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For a family of 4, the County’s Area Median Income for 2010 is $66,300. EXECUTIVE SUMMARY What is Inclusionary Housing? Inclusionary housing is a concept that promotes the creation of housing that is affordable to income eligible households as part of a subdivision or land development proposal. The municipality would require or incentivize the developer to provide 10 to 20 percent of the dwelling units to be affordable. The units would be integrated throughout the development. Income eligibility is based on the County’s Area Median Income, adjusted annually by the US Department of Housing and Urban Development. Housing Affordability is defined as a household spending no greater than 30% of gross income on housing costs. In exchange for building the affordable units, the developer will be granted cost offsets in order to make the overall project economically viable. Benefits of inclusionary housing include: o Increasing housing options for individuals, families, senior citizens and persons with disabilities; o Easing the transportation burden for service sector employees by providing housing close to places of employment and public transportation; o Supporting employers’ efforts to hire and retain employees when housing is affordable within a short commute distance; and, o Promoting more efficient land use and sustainable communities. Is there a need for Inclusionary Housing in Centre County? Young professionals, families, older residents and persons with disabilities are challenged by the limited existing and new affordable housing stock finding it difficult to realize the American Dream by purchasing a home. In 2005, the Centre County Affordable Housing Needs Assessment: A Blueprint for Action projected a demand for 2,000 new single- family units to be affordable to low and moderate-income households by the year 2030. In addition, the Centre County Associations of REALTORS® established the American Dream Fund to financially support inclusionary or workforce housing since the Association recognized the need based on the Association’s annual market analyses. Centre County Building Permit data for the year 2009 list the median value of a single- family, newly constructed home as $212,976, which does not include the cost of land. Using a mortgage calculator, a household of two with a gross income of $52,600 (100% of the County’s Area Median Income) would be able to afford a home price at $181,000. See below: Affordability Calculator Results Source: www.homefair.com 30% of household income ($4,383.33)=$1,315.00 Using the 30% amount of 1,315.00 for PITI* - because this value is lower than the amount 1,409.50 calculated using the 39% debt value. *PITI=Principal + Interest + Property Tax + Homeowner’s Insurance With an interest rate of 5.50% over 30 years means every dollar the home buyer pays each month buys the home buyer $176.12 of loan. ---PAGE BREAK--- EXECUTIVE SUMMARY Tax and Insurance are estimated to total 1.5% of the home value and the home buyer will have $10,000.00 to cover the down payment. House value: $198,008.18 Loan value: $188,008.18 Principal+Interest: $1,067.49 Prop Tax+Insurance: $247.51 Down Payment: 5.05% Loan To Value (LTV): 94.95% Since the down payment is less than 20% the home buyer must pay Private Mortgage Insurance (PMI). That's an extra 0.78% of the loan each year. House value: $181,023.86 Loan value: $171,023.86 Principal+Interest: $971.05 Prop Tax+Insurance: $268.28 PMI: $111.17 Down Payment: 5.52% Closing costs are not included in this calculation. Note: Mortgage rates and other costs fluctuate. The calculation shown above is to provide one example of housing costs. Other calculators are available on the web. Based on the calculation of the mortgage payment and acknowledging the fact that the median value of a single-family home in 2009 did not include the price of land, the two person household at 100% of the County’s Area Median Income would not be able to afford a newly constructed single-family home at the median value. Contributing to higher home prices is the value of the land, infrastructure improvements and increases in construction costs. Also adding to the overall cost are regulatory barriers such as larger minimum lot size requirements, lot and street standards, and fees for parkland fee in lieu. In an effort to meet a more diverse range of housing needs, the Centre County Planning and Community Development Office with guidance from the Centre County Housing Cabinet developed this step by step manual to help guide municipalities address the provision of inclusionary housing at the local level. What are the Steps to follow? #1 Understanding the Concept of Inclusionary Zoning First, municipal officials need to understand the concept behind inclusionary policies as explained in the paragraphs above. #2 Identifying Households to be Served by Inclusionary Policies Before policies to encourage inclusionary housing are drafted, it is important to first identify the community’s housing gaps. By researching current and historic data, which is available through a variety of sources such as the US Census, Centre County Association of REALTORS market data, and building permits, a municipality can determine housing needs. Typically, municipalities develop policies to serve households within a range of incomes based on the County’s Area Median Income. #3 Establishing a Legal Basis for Inclusionary Housing The next step would be for the municipality to establish a legislative purpose justified through the supporting data. Powers are granted through the Municipalities Planning Code. Article III, Comprehensive Plan, and Article VI, Zoning, contain provisions for establishing legislation. Recommendation for owner-occupied households to be served: 80% to 120% of the County’s Area Median Income(AMI) 60% to 79.9% if the developer partners with a non-profit or local government ---PAGE BREAK--- EXECUTIVE SUMMARY #4 Planning for Inclusionary Housing In planning for new affordable housing units, several factors should be considered with the most important being: location, transportation costs, proximity to employment and services, availability of infrastructure and quality of life. Policies and regulations should be consistent with growth management strategies which entail the factors listed above. When planning for new housing units, transportation costs should also be a consideration since providing housing in close proximity to places of employment and services, reducing the transportation burden for households. Developers and municipalities may access Centre County’s GIS (Geographic Information Systems) data to seek appropriate locations for inclusionary housing by contacting the Centre County Planning and Community Development Office. #5 Deciding on an Appropriate Inclusionary Housing Approach Policies and regulations for creating inclusionary housing may be structured as a voluntary approach by offering a range of incentives or as a mandatory requirement which would include cost offsets. Note: Before deciding on an approach, municipal officials are advised to seek the advice of their solicitor. Both approaches should regulate a minimum threshold by which the regulations would apply. The threshold may be determined by the number of acres to be developed or the number of housing units to be provided. Cost offsets are provided to make up the difference between the cost of building a below market rate or inclusionary home and that of a market rate home. The most common cost offsets are: o Providing a Density Bonus or Other Bonus Opportunities o Providing for Housing Type Options o Reducing Lot Size o Reducing Setbacks o Reducing Sidewalk Requirements o Reducing Street Standards o Waiving Parkland Fee in Lieu Fees o Waiving or Deferring Fees Density bonus option allows developers to exceed the density on the tract in exchange for the development of inclusionary housing. Typically, density bonuses permit one or more additional units per acre for every inclusionary unit provided. Permitting a range of housing types such as duplexes and townhomes gives the developer the flexibility to more effectively meet the affordable price range of income eligible households. For example, the median value for a new duplex in 2009, minus the value of the land, was $163,889 compared to a single- family unit which was $212,976. Reducing the minimum lot size should result in decreased land cost. Consistent with the reduction in minimum lot size, setbacks should also be reduced to provide sufficient land area to construct a home and future improvements. Sidewalk requirements may also be reduced; however, pedestrian safety should not be compromised. Depending on the development sidewalks on one side may be an option to consider. ---PAGE BREAK--- EXECUTIVE SUMMARY Consideration should be given to changes in street standards consistent with the Department of Transportation and the New Jersey Department of Transportation Smart Transportation Guidebook, March 2008. Standards are based on land use contexts such as rural, suburban, town/village and urban. In terms of parkland fee in lieu, the developer has the option to pay a fee instead of providing parkland on site. The fee can be as high as $2,500 per dwelling unit. Waiving the fee for the affordable housing units may be done through the waiver provision in Section 503.B of the Municipalities Planning Code under Contents of Subdivision and Land Development Ordinance. Fees associated with inclusionary housing development such as administrative, utility, or other applicable fees may be reduced, waived or deferred as another way to offset costs. One option is a provision in College Township’s regulations, whereby, the developer when requesting a discount or deferral of payment of fees should detail how the cost savings will be passed on to the inclusionary unit. Alternatives to Development As an alternative to on-site development, the municipality may want to offer a fee in lieu option, allowing the developer to pay cash instead of constructing the inclusionary units. The cash, deposited in a designated account or housing trust fund, would be used for future affordable housing development within the municipality or designated area. One option for the municipality would be to provide the fee in lieu funds to the Centre County Housing and Land Trust to create affordable housing opportunities. Two concerns are: structuring the formula or setting the fee so that the end result is the construction of new affordable housing units and making certain that mixed income housing is achieved through the integration of inclusionary units into a development. Off-site construction of inclusionary housing units is another option. Proposed sites for off- site construction should be appropriate. #6 Exploring Other Inclusionary Housing Opportunities Inclusionary housing may also be provided through other opportunities. The following are tools for inclusionary housing units and include: o Infill development. The construction of new housing units on scattered sites, vacant lots, within a community. o Accessory Dwelling Units. The creation of separate housing units within single- family homes or on the lot. (Rental option) o Mixed Use Development. The practice of allowing more than one use in a building or set of buildings. o Conservation Design. The preservation of 50% of open space while allowing housing density to occur on the remainder of the tract. o Adaptive Reuse. The reuse of older buildings. o Acquisition, Rehab & Resale. The purchase of an existing home and rehabbing and reselling it. These tools can be effective methods for providing new affordable housing units and at the same time be consistent with growth management strategies for the County. #7 Sustaining Housing Affordability The critical component of any affordable housing development is sustaining the affordability of the units. Without controls, the market value of the housing unit could appreciate beyond an affordable price limit. The controls may: establish income eligibility; set a period for which the unit is to remain affordable which is typically for a period of 30 ---PAGE BREAK--- EXECUTIVE SUMMARY years to perpetuity; restrict improvements; and, provide a formula for appreciation. Tools to sustain affordability include: o Deed restriction prescribes the period of housing affordability, income eligibility, restrictions on improvements to the unit, and resale formula, including how appreciation will be shared. o Community Land Trust prescribes the same as the deed restriction. The home is affordable since the land value is separated from the price of the home. Land Trust leases the land to the home buyer for a nominal fee. Land leases are in effect for a period of 99 years to perpetuity. There are two community land trusts in Centre County which are: Centre County Housing and Land Trust and State College Community Land Trust. o Housing Cooperative is a not-for-profit cooperative corporation that is formed for the purpose of jointly owning or controlling housing units. Each resident pays a fee to cover their share of the operating expenses. Currently, there are no owner-occupied housing cooperatives in Centre County. o Habitat for Humanity builds homes for families with household incomes up to 60% of the County’s Area Median Income. The first mortgage is based on the cost to build the home. A soft second mortgage is forgiven over a 15 year period and is based on the difference between the first mortgage and the appraised value. Implementing tools to sustain housing affordability requires expertise. The Centre County Housing and Land Trust is prepared to offer these services, developing and administering the controls for an established period of time. Other components include: o Home buyer budget counseling o Homeownership education o Post-purchase counseling and support o Oversight of property improvements In addition to the controls listed in this section, principal residency is also important. Not requiring principal residency may result in the unit being converted to an income-producing property. #8 Promoting Cost Effective Building Standards As previously noted on page 9, Centre County Building Permit Data and the mortgage calculator illustrates the fact that new single family housing units are beyond the affordable price range for households in need of affordable units. Efficiencies in housing construction methods can help reduce the overall cost of the unit. The most common housing construction methods are: o Stick-built: Constructed on the building site, piece by piece.1 Average cost per square foot: $85-$125 o Modular home: Factory-built homes that are built to state, local or regional code where the home will be located. Modules are transported to the site and installed.2 Average cost per square foot: $60-$75 o Manufactured home: “Homes are built entirely in the factory under a federal building code administered by the US Department of Housing and Urban Development (HUD). The Federal Manufactured Home Construction and Safety Standards (commonly known as 1 Source: www.About.com: Architecture Website http://architecture.about.com 2 Source: Manufactured Housing Institute Website www.manufacturedhousing.org ---PAGE BREAK--- EXECUTIVE SUMMARY the HUD Code) went into effect June 15, 1976. Manufactured homes may be single-or multi-section and are transported to the site and installed. The federal standards regulate manufactured housing design and construction, strength, durability, transportability, fire resistance, energy efficiency and quality. The HUD Code also sets performance standards for the heating, plumbing, air conditioning, thermal and electrical systems. It is the only federally- regulated national building code. On-site additions, such as garages, decks and porches, often add to the attractiveness of manufactured homes and must be built to local, state or regional building codes.”3 Average cost per square foot: $40-$45 Referencing the cost per square foot, the municipality can work with the developer/builder to determine the housing construction method(s) that would be most appropriate. Another construction method promoting efficiency is advanced framing techniques or Optimum Value Engineering, which is intended to reduce waste as well as the amount of lumber required to frame a home. Techniques include: o Using 2x6 studs at 24” on-center intervals; o Designing homes based on 2-foot modules to take advantage of common sheet sizing, minimizing cutting; o Using 24” on-center spacing for roof rafters and floor joists; and, o Transfer all loads directly downward by aligning floor joists, roof rafters and studs vertically.4 3 Ibid 4 Source: www.informedbuildng.com House size is also an important factor in controlling the total cost of the home. Municipal officials may address the size of the home in local policies, encouraging more cost effective, smaller homes. Accessible Homes Designing homes to accommodate persons with physical disabilities or for individuals and couples aging in place should also be a priority. One housing design is a visitable home. There are three important features that make a home visitable which are: o An at-grade or zero-step entrance to the home that is approachable by an accessible route such as a sidewalk. o Doors (one exterior and all interior) that are at least 2 feet, 10 inches wide to allow 32 inches of clear passage space. (Three foot doors are required in fully accessible units.) o A powder room on the first floor.5 As per Concrete Change, the above-listed features make it easier for persons with mobility impairments to live in and visit. Concrete Change is a resource for visitable homes.6 www.concretechange.org Energy Efficiency The three most widely used housing construction certifications that promote energy efficiency are: o o NAHB Green Building Standard o LEED (Leadership in Energy and Environmental Design) is a joint program of the U.S. Environmental Protection Agency and the U.S. 5 Myers, Diana Centre County Affordable Housing Needs Assessment: A Blueprint For Action, 2008 6 Source: Concrete Change Website www.concretechange.org ---PAGE BREAK--- EXECUTIVE SUMMARY Department of Energy to help consumers save money and at the same time protect the environment through energy efficient products and practices. The ICC National Green Building Standard™, “…incorporates environmental considerations and resource efficiency into every step of the building and development process to minimize environmental impact. The design, construction, and operation of a home must focus on energy and water efficiency, resource efficient building design and materials, indoor environmental quality, and must take the home's overall impact on the environment into account.” The construction areas for the Green Standard include: o Lot & Site Development o Resource Efficiency o Energy Efficiency o Water Efficiency o Indoor Environmental Quality o Homeowner Education. LEED “…is an internationally recognized green building certification system, providing third- party verification that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality, and stewardship of resources and sensitivity to their impacts.” http://www.usgbc.org/ LEED for Homes promotes efficiencies such as: o Compact development o Site selection close to existing infrastructure o Limited outdoor water use o Homes with ready access to community resources and open spaces o Homes that are smaller than the national average Common Considerations for Energy Efficient Homes Siting of the home In order to take advantage of solar energy, the house should face a southerly direction with south facing glazing and properly sized overhangs. Consideration should also be given to the orientation of homes when designing the lot configuration for subdivisions. Windows Install high performance Energy Star certified windows. Heating systems Electric baseboard heating systems are the least expensive to install; however, the long- term cost of electric service may no longer be an affordable option when the rate caps expire on January 1, 2011.7 The decision on which heating system to choose should be based on cost, energy- efficiency and available fuel choices. Heat pumps are promoted as a heating option for affordable homes option. Insulation Consistent with the UCC, recommended insulation standards are as follows: o R-21 insulation in the wall with R-5 rigid sheathing for a total of R-26 o R-50 insulation in the attic The use of caulk, spray foam and damp spray cellulose are also highly recommended to control leakages. Conducting a blower door test will help determine whether or not the home has been properly sealed. 7 Source: Public Utility Commission Website http://www.puc.state.pa.us/general/consumer_ed/p df/Rate_Caps.pdf ---PAGE BREAK--- EXECUTIVE SUMMARY Air quality Proper air flow is important in the house to promote good air quality. If the newly constructed home is sealed too tight then a fresh air ventilation system may be needed. For more information on Ventilation for Homes visit: http://www.epa.gov/iaq/homes/hip- ventilation.html Water efficiency Use low flow fixtures, harvest rain water, and landscape with native plants. Whole house energy efficiency is the end result of a comprehensive approach to employing adopted green-type standards from the start of the pre-planning phase to and including constructing and finishing the home. When addressing green and energy efficient standards, the question is whether or not the standards will add to the initial cost of the home making it less affordable at the time of purchase but affordable over the life of the home. #9 Establishing an Affordable Housing Plan Once a municipality makes a commitment to formally address the need for inclusionary housing in the community and adopts enabling legislation to accomplish its goals, a step-by- step companion document is often needed to guide the process. The municipal ordinance generally provides a broad overview of the inclusionary housing program, including: the goals of the program, the zoning districts within which inclusionary housing will be encouraged/required, the cost offsets available to developers, and the income eligibility targets. Such ordinances do not typically provide detailed guidance on the role and responsibilities of the various parties involved in the inclusionary housing project. By incorporating the general parameters rather than the specific details of the inclusionary housing program in the ordinance, the municipality allows flexibility for the program to evolve over time. Amending a municipal ordinance to keep up with program changes can be expensive and time-consuming. Thus it makes sense for items such as income guidelines or construction details to be included in a separate manual that can be easily amended by resolution on an annual or as-needed basis. That is where a Policies and Procedures Manual comes in. A Policies and Procedures Manual for Inclusionary Housing is a resource document for the municipality, the developer, and the land trust or non-profit agency administering the program. It provides specific guidance on the requirements of the program, the responsibilities of the developer, construction requirements for the housing units, the period of affordability, and eligibility requirements for homebuyers. The heart of the Policies and Procedures Manual is the Housing Development Plan, within which the developer describes the details of housing project. The Housing Development Plan is prepared by the developer in consultation with the municipality and the non-profit agency that will be responsible for program administration. The Housing Development Plan specifies the number of units proposed for construction, the location of the units within the overall project, and the applicable affordability restrictions. It may also require the developer to provide a copy of the market analysis s/he used to determine the need and demand for the type of housing units planned for the development and an artist’s rendering of the project. If the project is proposed to be built in phases, the Housing Development Plan should describe the timing for construction of the inclusionary units within each phase. The Housing Development Plan is a legal document that is executed by the developer and the municipality and recorded with the subdivision/land development plan. As a ---PAGE BREAK--- EXECUTIVE SUMMARY result, any change to the Housing Development Plan must be requested in writing and approved by the municipality. A model Policies and Procedures Manual is included in the Appendices. #10 Considering Model Regulations, Policies and Procedure Model ordinances have been developed to promote the creation of inclusionary housing at the municipal level. The following are three examples to consider when drafting municipal regulations, policies and procedures. Model Affordable Housing Density Bonus Ordinance Model Smart Land Development Regulations Interim PAS (Planning Advisory Series) Report-American Planning Association, March 2006 pdf/section44.pdf Montgomery County Planning Commission’s Workforce Housing Reports Report Promoting Workforce Housing: Expanding Locations and Development Potential, Density Bonus Model Ordinance, Page 9 http://planning.montcopa.org/planning/cwp/vie w,a,1629,q,58514.asp Inclusionary Zoning-Guide/Model Regulations, Lehigh Valley Planning Commission, December 2008 http://www.lvpc.org/pdf/inclusionaryZoning.pdf Getting Started When developing this document, the Centre County Housing Cabinet concluded that a model inclusionary housing ordinance for Centre County’s municipalities to adopt would not be the most appropriate solution to meeting local and regional housing needs since local conditions vary throughout the County due to differences in existing housing stock, housing need, areas zoned for residential growth, and geologic conditions, to name a few. These factors would need to be considered for each municipal set of regulations and policies. Municipalities are encouraged to tailor regulations and policies that best meet local and regional needs. This manual is intended to be a guide. In addition, the Centre County Planning and Community Development Office, Centre County Housing and Land Trust, and the Centre County Affordable Housing Coalition are ready and willing to work with municipalities in developing policies to meet this important need. The key components of this process are: partnerships, flexibility and patience. The municipality, developer, and non-profit need to sit together at the table and thoughtfully work through the process from the inception of the inclusionary housing policies to the development’s completion. Adjustments in regulations, local policies, and development plans may be necessary in order to ensure the economic viability of the project In Mount Joy Borough, Lancaster County, inclusionary housing regulations were adopted as part of a Traditional Neighborhood Development Ordinance. Experience in Lancaster County has shown that the success of the project depends on a committed partnership between the municipality, developer, and non-profit. Before adopting inclusionary policies, municipalities should encourage developers to test the economic viability of the draft regulations. The Borough of State College’s process serves as an example for other local officials to follow in that the municipality has requested developers to conduct a financial analysis, pro forma, of proposed development scenarios to determine if the proposed regulations would result in inclusionary units. ---PAGE BREAK--- EXECUTIVE SUMMARY Resources are available to municipalities interested in creating inclusionary housing opportunities. For assistance contact the Centre County Planning and Community Development Office. ---PAGE BREAK---