Issues: Affordable Housing

Inclusionary Funds Starting to Pump Money into Affordable Housing

By Erik Pisore, The Daily Transcript
Article, October 10, 2005

More than two years after being enacted, questions have arisen about the inclusionary housing account fund, which is a collection of fees that developers pay in lieu of including a certain percentage of affordable units in their developments.

"There's been a lot of frustration that the fees were just going into the account and wouldn't be useful," said Dale Royal, senior project manager for the Centre City Development Corporation (CCDC). "It's a slow start, but I think it was the best process considering the amount of the fees."

The inclusionary fund represents one of the two primary sources that brings in revenue for the Affordable Housing Fund. This permanent, annually renewable source of funds helps meet the housing assistance needs of the city's very low-, low-, and median-income households.

The Affordable Housing Fund, previously referred to as the Housing Trust Fund Ordinance, was amended in 2003. It remains the second source of revenue for the fund.

Last week, the San Diego Housing Commission presented its Affordable Housing Fund Annual Report (PDF Format), breaking down the amount of fees received in the inclusionary fund and outlining how they were used this fiscal year.

"The inclusionary fund is new; but based up on our past records, we can assure the public that those funds will be used effectively," said Bobbie Christensen, director of communications and strategy for the housing commission.

According to the fiscal year 2005 report, the Inclusionary Housing Program collected more than $4.7 million in in-lieu fees and had $764,361 in fiscal year 2004 carryover. An additional $36,259 in interest income was earned for a total of more than $5.5 million. Collections came from 25 different planning areas. However, the city gave only $2.8 million of the inclusionary fund to the Housing Commission, according to Christensen. (See full breakdown of in-lieu fees by community.)

Christensen said it was key to know this statistic because some developers and public might think the commission gets more funds from the city yet is not spending all of it.

This fiscal year the commission committed $890,000 from the inclusionary fund to condo conversion and $860,000 toward two projects: Creekside Trails and the Island Village Apartments.

Creekside, which was given $60,000 in inclusionary funds, is a new 50-unit project in the Otay Mesa area. The units will provide for households with incomes from 30 percent to 60 percent of area median income. For a family of four, this is $20,550 to $41,100.

Island Village, which was recently completed and is fully occupied, provides 280 affordable studio units. The Commission committed $800,000 from the inclusionary funds to pay for increases in construction costs.

"That (the funds) was ideal to cover the costs," Royal said.
An additional $731,000 has been committed to downtown's Lillian Place project. This will provide 74 affordable units, and the funds will be used to cover unanticipated project cost increases.

"This year has had more revenues," Christensen said. "We've already committed quiet a bit of those funds."

Another short-term project similar to Island Village is Vista Balboa. This project would provide a 20-bed homeless emergency shelter and would require $750,000 in inclusionary funds.

Other future midterm projects requiring funds prior to July 2006 that the CCDC CCDC proposed for inclusionary funding include: Island Market Centre, a 90-unit apartment building that would require $1 million; Ninth and Broadway, a 250-plus apartment building that would require $1.5 million; and La Entrada Family Apartments, a 87-unit apartment building that would require $1 million.

In total, the CCDC anticipates more than $5.6 million in funds available for fiscal year 2006.

Despite the number of projects, one problem developers have with the inclusionary fund is that only the developers contribute to the fund. But others within the city disagree.
"It is useful to have a source of funds credited by the developers that choose the in-lieu fee," the CCDC's Royal said, adding that $2.3 million has been paid downtown in in-lieu fees alone.

Christensen said funding for affordable-housing projects also comes from state bonds, housing commission loans, tax credits and other sources.

"These fees are just one source of several used to build affordable housing," Christensen said. "None of those projects have been done without public financing. ... The developer has not had to build that housing from his own profits or on the backs of the new homebuyers because the developments receive public funding.

The developer may say that there should be no in-lieu fee, that all inclusionary (projects) should be built. But on the other side, most builders would prefer the option of the in-lieu. ... Most builders like neither option because it's another fee that they have to pay."

With some developers unwilling to build affordable housing, the commission puts up a notice of funding availability to attract developers that specialize in building affordable housing.

Royal said developers and the public may have been too quick to judge how the funds are being spent.

"I think the plan when it was approved was to have a pool of funds that would grow over time and would be large enough to fund and create affordable housing," Royal said. "We're seeing that the fund is now large enough to help support financing of affordable housing projects."

Related Resources : Affordable Housing Fund Report (PDF Format)

In-Lieu Fees by Community (Chart)

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