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6 of 11 As outlined in the August 20, 2024 City Council Agenda Report, and according to analysis provided by EPS, the proposed 15 percent rate results in a fee that is feasible for both detached single-family and townhome development. With respect to multi-family projects, the August 20 Agenda Report also notes that it is currently an extremely challenging environment to build multi-family residential projects, and very few projects are likely to be feasible under current economic conditions. While the report noted that consideration could be given to lowering the inclusionary rate (from 15 percent to 10 percent) to improve multi-family project feasibility, doing so would have a significant impact on affordable housing production, since multi-family units represent the largest number of units remaining to be built on housing element and other sites. Since the current 15 percent rate has been feasible in the past, and anticipating there will be improvement in the multi-family construction market over time, staff recommended, and City Council supported retaining the multi-family rental inclusionary rate at 15 percent. The August 20 report also suggested the City Council could consider other near-term tools to help stimulate multi-family rental housing production, which comprises the largest share of the remaining units that could be zoned and built under the Housing Element, such as temporarily permitting projects to “fee out” of up to a third of their inclusionary requirement. The City Council will consider this concept with future adoption of the affordable housing fees. While a majority of the Council supported staff’s recommendation regarding the inclusionary rate and affordability levels, one Councilmember did not support reducing the inclusionary rate, due to concern that it would reduce the City’s ability to meet its RHNA. And, with respect to the affordability levels of multi-family rental units, the Council requested that an option including both 50 percent AMI limit (very low-income) and 60 percent AMI (low-income) units be brought back as an option for consideration, prior to adoption of the Ordinance. These options are identified as alternatives for rental projects in the proposed PMC amendments. Threshold Project Size The minimum project size subject to inclusionary requirements (i.e., required to provide units on site) has been reduced from 15 to 10 units. This change was made partly in response to the lowering of the inclusionary rate since it would subject more projects to the Ordinance; it would also bring the ordinance into alignment with recent regional policies with which it would be beneficial for the City to comply to be competitive for grant funding. There was consensus support for this recommendation from the City Council. As stated in the proposed PMC text, residential projects with fewer than 10 dwelling units would be subject to the affordable housing fee. Inclusionary Unit Standards (Section 17.44.040) While the basic scope of standards remains consistent with the existing IZO, numerous changes are recommended to this Section 17.44.040, principally to create more objective standards for the evaluation of inclusionary housing proposals, and in some instances providing more flexibility in how the inclusionary requirements can be met. Major changes include: the construction of smaller and relatively more affordable units. (This latter change will be reflected in the Master Fee schedule when it is adopted, rather than the IZO, but is noted as a point of information for the Planning Commission).