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affordable unit production that could come with reducing the inclusionary rate from 20% to 15%, by capturing a small increment of additional projects and inclusionary units.7 The change would also align the City’s ordinance to regional grant programs, particularly the recently adopted ABAG/MTC Transit-Oriented Communities policy, which establishes a 10-unit threshold for a “compliant” inclusionary ordinance. Inclusionary Unit Standards The IZO includes provisions that govern the design, siting, and other minimum requirements for inclusionary units. Staff recommends some changes to these provisions, to create more objectivity in some areas, to address certain gaps in the standards, and in some cases to provide additional flexibility so that providing on-site units is more realistic/feasible for projects, as follows: 1. Clustering/Distribution of Affordable Units/Size and Type of Affordable Units: The existing IZO requires the affordable units to be dispersed, rather than clustered in a single area of the project site. This approach helps ensure affordable units are well-integrated into the market-rate project, and do not unnecessarily segregate the affordable units and households. However, while it may be feasible for some projects to meet a very strict application of the standard, applying the policy too rigidly could be counterproductive if it limits flexibility for builders to meet on-site affordable requirements, and instead prompts developers to seek alternatives such as payment of in-lieu fees. Furthermore, the existing IZO permits the inclusionary units to be smaller than the market-rate units, but generally assumes they are of a very similar type as the market rate units (e.g., a townhouse project will deed restrict townhouse units). In practice, it may be challenging, financially and otherwise, for a single-family detached or townhome development to deed-restrict units identical to the project’s market-rate units. In other cases, it may be appropriate and beneficial for a project to commit a portion of its site for a dedicated, affordable project developed by an affordable housing developer. This model can allow the developer to benefit from economy of scale in construction; by virtue of being entirely deed-restricted, such projects may qualify for tax-credit financing or funding not otherwise available if the units are scattered and allow for on-site amenities or supportive services tailored to residents’ needs. Staff therefore recommends the IZO amendments provide more explicit flexibility to allow for the on-site inclusionary requirements for single-family projects, whether comprising attached townhomes or detached single family homes – including that the on-site requirements can be met by a range of different, more compact unit types, and for clustering of units to be allowed in certain circumstances. To the extent different unit types are allowed, it is also recommended the IZO include minimum unit sizes (see item 3, below), and have 7 For example, for townhome projects staff estimates that 10-15 additional inclusionary units could be yielded by reducing the threshold project size. This offsets about half the difference between a 15% and 20% inclusionary rate. Page 14 of 40