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HomeMy WebLinkAbout06-03-2024 - Study Session Agenda Packet STUDY SESSION AGENDA CITY COUNCIL CITY OF WHEAT RIDGE, COLORADO 7500 W. 29th Ave. Wheat Ridge CO June 3, 2024 6:30 pm This meeting will be conducted as a virtual meeting, and in person, at 7500 West 29th Avenue, Municipal Building. City Council members and City staff members will be physically present at the Municipal building for this meeting. The public may participate in these ways: 1. Attend the meeting in person at City Hall. Use the appropriate roster to sign up to speak upon arrival. 2. Provide comment in advance at www.wheatridgespeaks.org (comment by noon on June 3, 2024) 3. Virtually attend and participate in the meeting through a device or phone: • Click here to pre-register and provide public comment by Zoom (You must preregister before 6:00 p.m. on June 3, 2024) 4. View the meeting live or later at www.wheatridgespeaks.org, Channel 8, or YouTube Live at https://www.ci.wheatridge.co.us/view Individuals with disabilities are encouraged to participate in all public meetings sponsored by the City of Wheat Ridge. Contact the Public Information Officer at 303-235-2877 or wrpio@ci.wheatridge.co.us with as much notice as possible if you are interested in participating in a meeting and need inclusion assistance. Public Comment on Agenda Items 1. Accessory Dwelling Units Update 2. Short-Term Rental Code Compliance Updates 3. Affordable Housing Strategy – Implementation of Inclusionary Housing Zoning Program 4. Staff Report(s) 5. Elected Officials’ Report(s) Item No. 1 1 Memorandum TO: Mayor and City Council THROUGH: Patrick Goff, City Manager FROM: Scott Cutler, Senior Planner Lauren Mikulak, Community Development Director DATE: May 24, 2024 (for the June 3, 2024, study session) SUBJECT: Accessory Dwelling Units Update ISSUE: This memo provides an update to City Council with lessons learned now that Accessory Dwelling Units (ADUs) have now been allowed for over 1.5 years. The grace period to legalize existing ADUs will expire on August 15, 2024. This memo serves a few purposes: 1. Updates Council on how the new and existing ADU approval process is going, 2. Discusses potential changes and extensions to the grace period for existing ADUs, and 3. Updates Council on how state legislation may impact the City’s current ADU requirements. PRIOR ACTIONS: City Council approved Ordinance 1744 on July 11, 2022, which allowed new ADUs in Wheat Ridge and provided pathways to legalize existing dwellings which may qualify as ADUs. The ordinance became effective on August 15, 2022. CURRENT STATUS OF ADUs IN WHEAT RIDGE: As of the date of this memo, 16 new ADUs have been permitted (12 are approved and pending or under construction, and 4 have been completed), and 13 existing ADUs have been legalized. Additionally, there is 1 new ADU currently under staff’s review, not yet permitted. Overall, the process of reviewing new ADUs is going well, as is the process of reviewing existing ADUs which will be discussed more in depth below. There is still likely some public education needed regarding ADU requirements and what is/isn’t an ADU, but generally ADUs are able to be approved without major challenges. The limited number of completed ADUs was expected, as there was a lag between the ordinance approval in August 2022 and the first applications. Factoring in construction and inspection timing, it is likely that several of the 12 ADUs approved and under construction will be completed in 2024. 2 POLICY DISCUSSION AND RECOMMENDATIONS: Staff is requesting direction from Council on a few topics related to ADUs which, if consensus is reached, would result in one or multiple code amendments to update the ADU regulations. Discussion Topic 1 – Extend or Revise Grace Period for Existing ADUs One of the specific policy goals of the original ADU ordinance was to create a process for legalizing existing dwellings that fall within the definition of ADU. The ordinance established a grace period during which property owners could submit evidence of the prior existence of the unit without fear of penalty. Units legalized under the grace period have more flexibility; zoning requirements do not apply, and applicable building codes are largely limited to life safety concerns. A custom application was made for this classification of ADU, and applicants have been forthcoming in providing information (see attachment 1). The grace period to legalize existing dwellings that fall within the definition of ADU expires on August 15, 2024. After the grace period ends, any unapproved or unpermitted ADU “shall be subject to enforcement as provided by law”, which may include code enforcement citations, requirements for building permits, and potential upgrades to meet current code requirements. The end of the grace period means the owner of property with a potential existing ADU would need to apply for a new ADU permit and potentially make upgrades to the space to comply with current building code requirements. They may also be unable to meet certain zoning code requirements such as setbacks or maximum ADU size and therefore need to apply for variances or make modifications to the building size or location. Building upgrades could include fire separation, mechanical separation, new or upgraded entrances and egresses, or major utility upgrades including new taps if required by the water or sanitation districts. Existing ADUs under the grace period can generally avoid these types of upgrades as long as they can pass a basic life safety inspection or were deemed to be legally nonconforming (i.e., already recognized by the City as a separate dwelling in some other capacity). Overall, the application process to legalize existing ADUs is going well, and applications continue to trickle in. Overall, 23 applications have been received and 13 have officially been legalized as ADUs. Of those not officially legalized yet, 3 are still in the process of review, inspection, or awaiting deed restrictions, and for the remaining 7 applications, the owners elected not to move forward with the process, most of them after receiving an inspection. At least 1 application was determined it would be nearly impossible to meet life safety standards or make a conversion into an ADU. The remaining 6 that did not move forward were generally due to the need to obtain building permits, perform more substantial life safety corrections, or connect to water or sanitation services. Some applicants have indicated they may be interested in obtaining permits in the future. With Council’s direction, it may be advantageous to extend the grace period to a later date. Staff believe there are additional ADUs in the community that could benefit from obtaining legal ADU status, but the owners have not yet applied. Staff does not have the capacity to individually contact owners of potential ADUs and have them apply for legal ADU status, and this may also be perceived as invasive by those owners. Allowing owners to come forward on their own time and not taking a punitive approach has so far proven generally successful, and owners have been 3 more willing to provide information and build relationships with staff where prior to the grace period it was a more tenuous process due to the looming threat of code enforcement action. Without a grace period or increased flexibility for existing ADUs, owners are far less likely to come forward due to fear of having to comply with current building codes and make expensive upgrades, or dismantle a potential ADU that may be occupied, so in practice it would be like pre-2022 where ADUs (new or existing) were not allowed. If Council reaches consensus to extend the grace period, it is expected that the grace would not apply to unpermitted ADUs that were clearly completed after approval of the ADU ordinance. Any person building or converting an ADU after August 15, 2022, should have obtained the proper building permits for construction of a new ADU. The extension of the grace period should only apply to any ADU that was clearly in existence prior to August 15, 2022, demonstrated through prior permit records, real estate transactions, photos, or other written communication. This will ensure that many of the City’s existing ADUs which were sometimes completed decades ago can still apply for legalization without fear of penalty. With the extension of the grace period, staff recognizes the importance of providing public education. If the grace period is extended, people need to be aware of the additional opportunities to potentially legalize existing ADUs on their property; staff would develop an outreach plan and may seek Council help in word-of-mouth education of the opportunity to apply. The alternative without a grace period would be full permit fees, full building and zoning code requirements, and potentially the erosion of community trust due to the inability to focus solely on life safety concerns. If the grace period expires, the owners being penalized would be those where the existing ADU would be determined to be unsanctioned. Legal nonconforming ADUs could still proceed to official legalization without needing to make upgrades. Question: Staff recommends extending the grace period an additional two (2) years to August 15, 2026, to continue to allow pre-existing ADUs a pathway to legalization without having to meet current building or zoning codes. Is there consensus to move forward with the grace period extension and coordinate a public education effort? Discussion Topic 2 – Implications and Opportunities of House Bill 24-1152 House Bill 24-1152 was approved by the House and Senate in May 2024 and signed by the Governor on May 13, 2024. The bill was substantially modified through the course of the legislative session including some changes recommended by the Colorado Municipal League (CML) and other stakeholders to ensure some local control was maintained. The final version of the bill requires that by June 30, 2025, all subject jurisdictions (municipalities of 1,000 or more) allow ADUs as an accessory use to a single-unit detached dwelling anywhere single-unit detached dwellings are allowed; ADUs must be subject to an administrative approval process. The City’s ADU provisions already comply with these two requirements. Requirements of HB24-1152 The bill originally contained stronger provisions about prohibiting owner occupancy requirements and other size restrictions. However, through the legislative process and testimony from concerned parties, some of those provisions have been removed or reduced. A summary of the implications of HB24-1152 and how it will impact Wheat Ridge’s regulations is below. 4 • Prohibits parking requirements for ADUs. Cities can allow parking in some limited cases if there is already a driveway, garage, or off-street parking space. No impact: Wheat Ridge already does not require parking for ADUs. • Owner occupancy requirements: o Prohibits owner occupancy requirements and deed restrictions for new ADUs being constructed simultaneously with a new primary dwelling unit. This will require the Wheat Ridge code to be modified, as current regulations require the primary dwelling or ADU to be occupied by the property owner and enforced through a deed restriction before a Certificate of Occupancy can be issued. o Allows owner occupancy to be “demonstrated” when a property already contains a single-unit home, and an application is filed to construct or convert an ADU. This does not appear to have an impact on Wheat Ridge, although the bill does not include any language related to deed restrictions. It appears municipalities may request proof of owner occupancy at time of application but cannot go further in monitoring owner occupancy (through a deed restriction or other means) after construction. Therefore, code language related to deed restrictions may need to be softened. Staff will explore this further in consultation with the City Attorney before the June 2025 deadline. o Allows owner occupancy requirements when related to a short-term rental (STR) in an ADU. No impact: this is already a requirement for STRs in ADUs. • Prohibits restrictive design standards that are more restrictive than for a single-unit home. No impact: Wheat Ridge already does not apply design standards to ADUs. • Requires municipalities to allow ADUs between 500 and 750 square feet in size. Municipalities can still prohibit ADUs that are larger than the primary dwelling unit and can still allow ADUs smaller or larger than this range. Some impact. Currently the maximum size of an ADU is 50% of the primary dwelling or 1,000 square feet, whichever is less. Wheat Ridge requirements will need to be modified. For example, if the 50% requirement ends up being less than 500 square feet, our code will need to be modified to ensure that ADU can be at least 500 square feet. Further analysis and consultation with the City Attorney will be required to determine if the code can be complaint with the state requirements. Staff recommends keeping the overall 1,000 square foot limit for ADUs. • Setbacks: o Requires side setbacks to be the same for an ADU as for a primary dwelling unit. No impact. o Requires rear setbacks to be the same as for other accessory buildings, or 5 feet, whichever is less. Potential impact: we may need to modify our standards to show that ADUs will always require a rear setback of 5 feet, as in some cases a larger setback may be required (for example, the R-1 zone district may require 15’ in some cases and other R-series zone districts may require 10’ setbacks if the building is two stories). Staff will continue to review, and setback requirements may need to be refined based on future guidance. • Prohibits minimum lot sizes for ADUs that are more restrictive than for a primary dwelling unit. No impact: Wheat Ridge does not have different minimum lot sizes for ADUs versus primary dwelling units. • Municipalities may still prohibit multiple ADUs on one lot. No impact: Wheat Ridge already does this except for lots that may already contain more than one existing ADU. 5 Question: Does Council support staff modifying the City’s existing ADU ordinance to comply with state legislation by June 30, 2025? ADU Supportive Jurisdiction The bill also allows a community to become an “Accessory Dwelling Unit Supportive Jurisdiction” by submitting a form to the state that includes how they comply with the above provisions of the house bill and how they implement one or more of the following strategies by June 30, 2025: A. Implementing a program to regulate the use of ADUs as STRs; B. Assisting property owners to ensure pre-existing ADUs comply with local laws and building codes; C. Implementing a program to provide education and technical assistance to homeowners to construct or convert an ADU; D. Waiving, reducing, or providing financial assistance for ADU related fees incurred by low- and moderate-income households; E. Enacting local laws or programs to incentivize affordability of ADUs including ADUs for local workforce housing; F. Enacting local laws that incentivize the construction and conversion of ADA accessible and visitable ADUs; G. Enabling a pathway for the separate sale of ADUs; H. Providing pre-approved plans for the construction of ADUs; I. Enacting laws that encourage prefabricated ADUs. Benefits of becoming an ADU supportive jurisdiction are that the municipality becomes eligible for state grant funding for ADU programs, which could go towards permit fee reductions (for lower income households building ADUs, deed restricted affordable ADUs, and ADA accessible ADUs, among other types), providing technical assistance for people developing ADU plans, and developing pre-approved ADU plans. The grant program already has $5 million allocated and is subject to annual appropriations by the state. As with many competitive grant processes, while the minimum may be the implementation of one strategy, a greater number of strategies implemented will make the City more competitive. Staff reviewed the above strategies and have sorted them into three categories based on how well the strategy could work for Wheat Ridge: • To some extent, the City is already implementing strategies A, B and C. • At first glance, strategies D through G may not be a good fit for Wheat Ridge, but staff will track these to better understand requirements. • Staff is recommending exploration of strategies H and I. Pre-approved plans or prefabricated ADUs may save cost for applicants and time for staff. Pre-approved plans (including those for prefabricated construction and ADA accessible units) have been used successfully in other communities and can result in a simpler, more predictable process. Question: Does Council support staff exploring strategies H and I? NEXT STEPS Based on feedback at this study session, staff will finalize the ordinance(s) to present at Planning 6 Commission and City Council for approval. If there is consensus on the extension of the grace period, that ordinance will need to proceed quickly to take effect (if approved) prior to August 15, 2024. If there is consensus to comply with the state legislation, that ordinance can proceed on a separate path to allow additional consultation with the City Attorney and CML prior to the effective date of June 30, 2025. ATTACHMENTS 1. Existing ADU Application 2. Photos of New and Existing ADUs 7 Attachment 1: Existing ADU Application ATTACHMENT 1 8 9 10 Attachment 2: Photos of New and Existing ADUs Entrance to a new attached ADU. The ADU was attached to the side and back of the existing two-story house. An existing detached ADU that was legalized during the grace period for existing ADUs. ATTACHMENT 2 11 Another existing detached ADU that was legalized during the grace period for existing ADUs. Existing ADUs have a wide variety of locations, sizes, and layouts. Entrance to an existing attached/basement ADU that was legalized during the grace period for existing ADUs. Many existing attached ADUs already had separate entrances and were built as separate apartment suites. 12 Entrance to an existing attached ADU that was legalized during the grace period for existing ADUs. This ADU is above an existing garage and house and has a street-facing separate entrance, with the “B” address clearly posted. A new detached ADU above an alley garage that is currently under construction. ADUs, like all structures on single-unit home lots, are required to meet bulk plane and setback requirements. Item No. 2 Memorandum TO: Mayor and City Council THRU: Patrick Goff, City Manager FROM: Leo Lopez, Compliance Officer Scott Cutler, Senior Planner Rachel Monte, Revenue Supervisor Mark Colvin, Finance Manager Allison Scheck, Deputy City Manager DATE: May 24, 2024 (for Study Session June 3, 2024) SUBJECT: Short-Term Rental Code Compliance Updates ISSUE: City Council enacted legislation concerning the licensing and enforcement of short-term rentals (STRs) in February 2021. Since that time, staff has worked to implement the legislation by licensing STRs, collecting the applicable lodgers’ tax, and enforcing the codified regulations. At the regular business meeting on February 12, 2024, Councilor Ohm raised a concern regarding the exemption of townhomes in Mixed Use-Neighborhood (MU-N) zone districts from the whole home licensing cap and, with the support of other members of Council, requested the issue come forward for discussion. Since the STR regulations were put into place about three years ago, staff have additional suggestions for Council’s consideration that might support stronger code enforcement. This report includes suggestions to remedy the townhome cap exclusion in mixed-use zone districts, strengthen regulations for marketplace facilitators and align the annual license-cap reporting period to a calendar year. PRIOR ACTION: Council approved Ordinance 1709 on February 22, 2021, enacting licensing requirements for STRs in Wheat Ridge. The licensing provisions of the ordinance became effective on May 1, 2021, and STR hosts were required to begin collecting and remitting lodgers’ tax on August 1, 2021. Council approved Ordinance 1778 on October 9, 2023, broadening accountability beyond a property’s legal owner or “host” to include any individual who has ownership, possession, or control of the premises, and providing additional clarity concerning the prohibition of operating or advertising an STR without a license. Staff Report: Short Term Rental Code- Compliance Updates June 3, 2024 Page 2 FINANCIAL IMPACT: STRs generate approximately $44,000 in licensing fees and $800,000 in lodgers’ tax annually. 50% of the STR lodgers’ tax is placed in the Wheat Ridge Housing Fund, 30% is placed in the Crime Prevention Fund and 20% is placed in the Capital Improvement Program Fund. Some of the recommendations presented here are to strengthen the STR code regarding information sharing and reporting requirements from marketplace facilitators which could result in higher licensing and lodgers’ tax revenue. DISCUSSION: STR regulations are contained in Sections 11-500-506 and 26-645. The City uses a GovOS platform called LodgingRevs to facilitate STR host licensing and lodgers’ tax remittance. Additionally, LodgingRevs uses artificial intelligence to scan the internet and certain websites for suspected unlicensed STR activity in Wheat Ridge and provides staff with those listings for further investigation. Finally, LodgingRevs manages a complaint system where neighbors can report suspicions of STR noncompliance. The City has licensed a total of 281 STRs as follows: * Homes in mixed use or commercial zones are not subject to the 2% cap, hence some districts have whole home licenses that exceed the district cap. The STR program is working as Council intended in most areas; however, as mentioned in the issue statement, both Council and staff have noted unintended consequences and potential improvements that may warrant an amendment to the current code to ensure the STR program functions as Council intended. The following discussion includes recommendations from staff in the areas of whole home licensing, marketplace facilitators, license cap reporting period, host definition and enacting a fine schedule in the Administrative Services Department Finance Division. Whole Home Licensing The STR ordinance created a cap on the number of Whole Home STRs in each Council district to a maximum of two percent (2%) of the total number of dwelling units (calculated as a baseline from the number of single-unit, two-unit, and single-attached a.k.a. townhomes). However, the Code’s cap language exempted STRs in non-residential and non-agricultural zone districts, including mixed-use and commercial zone districts. DISTRICT I II III IV TOTAL 2% cap limit 49 52 54 37 192 Whole Home Licenses (within 2% cap) 49 52 41 37 179 Whole Home Licenses (above cap*) 6 9 0 1 16 Partial Home Licenses 35 24 12 15 86 Total Licenses 90 85 53 53 281 Waitlist Count 43 13 N/A 4 60 Staff Report: Short Term Rental Code- Compliance Updates June 3, 2024 Page 2 The prevalence of townhome construction over the past ten (10) years has predominately occurred in the Residential-Three (R-3) zone district which is covered by the cap, and in the Mixed Use – Neighborhood (MU-N) zone district, which is not covered by the cap. This has resulted in a large number of Whole Home STRs in townhome developments with mixed-use zoning that are exempt from the cap, creating a proliferation of STRs in some new developments. Townhomes are individually owned and platted and from a zoning standpoint function as single-unit homes; they are a large proportion of the new housing stock being developed and often an entry point for many buyers into an otherwise unaffordable market. The proliferation of Whole Home STRs in townhome developments limits opportunities for owner-occupied or long-term rental units. Staff recommends a code amendment to close the “townhome loophole” so that townhomes are treated akin to single-unit and duplex properties and include them in the STR license cap, regardless of zone district. These changes would not affect existing licenses granted to townhomes or other single unit/duplex properties in the mixed-use zone districts but would limit opportunities for future licenses as new applicants would need to join the wait list. Marketplace Facilitators Since adoption of the City’s STR code and program, staff have struggled to work with marketplace facilitators such as Airbnb, VRBO, Priceline, Evolve and the like. The marketplace facilitators insist that they are immune from certain aspects of the City’s code since they are not the licensee but merely an agent of the licensee. Examples include staff being unable to obtain tax reporting detail and to enforce the requirement for the license number to be displayed in advertisements, both of which are codified requirements. This has become a widespread issue among other municipalities and is, in fact, an impetus for a current task force that is collaborating with the Colorado Municipal League to help better define a number of lodging and STR definitions to help local governments maintain control over their STR programs. The anticipated outcome of this task force is to update the standard definitions used by the State and local governments in an effort to facilitate the work of local governments in enforcing their STR codes. Thus, staff find themselves in need of a stronger code that will allow the City to take enforcement action against marketplace facilitators. For example, while the current code prohibits advertising without a license, staff’s experience has shown that marketplace facilitators are not bound by the City’s code to disallow an advertisement without a license number and therefore, unlicensed STRs are abundant on web-based platforms. Sections 11-500 and 11-503 (e)(1) require a license to operate an STR and to advertise. Per Sec. 11-506, advertising without a license number is grounds for enforcement. Of note, the cities of Aurora, Denver and Lakewood all have code language that requires all advertising to include the licensee’s account number. The code lacks the requirement that a Marketplace Facilitator designate what license type is registered at the STR. This shortfall prevents identifying whether the STR is represented within the advertisement as a Whole or Partial Home. It is recommended that language be added to the code to require marketplace facilitators add a field during STR owners/operators’ registration to designate if the home being offered is a Whole Home or Partial Home license. This field would be able to be viewed as part of the advertisement that is held on the marketplace facilitator platform. Not only would this benefit the guest with more transparency it also provides staff with Staff Report: Short Term Rental Code- Compliance Updates June 3, 2024 Page 2 additional compliance strategies to ensure partial home licenses are not being advertised or listed as a whole home rental opportunities. The STR code language also lacks the ability to request detailed account information from Marketplace Facilitators or STR owners on their short-term rental business activities. The following are examples: • Financial and Tax information • Name of the person(s) who offered the Short-Term Rental • Dates for which the STR property was booked by a guest • Price paid by the guest of each Short-Term Rental transaction • The STR license number of any property advertising on any Marketplace Facilitator platforms The City does not currently place an obligation on the Marketplace Facilitator to maintain and provide records as is required of an individual licensee. Therefore, staff have estimated that based on an analysis of the out of compliance advertisements there is an approximate $6,000 per year of missed STR license revenue for the city. There is also a risk that lodging tax is not being reported or is being reported incorrectly due to the City’s inability to review the STR rental activities of all properties, licensed and unlicensed, and to audit or follow-up on those properties. Conservatively, staff estimate $10,000 - $15,000 in annual unreported or under-reported lodging tax revenues. Finally, staff estimate four violations per month comprised of 1st and 2nd time violations. Staff estimate the revenue from collection of these fines at about $4,000. Staff recommends additional recordkeeping code language to support requests from Marketplace Facilitators for any or all essential information necessary for compliance work. The use of the record keeping requirement for Marketplace Facilitators working with short term rentals is in alignment with the City of Denver and will assist staff to have the necessary records available on request to ensure proper reporting of short-term rental receipts. Finally, with the difficulty of locating and enforcing regulations on property owners advertising without a proper license and identification of the property’s address and/or owners of each illegal advertisement, staff recommends a code amendment that will enable enforcement on Marketplace Facilitators for allowing unlicensed STR operators to advertise on their platforms, while also allowing staff to enforce on any person or entity who fails to comply with record requests as notated above. Staff recommends that the penalty for Marketplace Facilitators who do not comply with record requests or allow unlicensed STR property owners to advertise on their platform be subject to a penalty of $1,000.00 per day, per violation. The cities of Aurora and Denver have implemented this fine and per staff conversations with revenue staff at those cities, once the code language was adopted, the marketplace facilitators were quick to comply. License Cap Reporting Period Finally, the cap on Whole Home STRs began on November 1, 2021, six months after the effective date of the ordinance. This was a reasonable “start date” at the time, but after over 2.5 years of administering the cap and associated wait lists, including yearly recalculations of the cap numbers (as required by the Code annually), staff has found difficulties with the recount and cap updates Staff Report: Short Term Rental Code- Compliance Updates June 3, 2024 Page 2 being made in November. Building permit reporting numbers are typically annual and reports are created from January 1 to December 31; it is theoretically possible, but more challenging, to pull numbers from November 1 to October 31 and it does not align with other required reporting deadlines. The Code also does not provide guidance on when the cap results need to be published. It can take several business days to pull the data, perform the cap calculations, and then update the website. Staff recommends revising the cap recalculation to commence January 1 of the calendar year rather than November 1, which will allow staff to pull complete data from the prior calendar year allowing for easier tabulation of updated cap numbers. Additionally, staff recommends a deadline of January 31 to allow sufficient time to pull the required data, perform data cleaning and publish the updated cap numbers on the City’s website. Host Definition In October 2023, the definition in Chapter 11 of a STR host was updated to: “The short-term rental shall be the legal responsibility of all individuals who have ownership, possession or control of the premises or its operation as a short-term rental, whether as owner, co-owner, occupant, tenant or agent of any of the same.” We recommend that the Short-term rental host definition located at Code Sec. 26-123 be updated to read the same. In doing so, licensees and applicants will have improved direction from the city on who can obtain a license and who is responsible for the license and operations of the STR. Short Term Rental Fine Schedule The City’s Code of Laws provides for enforcement to occur for offenders of the City’s STR licensing code requirements, however no STR based fine schedule exists for violators of Section 26-645 or Chapter 11. With recent code updates granting compliance enforcement authority to the Finance Division Compliance Officer, the Finance Division must adopt a license fine schedule that will be presented annually as part of the budget. The suggested license fine schedule mirrors what the PD’s Code Enforcement Division utilizes and is as follows: • 1st Time Violator – Notice of Violation (NOV) (10 Days to Comply) • 2nd Time Violator - $150.00 Fine (10 Days to Comply) • 3rd Time Violator - $250.00 Fine (10 Days to Comply) • 4th Time Violator - $500.00 Fine (10 Days to Comply) 5th Time Violator – Court Summons if previous NOV or fines have not cured the violation or if the property is deemed to be a life safety threat to the public. NEXT STEPS: Staff is requesting direction from Council on next steps with regards to drafting an ordinance to include the following recommendations: 1. Whole Home Licensing - Staff recommends an amendment to Code section 26-645 to close the “townhome loophole” so that townhomes are treated the same as single-unit and duplex properties. Staff Report: Short Term Rental Code- Compliance Updates June 3, 2024 Page 2 2. Marketplace Facilitators a. Staff recommends that language be added to Chapter 11 that would require Marketplace Facilitators to add to their platform a requirement that STR owners/operators identify their STR as a Whole Home or Partial Home rental. b. Staff recommends that language be added to Chapter 11 that would require Marketplace Facilitators to provide the following essential information that is necessary for compliance upon request: • Financial and Tax information • Name of the person(s) who offered the Short-Term Rental • Dates for which the STR property was booked by a guest • Price paid by the guest of each Short-Term Rental transaction • The STR license number of any property advertising on any Marketplace Facilitator platforms c. Staff recommends the authority to assess a penalty of $1,000.00 per day, per violation for Marketplace Facilitators that do not comply with a records request or allow unlicensed STR property owners to advertise on their platform. 3. License Cap Reporting Period a. Staff recommends revising the cap recalculation to commence January 1 of the calendar year rather than November 1. b. Staff recommends adding a reporting deadline in the Code of January 31 to allow staff sufficient time to calculate the updated maximum number of whole home licenses per district and to publish the updated cap numbers on the City’s website. 4. Host Definition Staff recommends that the Code Sec. 26-123 definition of a Short-Term Rental Host be updated to match that of Chapter 11 (includes anybody hired by a Short-Term Rental licensee owner to operate their Short-Term Rental within the City of Wheat Ridge.). 5. Short-Term Rental Fine Schedule Staff requests the approval by Council of a STR license fine schedule to facilitate code compliance. Item No. 3 Memorandum TO: Mayor and City Council FROM: Terrance Ware, Housing Program Administrator THROUGH: Patrick Goff, City Manager Lauren Mikulak, Community Development Director Jana Easley, Planning Manager DATE: May 22, 2024 (For June 3, 2024 Study Session) SUBJECT: Affordable Housing Strategy - Implementation of Inclusionary Housing Zoning Program ISSUE: The purpose of this memo and the June 3 study session is to discuss the implementation of an Inclusionary Housing Zoning (IHZ) program as recommended by the Affordable Housing Strategy (AHS) and Action Plan adopted by City Council in January 2023. BACKGROUND: Inclusionary zoning policies encourage the production of ‘affordable’ housing units as a component of market-rate housing development. Private development of housing is dependent upon private funding, responsive to market demand, and informed by population and economic growth. Because of the dependence upon private investment, public policy and the expectations of affordable outcomes must match the demand and feasibility of the marketplace; in short, any policies related to affordable housing must be based in market realities. The implementation of an IHZ program in Wheat Ridge is not likely to result in a significant number of affordable units constructed given the limit of available land and the scale of most market-rate housing projects. The majority of deed-restricted affordable projects have and will continue to be produced by public and non-profit developers who utilize the variety of federal and state programs and subsidies such as the often-used low-income housing tax credit (LITHC) program. That said, to the degree the council believes affordable housing is important, the IHZ program can require market-rate housing developments to either construct units within the proposed development or contribute funding to the City’s Affordable Housing Fund. This memo focuses on the program structure and related components of an inclusionary zoning ordinance. There are several ways to craft an IHZ program and the specific design of the program is dependent on the market realities of a given community and dependent on the community’s goals. This memo describes program options and staff’s recommendations related to six key program considerations: Study Session Memo – Affordable Housing Strategy Program Implementation June 3, 2024 Page 2 2 1. Should the program be voluntary or mandatory? 2. What should be the fee in lieu of building affordable units? 3. Which incentives (e.g. density, height, zoning variances, fee waivers), if any, should be considered to encourage the construction of affordable units? 4. What should be the affordability requirement—what range of household income (as a percentage of Area Median Income) should the city be focused on, what percentage of new units should be affordable, and what is the affordability period? 5. How should an IHZ program apply to new development—should the program apply city-wide and to projects that are large and small? 6. What long-term administrative burden can the City absorb? The purpose of the June 3 discussion is to seek Council support of staff’s recommendations. Depending on Council feedback, next steps would include additional economic analysis, then an ordinance draft would be presented at a future study session prior to scheduling public hearings. RESEARCH AND ANALYSIS: What is Inclusionary Housing? Inclusionary housing is a legal mechanism under which developers set aside some percentage of new housing units as affordable as defined by the regulating jurisdiction, with some means of alternative compliance made available. The alternative means is usually a “fee in lieu” of constructing housing units. If the inclusionary housing requirements are calibrated properly, meaning they are not overly onerous, projects of a minimum size can usually meet the requirements while maintaining financial viability for the developer. IHZ laws are not identical, and some key differences in their design and implementation may influence their outcomes. Some laws require affordable units to be constructed at the same location as the market units, or “on-site”; others allow off-site affordable construction. Most IHZ laws are mandatory, typically requiring developers to set aside affordable units, some other programs are voluntary but provide incentives for inclusionary development. IHZ policies can apply to rental or for-sale units or both and specify varying terms of affordability. The influence of the market will affect the feasibility of an IHZ program. If a developer builds 10 market-rate units and one affordable unit, the cost of the affordable unit (the gap between its cost to construct and the revenue received), is distributed between the market-rate units. If the resulting rent of the market-rate units is too high, it reduces their marketability. IHZ programs require periodic evaluations to review their market feasibility. In a strong housing market with high land values, like that of the Denver region, inclusionary housing can be a valuable tool to get the private sector to produce some affordable housing. When combined with zoning changes that create more potential value for landowners and developers, inclusionary housing can become even more workable. Study Session Memo – Affordable Housing Strategy Program Implementation June 3, 2024 Page 3 3 Comparison Cities Staff examined the structure and implementation of IHZ programs across the US as well as locally to identify the opportunities and challenges encountered in various communities. Fairfax County Virginia pioneered IHZ in the 1970’s and numerous states, and local communities across the country have adopted IHZ programs in some form, including several front-range communities from Longmont south to Littleton. Staff reviewed the programs administered by the cities of Arvada, Broomfield, Boulder, Denver, Edgewater, Englewood, Golden, Lakewood, and Littleton. Attachment 1 is a table which illustrates the differences between the various jurisdictional programs. In its simplest form, communities with an IHZ ordinance require a percentage, varying between 5 – 50% of new residential or mixed-use developments, to be deed-restricted for affordability. The affordable units are usually targeted to populations making between 60% and 120% of the area’s median income (AMI), with a requirement for periods of affordability – ranging between 5-years to project perpetuity. Some are mandatory programs, others are voluntary. Many offer density and height bonuses, other zoning variances, and fee reductions or waivers. Some offer expedited permitting, and one (Denver) offers a direct subsidy. Program Structure and Components Below is an analysis of specific IHZ program components that form the basis of the program structure under consideration. Each section presents a key question, discussion, and a staff recommendation. 1. Should the program be voluntary or mandatory? The AHS included a recommendation of “requiring all projects in mixed-use districts to either produce mixed-use or inclusionary affordable housing….” Based on staff’s research of nearby cities, there is a near even split of those requiring a percentage of units be affordable versus a voluntary program. The impact of mandatory inclusionary zoning on the housing market can be multifaceted: • Affordability and Supply - By requiring developers to include income-restricted housing units in their projects, the supply of affordable housing may increase. This could benefit low- and moderate-income households by providing more options for housing. However, it might also lead to a decrease in market-rate housing supply, potentially affecting overall affordability. • Market Dynamics - The inclusionary zoning policy could influence market dynamics. Developers may adjust their pricing strategies to account for the cost of including affordable units. This could impact property values, rental rates, and overall market stability. • Development Patterns - Developers might choose to build smaller projects (below the threshold of ten units) to avoid the inclusionary zoning requirements. Alternatively, they could seek waivers or negotiate alternative compliance options. These decisions could shape neighborhood development patterns. Study Session Memo – Affordable Housing Strategy Program Implementation June 3, 2024 Page 4 4 • Equity and Gentrification - While inclusionary zoning aims to promote equity, unintended consequences may arise. For instance, if affordable units are concentrated in specific neighborhoods, it could exacerbate gentrification or create pockets of poverty. Balancing equitable distribution across the city is crucial. • Economic Viability - Developers may face challenges in financing and constructing affordable units. The policy’s success depends on striking a balance between affordability goals and developers’ economic viability. • Long-Term Effects - Over time, the policy’s impact may become clearer. Staff will analyze data on housing production, prices, and neighborhood changes to assess its effectiveness. The actual effects will depend on various factors, including the specifics of an IHZ policy, market conditions, and community engagement. Staff will need to monitor and adjust the policy as needed to achieve desired outcomes. If the City’s IHZ goal is to compel market rate developers to contribute in some way to addressing the City’s affordability issues, staff recommends the program be mandatory. A voluntary program is unlikely to produce results. 2. What should be the fee in lieu of building affordable units? Colorado House Bill 21-1117 requires communities to provide alternatives to the construction of affordable housing where such programs are mandatory. The alternatives are typically either a fee in lieu of building the required affordable units or the construction of affordable units at another location within the community. In-lieu fees allow the jurisdiction to invest the funds where most effective. The amount of the fee varies among cities – some are higher than actual construction costs as an incentive to build affordable units on-site, others are less than the cost of on-site construction. If given a choice and the in-lieu fee is less, most developers will choose to pay the fee. If the intent is to have affordable units constructed as a component of new developments, the fee should be set high. If the intent is to supplement the Affordable Housing Fund and redeploy funds in other ways, the fee could be lower. For Wheat Ridge, staff recommends the fee-in-lieu option be 50- 80% of the cost of construction of one unit. Staff is also recommending working with a consultant to affirm and finalize this fee-in-lieu amount. 3. What, if any, incentives should be considered to encourage construction of affordable units? The City already encourages affordable housing through two incentives: waiver of parkland fees and a reduction of required parking. Many cities also utilize financial, density, and height incentives, but these would be more difficult to achieve in Wheat Ridge: • Financial – Financial incentives typically include the waiver or reduction of application fees, utility tap fees, and/or building permit fees. These types of incentives are problematic for Wheat Ridge since the City relies on utility district providers and a third- party consultant to staff its building division. Study Session Memo – Affordable Housing Strategy Program Implementation June 3, 2024 Page 5 5 • Density – Other than direct financial investment, density is the most often used incentive to generate affordable housing. Density allows for more efficient use of infrastructure and greater affordability. The AHS indicates that density bonuses have mixed success due to the higher cost of construction. In Wheat Ridge, density bonuses are not a tool that can be used because of the unique features of the City Charter. Most areas of the City are limited to 21 units per acre. Those areas which are exempted from the charter cap do not have a density limit (they are limited by height), so there is no “density bonus” that could be offered. • Height – Like density, increased height allowance is sometimes an incentive offered to developers who provide affordable units. Taller, more compact development allows for more efficient use of land and infrastructure and may help to make projects more affordable combined with density. In Wheat Ridge, however, the Charter implications and market realities also limit use of this tool. In most areas of the City, residential development is limited to 35 feet in height. For those properties which are exempt from this height limit and which are zoned Mixed Use-Commercial, it appears that maximum height limits are not a hinderance to development. Recent multi-family development has been 3 to 5 stories in height, indicating that the market doesn’t support taller (6 to 8 story) development that is already allowed in some areas. This is likely due to higher construction costs. Ultimately, staff does not recommend an IHZ program structured around incentives. Incentives are not seen as effective in that the market hasn’t taken advantage of the height and density allowances currently available. While reduced permit fees could be investigated, other financial incentives are limited or unavailable in Wheat Ridge. 4. What should be the affordability requirement? This question relates to three program features: what household income the program targets, how many affordable units are required from each market rate project, and the duration of the affordability period. The AHS (pages 24-25) recommends that City programs target middle-income households: • Rental units for households with incomes between $50,000 and $100,000 • For-sale units for households with incomes between $100,000 and $150,000 These incomes generally correlate with AMIs of 80-130%. This will help to reach the “missing middle” populations and provide the city with a better balance of housing types. The AHS recognizes that lower income households are best served by professional affordable housing developers and housing authorities; serving lower income households through an IHZ program would require subsidies and/or would have the unintended consequence of raising costs for the other market-rate lessees or purchasers. The recommendation in the AHS is a mandatory program requiring 10% of all new residential units be ‘affordable.’ Ten percent would be financially feasible for a developer to construct those units while not spreading their profit deficit too extensively across market rate units. Staff recommends the City’s IHZ program require 10% of new units priced for household AMIs of 80- Study Session Memo – Affordable Housing Strategy Program Implementation June 3, 2024 Page 6 6 120% to be validated through a more detailed economic analysis. 5. How should an IHZ program apply to new development? The AHS recommends applying the IHZ program to residential developments only in mixed-use zoning districts and urban renewal areas. Given the very limited areas of the City where additional density and height are possible, it is unlikely the City will see a significant production of affordable housing units (or revenue for the affordable housing fund) if it is limited to only those areas. In short, the program would apply to fewer projects and achieve smaller results. Conversely, calibrating the program to apply to a wider range of project sizes, to a wider geography, and with a lower fee-in-lieu could mean that more market-rate projects contribute at lower amounts to the City’s affordable housing goals. In this approach, the program could apply city-wide to new residential development of 10 or more units. Staff recommends this latter broader approach, to be confirmed through an economic analysis which can explore scenarios of project size, geographic applicability, and fee-in-lieu amounts to determine the optimal scenario for furthering the City’s affordability goals without overly impacting market rate units. 6. What long-term administrative burden can the City absorb? The institutionalization of an IHZ program requires on-going administrative responsibilities, including compliance review, creation of a record keeping and monitoring system to track rentals and sales, and tenant intake and sales eligibility determination. While a developer or property manager can be made responsible for these actions, the City will at a minimum have to monitor on-going compliance. If affordable units are constructed as part of an IHZ program, the affordability period will need to consider the ongoing administrative impacts. The program’s structure should seek to minimize the long-term administrative burden, in which case staff recommends calibrating the program to more often achieve an in-lieu fee contribution to the affordable housing fund. While this may result in fewer units constructed through the IHZ program, these funds can be redeployed to further other affordability programs such as gap financing for affordable developers or down payment assistance for middle-income households. RECOMMENDATIONS & NEXT STEPS: In consideration of the issues discussed above, staff recommends the following: • A mandatory IHZ program • A fee-in-lieu option of 50-80% of the cost of construction of one unit • An IHZ program that is not incentive-based • A requirement that 10% of all new residential units be affordable to AMIs of 80-120% • Application of the requirement to all new residential development of 10 or more units across the City • Designed to minimize the long-term administrative obligations of the City Study Session Memo – Affordable Housing Strategy Program Implementation June 3, 2024 Page 7 7 The question for discussion on June 3 is if Council agrees with each or all of these recommendations. If Council agrees, staff will procure a consultant to develop an economic impact analysis to assist with determining the specific fee in lieu amount, the affordability range, and the applicability requirements. ATTACHMENT 1 Affordable Housing Strategy Program Implementation June 3, 2024