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SLO city beefs up affordable housing requirements for developers

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Just weeks after the San Luis Obispo County Board of Supervisors gutted the county's inclusionary housing program, the SLO City Council decided to do the opposite with theirs—bolster it.

At a July 19 meeting, the SLO City Council repealed its existing inclusionary housing ordinance and replaced it with one that has more stringent requirements on builders to produce, or pay in-lieu fees for, affordable housing.

Under the new rules—which were greenlit by 4-1 council vote—developers in the city now have to either include at least 10 percent of their homes as affordable (by deed restriction), or pay an in-lieu fee to the city of $25 per square foot, which can then support other affordable projects. For rental housing, the percentage and fee is slightly less, and commercial projects also pay a per-square-foot fee.

BUILDING AFFORDABLE? Developers in the city of San Luis Obispo will have to incorporate more affordable housing into their projects or pay higher in-lieu fees per a new city housing policy. - FILE PHOTO BY JAYSON MELLOM
  • File Photo By Jayson Mellom
  • BUILDING AFFORDABLE? Developers in the city of San Luis Obispo will have to incorporate more affordable housing into their projects or pay higher in-lieu fees per a new city housing policy.

According to SLO, the new ordinance will help generate more affordable housing, whether by inclusion or fee, than the prior policy did. That ordinance, adopted in 1999, required a range of 3 to 15 percent inclusion depending on the project or an in-lieu fee based on building valuation.

That framework did not result in enough affordable units built, officials said, and the city has since fallen behind on its targets.

"Unfortunately, the city's housing market is producing housing that is not affordable to moderate- and lower-income households," a city staff report read.

"[Between 2019 and 2021], the city has only permitted 10.7 percent of the needed affordable housing units, and the proposed Inclusionary Housing Ordinance update is intended to improve this outcome."

Key to the ordinance update—and most controversial—was the elimination of a provision that incentivized developers to avoid the inclusionary housing requirement by building smaller units and denser projects. But that "affordable-by-design" strategy did not pan out as hoped, according to the city, as those units ended up being sold or rented at prices unaffordable to residents earning median incomes.

"The intent was that these smaller units would sell or be rented to households that meet moderate- or lower-income standards. This concept has not produced affordable housing in practice," the staff report stated.

Aside from Mayor Erica Stewart, who dissented in the vote, the City Council expressed support for the new policy, which had been under development for more than two years.

"What staff has come up with tonight is admirable. I think it's data based. It's very well thought out," Councilmember Jan Marx said. "I've been saying for many years that the idea of affordability by design is kind of a sham, because it's the market that determines the cost of housing unless it's deed-restricted."

The local building industry, SLO Chamber of Commerce, and some housing advocates expressed opposition to aspects of the new ordinance, especially the removal of incentives to build smaller market-rate units.

Jim Dantona, CEO of the SLO Chamber of Commerce, warned that the new policy "would cause developers to pass on building in our community."

"Our analysis is that the proposed changes you're considering tonight would actually do the reverse and ensure that housing development does not happen in our community, as private developers go to other cities and unincorporated areas of the county to build because it's easier and less expensive," Dantona told the council.

Many ordinance opponents, including Mayor Stewart, cited concerns about the production of "missing middle" housing—or housing that's affordable to the middle class. While city officials assured that they are working on new policies to incentivize that type of market-rate development, Stewart wanted to see that and inclusionary housing addressed concurrently.

"If it were up to me, I would wait on this and bring them together because I feel like there are just some really missing holes that I don't feel great about," Stewart said. "I don't feel we have all the parts." Δ

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