Draft Report
Inclusionary Housing and In-
Lieu Fee Feasibility Analysis
Report
Prepared for:
City of Fairfield
Prepared by:
Economic & Planning Systems, Inc.
April 18, 2025
EPS #231060
Table of Contents
1. Introduction and Key Findings .......................................................... 1 Background ....................................................................................... 1 Proposed Program ............................................................................... 2
2. Project Context .............................................................................. 6 Regional Housing Needs Allocation (RHNA) ............................................. 6 Affordable Housing Development Support ............................................... 7
3. In-Lieu Fee Calculations .................................................................. 9 Affordability Gap Analysis ................................................................... 11 Fee Calculation ................................................................................. 16 Reduced Fee Options ......................................................................... 17 Appendix A: Feasibility Analysis ............................................................. 19 Appendix B: Comparable City Case Studies ............................................. 25
List of Tables
Table 1: Proposed Fee Program .................................................................... 4 Table 2: RHNA Allocation for the City of Fairfield ............................................. 7 Table 3: Affordability Gap Analysis (Per Unit) - Ownership Product Type ........... 14 Table 4: Affordability Gap Analysis (Per Unit) - Rental Product Type ................. 15 Table 5: Inclusionary Housing Equivalent In-Lieu Fee Scenarios ...................... 16 Table 6: Reduced Inclusionary Housing In-Lieu Fee Options ............................ 17 Table A- 1 Single Family Market-Rate Prototypes and Development Cost Assumptions ............................................................................. 21 Table A- 2 Multifamily Market-Rate Prototypes and Development Cost Assumptions ............................................................................. 22 Table A- 3 Single Family Feasibility Analysis ................................................. 24 Table A- 4 Multifamily Feasibility Analysis .................................................... 24 Table B- 1 Comparable Jurisdiction Summary ............................................... 27 Table B- 2 Rental Housing: Inclusionary Requirement and Fee Comparison ....... 29 Table B- 3 For-Sale Housing: Inclusionary Requirement and Fee Comparison .... 30
Economic & Planning Systems, Inc.
1 1. Introduction and Key Findings
The City of Fairfield was interested in exploring options for adopting an affordable housing inclusionary zoning ordinance and associated in-lieu fee program.
Economic & Planning Systems, Inc. worked closely with the City of Fairfield Housing Department staff, with initial input from City policymakers and stakeholders, to consider program options, conduct the necessary technical analysis, and to provide an initial program recommendation. This first chapter of the report provides important background on inclusionary zoning ordinances and in-lieu fee programs and provides an initial recommendation for a new City of Fairfield program. This initial program recommendation will be revised, as appropriate, based on feedback from the City Council. The subsequent chapters in this report provide policy context and technical analysis and appendices that provide supporting information on fee programs in other jurisdictions as well as the potential effects of an inclusionary zoning ordinance on development economics.
Background
Inclusionary housing programs require that new market-rate residential development projects include a certain percentage of housing units at rents or sale prices affordable to lower income households. These programs also may include the option for new development to pay a fee in-lieu (“in-lieu fee”) of providing affordable inclusionary units on-site, as an alternative means of compliance.
Inclusionary housing programs are often one of several policy tools cities use to achieve more affordable housing and may be referred to as inclusionary zoning because such policies are implemented through the zoning code.
The City of Fairfield is exploring the potential adoption of an inclusionary zoning ordinance for single-family (ownership) and multifamily (rental) housing.
Economic & Planning Systems, Inc. (EPS) was retained by the City of Fairfield (City) to explore different inclusionary program options and associated in-lieu fees (as one of the alternative means of compliance) to help determine the appropriate policy for the City of Fairfield. As part of this Study, EPS estimated the associated “affordability gap” or subsidy required to develop affordable inclusionary housing units. The affordability gap along with on-site percentage requirement scenarios are used to quantify an “equivalent supportable inclusionary housing in-lieu fee” for each housing type. The affordability gap approach is a well-accepted methodology used in inclusionary housing studies to establish equivalent fees that may be charged to residential developers. Cities can choose to charge in-lieu fees below the calculated equivalent fee.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 2 Additionally (see Appendix A) EPS analyzed how the provision of on-site affordable units or in-lieu fees could affect the financial feasibility of new market- rate residential development. This analysis is intended to provide the City additional context regarding the potential implications of adopting inclusionary requirements. While Fairfield is not legally required to consider these potential effects when adopting an inclusionary housing requirement, they are often studied and incorporated into the development of these policies in order to align a jurisdiction’s overall housing goals with its local real estate market conditions.1 Inclusionary housing policies have been adopted by hundreds of jurisdictions nationwide, including nearly 200 cities and counties in the State of California.
Inclusionary housing programs are especially common in high-demand, high-cost jurisdictions, especially in coastal communities in the San Francisco Bay Area, Los Angeles, and San Diego regions. If Fairfield were to adopt an inclusionary housing program, it would be among a number of jurisdictions to have active inclusionary housing policies in the North Bay of the San Francisco Bay Area and the Sacramento Valley region of California. At present, only the City of Benicia, among Solano County cities, has an adopted inclusionary housing program. It is EPS’s understanding that the cities of Vacaville and Vallejo are both currently exploring inclusionary housing program options.
Because of the substantial variation in inclusionary housing programs by region and real estate market, a review of comparable jurisdictions helps set the context for the policies adopted by other comparable jurisdictions. Appendix B presents comparisons of inclusionary requirements and in-lieu fees for rental and ownership projects among the identified jurisdictions. The cities included in the table were prioritized to reflect proximity as well as socio-economic (i.e., household incomes) and housing market (i.e., home sale prices) similarities to Fairfield.
Proposed Program
Several different inclusionary housing programs and associated in-lieu fee program options were assessed. Based on a review of inclusionary housing programs in other jurisdictions, development feasibility considerations, and initial input from City Council, the initial program recommendations are described
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.
Economic & Planning Systems, Inc.
3 below. These program recommendations will be refined, as appropriate, based on further City Council review and input.
Inclusionary Housing Program Requirements
The proposed program will include the following inclusionary housing requirements. The proposed inclusionary housing requirements of 5 percent fall at the low end of the majority of programs adopted by other jurisdictions. • Single Family Housing Development. Requirement to dedicate five (5) percent of units in a single-family development at prices affordable to households with Moderate Income levels (this income level is specified for Solano County, varies by the number of persons in a unit, and is adjusted annually). As an example, the current (2024) Moderate household income level in Solano County for a 4-bedroom/5-person household is $146,700.2 • Multi-Family Housing Development. Requirement to dedicate five (5) percent of units in a multi-family development at restricted prices, including
2.5 percent at prices affordable to households with Low Income levels and
2.5 percent at prices affordable to households with Very Low Income levels.
For example, the current (2024) Low household income level in Solano County for a 2-bedroom/3-person household is $90,550 and $56,650 for a Very Low income household.
Inclusionary Housing In-Lieu Fees
State law requires jurisdictions with inclusionary housing programs to provide alternative means of compliance. A common form of alternative compliance is the option to pay an inclusionary housing in-lieu fee. In-lieu fees are paid to the jurisdiction and may be used to support the development of new affordable housing units and the rehabilitation and improvement of existing affordable housing units, among other options.
Jurisdictions may choose to charge fees that are estimated to be financially equivalent to the inclusionary housing requirements and/or below as a policy decision. The decision to charge fees below the equivalent level is typically based on consideration of fee programs at other jurisdictions, development feasibility considerations, as well as City preferences for inclusionary housing vs. the receipt of fee revenues.
2 Household size is estimated based on number of bedrooms, plus one additional person.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 4 Table 1 shows the equivalent fee levels on a per square foot basis (as well as a per unit basis for illustrative home sizes) as well as the proposed reduced fee levels.
The proposed fee program recommends the adoption of fees at 50 percent of the equivalent level. This would place fees at the low end of the typical ranges for single family homes and towards the low end of the range for multi-family homes. • Single Family Housing Development. The in-lieu fee level equivalent to the 5 percent Moderate Income inclusionary requirement for a single family unit is $5.44 per livable square foot of housing space, excluding the garage (or, as an example, $13,056 per unit for a 2,400-unit excluding the garage space). The proposed, reduced in-lieu fee is $2.72 per square foot of housing development ($6,528 per unit for the same illustrative example). • Multi-Family Housing Development. The in-lieu fee level equivalent to the 2.5 percent Low Income/2.5 percent Very Low Income inclusionary requirement for a multifamily unit is $10.35 per gross building square foot, excluding the garage space (or, as an example, $12,285 per unit where the average gross square feet per unit is about 1,190 square feet excluding garage space). The proposed reduced in-lieu fee is $5.17 per square foot ($6,143 per unit for the same illustrative example).
Table 1: Proposed In-Lieu Fee Program
Inclusionary
Requirement Fee per Unit Fee per Sq.Ft. Fee p er Unit Fee per Sq.Ft.
Single Family
5% Moderate $13,056 $5.44 $6,528 $2.72
Multifamily
2.5% Very Low, 2.5% Low $12,285 $10.35 $6,143 $5.17
Analysis by Economic & Planning Systems, Inc.
Equivalent Fee Reduced Fee
Economic & Planning Systems, Inc.
5 Alternative Means of Compliance
State law indicates that inclusionary housing programs should offer more than one (1) alternative means of compliance. In addition to the proposed in-lieu fee option (described above), subject to City Council approval, the proposed program would allow developers to comply with the inclusionary housing program through the following alternative means:
• Land dedication for affordable housing
• Combined proposal, including a combination of on-site affordable housing units, off-site affordable housing units, in-lieu fees, and/or land dedication Other Inclusionary Housing Program/In-Lieu Program Parameters Inclusionary housing programs typically specify a number of program parameters to make clear if the inclusionary housing program does not apply to any particular types of housing development as well as the mechanics of in-lieu fee calculation under certain circumstances. These specifications are provided below:
Inclusionary Housing Program Applicability
The following projects are exempt from the inclusionary housing program:
• Single family developments with less than 10 units.
• Multi-family developments with less than 10 units.
• Projects in which the City and developer enter into a development. agreement that satisfies the City’s minimum inclusionary housing program requirements.
• Projects exempt under State law.
• Accessory Dwelling Units.
• Any other deed-restricted affordable housing projects that meet the City’s minimum inclusionary housing program requirements.
• The one-to-one replacement of housing destroyed by fire, flood, earthquake, or other act of nature, within two years of such an event.
Designated Incentive Zones
The proposed program further reduces the inclusionary housing program in-lieu fee for new housing development in:
• In the Heart of Fairfield Specific Plan area, the required in-lieu housing fees will be further reduced by 50 percent.
In-Lieu Fee Program / Fractional Units
In many cases, the estimated 5 percent of the total unit count will result in a fractional inclusionary unit count (e.g., a portion of a full unit). At the developer’s option, the inclusionary requirement for the fractional unit can be met through Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 6 constructing an additional inclusionary unit or by paying an in-lieu fee adjusted proportionally to account for the partial unit.
2. Project Context
The City of Fairfield has not yet adopted an affordable housing fee program, such as inclusionary housing or commercial linkage fees, but is addressing several changes to its housing supply, housing needs, and broader economic and real estate trends as part of objectives initiated in its 6th Cycle (2023-2031) Housing Element. This includes exploring the feasibility of an inclusionary housing program with an in-lieu fee payment option alongside other financing mechanisms to facilitate affordable housing development in Fairfield. The following sections describe the City’s housing needs and the opportunities provided by inclusionary housing programs and in-lieu fee revenues to fund affordable housing development.
Regional Housing Needs Allocation
(RHNA)
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 and is based on regional growth projections.
Currently, the majority of jurisdictions in the Association of Bay Area Governments (ABAG) region, including Fairfield, have adopted their 6th Cycle Housing Elements to reflect policies and strategies required to meet current RHNA targets. Fairfield’s Housing Element was certified by the California Department of Housing and Community Development (HCD) in April 2023.
Through the RHNA process, Fairfield has an allocation of 3,069 total units.
Table 2 displays the RHNA allocation breakdown by income level. The allocation is concentrated in affordable units, with 59 percent at or below Moderate Income levels. Affordable housing programs like inclusionary zoning can help cities implement their Housing Element by achieving the development of units in lower affordability categories.
Economic & Planning Systems, Inc.
7 Table 2: RHNA Allocation for the City of Fairfield
Affordable Housing Development
Support
Like most cities in California, the RHNA has indicated the need for the development of a broad range of housing at a range of affordability. Inclusionary housing programs represent one approach to supporting affordable housing development in the City.
Usually, inclusionary units are provided via building the units on-site or off-site construction. In other cases, in-lieu fee revenue may be levered by a local jurisdiction to support an affordable housing developer with the construction of a 100% affordable housing project.
Affordable housing projects rely on local, state, and federal funding. Applications for state and federal funding evaluate potential projects on a variety of characteristics such as site control (i.e., does the developer have control and access to the land?) and level of affordability in the units that the project provides (lower AMI served is often more competitive). One additional important factor that increases an applicant’s competitiveness is how much local funding the developer has been able to secure for the project. Local city and/or county funding can come in the form of grants or loans, land donation, or waived development impact fees. Local funding availability is geographically uneven (i.e., some areas have more funding than others) and the availability of funding can change greatly from year to year. Local jurisdictions often pool together various sources of funding into a funding pool that then gets distributed to affordable housing developers.
As an example, the City of El Cerrito collects fees from their inclusionary housing program and deposits the revenue into the City’s Affordable Housing Trust Fund.
The fee revenue, along with other local and state funding sources, are used collectively to construct, acquire and/or preserve affordable housing. Similarly, the City of Berkeley combines revenue from their affordable housing mitigation fee with funding from the State of California and federal sources (e.g., HOME Affordability Category Units Percentage
Very Low Income (0-50% AMI) 792 25.8%
Low Income (51-80% AMI) 464 15.1%
Moderate Income (81-120% AMI) 539 17.6%
Above Moderate (>120% AMI) 1,274 41.5%
Total 3,069 100.0%
Source: City of Fairfield; Economic & Planning Systems, Inc.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 8 Investment Partnerships Program, Local Housing Trust Fund, Community Development Block Grant).
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
9 3. Inclusionary Program/ In-Lieu Fee
Options
This chapter provides the methodology and key assumptions used by EPS to calculate the inclusionary housing in-lieu fees that are equivalent to the different inclusionary housing program scenarios that were analyzed. After establishing the supportable, equivalent in-lieu fees, this chapter also considers options for the City to reduce the in-lieu fee.
Calculating the in-lieu fees for affordable inclusionary units involves four steps, the first and fourth steps ultimately being City policy decisions and the second and third technical steps:
1. Define Inclusionary Housing Program Requirements. Inclusionary housing programs and the calculation of associated in-lieu fees require the specification of inclusionary housing requirements, including percent of units that are required to be affordable (e.g. 5%, 10 %, 15%) and the level of affordability (e.g. affordable to Very Low, Low, and Moderate Income Households). Distinctions can be made between housing product types (i.e., rental or ownership).
2. Per Unit Funding Gap. Calculating the affordability gaps (i.e., required subsidies) for a typical rental or ownership unit built in the local housing market, priced at different affordability levels. This analysis is based on the premise that deed-restricted affordable housing generally does not yield rental or sales revenue sufficient to incentivize development.
3. Per Unit / Square Feet (Equivalent) In-Lieu Fees to cover Funding Gap. Applying the affordability gap(s) associated with the chosen inclusionary requirement(s) to determine the total subsidy required for a typical housing project. Equivalent supportable per-unit and per-square- foot in-lieu fees are calculated by dividing the total subsidy by unit count and gross square footage of the project.
4. In-Lieu Fee Adjustments. In some cases, cities choose to adopt in-lieu levels below the level equivalent to the inclusionary housing requirement.
Reason can include concerns related to development feasibility/ parity with other similar jurisdictions and/or a preference to incentivize fee payment over the provision of inclusionary housing. This policy decision is often informed by the fee levels adopted in comparable jurisdictions as well as development feasibility analysis.
The following sections cover these four steps indicating the options considered and the underlying technical analysis.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 10 Inclusionary Program Scenarios
Like many other inclusionary housing programs, single family/ownership requirements were distinguished from rental/multifamily requirements. The following inclusionary housing requirements were selected for analysis based on a review of programs at other jurisdictions and direction from City staff.
Single Family/ Ownership Housing
Two scenarios were selected for analysis including:
(i) 5 percent inclusionary housing requirement affordable to Moderate Income households; and
(ii) 10 percent inclusionary housing requirement affordable to Moderate Income households.
Among the jurisdictions reviewed, the most common inclusionary percentage requirement for for-sale housing is 10 percent. The level of affordability of the 10 percent requirement varies from Moderate Income (City of Santa Rosa), a mix of Moderate and Low Income (City of Benicia), and all Low Income (City of Woodland). All of these cities also have identified subareas where lower requirements apply (e.g. downtowns, specified mixed-use areas).
The scenarios analyzed for the City of Fairfield include the most typical 10 percent requirement as well as a lower 5 percent scenario. They both focus on inclusionary housing that is affordable to Moderate Income households (i.e., households making up to 120 percent of Area Median Income with variations by household size).
Multi-Family/ Rental Housing
Two scenarios were selected for analysis including:
(i) 5 percent inclusionary housing requirement with 2.5 percent affordable to Very Low Income households and 2.5 percent to Low Income households;
(ii) 10 percent inclusionary housing requirement affordable to Low Income households.
Among the jurisdictions reviewed, the inclusionary percentage requirement for rental housing ranged from 5 percent to 10 percent. The City of Benicia has the same requirement for rental and for ownership with a 10 percent requirement and a mix of affordability between Moderate Income and Low Income. The City of Woodland also has the same requirement for rental as for ownership with a 10 percent requirement, all affordable to Low Income households. The City of Santa Rosa has a different policy for rental housing, including two options: an eight percent requirement affordable to Low Income Households and a five percent requirement affordable to Very Low Income Households.
Economic & Planning Systems, Inc.
11 The scenarios analyzed for the City of Fairfield, as for the ownership scenarios, include a 10 percent requirement as well as 5 percent requirement. The 10 percent requirement assumes affordability to Low Income households (households earning up to 80 percent of Area Median Income with variations by household size), while the five percent requirement assumes affordability to Very Low Income households (households earning up to 50 percent of Area Median Income with variations by household size).
Affordability Gap Analysis
To calculate equivalent supportable inclusionary housing in-lieu fees, EPS estimated the affordability gap (i.e., required subsidy) related to developing single-family (ownership) and multifamily (rental) housing affordable to Very Low, Low, and Moderate income households.3 The affordability gap analysis compares the cost of developing affordable units to their value under income-based pricing restrictions. Where the development cost exceeds the unit value, there is an affordability gap that must be subsidized to support affordable unit development.
The affordability gap is then applied to the inclusionary requirements for market- rate housing development to derive an equivalent supportable in-lieu fee.
Affordable Housing Prototypes
To calculate the affordability gaps, EPS developed two (ownership and rental) residential prototypes reflective of typical market-rate housing developments built in the region as confirmed by interviews with residential developers and consistent with City staff representations of the general type of housing projects built in Fairfield. The multifamily prototype assumes construction at 30 dwelling units per acre with surface parking and two bedrooms with a typical gross square footage of 1,190 square feet. Meanwhile, the single-family (detached) prototype assumes construction at eight dwelling units per acre and four bedrooms with a typical gross square footage of 2,400 square feet. Additionally, the multifamily and single-family prototypes assume an average of three and five occupants per household, respectively.
The findings of this analysis assume that the unique unit mix of any particular project will, in aggregate, conform to these average unit characteristics. However, any specific project will have its own cost and revenue factors that its unit mix will partly impact.
3 EPS excludes Above Moderate-priced units from this analysis since they would most likely not require a subsidy to produce.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 12 Development Cost Assumptions
Housing development costs include land costs, direct costs (e.g., labor and materials), and indirect or “soft” costs (e.g., architecture, entitlement, marketing). Data from recent land transactions in and around Fairfield have been combined with EPS’s information from various market-rate and affordable housing developers in the surrounding region to estimate appropriate development cost assumptions for use in Fairfield. These assumptions are shown in Table 3 and Table 4 and indicate that the total per unit cost to build a new market-rate single-family home in Fairfield is about $774,000 and $455,000 per unit for multifamily rental apartments. By necessity, these figures represent “prototypical” projects; the actual costs for a given project will vary by location and project design characteristics.
Revenue Assumptions
Assumptions must be made regarding the applicable income level (Very Low, Low, and Moderate) and the percentage of household income spent on housing costs to estimate the valuations of the affordable inclusionary units. In addition, translating these assumptions into unit valuations requires estimates of housing costs and mortgage values (for ownership housing) and estimates of operating expenses and capitalization rates (for rental housing). The following assumptions were used in these calculations:
• Income Levels—This analysis estimates the subsidy required to produce units for households falling into the Very Low, Low, and Moderate-income categories for three- and five-person households. These income categories are generally defined as a percentage of area median income (AMI) by HCD. • Percentage of Gross Household Income Available for Housing Costs— HCD standards on overpaying for housing costs indicate that households should pay no more than 30 percent of their gross income on housing costs.4 For this analysis, EPS has assumed that households shall spend no more than 35 percent of their gross income on housing costs for ownership housing and 30 percent for rental housing.5 Rental housing costs include the cost of utilities stated by the Solano County Housing Authority utility allowance schedule. • Annual Housing Costs and Mortgage Payments for Ownership Units – This analysis assumes that homeowners of new single-family homes will incur annual housing costs from property taxes, insurance, utilities, and
4 See HCD standards for Overpayment and Overcrowding, Building Blocks: Housing Needs - Overpayment and Overcrowding (ca.gov)
5 The adjusted figure of 35 percent for ownership housing represents a more realistic percentage based on the inflated housing costs in California.
Economic & Planning Systems, Inc.
13 homeowners’ association (HOA) fees. Additionally, EPS assumed that, on average, a mortgage for a typical inclusionary ownership unit would entail a 30-year term with a fixed five percent interest rate and a five percent down payment.
• Operating Costs for Rental Units—This analysis assumes that apartment operators incur annual operating costs of $7,500 per unit for below-market- rate housing units affordable to households falling in the Very Low and Low- income categories. EPS has assumed the units for Moderate-income households would have similar operating costs but would be built by for-profit builders and thus also be subject to property taxes, increasing their annual operating cost to $10,000 per unit.
Affordability Gap Analysis Results
Table 3 and Table 4 show the per-unit valuations and development costs for developing ownership and rental housing affordable to various income levels in Fairfield. Across all categories, the cost of constructing the unit is higher than the supportable value of the unit. This discrepancy is considered the “affordability gap,” and is the basis for calculating the subsidies required to subsidize affordable inclusionary units. The results of the analysis illustrate that home prices and rents affordable to households earning Moderate incomes and below cannot support the costs of new construction without subsidy.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 14 Table 3: Affordability Gap Analysis (Per Unit) - Ownership Product Type
Item
Very Low
Income
(
50% AMI)
Low
Income
(
80% AMI)
Moderate
Income
(
120% AMI)
Development Program Assumptions
Density/Acre 8 8 8
Net Unit Size 2,400 2, 400 2,400
Number of Bedrooms 4 4 4
Occupants per Unit [2] 5 5 5
Development Cost Assumptions
Land Acquisition and Site Improvements [1] $206,675 $206, 675 $206,675 Direct Development Costs [2] $336,000 $336, 000 $336,000 Indirect Development Costs [3] $130,200 $130, 200 $130,200 Developer Profit $100,931 $100,931 $100,931
Total Development Costs $773,806 $773, 806 $773,806
Maximum Supported Home Price
Household Income [3] $67,950 $108, 700 $146,700
Income Available for Housing Costs/Year [4] $23,783 $38,045 $51,345 Housing-Related Costs [5] $13,114 $16,501 $19,659
Income Available for Mortgage Payments $10,668 $21,544 $31,686 Supportable Mortgage [6] $163,997 $331,186 $487,090
Supportable Home Price [7] $172,600 $348,600 $512,700
Affordability Gap $601,206 $425, 206 $261,106
Sources: City of Fairfield, CA HCD, CoStar Group, Conversations with local residential developers; Analysis by Economic & Planning Systems, Inc.
[7] Assumes a 5% down payment.
[2] Includes on-site work, offsite work, vertical construction, general requirements, overhead and builder fees. The cost estimate reflects wood-frame construction.
Single Family, Detached
[1] Includes land acquisition, site preparation costs, entitlement consultants, and fees/permits. [5] Includes housing-related annual costs such as property taxes, insurance, utilities, and HOA fees. [4] Reflects that total housing costs should not exceed 35% of income for ownership housing. [3] Reflects 2024 HCD Income Limits. Incomes are calculated for a 5-person household in Solano County. [6] Assumes a 30-year mortgage and a fixed 5% interest rate.
Economic & Planning Systems, Inc.
15 Table 4: Affordability Gap Analysis (Per Unit) - Rental Product Type
Item
Very Low
Income
(50% AMI)
Low
Income
(80% AMI)
Moderate
Income
(120% AMI)
Development Program Assumptions
Density/Acre 30 30 30
Gross Unit Size 1,188 1,188 1,188
Number of Bedrooms 2 2 2
Occupants per 2-bedroom Unit 3 3 3
Parking Spaces/Unit 1.5 1.5 1.5
Total Development Costs $455,228 $455,228 $455,228
Maximum Affordable Rental Rate
Household Income $56,650 $90,550 $122,250
Income Available for Housing Costs/Year $12,891 $23,061 $32,571 (less) Operating Expenses per Unit/Year ($7,500) ($7,500) ($10,000) Net Operating Income $5,391 $15,561 $22,571
Capitalization Rate 5.0% 5.0% 5.0%
Total Supportable Unit Value $107,820 $311,220 $451,420 Affordability Gap $347,408 $144,008 $3,808
[1] Reflects typical allowable densities in high-density residential zones in the City of Fairfield. [3] Excludes developer profit, which is reflected in capitalized value. [4] Reflects 2024 HCD Income Limits. Incomes are calculated for a 5-person household. [8] The total supportable unit value is determined by dividing the net operating income by the capitalization rate.
Sources: City of Fairfield; HCD; CoStar; residential developer conversations; and Economic & Planning Systems, Inc.
Multifamily Apartment Rental (30 units/acre)
3 Story Multifamily Building with Surface Parking
[2] Consistent with guidance in State law (Health and Safety Code Section 50052.5), a 2-bedroom unit should be assumed to be occupied by a 3-person household.
[5] Assumes that no more than 30% of a household's income should be spent on housing costs (including utilities) for housing to be considered affordable.
[6] 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. [7] 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.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 16 In -Lieu Fee Calculation
Table 5 provides the equivalent supportable in-lieu fee calculations for each housing product type under two different inclusionary requirement scenarios.
The fees are calculated by the following steps:
1. Multiply the scenario-specific per-unit funding gaps calculated in the previous section by the number of affordable units in each scenario to determine the total funding gap.
2. Divide the total funding gap by the number of units in an illustrative 100- unit project to determine the equivalent supportable per-unit in-lieu fee.
3. Divide the equivalent supportable per unit in-lieu fee by the average unit sizes in the 100-unit project (i.e., 2,400 gross square feet for single-family units and 1,188 gross square feet for multifamily units) to determine the equivalent supportable per-unit in-lieu fee.
Table 5: Inclusionary Housing Equivalent In-Lieu Fee Scenarios
Scenario 1 Scenario 2 Scenario A Scenario B
Inclusionary Requirement 5.0%
Moderate
10.0%
Moderate
2.5% Very Low,
2.5% Low
10.0%
Low
Affordable Units / Total Units 5/ 100 10/ 100 5/ 100 10/ 100 $144,008 (Low)
$347,408 (Very Low)
Total Funding Gap for Affordable Units $1,305,531 $2,611,063 $1,228,542 $1,440,083 per Market Rate Unit
(Maximum Fee) $13,055 $26,111 $12,285 $14,401
per Market Rate Sq.Ft.
(Maximum Fee) $5.44 $10.88 $10.35 $12.13
Analysis by Economic & Planning Systems, Inc.
Single-Family Multifamily
Item
Per Unit Funding Gap $261,106 (Moderate) $144,008 (Low) Economic & Planning Systems, Inc.
17 Reduced Fee Options
Based on inclusionary housing in-lieu fees in the other cities studied as part of the fee comparison in Appendix B and the equivalent fee levels calculated in the previous section, the City considered two fee level options for in-lieu fees (reduced and equivalent) for all of the program scenarios analyzed (i.e. two options for ownership and two options for rental), as shown in Table 6.
While not required by law, jurisdictions may reduce affordable housing in-lieu fees to moderate potential impacts on development economics/ feasibility and/or based on the approach of other jurisdictions. In this instance, the City considered a reduced in-lieu fee at 50 percent of the equivalent supportable in-lieu fees.
The proposed inclusionary housing programs and in-lieu fee levels for the City of Fairfield are those at the lowest end of scenario assessed, including:
• Single Family Development. Assumes selection of Scenario 1 (5% Inclusionary Requirement) as well as the Reduced Fee Scenario (50% of the potential, equivalent fee). This would result in a fee of $2.72 per livable square foot of housing space, excluding the garage, $6,528 per unit for an illustrative 2,400-livable square foot unit.
• Multi-Family Development. Assumes selection of Scenario A (5% Inclusionary Requirement, with 2.5% Very Low and 2.5% Low) as well as the Reduced Fee Scenario (50% of the potential, equivalent fee). This would result in a fee of $5.17 per gross building square foot, excluding garage space, $6,143 per unit for an illustrative building with about 1,190 gross square feet per unit.
Table 6: Reduced Inclusionary Housing In-Lieu Fee Options
Inclusionary
Scenario Requirement Fee per Unit Fee per Sq.Ft. Fee per Unit Fee per Sq.Ft.
Single Family
Scenario 1 5% Moderate $13,056 $5.44 $6,528 $2.72
Scenario 2 10% Moderate $26,112 $10.88 $13,056 $5.44
Multifamily
Scenario A 2.5% Very Low, 2.5% Low $12,285 $10.35 $6,143 $5.17 Scenario B 10% Low $14,401 $12.13 $7,200 $6.06
Source: Economic & Planning Systems, Inc.
Maximum Fee Reduced Fee
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report 18 Comparisons of fee levels to other jurisdictions are complicated by: (1) some jurisdictions focusing on the development of the inclusionary housing or other compliance measures rather than fee payment (e.g. Benicia); (2) some cities requiring individual calculations of potential in-lieu fees by project (e.g.
Woodland); and, (3) some cities developing their fee programs prior to the passage of and clarity provided by AB 1505 where they used a different methodology to develop affordable housing impact fees.
Nevertheless, the comparable jurisdictions still provided helpful comparison points with the City of Sacramento levying the lowest fees of those assessed at $3.54 per square foot of housing development (with exemptions for highest density units) and the City of Elk Grove also assessing relatively low fees at about $3,800 per unit for multi-family units and $6,300 per unit for single family developments (potentially about $3.00 per square foot depending on unit size). The City of Santa Rosa charges in-lieu fees at $5 per square foot for small units (less than 910 square feet) and $10 per square foot for all other units (greater than 910 square feet). Illustrative estimates for the City of Woodland’s case-by-case approach suggest in-lieu fees higher as high as $20 per square foot.
The proposed City programs fee levels for ownership/ single family units are similar to the lowest per square feet and per unit fees currently charged by the jurisdictions surveyed. The proposed City program fee levels for rental/ multi- family units are above the lowest fees at the jurisdictions assessed but still at the lower end of the range.
19 Appendix A: Feasibility Analysis
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
20 The introduction of new or increased fees on new development adds new development costs. The analysis in this chapter was conducted in order to provide a sense of the potential impact of new inclusionary housing in-lieu fees under different scenarios (fee levels) on the development economics of housing developments in the City.
Because all development projects are different, with different site conditions, scales, product types, market dynamics, and financing circumstances, it is difficult to draw across-the-board conclusions on the impact of additional development costs on housing development projects. Based on discussions with developers and EPS research, this analysis first provides illustrative, static pro formas for a prototypical single family detached product and multi-family development.6 These included a hypothetical 100-unit single-family detached development on
12.5 acres and a hypothetical 100-unit multifamily project on 3 acres.
The analysis then considers how the introduction of new fees will affect different metrics of development economics, including cost per unit and profit metrics (holding all other factors constant). It also provides an indication of the extent to which residential pricing would need to be increased or land prices reduced to balance out these cost increases, recognizing these are not levers that are fully under developer control.
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 Tables A-1 and A-2. They include one rental prototype and one single family, for-sale prototype.
6 It is recognized that these analyses are illustrative and that actual projects will have unique and distinct pro formas with individual projects facing different cost profiles, pricing options, and return requirements.
Economic & Planning Systems, Inc.
21 Table A- 1 Single Family Market-Rate Prototypes and Development Cost Assumptions
Item Per Unit
D
evelopment Prototype
Tenure
Parcel Size 1 acre
Density 8 units/acre
Unit Size (gross) 2,800 sq.ft.
Unit Size (net) 2,400 sq.ft.
Number of Bedrooms 4.0 per unit
Parking 2.0 spaces per unit
Development Costs
Land Costs $1,000,000 per acre $125,000
Site Preparation $15 per sq.ft. of land $81,675
Subtotal, Land $206,675
Direct Construction Costs $120 per sq.ft. $336,000
Parking Costs $0 included in direct costs $0
Subtotal, Direct Costs $336,000
Development Impact Fees $48,000 per unit $48,000
Planning and Building Fees $15,000 per unit $15,000
Indirect Costs 20% of direct costs $67,200
Subtotal, Indirect Costs $130,200
Total Construction Costs $672,875
Developer Profit Threshold 15% of total construction
costs
$100,931
Total Development Costs $773,806
Sources: Costar; EPS discussions w ith local active developers Ownership
Single Family Detached
Assumptions
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
22 Table A- 2 Multifamily Market-Rate Prototypes and Development Cost Assumptions
Single Family Detached Development Economics
Tables A-3 below shows under the “No Fee” column, a summary of the illustrative development economics outcomes for the single family prototype. As shown, the base/ no fee scenario indicates that new single family developments with an average price point of $780,000 could cover all development costs (site improvements, direct and indirect construction costs, land costs (assumed at $1 million per acre)) and provide a return on investment/ developer profit of 15.9 percent.
As in-lieu fees are introduced, development costs will increase and, all other things being equal, the return on investment will decline. As shown, the effect for lowest for the $2.72 per square foot fee scenario, where costs increase by about $6,500 per unit and the return on investment reduces from 15.9 percent to 14.8 Item Per Unit
D
evelopment Prototype
Tenure
Parcel Size 1 acre
Density 30 units/acre
Unit Size (gross) 1,188 sq.ft.
Unit Size (net) 950 sq.ft.
Number of Bedrooms 2.0 per unit
Parking 1.5 spaces per unit
Development Costs
Land Costs $1,000,000 per acre $33,333
Site Preparation $10 per sq.ft. of land $14,520
Subtotal, Land $47,853
Direct Construction Costs $255 per sq.ft. $302,813
Parking Costs $0 included in direct costs $0
Subtotal, Direct Costs $302,813
Development Impact Fees $32,000 per unit $32,000
Planning and Building Fees $12,000 per unit $12,000
Indirect Costs 20% of direct costs $60,563
Subtotal, Indirect Costs $104,563
Total Construction Costs $455,228
Sources: Costar; EPS discussions w ith local active developers Rental
Multifamily Apartment
Assumptions
Economic & Planning Systems, Inc.
23 percent. On the high end of the scenarios considered, the cost increase would be about $26,000 per unit and the return on investment would decline to 11.6 percent.
The scale of the cost increase can also be considered through the lens of how much other variables would be required to change to offset the cost increases (recognizing that these changes may not be possible). For the $2.72 per square foot fee, the price point would need to increase by $7,000 per unit or, alternatively, the cost of land for the 12.5-acre site would need to decrease by about $700,000 to offset the cost increase. For the $10.88 per square foot fee, the price point would need to increase by $30,000 per unit or, alternatively, the cost of land for the 12.5-acre site would need to decrease by about $2.6 million to offset the cost increase.
Multi-Family Development Economics
Tables A-4 below shows under the “No Fee” column, a summary of the illustrative development economics outcomes for the multi-family prototype. As shown, the base/ no fee scenario indicates that new multi-family developments with an average monthly rent of $3.20 per square foot could provide a yield on cost of 5.87 percent when all development costs are taken into account (site improvements, direct and indirect construction costs, land costs (assumed at $1 million per acre)).
As in-lieu fees are introduced, development costs will increase and, all other things being equal, the yield on cost will decline. As shown, the effect for the lowest, $5.17 per square foot fee scenario include an increase in development costs of $6,100 per unit and a reduction in the yield on cost from 5.87 percent to
5.79 percent. On the high end of the scenarios considered, the $12.23 fee per square foot would result in a cost increase of $14,400 per unit and a decline in the yield on cost to 5.69 percent.
The scale of the cost increase can also be considered through the lens of how much other variables would be required to change to offset the cost increases (recognizing that these changes may not be possible). For the $5.17 per square foot fee, the monthly rental rate would need to increase from $3.20 to $3.23 per square foot or, alternatively, the cost of land for the 3-acre site would need to decrease by about $600,000 to offset the cost increase. For the $12.13 per square foot fee, the monthly rental rate would need to increase from $3.20 to $3.28 per square foot or, alternatively, the cost of land for the 3-acre site would need to decrease by about $1.4 million to offset the cost increase.
Economic & Planning Systems, Inc.
24 Table A- 3 Single Family Feasibility Analysis
Table A- 4 Multifamily Feasibility Analysis
New Development Type No Fee Scenario 1 Scenario 1 Scenario 2 Scenario 2 Reduced Fee Maximum Fee Reduced Fee Maximum Fee
Fee per Square Foot $0 $2.72 $10.88
Single Family (100 unit project, 12.5 acres)
Fee per Unit $0 $6,528 $26,112
Fee as a % of Total Development Costs, Excluding Land 0% 1.2% 4.6% Developer Profit (Holding All Else Constant) 15.9% 14.8% 11.6% Home Price (Holding All Else Constant) $780,000 $787,800 $810,000 Land Value (Holding All Else Constant) $12.5 million $11.8 million $9.9 million $5.44
$13,056
2.3%
13.7%
$11.2 million
$795,000
New Development Type No Fee Scenario A Scenario A Scenario B Scenario B Reduced Fee Maximum Fee Reduced Fee Maximum Fee
Fee per Square Foot $0 $5.17 $10.35 $6.06 $12.13
Multifamily (100 unit project, 3.3 acres)
Fee per Unit $0 $6,143 $12,285 $7,200 $14,401
Fee as a % of Total Development Costs, Excluding Land 0% 1.4% 2.8% 1.7% 3.3% Yield (Holding All Else Constant) 5.87% 5.79% 5.71% 5.78% 5.69% Rent PSF (Holding All Else Constant) $3.20 $3.23 $3.27 $3.24 $3.28 Land Value (Holding All Else Constant) $3.3 million $2.7 million $2.1 million $2.6 million $1.9 million
25 Appendix B: Comparable City
Case Studies
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
26 To examine the potential for a new inclusionary program in Fairfield, EPS identified five comparable jurisdictions with varying types of below market rate housing programs to study: Benicia, Sacramento, Woodland, Santa Rosa, and Elk Grove. As shown in Table B- 1, the City of Fairfield falls in the middle in terms of household income and single family home prices compared to the case study cities. The comparison cities range in program type from impact fee only in Sacramento and Elk Grove to inclusionary programs with onsite requirements and in-lieu fee options in Santa Rosa and Woodland. Benicia uniquely has an onsite inclusionary requirement but no in-lieu fee.
When establishing a below market rate housing program, key considerations include:
- Onsite inclusionary requirement
- Affordability level
- For-sale versus rental housing
- Applicability threshold
- Designated incentive zones
EPS examined the zoning ordinances in each of the case study cities and spoke with Planning or Community Development department staff when available to analyze the different approaches taken by Fairfield’s comparable jurisdictions.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
27 Table B- 1 Comparable Jurisdiction Summary
Fee Type Commercial
Linkage Fee
Ownership Rental
Fairfield 119,420 $98,857 $629,500 n/a n/a n/a n/a
Peer Jurisdictions
Solano County
Benicia 27,040 $124,375 $695,667 ✓ ✓ Inclusionary Program n/a Sonoma County
Santa Rosa 178,221 $92,604 $707,388 ✓ ✓ Inclusionary Program w/ In-Lieu Fee ✓ Sacramento County
City of Sacramento 523,600 $78,954 $482,500 ✓ ✓ Impact Fee Only ✓ Elk Grove 176,105 $115,864 $642,762 ✓ ✓ Impact Fee Only ✓ Yolo County
Woodland 61,227 $84,494 $531,167 ✓ ✓ Inclusionary Program w/ In-Lieu Fee n/a Sources: U.S. Census Bureau, Grounded Solutions Network, Redfin.
Inclusionary Housing /
In-Lieu Fees /
Impact Fee
Total Population
(2022)
Medan
Household
Income (2022)
Median Single-
family Sold Price
(Q4-23)
Location
Economic & Planning Systems, Inc.
28 Onsite Inclusionary Requirements
The onsite inclusionary requirements in the case study cities range from five percent to ten percent. For rental housing, Santa Rosa allows developers to choose between providing five percent of onsite units affordable to very low- income households or 8 percent of units affordable to low-income households, as shown in Table B- 2. Both Woodland and Benicia require onsite inclusionary development of 10 percent of units. Only Santa Rosa requires units to be built at levels affordable to very-low-income households. Woodland allows units affordable up to low-income households and Benicia splits the required units between low- and moderate-income households. Benicia previously required units to be built at very low and low affordability then raised the affordability levels to low and moderate in 2023.
While Sacramento currently does not require onsite affordable housing, Sacramento staff indicated that from 2000 to 2015 the City had a 15 percent onsite requirement for units affordable to low and very low-income households.
The onsite requirement only applied to areas identified as “new growth areas” which caused concern over potential income segregation. In 2015, the program was revised to require impact fee payment only.
As shown in Table B- 3, the onsite requirements for ownership developments in the case study cities are similar to those for rental developments. Santa Rosa has a higher inclusionary requirement for ownership projects than rental projects, but the affordability level is also higher, requiring ten percent of units at moderate income rather than five percent at very low-income or eight percent and low- income. While Benicia’s onsite requirement for ownership is the same as rental for most projects, ownership developments of 100 units or more must provide 15 percent rather than ten percent inclusionary units. For both rental and ownership projects Woodland’s applicability threshold is relatively high, though it only applies to developments of 20 units or more.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
29 Table B- 2 Rental Housing: Inclusionary Requirement and Fee Comparison Jurisdiction
Minimum Unit
Applicability
Very Low
Income
Low
Income
Moderate
Income
Per Sq.Ft. Per Unit Nature of annual
increases
Fairfield
Peer Jurisdictions
Solano County
Benicia [1] 2000 10 10% N/A 5% 5% Alternative Compliance Alterntaive Compliance Sonoma County
Santa Rosa* 1992 7 8% or 5% 5% 8% N/A $5/sq. ft. (0-909 sq. ft.) $10/sq. ft. (910+ sq. ft.) N/A CP I - U
Sacramento County
City of Sacramento* [2] 2015 2 N/A N/A N/A N/A $3.54 N/A CCI Elk Grove [3] 2002 1 N/A N/A N/A N/A N/A $3,773 CCI
Yolo County
Woodland* 1995 20 10% N/A 10% N/A Calculated per Project[4] Calculated per Project[4] N/A $20.00 $20,000
Low Requirement/Fee 1 5% 5% 5% 5% $3.54 $3,773
High Requirement/Fee 20 10% 5% 10% 5% $20.00 $20,000
[1] Benicia allows for the potential to negotiate a fee based on development economic feasibility issues posed by meeting the onsite requirement. [3] Elk Grove fees are not based on tenure. Fees are differentiated based on single family (1-2 units) or multifamily (3+ units). [4] Woodland in-lieu fees are calculated for individual projects. The fee of $20 psf is an EPS estimate for the affordability gap for a 1,000 sq. ft. apartment. [2] Sacramento fees are not based on tenure. Fees are levied by density. Single unit and duplex developments of more than 20 units per acre and multi-unit development of more than 40 units per acre are exempt from the fee.
Total
Inclusionary
Requirement
Rental Minimum Inclusionary Requirement
*Santa Rosa, Sacramento, and Woodland have lower requirements for developments in designated areas. Santa Rosa development located downtown may provide 4% of units affordable to low income households or 3% of units affordable to very low income households. Downtown Santa Rosa in-lieu fees are discounted to $2 and $3 per sq. ft. depending on unit size. The Sacramento Housing Incentive zone pays a discounted fee of $1.53 per sq.ft. For developments in Woodland in areas designated in the City's General Plan as Down-town Mixed Use, Corridor Mixed Use, and Neighborhood Commercial the inclusionary requirement is waived for projects of 30 units or less.
Projects of 31 to 80 units must provide 5% of units affordable to low income households and projects of 81 units or more must provide 10% of units affordable to low income households.
Date of
Establishment
Rental Residential In-Lieu Fee or Impact Fee
Economic & Planning Systems, Inc.
30 Table B- 3 For- Sale Housing: Inclusionary Requirement and Fee Comparison
Very Low
Income
Low
Income
Moderate
Income Per Sq.Ft. Per Unit
Fairfield $629,500
Peer Jurisdictions
Solano County
Benicia [1] $695,667 2000 10
10% (15% for
projects of 100
units or more)
N/A 5% 5% N/A N/A N/A
Sonoma County
Santa Rosa* $707,388 2016 7 10% N/A N/A 10% $5/sq. ft. (0-909 sq. ft.) $10/sq. ft. (910+ sq. ft.) N/A CP I - U
Sacramento County
City of Sacramento*[2] $482,500 2015 2 N/A N/A N/A N/A $3.54 N/A CCI Elk Grove [3] $642,762 2004 1 N/A N/A N/A N/A N/ A $6,289 CCI Yolo County
Woodland*[4] $531,167 1995 20 10% N/A 10% N/A Calculated per Project[4] Calculated per Project[4] N/A $20.00 $40,000
Low Requirement/Fee 1 10% N/A 5% 5% $3.54 $6,289
High Requirement/Fee 20 10% N/A 10% 10% $20.00 $40,000
[1] Benicia allows for the potential to negotiate a fee based on development economic feasibility issues posed by meeting the onsite requirement. [3] Elk Grove fees are not based on tenure. Fees are differentiated based on single family (1-2 units) or multifamily (3+ units). [4] Woodland in-lieu fees are calculated for individual projects. The fee of $20 psf is an EPS estimate for the affordability gap for a 2,000 sq. ft. unit. [2] Sacramento fees are not based on tenure. Fees are levied by density. Single unit and duplex developments of more than 20 units per acre and multi-unit development of more than 40 units per acre are exempt from the fee.
Total
Inclusionary
Requirement
Ownership Minimum Inclusionary
Requirement Ownership Residential In-Lieu Fee or Impact Fee *Santa Rosa, Sacramento, and Woodland have lower requirements for developments in designated areas. Santa Rosa development located downtown must provide 5% of units affordable to moderate income households. Downtown Santa Rosa in-lieu fees are discounted to $2 and $3 per sq. ft. depending on unit size. The Sacramento Housing Incentive zone pays a discounted fee of $1.53 per sq.ft. For developments in Woodland in areas designated in the City's General Plan as Down-town Mixed Use, Corridor Mixed Use, and Neighborhood Commercial the inclusionary requirement is waived for projects of 30 units or less. Projects of 31 to 80 units must provide 5% of units affordable to low income households and projects of 81 units or more must provide 10% of units affordable to low income households.
Nature of annual
increases
Date of
EstablishmentJurisdiction
Median Single-
family Sold
Price (Q4-23)
Minimum Unit
Applicability
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
31 While many cities rely on inclusionary ordinances to produce affordable units, it is not the only means of supporting affordable housing goals and also introduces some additional duties for staff. One administrative difficulty that staff noted in conversation was the work it takes to match eligible households with below market-rate units.
Fees and Alternative Means of Compliance
In-lieu fees are often used as an alternative means of compliance for developers instead of providing units onsite. Of the three case study cities with inclusionary programs, Santa Rosa and Woodland allow developers to pay in-lieu fees. As shown in Tables B- 2 and B- 3, Santa Rosa charges uniform fees across rental and ownership developments depending on unit size. Woodland on the other hand, does not have a standard in-lieu fee formula. Rather, city staff negotiates fee levels on a project-by-project basis. In some cases, developers have met the requirement through a combination of onsite and in-lieu fee payment or land dedication.
Benicia on the other hand has taken fees out of the allowed compliance alternatives. In 2023 Benicia City Council directed city staff to remove the in-lieu fee option to prioritize onsite unit production. As alternative means of compliance Benicia allows acquisition and rehabilitation of existing affordable housing or conversion of market rate to affordable housing. City staff indicated that, with 10- unit threshold, there have not been many projects in the City that were subject to the inclusionary requirements.
Unlike the other case study cities, due to the timing of their fee adoption (prior to the passage of AB 1505), Sacramento and Elk Grove only require developments to pay impact fees and do not have onsite requirements. The Elk Grove fee charged for rental development shown in Table B- 2 is about 60% of the fee charged to for-sale development, shown in Table B- 3. Sacramento charges the same per square foot fee for rental and for-sale development. For a rental unit of 1,000 square feet, the Sacramento fee of $3.54 per square-foot would be comparable to Elk Grove’s rental fee of $3,773 per unit.
In Sacramento, developments that provide 10 percent or more below market rate units at any level are exempt from the fee. Elk Grove fees are not based on unit tenure; the fee schedule differentiates between single family (one- and two-unit structures) and multifamily (greater than two-units). Whereas the cities that require onsite development have high applicability thresholds, Elk Grove and Sacramento apply the impact fees to almost all development. Sacramento only exempts owner-builder single units and the highest density projects (20 units per acre or more for single units and duplexes and 40 du/acre or more for multifamily projects). A significant amount of higher-density multifamily has been exempted from the housing impact fee due to density.
Draft Report Inclusionary Housing and In-Lieu Fee Feasibility Analysis Report
32 Funding generated either by the in-lieu fees or impact fees are used for gap financing of affordable housing projects. According to Sacramento’s Historical Performance Report, Sacramento collected $6.6M from 2015 through the end of 2021 in impact fees.7 An additional $9.8 million would have been collected if the fee had applied to highest density projects. However, the reason for these exemptions is to improve feasibility, therefore it is important to note that if these developments had owed the fee, it is unclear whether they would have been completed.
Designated Incentive Zones
Several of the cities have variations on the inclusionary requirements in targeted areas to improve development feasibility. Santa Rosa, Sacramento, and Woodland have lower requirements for developments in designated areas. For both rental and ownership developments, Santa Rosa allows projects located downtown to meet the inclusionary requirement with half of the onsite percentage that is required in the rest of the city. Downtown Santa Rosa in-lieu fees are similarly discounted. The Sacramento Housing Incentive zone pays a discounted fee of $1.53 per sq.ft compared to $3.54 in the rest of the city. The Housing Incentive Zone was decided based on a feasibility analysis that showed development to have the smallest margins in this part of the city. For developments in Woodland in areas designated in the City's General Plan as Downtown Mixed Use, Corridor Mixed Use, and Neighborhood Commercial, the inclusionary requirement is waived for projects of 30 units or less.