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The summary results based on actual market rents and actual rent control guidelines shows: Annual Rent Monthly Rent Percent Increase Increase Increase per Market Rate per Market Rate in Rent per Market Rate Unit Unit Unit Five percent(5%)Inclusionary: $733 $61 2.16% Ten percent(10%) Inclusionary: $1,507 $126 4.55% Fifteen percent(15%)Inclusionary: $2,309 $192 7.15% Twenty percent(20%) Inclusionary: $3,326 $277 10.64% Twenty Five percent(25%)Indus.: $4,474 $373 14.85% The rent increases are more than proportional because each increase in the inclusionary requirement increases the number of units that need to be subsidized, while reducing the number of market rate units available to provide those subsidies. Unfortunately, but not surprisingly, the draft Pleasanton 2023-2031 Housing Element proposes to increase the rent control requirement on new multi-family projects from 15% to 20% - to "prove" Pleasanton's world class commitment to affordable housing. Who Pays for Inclusionary Rent Control Subsidies? a. Impact on Project Rents At the project level, the rent subsidy comes from the renters paying market rate rents. There can be no other source for that subsidy. It does not come from developer profits — here is why: For the project builder, that rent subsidy equals a loss in net operating income (NOI) (and thus net profit) for the project. To justify a new project, the annual net profit (after deducting all expenses and rent subsidies), typically capitalized at about 5%, needs to equal or exceed the cost of constructing the project. If not, no construction takes place until the rent levels for the entire local market rise enough to make the project feasible. Based on actual rent levels in Pleasanton on the 345 unit example project, and applying Pleasanton's current inclusionary requirement of 15% rent controlled units, that project would require $678,708 per year of rent subsidies, in perpetuity (Exhibit B-4 at Bates p. 6). The project upon completion, with net profit capitalized at 5%, would be worth $13,574,160 less than if there were no inclusionary rent controls. And, the pro forma (financial projection) still needs to show the builder making a profit, or the project will not be financed or built. That 345 unit project was fortunate in coming early in that RHNA cycle, at a time when Pleasanton was anxious to show progress cin meeting its RHNA numbers, and also needed cash to help rebuild a senior housing project. So, instead of the $13,574,160