A 28-home development is slated to be built on this patch on Normandy Road. Lennar, the developer, will have to pay a higher in-lieu fee for affordable housing than once calculated. Photo by Jared Whitlock

Council raises in-lieu fee for housing development

ENCINITAS — An agenda item to consider a developer’s fee sparked a debate over the city’s formula for collecting money for affordable housing.

The City Council voted 4-1 on Wednesday night to make development company Lennar pay an in-lieu fee of $319,000 per unit — $140,360 more than once calculated — to move forward with a 28-home development on Normandy Road.

Encinitas requires that one of every 10 homes in a new development be sold or rented to those who are eligible for housing assistance. But instead of actually building the project’s two affordable units, Lennar opted to pay an in-lieu fee.

In the past, Encinitas’ in-lieu fee was based on the difference between the sales price of all condos and low-income households over the previous year. This is known as the affordability gap, staff noted.

Under this methodology, Lennar homes would have owed $178,640 for each unit.

Yet the council tweaked the in-lieu formula to instead compare the sales price of condos around 1,500 square feet with low-income houses, resulting in $319,000 per unit. Why 1,500 square feet? That’s the city’s recommended affordable housing size for families.

The $638,00 for the two units will go into a fund that allows the city to purchase housing and dedicate it to low-income families.

“The more money we can put into that fund, the more resources we can have to provide the kind of diverse housing our community needs,” Councilwoman Lisa Shaffer said.

The new formula will be used going forward, but the City Council has the discretion to again change the methodology the next time a developer proposes an in-lieu fee, City Planning Director Jeff Murphy said.

Councilman Tony Kranz said it’s the council’s obligation to set an appropriate in-lieu fee so the city actually has money to commit to affordable housing.

Geoff Smith, director of community development with Lennar, urged the City Council to adopt the $178,640 fee, because the earlier formula was in place when the project first went before the city.

The item appeared on a council agenda three weeks ago. However, council ordered it back due to questions over how the formula is calculated and whether the amount is fair.

Smith said the company wasn’t anticipating the delay, and he stressed that fee approval is urgent if construction is going to start in two months.

Councilwoman Kristin Gaspar opposed the increased fee. She said the city should discuss the in-lieu fee policy at a later date, rather than hold up Lennar and force the company to adhere to new standards.

“It’s sending a very bad message to our residents and to our business community that we operate in an unstable environment,” Gaspar said.

Among its next steps, the development will soon go before the city’s Planning Commission for site map approval.

Kranz said the project isn’t vested, so Lennar shouldn’t have automatically expected to pay the smaller $178,640 fee.

While Encinitas dedicates one of every 10 homes in a new development to affordable housing, the rate is 15 percent in other cities like Carlsbad.

The council will address the in-lieu fee again in several months during a city-planning workshop for all things housing and planning.

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