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Interest in “affordable by design” approaches. DISCUSSION A. Inclusionary Housing Rate, Affordability Mix and Housing Fees Based on the initial results and feedback at the May 7 meeting, EPS has further refined the inclusionary scenarios. The following sections outline the further inclusionary scenarios analyzed and staff recommendations with respect to for-sale and rental projects. Tables within each section show the scenarios studied, existing IZO, and equivalent in- lieu fee rate per square foot and per unit for each scenario. (Staff recommends using a per square foot basis for calculation of fees in the updated fee schedule). The tables also identify the maximum feasible fee, under current market conditions, based on EPS’ evaluation of overall development costs, and a reasonable developer expectation around profit margin or yield on cost, which are factors that drive a developer’s decision to proceed, or not, with a project. 1. For Sale Projects EPS modeled two for-sale project scenarios: 1) Decreasing the current inclusionary rate from 20% to 15%, retaining the affordability at 120% AMI; and 2) Retaining the existing 20% rate but allowing for a mix of 120% and 150% AMI units (a proportion of the units would be required to be sold at 120% AMI).2 Tables 1 and 2 illustrate these scenarios and calculate maximum fee rates for two different for-sale products, single-family detached homes, and attached, for-sale townhomes, as described below: For single-family detached, while there is room to increase overall in-lieu fee, charging the maximum justifiable rate under either scenario (an equivalent fee per market rate unit of between $380,000 and $477,000) is unlikely to be feasible for most projects. For townhomes, there is also room to increase the fee, and the financial feasibility analysis indicates that either a 20% or 15% rate, with an equivalent estimated per unit fee of $84,000 to $95,000 per unit, is likely to be feasible.3 2 Although 150% AMI reflects an “Above-Moderate” income limit, it still reflects a price point that is a substantial discount over market-rate prices, and of benefit to households of relatively modest means, while improving the financial feasibility of the projects where a higher inclusionary rate is imposed. 3 For both product types, staff notes that the financial feasibility assessment is a “point in time” evaluation, and factors such as development costs and interest rate changes may affect this calculus. It is further noted that, since the fee is established on a per square foot basis, building larger or smaller units will affect the overall fee amounts paid. Page 7 of 40