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Affordable Housing Fee – May 7 Findings and City Council Feedback The May 7, 2024 Background Report provides background on the basis for the current Affordable Housing Fee (see Background Report, Pages 5-7). As described in the report, the current fee (just over $52,203 per unit for detached single-family homes, and $51,077 for townhomes and other attached units), does not meet the equivalent cost of constructing an affordable housing unit, particularly for single-family and townhome units. Establishing a better comparability between the cost to build an on-site inclusionary unit and the amount of the in-lieu fee would disincentivize developers from defaulting to payment of the fee. EPS evaluated several scenarios, looking at different inclusionary rates and affordability mixes. Each of those scenarios was used to develop a corresponding maximum supportable housing in-lieu fee. EPS also evaluated the financial feasibility of potential fee increases based on current market factors and a range of market-appropriate assumptions.1 Key findings of the analysis include: Current affordable housing fee rates for single-family and for-sale development is significantly discounted compared to the corresponding cost to build affordable units on-site, so there is some capacity to increase affordable housing and other fees for single-family and townhome projects. With the City’s current 20% inclusionary rate, increasing fees to the maximum level supportable is unlikely to be feasible for most single-family projects. Multi-family rental projects have marginal financial feasibility under current economic conditions, and it will be challenging to increase the current 15% inclusionary rate, or substantially increase the affordable housing fee and other fees. Any increase in affordable housing fees needs to be considered in the broader context of the overall fee burden, including potential increases to the Capital Facilities and Traffic Impact Fee. Based on those findings, among staff’s initial recommendations were for City Council to consider lowering the current 20% single-family inclusionary rate, and to retain (not increase) the current 15% multi-family rate. City Council feedback at the May 7 meeting included: Concern from some Councilmembers that lowering the inclusionary rate would adversely affect the City’s ability meet its RHNA allocation, although others were more comfortable with considering lowering the rate. Broad agreement with staff’s general premise that setting fees at an appropriate rate that does not work against economic development goals was important. Interest in adopting fees formulated on a per-square-foot basis, rather than per unit. Interest in allowing for alternatives that still produced inclusionary units but provided some flexibility to developers (e.g., allowing for different product types or for units to be provided off-site). 1 See link for Background Report above: Background Memo, Pages 13-15, for a summary of the scenarios and comparable in-lieu fees per unit. Page 6 of 40