardiner replied in the affirmative and added that it was done to obtain a concession. Vice Mayor Colson stated that the market is the best indicator of what the market can bear. She suggested that Council focus on the missing middle, 10% of units at 80% to 120% AMI. Ms. Seifel stated that if the Council is trying to stay in the $20-25 per square foot range, they would be looking at 10% at 80% to 110% AMI. Councilmember Ortiz stated that previously the Council had discussed creating a fee structure as to encourage building inclusionary housing. Mayor Brownrigg stated that if the City charges $30, it is a break-even point for the developer. If the City charges $40 per square foot, it begins to incentivize the creation of onsite units. Ms. Seifel replied in the affirmative, with the caveat that her team didn’t find that it was feasible to charge $40 per square foot. She explained that $40 per square foot was barely feasible at 70 dwelling units per acre and wasn’t feasible at 50 dwelling units per acre. Mayor Brownrigg stated that 50 dwelling units per acre doesn’t work in any of Ms. Seifel’s charts. Councilmember Keighran stated that this is making the assumption that the Mayor is focusing on an area of Burlingame that has higher density. Mayor Brownrigg stated that this is a good question, whether the City is focusing on certain areas of Burlingame or the city as a whole. Councilmember Ortiz stated that this report articulates the need to set up a tiered system based on density. He noted that he wasn’t in favor of charging no fee at the lower end of the density. Councilmember Beach stated that affordability isn’t happening on its own, and therefore this is one way the City can help. She noted that on page 27 of the staff report, the takeaway is that a fee of $20-$25 per square foot should be focused on higher density rental developments of 100 units per acre or more. She stated that this is a decent place to start. She added that the City should also consider the value of obtaining fees instead of inclusionary housing. She explained that the fees could be used to assist nonprofits to build housing for low to very low income. Burlingame City Council November 14, 2018 Approved Minutes 8 Councilmember Beach stated that she agreed that higher density makes sense near transit in the northern part of Burlingame. Vice Mayor Colson stated that in working with Home for All, she has learned that Measure K funds, federal funds, and state funds are being utilized for affordable housing projects. Therefore, the City’s fees would be gap fillers. She noted that the City fees could be used to leverage state or federal funding. However, the City fees won’t be the panacea that others might think they will be. She stated that Home for All has been focused on low income to very low income. She noted that when talking to HEART, it is clear that assistance for the middle is missing. Vice Mayor Colson discussed the possibility of creating a toggle around parking. She suggested reducing parking requirements if the developer includes affordable housing. City Attorney Kane stated that some of the parking incentives are built into the State Density Bonus. Therefore, the City could amplify the benefits. Councilmember Keighran suggested that Council start with where they know impact fees work, which is 90- 120 unit projects. She added that she liked giving developers the choice of either fees or onsite housing. She explained that the fees could be utilized to preserve the existing units, and in return owners would be required to keep rent at a certain level for a certain number of years. Mayor Brownrigg stated that he agreed with Councilmember Keighran. Mayor Brownrigg stated that what he has heard is that while it is unusual to have tiered residential impact fees, his colleagues believe this is the best option. He suggested that the fee for 50 dwelling units and below is $20 per square foot. Councilmember Beach stated that she didn’t believe a 50 unit or below project would pencil if the fee was $20 per square foot. Councilmember Ortiz stated that he thought the fee for 50 dwelling units or below should be $18 per square foot, and decreased to $15 for prevailing wage. He added that for 69 dwelling units to 51 dwelling units, it should be $20 per square foot, and decreased to $17 for prevailing wage. Mayor Brownrigg stated that at some point he wanted to see the fee become a little bit more of a bite so that developers were encouraged to create onsite affordable housing. Councilmember Ortiz explained that the balance to that is that the City wants to encourage people to build. Mayor Brownrigg suggested that for 70 dwelling units and more, the fee should be $30 per square foot. Mayor Brownrigg stated that what he was hearing from his colleagues is that the program should incentivize the middle, which is 80% to 120% AMI. He noted that HUD’s statement that an individual who makes median income or less in California is low income was a staggering acknowledgment of the problem. Burlingame City Council November 14, 2018 Approved Minutes 9 Councilmember Beach stated that from Ms. Seifel’s analysis, the highest the fees can go for the project to pencil out is $25. She suggested instead of higher fees, the City create a lower parking requirement within a certain radius of a fixed transit station. Mayor Brownrigg asked if State Density Bonus included a parking incentive. CDD Gardiner replied in the affirmative. He added that if the City’s fee structure is such that it tilts towards developers using the State Density Bonus, thereby obtaining decreased parking and other concessions, then the State Density Bonus might help the City get more onsite units. Mayor Brownrigg asked if the City should lower parking ratios throughout the city and not use them as incentives. Councilmember Beach stated that the important thing about using lower parking ratios as incentives is that the City can use it as a way to obtain affordable housing. Ms. Seifel stated that under State Density Bonus, a developer only gets the parking concession if they are at the 35% density bonus threshold, meaning that the developer has 11% of their units going to very low income AMI. However, she explained that this doesn’t mean that the City couldn’t have a local parking benefit. Additionally, she noted that non-profits have done a lot of research that shows that affordable units do not require as much parking. She explained that under State Density Bonus law, if a project is 100% affordable, the parking requirement is .5 spaces per unit. For mixed income, the requirement is .5 spaces per bedroom. Therefore, the City could create an incentive that for affordable housing units, the developer is only required to provide .5 spaces per unit. Councilmember Ortiz suggested that if the idea is to incentivize inclusionary housing, then the City could give developers the option of either paying the fee or building 10% affordable to middle income with a parking variance. Vice Mayor Colson stated that the Council has set a range of between 80% and 120% AMI to focus on, which means that everyone will build to 120%. Therefore, maybe the parking incentive is the incentive to build for 80% AMI. Mayor Brownrigg asked if it was feasible for staff to administer Vice Mayor Colson’s suggestion. CDD Gardiner explained that staff will be contracting a housing provider to administer the program. Vice Mayor Colson stated that if a developer chooses to build onsite, then the requirement should be that those units must stay affordable for at least 55 years. The Council agreed. Mayor Brownrigg stated that if a project has only 10 units, with 5 units being affordable to 80% AMI, then the savings in decreased parking requirement would only be 2 spaces. City Attorney Kane stated that this was one of the incentives that Ms. Seifel posed which is that the lower parking ratio could apply to the whole project. Mayor Brownrigg suggested that if the developer does 10% affordable, the City waives the fees, and if the developer does 15% to 20% affordable, then the parking ratio changes. Burlingame City Council November 14, 2018 Approved Minutes 10 Ms. Seifel noted that the 80% AMI is very close to the 100% AMI. Therefore, it is important to maintain a range as it actually limits who can qualify for those units. She stated that it is normal to set the affordability level at somewhere in the middle of the range. Vice Mayor Colson stated that she liked the Mayor’s suggestion of getting the parking concession if the developer goes above the 10%. Councilmember Beach asked if it would make more sense to offer the parking variance at a larger percentage of affordability or for deeper levels of affordability. Ms. Seifel replied that she hasn’t run the numbers on the difference. Councilmember Beach stated that parking requirements are changing, and the City needs to lean in to decreasing parking requirements. Mayor Brownrigg stated that this is the reason for not making the parking an incentive and instead changing the ratio citywide. Mayor Brownrigg reopened public comment. Burlingame resident Vince Muzzi suggested having Ms. Seifel come up with five scenarios that work, and then the Council can choose from that. Mayor Brownrigg closed public comment. Vice Mayor Colson suggested that the Council bifurcate this process and start with percentages and fees. Then take a second look with more data about the parking incentive. Councilmember Keighran stated that it depends on the timeframe, as she wanted to ensure that the parameters were in place prior to the General Plan being adopted. Councilmember Ortiz stated that he believed the Council has enough information to come up with the first layer, which is the fees, and then later add parking. Mayor Brownrigg stated that he wanted to stipulate that the Council was talking about the area within a half mile of rail (BART and Caltrain). He asked if the General Plan has parking ratios. CDD Gardiner replied in the negative but stated that staff is creating parking ratios to go with the interim zoning. Mayor Brownrigg asked what the timing is for the interim zoning. City Attorney Kane stated that interim zoning will go with the adoption of the General Plan. She added that cities don’t get in trouble for lessening requirements; they get in trouble for increasing requirements. She explained that the Council could come to a decision about fees and add the caveat that they plan on discussing decreasing parking ratios at a later date. Mayor Brownrigg stated that the reason to make a decision at the meeting is that if the General Plan is adopted prior to adoption of the impact fees, there could be projects moving forward without residential Burlingame City Council November 14, 2018 Approved Minutes 11 impact fees. City Attorney Kane stated that in looking at the calendar, the residential impact fees will lag a little behind adoption of the General Plan. Mayor Brownrigg stated that for apartments the suggested residential impact fees based on Council discussion were: Units per acre Fee Fee with Prevailing Wage Up to 50 units $18 per square foot $15 per square foot Up to 70 units $20 per square foot $17 per square foot Above 70 units $30 per square foot $25 per square foot The Council agreed that the requirement was either pay the fee or provide 10% affordable onsite. Councilmember Ortiz stated that the $30 fee is a big jump. He stated that he would be more comfortable with above 70 units being $28, and $25 with prevailing wage. Councilmember Keighran stated that she was more concerned with the up to 50 units. She believed it was too high. Vice Mayor Colson stated that other cities have a minimum project size for residential impact fees. She suggested exempting projects with under ten units. The Council agreed that rental projects with 10 units and below would be exempt from residential impact fees. Vice Mayor Colson asked if Councilmember Keighran would be comfortable with the 11-50 dwelling units at $18 per square foot, or $15 per square foot with prevailing wage. Councilmember Keighran stated that there wasn’t much of a difference in the fees between the first tier and second tier, so she wondered if the first tier should be lowered by a dollar or two. She suggested $16 per square foot, and $13 per square foot with prevailing wage. Councilmember Ortiz stated that it was too low. The Council agreed that the tiers should be as follows: Units per acre Fee Fee with Prevailing Wage 11 to 50 units $17 per square foot $14 per square foot Up to 70 units $20 per square foot $17 per square foot Above 70 units $30 per square foot $25 per square foot Ms. Seifel stated that their analysis was stating that $25 per square foot was feasible at 120 dwelling units per acre, not $30 per square foot at 70 dwelling units per acre. Mayor Brownrigg stated that Council is giving developers a way to waive the fee by doing the 10% onsite. Burlingame City Council November 14, 2018 Approved Minutes 12 Vice Mayor Colson noted that there are extraneous factors that make construction costs cheaper or more expensive and are beyond the control of the Council. Mayor Brownrigg next directed his colleagues to discuss impact fees for single family homes and condominiums. Councilmember Ortiz stated that his suggestion was that single family attached and condominiums should have a fee of $22 per square foot. Councilmember Beach stated that she believed that the developers for single family attached could afford $25 per square foot. She added that this is what they will probably choose because they can’t afford to offer 10% inclusionary housing. She stated that realistically, they will be getting fees from single family attached and condo developments. Mayor Brownrigg stated that fees ranging from $15 to $25 per square foot are doable for condominium developments. Ms. Seifel replied in the affirmative. Mayor Brownrigg asked if the City could charge $35 per square foot. Ms. Seifel stated that she didn’t look at this, and it would depend on the price of land. Vice Mayor Colson stated that a complaint that the City receives is that there are no entry level homes to purchase in Burlingame. Therefore, she would increase the fees because the margin of return is still pretty high. She explained that this is an area where the City should incentivize construction. Mayor Brownrigg stated that the economics are clear that the developer will just pay the fee. He added that he was worried that the fees for condos would incentivize developers to build condos over apartments. Vice Mayor Colson asked if incentivizing developers to build condos over apartments was bad or good. Councilmember Keighran stated that 52% of the City’s housing stock is apartments. Vice Mayor Colson stated that she had no problem incentivizing entry level condos. Mayor Brownrigg stated that he would want a percentage of the condos to be affordable. Vice Mayor Colson stated that then the City has to have a higher impact fee. Ms. Seifel stated that for condominiums, the policy choice the City has is to allow not just moderate income units but also 120% to 150% to provide more of an incentive. She stated that this is meeting another part of the missing middle. Mayor Brownrigg stated Ms. Seifel’s slide concerning the Condominium Affordability Gap stated that the fee could be set at $40 to $50 per square foot to encourage onsite housing. Burlingame City Council November 14, 2018 Approved Minutes 13 Vice Mayor Colson asked how her colleagues felt about not charging a fee for projects with 10 condos or less. Councilmember Beach asked if it is a lot more profitable to have the condos, or is it the same as the apartments. Vice Mayor Colson stated that you had to look at it not from the fee generation view point but from trying to add in needed housing stock. Ms. Seifel suggested that the Council might set a threshold by which the City states that if units are delivered to the market close to 120% AMI (approximately $700,000), there wouldn’t be a fee. However, once the developer decides to build to the market, then the fee is triggered. Therefore, it isn’t just based on the size but also on your price point. City Attorney Kane stated that she worried about staff’s ability to track Ms. Seifel’s suggestion. Councilmember Beach asked Ms. Seifel if it would be reasonable to set a $35 per square foot fee for condos but allow it to be in a range of 135% to 150% AMI. Ms. Seifel stated that the range should be 100% to 150% AMI. Vice Mayor Colson discussed condo projects that are rented. She stated that she didn’t want the developer to build them under the auspices of being condos to avoid the residential impact fees of apartments. Councilmember Beach asked how the City could control this. Vice Mayor Colson stated that you charge higher fees for condominiums. Mayor Brownrigg stated that he thought the fee should be $35 per square foot above a certain number of units. Councilmember Ortiz thought $35 was way too high. He added that he didn’t see any reason to exempt any number of condos from the fee. Mayor Brownrigg asked if a developer could tell staff that they are building apartments and then once built, sell them as condos. CDD Gardiner replied in the negative, stating that condos have a condo map associated with them. City Attorney Kane stated that her experience at the Planning Commission is that most of the condo projects are small: 5 to 10 units. CDD Gardiner agreed. Mayor Brownrigg stated that he thought the City should exempt projects with fewer than 10 condos from the fee. Councilmember Ortiz stated that he didn’t think that any number of condos should be exempted. Burlingame City Council November 14, 2018 Approved Minutes 14 Councilmember Beach agreed with Councilmember Ortiz. Councilmember Keighran and Vice Mayor Colson believed that fewer than 10 should be exempt. Mayor Brownrigg asked if he was correct that the City used to discourage condo conversions. CDD Gardiner replied in the affirmative and explained that it was done to preserve rental housing. Mayor Brownrigg asked if this ordinance was still on the books. CDD Gardiner replied in the affirmative. Mayor Brownrigg stated that if this ordinance was still on the books, then it seems to him that the City Council should not exempt smaller condo projects from the residential impact fees. Vice Mayor Colson stated that she believed that the City might want to revisit this policy. She stated that the City is going to be adding 2,000 to 3,000 multi-family units and very few ownership opportunities. Therefore, allowing older housing stock to convert to ownership is a good thing. Councilmember Keighran stated she would be open to relooking at this ordinance. Mayor Brownrigg suggested a compromise where the first five condo units are exempt from fees. Vice Mayor Colson suggested going to six. Councilmember Beach stated that the market shows that they can bear the fee, and while she leans towards no, she would compromise. Mayor Brownrigg asked if the Council wanted to give condos an in lieu of fee option. City Attorney Kane stated her understanding was that there was an in-lieu option of 10% up to 150% AMI. Council agreed. Vice Mayor Colson stated that the fee should be higher if the AMI is higher. Ms. Seifel stated that the average should be lower than 150% AMI, but it has to be expressed as a range. City Attorney Kane stated that because one or two units will be made in a project, that becomes the range. Ms. Seifel stated that a household can qualify that earns 120-150% AMI, but the affordable price is set at 135% AMI. Councilmember Beach stated that she agreed that 135% AMI would be the target. Mayor Brownrigg stated that he was curious how much money the City would be leaving on the table. He asked what the square footage is that Ms. Seifel assumed for the condos. Ms. Seifel replied 1,000 square feet. Burlingame City Council November 14, 2018 Approved Minutes 15 Mayor Brownrigg stated that the impact fee at $35 per square foot would be $35,000 a unit. Therefore, the City would be giving up $120,000 to $150,000 for one affordable unit. He wondered if it was worth it or if the City should not allow developers to avoid the fee. Councilmember Keighran stated that currently there isn’t an option for entry level buying, and therefore it would be good to create affordable housing. Councilmember Ortiz stated that the more affordable units that get built, the better, and therefore he would prefer the units over the money. Mayor Brownrigg stated that what he was hearing is that the City would set the fee at $35 per square foot, and if the developer builds 10% of their units targeting 135% AMI, the fee is waived. Vice Mayor Colson stated that if a developer builds apartments and within ten years converts them to condos, they have to pay the condominium fee. Mayor Brownrigg stated that he liked the Vice Mayor’s suggestion. CDD Gardiner suggested that the fee be tied to the map. He explained that if it was a condominium map, whether or not they rented them, the condo fee would be charged. Therefore, the only projects that would have the apartment fees would be the ones that don’t have condominium maps. City Attorney Kane stated that for administration purposes, CDD Gardiner’s suggestion was sound. Mayor Brownrigg suggested that staff use Council’s discussion on condos to propose a similar scheme for townhouses. CDD Gardiner asked if the Council had a prevailing wage discount for condos. Mayor Brownrigg stated that it should be $30 per square foot. Vice Mayor Colson stated that the residential impact fees would help with the middle. However, she noted that low and very low income would be addressed in other ways such as ADUs and the Lots F and N project. Mayor Brownrigg added that the State Density Bonus would assist low and very low income. Councilmember Beach discussed public versus private land and if there is a difference in how they should be treated. She stated for example what happens if the school district decided to build units. She also asked about the timing of the fees. Mayor Brownrigg asked if the Council had to address institutional land now. CDD Gardiner stated that he would look into it. Burlingame City Council November 14, 2018 Approved Minutes 16 Vice Mayor Colson stated that with the Peninsula Healthcare District project, the City should talk about how to treat their land. Additionally, she stated if the City is doing a project where they are contributing the land, would the City be able to waive the fee. City Attorney Kane stated that the City’s default is that the impact fees are a universal policy. She noted that there are certain procedural steps that need to occur prior to applying fees to a project. Mayor Brownrigg thanked staff and colleagues for their time. 5. ADJOURNMENT Mayor Brownrigg adjourned meeting at 10:07 p.m. Respectfully submitted, /s/ Meaghan Hassel-Shearer City Clerk