Affordable Housing Fees Study presented to City of Petaluma presented by Darin Smith August 6, 2018 Oakland Denver Los Angeles Sacramento Economic & Planning Systems, Inc. One Kaiser Plaza, Suite 1410, Oakland, CA 94612 510.841.9190
What are inclusionary housing and in-lieu fees? Inclusionary policy requires builders to restrict a certain number of units for households at certain incomes In-lieu fees typically calculated to provide the subsidy to produce new units if the developer does not provide on-site High in-lieu fees may encourage the production of units rather than paying the fee Law does not appear to require an in-lieu fee option Economic & Planning Systems, Inc. 1
Inclusionary housing Is... Common Most Bay Area jurisdictions have some form of an inclusionary housing requirement Many jurisdictions are revisiting both fee levels and underlying policies to potentially increase standards Effective Thousands of units have been created through inclusionary One of few ways to address affordable housing for middleincome households But does affect project feasibility, and Only one of several resources used to create affordable units Tax Credit programs support much new construction New State resources created and on the way Economic & Planning Systems, Inc. 2
How do inclusionary housing and in-lieu fees affect housing prices? Inclusionary policies typically require some units to be sold/rented at prices below their production costs If not offset by other cost savings, inclusionary requirement or corresponding fees demands higher market-rate unit prices than would otherwise be required for feasibility If resulting prices exceed market acceptance, fewer units are built BUT, the primary factors in market-rate housing prices are construction costs and consumers demand and ability to pay Even eliminating inclusionary would reduce housing costs by only a few percentage points, not fundamentally lower prices Economic & Planning Systems, Inc. 3
How would fee increases affect housing development feasibility? Overall fee burden (not just housing fees) is a factor in housing prices and feasibility Few alternatives exist to funding many capital improvements required or expected to serve a growing population Developers forecast unit costs and achievable prices when acquiring land and arranging project financing Common to set a future date for fee increases, allow projects in entitlement process before that date to pay the current fees Economic & Planning Systems, Inc. 4
How are in-lieu fees typically spent? Fees are typically collected and mixed with other funds as: Local match for new affordable housing construction Acquisition or preservation of existing units Other programs assisting in providing housing to lower-income residents Economic & Planning Systems, Inc. 5
What local alternatives to inclusionary are available? Commercial linkage fees, typically used ALONG WITH inclusionary policies Special taxes to fund affordable housing (e.g., parcel tax, sales tax, etc.) typically ALONG WITH inclusionary policies General Fund appropriations (very uncommon as the primary source) Dedication of public land for affordable housing Local density bonus that enhances feasibility beyond State law Economic & Planning Systems, Inc. 6
Petaluma s Current Housing Requirements Inclusionary Policy Requirement Applies to For-Sale Housing 15% total, split between Low and Moderate Income For rental projects, City negotiates project-specific requirements Fee levels Inclusionary in-lieu fee varies by square feet of development ($4.51 per sq.ft. for a 2,000 sq.ft. home) Rental fee varies by square feet of development ($4.78 per sq.ft. for a 1,020 net sq.ft. apartment) Commercial linkage fees (adopted 2003; adjusted annually since 2012): $2.42/SF for Office $4.17/SF for Retail/Restaurant $2.49/SF for Industrial Economic & Planning Systems, Inc. 7
Fee Updates Reflect Financing Gap to Build Affordable Housing Very Low Income (50% AMI) Cost per Unit = $376,000 Supportable Unit Value = $107,182 Affordability Gap = $268,818 Low Income (80% AMI) Cost per Unit = $376,000 Supportable Unit Value = $237,000 Affordability Gap = $139,000 Moderate Income (120% AMI) Cost per Unit = $376,000 Supportable Unit Value = $312,636 Affordability Gap = $63,364 Economic & Planning Systems, Inc. 8
In-Lieu Fee Calculation for Residential Development Current on-site requirement is 15%, split between Low and Moderate Income Calculated in-lieu fee as equal to 20% inclusionary requirement, to encourage on-site units Item Low (80% AMI) Moderate (120% AMI) Total per Affordable Unit In-Lieu Fee per Market-Rate Unit Units 10 10 20 20 100 Value/Unit $237,000 $312,636 Total Value $2,370,000 $3,126,364 $5,496,364 Costs/Unit $376,000 $376,000 Total Costs $3,760,000 $3,760,000 $7,520,000 Subsidy per Unit $139,000 $63,364 Total Subsidy Required $1,390,000 $633,636 $2,023,636 $101,182 $20,236 Economic & Planning Systems, Inc. 9
In-Lieu Fee Alternatives for Residential Development 15% 18% 20% 100 unit project pays for 15 BMRs Subsidizes same number of BMRs required on-site Fee/Market- Rate Unit = $15,177 100 unit project pays for 18 BMRs Maintains 15% affordability (18 BMRs/118 total = 15%) Fee/Market- Rate Unit = $18,213 100 unit project pays for 20 BMRs Encourage onsite or produce more BMR units than would onsite Fee/Market- Rate Unit = $20,236 Economic & Planning Systems, Inc. 10
Housing In-Lieu Fee Comparison Map of Surveyed Jurisdictions Also Included: Sonoma County Napa County Sacramento County Assumes Unit = 2,000 Sq.Ft. Fee / Sq.Ft. Fee / Unit Petaluma (Current Fee) $4.51 $9,022 Petaluma (EPS 15%) $7.59 $15,177 Petaluma (EPS 20%) $10.12 $20,236 Low Fee $2.07 $4,132 High Fee $17.62 $35,242 Median Fee $5.47 $10,940 Economic & Planning Systems, Inc. 11
Recommended Inclusionary In-Lieu Fee Maintain 15% Inclusionary Requirement, In-Lieu Fee = 20% Equivalent Meet 15% Inclusionary Requirement (7.5% low-income units + 7.5% moderate-income units) OR Pay In-Lieu Fee $10.12 per sq.ft. (Cost of 20% Requirement) or Other Means of Compliance Subject to Council Approval Economic & Planning Systems, Inc. 12
Commercial Linkage Nexus Calculations New businesses Additional job creation Lower income employees need affordable housing Economic & Planning Systems, Inc. 13
Commercial Linkage Example Item Example Employment Category Lodging Industry Accommodation (NAICS Code 721000) Occupation Category Buildings and Grounds Cleaning and Maintenance Nationwide Median Income for Occupation $25,050 Regional Wage Adjustment Factor for Occupation 117.9% Median Wage Estimate for the Santa Rosa MSA $29,531 Workers per Household 1.69 Median Income per Household $49,898 Income Category for 3-person Family Low Income - up to 80% AMI Economic & Planning Systems, Inc. 14
Commercial Linkage Fee Comparison Map of Surveyed Jurisdictions Also Included: Sonoma County Napa County Sacramento County Commercial Linkage Fee (per sq.ft.) Hotel Retail Office Light Industrial/ Warehouse Industrial Petaluma (Current) $2.42 $4.17 $2.42 $2.49 $2.49 Petaluma (EPS Max) $141.00 $167.00 $99.00 $62.00 $62.00 Low Fee $0.69 $0.68 $0.69 $0.26 $0.51 High Fee $9.00 $18.47 $18.47 $18.47 $18.47 Median Fee $2.21 $3.57 $2.38 $1.97 $1.97 Economic & Planning Systems, Inc. 15
Recommended Commercial Linkage Fee Adjust fees to be consistent with County fee levels City's County's Current Fee Current Fee Employment Category per sq. ft. 1 per sq. ft. 2 Office $2.42 $2.84 Retail/Restaurant $4.17 $4.91 Industrial/R&D $2.49 $2.93 Lodging $2.42 $2.84 Assisted Living $2.42 N/A Medical $2.42 $2.84 [1] Effective July 1, 2018. [2] Effective January 1, 2018, but currently undergoing update process. Source: City of Petaluma; County of Sonoma; EPS Economic & Planning Systems, Inc. 16