CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 Date of Publication: _________ 1
Chapter 2A Calculation of Ownership/For-Sale In-Lieu Fees - Section 18.37.050 (B) This attachment to the Guidelines describes the method utilized in calculating the ForSale In-Lieu Fee. The figures below reflect the In-Lieu Fee through Fiscal Year 2023- 2024, effective July 18, 2023.
City of East Palo Alto
Ownership/For-Sale Housing In-Lieu Fee Calculation*
Affordable Price for 100% AMI Household $537,000**
Market Sales Price (3-Yr SMC Association
of Realtors Average)
$792,000
Gap for In-Lieu Fee (100% AMI) $255,000 per unit
2% Increase Due to Delay $5,000 per unit
Ownership/For-Sale In-Lieu Fee $259,600 per unit
*Figures are rounded to the nearest thousandth in this chart, with exception of the in-lieu fee for FY 2023-2024, which is rounded to nearest hundredth. Note that numbers are not rounded in actual calculation until the end. **Note change in methodology to average three-year interest rate for loan term. \Illustrative Calculation for the For-Sale In-Lieu Fee for FY 2023-24 2-Person Household 100% AMI 3-Person Household 100% AMI $140,000 $157,500
The final calculation in Section II below will reflect a household size of 2.5. This will be a weighted average, where the 1-bedroom sales price is weighted as 23% of the total and the 2-bedroom sales price is weighted as 77% of the total based on the assumed distribution of dwelling units by bedroom count in the prototype (See Table A-2 in Attachment 2, Condominium column).
I. Annual 100% San Mateo County Income Limit for a 2 and 3-Person Household CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.2023 Date of Publication: ________ 2
II. Calculation of the Annual and Monthly 100% Affordable Payment 2-Person Household
100%AMI
3-Person Household
100%AMI
Explanation
$140,000 $157,500 100% of AMI for 2.5-person
household
X .30 X .30 Affordable housing cost not to
exceed 30% of annual income
= $42,000 = $47,250 Maximum affordable payment
Divided by 12 Divided by 12
= $3,500 = $3,938 Maximum monthly affordable
payment
III. Assumptions to Calculate the Affordable Housing Cost for the For-Sale In-Lieu Fee
After the initial adoption of In-Lieu Fees, which were effective through Fiscal Year 2021- 22, the following elements of the affordable housing cost calculation will be assumed each year, based upon relevant data pertaining to each. These elements will be determined by referencing industry standard sources. For Fiscal Year 2023-24, the Housing Division has determined the following values:
ITEM VALUE RARATIONALE/DATA SOURCE SOU O DATE SET
Interest Rate 4.12%
Freddie Mac Primary Mortgage
Market Survey (PMMS)
http://www.freddiemac.com/pmms/
pmms_archives.html
3-Year Average,
first week of
January
Down Payment 5%
Industry standard/David Rosen &
Associates NA
Property
Tax/Special
Assessments
1.2% David Rosen & Associates
NA
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.2023 Date of Publication: __________ 3
Homeowner
Associations
Dues (HOA)
$200 Average of monthly HOA dues for
prototypical developments in East Palo
Alto/David Rosen & Associates
Annually, first week
of January
Utilities
$230-
288
Weighted average of monthly estimated
utility costs for County of San Mateo
Housing Authority (by bedroom count)
Annually, first week
of January
Property
Insurance
$100 Includes homeowners insurance (fire,
hazard, etc.)/David Rosen & Associates
NA
IV. Determination of Purchase Related Costs & Affordable Monthly Mortgage Payment (The figures used in this section are based upon the above chart) 2-Person Household
100% AMI
3-Person Household
100% AMI
Explanation
Maximum monthly affordable
payment of $3,500 less:
Maximum monthly affordable
payment of $3,938 less:
See Part II above
[-] $788 [-] $792 Property taxes and
assessments (per month) 1.2%
[-] $200 [-] $200 Homeowner’s association dues
(per month) $200
[-] 230 [-] $288 Utility allowance (per month)
[-] $100 [-] $100 Property insurance (per month)
[-] $1,318 [-]$1,380 Subtract the sum of all housing
related expenses
= $2,182 =$2,558 Remaining amount for
maximum monthly mortgage
payment
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 Date of Publication: ________ 4
V. Determination of Affordable Housing Cost (aka Maximum Sales Price) The maximum sales price is calculated by adding the maximum monthly mortgage payment amount to the assumed down payment that will be contributed by the borrower.
The maximum mortgage amount will be based on a fixed rate, 5% down, fully amortizing, widely available owner-occupied loan, and the above calculated maximum monthly mortgage payment allowable. The calculation functions as follows:
2-Person Household
100% AMI
3-Person Household
100% AMI
Explanation
4.12% 4.12% 3 yr avg interest rate, 30 yr loan term
$2,182 $2,558
allowed
$450,500 $528,100
$23,700 $27,800
$474,200 $555,900
household (rounded to nearest thousandth) prototype
The market-rate sales price is based on a weighted 3-year average of median home prices in San Mateo County provided by the San Mateo County Association of Realtors.
This calculation is shown below.
Maximum monthly mortgage payment
$537,000 affordable sales price for 2.5-person Weighted average based on condominium Maximum mortgage amount
Assumed downpayment (5%)
Maximum affordable sales price
This amount is known as the “Affordable Housing Cost” for the purpose of determining the for-sale in-lieu fee amount for FY 2023-24.
VI. Calculation of the Annual Median Sales Price
1) First, utilize information provided by the San Mateo County Association of Realtors to determine the annual median sales price of an attached market rate unit (condominiums) for the most recent completed year and for the two prior years.
2) Utilizing the median sale price for each 12-month period, the Housing Department will calculate the median sale price over the past 36-month period. 3) Below is the current estimate based on sales from calendar years 2020-2022.
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 Date of Publication: ________ 5
Median Home Prices
City of East Palo Alto 2020-2022
Year Median Price # Sales
Single Family
2020
2021
2022
Weighted Average
$935,000
$1,021000
$1,062,500
$1,014,000 (rounded to
nearest thousandth)
67 122
90 Condominium
2020
2021
2022
Weighted Average
$826,000
$767,500
$788,000
$792,000 (rounded to
nearest thousandth)
13 16
17 This amount is known as the “Median Sales Price Calculation” for the purpose of determining the for-sale in-lieu fee amount for FY 2023-24.
VII. In Lieu Fee Additional Charges
The Ordinance also allows the Housing Department to collect an administrative fee to account for the estimated costs of administration. This administrative fee may be levied as part of the In-Lieu Fee or as a separate charge. In addition, the In-Lieu Fee can account for the estimated cost of increases in the price of housing and construction between payment and the acquisition of land and construction of affordable units.
At this time, the In-Lieu Fee described in this document does not include an administrative fee in the calculation. However, the In-Lieu Fee amount shown at the beginning of this Chapter will include a 2% increase to account for the delay between payment and construction of affordable dwelling units, as illustrated in Section VIII.
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 6 Calculate the For-Sale In-Lieu Fee by subtracting the Maximum Affordable Price (Step V) from Median Sales Price Calculation (Step VI). The In-Lieu Fee shall be collected on twenty percent (20%) of the total dwelling units in the Residential Development.
Median Sales Price Calculation (Section VI): $792,000
-
Affordable Housing Cost (Section V): $537,000
=
Difference: $255,000
+
In-Lieu Fee Additional Charges: $ 0
[Administrative Fee] +
[2% Increase Due to Delay] $5,000
=
In-Lieu fee Per Inclusionary Unit 259,600
Please see the calculation below using an example Residential Development project containing 100 dwelling units:
Total Number of Dwelling Units: 100
X
Multiplied by 25%: .25
=
Units required to pay In-Lieu Fee: 25
X
In-Lieu Fee per Inclusionary Unit: $ 259,600
=
VIII. Calculation of the For-Sale In-Lieu Fee
Date of Publication: ________
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 7 In-Lieu Fee for a Residential Development of
100 Dwelling Units:
$ 6,490,000
Date of Publication: ________
1 Chapter 2B Calculation of In-Lieu Fees – Rental - Section 18.37.080 (B) I. Introduction
The Rental In-Lieu Fee is calculated from the financing gap required to build affordable rental dwelling units using 4% Low Income Housing Tax Credits (LIHTC or tax credits) assuming a blended affordability of 25% of the Inclusionary Units affordable to households at or below 35% AMI (35% AMI), 50% of the Inclusionary Units affordable to households at or below 50% of AMI (very low-income), and the remaining 25% of Inclusionary Units affordable to households at or below 60% AMI (low-income). This reflects the requirement in Section 18.37.050(2).
II. Calculation of the Rental In-Lieu Fee
The City retained David Rosen & Associates to conduct the analysis for the initial calculation of the Rental In-Lieu Fee, beginning in 2020. The multifamily rental prototype used in this calculation is based on historical data from affordable rental multifamily housing prototypes in East Palo Alto and an analysis of 2017-2019 Low Income Housing Tax Credit applications. Further detailed analysis and methodology can be found in Attachment 2C.
During the FY 2021-2022 and FY 2022-2023 updates, the fees were updated using the percentage change in new home prices in the fourth quarter of the previous two years.
Given that the data source for new home prices discontinued, for FY 2023-2024, the City opted to update the fees using the Construction Cost Index (CCI). A summary of the current FY 2023-2024 Rental Housing In-Lieu Fees, updated from the 2020 Rental Housing In-Lieu Fee Calculation, is provided below:
Apartments, Structured Parking
Tax Credit Equity per Dwelling Unit $233,000
Permanent Mortgage Financing per
Dwelling Unit
$182,400
Total Sources per Dwelling Unit $415,400
Development Cost per Dwelling Unit $665,000
Gap for In-Lieu Fee (Blended AMI) $250,000 per unit
2% Increase Due to Delay $5,000 per unit
Baseline In-Lieu Fee for Rental (2020) $255,000 per unit FY 2023-24 Rental Housing In-Lieu Fee Calculation*
December 2020 CCI
December 2022 CCI
Percentage Change
2020 Rental In-Lieu Fee
11,626
13,175
+13.32%
$255,000
FY 2023-2024 Rental In-Lieu
Fee (13.32% increase)
$289,000 per unit
*Figures are rounded in this chart, but not in the actual calculation. Rental In-Lieu Fee rounded to the nearest hundredth.
City of East Palo Alto
Baseline Rental Housing In-Lieu Fee Calculation (2020)* CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 2 The full calculation of the baseline Rental In-Lieu Fee and subsequent annual increases are described below.
1. The Total Development Cost is calculated based on the following cost assumptions:
Assumption Amount
Land price $16,335,000
Building Hard Construction Cost
(including prevailing wage and structured
parking)
$73,095,000
Soft Costs (including development impact
fees)
$22,033,500 (30%)
Total Development Cost $111,358,500 ($636,334 per unit)
2. The Affordable Rent calculation is based on the maximum household income at the income levels specified below, adjusted by household size, less utilities:
• 35% AMI [25% of dwelling units]
• 50% AMI [50% of dwelling units]
• 60% AMI [25% of dwelling units]
Utility cost varies by bedroom count and is based on the utilities allowances from the Housing Authority of San Mateo County. The occupancy standard is 1.5 persons per bedroom.
3. Net Operating Income and Supportable Mortgage amount are calculated based on Affordable Gross Rents less the following:
Assumption Amount
Operating Costs $2,365,078
Replacement Reserves $43,750
Vacancy $182,044 (5%)
4. Tax credit equity from 4% tax-exempt bonds is assumed and added to the Permanent Mortgage Amount to calculate the total sources for the project.
Source Amount
Permanent Mortgage $31,925,408
Tax Credit Equity (4%) $40,803,684
Total Sources $72,729,092
5. The gap between the Total Sources and the Total Development Cost is the InLieu Fee.
Total Sources $72,729,092
Total Development Cost (incl.
Developer Fee and Capitalized
Operating Reserves assumption)
$116,490,147
Gap (In-Lieu Amount) $43,761,056 ($250,000 per unit)
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 3 This In-Lieu Fee is effective through FY 2023-24, starting July 18, 2023.
Annual adjustments of the Rental In-Lieu Fee were formerly based on the Northern California Real Estate Construction Report published by the Real Estate Research Council of Southern California at California State Polytechnic University, Pomona. The Rental In-Lieu Fee was adjusted based upon the percentage difference in the current completed year new home prices in San Mateo County from the immediately preceding year as published in the Northern California Real Estate Construction Report. Given that the report and data for new home prices is no longer available, the Construction Cost Index (CCI) is used to calculate the Rental In-Lieu Fee adjustment instead.
The updated calculation for annual adjustment is made as follows:
11,626
13,175
1,549
.1332
December 2021 Construction Cost Index
December 2022 Construction Cost Index
Difference:
Divide the difference by the 2021 figure:
To determine the % difference of the current year
and the preceding year:
Then multiply the current In-Lieu Fee by 100%
plus this percentage:
13.22%
113.22% x $255,000
In-Lieu Fee per Unit: $289,000*
*Figure rounded to nearest hundredth.
III. In-Lieu Fee Additional Charges
The Housing Division may collect an administrative fee to account for the estimated costs of administration. This administrative fee may be levied as part of the In-Lieu Fee or as a separate charge. In addition, the In-Lieu Fee can account for the estimated cost of increases in the price of housing and construction between payment and the acquisition of land and construction of affordable dwelling units.
The In-Lieu Fee described in this document does not currently include an administrative fee in the calculation. However, the In-Lieu Fee amount shown at the beginning of this Chapter includes a 2% increase to account for the delay between payment and construction of affordable dwelling units.
Please see the calculation below using an example Residential Development project of 100 dwelling units:
Rental In-Lieu Fee (FY 2023-24)
Total Number of Dwelling Units:
Multiplied by 25%:
Units Required to Pay In-Lieu Fee:
In-Lieu Fee Per Inclusionary Unit
$289,000
100
X
.25
25 X
$289,000
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23 4 In-Lieu Fee for a Residential Development of
100 Dwelling Units:
$7,225,000
CITY OF EAST PALO ALTO INCLUSIONARY HOUSING GUIDELINES – DRAFT 7.18.23