March 14, 2019

Morgan Hill: Adds New In-Lieu Fee Option to Inclusionary Ordinance


Morgan Hill city leaders took action on March 6th to allow residential developers in the city to pay in-lieu fees as an alternative compliance option under the city’s inclusionary ordinance. Developers will need to receive staff and council approval before they can pay the fees rather than incorporating affordable homes in their project. The city continues to prioritize on site inclusion of affordability over alternative compliance options like in-lieu fees.

Inclusionary zoning ordinances are an important part of a city’s affordable housing toolbox.  Beginning in the 1970s, cities began to adopt inclusionary zoning policies in response to exclusionary zoning that segregated lower-income households into less desirable areas away from good schools, parks, and other amenities. So, from a public policy perspective, requiring that developers provide affordable homes on site is an important goal.

However, in some cases it is important to provide flexibility for housing developers to ensure a project’s feasibility. We also recognize that in order to meet the city’s housing goals it needs to have a mix of 100% affordable and mixed-income development, and that without a fee option the city may not have funding needed to subsidize the affordable homes, particularly those that reach the lowest-income residents.

In addition to requiring that developers seek approval to pay fees (and that it is not an automatic option), the city agreed to set the fees at a level that ensures the amount collected is “equal in value to what the cost would be if units were built on-site.”

Morgan Hill’s ordinance requires that 15% of the units built outside of the downtown area be affordable. In the downtown, the requirement is 10%. Morgan Hill received an A minus– the highest grade in the County in the recent study published by Next 10 that considered how well Bay Area cities were doing at meeting the need for housing in their communities.