Developer Fee Would Replace Inclusionary Unit Requirement

By Judith Scherr
Tuesday July 18, 2006

In an effort to keep people with a variety of income levels in Berkeley, the city instituted its “inclusionary” housing ordinance in 1986, which mandates that developers reserve one-fifth of new housing units for people earning 80 percent of area median income. 

(For a family of three the income range for an inclusionary unit, according to city staff, is $42,794-$60,230.) 

The city’s housing director is proposing a variation of the inclusionary option for condominium developers, allowing them to pay a fee, called an “in-lieu fee,” rather than providing an actual unit. This alternative would be voluntary. 

An inclusionary condominium is supposed to be priced at three times the income of the eligible family. So, for a family of three, the top allowable sales price would be $181,000. (The unit size is estimated at 850-999 square feet and the sales price is based on that.) 

The City Council will hold a public hearing on this issue today (Tuesday). 

The housing staff is proposing the following formula to determine in-lieu fees for inclusionary housing: the “affordability” rate (e.g., $181,000) is subtracted from the market condominium sales price (e.g., $500,000). The developer pays the city fees of 62.5 percent of the difference ($199,375), which would go into the city’s Housing Trust Fund.  

At last week’s council meeting, Councilmember Max Anderson pointed out that inclusionary housing units increase the mix of people of different economic levels in an area and the elimination of inclusionary units would exacerbate the geographic concentration of low-income people. 

“We can overcome these issues,” Housing Director Steve Barton responded. “Nonprofit developers need to look throughout the city for sites.” 

The up side, Barton said, is that the fees the city collects can be leveraged with other low-income housing money. 

“Staff estimates that the fees will bring in sufficient funds to create from two to four permanently affordable units for every inclusionary unit given up,” he said in a July 18 staff report. 

To date, the city has created 150 inclusionary rental units, of which 61 are priced for very low income (50 percent of area median income) residents and 40 inclusionary condominium units. In new projects, half of the inclusionary units must be rented to persons with “very low income.” 

Rental units are monitored to ascertain that the renters have not changed their income status, Barton said. Incomes of owners of inclusionary condominium units can increase—since the unit belongs to them—but if they sell the unit, it must be priced at the “affordable” rate to a qualifying individual. 

With more money in the Housing Trust Fund from in-lieu fees, Councilmember Dona Spring said she hopes the city will help build Limited Equity Co-ops, where all units belong to individuals who can sell them at the rate they bought them, plus interest, but cannot sell them at market rate. 

Mayor Tom Bates said he hoped the city would use the increased housing funds to purchase existing housing units.