Inclusionary Housing (PA2022-045)

As directed by Policy Action 1K (Inclusionary Housing Policy) of the City’s recently adopted 2021-2029 Housing Element, the City is in the process of developing an inclusionary housing program and evaluating the financial impacts that a program may have on housing development and the parameters that will make it most effective.

On September 13, 2022, the City Council adopted the Sixth Cycle Housing Element update for the 2021-2029 planning period. The update is a comprehensive statement of the City‘s housing policies and serves as a guide for implementation of these policies. The update examines current housing needs, estimates future housing needs, and establishes goals, policies and programs pertaining to those needs, while demonstrating capacity to accommodate the Regional Housing Needs Assessment (RHNA) allocation of 4,845 new housing units over the eight-year planning period. For more information on the 2021-2029 Housing Element Update, please click here.

The RHNA allocation is broken down into income categories as follows: 1,456 units for very low-income households, 930 units for low-income households, 1,050 units for moderate-income households, and 1,409 units for above-moderate income households.

This substantial RHNA obligation will be a challenge to accommodate due to prevailing project development costs and high land values in the City. Therefore, the City must evaluate a variety of policies, regulations, and incentives to provide affordable housing. One such policy is the adoption of an inclusionary housing program that would require housing developers to provide units designated for very‐low‐, low‐, and moderate‐income households interspersed with the market rate housing.

The adopted 2021-2029 Housing Element includes Policy Action 1K (Inclusionary Housing Policy) which includes a requirement to adopt an interim inclusionary policy within six months and adopt an ordinance within three years of adoption of the Housing Element. The policy also requires the City to assess and analyze a variety of inclusionary housing policy options, standards, requirements and regulations to determine the best course of action. Based upon this initial assessment, the City will determine the appropriateness and application of inclusionary policies, and adopt policies, programs or regulations that will produce affordable housing.

Inclusionary housing is a requirement placed upon developers to provide a minimum percentage of lower‐ and moderate‐income dwelling units within new residential developments. Inclusionary housing ordinances place income eligibility criteria for defining affordability, pricing criteria for the affordable units, restrictions on resale and subsequent rental of units, and may contain provisions for the payment of fees in‐lieu of providing affordable housing units on‐ or off‐site.

Keyser Marston Associates, Inc. (KMA) was engaged to assist in evaluating the potential for reinstating a Citywide Inclusionary Housing program, including the preparation of a financial evaluation. The financial evaluation helps to identify the supportable inclusionary housing program requirements that balance the interests of property owners and developers against the City’s need for affordable housing. The financial evaluation includes legal background of inclusionary housing programs in California, anticipated financial impacts that inclusionary requirements would have on both ownership housing and rental housing projects in Newport Beach, recommendations for a supportable minimum inclusionary housing percentage, and recommended in-lieu fee payment that a developer can pay as an alternative to on-site construction.  

The February 17, 2022, Draft Inclusionary Housing Financial Evaluation prepared by KMA is now available for public review by clicking here.  Any comments on the document can be submitted to Jaime Murillo, Deputy Community Development Director, at jmurillo@newportbeachca.gov.

Community Development Department staff will conduct a study session with the City Council on January 24, 2023, to present the findings of the Draft Financial Evaluation. Staff will also seek City Council guidance for framework of the future inclusionary housing program, including the inclusionary housing percentage, applicability of the program and alternatives for compliance.

Draft Inclusionary Housing Financial Evaluation prepared by Keyser Marston Associates, Inc.  dated February 17, 2022

2021-2029 Adopted Housing Element Update

September 14, 2021 - City Council Study Session Presentation

March 22, 2022 - City Council Study Session Presentation