Inclusionary Housing
Ordinance
January 8, 2025
Study Session
1 Agenda
1. Purpose of Meeting
2. Background
3. Analysis
4. Discussion
5. Next Steps
2 Purpose of Meeting
§ Discuss and consider recommendations for the Town’s
inclusionary housing program
§ Provide feedback to staff
3 Background
4 What is Inclusionary Housing?
§ Local policy that requires developers of new housing or mixed-use developments to:
§ Provide a certain percentage of affordable housing units § Agree to deed restrictions for lower-income households for a certain time frame
§ Used as a tool to meet Housing Element goals.
§ Not required by the state.
5 State Law
§ Provides requirements for:
§ Public Notification
§ “Nexus” for a program with fees
§ Administration of fees collected from program
§ Ongoing performance monitoring
§ Related State Housing Programs:
§ State Density Bonus Program.
§ Project may be eligible automatically through local compliance and receive concessions/credits as a result.
§ Project can apply the State’s program with or without a local inclusionary policy. 6 2023-2031 Housing Element
§ Adopted Updates on Oct. 16, 2024
§ Received HCD comments on Dec. 30, 2024
§ Suitability of Nonvacant Sites - Additional analysis required for RM20/40 sites to document feasibility § Electronic Sites Inventory - No changes required
§ Programs-related items:
§ Clarify RM-20/40 Standards as approved through ministerial review § Provide additional context on Clovis decision and its application to Atherton § Revise SB-9 program to evaluate development trends and potential alternatives § HCD did not indicate any issues with the Town’s approach to RHNA or AFFH goals, i.e. the multifamily overlay programs
7 2023-2031 Housing Element
Program 3.814:
§ The Town will “adopt a new inclusionary ordinance for multifamily development and a housing fee for all
new single-family housing construction and additions”
Program 3.811(c):
§ “20% or more of the units are affordable to lower income households” for the RM-20/40
Town’s final, adopted, IHO need not mirror exact language in program 8 Analysis
9 BAE Analysis
§ Inclusionary Housing Feasibility Analysis
§ Evaluating feasibility of residential development in Atherton with inclusionary housing requirements the Town is currently considering § Inclusionary Housing In-Lieu Fee Analysis
§ Analyzing potential in-lieu fees considered as part of potential IHO § In-lieu fees are fees that may be applied “in-lieu” of on-site construction of affordable units
10 Feasibility Analysis – Prototypes
11 Prototype 1 Prototype 2 Prototype 3 Prototype 4
Typology Apartments Townhouses Townhouses Single-Family Tenure Rental Rental For-Sale For-Sale
Base Density 20 du/ac 10 du/ac 10 du/ac Single-Family
% of Units
Set-Aside as
Affordable (Level)
20%
(@ Very Low)
20%
(@ Very Low)
20%
(@ Low)
20%
(@ Low)
AMI Threshold* 50% of AMI 50% of AMI 70% of AMI** 80% of AMI** Four residential prototypes that could correspond to RM-20/40 and RM-10 programs:
*AMI = Area Median Income. For San Mateo County in 2024 this is $186,000 (based on family of 4) **Threshold for affordability is higher for low-income units in for-sale developments 12 Feasibility Analysis - Specifications
Prototype 1 Prototype 2 Prototype 3 Prototype 4
Typology Apartments Townhouses Townhouses Single-Family Tenure Rental Rental For-Sale For-Sale
Base Density 20 du/ac 10 du/ac 10 du/ac Single-Family
Site Size 1.5 acres 1.0 acre 1.0 acre 1.0 acre
% of Units Affordable 20% 20% 20% N/A
AMI Threshold 50% of AMI 50% of AMI 70% of AMI 80% of AMI # Units per Base Density 30 10 10 1
# Affordable Units
(within base total)
6 (20% @ Very Low)
2 (20% @ Very Low)
2 (20% @ Low)
1 (req’d @ Lower Income)
Density Bonus
(based on % affordable and
affordability level)
21 (70% Base)
7 (70% Base)
4 (35% Base, rounded up) N/A
Total Units (Base plus Bonus) 51 units 17 units 14 units 2 units Avg. Unit Size (net) 999 ft2 1,476 ft2 1,900 ft2
7,000 ft2 Single-Family
+ 1,000 ft2 ADU
Parking Spaces (total) 64 34 28 3+
Feasibility Analysis - RLV
Prototypes are structured to calculate Residual Land Value:
13 Value of Completed Project
- Development Costs
= Residual Land Value
If Residual Land Value is greater than $5.0-6.5 million (value of acre of vacant land in Atherton), then project is financially feasible
Prototype 1 Prototype 2 Prototype 3 Prototype 4
Typology Apartments Townhouses Townhouses Single-Family Tenure Rental Rental For-Sale For-Sale
Residual Land Value Analysis, Inclusionary Scenario
RLV / Acre $7,895,721 $3,487,312 $10,902,874 $6,528,448 Feasibility
Threshold $5.0 - $6.5M $5.0 - $6.5M $5.0 - $6.5M $5.0 - $6.5M Feasible Under
Current
Conditions?
Yes No Yes Yes
14 Feasibility Analysis
In-Lieu Fee Analysis
Three approaches to setting an in-lieu fee:
§ Nexus Basis: Fee commensurate with revenue required to meet affordable housing need
§ Cost of Construction: Fee covers full cost of constructing affordable unit § Point of Indifference: Fee approximates cost of affordable unit to incentivize on-site construction
Generally: Higher in-lieu fee incentivizes on-site construction All approaches are subject to shifts in market, availability of financial instruments, and changing construction costs 15 In-Lieu Fee Analysis
16 Prototype 1 Prototype 2 Prototype 3 Prototype 4
Typology Apartments Townhouses Townhouses Single-Family Tenure Rental Rental For-Sale For-Sale
In-Lieu Fee Findings – $ per ft2
Nexus Basis $29 $26 $31 $50
Const of
Construction $91 $159 $125 $29
Point of
Indifference $154 $156 $212 $69
Most Financially
Feasible Scenario
Inclusionary w/
Density Bonus
Inclusionary w/
Density Bonus
Inclusionary w/
Density Bonus No Inclusionary
Discussion
17 § Feedback Sought:
§ Distinguish between multifamily rental and multifamily ownership? § Pursue 20 percent requirement?
§ Pursue affordability requirement at “lower” income?
§ Distinguish between RM-20/40 (very-low) and RM-10 (low) programs? Recommendation 1
18 Consider adoption of inclusionary housing requirements that are consistent with the requirements that the Town of Atherton has proposed (in its 2023- 2031 Housing Element).
§ Feedback Sought:
§ None. However, be advised that an inclusionary housing program cannot apply retroactively to a submitted development application.
Recommendation 2
19 Adopt new inclusionary requirements concurrently with the adoption of upcoming zoning changes that will implement Housing Element programs. § Feedback Sought:
§ Is a fee the preferred alternative to on-site construction? § Is there a preferred approach to application of an in-lieu fee? § For-sale vs. rental?
§ Basis for fee? Nexus Basis, Cost of Construction, or Point of Indifference. § Is the option to pursue an in-lieu fee approved ministerially (by staff) or by the discretion of the Council?
§ Is the in-lieu fee and process the same for RM-20/40, RM-10 and singlefamily projects? Recommendation 3
20 Consider the adoption of inclusionary housing in-lieu fees for projects that do not provide inclusionary units on site.
Recommendation 4
21 To the extent that Atherton decision makers prefer that new single-family homes provide deed-restricted ADUs rather than pay an in-lieu fee, consider policies to make the deed-restricted ADU option more attractive to project applicants.
§ Feedback Sought:
§ Should the inclusionary program apply to single-family properties? § If so, to what extent…
§ All single-family residential construction, including additions? § Only new construction?
§ Only new construction on undeveloped lots?
§ Should the fee be set to incentivize deed-restricted ADUs? Next Steps
22 Objective is to acquire initial feedback to assist staff in drafting Inclusionary Housing Ordinance.
Extent of feedback and need to amend the BAE Study will influence the pace of moving forward.
§ Formal ordinance requires:
§ Planning Commission review for recommendation
§ City Council for adoption
The End
23 Background
§ What is Inclusionary Housing?
§ Inclusionary Program Requirements of the State
§ Atherton’s 2023-2031 Housing Element and Inclusionary Housing
§ Nexus Studies
24 State Requirements
§ State Density Bonus provides density bonuses on sliding scale for housing projects with affordable units
§ Larger bonuses for projects that provide more affordable units § Density bonuses for lower-income units range from 20% to 100% 25 State Requirements
§ Eligible projects can choose to participate in State Density Bonus program regardless of whether a jurisdiction has an IHO § A local IHO can help a jurisdiction prioritize its unique affordability goals beyond the requirements of the state
26 2023-2031 Housing Element
Town’s final, adopted, IHO need not mirror exact language in program
§ For example: Town could consider an IHO applicable only to multifamily housing development and pursue a single-family development policy at a later date
To initiate program as described in 3.814, Town worked with Bay Area Economics to complete an economic analysis and nexus study § Certain changes may require additional economic or feasibility analysis
27 Nexus Studies
Inclusionary housing requirements are based on the relationship (“nexus”) between
§ New residential development, and
§ Strain development puts on construction of affordable units This nexus relationship is quantified in the BAE Study
§ Study estimates fees Town would need to charge to generate the fees necessary to support construction of affordable housing 28 Nexus Studies
§ Affordability requirement is separate from an exaction or fee § “Affordability requirement” defined:
§ A certain percentage of units affordable for rent or sale to households with low incomes, OR
§ An alternative means of compliance with that requirement, including but not limited to:
§ In-Lieu Fees
§ Land Dedication
§ Off-Site Construction
§ Acquisition and Rehabilitation of Existing Units
Gov’t Code Section 65940.1(b)(1)
29 Discussion
BAE Study concludes with 4 recommendations:
1. Consider adoption of inclusionary housing requirements that are consistent with the requirements that the Town of Atherton has proposed (in its 2023-2031 Housing Element)
2. Adopt new inclusionary requirements concurrently with the adoption of upcoming zoning changes that will implement Housing Element programs
3. Consider the adoption of inclusionary housing in-lieu fees for projects that do not provide inclusionary units on site
4. To the extent that Atherton decision makers prefer that new singlefamily homes provide deed-restricted ADUs rather than pay an in-lieu fee, consider policies to make the deed-restricted ADU option more attractive to project applicants
30 Recommendation 1
31 § BAE Study found that inclusionary requirements are feasible for:
§ Multifamily rental apartments
§ For-sale townhomes
§ Single-family homes
§ Adoption of these fees would not impede residential development in Atherton
§ For-rent townhomes are not financially viable with or without inclusionary requirement
Consider adoption of inclusionary housing requirements that are consistent with the requirements that the Town of Atherton has proposed (in its 2023-2031 Housing Element).
Recommendation 1
32 Three notable differences between analysis and Housing Element language:
1. Study provides distinction between for-sale and rental § Staff recommendation: Maintain 20% requirement for both for-sale and rental.
This is consistent with Housing Element and multifamily housing standards § Study Session Feedback: Whether to distinguish between for-sale and rental in Inclusionary Housing Ordinance
Recommendation 1
33 Three notable differences between analysis and Housing Element language:
2. Study analyzes different affordability levels for RM-20/40 development (Very Low) and RM-10 development (Low)
§ The Housing Element does not make this policy distinction § The Town’s RHNA relies on RM-20/40 for very-low income & low income units § The Town’s RHNA does not rely on any affordable units from RM-10 § Study Session Feedback: Appropriate depth of affordability to assert in Inclusionary Housing Ordinance and whether depth should differ between RM-20/40 and RM-10 programs
Recommendation 1
34 Three notable differences between analysis and Housing Element language:
3. Housing Element language applies housing fee for all new singlefamily construction and additions § BAE Study analyzes new single-family housing that results from construction on an undeveloped parcel, not replacement nor additions § A nexus for a single-family home on a site where existing home was demolished, or addition and renovation, would require a revision to BAE Study § Staff recommendation: Town consider applying inclusionary program only to single-family development of: vacant lots, SB-9, or lot splits § Study Session Feedback: Consider application of Inclusionary Housing Ordinance to single-family residential development Recommendation 3
35 § AB 1505: Inclusionary requirements applicable to new rental residential development must include an alternative for compliance
§ In-lieu fees are only realistic and effective alternative in Atherton § Other alternatives cited in state law are not feasible § Land dedication, off-site construction, or acquisition and rehabilitation of existing units Consider the adoption of inclusionary housing in-lieu fees for projects that do not provide inclusionary units on site.
Recommendation 3
36 Three major considerations for in-lieu fees:
§ By-right or discretionary
§ In-lieu fees that are by-right makes process more predictable, but fees must be set high enough to ensure they incentivize on-site development § Whether fees are set or on project-by-project basis
§ Set fees are easier to administer and make process more predictable § A fee determined on project-by-project basis provides Town with discretion to provide fee
§ If fees adopted, identifying specific fee rates
§ Nexus Basis, Cost of Construction, and Point of Indifference are references
Recommendation 3
37 Prototype 1 Prototype 2 Prototype 3 Prototype 4
Typology Apartments Townhouses Townhouses Single-Family Tenure Rental Rental For-Sale For-Sale
In-Lieu Fee Findings – $ per ft2
Nexus Basis $29 $26 $31 $50
Const of
Construction $91 $159 $125 $29
Point of
Indifference $154 $156 $212 $69
Most Financially
Feasible Scenario
Inclusionary w/
Density Bonus
Inclusionary w/
Density Bonus
Inclusionary w/
Density Bonus No Inclusionary
Recommendation 3
38 Staff Recommendation:
§ See Recommendation 1: Staff suggests Town not distinguish between for-sale and rental multifamily developments
§ Therefore, to comply with AB 1505: in-lieu fees would extend to all multifamily developments
§ Some Councilmembers expressed interest in prioritizing affordable housing construction over in-lieu fees
§ Staff would therefore encourage considering higher in-lieu fees § Town could require any multifamily development seeking compliance with inclusionary program through payment of in-lieu fees to require discretionary approval
Recommendation 3
39 Study Session Feedback:
§ Whether to treat for-sale and rental units uniformly
§ This would require establishing in-lieu fees for all projects § Input on preferred approaches to determine in-lieu fee rates Recommendation 4
40 Atherton may consider deed-restricted ADUs (as well in-lieu fee alternative) for:
§ Newly-constructed single-family units
§ Additions to existing single-family units
Recommendation 4
41 Deed-restricted ADUS may be difficult to provide.
§ Would require homebuyer to commit to acting as landlord and ensuring tenants are income-qualified to rent
§ Some homebuyers may be attracted to additional income stream, others may find it unappealing
§ Additional incentives could be provided
§ For example, allowing one non-deed-restricted ADU in exchange for building a deed-restricted ADU
Recommendation 4
42 Staff surveyed other inclusionary housing programs in Bay Area and throughout California that apply to single-family dwellings § Of 27 jurisdictions surveyed:
§ 21 had inclusionary housing ordinances
§ Only 2 of these jurisdictions did not exempt single-family:
§ City of Sonoma: In-lieu fee for developments of 4 or fewer units § Sonoma County: Either pay in-lieu fee or provide affordable housing (ADU or agricultural housing)
Recommendation 4
44 Staff estimated fees that could be collected under “Point of Indifference” approach ($69/ft2)
§ Using 2023 Annual Progress Report estimate of 8 new singlefamily projects, an estimated $19 million after 5 years:
Project Type Single Family Residential
Avg. Unit Site (net ft2) 7,000
Point of Indifference Fee (per net ft2) $69
Estimated Fee per Unit $483,000
# of Units Constructed (2023) 8
Potential Annual Fees Collected $3,864,000
Fees Collected After 5 Years $19,320,000
Recommendation 4
45 Study Session Feedback:
§ Should the inclusionary program:
§ Apply only to new single-family dwellings constructed on vacant or newly-created lot?
§ Or should the program expand the nexus study to address single-family homes on previously developed sites?
§ Should the program extend to additions or renovations? § What fee approach should be used?