Loading...
HomeMy WebLinkAbout7.1 Inclusionary Zoning and In-Lieu Fee Feasibility Study and Commercial Linkage Fee Nexus Studyr DUBLIN CALIFORNIA STAFF REPORT CITY COUNCIL DATE: September 19, 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'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 53 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. Page 2 of 5 54 Table 1. Commercial Linkage Fee Maximum Fee per Sq. Ft. Commercial $344 Lodging $57 R&D / Office $183 Industrial $115 Category Current Fee $1.35 $0.57 $1.09 / $1.68 $0.65 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 12.5% Income Targets (Ownership) 60% Moderate 40% Low Income Targets (Rental) 50% Moderate 20% Low 30% Very Low Project Size Threshold 20 Units Must Build Requirement 60% of Inclusionary Requirement n-Lieu Fee $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 Page 3 of 5 55 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. 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 Fee per Sq. Ft. Overall Low Low Moderate Market -Rate Unit Ownership 12.5% 0% 5% 7.5% $9.08 (equivalent to $400,000 per affordable units) Rental 10% 0% 10% 0% $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. Page 4 of 5 56 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 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 57 COMMERCIAL LINKAGE FEE NEXUS STUDY UPDATE AND INCLUSIONARY HOUSING PROGRAM UPDATE Prepared for the City of Dublin City Council September 19, 2023 Economic & Planning Systems, Inc. 1330 Broadway, Suite 450 ■ Oakland, CA 94612 The Economics of Land Use 510.841.9190 ■ www.epsys.com 58 IAGENDA 1) Recap of August 1 5 Meeting 2) RHNA Context and Review of Fee Revenue Usage 3) Commercial Linkage Fee — Comparison of Aggregate Fee Burden Levels among Tri-Valley Cities • Example: Office — Recommended Updates to Commercial Linkage Fee Program • Land Use Categories • Fee Levels 4) Inclusionary Housing Requirements and In -Lieu Fee — Comparison of Inclusionary Program Effectiveness among Peer Cities — Recommended Updates to Inclusionary Program • Onsite Build Inclusionary Requirements • In -Lieu Fee • Threshold Project Size Economic & Planning Systems City of Dublin 2 59 IRECAP OF AUGUST 1 5 MEETING EPS presented maximum commercial linkag • EPS presented maximum commercial linkage fees and provided an overview of the City's current inclusionary housing program. • Feedback from Council and Staff/Consultant Response: Commercial Linkage Fee FEEDBACK/DATA REQUESTS • Evaluate burden of fee increase on overall impact fee level in context of economic development objectives Economic & Planning Systems City of Dublin 3 60 IRECAP OF AUGUST 1 5 MEETING • EPS presented maximum commercial linkag ■ EPS presented maximum commercial linkage fees and provided an overview of the City's current inclusionary housing program. ■ Feedback from Council and Staff/Consultant Response: Commercial Linkage Fee FEEDBACK/DATA REQUESTS • Evaluate burden of fee increase on overall impact fee level in context of economic development objectives TODAY • Demonstrate aggregate fee burden, compared with other Tri- Valley cities • EPS will present staff recommendation for an updated fee program IV Economic & Planning Systems City of Dublin 4 61 IRECAP OF AUGUST 1 5 MEETING • EPS presented maximum commercial linkag ■ EPS presented maximum commercial linkage fees and provided an overview of the City's current inclusionary housing program. ■ Feedback from Council and Staff/Consultant Response: Commercial Linkage Fee FEEDBACK/DATA REQUESTS • Evaluate burden of fee increase on overall impact fee level in context of economic development objectives TODAY • Demonstrate aggregate fee burden, compared with other Tri- Valley cities • EPS will present staff recommendation for an updated fee program IV Inclusionary Housing FEEDBACK/DATA REQUESTS • Transition in -lieu fee structure to a per market rate sq. ft. basis • Lower minimum threshold (currently 20 units) • Evaluate effectiveness of IH programs in other Tri-Valley cities Economic & Planning Systems City of Dublin 5 62 IRECAP OF AUGUST 1 5 MEETING EPS presented maximum commercial linkag • EPS presented maximum commercial linkage fees and provided an overview of the City's current inclusionary housing program. • Feedback from Council and Staff/Consultant Response: Commercial Linkage Fee FEEDBACK/DATA REQUESTS • Evaluate burden of fee increase on overall impact fee level in context of economic development objectives TODAY • Demonstrate aggregate fee burden, compared with other Tri- Valley cities • EPS will present staff recommendation for an updated fee program Inclusionary Housing_ FEEDBACK/DATA REQUESTS • Transition in -lieu fee structure to a per market rate sq. ft. basis • Lower minimum threshold (currently 20 units) • Evaluate effectiveness of IH programs in other Tri-Valley cities TODAY • Discuss program effectiveness in other Tri-Valley cities • EPS will present staff recommendations for updated requirements and in -lieu fee levels for rental and for -sale Economic & Planning Systems City of Dublin 6 63 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 1 7 64 MEETING RHNA WITH AFFORDABLE HOUSING PROGRAMS SUGGESTED APPROACH SUGGESTED APPROACH Program Inclusionary Housing Ordinance Income Limits Very Low Low Moderate Above Moderate Economic & Planning Systems City of Dublin I 8 65 MEETING RHNA WITH AFFORDABLE HOUSING PROGRAMS SUGGESTED APPROACH SUGGESTED APPROACH Program Inclusionary Housing Ordinance Uses MR units Income Limits Very Low Low Moderate Above Moderate Economic & Planning Systems City of Dublin 9 66 MEETING RHNA WITH AFFORDABLE HOUSING PROGRAMS SUGGESTED APPROACH SUGGESTED APPROACH Program Income Limits Very Low Inclusionary Housing Ordinance Builds BMR units Uses MR units Low Moderate Above Moderate Economic & Planning Systems City of Dublin 1 10 67 MEETING RHNA WITH AFFORDABLE HOUSING PROGRAMS SUGGESTED APPROACH SUGGESTED APPROACH Program Income Limits Inclusionary Housing Ordinance Collects in -lieu fee Builds BMR units Uses MR units Very Low Low Moderate Above Moderate Economic & Planning Systems City of Dublin 1 11 68 MEETING RHNA WITH AFFORDABLE HOUSING PROGRAMS SUGGESTED APPROACH SUGGESTED APPROACH Program Income Limits Generates fee revenue City can leverage Commercial Linkage Fee Very Low Low Moderate Above Moderate Economic & Planning Systems City of Dublin 1 12 69 COMMERCIAL LINKAGE FEE ICOMPARISON OF AGGREGATE FEE BURDEN • In Dublin, the current fee represents 4 to 7 percent of the tc ■ In Dublin, the current fee represents 4 7 percent of the total impact fee burden. ■ In other Tri-Valley cities, the affordable housing fee burden ranges from 0 percent (Danville, which has no program) to 46 percent (Pleasanton Industrial). Category Danville Dublin Livermore Pleasanton San Ramon Retail 0% Office 0% Industrial 0% 6% 14% 19% 4% 23% 14% 4% 4% 46% 12% 5% 7% Note: Fees are reported for non-dow ntow n areas. Does not include fees for w ater, sew er, public art, school district, in -lieu fees (parking spaces), fees specific to narrow development areas + those based on building valuation (e.g. general plan recovery costs) Economic & Planning Systems City of Dublin I 14 71 FEE BURDEN - OFFICE Fee per square foot $45 $40 $35 $30 $25 $20 $15 $10 $5 $- Danville $1.68 -$5.f ^ I I I $1.53 $8.68 $4.32 Dublin Livermore Pleasanton San Ramon Transportation ■ Facilities/Parks Regional ■Other Citywide ■Affordable Housing Ii$5/sq. ft. fee increase • Dublin's office impact fees are around $25.30 per sq. ft. The current commercial linkage fee is $1.68 per sq. ft. • Represents approximately 6.6% of current fee burden • With a fee increase to $5 per sq. ft., the fee would rise to $28.30 per sq. ft. • Represents approximately a 1 3% increase in the overall fee burden Economic & Planning Systems City of Dublin 15 72 IFEE LEVEL RECOMMENDATION Retain current fee levels with annual lnflationa • Retain current fee levels with annual inflationary index • Combine Office and R&D categories and set fee to average of the two current fees Category Current Fee per Adjusted Recommended Sq. Ft. Maximum Fee per Fee per Sq. Ft. Sq. Ft. Commercial $1.35 $344 $1.35 Lodging $0.57 $57 $0.57 Office $1.68 $183 $1.39 Industrial $0.65 $115 $0.65 R&D [1] $1.09 [1] Recommend to combine into "Office/R&D" category Dublin has collected $779,141 in commercial linkage fees since 2015. Economic & Planning Systems City of Dublin I 16 73 INCLUSIONARY HOUSING 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 0 LIVERMORE CALIFORNIA THE CITY OF : _ . .. ::: : 1:: .d.Pi R : ::1 [)LE ASANTON© \ i ,.„..4,441,-....„ San Ramon CALIFORNIA • 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 1 18 75 INCLUSIONARY FEE PROGRAM RECOMMENDED UPDATES • Reduce the threshold project size to 10 units (currently 20) • Charge fee on a per market rate sq. ft. basis (instead of per affordable unit) • Maintain 60/40 must -build requirement • Recommended programs below meet or improve feasibility relative to current program: Ownership: Maintain current inclusionary requirement and current income level distribution and raise in -lieu fee Rental: Reduce current inclusionary requirement and focus on low-income households; in -lieu remains approximately the same Mo . - rate Low Fee per ee per Mkt. Rate Sq. Ft. ordable Uni Ownership 12.5% 0.0% 5.0% 7.5% Rental 10.0% 0.0% 10.0% 0.0% $8.97 $9.17 $400,000 $236,915 Economic & Planning Systems City of Dublin 1 19 76 REFERENCE SLIDES TRI-VALLEY RHNA (201 5-2023) PEER COMPARISON Tri-Valley peer comparison for RHNA (2015 - 2023) City Danville* Dublin Livermore** Pleasanton San Ramon Commercial Linkage Fee (CLF) Collected $0 $779,141 $0 $0 $700,000 Affordable Housing (AH) In -Lieu Fee Collected $0 $6,140,958 $22,850,000 $0 $9,000,000 Very -Low Building Income Permits Issued 10 26 220 230 61 Low Income Building Permits Issued 76 39 56 78 191 Moderate Income Building Permits Issued 67 79 649 45 349 Above Moderate Income Building Permits Issued 433 5,593 1,411 1,310 *Danville counts ADUs as low and very -low income units, and does not have a CLF and has not yet collected an Affordable Housing In -Lieu Fee **Livermore doesn't separate between CLF and AH In -Lieu Fee Revenue Reached out to Pleasanton for the information and they will provide it once they have it Reached out to San Ramon to double check the AH In -Lieu Fee collected number 2,042 Total All Income Building Permits Issued 586 5,737 2,336 1,663 2,643 Economic & Planning Systems City of Dublin 1 21 78 TRI-VALLEY RHNA (2007-201 4) PEER COMPARISON Tri-Valley peer comparison for RHNA (2007 - 2014) City Very -Low Building Income Permits Issued Low Income Building Permits Issued Moderate Income Building Permits Issued Above Moderate Income Building Permits Issued Total All Income Building Permits Issued Danville* 9 100 111 437 657 Dublin 189 85 44 2326 2644 Livermore** 0 2 14 420 436 Pleasanton*** 173 852 1025 San Ramon**** 0 *Danville counts ADUs as low and very -low income units **Livermore doesn't separate between CLF and AH In -Lieu Fee Revenue ***Pleasanton did not break out data based on Very -Low, Low and Moderate in the 4th RHNA Cycle ****San Ramon has not yet provided the date for the 4th RHNA Cycle Economic & Planning Systems City of Dublin 1 22 79 I OWNERSHIP AFFORDABLE IN -LIEU FEE b and • Comparison between Existing ProposedFee Stru ■ Comparison between Existing Fee Structures ■ Based on a hypothetical 100-unit project, each unit being 2,400 sq ft Current Ownership Fee • 12.5% Inclusionary Requirement • 60% Must Build • 40% Fee out Option • Fees based on 5 units • $241 ,1 31 fee per Affordable Unit • Total Fee of $1,205,655 IA1 g Proposed Ownership Fee • 12.5% Inclusionary Requirement • 60% Must Build • 40% Fee out Option • Fees based on 93 Market Rate units • $8.97 per square foot per Market Rate Unit (equivalent to $400,000 per Affordable Unit) • Total Fee of $ 2,002,104 Economic & Planning Systems City of Dublin I 23 80 I RENTAL AFFORDABLE IN -LIEU FEE b and • Comparison between Existing ProposedFe ■ Comparison between Existing 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 • 40% Fee out Option • Fees based on 5 units • $241 ,1 31 fee per Affordable Unit • Total Fee of $1,205,655 IA1 g Proposed Rental Fee • 10.0% Inclusionary Requirement • 60% Must Build • 40% Fee out Option • Fees based on 94 Market Rate units • $9.1 7 per square foot per Market Rate Unit (equivalent to $236,91 5 per Affordable Unit) • Total Fee of $ 968, 3 5 2 Economic & Planning Systems City of Dublin I 24 81 IIN -LIEU FEE CALCULATION RENTAL 100 unit rental project (1,100 sq.ft. per unit) 10.0% inclusionary requirement, focused on Low 10.0 inclusionary units $236,915 subsidy per Low-income affordable unit 60% must build 40% fee total fee on 4 units (4 x $236,915) per 94 market rate units per market rate sq.ft. 6.0 must build 4.0 pay fee $947,660 $10,081 $9.17 Economic & Planning Systems City of Dublin I 25 82 IIN -LIEU FEE CALCULATION OWNERSHIP 100 unit ownership project (2,400 sq.ft. per unit) 12.50% inclusionary requirement, focused on Moderate and Low 12.5 inclusionary units $400,000 subsidy per Low-income affordable unit 60% must build 40% fee total fee on 5 units (5 x $400,000) per 93 market rate units per market rate sq.ft. 7.5 must build, but round down to 7 5.0 pay fee $2,000,000 $21,505 $8.97 (*) (*) varies from $9.08 in staff report due to rounding error Economic & Planning Systems City of Dublin I 26 83