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Nonresidential Housing Linkage Fee Nexus Study Draft Report 02/26/18 Housing Development Costs and Affordability Gap EPS has assumed that the average type of housing for Pleasanton's lower-income workers would be a 2-bedroom apartment unit in a three-story walk-up building. This prototype was selected for several reasons. First, the average size of a Pleasanton household is roughly three people, and households of this size are appropriately housed in 2-bedroom units, according to State law (California Health and Safety Code Section 50025.5). Second, the density of walk-up apartments is typically around 30 units per acre, and Pleasanton staff indicated that this density would be generally appropriate and acceptable in the City. Third, this building prototype is also generally cost-effective to construct, as it makes efficient use of land and does not involve expensive construction materials or techniques. Finally, EPS assumed the units would be rented rather than for-sale because the financing gap for rental units is lower than for for-sale units. Development Cost Assumptions Affordable housing development costs include land costs, direct costs (e.g., labor and materials), and indirect or"soft" costs (e.g., architecture, entitlement, marketing, etc.). For rental projects, operating costs also must be incorporated into the analysis. Data from recent East Bay developments and recent Pleasanton land transactions have been combined with EPS's information from various market-rate and affordable housing developers to estimate appropriate development cost assumptions for use in Pleasanton. These assumptions are shown on Table 11. Revenue Assumptions To calculate the values of the affordable units, assumptions must be made regarding the applicable income level (moderate, median, and low) and the percentage of income spent on housing costs. In addition, translating these assumptions into unit prices and values requires estimates of operating expenses, capital reserves, and capitalization rates. The following assumptions were used in these calculations: • Income Levels—This analysis estimates the subsidy required to produce units for households earning 50, 60, 80, 100, and 120 percent of Area Median Income for a three-person household. In 2015, AMI in Alameda County for these households was $84,150, as shown in the California Department of Housing and Community Development's (HCD's) income limits chart. • Percentage of Gross Household Income Available for Housing Costs—HCD standards on overpaying for rent indicate that households earning less than 80 percent of AMI should pay no more than 30 percent of their gross income on housing costs. For this analysis, EPS has assumed that all households shall spend 30 percent of their gross income on housing costs. • Operating Costs for Rental Units—The analysis assumes that apartment operators incur annual operating costs of $6,200 per unit, which include the cost of utilities, for units affordable at 80 percent of AMI or below. EPS has assumed the units for median income households and above would have similar operating costs but would be potentially operated by for-profit building managers and owners and thus also subject to property taxes. Economic& Planning Systems, Inc. 15 D\1510005\I b1tlIDNa anronFee\NeDo�UNatlabk_Ho sl g\15111 ommNeMus5lutly_W2618 tloa