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Home My WebLink About2026-017 Affordability Incentive Program Amendment January 30,2026 Report No. 2026-017 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Proposed Amendment to Section 2.12 Affordability Incentive Program BACKGROUND: The Section 2.12 Affordability Incentive Program was created October 15, 2024. The program offers nine different zoning incentives for residential developments that commit to leasing or selling a proportion of their homes to low-income households at set affordability thresholds. Since October 2024, four multifamily developments and two infill single family developments have applied for incentives. Two of the multifamily developments have already executed incentive agreements and are in the early stages of construction. Through program review, staff have identified four opportunities for improvement that would make the program more accessible,more enticing for all developers, and align the program with the City's priorities on Affordable for Denton housing. These changes would require an amendment to the development code and the proposals would be considered during public hearings at both the Planning and Zoning Commission and City Council. DISCUSSION: Proposed Changes Removingthe of First Refusal Requirement The Right of First Refusal Requirement provides the City the right to purchase any property where incentives were utilized if the owner seeks to sell within the 30-year affordability period. This creates a situation where a low-income homebuyer would need to first offer the City Right of First Refusal on their home if they sought to sell it within 30 years of the home being built. Additionally,this requirement causes significant administrative difficulties for Housing Tax Credit developments, which typically have syndicators and/or non-profit partners who also require Right of First Refusal and have expressed that they would not be willing to subordinate their right to the City's. The Right of First Refusal requirement does not provide significant affordability protections, causes administrative complications, creates an undue burden on low-income home buyers, and does not align with long-term City real estate planning. Increase Access to Incentives January 30,2026 Report No. 2026-017 Staff propose simplifying qualification requirements such that 15% of units as affordable allows access to any number of the nine incentives. Of the six applications received thus far, none have elected to use more than three incentives, although some were qualified for more. Some incentives are more applicable to single family developments (three related to lot size, setback requirements) and some are more applicable to multifamily(landscaping area point system, height increase). Making all nine incentives available at the threshold level of affordability could simplify the program. Adjust Requirements to Reflect Market Rate Another proposal is to adjust qualification requirements to consider the separate market rates of the rental and homeownership markets as well as the City's priorities around Affordable for Denton development. The program should remove the low-income (80%-50%) AMI requirements for rental developments, as Denton's market rental rate typically falls above 60% AMI, and low-income rental units are not considered Affordable for Denton, as discussed in the Nov. 18 work session on the Low-Income Housing Tax Credit Policy. The program could set low-income as the only target income bracket for homeownership developments as Denton's market sales prices typically fall above 90%AMI,with a median home value of$379,900 (2024 American Community Survey). Furthermore, current construction costs create a significant financial barrier to selling newly constructed homes at the 50%AMI sales price maximum of$158,400 for a two-bedroom. The program should adjust the affordability period to five years for homeownership developments in order to align with other existing homebuyer assistance programs and allow low-income homebuyers greater flexibility. Clarify Requirements for Small Developments Affordability qualifications currently require units at three different levels of affordability in increments of 5% of the development's total homes. This proved difficult for staff to interpret and uniformly apply to developments of less than 20 total homes. Clarification on procedures would help staff qualify small developments in a standard way. To encourage infill development, the program could set slightly favorable requirements to qualify developments with less than 20 homes, requiring a slightly smaller percentage of homes or allowing higher income targets. This could make the program more financially accessible to infill developments, which have fewer units overall to spread development costs across. January 30,2026 Report No. 2026-017 The program has so far been effective at making infill projects more viable from a zoning compliance perspective but poses additional financial and administrative challenges for these projects. Applications to date As of January 2026, six development teams have submitted applications. Four of these applications are multifamily rental developments, and two are single family homeownership developments. Both single-family projects are infill projects, meaning a small project in an established neighborhood. Two are in construction, three are in the development process, and one is still awaiting funding award. Figure 1 —Incentive applications to date Development Status Occupancy Building Developer Financing Total Type Type Tools Units Stella Haven Under Rental Multi- Stella Haven, 9%Housing 88 Construction Family LP Tax Credit Roselawn Under Rental Multi- NRP Lone Star 4%Housing 297 Village Construction Family Development Tax Credit LLC Robertson In Ownership Single- Denton HOME 3 Development Development Family Affordable Housing Corporation Hinkle In Ownership Single- Denton American TBD Development Development Family Affordable Rescue Plan Housing Corporation McAdams In Rental Multi- Denton 9%Housing 84 Haven Development Family Affordable Tax Credit Housing Corporation Palladium Applied Rental Multi- Palladium USA 9%Housing 120 Denton West Family International, Tax Credit Living Inc. To date, only four of the nine incentives have been applied for. All six applicants have applied for the parking reduction, all four multifamily developments have applied for the reduction to the landscaping area point system,three multifamily have applied for the building height increase, and both single-family developments applied for the lot size reductions. Continued on Page 3 January 30,2026 Report No. 2026-017 Figure 2 - Incentive utilization (total count, all applications) Subsection 2.12 Incentive Utilization Parking Reduction Landscaping Area Point System Reduction Unit Size Reduction Building Height Increase Lot Area Reduction Lot Depth Reduction Lot Width Reduction Building Coverage Deviation Setback Reduction 0 1 2 3 4 5 6 7 Development Applications ■Multifamily ■Single-Family Estimated Timeline Staff tentatively plan to bring the amendments forward to Planning and Zoning for a public hearing on February 25. If recommended by the Planning and Zoning Commission, staff would aim to take the amendment to City Council for a public hearing on March 3. STAFF CONTACT: Jesse Kent, Director of Community Services Leia Atkinson, Housing Programs Coordinator STAFF TIME TO COMPLETE REPORT: 1 hour