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HomeMy WebLinkAbout6.1 Amendment to the Dublin Municipal Code Inclusionary Zoning Regulationsr DUBLIN CALIFORNIA STAFF REPORT CITY COUNCIL DATE: January 9, 2024 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager Agenda Item 6.1 SU B.ECT : Amendment to the Dublin Municipal Code Inclusionary Zoning Regulations (Chapter 8.68), Adopting a Methodology for Determining Affordable Housing In -Lieu Fees and Adopting Non -Residential Development Affordable Housing Impact Fees (PLPA-2023-00032) Prepared by: Jason Earl, Senior Management Analyst EXECUTIVE SUMMARY: The City Council's Two -Year Strategic Plan includes a review of the Inclusionary Zoning Regulations (Dublin Municipal Code Chapter 8.68), Affordable Housing In -Lieu Fee, and Non - Residential Development Affordable Housing Impact Fee (aka "Commercial Linkage Fee"). Staff and the City's consultant, Economic and Planning Systems, prepared an Affordable Housing In - Lieu Fee Feasibility Study and a Commercial Linkage Fee Nexus Study to address the Strategic Plan objectives. The City Council received informational reports on August 15, 2023, and September 19, 2023, and directed Staff to prepare amendments to the Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and Non -Residential Development Affordable Housing Impact Fee programs to ensure they align with the economics of developing affordable housing and the City Council's priorities. Staff has prepared the updates to these programs. The City Council will hold a Public Hearing to consider adopting the amendments to these programs. STAFF RECOMMENDATION: Conduct the public hearing, deliberate, and take the following actions: 1) waive the reading and INTRODUCE the Ordinance Approving Amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations); 2) Adopt the Resolution Establishing the Methodology for Determining the Affordable Housing In -Lieu Fee for Future Residential Units Subject to the City of Dublin Inclusionary Zoning Regulations; and 3) Adopt the Resolution Approving the Non - Residential Development Affordable Housing Impact Fees. FINANCIAL IMPACT: The Affordable Housing In -Lieu Fee is proposed to be amended to align with the economics of Page 1 of 5 1 developing affordable housing. This will generate additional funding for the Affordable Housing Fund. The proposed amendments to the Non -Residential Affordable Housing Impact Fee program will combine the Research & Development and Office uses into a single fee and ensure that the impact fee program does not overburden the economic development priorities set by the City Council. DESCRIPTION: Background The City of Dublin Two -Year Strategic Plan includes Strategy 2: Housing Affordability, which includes the following two objectives: • Objective 2b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production; and • Objective 2c: Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. The consulting firm Economic and Planning Systems (EPS) was selected through a competitive process to assist Staff with addressing these Strategic Plan Objectives. Staff and EPS prepared an analysis of the development economics, reviewed industry best practices, reviewed inclusionary regulations in the surrounding Tri-Valley cities, and evaluated the nexus between non-residential development and the need it generates for affordable housing to formulate recommendations to the City Council. This culminated in the Affordable Housing In -Lieu Fee Feasibility Study and the Commercial Linkage Fee Nexus Study which are included as Attachments 3 and 5. On August 15, 2023, the City Council received an informational report on these efforts (Attachment 7). The City Council provided initial feedback and direction regarding updates to these programs. On September 19, 2023, the City Council received another informational report (Attachment 8) and directed Staff to prepare the following updates to the Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and Non -Residential Development Affordable Housing Impact Fee which is also referred to as a "Commercial Linkage Fee". • Lower the Inclusionary Zoning Regulations applicability threshold to projects of 10+ units; and • Assess in -lieu fees on a per -square -foot basis for each market -rate unit; and • Establish separate regulations for ownership and rental developments; and • Retain the existing Commercial Linkage Fee amount with an annual inflationary index; and • Combine the Research & Development and Office use categories and set the fee at $1.39 per square foot, which is the average of the current fee for those two use categories. Staff has prepared the amendments to these programs for consideration by the City Council. The Ordinance adopting amendments to the Inclusionary Zoning Regulations is included as Attachment 1, the Resolution approving the methodology for determining the Affordable Housing Page 2 of 5 2 In -Lieu Fee is included as Attachment 2, and the Resolution approving the Non -Residential Development Affordable Housing Impact Fee is included as Attachment 4. Analysis The following is an overview of the proposed amendments to the Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and the Non-residential Development Affordable Housing Impact Fee. The proposed amendments align the economics of developing affordable housing and the efforts of the City Council to prioritize the collection of fees that can be leveraged to facilitate the production of lower income units to satisfy the City's Regional Housing Need Allocation (RHNA) while providing on -site units. Inclusionary Zoning Requirements The proposed amendments to the Inclusionary Zoning Regulations (IZR) in the Dublin Municipal Code (Chapter 8.68) create separate regulations for ownership and rental developments. The threshold for projects subject to the IZR would be reduced from 20 units to 10 units. The proposed allocation of affordable ownership units remains unchanged. However, the allocation of affordable rental units is proposed to focus on low-income households. Table 1 summarizes these proposed regulations. Table 1. Ownership and Rental Policy Recommendations Project Size Threshold Overall Affordability Requirement Very Low Low Moderate Ownership Rental 10 Units 10 Units 12.5% 10% 0% 0% 40% 100% 60% 0% The IZR (Section 8.68.020.E) requires resale controls to ensure that affordable ownership units remain affordable for a total of 55 years. Staff proposes to amend the regulations to reset the 55- year period with each transfer of ownership of future for sale units created through the inclusionary program. The implementation procedures for the IZR include selection criteria that provide for the use of preference points by the developer upon the initial sale of units (Section 8.68.050.D). Staff is proposing to amend this section to require the use of preference points with the resale of ownership units. The draft Ordinance approving the amendments to the Inclusionary Zoning Regulations is included as Attachment 1. Please refer to Attachment 6 for the proposed amendments in redline format where underlined text is proposed to be added and text with a strike -through is proposed to be deleted. Affordable Housing In -Lieu Fee The proposed Affordable Housing In -Lieu Fee would be assessed on a per -square -foot basis for each market -rate unit produced. The proposed fee is based on the Affordable Housing In -Lieu Fee Feasibility Study and rounded to the nearest dollar. This fee is reflective of the cost to produce Page 3 of 5 3 affordable ownership and rental units. The proposed fee would be set at $9/square foot and adjusted annually based on an inflationary index. The proposed fee is equivalent to approximately $400,000 per affordable ownership unit and $237,000 per rental unit. The Resolution to approve the proposed Affordable Housing In -Lieu Fee is included as Attachment 2. Non -Residential Development Affordable Housing Impact Fee The DMC (Chapter 7.86) established the authority for the City to impose a Non -Residential Development Affordable Housing Impact Fee, also known as a "Commercial Linkage Fee". This fee is based on a nexus between non-residential development and the need it generates for affordable housing. The fee was first adopted by the City Council in 2005 (Resolution 70-05) and is adjusted annually based on an inflationary index. The amount was set to ensure that it does not overburden the economic development priorities set by the City Council. New non-residential development is assessed this fee on a per -square -foot basis at the time a building permit is issued. On September 19, 2023, the City Council directed Staff to retain the existing fee structure with an inflationary index but combine Research & Development and Office uses into a single category and set the fee at $1.39 per square foot. Additionally, the names of the land use categories have been updated to be consistent with the Nexus Study and current industry terminology. The remainder of the program is unchanged. The Resolution adopting the Non -Residential Development Affordable Housing Impact Fee is included as Attachment 4. ENVIRONMENTAL DETERMINATION: The California Environmental Quality Act (CEQA), together with State Guidelines and City of Dublin CEQA Guidelines and Procedures require that certain projects be reviewed for environmental impacts and that environmental documents be prepared. The proposed Zoning Ordinance Amendments are exempt from the requirements of CEQA pursuant to CEQA Guidelines Section 15061(b)(3) as the amendments would not result in any physical changes and it can be seen with certainty that the amendments would not have a significant effect on the environment. PLANNING COMMISSION REVIEW: On December 12, 2023, the Planning Commission held a public hearing to consider the proposed amendments to the Inclusionary Zoning Regulations and make a recommendation to the City Council. Following the public hearing, the Planning Commission unanimously adopted Resolution No. 23-12 (Attachment 9), recommending the City Council approve the proposed amendments. The Planning Commission further recommended periodic review of the Inclusionary Zoning Regulations. STRATEGIC PLAN INITIATIVE: Strategy 2: Housing Affordability Objective 2b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production. Objective 2c: Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. Page 4 of 5 4 NOTICING REQUIREMENTS/PUBLIC OUTREACH: In accordance with State law, a public notice was published in the East Bay Times ten days prior to the hearing and again five days prior to the hearing, posted at several locations throughout the City, and sent to interested parties notifying the community of the City Council's consideration of the proposed amendments to the Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and the Non -Residential Development Affordable Housing Impact Fee. The City Council Agenda was posted. ATTACHMENTS: 1) Ordinance Approving Amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) 2) Resolution Establishing the Methodology for Determining the Affordable Housing In -Lieu Fee for Future Residential Units Subject to the City of Dublin Inclusionary Zoning Regulations 3) Exhibit A to the Resolution - Inclusionary Housing Feasibility Report dated December 7, 2023 4) Resolution Approving the Non -Residential Development Affordable Housing Impact Fees 5) Exhibit A to the Resolution - Commercial Linkage Fee Nexus Study dated October 27, 2023 6) Redlined Version of Amendment to Inclusionary Zoning Regulations 7) City Council Staff Report dated August 15, 2023 8) City Council Staff Report dated September 19, 2023 9) Planning Commission Resolution 23-12 Recommending City Council Approval of Amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) Page 5 of 5 5 Attachment I ORDINANCE NO. XX — 24 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF DUBLIN APPROVING AMENDMENTS TO DUBLIN MUNICIPAL CODE CHAPTER 8.68 (INCLUSIONARY ZONING REGULATIONS) PLPA-2023-00032 The Dublin City Council does ordain as follows: SECTION 1. RECITALS A. The City occasionally initiates amendments to the Dublin Municipal Code to clarify, add, or amend certain provisions to ensure that it remains current with federal and state law, internally consistent, simple to understand and implement, and relevant to changes occurring in the community. B. Staff initiated amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) consistent with the City of Dublin Two -Year Strategic Plan, which includes Strategy 2: Housing Affordability, Objective 2b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production and Objective 2c: Prepare a nexus study to evaluate the affordable housing commercial linkage. C. The City selected the consulting firm Economic and Planning Systems (EPS) to prepare an Inclusionary Zoning and Affordable Housing In -Lieu Fee Feasibility Study and Commercial Linkage Fee Nexus Study to inform the proposed amendments. D. On August 15, 2023, and September 19, 2023, the City Council received informational reports on the Commercial Linkage Fee and Inclusionary Zoning and In -Lieu Fee programs and provided direction to staff to prepare updates to the programs. E. The proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) include changes to the affordability requirements for rental and ownership development projects, modifications to the provisions for the payment of fees in -lieu of constructing affordable units, revisions to the allocation of units to income levels, and revisions to the exceptions to the affordability requirements. F. The Planning Commission held a duly noticed public hearing on December 12, 2023, during which all interested persons were heard, and adopted Resolution No. 23-12 recommending that the City Council approve the proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations). G. A Staff Report was submitted to the Dublin City Council recommending approval of the proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations). Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 1 of 10 6 H. The City Council held a public hearing on the proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) on January 9, 2024, at which time all interested persons had an opportunity to be heard. I. Proper notice of said hearing was given in all respects as required by law. J. The City Council did hear and consider all said reports, recommendations and testimony herein above set forth and used its independent judgement to evaluate the project. SECTION 2. FINDINGS A. Pursuant to Dublin Municipal Code Section 8.120.050.B., the City Council hereby finds that the amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) are consistent with the General Plan and any applicable Specific Plan in that they would provide an update to the City's affordable housing requirements. Specifically, the amendments would implement Housing Element Program B.4, which calls for a review of the Inclusionary Zoning Regulations and preparation of a nexus study reviewing the affordable housing in -lieu fee. B. The California Environmental Quality Act (CEQA), together with the State Guidelines and City of Dublin CEQA Guidelines and Procedures require that certain projects be reviewed for environmental impacts and that environmental documents be prepared. The City Council hereby finds that the amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) are exempt from the requirements of CEQA pursuant to CEQA Guidelines Section 15061(b)(3) as the amendments would not result in any physical changes and it can be seen with certainty that the amendments would not have a significant effect on the environment. SECTION 3. AMENDMENT OF CHAPTER 8.68. Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) is amended to read as follows: "Inclusionary Zoning Regulations" 8.68.010 Purpose. The purpose of this Chapter is to: A. Enhance the public welfare and assure that further housing development contributes to the attainment of the City's housing goals by increasing the production of residential units affordable by households of very low, low, and moderate income. B. Assure that the limited remaining developable land in the City's planning area is utilized in a manner consistent with the City's housing policies and needs. 8.68.020 Definitions. As used in this Chapter, each of the following terms shall be defined as follows: Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 2 of 10 7 A. "Affordable unit" means an ownership or rental -housing unit, affordable to households with very low-, low-, or moderate -incomes as defined in this Chapter. 1. Rental units are deemed affordable units if the annual rent does not exceed 30% of maximum income level for very low-, low- and moderate -income households, adjusted for household size and as defined below. 2. Owner -occupied units are deemed affordable units if the sales price results in annual housing expenses that do not exceed 35% of the maximum income level for very low-, low-, and moderate -income households, adjusted for household size and as defined below. B. "Applicant" means any person, firm, partnership, association, joint venture, corporation, or any entity or combination of entities that seeks city real property development permits or approvals. C. "Dwelling unit" means a dwelling designed and intended for occupancy by one household. D. "Very low-, low-, and moderate -income levels" means those income and eligibility levels determined periodically by the California Department of Housing and Community Development based on Alameda County median income levels adjusted for family size. Such levels shall be calculated on the basis of gross annual household income considering household size and number of dependents, income of all household members eighteen years of age and older, and all other sources of household income and will be recertified as set forth by local standards, and state and federal housing law. 1. "Very low-income" means 50% or less of the median income, adjusted for actual household size. 2. "Low-income" means more than 50% and up to 80% of the median income, adjusted for actual household size. 3. "Moderate -income" means more than 80% and up to 120% of the median income, adjusted for actual household size. E. "Resale controls and/or rent restrictions" means legal restrictions by which the affordable units shall be restricted to ensure that the unit remains affordable to very low-, low-, or moderate -income households, as applicable, for a period of not less than 55 years. The 55 year period will reset each time ownership of the unit is transferred through a bona fide sales transaction with a third party during the resale restriction period. With respect to rental units, such rent restrictions shall be in the form of a regulatory agreement recorded against the applicable property. With respect to owner -occupied units, such resale controls shall be in the form of resale restrictions, deeds of trust, and/or other similar documents recorded against the applicable property. F. "Residential development" includes, without limitation, detached single-family dwellings, multiple -dwelling structures, groups of dwellings, condominium or townhouse developments, condominium conversions, cooperative developments, mixed use developments that include housing units, and residential land subdivisions intended to be sold to the general public. Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 3 of 10 8 8.68.030 General Requirements. A. Affordability Requirement for Rental Units. All new rental residential development projects with 10 units or more designed and intended for permanent occupancy shall construct 10.0% of the total number of dwelling units within the development as affordable units, except as otherwise provided by this Chapter, and except when all of the dwelling units (excluding units reserved for property management) within the project are affordable. The foregoing requirement shall be applied no more than once to an approved residential development (and generally at the tentative map stage), regardless of the changes in the character or ownership of the development, except as provided by this Chapter, provided the total number of units does not change. In applying and calculating the affordability requirement, any decimal fraction less than or equal to 0.50 may be disregarded, and any decimal fraction greater than 0.50 shall be construed as one unit. B. Affordability Requirement for Ownership Units. All for -sale (ownership) residential development projects of 10 units or more designed and intended for permanent occupancy shall construct 12.5% of the total number of dwelling units within the development as affordable units, except as otherwise provided by this Chapter. The foregoing requirement shall be applied no more than once to an approved residential development (and generally at the tentative map stage), regardless of the changes in the character or ownership of the development, except as provided by this Chapter, provided the total number of units does not change. In applying and calculating the affordability requirement, any decimal fraction less than or equal to 0.50 may be disregarded, and any decimal fraction greater than 0.50 shall be construed as one unit. C. Allocation of Units to Income Levels. Affordable units provided pursuant to this section shall be allocated as follows: Rental Units Owner -Occupied Units Very low-income households 0% 0% Low-income households 100% 40% Moderate -income households 0% 60% Where the calculation of the allocation results in fewer units than would otherwise be required, one additional unit should be allocated to the income level with a decimal fraction closest to 0.50. D. Conditions of Approval: Any tentative map, conditional use permit, or site development review approving residential development projects subject to this Chapter shall contain conditions sufficient to ensure compliance with the provisions of this Chapter. Such conditions shall detail the number of affordable units required, set forth the applicant's manner of compliance with this Chapter, and require the execution of an agreement imposing appropriate resale controls and/or rental restrictions on the affordable units. E. Concurrent Construction. All affordable units in a project or phase of a project shall be constructed concurrently with market -rate units, unless the City Manager determines in writing that extenuating circumstances exist that make concurrent construction infeasible or impractical. Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 4 of 10 9 F. Design and Distribution of Affordable Units. All affordable units shall reflect the range of numbers of bedrooms provided in the project as a whole and shall not be distinguished by exterior design, construction, or materials. Affordable units may be of smaller size than the units in the project and may have fewer amenities than the market rate units in the project. All affordable units shall be reasonably dispersed throughout the project. 8.68.040 Exceptions to Affordability Requirement. Developers of projects subject to Sections 8.68.030A and 8.68.030B shall construct the total number of affordable dwelling units within the development, unless subject to an exception set forth in this section. All exceptions require City Council approval. A. Payment of Fees In Lieu of Constructing Affordable Units. Upon request, the applicant shall be permitted to pay a fee in lieu of constructing up to 40% of the affordable units that the developer would otherwise be required to construct pursuant to Sections 8.68.030A and 8.68.030B. The amount of the fee shall be as set forth in a resolution of the City Council, which may be amended from time to time to reflect inflation and changed conditions in the City and the region. In lieu fees shall be paid at the time and in the amount set forth in the in lieu fee resolution in effect at the time of issuance of the building permit. B. Off -Site Projects. An applicant may construct the affordable units not physically within the development in lieu of constructing some or all of the affordable units within the development, with the approval of the City Council, if the City Council finds: 1. Construction of the units off -site in lieu of constructing units on -site is consistent with the Chapter's goal of creating, preserving, maintaining, and protecting housing for very low-, low - and moderate -income households. 2. Units to be constructed off site are consistent with Section 8.68.030F above. 3. Would be infeasible or impractical to construct affordable units on -site. 4. Conditions of approval for the project require that the off -site affordable units would be governed by the terms of a deed restriction and, if applicable, rental restrictions similar to that used for the on -site affordable units. 5. Conditions of approval for the project, or other security such as a cash deposit, bond, or letter of credit, are adequate to require the construction of the off -site affordable units concurrently with the completion of the construction of the residential development or within a reasonable period (not to exceed five years). C. Land Dedication. An applicant may dedicate land to the City or city -designated local non- profit housing developer in lieu of construction of some or all of the required affordable units, if the Council finds: 1. Dedication of land in lieu of constructing units is consistent with the Chapter's goal of creating, preserving, maintaining, and protecting housing for very low-, low- and moderate - income households. Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 5 of 10 10 2. The dedicated land is useable for its intended purpose, is free of toxic substances and contaminated soils, and is fully improved, with infrastructure, adjacent utilities, grading, and all development -impact fees paid excluding any inclusionary zoning ordinance fees. 3. The proposed land dedication is of sufficient size to meet the following requirements: a. The dedication includes land sufficient to construct the number of units that the applicant would otherwise be required to construct by Section 8.68.030.A, based on the size of lots in the subdivision for which the applicant is meeting its obligation; and b. In addition, the dedication includes such additional land the market value for which is equal to or exceeds the difference between the value of a market -rate, 1200-square foot unit and the price at which such a unit could be sold as an Affordable Unit (which amount shall be set forth in a resolution adopted from time to time by the City Council) times the number of units required. D. Credit Transfers. An applicant may fully or partially satisfy the requirements of Sections 8.68.030A and 8.68.030B through the use of transfer credits created pursuant to Section 8.68.060. Credit certificates shall be presented to the Community Development Director, who shall note at the time of project approval the credit certificate by number. Credit certificates may only be used to satisfy the requirements for Inclusionary Units for the income category (i.e., very low-, low-, or moderate -income) and number of bedrooms for which they are issued. E. Waiver of Requirements. The City Council, at its discretion, may waive, wholly or partially, the requirements of this ordinance and approve alternate methods of compliance with this Chapter if the applicant demonstrates, and the City Council finds, that such alternate methods meet the purposes of this Chapter. 8.68.050 General Procedures for Implementing Inclusionary Zoning Requirements. A. Agreements. Prior to the issuance of a building permit for an affordable unit, resale restrictions or rental controls, or both, as the case may be, shall be set forth in an agreement between the City and the developer, in a form consistent with the City Council -adopted form agreement, which agreement shall be recorded against the property containing the affordable units. The agreement shall be executed by the City Manager, and its requirements shall run with the land and bind the applicant's successors. B. Rental Units; Occupancy; Annual Report. Agreements involving rental units shall require the owner of the affordable units to ensure that the units are occupied by tenants whose monthly income levels do not exceed very low-, low-, or moderate -income levels, as the case may be, and shall preclude tenants from subletting or subleasing the unit. The agreement shall also require the owner of the affordable unit to submit an annual report to the City Manager, in a format approved by the City. The report shall include, but not be limited to the following information: an identification of the affordable units within the project; the monthly rents charged and proposed to be charged; vacancy information for the prior year; and the monthly income for tenants of each affordable unit throughout the prior year. C. Ownership Units; Occupancy; City's Right of First Refusal. Agreements for ownership units shall specify that the inclusionary units must be occupied by the owner or owners and may not be leased or rented without the written approval of the City. The resale restrictions Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 6 of 10 11 shall provide that in the event of the sale of an affordable unit, the City shall have the right to purchase any affordable owner -occupant unit at the maximum price that could be charged to an eligible household. D. Selection Criteria. No household shall be permitted to occupy a unit that is required under this Chapter to be affordable unless the City or its designee has approved the household's eligibility. Eligible potential occupants of affordable units will be qualified on the basis of household income as defined by this Chapter. The selection criteria for a qualified household may not distinguish between adults and children. Selection of qualified person should be based on priorities established using the point system described below: • Employed within the boundaries of the City of Dublin (3 points maximum, one per household member) Public Service employee working in the City of Dublin (1 point) Dublin resident (3 points maximum, one per household member) Seniors (1 point, one per household) Permanently disabled (1 point, one per household) Immediate family member of Dublin resident (1 point, one per household) Required to relocate from current Dublin residence due to demolition of dwelling or conversion of dwelling from rental to for -sale unit (1 point, one per household) To qualify as a "Public Service Employee", the person shall be employed by a Public Agency. To qualify as "Employed within the boundaries of the City of Dublin", the person shall have been employed within the City of Dublin for at least six months. To qualify as a "Dublin resident," the person shall have been a resident of the City of Dublin for at least a one-year period prior to the eligibility determination. 8.68.060 Affordable Unit Credits. A. Creation. Affordable unit credits may be created by the City Council. One affordable unit credit certificate shall be issued for each affordable unit constructed in excess of the number of affordable units required to be constructed for the project by Sections 8.68.030A and 8.68.030B. The certificate shall designate a specific income category (i.e., very low-, low-, or moderate -income) and number of bedrooms for which they are issued. B. Ownership and Use of Credits. Affordable unit credit certificates are issued to and become the possession of the project owner, who may use them to satisfy the requirements of this Chapter for another project in the City. If a project owner proposes to sell credit certificates, the parties shall first obtain the consent of the Finance Director, who will document the transfer by certificate number. Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 7 of 10 12 8.68.070 Incentives to Encourage On -Site Construction of Affordable Units. The City may, but shall not be required to, offer incentives or financial assistance to encourage the on -site construction of affordable units in excess of the total number of affordable units required by this Chapter to be included in the project to the extent resources for this purpose are available and approved for such use by the City Council or City Manager. Such incentives may include, but shall not be limited to, the following: A. Fee Deferral. 1. Development Processing Fees. The City Manager may approve deferred payment of City processing fees applicable to the review and processing of the project. The terms and payment schedule of the deferred fees shall be subject to the approval of the City Manager. 2. Development Impact Fees. The City Council may authorize the deferred payment of development impact fees applicable to the affordable units. Approval of this incentive requires demonstration by the Applicant that the deferral increases the project's feasibility. The applicant must provide appropriate security to ensure future payment of such fees. B. Design Modifications. The City Council may approve design modifications to affordable units that increase the feasibility of the construction of affordable units, including but not limited to, the following: 1. Reduced lot size. 2. Reduced setback requirements. 3. Reduced open space requirements. 4. Reduced landscaping requirements. 5. Reduced interior or exterior amenities. 6. Reduction in parking requirements. 7. Height restriction waivers. Section 8.68.080 Inclusionary Zoning In Lieu Fees. The fund previously known as the "Inclusionary Zoning In Lieu Fee fund" is hereby renamed the "Affordable Housing Fund" ("Fund") and all In Lieu Fees shall be deposited into the Fund. A. Use. All monies in the Fund, together with any interest earnings on such monies less reasonable administrative charges, shall be used or committed to use by the City for the purpose of providing very low-, low-, and moderate -income ownership or rental housing in the City of Dublin. B. Annual Report. The City Manager shall prepare an annual report to the City Council identifying the balance of monies in the Fund and the affordable units provided and any monies committed to providing very low-, low-, and moderate -income housing. The annual report shall also include a review of administrative charges. Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 8 of 10 13 Section 8.68.090 Violations. It shall be unlawful for any person, firm, corporation, partnership or other entity that is subject to this ordinance pursuant to Sections 8.68.030A and 8.68.030B to violate any provision or to fail to comply with any of the requirements of this Chapter. A violation of any of the provisions of or failure to comply with any of the requirements of this Chapter shall constitute a misdemeanor; except that notwithstanding any other provisions of this Code, any such violation constituting a misdemeanor under this Chapter, may in the discretion of the enforcing authority, be charged and prosecuted as an infraction. Any person convicted of an infraction under the provisions of this Code shall be punishable as provided by the Government Code of the State of California. 8.68.100 Enforcement. A. General. The City Manager shall enforce this Chapter, and its provisions shall be binding on all agents, successors, and assigns of an applicant. The City Manager may suspend or revoke any building permit or approval upon finding a violation of any provision of this Chapter. No land -use approval, building permit, or certificate of occupancy shall be issued for any residential development unless exempt from or in compliance with this Chapter. The City may institute any appropriate legal actions or proceedings necessary to ensure compliance herewith, including, but not limited to, actions to revoke, deny, or suspend any permit or development approval. B. Excessive Rents/Legal Action. If the City Manager determines that rents in excess of those allowed by operation of this Chapter have been charged to a tenant residing in an affordable unit, the City may take appropriate legal action to recover, and the project owner shall be obligated to pay to the tenant, or to the City in the event the tenant cannot be located, any excess rents charged. Section 8.68.110 Appeals. Decisions of the City Manager under this Chapter may be appealed as provided in Chapter 8.136. SECTION 4. EFFECTIVE DATE. This Ordinance shall become effective on July 1, 2024 following its final adoption. SECTION 5. SEVERABILITY. The provisions of this Ordinance are severable and if any provision, clause, sentence, word or part thereof is held illegal, invalid, unconstitutional, or inapplicable to any person or circumstances, such illegality, invalidity, unconstitutionality, or inapplicability shall not affect or impair any of the remaining provisions, clauses, sentences, sections, words or parts thereof of the Ordinance or their applicability to other persons or circumstances. SECTION 6. POSTING. The City Clerk of the City of Dublin shall cause this Ordinance to be posted in at least three public places in the City of Dublin in accordance with Section 36933 of the Government Code of the State of California. Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 9 of 10 14 PASSED, APPROVED AND ADOPTED this th day of 2024, by the following vote: AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk Ord. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 10 of 10 15 Attachment 2 RESOLUTION NO. XX — 24 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN ESTABLISHING THE METHODOLOGY FOR DETERMINING THE AFFORDABLE HOUSING IN -LIEU FEE FOR FUTURE RESIDENTIAL UNITS SUBJECT TO THE CITY OF DUBLIN INCLUSIONARY ZONING REGULATIONS WHEREAS, the Dublin City Council adopted Dublin Municipal Code Chapter 8.68 Inclusionary Zoning Regulations to ensure the attainment of the City's housing goals by increasing the production of residential units affordable by households of very low-, low-, and moderate - income; and WHEREAS, the Inclusionary Zoning Regulations establish the authority to impose and charge a fee in -lieu of constructing affordable units; and WHEREAS, on May 7, 2002, the City Council adopted Resolution 56-02 establishing a revised fee in -lieu of constructing affordable housing; and WHEREAS, the City of Dublin Strategic Plan for Fiscal Year 22-23 includes Objective 2.b to ensure the City's Inclusionary Zoning Regulations incentivize targeted housing production and Objective 2.c to evaluate the affordable housing in -lieu fee for ownership and rental housing; and WHEREAS, the City selected the consulting firm Economic and Planning Systems (EPS) through a competitive process to assist Staff with evaluating the City's Inclusionary Zoning Regulations and Affordable Housing In -Lieu Fee; and WHEREAS, EPS prepared the Feasibility Analysis of Inclusionary Housing Requirements, attached as Exhibit A, recommending changes to the Inclusionary Zoning Regulations and Affordable Housing In -Lieu Fee; and WHEREAS, on August 15, 2023, and September 19, 2023, the City Council received a report on the City's Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and Non - Residential Development Affordable Housing In -Lieu Fee (aka "Commercial Linkage Fee") and directed Staff to prepare amendments to the Inclusionary Zoning Regulations and revise the methodology for determining the Affordable Housing In -Lieu Fee; and WHEREAS, pursuant to California Environmental Quality Act (CEQA) and CEQA Guidelines Section 15378 (b)(4), revising Affordable Housing In -Lieu Fees is not a project and, therefore, exempt from the requirements of CEQA; and WHEREAS, a Staff Report, dated January 9, 2024, described and analyzed the proposed changes to the Affordable Housing In -Lieu Fee; and WHEREAS, on January 9, 2024, the City Council held a properly noticed public hearing to consider the Affordable Housing In -Lieu, at which time all interested parties had the opportunity to be heard; and WHEREAS, on January 9, 2024, the City Council did hear and use independent judgment and considered all said reports, recommendations and testimony. Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 1 of 2 16 NOW, THEREFORE, BE IT RESOLVED that this Resolution supersedes and replaces Resolution 56-02 effective on July 1, 2024. BE IT FURTHER RESOLVED that the Dublin City Council hereby adopts the following methodology for determining the amount of the Affordable Housing In -Lieu Fee for each residential development project subject to the requirements of the Inclusionary Zoning Regulations in the Dublin Municipal Code Chapter 8.68 as follows: 1. The Affordable Housing In -Lieu Fee shall be $9.00 per square foot for single-family (detached) and multi -family (attached) market rate units. 2. The Affordable Housing In -Lieu Fee shall be calculated based on the habitable square feet per dwelling unit. 3. The Affordable Housing In -Lieu Fee shall be adjusted annually on July 1 of each year based on the greater of the percentage change in either: a) the February ENR Building Cost Index for the San Francisco Bay Area; b) the February Bay Area Consumer Price Index for All Urban Consumers (CPI-U); or c) the United States Department of Housing and Urban Development (HUD) Fair Market Rent limits for the Oakland Primary Metropolitan Statistical Area that are in effect in February of each year. 4. Affordable Housing In -Lieu Fees shall be paid at the time of Building Permit issuance for each market rate unit. 5. The Affordable Housing In -Lieu Fee adopted by this Resolution shall be effective and applied to Building Permits issued for each market rate unit on or after July 1, 2024. PASSED, APPROVED AND ADOPTED this 9th day of January 2024, by the following vote: AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 2 of 2 17 Attachment 3 Exhibit A to the Resolution The Economics of Land Use • Economic & Planning Systems, Inc. 1330 Broadway Suite 450 Oakland, CA 94612 510 841 9190 tel Oakland Sacramento Denver Los Angeles Report Feasibility Analysis of Inclusionary Housing Requirements Prepared for: City of Dublin Prepared by: Economic & Planning Systems, Inc. EPS #231009 December 7, 2023 www.epsys.com 18 19 Table of Contents 1. Introduction and Executive Summary 1 Key Findings and Recommendation 2 2. Background and Local Market Context 6 Housing Market Conditions and Challenges 6 Dublin's Strategic Plan Objectives 7 Regional Housing Needs Allocation 7 Household Incomes and Affordability 8 3. Methodology and Assumptions 10 Return Metrics and Feasibility Thresholds 10 Product Prototypes 11 Development Cost Assumptions 12 Revenue and Value Assumptions 17 4. Feasibility Analysis 20 Market -Rate Development 20 Current Inclusionary Program 22 On -Site Inclusionary Requirement Alignment 24 5. Recommendations 26 Appendix A: Survey of Inclusionary Requirements in Select California Jurisdictions 20 List of Tables Table 1 Recommended Inclusionary Requirements and In -Lieu Fees for Ownership and Rental 5 Table 2 RHNA Allocation for Dublin 8 Table 3 Alameda County 2023 Income Limits by Persons in Household 9 Table 4 Prototype Residential Products 12 Table 5 Market -Rate Rental Apartment Product Prototype Unit Cost Assumptions 13 Table 6 Market -Rate Ownership Condominium Product Prototype Unit Cost Assumptions 14 Table 7 Market -Rate Ownership Townhome Product Prototype Unit Cost Assumptions 15 Table 8 Market -Rate Ownership Single Family Product Prototype Unit Cost Assumptions 16 Table 9 Maximum Unit Values for Affordable Housing in Alameda County 19 Table 10 Feasibility of Market -Rate Product Prototypes 21 Table 11 Required Affordable Units by Income Category 22 Table 12 Feasibility of Current Inclusionary Program on Product Prototypes 24 Table 13 Subsidy Required for Below -Market -Rate Units by Income Level 25 Table 14 Recommended Inclusionary Program 26 Table 15 Feasibility of Recommended Inclusionary Program 28 21 Economic & Planning Systems 1. Introduction and Executive Summary Inclusionary housing programs require that new market -rate residential development projects include a certain percentage of housing units at rents or sale prices that are affordable to lower -income households. These program requirements often vary for ownership and rental projects and also may include the option for new development to pay a fee in -lieu of providing affordable units on -site, as an alternative means of compliance. Inclusionary housing programs have been adopted by hundreds of jurisdictions nationwide, including nearly 200 cities and counties in the State of California. They are one of many tools cities can use to achieve more affordable housing in their communities. The City of Dublin (City) is updating its inclusionary zoning ordinance (IZO), which was first adopted in 2002. Economic & Planning Systems, Inc. (EPS) was retained by the City to conduct an economic feasibility study to determine what level of updated inclusionary requirements may be supportable in Dublin, in the context of current market conditions. EPS analyzed how the provision of below -market -rate (BMR) units impacts the financial feasibility of new market -rate residential development by evaluating the effect of varying inclusionary requirements on industry standard profit and return metrics. Such an analysis is intended to provide the City additional context regarding the implications of revising its inclusionary requirements, while ensuring that the updated requirements do not have the unintended impact of impeding new development. Dublin is not legally required to consider these financial impacts when updating inclusionary housing requirements; however, they are often studied and incorporated into the development of inclusionary policies in order to align a jurisdiction's overall housing goals with its local real estate market conditions.1 In addition, cities introducing or updating inclusionary housing programs often consider the requirements and fees set by their "peer cities." Appendix A presents comparisons of inclusionary requirements and in -lieu fees for rental and ownership projects in several cities in the Bay Area, with a focus on the Tri-Valley region. The key findings and recommendations stemming from the feasibility analysis are summarized below. The subsequent chapters of this report provide details on the 1 An exception to this statement is Assembly Bill (AB) 1505, which allows the State's Department of Housing and Community Development (HCD) to request an economic feasibility study for inclusionary housing policies that include a requirement that more than 15 percent of total rental units developed be affordable to households earning 80 percent of area median income (AMI) or below. 1 22 REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin methodology and assumptions underlying the feasibility analysis, the results of the feasibility analysis, and the recommendations for inclusionary requirements by development product type that align with the feasibility findings. Key Findings and Recommendation 1. Under the City's existing inclusionary zoning ordinance requirements, the must -build on -site construction of affordable units ensures affordable housing production across multiple income levels while adding revenue to the City's affordable housing fund. Dublin's current inclusionary program applies to projects of 20 units or more. It has an overall 12.5 percent inclusionary requirement, targeting Very Low-, Low-, and Moderate -income households in rental projects, and Low- and Moderate -income households in ownership projects. However, a developer may opt to pay a fee in -lieu of building up to 40 percent of the inclusionary units; the remaining 60 percent must be built on -site. The must -build component of the policy ensures that at least some inclusionary units are provided as part of market -rate developments, while the fees collected by the City help facilitate the development of 100 percent affordable housing projects within Dublin. 2. Since the inclusionary zoning ordinance's initial adoption in 2002, the relationship between development costs and market rate sales prices and rents have shifted, resulting in inclusionary requirements that are no longer aligned with market conditions. Construction costs have outpaced multifamily rents in the years since the IZO was adopted, and as a result, multifamily rental projects may face challenges meeting the City's inclusionary requirements. During the same time period, single-family home values increased, outpacing construction costs. As a result, the ownership inclusionary requirements remain feasible, but the in - lieu fee is no longer aligned with the equivalent cost of providing the units onsite. 3. Modeling the City's current inclusionary requirements demonstrates that the inclusionary requirements on rental projects face feasibility challenges, while the inclusionary requirements on ownership projects remain feasible. The current and recommended inclusionary requirements were modeled and tested in development pro formas reflecting four different residential prototypes - one rental prototype and three ownership prototypes: • Rental multifamily apartments (at a density of 65 units/acre) • For -sale condominiums (at a density of 45 units/acre) • For -sale townhomes (at a density of 20 units/acre), and • For -sale single family homes (at a density of 10 units/acre). 2 23 Economic & Planning Systems Each prototype evaluated in this Study is shown to be feasible under current market conditions when developed as a market -rate project, without inclusionary requirements, with the development economics of each prototype exceeding industry -standard profit thresholds. However, modeling the current inclusionary requirements for rental projects lowers the yield -on -cost below the threshold, indicating that new multifamily, rental development will face feasibility challenges meeting the City's inclusionary requirements. The model indicates that new ownership projects can meet the inclusionary requirements given current development costs and market pricing, but the current in -lieu fee is set so much lower than the actual cost of building/providing the units onsite, that developers of ownership product will always opt to pay the fee. Underscoring this misalignment with market conditions, city staff has confirmed that in the last few years, new residential development projects have selected alternatives to full on -site construction of inclusionary units, either paying the fee, negotiating alternative benefits (e.g., land dedication), or a combination of both. 4. The recommended updates to the IZO will improve the feasibility of new multifamily rental development, while generating higher in -lieu fee revenue from ownership developments. The recommended updates are consistent with other inclusionary programs in the Tri- Valley region and also respond to other typical program parameters such as charging the in -lieu fee on a "per square foot of market rate development" basis and lowering the threshold project size from 20 units to 10 units. Recommended updates across both the rental and ownership inclusionary programs include lowering the feasibility threshold to 10 units and updating the fee to a per market rate square foot basis, consistent with that of most other cities. Where the in -lieu fee is well below the actual cost of providing the inclusionary units onsite, EPS recommends increasing the fee to capture greater in -lieu fee revenue while preserving project feasibility. While this analysis provides a useful assessment of the feasibility of each prototype, development costs and values are extremely variable across individual projects. Based on typical fee and inclusionary levels seen in peer cities, as well as consideration of current feasibility challenges in residential construction and the City's affordable housing goals, EPS worked with City staff to develop a set of recommended inclusionary requirements for new rental development and new for -sale development. The recommendations are summarized below and in Table 1. 3 24 REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin Rental, Residential Development • The current inclusionary requirement is 12.5 percent, targeting a blend of Very Low, Low, and Moderate -income households. The FY 2023-24 in -lieu fee is $241,131 per affordable unit. • Because the current requirement challenges the feasibility of new development, EPS recommends lowering the requirement to 10 percent, and focusing on Low-income households. At this level, the in -lieu fee that would be equivalent to the subsidy is $236,915 per affordable unit, or $9.17 per market rate square foot. • EPS recommends a fee of $9 per market rate square foot ($232,440 per affordable unit), consistent with the recommended Ownership fee. The recommended option eases program administration and improves feasibility relative to the current requirement, although some projects in this current development cost and interest rate environment may still face challenges. Ownership, Residential Development • The current inclusionary requirement is 12.5 percent, targeting a blend of Low and Moderate -income households. The FY 2023-24 in -lieu fee is $241,131 per affordable unit. • The recommended option maintains the 12.5 percent inclusionary requirement and the current Low and Moderate -income split. The in -lieu fee per affordable unit that would be equivalent to this subsidy is $624,479, which would be a nearly threefold increase in the fee. • EPS recommends a fee of $9 per market rate square foot ($401,333 per affordable unit), consistent with the recommended Rental fee. With this recommendation, the City is incentivizing developers of ownership product to choose the fee option, which, because of the City's must -build requirement, will result in new inclusionary units and in -lieu fee revenue the City can use to support the production of units affordable to lower - income households to help satisfy the Regional Housing Needs Allocation. Even with the increase in the in -lieu fee, the recommended option maintains the feasibility of new ownership development. Of the ownership prototypes, condominium development displays the lowest profit margins and mid -density townhome-style development displays the highest profit margins. 4 25 Economic & Planning Systems Table 1 Recommended Inclusionary Requirements and In -Lieu Fees for Ownership and Rental Equivalent Very Low Low Moderate Fee per Fee per Income Income Income Market Affordable Overall (50% AMI) (70-80% AMI) [1] (110% AMI) Rate Sq. Ft. Unit Rental 10.0% 0% 100% 0% $9.00 $232,440 Ownership 12.5% 0% 40% 60% $9.00 $401,333 Source: Economic & Planning Systems, Inc. [1] Consistent with Dublin's Inclusionary Guidelines, Low Income households are defined at 80% AMI for rental developments, and 70% AMI for ownership developments. 5 26 REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin 2. Background and Local Market Context Inclusionary housing programs are only able to deliver affordable units if new market -rate residential development is occurring and can achieve prices or rents that support the additional costs of including affordable units. Therefore, before evaluating the development feasibility of updates to the City's inclusionary housing program, EPS evaluated the local residential market activity. This evaluation provides a sense of the need, and the types of market -rate development that is occurring along with the prevailing sales prices and rents of new residential development. Housing Market Conditions and Challenges Dublin's IZO was first adopted in 2002, meaning that it has been more than twenty years since the program was comprehensively evaluated, although the in - lieu fee has been updated each year accounting for inflation. Since 2002, the City of Dublin has undergone significant changes in its housing landscape, and in general, the Bay Area housing market has evolved as well. According to an analysis by the San Francisco Chronicle, Dublin was California's fastest growing city between 2010 and 2020, increasing its population by 58 percent, or 26,600 residents, over the last decade. Much of that increase can be attributed to the City's ability to add new housing units to accommodate that growth; in that time frame, Dublin permitted nearly 8,300 housing units, the highest of any Bay Area city. 2 In the last decade, construction costs have also been on the rise, affecting the profit yields that developers are able to achieve. Figure 1 shows a price index of construction costs, multifamily rents, and single-family home sales since 2002. The costs of construction have outpaced multifamily rents in Dublin since 2002 and the gap between the two widened over time, constraining the feasibility of multifamily development. However, since 2014, demand for single-family homes in Dublin created a sharp uptick in home values that have been able to bear the additional costs and generate higher profit margins for single-family home developers. This demonstrates how inclusionary requirements and in -lieu fees established twenty years ago have fallen out of sync with current market conditions and development costs. 2 https://www.sfchronicle.com/bayarea/article/dublin-population-growing-17781799.php 6 27 Economic & Planning Systems Figure 1 Price Index of Construction Costs, Multifamily Rents, and Single - Family Home Sales in Dublin 150 130 110 90 70 0 a so 30 10 -30 0 2005 2010 2015 2020 r- �Construction Cost Index (ENR) Market-Rate/Affordable Rents (Costar) —Single Family Home Sales (Zillow) Dublin's Strategic Plan Objectives Dublin's most recent Two -Year Strategic Plan, adopted in 2022, outlines the City's goals and Strategy Areas, one of which is Housing Affordability.3 Within this Strategy, the city has established six objectives, three of which relate to the structuring and implementation of the inclusionary zoning ordinance: • 26. Ensure the City's inclusionary zoning regulations incentivize targeted housing production. • 2C. Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. • 2D. Facilitate the production of affordable housing for lower -income seniors, workforce, and special needs households. An update to the inclusionary zoning ordinance policy and in -lieu fee directly addresses 26 and 2C, while the implementation of an updated inclusionary program to produce on -site affordable units would meet strategy 2D. Regional Housing Needs Allocation The State of California requires every jurisdiction to adequately plan for its community's housing needs, as specified by the Regional Housing Needs 3 https://dublin.ca.gov/DocumentCenter/View/31668/2022-24-Strategic-Plan?bidId= 7 28 REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin Allocation (RHNA), which determines the amount of housing units needed for each jurisdiction by income category. Currently, jurisdictions in the Association of Bay Area Governments (ABAG) have adopted or are working towards adopting their 6th Cycle (2023 through 2031) Housing Elements to reflect policies and strategies required to meet current RHNA numbers. The City of Dublin adopted its 6th Cycle Housing Element in November 2022. Through the RHNA process, Dublin has an allocation of 3,719 total units. Table 2 displays the RHNA allocation breakdown by income levels. The allocation is concentrated in affordable units, with 61 percent of the total units at Moderate or below. Affordable housing programs like the inclusionary zoning ordinance can help cities achieve their RHNA numbers in the lower -income affordability categories. Table 2 RHNA Allocation for Dublin Affordablility Category Units Percentage Very Low Income 1,085 29.2% Low Income 625 16.8% Moderate Income 560 15.1 Above Moderate 1,449 39.0% Total 3,719 100.0% Source: ABAG; Economic & Planning Systems, Inc. Household Incomes and Affordability HCD Income Limits Affordable rents and sale prices for below -market -rate units are based on maximum housing costs affordable to households at various household income levels. Income levels in the County of Alameda are set by the California Department of Housing and Community Development (HCD) on an annual basis. According to the 2023 HCD Income Limits for Alameda County (Table 3), the Area Median Income (AMI) in Alameda County is defined at $133,100 for a household of three and $147,900 for a household of four. 8 29 Table 3 Alameda County 2023 Income Limits by Persons in Household Affordability Category Maximum Percentage of County Median Economic & Planning Systems Number of Persons in Household 1 2 3 4 5 6 7 8 Acutely Low Income 0% - 15% $15,550 $17,750 $20,000 $22,200 $24,000 $25,750 $27,550 $29,300 Extremely Low Income 30% $31,050 $35,500 $39,950 $44,350 $47,900 $51,450 $55,000 $58,550 Very Low Income 50% $51,800 $59,200 $66,600 $73,950 $79,900 $85,800 $91,700 $97,650 Low Income 80% $78,550 $89,750 $100,950 $113,150 $121,150 $130,100 $139,100 $148,050 Median Income 100% $103,550 $118,300 $133,100 $147,900 $159,750 $171,550 $183,400 $195,250 Moderate Income 120% $124,250 $142,000 $159,750 $177,500 $191,700 $205,900 $220,100 $234,300 Sources: CA Department of Housing and Community Development; Economic & Planning Systems, Inc. 9 30 Economic & Planning Systems 3. Methodology and Assumptions In an inclusionary program, developers are required to set aside a portion of their units for lower -income households. When a developer builds the affordable units on -site, the project's development costs are not significantly affected. It costs approximately the same to build a market -rate unit as an affordable unit. However, the revenue the developer can expect from the affordable units is less than the revenue from the market -rate units. The developer is, in effect, subsidizing the development of the affordable units. The subsidy is greater for units affordable to Very Low-income households than it is for Low-income households and Moderate -income households. In some cases, the developer may opt to pay a fee in lieu of providing the units on site. When a developer pays an in -lieu fee, all the units are sold or rented as market -rate units, so the revenue potential is not affected. However, the development costs are affected by the amount of the in -lieu fee, which is typically paid at the time of building permit issuance or certificate of occupancy. In Dublin, the Inclusionary Zoning Ordinance includes a "must build" requirement of 60 percent, meaning that a developer who chooses to pay the in -lieu fee must still provide 60 percent of the inclusionary requirement on -site, but is allowed to "fee out" on the remaining 40 percent. Return Metrics and Feasibility Thresholds The assessment of financial feasibility for real estate development products is based on calculating financial return metrics and comparing them against typical industry target thresholds. In the case of residential development, relevant return metrics are based on comparing total project revenues to total project development costs. This analysis established a feasibility threshold based on two standard return metrics used by real estate developers. These return metrics reflect the value of the investment in a project, and are a critical element in informing a developer's "go/no-go" decision to proceed with development: • For ownership, or for sale housing products (typically single family detached and attached homes, including townhomes and condominiums), the feasibility threshold is based on the return metric of "profit margin," calculated as the percentage by which total project value exceeds total project cost. Based on EPS research and feedback from the developer community, the analysis 10 31 Economic & Planning Systems assumes that developers in Dublin and the surrounding region will require at least a 15 percent profit margin on for -sale development projects. Therefore, any project attaining a profit margin at or above 15 percent would be considered feasible in this analysis. • For rental housing products (typically, multifamily apartments), the feasibility threshold is based on the return metric of "yield on cost," calculated by dividing the annual net operating income (NOI) by the total costs of development.4 Based on EPS research and experience, the analysis assumes that developers in Dublin and the surrounding region will require a yield on cost of at least 5.5 percent. It is important to note that these return metrics do not account for the time value of money and are not based on any assumption regarding project timeline. EPS assumptions for prototype revenues and costs used to calculate the return metrics are detailed in the following sections. Product Prototypes The prototype residential products used in the feasibility analysis were informed by EPS research on the local housing market. Research included review of recent developments and proposed projects, discussions with developers active in the region, and discussions with City staff. The characteristics for the prototype development products are summarized in Table 4. They include one rental prototype - multifamily apartments - and three for -sale prototypes - condominiums, townhomes, and single-family detached homes. A recently constructed example of each prototype specific to the City of Dublin is also given. The critical differentiator between the for -sale prototypes is the density at which they are built and how parking is provided, with the condominium product assumed to be built at a higher density (45 units per acre) than the townhome product (20 units per acre) and with wrap -around style parking. The townhome product is assumed to include an attached, "tuck -under" garage. The single-family detached product is assumed to be developed at an even lower density (10 units per acre) and with an attached garage. The analysis also assumes that the prototypical townhome is smaller than the prototypical single-family home. In some cases, there may be additional design factors - such as whether a unit is detached or attached - that are used to define a project as a townhome or single- family home. This analysis does not account for those types of factors, only differentiating the two prototypes based on density, parking, and unit size. The unit characteristics for each prototype are meant to represent average unit sizes, with the resulting analysis demonstrating feasibility for an average 4 Net operating income reflects total rent collected minus operating costs. 11 32 REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin residential project. The findings of this analysis assume that the unique unit mix of any particular project will, in aggregate, conform to these average unit sizes. However, any specific project will have its own cost and revenue factors that may be impacted in part by its unit mix. Table 4 Prototype Residential Products Item Tenure Building Type Density (units/acre) Unit Square Feet Unit Bedrooms Amount of Parking Parking Type Dublin Project Example Single Family Detached Ownership Detached 10 units/acre 2,400 sq. ft. 4 per unit 2 per unit Attached Garage Lombard at Boulevard Single Family Multifamily Attached Multifamily Attached Attached Townhome Condominium Rental Ownership Attached 20 units/acre 2,000 sq. ft. 3 per unit 2 per unit Attached Garage Ownership Multifamily 45 units/acre 1,500 sq. ft. 2 per unit 1.5 per unit Wrap Rental Multifamily 65 units/acre 1,100 sq. ft. 2 per unit 1.5 per unit Wrap Apex Townhomes Elan at Dublin Station Avalon West Dublin Source: City of Dublin; Costar; EPS discussions w ith local active developers Development Cost Assumptions Housing development costs categories include land acquisition, site preparation, hard costs (e.g., construction labor and materials), and indirect or "soft" costs (e.g., architecture, entitlement, marketing, etc.). For multifamily projects that include a structured garage, EPS also defines parking costs per unit as a separate line item. Data from recent developments and land transactions in the local market have been combined with information from interviews with various housing developers to inform the development cost assumptions used in this analysis. Table 5, Table 6, Table 7, and Table 8 below detail the cost assumptions and estimated costs per unit for the apartment, condominium, townhome, and single-family home product prototypes, respectively. 12 33 Economic & Planning Systems Table 5 Market -Rate Rental Apartment Product Prototype Unit Cost Assumptions Ite m Multifamily Apartment Assumptions Per Unit Development Prototype Tenure Rental Parcel Size 1 acre Density 65 units/acre Unit Size 1,100 sq.ft. Number of Bedrooms 2.0 per unit Amount of Parking 1.5 per unit Development Costs Land Costs Site Preparation Subtotal, Land Direct Construction Costs Parking Costs Builder Fee Subtotal, Direct Costs Development Impact Fees [1] Indirect Costs [2] Subtotal, Indirect Costs Total Construction Costs $5, 000, 000 per acre $10 per sq.ft. of land $325 per sq.ft. $40,000 per space, wrap -style 0.0% of direct costs, incl. parking $28,671 per unit 20% of direct costs 27% of direct costs Developer Profit Threshold 5.5% yield on cost Sources: Costar; Marshall & Sw ift; ❑ S discussions w ith local active developers $76, 923 $6, 702 $83,625 $357,500 $60, 000 $417,500 $28,671 $83, 500 $112,171 $613,295 [1] Development impact fee total does not include current affordable housing inclusionary fee requirements [2] Includes costs for architecture and engineering; entitlement and fees; project management; appraisal and market study; marketing, commissions, and general administration; financing and charges; insurance; and contingency. 13 34 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Table 6 Market -Rate Ownership Condominium Product Prototype Unit Cost Assumptions Item Multifamily Attached Condo Assumptions Per Unit Development Prototype Tenure Ownership Parcel Size 1 acre Density 45 units/acre Unit Size 1,500 sq.ft. Number of Bedrooms 2.0 per unit Amount of Parking 1.5 per unit Development Costs Land Costs Site Preparation Subtotal, Land Direct Construction Costs Parking Costs Builder Fee Subtotal, Direct Costs Development Impact Fees [1] Indirect Costs [2] Subtotal, Indirect Costs $4,000,000 per acre $10 per sq.ft. of land $325 per sq.ft. $40,000 per space, wrap -style 3.0% of direct costs, incl. parking $28,671 per unit 20% of direct costs 25% of direct costs $88, 889 $9,680 $98,569 $487, 500 $60, 000 $16, 425 $563,925 $28,671 $112.785 $141,456 Total Construction Costs $803,950 Developer Profit Threshold 15% of total development costs $120.592 Total Development Costs $924,542 Sources: Costar; Marshall & Sw ift; EPS discussions w ith local active developers [1] Development impact fee total does not include current affordable housing inclusionary fee requirements [2] Includes costs for architecture and engineering; entitlement and fees; project management; appraisal and market study; marketing, commissions, and general administration; financing and charges; insurance; and contingency. 14 35 Economic & Planning Systems Table 7 Market -Rate Ownership Townhome Product Prototype Unit Cost Assumptions Item Single Family Attached Townhome Assumptions Per Unit Development Prototype Tenure Ownership Parcel Size 1 acre Density 20 units/acre Unit Size 2,000 sq.ft. Number of Bedrooms 3.0 per unit Amount of Parking 2.0 per unit Development Costs Land Costs $3,000,000 per acre $150,000 Site Preparation $10 per sq.ft. of land $21,780 Subtotal, Land $171,780 Direct Construction Costs $250 per sq.ft. $500,000 Parking Costs $0 per space $0 Builder Fee 3.0% of direct const. costs $15,000 Subtotal, Direct Costs $515,000 Development Impact Fees [1] $45,195 per unit $45,195 Indirect Costs [2] 20% of direct costs $103.000 Subtotal, Indirect Costs 29% of direct costs $148,195 Total Construction Costs $834,975 Developer Profit Threshold 15% of total development $125.246 costs Total Development Costs $960,221 Sources: Costar; Marshall & Sw ift; EPS discussions w ith local active developers [1] Development impact fee total does not include current affordable housing inclusionary fee requirements [2] Includes costs for architecture and engineering; entitlement and fees; project management; appraisal and market study; marketing, commissions, and general administration; financing and charges; insurance; and contingency. 15 36 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Table 8 Market -Rate Ownership Single Family Product Prototype Unit Cost Assumptions Item Single Family Detached Assumptions Per Unit Development Prototype Tenure Ownership Parcel Size 1 acre Density 10 units/acre Unit Size 2,400 sq.ft. Number of Bedrooms 4.0 per unit Amount of Parking 2.0 per unit Development Costs Land Costs $3,000,000 per acre $300,000 Site Preparation $10 per sq.ft. of land $43,560 Subtotal, Land $343, 560 Direct Construction Costs $200 per bldg. sq.ft. $480,000 Parking Costs $0 per space $0 Builder Fee 3.0% of direct const. costs $14,400 Subtotal, Direct Costs $494,400 Development Impact Fees [1] $52,106 per unit $52,106 Indirect Costs [2] 20% of direct costs $98,880 Subtotal, Indirect Costs 31% of direct costs $150,986 Total Construction Costs $988,946 Developer Profit Threshold 15% of total development $148.342 costs Total Development Costs $1,137,288 Sources: Costar; Marshall & Sw ift; EPS discussions w ith local active developers [1] Development impact fee total does not include current affordable housing inclusionary fee requirements [2] Includes costs for architecture and engineering; entitlement and fees; project management; appraisal and market study; marketing, commissions, and general administration; financing and charges; insurance; and contingency. 16 37 Economic & Planning Systems Revenue and Value Assumptions Market -Rate Rents For rental apartments, the metric used to determine feasibility is yield -on -cost, which is calculated as annual net operating income (NOI) divided by development costs. Annual NOI is calculated as annual rent minus annual operating expenses, which are assumed at $10,000 per market -rate unit in this analysis. Current market -rate rents for recently constructed product are reported by CoStar to be $3.34 per square foot, which equates to $3,674 per month for a 2-bedroom, 1,100 square -foot apartment. Market -Rate Sales Prices For the for -sale prototypes, the value of the unit is equal to the estimated sale price. The sale prices for each prototype are established based on market research and conversations with local developers. Current sales prices for newly constructed condominium units, estimated from Redfin, are reported to be $980,000 per unit; townhome units are valued at $1.14 million per unit, and new single family detached homes are selling for approximately $1.39 million. Affordable Housing Values In general, Very Low-income households are defined as those earning up to 50 percent of AMI. Low-income households earn up to 80 percent AMI and Moderate - income households earn up to 120 percent of AMI, adjusted for household size. Dublin chooses to define Low-income for ownership projects at up to 70 percent AMI and Moderate -income for both rental and ownership projects at up to 110 percent AMI. This differs slightly from the percentage thresholds defined by HCD5 but acknowledges that some Low-income households will earn less than 80 percent AMI and some Moderate -income households will earn less than 120 percent AMI. Based on the maximum household income at each income level, as defined in Dublin, EPS calculated the maximum spending towards housing costs affordable at each income level. Consistent with the City's published inclusionary zoning ordinance guidelines, the analysis assumes that rental households spend 30 percent of their gross annual income on total housing costs and for -sale households spending 35 percent of gross annual income. For rental units, housing costs include rent and utilities. For for -sale units, housing costs include mortgage and interest payments, insurance, property taxes, and Homeowners Association (HOA) fees. To calculate the maximum affordable sale price for these for -sale units, EPS estimated other housing costs based on assumptions given in the City's inclusionary program guidelines and subtracted it from 35 percent of gross annual income to obtain the maximum income available for a mortgage payment. This 5 See HCD State Income Limits 2023, https://www.hcd.ca.gov/sites/default/files/docs/grants- and-funding/income-limits-2023.pdf 17 38 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin mortgage payment was converted into an affordable home sale price assuming a 5 percent down payment and a 30-year mortgage with a fixed interest rate of 5 percent. Table 9 indicates the maximum annual incomes for County households associated with each income category for the associated household size, as well as the affordable rents and sale prices associated with each category. 18 39 Economic & Planning Systems Table 9 Maximum Unit Values for Affordable Housing in Alameda County Item Very Low Low Moderate Income Income Income (50% AMI) (70-80% AMI) [9] (110% AMI) Rental Multifamily Apartments Maximum Household Income [1] $66,600 $100,950 $146,410 Income Available for Housing Costs/Year [2] $16,014 $26,319 $39,957 (less) Operating Expenses per Unit/Year [3] ($7,500) ($7,500) ($10,000) Net Operating Income $8,514 $18,819 $29,957 Capitalization Rate [4] 5% 5% 5% Unit Value [5] $170,280 $376,380 $599,140 Ownership Condominiums Household Income [1] $66,600 $93,170 $146,410 Income Available for Housing Costs/Year [6] $23,310 $32,610 $51,244 Supportable Mortgage [7] $179,155 $287,030 $503,191 Supportable Home Price [8] $188,600 $302,100 $529,700 Ownership Townhomes Household Income [1] $73,950 $103,530 $162,690 Income Available for Housing Costs/Year [6] $25,883 $36,236 $56,942 Supportable Mortgage [7] $193,056 $313,154 $553,350 Supportable Home Price [8] $203,200 $329,600 $582,500 Ownership Single Family Detached Household Income [1] $79,900 $111,825 $175,725 Income Available for Housing Costs/Year [6] $27,965 $39,139 $61,504 Supportable Mortgage [7] $206,219 $335,837 $595,278 Affordable Home Price [8] $217,100 $353,500 $626,600 [1] Reflects 2023 HCD Income Limits for a three -person household for apartments and condominiums, a four -person household for tow nhomes, and a five -person household for single-family homes. [2] Assumes that no more than 30% of a household's income should be spent on housing costs for housing to be considered affordable. [3] Operating expenses are generally based on EPS feasibility studies in the region and are inclusive of utility costs; units at or below 80% of AMI are assumed to be built as non-profit and are therefore exempt from property taxes. Property taxes are assumed to comprise a share of the operating expenses for the moderate income category. [4] The capitalization rate is used to determine the current value of a property based on estimated future operating income, and is typically a measure of estimated operating risk. Obtained for multifamily developments in Dublin and the surrounding region from CoStar. [5] The unit value is determined by dividing the net operating income by the capitalization rate. [6] Based on Dublin's Inclusionary Guidelines for calculating income, this reflects that total housing costs should not exceed 35% of income, and takes into account other housing -related costs, such as taxes, insurance, and HOA fees. [7] Assumes a 30-year mortgage and a fixed 5% interest rate. [8] Assumes a 5% dow n payment, consistent w ith the City of Dublin's Inclusionary guidelines. [9] Consistent w ith Dublin's Inclusionary Guidelines, Low Income households are defined at 80% AMI for rental developments, and 70% AMI for ow nership developments. 19 40 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin 4. Feasibility Analysis Market -Rate Development The first step in assessing feasible inclusionary housing requirements for Dublin involved evaluating whether 100 percent market -rate projects reflecting the defined product prototypes are financially feasible and then evaluating the financial feasibility of the current inclusionary requirements before considering updates to the inclusionary program. Table 10 illustrates yield -on -cost or profit margin for each product prototype assuming current market rate prices, based on the data shown above in Table 5 through Table 8. As shown in Table 10, the analysis suggests that the development of all ownership prototypes (condominium, townhome, and single- family home) is feasible given the current relationship of development costs and market rate rents and sale prices. The rental prototype is marginally feasible under the given assumptions, but rising construction costs compared to rents have made the economics of this housing type challenging. By comparison, demand for single-family housing has led to high sales prices that generate profits far exceeding the 15 percent profit margins threshold. It is important to note that this analysis only reflects an average prototypical project and any specific project may have its own cost and revenue factors that may be impacted in part by its unit mix. There are many factors that can impact the financial feasibility of any particular development project. For example, if a project can acquire land at a lower price or build at a higher density or provide less parking than what is represented in the above assumptions or identify lower - cost financing, the project economics may improve. Similarly, a developer may find that there is sufficient market demand to achieve rents or sale prices higher than those assumed in this analysis. 20 41 Economic & Planning Systems Table 10 Feasibility of Market -Rate Product Prototypes Item Multifamily Apartment Development Costs Per Unit Net Operating Income Per Unit Yield on Cost Multifamily Attached Condo Development Costs Per Unit Average Sale Price Profit Profit Margin Single Family Attached Townhome Development Costs Per Unit Average Sale Price Profit Profit Margin Single Family Detached Development Costs Per Unit Average Sale Price Profit Profit Margin Source: Economic & Planning Systems Feasibility Threshold 5.5% 15% 15% 15% Results $613,295 $34,088 5.6% $803, 950 $980, 000 $176,050 22% $834, 975 $1,140,000 $305, 025 37% $988, 946 $1,390,000 $401,054 41% 21 42 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Current Inclusionary Program Next, EPS tested the feasibility of the current inclusionary program and the two options that a developer can pursue to meet the inclusionary requirement. Under the current requirements, which apply to both rental and ownership developments of 20 units or more, 12.5 percent of the total units must be set aside as affordable. Any fractional amount of 0.5 units or less resulting from this calculation are discarded (i.e., rounded down), while fractional amounts greater than 0.5 must be rounded up. As an alternative to building the full 12.5 percent of units on -site, the developer may pay an in -lieu fee covering up to 40 percent of the inclusionary obligation and build the remaining 60 percent. On -Site Build Option The full on -site requirement is a 12.5 percent affordability requirement, divided between Very Low Income, Low Income, and Moderate -Income levels. Table 11 describes the income level allocations for rental and ownership projects. Table 11 Required Affordable Units by Income Category Current Very Low Low Moderate Overall Income Income Income Income Level Requirement (50% AMI) (70-80% AMI) [1] (110% AMI) Rental 12.5% 30% 20% 50% Ownership 12.5% 40% 60% Source: City of Dublin Guidelines to the Inclusionary Zoning Regulations Ordinance [1] Consistent w ith Dublin's Inclusionary Guidelines, Low Income households are defined at 80% AMI for rental developments, and 70% AMI for ow nership developments. Under these guidelines, a 100-unit project would be required to provide 12 BMR units (rounded down from 12.5). For rental units, there would be 6 Moderate - income units, 2 Low-income units, and 4 Very Low-income units. For ownership units, there would be 7 Moderate -income units and 5 Low-income units. Must -Build and Fee Payment Option As an alternative to on -site construction of the full inclusionary requirement, the developer may pay in -lieu fees on up to 40 percent of the requirement and build the remaining 60 percent. In -lieu fees, which are a common alternative means of complying with an inclusionary requirement, are typically calculated based on the financial subsidy needed to support the development of affordable units that are not being provided on -site. The fee revenues are collected in a dedicated fund that can be utilized to support the production and preservation of affordable units in the City. 22 43 Economic & Planning Systems Dublin's current in -lieu fee is charged on a per affordable unit basis and adjusted for inflation annually based on either (a) the Bay Area Urban Consumer Price Index as of February in each year, or (b) the HUD Fair Market Rent limits for the Oakland Primary Metropolitan Statistical Area, whichever represents the greater percentage change amount. As of July 2023, the in -lieu fee is $241,131 per affordable unit. In a hypothetical 100-unit project where the inclusionary obligation is 12 BMR units, the developer could pay an in -lieu fee on 5 units (rounded up from 4.8) and provide 7 units (rounded down from 7.2) as affordable units. The total in -lieu fee payment would be $1,205,655. The 7 units are distributed across income categories as described in Table 11. The same rounding rules on fractional units apply in calculating the must -build portion. For rental, this results in 4 Moderate - income units, 1 Low-income unit, and 2 Very Low-income units.6 For ownership, there would be 4 Moderate -income units and 3 Low-income. Table 12 shows the yield -on -cost or profit margins obtained in both options for each of the four prototypes, given the additional costs that the inclusionary requirements add to the project in terms of rent subsidies or in -lieu fee payments. For the on -site build, for -sale single family units remain very feasible in excess of the feasibility threshold, but the multifamily condo prototype falls just below, at 14 percent. Choosing the in -lieu fee option increases the feasibility for the single- family prototypes. This is because given current construction costs and single- family home values, the current in -lieu fee of $241,131 no longer aligns with the subsidy, such that the paying the fee costs less for the developer providing the affordable unit. 6 As directed by the City's IZO guidelines, if the allocation calculation and rounding rules result in one less unit than the total required, one additional unit is assigned to the lowest income level with the fractional amount closest to or at 0.5. In this example, the Moderate -Income fraction is 3.5, so the extra unit is assigned as Moderate and brings the allocation up to 4. 23 44 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Table 12 Feasibility of Current Inclusionary Program on Product Prototypes Ite m Multifamily Apartment Yield on Cost Multifamily Attached Condo Profit Margin Single Family Attached Townhome Profit Margin Single Family Detached Profit Margin Source: Economic & Planning Systems On -Site Inclusionary Requirement Feasibility Threshold Current Program Feasibility On -Site Build Must -Build and Fee Alignment 5.5% 5.30% 5.32% 15% 14% 15% 15% 27% 29% 15% 30% 33% As described above, it is best practice for an inclusionary housing program to have an on -site inclusionary requirement that aligns with the cost of the in -lieu fee. Stated another way, the cost to the developer of paying the in -lieu fee should be approximately equal to the subsidy that a project is providing when some portion of units are rented or sold at below -market -rates, given that the value of those units is typically less than the cost to build them. This subsidy, also called the affordability gap, is the difference between the cost of building units that will be BMR (equal to the cost of building market -rate units, as detailed in Table 5 through Table 8) and their value based on maximum affordable rents or sale prices (as detailed in Table 9). However, some cities make a policy decision to incentivize the payment of fees over the production of on -site units (or vice versa). In these circumstances, a city's on -site requirement and the associated in - lieu fee may be intentionally different from a development cost perspective. The subsidy required for each product type across the three affordable income levels (Very Low, Low, and Moderate -income) is shown below in Table 13. It is worth noting that these affordability gaps represent the cost to a developer of providing BMR units on -site as part of a larger market -rate project. The subsidy required for building BMR units as part of a 100 percent affordable project may be different, as the costs for building an affordable housing project can often differ from the costs for building a market -rate housing project. 24 45 Economic & Planning Systems Table 13 Subsidy Required for Below -Market -Rate Units by Income Level Item Very Low Low Moderate Income Income Income (50% AMI) (70-80% AMI) [1] (110% AMI) Rental Multifamily Apartments Development Costs Per Unit $613,295 $613,295 $613,295 Development Value Per Unit $170,280 $376,380 $599,140 Affordability Gap ($443,015) ($236,915) ($14,155) Ownership Condominiums Development Costs Per Unit $803,950 $803,950 $803,950 Development Value Per Unit $188,600 $302,100 $529,700 Affordability Gap ($615,350) ($501,850) ($274,250) Ownership Townhomes Development Costs Per Unit $960,221 $960,221 $960,221 Development Value Per Unit $203,200 $329,600 $582,500 Affordability Gap ($757,021) ($630,621) ($377,721) Ownership Single Family Detached Development Costs Per Unit $1,137,288 $1,137,288 $1,137,288 Development Value Per Unit $217,100 $353,500 $626,600 Affordability Gap ($920,188) ($783,788) ($510,688) Source: Economic & Planning Systems [1] Consistent w ith Dublin's Inclusionary Guidelines, Low Income households are defined at 80% AMI for rental developments, and 70% AMI for ownership developments. 25 46 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin 5. Recommendations In selecting appropriate inclusionary requirements and fee level, a city may consider several tradeoffs or policy preferences. Factors like development feasibility, affordable housing and economic development goals, political viability, and a desire to stay competitive with neighboring cities and their housing markets could all be considered. For example, should the City wish to move to a higher inclusionary level, they would need to raise the in -lieu fee or lean towards more Moderate -income housing in order to maintain feasibility. Conversely, a policy decision to target more Very Low or Low-income or bring down the in -lieu fee may require lowering the overall on -site requirement. In consideration of these tradeoffs, the following recommendations in Table 14 were developed with policy input from City staff and the City Council.' Given the differences in development economics between the rental and ownership housing markets, EPS recommends distinct inclusionary requirements for the two tenures. Furthermore, each housing type attracts different income cohorts and the fee survey underscores that rental developments are more suitable to target lower -income cohorts. For Ownership, it is recommended to maintain the current inclusionary requirement of 12.5 percent, split between Low and Moderate. For Rental, given that current market conditions that have made it more challenging to build feasible multifamily rental developments, EPS recommends lowering the requirement to 10 percent of the total project units and focusing exclusively on the Low-income cohort. Table 14 Recommended Inclusionary Program Equivalent Very Low Low Moderate Fee per Fee per Income Income Income Market Affordable Overall (50% AMI) (70-80% AMI) [1] (110% AMI) Rate Sq. Ft. Unit Rental 10.0% 0% 100% 0% $9.00 $232,440 Ownership 12.5% 0% 40% 60% $9.00 $401,333 Source: Economic & Planning Systems, Inc. [1] Consistent with Dublin's Inclusionary Guidelines, Low Income households are defined at 80% AMI for rental developments, and 70% AMI for ownership developments. ' The City Council discussed updates to the inclusionary program on August 15, 2023 and September 19, 2023. 26 47 Economic & Planning Systems In addition to the updated inclusionary requirement and in -lieu fee levels, EPS also recommends several other changes to the program structure across both rental and ownership product types. First, it is recommended to reduce the threshold project size to 10 units (from its current 20). This puts Dublin more in line with its peer jurisdictions, which have an average threshold level of 10 units, and ensures that the inclusionary requirements would apply to smaller infill projects that are expected to emerge in the future. Second, EPS recommends charging in -lieu fees on a per market rate square foot basis, rather than per affordable unit. This approach encourages smaller, "affordable by design" development and aligns the fee structure with that of inclusionary programs in other cities, as well as with that of other development impact fees collected by the City. The must -build component of the fee option has been helpful in ensuring that on - site inclusionary units are built, while collecting fee revenue at the same time. EPS recommends maintaining this option for both rental and ownership at its current 60 percent must -build level. Table 15 demonstrates the feasibility of the recommended inclusionary program and fee under both full on -site build and build -fee options. For the rental program, the reduction in overall inclusionary level improves yield -on -cost over the existing option. For the ownership inclusionary recommendation, the increased in -lieu fees result in slightly lower profit margins under the build -fee option compared to the current program, but the projects remain feasible above the 15 percent threshold level, so it would not deter development. 27 48 REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Table 15 Feasibility of Recommended Inclusionary Program Ite m Rental - 10% Low Multifamily Apartment Yield on Cost Feasibility Threshold Recommended Program Feasibility On -Site Build Must -Build and Fee 5.5% 5.31% 5.33% Ownership - 12.5% Blended Multifamily Attached Condo Profit Margin 15% 14% 15% Single Family Attached Townhome Profit Margin 15% 27% 28% Single Family Detached Profit Margin 15% 30% 32% Source: Economic & Planning Systems 28 49 APPENDIX A: Survey of Inclusionary Requirements in Select California Jurisdictions 0 50 Table A-1 Single Family Detached Ownership Inclusionary Requirements as of August 2023 City of Dublin Commercial Linkage Fee Study; EPS #231009 City Overall Inclusionary Project Size Requirement Income Targets Threshold In -Lieu Fee Last Ordinance Update Dublin 12.5% 60% Moderate 20 units $241,131 per inclusionary unit 2002 40% Low Fremont 15% 66% Low All units $44.00 per sq. ft. 2021 33% Moderate Concord 10% Moderate 6% Low 5 units $9.00 per sq. ft. 2016 San Ramon 10% Moderate 10 units $15.70 per sq. ft. 2019 Hayward 10% Moderate 2 units $23.46 per sq. ft. 2018 Walnut Creek 10% Moderate All units $21.86 per sq. ft. 2017 7% Low 6% Very Low Livermore 15% 50% Moderate 11 units $39.94 per sq. ft. (under 11 50% Low units) 11+ units must build 2015 Danville 10% Moderate 10 units market gap calculation 2014 Pleasanton 20% Moderate 15 units $50,480 per dwelling unit 2000* Low Very Low * Pleasanton's inclusionary zoning was first adopted in 2000 and the fee level was last revised in 2018. 51 Table A-2 Multifamily Rental Inclusionary Requirements as of August 2023 City of Dublin Commercial Linkage Fee Study; EPS #231009 City Overall Inclusionary Project Size Requirement Income Targets Threshold In -Lieu Fee Last Ordinance Update Dublin 12.5% 50% Moderate 20 units $241,131 per inclusionary unit 2002 20% Low 30% Very Low Fremont 10% Low All units $17.50 per sq. ft. 2021 Concord 10% Low 15 units Program is currently postponed; 2018 6% Very Low update is underway. San Ramon 15% 50% Low 5 units $14.63 per sq. ft. (under 10 50% Very Low units) 10+ units must build 2019 Hayward 6% 50% Low 2 units $23.46 per sq. ft. 2018 50% Very Low Walnut Creek 10% Low All units $21.86 per sq. ft. 2017 6% Very Low Livermore 15% 50% Low 11 units In -lieu fee N/A; must build 2015 50% Very Low Danville 15% Moderate 10 units market gap calculation 2014 Pleasanton 15% Low 10 units $50,480 per dwelling unit 2000* Very Low * Pleasanton's inclusionary zoning was first adopted in 2000 and the fee level was last revised in 2018. 52 Attachment 4 RESOLUTION NO. XX — 24 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN APPROVING THE NON-RESIDENTIAL DEVELOPMENT AFFORDABLE HOUSING IMPACT FEES WHEREAS, the Dublin City Council adopted Dublin Municipal Code Chapter 7.86 creating and establishing the authority for imposing and charging a Non -Residential Development Affordable Housing Impact Fee ("Fee") to mitigate the impacts of non-residential development on the affordability of housing within the city; and WHEREAS, the Inclusionary Zoning Regulations establish the authority to impose and charge a fee to mitigate the impacts of non-residential development on the affordability of housing in the City of Dublin; and WHEREAS, on May 3, 2005, the City Council adopted Resolution 70-05 establishing a Non -Residential Development Affordable Housing Impact Fee; and WHEREAS, the City of Dublin Strategic Plan for Fiscal Years 22-23 includes Objective 2.b to ensure the City's Inclusionary Zoning Regulations incentivize targeted housing production and Objective 2.c to evaluate the affordable housing in -lieu fee for ownership and rental housing; and WHEREAS, the City selected the consulting firm Economic and Planning Systems (EPS) through a competitive process to assist with preparing a nexus study to evaluate the Non - Residential Development Affordable Housing Impact Fee, also known as the "Commercial Linkage Fee"; and WHEREAS, EPS prepared the Commercial Linkage Fee Nexus Study, attached as Exhibit A, to evaluate the nexus for collecting Non -Residential Affordable Housing Impact Fees; and WHEREAS, on August 15, 2023, and September 19, 2023, the City Council received a report on the City's Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and Non - Residential Development Affordable Housing Impact Fee and directed Staff to prepare amendments to these programs; and WHEREAS, pursuant to California Environmental Quality Act (CEQA) and CEQA Guidelines Section 15378 (b)(4), revising Affordable Housing In -Lieu Fees is not a project and, therefore, exempt from the requirements of CEQA; and WHEREAS, a Staff Report, dated January 9, 2024, described and analyzed the proposed changes to the Non -Residential Development Affordable Housing Impact Fee; and WHEREAS, on January 9, 2024, the City Council held a properly noticed public hearing to consider the Non -Residential Development Affordable Housing Impact Fee, at which time all interested parties had the opportunity to be heard; and WHEREAS, on January 9, 2024, the City Council did hear and use independent judgment and considered all said reports, recommendations and testimony. Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 1 of 6 53 NOW, THEREFORE, BE IT RESOLVED that in accordance with DMC Section 7.86.020.B, the Dublin City Council hereby sets for the following: 1. The purpose of the Fee is to implement the goals and objectives of the General Plan Housing Element and the Dublin Municipal Code Inclusionary Zoning Regulations Chapter 8.68; and 2. The Fee collected pursuant to this resolution shall be used to increase and maintain the supply of housing affordable to households of very low-, low-, and moderate -income; and 3. There is a reasonable relationship; between the need for affordable housing and the impacts of the types of development for which the corresponding fee is charged in that new non-residential development in the City of Dublin will result in additional persons who work in Dublin and generate or contribute to the need for affordable housing; and 4. There is a reasonable relationship between the use of the Fee and the impacts of non- residential development as development which encourages new residents to move to the City who are not able to afford market rate housing; and 5. There is a reasonable relationship between the amount of the Fee and the cost of the affordable housing or portion thereof attributable to non-residential development in the City of Dublin in that the Fee is calculated based on the number of employees generated by specific land uses, the total amount it will cost to construct the affordable housing and the percentage by which non-residential development within the City of Dublin contributes to the need for the affordable housing; and 6. The cost estimates set forth in the Report are reasonable cost estimates for constructing the affordable housing, and the Fees expected to be generated by future non-residential development will not exceed the projected costs of construction the affordable housing; and 7. The method of allocating the Fee to non-residential development bears a fair and reasonable relationship to, and is roughly proportional to, each development's burden on, and benefit from, the affordable housing to be funded by the Fee, in that the Fee is calculated based on the number of employees each particular non-residential development will generate. BE IT FURTHER RESOLVED the Dublin City Council adopts the following: 1. Definitions i. "Affordable Housing" shall mean housing affordable to households of very low-, low-, and moderate -income as defined in Chapter 8.68 of the City of Dublin's Zoning Ordinance. ii. "Commercial" shall me a business selling or providing merchandise, entertainment, and personal services to the general public. Examples include grocery stores, drug stores, clothing stores, general merchandise stores, beauty salons, and gas stations. Food and drinking places are also included in this category. Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 2 of 6 54 iii. "Development" shall mean the construction, alteration or addition of any building or structure within the City of Dublin. iv. "Industrial" shall mean employers engaged in business activity with limited direct access from the general public; businesses focused on assembling, distributing, or repairing products; businesses focused on the testing and invention of new materials, products, or processes; and businesses engaged in the transformation of raw materials into consumable products. Examples include auto repair, self -storage facilities, and food/beverage products manufacturing. Additionally, includes warehousing, and the storage and distribution of goods. v. "Lodging" shall mean lodging or short-term accommodations for travelers, vacationers, and others in facilities known as hotels, motor hotels, resort hotels, and motels. vi. "Research & Development/Office" shall mean any facilities devoted almost exclusively to research and development activities. Research & Development land uses include but are not limited to: biotechnology, technology and other products and services research facilities. 2. Non -Residential Development Affordable Housina Impact Fee Imposed i. A Non -Residential Development Affordable Housing Impact Fee ("Fee") shall be charged and paid for non-residential buildings or structures within the City of Dublin when the building permit is issued for construction of such building or structure. ii. A Fee shall be charged and paid for non-residential development for any alteration or addition to an existing building or structure if the alteration or addition is greater than 500 square feet and results in the building or structure's combined floor area being greater than 20,000 square feet. The Fee shall be charged only against that area of the alteration or addition that is over 20,000 square feet. Square footage shall be calculated as gross floor area, as defined in the Dublin Municipal Code, Chapter 8.08. iii. Any non-residential use of land which is substantially similar to, but not included in the definitions of "Commercial", "Industrial", "Lodging", "Research & Development/Office" or "Retail" shall be allocated by the Community Development Director to one of the four categories, maintaining as much consistency as possible with the definitions of such terms. i v . In the event that a non-residential use of land is not substantially similar to the definitions of, "Commercial", "Industrial", "Lodging", "Research & Development/Office" or "Retail" the Community Development Director may establish a new category and calculate the appropriate fee for such category based upon the assumptions as used in the Report. Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 3 of 6 55 3. Amount of Fee i. The Non -Residential Development Affordable Housing Impact Fee authorized by Municipal Code section 7.86.020 is hereby set as follows: Land Use Fee per square foot Commercial $1.35 Industrial $0.65 Lodging $0.57 Research & Development/Office $1.39 4. Exemptions from Fee i. Any non-residential building or structure that is 20,000 square feet or less. Square footage shall be calculated as gross floor area, as defined in the Dublin Municipal Code, Chapter 8.08. ii. Any alteration or addition to a non-residential building or structure, except when the alteration or addition results in an increase of greater than 500 square feet and the building or structure's combined floor area is greater than 20,000 square feet. The Fee shall be charged only against that area of the alteration or addition that is over 20,000 square feet. Square footage shall be calculated as gross floor area, as defined in the Dublin Municipal Code, Chapter 8.08. iii. Any replacement or reconstruction of an existing non-residential building or structure that has been destroyed or demolished, provided that the building permit for new reconstruction is obtained within three (3) years after the building was destroyed or demolished and there is no change in the land use category (i.e., Commercial, Lodging, Research & Development/Office, or Industrial). iv. Any non-residential building or structure constructed on property on which a building or structure was demolished for which the Fee has been paid within the prior 20-year period, provided the exemption shall be in the amount of the previously -paid Fee only, and the applicant shall pay any additional amount based on the then -current Fee. The new development shall not accrue any unused credit or reimbursement rights, in the event that the replacement project results in a lower Fee. 5. Use of Revenue i. The revenue raised by payment of the Fee shall be placed in the Affordable Housing Fund. Separate and special accounts within the Affordable Housing Fund shall be used to account for such revenues, along with any interest earnings on each account. The revenues (and interest) shall be used for the following purposes: Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 4 of 6 56 1. To increase the supply of housing affordable to households of very low-, low- and moderate -income; and 2. To pay for design, engineering, land acquisition and building, and to subsidize and rehabilitate affordable housing and reasonable costs of outside consultant studies related thereto; and 3. To reimburse the City for affordable housing constructed by the City with funds from other sources including funds from other public entities, unless the City funds were obtained from grants or gifts intended by the grantor to be used for affordable housing; and 4. To pay for and/or reimburse costs of program development and ongoing administration of the Fee program. ii. Fees in these accounts shall be expended only for affordable housing and only for the purpose for which the Fee was collected. 6. Periodic Review i. During each fiscal year, the City Manager shall prepare a report for the City Council, pursuant to Government Code section 66001(b), determining how there is a reasonable relationship between the amount of the Fee and the cost of affordable housing, or portion of the affordable housing attributable to the development on which the Fee is imposed. ii. During the fifth fiscal year following the first Non-residential Development Affordable Housing Impact Fee deposit into the Affordable Housing Fund, and every five years thereafter, the City Manager shall prepare a report for the City Council, pursuant to Government Code section 6600I(d), regarding the disposition of any unexpended portion of the Fund, whether committed or uncommitted. iii. During each fiscal year, the City Manager shall prepare a report for the City Council, pursuant to Government Code section 66006, identifying the balance of Fees in each account. 7. Automatic Fee Adjustments j. The Non -Residential Affordable Housing Impact Fee shall be adjusted annually on the greater of the percentage change in either: a) the February ENR Building Cost Index for the San Francisco Bay Area; b) the February Bay Area Consumer Price Index for All Urban Consumers (CPI-U) ; or c) the United States Department of Housing and Urban Development (HUD) Fair Market Rent limits for the Oakland Primary Metropolitan Statistical Area that are in effect in February of each year. Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 5 of 6 57 8. Administrative Guidelines The City Council may, by resolution, adopt administrative guidelines to provide procedures for calculation and other administrative aspects of the Fee. 9. Effective Date This resolution shall become effective on July 1, 2024 and applied to applicable building permits issued on or after that date. 10. Severability The Fee and all portions of this resolution are severable. Should the Fee or other provision of this resolution be adjudged to be invalid and unenforceable, the remaining provisions shall be and continue to be fully effective, and the Fee shall be fully effective except as to that judged to be invalid. BE IT FURTHER RESOLVED that this Resolution shall supersede and replace Resolution 70-05. PASSED, APPROVED AND ADOPTED this 9th day of January 2024, by the following vote: AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk Reso. No. XX-24, Item X.X, Adopted XX/XX/2024 Page 6 of 6 58 Attachment 5 Exhibit A to the Resolution Economic & Planning Systems, Inc. 1330 Broadway Suite 450 Oakland, CA 94612 510 841 9190 tel Oakland Sacramento Denver Los Angeles Report Commercial Linkage Fee Nexus Study Prepared for: City of Dublin Prepared by: Economic & Planning Systems, Inc. October 27, 2023 EPS #231009 www.epsys.com 59 Table of Contents 1. INTRODUCTION AND EXECUTIVE SUMMARY 1 Background 1 Regional Context 1 Summary of Maximum Nexus -Based Fees 2 Primary Sources 2 Organization of Report 1 2. REQUIRED NEXUS FINDINGS FOR FEE PROGRAM 2 Background 2 Authority 2 Required Nexus Findings 2 Assembly Bill 602 Provisions 3 3. METHODOLOGY AND FEE CALCULATION 6 Land Use Categories 6 Estimates of New Worker Households 8 Housing Development Costs and Affordability Gap 13 Fee Calculation 16 Appendices: Appendix A: Survey of Commercial Linkage Fees in Other Jurisdictions Appendix B: Occupation Distribution by Employment Category Appendix C: Assumptions and Sources 60 List of Tables Table 1 Summary of Maximum Allowable Linkage Fees 2 Table 2 Alameda County Income Category Definitions (2023) 1 Table 3 Land Use Category Descriptions 7 Table 4 Illustration of Employees' Household Income Calculation 9 Table 5 Income Distribution of Worker Households by Employment Category 11 Table 6 Household Generation Rates by Employment Category 12 Table 7 Affordability Gap Analysis - Rental Product Type 15 Table 8 Fee Calculation - Commercial 17 Table 9 Fee Calculation - Lodging 18 Table 10 Fee Calculation - Office/R&D 19 Table 11 Fee Calculation - Industrial 20 61 1, INTRODUCTION AND EXECUTIVE SUMMARY Background The City of Dublin is exploring various tools to advance the City's affordable housing objectives, including a review of the City's commercial linkage fee program. The City's commercial linkage fee program was adopted in 2001 and last updated in 2005. Fees are adjusted each year according to the Consumer Price Index (CPI) for the San Francisco area. Other than these annual adjustments, the commercial linkage fee program has not been reevaluated since 2005. A commercial linkage fee, also known as a jobs -housing linkage fee, is a type of development impact fee charged to developers of new, nonresidential properties to help support affordable housing for lower -wage workers. The conceptual underpinning of the fee is that new nonresidential development creates new jobs, and some of these jobs will pay wages below what is required for a worker to afford a market -rate housing unit in the City. If the cost to construct new housing units is higher than can be supported by the rents or home prices that workers can afford to pay, the difference is considered an "affordability gap." The nexus (or reasonable relationship) established between the projected number of lower -wage jobs created by new development, and the subsidy needed to fund this "affordability gap" and support the creation and maintenance of units that are affordable to workers in these jobs is the basis for the fee. Economic & Planning Systems (EPS) was retained to update the nexus analysis based on current economic and market factors. EPS has completed the required nexus analysis that quantifies the relationship between the growth in several nonresidential land uses (Commercial, Office/R&D, Lodging, and Industrial) and the demand for and cost of affordable housing for the local workforce. Assessing an impact fee, such as a linkage fee, based on an established nexus is allowed pursuant to the State of California's Mitigation Fee Act (California Government Code sections 66000 et seq.). As a development impact fee, this linkage fee can only be charged to new development and must be based on the impact of new development on the need for resources to subsidize the development of new affordable housing. Fee revenue may be collected by the City and used to subsidize the production or preservation of affordable units for lower -income households. Expenditures may include, but are not limited to, direct contributions to affordable housing developers, land acquisition, and funding local match requirements to leverage other funding opportunities. This is consistent with how the City has been using fee revenue collected since the fee's adoption. Regional Context Commercial linkage fees are common across the state but most common in high -demand, high - value jurisdictions with strong nonresidential development trends. Fees are often set well below the nexus -based maximums and typically range from $1 to $10 (or as high as $40 per square foot of office development in some Bay Area Peninsula jurisdictions). Appendix A exhibits examples of commercial linkage fees in other cities by land use category. Economic & Planning Systems, Inc. 1 62 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Summary of Maximum Nexus -Based Fees Table 1 summarizes the maximum justifiable linkage fee by commercial land use category. The methodology used to establish the maximum justifiable fees is described in the subsequent chapters of this report. Please note that these maximum fees are supported by the nexus analysis but likely exceed levels that could feasibly be borne by new commercial developments. The City has the opportunity to adopt fees up to these maximum levels but will want to consider other economic development and fiscal revenue factors. The "adjusted maximum" fees identified on Table 1 reflect one rationale for adjusting the maximum fees downward, by discounting the maximum fees to reflect that 9.4 percent of people who work in Dublin also reside in Dublin, but still likely exceed feasible fee levels.1 Table 1 Summary of Maximum Allowable Linkage Fees Employment Category Maximum Fee per sq. ft. Adjusted Maximum [1] per sq. ft. Commercial $380 $344 Lodging $62 $57 Office/R&D $202 $183 Industrial $127 $115 [1] Adjusted to avoid potential double -counting of the 9.4% of people who work in Dublin and also live in Dublin (as of 2020 LEHD data). Source: Economic & Planning Systems, Inc. Primary Sources To estimate the fee, EPS relied on numerous sources of data, including the following: • JobsEQ, which is a software tool that compiles industry and wage occupation data for 2022 from a variety of sources, including U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, National Center of Education Statistics, and others. • State Department of Housing and Community Development (HCD) annual income limits for Alameda County, 2023 (see Table 2) • U.S. Census Bureau American Community Survey (ACS) 5-Year Estimates (2017-2021) 1 As a separate deliverable to support City Council consideration of appropriate commercial linkage fee levels, EPS is providing fee level recommendations. Economic & Planning Systems, Inc. 2 63 Table 2 Alameda County Income Category Definitions (2023) Income Group Standard Definition Number of Persons in Household 1 2 3 4 5 6 7 8 Acutely Low 515% AMI $15,550 $17,750 $20,000 $22,200 $24,000 $25,750 $27,500 $29,300 Extremely Low >15% to 530% AMI $31,050 $35,500 $39,950 $44,350 $47,900 $51,450 $55,000 $58,550 Very Low >30% to 550% AMI $51,800 $59,200 $66,600 $73,950 $79,900 $85,800 $91,700 $97,650 Low >50% to 580% AMI $78,550 $89,750 $100,950 $113,150 $121,150 $130,100 $139,100 $148,050 Median 100%AMI $103,550 $118,300 $133,100 $147,900 $159,750 $171,550 $183,400 $195,250 Moderate >80% AMI to 5120% AMI $124,250 $142,000 $159,750 $177,500 $191,700 $205,900 $220,100 $234,300 Source: California Department of Housing and Community Development, 2023 Economic & Planning Systems, Inc. 1 64 In addition, EPS sought input from City of Dublin staff regarding affordability levels and recently developed affordable housing projects. Data from recent Dublin developments and land transactions were combined with information collected from various market -rate and affordable housing developers to estimate appropriate development cost assumptions for use in Dublin. These and other data sources are identified on the tables provided throughout this report. Organization of Report Following this Introduction and Executive Summary, this study includes the following chapters: • Chapter 2 summarizes the required nexus findings of the Study. • Chapter 3 describes the methodology used to calculate the fee. Economic & Planning Systems, Inc. 1 65 2. REQUIRED NEXUS FINDINGS FOR FEE PROGRAM The following section confirms that this Nexus Study contains the findings required under the Mitigation Fee Act for the establishment of a development impact fee. Background The City of Dublin (City) first adopted a commercial linkage fee for affordable housing in 2001, and it was last updated in 2005. The City is in the process of addressing a number of changes in local housing supply, regional housing needs, and broader economic and housing trends. The Two -Year Strategic Plan established an objective to prepare a Nexus Study to review the commercial linkage fee program. Therefore, the City retained EPS to explore the feasibility of an affordable housing impact fee for new commercial (i.e., nonresidential) development. Authority This study serves as the basis for requiring development impact fees under AB 1600 legislation, as codified by the Mitigation Fee Act (California Government Code sections 66000 et seq.). This section of the Mitigation Fee Act sets forth the procedural requirements for establishing and collecting development impact fees. These procedures require that a reasonable relationship, or nexus, must exist between a governmental exaction and the purpose of the condition. In 1991, the Ninth Circuit U.S. Court of Appeals upheld the City of Sacramento's nonresidential linkage fee.2 In that case, the court found that the City of Sacramento's fee program "substantially advanced a legitimate interest." EPS is using a similar methodology to the nexus study reviewed in that case to develop the City of Dublin's fee program. Required Nexus Findings The Mitigation Fee Act clearly identifies the required nexus findings. Required Nexus Findings • Identify the purpose of the fee. • Identify how the fee is to be used. • Determine how a reasonable relationship exists between the fee's use and the type of development project on which the fee is imposed. • Determine how a reasonable relationship exists between the demand for the affordable housing and the type of development project on which the fee is imposed. • Demonstrate a reasonable relationship between the amount of the fee and the cost of the public benefit attributable to the development on which the fee is imposed. 2 Commercial Builders of Northern California v. City of Sacramento, 941 F2d 872 (1991). Economic & Planning Systems, Inc. 2 66 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Purpose of Fee The fee program established through this Nexus Study will fund the development and preservation of affordable housing in the City to serve lower -wage workers employed by new nonresidential development. Use of Fee The fee will be collected by the City. The funds are used to assist with the production and/or rehabilitation and preservation of affordable housing units and/or the acquisition of land in the City. The fee may also fund the studies and administration to support the fee program. Relationship between Use of Fee and Type of Development New commercial development in the City will generate new jobs. Some portion of the workers in those jobs will not earn wages high enough to afford rent prices necessary to support new residential development without subsidy. The linkage fee will be used to help fund this subsidy, resulting in the development of residential units affordable to the local workforce. Relationship between Demand for Affordable Housing and Type of Project The City and EPS have identified four non-residential land use categories for which a separate fee has been calculated. The proportion of lower wage workers and the number of square feet per employee for each employment category has been assessed to ensure a proper nexus is established. Relationship between Amount of Fee and Cost of Public Benefit Attributed to New Development EPS estimated the difference between the cost of developing new rental housing and the value of the new rental units based on rents affordable to workers at wages typical of businesses in different commercial land uses. The affordable rents yielded unit values below the cost of construction, indicating an "affordability gap." To estimate the fee for each non-residential land use, this gap was multiplied by the anticipated number of lower wage workers generated by the new development projects and the number of households of various income categories those workers are likely to form. Assembly Bill 602 Provisions AB 602 passed in the California Assembly in 2021 and was signed by the Governor. The legislation adds some new requirements for impact fees in addition to those required under AB 1600. While much of the intent of AB 602 was to clarify and limit impact fees applied to residential development, certain aspects of AB 602 may also apply to nonresidential development. Existing Level of Service Under Government Code 66016.5, AB 602 requires that an impact fee nexus study "identify the existing level of service for each public facility, identify the proposed new level of service, and include an explanation of why the new level of service is appropriate." Economic & Planning Systems, Inc. 3 67 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 The City of Dublin currently has 1,443 affordable housing units for an employment base of 37,116 workers.3 This represents a ratio of 0.039 assisted affordable units per worker. The "adjusted maximum" linkage fee levels identified herein would allow the City to subsidize a similar or greater number of affordable units per worker - 0.5 per Commercial worker, 0.5 per Office/R&D worker, 0.2 per Lodging worker, and 0.4 per Industrial worker.4 These higher proportions, except in the case of Lodging, may be appropriate given the shortfall of such affordable units in the City, region, and state, and the demonstrated impacts of new commercial development on the City's need for affordable housing. As an example of public policy reflecting that shortfall, the State's Regional Housing Needs Allocation (RHNA) process has indicated that Dublin should aim to produce 3,719 total housing units between 2023 and 2031, including 2,270 units priced at moderate or lower incomes, and this target would represent a significant increase in the pace of both targeted and actual affordable housing production in recent years. Collection of Fees at Previous Levels Under Government Code 66016.5, AB 602 requires that "if a nexus study supports the increase of an existing fee, the local agency shall review the assumptions of the nexus study supporting the original fee and evaluate the amount of fees collected under the original fee." The City of Dublin wishes to use the commercial linkage fee program to generate revenue to increase the amount of deed -restricted affordable housing in the City as new workers are added to the local employment base. According to the 2022 Annual Progress Report staff report, from 2015 to 2022, the City has collected $724,111 in commercial linkage fees: • 2015: $45,830 • 2016: $3,462 • 2017: $359,928 • 2018: $11,879 • 2019: $191,697 • 2020: $0 • 2021: $71,568 • 2022: $39,847 3 Assisted rental unit count is from the City of Dublin Community Development department as of December 2022. The employment base is from the US Census Bureau, ACS, Five -Year Estimates, 2021. 4 Proportions are calculated as the number of affordable units that could be subsidized by the maximum fee on a 100,000 square foot space, discounted by 9.4 percent of that figure given commute patterns to reflect the "adjusted maximum" (as shown on Tables 8-11) and then divided by the total number of employees that would work in a given building type (as shown on Table 6). Economic & Planning Systems, Inc. 4 68 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Capital Improvement Plan Under Government Code 66016.5, AB 602 requires that "large jurisdictions shall adopt a capital improvement plan as a part of the nexus study." Under Government Code 66002, "any local agency which levies a fee subject to Section 66001 may adopt a capital improvement plan, which shall indicate the approximate location, size, time of availability, and estimates of cost for all facilities or improvements to be financed with the fees." Capital improvement plans typically include specific infrastructure projects and public facilities rather than affordable housing developments, and affordable housing is not listed in the statute as the type of "facility" or "improvement" for which a capital improvement plan must be adopted. However, the City has expressed its intent to support the permitting and construction of affordable housing units as specified in the State's RHNA process, including 2,270 moderate and lower income units. These units may be located in various areas within the City's boundaries, may range from single units to larger complexes of 100 or more units, and are intended to be permitted and/or developed by 2031. This nexus study estimates the costs to develop such units, less their value as income - restricted units, which represents the housing production subsidies to be financed with the collected linkage fees. Economic & Planning Systems, Inc. 5 69 3. METHODOLOGY AND FEE CALCULATION Land Use Categories The current fee program has five land use categories: Retail, Services & Accommodation (Lodging), Office, Research & Development (R&D), and Industrial. The City decided that the land use categories should more closely match the categories of the City's other non-residential impact fees. These changes are intended to make the fee structure more transparent and to ease administration. For this update, the City asked EPS to evaluate four distinct land use categories. Office and R&D land use categories were combined to reflect recent R&D developments that have similar land use patterns and employment densities to office development and to acknowledge that wages of R&D workers are more like the wages of office/professional workers than typical industrial workers. While EPS explored combining Lodging with other Commercial land uses, Lodging was ultimately maintained as a separate category due to distinct employment densities observed in proposed hotel projects in Dublin (detailed in Appendix Table C-1). While most land use categories are discretely associated with a particular type of building, others may be interchangeable as tenants may shift between building types (e.g., businesses located in industrial space moving to Office/R&D space). The commercial land uses analyzed in this study are presented in Table 3, along with a description of the types of businesses that often locate in each category. In general, each land use category is intended to be associated with a particular type of building or land use, to which the fees can be applied. This analysis bases its employment projections on NAICS codes associated with the most typical tenants for each land use category. Economic & Planning Systems, Inc. 6 70 Table 3 Land Use Category Descriptions Land Use Category Commercial Lodging Office/R&D Industrial Description and Examples Businesses selling or providing merchandise, entertainment, and personal services to the general public. Examples include grocery stores, drug stores, clothing stores, general merchandise stores, beauty salons, and gas stations. Food and drinking places are also included in this category. Lodging or short-term accommodations for travelers, vacationers, and others in facilities known as hotels, motor hotels, resort hotels, and motels. Does not include short-term Employers engaged in business activity with limited direct access from the general public; businesses focused on professional, financial, scientific, and technical services. Examples include finance, insurance, real estate, law, engineering, medical offices, and science and technology. Employers engaged in business activity with limited direct access from the general public; businesses focused on assembling, distributing, or repairing products; businesses focused on the testing and invention of new materials, products, or processes; and businesses engaged in the transformation of raw materials into consumable products. Examples include auto repair, self -storage facilities, and food/beverage products manufacturing. Additionally includes warehousing, and the storage and distribution of goods. Sources: City of Dublin; Economic & Planning Systems, Inc. NAICS Sectors 44 and 45 - Retail Trade 532 - Rental and Leasing Services 722 - Food Services and Drinking Places 812 - Personal and Laundry Services 721000 - Accommodation. 51 - Information 52 - Finance and Insurance 53 - Real Estate and Rental and Leasing (excluding 532000 -Rental and Leasing Services) 54 - Professional, Scientific, and Technical Services 5417 - Scientific R&D Services 55 - Management of Companies and Enterprises 561 - Admin. and Support Services 6211 - Offices of Physicians 6212 - Offices of Dentists 6213 - Offices of Other Health Practitioners 6214 - Outpatient Care Centers 6215 - Medical and Diagonostic Laboratories 22 - Utilities 23 - Construction 31 - Manufacturing 42 - Wholesale Trade 484 - Truck Transportation 493 - Warehousing & Storage 811 - Repair and Maintenance Economic & Planning Systems, Inc. 7 71 Estimates of New Worker Households The following section details the methodology for estimating the distribution of household income levels for new worker households in the City, and the number of these households that will be generated by new development in each commercial land use category. Occupational Category and Wage Distribution The first step in determining the number of new worker households requiring affordable residential units is to associate each land use type with occupational categories and the wage distribution within those categories. This estimate included the following analytical steps: • EPS used JobsEQ to calculate the proportion of occupations likely to be represented under each land use category in the San Francisco -Oakland -Berkeley Core -Based Statistical Area (CBSA), which includes Dublin.5 For example, EPS evaluated the occupation categories within the lodging industry to determine the proportional distribution of occupations for the land use category "Lodging." Using JobsEQ, the North American Industry Classification System (NAICS) sector 721000 ("Accommodation") for San Francisco -Oakland -Berkeley MSA shows that 9.36 percent of the jobs in the Lodging industry nationwide are filled by managers, while 32.80 percent are in the category of buildings and grounds cleaning and maintenance (see Table B-3). The occupational distribution for all designated employment categories is provided in Appendix B. In addition to the distribution by occupation, JobsEQ provided the average wage for each occupation in each land use category. • The wages for each occupation were multiplied by 1.70, the average number of workers per working household in the City.6 While certainly there will be some variation in wages per employee within a household, in the absence of more specific data, this analysis assumes comparable levels of education and training and thus hourly earnings among all workers in a household.? • Each occupation is placed into its income category and the distribution is calculated based on JobsEQ's reported percent of each industry's jobs that is in the income category. This sorting uses HCD's income classifications for a 3-person household because there are 3.29 people per working household in the City of Dublin. For consistency, the affordability gap calculation uses a 2-bedroom multi -family unit, which assumes three occupants. Table 4 presents an example of how household income is calculated for each occupational category and the corresponding income category for that household. 5 The San Francisco -Oakland -Berkeley Core -Based Statistical Area (CBSA) includes Alameda County, Contra Costa County, Marin County, San Francisco County, and San Mateo County. 6 From the Census Bureau's American Community Survey. 7 This assumption is consistent with "Assortative Mating" theory. See National Bureau of Economic Research. "Marry Your Like: Assortative Matins and Income Ineaualitv." Economic & Planning Systems, Inc. 8 72 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Table 4 Illustration of Employees' Household Income Calculation Item Source Example Employment Category City of Dublin and EPS Lodging Industry JobsEQ Accommodation (NAICS Code 721000) Occupation Category JobsEQ Buildings and Grounds Cleaning and Maintenance Median Wage for the San Francisco -Oakland -Berkeley MSA for Occupation within Industry Workers per Household Median Income per Household Income Category for 3-person Household JobsEQ $46,100 American Community Survey 5-Year Estimates 2021 1.70 Workers per HH Multiplied by Med. Annual Wage $78,370 California Housing and Community Development (HCD) Low Sources: City of Dublin; California Housing and Community Development (HCD); JobsEQ, 2022; U.S. Census American Community Survey 5-Year Estimates 2021; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 9 73 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Distribution of Workers by Land Use Type After identifying income ranges for each occupation category, EPS summed the percentages of the households in each income bracket across all occupations represented in the land use categories. These estimates of the proportion of worker households in each income brackets by land use category are presented in Table 5. As illustrated, only Lodging is expected to generate a very small number of households at the very low-income levels. Commercial, Lodging, and Industrial are expected to generate significant numbers of households at the low-income level, while jobs in the Office/R&D uses are expected to yield more households with incomes at or above moderate -income levels. See Appendix B for details regarding the distribution of occupations and wages within each land use type. Employment Densities Different land use categories operate with varying levels of employment densities. A 100,000 square foot industrial development, for example, typically has fewer employees than an office building of the same size. The number of building square feet anticipated for an employee is termed the "employment density" of each land use category. Based on input from City staff, independent research, and experience with other comparable cities, EPS estimated the employment density for each of the land use categories (detailed in Appendix Table C-1). Using these employment density assumptions, EPS estimated the number of employees that would occupy a prototype 100,000-square foot building for each land use category, as shown in Table 6. Household Formation After calculating the estimated number of new employees generated for each land use category, EPS estimated the number of households represented by these new employees, detailed in Table 6. To calculate new households, EPS first adjusted the number of workers expected to form new households, accounting for those workers who are typically too young (aged 16 to 19) to form their own households.8 The resulting adjusted estimate of new workers was divided by 1.70, which represents the average number of workers per households in Dublin.9 8 Data from the Bureau of Labor Statistics indicate this age cohort represents about 2.0 percent of the overall workforce. This proportion was applied to all industries except Commercial, which represents retail and food service industries, where the younger worker cohort represent 7.7 percent of the overall industry employment. 9 Based on the Census Bureau's American Community Survey 2017-2021 data regarding the number of Dublin residents who are defined as"workers" in households that have workers. Economic & Planning Systems, Inc. 10 74 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Table 5 Income Distribution of Worker Households by Employment Category Employment Income Level Category Very Low Low Moderate Above Moderate 50% AMI 80% AMI 120% AMI >120% AMI Commercial 0.0% 90.5% 3.5% 6.0% Lodging 0.5% 87.1% 3.0% 9.4% Office/R&D 0.0% 26.3% 14.0% 59.7% Industrial 0.0% 43.4% 36.2% 20.4% [1] Designation of household income assumes a 3-person household and 1.7 workers per household, based on American Community Survey data. Sources: JobsEQ, 2022; California Housing and Community Development (HCD); Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 11 75 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Table 6 Household Generation Rates by Employment Category %of Workers Total Households by Income Levels Total Employment Sq.Ft. per Total Workers Forming Households per Very Low Low Moderate Above Moderate Households per Category Worker per 100k Sq.Ft. Households2 100k Sq. Ft.3• ° 50% AMI 80% AMI 120% AMI >120% AMI 100k Sq. Ft.3' a Commercial 472 212 92.3% 115 0 104 4 7 115 Lodging 3,000 33 98.0% 19 0 17 1 2 20 Office/R&D 307 326 98.0% 188 0 49 26 112 187 Industrial 862 116 98.0% 67 0 29 24 14 67 [1] See Appendix Table A-1 for sources on employment densities in different land uses. [2] U.S. Bureau of Labor Statistics data indicates that 7.7% of retail/restaurant workers are aged 16-19, but an average of only 2% of workers in other industries fall into that age cohort. EPS has assumed that workers aged 16-19 do not form their own households. [3] Assumes 1.70 workers per household based on Census data; rounded. [4] This maximum nexus -based fee calculation assumes that Dublin fees account for all worker households generated by new employers in City of Dublin, though some workers and their households may choose to reside outside of Dublin. Total number of households may not match sum of households by income level due to rounding. [5] Figures are rounded to nearest whole number. Sources: U.S. Census American Community Survey 5-Year Estimates 2021; JobsEQ, 2022; California Housing and Community Development (HCD); Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 12 76 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Housing Development Costs and Affordability Gap To calculate the maximum justifiable fee for each land use category, EPS estimated the "affordability gap" related to developing residential units affordable to very -low, low, and moderate -income households. The average household size in Dublin is 3.03 people per household according to 2021 Five -Year Estimates from the American Community Survey (ACS), but the average number of people, per working household (households with earnings - not including retired households, etc.) is 3.29. Thus, this analysis estimates the costs of providing affordable housing for a three -person household, to represent the average size of working households (rounded). California State law (California Health and Safety Code Section 50052.5) assumes that a three -person household would occupy a two -bedroom unit, and this assumption is used in this analysis. The assumed prototype reflects multifamily construction at 85 dwelling units to the acre with podium parking, reflecting the highest allowable residential density in the Dublin Downtown Specific Plan Area, and consistent with City staff representations of the general type of multifamily projects being built in Dublin. This building prototype is relatively cost-effective to construct, as it makes efficient use of land and does not involve overly expensive construction materials or techniques. Based on comparable recent projects in the vicinity of Dublin, EPS assumes that the typical gross square footage of a two -bedroom rental unit in Dublin will be approximately 1,000 square feet. Development Cost Assumptions Affordable housing development costs include land costs, direct costs (e.g., labor and materials), and indirect or "soft" costs (e.g., architecture, entitlement, marketing, etc.). Data from recent land transactions in and around Dublin have been combined with EPS's information from various market -rate and affordable housing developers in the surrounding region to estimate appropriate development cost assumptions for use in Dublin. A developer fee is also estimated and represents the compensation to the developer for their efforts, investment, and risk. These assumptions are shown on Table 7 and indicate that the total cost per unit for rental apartments is about $692,000. By necessity, this figure represents a "prototypical" project; the actual costs for a given project will vary by location and project design characteristics. Revenue Assumptions Assumptions must be made regarding the applicable income level (very -low, low, and moderate) and the percentage of household income spent on housing costs to calculate the values of the affordable units. In addition, translating these assumptions into unit prices and values requires estimates of operating expenses and capitalization rates. The following assumptions were used in these calculations: • Income Levels —This analysis estimates the subsidy required to produce units for households falling into the very low, low, and moderate -income categories for a three -person household. While these categories are generally defined as a percentage of area median income (AMI) by HCD. In Alameda County, the dollar amount thresholds for each category are in line with Economic & Planning Systems, Inc. 13 77 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 the percentage thresholds.10 EPS has assumed the maximum income level allowable for the Very Low category but has defined Low as "Lower" at 60 percent AMI and Moderate at 110 percent AMI, consistent with State Density Bonus guidelines. This assumption is conservative in that it does not assume households earn at the very top of the income range. • Percentage of Gross Household Income Available for Housing Costs— HCD standards on overpaying for rent indicate that households should pay no more than 30 percent of their gross income on housing cost.11 For this analysis, EPS has assumed that all households shall spend 30 percent of their gross income on housing costs, including the cost of utilities stated by the Alameda County utility allowance schedule. • Operating Costs for Rental Units —This analysis assumes that apartment operators incur annual operating costs of $7,500 per unit for below market rate housing for units affordable for those falling into the very low and low-income categories. EPS has assumed the units for moderate -income households would have similar operating costs but would be built by for - profit builders and thus also subject to property taxes, increasing their annual operating cost to $10,000 per unit. Affordability Gap Results Table 7 shows the costs and values for developing rental apartments in the City for households at various income levels. Across all categories, the cost of constructing the unit is higher than the supportable value of the unit. This is considered the "affordability gap," and serves as the basis for calculating the subsidies required to provide housing for the lower -wage worker households generated by new nonresidential development. The results of the analysis illustrate that rents affordable to households earning moderate incomes and below cannot support the costs of new construction without subsidy. 10 See HCD State Income Limits 2023 for Alameda County, https://www. hcd.ca.gov/sites/default/files/docs/grants-and-funding/income-limits-2023.pdf 11 See HCD standards for Overpayment and Overcrowding, Building Blocks: Housing Needs - Overpayment and Overcrowding (ca.aov) Economic & Planning Systems, Inc. 14 23100,0.1,comrneroal Linkage Fee_Oraft_20230[123 door 78 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Table 7 Affordability Gap Analysis - Rental Product Type Item Multifamily Rental Apartments with Podium -style, Above -grade, Structured Parking Very Low Lower Low Moderate Income Income [1] Income Income [2] 50% AMI 60% AMI 80% AM 110% AMI Development Program Assumptions Density/Acre [3] 85 85 85 85 Gross Unit Size 1,000 1,000 1,000 1,000 Number of Bedrooms 2 2 2 2 Occupants per 2-bedroom Unit [4] 3 3 3 3 Parking Spaces/Unit [5] 0.75 0.75 0.75 0.75 Project Development Cost Assumptions (per acre) Land Acquisition and Site Improvement [6] $9,350,000 $9,350,000 $9,350,000 $9,350,000 Direct Development Costs [7] $33,787,500 $33,787,500 $33,787,500 $33,787,500 Indirect Development Costs [8] $8,446,875 $8,446,875 $8,446,875 $8,446,875 Developer Fee $7.221.813 $7.221.813 $7.221.813 $7.221.813 Total Development Costs $58,806,188 $58,806,188 $58,806,188 $58,806,188 per Unit Development Costs $691,838 $691,838 $691,838 $691,838 Maximum Supported Home Price Household Income [9] $66,600 $79,860 $93,170 $146,410 Income Available for Housing Costs/Year [10] $16,014 $19,992 $23,985 $39,957 (less) Operating Expenses per Unit/Year [11] ($7,500) ($7,500) ($7,500) ($10,000) Net Operating Income $8,514 $12,492 $16,485 $29,957 Capitalization Rate [12] 5.0% 5.0% 5.0% 5.0% Total Supportable Unit Value [13] $170,280 $249,840 $329,700 $599,140 Affordability Gap $521,558 $441,998 $362,138 $92,698 [1] Assuming the State Density Bonus is used, the rents for Lower -income households will need to be affordable to households with earnings of not greater than 60% AMI. [2] Astand-alone Moderate -income rental project would not qualifyfor the State Density Bonus, but as part of a 100% affordable project that includes Lower -income units, moderate -income rental units are allowed. The rents for Moderate -income households are assumed to be affordable to households with earnings of not greater than 110%. [3] Reflects highest allowable densities in Dublin's Downtown Specific Plan area (85 dwelling units per acre) [4] Consistent with guidance in State law (Health and Safety Code Section 50052.5), a 2-bedroom unit should be assumed to be occupied bya 3- person household. [5] Typical parking requirement in high -density residential zone is 1.5 spaces per unit plus guest parking. This analysis assumes state density bonus parking concession is used to improve development economics. [6] Includes land acquisition, site preparation costs, entitlement consultants, and fees/permits. Land acquisition value reflects a weighted average, based on vacant, residentially -zoned land transactions in Tri-Valley during the past four years, as reported byCoStar. Estimate aligns with figures provided by local developers but can varywidely. [7] Includes on -site work, offsite work, vertical construction, general requirements, overhead and builder fees. The cost estimate reflects wood - frame construction. Assumes workers are paid prevailing wage. [8] Includes costs for architecture and engineering; project management; appraisal and market study marketing, commissions, and general administration; financing and charges; insurance; and contingency. [9] Incomes are based on 2023 HCD Income Limits for three -person households in Alameda Countyand revised to reflect State Density Bonus Law affordability requirements. [10] Assumes that no more than 30% of a household's income should be spent on housing -related costs for housing to be considered affordable, subtracting cost of utilities for3-person household based on the Alameda County Housing Authority. [11] Operating expenses are generally based on EPS feasibility studies in the region and are inclusive of utility costs; lower -income units (at or below 80% ofAMl) are assumed to be built as non-profit and are, therefore, exempt from propertytaxes. Property taxes are assumed to comprise a share of the operating egenses for the moderate -income category. [12] The capitalization rate is used to determine the current value ofa property based on estimated future operating income, and is typically measure of estimated operating risk. [13] The total supportable unit value is determined by dividing the net operating income bythe capitalization rate. Sources: Cityof Dublin; Alameda County Housing Authority, California Housing and Community Development (HCD); Costar; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 15 79 Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Fee Calculation Table 8 through Table 11 provide the maximum nonresidential housing fee calculations for each of the three land use categories. The fee is calculated by the following steps: 1. Estimate the number of new households by income category generated by a prototype 100,000-square foot building in the land use category. 2. Multiply the number of households generated by the per -unit affordability gap (as calculated in Table 7) to determine the level of subsidy required to provide housing in Dublin for all new worker households. 3. Divide the total affordability gap by 100,000 square feet (the size of the prototype building) to determine a maximum fee per building square foot. The "Maximum Fee per Square Foot" calculated in the following tables represents the maximum justifiable linkage fee that the City can charge for each land use category based on the required nexus findings. The City may, however, decide to adopt fees below the maximum justifiable levels based on economic or policy considerations. For example, EPS has calculated an "Adjusted Maximum" fee reflecting the idea that not every employee of newly developed workplaces will in fact reside in Dublin. According to the most recently available data from the US Census Bureau's Longitudinal Employer -Household Dynamics program, only 9.4 percent of people who work in Dublin also live in Dublin. EPS has applied that proportion to the "Maximum Fee" to calculate an "Adjusted Maximum" for each land use category. To be clear, however, this type of adjustment is not legally required, but does yield a lower fee. Economic & Planning Systems, Inc. 16 80 Table 8 Fee Calculation — Commercial Item Table References: Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Worker Households Affordability Gap Total Gap per 100k sq. ft. per household Table 6 Table 7 Aggregate Financing Gap per 100K Sq. Ft Affordability Level Very Low Income 0 $521,558 $0 Low Income 104 $362,138 $37,662,300 Moderate 4 $92,698 $370.790 Total 108 $38,033,090 Fee Calculation formula Total Financing Gap a $38,033,090 Total Building Sq. Ft. b 100,000 Maximum Fee per Sq. Ft. c=a/b $380.33 Adjustment for % of Workers Living in Dublin [1] 9.4% Adjusted Fee per Sq. Ft. $344.44 [1] The US Census Bureau indicates that 9.4% of people working in Dublin also lived in Dublin in 2020 (most recent data available). Sources: US Census Bureau "On The Map"; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 17 81 Table 9 Fee Calculation - Lodging Item Table References: Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Worker Households Affordability Gap Total Gap per 100k sq. ft. per household Aggregate Financing Gap per 100K Sq. Ft Table 6 Table 7 Affordability Level Very Low Income 0 $521,558 $0 Low Income 17 $362,138 $6,156,338 Moderate 1 $92,698 $92,698 Total 18 $6,249,035 Fee Calculation formula Total Financing Gap a $6,249,035 Total Building Sq. Ft.1 b 100,000 Maximum Fee per Sq. Ft. c =a/b $62.49 Adjustment for % of Workers Living in Dublin [1] 9.4% Adjusted Fee per Sq. Ft. $56.59 [1] The US Census Bureau indicates that 9.4% of people working in Dublin also lived in Dublin in 2020 (most recent data available). Sources: US Census Bureau "On The Map'; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 18 23100,0,lin_comrnersal Linkage Fee_Oraft_20230a23 door 82 Table 10 Fee Calculation — Office/R&D Ite m Table References: Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Worker Households Affordability Gap Total Gap per 100k sq. ft. per household Table 6 Table 7 Aggregate Financing Gap per 100K Sq. Ft Affordability Level Very Low Income 0 $521,558 $0 Low Income 49 $362,138 $17,744,738 Moderate 26 $92,698 $2.410.135 Total 75 $20,154,873 Fee Calculation formula Total Financing Gap a $20,154,873 Total Building Sq. Ft. b 100,000 Maximum Fee per Sq. Ft. c = a /b $201.55 Adjustment for % of Workers Living in Dublin [1] 9.4% Adjusted Fee per Sq. Ft. $182.53 [1] The US Census Bureau indicates that 9.4% of people working in Dublin also lived in Dublin in 2020 (most recent data available). Sources: US Census Bureau "On The Map"; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 19 83 Table 11 Fee Calculation - Industrial Item Table References: Draft Report Dublin Commercial Linkage Fee Nexus Study 10/27/2023 Worker Households Affordability Gap Total Gap per 100k sq. ft. per household Aggregate Financing Gap per 100K Sq. Ft Table 6 Table 7 Affordability Level Very Low Income 0 $521,558 $0 Low Income 29 $362,138 $10,501,988 Moderate 24 $92,698 $2,224,740 Total 53 $12,726,728 Fee Calculation formula Total Financing Gap a $12,726,728 Total Building Sq. Ft.1 b 100,000 Maximum Fee perSq. Ft. c=a/b $127.27 Adjustment for % of Workers Living in Dublin [1] 9.4% Adjusted Fee perSq. Ft. $115.26 [1] The US Census Bureau indicates that 9.4% of people working in Dublin also lived in Dublin in 2020 (most recent data available). Sources: US Census Bureau "On The Map"; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 20 84 APPENDICES: Appendix A: Survey of Commercial Linkage Fees in Other Jurisdictions Appendix B: Occupation Distribution by Employment Category Appendix C: Assumptions and Sources 85 0 APPENDIX A: Survey of Commercial Linkage Fees in Other Jurisdictions 86 Table A-1 Survey of Commercial Linkage Fees as of August 2023 City of Dublin Commercial Linkage Fee Study; EPS #231009 Commercial Linkage Fee per Sq. Ft. Commercial (Retail) Lodging Office/R&D Industrial Dublin $1.35 $0.57 $1.09-1.68 $0.65 San Ramon $4.32 $4.32 $4.32 $3.24 Danville no commercial linkage fee program Pleasanton $5.21 $3.59 $8.68 $14.42 Livermore $2.38 $3.34 $1.53 $0.21-1.52 Fremont $11.33 $11.33 $11.33 $5.67 Hayward no commercial linkage fee program Walnut Creek $5.00 $5.00 $5.00 $5.00 Concord no commercial linkage fee program 87 0 APPENDIX 5 on p�stribUt,OQ `l ccupat� t Cate9 by Emp,oy,mer► sa Table B-1 Occupation and Wage Distribution - Commercial (without Lodging) City of Dublin Commercial Linkage Fee Study; EPS #231009 Occupation Category [1] Commercial San Francisco -Oakland - Berkeley, CA MSA %of Industry Jobs in Average Wage Occupation Category HH Income at 1.70 workers/HH Income Category Management Occupations $101,153.66 4.05% $171,961.22 Above Moderate Business and Financial Operations Occupations $79,403.97 1.26% $134,986.75 Moderate Computer and Mathematical Occupations $107,491.80 0.33% $182,736.05 Above Moderate Architecture and Engineering Occupations $107,765.50 0.02% $183,201.36 Above Moderate Life, Physical, and Social Science Occupations $84,624.70 0.01% $143,861.99 Moderate Community and Social Service Occupations $51,467.04 0.04% $87,493.97 Low Legal Occupations $108,695.65 0.02% $184,782.61 Above Moderate Educational Instruction and Library Occupations $56,927.36 0.03% $96,776.52 Low Arts, Design, Entertainment, Sports, and Media Occupations $55,439.53 0.65% $94,247.19 Low Healthcare Practitioners and Technical Occupations $96,029.88 1.62% $163,250.79 Above Moderate Healthcare Support Occupations $56,312.85 0.53% $95,731.85 Low Protective Service Occupations $48,022.99 0.29% $81,639.08 Low Food Preparation and Serving Related Occupations $39,487.58 38.88% $67,128.89 Low Building and Grounds Cleaning and Maintenance Occupations $44,801.74 0.76% $76,162.96 Low Personal Care and Service Occupations $41,373.20 5.12% $70,334.45 Low Sales and Related Occupations $43,598.88 27.03% $74,118.09 Low Office and Administrative Support Occupations $49,440.79 4.89% $84,049.33 Low Farming, Fishing, and Forestry Occupations $42,092.71 0.14% $71,557.61 Low Construction and Extraction Occupations $66,877.97 0.19% $113,692.54 Moderate Installation, Maintenance, and Repair Occupations $59,658.15 2.05% $101,418.85 Moderate Production Occupations $44,744.93 2.20% $76,066.38 Low Transportation and Material Moving Occupations $42,359.83 9.88% $72,011.71 Low Total or Weighted Average $46,493.40 100.00% $79,038.78 [1] Includes NAICS Sectors: 44 and 45 - Retail Trade; 532000 - Rental and Leasing Services; 812000 - Personal and Laundry Services; and 722000 - Food Services and Drinking Places. Sources: JobsEQ, 2021; U.S. Census American Community Survey 5-Year Estimates 2021; Economic & Planning Systems, Inc. 89 Table B-2 Occupation and Wage Distribution - Lodging City of Dublin Commercial Linkage Fee Study; EPS #231009 Occupation Category [1] Lodging San Francisco -Oakland - Berkeley, CA MSA %of Industry Jobs in Average Wage Occupation Category HH Income at 1.70 workers/HH Income Category Management Occupations $108,000.00 9.36% $183,600.00 Above Moderate Business and Financial Operations Occupations $64,800.00 2.42% $110,160.00 Moderate Computer and Mathematical Occupations $78,700.00 0.18% $133,790.00 Moderate Architecture and Engineering Occupations $119,800.00 0.07% $203,660.00 Above Moderate Life, Physical, and Social Science Occupations $70,700.00 0.01% $120,190.00 Moderate Community and Social Service Occupations $65,300.00 0.02% $111,010.00 Moderate Legal Occupations $164,600.00 0.01% 279,820.00 Above Moderate Educational Instruction and Library Occupations $57,700.00 0.08% $98,090.00 Low Arts, Design, Entertainment, Sports, and Media Occupations $71,700.00 0.21% $121,890.00 Moderate Healthcare Practitioners and Technical Occupations $95,100.00 0.01% $161,670.00 Above Moderate Healthcare Support Occupations $35,500.00 0.46% $60,350.00 Very Low Protective Service Occupations $42,800.00 1.87% $72,760.00 Low Food Preparation and Serving Related Occupations $42,000.00 17.00% $71,400.00 Low Building and Grounds Cleaning and Maintenance Occupations $46,100.00 32.80% $78,370.00 Low Personal Care and Service Occupations $41,000.00 3.41% $69,700.00 Low Sales and Related Occupations $49,800.00 2.39% $84,660.00 Low Office and Administrative Support Occupations $42,900.00 20.45% $72,930.00 Low Farming, Fishing, and Forestry Occupations $48,000.00 0.08% $81,600.00 Low Construction and Extraction Occupations $68,500.00 0.21% $116,450.00 Moderate Installation, Maintenance, and Repair Occupations $56,400.00 6.33% $95,880.00 Low Production Occupations $43,200.00 1.94% $73,440.00 Low Transportation and Material Moving Occupations $39,400.00 0.70% $66,980.00 Low Total or Weighted Average $51,586.65 100.00% $87,697.31 [1] Includes NAICS Sector: 721 -Accommodation. Sources: JobsEQ, 2022; U.S. Census American Community Survey 5-Year Estimates 2021; Economic & Planning Systems, Inc. 90 Table B-3 Occupation and Wage Distribution - Office/R&D City of Dublin Commercial Linkage Fee Study; EPS #231009 Occupation Category [1] Office/R&D San Francisco -Oakland - Berkeley, CA MSA % of Industry Jobs in Average Wage Occupation Category HH Income at 1.70 workers/HH Income Category Management Occupations $186,928.04 12.43% $317,777.67 Above Moderate Business and Financial Operations Occupations $112,199.26 14.53% $190,738.75 Above Moderate Computer and Mathematical Occupations $137,383.52 15.98% $233,551.99 Above Moderate Architecture and Engineering Occupations $124,474.22 4.33% $211,606.18 Above Moderate Life, Physical, and Social Science Occupations $113,363.11 4.45% $192,717.29 Above Moderate Community and Social Service Occupations $71,506.82 0.79% $121,561.59 Moderate Legal Occupations $152,823.83 2.25% $259,800.50 Above Moderate Educational Instruction and Library Occupations $73,603.93 0.25% $125,126.68 Moderate Arts, Design, Entertainment, Sports, and Media Occupations $93,142.15 3.84% $158,341.65 Moderate Healthcare Practitioners and Technical Occupations $145,114.86 5.75% $246,695.26 Above Moderate Healthcare Support Occupations $54,417.72 2.49% $92,510.13 Low Protective Service Occupations $48,276.53 2.26% $82,070.10 Low Food Preparation and Serving Related Occupations $40,479.47 0.22% $68,815.10 Low Building and Grounds Cleaning and Maintenance Occupations $46,638.02 3.79% $79,284.63 Low Personal Care and Service Occupations $45,934.07 0.34% $78,087.93 Low Sales and Related Occupations $92,511.49 6.74% $157,269.53 Moderate Office and Administrative Support Occupations $57,904.91 13.84% $98,438.35 Low Farming, Fishing, and Forestry Occupations $51,397.31 0.12% $87,375.43 Low Construction and Extraction Occupations $80,538.98 0.52% $136,916.27 Moderate Installation, Maintenance, and Repair Occupations $69,607.82 1.84% $118,333.29 Moderate Production Occupations $48,922.47 1.30% $83,168.21 Low Transportation and Material Moving Occupations $44,803.83 1.95% $76,166.51 Low Total or Weighted Average $110,011.04 100.00% $187,018.77 [1] Includes NAICS Sectors: 51 - Information; 52 - Finance and Insurance; 53 - Real Estate and Rental and Leasing (excluding 532000 -Rental and Leasing Services); 54 - Professional, Scientific, and Technical Services; 55 - Management of Companies and Enterprises; 561 - Admin. and Support Services; 6211 - Offices of Physicians; 6212 - Offices of Dentists; 6213 - Offices of Other Health Practitioners; 6214 - Outpatient Care Centers; and 621500 - Medical and Diagonostic Laboratories. Sources: JobsEQ, 2021; U.S. Census American Community Survey 5-Year Estimates 2021; Economic & Planning Systems, Inc. 91 Table B-4 Occupation and Wage Distribution - Industrial City of Dublin Commercial Linkage Fee Study; EPS #231009 Occupation Category [1] Industrial San Francisco -Oakland - Berkeley, CA MSA % of Industry Jobs in Average Wage Occupation Category HH Income at 1.70 workers/HH Income Category Management Occupations $158,147.54 8.23% $268,850.81 Above Moderate Business and Financial Operations Occupations $103,392.89 6.03% $175,767.91 Above Moderate Computer and Mathematical Occupations $139,076.43 2.41% $236,429.93 Above Moderate Architecture and Engineering Occupations $112,828.89 3.54% $191,809.12 Above Moderate Life, Physical, and Social Science Occupations $92,162.61 1.05% $156,676.44 Moderate Community and Social Service Occupations $78,359.68 0.00% $133,211.45 Moderate Legal Occupations $199,705.44 0.08% $339,499.25 Above Moderate Educational Instruction and Library Occupations $69,094.23 0.01% $117,460.18 Moderate Arts, Design, Entertainment, Sports, and Media Occupations $72,251.41 0.78% $122,827.40 Moderate Healthcare Practitioners and Technical Occupations $112,353.32 0.15% $191,000.64 Above Moderate Healthcare Support Occupations $59,860.28 0.02% $101,762.47 Moderate Protective Service Occupations $59,228.02 0.11% $100,687.63 Low Food Preparation and Selling Related Occupations $41,556.54 0.42% $70,646.12 Low Building and Grounds Cleaning and Maintenance Occupations $49,462.99 0.57% $84,087.08 Low Personal Care and Service Occupations $47,499.67 0.01% $80,749.44 Low Sales and Related Occupations $84,554.44 6.22% $143,742.54 Moderate Office and Administrative Support Occupations $57,812.72 9.52% $98,281.63 Low Farming, Fishing, and Forestry Occupations $46,613.34 0.27% $79,242.67 Low Construction and Extraction Occupations $78,336.07 20.78% $133,171.31 Moderate Installation, Maintenance, and Repair Occupations $71,292.15 7.31% $121,196.66 Moderate Production Occupations $54,838.13 19.41% $93,224.82 Low Transportation and Material Moving Occupations $51,202.17 13.10% $87,043.69 Low Total or Weighted Average $78,713.23 100.00% $133,812.48 [1] Includes NNCS Sectors: 22 - Utilities; 23 - Construction; 42 - Wholesale Trade; 484 - Truck Transportation; 493 - Warehousing & Storage; and 811 - Repair and Maintenance 92 APPENDIX C Assumptions and Sources • 93 Table C-1 Assumptions and Sources City of Dublin Commercial Linkage Fee Study; EPS #231009 Item Demographic Assumptions Total Population Total Employed Households Households with Eamings Workers per Household with Workers Persons per Working Household Dublin Workers Living in Dublin Employment Density Assumptions Commercial Office/R&D Lodging Industrial Total Unit 71,680 persons 37,116 persons 23,688 households 21,819 households 1.70 persons 3.29 persons 9.4% of workers 472 sq. ft. per employee 307 sq. ft. per employee 3,000 sq. it. per employee 862 sq. ft. per employee Source American Community Survey 5-Year Estimates 2021 American Community Survey 5-Year Estimates 2021 American Community Survey 5-Year Estimates 2021 American Community Survey 5-Year Estimates 2021 American Community Survey 5-Year Estimates 2021 American Community Survey 5-Year Estimates 2021 US Census Bureau "On The Map" 2020 data Draft Public Facilities Fee study, City of Dublin, 2023 Draft Public Facilities Fee study, City of Dublin, 2023 Draft Public Facilities Fee study, City of Dublin, 2023 Draft Public Facilities Fee study, City of Dublin, 2023 Sources: U.S. Census American CommunitySurvey 5-Year Estimates 2021;US Census Bureau "On The Map"; Cityof Dublin 94 Attachment 6 INCLUSIONARY ZONING REGULATIONS I 8.68.010 Purpose. The purpose of this €Chapter is to: A. €Enhance the public welfare and assure that further housing development contributes to the attainment of the City's housing goals by increasing the production of residential units affordable by households of very low, low, and moderate income. B. aAssure that the limited remaining developable land in the City's planning area is utilized in a manner consistent with the City's housing policies and needs. Rev. Ord. 1 03(January2003); Ord. 8 02 (May 2002) 8.68.020 Definitions. As used in this €Chapter, each of the following terms shall be defined as follows: A. "Affordable unit" means an ownership or rental -housing unit, including senior housing, affordable to households with very -low:, low=, or moderate:incomes as defined in this Chapter. 1. Rental units are deemed affordable units if the annual rent does not exceed 30% of maximum income level for very low-, low- and moderate -income households, adjusted for household size and as defined below. 2. Owner -occupied units are deemed affordable units if the sales price results in annual housing expenses that do not exceed 35% of the maximum income level for very -low-, low-, and moderate -income households, adjusted for household size and as defined below. B. "Applicant" means any person, firm, partnership, association, joint venture, corporation, or any entity or combination of entities that seeks city real property development permits or approvals. C. "Dwelling unit" means a dwelling designed and intended for occupancy by one household. D. "Very -low-, low-, and moderate -income levels" means those income and eligibility levels determined periodically by the California Department of Housing and Community Development based on Alameda County median income levels adjusted for family size. Such levels shall be calculated on the basis of gross annual household income considering household size and number of dependents, income of all wage earners household members eighteen years of age and older, elderly or disabled family members, and all other sources of household income and will be recertified as set forth by local standards, and state and federal housing law. 95 1. "Very-low=income" means 50% or less of the median income, adjusted for actual household size. 2. "Low=income" means more than 50% and up to 80% of the median income, adjusted for actual household size. 3. "Moderate=income" means more than 80% and up to 120% of the median income, adjusted for actual household size. E. "Resale controls and/or rent restrictions" means legal restrictions by which the affordable units shall be restricted to ensure that the unit remains affordable to very -low-, low-, or moderate -income households, as applicable, for a period of not less than 55 years. The 55 vear period will reset with each time ownership of the unit is transferred through a bona fide sales transaction with a third party during the resale restriction period sale of the unit. With respect to rental units, such rent restrictions shall be in the form of a regulatory agreement recorded against the applicable property. With respect to owner -occupied units, such resale controls shall be in the form of resale restrictions, deeds of trust, and/or other similar documents recorded against the applicable property. F. "Residential development" includes, without limitation, detached single-family dwellings, multiple -dwelling structures, groups of dwellings, condominium or townhouse developments, condominium conversions, cooperative developments, mixed use developments that include housing units, and residential land subdivisions intended to be sold to the general public. Rev. -4g 08 (December2008); Ord. 8-05 March 005) Or„. 1 03 /miry 003; Orr/ 02 (44ay 2002) 8.68.030 General Requirements. A. 12.5% Affordability Requirement for Rental Units. All new rental residential rental development projects of -with 20 10 units or more designed and intended for permanent occupancy shall construct 12.5 10.0% of the total number of dwelling units within the development as affordable units, except as otherwise provided by this €Chapter, and except when all of the dwelling units (excluding units reserved for property management) within the project are affordable. The foregoing requirement shall be applied no more than once to an approved residential development (and generally at the tentative map stage), regardless of the changes in the character or ownership of the development. except as provided bv this Chapter, provided the total number of units does not change. In applying and calculating the affordability requirement, any decimal fraction less than or equal to 0.50 may be disregarded, and any decimal fraction greater than 0.50 shall be construed as one unit. B. Affordability Requirement for Ownership Units. All for -sale (ownership) residential development projects of 10 units or more designed and intended for permanent occupancy shall construct 12.5% of the total number of dwelling units within the development as affordable units, except as otherwise provided bv this Chapter. The foregoing requirement shall 96 be applied no more than once to an approved residential development (and generally at the tentative map stage). regardless of the changes in the character or ownership of the development. except as provided by this Chapter. provided the total number of units does not change. In applying and calculating the affordability requirement, anv decimal fraction less than or equal to 0.50 may be disregarded. and any decimal fraction greater than 0.50 shall be construed as one unit. BC. Allocation of Units to Income Levels. Affordable units provided pursuant to this section shall be allocated to households with very-Iow, low-, and moderate -income levels as follows: Rental Units Owner -Occupied Units Very -low-income households 048% 0% Low-income households 10020% 40% Moderate -income households 058% 60% Where the calculation of the allocation results in fewer units than would otherwise be required p Ircuant to subsection A of this section, one additional unit should be allocated to the income level with a decimal fraction closest to 0.50. CD. Conditions of Approval: Any tentative map, conditional use permit, or site development review approving residential development projects subject to this €Chapter shall contain conditions sufficient to ensure compliance with the provisions of this €Chapter. Such conditions shall detail the number of affordable units required, specify the schedule of construction of affordable units, set forth the applicant's manner of compliance with this €Chapter, and require the execution of an agreement imposing appropriate resale controls and/or rental restrictions on the affordable units. DE. Concurrent Construction. All affordable units in a project or phase of a project shall be constructed concurrently with market -rate units, unless the City Manager determines in writing that extenuating circumstances exist that make concurrent construction infeasible or impractical. €F. Design and Distribution of Affordable Units. All affordable units shall reflect the range of numbers of bedrooms provided in the project as a whole and shall not be distinguished by exterior design, construction, or materials. Affordable units may be of smaller size than the units in the project and may have fewer amenities than the market rate units in the project. All affordable units shall be reasonably dispersed throughout the project. Rev Ord— — 8 (December 2008); Ord. 1 03 (January 2003); Ord. 8 02 (May 2002) 8.68.040 Exceptions to 12.5% Affordability Requirement. 97 Developers of projects subject to Sections 8.68.030A and 8.68.030B shall construct 12.5% of the total number of affordable dwelling units within the development as affordable units, unless subject to an exception set forth in this section. All exceptions require City Council approval, wh+:h J.1a11 be obtained at or prior to the last discretionary app aval for the project. A. Payment of Fees In Lieu of Creation of Affordable Units. Upon request of the applicant, the City Council shall permit the applicant to pay a fee in lieu of constructing up to 40% of the affordable units that the developer would otherwise be required to construct pursuant to Sections 8.68.030A and 8.68.030B. The amount of the fee shall be as set forth in a resolution of the City Council, which may be amended from time to time to reflect inflation and changed conditions in the City and the region. In lieu fees shall be paid at the time and in the amount set forth in the in lieu fee resolution in effect at the time of issuance of the building permit. B. Off -Site Projects. An applicant may construct the affordable units not physically within the development in lieu of constructing some or all of the affordable units within the development, with the approval of the City Council, if the City Council finds: 1. that cConstruction of the units off -site in lieu of constructing units on -site is consistent with the €Chapter's goal of creating, preserving, maintaining, and protecting housing for very low-, low- and moderate -income households. 2. that the uUnits to be constructed off site are consistent with Section 8.68.030€F above. 3. that it wWould be infeasible or impractical to construct affordable units on -site. 4. that cConditions of approval for the project require that the off -site affordable units would be governed by the terms of a deed restriction and, if applicable, rental restrictions similar to that used for the on -site affordable units. 5. that the cConditions of approval for the project, or other security such as a cash deposit, bond, or letter of credit, are adequate to require the construction of the off -site affordable units concurrently with the completion of the construction of the residential development or within a reasonable period (not to exceed five years). C. Land Dedication. An applicant may dedicate land to the City or city -designated local non- profit housing developer in lieu of construction of some or all of the required affordable units, if the Council finds: 1. that dDedication of land in lieu of constructing units is consistent with the €Chapter's goal of creating, preserving, maintaining, and protecting housing for very-lowvery low-. low- and moderate -income households. 98 2. that tThe dedicated land is useable for its intended purpose, is free of toxic substances and contaminated soils, and is fully improved, with infrastructure, adjacent utilities, grading, and all development -impact fees paid excluding any inclusionary zoning ordinance fees. 3. that tThe proposed land dedication is of sufficient size to meet the following requirements: a. tThe dedication includes land sufficient to construct the number of units that the applicant would otherwise be required to construct by Section 8.68.030.A, based on the size of lots in the subdivision for which the applicant is meeting its obligation; and b. +In addition, the dedication includes such additional land the market value for which is equal to or exceeds the difference between the value of a market -rate, 1200-square foot unit and the price at which such a unit could be sold as an Affordable Unit (which amount shall be set forth in a resolution adopted from time to time by the City Council) times the number of units required. D. Credit tTransfers. An applicant may fully or partially satisfy the requirements of Sections 8.68.030A and 8.68.030B through the use of transfer credits created pursuant to Section 8.68.060. Credit certificates shall be presented to the Community Development Director, who shall note at the time of project approval the credit certificate by number. Credit certificates may only be used to satisfy the requirements for Inclusionary Units for the income category (i.e., very low-, low=, or moderate -income) and number of bedrooms for which they are issued. E. Waiver of Requirements. The City Council, at its discretion, may waive, wholly or partially, the requirements of this ordinance and approve alternate methods of compliance with this Chapter if the applicant demonstrates, and the City Council finds, that such alternate methods meet the purposes of this Chapter. Rev. Ord. 1 03 (lanuary2003); Ord. 8 02 (May2002) 8.68.050 General Procedures for Implementing Inclusionary Zoning Requirements. A. Agreements. Prior to the issuance of a building permit for an affordable unit, resale restrictions or rental controls, or both, as the case may be, shall be set forth in an agreement between the City and the developer, in a form consistent with the City Council -adopted form agreement, which agreement shall be recorded against the property containing the affordable units. The agreement shall be executed by the City Manager, and its requirements shall run with the land and bind the applicant's successors. B. Rental Units; Occupancy; Annual Report. Agreements involving rental units shall require the owner of the affordable units to ensure that the units are occupied by tenants whose monthly income levels do not exceed very low-, low-, or moderate incomcmoderate-income 99 levels, as the case may be, and shall preclude tenants from subletting or subleasing the unit. The agreement shall also require the owner of the affordable unit to submit an annual report to the City Manager, in a format approved by the City. The report shall include, but not be limited to the following information: an identification of the affordable units within the project; the monthly rents charged and proposed to be charged; vacancy information for the prior year; and the monthly income for tenants of each affordable unit throughout the prior year. C. Ownership Units; Occupancy; City's Right of First Refusal. Agreements for ownership units shall specify that the inclusionary units must be occupied by the owner or owners and may not be leased or rented without the written approval of the City. The resale restrictions shall provide that in the event of the sale of an affordable unit, the City shall have the right to purchase any affordable owner -occupant unit at the maximum price that could be charged to an eligible household. D. Selection Criteria. No household shall be permitted to occupy a unit that is required under this €Chapter to be affordable unless the City or its designee has approved the household's eligibility. Eligible potential occupants of affordable units will be qualified on the basis of household income, the median combined household income statistics for Alameda County publi tried periodically by the California Department of Hocr�ng and Camm:.nity Development all so irces of ho Behold income and sets the reIat,�nchip 1►etween household size and the size of available units, and any further criteria required by law as defined by this Chapter. The develop-cr chall ucc an equitable selection method established in conformance with the terms of this :hapt�The selection criteria for a qualified household may not distinguish between adults and children. Selection of qualified person should be based on priorities established using the point system described below: • Employed within the boundaries of the City of Dublin (3 points maximum, one per household member) • Public Service employee working in the City of Dublin (1 additional point) • Dublin resident (3 points maximum, one per household member) • Seniors (1 point, one per household) • Permanently disabled (1 point, one per household) • Immediate family member of Dublin resident (1 point, one per household) • Required to relocate from current Dublin residence due to demolition of dwelling or conversion of dwelling from rental to for -sale unit (1 point, one per household) To qualify as a "Public Service Employee", the person shall be employed by a Public Agency. 100 To qualify as "Employed within the boundaries of the City of Dublin", the person shall have been employed within the City of Dublin for at least six months. To qualify as a "Dublin resident," the person shall have been a resident of the City of Dublin for at least a one-year period prior to the eligibility determination. Rev. Ord. 8 05(March 2005); Ord. 1 03 (January 2003); Ord. 8-02 (May 2002) 8.68.060 Affordable Unit Credits. A. Creation. Affordable unit credits may be created by the City Council. One affordable unit credit certificate shall be issued for each affordable unit constructed in excess of the number of affordable units required to be constructed for the project by Sections 8.68.030A and 8.68.030B. The certificate shall designate a specific income category (i.e., very -low:, low-, or moderate:income) and number of bedrooms for which they are issued. B. Ownership and uUse of coedits. Affordable unit credit certificates are issued to and become the possession of the project owner, who may then use them to satisfy the requirements of this €Chapter for another project in the City. If a project owner proposes to sell credit certificates, the parties shall first obtain the consent of the ccmmc,nity DevelopmentFinance Director, who will document the transfer by certificate number. Rev. Ord. 1 03 (January 2003); Ord. 8 02 (May 2002) 8.68.070 Incentives to Encourage On -Site Construction of Affordable Units. The City may, but shall not be required to, offer incentives or financial assistance to encourage the on -site construction of affordable units in excess of 12.5% of the total number of affordable units required by this Chapter to be included in the project to the extent resources for this purpose are available and approved for such use by the City Council or City Manager. Such incentives may include, but shall not be limited to, the following: A. Fee Deferral. 1. Development Processing Fees. The City Manager may approve deferred payment of City processing fees applicable to the review and processing of the project. The terms and payment schedule of the deferred fees shall be subject to the approval of the City Manager. 2. Development Impact Fees. The City Council may authorize the deferred payment of development impact fees applicable to the affordable units. Approval of this incentive requires demonstration by the Applicant that the deferral increases the project's feasibility. The applicant must provide appropriate security to ensure future payment of such fees. 101 B. Design Modifications. The City Council may approve design modifications to affordable units that increase the feasibility of the construction of affordable units, including but not limited to, the following: 1. Reduced lot size. 2. Reduced setback requirements. 3. Reduced open space requirements. 4. Reduced landscaping requirements. 5. Reduced interior or exterior amenities. 6. Reduction in parking requirements. 7. Height restriction waivers. Rev. Ord. 1 03 (lanuary2003); Ord. 8 02 (May2002) 8.68.080 Inclusionary Zoning In Lieu Fees -Fund. The fund previously known as the "Inclusionary Zoning In Lieu Fee fund" is hereby renamed the "Affordable Housing Fund" ("Fund") and all In Lieu Fees shall be deposited into the Fund. In Lieu Feec chill Ice deposited into a fund known as the "Inclusionary Zoning In Lieu Fees Fund" ("Fund"). A. Use. All monies in the Fund, together with any interest earnings on such monies less reasonable administrative charges, shall be used or committed to use by the City for the purpose of providing very low-, low-, and moderate -income ownership or rental housing in the City of Dublin. B. Annual ¥Report. The City Manager shall prepare an annual report to the City Council identifying the balance of monies in the Fund and the affordable units provided and any monies committed to providing very low-, low-, and moderate -income housing. The annual report shall also include a review of administrative charges. Rev. Ord. 1 03(January2003); Ord. 8 02 (May 2002) 8.68.090 Violations. It shall be unlawful for any person, firm, corporation, partnership or other entity that is subject to this ordinance pursuant to Sections 8.68.030A and 8.68.030B to violate any provision or to fail to comply with any of the requirements of this €Chapter. A violation of any of the provisions of or failingure to comply with any of the requirements of this Chapter shall constitute a misdemeanor; except that notwithstanding any other provisions of this Code, any such violation constituting a misdemeanor under this €Chapter, may in the discretion of the 102 enforcing authority, be charged and prosecuted as an infraction. Any person convicted of an infraction under the provisions of this Code shall be punishable as provided by the Government Code of the State of California. Rev. Ord. 1 03Qanuary2003); Ord. 8 02 (May2002) 8.68.100 Enforcement. A. General. The City Manager shall enforce this €Chapter, and its provisions shall be binding on all agents, successors, and assigns of an applicant. The City Manager may suspend or revoke any building permit or approval upon finding a violation of any provision of this €Chapter. No land -use approval, building permit, or certificate of occupancy shall be issued for any residential development unless exempt from or in compliance with this €Chapter. The City may institute any appropriate legal actions or proceedings necessary to ensure compliance herewith, including, but not limited to, actions to revoke, deny, or suspend any permit or development approval. B. Excessive iRents/ILegal aAction. If the City Manager determines that rents in excess of those allowed by operation of this €Chapter have been charged to a tenant residing in an affordable unit, the City may take appropriate legal action to recover, and the project owner shall be obligated to pay to the tenant, or to the City in the event the tenant cannot be located, any excess rents charged. Rev. Ord. 1 03 (January2003); Ord. 8 02 (May2002) I 8.68.110 Appeals. Decisions of the City Manager under this Chapter may be appealed as provided in Chapter 8.136. Rev. Ord. 1 03 (lanuary2003); Ord. 8 02 (May2002) 103 Attachment 7 DUBLIN STAFF REPORT CITY COUNCIL DATE: August 15, 2023 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager Agenda Item 7.1 SU B.ECT: Inclusionary Zoning and In -Lieu Fee Feasibility Study and Commercial Linkage Fee Nexus Study Prepared by: Jason Earl, Senior Management Analyst EXECUTIVE SUMMARY: The City Council will receive a report on the Inclusionary Zoning and Affordable Housing In -Lieu Fee Feasibility Study and the Commercial Linkage Fee Nexus Study. The City Council will be requested to provide feedback and direction on key policy decisions. This feedback will be used to prepare updates to the Inclusionary Zoning Regulations, Affordable Housing In -Lieu Fee, and Commercial Linkage Fee programs in accordance with the City's Two -Year Strategic Plan. The updates to these programs will be considered for adoption at a future meeting. STAFF RECOMMENDATION: Receive the report and provide feedback and direction. FINANCIAL IMPACT: The cost for this project will be charged to the City's Affordable Housing Fund. There are sufficient funds allocated in the Fiscal Year 2023-24 Adopted Budget for this purpose. DESCRIPTION: Background The City of Dublin Two -Year Strategic Plan includes Strategy 2: Housing Affordability, with the following two specific objectives: • Objective 2.b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production; and • Objective 2.c: Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. Page 1 of 3 104 The consulting firm Economic and Planning Systems (EPS) was selected through a competitive process to assist Staff with addressing these Strategic Plan Objectives. The City's current Inclusionary Zoning Regulations (DMC Chapter 8.68) and Affordable Housing In -Lieu Fee were adopted by the City Council on May 21, 2002 (Ordinance 08-02 and Resolution 56-02 respectively). The Inclusionary Zoning Regulations (IZR) has been amended from time to time, while the In -Lieu Fee is adjusted annually on July 1 based on an inflationary index. The IZR apply to projects with 20 or more units. The City's current inclusionary requirement is 12.5%, meaning that 12.5% of the units in a market -rate residential project are to be set aside as affordable to lower -income households. A developer may satisfy 40% of this obligation through the payment of in -lieu fees. The current Affordable Housing In -Lieu Fee is $241,131 per affordable unit. The Commercial Linkage Fee was adopted by the City Council on May 03, 2005 (Resolution 70-05) and is adjusted each year by an inflationary index. The current fees are shown in Table 1 below. The Commercial Linkage Fee serves to increase funding for affordable housing due to the nexus between non-residential development and the need it generates for affordable housing. Table 1: Commercial Linkage Fee Land Use Category Commercial Linkage Fee Industrial $0.65 Office $1.68 Research & Development $1.09 Retail $1.35 Services & Accommodations $0.57 Staff and the consultant team have reviewed these programs, interviewed market -rate and affordable housing developers who are active in the City and the region, and conducted a survey of the inclusionary requirements, In -Lieu Fees, and Commercial Linkage Fees in other jurisdictions to provide context. Market conditions have changed, and development costs have increased since these programs were initially adopted. As a result, it appears that the inclusionary requirements and the in -lieu fee levels are no longer aligned, and the commercial linkage fees are below what other cities are charging. The City Council will receive a presentation that outlines the findings from this review. The presentation will also highlight how the inclusionary requirement and in -lieu fee programs work from a market and economic perspective, and the implications and tradeoffs of updating these programs. Additionally, the results of the Commercial Linkage Fee nexus analysis, current land use categories, and potential changes to the land use categories will be discussed. This will include a review of the maximum fees that the City could charge, a comparison of fees in peer cities, and a discussion of potential approaches to setting these fees since the nexus -based maximums often exceed what most cities want to charge. The City Council will be requested to provide feedback and direction on key policy decisions. This feedback will be used to prepare updates to the Inclusionary Zoning Regulations, Affordable Page 2 of 3 105 Housing In -Lieu Fee, and Commercial Linkage Fee programs for future consideration and adoption. ENVIRONMENTAL REVIEW: Receiving this informational report and providing direction is not subject to the requirements of the California Environmental Quality Act (CEQA), pursuant to CEQA Guidelines Section 15306 (Information Collection). STRATEGIC PLAN INITIATIVE: Strategy 2: Housing Affordability. Objective 2B: Ensure the City's inclusionary zoning regulations incentivize targeted housing production. Objective 2C: Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. NOTICING REQUIREMENTS/PUBLIC OUTREACH: The City Council Agenda was posted. ATTACHMENTS: None. Page 3 of 3 106 s� STAFF REPORT DUBLIN CITY COUNCIL CALIFORNIA DATE: September 19, 2023 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager Attachment 8 Agenda Item 7.1 SU B.ECT: Inclusionary Zoning and In -Lieu Fee Feasibility Study and Commercial Linkage Fee Nexus Study Prepared by: Jason Earl, Senior Management Analyst EXECUTIVE SUMMARY: The City Council's Two -Year Strategic Plan includes a review of the Commercial Linkage Fee and the Inclusionary Zoning and In -Lieu Fee programs. On August 15, 2023, the City Council received an informational report and provided feedback regarding updates to these programs. Staff has further refined this information and is seeking the City Council's feedback and direction regarding the recommendations. This feedback will be used to prepare updates to the programs that will be brought back to the City Council for consideration at a future public hearing. STAFF RECOMMENDATION: Receive the report and provide feedback and direction regarding the recommendations presented in this report. FINANCIAL IMPACT: There are sufficient funds allocated in the Fiscal Year 2023-24 Adopted Budget in the Affordable Housing Funds for this purpose. DESCRIPTION: Background The City of Dublin Two -Year Strategic Plan includes Strategy 2: Housing Affordability, which includes the following two objectives: • Objective 2b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production; and • Objective 2c: Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. Page 1 of 5 107 The consulting firm Economic and Planning Systems (EPS) was selected to assist Staff with addressing these objectives. On August 15, 2023, the City Council received an informational report on the Inclusionary Zoning and Affordable Housing In -Lieu Fee Feasibility Study and the Commercial Linkage Fee Nexus Study. The City Council provided initial feedback and directed Staff to do the following: • Review the overall impact fee burden on non-residential development with adjustments to the Commercial Linkage Fee. • Provide comparative information about the affordable housing requirements and their impact on production in the Tri-Valley cities. • Lower the threshold for projects that are subject to the Inclusionary Zoning Regulations. The City Council has also prioritized the collection of fees that can be leveraged to facilitate the production of lower income units to satisfy the City's Regional Housing Needs Assessment (RHNA) while providing on -site units where feasible. The recommendations presented in this Staff Report seek to align the Commercial Linkage Fee, Inclusionary Zoning, and In -Lieu Fee programs with those priorities. Analysis Commercial Linkage Fee The Commercial Linkage Fee is a fairly modest tool, in terms of fee revenue generation, the City uses to collect money that can be used towards affordable housing and related programs. The fee is based on the nexus between non-residential development and the need it generates for affordable housing. The maximum amount the City could assess is based on that nexus, while the actual amount assessed is set at the City Council's discretion. The current fee was adopted by the City Council in 2005 (Resolution 70-05) and is adjusted annually based on an inflationary index. The amount was set to ensure that it does not overburden the economic development priorities set by the City Council. New non-residential development is assessed this fee on a per -square -foot basis at the time a building permit is issued. The amount collected is based on the category of development. Since 2015, the City has collected $779,141, the majority of which ($470,114) is attributed to just two projects: the Kaiser Medical Office Building and the Zeiss Innovation Center projects. Table 1 reflects the current fee by use category along with the maximum amount the City could assess. Table 1. Commercial Linkage Fee Category Maximum Fee per Sq. Ft. Current Fee Commercial $344 $1.35 Lodging $57 $0.57 R&D / Office $183 $1.09 / $1.68 Industrial $115 $0.65 Page 2 of 5 108 The current fee represents 4% to 7% of the total impact fee burden for a commercial project. Table 2 below provides a hypothetical example of increasing the Commercial Linkage Fee to $5 per square foot for a new office development and the impact to the overall impact fee burden. Table 2. Impact Fee Burden Category Existing Commercial Linkage Fee Hypothetical New Commercial Linkage Fee Existing Impact Fee Burden Hypothetical New Impact Fee Burden Percentage Increase Office $1.68 $5.00 $23.50 $26.80 14% Staff Recommendation: 1) Retain the existing Commercial Linkage Fee amount and annual inflationary index; and 2) Combine the Research & Development and Office use categories and set the fee at $1.39 per square foot, which is the average of the current fee for those two use categories. Inclusionary Housing Requirements and In -Lieu Fee Analysis The Inclusionary Zoning Regulations (Zoning Ordinance Chapter 8.68) were first adopted by the City Council in 2002 and have been amended periodically. These regulations help to achieve the stated purpose of contributing to the attainment of the City's housing goals, including the production of units to satisfy the RHNA, by increasing the production of residential units affordable to very low-, low-, and moderate -income households. This includes successfully leveraging in -lieu fees collected through this program to facilitate the production of lower income rental units, including units for special needs populations, and requiring the production of on -site units where feasible. Table 3 provides an overview of key aspects of these regulations. Table 3. Dublin Inclusionary Zoning Regulations Overall Inclusionary Requirement Income Targets (Ownership) Income Targets Project (Rental) Size Threshold Must Build Requirement In -Lieu Fee 12.5% 60% Moderate 40% Low 50% Moderate 20% Low 30% Very Low 20 Units 60% of Inclusionary Requirement $241,131 per Inclusionary unit The current program does not differentiate the overall inclusionary requirement (12.5% or the affordable housing in -lieu fee of $241,131) between projects with ownership and rental units. However, the development economics of these two types of development vary dramatically. The average for -sale, single-family development requires a subsidy of $620,000 to produce an affordable unit under the City's current inclusionary program. The current in -lieu fee of $241,131 is lower than the subsidy required to build an affordable unit and thus incentivizes the payment of in -lieu fees. However, there is room to increase this fee while continuing to incentivize payment of in -lieu fees. The average subsidy to produce an affordable rental unit under the City's current inclusionary program is $187,000. Even without the inclusionary requirement, multifamily rental development is at the limits of feasibility, and the subsidy required for affordable rental units pushes that limit even further. Reducing the inclusionary requirement and in -lieu fees would help improve the financial feasibility of such projects. Page 3 of 5 109 Each of the Tri-Valley cities has unique inclusionary zoning regulations which helps it achieve the goals of its community. However, there are certain commonalities, including an average project size threshold of approximately 10+ units, collection of in -lieu fees on a per -square -foot basis, and separate regulations for ownership and rental developments including more of a focus on producing ownership units affordable to moderate income households and production of rental units affordable to very low- and low- income households. Each of the Tri-Valley cities has had unique experience with the production of affordable housing, but generally each has found that its inclusionary zoning regulations, combined with State laws such as Density Bonus Law, SB 35 and SB 330, have resulted in the production of on -site units and the collection of in -lieu fees. Staff Recommendation: 1) Lower the Inclusionary Zoning Regulations applicability threshold to projects of 10+ units; 2) Assess in -lieu fees on a per -square -foot basis for each market -rate unit; 3) Establish separate regulations for ownership and rental developments as follows in Table 4: Table 4. Ownership and Rental Policy Recommendations Very Overall Low Low Moderate Fee per Sq. Ft. Market - Rate Unit Ownership 12.5% 0% 5% 7.5% Rental 10% 0% 10% 0% $9.08 (equivalent to $400,000 per affordable units) $9.17 (equivalent to $236,915 per affordable units) These recommendations align the Inclusionary Zoning and In -Lieu Fee program with the City Council's priorities. They also continue to incentivize both on -site production of housing affordable to low- and moderate -income households and collection of in -lieu fees that can be leveraged to produce units affordable to lower income and special needs households. The City Council is being asked to provide feedback and direction regarding Staff's recommendations to be used to prepare updates to the Commercial Linkage Fee and the Inclusionary Zoning and Affordable Housing In -Lieu Fee programs. The amendments to the Inclusionary Zoning Regulations require a review and recommendation by the Planning Commission. The updates to these programs will then be brought back to the City Council for adoption at a future public hearing. ENVIRONMENTAL REVIEW : Receiving this informational report and providing direction is not subject to the requirements of the California Environmental Quality Act (CEQA), pursuant to CEQA Guidelines Section 15306 (Information Collection). Page 4 of 5 110 STRATEGIC PLAN INITIATIVE: Strategy 2: Housing Opportunities Objective 2B: Ensure the City's inclusionary zoning regulations incentivize targeted housing production. Objective 2C: Prepare a nexus study to evaluate the affordable housing commercial linkage fee and affordable housing in -lieu fee for for -sale and rental housing. NOTICING REQUIREMENTS/PUBLIC OUTREACH: The City Council Agenda was posted. ATTACHMENTS: None. Page 5 of 5 111 Attachment 9 RESOLUTION NO. 23 — 12 A RESOLUTION OF THE PLANNING COMMISSION OF THE CITY OF DUBLIN RECOMMENDING CITY COUNCIL APPROVAL OF AMENDMENTS TO DUBLIN MUNICIPAL CODE CHAPTER 8.68 (INCLUSIONARY ZONING REGULATIONS) EFFECTIVE CITYWIDE PLPA-2023-00032 WHEREAS, the City occasionally initiates amendments to the Dublin Municipal Code to clarify, add, or amend certain provisions to ensure that it remains current with federal and state law, internally consistent, simple to understand and implement, and relevant to changes occurring in the community; and WHEREAS, Staff initiated amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) consistent with the City of Dublin Two -Year Strategic Plan, which includes Strategy 2: Housing Affordability, Objective 2b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production and Objective 2c: Prepare a nexus study to evaluate the affordable housing commercial linkage; and WHEREAS, the City selected the consulting firm Economic and Planning Systems (EPS) to prepare an Inclusionary Zoning and Affordable Housing In -Lieu Fee Feasibility Study and Commercial Linkage Fee Nexus Study to inform the proposed amendments; and WHEREAS, on August 15, 2023, and September 19, 2023, the City Council received informational reports on the Commercial Linkage Fee and Inclusionary Zoning and In -Lieu Fee programs and provided direction to staff to prepare updates to the programs; and WHEREAS, proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) include changes to the affordability requirements for rental and ownership development projects, modifications to the provisions for the payment of fees in -lieu of constructing affordable units, revisions to the allocation of units to income levels, and revisions to the exceptions to the affordability requirements; and WHEREAS, the California Environmental Quality Act (CEQA), together with the State Guidelines and City of Dublin CEQA Guidelines and Procedures require that certain projects be reviewed for environmental impacts and that environmental documents be prepared; and WHEREAS, the Planning Commission recommends that the City Council find the proposed amendments exempt from the requirements of CEQA pursuant to CEQA Guidelines Section 15061(b)(3) as the amendments would not result in any physical changes and it can be seen with certainty that the amendments would not have a significant effect on the environment; and WHEREAS, the Planning Commission held a duly noticed public hearing on December 12, 2023, during which all interested persons were heard; and WHEREAS, proper notice of said hearing was given in all respects as required by law; and Reso. No. 23-12, Item 6.2, Adopted 12/12/2023 Page 1 of 2 112 WHEREAS, a Staff Report dated December 12, 2023, was submitted to the Dublin Planning Commission recommending approval of the proposed amendments to Dublin Municipal Code Chapter 8.68; and WHEREAS, the Planning Commission did hear and consider all said reports, recommendations and testimony herein above set forth and used its independent judgment to evaluate the recommendations. NOW, THEREFORE, BE IT RESOLVED that the foregoing recitals are true and correct and made a part of this Resolution. BE IT FURTHER RESOLVED that the City of Dublin Planning Commission does hereby recommend that the City Council adopt the Ordinance attached hereto as Exhibit A, and incorporated herein by reference. PASSED, APPROVED AND ADOPTED this 12th day of December 2023, by the following vote: AYES: NOES: ABSENT: ABSTAIN: ATTEST: DocuSigned by: 1Q —seaesoeo12344;:... Assistant Community Development Director DocuSigned by: Planning Commission Chair Reso. No. 23-12, Item 6.2, Adopted 12/12/2023 Page 2 of 2 113 Attachment 2 ORDINANCE NO. XX — 23 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF DUBLIN APPROVING AMENDMENTS TO DUBLIN MUNICIPAL CODE CHAPTER 8.68 (INCLUSIONARY ZONING REGULATIONS) PLPA-2023-00032 The Dublin City Council does ordain as follows: SECTION 1. RECITALS A. The City occasionally initiates amendments to the Dublin Municipal Code to clarify, add, or amend certain provisions to ensure that it remains current with federal and state law, internally consistent, simple to understand and implement, and relevant to changes occurring in the community. B. Staff initiated amendments to Dublin Municipal Code Chapter 8.68 (lnclusionary Zoning Regulations) consistent with the City of Dublin Two -Year Strategic Plan, which includes Strategy 2: Housing Affordability, Objective 2b: Ensure the City's inclusionary zoning regulations incentivize targeted housing production and Objective 2c: Prepare a nexus study to evaluate the affordable housing commercial linkage. C. The City selected the consulting firm Economic and Planning Systems (EPS) to prepare an Inclusionary Zoning and Affordable Housing In -Lieu Fee Feasibility Study and Commercial Linkage Fee Nexus Study to inform the proposed amendments. D. On August 15, 2023, and September 19, 2023, the City Council received informational reports on the Commercial Linkage Fee and Inclusionary Zoning and In -Lieu Fee programs and provided direction to staff to prepare updates to the programs. E. The proposed amendments to Dublin Municipal Code Chapter 8.68 (lnclusionary Zoning Regulations) include changes to the affordability requirements for rental and ownership development projects, modifications to the provisions for the payment of fees in -lieu of constructing affordable units, revisions to the allocation of units to income levels, and revisions to the exceptions to the affordability requirements. F. The Planning Commission held a duly noticed public hearing on December 12, 2023, during which all interested persons were heard, and adopted Resolution No. 23-xx recommending that the City Council approve the proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations). G. A Staff Report was submitted to the Dublin City Council recommending approval of the proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations). Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 1 of 10 114 H. The City Council held a public hearing on the proposed amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) on , at which time all interested persons had an opportunity to be heard. I. Proper notice of said hearing was given in all respects as required by law. J. The City Council did hear and consider all said reports, recommendations and testimony herein above set forth and used its independent judgement to evaluate the project. SECTION 2. FINDINGS A. Pursuant to Dublin Municipal Code Section 8.120.050.B., the City Council hereby finds that the amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) are consistent with the General Plan and any applicable Specific Plan in that they would provide an update to the City's affordable housing requirements. Specifically, the amendments would implement Housing Element Program B.4, which calls for a review of the Inclusionary Zoning Regulations and preparation of a nexus study reviewing the affordable housing in -lieu fee. B. The California Environmental Quality Act (CEQA), together with the State Guidelines and City of Dublin CEQA Guidelines and Procedures require that certain projects be reviewed for environmental impacts and that environmental documents be prepared. The City Council hereby finds that the amendments to Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) are exempt from the requirements of CEQA pursuant to CEQA Guidelines Section 15061(b)(3) as the amendments would not result in any physical changes and it can be seen with certainty that the amendments would not have a significant effect on the environment. SECTION 3. AMENDMENT OF CHAPTER 8.68. Dublin Municipal Code Chapter 8.68 (Inclusionary Zoning Regulations) is amended to read as follows: "Inclusionary Zoning Regulations" 8.68.010 Purpose. The purpose of this Chapter is to: A. Enhance the public welfare and assure that further housing development contributes to the attainment of the City's housing goals by increasing the production of residential units affordable by households of very low, low, and moderate income. B. Assure that the limited remaining developable land in the City's planning area is utilized in a manner consistent with the City's housing policies and needs. 8.68.020 Definitions. As used in this Chapter, each of the following terms shall be defined as follows: Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 2 of 10 115 A. "Affordable unit" means an ownership or rental -housing unit, affordable to households with very low-, low-, or moderate -incomes as defined in this Chapter. 1. Rental units are deemed affordable units if the annual rent does not exceed 30% of maximum income level for very low-, low- and moderate -income households, adjusted for household size and as defined below. 2. Owner -occupied units are deemed affordable units if the sales price results in annual housing expenses that do not exceed 35% of the maximum income level for very low-, low-, and moderate -income households, adjusted for household size and as defined below. B. "Applicant" means any person, firm, partnership, association, joint venture, corporation, or any entity or combination of entities that seeks city real property development permits or approvals. C. "Dwelling unit" means a dwelling designed and intended for occupancy by one household. D. "Very low-, low-, and moderate -income levels" means those income and eligibility levels determined periodically by the California Department of Housing and Community Development based on Alameda County median income levels adjusted for family size. Such levels shall be calculated on the basis of gross annual household income considering household size and number of dependents, income of all household members eighteen years of age and older, and all other sources of household income and will be recertified as set forth by local standards, and state and federal housing law. 1. "Very low-income" means 50% or less of the median income, adjusted for actual household size. 2. "Low-income" means more than 50% and up to 80% of the median income, adjusted for actual household size. 3. "Moderate -income" means more than 80% and up to 120% of the median income, adjusted for actual household size. E. "Resale controls and/or rent restrictions" means legal restrictions by which the affordable units shall be restricted to ensure that the unit remains affordable to very low-, low-, or moderate -income households, as applicable, for a period of not less than 55 years. The 55 year period will reset each time ownership of the unit is transferred through a bona fide sales transaction with a third party during the resale restriction period. With respect to rental units, such rent restrictions shall be in the form of a regulatory agreement recorded against the applicable property. With respect to owner -occupied units, such resale controls shall be in the form of resale restrictions, deeds of trust, and/or other similar documents recorded against the applicable property. F. "Residential development" includes, without limitation, detached single-family dwellings, multiple -dwelling structures, groups of dwellings, condominium or townhouse developments, condominium conversions, cooperative developments, mixed use developments that include housing units, and residential land subdivisions intended to be sold to the general public. Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 3 of 10 116 8.68.030 General Requirements. A. Affordability Requirement for Rental Units. All new rental residential development projects with 10 units or more designed and intended for permanent occupancy shall construct 10.0% of the total number of dwelling units within the development as affordable units, except as otherwise provided by this Chapter, and except when all of the dwelling units (excluding units reserved for property management) within the project are affordable. The foregoing requirement shall be applied no more than once to an approved residential development (and generally at the tentative map stage), regardless of the changes in the character or ownership of the development, except as provided by this Chapter, provided the total number of units does not change. In applying and calculating the affordability requirement, any decimal fraction less than or equal to 0.50 may be disregarded, and any decimal fraction greater than 0.50 shall be construed as one unit. B. Affordability Requirement for Ownership Units. All for -sale (ownership) residential development projects of 10 units or more designed and intended for permanent occupancy shall construct 12.5% of the total number of dwelling units within the development as affordable units, except as otherwise provided by this Chapter. The foregoing requirement shall be applied no more than once to an approved residential development (and generally at the tentative map stage), regardless of the changes in the character or ownership of the development, except as provided by this Chapter, provided the total number of units does not change. In applying and calculating the affordability requirement, any decimal fraction less than or equal to 0.50 may be disregarded, and any decimal fraction greater than 0.50 shall be construed as one unit. C. Allocation of Units to Income Levels. Affordable units provided pursuant to this section shall be allocated as follows: Rental Units Owner -Occupied Units Very low-income households 0% 0% Low-income households 100% 40% Moderate -income households 0% 60% Where the calculation of the allocation results in fewer units than would otherwise be required, one additional unit should be allocated to the income level with a decimal fraction closest to 0.50. D. Conditions of Approval: Any tentative map, conditional use permit, or site development review approving residential development projects subject to this Chapter shall contain conditions sufficient to ensure compliance with the provisions of this Chapter. Such conditions shall detail the number of affordable units required, set forth the applicant's manner of compliance with this Chapter, and require the execution of an agreement imposing appropriate resale controls and/or rental restrictions on the affordable units. E. Concurrent Construction. All affordable units in a project or phase of a project shall be constructed concurrently with market -rate units, unless the City Manager determines in writing that extenuating circumstances exist that make concurrent construction infeasible or impractical. Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 4 of 10 117 F. Design and Distribution of Affordable Units. All affordable units shall reflect the range of numbers of bedrooms provided in the project as a whole and shall not be distinguished by exterior design, construction, or materials. Affordable units may be of smaller size than the units in the project and may have fewer amenities than the market rate units in the project. All affordable units shall be reasonably dispersed throughout the project. 8.68.040 Exceptions to Affordability Requirement. Developers of projects subject to Sections 8.68.030A and 8.68.030B shall construct the total number of affordable dwelling units within the development, unless subject to an exception set forth in this section. All exceptions require City Council approval. A. Payment of Fees In Lieu of Constructing Affordable Units. Upon request, the applicant shall be permitted to pay a fee in lieu of constructing up to 40% of the affordable units that the developer would otherwise be required to construct pursuant to Sections 8.68.030A and 8.68.030B. The amount of the fee shall be as set forth in a resolution of the City Council, which may be amended from time to time to reflect inflation and changed conditions in the City and the region. In lieu fees shall be paid at the time and in the amount set forth in the in lieu fee resolution in effect at the time of issuance of the building permit. B. Off -Site Projects. An applicant may construct the affordable units not physically within the development in lieu of constructing some or all of the affordable units within the development, with the approval of the City Council, if the City Council finds: 1. Construction of the units off -site in lieu of constructing units on -site is consistent with the Chapter's goal of creating, preserving, maintaining, and protecting housing for very low-, low - and moderate -income households. 2. Units to be constructed off site are consistent with Section 8.68.030F above. 3. Would be infeasible or impractical to construct affordable units on -site. 4. Conditions of approval for the project require that the off -site affordable units would be governed by the terms of a deed restriction and, if applicable, rental restrictions similar to that used for the on -site affordable units. 5. Conditions of approval for the project, or other security such as a cash deposit, bond, or letter of credit, are adequate to require the construction of the off -site affordable units concurrently with the completion of the construction of the residential development or within a reasonable period (not to exceed five years). C. Land Dedication. An applicant may dedicate land to the City or city -designated local non- profit housing developer in lieu of construction of some or all of the required affordable units, if the Council finds: 1. Dedication of land in lieu of constructing units is consistent with the Chapter's goal of creating, preserving, maintaining, and protecting housing for very low-, low- and moderate - income households. Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 5 of 10 118 2. The dedicated land is useable for its intended purpose, is free of toxic substances and contaminated soils, and is fully improved, with infrastructure, adjacent utilities, grading, and all development -impact fees paid excluding any inclusionary zoning ordinance fees. 3. The proposed land dedication is of sufficient size to meet the following requirements: a. The dedication includes land sufficient to construct the number of units that the applicant would otherwise be required to construct by Section 8.68.030.A, based on the size of lots in the subdivision for which the applicant is meeting its obligation; and b. In addition, the dedication includes such additional land the market value for which is equal to or exceeds the difference between the value of a market -rate, 1200-square foot unit and the price at which such a unit could be sold as an Affordable Unit (which amount shall be set forth in a resolution adopted from time to time by the City Council) times the number of units required. D. Credit Transfers. An applicant may fully or partially satisfy the requirements of Sections 8.68.030A and 8.68.030B through the use of transfer credits created pursuant to Section 8.68.060. Credit certificates shall be presented to the Community Development Director, who shall note at the time of project approval the credit certificate by number. Credit certificates may only be used to satisfy the requirements for Inclusionary Units for the income category (i.e., very low-, low-, or moderate -income) and number of bedrooms for which they are issued. E. Waiver of Requirements. The City Council, at its discretion, may waive, wholly or partially, the requirements of this ordinance and approve alternate methods of compliance with this Chapter if the applicant demonstrates, and the City Council finds, that such alternate methods meet the purposes of this Chapter. 8.68.050 General Procedures for Implementing Inclusionary Zoning Requirements. A. Agreements. Prior to the issuance of a building permit for an affordable unit, resale restrictions or rental controls, or both, as the case may be, shall be set forth in an agreement between the City and the developer, in a form consistent with the City Council -adopted form agreement, which agreement shall be recorded against the property containing the affordable units. The agreement shall be executed by the City Manager, and its requirements shall run with the land and bind the applicant's successors. B. Rental Units; Occupancy; Annual Report. Agreements involving rental units shall require the owner of the affordable units to ensure that the units are occupied by tenants whose monthly income levels do not exceed very low-, low-, or moderate -income levels, as the case may be, and shall preclude tenants from subletting or subleasing the unit. The agreement shall also require the owner of the affordable unit to submit an annual report to the City Manager, in a format approved by the City. The report shall include, but not be limited to the following information: an identification of the affordable units within the project; the monthly rents charged and proposed to be charged; vacancy information for the prior year; and the monthly income for tenants of each affordable unit throughout the prior year. C. Ownership Units; Occupancy; City's Right of First Refusal. Agreements for ownership units shall specify that the inclusionary units must be occupied by the owner or owners and may not be leased or rented without the written approval of the City. The resale restrictions Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 6 of 10 119 shall provide that in the event of the sale of an affordable unit, the City shall have the right to purchase any affordable owner -occupant unit at the maximum price that could be charged to an eligible household. D. Selection Criteria. No household shall be permitted to occupy a unit that is required under this Chapter to be affordable unless the City or its designee has approved the household's eligibility. Eligible potential occupants of affordable units will be qualified on the basis of household income as defined by this Chapter. The selection criteria for a qualified household may not distinguish between adults and children. Selection of qualified person should be based on priorities established using the point system described below: • Employed within the boundaries of the City of Dublin (3 points maximum, one per household member) Public Service employee working in the City of Dublin (1 point) Dublin resident (3 points maximum, one per household member) Seniors (1 point, one per household) Permanently disabled (1 point, one per household) Immediate family member of Dublin resident (1 point, one per household) Required to relocate from current Dublin residence due to demolition of dwelling or conversion of dwelling from rental to for -sale unit (1 point, one per household) To qualify as a "Public Service Employee", the person shall be employed by a Public Agency. To qualify as "Employed within the boundaries of the City of Dublin", the person shall have been employed within the City of Dublin for at least six months. To qualify as a "Dublin resident," the person shall have been a resident of the City of Dublin for at least a one-year period prior to the eligibility determination. 8.68.060 Affordable Unit Credits. A. Creation. Affordable unit credits may be created by the City Council. One affordable unit credit certificate shall be issued for each affordable unit constructed in excess of the number of affordable units required to be constructed for the project by Sections 8.68.030A and 8.68.030B. The certificate shall designate a specific income category (i.e., very low-, low-, or moderate -income) and number of bedrooms for which they are issued. B. Ownership and Use of Credits. Affordable unit credit certificates are issued to and become the possession of the project owner, who may use them to satisfy the requirements of this Chapter for another project in the City. If a project owner proposes to sell credit certificates, the parties shall first obtain the consent of the Finance Director, who will document the transfer by certificate number. 8.68.070 Incentives to Encourage On -Site Construction of Affordable Units. Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 7 of 10 120 The City may, but shall not be required to, offer incentives or financial assistance to encourage the on -site construction of affordable units in excess of the total number of affordable units required by this Chapter to be included in the project to the extent resources for this purpose are available and approved for such use by the City Council or City Manager. Such incentives may include, but shall not be limited to, the following: A. Fee Deferral. 1. Development Processing Fees. The City Manager may approve deferred payment of City processing fees applicable to the review and processing of the project. The terms and payment schedule of the deferred fees shall be subject to the approval of the City Manager. 2. Development Impact Fees. The City Council may authorize the deferred payment of development impact fees applicable to the affordable units. Approval of this incentive requires demonstration by the Applicant that the deferral increases the project's feasibility. The applicant must provide appropriate security to ensure future payment of such fees. B. Design Modifications. The City Council may approve design modifications to affordable units that increase the feasibility of the construction of affordable units, including but not limited to, the following: 1. Reduced lot size. 2. Reduced setback requirements. 3. Reduced open space requirements. 4. Reduced landscaping requirements. 5. Reduced interior or exterior amenities. 6. Reduction in parking requirements. 7. Height restriction waivers. Section 8.68.080 Inclusionary Zoning In Lieu Fees. The fund previously known as the "Inclusionary Zoning In Lieu Fee fund" is hereby renamed the "Affordable Housing Fund" ("Fund") and all In Lieu Fees shall be deposited into the Fund. A. Use. All monies in the Fund, together with any interest earnings on such monies less reasonable administrative charges, shall be used or committed to use by the City for the purpose of providing very low-, low-, and moderate -income ownership or rental housing in the City of Dublin. B. Annual Report. The City Manager shall prepare an annual report to the City Council identifying the balance of monies in the Fund and the affordable units provided and any monies committed to providing very low-, low-, and moderate -income housing. The annual report shall also include a review of administrative charges. Section 8.68.090 Violations. Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 8 of 10 121 It shall be unlawful for any person, firm, corporation, partnership or other entity that is subject to this ordinance pursuant to Sections 8.68.030A and 8.68.030B to violate any provision or to fail to comply with any of the requirements of this Chapter. A violation of any of the provisions of or failure to comply with any of the requirements of this Chapter shall constitute a misdemeanor; except that notwithstanding any other provisions of this Code, any such violation constituting a misdemeanor under this Chapter, may in the discretion of the enforcing authority, be charged and prosecuted as an infraction. Any person convicted of an infraction under the provisions of this Code shall be punishable as provided by the Government Code of the State of California. 8.68.100 Enforcement. A. General. The City Manager shall enforce this Chapter, and its provisions shall be binding on all agents, successors, and assigns of an applicant. The City Manager may suspend or revoke any building permit or approval upon finding a violation of any provision of this Chapter. No land -use approval, building permit, or certificate of occupancy shall be issued for any residential development unless exempt from or in compliance with this Chapter. The City may institute any appropriate legal actions or proceedings necessary to ensure compliance herewith, including, but not limited to, actions to revoke, deny, or suspend any permit or development approval. B. Excessive Rents/Legal Action. If the City Manager determines that rents in excess of those allowed by operation of this Chapter have been charged to a tenant residing in an affordable unit, the City may take appropriate legal action to recover, and the project owner shall be obligated to pay to the tenant, or to the City in the event the tenant cannot be located, any excess rents charged. Section 8.68.110 Appeals. Decisions of the City Manager under this Chapter may be appealed as provided in Chapter 8.136. SECTION 4. EFFECTIVE DATE. This Ordinance shall take effect and be enforced 30 days following its final adoption. SECTION 5. SEVERABILITY. The provisions of this Ordinance are severable and if any provision, clause, sentence, word or part thereof is held illegal, invalid, unconstitutional, or inapplicable to any person or circumstances, such illegality, invalidity, unconstitutionality, or inapplicability shall not affect or impair any of the remaining provisions, clauses, sentences, sections, words or parts thereof of the Ordinance or their applicability to other persons or circumstances. SECTION 6. POSTING. The City Clerk of the City of Dublin shall cause this Ordinance to be posted in at least three public places in the City of Dublin in accordance with Section 36933 of the Government Code of the State of California. PASSED, APPROVED AND ADOPTED this th day of 2024, by the following vote: Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 9 of 10 122 AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk Ord. No. XX-23, Item X.X, Adopted XX/XX/2023 Page 10 of 10 123 Amendments to the Dublin Municipal Code Inclusionary Zoning Regulations,Adopting a Methodology for Determining Affordable Housing In -Lieu Fees, and Adopting Non -Residential Development Affordable Housing Impact Fees 09t DUBLIN CALIFORNIA City Council January 9, 2024 124 Background • Strategic Plan Strategy 2: Housing Affordability • August 15, 2023, &September 19, 2023 — Information Report and Recommendations: • Inclusionary Zoning Regulations (IZR) • Affordable Housing In -Lieu Fee • Non -Residential Development Affordable Housing Impact Fee ("Commercial Linkage Fee") 125 City Council Direction • Lower the Inclusionary Zoning Regulations applicability threshold to projects of 10+ units; • Assess in -lieu fees on a per -square -foot basis for each market -rate unit; • Establish separate regulations for ownership and rental developments; • Retain the existing Commercial Linkage Fee amount with an annual inflationary index; and • Combine the Research & Development and Office use categories — Set fee at $1.39 per square foot, which is the average of the current fee for those two use categories. Inclusionary Zoning Regulations (IZR) - Current IZR Project Size Threshold Overall Inclusionary Re • uirement Income Targets (Ownership) Income Targets (Rental) Must Build Requirement Ownership & Rental 20+ Units 12.5% 60% Moderate 40% Low 50% Moderate 20% Low 30% Very Low 60% of Inclusionary Requirement - Proposed IZR roject Size Threshold Overall Affordability Re • uirement Income Targets er Low Income Targets Low Income Targets Moderate Must Build Requirement 10+ Units 12.5% 0% 40% 60% 60% of IZR 10+ Units 10% 0% 100% 0% 60% of IZR For Ownership Units • 55-year affordability requirement would reset upon each sale of an affordable ownership unit • Preference points would apply to the resale of affordable ownership units CALIFORNIA 127 Inclusionary Zoning Regulations (IZR) - Current IZR Ownership & Rental Project Size Threshold (0+Units) 12.5% Overall Inclusionary Re • uirement Income Targets (Ownership) Income Targets (Rental) Must Build Requirement 60% Moderate 40% Low 50% Moderate 20% Low 30% Very Low 60% of Inclusionary Requirement - Proposed IZR Overall Affordability Requirement Income Targets Very Low Income Targets Low Income Targets Moderate Must Build Requirement 10+ Units ( 10+ Units 12.5% 10% 0% 0% 40% 100% 60% 0% 60% of IZR 60% of IZR 128 CALIFORNIA Inclusionary Zoning Regulations (IZR) - Current IZR Project Size Threshold Overall Inclusionary Re • uirement Income Targets (Ownership) Income Targets (Rental) Must Build Requirement Ownership & Rental 20+ Units C12.5% 60% Moderate 40% Low 50% Moderate 20% Low 30% Very Low 60% of Inclusionary Requirement - Proposed IZR Overall Affordability Requirement Income Targets Very Low Income Targets Low Income Targets Moderate Must Build Requirement 10+ Units 12.5% 10+ Units 10% 0% 40% 60% 60% of IZR 0% 100% 0% 60% of IZR 129 CALIFORNIA Inclusionary Zoning Regulations (IZR) - Current IZR Project Size Threshold Ownership & Rental - Proposed IZR 20+ Units Overall Inclusionary Re • uirement 12.5% Income Targets (Ownership) 60% Moderate 40% Low Income Targets (Rental) 50% Moderate 20% Low 30% Very Low Must Build Requirement 60% of Inclusionary Requirement Overall Affordability Requirement Income Targets Very Low Income Targets Low Income Targets Moderate Must Build Requirement 10+ Units 12.5% 0% 40% 60% 60% of IZR 10+ Units 10% 0% 100% 0% 60% of IZR 130 CALIFORNIA Inclusionary Zoning Regulations (IZR) - Current IZR Project Size Threshold Overall Inclusionary Re • uirement Income Targets (Ownership) Income Targets (Rental) Must Build Requirement Ownership & Rental 20+ Units 12.5% 60% Moderate 40% Low 50% Moderate 20% Low 30% Very Low 60% of Inclusionary Requirement - Proposed IZR Ownership Rental roject Size Threshold Overall Affordability Re • uirement Income Targets er Low Income Targets Low Income Targets Moderate Must Build Requirement 10+ Units 12.5% 0% 40% 60% 60% of IZR 10+ Units 10% 0% 100% 0% 60% of IZR For Ownership Units • 55-year affordability requirement would reset upon each sale of an affordable ownership unit • Preference points would apply to the resale of affordable ownership units CALIFORNIA 131 Changes to Affordable Housing In -Lieu Fee Current Fee • On a per Affordable Housing unit basis • $241,I3I per affordable unit Proposed Fee • On a per -square -foot basis for each market -rate unit • $9 per square foot Changes to Non -Residential Development Affordable Housing Impact Fee • Retain existing fee structure • Combine Research & Development and Office category — Fee set at $ I.39 per square foot (average of the two categories) • Updated the names of the land use categories Planning Commission Review On December 12, 2023, the Planning Commission • Unanimously recommended City Council approval of the proposed amendments • Recommended periodic review of the Inclusionary Zoning Regulations Historical Context On September 19, 2023, the City Council received a presentation from EPS 135 Recommendation Conduct the public hearing, deliberate, and take the following actions: I) Waive the reading and INTRODUCE the Ordinance Approving Amendments to Dublin Municipal Code Chapter 8.68 (lnclusionary Zoning Regulations); 2) Adopt the Resolution Establishing the Methodology for Determining the Affordable Housing In -Lieu Fee for Future Residential Units Subject to the City of Dublin Inclusionary Zoning Regulations; and 3) Adopt the Resolution Approving the Non -Residential Development Affordable Housing Impact Fees. INCLUSIONARY HOUSING PROGRAM UPDATE Prepared for the City of Dublin City Council January 9, 2024 Economic & Planning Systems, Inc. 1330 Broadway, Suite 450 ■ Oakland, CA 94612 The Economics of Land Use 510.841.9190 ■ www.epsys.com 137 I6TH CYCLE RHNA • Dublin's 6th Cycle RHI • Dublin's Cycle RHNA requires that Dublin identify zoning/regulatory capacity for 3,719 units. — 61% of total allocation = affordable to Moderate and Lower -income households Income Category Percent of Area Median Income (AMI) * RHNA Very Low Income 0-50% Low Income 51-80% Moderate Income 81-120% Above Moderate Income >120% Total 1,085 625 560 1, 449 3,719 * AMI in Alameda County is $147,900 for a household of four, according to 2023 HCD Income Limits How do affordable housing programs like the Commercial Linkage Fee program and Inclusionary Housing Ordinance contribute to meeting this goal? Economic & Planning Systems City of Dublin I :138 MARKET CONDITIONS CHANGE OVER TIME This chart demonstrating price index since 2002 offers a partial explanation as to why in today's market: (1) higher inclusionary requirements are difficult to meet; (2) in -lieu fees fail to align with the requirement despite inflationary adjustments. Price Index 150 130 110 90 70 50 30 10 1�000 i -30 Price Index - Construction Costs, Multifamily Rents, Single Family Home Sales 2005 2010 2015 2020 Construction Cost Index (ENR) Economic & Planning Systems Multi -family Market-Rate/Affordable Rents (Costar) Single Family Home Sales (Zillow) City of Dublin 139 GAP ANALYSIS FOR MARKET -RATE MULTIFAMILY RENTAL The total cost of construction is $61 3,295. 65 DU/ACRE (1,100 SQ. FT. UNITS), 3-BEDROOM $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 $443,015 $170,280 Very Low Income (50% AMI) $236,915 $376,380 Low Income (80% AMI) r $569,280 Median Income (100% AMI) ■Total Supportable Unit Value ■Affordability Gap $14,155 $599,140 Moderate Income (110% AMI) Economic & Planning Systems City of Dublin 2140 I RENTAL - IN -LIEU FEE OPTION and • Comparison between Existing Propos ■ Comparison Existing Proposed Fee Structures ■ Based on a hypothetical 100-unit project, each unit being 1,100 sq ft Current Rental Fee • 12.5% Inclusionary Requirement • 60% Must Build (7 units) • 40% Fee out Option (5 units) • Fees based on 5 affordable units ($241 ,1 31 per affordable unit) • 7 affordable units + total fee revenue of $1,205,655 Proposed Rental Fee • 10.0% Inclusionary Requirement • 60% Must Build (6 units) • 40% Fee out Option (4 units) • Fees based on 94 market -rate units built ($232,440 per affordable unit) • Equivalent to $9 per market rate square foot unit • 6 affordable units + total fee revenue of $929,760 Economic & Planning Systems City of Dublin I ! 141 MULTIFAMILY RENTAL - FEASIBILITY • Target 5.5% yield on cost for a feasible project • With inclusionary program, development yield falls below threshold but recommended requirement is improved over current. 5.60% 5.55% 5.50% 5.45% 5.40% 5.35% 5.30% 5.25% 5.20% 5.15% 5.56% No Inclusionary 5.32% 5.30% 5.31% 5.35% Current Inclusionary Current In -Lieu Fee Recommended Recommended Target Requirement Requirement Inclusionary Requirement Fee ($9/sq. ft.) Economic & Planning Systems City of Dublin I (142 GAP ANALYSIS FOR MARKET -RATE SINGLE-FAMILY DETACHED The total cost of development is $1 ,1 37,288. 10 DU/ACRE (2,400 SQ. FT. UNITS), 4-BEDROOM $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 $920,188 $217,100 Very Low Income (50% AMI) $783,788 $353,500 Low Income (70% AMI) $578,988 $558,300 Median Income (100% AMI) ■Supportable Home Price ■Affordability Gap $510,688 $626,600 Moderate Income (110% AMI) Economic & Planning Systems City of Dublin ;143 I OWNERSHIP - IN -LIEU FEE OPTION b and • Comparison between Existing ProposedFee ■ Comparison between Existing Structures ■ Based on a hypothetical 100-unit project, 2,400 sq. ft. per unit. Current Ownership Fee • 12.5% Inclusionary Requirement • 60% Must Build (7 units) • 40% Fee out Option (5 units) • Fees based on 5 affordable units ($241 ,1 31 per affordable unit) • 7 affordable units + total fee revenue of $1,205,655 Proposed Ownership Fee • 12.5% Inclusionary Requirement • 60% Must Build (7 units) • 40% Fee out Option (5 units) • Fees based on 93 market -rate units built ($401,333 per affordable unit) • Equivalent to $9 per market rate square foot • 7 affordable units + total fee revenue of $2,006,665 Economic & Planning Systems City of Dublin I i 144 ISINGLE FAMILY DETACHED - FEASIBILITY • Target 15%profit margin for a feasible project ■ Target 1 5% profit margin for a feasible project ■ With inclusionary program, development remains feasible under recommended requirement and fee/build scenarios. 40% 35% 30% 25% 20% 15% 10% 5% 0% 40.55% No Inclusionary 29.91% 32.70% 29.91% 30.65% Current Inclusionary Current In -Lieu Fee Recommended Recommended Target Fee Requirement Requirement Inclusionary Requirement ($9/sq. ft) Economic & Planning Systems City of Dublin 145 EVALUATION OF INCLUSIONARY PROGRAMS DISCUSSIONS WITH OTHER TRI-VALLEY CITIES Each of the Tri-Valley cities has unique inclusionary zoning regulations which helps it achieve the goals of its community. DANVILLE CALIFORNIA LIVERMORE CALIFORNIA THE CITY OF .d.Pi [)LE ASANTON© San m C A LRaI F O R N I A on • Project size threshold average of 10 units • In -lieu fees charged per market rate square foot • Different requirements between ownership and rental projects o Ownership tends to target Moderate income levels o Rental tends to target Very Low and Low • Inclusionary zoning in combination with State laws have resulted in the production on on -site units Economic & Planning Systems City of Dublin 11(146