Executive Summary:
The City initiated a preliminary housing feasibility report in conjunction with ECONorthwest to start the conversation around how the City will plan for an additional 349 housing units in the 6th cycle Housing Element update. The report is being released for public review in advance of a community meeting which has been scheduled for February 28th. The public is encouraged to review the report and attend the community meeting as we continue the conversation around housing. The following discussion provides a brief overview of the report. The full report can be found in Attachment 1.

Background:
The City was awarded grant funding totaling $290,000 from three grant programs, Senate Bill 2 (SB2), Local Early Action Program (LEAP), and Regional Early Action Program (REAP). The grant funding will be used to prepare the 6th cycle Housing Element update. The updated Housing Element is due to the State Department of Housing and Community Development by December 2023.

In 2022, the City Council convened a Housing Ad-Hoc Committee and appointed Vice Mayor Bobby Richards and Councilmember Karen Ferlito to work with staff throughout the Housing Element update process and bring recommendations to the full Council for action. The Housing Ad-Hoc Committee has met six times since October 2022 and hosted a community meeting on November 17, 2022. The next community meeting is scheduled for February 28th.

On May 20, 2022, the city entered into a professional services agreement with ECONorthwest to prepare a housing feasibility study. The study informs the analysis required as part of the 6th cycle Housing Element update. The feasibility study evaluated current market conditions, the City’s development standards related to housing, and potential opportunities for housing development. The study was not meant to be exhaustive. Instead, it starts the conversation about development opportunities and constraints as staff begins the 6th cycle Housing Element update. A few highlights from the study are provided below. The full study can be found in Attachment 1.

Current Market Conditions
In the for-sale market, the study found that the price of homeownership in Carmel since 2019 has increased 84% from $1.6 million to $2.95 million. The percentage of home sales with 75% to 100% cash down also increased from 53% to 61%. Based on change-of-address data from the United States Postal Service, Carmel saw an increase in 552 households since March 2020. US Census data shows that nearly 40 percent of all housing units are used for seasonal, recreational, or occasional use. This rate is ten times the national average. In the rental market, 78 percent of rental units are provided by single-family homes. The breakdown of owner-occupied versus renter-occupied units is roughly equal at 52 percent and 48 percent, respectively.

Based on data collected from the American Community Survey (2016-2020), 47 percent of renters in Carmel spend more than 30 percent of their income on housing. Among these, 25 percent spend more than 50 percent of their income on housing. The study also found that only 2.6 percent of workers live and work in Carmel, while roughly half of all workers live within 10 miles of Carmel. Understanding local market conditions will inform strategies to create additional housing opportunities.

Development Standards
The study looked at the City’s development standards in the commercial and multi-family zoning districts to identify potential barriers limiting housing production. Small lot sizes and off-street parking requirements combined with a limit on building height have been identified as possible constraints to the construction of new multifamily projects at densities currently allowed in the zoning code. Additional restrictions on building coverage and floor area further limit the ability to achieve allowable densities. Identifying and removing constraints could help facilitate the construction of new housing units.

Potential Development Sites
The study focused primarily on the commercial core. Sites excluded from further evaluation included civic and institutional uses such as City Hall, libraries, parks, and open spaces. Businesses with high income-generating potential, such as hotels, were also excluded from further evaluation as full conversions to housing. The study looked at land-to-improvement ratios and total value per square foot combined with information gathered during a site visit with City Staff and conversations with local representatives to develop a preliminary list of potential development sites.

Throughout the document, the consultant provided maps to graphically depict the methodology used to develop the list of sites. A total of 17 sites were identified as encompassing the combined variables that would make a property a potential candidate for redevelopment. Sites such as Ulrika Plaza, located at the southwest corner of Dolores Street and 5th Avenue, are included to provide an example of housing production. The project assembles four parcels under a single ownership and proposes 12 apartment units over ground floor commercial uses. The project density is 32 dwelling units per acre. At this density, affordable housing is not required.

Several other sites were identified because they contain adjacent parking lots and are under single ownership. Parking lots are underdeveloped sites that could provide opportunities for new housing.

The sites identified in the study have redevelopment potential and could provide additional housing units for the village. However, the owners of these properties are not required to redevelop. Property owners can choose to redevelop with commercial uses or not redevelop at all. The city is not condemning property or building any projects. The study identifies sites with development potential and starts the conversation with property owners who may be interested in constructing new housing. One of the goals of the Housing Ad-Hoc Committee is to create incentives that would encourage private developers to turn opportunity sites into housing projects that are financially viable.

In addition to new development, the study also identifies potential housing opportunities through promoting accessory dwelling units and encouraging the conversion of 2nd-floor office uses into residential units.

Topics that will be explored further in conjunction with the 6th cycle Housing Element update include,

1. Explore changes to development standards.
2. Establish objective design standards.
3. Create an ADU program.
4. Create a preservation and monitoring program for existing deed-restricted units.
5. Evaluate the expansion of the RC and R-4 zoning districts.
6. Evaluate incentives to encourage housing development on underutilized sites.
7. Explore solutions to water credit barriers to development.

The Housing Ad-Hoc Committee and staff encourage the public to review the study and attend the next community meeting on February 28th as we continue the conversation on housing in the village.