Folsom Planning Commission OKs affordable housing fees

The Folsom Planning Commission approved new inclusionary in-lieu fees for developers last month. The revisions include adjustments to the in-lieu fee formula for residential development. After a recent study of peer jurisdictions, the commission recommends a per-square-foot fee to capture better returns. Under the Folsom Inclusionary Housing Ordinance of 2002, developers of new for-sale, detached single-family subdivisions of 10 units or more are required to provide at least 10 percent as lower-income homes. That includes 3 percent very low and 7 percent low-income categories. However, a developer may opt to pay an in-lieu fee instead of building affordable units at the site, with the funds aimed at affordable housing projects elsewhere in the city. "Given the complexities and challenges associated with building deed-restricted, affordable, for-sale homes, almost all developers in Folsom choose to pay the in-lieu fee," Folsom Housing Manager Stephanie Henry said in the council report. The fee is calculated as 1 percent of the sale price of the lowest-priced unit in the subdivision, multiplied by the total number of units in the project. To determine the fee amount, developers are required to submit architectural plans and anticipated homes sales prices before building permits. Developers must also enter into an inclusionary housing agreement to formalize the fee and related requirements. To date, the Folsom fee has generated about $30.5 million, staff said. Authorities said the funds have been instrumental in providing "gap financing" for several affordable housing projects, resulting in more than 320 new affordable apartments in Folsom. A study by Economic Planning Systems, Inc. reviewed Folsom's current fee with updated socioeconomic and real estate market data. Several major shifts occurred recently – most notably the economic impacts of the pandemic, rising construction costs and higher interest rates, according to the report. "These factors have affected both home values and rental prices and have increased the cost of housing production," said EPS. As a result, the investment to produce affordable units has grown. The study recommends adopting a per-square-foot fee structure to streamline administration and offer developers greater clarity regarding project costs. The study specifically recommends a $2.50 per-square-foot in-lieu fee for multifamily for-sale units, or condominiums and townhomes. For sale rental units would remain at $3 per square foot, roughly the same as before. The plan continues to exempt multifamily rentals from the in-lieu fee to boost viability. An automatic construction cost inflation adjustment to the new fees is also part of the recommendation to the City Council. If construction costs go down, so will fees, said Planning Manager Desmond Parrington. While the current ordinance offers flexibility for developers – and has effectively generated funding for affordable housing – administration of all the steps demands ongoing staff time, coordination and efforts to maintain fairness and consistency, officials said. "I basically said we are not doing this anymore. This is ridiculous," Parrington said, lamenting the workload for the department amid budget woes. "I understand the development community that likes the approach we have, but we need to remove that administrative burden." After an hour of discussion, the commission voted 5-0 on Nov. 19 to recommend City Council approval, with Commissioners Eileen Reynolds and Dianna Laney absent. The Folsom City Council is scheduled to consider the revisions at the Dec. 9 meeting.