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Nexus-Based Affordable Housing Fee Analysis for For-Sale Housing Draft Report 02/26/18 1. The costs to construct housing units affordable to households exceed those units' values based on the rents or prices that the households can pay across all affordability categories. The estimated subsidy required to construct affordable housing units in Pleasanton ranges from roughly$2,000 for a Moderate Income household earning up to 120 percent of AMI to $265,400 for a Very Low Income household earning up to 50 percent of AMI. An "affordability gap analysis" evaluates whether or not the costs to construct affordable units exceed the values of units that are affordable to lower- and moderate-income households. For each affordable housing income level - households with incomes at 50 60, 80, 100, and 120 percent of Area Median Income (AMI) - this analysis estimates the subsidy required to construct affordable housing units. The affordability gap analysis assumes that the average affordable unit for all income levels will be a 2-bedroom unit in a multifamily development with an average density of 30 dwelling units per acre. The estimated costs to construct the prototypical affordable unit are based on recent City of Pleasanton development projects and transactions, as well as other development cost data sources. The costs of land acquisition are included in these development cost calculations. A household's ability to pay is estimated based on standard percentages of income available for housing costs at each household income level. Income available for housing costs is then converted into a monthly affordable rent and a capitalized unit value or an affordable mortgage payment and supportable home price. This unit value is then compared to the costs of development to determine the subsidy required to make the unit affordable to each income level. 2. The demand for affordable housing generated by the expenditures of new households in City of Pleasanton increases along with the market-rate home size and value (and related owner income). For example, a 2,000-square foot unit that sells for$923,000 is estimated to create demand for 0.223 affordable housing units, while a 3,500-square foot unit that sells for$1,643,000 creates demand for 0.339 affordable units. Any justified nexus-based fee is based on the total demand for affordable housing units generated by construction of market-rate homes. The link (or nexus) between market-rate housing and increased demand for affordable housing is that residents of market-rate units demand goods and services that rely on wage earners (for example, retail sales clerks) who typically cannot afford market-rate housing and thus require affordable housing. Because more expensive housing units require owners to have higher incomes, and higher income households create more jobs through their spending, the nexus impacts and thus the justified fees for units vary in relation to the price of the market-rate units. The price of the unit is typically a function of its size, and the fees calculated herein can be applied based on the square footage of the market-rate units. This analysis evaluates the demand for affordable housing generated by a range of unit sizes, reflecting different expected sale prices. For each unit size, the demand-based nexus fee calculation involves the following steps: Economic& Planning Systems, Inc. 3 Ex.