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HomeMy WebLinkAboutAgenda Packet 09/26/2006 - Special Joint Study SessionSPECIAL JOINT STUDY SESSION Atascadero City Council Atascadero Planning Commission AGENDA Tuesday, September 26, 2006 (Immediately Following the Regular City Council Meeting) Atascadero City Hall, 6907 El Camino Real, Atascadero, California ROLL CALL: APPROVAL OF AGENDA: JOINT STUDY SESSION ITEM: 1. Condominium Conversion Ordinance  Fiscal Impact: Fiscal impact will vary depending upon the options implemented and the methods of implementation.  Recommendation: Council and Planning Commission review the attached report and accompanying documentation and direct staff in the policy direction for review and recommendation of condominium conversion projects. [Community Development] PUBLIC COMMENT: ADJOURNMENT: The City Council and Planning Commission will adjourn to their next regularly scheduled meetings. STATE OF CALIFORNIA ) COUNTY OF SAN LUIS OBISPO ) CITY OF ATASCADERO SHANNON SIMS being fully sworn, deposes, and says: That she is the Deputy City Clerk of the City of Atascadero and that on Tuesday, September 19, 2006, she caused the above Notice to be posted at the entrance of City Hall, 6907 El Camino Real, Atascadero, California. __________________________________________ SHANNON SIMS DEPUTY CITY CLERK CITY OF ATASCADERO ITEM NUMBER: JT - 1 DATE: 09/26/06 Atascadero City Council Staff Report – Community Development Department Condominium Conversion Ordinance RECOMMENDATION: Council review the attached report and accompanying documentation and direct staff in the policy direction for review and recommendation of condominium conversion projects. BACKGROUND: The City Council held a strategic planning meeting on September 9, 2005 to review the City’s General Plan policies in regards to condominium conversions and the potential loss of the City’s rental inventory. The Council directed staff to further investigate options for condominium conversion that would be consistent with the General Plan policies of preserving rental housing stock and encouraging the development of affordable homeownership. Staff brought the Condominium Conversion issue to the Council on March 14, 2006, at which time the Council directed staff to enact an emergency moratorium for 45 days until the item could be brought back to the Council for further discussion. Due to difficulty agendizing the issue, the moratorium was extended until May 2007. DISCUSSION: Staff has contracted with the firm of Goldfarb Lipmam LLP to assist in the process. Ms. Barbara Kautz and Ms. Polly Marshall are experts in the fields of condominium conversions, inclusionary housing and redevelopment and have worked with agencies throughout California to tailor similar programs. In order to address the Council’s goals for condominium conversion projects Ms. Kautz and Ms. Marshall have developed an Issues and Options Report. The purpose of the Issues and Options Report is to provide the Council with a process to make a number of policy decisions that will be incorporated into the condominium conversion ordinance that will provide guidance to ITEM NUMBER: JT - 1 DATE: 09/26/06 staff and the public for review and recommendation of condominium conversion projects. The Issues and Options Report is included in Attachment 1 to this staff report. FISCAL IMPACT: Fiscal impact will vary depending upon the options implemented and the methods of implementation. Staff time and resources are currently used to process project requests, however, additional staff time may be required to administer new conversion requirements and policies. ALTERNATIVES: 1. The Council may direct staff to proceed with implementation of selected options for updating and implementing the Condominium Conversion Ordinance. 2. The Council may direct staff not to proceed with updating the Condominium Conversion Ordinance. In this case, Council should provide staff with direction on how to proceed under the current Ordinance and the General Plan policies. 3. The Council may choose to refer the item back to staff for additional analysis. Clear direction to staff should be provided on additional information or policies that are desired. CONCLUSION: Over the last few years, staff has been receiving more and more condominium conversion inquiries. Currently, there are two submitted applications for a total of 48 units tentatively scheduled to go before the Planning Commission on July 18th, 2006. An additional application was submitted for 96 units after the moratorium was enacted. There have been serious inquiries for an additional project that would result in the conversion of an additional 80 units if the property owners decide to move forward with an application. The attached Issues and Options Report will provide information on methods available for processing condominium conversion projects and retaining rental housing inventory. ATTACHMENTS: Attachment 1: Issues and Options for Atascadero Condominium Conversion, Goldfarb Lipman LLP Attachment 1 Issues and Options for Condominium Conversions Goldfarb Lipman, Attorneys ISSUES AND OPTIONS FOR ATASCADERO CONDOMINIUM CONVERSION ORDINANCE Issue: In the past few months, the City of Atascadero has received an increasing number of applications and inquiries from apartment owners interested in converting their rental units into for-sale condominiums. The issue was presented to the City Council on September 9, 2005, and the Council expressed interest in exploring ways to control the rate of condominium conversions. The purpose of this meeting is for the Council to review and consider possible modifications to the City's existing Subdivision Ordinance relating to condominium conversions. Background: Typically during times when housing prices have been disproportionately high in relation to rents, there has been an interest by individual property owners in converting existing rental units to ownership housing. This appears to be the current situation in Atascadero and throughout San Luis Obispo County: median sales prices in the County have increased dramatically and now exceed $600,000, while rental rates have remained relatively stable. Consequently, apartment owners may be able to maximize their properties' value by converting apartment buildings to condominiums. The present economic situation is reflected in an increased number of condominium conversion applications in Atascadero. Applications have already been made for the conversion of 60 rentals to condominiums, and inquiries have been made about the conversion of an additional 200 units. If all of these apartments were to be converted to condominiums, this would represent the loss of over 12 percent of the 2,100 rental units in the City. Other San Luis Obispo County communities have experienced the same increase in applications for conversions. As one response, the County Planning Commission will consider amendments to the County's condominium conversion ordinance on June 2, 2006. The City's primary concern with the loss of rental housing is the loss of an affordable housing stock. A stable supply of reasonably priced rental housing is essential to many service-oriented sectors of the local economy. Apartments converted to condominiums usually offer some of the lowest cost ownership housing. Nonetheless, total ownership costs are nearly always significantly higher than rental costs, and even tenants who can afford increased monthly payments may not have sufficient savings for a down payment and closing costs. Hence, condominium conversions nearly always result in decreased housing affordability. The California courts have given cities a great deal of discretion to control condominium conversions, especially through a use permit process. In 1985, the California Supreme Court upheld the ability of cities to require use permits for condominium conversions (Griffin Devel. Co. v. City of Oxnard, 39 Cal. 3d 256 (1985)). More recently, the California Court of Appeal agreed that a city could require a use permit for a conversion even after the owner had recorded a final subdivision map unless the owner had also maintained a valid "public report" from the Department of Real Estate at all times (City of West Hollywood v. 1112 Investment Co., 105 Cal. App. 4th 1134 (2003)). The effect of these decisions is to enable the City to adopt reasonable policies to limit condominium conversions. Existing City Policies and Subdivision Map Act Requirements The City's Housing Element recognizes the importance of rental housing to the City and provides: “Goal HOS 3: Ensure that an adequate amount of rental housing exists.” “Policy 3.1: Ensure that the proportion of low and moderate housing is not significantly reduced.” The City's Subdivision Ordinance was amended in 2000 to include certain controls on condominium conversions. These provide primarily for notification to tenants, public hearings, and property improvement standards for buildings to be converted. However, the Subdivision Ordinance does not control the rate of conversions nor include provisions to preserve affordable rental housing. Policy Options Below is a brief discussion of policy options for review by the Council. The attached "Issues and Options Table" provides more detail regarding provisions in other condominium conversion ordinances. It also provides more detail about the advantages and disadvantages of each approach. A. Reduction in the Rate or Number of Condominium Conversions At the Council's March 14, 2006 meeting, Councilmembers expressed interest in controlling the rate of condominium conversions in Atascadero. The primary mechanisms used by cities are these: 1. Placing an annual limit on the number of apartment units that may convert to condominiums. Given the relatively small number of rental units in Atascadero, the City would need to establish a fairly low annual quota if it did not want to risk losing its entire stock of rental units. For instance, a quota of 100 units/year would enable the entire rental stock to convert to condominiums over a 20- year period. Even with a low quota, this approach has the disadvantage of permitting a continuing loss of rental housing in the City. 2. Allowing conversions only when the vacancy rate reaches a certain percentage, usually 5%. At the Council's March study session, several members of the public expressed particular interest in this approach because it is the most market-based. A potential difficulty with this option is that, should the vacancy rate increase to 5%, a large percentage of the rental properties in the City could convert in a small amount of time. The Council might therefore want to combine this approach with an annual limit on the number of conversions. 3. Requiring that multifamily rentals constitute a fixed percentage of the housing supply, or allowing conversions only when new multifamily rental housing is constructed. This is the approach now used by the City of San Luis Obispo and proposed to be used by the County. San Luis Obispo now permits conversions for half the number of new multifamily units constructed. This approach ensures that the number of rental units in the City steadily increases. However, it tends to increase rents because conversions typically occur in older buildings with lower rents, while newly constructed apartments normally have higher rents. 4. Permitting conversions in only certain types of buildings. For example, the City of Dublin allows only buildings with fewer than 21 units to convert to condominiums. To decide if this might be an appropriate approach, the City would need to inventory its rental housing stock to determine a reasonable cutoff point. After the Council determines which approach it prefers, we will prepare an ordinance that includes those provisions. B. Inclusionary Requirement or Retention of Existing Affordability At the March 14, 2006 study session, the Council was also interested in examining ways to preserve the existing affordable housing stock even in the event that conversions were permitted. Some options are: 1. Require converted units to conform to current inclusionary ordinances or policies established for new construction, or require an even higher percentage of affordable units in converted buildings. 2. Require that the proportion of affordable units remain the same before and after the conversion, or allow existing lower or moderate income tenants to purchase their unit at an affordable price. San Luis Obispo County is proposing to require that any "existing, legally established affordable housing" in a converted building be retained at the same level of affordability. Since in this case the City's goal is to keep existing affordable units, if the City chooses to retain affordable units, it may be most appropriate for the City to limit the resale price of these condominiums to ensure that they always remain affordable. Again, once the Council determines which approach it prefers, we will prepare an ordinance that includes specific provisions. C. Protections for Existing Tenants Some of the most common additional protections include these: 1. Tenant Relocation Plans/Moving Expenses. It is relatively common for ordinances to require the payment of two to three months rent as a relocation payment. San Luis Obispo County, for instance, proposes to require a payment of two months' rent. 2. Ordinances may also require the subdivider to prepare a tenant relocation plan for existing tenants. The plans are similar to those required when a public agency relocates a tenant. The plan includes benchmark dates and options for existing tenants to help them make informed decisions on whether to stay and what to expect should they be relocated. 3. Protections for the Elderly and Disabled and Children Attending School. Some jurisdictions require lifetime leases or otherwise extend leases for existing tenants who are disabled or elderly (over the age of 62). 4. Households with school age children are often allowed to remain as tenants until the end of the school year so that children are not forced to change schools during the middle of a school year. 5. Additional Limits on Rent Increases Pending Conversion. Atascadero now does not permit the subdivider to raise rents for 180 days after the tenant is given notice of the conversion. Some communities extend this period to 12 months. 6. Additional Notices to Tenants. Cities commonly require converters to provide existing tenants with staff reports, summaries of tenant benefits, and additional notice of public hearings. Atascadero's existing ordinance contains similar provisions, although it may want to consolidate these requirements. The proposed San Luis Obispo County ordinance, for example, requires a detailed "Tenant Information Package" explaining not only the conversion process, but also the condition of the building and the impact of the conversion on existing tenants. D. Development Standards Atascadero's current ordinance imposes physical conditions on condominium conversions and requires a detailed Property Condition Report. The ordinance already includes the physical requirements most commonly imposed in other cities' conversion ordinances. Some additional physical requirements that the City may want to consider include:  Common open space.  Common recreation facilities.  On-site lighting systems.  One-hour fire protection.  Disabled accessibility.  Compliance with current building codes. E. CC & R Requirements Atascadero's ordinance already imposes certain standards on CC & Rs for condominium conversions and requires a copy of the CC & Rs as part of the tentative map application. The attached table lists several additional provisions included in other cities' ordinances. F. Process We would recommend that the City require a use permit for condominium conversions and consolidate the requirements in the City's zoning ordinance. Under the court decisions referenced earlier, requiring a use permit will give the City the maximum ability to regulate condominium conversions. Conclusion Of these policy options, those that would be most likely to retain affordable rental housing are the possible limitations on the rate of conversions and additional inclusionary requirements. The Council should review the options and indicate which should be included in an amended condominium conversion ordinance. Following the receipt of policy direction from the Council, we will prepare a draft ordinance for the Council's review. ISSUES AND OPTIONS: CONDOMINIUM CONVERSION ORDINANCES Condominium Conversion Ordinance: Issues and Options Issue Proposed Policy or Policy Options Issues to Consider Atascadero Condominium Conversion Ordinance A1. Reduction in Rate of Conversion (quota or vacancy rate trigger) 1. Allow an annual quota of units to convert per year (for example, 50 units in Santa Barbara, 100 units in Berkeley, and 200 units per year in SF). A lottery or point system may be used to determine which apartments will be allowed to convert. 2. Deny conversions when the amount of multifamily rental units is at or below a certain percentage (eg, 15%) of the total number of housing units (Folsom). 3. Limit conversions to half of the multifamily rental units added to the city's housing during the preceding year (San Luis Obispo City and proposed County). 4. Conversions approved only when the vacancy rate for the city (pursuant to the Postal vacancy rate) is at a certain percentage (5% in Gilroy and 6% in Fairfield) or more. Unless additional rental housing is built, will allow slow reduction in amount of rental housing. Ensures that a rental housing stock is maintained. Relatively easy to measure. However, may result in conversion of lower priced rentals when newer, more expensive rental housing is built. Also, need to ensure that condominium maps have not been recorded for units that are rented. Ensures that the number of rental housing units continues to increase. Relatively easy to measure. Same disadvantages as #2. Measure is market-based and related to demand for rental units. Vacancy rate may be difficult to measure. If units are converted when vacancy rates are high, No specific policy in Atascadero Ordinance. Condominium Conversion Ordinance: Issues and Options Issue Proposed Policy or Policy Options Issues to Consider Atascadero Condominium Conversion Ordinance 5. Limitations on the type of building that may be converted based on building size (maximum 21-unit buildings in Dublin or 50-unit buildings in Gilroy or 10-unit buildings in S. Lake Tahoe). 6. Deny conversion unless finding is made that every rental unit lost will be replaced or the subdivider will contract to create units to replace lost rental units (Oakland). difficult to replace when rates are low. May want to combine with an annual quota to prevent massive loss of rentals. Information would be needed on the size of rental complexes in Atascadero to determine if this is a desirable approach. The most legally aggressive option. Requires additional research. A2. Inclusionary Requirement or Retention of Existing Affordability 1. Require that all units classified as an "affordable rental unit" for at least 24 of the past 48 months prior to the conversion be sold to households at the same affordability level. Deed restrictions imposed to ensure that units remain affordable after resale. (Santa Barbara) 2. Require twenty percent of the converted units to be sold to low or moderate income households. (S. Lake Tahoe) 3. Require that any inclusionary units in the building being converted be made Ensures that affordable housing is not lost, although costs of ownership may be somewhat higher than rental costs even at the same affordability level. Ensures that existing inclusionary units continue to be affordable at the same income level. To approve a conversion, City must find that, "The proposed conversion will not displace at significant number of low-income or moderate-income households or senior citizens at a time when no equivalent housing is readily available in the City." Condominium Conversion Ordinance: Issues and Options Issue Proposed Policy or Policy Options Issues to Consider Atascadero Condominium Conversion Ordinance available for purchase at the same affordability level (eg, low-income inclusionary units must be sold at a price affordable to low-income households). If tenant is income- ineligible, then subdivider must restrict another unit in the building at that affordability level. (San Diego-San Luis Obispo City) 4. Pay an in-lieu housing fee equal to the cost of creating another affordable unit at that income level (San Luis Obispo and Berkeley) 5. Converted units required to comply with the current city Inclusionary Zoning Regulations (San Diego) City would need to be able to use fees to create replacement housing. In lieu fees are often set too low to create another affordable unit at the same income level. Not related to existing affordability level of units but relatively easy to administer. A3. Additional Protections for Existing Tenants 1. Tenant Relocation Plans/Moving Expenses A. Require a Tenant Relocation Plan to encourage tenants to purchase units and provide relocation or moving assistance (Oakland) B. Pay moving expenses of one and one-half times the rent or $2000 whichever is greater. (Santa Barbara). C. Make relocation payment of two Required relocation payments cannot be excessive or may violate the Ellis Act. Condominium Conversion Ordinance: Issues and Options Issue Proposed Policy or Policy Options Issues to Consider Atascadero Condominium Conversion Ordinance (proposed San Luis Obispo County) or three months' rent (San Mateo). 2. Protections for the Elderly and Disabled, Children Attending School, and Lower Income Households A. Lifetime lease for tenants over 62 (Oakland, San Francisco, and Concord) B. Allow additional time for a move for households with individuals over 62, that are disabled, low income, single parent or otherwise likely to have difficulty finding a housing (Santa Barbara) C Allow households with children attending school to remain until end of school year (Santa Barbara) 3. Limits on Rent Increases Pending Conversion No rent increases for 12 months after filing of tentative map (Oakland) or 180 days from date of conversion (San Luis Obispo) 4. Additional Notice to Tenants (General provisions in most cities) A. Additional copies of staff reports to tenants. B. Notice of summary of tenant Potential (but not actual) challenge under the Ellis Act. Under Municipal Code Section 11-12.07(c) Tenants who are not in default of their rental agreement are allowed to stay in their unit up to 180 days from the date of receipt of notification of intent to convert. Under Municipal Code Section 11-12.07(d) No rent increases shall occur during 180 days from date of notice to convert. Atascadero requires most, but not all, of these notices. Condominium Conversion Ordinance: Issues and Options Issue Proposed Policy or Policy Options Issues to Consider Atascadero Condominium Conversion Ordinance benefits C. Additional notice to tenants prior to the public hearing A4. Development Standards (Please Note: Items listed are only those not already included in Atascadero's ordinance.) 1. Additional common open space. 2. Common recreation facilities. 3. Installation of on-site lighting systems in parking areas and major walkways. 4. One hour fire protection of the walls of each unit. 5. Dedication of public easements if necessary for public access or other public purpose. 6. Disabled accessibility. (Folsom) 7. Meet current building and planning codes. 8. Inspection by building inspector and fire marshal. Atascadero's existing ordinance now incorporates the most commonly adopted development standards. This provision would make many conversions infeasible. A5. (Please Note: Items listed are only Specific requirements for Condominium Conversion Ordinance: Issues and Options Issue Proposed Policy or Policy Options Issues to Consider Atascadero Condominium Conversion Ordinance CC&R Requirements those not already included in Atascadero's ordinance.) 1. Prohibit parking of trailers and boats. (Fairfield) 2. Restrict parking on non-approved parking areas of subdivision. (Fairfield) 3. Limit storage of private property outside of storage units.(Folsom) 4. Professional property management company must be used to rent unit; or HOA could manage the unit. (Folsom) 5. No amendments to CC&R's without City approval. (Fairfield) CC&Rs. Copes of CC&Rs must be submitted with tentative map application.