Morgan Hill

City Council Staff Report

2018 Housing Program Update


Department:DS (General)Sponsors:



Morgan Hill's primary housing mission is to continue the City's legacy to improve, preserve, and create safe, quality, rental and ownership housing in Morgan Hill for residents at all income levels. During the February 7, 2018 City Council meeting, the Housing Team will provide an update to the City’s Below Market Rate (BMR) Ownership Program in response to questions raised in December 2017 by the BMR homeowners, and on the City's Housing Program including rental units, vacancy and new housing legislation impacts. This report is organized in the following order:


1) Below Market Rate (BMR) Ownership Program Update and Certification Report

2) BMR Monitoring Rental Report

3) Affordable Apartment Vacancy Survey Report

4) Homeless Report

5) Upcoming Housing Work Program

6) 2017 Housing Reform Legislative Session Update


1)     Below Market Rate (BMR) Ownership Program Update 

Following the sudden dissolution of the City's previous BMR Administrator, Neighborhood Housing Services of Silicon Valley (NHSSV), on July 15, 2015, the City Council adopted a transition plan, which included contracting with Nyanda and Associates, LLC, A California Limited Liability Company d/b/a HouseKeys, to provide the continued administration of the BMR Program (Program). While we are continuing to fine tune implementation, the BMR expertise that HouseKeys provides has created an invaluable partnership.


The BMR portfolio has a total of 509 owner occupied units, with 30 new construction units in the pipeline in 2018. The Program continues to require additional focus on asset management, education, monitoring, and compliance to maintain integrity and guarantee sustainability of the Program. With a 40-year program that has over 500 BMR properties spread out in over 76 subdivisions, Morgan Hill has one of the region’s oldest, largest, and most active affordable ownership housing portfolios. Please see attached for a “BMR Program by the Numbers” report.


BMR Ownership Program Certification Report

One of the responsibilities of the BMR Ownership Program is to monitor the integrity of the affordable ownership supply previously administered by the Morgan Hill Redevelopment Agency (RDA). The City has an obligation to verify that the homes are being used in a manner consistent with their recorded Covenants and Restrictions. HouseKeys, with the approval of the City’s Housing Manager, mailed out 509 monitoring letters to BMR homeowners in August 2017 to request that they provide information and acknowledge that they are occupying the home. The letters were also used as a tool to gather information to help staff gather information about the makeup of the owners and the current resident landscape.  If the homeowner chose to not return the letter, the administrator, HouseKeys, began employing a combination of other research means to verify owner occupancy and the status of the unit.  At this time, HouseKeys is continuing to conduct further analysis to determine if there are individual violations of affordable housing covenants.


Initial monitoring letters were sent on August 28, 2017, and second letters were mailed out on October 20, 2017 to BMR homeowners who had not responded.  Eight homeowner education workshops were scheduled to provide additional opportunities for BMR homeowners to obtain information and ask questions about their resale restrictions. BMR homeowners were mailed a postcard notifying them of the eight workshop opportunities. Although monitoring efforts are conducted to ensure that the BMR homes are “owner occupied,” and to verify the financial status of the unit, historically letters have gone out only intermittently. The demise of the RDA and then NHSSV contributed to the intermittent level of information being disseminated over the years.


While the monitoring letters were intended to serve as a tool for verifying occupancy, the letters requested additional information to help the City gain additional insight into the BMR Program.  The information will be used to shape policy discussions regarding affordable housing. It was recently brought to staff’s attention by several of the BMR homeowners that the information being requested on the monitoring letter did not clearly state whether it was optional or voluntary. Moving forward, future monitoring will clearly delineate between what information is required such as, owner occupancy status versus optional data collection information, such as current income.


The BMR program is a partnership between the homeowner and the City and the goal is to ensure a positive outcome for everyone that is in alignment with the recorded use restriction agreements. More now than ever, as the housing crisis remains a pressure point, cities need to protect their affordable housing assets. Monitoring efforts are necessary to protect the integrity of the Program, and to ensure the intent of the Program is met so that families of varying income levels are provided housing opportunities in the community. When a BMR resale home is available, it is sold to the next income qualified family; thus, the 45-year deed restriction clock begins again, and the City continues to maximize the affordable opportunities that any one home can provide.


Additionally, some of the BMR and sweat equity homeowners expressed questions regarding “transferring of a BMR home,” “is it permitted?” and “Can a family member inherit the home and/or affordable opportunity that was afforded to them?” There are several ways in which the subject of transfers is addressed in the legal agreements, including 1) Transfers by Refinance, 2) Transfers by Sale, 3) Transfers through Family Changes (e.g. Marriage or Divorce), and 4) Transfers by Inheritance. It is important to note that not all agreements are the same. They vary depending upon their age, the funding sources for the units, and changing requirements under the law over the past 40 years, including the term of the covenants, from 25, 35, 45, or 55 years. Therefore, it is always essential to review each agreement for every home to verify permitted transfer language.


When addressing the topic of transfers, there is not any one solution or a simple answer. There are at least 76 subdivisions that are included in Morgan Hill’s BMR ownership portfolio.  Approximately 20 subdivisions have used a resale restriction agreement that is similar to the current template, but the other 50-plus have individually crafted legal agreements with varying restrictive covenant language. In two cases, residents of the same subdivision have separate agreements, one for sweat equity and one with down payment assistance. Staff will continue to work closely with HouseKeys to create general program guidelines for each “transfer that is in alignment with the original agreement and take into consideration the compliance status of the City’s BMR applicant.  Collectively, the City will continue to work with each individual homeowner to identify the form of agreement language used in order to determine whether a transfer is allowed. Homes illegally rented and not owner occupied would not be allowed to transfer in any situation. Homes which have been leveraged through unauthorized loans, jeopardizing the unit’s affordability, are also not transferrable. Homes that have not yet met their affordability term generally get resold to the program to be conveyed to another affordable owner when the unit is no longer occupied by the BMR owner. Current restrictions prohibit units from being transferred to an owner, including a family member, who earns above restricted income and able to purchase a home at market rate and is not in need of affordable housing.


2)     BMR Monitoring Rental Report

There are 1,166 deed restricted and affordable rental units in Morgan Hill. The traditional larger affordable apartment complexes are managed by individual property management companies, who are required to regularly verify income of tenants. For the purposes of this report, BMR rental units are defined as the affordable units that were developed as mixed income projects through the Residential Development Control System (RDCS). Currently the City’s BMR Rental portfolio consists of 38 units obtained through the RDCS process.  The rental properties include a mixture of single family dwellings, duplex and tri-plex units, and apartment units. These units are deed restricted from 20 to 60 years depending on the deed restriction; 7 of the units will age out of restrictions and become market units by April 3, 2018. These units serve the lower income population between 50% to 80% of the AMI (average median income) of Santa Clara County.  In December 2017, staff began the process of re-certification of the BMR rental portfolio. The re-certification process confirms that the units are being rented out at the income levels in compliance with their agreement, and that they are charging the appropriate rent amount.  Staff will continue to contact the landlords/owners to follow up regarding their re-certification process. The status of the monitoring effort consists of 15 out of 38 re-certification packets returned from landlords or owners, one vacancy, and one landlord requesting clarification on the deed restrictions. Staff will continue to work with the landlords or owners to facilitate response and compliance.


3)     Affordable Apartment Vacancy Survey Report

Staff conducted a vacancy survey of the 1,166 current affordable apartment rentals in affordable housing projects in April 2017, at which time the City’s vacancy rate was 3.36%. Subsequently, a survey was conducted in December 2017, at which time there was a 4.88% vacancy rate. Staff called each project and as of January 30, 2018, there are no vacancies.


4)     Homeless Report

Recent Housing Accomplishments

The Housing team continues to proactively create and preserve affordability in the City through a variety of programs that seek to serve all income backgrounds from extremely low income to moderate income housing. Some of the past year’s accomplishments include leveraging County and City dollars to bring new programs and projects to fruition. These include the Homeless Safe Parking program, the upcoming Urban Housing Communities (UHC) 39-unit project that recently secured $5.8 million in Measure A funds, the onboarding of County outreach workers serving homeless in the City and South County, and early conversations with the City of Gilroy and other South County partners to identify South County opportunities that have the ability to meet the City’s housing and service needs.


Homeless and Development Activity Update

Addressing homelessness with effective strategies to reduce the number of individuals and families without a home is a complex issue that requires regional collaboration and a long-term focus. The County of Santa Clara released the 2017 Santa Clara County Homeless Census and Survey Report. As a whole, the County of Santa Clara saw a 13% increase in the number of people experiencing homelessness, with 7,394 counted in 2017. The 2017 report concluded that the City of Morgan Hill’s Homeless Count increased by 380%, up from 81 people in 2015 to 388 people today. The 2017 Report is just one tool for assessing and understanding homelessness in our community; it is a snapshot. The cause of homelessness and the solution to end homelessness is different for every household. The Housing Team embraces working as a strong, supportive regional partner with those working countywide, while remaining sensitive to the uniqueness of the City and those homeless and affordable housing strategies which have been most successful in Morgan Hill. Ultimately, the goal is to work together to bring forward and implement housing policy and programs so that everyone can be successful.


Because there are fewer resources, services, and case managers in South County to resolve individual homeless situations, when an individual or family becomes homeless it may take longer to remove the barriers that are preventing them from being housed, coupled with the fact that there are limited vacancies/opportunities. It is also possible that some families may initially be less visible in South County, as they park in rural areas that are more remote and less likely to be discovered.


Finally, homelessness is an administrative and maintenance cost to the City, increasing demand from housing, public safety, and streets/utilities personnel. Recent clean up of an encampment placed on public property cost upwards of $25,000.



Homeless Efforts


·         In November 2016, Santa Clara County voters approved a $950 million bond (Measure A) which will fund the development of 4,800 extremely low-income (ELI) housing units throughout the County serving the homeless. It is expected that the 4,800-unit goal will generate 10,000 new construction, affordable housing units countywide, by leveraging resources. Additionally, $150 million of the Measure A funds will be set aside for workforce housing and down payment assistance. The County’s goal is to create 4,800 affordable ELI units Countywide, of which 92 units have been designated as the Measure A affordable housing goal for the City of Morgan Hill, over a ten-year period. The remaining balance is planned to be distributed throughout the County in the other cities equivalently, based on Regional Housing Needs Allocation (RHNA) methodology. In the first funding round of Measure A, UHC was awarded $5.8 million for the 39-unit affordable housing development at the corner of Monterey and Bisceglia.


·         City and County Partnership: July 1, 2017 two part-time homeless outreach workers began conducting interviews and assessments with homeless individuals in the City. Housing and public safety staff continue to make referrals and have seen some success.  This is a critical first step as the City is beginning to see homeless individuals assessed through a coordinated effort which will connect them with the appropriate case manager, program, services, and housing opportunities. Without assessment, South County residents will not enter into the County Coordinated Assessment “queue” which is the first step towards case management, services, and housing. Case management for each identified family or individual is still needed to make meaningful connections with services in South County. The City contributed $50,000 to the larger Countywide “outreach” effort for two years as a first step. Outreach workers are tasked with the goal of connecting the homeless to case managers and programs. Staff is recommending that the City join with Gilroy and the County to fund case managers in South County focused on solving and ending homelessness.


·         A City and County Partnership: August 1, 2017 was the launch of a Homeless Prevention and Rapid Rehousing (rental assistance) Program for families, targeting families with children in the school district at risk of homelessness. The City contributed $25,000 to this larger Countywide effort for two years. 


·         The Housing Team worked with the County Planning Department to expedite the permit process to repair the Thousand Trails RV bridge that was closed due to winter flooding. It has since been reopened.


·         Morgan Hill is discussing potential opportunities for farmworker agricultural housing in South County with the County Planning Department, County Office of Supportive Housing, and City of Gilroy. There was a successful first meeting on January 19, 2018, in which South County farmers provided staff with valuable insight as to their workforce’s housing needs.


·         The City permitted construction of 137 Senior affordable units at the Lodge on Barrett Avenue, now fully occupied and serving several previously homeless veterans and others, for a total of 42 units with federal rental subsidies.


·         The Housing Authority provides Section Eight federal rental assistance vouchers Countywide. There are 283 vouchers in Morgan Hill; current average monthly housing assistance per household is $1,423. The approximate annual amount funded by the Housing Authority in the City of Morgan Hill is $4,832,508.


·         The City permitted construction of 114 Senior affordable units at the Huntington and conducted targeted local outreach efforts to daylight the opportunity to Morgan Hill and South County residents. The project is 100% leased.


·         In April 2017, groundbreaking of the EAH three-site project launched the 41-unit, new construction affordable housing development scheduled to be completed in July 2018 and designated for families and Transitional Age Youth (TAY) aging out of foster care and at risk of homelessness.


·         Partnering with the Police Department, County Planning Department, and the faith-based community, an eight space, pet welcome, Safe Parking Program was launched on July 8, 2017 at a local church for eight homeless families living in their cars where they are receiving coordinated assessment, services, meals, and support with the goal of providing some stability while they wait for permanent housing. The program began serving eight families, 25 people and eight children.


·         In June 2017, the City participated in a loan closing to facilitate the major rehabilitation of the 1970’s Village Avante, now known as Park Place, a 112-unit multifamily development that is home to 420 people. As turn-over occurs in this development, some of the units are set aside for families transitioning out of temporary housing; thus, freeing up nearby temporary units to be vacated so that room can be available for homeless families. 


·         South County Housing Regional Partnerships: Because homelessness does not know jurisdictional boundaries, and because both the City of Morgan Hill and the City of Gilroy are located geographically further from service centers while also experiencing a reduction in transportation services, it may prove worthy to look for opportunities to collaborate with the City of Gilroy to create some consensus around a South County regional housing framework to address a variety of housing and homeless needs. This could help ensure that housing opportunities are evaluated in relationship to the availability and sustainability of supportive services; proximity to transportation services, presence of experienced property management, and regional coordination with the County and Cities. Morgan Hill and Gilroy could also benefit from economies of scale as we assess the need for various service providers in South County. Staff has had preliminary conversations at the staff level with the City of Gilroy. Staff will return to Council with some possible South County housing strategies and partnerships for both Cities to consider. 


5)     Upcoming Housing Work Program

City Housing activities continue to deal with the effects of the elimination of the Redevelopment Agency and the resulting loss of $4 million in annual funding to support the rehabilitation and development of affordable housing in Morgan Hill. These housing funds were one of the significant cornerstones of the City’s very successful housing program. The Housing Team continues to look for opportunities to partner and leverage resources and will implement policies and activities that are aligned with the priorities, goals and strategies the City Council has set. The following items are currently in the Housing workplan and will be adjusted as needed based on the Council’s goals.


a.     Continue to work with South County partners (City of Gilroy, community, farmers, CBOs etc.) to consider new South County partnerships and housing opportunities that address all income levels and leverage resources (considering partnering with Gilroy to co-fund case managers located in South County, exploring agriculture farmworker housing and or artist housing opportunities).


b.     Seek County Measure A funds for South County workforce, first time homebuyer down-payment assistance.


c.      Respond to Housing Accountability Act to identify opportunities to meet the City’s Regional Housing Needs Allocation goals per income level for the 2015-2022 RHNA cycle, in an attempt to avoid the “by right” SB 35 Streamlining review process that limits local input. This would involve analyzing the RDCS application and the RHNA goals, past results and future projections of units by income category.


d.     Continue to partner with the Morgan Hill Unified School District (MHUSD) to enhance services to homeless youth in the schools.


e.     Continue to build a system that ends homelessness with a solution-oriented philosophy by incorporating and aligning services that are results and performance oriented such as street outreach workers and case managers, possibly equipped with a behavioral health skill-set.


f.        Refine consultant services agreement for BMR Program Administration.


g.     Facilitate the development and construction activity for the UHC 39-unit project (corner of Monterey and Biseglia).


6)     2017 Housing Reform Legislative Session Update

Housing affordability and supply continues to be a “crisis” issue in California. Responding to this crisis statewide, lawmakers introduced more than 130 bills during the 2017 legislative session; many focused on constraining local land use authority or eliminating local discretion to increase supply. Fifteen bills made it into the “housing package,” subsequently signed by Governor Brown. These bills are intended to make significant changes to the local land-use process and spur the production of housing in the State. In total, these bills reinforce the State’s position that the housing crisis requires local cities to create new housing supply and should be accountable to create their “fair share” of housing.  They also recognize that the States single greatest source of affordable housing financing was historically provided through redevelopment agencies, which the Governor eliminated in 2011, and some source of state funding is necessary to take its place.


Staff is also reviewing this new legislation as part of the City’s zoning ordinance for Council’s consideration.  Depending on analysis of the new laws, future zoning ordinance changes may need to be considered post adoption of the zoning ordinance update. Potential future amendments include updates to provide additional objective development standards for multifamily housing consistent with SB 35 and updates to the Housing Accountability Act.


Below are summaries of those bills most likely to have the greatest impact on Morgan Hill. Please note that this is a general summary only and the bills discussed are complex. Further analysis will be provided prior to the Council’s consideration of any future zoning code amendments to address state law changes, RDCS procedures, and as residential projects come forward in 2018.  A number of the bills will raise the stakes for local agencies when they are considering projects on sites in their housing inventory, when they are considering approval of housing projects, and when they are implementing their housing element through other actions (or inaction).


Funding Measures

Two of the newly adopted bills are funding and/or funding opportunity bills; SB 2 (Atkins) and SB 3 (Beall). SB 2 establishes a fee on specified real estate transactions and is expected to raise $200 to $300 million annually. The funds will be collected by counties. In 2018, HCD will make 50% of the funding available to local agencies for planning and zoning updates, and starting in 2019, HCD will make 70% of the funding available to local agencies for affordable housing via competitive grant programs. The programs emphasize rapid rehousing of the homeless and housing for extremely low-income households (less than 60% of AMI). SB 3 will place an affordable housing bond measure on the State ballot in 2018. If approved, it would provide approximately $4 billion in funding for a variety of affordable housing programs and the veterans homeownership program.


Streamlining Measures

Expediting and streamlining the local housing permitting process was the focus of three different bills SB 35 (Weiner), SB 540 (Roth), and AB 73 (Chiu). SB 35 (Weiner) has been referred to as the “by right” housing bill because it would require local agencies to expeditiously and ministerially approve multifamily housing projects meeting certain eligibility criteria, if requested by the applicant. A local city is subject to the provisions of this bill if the State Department of Housing and Community Development (HCD) determines that the jurisdiction has not issued enough building permits to satisfy its Regional Housing Need Allocation (RHNA) numbers by income category, or, did not submit the required annual Housing report to HCD for two years. The bill will be effective from January 1, 2018 until January 1, 2026.  The summary below focuses on which projects will be eligible for streamlining under SB 35, and then discusses the project review and approval process for those eligible projects. Parking requirements are also impacted, as the cost of development of parking is considered an impediment to construction. HCD has begun the process of determining which cities will be subject to the bill; however, we anticipate that Morgan Hill may be subject to the law. Cities do not receive credit for past production outside of the current RHNA eight-year cycle.


The summary below focuses on which projects will be eligible for streamlining under SB 35, and then discusses the project review and approval process for those eligible projects.


SB 35 Eligible Projects: There are a number of requirements that a project must meet to be eligible for SB 35 streamlining.  To be eligible, a project must:


         consist of two or more units and be located on a legal parcel or parcels in an area with at least 75% of the perimeter developed with urban uses;

         be on a site that is zoned for residential use or residential mixeduse or has a general plan designation that allows residential use or a mix of residential and nonresidential uses;

         designate at least twothirds of the projects square footage for residential use;

         be consistent with the current zoning ordinance and all objective zoning standards and objective design review standards in effect at the time of application;

         not be located in a coastal zone, wetland, prime farmland, very high fire severity zone, hazardous waste site, delineated earthquake fault zone, flood plain or floodway (unless a flood plain development permit is obtained), within land identified for conservation in an adopted natural resource protection plan, habitat for protected species, under conservation easement, or be subject to mobile home park law;

         not propose demolition of a listed historic resource;

         not propose demolition of existing dwelling units that are subject to affordability restrictions or have been occupied by tenants within the past 10 years;

         not be on a site that was previously used for housing occupied by tenants that was demolished within the past 10 years;

         not involve a subdivision (except for projects using low income tax credits and paying prevailing wage or satisfying other labor requirements);

         provide a minimum percentage of below market rate units for projects with more than 10 units, with the percentage and the level of affordability based on the City’s track record of unit production at different levels of affordability during the RHNA period; 10 percent must be affordable to households earning 80 percent or less of area median income or 50 percent must be affordable to households earning 80 percent or less of area median income, depending upon the City’s past approval of above moderate income and lower income housing; and,

         pay prevailing wages if the project consists of 10 units or more; and

         use a skilled and trained workforce (e.g. union labor) if the project consists of 75 units or more.   


SB 35 Project Review and approval process:

SB 35 establishes an expedited review and approval process for eligible projects. Within 60 days of submittal of an application, the local jurisdiction must confirm the project’s eligibility under SB 35 and provide a list of all inconsistencies with objective zoning standards and objective design review standards in effect at the time the application is submitted (90 days is allowed for projects containing more than 150 units). “Objective standards” means standards that involve “no personal or subjective judgment by a public official and are uniformly verifiable by reference to an external and uniform benchmark ….” If the agency fails to provide this list within the required timeframe, the project is deemed consistent with zoning and design review standards.


If a city determines that development is in conflict with “objective planning standards,” then it must provide written documentation within 60 days of submittal if the development contains 150 or fewer housing units and within 90 days of submittal if the development contains more than 150 housing units. Approvals must be completed within 90 to 180 days (depending on the number of units in housing development), must be ministerial and not subject to CEQA.


SB 35 Ministerial Review Process:

Local jurisdictions have a total of 90 days from submittal to process and make a determination on an application, including any hearings by boards/commissions or the City Council (180 days is allowed for projects containing more than 150 units). Reviews within the first 60 days of submittal can focus on applicability of the streamlined process under the law, objective zoning standards and “reasonable objective design standards published and adopted by ordinance or resolution” prior to receipt of the application. Reviews within the last 30 days, including any hearings, can only focus on the reasonable objective design standards. Reviews may be conducted by staff, boards/commissions and/or the City Council, as long as they are based on these standards, and are conducted within the 90-day timeframe.


SB 35 Limits on Parking Requirements: SB 35 would reduce or eliminate parking requirements for eligible housing projects. Projects that qualify for streamlined processing are not required to provide any offstreet parking if they are within: ½ mile of public transit; one block of a car share vehicle location; an area where onstreet parking permits are required but not offered to the development occupants; or an architecturally or historically significant historic district. Eligible projects in other locations could only be required to provide one parking space per unit.


SB 35 Considerations:

         Has the site contained rental housing within the last 10 years?

         Does the site have soil or groundwater contamination?

         Is there an historic building?


Project eligibility will also be affected by specifics of a developer’s proposal. For example:

         Does the proposal comply with current zoning and meet all objective zoning standards without the need for any variance or exception?

         Has the developer agreed to pay prevailing wages?

         Has the developer agreed to meet affordability requirements?


SB 35 Affordability Requirements:

For projects with more than 10 units, to qualify for SB 35 streamlining the affordable housing requirement provides that 10% of the units must be restricted for households earning less than 80% of the area median income (AMI). The City currently requires ownership projects to provide 8% of the units as affordable or requires a Housing fee be paid. 100% affordable projects would qualify, as would projects proposing 50 percent of the units as affordable to households at less than 80% of AMI.


SB 35 Opportunities and Considerations:

Even though SB 35 makes significant changes to existing law, it is important to consider the following:


         All proposed projects seeking streamlining must be consistent with a jurisdiction’s objective zoning standards and objective design review standards. If these standards are outdated or in need of revision, there is opportunity to do so;

         If a jurisdiction does not have “objective zoning standards and objective design review standards,” it may want to create them given that discretionary review is prohibited; objective standards may not lower density unless replacement density is identified on alternative sites.

         SB2 funding assistance will be available in mid- to late 2019 under SB 2 (Atkins) for planning documents, including General Plans, Community Plans, Specific Plans, sustainable communities’ strategies and local coastal programs. HCD is currently establishing funding guidelines.


In some ways, SB 35 is a gamechanger for multifamily housing development in Morgan Hill because of its potential to influence the size and location of multifamily housing applications that the City receives, used in conjunction with density bonus, which permit exemptions to height, density, parking standards, and setbacks, these provisions could have significant impact. Projects requiring legislative actions (e.g. rezoning) or design exceptions will still have to go through the City’s process.


SB 540 (Roth) and AB 73 (Chiu)

SB 540 (Roth) and AB 73 (Chiu) would provide local agencies with financial incentives to expedite project approvals, rather than mandating a ministerial process. SB 540 sponsored by the California League of Cities, would allow agencies to apply for funding to prepare an EIR (Environmental Impact Report) and specific plan to create a Workforce Housing Opportunity Zone (WHOZ) that would enable fast track (60day) approval of housing consistent with the plan for five years after plan adoption. The focus is on workforce and affordable housing in areas close to jobs and transit and to conform to California’s greenhouse gas reduction laws. SB 540’s objective is to set the stage for approval of housing developments by conducting all of the necessary planning, environmental review and public input on the front end through the adoption of a detailed Specific Plan. SB 540 provides the development community with certainty that for a five-year period, development consistent with the plan will be approved without further CEQA review or discretionary decision-making. All development that occurs within the WHOZ must be consistent with the Specific Plan for the zone and the adopted sustainable communities’ strategy (SCS) or an alternative planning strategy (APS).


AB 73 would allow agencies to adopt “housing sustainability districts” subject to HCD approval. Approved sustainability districts would enable agencies to apply for a “zoning incentive payment” from HCD and provide for ministerial approvals of housing projects and could be in effect for up to 10 years. Both SB 540 and AB 73 appear to be targeted at larger cities like San Francisco or San Jose.


Accountability Measures/Housing Accountability Act (HAA):

The third aspect of the Legislature and the Governor’s housing package pertains to bills that seek to hold jurisdictions accountable for the lack of housing construction by income level in their communities. While this view fails to acknowledge the many factors that affect housing construction that are beyond the control of local government, the following measures significantly change existing law. SB 167 (Skinner), AB 678 (Bocanegra), and AB 1515 (Daly) are three measures that incorporate nearly all of the same changes to the Housing Accountability Act (HAA). HAA currently precludes a local agency from denying or reducing the density of a housing development project that meet objective development standards unless it finds:  1) the project would have specific, quantifiable, direct, and unavoidable impacts on public health or safety, based on objective safety standards, policies, or conditions in existence at the time the application was deemed complete; and 2) these impacts cannot be mitigated except by disapproval or reduction in density. In addition, for projects that meet specified affordability thresholds, an agency may not impose conditions that render the project infeasible for the use of very low, low, or moderate-income households, unless it makes similar findings. For affordable housing projects, these findings may be required even if the project does not comply with objective development standards. AB 678 (Bocanegra) and SB 167 (Skinner) are identical bills that significantly increase the burden of proof for local agencies to justify disapproval of housing projects or approval of housing projects at lower densities than allowed. AB 1515 (Daly) requires the courts to give less deference to a local government's planning and zoning consistency determination. In sum, the three bills make the following changes:


·         The definition of “housing development projects” is expanded to include mixed use projects where at least twothirds of the floor area is designated for residential use.


·         An agency must now provide a written explanation of any inconsistencies with objective development standards and policies within 30 days (60 days for projects with more than 150 units). If the agency fails to respond within these timelines, the project is deemed consistent with all objective standards.


·         A project must be deemed consistent with objective standards and policies if there is “substantial evidence that would allow a reasonable person to conclude” that the project is consistent. In other words, an agency must find consistency with objective standards as long as there is relevant evidence to support that finding, even if the weight of the evidence is to the contrary.


·         The bills clarify that receipt of a density bonus is not a basis for finding a project inconsistent with objective standards.


·         Whereas existing law requires that agencies support their findings with substantial evidence in the record, the bills increase that burden to require a preponderance of the evidence. This is a much less deferential standard for judicial review of a decision to deny or reduce the density of a project.


·         The bills require an award of attorney’s fees to a successful plaintiff and the imposition of harsh penalties (at least $10,000 per housing unit) for agencies who fail to comply with a court’s order within 60 days.


Provisions of the Housing Accountability Act are already quite stringent, and recently resulted in successful litigation by a developer in Los Gatos. All three of these bills would strengthen existing provisions in the law and increase penalties for noncompliance, making it much more difficult for a City to disapprove or reduce the number of units in a housing project.


The Housing Accountability Act applies to all housing projects in the City, including mixed use projects that dedicate at least twothirds of their square footage to residential uses and transitional or supportive housing projects. In addition, the HAA provides heightened protections for affordable housing projects that make at least 20% of their units affordable to lowincome households (up to 80% of AMI) or 100% of their units affordable to middleincome households (up to 150% of AMI).


Housing Elements and Regional Housing Need Allocation:

State law requires each local government in California to adopt a Housing Element as part of its General Plan demonstrating how the community plans to meet the existing and projected housing needs of people at all income levels. The Regional Housing Need Allocation (RHNA) is the number of new homes that a city is "assigned" to produce in a Housing Element cycle. It is determined in collaboration with the Association of Bay Area Governments (ABAG) based on State population projections and local conditions. As further background, the following is a status report on housing production (building permits) compared to the City’s Regional Housing Needs Allocation (RHNA) obligation:


Past RHNA Housing Accomplishments for the 2007-2014 Housing Element Cycle

Income Level

RHNA unit Goal

Permits Issued

% of RHNA Met

Units + or -

Very Low (0-50% AMI) includes 30% AMI for reporting purposes




-219 units

Low (50-80% AMI)




-149 units

Moderate (80-120% AMI)




-203 units

Above Moderate (120% +AMI)




+786 units







Current 2015 – 2022 Regional Housing Needs Allocation (RHNA) Goals


Income Level

RHNA unit Goal

Permits Issued to date (not including 2017)

% of RHNA Met

Units + or -

Very Low (0-50% AMI) includes 30% AMI for reporting purposes




- 233

Low (50-80% AMI)




- 10

Moderate (80-120% AMI)




- 175

Above Moderate (120% +AMI)




+ 218





- 200


The City of Morgan Hill has always been able to meet its gross housing development numbers to satisfy RHNA obligations. However, the City has found it difficult to produce those housing numbers at the requested affordability levels. There are many reasons for this, not the least of which the availability of financing. In the current Housing Element cycle, the City has been given goals to create 928 dwelling units by 2022, which is only four years away. Of the 928 units, 612 units or 66%, were assigned at very low, low and moderate-income levels.  The City has issued permits for 728 units since 2015, the beginning of the current reporting period, but still needs to produce 418 units or 45% of the total units assigned at very low, low and moderate-income levels to meet its RHNA goals by 2022. RDCS competition is in process for FY 19-20 allocations, leaving only two RDCS rounds available to achieve RHNA goals. To meet Morgan Hill’s 2015-2022 unit requirements by income category by 2022, the City would need to award all remaining required unit allocations, 418, to very low, low and moderate-income projects only in the 20-21 FY and no units in the 21-22 FY to meet the guidelines of Measure S. 


With the new reporting, auditing, and enforcement measures further discussed in this report, and the new wave of additional production enforcement measures introduced over the past weeks for consideration in the 2018 Legislative year, the complexion of housing development decisions/choices that Morgan Hill has heretofore made locally, has shifted substantially to limit decision making at the local level.


Future policy considerations for City Council will be:


Should the City of Morgan Hill adopt an inclusionary rental ordinance to help increase the total number of affordable rental units to help meet Regional Housing Need Allocation (RHNA) Goals?


Should the City of Morgan Hill recast its RDCS goals to meet the extremely-low/very-low (0-50%) and moderate (80-120%) affordability levels to meet current and future RHNA goals consistent with the intent of the State Housing Accountability Act (HAA)?


Short timelines for review:

Under the recent amendments to the HAA, staff will have only 30 days to review projects against objective general plan and zoning code standards before the projects are deemed consistent. Although the City may not deny or reduce the density of a project once it is deemed consistent with objective standards, a project may still be subject to discretionary approvals such as architectural review. HAA permits denial or reduction of density only in the event of specific adverse impacts on public health and safety; the City should focus discretionary findings on those issues.


Other Measures:

In addition to the notable bills described here, Gov. Brown signed several other measures that provide new inclusionary powers to local governments, require additional General Plan housing accountability reporting, increase housing element requirements and expand HCD’s ability to review actions taken at the local level.


Several bills (SB 35, AB 72, AB 879 and AB 1397) affect housing element requirements and annual reporting of housing development.


AB 879 (Grayson) and SB 35 address the existing requirement that local agencies file a report with the State Department of Housing and Community Development (HCD) and Office of Planning and Research (OPR) each year, expanding the information required, and imposing penalties if reports are not submitted in a timely fashion. A public hearing on the report and submittal of the report to HCD and OPR must occur by April 1st of each year.


AB 1397 (Low) will be important the next time the City updates its Housing Element. AB 1397 will require a more detailed analysis before allowing sites with existing uses to be considered suitable for residential development.


AB 72 (Santiago) requires HCD to review any action or inaction by a locality that it determines is inconsistent with an adopted housing element, including failure to implement any programs in the housing element. If HCD identifies any inconsistency, it is required to issue written findings and provide 30 days for a response. After 30 days, HCD may revoke its certification of the agency’s housing element and may notify the Office of the Attorney General that the agency is not in compliance with the law. Under the current law, HCD makes a decision to certify (or not) an agency’s housing element within 90 days of adoption and certification provides a rebuttable presumption that an agency’s housing element complies with the law. By allowing HCD to decertify housing elements during the eight-year housing element cycle, this bill provides an avenue for developers and advocates to petition HCD and ultimately challenge the sufficiency of the agency’s housing element in court.


SB 166 (Skinner) amends the existing “no net loss” provision in state law that requires a local government to accommodate its remaining unmet housing need at all times throughout the housing element planning period.  The bill requires specific “no net loss” findings, based on substantial evidence in the record if the jurisdiction approves fewer (or no) units or a different income category on a site in its Housing Element’s inventory than anticipated. If the jurisdiction cannot make the finding that the remaining sites in the Housing Element inventory are adequate to meet the RHNA by income category, the jurisdiction would need to identify other sites that are already zoned to accommodate lower or moderate-income housing or rezone sites accordingly. HCD will require all agencies to include related data in their annual reports, which will allow for a determination as to whether an agency’s sites remain adequate. Because this data could be used by HCD in a midcycle review of a city’s housing element under AB 72 (above), staff believes it would be wise to carefully consider the status of the City’s housing inventory throughout the housing cycle and include a sizeable surplus of sites in the City’s next Housing Element.


AB 1505 (Bloom) would allow local governments to require a percentage of units in rental housing projects to be deed restricted as affordable, which has not been allowed since a 2009 California Court of Appeal decision, Palmer/Sixth Street Properties L.P. v. City of Los Angeles.


Two of the bills, AB 494 and SB 229, provide minor clarifications of the 2016 state legislation on accessory dwelling units (ADU). Specifically, they clarify that:


·         An ADU may be proposed on a parcel zoned to allow a singlefamily residential use that includes an existing or proposed singlefamily home.


·         Conversions of space within an existing singlefamily home or accessory structure (i.e., garage conversion) to an ADU shall be allowed in any zoning district where singlefamily residential is an allowed use (i.e., multifamily zoning districts permitting singlefamily dwellings). The state law previously required only that such conversions be allowed in singlefamily residence districts, and the City’s ADU Ordinance therefore applied these provisions to the R1 district, all R1 sub-districts, and the RE district only. The forthcoming ordinance amendment will also apply the conversion provisions to the R2, RMD, RM, and OS and PC districts where singlefamily residential is an allowed use.


·         Parking requirements for ADUs are further reduced.


·         City rules regarding accessory dwelling units will be updated in accordance with new laws as part of the overall zoning ordinance update.



This report serves to inform the public about the City’s current housing efforts and potential future impacts.



The Council adopted a transition plan on July 15, 2015 to contract with Nyanda and Associates, LLC, A California Limited Liability Company d/b/a HouseKeys, to provide the continued administration of the BMR Program.



There is no fiscal impact at this time.


CEQA (California Environmental Quality Act): 

Not a Project. This report is for information only.


Meeting History

Feb 7, 2018 5:30 PM Video City Council Special - Regular Meeting
draft Draft

Housing Manager Rebecca Garcia and Assistant City Manager for Community Development Leslie Little presented the report.

Mayor Tate opened the public comment at 10:00 p.m. The following people were called to speak:

Janet Pocus

Laura Gonzalez-Escoto

Hearing no further requests to speak, the public comment was closed.


Receive updates. Support the joint efforts of Morgan Hill, Gilroy, and the County of Santa Clara to establish permanently assigned case managers and related services for South Santa Clara County and ask that when we look at homeless programs and work with advocates, we learn why certain things work. Direct staff to return with additional information and recommended actions to achieve greater affordability and direct the Planning Commission to have some hearings on this subject to help us with the matter. One of the areas that we would like to get to is, how can we use the RDCS to affect land costs. If we can start affecting land cost in the equation of a developer we might be able to start affecting some of the bottom line numbers that drive some of the initial costs. We should be using our RDCS competitions specifically in looking at specific income levels and that is one of the ways that we might want to start talking about our competitions and would like to get both staff and Planning Commission recommendations on this.

MOVER:Larry Carr, Council Member
SECONDER:Rich Constantine, Mayor Pro Tem
AYES:Steve Tate, Rich Constantine, Larry Carr, Caitlin Jachimowicz, Rene Spring