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4 of 11 in the choice to pay fees is the calculus made by a developer when choosing between paying the fee or building the affordable units on the project site. According to analysis completed by EPS as part of the current study, the City’s in-lieu fees are much lower than the equivalent cost to build on-site for most project types. Modifying fee rates so that there is greater parity between the costs to construct and the amount of the fee would discourage developers from consistently seeking to take advantage of the in-lieu fee option. Objective Design Standards and Housing Overlay Zone–Supplemental Inclusionary Standards Understanding that the existing IZO has some deficiencies, the Objective Design Standards for Housing Element Sites adopted in January 2023 (and subsequently amended in May 2023) included more specific parameters with respect to inclusionary units. Those requirements were reflected and further refined as part of the new Housing Opportunity Zone (HOZ) designation, to which each of the Housing Element sites was re-zoned in December 2023. The ODS and HOZ reflected more strict parameters with respect to affordability mix and bedroom mix, allowances in some circumstances for clustering of required inclusionary units, and more specificity as to the minimum size of inclusionary units compared t o market rate units. While the standards included in Chapter 18.38 and the ODS provided useful “bridging” guidance pending a comprehensive update to the IZO, it is appropriate to revisit and incorporate those new standards, with amendments as needed, into the IZO update. City Council Workshops Two workshops have been held with City Council to receive feedback and key policy direction on the Affordable Housing Fee and IZO updates. May 7, 2024 Workshop On May 7, 2024, staff held an introductory workshop with City Council to discuss the results of initial analysis completed by EPS, including an evaluation of potential changes to the inclusionary rate, along with other initial findings and recommendations with respect to impact fees more generally. The analysis generally found that new growth and the cost of infrastructure and facilities to serve it could justify significantly higher impact fees. However, the report notes there are tradeoffs to be considered – in particular, setting fees at a very high level could have the negative consequence of discouraging, or making infeasible, new development or investment in the city – which could have longer-term fiscal impacts.1 With respect to housing fees, the EPS analysis evaluated various inclusionary scenarios, based on all factors and considerations, including scenarios that would increase the current inclusionary rate. EPS also looked at the resultant equivalent in-lieu fee, if set at a level reflecting the equivalent cost to construct, as well as the overall feasibility of setting fees at those rates. Based on the analysis, it was staff’s initial recommendation to set in-lieu fees for all types of projects at 15 percent (i.e. decrease the current single-family/ownership rate and retain the 1 Link to May 7, 2024 Agenda Item and Attachments: https://weblink.cityofpleasantonca.gov/WebLink/0/doc/308907/Page1.aspx