December 29, 2021
Via email
To: Patrick Heisinger, Rachel Horst
From: Nora Lake-Brown, David Rosen
Subject: Scope of Services: TOPA Analysis
This memorandum outlines DRA’s scope of services to review and analyze information related to the effect of a Tenant Opportunity to Purchase (TOPA) ordinance in the City of East Palo Alto. The purpose of the review is to inform the City Council on potential fiscal and economic effects of TOPA on the City.
Scope of Services and Deliverables
Task 1: Provide Supporting Data on Residential Market Trends DRA will provide a brief summary of data supporting the current strength of the regional residential market and projections of continued demand. This summary may include:
• Trends in single-family home sales and prices in the region and the City; • Trends in the construction/supply of new homes in the region and the City (affordable vs. market-rate unit construction);
• Data on the imbalance between supply and demand and the expected continued pressure on home prices in EPA
Task 2: Illustrate Capital Subsidy Resources Necessary for Nonprofits to Purchase Single-Family Homes
DRA will provide a simple gap calculation and tabulation of existing capital subsidy sources for affordable housing. DRA will compare the average assessed value of an absentee-owned home (from Property Radar) with 1) the calculated affordable home prices for sale to low and moderate income households in East Palo Alto; and 2) the estimated supportable mortgage for a rental unit. Using the results of Task 3 on the estimated of number of homes potentially purchased by nonprofits each year under alternative scenarios, DRA will estimate the total gap resources required annually Patrick Heisinger, Rachel Horst
December 29, 2021
under these scenarios. DRA will also provide a summary of available affordable housing subsidy sources and identify sources that may be used for subsidizing affordable homeownership under the OPA.
Task 3: Estimate Loss in Property Taxes from Single-Family Detached Units Purchased by Nonprofit Housing Corporations; Compare to Increase in Property Taxes from New Homes
DRA will estimate the potential loss in annual property tax revenues associated with the removal of single-family homes purchased nonprofit housing corporations from the tax rolls. Potential property tax loss will be estimated under presumed “worst case” and alternative scenarios. The calculation will incorporate:
• Average sales per year (number of units) of owner-occupied and absenteeowned single-family homes in East Palo Alto over the past 5, 10 and 15-years (based on data from Property Radar);
• Average 2021 assessed value of absentee-owned homes from Property Radar; • Assumptions/scenarios on the percentage of homes sold to nonprofits and removed from the tax rolls each year (drawing in part from the results of Task 1).
The potential loss in assessed value and property tax revenues to the City will be shown as a percentage of the City’s residential and total tax base.
DRA will also estimate the additional property tax revenues that will be received by the City as the existing pipeline of 800 market-rate single-family is built out. DRA will estimate the increase in assessed values and property tax revenues to the City from these new units in comparison with the potential loss of property tax revenues due to TOPA.
DRA will note that households purchasing single-family homes from nonprofits will continue to pay property taxes, including property taxes based on the affordable sales price of the unit and other assessments. If a low income household qualifies for an adjustment to the assessed value, it will still be valued at the affordable price. DRA Patrick Heisinger, Rachel Horst
December 29, 2021
will factor estimates of sales to low income households into one or more of its calculation scenarios. DRA will also list the other assessments in EPA.
Task 4: 1031 Exchanges
DRA will review available data to estimate the number of 1031 exchanges by East Palo Alto residents selling their homes. DRA will also compare the time frames under a 1031 exchange with the time frames in the TOPA ordinance.
Deliverables: Memo and supportive tables describing current market conditions and the assumptions, calculations and conclusions used in Tasks 1 through 4.
Budget
DRA will complete Tasks 1 through 4 for a not-to-exceed budget of $20,000, to be billed on a time and expense basis, per DRA’s Professional Fee and Expense Reimbursement Schedule in our contract with the City.