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HomeMy WebLinkAboutReso 51-24 Item 6.1 Establishing the Methodology for Determining the Affordable Housing In-Lieu FeeDocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E RESOLUTION NO. 51 — 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) and Section 15061(b)(3), revising Affordable Housing In -Lieu Fees is not a project and, therefore, exempt from the requirements of CEQA. WHEREAS, on January 9, 2024, the City Council held a public hearing where Staff described and analyzed the proposed changes to the Affordable Housing In -Lieu Fee, at which time the City Council directed Staff to analyze the feasibility of raising the inclusionary requirements for for -sale units to 15% and increasing the in -lieu fee, differentiating the affordable housing requirement for different ownership product types, and to evaluate the impact of interest rate fluctuations on the proposed Inclusionary Zoning Regulations; and Reso. No. 51-24, Item 6.1, Adopted 06/04/2024 Page 1 of 3 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E WHEREAS, on March 19, 2024, the City Council held a Study Session to consider additional information and analysis regarding the Affordable Housing In -Lieu fee, at which time Staff was given direction to prepare updates and amendments to these programs; and WHEREAS, on June 4, 2024, the City Council held a properly noticed public hearing to consider the Affordable Housing In -Lieu Fee, at which time all interested parties had the opportunity to be heard; and WHEREAS, on June 4, 2024, the City Council did hear and use independent judgment and considered all said reports, recommendations and testimony; and NOW, THEREFORE, BE IT RESOLVED that this Resolution supersedes and replaces Resolution 56-02 and goes into effect 30 days after City Council approval. 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 $15.00 per square foot for single-family detached units and for attached for -sale market rate units (except for condominium units with a density of 30 or more units per acre). 2. The Affordable Housing In -Lieu Fee shall be $9.00 per square foot for multi -family rental market rate units, and for for -sale condominium market rate units with a density of 30 or more units per acre. 3. The Affordable Housing In -Lieu Fee shall be calculated based on the habitable square feet per dwelling unit. 4. 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. 5. Affordable Housing In -Lieu Fees shall be paid at the time of Building Permit issuance for each market rate unit. 6. The Affordable Housing In -Lieu Fee adopted by this Resolution shall be effective and applied to Building Permits issued for each market rate unit 30 days after City Council adoption. {Signatures on the following page} Reso. No. 51-24, Item 6.1, Adopted 06/04/2024 Page 2 of 3 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E PASSED, APPROVED AND ADOPTED this 4th day of June 2024, by the following vote: AYES: Councilmembers Josey, McCorriston, Qaadri and Mayor Pro Tempore Hu NOES: ABSENT: ABSTAIN: ATTEST: DocuSigned by: MovAto,_v1426--n-Q-- CltytlV 1erkr4VH... 5565379.1 DocuSigned by: uoataLZL)vOHvvo I... Mayor Reso. No. 51-24, Item 6.1, Adopted 06/04/2024 Page 3 of 3 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 Revised March 27, 2024 www.epsys.com DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Table of Contents 1. Introduction and Executive Summary 1 Key Findings and Recommendation 2 2. Background and Local Market Context 7 Housing Market Conditions and Challenges 7 Dublin's Strategic Plan Objectives 8 Regional Housing Needs Allocation 9 Household Incomes and Affordability 9 3. Methodology and Assumptions 11 Return Metrics and Feasibility Thresholds 11 Product Prototypes 12 Development Cost Assumptions 13 Revenue and Value Assumptions 18 4. Feasibility Analysis 21 Market -Rate Development 21 Current Inclusionary Program 23 On -Site Inclusionary Requirement Alignment 25 5. Council Direction and Program Recommendations 27 Appendix A: Survey of Inclusionary Requirements in Select California Jurisdictions DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A List of Tables Table 1 Recommended Inclusionary Requirements and In -Lieu Fees for Ownership and Rental 6 Table 2 RHNA Allocation for Dublin 9 Table 3 Alameda County 2023 Income Limits by Persons in Household 10 Table 4 Prototype Residential Products 13 Table 5 Market -Rate Multifamily Attached Rental Product Prototype Unit Cost Assumptions 14 Table 6 Market -Rate Multifamily Attached Condominium Product Prototype Unit Cost Assumptions 15 Table 7 Market -Rate Single Family Attached Townhome Product Prototype Unit Cost Assumptions 16 Table 8 Market -Rate Single Family Detached Product Prototype Unit Cost Assumptions.17 Table 9 Maximum Unit Values for Affordable Housing in Alameda County 20 Table 10 Feasibility of Market -Rate Product Prototypes 22 Table 11 Required Affordable Units by Income Category 23 Table 12 Feasibility of Current Inclusionary Program on Product Prototypes 25 Table 13 Subsidy Required for Below -Market -Rate Units by Income Level 26 Table 14 Recommended Inclusionary Program 28 Table 15 Feasibility of Recommended Inclusionary Program 29 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 different product types and/or different tenures 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 that 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. 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 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin The key findings and recommendations stemming from the feasibility analysis are summarized below. The subsequent chapters of this report provide details on the 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 construction 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) DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems • For -sale townhomes (at a density of 20 units/acre), and • For -sale single family homes (at a density of 10 units/acre). 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 construction 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. The model further indicates that multifamily condominium developments, while feasible, cannot absorb the same level of inclusionary requirements as single family detached or attached townhome developments. Underscoring the 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, apply the updated multifamily inclusionary requirements to for -sale condominium units, and increase the requirements on single family detached and attached townhome projects, which will generate 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. 3 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin 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, consideration of current feasibility challenges in residential construction and the City's affordable housing goals, and direction from the City Council, EPS worked with City staff to develop a set of recommended inclusionary requirements for new multifamily apartment and condominium developments and new for -sale single family detached and attached townhome developments. The recommendations are summarized below and in Table 1. Multifamily Attached Rental and Multifamily Attached Condominium Residential Development • The current inclusionary requirement is 12.5 percent, targeting a blend of Very Low, Low, and Moderate -income households for rental projects and Low and Moderate -income households for ownership projects. The FY 2023-24 in -lieu fee is $241,131 per affordable unit. • Because the current requirements challenge the feasibility of new multifamily apartment and condominium 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 approximately $9.00 per market rate square foot for multifamily attached rental. • EPS recommends a fee of $9 per market rate square foot ($232,650 per affordable unit for multifamily attached rental). 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. For Sale Single Family Detached and Attached Townhome 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 increases the inclusionary requirement to 15 percent while maintaining the current Low and Moderate -income split. The in -lieu fee per affordable unit that would be equivalent to this subsidy is $619,928 for single family detached, which would be a nearly threefold increase in the fee. • Per Council direction, the recommended in -lieu fee is $15 per market rate square foot ($546,000 per affordable unit for single family detached). 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- DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems 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 single family detached and attached townhome development. 5 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 [1] Income Market Affordable Item Applicable Development Types Overall (50%AMI) (70-80%AMI) (110%AMI) Rate Sq. Ft. Unit [2] Multifamily Multifamily Attached Rental Multifamily Attached Condominium 10.0% 0% 100% 0% $9.00 $232,650 Single Family Single Family Attached Townhome Single Family Detached 15.0% 0% 40% 60% $15.00 $546,000 Source: Economic & Planning Systems, Inc. [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. [2] Calculated for Multifamily Attached Rental and Single Fanily Detached. 6 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems 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, which means that it has been more than twenty years since the program was comprehensively evaluated, although the in - lieu fee has been updated each year to account 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 7 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E REPORT: Feasibility Analysis of Inclusionary Housing Requirements in Dublin Exhibit A Figure 1 Price Index of Construction Costs, Multifamily Rents, and Single - Family Home Sales in Dublin Price Index 150 130 110 90 70 50 30 10 -1 -30 2005 2010 2015 2020 -Construction Cost Index (ENR) -Multi-family 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. illps.//ULa i.l.a.ienter/View/31668/2022-24-Strategic-Plan?bidId= 8 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems 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 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. 9 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Table 3 Alameda County 2023 Income Limits by Persons in Household Affordability Category Maximum Percentage of County Median Exhibit A 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. 10 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 construction 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 constructions 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 construction 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 11 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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. 12 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 Multifamily Attached Multifamily Attached Single Family Rental Condominium Attached Townhome Tenure Rental Building Type Multifamily Density (units/acre) 65 units/acre Unit Square Feet 1,100 sq. ft. Unit Bedrooms 2 per unit Amount of Parking 1.5 per unit Parking Type Wrap Ownership Multifamily 45 units/acre 1,500 sq. ft. 2 per unit 1.5 per unit Wrap Ownership Attached 20 units/acre 2,000 sq. ft. 3 per unit 2 per unit Attached Garage Dublin Project Example Avalon West Dublin Elan at Dublin Station Apex Townhomes Source: City of Dublin; Costar; EPS discussions w ith local active developers Development Cost Assumptions Single Family Detached Ownership Detached 10 units/acre 2,400 sq. ft. 4 per unit 2 per unit Attached Garage Lombard at Boulevard Housing construction 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 construction cost assumptions used in this analysis. Total development costs are comprised of land acquisition, hard costs, and soft costs (collectively, construction costs) plus an estimated developer profit amount. Table 5, Table 6, Table 7, and Table 8 below detail the cost assumptions and estimated costs per unit for the multifamily attached rental, multifamily attached condominium, single family attached townhome, and single family detached product prototypes, respectively. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems Table 5 Market -Rate Multifamily Attached Rental Product Prototype Unit Cost Assumptions Item Multifamily Attached Rental 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 Developer Profit Threshold Total Development 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 5.5% yield on cost Sources: Costar; Marshall & Sw ift; EPS 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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Table 6 Market -Rate Multifamily Attached Condominium Product Prototype Unit Cost Assumptions Item Multifamily Attached Condominium 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 Total Construction Costs Developer Profit Threshold Total Development 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 15% of total construction costs Sources: Costar; Marshall & Sw ift; EPS discussions w ith local active developers $88, 889 $9.680 $98, 569 $487, 500 $60, 000 $16, 425 $563, 925 $28,671 $112.785 $141,456 $803,950 $120.592 $924,542 [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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems Table 7 Market -Rate Single Family Attached 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 Construction 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 construction $125,246 costs Total Development Costs $960,221 Sources: Costar; Marshall & Swift; EPS discussions with 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 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Exhibit A Table 8 Market -Rate Single Family Detached 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 Construction 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 construction $148,342 costs Total Development Costs $1,137,288 Sources: Costar; Marshall & Swift; EPS discussions with 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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 construction 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 products 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 18 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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) Multifamily Attached Rental 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 Multifamily Attached Condominium 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 Affordable Home Price (8] $188,600 $302,100 $529,700 Single Family Attached Townhome 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 Affordable Home Price [8] $203,200 $329,600 $582,500 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. 20 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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 without inclusionary requirements, 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 construction 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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems Table 10 Feasibility of Market -Rate Product Prototypes Item Multifamily Attached Rental Development Costs Per Unit Net Operating Income Per Unit Yield on Cost Multifamily Attached Condominium 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 & Ranning 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% 22 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Current Inclusionary Program Next, EPS tested the feasibility of the current inclusionary program under 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. 23 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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, single family detached and single family attached townhome units remain very feasible in excess of the feasibility threshold, but the multifamily attached condominium 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 than 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. 24 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A 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) Multifamily Attached Rental 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) Multifamily Attached Condominium Development Costs Per Unit $924,542 $924,542 $924,542 Development Value Per Unit $188,600 $302,100 $529,700 Affordability Gap ($735,942) ($622,442) ($394,842) Single Family Attached Townhome 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) 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 ow nership developments. 26 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin 5. Council Direction and Program Recommendations In selecting appropriate inclusionary requirements and in -lieu fee levels, 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 a 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 households 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 the City Council.' Given the differences in development economics between the rental and ownership housing markets as well as the differences between multifamily (apartments and attached condominiums) and single family (detached and attached townhomes) product types, EPS recommends two sets of inclusionary requirements. For single family detached and attached townhome ownership developments, it is recommended to increase the inclusionary requirement to 15 percent, split between Low (40 percent of the required units) and Moderate (60 percent of the required units). The in -lieu fee is proposed to be set at $15 per market rate square foot, after accounting for the must -build requirement. For multifamily rental apartments and for -sale attached condominiums, the recommendation is to lower the requirement to 10 percent of the total project units and focus exclusively on the Low-income cohort. The in -lieu fee is proposed to be set at $9 per market rate square foot, after the must -build requirement. 7 The City Council discussed updates to the inclusionary program on August 15, 2023; on September 19, 2023; and on January 9, 2024. 27 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Economic & Planning Systems Table 14 Recommended Inclusionary Program Equivalent Very Low Low Moderate Fee per Fee per Income Income [1] Income Market Affordable Item Applicable Development Types Overall (50% AMI) (70-80% AMI) (110% AMI) Rate Sq. Ft. Unit [2] Multifamily Multifamily Attached Rental 10.0% 0% 100% 0% $9.00 $232,650 Multifamily Attached Condominium Single Family Single Family Attached Townhome 15.0% 0% 40% 60% $15.00 $546,000 Single Family Detached [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. [2] Calculated for Multifamily Attached Rental and Single Family Detached. Source: Economic & Planning Systems, Inc. In addition to the updated inclusionary requirements and in -lieu fee levels, EPS also recommends several other changes to the program structure across both multifamily and single family 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 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 multifamily attached rental and multifamily attached condominium program, the reduction in overall inclusionary level improves yield -on -cost for attached rental apartments and profit margin for attached condominiums over the existing option. For the single family detached and attached townhome ownership inclusionary recommendation, the increased in -lieu fees result in 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. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E REPORT: Feasibility Analysis of Updated Inclusionary Housing Requirements in Dublin Exhibit A Table 15 Feasibility of Recommended Inclusionary Program Ite m Feasibility Threshold Recommended Program Feasibility On -Site Build Must -Build and Fee Rental - 10% Low Multifamily Attached Rental Yield on Cost 5.5% 5.31% 5.33% Multifamily Attached Condominium Profit Margin 15% 15% 16% Ownership - 12.5% Blended Single Family Attached Townhome Profit Margin 15% 25% 25% Single Family Detached Profit Margin 15% 27% 28% Source: Economic & Planning Systems DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A APPENDIX A: Survey of Inclusionary Requirements in Select California Jurisdictions 0 DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Table A-1 Single Family Detached Ownership Inclusionary Requirements as of January 2024 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 15% 50% Moderate 50% Low 5 units $20.00 per sq. ft. [11 2024 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 Low Very Low 2000 [21 [1] In -lieu fee option applies to Ownership projects between 5 and 9 units. [2] Pleasanton's inclusionary zoning was first adopted in 2000 and the fee level was last revised in 2018. DocuSign Envelope ID: 18F374E7-BB2F-42F5-82C6-28ABC1B2890E Exhibit A Table A-2 Multifamily Rental Inclusionary Requirements as of January 2024 City of Dublin Commercial Linkage Fee Study; EPS #231009 City Ove ra l l 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 6% 4% Moderate 5 units $15 per sq. ft. 2024 1% Low 1% Very Low 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 w as first adopted in 2000 and the fee level w as last revised in 2018.