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2. DEMAND-BASED NEXUS FEE CALCULATION The maximum supportable nexus-based fees are based on both the affordability gap, calculated in the previous section, and the estimated impact that new market-rate units have on the need for affordable units, as reflected in the number of income-qualified local workers required to support the residents of market-rate units and the total subsidy required to construct housing for those workers. This approach is based on the following logic: (a) residents of market-rate housing have disposable incomes and require a variety of goods and services (including private sector goods and services and government services); (b) the provision of those goods and services will require some workers who make lower incomes and cannot afford market-rate housing; and (c) fees charged to market-rate projects can mitigate the impact of those projects on the increased need for affordable housing. Market- Rate Household Income Levels Households with larger incomes typically spend more on goods and services, therefore creating additional lower income jobs, which in turn generate a greater demand for affordable housing. To assess the impact that market-rate units have on the need for affordable housing, EPS has estimated the household income required to purchase a home at various sizes, as shown in Table 4. The home value estimates on this table reflect specific transaction data from Redfin.com, and cross-referenced with data from Zillow.com and Trulia, which provided the sale prices and sizes of units. The data indicated that smaller units typically sell for more per square foot than do larger units, so the home value-by-size estimates on this table reflect that price curve. The income required to purchase a particular size unit is based on assumptions of the standard down payment, financing terms, property taxes, and other costs related to owning a home.2 These housing costs typically account for 30 percent of a household's income, and therefore, by knowing these costs, the required income to purchase each unit can be estimated. As shown, required household incomes under recent market conditions range from approximately $81,300 for a 1,000-square foot unit to roughly $236,800 for a 3,500-square foot unit. Please note that changes to housing market conditions can have a significant effect on the calculations in this study. According to Zillow.com data, the median home value in Pleasanton was $1,052,500 in 2017, a 13 percent increase from the 2015 value of $932,100 per unit. Had this study been conducted during that high point in the market cycle, the incomes required to purchase the same size home would have been significantly higher, and the maximum nexus- based fee calculations would also have been much higher. For this reason, it will be important to periodically adjust the fees, to reflect changes—positive or negative—in the competitive housing market. 2 EPS and City staff have surveyed Homeowners Association (HOA) dues and home insurance costs from current condominium listings, as shown on Appendix Table B-1. Economic&Planning Systems, Inc. 12 . soma= s11]Vka n[mia,0.eWNNMwdable Hasln9,151111reWrt022618brsak E«x