Los Altos Hills City Council
April 16, 2026

ITEM 6A, Attachment 1
Resolution XX-26 Page 7
Treat all persons in a courteous, dignified, and professional manner. i) Confront Ideas and Issues – but not People.
ii) A Personal attack, in any form, by an appointee to any other person(s) is unacceptable behavior.

Use Town bestowed titles or positions only when conducting Town business, for information purposes or to qualify their background and expertise and not for personal gain or to promote ideas that their committee have not approved.

Reject any form of gifts or compensation from any entity or person for their service except when authorized by the Town Council.

Respect and follow established channels of communication with Town staff.

Use Town equipment, supplies, personnel, or facilities for approved Town activities only.
i) Care should be exercised when requesting Town staff services.

Satisfy all participation requirements that the Town or the body may impose upon its members.
i) Respect others by being on time and properly prepared to conduct the body's business.

Section 6. Special Powers and Duties. Each Standing Committee shall be empowered and obligated as follows:
a) Emergency Preparedness and Response Committee
i) The membership of this Committee shall consist of a minimum of five (5) members and a maximum of nine (9) members. The EPRC may include Town residents and residents from the
unincorporated area within the Los Altos Hills County Fire District (LAHCFD) boundary adjacent to the Town municipal boundary.
ii) The charges to and duties of this Committee shall be:

Advise the Town on its emergency mitigation, preparedness, response, and recovery programs, goals, policies, plans, protocols, and priorities related to emergencies, and make recommendations to Staff and City Council.

Provide guidance and support to the emergency volunteer programs and community outreach programs on their operations, planning, protocols, and procedures.
b) Environmental Design and Protection Committee.
i) The membership of this committee shall consist of a minimum of five (5) members and a maximum of eight (8) members including, whenever feasible, professionals in the fields of landscape design and construction, environmental science, and pollution control. ii) The charges to and duties of this Committee shall be:

ITEM 6A, Attachment 1
Resolution XX-26 Page 8
To work for the beautification of the Town and the protection of its resources.

To assist staff in implementation of the Town landscape policy through recommendations at subdivision, site development, Planning Commission and City Council meetings, and through review and inspection of required plantings.

To study and make recommendations relating to landscaping and protection of public property, such as park lands, and treatment of riparian habitat and open space within the Town.

To identify nuisance problems and sources of pollution and recommend actions for abatement; and
To prepare educational materials for residents outlining Town, ordinances and enforcement with regard to landscape design and protection of the environment.

When requested to make recommendations to staff on proposed new development including new homes, remodels, secondary dwellings, and auxiliary structures as to impact on site specific and the surrounding neighboring sites reviewed by the Site Development Plans and Field visits. Such impacts would include topography, vegetation, drainage, lighting, skylights, riparian habitat, and conservation easements.

To attend all Fast Track/Site Development meetings to support committee and staff recommendations.
c) Finance and Investment Committee.
i) The membership of this Committee shall consist of a minimum of five (5) members and a maximum of nine (9) members. The Mayor and Vice­ Mayor shall serve as non-voting Council liaisons. Members shall meet at least one of the following qualifications: {1} five years accounting and financial experience in a public corporation, municipal government or privately held business; {2} financial officer of a public corporation with five years' experience; {3} investment officer of a F.D.I.C. member institution with five years' experience; {4} money manager who specializes in corporate or government agency issues with a minimum of five years' experience; or {5} five years' experience in investment banking, venture capital and/or general
management.
ii) The charges to and duties of this Committee shall be:

To serve as an advisory body to the City Council on
financial and investment matters and operations related thereto.

To review five-year capital budgets and revenue projections and make recommendations to the City Council.

ITEM 6A, Attachment 1
Resolution XX-26 Page 9
To review the annual budget and make recommendations to the City Council.

To review the annual audit and make recommendations to the City Council.

To advise the Council on change and selection of auditors.

To study all fiscal issues and recommend possible improvements and economies.

To develop and recommend an investment Policy that protects to monitor investment performance and recommend changes as appropriate. All such recommendations shall be approved by the City Council. The City Manager shall execute any approved investment decisions.

To monitor pension and OPEB obligations and recommend
appropriate mitigation and reserve policies.
d) Parks, Recreation and Community Events Committee.
i) Membership of this Committee shall consist of a minimum of five (5) members and a maximum of ten (10) members, appointed, whenever feasible, from different geographical areas of the Town. ii) The charges to and duties of this Committee shall be:
to serve as an advisory body to the Town Council on matters related to recreational programs, community engagement, and events.
to encourage communication and participation between residents and the Town government, welcome new residents with
informational packets, and events, share updates through "Our Town" and info tables, organize events like the Town Picnic and other activities, support other committees with projects, and recruit volunteers to keep the community connected and engaged. to develop and recommend year-round recreational programs and activities to serve residents of all ages.
to study all recreational facilities within the Town and make recommendations regarding their status and potential
improvements, ensuring alignment with the General Plan. e) Pathways CommitteeU.
i) The membership of this Committee shall consist of a minimum of five {5} members and a maximum of nine {9} members.
ii) The charges to and duties of this Committee shall be:
to work for the preservation and enhancement of the pathways within the Town for the use and enjoyment of all residents;

ITEM 6A, Attachment 1
Resolution XX-26 Page 10
to review and recommend changes to the Master Path Plan and the Bicycle Plan of the Town;
to make recommendations at subdivision, site development, Planning Commission and City Council meetings regarding pathway easements;
to meet regularly with the City Manager or the Manager’s designee to render advice on pathway activities, priorities, and necessary maintenance;
to communicate to residents the concepts and locations of paths and trails within the Town as approved by the City Council; to study and recommend ordinances and resolutions relating to acquisition, construction, maintenance and use of public trails and pathways;
to communicate Town policies and procedures regarding pathways if advised to do so by the City Council; and
to make recommendations to the City Council regarding both the maintenance and capital improvements budgets with regard to pathways.
f) Open Space CommitteeU.
i) The membership of this Committee shall consist of a minimum of five {5} members and a maximum of nine {9} members.
ii) The charges to and duties of this Committee shall be:
to advise and assist the City Council, Planning Commission, and staff in implementing the policies and goals of the General Plan, specifically with respect to acquisition and maintenance, and protection of voluntary conservation, open space easements and open space;
to make recommendations at subdivision, site development, Planning Commission and City Council meetings regarding the acquisition, maintenance and protection of conservation easements, open space easements and open space;
to advise and assist the work for the preservation, restoration and enhancement of the environment and natural resources within the Town;
to study and recommend ordinances and resolutions relating to acquisition, restoration, maintenance and use of conservation easements, open space easements and open space within the Town;
to communicate Town policies and procedures regarding
conservation easements, open space easements, and open space following standard Town communication policies;
to provide educational material and informational forums and programs to the public regarding natural resources (e.g., wildlife,

ITEM 6A, Attachment 1
Resolution XX-26 Page 11
creeks, native plants, and wildlife habitat) following standard Town communication policies; and
to develop relationships with other Town committees, neighboring municipalities, and regional entities to collaborate on environmental issues following standard Town communication policies.
g) Environmental Initiatives Committee
i) The membership of this Committee shall consist of a minimum of five {5} members and a maximum of eleven {11} members.
ii) The charges to and duties of this Committee shall be:
to assist the Town in the development of and refinement of the Council’s Environmental Strategic Goals for Town-owned
property;
to recommend a set of initiatives that would lead to the progress and achievement of these goals; and
to review other environmental initiatives to be proposed to the City Council, subject to the appropriate hearings, that would affect other aspects of Town policy including residential development and Town infrastructure.
h) History Committee
i) The membership of this Committee shall consist of a minimum of five {5} members and a maximum of nine {9} members. The mission of the Historical Committee shall be the preservation of the Los Altos Hills heritage.
ii) The charges to and duties of this Committee shall be:
to implement policies that preserve the historic and cultural fabric of the Town;
to protect the historic and cultural resources from inappropriate destruction;
to preserve community input into the policy-making process; to research and document best practices and model preservation policies;
to organize and make available to the public the historic artifacts that have been preserved and to continue to collect historic artifacts for future generations.
iii) Nothing in the aforementioned charges and duties shall be interpreted as authorizing the mandatory historic preservation of private residences or require property owners to submit their pending site development plans before the Committee.
i) Public Art Committee
i) The membership of this Committee shall consist of a minimum of five {5} and a maximum of nine {9} members appointed
whenever feasible from different geographical areas of the Town.

ITEM 6A, Attachment 1
Resolution XX-26 Page 12
ii) The charges to and duties of this Committee shall be (in order):

Work with art consultants and/or others to find or create appropriate art for display.

Propose appropriate sites for the recommended art.

Identify any funds that may be required to acquire recommended works of art.

Then present applications for new art work(s), including siting recommendations, to the Council for approval. If approved, the Town shall, with the Committee’s support, acquire the proposed art work(s).

Work with the artist or consultant, Town and donor regarding installation, security, and lighting.

Be available for problem solving of maintenance and other issues.

Maintain a public resource for all installed and displayed works of art (including artist statements, description of the art, donor information, etc.).

Note: The Town is the only entity that can accept a donation of funds or any other item(s). The Public Art Committee cannot accept donations intended for Town usage (See Section 6(b)). iii) The committee shall meet as necessary when called by the Chairperson.
j) Technology Committee
i) The membership of this Committee shall consist of a minimum of five {5} members and a maximum of nine (9) members.
ii) The charges to and duties of this Committee shall be:

Advise the Council and staff on policies, initiatives, and practices related to innovation and technology that could enhance services to the public and increase efficiencies
Assist staff in evaluating emerging trends and technologies, and make recommendations for implementing new systems and
improving existing services
Provide policy guidance on the implementation of "Smart City" policies focusing on areas such as cyber security, promoting digital inclusion, improving mobility, enhancing public safety, and developing communication tools
Assist with following legislative developments, funding opportunities, and evaluating agreements and proposals
k.) Housing Element Implementation Committee
i) The membership of this Committee shall consist of a minimum of five {5} and a maximum of nine {9} members appointed whenever feasible from different geographical areas of the Town.

ITEM 6A, Attachment 1
Resolution XX-26 Page 13
ii) The charges to and duties of this Committee shall include advising on the implementation of the housing element, which shall include the following:

Assess current Housing Element Programs and Policies that are required to be implemented in the current housing element cycle; Assess the Town’s existing housing policies and programs, identifying refinements and strategies to inform for the next planning cycle (2031); Participate in the subregional RHNA process (if a subregional committee is formed in Santa Clara County) to coordinate regional housing planning efforts;
Develop housing sites and policy options consistent with State requirements and Council established goals and objectives to accommodate the Town’s anticipated RHNA housing units that will be required in 2031;
Review housing sites, development standards, and zoning-related matters;
Explore options to minimize the impacts of additional housing units on the Town’s character, safety concerns, and traffic;
Provide input on Objective Design Standards (which are defined as specific, measurable, and verifiable criteria used by local agencies to regulate the design and development of housing, such as building heights, setbacks, or materials);
Facilitate community discussion, encouraging residents to attend meetings and share ideas;
Provide recommendations to the Planning Commission on a semi-annual basis.

Section 7. Procedures.
a) Committees are cautioned to limit expenditures from the personal funds of the members without prior approval by the Town.
b) Committees may not enter into contracts or agreements on behalf of the Town.
c) Any correspondence involving the use of Town letterhead must first be approved by the City Council before distribution. Any outside correspondence (excluding intra-town memos) should be submitted in draft to the City Clerk.
d) All press releases and announcements relating to the Town or Townsponsored events are to be pre-approved by the City Council. Sufficient

ITEM 6A, Attachment 1
Resolution XX-26 Page 14
time should be allowed to obtain necessary approvals or make necessary changes.
e) Itemized budgets must be submitted in advance for projects involving a group or series of purchases.
f) Vendors for purchases shall be those which are identified and approved by the Town.
g) Funds which are budgeted for a specific use must still be approved prior to expenditure.
h) Written bids may be submitted for consideration by the Town. In this case, three or more bids are required.
i) Any new programs, projects, or expenditures beyond what has previously been approved by the City Council shall first be submitted to vote by the Standing Committee. The recommendation and supporting minutes shall then be forwarded to the City Council for consideration prior to any obligations being made.
j) Priorities and deadlines are set by the City Council and can be changed only by the City Council.

Section 8. Communications. All standing committees of the City Council are subject to the following principles and guidelines, unless specifically given other guidance by vote of the Council:
a) Committees do not have the authority to speak for the Town. Neither Committees as a whole, nor an individual committee member shall act or speak for the Town unless authorized to do so by the City Council.

Committees should not seek to negotiate or conclude agreements with other organizations. Only the Council or Town Staff may do so. b) When speaking with the press or other organizations, committee members should refrain from communication that would lead the recipient of such communications to understand or reasonably believe that they are speaking on behalf of the Town.

Section 9. Repeals. This Resolution hereby repeals and supersedes all previous resolutions regarding standing committees, including, without limitation, Resolution No. 05-

25. The above and foregoing Resolution was passed and adopted by the City Council of the Town of Los Altos Hills at a regular meeting held on the 16th day of April 2026, by the following vote:

AYES:

NOES:

ITEM 6A, Attachment 1
Resolution XX-26 Page 15
ABSTAIN:

ABSENT:

BY:

ATTEST: Rajiv Bhateja, Mayor
Arika Birdsong-Miller, City Clerk

ITEM 6B
THE TOWN OF LOS ALTOS HILLS April 16, 2026
Staff Report to the City Council
SUBJECT: CONSIDERATION AND DIRECTION ON A DRAFT INITIATIVE MEASURE REGARDING THE “GREEN SHEETS” LAND USE PRINCIPLES
FROM: Steve Mattas, City Attorney
RECOMMENDATION:

That the City Council consider a draft Initiative Measure to amend various elements of the General Plan to incorporate certain land use principles commonly referred to as the “Green Sheets of the Town of Los Altos Hills” and provide directions as to next steps.

BACKGROUND
At its March 19, 2026 meeting, the City Council asked the City Attorney’s Office to work with an ad hoc committee, comprised of Councilmembers Tankha and Swan, to review and prepare an initiative measure which would incorporate provisions of the Green Sheets into the General Plan with voter approval. Our office met with the committee to identify portions of the Green Sheets that the committee would like to have incorporated into the General Plan. With that information, we have prepared a draft Initiative Measure (the “Initiative”) that has been presented to the ad hoc committee and is now being presented to the Council. The item on tonight’s agenda is for the City Council to review the draft initiative and provide direction for next steps.

DISCUSSION
The draft Initiative covers amendments to the Noise Element, Land Use Element, Pathways Element, and Open Space and Recreation Element in the General Plan to do the following: (1) strengthening existing policies under these General Plan elements pertaining to compliance with Town noise standards; allowance of various animals keeping; and preservation of open space and conservation areas and easements, and (2) add new policies to prohibit the introduction of new industrial, large-scale commercial, and retail uses and the vacation of pathway/open space/conservation easements without comparable replacements. The amendments clarify that the foregoing changes and new policies cannot be changed or rescinded without voter approval. The draft Initiative also includes a conforming zoning amendment to the Open Space Reserve (OSR) zoning district to clarify the allowance of open space/conservation/pathway and wildlife preservation uses.

As mentioned above, the ad hoc committee has reviewed the draft Initiative. The City Council can decide whether the Initiative should be further reviewed by other Town committees and solicit additional public comments before returning to the Council for further action. The Council may also decide that the draft Initiative should return to the Council at a future meeting for consideration to place the measure on the ballot.

City Council Staff Report
Green Sheet Land Use Principles Page 2
April 16, 2026
In order to meet the deadline for placing a council-sponsored initiative measure on the November 2026 ballot, the Initiative must return to the Council for approval action by August 6, 2026. As the Council does not meet during the month of July, we recommend that the Initiative return to the City Council in June so there is sufficient time to accommodate potential changes and finalize the Initiative.

ENVIRONMENTAL REVIEW
This agenda item before the City Council is not subject to environmental review under CEQA as it is for informational purposes and providing direction as to next steps only. The Council is not asked to decide to place the initiative measure on the ballot at this meeting, and thus this item does not propose any projects or render any decision. Thus, there is no possibility that this agenda item as proposed would have a significant effect on the environment pursuant to CEQA Guidelines Section 15061(b)(3).

ATTACHMENTS
Attachment 1- Draft Green Sheets Initiative Measure

Initiative to Amend Various Elements of the General Plan to Incorporate Certain Land Use Principles to Preserve the Rural Atmosphere of the Foothills and the Community, Commonly Referred to as the “Green Sheets of the Town of Los Altos Hills” Consisting of:

Strengthen the Quiet and Peaceful Environment Los Altos Hills; Allow Various Animals; Prohibit Industrial, Retail, and Commercial Designations; Preserve Large Lot Sizes in Open Space Areas; Prevent Vacation of Pathways; and Preserve Open Space.

The City Council of the Town of Los Altos Hills hereby ordain as follows:

Section 1: Purpose
A. The Town of Los Altos Hills (“Town”) was incorporated in 1956 based on local residents’ desire to preserve the rural atmosphere of the foothills and other related community interests. The reasons for incorporation were compiled in a set of documents commonly referred to as the “Green Sheets”, as they were originally printed on light green paper.

Among other information, the Green Sheets set forth the arguments in favor of incorporation and the blueprint of the type of community that supporters sought to achieve.

B. The Green Sheets describe certain characteristics for the Town as desired by the incorporation advocates, which are summarized as follows:
1) A wide and not over-populated community of homes in the country, with only planning, controls, ordinances and services that are absolutely essential. 2) Sun, air, and quiet of a community; relaxed pace of country life and rural pursuits; and the space and right to keep animals.
3) No high speed roads, increased traffic, additional quarrying, trucks and resorts. 4) No additional industry and commerce.

C. California law permits municipalities to adopt or amend their general plans and/or zoning ordinances through the initiative process. An initiative measure proposing such an amendment may be placed on the ballot by formal action of the Council on its own volition.

D. To effectuate these purposes to memorialize provisions of the Green Sheets into the General Plan that have not previously been explicitly incorporated would require amendment to the Noise Element, Land Use Element, Pathways Element, and Open Space and Recreation Element. This Initiative may only be amended or repealed by the voters of the Town of Los Altos Hills.

Section 2 General Plan Amendments
This Section of the Initiative enacts amendments to the Town of Los Altos Hills General Plan.

A. Amendments to the General Plan Noise Element Text.

ITEM 6B, Attachment 1

Amend Policy 1.1 of Goal 1 on Page 8 of the General Plan Noise Element, attached hereto as Exhibit A, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Noise levels shall be compatible with the Town’s semi-rural atmosphere and consistent with Town standards. The Town shall not adopt policies or regulations that introduce noise from commercial, industrial, or other retail uses to Los Altos Hills. Occasional outdoor concerts, weddings, backyard parties, or community events occurring on Town-owned properties, are permissible so long as they comply with the Town’s noise standards. This policy shall not be changed or rescinded without voter approval.

B. Amendments to the General Plan Land Use Element Text.

Amend subsection (a) of Policy 1.2 of Goal 1 on Page LU-4 of the General Plan Land Use Element, attached hereto as Exhibit B, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Those uses normally accessory to dwellings in a semi-rural area: vineyards and orchards, the keeping of horses and other domestic animals (including but not limited to rabbits, birds, fowl, dogs, cats, sheep, cattle, pigs, goats, equines, llamas, alpacas, and the like), and other agricultural pursuits that are compatible with residential uses. This subsection (a) of Policy 1.2 shall not be changed or rescinded without approval of the voters; Add Policy 1.4 on Page LU-4 of the General Plan Land Use Element, attached hereto as Exhibit B, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

The Town shall not allow new industrial, large-scale commercial, or retail land uses as a part of its zoning code. Home-based small-scale businesses such as catering and internet businesses are not considered industrial, large-scale commercial, or retail uses for the purpose of this provision. This provision does not and is not intended to prohibit, alter or modify the status of any existing commercial development within the Town prior to the passage of this measure. This policy shall not be changed or rescinded without voter approval.

C. Additions to the General Plan Pathways Element.

Add Policy 4.23 to Goal 4 on Page P-10 of the General Plan Pathways Element, attached hereto as Exhibit C, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

The City Council and any commissions with the authority to do so are prohibited from vacating any pathway easement that has already been dedicated to the Town either built or unbuilt unless there is a comparable replacement for the vacated pathway easement on or adjacent to the impacted property. This policy shall not be changed or rescinded without voter approval.

D. Amendment to the Open Space and Recreation Element.

Amend Policy 1.3 to Goal 1 Page 9 of the General Plan Open Space and Recreation Element, attached hereto as Exhibit D, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Provide open space for outdoor recreational needs and for the preservation of sites of historical and cultural significance. This policy shall not be changed or rescinded without voter approval.

Amend Policy 1.6 to Goal 1 Page 9 of the General Plan Open Space and Recreation Element, attached hereto as Exhibit D, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Preserve open space where necessary for the protection of public health and safety. This policy shall not be changed or rescinded without voter approval.

Amend Policy 1.7 to Goal 1 Page 9 of the General Plan Open Space and Recreation Element, attached hereto as Exhibit D, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

To the extent possible, link open spaces together visually and physically to form a system of open spaces and to promote wildlife corridors. This policy shall not be changed or rescinded without voter approval.

Amend Policy 1.11 to Goal 1 Page 9 of the General Plan Open Space and Recreation Element, attached hereto as Exhibit D, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Encourage the use of Murietta Ridge Preserve as a conservation area, rather than a recreation area, in order to protect the existing vegetation and wildlife habitat. This policy shall not be changed or rescinded without voter approval.

Amend Policy 1.12 to Goal 1 Page 10 of the General Plan Open Space and Recreation Element, attached hereto as Exhibit D, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Ensure that open space lands achieve the following objectives:
• Preserve visually and environmentally significant open space resources; and • Create linked open space corridors wherever feasible so that wildlife can pass freely within the Town; and
• Provide for recreation activities compatible with the enjoyment and preservation of each site’s natural resources, with pathway linkages to adjacent and nearby parks and open space preserves.

This policy shall not be changed or rescinded without voter approval.

Add Policy 1.13 to Goal 1 Page 10 of the General Plan Open Space and Recreation Element, attached hereto as Exhibit D, as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

Preserve wildlife corridors. Require voter approval to vacate or modify existing open space or conservation easements that have been dedicated to the Town, unless there is a comparable grant of a replacement easement of the same kind at or adjacent to the servient property covered by the original easement.

Section 3. Conforming Zoning Amendments
Amend Section 10-1.801 Primary Uses Permitted (OSR) (in the Open Space Reserve zoning district) of the Los Altos Hills Municipal Code as set forth below. Text to be inserted is shown in red underline and text to be deleted is presented in strikethrough type:

The following primary uses shall be permitted in the Open Space Reserve District:
(a) Agricultural uses, including horticulture and grazing, except those uses identified as prohibited under Section 10-1.804;
(b) Forest preserves; and
(c) Open space and conservation easements, pathways, and land uses that preserve contiguous pathways for wildlife, also known as wildlife corridors; and (d) Other open space uses.

Section 4: Implementation
A. Effective Date. Upon the effective date of this Initiative, the Town of Los Altos Hills General Plan and Zoning Code are amended as shown in Sections 2 or 3 of this Initiative, except that if the four amendments of the General Plan permitted in a calendar year as prescribed under California Government Code section 65358 have been utilized prior to the effective date of this measure, this General Plan amendment shall be the first amendment added to the General Plan on January 1 of the following year. At such time as the General Plan amendments enacted by this Initiative are inserted into the General Plan, any provision of the Town's Zoning Code inconsistent with this Initiative shall not be enforced.

B. Amendments Internal Consistency. The Town of Los Altos Hills General Plan, as amended by this initiative, comprise an integrated, internally consistent and compatible statement of policies for the Town.

C. Other Town General Plan Provisions, Ordinances, and Policies. The Town is hereby authorized and directed to amend other provisions of the General Plan, Zoning Code, and

other ordinances and policies affected by this Initiative as soon as possible and in the manner and time required by State Law to ensure consistency between Sections 2 or 3 of this Initiative and other provisions of the Town's General Plan, the Town Zoning Code, and other Town ordinances and policies.

Section 5: Severability and Interpretation
This Initiative shall be interpreted so as to be consistent with all federal and state laws, rules, and regulations. If any section, sub-section, sentence, clause, phrase, part, or portion of this Initiative is held to be invalid or unconstitutional by a final judgment of a court of competent jurisdiction, such decision(s) shall not affect the validity of the remaining portions of this Initiative. The voters hereby declare that this Initiative, and each section, sub-section, sentence, clause, phrase, part, or portion thereof would have been adopted or passed even if one or more sections, sub-sections, sentences, clauses, phrases, parts, or portions are declared invalid or unconstitutional. If any provision of this Initiative is held invalid as applied to any person or circumstance, such invalidity shall not affect any application of this Initiative that can be given effect without the invalid application. This Initiative shall be broadly construed to achieve the purposes stated in this Initiative.

Section 6: Amendment or Repeal
Except as otherwise provided herein, this Initiative may be amended or repealed only by the voters of the Town of Los Altos Hills.

TOWN OF LOS ALTOS HILLS April 16, 2026
Staff Report to the City Council
SUBJECT: DISCUSSION OF NOTIFICATION METHODS AND

OUTREACH TO RESIDENTS REGARDING TOWN PROJECTS

AND MEETINGS
FROM: Arika Birdsong-Miller, City Clerk ABM
APPROVED: Cody Einfalt, Acting City Manager CE
RECOMMENDATION: That the City Council:

Have a discussion on the quality (amount of information) and quantity (methods of communication) of Town notifications for projects and meetings and provide staff direction on how to proceed for future work.

BACKGROUND:

At the March 19, 2026 meeting, the City Council directed staff to review and provide recommendations on improving notification procedures for upcoming development projects and other Town-related matters. The Council expressed interest in both improving the quality of messaging to the public and quantity of messaging, specifically mentioning expanding the current 500-foot notification radius to ensure broader outreach to Town residents.

Under California law, public hearing notices for development projects require notification within a minimum 300-foot radius (Government Code § 65091(4)). Local governments have the authority to expand this radius. Due to the Town’s large lot sizes, the Town of Los Altos Hills has historically implemented a 500-foot notification radius for development project notifications.

Currently, the Town notifies residents of development projects through letters to properties within the required notification radius using the services of the United States Postal Service (USPS). Notices are mailed a minimum of ___ days prior to the scheduled public hearing.

In addition to project-specific letter noticing, the Town utilizes several communication tools to inform residents of Town-related matters:
• Townwide postcards or mailers for major initiatives or events (e.g., Housing Element meetings, Town Picnic, implementation of ALPR system)
• Nixle and AlertSCC notification system for emergency alerts, advisories, and community information
ITEM 7A

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
2 • The Town’s website, which allows residents to sign up for electronic notifications for posting of regular and special meetings, agendas, minutes, and media recordings • Constant Contact for Parks and Recreation programming and related communications • The City Manager Weekly Newsletter
• Quarterly & biannual publications --- “Our Town” & the Activity Guide • Social media postings (Facebook, NextDoor, LinkedIn, Twitter, Vimeo, and Instagram)
• Opt-in E-mail groups for high-interest topics in Town DISCUSSION:

Quality Discussion
One area of improvement that Staff can make to the noticing is in the clarity level of what is being considered at a public meeting. The Town Planning Staff identified three notices that were sent out to the Town, and have provided suggested improvements to the verbiage.

Example 1 – Original Town Email

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
3 Example 1 – Suggested Improved Messaging

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
4 Example 2 - Original Town Email

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
5 Example 2 – Suggested Improved Messaging

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
6 Example 3 - Original Town Email

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
7 Example 3 – Suggested Improved Messaging

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
8 Quantity Discussion
The City Council’s direction provides an opportunity to evaluate both the geographic scope of noticing and the methods used to communicate with residents.

Notification Radius
Expanding the notification radius beyond the current 500 feet would increase the number of residents notified of development projects and may improve overall awareness, particularly given the Town’s large parcel sizes and rural character. • A 1,000-foot radius would significantly expand outreach while still maintaining a connection to nearby properties that may be more directly affected. • A 1,500-foot radius would provide even broader notification, potentially reaching a wider segment of the community, though it may include properties with less direct impact.

Expanding the radius would also increase:
• Mailing and administrative costs
• Staff time required for noticing
• The number of residents receiving information about projects Notification Methods
In addition to radius expansion, the Town may consider enhancing communication through a combination of existing and new methods.

The Town currently utilizes:
• Mailed notices for development projects
• Nixle, which can distribute Alerts, Advisories, Community Information, and Traffic notifications
• Website subscriptions for electronic updates
• Constant Contact for specific program-related communications The Town implemented the Nixle notification system in 2019 and conducted a townwide outreach effort to encourage resident enrollment. While many residents registered, participation remains voluntary and not all residents are currently subscribed. The Town pays an annual subscription fee of $17,000 for this service. The Town could great specific opt-in groups within the Nixle notification system to send out messaging on Council approved public meeting topics.

While these tools provide multiple channels of communication, limitations exist. Nixle participation is voluntary, and not all residents are enrolled. Similarly, email-based systems rely on residents opting in.

Staff Report to City Council
Notification Methods and Outreach
April 16, 2026
9 One potential enhancement is the use of Townwide postcards or letters for significant Town matters. Other agencies have found that consistent, municipal-branded templates improve recognition and help residents quickly identify official communications. • A one-time design cost for a standardized postcard template is estimated at approximately $1,000
• Bulk mailing to all residents is estimated at approximately $3,000 per distribution If the Council wishes to pursue this option, it would be beneficial to establish clear criteria for when a townwide mailing is appropriate. Potential examples include:
• Major development or policy changes (e.g., General Plan updates, zoning code amendments, wireless communication facilities, significant development proposals) • Disaster preparedness and public safety information (e.g., evacuation routes, wildfire readiness)
• Infrastructure or roadway projects that may impact traffic or access Establishing clear guidelines would help ensure consistency, manage costs, and align expectations for both staff and the community.

ENVIRONMENTAL REVIEW:

This proposal does not qualify as a “Project” as defined in California Government Code Section 15378(b) of the Guidelines for California Environmental Quality Act. 2026-27 CITY COUNCIL STRATEGIC PRIORITIES:

Improving public notifications was not specifically identified as a City Council Goal, but would fall under the day-to-day operations of Town Staff.

FISCAL IMPACT:

There is no direct fiscal impact to improving the quality of messaging to residents. This can be done with little impact to staff bandwidth.

Depending in the direction from the City Council, there may be fiscal impacts to improving the method of notifications in Town (i.e. larger notification boundaries for projects, additional postcards for Town-wide projects, etc.).

In Short –
• Doubling the notification boundary to 1,000ft for development projects would being cost from ~$140  $300 per project
• Town-wide postcards cost ~$3,500 for bulk rate mail

TOWN OF LOS ALTOS HILLS April 16, 2026
Staff Report to the City Council
SUBJECT: FIRE HAZARD SEVERITY ZONE (FHSZ) DESIGNATIONS AND

ENFORCEMENT FRAMEWORK FOR MIXED FHSZ PARCELS
FROM: Jay Bradford, Community Development Director
APPROVED: Cody Einfalt, Acting City Manager
RECOMMENDATION:

Receive the staff report and provide policy direction on the implementation and enforcement approach for parcels with mixed FHSZ designations.

BACKGROUND:

In 2025, the Town of Los Altos Hills undertook coordinated efforts related to Fire Hazard Severity Zone (FHSZ) designations and town-wide Wildland-Urban Interface (WUI) standards as part of a comprehensive wildfire mitigation strategy. These efforts build upon existing Municipal Code requirements for vegetation management and defensible space, including Los Altos Hills Municipal Code Section 4-2.116 (Brush and vegetative growth – Clearance from structures and roadways).

The FHSZ map was adopted by ordinance on June 24, 2025, and became effective July 24, 2025.

At that time, the City Council directed staff to return with additional analysis regarding implementation and enforcement, particularly for parcels with multiple hazard designations.

Since that time, staff has advanced this work through multiple public forums to refine the framework and gather feedback:
• Planning Commission (March 5, 2026): Initial policy discussion and direction on enforcement considerations for mixed FHSZ parcels
• Environmental Design and Protection Committee (March 10, 2026): Discussion focused on vegetation management, environmental constraints, and implementation considerations
• Emergency Preparedness and Response Committee (April 7, 2026): Review of the full regulatory framework, including WUI standards, Municipal Code requirements, and enforcement scenarios
These meetings informed refinement of the enforcement approach and clarified the relationship between WUI standards, Municipal Code requirements, and FHSZ designations.

DISCUSSION:

1. Regulatory Framework
ITEM 7B

The Town applies a layered wildfire mitigation framework consisting of:
• Municipal Code (Title 4): Establishes vegetation management, brush clearing, and defensible space requirements, including Section 4-2.116. • WUI Standards (Town-wide): Codified in the 2025 California Building Standards Code, Part 7, Chapter 6, governing ignition-resistant construction and site design. • FHSZ Designations (Mapped): Establish hazard-based requirements for defensible space, vegetation management, and disclosure.

Together, these regulations create a comprehensive system addressing both structural and site-level wildfire risk.

2. Standards That Apply Broadly Across the Town
Two parts of the framework apply broadly and form the baseline approach to wildfire mitigation.

Los Altos Hills Title 4 provides the Town’s primary enforcement authority for defensible space and vegetation management within mapped Fire Hazard Severity Zones. These standards include:
• Baseline defensible space requirements
• Vegetation management and fuel modification requirements • Ongoing maintenance obligations
This framework is generally consistent with the geographic area previously subject to Santa Clara County Fire Department WUI inspections and reflects the Town’s transition to a defensible spacebased enforcement model. As you will see in the Images 1 and 2 below the prior WUI area and newly adopted FHSZ cover approximately the same areas.

Image 1. Previously adopted WUI area Image 2. Currently adopted FHSZs WUI standards apply town-wide to applicable new construction and qualifying alterations. These standards establish baseline structural fire protection requirements, including:

• Ignition-resistant construction
• Ember-resistant design
• Site planning considerations
Because the Town applies WUI standards town-wide, their application does not change based on FHSZ designation.

3. Role of Fire Hazard Severity Zone Designations
FHSZ maps classify wildfire hazard levels as Moderate, High, and Very High. These mapped designations do not replace Title 4 or WUI standards. Instead, they identify where additional hazard-based requirements may apply.

Since Moderate and High Fire Hazard Severity Zones are generally subject to the same broadly applied standards, the primary focus of the FHSZ framework is the Very High zone, where state law imposes additional requirements beyond those otherwise applied throughout the Town’s fire hazard areas. In Very High Fire Hazard Severity Zone, those additional requirements may include:
• Real estate disclosure requirements.
• Defensible space compliance or related documentation at the time of sale. • Additional review of infrastructure for new development, including emergency vehicle access, street signage, and fire protection water supply. • Additional subdivision and tentative map review in high fire risk areas. • Additional review of road access, circulation, and fire safe access standards for new development and subdivision activity.
• Additional review of water supply and fire protection infrastructure for certain development projects.
• Verification of vegetation management compliance before final approval of certain building permits, where applicable.
• Additional land use and policy review related to wildfire exposure, evacuation, emergency response, and essential public facilities.
• Additional CEQA and hazard review for discretionary projects, where applicable.

These requirements are layered on top of the Town’s baseline Title 4 and WUI standards and reflect the elevated wildfire risk associated with Very High hazard areas.

4. Application to Mixed FHSZ Parcels
The key implementation issue for mixed parcels is not whether WUI standards apply, because they apply town wide. The primary issue is how site-level defensible space obligations and any additional Very High hazard requirements apply to different portions of a parcel.

In practice, mixed parcel conditions generally fall into two categories:
• Parcels that contain both mapped FHSZ areas and areas outside the mapped FHSZ in WUI only areas
• Parcels that contain more than one FHSZ designation, such as Moderate, High, and Very High areas on the same property
Mixed parcels within FHSZ and WUI
WUI construction standards apply town-wide to applicable new construction and qualifying alterations, regardless of FHSZ designation
LAH Title 4 defensible space and vegetation management standards apply to the portions of the parcel located within a mapped Fire Hazard Severity Zone but only if the FHSZ has been applied to a property and if the 100’ foot defensible space standard encroaches with the FHSZ. Otherwise only the WUI standard applies.

Image 3. Mixed parcels within FHSZ and WUI with 100’ defensible space shown In Image 3 above Lot 1 is only in the WUI area and the 100’ defensible space does not touch a FHSZ so only the WUI standards apply.

Lot 2 is in the WUI area but the 100’ defensible space does touch a FHSZ, only the WUI standards apply. This is because the parcel and the defensible space have to be present with the parcel and 100’ defensible space for the LAH Title 4 defensible space and vegetation management standards apply.

For Lot 3 while the 100’ defensible space is not shown the parcel is within the moderate or high FHSZ and within WUI and within the 100’ defensible space both the LAH Title 4 defensible space and vegetation management standards apply as well as the WUI standards.

Mixed parcel within Very High FHSZ
Requirements apply only when the proposed activity triggers those requirements, such as subdivision review, discretionary land use approval, building permit final, property transfer, or similar actions.

Where a parcel contains multiple FHSZ designations, enforcement is based on the mapped hazard area present on the site, with the applicable hazard-based requirements applied where triggered by the proposed activity.

Accordingly, for mixed-designation parcels, the Town’s enforcement approach should focus on applying town-wide WUI standards uniformly, while applying defensible space and any additional hazard-based requirements based on the mapped FHSZ area affected by the project or activity.

Otherwise, things like real estate disclosures are left for the property owner to manage.

Image 4. Mixed parcel within Very High FHSZ with 100’ defensible space shown.

In Image 4 above because Lot 4 is with all three FHSZs and in WUI, both the LAH Title 4 defensible space and vegetation management standards apply as well as the WUI standards. While the Very High Severity standards are based on the applicable hazard-based requirements applied

where triggered by the proposed activity. Otherwise, things like real estate disclosures are left for the property owner to manage.

NEXT STEPS:

Based on City Council direction, staff will:
• Finalize the enforcement framework for mixed FHSZ parcels. • Incorporate policy direction into implementation guidance and public-facing materials. • Coordinate with the Los Altos Hills County Fire District and Santa Clara County Fire Department on consistent application and enforcement.

ENVIRONMENTAL REVIEW:

This item is not a project under CEQA and does not constitute a commitment to a specific action.

FISCAL IMPACT:

No fiscal impact is associated with this policy clarification.

ATTACHMENTS
None.

TOWN OF LOS ALTOS HILLS April 16, 2026
Staff Report to the City Council
SUBJECT: CONSIDERATION AND DIRECTION ON INCLUSIONARY HOUSING

ORDINANCE AND RELATED POLICY APPROACHES UNDER
HOUSING ELEMENT PROGRAMS A-6 AND E-11
FROM: Jay Bradford, Community Development Director
APPROVED: Cody Einfalt, Acting City Manager
RECOMMENDATION:

Receive a presentation from Strategic Economics and provide feedback and direction on the structure of a potential inclusionary housing ordinance, including applicability, affordability targets, compliance options, and related policy issues consistent with Housing Element Programs A-6 and E-11.

BACKGROUND:

The Town of Los Altos Hills Housing Element (2023 to 2031) establishes a policy direction to expand opportunities for affordable housing while maintaining consistency with the Town’s development patterns and regulatory framework. As part of that effort, Program A-6, Inclusionary Housing Ordinance, directs the Town to evaluate and implement a local inclusionary housing requirement supported by a feasibility analysis.

Inclusionary housing ordinances generally require certain residential developments to provide a percentage of homes affordable to lower income households. Depending on the structure of the ordinance and the type of project, compliance may occur through the construction of affordable units, payment of an in lieu fee where legally appropriate, or other alternative compliance pathways.

As established by statute and case law, inclusionary housing programs must be supported by evidence demonstrating that they reasonably advance the public welfare and do not make development infeasible or deprive a property of economically viable use. State law also provides that the California Department of Housing and Community Development may review local rental inclusionary ordinances requiring more than 15 percent of units to be affordable in jurisdictions that have not met at least 75 percent of their share of the regional housing need.

Program A-6 reflects a measured approach. It recognizes that inclusionary housing can be an effective tool to generate affordable units, but that any local requirement must be carefully calibrated, so it does not constrain housing production. The program therefore directs the Town to complete a feasibility study and, if supported by that analysis, amend the Zoning Ordinance to establish inclusionary housing requirements for new residential development.

The Housing Element contemplates a requirement of up to 15 percent of units in new developments, being affordable to lower and moderate income households and identifies a goal of ITEM 7C

facilitating approximately 50 to 75 affordable units through the program. The Town is advancing this work in coordination with the Santa Clara County Planning Collaborative, with technical support from Strategic Economics.

In addition, Housing Element Program E-11 calls for evaluation of policies that can support housing opportunities for lower income households, including extremely low income households.

Accordingly, the current analysis also considers how affordability requirements and program structure may support deeper levels of affordability where feasible.

DISCUSSION:

Policy Development Process
On April 2, 2026, this item was presented to the Planning Commission for initial policy input. On April 7, 2026, the item was presented to the Finance and Investment Committee for additional feedback regarding potential program structure, feasibility, and funding concepts. Those meetings were intended to inform the content of the draft program options now being developed for City Council consideration.

The purpose of this report is not to present a final ordinance, but to summarize the policy direction received to date and identify the issues that should continue to be evaluated as the Town advances a draft inclusionary housing program.

Feasibility and Local Context
Los Altos Hills has a unique development context. The Town has a limited number of multifamily opportunity sites and is otherwise characterized primarily by low density residential development.

Because of that context, inclusionary housing requirements must be designed in a way that advances Housing Element commitments without discouraging housing production.

The feasibility work being conducted by Strategic Economics evaluates construction costs, land values, financing conditions, anticipated returns, and the effect of various affordability requirements and compliance options on project viability. That analysis is intended to identify a range of requirements and options that are both legally defensible and economically feasible.

The Town’s participation in the Santa Clara County Planning Collaborative supports this work by providing a consistent technical framework and regional data set for evaluating affordable housing policies.

Feedback Received from the Planning Commission and Finance and Investment Committee Based on the feedback received to date, there was not support for a broad residential impact fee program.

At the same time, the discussions reflected support for continuing to evaluate an inclusionary housing program tailored to the Town’s development patterns and project types.

There was also support for continuing to evaluate inclusionary requirements for multifamily rental and ownership developments. The draft materials reflect the full range of viable multifamily options so that public feedback can help further narrow the preferred approach.

With respect to affordability levels, the general direction was to continue evaluating rental housing strategies that could serve households from extremely low income through low income levels, and

ownership housing strategies that could serve low and moderate income households. These affordability ranges remain subject to feasibility analysis and additional policy direction.

Program Structure Under Evaluation
Based on the direction received, the primary policy issues now being evaluated include the following:

Applicability. The Town must determine which project types should be subject to an inclusionary and/or impact fee requirement. Current options under review include application of inclusionary requirements at varying percentage set-asides to multifamily developments. Options also include a range of potential impact fee amounts.

Affordability targets. The Town must determine the appropriate income levels to be served by any inclusionary requirement, recognizing that deeper affordability creates greater feasibility challenges and may require additional incentives or flexibility.

Compliance options. The Town must determine which compliance pathways should be available, including on site unit production, in lieu fee options where appropriate, or other alternatives consistent with State law and the Town’s Housing Element objectives.

Program flexibility. Given the Town’s limited number of likely qualifying projects, it is important that the draft ordinance preserve enough flexibility to respond to differing project conditions while still producing a meaningful affordable housing benefit.

Relationship to Program E-11
Program E-11 calls for expanding opportunities for lower income households, including extremely low income households. As part of the ongoing analysis, staff and Strategic Economics are evaluating whether extremely low income housing can feasibly be addressed through direct inclusionary requirements, through funding strategies associated with qualifying development, or through a hybrid approach.

Because extremely low income housing typically requires deeper subsidy, this issue must be considered carefully to avoid creating requirements that are not feasible in the local market. For that reason, staff is continuing to evaluate affordability ranges and program options before returning with a draft ordinance.

Drafting Approach Moving Forward
Consistent with the direction received, the draft report and ordinance materials should not prematurely narrow the available options. Instead, the next round of materials should present the viable scenarios for both rental and ownership housing, including applicability thresholds, affordability mixes, and compliance approaches, so that public feedback can help refine the preferred framework.

At this stage, the focus should remain on the substance of the program rather than separately restating each advisory body’s comments as independent recommendations. The content of the draft should be informed by the Planning Commission and Finance and Investment Committee discussions, while remaining structured as a cohesive policy proposal for City Council and public review.

NEXT STEPS:

Based on City Council direction, staff will continue to refine the inclusionary housing framework in coordination with Strategic Economics and the Santa Clara County Planning Collaborative.

The next phase of work will include refinement of the applicability thresholds and project types subject to the program, and supporting analysis, public outreach and review of the draft options to help narrow the preferred approach and return to the Planning Commission and City Council with a draft ordinance and supporting materials for formal consideration.

ENVIRONMENTAL REVIEW:

This item is a policy discussion and does not constitute a project under the California Environmental Quality Act. Accordingly, no environmental review is required at this time. Any future action to adopt an inclusionary housing ordinance or related implementation measures will be evaluated for compliance with CEQA at the time of formal consideration.

FISCAL IMPACT:

There is no immediate fiscal impact associated with receiving this report and providing policy direction. Future adoption of an inclusionary housing ordinance may have fiscal and administrative implications that will be evaluated as part of the draft program and implementation framework.

ATTACHMENTS:

1. April 2, 2026, Planning Commission Staff Report

2. Strategic Economics Draft Residential Feasibility Study and Inclusionary Analysis

3. Strategic Economics Residential Impact Fee Study

TOWN OF LOS ALTOS HILLS April 2, 2026
Staff Report to Planning Commission
______________________________________________________________________________ SUBJECT: INCLUSIONARY HOUSING ORDINANCE, A POTENTIAL RESIDENTIAL

IMPACT FEE, AND RELATED POLICY DIRECTIONS UNDER HOUSING ELEMENT PROGRAMS A-6 and E-11
TO: Planning Commission
FROM: Jay Bradford, Community Development Director
_____________________________________________________________________________ RECOMMENDATION:

Receive a Presentation from Strategic Economics and provide feedback and direction on the structure of an inclusionary housing ordinance, a potential residential impact fee program, and associated policy issues consistent with Housing Element Programs A-6 and E-11.

BACKGROUND:

The Town of Los Altos Hills Housing Element (2023–2031) establishes a clear policy direction to expand opportunities for affordable housing while maintaining consistency with the Town’s development patterns and regulatory framework. As part of that effort, Program A-6 – Inclusionary Housing Ordinance directs the Town to evaluate and implement a local inclusionary housing requirement supported by a feasibility analysis.

What is an inclusionary housing ordinance?
Inclusionary housing ordinances require market‑rate housing developments or rental housing developments to include a specified percentage of homes affordable to low‑ and moderate‑income households. Inclusionary ordinances may be adopted for ownership or rental housing development projects. As established by statute and court decisions, inclusionary housing ordinance will either require developers to construct the affordable housing or provide an “in-lieu” option for the developer to pay a fee instead of actually building the units. A developer of for-sale housing also must be given the option of providing affordable rental housing instead of for-sale housing.

As explained later in this report, inclusionary ordinances are supported by feasibility studies to demonstrate that there is a reasonable relationship to the public welfare, and that the affordable housing requirements would not make development infeasible or be so restrictive to deprive the use of the property.

State law does provide, however, that HCD is authorized to review local rental inclusionary ordinances requiring more than 15 percent of the total number of units rented in a development to be affordable, and to require an economic feasibility study if the local jurisdiction has failed to meet at least 75 percent of its share of the regional housing need. If HCD determines that the study ITEM 7C ATTACHMENT 1

does not meet the required standards, the jurisdiction may not require that more than 15 percent of the units be affordable to lower-income households.

It should be noted that inclusionary housing in-lieu fees are different from an “impact fee” as the inclusionary requirements are not imposed to defraying all or a portion of the cost of public facilities related to the development project. The inclusionary housing ordinance will allow the developer to provide either the units on site or pay the in lieu fee, thus providing alternatives for the project.

Housing Element Program
Program A-6 reflects a measured approach. It recognizes that while inclusionary housing policies can be an effective tool to generate affordable units, they must be carefully calibrated so as not to constrain overall housing production. To that end, the program requires the Town to first conduct a feasibility study and, based demonstrated findings of feasibility, amend the Zoning Ordinance to establish inclusionary requirements for new residential development.

The program contemplates requiring up to 15 percent of units in new developments to be affordable to lower and moderate income households. It also establishes a quantified objective of adopting an ordinance by the first quarter of 2026 and facilitating the creation of approximately 50 to 75 affordable units through the inclusionary program.

The Town is advancing this work in coordination with the Santa Clara County Planning Collaborative, with technical support from Strategic Economics. This effort is focused on developing a locally tailored program informed by economic feasibility and regional data.

DISCUSSION:

Advancing Program A-6 – Policy Context and Approach
This study session represents a key step in implementing Program A-6. Rather than presenting a finalized ordinance, staff is seeking early policy direction from the Planning Commission to ensure that the eventual program reflects both local conditions and the Commission’s priorities.

Inclusionary housing policies operate by linking market rate residential development with the production of affordable housing. In practice, this can occur either through the direct provision of affordable units within a project or through alternative mechanisms such as in lieu fees and impact fees that fund affordable housing programs.

For Los Altos Hills, this discussion is particularly important given the Town’s development context. The limited number of multifamily opportunity sites and the predominance of low density residential development require a tailored approach to ensure that inclusionary requirements are both effective and feasible.

Program A-6 explicitly acknowledges this balance. The requirement that the policy be supported by a feasibility study is intended to ensure that inclusionary requirements do not inadvertently reduce the likelihood of housing development. If requirements are set too high, they can render

projects financially infeasible, ultimately undermining both market rate and affordable housing production.

Feasibility and Economic Considerations
The Town’s work with Strategic Economics, in coordination with the Santa Clara County Planning Collaborative, is focused on evaluating how different inclusionary requirements, fee levels, and incentive structures affect project feasibility.

This analysis considers construction costs, land values, financing conditions, and expected development returns. The objective is to identify a reasonable range of requirements and fees that can support affordable housing production without constraining development activity.

This effort directly supports the quantified objective of Program A-6 to facilitate the creation of 50 to 75 affordable units, recognizing that unit production depends on maintaining a viable development environment.

Regional Nexus Study Participation
The Town’s inclusionary housing and fee strategy is being developed in coordination with a regional nexus and feasibility study effort through the Santa Clara County Planning Collaborative.

This collaborative approach allows participating jurisdictions to share technical analysis, ensure consistency in methodology, and support the development of legally defensible fee programs.

Participating jurisdictions in the nexus study include:
• Gilroy
• Los Altos Hills
• Los Gatos
• Mountain View
• Santa Clara
• Sunnyvale
Through this effort, the Town is working with Strategic Economics to evaluate development feasibility and establish a nexus between residential development and the demand for affordable housing.

This regional coordination strengthens the Town’s ability to establish a fee structure supported by consistent and defensible methodology, calibrate fees to local market conditions while informed by broader regional data, and ensure alignment with State law requirements related to nexus and proportionality.

Evaluation of Extremely Low Income Housing (Program E-11) In addition to Program A-6 but on a related aspect, the Town’s Housing Element includes Program E-11, which establishes a policy objective to expand housing opportunities for lower income households, including extremely low income households.

As part of the ongoing feasibility and nexus analysis conducted with Strategic Economics, staff is evaluating the extent to which inclusionary housing requirements and fee structures can support the production of extremely low income units.

Extremely low income housing presents unique feasibility challenges due to deeper affordability requirements and associated subsidy gaps. As a result, staff is analyzing whether inclusionary requirements can reasonably incorporate extremely low income set asides without constraining development, the extent to which in lieu fees and impact fees can be structured to support funding for extremely low income housing, and opportunities to leverage external funding sources and partnerships to supplement local fee revenues.

This evaluation is intended to inform whether extremely low income housing should be addressed through direct inclusionary requirements within certain project types, fee based funding strategies that support dedicated affordable housing projects, or a hybrid approach that combines both production and funding mechanisms.

Structure of the Inclusionary Requirement
While Program A-6 establishes a ceiling of up to 15 percent, the specific structure of the inclusionary requirement remains a policy decision.

Key considerations include applicability thresholds and project types subject to the requirement, the percentage of units required within the allowable range, distribution of affordability across income levels, and alternative compliance options including in lieu fees, impact fees, and off site construction.

Staff is seeking direction on how to structure these elements in a manner that reflects the Town’s development patterns and Housing Element commitments.

Role of Incentives
Inclusionary housing programs are most effective when paired with incentives that offset the cost of providing affordable units.

Potential incentives include modifications to development standards, fee reductions or waivers, and streamlined processing.

In Los Altos Hills, the use of incentives must be carefully balanced with maintaining community character and regulatory consistency. The Commission’s input will help define the appropriate level and type of incentives.

In Lieu Fees, Impact Fees, and Program Flexibility
Given the Town’s development context, in lieu fees and impact fees are expected to play a central role in implementing Program A-6.

In lieu fees provide an alternative to on site unit construction, offering flexibility for applicants while generating funding that can be deployed toward affordable housing projects. Impact fees, applied more broadly, can establish a consistent funding mechanism tied to residential development.

A key consideration for the Planning Commission is how these tools can be structured to provide flexibility while still advancing Housing Element objectives.

In Lieu Fee Option
An in lieu fee option is required for inclusionary housing ordinances. This also allows projects that cannot feasibly deliver on site units, particularly smaller scale or constrained developments, to contribute to affordable housing production through a proportional fee. This flexibility can help ensure that projects proceed rather than stall due to infeasible requirements.

Impact Fee Framework
A residential impact fee is a separate vehicle from an inclusionary requirement; the legal standard is more stringent as it requires the local jurisdiction to demonstrate a nexus between the fee and the impact it intends to address. An impact fee rovides a more predictable and scalable funding source that can be applied across a wider range of residential development, helping to aggregate resources for future affordable housing opportunities.

Programmatic Balance
The combination of on site requirements, in lieu fees, and impact fees allows the Town to tailor compliance pathways based on project characteristics. This approach supports Program A-6 by maintaining development feasibility while still contributing to the quantified objective of producing 50 to 75 affordable units.

At the same time, staff emphasizes that fee levels must remain reasonable. If set too high, fees, whether in lieu or impact, can have the same constraining effect as overly stringent inclusionary requirements. The work being conducted with Strategic Economics is intended to calibrate these fee levels to ensure both legal defensibility and practical effectiveness.

Policy Direction Requested
Staff is requesting Planning Commission input on the following:
• Appropriate inclusionary percentage within the Program A-6 framework

• Distribution of affordability across income levels
• Types and extent of incentives necessary to support feasibility • Structure and reasonableness of in lieu and impact fees • Balance between on site unit production and fee based funding mechanisms • Appropriate use of in lieu fees to provide flexibility while still achieving Housing Element objectives
This feedback will inform the development of a draft ordinance and fee program.

NEXT STEPS:

Based on Planning Commission direction, staff will continue to refine the inclusionary housing framework and associated fee strategy in coordination with Strategic Economics and the Santa Clara County Planning Collaborative.

A draft ordinance and supporting analysis will be presented to the Planning Commission for recommendation, followed by City Council consideration, consistent with Program A-6.

ENVIRONMENTAL REVIEW:

This item is a study session to receive direction from the Planning Commission and does not constitute a project under the California Environmental Quality Act. Accordingly, no environmental review is required. Future actions to adopt an inclusionary housing ordinance or associated fee program will be evaluated for compliance with CEQA at the time of formal consideration.

FISCAL IMPACT:

There is no fiscal impact associated with this study session.

ATTACHMENTS
None

Residential Feasibility Study and
Inclusionary Analysis

PUBLIC DRAFT REPORT
Prepared for:

Town of Los Altos Hills
April 10, 2026
ITEM 7C ATTACHMENT 2

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 2 Table of Contents
TABLE OF FIGURES ...............................................................................................................................3 INTRODUCTION ..............................................................................................................................5 Report Purpose.....................................................................................................................................5 Background on Inclusionary Housing Policies....................................................................................5 Report Organization .............................................................................................................................8 FINANCIAL FEASIBILITY ANALYSIS...............................................................................................9 Methodology .........................................................................................................................................9 Analysis Approach ........................................................................................................................9 Prototypes.................................................................................................................................. 10 Pro Forma Assumptions............................................................................................................ 12 Initial Feasibility Analysis Results..................................................................................................... 17 Trends Influencing Feasibility ................................................................................................... 17 Feasibility Findings.................................................................................................................... 19 Policy and Market Scenarios............................................................................................................ 22 Inclusionary Policy Scenarios ................................................................................................... 23 Market Scenarios ...................................................................................................................... 25 In-Lieu Fee Analysis................................................................................................................... 28 POLICY CONSIDERATIONS AND FINDINGS.................................................................................31 Inclusionary Policies in Neighboring Jurisdictions .......................................................................... 31 Other Policy Considerations.............................................................................................................. 32 Summary of Findings and Conclusions............................................................................................ 34 Findings...................................................................................................................................... 34 Conclusions ............................................................................................................................... 34 APPENDIX I: FINANCIAL FEASIBILITY ASSUMPTIONS.......................................................................36 Cost Assumptions...................................................................................................................... 36 Prototype and Revenue Assumptions...................................................................................... 38

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 3 Table of Figures
Figure 1: Income Limits for Santa Clara County in 2025, by Category and Household Size .................6 Figure 2: Components of Financial Feasibility: Project Value and Project Cost Components ................7 Figure 3: Potential Impact of Inclusionary Policies on Financial Feasibility.............................................7 Figure 4: Residential Prototypes Used in Inclusionary Analysis for Los Altos Hills............................... 11 Figure 5: Summary of Cost Assumptions for Ownership Housing Pro Forma....................................... 13 Figure 6: Summary of Cost Assumptions for Rental Pro Forma............................................................. 14 Figure 7: Ownership Pro Forma Market Rate Unit Revenue Assumptions............................................ 15 Figure 8: Rental Pro Forma Market Rate Revenue Assumptions .......................................................... 15 Figure 9: Maximum AMI for Income Categories vs. "Achieved AMI" Assumption for Ownership and Rental Inclusionary Units.......................................................................................................................... 16 Figure 10: Maximum Sales Price for Below Market Rate Units by Income Level and Prototype, 2025 ................................................................................................................................................................... 17 Figure 11: Market Rate Rent in Los Altos Hills vs. Achieved Monthly Rent per Unit at Required Income Level, 2025 ............................................................................................................................................... 17 Figure 12: Santa Clara County Trends in Home Values, Construction Costs, and Multifamily Rents, 2020 to 2025 ........................................................................................................................................... 18 Figure 13: Monthly Santa Clara County Home Value Index vs. National Weekly 30-Year Mortgage Rate............................................................................................................................................................ 18 Figure 14: General Market Trends in Santa Clara County for 4- and 5-Star Rental Properties, Cap Rate vs. Value per Unit ............................................................................................................................. 19 Figure 15: Pro Forma Results per Unit for Ownership Housing in Los Altos Hills................................. 20 Figure 16: Residual Land Value vs. Land Costs per Unit for Ownership Housing in Los Altos Hills without Inclusionary Policy ....................................................................................................................... 21 Figure 17: Pro Forma Results per Unit for Rental Housing in Los Altos Hills........................................ 22 Figure 18: Residual Land Value vs. Land Costs per Unit for Rental Housing in Los Altos Hills........... 22 Figure 19: Residual Land Value per Unit vs. Land Costs per Unit in Los Altos Hills with a 15 Percent Inclusionary Requirement, by Income required – Ownership Units ...................................................... 24 Figure 20: Residual Land Value per Unit vs. Land Costs per Unit in Los Altos Hills by Inclusionary Scenario – Rental Units............................................................................................................................ 25 Figure 21: Sensitivity of Residual Land Value to Market Price in Los Altos Hills – Townhomes ......... 26 Figure 22: Sensitivity of Residual Land Value to Market Price in Los Altos Hills – 5-Story Condos.... 26

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 4 Figure 23: Residual Land Value vs. Land Costs per Unit for Small Scale Rental Apartments Los Altos Hills, with Current Market Conditions vs. Range of Likely Market Outcomes....................................... 27 Figure 24: Residual Land Value vs. Land Costs per Unit for 5-Story Rental Apartments in Los Altos Hills, with Current Market Conditions vs. Range of Possible Market Outcomes .................................. 28 Figure 25: Equivalent In-Lieu Fee per Net Square Foot Corresponding to Revenue Foregone from Inclusionary Policy in Los Altos Hills, by Scenario – Ownership Units ................................................... 29 Figure 26: Equivalent In-Lieu Fee per Net Square Foot Corresponding to Revenue Foregone from Inclusionary Policy in Los Altos Hills, by Scenario – Rental Units.......................................................... 30 Figure 27: Inclusionary Requirements in Santa Clara County Jurisdictions, as of 2025..................... 32 Figure 28: Density Bonus Amount Triggered by Provision of Affordable Units, By Income Level and Share of Units in Income Category........................................................................................................... 33 Figure 29: Detailed Cost Assumptions for Ownership Prototypes in Los Altos Hills............................. 36 Figure 30: Detailed Cost Assumptions for Rental Prototypes in Los Altos Hills.................................... 37 Figure 31: Los Altos Hills Municipal Fee Estimates - Ownership and Rental Prototypes..................... 38 Figure 32: Market Rate Ownership Pro Forma Revenue Assumptions, Lost Altos Hills....................... 38 Figure 33: Market Rate Rent per Unit Assumptions, Los Altos Hills...................................................... 39 Figure 34: Area Median Income and Income Limits for Santa Clara County, 2025............................. 39 Figure 35: Maximum Sales Price per Unit and Average BMR Price for Townhome Prototype in Santa Clara County, by BMR Income Level, 2025............................................................................................. 40 Figure 36: Maximum Sales Price per Unit and Average BMR Price for 5-Story Condos in Santa Clara County, by Income Level, 2025................................................................................................................ 40 Figure 37: Below Market Rate Rental Revenue Assumptions in Santa Clara County, 2025............... 41

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 5 Introduction

REPORT PURPOSE
This report is part of a collaborative effort by six jurisdictions in Santa Clara County to analyze and potentially implement new or revised affordable housing policy tools. The participants in the study include Gilroy, Los Altos Hills, Los Gatos, Mountain View, the City of Santa Clara, and Sunnyvale.

Together, these jurisdictions have commissioned Strategic Economics to perform a Grand Nexus Study. The study includes the required analysis and recommendations for:
• Residential impact fees charged on single-family units and “missing middle” developments of fewer than 10 units
• Inclusionary affordable housing requirements and associated in-lieu fees • Commercial linkage fees charged on non-residential development The Grand Nexus Study culminated in three reports to address each of the above policies: The Residential Impact Fee Study; The Residential Feasibility Study and Inclusionary Analysis (this report); and The Commercial Linkage Fee Study. Each jurisdiction has opted into one, two, or all three components of the study.

This report focuses on inclusionary housing policies in the Town of Los Altos Hills. Los Altos Hills does not currently have an inclusionary policy. The report describes how inclusionary policies work, how policy alternatives could impact the financial feasibility of new housing development, and how Los Altos Hills could leverage a possible inclusionary housing policy to increase affordable housing production within the town. The purpose of this report is to provide context and findings for the Town to review when considering a possible inclusionary housing policy.

BACKGROUND ON INCLUSIONARY HOUSING POLICIES
Inclusionary housing policies—also called “inclusionary zoning”—require market rate housing developers to set aside a percentage of units in a residential project and offer them at below market rates as deed-restricted affordable units. California law requires rental inclusionary policies to provide for alternative means of compliance with the policy, such as by paying a fee “in-lieu” of providing onsite units or by supporting the production of affordable units in some other way (such as a land donation). Inclusionary policies capture some of the economic value generated by building market rate housing in order to subsidize the development of affordable units. Inclusionary policies are one strategy local governments can use to create mixed income developments, provided the policy is met with onsite units.

Typically, inclusionary policies designate certain income requirements that developers must meet to fulfill the affordability requirement. These income categories are based on the area median income (AMI) of a region. Rents and sales prices are set at below market rate (BMR) levels so that households pay no more than 30 percent of the targeted income level for their income category. Each year, the California Department of Housing and Community Development (HCD) publishes income limits and standard housing income categories for every county corresponding to its AMI. Figure 1 shows the income limits for Santa Clara County in 2025.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 6 FIGURE 1: INCOME LIMITS FOR SANTA CLARA COUNTY IN 2025, BY CATEGORY AND HOUSEHOLD SIZE Extremely
Low
Very Low Low Median Moderate
Percent of AMI: 30% 50% 80% 100% 120%
Household Size
1 $42,200 $70,350 $111,700 $136,650 $164,000
2 $48,200 $80,400 $127,650 $156,150 $187,400
3 $54,250 $90,450 $143,600 $175,700 $210,850
4 $60,250 $100,450 $159,550 $195,200 $234,250
5 $65,100 $108,500 $172,350 $210,800 $253,000
Source: CA HCD, 2025; Strategic Economics, 2025.

INCLUSIONARY POLICIES AND FINANCIAL FEASIBILITY
Because inclusionary policies seek to leverage the activities of the private market to produce affordable housing, they are reliant on the financial feasibility of market rate housing projects. Market rate development projects are only financially feasible when the market value of the project (based on total revenue) exceeds project costs and an investment return required by capital markets. As shown in Figure 2, financial feasibility is determined by the following factors:
• Total market value is determined by the revenues generated by the project. o For ownership projects, the market value consists of the sales prices the units can obtain.
o For rental projects, the market value of the project depends on the annual revenue it will generate and the current capitalization rate, which reflects overall project investment risk relative to alternative investments.
• Total project costs include hard costs, soft costs, investment return, and land costs. o Hard costs include materials and labor associated with physical construction of the building.
o Soft costs include indirect expenses such as architecture and engineering, taxes, insurance, financing costs, and municipal fees.
o Land costs refer to the price the developer pays to acquire the land. • Investment return refers to the required financial return on investment that a project must achieve to attract developer and lender investment. For ownership projects, required return is based on the net revenues from the initial sale of units. For rental projects, required return is based on the stabilized annual operating income of the development.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 7 FIGURE 2: COMPONENTS OF FINANCIAL FEASIBILITY: PROJECT VALUE AND PROJECT COST COMPONENTS Source: Strategic Economics, 2025.

Inclusionary policies have the benefit of potentially producing affordable housing units without using public forms of subsidy, but they may impact financial feasibility by reducing the market value of the project. Because inclusionary units generate less revenue than market rate units, substituting market rate units with inclusionary units will reduce the project’s total revenue. Figure 3 visualizes this impact on the project’s overall feasibility. In this example, a new project that may be feasible with all market rate units becomes infeasible if its total value is significantly reduced when a percentage of the units are offered at below market rates. However, projects that generate an investment return that is sufficiently high to absorb a reduction in value from the inclusionary policy, while still meeting a minimum market return, will remain financially feasible.

FIGURE 3: POTENTIAL IMPACT OF INCLUSIONARY POLICIES ON FINANCIAL FEASIBILITY Source: Strategic Economics, 2025.

An effective inclusionary policy will set affordability requirements high enough that they result in substantial additional affordable units, but not so high that they prevent the feasibility of market rate housing projects altogether. Thus, the purpose of conducting a feasibility analysis is to identify an inclusionary level that that allows projects to generate enough revenue to proceed while also providing affordable units.

Land Costs
Hard Costs
Soft Costs
Market Value
Investment
Return
Land Costs
Hard Costs
Soft Costs
Market Value
Market Value
Investment
Return
All Market Rate Units Market Rate + BMR
Units
Development Costs

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 8 Financial feasibility in market rate housing projects depends upon a variety of highly dynamic factors.

Project costs can fluctuate due to changes in construction labor, materials costs, interest rates, or a variety of other factors. Similarly, a project’s revenue can fluctuate significantly based on the availability of housing supply in the local market, changes in the attractiveness of a project’s location, or other factors impacting demand in the local market. Finally, the minimum investment return can fluctuate based on external factors such as interest rates in the macro economy or trends in real estate capital markets. The Policy and Market Scenarios discussion in the next section includes an analysis of market scenarios that address these fluctuations. Additionally, updating feasibility analyses periodically can help ensure that inclusionary policies are still able to function optimally as market conditions change.

REPORT ORGANIZATION
This report summarizes the impact of potential inclusionary policies on financial feasibility for housing projects and provides context for consideration of policy options. The report is organized in two sections:
• Section II, Financial Feasibility Analysis, describes the current market for housing development in Los Altos Hills; the potential for market rate projects to support inclusionary housing; and the sensitivity of financial feasibility to market conditions. This section also discusses the relationship between inclusionary requirements and in-lieu fee levels. • Section III, Policy Considerations and Findings section discusses inclusionary housing policies used by Los Altos Hills’ neighboring jurisdictions and other state and local policy considerations influencing the implementation of inclusionary policies. The Summary of Findings and Conclusions portion of this section summarizes the final conclusions from all prior sections for consideration by the Town of Los Altos Hills.

The report also includes an appendix: Appendix I: Financial Feasibility Assumptions.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 9 Financial Feasibility Analysis
Strategic Economics conducted a financial feasibility analysis to test the viability of housing products under current market conditions and test a set of inclusionary policy scenarios under a range of market conditions. This analysis evaluated both ownership and rental housing project types. The results provide context that the Town of Los Altos Hills can use to assess and potentially modify its inclusionary policy to align with the Town’s affordable housing objectives in an evolving market.

This financial feasibility analysis section includes four parts. It begins with an overview of the methodology used for the feasibility analysis, including details on the modeling approach and the types of housing tested in the analysis. This section then shows the results of the financial feasibility modeling for all housing types in Los Altos Hills—both with the existing inclusionary policy and under a variety of market and inclusionary policy scenarios. The financial feasibility analysis concludes with an overview of in-lieu fees, explaining how they are calculated and how inclusionary requirements impact in-lieu fee levels.

METHODOLOGY
Analysis Approach
Strategic Economics evaluated financial feasibility for housing projects in Los Altos Hills using a static “pro forma” model. A pro forma is a real estate finance model used to aggregate assumptions about development costs, revenue, and financing conditions to evaluate the financial feasibility of new housing projects. A static pro forma—a simplified version of pro forma that does not model developer cash flows over time—is a standard approach for supporting broadly applicable policy and planning decisions.

Applying this pro forma model to residential projects and inclusionary policies in the Los Altos Hills required three steps:
• Develop a set of residential development “prototypes” to evaluate inclusionary policies for multi-unit development across a range of product types typical of recent housing construction in Santa Clara County;
• Develop pro forma assumptions for these prototypes, including hard construction costs, soft costs, and revenue expectations for Los Altos Hills. Strategic Economics based these assumptions on market research, interviews with developers active in Santa Clara County, and other recent experience with pro forma analysis in the San Francisco Bay Area. • Use the pro forma model to test the financial performance of each prototype under a variety of market and policy scenarios.

EVALUATING FEASIBILITY
Strategic Economics measured the financial performance of each prototype using residual land value analysis. In residual land value analysis, the land cost estimate is initially taken out of the equation.

Instead, the analysis begins by estimating project market value, hard costs, and soft costs, as well as a minimum acceptable return for a typical developer pursuing the project.

This calculation requires identifying six key metrics for feasibility:

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 10 • Project Revenue is the primary indicator of market value for the project, based on expected income or sales proceeds.
o For ownership projects, this is the project’s total net sales proceeds. o For rental projects, this is the project’s annual net operating income (NOI), which is defined as the annual revenue from rent, less vacancy and operating costs. • Target Return is the level of return on investment that a project must achieve for the developer and lenders to determine that it is a worthwhile investment. o For ownership projects, this metric used is return on cost. Return on cost is the ratio of net project value to total development cost.
o For rental projects, the primary metric is yield on cost. Yield on cost is the ratio of NOI to total development cost.1
• Supportable Development Costs are the highest development cost for which the project would still be viable given project revenue and the minimum target return. o For ownership products, the supportable development cost is each project’s projected net sales proceeds, less the required return on cost.
o For rental projects, the supportable development cost is the project’s projected NOI divided by its minimum target yield on cost.
• Total Development Costs (Excluding Land) are the sum of hard construction costs, soft costs, municipal fees, financing costs, and contingency.
• Residual Land Value (RLV) is calculated by subtracting total development cost (excluding land) from supportable development cost. The residual land value that remains, therefore, represents the maximum a developer could pay for land while still achieving the minimum necessary return.
• Residual land value can be compared to Typical Land Costs to evaluate feasibility. Typical land costs are the market average costs (calculated on a per square foot basis) for a vacant property on which the housing project could be built.

A project is financially infeasible when its residual land value is less than zero. If its residual land value is greater than zero but less than the typical market value for land, the project may be feasible because land values tend to vary significantly within a market depending on a range of factors. If the residual land value is at or greater than a typical land value, it is likely to be feasible.

Prototypes
The development prototypes used in the feasibility analysis are generalized examples of new housing, representing a broad range of multi-unit housing projects typical of recent development trends in northern Santa Clara County. This study used four residential prototypes to evaluate financial feasibility. The set of prototypes in the inclusionary study overlaps with the set in the residential impact fee study, which considered small scale multi-unit as well as build-to-suit single-family homes.

The prototypes used in the Los Altos Hills’ inclusionary analysis range in density from 20 to 73 units per acre, and from three to eight stories in height. Figure 4 provides a summary of each of the five prototypes. This includes two ownership product types and three rental product types, as described below:
1 For a development project to obtain financing, its yield on cost must be higher than its capitalization rate—the ratio of NOI to project value.

In other words, lenders and developers expect the completed project to be worth more than its total development costs. The relationship between yield on cost and cap rates varies based on financing conditions and perceived market risk.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 11 Ownership Prototypes
• Townhomes: this prototype represents a development with attached, single-family units built at a density of 20 units per acre. These units generally include between two and fourbedrooms, averaging 1,710 square feet, and are built over a private garage. • 5-Story Condos: this prototype includes four stories of for-sale flats, built at a density of 52 units per acre, over one story of podium parking and one story of parking underground. Units in this building would range from one-bedroom to four-bedrooms, for an average unit size of 1,382 square feet. This prototype includes two parking spaces per unit.

Rental Prototypes
• Small Scale Rental Apartments: this prototype is a three-story multifamily building at a density of 36 units per acre. The prototype contains a mix of studio to three-bedroom units, with an average unit size of 955 square feet. Parking is a combination of surface and tuck-under parking with two spaces per unit.
• 5-Story Rental Apartments: this prototype is a similar building type to the 5-story Condo prototype, but with smaller units and a higher residential density of 73 units per acre. This prototype includes a mix of units from studios to three-bedrooms, with an average unit size of 891 square feet. This prototype includes 1.75 parking spaces per unit.

FIGURE 4: RESIDENTIAL PROTOTYPES USED IN INCLUSIONARY ANALYSIS FOR LOS ALTOS HILLS Townhomes 5-Story
Condos
Small Scale
Rental
Apartments
5-Story Rental
Apartments
Tenure Ownership Ownership Rental Rental
Parcel Size (acres) 1.5 1.8 1.5 1.8
Number of Stories 3 5 3 5
Total Gross Square Feet 50,850 148,000 60,647 133,059
Retail Square Feet 0 0 0 0
Number of Units 30 90 54 128
Average Unit Size (square
feet) 1,710 1,382 955 891
Bedroom Types 2-BD to 4-BD 1-BD to 4-BD Studio to 3-
BD Studio to 3-BD
Units per Acre 20 51 36 73
Parking Format Private
Garages
Underground
+ Podium
Surface +
Tuck-Under
Underground
+ Podium
Residential Parking Ratio 2.00 2.00 2.00 1.75
Residential Parking
Spaces 60 180 108 224
Retail Parking Spaces 0 0 0 0
Source: Strategic Economics, 2025; Cities in Santa Clara County, 2025; CoStar, 2025.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 12 Pro Forma Assumptions

COST AND RETURN ASSUMPTIONS
Strategic Economics estimated development costs based on interviews with developers and general contractors experienced with residential development in Santa Clara County, as well as reviews of market data and budgets for other development projects throughout the Bay Area. As noted earlier, the main cost categories for development include hard costs, soft costs, and land costs:
• Hard costs refer to the direct construction costs, such as materials and construction labor, used to physically prepare the site for development, construct the building, and perform all site work including site circulation, utilities, and landscaping. • Soft costs include all indirect expenses required to complete a development project, such as architecture, engineering, consulting, legal fees, taxes, municipal fees, and insurance. In addition to these costs, developers must account for the cost of financing a construction loan, and a contingency for unexpected expenses.
• Land costs refer to the cost of acquiring land for development. In residual land value analysis, the land cost is calculated last, as the highest land cost the developer could afford to pay and still have the project pencil. Strategic Economics also estimated typical land costs for each prototype to compare against the residual land value and assess feasibility.

Strategic Economics modeled the required investment return as follows:
• For ownership projects, required return is based on the net revenues from the initial sale of units (referred to as return on cost).
• For rental projects, required return is based on the stabilized annual operating income of the development (referred to as yield on cost).

The Townhome and Condo prototypes assume similar wood frame construction methods for the residential portions of their buildings, but the Condo prototype also includes significant added costs of above- and below-ground parking, mechanical, and utility systems. These differences translate to a higher cost of construction of $400 per residential square foot. Figure 5 provides a high-level overview of cost assumptions used to evaluate financial feasibility for ownership product types. The condo prototype also has higher construction financing costs due to its longer construction time. More detailed cost assumptions for these prototypes can be found in the Appendix, in Figure 29.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 13 FIGURE 5: SUMMARY OF COST ASSUMPTIONS FOR OWNERSHIP HOUSING PRO FORMA Unit of measure Townhomes 5-Story Condos
Land Costs per square foot $125 $125
Hard Costs
Demolition and Site Work per sq. ft. land $40 $40
Building Area Construction per gross sq. ft. $275 $400
Parking
Private Garages
N/A –
Included in
building area
Structured/Podium per space $50,000
Underground per space $80,000
Soft Costs
Arch, Eng., Consulting, Taxes, Insurance,
Legal, and Other Soft Costs
(excluding fees, contingency)
% of hard costs 18.0% 18.0%
Municipal Fees per unit $106,385 $100,404
Contingency % of hard + soft costs 5.0% 5.0%
Financing Costs % of hard + soft costs 4.2% 6.2%
Developer Return
Target Developer Return-on-cost % of total dev costs 15.0% 15.0% Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025; CoStar, 2025; Federal Reserve Bank of New York, 2025.

Rental prototypes have similar differences in construction costs related to their number of stories, parking format, and inclusion of retail components. Figure 6 summarizes development costs for each of the two rental prototypes. The 5-Story Apartments cost slightly more to build than the Small Scale Apartments because of its height differences and differences in parking format. Further, projects with smaller average unit sizes cost more to build on a square foot basis because they require a higher density of appliances, plumbing, and electrical systems. The five-story rental prototype typically also requires longer construction periods—leading to larger financing costs than those assumed for the Small Scale Apartments. Lastly, the assumption for typical land value for each prototype was based on its locational value and zoned development capacity. Further details on cost assumptions are shown in the Appendix, in Figure 30.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 14 FIGURE 6: SUMMARY OF COST ASSUMPTIONS FOR RENTAL PRO FORMA Unit of measure
Small Scale Rental
Apartments
5-Story Rental
Apartments
Land Costs
Land Costs per square foot $125 $125
Hard Costs
Demolition and Site Work per sq. ft. land $40 $40
Building Area Construction
Residential - Type V per gross sq. ft. $290 $310
Parking
Surface per space $10,000
Structured/Podium per space $50,000
Underground per space $80,000
Tuck-under per space $10,000
Soft Costs
Arch, Eng., Consulting, Taxes, Insurance, Legal,
and Other Soft Costs
(excluding fees, contingency)
% of hard costs 13.0% 13.0%
Municipal Fees per unit $75,783 $75,559
Contingency % of hard + soft costs 5.0% 5.0%
Financing
Total Financing Cost % of hard + soft costs 5.4% 6.2%
Developer Share
Developer Overhead Fee % of hard + soft costs 3.0% 3.0% Target Developer Yield-on-Cost % of total dev costs 5.5% 5.5% Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025; CoStar, 2025; Federal Reserve Bank of New York, 2025.

MARKET RATE REVENUE ASSUMPTIONS
Because there are currently no compact rental or ownership developments in Los Altos Hills, there was little directly comparable market data on which to base market rents and sales price assumptions for these product types. In developing these assumptions, Strategic Economics reviewed similar developments in other parts of Santa Clara County, but actual market rents and sales values in Los Altos Hills may vary significantly from these assumptions. The sensitivity of the feasibility results to market conditions is discussed in more detail in the next section.

Strategic Economics analyzed recent property sales data from Redfin and CoStar alongside current property listings and input from local developers to determine market rate revenue assumptions for ownership products. Because there are no examples of recent townhome or condo sales within Los Altos Hills, Strategic Economics examined townhome and condo sales prices in nearby jurisdictions and single-family home sales in Los Altos Hills to estimate sales prices for these product types within the town.

Ownership revenue assumptions are shown in Figure 7. Strategic Economics assumed that typical townhome sales prices in Los Altos Hills would range from $1.7 million for a two-bedroom unit to $2.0 million for a four-bedroom unit. Typical condo prices in Los Altos Hills were assumed to range from $1.2 million for a one-bedroom unit to $2.1 million for a four-bedroom unit. Detailed revenue assumptions for ownership projects can be found in the Appendix in Figure 32.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 15 FIGURE 7: OWNERSHIP PRO FORMA MARKET RATE UNIT REVENUE ASSUMPTIONS Unit of measure Townhomes 5-Story Condos
Average Sales Value per unit $1,880,833 $1,698,901
Marketing Expense % of Sales Price 5% 5%
Net Revenue $1,786,792 $1,613,956
Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025.

Market rate rent assumptions were derived from three sources of information. Strategic Economics analyzed current rental listings in comparable apartment projects; collected input from developers; and analyzed market trends from CoStar to identify typical rents in the area surrounding Los Altos Hills for similar rental types. Figure 8 provides a summary of revenue assumptions for each prototype, including the average monthly rent and assumptions for vacancy rate, operating costs, and capitalization rate. Capitalization rate (cap rate) refers to the ratio of net annual operating income (gross maximum rent, less vacancy and operating costs) to the project’s total market value. Strategic Economics assumed that all rental prototypes have the same vacancy, operating expense ratio, and cap rate, but average monthly rent for each prototype differs according to unit size and building format.

The units in the 5-Story Apartments are smaller than those in the Small Scale Apartments but can likely command higher rents per square foot, leading to higher average monthly rents per unit. Detailed revenue assumptions for rental projects can be found in the Appendix in Figure 33.

FIGURE 8: RENTAL PRO FORMA MARKET RATE REVENUE ASSUMPTIONS Unit of measure
Small Scale
Rental
Apartments
5-Story Rental
Apartments
Rent Assumptions
Average Unit Size Square feet 955 891
Monthly Rent per Square Foot $/sq. ft. $4.61 $4.81
Average Monthly Rent per unit $4,019 $4,310

Other Revenue Assumptions
Vacancy Rate % of Units 5% 5%
Operating Expense
% of Market Rate
Revenue 30% 30%
Capitalization Rate 4.50% 4.50%
Sources: Strategic Economics, 2025; Developer Interviews, 2025; Apartment Websites, 2025; CoStar, 2025.

BELOW MARKET RATE REVENUE ASSUMPTIONS
Strategic Economics also modeled the below market rate (BMR) rents and sales prices associated with inclusionary units as appropriate to each inclusionary policy scenario. These units were priced at a level such that qualifying households pay no more than 30 percent of their monthly income on housing costs. To determine whether households qualify for affordable housing, HCD publishes a table for each county that lists the county’s “area median income” and household income categories based on household size. This income table (shown in the Appendix in Figure 34) delineates the maximum income that qualifies as very low-, low-, and moderate-income for each household size. The inclusionary policy designates what share of units must be provided to households in each income

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 16 range. The maximum revenue each inclusionary unit could generate is tied to the top of this range, although in practice this amount is somewhat lower than the maximum.

Expected revenues were calculated using the income limits, the assumed share of income that can be spent on housing, and estimates for other monthly costs. For ownership housing, other monthly costs might include utility costs, property taxes and insurance, private mortgage insurance, and homeowners’ association (HOA) fees. For rental housing, this generally includes any utility costs not included in the rent. Because household incomes vary for households qualifying in each income category, Strategic Economics assumed that the average AMI level of qualifying households would be below the maximum allowable AMI in the income category. Figure 9 shows the assumed percentage of AMI used as an average in each income category for ownership and rental inclusionary units.

FIGURE 9: MAXIMUM AMI FOR INCOME CATEGORIES VS. "ACHIEVED AMI" ASSUMPTION FOR OWNERSHIP AND RENTAL

INCLUSIONARY UNITS
Income Category
Maximum
% of AMI
Assumed % of
AMI for
Ownership
Units
Assumed % of
AMI for Rental
Units
Moderate-Income 120% 110% 110%
Median-Income 100% 90% 90%
Low-Income 80% 70% 60%
Very Low-Income 50% N/A 50%
Sources: Strategic Economics, 2025.

Note: Achieved AMI reflects the likelihood that not all households qualifying in an income category could afford a rent or sales price based on the maximum income level within an income category. The percentages used correspond with California Health and Safety Code guidance on affordable rent and sales price levels for Very Low, Low, and Moderate-Income categories.

Though market rate rents and sales prices exceed affordable rents and prices for most income categories, households in the Moderate-Income category can afford market rate rents. Figure 10 shows achieved sales prices for BMR units as modeled in the ownership pro forma models. For most income categories and prototypes, BMR units would achieve less than one-sixth of the market rate sales price in Los Altos Hills. Figure 11 shows achieved monthly rents for BMR units compared to market rate rents. For rental prototypes, BMR units could theoretically achieve rents that are close to market rate levels for Median-Income units, and that exceed market rate rents for Moderate-Income units. However, when modeling feasibility for inclusionary policies, Strategic Economics assumed that BMR rents would be no less than the achieved rents shown in Figure 11 and no more than the market rate rent for each unit type. Figure 35 and Figure 36 in the Appendix show more details on affordable sales prices and rent calculations.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 17 FIGURE 10: MAXIMUM SALES PRICE FOR BELOW MARKET RATE UNITS BY INCOME LEVEL AND PROTOTYPE, 2025 Townhomes 5-Story Condos
Average Market Rate Price per Unit $1,880,833 $1,698,901

Below Market Sales Price per Unit (Income Level)
Low (70% Achieved AMI) $299,260 $285,259
Median (90% Achieved AMI) $426,448 $403,744
Moderate (110% Achieved AMI) $586,061 $522,229
Sources: Strategic Economics, 2025; Santa Clara County Housing Authority, 2025; CA HCD, 2025; Redfin, 2025; Freddie Mac, 2025; Alta Housing, 2025; Ownwell, 2025.

Notes: Accounts for share of income spent on housing costs (30%), current interest rates, monthly utility costs, taxes, insurance, and HOA costs. Achieved sales price reflects likely average for units in each income category in an inclusionary project.

FIGURE 11: MARKET RATE RENT IN LOS ALTOS HILLS VS. ACHIEVED MONTHLY RENT PER UNIT AT REQUIRED INCOME LEVEL, 2025
Small Scale Rental
Apartments
5-Story Rental
Apartments
Average Market Rate Rent per Unit $4,019 $4,310
Below Market Monthly Rent per Unit (Income Level)
50% AMI (Very Low) $2,018 $1,997
60% AMI (Low) $2,371 $2,346
90% AMI (Median) $3,616 $3,576
110% AMI (Moderate) – based on calculation $4,445 $4,395 110% AMI (Moderate) Used in Model – based on market rate rent $4,019 $4,310 Sources: Strategic Economics, 2025; Santa Clara County Housing Authority, 2025; CA HCD, 2025.

Note: This table shows achieved monthly rent at each income level based on 30 percent of monthly income at the specified share of AMI, less a utility allowance. Because the calculated rents for 110% AMI households exceed market rate rents, market rate rents were used in the model to estimate project revenue for projects requiring moderate-income units.

INITIAL FEASIBILITY ANALYSIS RESULTS
The current feasibility outlook in Los Altos Hills is a product of both the strength of the town’s housing market and recent trends on a regional or national level that are influencing construction costs and housing demand. This section provides an overview of recent regional trends before presenting findings on ownership and rental project feasibility in Los Altos Hills.

Trends Influencing Feasibility
Home values in Santa Clara County largely kept pace with construction cost inflation over the past five years, while multifamily rent growth fell behind costs. The years 2022 and 2023 were a period of high rates of inflation throughout the national economy. As shown in Figure 12, construction costs across California rose by approximately 46 percent between 2020 and 2025. Home values in Santa Clara County increased by nearly as much (40 percent) over the same period. In comparison, Santa Clara County’s multifamily rents grew by only 27 percent over the five-year period—far less than the construction cost increases developers have experienced in the multifamily construction industry.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 18 FIGURE 12: SANTA CLARA COUNTY TRENDS IN HOME VALUES, CONSTRUCTION COSTS, AND MULTIFAMILY RENTS, 2020 TO 2025
Sources: CoStar, 2025; CA EDD, 2025; ENR, 2025; Zillow, 2025; Strategic Economics, 2025.

Note: This chart shows the Zillow Home Value Index for Santa Clara County on an annual average basis, but doing so simplifies the monthly fluctuations in home value. For this reason, the trend shown here does not entirely match the trend shown in Figure 13, despite being based on the same data.

Santa Clara County home values increased rapidly from 2020 through mid-2022, but higher interest rates limited home value growth from late 2022 through 2025. Figure 13 shows monthly changes in the same home index for Santa Clara County shown Figure 12, and compares them to weekly fluctuations in the national 30-year mortgage rate over the past five years. This chart shows that mortgage interest rates doubled nationally, from 3.7 percent to 7.8 percent, between 2020 and 2023 and remained above 6.5 percent through mid-2025. Rising interest rates nationally moderated rising home prices in Santa Clara County, which grew by less than one percent between July of 2022 and July of 2025.

FIGURE 13: MONTHLY SANTA CLARA COUNTY HOME VALUE INDEX VS. NATIONAL WEEKLY 30-YEAR MORTGAGE RATE Sources: Freddie Mac, 2025; Zillow, 2025; Strategic Economics, 2025.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%
2020 2021 2022 2023 2024 2025
Cumulative % Growth Since
2020
California Construction Costs
Santa Clara County Annual
Home Value Index
Santa Clara County Annual
Multifamily Rents
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Cumulative % Change Since
Beginning of 2020
Weekly Freddie Mac 30-YR
Mortgage Rate
Monthly Zillow Home Value Index,
Santa Clara County

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 19 The value per unit of multifamily properties in Santa Clara County decreased between 2021 and 2025.

As shown in Figure 14, the average market value of four and five-star multifamily properties in Santa Clara County fell from a high of $750,000 per unit in 2021 to $570,000 in 2024, with a modest recovery for 2025 to date. Capitalization rates (which describe the ratio between a property’s annual income and its market value) increased in 2023, indicating a decline in investor confidence in multifamily investments. This decline was in response to higher interest rates at the national level and a softening of the rental market in Santa Clara County and many other parts of the San Francisco Bay Area.

FIGURE 14: GENERAL MARKET TRENDS IN SANTA CLARA COUNTY FOR 4- AND 5-STAR RENTAL PROPERTIES, CAP RATE VS. VALUE PER UNIT
Sources: CoStar, 2025; Strategic Economics, 2025.

As a result of these recent market trends, multifamily rental projects are much less financially feasible in 2025 than they were in 2020, and ownership projects are slightly less feasible than they were in 2020. Multifamily rental project developers face much higher construction costs in 2025 than they did in 2020, with lower average market values per unit; this makes it much more difficult to develop a viable project in 2025. Ownership projects also face higher interest rates and higher construction costs in 2025 than they did in 2020. However, the market values for ownership units in Santa Clara County have mostly kept pace with construction costs over the past five years.

Feasibility Findings
The feasibility analysis results presented in this section reflect the market trends identified above. This section begins with an explanation of feasibility findings for ownership prototypes, followed by the feasibility results for rental prototypes.

FEASIBILITY OF OWNERSHIP PROTOTYPES
Both ownership prototypes are currently feasible in Los Altos Hills. Figure 15 shows the results of the pro forma analysis for both prototypes before considering any inclusionary policy scenario. The Townhome prototype would generate a residual land value per unit of approximately $0.7 million with no inclusionary scenario. This is far greater than typical land costs for townhome developments.

Though costs and revenues can vary from project to project based on a variety of factors, this implies that most townhome developments are likely to be feasible in Los Altos Hills. The 5-Story Condo $650,000
$750,000
$700,000
$570,000 $570,000 $610,000

3.6% 3.4% 3.7%

4.5% 4.5% 4.4%
2020 2021 2022 2023 2024 2025
Value per Unit
Cap Rate

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 20 prototype would generate a residual land value of approximately $225,000 per unit, which also exceeds typical land costs for condo projects. This indicates that most condo projects would also likely be feasible in Los Altos Hills. Figure 16 compares the residual land value per unit for each ownership prototype with typical land costs in Los Altos Hills.

FIGURE 15: PRO FORMA RESULTS PER UNIT FOR OWNERSHIP HOUSING IN LOS ALTOS HILLS Townhomes 5-Story Condos
Revenue per Unit
Gross Revenue (Average) $1,880,833 $1,698,901
Less Marketing -$94,042 -$84,945
Total Sales Proceeds $1,786,792 $1,613,956

Development Costs per Unit
Hard Costs $557,370 $812,629
Soft Costs (Excluding Fees) $100,327 $146,273
Other Municipal Fees $106,385 $100,404
Financing & Contingency $69,779 $119,693
Total Development Cost $833,860 $1,178,999

Residual Land Value per Unit
Total Sales Proceeds $1,786,792 $1,613,956
Target Return on Cost 15% 15%
Supportable Development Cost $1,553,732 $1,403,440
Total Development Cost $833,860 $1,178,999
Residual Land Value $719,872 $224,441

Feasibility (per unit)
Residual Land Value $719,872 $224,441
Typical Land Cost $272,250 $104,712
Typical Land Cost per S.F. $125 $125
Feasibility Result
Feasible: RLV exceeds land
cost
Feasible: RLV exceeds land
cost
Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; Redfin, 2025.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 21 FIGURE 16: RESIDUAL LAND VALUE VS. LAND COSTS PER UNIT FOR OWNERSHIP HOUSING IN LOS ALTOS HILLS WITHOUT

INCLUSIONARY POLICY
Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025.

FEASIBILITY OF RENTAL PROTOTYPES
Strategic Economics found that neither of the two rental prototypes are feasible in Los Altos Hills under current market conditions. Figure 17 provides a summary of pro forma results for each prototype and Figure 18 visualizes the feasibility result. As Figure 17 shows, neither of the rental project types currently support a positive residual land value---indicating that neither rental prototype could afford to pay for land and remain feasible in Los Altos Hills. Of course, both costs and revenue projections can change as market conditions change; because development costs grew nearly 20 percent more than multifamily rents over the past five years (as shown in Figure 12) while cap rates increased (as shown in Figure 14), a multifamily project that was viable in Santa Clara County in 2020 would be challenging to develop in 2025.
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Townhomes 5-Story Condos
Residual Land Value per Unit
Residual Land Value - All Market Rate Units Typical Land Cost per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 22 FIGURE 17: PRO FORMA RESULTS PER UNIT FOR RENTAL HOUSING IN LOS ALTOS HILLS Small Scale Rental
Apartments
5-Story Rental
Apartments
Net Operating Income per Unit $31,344 $33,620

Development Costs per Unit
Hard Costs $394,097 $459,824
Soft Costs (Excluding Fees) $51,233 $59,777
Other Municipal Fees $75,783 $75,559
Financing, Contingency & Developer Overhead $60,830 $75,376 Total Development Cost $581,942 $670,536

Residual Land Value per Unit
Total Net Operating Income $31,344 $33,620
Target Yield on Cost 5.5% 5.5%
Supportable Development Cost $569,899 $611,270
Total Development Cost $581,942 $670,536
Residual Land Value -$12,043 -$59,266

Feasibility (per Unit)
Residual Land Value -$12,043 -$59,266
Typical Land Costs per Unit $151,250 $74,443
Typical Land Costs per S.F. $125 $125
Feasibility Result
Infeasible; RLV is
negative
Infeasible: RLV is
negative
Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; CoStar, 2025.

FIGURE 18: RESIDUAL LAND VALUE VS. LAND COSTS PER UNIT FOR RENTAL HOUSING IN LOS ALTOS HILLS Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; CoStar, 2025.

Note: Current Policy requires 15 percent of units to be affordable, with an average income level of 100 percent of AMI. Because achieved rents are unlikely to equal the maximum allowable rent, this policy was tested assuming the project could achieve 90 percent AMI rents.

POLICY AND MARKET SCENARIOS
The previous section describes feasibility under current conditions in Los Altos Hills; this section considers alternative policies that may better align with the Town’s objectives and optimize the production of affordable units in future years. In addition, Strategic Economics recommends that local governments considering a new or updated affordable housing policy be cognizant of the potential ($100,000)
($50,000)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Small Scale Rental Apartments 5-Story Rental Apartments Residual Land Value
Typical Land Cost per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 23 impact of the policy under a range of market conditions, as it is difficult for local inclusionary ordinances to keep current with evolving market cycles.

Strategic Economics performed scenario testing to evaluate how prototypes would perform with different inclusionary requirements and market conditions. Strategic Economics also calculated the in-lieu fees associated with each inclusionary policy option. The purpose of this section is to help Los Altos Hills select inclusionary and in-lieu fee requirements that could remain relevant as market conditions change.

Inclusionary Policy Scenarios
This section describes the impact of an inclusionary policy on financial feasibility. Inclusionary policies consist of two main components: the percentage of onsite affordable units required, and the income group(s) targeted by the policy. The scenarios presented below assume an onsite inclusionary requirement of between ten and 15 percent, while testing the sensitivity of the results to different income levels. The findings and conclusions section includes a discussion of setting the percentage onsite requirement.

Strategic Economics tested the following inclusionary policy scenarios:
• Ownership:
o Scenario A: 15 Percent (all Moderate-Income)
o Scenario B: 15 Percent (all Low-Income)
• Rental:
o Scenario A: 10 Percent (5 Percent Very Low-Income and 5 Percent Low-Income) o Scenario B: 15 Percent (5 Percent Very Low-Income and 10 Percent Low-Income o Scenario C: 10 Percent (5 Percent Extremely Low-Income and 5 Percent Very LowIncome) o Scenario D: 12 Percent (4 Percent Extremely Low-Income, 4 Percent Very LowIncome, and 4 Percent Low-Income)

SCENARIO RESULTS
For ownership units, applying a 15 percent inclusionary requirement would substantially reduce perunit revenue; the Townhome prototype would remain feasible, but the 5-Story Condo prototype would become marginally infeasible. Figure 19 shows the residual land value per unit for both ownership prototypes with a 15 percent low-income requirement compared to a 15 percent moderate-income requirement. As discussed in the methodology section (Figure 10), there is a significant gap between new market rate home values and the below market sales prices for moderate- and low-income buyers, leading to a decline in residual land values for the scenarios tested. However, even with a 15 percent low-income requirement (Scenario B), the Townhome prototype would generate nearly $250,000 more per unit in residual land value than typical land costs. By contrast, residual land value for the 5-Story Condo prototype drops below typical land costs when the inclusionary policies in scenarios A and B are applied. A condo project optimized for Los Altos Hills might include elements of both the Townhome and 5-Story Condo projects, and therefore potentially achieve higher returns than those forecasted for

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 24 the 5-Story Condo project. By doing this, some condo projects may be able to support the 15 percent low-income requirements of Scenario B.

FIGURE 19: RESIDUAL LAND VALUE PER UNIT VS. LAND COSTS PER UNIT IN LOS ALTOS HILLS WITH A 15 PERCENT INCLUSIONARY REQUIREMENT, BY INCOME REQUIRED – OWNERSHIP UNITS Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; Redfin, 2025.

Note: Scenario A refers to a 15 percent moderate-income requirement (tested at 110% AMI). Scenario B refers to a 15 percent low-income requirement (tested at 70% AMI).

Because the rental prototypes are infeasible under current market conditions without an inclusionary policy, the tested inclusionary policies are unlikely to be relevant until market conditions improve.

Figure 20 summarizes this result. This figure illustrates that—under current conditions—rental prototypes would generate approximately $15,000 to $20,000 less residual land value per unit under Scenarios, B, C, and D than Scenario A, and $40,000 less residual land value per unit under Scenario A than without a requirement. However, these differences would likely change as market rate rents, development costs, and area median income change over time. The next subsection includes findings on how changes in market conditions might support an inclusionary policy $555,415 $523,894
$719,872
$78,636 $49,273
$224,441
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Scenario A Scenario B No Requirement Scenario A Scenario B No Requirement Townhomes 5-Story Condos
Residual Land Value per Unit
Residual Land Value per Unit Typical Land Costs per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 25 FIGURE 20: RESIDUAL LAND VALUE PER UNIT VS. LAND COSTS PER UNIT IN LOS ALTOS HILLS BY INCLUSIONARY SCENARIO – RENTAL UNITS
Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; CoStar, 2025.

Note:
• Scenario A refers to a five percent very low-income requirement (50% AMI) and a five percent low-income requirement (60% AMI). • Scenario B refers to a five percent very low-income requirement (50% AMI) and a ten percent low-income requirement (60% AMI). • Scenario C refers to a five percent extremely low-income requirement (30% AMI) and a five percent very-low income requirement (50% AMI).
• Scenario D refers to a four percent extremely low-income requirement (30% AMI), a four percent very-low income requirement (50% AMI), and a four percent low-income requirement (60% AMI).

Market Scenarios
This section tests the sensitivity of the feasibility results to changes in market conditions. The current pro forma results rely upon assumptions for development costs, return thresholds, sales prices, rents, and land costs, all of which are subject to change over time. This section describes how some of the most important market factors impact the viability of inclusionary policies.

Strategic Economics tested the sensitivity of the feasibility results by varying market factors that influence revenue, while holding development costs constant. For the ownership prototypes, Strategic Economics tested a range of market prices above and below current prices. For rental prototypes, Strategic Economics evaluated a range of scenarios that includes increases and decreases in market rents combined with variations in the market capitalization rates that determine the value of development.

The Townhome prototype could support either inclusionary requirement under current market conditions, but would become marginally infeasible with a ten percent reduction in price. Figure 21 shows the results for the Townhome prototype with all market rate units compared to Scenario A—a 15 percent moderate-income requirement—and Scenario B—a 15 percent low-income requirement. ($49,843) ($66,913) ($62,363) ($65,955)
($12,043)
($103,595)
($123,952)($115,970)($120,914)
($59,266)
($150,000)
($100,000)
($50,000)
$0
$50,000
$100,000
$150,000
$200,000
Scenario A
Scenario B
Scenario C
Scenario D
No Requirement
Scenario A
Scenario B
Scenario C
Scenario D
No Requirement
Small Scale Rental Apartments 5-Story Rental Apartments Residual Land Value per Unit
Residual Land Value Typical Land Cost per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 26 FIGURE 21: SENSITIVITY OF RESIDUAL LAND VALUE TO MARKET PRICE IN LOS ALTOS HILLS – TOWNHOMES Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; Redfin, 2025.

Note: Scenario A refers to a 15 percent moderate-income requirement (tested at 110% AMI). Scenario B refers to a 15 percent low-income requirement (tested at 70% AMI).

The 5-Story Condo prototype could support either inclusionary policy scenario with minor increases in sales prices. This finding is illustrated in Figure 22. If actual sales prices are higher than those forecasted in the feasibility model, condo projects in Los Altos Hills may be feasible to construct under current market conditions.

FIGURE 22: SENSITIVITY OF RESIDUAL LAND VALUE TO MARKET PRICE IN LOS ALTOS HILLS – 5-STORY CONDOS Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025; Redfin, 2025.

Note: Scenario A refers to a 15 percent moderate-income requirement (tested at 110% AMI). Scenario B refers to a 15 percent low-income requirement (tested at 70% AMI).
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Price Decline (-10%)
Scenario
Current Market Price Growth (+10%)
Scenario
Price Growth (+20%)
Scenario
RLV: All Market Rate Units RLV: Scenario A RLV: Scenario B Typical Land Cost per Unit -$300,000
-$200,000
-$100,000
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
Price Decline (-10%)
Scenario
Current Market Price Growth (+10%)
Scenario
Price Growth (+20%)
Scenario
RLV: All Market Rate Units RLV: Scenario A
RLV: Scenario B Typical Land Cost per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 27 While inclusionary policies would have a modest impact on the financial feasibility outcomes of rental prototypes in Los Altos Hills, it is unlikely that most apartment projects will be feasible in the near future due to broader challenges. Figure 23 shows the range of likely market outcomes for Small Scale Apartments under each inclusionary scenario. In comparison, Figure 24 shows the range of likely market outcomes for 5-Story Apartments. These figures demonstrate that 5-Story Apartments are more likely to become feasible in the future than Small Scale Apartments—particularly if no inclusionary requirement is applied to these project types. However, multifamily rental projects of all kinds face high development costs and financing challenges currently, making it unlikely that either prototype would become feasible without significant changes in market conditions.

FIGURE 23: RESIDUAL LAND VALUE VS. LAND COSTS PER UNIT FOR SMALL SCALE RENTAL APARTMENTS LOS ALTOS HILLS, WITH CURRENT MARKET CONDITIONS VS. RANGE OF LIKELY MARKET OUTCOMES Sources: Strategic Economics, 2025; CoStar, 2025; Developer Interviews, 2025; Town of Los Altos Hills, 2025; Santa Clara Housing Authority, 2025.

Note: Range of Market Outcomes refers to a range of “weak market” vs. “strong market” fluctuations from current market conditions, based on a ten percent change in in market rate rents and the typical range of cap rates observed in Santa Clara County over the past ten years.

The high end of the range of market outcomes was based on a 3.75 percent cap rate and ten percent rent increase. The low end of the range of market outcomes was based on a 5.5 percent cap rate and a ten percent rent decrease.

Note:
• Scenario A refers to a five percent very low-income requirement (50% AMI) and a five percent low-income requirement (60% AMI). • Scenario B refers to a five percent very low-income requirement (50% AMI) and a ten percent low-income requirement (60% AMI). • Scenario C refers to a five percent extremely low-income requirement (30% AMI) and a five percent very-low income requirement (50% AMI).
• Scenario D refers to a four percent extremely low-income requirement (30% AMI), a four percent very-low income requirement (50% AMI), and a four percent low-income requirement (60% AMI). ($250,000)
($200,000)
($150,000)
($100,000)
($50,000)
$0
$50,000
$100,000
$150,000
$200,000
Scenario A Scenario B Scenario C Scenario D No Requirement Residual Land Value per Unit
Inclusionary Scenario
Range of Market Outcomes Current Market Typical Land Cost per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 28 FIGURE 24: RESIDUAL LAND VALUE VS. LAND COSTS PER UNIT FOR 5-STORY RENTAL APARTMENTS IN LOS ALTOS HILLS, WITH CURRENT MARKET CONDITIONS VS. RANGE OF POSSIBLE MARKET OUTCOMES Sources: Strategic Economics, 2025; CoStar, 2025; Developer Interviews, 2025; Town of Los Altos Hills, 2025; Santa Clara Housing Authority, 2025.

Note: Range of Market Outcomes refers to a range of “weak market” vs. “strong market” fluctuations from current market conditions, based on a ten percent change in in market rate rents and the typical range of cap rates observed in Santa Clara County over the past ten years.

The high end of the range of market outcomes was based on a 3.75 percent cap rate and ten percent rent increase. The low end of the range of market outcomes was based on a 5.5 percent cap rate and a ten percent rent decrease.

Note:
• Scenario A refers to a five percent very low-income requirement (50% AMI) and a five percent low-income requirement (60% AMI). • Scenario B refers to a five percent very low-income requirement (50% AMI) and a ten percent low-income requirement (60% AMI). • Scenario C refers to a five percent extremely low-income requirement (30% AMI) and a five percent very-low income requirement (50% AMI).
• Scenario D refers to a four percent extremely low-income requirement (30% AMI), a four percent very-low income requirement (50% AMI), and a four percent low-income requirement (60% AMI).

In-Lieu Fee Analysis
For each policy scenario, Strategic Economics calculated the in-lieu fee that would be equivalent to the revenue lost from meeting the onsite requirement for below market rate units. This approach used the affordability gap, the difference in revenue per square foot between a project with all market rate units and a project with the required affordable units. To calculate expected revenue from affordable units, Strategic Economics used the same “achieved AMI” assumptions as discussed in Figure 9; this approach avoids creating an in-lieu fee that is less expensive than the likely cost of providing on-site units. Per square foot in-lieu fees were defined using the net residential area of each prototype. The final in-lieu fees recommended for adoption will be closely coordinated with the recommended inclusionary policy (considering the total revenue impact of both the onsite percentage and income targets), with potential adjustments to incentivize the Town’s preference for either onsite units or the collection of fee revenues.

Detailed in-lieu fee findings are summarized below:

The equivalent in-lieu fees for the ownership policies are as follows:
o Scenario A: $111 per square foot for townhomes or $121 per square foot for condos, for a policy that targeted moderate-income households; and ($300,000)
($200,000)
($100,000)
$0
$100,000
$200,000
Scenario A Scenario B Scenario C Scenario D No Requirement Residual Land Value per Unit
Inclusionary Scenario
Range of Market Outcomes Current Market Typical Land Cost per Unit

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 29 o Scenario B: $132 per square foot for townhomes or $146 per square foot for condos, for a policy that targeted low-income households.
o These findings are shown in Figure 25.

The equivalent in-lieu fees for the rental policies are as follows:
o Scenario A: $48 per square foot for Small Scale Apartments or $61 per square foot for 5-Story Apartments, for a ten percent requirement targeting a mix of very low- and lowincome households; o Scenario B: $70 per square foot for Small Scale Apartments or $89 per square foot for 5-Story Apartments, for a 15 percent requirement targeting a mix of very low- and lowincome households; o Scenario C: $55 per square foot for Small Scale Apartments or $67 per square foot for 5-Story Apartments, for a ten percent requirement targeting a mix of extremely lowand very low-income households; and o Scenario D: $59 per square foot for Small Scale Apartments or $72 per square foot for 5-Story Apartments, for a 12 percent requirement targeting a mix of extremely low- , very low-, and low-income households.
o These findings are shown in Figure 26.

FIGURE 25: EQUIVALENT IN-LIEU FEE PER NET SQUARE FOOT CORRESPONDING TO REVENUE FOREGONE FROM INCLUSIONARY POLICY IN LOS ALTOS HILLS, BY SCENARIO – OWNERSHIP UNITS Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; HCD, 2025; Santa Clara County Housing Authority, 2025.

Note: Scenario A refers to a 15 percent moderate-income requirement (tested at 110% AMI). Scenario B refers to a 15 percent low-income requirement (tested at 70% AMI).
$111
$132
$121
$146
$0
$20
$40
$60
$80
$100
$120
$140
$160
Scenario A Scenario B Scenario A Scenario B
Townhomes 5-Story Condos
Fee per Square Foot with 15%
Requirement
Income Level of Requirement (Achieved Price)

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 30 FIGURE 26: EQUIVALENT IN-LIEU FEE PER NET SQUARE FOOT CORRESPONDING TO REVENUE FOREGONE FROM INCLUSIONARY POLICY IN LOS ALTOS HILLS, BY SCENARIO – RENTAL UNITS Sources: Strategic Economics, 2025; Town of Los Altos Hills, 2025; HCD, 2025; Santa Clara County Housing Authority, 2025.

Note:
• Scenario A refers to a five percent very low-income requirement (50% AMI) and a five percent low-income requirement (60% AMI). • Scenario B refers to a five percent very low-income requirement (50% AMI) and a ten percent low-income requirement (60% AMI). • Scenario C refers to a five percent extremely low-income requirement (30% AMI) and a five percent very-low income requirement (50% AMI).
• Scenario D refers to a four percent extremely low-income requirement (30% AMI), a four percent very-low income requirement (50% AMI), and a four percent low-income requirement (60% AMI). $48
$70
$55 $59 $61
$89
$67
$72
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Scenario A Scenario B Scenario C Scenario D Scenario A Scenario B Scenario C Scenario D Small Scale Rental Apartments 5-Story Rental Apartments In-Lieu Fee per Net Square Foot

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 31 Policy Considerations and Findings
This section reviews key considerations, in addition to financial feasibility, for developing inclusionary and in-lieu fee policies for Los Altos Hills. First, the section provides a summary of inclusionary policies for other peer jurisdictions in Santa Clara County. The section then outlines other key policy and legal considerations, before concluding with a summary of findings.

INCLUSIONARY POLICIES IN NEIGHBORING JURISDICTIONS
Most peer jurisdictions require an onsite inclusionary percentage of 15 percent, with certain modifications tailored to smaller projects, larger projects, and/or ownership projects. Los Gatos, for example, uses a sliding scale that ranges from 10 to 20 percent onsite inclusionary depending on the size of the project. Cupertino has a 15 percent requirement for rental projects, but a higher percentage, 20 percent, for ownership projects. Like the other cities, Mountain View has a fifteen percent acrossthe-board requirement, except with an additional 10 percent requirement for above moderate households specifically for townhouses and rowhouses. Finally, Palo Alto has a 20 percent requirement for for-sale projects on more than five acres.

In peer cities, the inclusionary requirements for rental projects target a mix of income levels, from very low to moderate-income households. Whereas Santa Clara and Mountain View’s inclusionary policies use a weighted average approach to ensure that affordable units target 100 percent AMI and 65 percent AMI, respectively, most other jurisdictions assign percentage requirements to individual income categories. Cupertino targets very low and low-income units; Los Gatos targets moderateincome units; and Sunnyvale targets a mix of very low and low-income units. Lastly, San Jose provides rental developers with a choice: they can either target extremely low-income households, or provide a mix of very low, low, and moderate-income units.

In their inclusionary requirements for ownership projects, all peer cities except Los Gatos and Mountain View target median income or moderate-income households. Most cities require a mix of median income (targeting up to 100 percent of AMI) and moderate-income (targeting up to 120 percent of AMI) units. However, Los Gatos requires five to ten percent of ownership units to be dedicated to low-income households—half of the Town’s total inclusionary requirement. Mountain View’s policy also differs from other peer cities, but specifically for townhomes and rowhouses. For these project types, Mountain View requires ten percent of units to be set aside for above moderateincome households, which its policy defines as up to 135 percent of AMI. This brings the City’s total inclusionary requirement to 25 percent for these projects, but at a higher average AMI than other jurisdictions.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 32 FIGURE 27: INCLUSIONARY REQUIREMENTS IN SANTA CLARA COUNTY JURISDICTIONS, AS OF 2025 Jurisdiction
Minimum Size
for Inclusionary
Requirement
Policy Categories Required Share of Units
Rental For-Sale
Cupertino 5 Units 9% Very Low
6% Low
10% Median
10% Moderate
Los Gatos 5 Units
5-19 Units 10% Moderate 5% Low
5% Moderate
20-100 Units 10-20% Moderate 5-10% Low
5-10% Moderate
100+ Units 20% Moderate 10% Low
10% Moderate
Mountain
View No Minimum
Townhouses &
Rowhouses 15% (Avg. 65% AMI)
15% Moderate (Avg. 100% AMI)
10% Above Moderate (Avg. 135%
AMI)
All Other
Developments 15% (Avg. 65% AMI) 15% (Avg. 100% AMI)
Palo Alto 3+ Units
Project on <5
acres Impact Fee
10% Median
5% Moderate
Project on >5
acres 20% (2/3 Median, 1/3 Moderate)
San Jose 10+ Units
Option 1 10% Extremely Low 15% Moderate
Option 2
5% Very Low
5% Low
5% Moderate
15% Moderate
City of
Santa Clara 3+ Units
<10 Units: 1 unit or in-lieu/impact fee
10+ Units 15% (Avg. 100% AMI) 15% (Avg. 100% AMI)
Sunnyvale
Rental: 3+ Units
For-Sale: 7+
Units
5% Very Low
10% Low 15% Moderate
Sources: City of Cupertino, 2025; Town of Los Gatos, 2025; City of Mountain View, 2025; City of Palo Alto, 2025; City of San Jose, 2025; City of Santa Clara, 2025; City of Sunnyvale, 2025; Strategic Economics, 2025.

Note: some cities apply an impact fee to projects that do not meet the minimum size threshold for the inclusionary requirement.

OTHER POLICY CONSIDERATIONS
In addition to financial feasibility and peer cities’ requirements, jurisdictions may wish to consider several policy considerations when tailoring inclusionary policies. These include conditions for HCD review; Metropolitan Transportation Commission requirements; and State Density Bonus Law, as described below:
• Any local inclusionary policy on rental housing may be subject to review by the California Department of Housing and Community Development if it includes a greater than 15 percent inclusionary requirement for households at income levels of 80 percent of AMI or less. Since 2017, the AB 1505 legislation (also known as the “Palmer fix”) provided for a set of conditions that could trigger HCD review, including an elevated inclusionary requirement for very low- and

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 33 low-income households and failure to meet 75 percent of above moderate RHNA goals.2 Inclusionary policies under review may need to perform a feasibility study demonstrating that “the ordinance does not unduly constrain the production of housing.” The legislation does not apply to ownership housing.

• The Metropolitan Transportation Commission (MTC) requires compliance with its Transit Oriented Communities (TOC) policy in transit station areas for jurisdictions to be eligible and/or competitive for certain regional funding sources.3 Compliance with the TOC policy requires adoption of at least two affordable housing production policies; one option for this requirement is to adopt an inclusionary policy that meets MTC’s criteria. These criteria are as follows:
o Rental Policy: must require least 15 percent of units to be affordable, with an average income of 80% of AMI or less.
o Ownership Policy: must require least 15 percent of units to be affordable, with an average income of 120% of AMI or less.

• The State Density Bonus law allows multifamily developments to build to a higher density than the maximum density allowed by zoning if affordable units are included in the project. Recent changes to state law have expanded opportunities for developments to utilize this bonus. With the passage of AB 1287 in 2024, the State created a “stackable” density bonus, allowing for market rate projects to achieve density bonuses of up to 100 percent by providing the maximum percentage of affordable units in multiple categories. By State law, the affordable units provided under the SDBL also count towards local inclusionary requirements, provided the units are targeted at or below the income level required by the local policy. The bonus market rate units allowed in SDBL projects commonly result in an overall project with a lower percentage of affordable units than the percentage in the local inclusionary policy.

FIGURE 28:DENSITY BONUS AMOUNT TRIGGERED BY PROVISION OF AFFORDABLE UNITS, BY INCOME LEVEL AND SHARE

OF UNITS IN INCOME CATEGORY
Amount of Density Bonus Triggered
Very Low-Income Units Low-Income Moderate-Income
5% of Units 20% Density Bonus None None
10% of Units 32.5% Density Bonus 20% Density Bonus 5% Density Bonus1 15% of Units 50% Density Bonus 27.5% Density Bonus 10% Density Bonus1 Sources: Meyers Nave, 2023; Strategic Economics, 2025.

Notes:

1. Applies only to For-Sale Units

2. Density bonuses are additive, up to a 50 percent density bonus for market rate projects or up to a 100 percent bonus if the maximum share of units is provided in multiple categories of income targets. 2 From January 31st, 2023 through the end of 2024 (approximately one-quarter of Los Altos Hills’ eight-year RHNA Cycle), the Town had met around 7 percent of its very low-income RHNA target; 17 percent of its low-income RHNA target; 57 percent of its moderate-income RHNA target; and 5 percent of its above moderate-income RHNA target. 3 Los Altos Hills does not currently have any transit stations that qualify for this policy.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 34

SUMMARY OF FINDINGS AND CONCLUSIONS
This section provides a summary of findings from the feasibility and inclusionary analyses along with conclusions that inform Los Altos Hills’ decisions regarding an inclusionary policy.

Findings
Both ownership prototypes are currently feasible in Los Altos Hills under current market conditions.

A 15 percent inclusionary requirement would substantially reduce per-unit revenue for these prototypes, but would remain feasible for the Townhome prototype and be marginally infeasible for the 5-Story Condo Prototype.

Based on current market conditions, Strategic Economics found that Small Scale Rental Apartments and 5-Story Rental Apartments are not currently feasible in Los Altos Hills.

Because the rental prototypes are infeasible under current market conditions without an inclusionary policy, the tested inclusionary policies are unlikely to be relevant until market conditions improve. Market conditions, including development cost increases, financing conditions, and rent levels, represent the primary barrier to feasibility, both locally and at the regional scale.

The ability of ownership projects to support inclusionary policies could vary based on individual project characteristics and the specific market context in Los Altos Hills. Although broader market trends support the development of compact ownership housing in the Los Altos Hills market, this type of development is still untested in this location. The format, density, and targeted market segment for townhome or condominium development could vary from the prototypes studied, with actual developments combining aspects of each prototype and/or producing a higher-end product to optimize for the specific conditions in Los Altos Hills.

Conclusions
Under the policy scenarios tested, an inclusionary policy could be applied to townhome developments without significantly constraining new development, but Los Altos Hills should still be conservative in application of inclusionary policies to both condos and townhomes. This is the case for two reasons:

Because data informing prospective sales prices for townhomes and condos in Los Altos Hills is limited, actual sales prices may be unpredictable. Strategic Economics estimated sales price assumptions for Townhomes and 5-Story Condos based on sales activity of comparable housing units in neighboring jurisdictions and by evaluating Los Altos Hills’ market strength based on single-family home sales.
• While a policy that includes low-income households is likely viable, developers report that it can sometimes be difficult to qualify low-income homebuyers, particularly if other monthly costs such as HOA dues and hazard insurance represent significant costs over time. Therefore, the Town should monitor the implementation of any potential ownership policy targeted to households that are below a moderate-income level to ensure that this policy is a practical tool for generating housing at lower income levels.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 35 While the Town could adopt an inclusionary policy for rental projects, the policy would be unlikely to generate significant affordable units until fundamental changes in the market occur. This analysis examined inclusionary policy scenarios targeted to extremely low-, very low- and/or low-income households. However, current market rents are not high enough to spur development even without an inclusionary policy in place. A large increase in market rents, combined with falling or stabilizing development costs, could generate multifamily development activity in Los Altos Hills, but these conditions might occur only when market rents significantly exceed current rents. The Town should consider re-evaluating the affordability levels in its policy if and when this occurs to ensure that its inclusionary policy is still targeting income levels that are most needed to meet the Town’s RHNA goals.

If an inclusionary policy is adopted, the Town should also adopt an equivalent in-lieu fee. The in-lieu fee rate would be determined by the inclusionary policy for ownership versus rental development. It would be possible to differentiate fees for different product types (e.g., fee rates specific to townhome and condominium product types). However, the lack of market information does not currently support this approach. The Town could implement the in-lieu fee policy in one of the following ways:

Allow payment of the fee for smaller scale projects and when the policy results in fractional units. Allowing in-lieu fees for smaller-scale projects can provide flexibility for projects for when meeting the policy with onsite units is infeasible. For all other projects, allowing an in-lieu fee only for fractional units would help ensure that Los Altos Hills produces BMR units, without requiring the Town to manage fee revenue to create them.

Limit payment of the in-lieu fee to fractional units on small-scale projects. The inclusionary policies in some jurisdictions do not allow payment of the in-lieu fee above a certain unit threshold, instead requiring developers to round up fractional units and provide an additional BMR unit. However, this approach is not feasible for very small scale developments. State law requires jurisdictions to include some alternative means of compliance within an inclusionary policy—such as in-lieu fees, land dedication or provision of off-site units. Emphasizing on-site units, land dedication, or off-site units—as opposed to in lieu fees for large-scale projects—could help Los Altos Hills achieve production of BMR units in the short-term.

While in-lieu fees charged in conjunction with an inclusionary policy are not legally required to be supported by a nexus study, the Town should consider how any adopted in-lieu fee levels compare with the maximum justifiable fee found in the nexus study. Should inclusionary policies or in-lieu fees face a future legal challenge, the nexus analysis may offer additional support for affordable housing fee levels that fall below the nexus-justified maximums. For Los Altos Hills, this consideration applies to townhome developments, where the maximum justified fee found in the nexus study is $91 per square foot, and the equivalent in-lieu fee for the inclusionary policies tested were higher at $111 per square foot for Scenario A and $132 per square foot for Scenario B (see Figure 25).

Monitor the residential market periodically and adjust the inclusionary policy as appropriate. As shown in the Policy and Market Scenarios section, the feasibility of development, and its ability to accommodate an inclusionary policy, may depend on a variety of factors. Indicators of a changing market include changes in the pace of development applications, trends in sales values and rental rates, a significant change in the California Construction Cost index, or changes in interest rates.

Jurisdictions should update the inclusionary feasibility study periodically to ensure the policy is wellsuited to the current market environment.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 36 Appendix I: Financial Feasibility Assumptions
Cost Assumptions
FIGURE 29: DETAILED COST ASSUMPTIONS FOR OWNERSHIP PROTOTYPES IN LOS ALTOS HILLS Unit of measure Townhomes 5-Story Condos
Land Costs per square foot $125 $125
Hard Costs
Demolition and Site Work per sq. ft. land $40 $40
Building Area Construction
Residential - Type V per gross sq. ft. $275 $400
Parking per space
Structured/Podium per space $50,000
Underground per space $80,000
Tuck-under per space
Soft Costs
Arch, Eng & Consulting % of hard costs 5.0% 5.0%
Taxes, Insurance, Legal & Accounting % of hard costs 10.0% 10.0% Other Soft Costs % of hard costs 3.0% 3.0%
Total Soft Costs (Excluding Fees) % of hard costs 18.0% 18.0%

Municipal Fees Shown in Separate Table
Contingency % of hard + soft costs 5.0% 5.0%
Financing
Amount Financed (Loan-to-cost) % of hard + soft costs 55% 55% Average outstanding balance % of Amt Financed 55% 55%
Construction Loan Fee % of Amt Financed 1.0% 1.0%
Construction Interest (annual) 8.0% 8.0%
Term Months 18 28
Developer Return
Target Developer Return-on-cost % of total dev costs 15.0% 15.0% Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025; CoStar, 2025; Federal Reserve Bank of New York, 2025.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 37 FIGURE 30: DETAILED COST ASSUMPTIONS FOR RENTAL PROTOTYPES IN LOS ALTOS HILLS Unit of measure
Small Scale Rental
Apartments
5-Story Rental
Apartments
Land Costs
Land Costs per square foot $125 $125
Hard Costs
Demolition and Site Work per sq. ft. land $40 $40
Building Area Construction
Residential - Type V per gross sq. ft. $290 $310
Parking per space
Surface per space $10,000
Structured/Podium per space $50,000
Underground per space $80,000
Tuck-under per space $10,000
Soft Costs
Arch, Eng & Consulting % of hard costs 5.0% 5.0%
Taxes, Insurance, Legal & Accounting % of hard costs 5.0% 5.0% Other Soft Costs % of hard costs 3.0% 3.0%
Total Soft Costs (Excluding Fees) % of hard costs 13.0% 13.0% Municipal Fees Shown in Separate Table
Contingency % of hard + soft costs 5.0% 5.0%
Financing
Amount Financed (Loan-to-cost) % of hard + soft costs 55% 55% Average outstanding balance % of Amt Financed 55% 55%
Construction Loan Fee % of Amt Financed 1.0% 1.0%
Construction Interest (annual) 8.0% 8.0%
Term Months 24 28
Developer Share
Developer Overhead Fee % of hard + soft costs 3.0% 3.0% Target Developer Yield-on-Cost % of total dev costs 5.5% 5.5% Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025; CoStar, 2025; Federal Reserve Bank of New York, 2025.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 38 FIGURE 31: LOS ALTOS HILLS MUNICIPAL FEE ESTIMATES - OWNERSHIP AND RENTAL PROTOTYPES Prototype Townhomes
Small Scale
Rental
Apartments
5-Story Condos 5-Story Rental
Apartments
Permits & Fees
Building Permit $10,641 $22,386 $202,520 $239,204
Plan Check $6,917 $14,551 $131,638 $155,483
Sewer & Water $11,236 $11,236 $337,080 $606,744
Other $37,586 $77,969 $708,221 $837,013
Total $66,381 $126,142 $1,379,459 $1,838,444
Impact Fees
Parks $54,450 $54,450 $1,317,690 $1,470,150
Schools $9,460 $17,200 $174,924 $208,626
Other $10,649 $10,649 $319,470 $575,046
Total $74,559 $82,299 $1,812,084 $2,253,822
Sources: Town of Los Altos Hills, 2025; Strategic Economics, 2025.

Prototype and Revenue Assumptions
FIGURE 32: MARKET RATE OWNERSHIP PRO FORMA REVENUE ASSUMPTIONS, LOST ALTOS HILLS Unit of measure Townhomes 5-Story Condos
Unit Size
1-BD sq. ft. - 900
2-BD sq. ft. 1,400 1,300
3-BD sq. ft. 1,700 1,600
4-BD sq. ft. 2,000 1,900
Average Unit Size sq. ft. 1,710 1,382
Unit Sales Value Price Share Price Share
1-BD per unit - 0% 1,200,000 10%
2-BD per unit 1,685,000 23% 1,610,000 55%
3-BD per unit 1,890,000 50% 1,950,000 30%
4-BD per unit 2,035,000 27% 2,130,000 5%
Average Sales Value
Per unit per unit $1,880,833 $1698,901
Marketing Expense % of Sales Price 5% 5%
Net Revenue $1,786,792 $1,613,956
Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 39 FIGURE 33: MARKET RATE RENT PER UNIT ASSUMPTIONS, LOS ALTOS HILLS Unit of measure Small Scale Rental Apartments 5-Story Rental Apartments Residential
Unit Size
Studio square feet 550 550
1-BD square feet 750 750
2-BD square feet 1,150 1,100
3-BD square feet 1,400 1,300
Average Unit Size square feet 955 891
Unit Rents
Studio per unit $3,200 $3,400
1-BD per unit $3,500 $3,800
2-BD per unit $4,500 $5,000
3-BD per unit $5,000 $6,000
Average per unit $4,019 $4,310

Other Revenue Assumptions
Vacancy (Market Rate Units) % of Units 5% 5%
Vacancy (Below Market Rate Units) % of BMR Units 5.0% 5.0% Operating Expense % of Revenue 30% 30%
Capitalization Rate 4.50% 4.50%
Sources: CoStar, 2025; Apartment Websites, 2025; Strategic Economics, 2025.

FIGURE 34: AREA MEDIAN INCOME AND INCOME LIMITS FOR SANTA CLARA COUNTY, 2025 People per Household 1 2 3 4 5
Bedroom Count Studio 1-BD 2-BD 3-BD 4-BD
Extremely Low $42,200 $48,200 $54,250 $60,250 $65,100
Very Low-Income $70,350 $80,400 $90,450 $100,450 $108,500 Low-Income $111,700 $127,650 $143,600 $159,550 $172,350 Median-Income $136,650 $156,150 $175,700 $195,200 $210,800 Moderate-Income $164,000 $187,400 $210,850 $234,250 $253,000 Sources: California HCD, 2025; Strategic Economics, 2025.

Note: Extremely Low-Income refers to up to 30% of AMI; Very Low-Income refers to up to 50% of AMI; Low-Income refers to up to 80% of AMI, and Moderate-Income refers to up to 120% of AMI.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 40 FIGURE 35: MAXIMUM SALES PRICE PER UNIT AND AVERAGE BMRPRICE FOR TOWNHOME PROTOTYPE IN SANTA CLARA COUNTY, BY BMR INCOME LEVEL, 2025
Unit Mix Low (70% Achieved AMI) Median (90% Achieved AMI) Moderate (110% Achieved
AMI)
Bedroom Count
One Bedroom 0%
Two Bedroom 23% $282,037 $396,748 $511,459
Three Bedroom 50% $301,139 $428,581 $556,023
Four Bedroom 27% $310,808 $448,435 $586,061
Average Price per BMR Unit $299,260 $426,448 $553,635
Sources: Strategic Economics, 2025; Santa Clara County Housing Authority, 2025; CA HCD, 2025; Redfin, 2025; Freddie Mac, 2025; Alta Housing, 2025; Ownwell, 2025.

Notes: Accounts for share of income spent on housing costs (30%), current interest rates, monthly utility costs, taxes, insurance, and HOA costs. Achieved sales price reflects likely average for units in each income category in an inclusionary project.

FIGURE 36: MAXIMUM SALES PRICE PER UNIT AND AVERAGE BMR PRICE FOR 5-STORY CONDOS IN SANTA CLARA COUNTY, BY INCOME LEVEL, 2025
Unit Mix
Low (70% Achieved
AMI)
Median (90% Achieved
AMI)
Moderate (110% Achieved
AMI)
Bedroom Count
1-BD 10% $268,179 $370,126 $472,073
2-BD 55% $279,697 $394,408 $509,119
3-BD 30% $297,366 $424,808 $552,250
4-BD 5% $306,253 $443,880 $581,507
Average Price per BMR Unit $285,259 $403,744 $522,229
Sources: Strategic Economics, 2025; Santa Clara County Housing Authority, 2025; CA HCD, 2025; Redfin, 2025; Freddie Mac, 2025; Alta Housing, 2025; Ownwell, 2025.

Notes: Accounts for share of income spent on housing costs (30%), current interest rates, monthly utility costs, taxes, insurance, and HOA costs. Achieved sales price reflects likely average for units in each income category in an inclusionary project.

Residential Feasibility and Inclusionary Analysis for the Town of Los Altos Hills 41 FIGURE 37: BELOW MARKET RATE RENTAL REVENUE ASSUMPTIONS IN SANTA CLARA COUNTY, 2025 Small Scale Rental Apartments 5-Story Rental Apartments Share of Units by Bedroom Count1
Studio 9% 5%
1-BD 41% 55%
2-BD 41% 35%
3-BD 9% 5%
Achieved Monthly Rent per Unit2
50% AMI (Very Low) $2,018 $1,997
60% AMI (Low) $2,371 $2,346
90% AMI (Median) $3,616 $3,576
110% AMI (Moderate) $4,445 $4,395
Monthly Operating Expenses per Unit3 $1,206 $1,293
Sources: Strategic Economics, 2025; Santa Clara County Housing Authority, 2025; CA HCD, 2025 Notes:

1. Reflects distribution of units in prototype.

2. Based on California HCD’s 2025 table of median incomes by household size for Santa Clara County; Santa Clara County Housing Authority’s utility allowances for multifamily units; and an assumption of no more than 30 percent of income spent on housing costs. Achieved rent reflects likely average for units in each income category in an inclusionary project.

3. Operating expenses per unit based on the average operating expense per unit of a market rate unit in each prototype, based on 30 percent of average market rate rent for each unit.

Residential Impact Fee Study

PUBLIC DRAFT REPORT
Prepared for:

Town of Los Altos Hills
April 10, 2026
ITEM 7C ATTACHMENT 3

Residential Impact Fee Study for the Town of Los Altos Hills 2 Table of Contents
TABLE OF FIGURES ...............................................................................................................................4 INTRODUCTION ..............................................................................................................................6 Report Purpose.....................................................................................................................................6 Background on Residential Impact Fees............................................................................................6 Report Organization .............................................................................................................................7 RESIDENTIAL NEXUS ANALYSIS....................................................................................................8 Methodology .........................................................................................................................................8 Steps 1-3 Calculations and Results: Nexus Between New Residential Development and Jobs . 11 Step 1. Define Residential Housing Types............................................................................... 11 Step 2. Household Incomes Required to Afford Housing ....................................................... 12 Step 3. Economic Impacts of New Households....................................................................... 13 Steps 4-5 Calculations and Results: Nexus Between Jobs and AFfordable Housing Demand.... 14 Step 4. New Worker Households and Annual Household Incomes ....................................... 14 Step 5. Demand for Affordable Housing from New Worker Households............................... 14 Steps 6-8 Calculations and Results: Affordable Housing Funding Gap......................................... 16 Step 6: Estimate Affordable Housing Development Costs ..................................................... 17 Step 7: Estimate Worker Household Contribution .................................................................. 17 Step 8: Calculate the Funding Gap .......................................................................................... 19 Step 9 Calculations and Results: Maximum Residential Impact Fees .......................................... 20 POLICY CONSIDERATIONS AND FINDINGS.................................................................................21 Fees Charged in Neighboring Jurisdictions ..................................................................................... 21 AB 602 and Level of Service Analysis.............................................................................................. 24 Current Level of Service for Affordable Housing ..................................................................... 24 Increasing Level of Service....................................................................................................... 25 Financial Feasibility and Impact Fee Scenarios.............................................................................. 26 Summary of Findings and Conclusions............................................................................................ 32 Findings...................................................................................................................................... 32 Conclusions ............................................................................................................................... 33 APPENDIX I: OCCUPATION DISTRIBUTION AND NEXUS ANALYSIS ASSUMPTIONS.........................34

Residential Impact Fee Study for the Town of Los Altos Hills 3 APPENDIX II: FINANCIAL FEASIBILITY ASSUMPTIONS AND PRO FORMA .......................................41 Cost Assumptions...................................................................................................................... 41 Revenue Assumptions .............................................................................................................. 42 Detailed Pro Forma ................................................................................................................... 43

Residential Impact Fee Study for the Town of Los Altos Hills 4 Table of Figures
Figure 1: Prototypes Used in Nexus Analysis .......................................................................................... 11 Figure 2: Assumptions for Calculating Household Income .................................................................... 12 Figure 3: Annual Income Requirement Calculations .............................................................................. 13 Figure 4: Jobs Created per 1,000 Households in Each Prototype, Based on Northern Santa Clara Sales Prices............................................................................................................................................... 13 Figure 5: Assumptions Used to Adjust for Workers per Household and Household Size..................... 14 Figure 6: Santa Clara County Household Income Categories, 2024..................................................... 15 Figure 7: Total Households per Housing Unit Requiring Affordable Housing, Medium Single-Family. 15 Figure 8: Total Households per Housing Unit Requiring Affordable Housing, Large Single-Family ..... 16 Figure 9: Total Households per Housing Unit Requiring Affordable Housing, Townhome ................... 16 Figure 10: Average Development Costs per Unit.................................................................................... 17 Figure 11: Affordable Rents by Income Level and Bedroom Count....................................................... 18 Figure 12: Supportable Debt per Affordable Unit ................................................................................... 18 Figure 13: Affordable Sales Price for a Moderate-Income Household for a 2-bedroom Townhome... 19 Figure 14: Funding Gap Calculation for Rental Housing by Income Group........................................... 19 Figure 15: Funding Gap Calculation for Ownership Housing ................................................................. 20 Figure 16: Average Funding Gap for Very Low-, Low-, and Moderate-Income Households.................. 20 Figure 17: Calculation of Maximum Residential Impact Fees ............................................................... 20 Figure 18: Ownership Residential Impact and In-Lieu Fees in Santa Clara County Jurisdictions, by Housing Type, 2025.................................................................................................................................. 23 Figure 19: Rental Residential Impact and In-Lieu Fees in Santa Clara County Jurisdictions, by Housing Type, 2025.................................................................................................................................. 23 Figure 20: Level of Service Definition for Affordable Housing ............................................................... 24 Figure 21: Current Level of Service for Affordable Housing in Los Altos Hills....................................... 25 Figure 22: Fee Required to Meet all Affordable Housing Need, with and without External Funding .. 25 Figure 23: Prototypes Evaluated in Feasibility Analysis ......................................................................... 27 Figure 24: Financial Feasibility per Unit without Residential Impact Fee in Los Altos Hills................. 28 Figure 25: Impact Fee per Square Foot for Each Prototype, by Impact Fee Scenario ......................... 29 Figure 26: Residual Land Value and Typical Land Cost per Unit by Impact Fee Scenario.................. 30

Residential Impact Fee Study for the Town of Los Altos Hills 5 Figure 27: Contribution of Municipal and Residential Impact Fees to Total Development Costs in Los Altos Hills, by Fee Scenario ...................................................................................................................... 31 Figure 28: Total Residential Impact Fee per Unit, by Scenario and Prototype, Santa Clara................ 32 Figure 29: Jobs per 1,000 Units in Nexus by Occupation and Corresponding Household Income - Medium Single-Family............................................................................................................................... 37 Figure 30: Jobs per 1,000 Units in Nexus by Occupation and Corresponding Household Income – Large Single-Family................................................................................................................................... 38 Figure 31: Jobs per 1,000 Units in Nexus by Occupation and Corresponding Household Income – Townhomes ............................................................................................................................................... 39 Figure 32: New Worker Households, Affordability Requirements, and Maximum Fee per Square Foot, per Unit in Prototype ................................................................................................................................. 40 Figure 33: Detailed Cost Assumptions for Ownership Prototypes in Santa Clara ................................ 41 Figure 34: Municipal Fee Estimates Per Unit in Los Altos Hills, 2025.................................................. 42 Figure 35: Market Rate Ownership Pro Forma Revenue Assumptions ................................................. 42 Figure 36: Detailed Pro Forma – Per Unit Basis ..................................................................................... 43

Residential Impact Fee Study for the Town of Los Altos Hills 6 Introduction

REPORT PURPOSE
This report is part of a collaborative effort by six jurisdictions in Santa Clara County to analyze and potentially implement new or revised affordable housing policy tools. The participants in the study include Gilroy, Los Altos Hills, Los Gatos, Mountain View, the City of Santa Clara, and Sunnyvale.

Together, these jurisdictions commissioned Strategic Economics to perform a Grand Nexus Study. The study includes the required analysis and findings for:
• Residential impact fees charged on single-family units and “missing middle” developments of fewer than 10 units
• Inclusionary affordable housing requirements and associated in-lieu fees • Commercial linkage fees charged on non-residential development The Grand Nexus Study culminated in three reports to address each of the above policies: The Residential Impact Fee Study (this report); The Residential Feasibility Study and Inclusionary Analysis; and The Commercial Linkage Fee Study. Each jurisdiction has opted into one, two, or all three components of the study.

This report contains a residential nexus analysis—the economic model that forms a legal basis for enacting an impact fee on new residential development—as well as additional analyses and findings to support each jurisdiction’s policy decisions and meet State requirements for adopting a residential impact fee.

BACKGROUND ON RESIDENTIAL IMPACT FEES
Residential impact fees are enabled by California’s Mitigation Fee Act. The Act requires local jurisdictions that charge impact fees on new development to perform a nexus study that establishes a connection between that development and the need for new public facilities. This nexus study establishes the impact of market rate housing development on the need for additional affordable housing for worker households. The estimated cost of funding this affordable housing forms the basis for a residential impact fee, and fee revenues are used to fund affordable housing in the community.

The nexus analysis is an economic model that establishes the connection between new market rate housing and the need for affordable housing through a series of linkages. Development of new market rate housing increases the local housing supply and accommodates population growth. New residents in a city spend money on local goods and services, and this spending spurs new employment in response to increased demand. While some of these new jobs will pay salaries that allow workers to rent or purchase local housing at market rates, many new jobs will pay lower wages. As a result, new workers earning insufficient income to afford market rate housing create demand for publicly supported affordable housing.

Residential Impact Fee Study for the Town of Los Altos Hills 7

REPORT ORGANIZATION
The remainder of this report is organized into three sections:
• Section II, Residential Nexus Analysis, describes the methodology used for the nexus analysis, the nexus results, and the corresponding maximum justifiable residential impact fees associated with each residential housing type. Following standard practice, the nexus analysis used countywide data to model household spending patterns, industry mix, and employment.

Therefore, this analysis was largely a shared analysis among the several jurisdictions participating in the study, with certain customizations specific to the housing market in the northern part of Santa Clara County.
• Section III, Policy Considerations and Findings, presents policy context and findings tailored to the Town of Los Altos Hills. This section reviews impact fees charged in nearby jurisdictions, how residential impact fees could affect the financial feasibility of housing development, and how impact fees relate to the production of affordable housing units within the jurisdiction.

The latter analysis fulfills the requirements of AB 602, the State of California’s requirements for impact fees as of 2022. Lastly, the Summary of Findings and Conclusions portion of Section III presents Strategic Economics’ overall conclusions from the study to consider for implementing an impact fee for residential development in the Town of Los Altos Hills. • Section IV, Fulfilling State Requirements for Adoption, reviews the key requirements of the Mitigation Fee Act and summarizes how this report meets each requirement. This section also includes a justification for the Town’s preferred impact fee program, as required by AB 602.

The report also includes two appendices:
• Appendix I: IMPLAN Technical Overview and Intermediate Nexus Analysis Tables • Appendix II: Financial Feasibility Assumptions and Pro Forma

Residential Impact Fee Study for the Town of Los Altos Hills 8 Residential Nexus Analysis
This section quantifies the nexus between new residential development in Los Altos Hills and the need for affordable housing in the town. Strategic Economics used an established step by step methodology to calculate the relationship between new residential development, new employee households in the Town of Los Altos, the quantity of affordable housing those households need, and the amount of funding that would be required to fill that need. These steps provide the legal rationale for calculating the maximum justifiable fee level that could be charged on new residential development to offset this impact.

While the nexus analysis is a model of spending, employment, and affordable housing impacts within a jurisdiction, it is standard practice to utilize data related to household spending, industry, and employment patterns maintained by the Bureau of Labor Statistics (BLS) at a countywide level.

Average wages are expressed for the San José-Sunnyvale-Santa Clara Metropolitan Statistical Area, reflecting the regional nature of labor markets. Although development generally causes a regional impact on worker household growth and affordable housing demand, the purpose of the nexus analysis is to calculate the fee necessary to mitigate the entire impact of development within each jurisdiction.

The maximum justifiable fee is expressed in this analysis as a fee per square foot of development.

Effective in 2022, the AB 602 legislation mandates that a nexus study “shall calculate a fee imposed on a housing development project proportionately to the square footage of proposed units of the development” (Cal. Gov. Code § 66015.5[a]), unless a rationale for an alternative basis for calculating the fee is provided. It is standard practice for residential impact fees for affordable housing in California to be charged based on residential square feet (or the net new square feet if the project involves the demolition of existing residential floor area).

While the maximum justifiable fee found in the nexus study establishes a legal upper limit, in practice cities typically adopt impact fees at a level that is significantly lower than the maximum. The next section considers other policy factors specific to the Town of Los Altos Hills, along with the nexussupported maximum, before making recommendations for updating the Town’s fee program.

This section begins with a general overview of the residential nexus methodology, followed by the specific results in each step of the analysis, and concludes with the maximum justifiable residential impact fees.

METHODOLOGY
Strategic Economics carried out nine steps of analysis to calculate the nexus between new housing development and fees for affordable housing. An overview of the methodology is provided below.

STEPS 1-3: NEXUS BETWEEN NEW RESIDENTIAL DEVELOPMENT AND JOBS The first phase of the nexus analysis, steps one through three, describes the range of typical smallscale residential developments in northern Santa Clara County, estimates the new household spending associated with those developments, and, finally, estimates the new employment created as a result of this spending. Strategic Economics used IMPLAN software to perform this economic

Residential Impact Fee Study for the Town of Los Altos Hills 9 impact analysis. (More details about IMPLAN and economic impact analysis are provided in Appendix I.)
The methodology used for each step is described below.

Step 1. Define market rate housing types
Strategic Economics defined three prototypical development types, or “residential prototypes,” to which residential impact fees could be applied in Northern Santa Clara County. These were defined based on a review of recent development trends, pipeline projects, and market data for the town and county. The prototypes represent typical new market rate development projects likely to be developed in the town. The prototype definitions include information on the building characteristics, net residential area, unit mix and sizes, and sales prices or rents.

Step 2. Estimate household income of buyers and renters of new market rate units.

To estimate the average gross household income required to purchase or rent new market rate units, Strategic Economics evaluated the market value or rents of new units. This estimate used generalized assumptions for rents and sales prices typical of the northern part of Santa Clara County. For ownership units, Strategic Economics assumed typical mortgage terms and assumed that buyers spend 35 percent of their gross incomes on housing costs. For rental units, Strategic Economics assumed that renter households spend 30 percent of their gross incomes on housing.

Step 3. Estimate economic impacts of new buyers and renters.

Strategic Economics used the IMPLAN model to calculate job impacts from new residential development, based on the household income needed to afford the average unit in each residential prototype. The IMPLAN model uses the Bureau of Labor Statistics’ Consumer Expenditure Survey data to model the spending patterns of different income groups. For each prototype, IMPLAN models the associated household expenditures, the number of new workers related to those expenditures, and the distribution of those jobs by industry and occupation.

STEPS 4-5: NEXUS BETWEEN JOBS AND AFFORDABLE HOUSING DEMAND Steps four and five of the nexus analysis connect the household spending and employment outputs estimated in the previous section with the affordable housing need associated with each prototype.

The methodology used for each step is described below.

Step 4. Estimate the number of new worker households and annual household incomes.

For each prototype, Strategic Economics associated IMPLAN’s job estimates by occupation with an average annual wage for that occupation. Average wages were based on annual wage data for the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area from the BLS. The average worker’s wage was multiplied by the number of workers per household in the county, based on the U.S. Census, to derive an average gross income for worker households. This step assumes that the income of the second wage-earner is similar to that of the first wage-earner.

Step 5. Calculate the number of households that would be eligible for affordable housing, divided into relevant income categories.

Based on household incomes calculated in step four, worker households were categorized by income group (very low-income, low-income, moderate-income, and above moderate-income) using Santa Clara County’s average household size and the California Department of Housing and Community

Residential Impact Fee Study for the Town of Los Altos Hills 10 Development (HCD) 2024 table of income limits for affordable housing categories. The average household size in Santa Clara County is 2.9 people, based on the U.S. Census’ American Community Survey 5-Year Estimates for 2019-2023. Because household income tables are organized by whole numbers, the average household size was rounded up to three persons. The number of worker households in very low-, low-, and moderate-income groups constitute the affordable housing demand.

Above-moderate-income households were excluded from this demand calculation because, although many in this group may still be unable to afford housing at market rates, they are generally outside the scope of affordable housing programs that receive public funding.

STEPS 6-8: AFFORDABLE HOUSING FUNDING GAP
The affordable housing funding gap (funding gap) represents the difference between what new worker households can afford to pay for housing and the typical cost of developing housing to meet this need.

To calculate the affordable housing funding gap, Strategic Economics first estimated the development costs of affordable rental and ownership housing. Next, Strategic Economics estimated the worker household’s contribution based on the maximum rents and sales prices for each relevant income group. Finally, the funding gap was calculated based on the portion of development costs that must be secured from outside sources after subtracting the worker household’s contribution.

Step 6: Estimate affordable housing development costs.

Strategic Economics estimated development costs for rental units based on California Tax Credit Allocation Committee (TCAC) data on recent affordable housing project proposals in Santa Clara County. Ownership units were assumed to be modestly sized townhomes with costs based on development cost research performed as part of this project’s feasibility study.

Step 7: Estimate worker household contribution to housing costs.

The approach to calculating the estimated worker household contribution varies by rental versus ownership housing. For rental housing, the worker household contribution was based on a calculation of a “supportable debt,” or the amount of the housing’s development cost that could be financed with rental income from these households. For ownership housing, the worker household contribution is simply the income-restricted sales price of the affordable unit. Strategic Economics assumed that very low- and low-income households would occupy rental housing, and the moderate-income group would occupy an even mix of rental and ownership housing.

Step 8: Calculate the funding gap.

Strategic Economics calculated the funding gap as the difference between the development cost calculated in Step 6 and the worker contribution calculated in step 7. The funding gap for very lowand low-income households is the funding gap for rental housing, while the funding gap for moderateincome households is an average of the funding gaps for rental and ownership housing.

STEP 9: MAXIMUM RESIDENTIAL IMPACT FEES
Step 9. Estimate nexus-based fees for each prototype.

The maximum residential impact fee for each prototype was based on the total affordable housing funding gap, as calculated in the previous step, across all worker household income groups. The maximum fee per square foot was then calculated by dividing this aggregate funding gap for each prototype by each prototype’s total square feet of residential area.

Residential Impact Fee Study for the Town of Los Altos Hills 11 STEPS 1-3 CALCULATIONS AND RESULTS: NEXUS

BETWEEN NEW RESIDENTIAL DEVELOPMENT AND JOBS
This subsection describes the results of the first phase of residential nexus calculations, focusing on the connection between new residential development and new employment in Santa Clara County.

Step 1. Define Residential Housing Types
Strategic Economics reviewed recent housing development and current housing proposals in participating jurisdictions to identify typical patterns for residential development in Santa Clara County.

The purpose of this analysis was to identify a set of residential “prototypes”—generic housing development concepts that represent the range of residential product types and the household income levels those product types are likely to attract. The prototypes are not intended to mirror individual development projects; rather, Strategic Economics chose a set of prototypes to represent the range of possible future projects to which a residential impact fee or inclusionary housing policy could be applied.

Of the full set of prototypes analyzed in the Grand Nexus Study, Strategic Economics identified three to represent the range of small-scale residential developments most likely to occur in northern Santa Clara County.1 The residential nexus analysis focuses on those housing types that are likely to be developed with ten or fewer units: single-family homes and townhomes.2 Figure 1 shows a summary of each of the three ownership prototypes examined in the nexus analysis, described below:
• The Medium Single-Family prototype represents a typical new single-family detached unit in northern Santa Clara County with 2,750 square feet and a sales price of $3.3 million. • The Large Single-Family prototype represents larger, luxury homes in northern Santa Clara County, with 5,000 square feet and a sales price of $7.75 million. • The Townhome prototype represents a typical new single-family attached unit in northern Santa Clara County with an average of 1,710 square feet and a sales price of $1.71 million.

FIGURE 1: PROTOTYPES USED IN NEXUS ANALYSIS
Medium SingleFamily Large SingleFamily Townhome
Average Unit Size (square feet) 2,750 5,000 1,710
Average Sales Price $3,300,000 $7,750,000 $1,706,000
Sales Price per Square Foot $1,200 $1,550 $998
Sources: Cities and Towns in Santa Clara County, 2025; Redfin, 2025; Strategic Economics, 2025.

Note: More details about residential prototypes are provided in the feasibility section of this report. 1 Strategic Economics selected a different set of prototypes for Gilroy due to the significantly different development patterns in the southern part of the county.
2 The remainder of residential prototypes were larger multifamily projects; these prototypes were included in other reports for the Grand Nexus project, such as inclusionary housing policies or the residential nexus analysis for Gilroy.

Residential Impact Fee Study for the Town of Los Altos Hills 12 Step 2. Household Incomes Required to Afford Housing
Strategic Economics calculated household income requirements for each prototype based on typical sales prices, as shown in Figure 2, as well as typical financing and ownership cost assumptions for market rate for-sale homes. Strategic Economics used two groups of sales prices to calculate household incomes and consequent household spending for the nexus model: one for northern Santa Clara County cities and one for Gilroy.3 The sales prices shown in Figure 3 reflect recent market trends for each housing type among northern Santa Clara cities.

Income requirement calculations considered all major monthly costs of homeownership, such as mortgage costs, taxes, utilities, and insurance. These assumptions are summarized in Figure 3. Key assumptions included a 20 percent down payment, a 6.7 percent mortgage interest rate, and a 30- year mortgage. The townhome prototype also accounted for homeowner association (HOA) fees. These costs were based on a review of HOA fees in similar townhome developments in Northern Santa Clara County. Strategic Economics also assumed that housing costs should account for no more than 35 percent of a household’s monthly income.

FIGURE 2: ASSUMPTIONS FOR CALCULATING HOUSEHOLD INCOME
Assumption Basis
Loan Type Conventional
Down Payment 20% Share of Sales Price
Loan-To-Value (LTV) Ratio 80% Share of Sales Price
Interest Rate (Annual) 6.65%
Term of Loan (Years) 30
Share of Monthly Income to Spend on Housing 35%
Homeowner Association Dues (Monthly, Townhomes,
Northern Santa Clara County) $0.24 per square foot
Utility Costs Variable
Based on housing type, bedrooms, and
size
Property Tax Rate (Annual) 1.21% Share of Sales Price
Homeowner's Insurance 0.32% Share of Sales Price
Sources: Freddie Mac, 2025; Redfin, 2025; Ownwell, 2025; Santa Clara County Housing Authority, 2024; Strategic Economics, 2025.

Note: Utility costs were estimated based on the Santa Clara County Housing Authority’s utility allowance for affordable housing units, based on property type and bedroom count. This assumption does not account for a unit’s square footage. To estimate utility costs for large singlefamily homes, Strategic Economics translated the four-bedroom single-family utility allowance to a per square foot assumption and applied that cost to the square footage of the five-bedroom prototype.

Income requirements for ownership housing vary from $403,000 for the average townhome to more than $1.7 million for a large single-family home. Strategic Economics imputed household incomes by assuming the total of mortgage payments and all other monthly housing costs would represent 35 percent of household income. Figure 3 shows the results of this calculation. The required annual incomes shown in Figure 3 were used to model household spending in the next step. 3 Note: these are not the same sales price assumptions used in the feasibility analysis. Sales prices in each location were adjusted for the feasibility analysis to tailor it to each jurisdiction—as described in Section IV.

Residential Impact Fee Study for the Town of Los Altos Hills 13 FIGURE 3: ANNUAL INCOME REQUIREMENT CALCULATIONS
Medium
SingleFamily
Large
SingleFamily Townhome
(Average)
Square Feet 2,750 5,000 1,710
Bedrooms 4-BD 5-BD 3-BD
Sale Price $3,300,000 $7,750,000 $1,706,000
Down Payment $660,000 $1,550,000 $341,000
Monthly Mortgage
Payment $16,948 $39,802 $8,765
Other Monthly Expenses
Utilities $518 $942 $419
HOA Dues $407
Property Taxes $3,318 $7,793 $1,716
Hazard & Casualty
Insurance $880 $2,067 $455
Total Monthly Cost $21,664 $50,603 $11,763
Share of Income 35% 35% $0
Required Annual Income $742,773 $1,734,972 $403,292
Sources: Redfin, 2025; Ownwell, 2025; Freddie Mac, 2024; Strategic Economics, 2025.

Step 3. Economic Impacts of New Households
Strategic Economics used an IMPLAN model, using data for Santa Clara County, to estimate the relationship between new households in Los Altos Hills, their spending, and new employment spurred by household spending. IMPLAN uses the Bureau of Labor Statistics’ Consumer Expenditure Survey to estimate household spending patterns. The IMPLAN model uses household spending distributions, a household’s total income, industry supply chain data, and occupation data to model the total jobs in each occupation in Santa Clara County created by household spending as that spending flows through the regional economy. Figure 4 shows the top ten occupations, and total jobs supported by spending per 1,000 new housing units in each prototype.

FIGURE 4: JOBS CREATED PER 1,000 HOUSEHOLDS IN EACH PROTOTYPE, BASED ON NORTHERN SANTA CLARA SALES PRICES
Jobs Created in Occupation per 1,000 New Housing Units
SOC Code Occupation Medium Single-Family
Large SingleFamily Townhomes
31-1121 Home Health and Personal Care Aides 68 158 37
35-3023 Fast Food and Counter Workers 39 91 21
41-2031 Retail Salespersons 37 85 20
35-3031 Waiters and Waitresses 27 63 15
29-1141 Registered Nurses 25 59 14
41-2011 Cashiers 22 51 12
11-1021 General and Operations Managers 21 49 11
35-2014 Cooks, Restaurant 17 40 9
43-9061 Office Clerks, General 13 31 7
35-1012
First-Line Supervisors of Food
Preparation and Serving Workers 13 30 7
All Other Occupations 587 1,372 319
Total Jobs Created 869 2,029 472 Sources: IMPLAN, 2026; Strategic Economics, 2026; Applied Economics, 2026.

Residential Impact Fee Study for the Town of Los Altos Hills 14 STEPS 4-5 CALCULATIONS AND RESULTS: NEXUS

BETWEEN JOBS AND AFFORDABLE HOUSING DEMAND
This subsection describes the results of the second phase of residential nexus calculations, focusing on the connection between new employment in Santa Clara County and the need for affordable housing.

Step 4. New Worker Households and Annual Household Incomes The next step in the nexus analysis was to identify the connection between jobs created from household spending and new worker wages. Strategic Economics associated each occupation generated in the previous step with average annual wage data from BLS for the San Jose-SunnyvaleSanta Clara MSA.

The model also accounted for the average number of workers in a household contributing to overall household income. On average, there are 1.5 workers per household in Santa Clara County, as shown in Figure 5. To calculate the number of households added to Santa Clara County as a result of new jobs, Strategic Economics divided the total number of workers in each occupation by 1.5.

Each household’s total income, and therefore its affordable housing need, is also impacted by its number of wage-earners. Thus, to calculate household incomes for each occupation, Strategic Economics multiplied the average wage for that occupation by 1.5. For example, if new housing creates three new workers for an occupation that pays, on average, $100,000, the model would estimate that the housing adds two new households in Santa Clara County, each with an average income of $150,000.

The final result of this step of analysis is a list, for each housing prototype, of every occupation supported by new household spending, the number of households associated with that occupation, and the average household income of those households. Figure 5 also shows the average household size, which was used in step five.

FIGURE 5: ASSUMPTIONS USED TO ADJUST FOR WORKERS PER HOUSEHOLD AND HOUSEHOLD SIZE Category Assumption
Number of Wage Earners per Worker Household (Rounded; Santa Clara County) 1.5 Average Household Size (Rounded; Santa Clara County) 3
Sources: ACS Community Survey 5-Year Estimates, 2023; Strategic Economics, 2025.

Step 5. Demand for Affordable Housing from New Worker Households Total household incomes for each occupation were then compared to the County’s household income categories to determine the proportion of new households associated with each housing prototype falling into each income category. HCD annually publishes a table of income levels qualifying as extremely low-, very low-, low-, and moderate-income in every California county. This table is based on each county’s area median income (AMI), and accounts for the number of people in each household— as shown in Figure 5. Strategic Economics used this table to designate household income categories for workers and households in every occupation, using the three-person household income limits

Residential Impact Fee Study for the Town of Los Altos Hills 15 shown in Figure 6. This assumption aligns with Santa Clara County’s average household size, shown in Figure 5.

FIGURE 6: SANTA CLARA COUNTY HOUSEHOLD INCOME CATEGORIES, 2024 Number of Persons in Household
Income Category 1 2 3 4 5 6
Extremely Low (30% AMI or lower) 38,750 44,250 49,800 55,300 59,750 64,150 Very Low-Income (<=50% AMI) 64,550 73,750 82,950 92,150 99,550 106,900 Low-Income (51- 80% AMI) 102,300 116,900 131,500 146,100 157,800 169,500 Moderate-Income (81-120% AMI) 154,800 176,900 199,050 221,150 238,850 256,550 Source: California Department of Housing and Community Development, 2024; Strategic Economics, 2024.

Note: Household income limits are for 2024 rather than 2025 in order to be more consistent with the period of average wage data estimates from the Bureau of Labor Statistics.

For each of the prototypes, approximately 83 percent of new worker households supported by new resident spending would require affordable housing. Figure 7, Figure 8, and Figure 9 show the number of new worker households, and the share of those households earning moderate-income levels or below, per new housing unit in each housing prototype. For every housing unit in the medium singlefamily prototype, 0.48 new households would require affordable housing. For every housing unit in the large single-family prototype, 1.12 new households would require affordable housing. Lastly, for every housing unit in the townhome prototype, 0.26 new households would require affordable housing in Santa Clara County.

FIGURE 7: TOTAL HOUSEHOLDS PER HOUSING UNIT REQUIRING AFFORDABLE HOUSING, MEDIUM SINGLE-FAMILY Prototype
Number of
Worker
Households
Percent of
Workers in
Prototype
Medium Single-Family: North Santa Clara County
Extremely Low (<=30% AMI) (a) - 0%
Very Low-income (31-50% AMI) 0.26 46%
Low-income (51-80% AMI) 0.14 25%
Moderate-income (81-120% AMI) 0.07 12%
Above 120% AMI (b) 0.10 17%
Total Households Requiring Affordable Housing 0.48 83%
Total Households Generated by Prototype 0.58 100%
Sources: CA HCD, 2024; IMPLAN, 2025; BLS, 2025; Strategic Economics, 2025; Applied Economics, 2025.

Notes:
a. Because the nexus analysis uses the average wage for each occupation, it did not identify any extremely low income households.

A small percentage of households may fall into the extremely low income category if the workers earn below the average wage for their occupations.
b. The number of households requiring affordable housing does not include households making above 120% AMI because these households are typically not targeted by affordable housing programs.

Residential Impact Fee Study for the Town of Los Altos Hills 16 FIGURE 8: TOTAL HOUSEHOLDS PER HOUSING UNIT REQUIRING AFFORDABLE HOUSING, LARGE SINGLE-FAMILY Prototype
Number of
Worker
Households
Percent of
Workers in
Prototype
Large Single-Family: Northern Santa Clara County
Extremely Low-income (<=30% AMI) (a) - 0%
Very Low-income (31-50% AMI) 0.62 46%
Low-income (51-80% AMI) 0.33 25%
Moderate-income (81-120% AMI) 0.17 12%
Above 120% AMI (b) 0.24 17%
Total Households Requiring Affordable Housing 1.12 83%
Total Households Generated by Prototype 1.35 100%
Sources: CA HCD, 2024; IMPLAN, 2025; BLS, 2025; Strategic Economics, 2025; Applied Economics, 2025.

Notes:
a. Because the nexus analysis uses the average wage for each occupation, it did not identify any extremely low income households.

A small percentage of households may fall into the extremely low income category if the workers earn below the average wage for their occupations.
b. The number of households requiring affordable housing does not include households making above 120% AMI because these households are typically not targeted by affordable housing programs.

FIGURE 9: TOTAL HOUSEHOLDS PER HOUSING UNIT REQUIRING AFFORDABLE HOUSING, TOWNHOME Prototype
Number of
Worker
Households
Percent of
Workers
In Prototype
Townhome: North Santa Clara County
Extremely Low-income (<=30% AMI) (a) - 0%
Very Low-income (31-50% AMI) 0.14 46%
Low-income (51-80% AMI) 0.08 25%
Moderate-income (81-120% AMI) 0.04 12%
Above 120% AMI (b) 0.05 17%
Total Households Requiring Affordable Housing 0.26 83%
Total Households Generated by Prototype 0.31 100%
Sources: CA HCD, 2024; IMPLAN, 2025; BLS, 2025; Strategic Economics, 2025; Applied Economics, 2025.

Notes:
a. Because the nexus analysis uses the average wage for each occupation, it did not identify any extremely low income households.

A small percentage of households may fall into the extremely low income category if the workers earn below the average wage for their occupations.
b. The number of households requiring affordable housing does not include households making above 120% AMI because these households are typically not targeted by affordable housing programs.

STEPS 6-8 CALCULATIONS AND RESULTS: AFFORDABLE

HOUSING FUNDING GAP
Strategic Economics compared affordable housing development costs with expected revenue to calculate the funding gap for households requiring affordable housing in Santa Clara County. The funding gap is the difference between the worker household contribution for each affordable unit— based on what these households can afford to pay—and the cost to develop the unit.

Residential Impact Fee Study for the Town of Los Altos Hills 17 Step 6: Estimate Affordable Housing Development Costs
Strategic Economics calculated development costs for affordable townhome and rental units based on California Tax Credit Allocation Committee (TCAC) data for recent project applications in Santa Clara County and an interview with an affordable housing developer active in the county. Strategic Economics also used the estimated development costs for comparable market rate units as a reference point. While the cost of land and certain interior finishes for affordable units are often lower than comparable market rate units, affordable housing often experiences higher costs in other areas due to such factors as higher labor and environmental standards and pre-development overhead. The assumptions for average development cost per unit, for rental apartments and townhomes, is shown in Figure 10.

FIGURE 10: AFFORDABLE HOUSING DEVELOPMENT COST ASSUMPTIONS – NORTHERN SANTA CLARA COUNTY Unit Type Unit Cost
Rental Apartment $825,000
Townhome $1,000,000
Source: California Tax Credit Allocation Committee, 2024; Strategic Economics, 2025.

Step 7: Estimate Worker Household Contribution
The next step in calculating the funding gap is to determine the amount that households at the targeted income levels can afford to pay for housing. Most affordable housing programs define very low-income households as those earning 31 to 50 percent of area median income, low-income households as those earning between 51 and 80 percent of AMI, and moderate-income households as those earning between 81 and 120 percent of AMI.

Strategic Economics assumed that households with incomes in the very low- to low-income range would live in rental housing. Households in the moderate-income range were assumed to live in a mix of rental and ownership housing. While the nexus analysis identified some new worker households that would fall above the moderate-income range (above 120 percent of AMI), Strategic Economics did not calculate a funding gap for this group because affordable housing programs are not generally available to households with incomes above 120 percent of AMI.

Figure 11 shows the maximum monthly rents for households in each income category. For rental housing to be affordable, renters must pay no more than 30 percent of their gross monthly income on housing costs. The maximum rent was calculated after deducting utility costs (published by the Santa Clara County Housing Authority) from 30 percent of the highest monthly income in each income range.

To calculate an average rent, for the purpose of funding gap calculations, Strategic Economics estimated a weighted average rent for each income level based on the average distribution of bedrooms in representative affordable housing projects in Santa Clara County.

Residential Impact Fee Study for the Town of Los Altos Hills 18 FIGURE 11: AFFORDABLE RENTS BY INCOME LEVEL AND BEDROOM COUNT Studio 1-BR 2-BR 3-BR Weighted Average
Percent of Units 30% 20% 30% 20%
Maximum Monthly Rent
Very Low-Income (50% AMI) $1,529 $1,750 $1,955 $2,160 $1,827 Low-Income (80% AMI) $2,473 $2,829 $3,169 $3,509 $2,960 Moderate-Income (120% AMI) $3,785 $4,329 $4,857 $5,385 $4,535 Source: Strategic Economics, 2025; CA HCD, 2024; Santa Clara County Housing Authority, 2024.

Strategic Economics calculated the worker household contribution for rental units as the amount of development costs that could be funded with a market rate loan. This loan amount, called the supportable debt, represents the portion of a housing project’s funding stack that could be repaid with ongoing rental income from these worker households.

To calculate the supportable debt, Strategic Economics converted the affordable rents to an annual operating income by applying assumptions about average vacancy rates and operating expenses. The loan amount that could be supported by that income was then estimated using assumptions about the typical terms of such a loan in the current market.

FIGURE 12: SUPPORTABLE DEBT PER AFFORDABLE UNIT
Very Low-Income Low-Income Moderate-Income Calculation
% of Area Median Income 50% AMI 80% AMI 120% AMI

Maximum Monthly Rent (A) $1,827 $2,960 $4,535
Annual Gross Scheduled Income
(B) $21,923 $35,516 $54,424 A*12 months
Net Operating Income (C) $12,375 $24,812 $44,063 B - $9,000 - (B*.025) (1) Available for Debt Service (D) $10,761 $22,286 $38,316 C / 1.15 (2) Supportable Debt $137,239 $284,213 $488,650 Present Value (D) (3) (1) Assumes 2.5% vacancy and $9,000 annual operating costs per unit. (2) Assumes 1.15 debt service coverage ratio.
(3) Calculated as the debt that can be supported by the net operating income generated by an affordable annual rent at current multifamily mortgage terms (6.73% interest rate and 30-year loan).

Sources: Strategic Economics, 2025; U.S. Department of the Treasury, 2025.

To calculate the worker household contribution to ownership housing, Strategic Economics considered all major recurring monthly costs of homeownership and calculated the maximum income-restricted sales price. Figure 13 shows the maximum sales prices for homeowners in a two-bedroom townhome unit. This unit size is consistent with the average household size in Santa Clara County—as shown in Figure 5.4 The maximum affordable price for ownership housing was calculated based on the total monthly mortgage payment that a homeowner could afford, assuming no more than 30 percent of monthly income is spent on housing and using typical mortgage loan and cost assumptions for incomerestricted ownership housing. 4 Typical affordable housing calculations in California assume that the household’s size will exceed the housing unit’s bedroom count by one. Therefore, a household of three would require two bedrooms. Source: California HCD, 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 19 FIGURE 13: AFFORDABLE SALES PRICE FOR A MODERATE-INCOME HOUSEHOLD FOR A 2-BEDROOM TOWNHOME Moderate-Income Source
% of Area Median Income 120% AMI
Annual Income $199,050
California Department of Housing and
Community Development
Maximum Monthly Housing Cost $4,976
Monthly Deductions $1,625
Utilities $357 Santa Clara County Housing Authority
HOA Dues $264 Redfin
Property Taxes $553 Ownwell
Private Mortgage Insurance $305 Urban Institute Housing Finance Policy Center Homeowner's Insurance $147 Redfin
Monthly Income Available for Mortgage Payment $3,352
Maximum Mortgage Amount $522,077
Down Payment $27,478
Maximum Affordable Sales Price $549,555
Source: Strategic Economics, 2025.

Step 8: Calculate the Funding Gap
The final funding gap is the difference between the worker household contribution to housing and the development cost of providing that housing. The funding gap is used in the next step to determine a legally justifiable fee amount that could fully offset the impact of market rate housing on its resulting affordable housing demand.

The average funding gap for each income group was calculated by first estimating the funding gap for rental and ownership units separately—then averaging them together, as applicable. The funding gap for ownership units is simply the difference between the production cost of the units and the maximum affordable sales price.

Figure 14 shows the funding gap for rental apartments and Figure 15 shows the funding gap calculation for moderate-income townhome units. Figure 16 shows the combined funding gap for both ownership and rental housing at each income level. Since it is assumed that all households in the very low-income and low-income groups are renters, the average funding gap for those income ranges is simply the rental gap.

FIGURE 14: FUNDING GAP CALCULATION FOR RENTAL HOUSING BY INCOME GROUP Supportable Debt / Unita Development Cost / Unitb Funding Gapc Very Low-Income (50% AMI) $137,239 $825,000 $687,761
Low-Income (80% AMI) $284,213 $825,000 $540,787
Moderate-Income (120% AMI) $488,650 $825,000 $336,350
(a) Calculated as the debt that can be supported by the net operating income generated by an affordable monthly rent at current multifamily mortgage terms.
(b) Based on the average per-unit cost of affordable rental units in four recent housing projects in Santa Clara County. (c) Calculated as the difference between development costs and supportable debt.

Source: Strategic Economics, 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 20 FIGURE 15: FUNDING GAP CALCULATION FOR OWNERSHIP HOUSING Affordable Sales Price Development Costs Funding Gap
Moderate-Income (120% AMI) $549,555 $1,000,000 $450,445 Source: Strategic Economics, 2025.

FIGURE 16: AVERAGE FUNDING GAP FOR VERY LOW-, LOW-, AND MODERATE-INCOME HOUSEHOLDS Income Level Rental Gap Ownership Gap, Townhomes Average Funding Gap Very Low-Income (50% AMI) $687,761 N/A $687,761
Low-Income (80% AMI) $540,787 N/A $540,787
Moderate-Income (120% AMI) $336,350 $450,445 $393,398
Note: The average funding gap for very low- and low-income households uses only rental gap calculations. For moderate-income households, the funding gap calculation is an average of both rental and ownership funding gaps.

Source: Strategic Economics, 2025.

STEP 9 CALCULATIONS AND RESULTS: MAXIMUM

RESIDENTIAL IMPACT FEES
The maximum nexus-based fee for each market rate housing prototype is based on the sum of the funding gaps associated with all worker households generated by the prototype. Figure 17 summarizes the total funding gap for each housing prototype, and the corresponding maximum fee per square foot.

A full breakdown of each worker household’s income level and total funding gap for each prototype is provided in the Appendix, in Figure 32.

Of the three market rate housing prototypes, large single-family has the largest maximum justifiable impact fee, at $134 per square foot. This is because households in large single-family units need higher incomes to afford market rate units, and the money they spend locally leads to a larger number of households requiring affordable housing than for other prototypes—even after accounting for the average square footage of units in each prototype. In comparison, the maximum fee per square foot is $91 for townhomes, and $104 for medium single-family homes.

FIGURE 17: CALCULATION OF MAXIMUM RESIDENTIAL IMPACT FEES Townhome
Medium
SingleFamily
Large
SingleFamily
Households Requiring Affordable Housing (per unit of prototype) 0.26 0.48 1.12 Average Funding Gap per Household $599,658 $599,658 $599,658 Total Affordable Housing Funding Gap $155,764 $286,882 $670,099 Prototype Square Feet per Unit 1,710 2,750 5,000
Max Fee per Sq. Ft. $91 $104 $134
Sources: Strategic Economics, 2025; CA TCAC, 2025; CA HCD, 2025; BLS, 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 21 Policy Considerations and Findings
The previous section presented the maximum residential impact fees based on the nexus between new housing development and related demand for affordable housing from new worker households in Northern Santa Clara County. These fees represent the maximum level that Los Altos Hills could charge as a residential impact fee for new market rate construction. However, most jurisdictions consider a variety of factors when setting a final impact fee, typically resulting in a fee level that is lower than the maximum fee. The purpose of this section is to summarize those key factors, help Los Altos Hills make an informed decision about establishing fee levels, and fulfill additional state requirements for changes or increases to a residential impact fee.

This section includes four parts. It begins with an overview of how the Town of Los Altos Hills’s current fee structure compares to that of neighboring jurisdictions, followed by a series of analyses that fulfill the requirements of AB 602—State legislation governing changes to impact fees. This section also includes an overview of how different impact fee levels could affect the financial feasibility and total costs of new market rate housing development projects. Lastly, the section concludes with findings and final considerations for Los Altos Hills’s residential impact fee.

FEES CHARGED IN NEIGHBORING JURISDICTIONS
Strategic Economics summarized the affordable housing fee programs for small-scale residential developments for eight jurisdictions in Santa Clara County (the six study participants plus Cupertino and Palo Alto, see Figure 18 and Figure 19). Some of these fees are nexus-supported impact fees, while others were implemented as part of an affordable housing inclusionary policy, which does not require a nexus study. Below is a general overview of these policies.

It is typical for jurisdictions in Santa Clara County to charge the same affordable housing fee rate regardless of the size of the project, although some communities exempt very small developments from the fee. As shown in Figure 18 and Figure 19, eight of the ten jurisdictions Strategic Economics reviewed have an existing affordable housing requirement that applies to residential projects. While the Cities of Cupertino and Palo Alto apply the affordable housing fee to any size project, most jurisdictions exempt very small projects. Santa Clara exempts developments of fewer than three units, Los Gatos fewer than five units, Mountain View fewer than seven units. Sunnyvale exempts ownership projects of fewer than seven units and rental projects of fewer than three units, with a reduced fee on rental projects of between three and six units.

While most jurisdictions have in-lieu fees enabled by their inclusionary policies, Cupertino, Palo Alto, and the City of Santa Clara have affordable housing fees that are supported by a nexus study. Fees on all residential projects are nexus-supported in the Cities of Cupertino and Santa Clara (Figure 18), while Palo Alto has nexus-supported fees only on rental projects (Figure 19). Los Gatos, Mountain View, and Sunnyvale charge in-lieu fees that tend to be related to their inclusionary requirements and would not be possible independently of that policy.

Affordable housing fee levels vary widely among jurisdictions and housing types. Fees on ownership housing range from $21.87 per square foot (on single-family developments in Cupertino) to $148 (on townhome developments in Mountain View). Fees on rental projects are generally lower and range from $16 per square foot (Palo Alto) to $114 (Mountain View), although all but Mountain View have a fee level that is less than $37 per square foot. Fee levels may depend on the types of housing each

Residential Impact Fee Study for the Town of Los Altos Hills 22 jurisdiction is trying to incentivize, the financial feasibility of fees on the different housing types, or whether the fee was based on a nexus calculation or based on an inclusionary in-lieu fee study.

Higher fee levels can be feasible when part of an inclusionary policy that limits payment of the fees to fractional units. For example, Mountain View has relatively high in-lieu fees but limits fee to fractional units created by applying the onsite inclusionary percentage to projects of fewer than seven units.

Residential Impact Fee Study for the Town of Los Altos Hills 23 FIGURE 18: OWNERSHIP RESIDENTIAL IMPACT AND IN-LIEU FEES IN SANTA CLARA COUNTY JURISDICTIONS, BY HOUSING TYPE, 2025
Location Type of Fee
Applicable Size
Range
Fee per Square Foot by Project Type
Single-Family Townhome Condos
Santa Clara
Nexus-Supported
Impact Fee/InLieu Fee
Projects with 3 or
more units $45.72 $38.09 $30.48
Cupertino
Nexus-Supported
Impact Fee All Projects $21.87 $24.05 $29.15
Gilroy No residential impact or inclusionary policy
Los Altos Hills No residential impact or inclusionary policy Los Gatos In-Lieu Fee
Projects with 5 or
more units 6% of building permit valuation1
Mountain View In-Lieu Fee
Projects with fewer
than 7 units;
fractional units only $65.00 $148.00 $65.00
Palo Alto In-Lieu Fee All projects $100.00 $66.00 $66.00 Sunnyvale In-Lieu Fee
Projects with 7 or
more units 7% of Sales Price2
Sources: City of Santa Clara, 2025; City of Cupertino, 2025; City of Gilroy, 2025; Town of Los Altos Hills, 2025; Town of Los Gatos, 2025; City of Mountain View, 2025; City of Palo Alto, 2025; City of Sunnyvale, 2025; Strategic Economics, 2025.

Notes:

1. Actual fee per square foot varies from project to project because permit valuation varies. Using hard cost assumptions from the feasibility study, this would be approximately $20 to $30 per square foot.

2. Based on feasibility analysis assumptions, seven percent of the sales price for these project types is approximately $70 to $90 per square foot.

FIGURE 19: RENTAL RESIDENTIAL IMPACT AND IN-LIEU FEES IN SANTA CLARA COUNTY JURISDICTIONS, BY HOUSING TYPE, 2025
Location Type of Fee Applicable Size Range
Fee per Square Foot, by
Rental Project Type
Santa Clara
Nexus-Supported Impact
Fee/In-Lieu Fee Projects with 3 or more units $30.48
Cupertino Nexus-Supported Impact Fee All Projects
<35 du/ac: $29.15
>35 du/ac: $36.44
Gilroy No residential impact or inclusionary policy
Los Altos Hills No residential impact or inclusionary policy Los Gatos In-Lieu Fee Projects with 5 or more units
6% of building permit
valuation1
Mountain View In-Lieu Fee
Projects with fewer than 7 units can
apply in-lieu fees to fractional units $114.00
Palo Alto Nexus-Supported Impact Fee All Projects $26.00 Sunnyvale In-Lieu Fee2 Projects with 3 or more units
3-6 Units: $16.00
7+ Units: $32.00
Sources: City of Santa Clara, 2025; City of Cupertino, 2025; City of Gilroy, 2025; Town of Los Altos Hills, 2025; Town of Los Gatos, 2025; City of Mountain View, 2025; City of Palo Alto, 2025; City of Sunnyvale, 2025; Strategic Economics, 2025.

Notes:

1. Actual fee per square foot varies from project to project because permit valuation varies. Using hard cost assumptions from the feasibility study, this would be approximately $20 per square foot.

2. Sunnyvale implemented a nexus-supported residential impact fee in 2015 but replaced this with an inclusionary policy in 2019.

Residential Impact Fee Study for the Town of Los Altos Hills 24 AB 602 AND LEVEL OF SERVICE ANALYSIS
In 2021, the California legislature imposed new requirements (Assembly Bill 602 [2021-2022]) on impact fee nexus studies conducted on or after January 1, 2022. The legislation applies to any new residential impact fee nexus studies. AB 602 requires nexus studies to “identify the existing level of service for each public facility, identify the proposed new level of service, and include an explanation of why the new fee level of service is appropriate.” (Cal. Gov’t Code Section 66016.5(a)(2)). If a nexus study supports the increase of a fee, AB 602 requires each jurisdiction to “review the assumptions of the nexus study supporting the original fee” and to “evaluate the amount of fees collected under the original fee.” (Cal. Gov’t Code Section 66016.5(a)(4)).

This section provides an overview of the analyses completed to fulfill these requirements of AB 602.

For the purposes of this analysis, Strategic Economics defined level of service for affordable housing in Los Altos Hills as the amount of deed-restricted affordable housing in the town compared with the number of worker households. (This concept is described in more detail below.) As required by AB 602, the section also reviews the assumptions of the prior nexus study and provides an overview of fees collected under the original program, and, subject to the Town’s proposed fee policy, provides a justification for the new fee. The justification for the new fee is provided in Section IV.

Current Level of Service for Affordable Housing
The Town of Los Altos Hills reports that it currently has no affordable units available for worker households. Therefore, its current level of service is zero. Strategic Economics defined the “level of service” as the ratio of deed-restricted, “family” affordable units in the local jurisdiction to the number of households associated with the jurisdiction’s current job total (See Figure 20). The Town reports zero affordable housing units, as shown in Figure 21. (This affordable housing inventory excludes any senior units and special needs units because the workers associated with new household spending are most likely to be family households, rather than seniors or people with disabilities.) FIGURE 20: LEVEL OF SERVICE DEFINITION FOR AFFORDABLE HOUSING 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑜𝑜𝑜𝑜 𝑆𝑆 𝑆𝑆 𝑆𝑆𝑆𝑆 = 𝑓𝑓𝑓𝑓 𝑓𝑓 𝑎𝑎 𝑎𝑎 𝑢𝑢𝑢𝑢 𝑢𝑢𝑢𝑢
𝑤𝑤 𝑤𝑤 ℎ𝑜𝑜 ℎ𝑜𝑜 = 𝑓𝑓𝑓𝑓 𝑓𝑓 𝑎𝑎 𝑎𝑎 𝑢𝑢𝑢𝑢 𝑢𝑢𝑢𝑢
� 𝑤𝑤 𝑤𝑤
𝑎𝑎. 𝑤𝑤 𝑤𝑤 𝑝𝑝 ℎ𝑜𝑜 ℎ𝑜𝑜 𝑆𝑆 𝐶𝐶 𝐶𝐶 �

Residential Impact Fee Study for the Town of Los Altos Hills 25 FIGURE 21: CURRENT LEVEL OF SERVICE FOR AFFORDABLE HOUSING IN LOS ALTOS HILLS Value
Deed-restricted Family Affordable Housing [a] 0
Total Workers in Jurisdiction [b] 1,437
Average Workers per Working Household [c] 1.5
Estimated Worker Households 958
Level of Service (per 1,000 Households) 0
Note: Level of Service is defined as the number of deed-restricted units per working household, but is expressed as a number per 1,000 working households for clarity.

Sources:
[a] Family affordable housing developments supplied by cities, 2025. [b] Total primary jobs in jurisdiction, LEHD, 2025; Strategic Economics, 2025. [c] Workers per Working Household in Santa Clara County, ACS 5-Year 2023; Strategic Economics, 2025.

Increasing Level of Service
While any new impact fee used to fund affordable housing would represent an increase in the level of service, as defined above, Los Altos Hills would need to charge an impact fee of $91 to $134 per square foot to meet all affordable housing need resulting from small-scale, market rate development.

The fee to cover the full funding gap refers to the maximum justifiable impact fee, as calculated in Figure 17. This fee level assumes that the impact fee would cover the full funding gap associated with the impact of development. However, in most affordable housing projects, the local contribution covers only a small portion of total affordable housing subsidy; in Santa Clara County, the average is approximately 20 percent.5 Figure 22 shows two scenarios: the first scenario assumes the residential impact fee would cover the full funding gap, while the second scenario assumes the fee would cover the typical 20 percent share of the funding gap based on recent averages. The fee to meet all affordable housing need based on typical local funding shares is approximately 20 percent of the maximum justifiable impact fee, or $18 to $26.

FIGURE 22: FEE REQUIRED TO MEET ALL AFFORDABLE HOUSING NEED, WITH AND WITHOUT EXTERNAL FUNDING Medium Single-Family Large SingleFamily Townhome
Worker Households per 1,000 Market Rate Units 579 1,353 314 Affordable Housing Units Needed per 1,000
Market Rate Units to Meet All Need 478 1,117 260
Funding Gap per Affordable Unit2 $599,658 $599,658 $599,658 Fee per Square Foot to Meet All Affordable Housing Need Full Funding Gap $104 $134 $91
Match Prior Funding Contribution3 $20 $26 $18
Sources: Strategic Economics, 2026; ACS 5-Year, 2025; BLS, 2025; CA TCAC, 2025; CA HCD, 2025.

Notes:

1. From Figure 17.

2. Assumes a typical local funding share (approximately 20 percent) of all affordable housing funding needed to cover the funding gap.
5 Based on review of California Tax Credit Allocation Committee (TCAC) applications for affordable housing projects in Santa Clara County from 2021 through 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 26

FINANCIAL FEASIBILITY AND IMPACT FEE SCENARIOS
The purpose of this sub-section is to describe how residential impact fees could impact the financial feasibility of new housing development. Financial feasibility models measure the expected revenue and costs of a prospective housing development to determine whether that project would be financially viable to construct given market conditions. This section describes the methodology used to construct the financial feasibility model and analyzes the impact of various fee levels on financial performance of the residential prototypes.

FEASIBILITY ANALYSIS METHODOLOGY
Strategic Economics developed a residential prototype to represent each of the three housing types analyzed in the nexus study. These prototypes were further defined based on market research regarding the types and characteristics of new housing developed in Northern Santa Clara County over the past five years. These prototypes are summarized in Figure 23 and have the following characteristics:
• The Medium Single-Family prototype represents a typical new single-family detached unit in Northern Santa Clara County with 2,750 square feet, four bedrooms, and two parking spaces in a private garage.
• The Large Single-Family prototype represents a typical custom-built single-family detached unit in Northern Santa Clara County with 5,000 square feet, four bedrooms, and two parking spaces in a private garage.
• The Townhome prototype represents a typical new single-family attached housing project, with 30 units ranging in size from two to four bedrooms and from 1,400 to 2,000 square feet. Each townhome unit would be three stories tall, including a private two-car garage.6 6 The townhome prototype was designed as a 30-unit project for evaluation in the inclusionary study. For the impact fee, results for this prototype are presented on a per-unit basis. The assumption is that a townhome project with fewer than ten units (to which an impact fee could be applied) would have similar average characteristics, costs, and revenue per unit as a townhome project with 30 units.

Residential Impact Fee Study for the Town of Los Altos Hills 27 FIGURE 23: PROTOTYPES EVALUATED IN FEASIBILITY ANALYSIS Medium Single-Family Large Single-Family Townhome
Tenure Ownership Ownership Ownership
Parcel Size (acres) 0.125 1.0 1.5
Number of Units 1 1 30
Unit Sizes (square feet) 2,750 5,000 1,400 to 2,000
Bedroom Types 4-BD 4-BD 2-BD to 4-BD
Number of Stories 2 2 3
Units per Acre 8 1 20
Parking Format Private Garages Private Garages Private Garages Parking Ratio (spaces per unit) 2.0 2.0 2.0
Total Parking Spaces 2 2 60
Sources: Strategic Economics, 2025; Redfin, 2025.

Note: The nexus analysis used a generalized unit mix because the analysis is based on a per unit average of common unit or project types.

The prototype for the feasibility analysis was designed to provide a test of a specific hypothetical project, for both the impact fee analysis and the inclusionary analysis. For this reason, Strategic Economics calculated the exact number of units of each bedroom count for the townhome prototype: seven two-bedroom units; 15 three-bedroom units; and eight four-bedroom units.

Strategic Economics evaluated the financial feasibility of the analysis prototypes using a static pro forma model. A static pro forma model compiles the revenue, cost, and development return expectations for each housing project upon sale of all housing units. This model accounts for all hard costs, soft costs, municipal fees, financing costs, and the developer’s target rate of return. Hard costs are the direct materials and labor costs used to prepare a site and construct the housing units. Soft costs are indirect expenses required to develop a project, such as architecture, engineering, taxes, legal, and insurance costs. The target return is a standard market return on investment the project would need to achieve to obtain financing.

Strategic Economics based model assumptions on current market research about housing development projects, prices, interest rates, and land costs. Assumptions were also informed by extensive interviews with developers currently active in residential production in the Santa Clara County market. Further details about the assumptions used to estimate each cost and revenue input are provided in Appendix II: Financial Feasibility Assumptions and Pro Forma Strategic Economics used a residual land value metric to evaluate financial feasibility for each prototype. This metric describes the value remaining to pay for land costs after hard costs, soft costs, financing, contingency, and required rates of return are subtracted from a project’s total sales proceeds. Developers often use residual land value to determine the price they can afford to pay for land for a particular project. In this case, Strategic Economics compared each prototype’s residual land value to typical land costs per acre for that project type in Los Altos Hills to determine each prototype’s relative feasibility.

FINANCIAL FEASIBILTY FINDINGS
As a speculative development project, the Medium Single-Family prototype is financially feasible and the Large Single-Family prototype is marginally infeasible. Figure 24 provides a summary of financial feasibility results. The Medium Single-Family prototype would generate a residual land value of $2.7 million—approximately $1.5 million more than the cost to acquire its required land. The Large SingleFamily prototype would generate $3.2 million in residual land value, only slightly less than the $3.3 million in typical land value estimated in this study. Because costs, sales values, and land values can

Residential Impact Fee Study for the Town of Los Altos Hills 28 vary significantly from project to project, Strategic Economics expects many larger homes would move forward, as this is a typical development in Los Altos Hills. In addition, many new homes in Los Altos Hills will be custom-built for an owner rather than for a developer and would not carry an expectation of developer return.

The Townhome prototype is currently financially feasible in Los Altos Hills. This prototype is projected to generate a residual land value of approximately $720,000 per unit. Because there are very few comparable projects to the Townhome prototype in Los Altos Hills or adjacent jurisdictions, the potential returns for townhome projects in Los Altos Hills are less predictable than those of singlefamily projects. However, the estimated residual land value for the Townhome prototype is approximately $450,000 more than the estimated per-unit land cost for townhomes in Los Altos Hills— a relatively large margin for error.

FIGURE 24: FINANCIAL FEASIBILITY PER UNIT WITHOUT RESIDENTIAL IMPACT FEE IN LOS ALTOS HILLS Medium
Single Family Large Single Family Townhomes
Revenue per Unit
Total Revenue $4,537,500 $8,000,000 $1,880,833
Less Marketing Expenses $0 $0 ($94,042)
Total Sales Proceeds $4,537,500 $8,000,000 $1,786,792

Development Costs per Unit
Hard Costs $879,450 $2,880,680 $557,370
Soft Costs (Excluding Fees) $114,329 $374,488 $100,327
Other Municipal Fees $140,940 $208,441 $106,385
Financing & Contingency $91,843 $284,567 $69,779
Total Development Cost $1,226,561 $3,748,177 $833,860

Residual Land Value per Unit
Total Sales Proceeds $4,537,500 $8,000,000 $1,786,792
Total Development Cost $1,226,561 $3,748,177 $833,860
Required Developer Return 15% 15% 15%
Supportable Development Cost $3,945,652 $6,956,522 $1,553,732 Residual Land Value $2,719,091 $3,208,345 $719,872

Feasibility (per Unit)
Residual Land Value $2,719,091 $3,208,345 $719,872
Typical Land Cost per Unit $1,225,125 $3,267,000 $272,250 Typical Land Value, per SF of Land $225 $75 $125
Feasibility Result Feasible
Marginally Infeasible: Land
Cost Exceeds RLV Feasible
Sources: Strategic Economics, 2025; Redfin, 2025; Town of Los Altos Hills, 2025; Developer Interviews, 2025.

Notes:
• Assumes that no inclusionary units are required.
• Sales prices used in the financial feasibility analysis were customized for the Los Altos Hills market and differ from those used for nexus calculations (Figure 1) because the residential nexus analysis is a shared analysis designed to represent all communities in Northern Santa Clara County.

Residential Impact Fee Study for the Town of Los Altos Hills 29

IMPACT FEE SCENARIOS
Strategic Economics evaluated the financial performance of each prototype on a per-unit basis under four different impact fee scenarios: no impact fee, the amount required to meet a typical city’s share of the funding gap (“Match Prior Funding Contribution”), setting the impact fee as equal to five percent of development costs, and the maximum justifiable impact fee from the nexus analysis for each product type. The exact fee per square foot used in each scenario is shown in Figure 25.

FIGURE 25: IMPACT FEE PER SQUARE FOOT FOR EACH PROTOTYPE, BY IMPACT FEE SCENARIO Impact Fee Scenario Medium Single-Family Large Single-Family Townhomes

1. No Impact Fee $0 $0 $0

2. Match Prior Funding Contribution $20 $26 $18

3. 5% of Development Costs $45 $70 $32

4. Maximum Impact Fee $104 $134 $91
Sources: Strategic Economics, 2026; Town of Los Altos Hills, 2025.

Under current market conditions in Los Altos Hills, the Medium Single-Family prototype could afford to pay the maximum impact fee while remaining feasible. Figure 26 shows the residual land values compared to typical land costs for Medium Single-Family, Large Single-Family, and Townhomes in Los Altos Hills under each of the four impact fee scenarios. These findings demonstrate that, under current market conditions, Medium Single-Family projects would remain financially feasible under all residential impact fee scenarios.

The Large Single-Family prototype would be marginally infeasible under most residential impact fee scenarios, but this finding does not reflect the likelihood that many large single-family home projects in Los Altos Hills would not carry the expectation for a developer return. It is important to note that the individual circumstances, characteristics, land cost basis, and other cost structures of individual home projects may vary substantially. If developed as a custom-built home, the Large Single-Family prototype would not carry the same developer return expectations as a speculative development. Without developer profits, all four of the residential impact fee scenarios would be feasible under the prototype and assumptions tested.

Townhome projects would remain feasible in Los Altos Hills under all residential impact fee scenarios, including the maximum impact fee. These results are also shown in Figure 26. Even under the maximum impact fee scenario, the Townhome prototype would generate a residual land value of $564,000 per unit—approximately $290,000 more than typical land costs for that prototype.

Residential Impact Fee Study for the Town of Los Altos Hills 30 FIGURE 26: RESIDUAL LAND VALUE AND TYPICAL LAND COST PER UNIT BY IMPACT FEE SCENARIO Sources: Strategic Economics, 2026; Town of Los Altos Hills, 2025.

The residential impact fee scenarios would add between two percent and 12 percent to the total development cost of projects in Los Altos Hills. Impact fees as a share of total costs would be lower for Large Single-Family projects and higher for Townhomes. These costs add to the total share of development costs that are accounted for by municipal fees, which range between three and ten percent, depending on the level of residential impact fee. Figure 27 shows all Los Altos Hills fees as a share of total development costs for each project type and impact fee scenario. Under the Match Prior Funding Contribution scenario, the combination of residential impact fees with other municipal permitting and impact fees would constitute between five percent and 12 percent of total costs for each prototype. Under the maximum residential impact fee scenario, the combined share would increase to around 12 percent for Large Single-Family, 15 percent for Medium Single-Family, and 20 percent for Townhomes.
$2,718,915
$2,663,077
$2,596,507
$2,433,091
$3,208,142
$3,077,506
$2,857,586
$2,538,345
$719,721
$689,459
$664,566
$564,262
$0 $1,000,000 $2,000,000 $3,000,000

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee
Medium SingleFamily Large Single-Family Townhomes
Residual Land Value per Unit
Residual Land Value per Unit Typical Land Costs per Unit

Residential Impact Fee Study for the Town of Los Altos Hills 31 FIGURE 27: CONTRIBUTION OF MUNICIPAL AND RESIDENTIAL IMPACT FEES TO TOTAL DEVELOPMENT COSTS IN LOS

ALTOS HILLS, BY FEE SCENARIO
Sources: Strategic Economics, 2026; Los Altos Hills, 2025.

Note: Other Municipal Fees and Impact Fees change as a share of total costs in each scenario not because these fees change, but because the total development costs include changes to the residential impact fee. As residential impact fees increase, total development costs also increase, causing the share of total development costs accounted for by other municipal fees to diminish.

Because Large Single-Family and Medium Single-Family homes are larger than the average Townhome unit, each single-family unit incurs more total impact fees than townhome units with similar per square foot impact fee rates. For example, in the Match Prior Funding Contribution scenario, in which fees range from $18 per square foot for Townhomes to $26 per square foot for Large Single-Family, the total impact fee per unit would be $131,000 for Large Single-Family, $56,000 for Medium SingleFamily, and $30,000 for Townhomes. Under the Maximum Impact Fee scenario, the total per unit impact fee would be $286,000 for Medium Single-Family, $670,000 for Large Single-Family, and $155,000 for Townhomes. Depending on the prototype, the maximum impact fees would be between six and eight percent of expected per-unit sales prices. 6%
6%
5%
5%
3%
3%
3%
3%
10%
9%
9%
8%
2%
5%
10%
2%
5%
9%
3%
5%
12%
0% 5% 10% 15% 20% 25%

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee
Medium SingleFamily Large Single-Family Townhomes
Fees as Share of Total Development Costs
Other Municipal Fees & Impact Fees Residential Impact Fee

Residential Impact Fee Study for the Town of Los Altos Hills 32 FIGURE 28: TOTAL RESIDENTIAL IMPACT FEE PER UNIT, BY SCENARIO AND PROTOTYPE, LOS ALTOS HILLS Sources: Strategic Economics, 2026; Town of Los Altos Hills, 2025.

SUMMARY OF FINDINGS AND CONCLUSIONS
This section provides a summary of conclusions from the residential nexus and impact fee feasibility analyses along with policy findings for setting the impact fee.

Findings

FINDINGS OF THE NEXUS ANALYSIS
• Strategic Economics found that the maximum nexus-based impact fee per square foot is $91 for townhomes, $104 for medium single-family homes, and $134 for large singlefamily homes.

FINDINGS OF THE FEASIBILITY ANALYSIS
• Under current market conditions in Los Altos Hills, medium single-family homes could accommodate up to the maximum residential impact fee. The feasibility analysis found that impact fees up to the maximum justifiable fee would be financially feasible for the typical single-family home.
• If developed as custom-built homes, large single-family homes may also be able to accommodate a substantial residential impact fee. The Large Single-Family prototype is $0
$56,014
$122,584
$286,000
$0
$130,839
$350,759
$670,000
$0
$30,413
$55,306
$155,610
$0 $200,000 $400,000 $600,000 $800,000

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee

1.     No Impact Fee

2.     Match Prior Funding Contribution

3.     5% of Development Costs

4.     Maximum Impact Fee
Medium SingleFamily Large Single-Family Townhomes
Total Impact Fee per Unit

Residential Impact Fee Study for the Town of Los Altos Hills 33 considered marginally infeasible as a speculative development (assuming a 15 percent developer return), but may not have a significant impact on custom-built homes if set at a relatively small percentage of development costs.
• Although there is no track record for townhome development in Los Altos Hills, townhome projects in the town could also likely accommodate up to the maximum residential impact fee. The feasibility analysis found that the typical small-scale townhome development could accommodate the maximum impact fee while generating a residual land value approximately $290,000 per unit more than typical land costs.

OTHER POLICY CONSIDERATIONS
• Residential impact or in-lieu fees in neighboring jurisdictions typically range between $21 and $100 per square foot, though some jurisdictions set fees based on a percentage share of sales prices.

Conclusions
The Town should consider adopting an impact fee program for single-family homes. Strategic Economics found that an impact fee would be viable for both prototypes, or for single-family homes built on small lots as well as larger homes on large lots. For the larger homes, custom-built developments could accommodate an impact fee, while speculative developments might be challenged by a substantial fee rate, depending on the specific conditions of the development. As a starting point, the Town might consider a fee rate of up to three percent of development costs, or approximately the “Match Prior Funding Contribution” fee rate ($20 per square foot for medium singlefamily homes and $26 per square foot for larger homes). This could be accomplished with a tiered fee structure with a step-up in the fee rate for homes above a certain square footage.

To generate affordable housing fee revenue via small-scale townhome projects, Los Altos Hills could consider including these projects in any inclusionary policy the Town eventually adopts, rather than adopting a residential impact fee. The Town could cover all townhome projects under its inclusionary policy, while allowing small-scale projects to pay the in-lieu fee for fractional units and/or when providing onsite units is infeasible. The following factors informed these suggestions:
• Los Altos Hills’ maximum nexus-justified residential impact fee for townhomes ($91 per square foot) is lower than the in-lieu fees in the tested inclusionary scenarios ($111 and $132 per square foot, depending on the scenario).
• An in-lieu fee associated with an inclusionary policy would not be bound by the legal nexus requirements of an impact fee and could exceed the maximum justified fee supported by the nexus analysis. However, having the nexus analysis can allow Los Altos Hills to adopt an affordable housing impact fee on new housing units if the Town prefers this pathway now or in the future during the eight-year operational life of the nexus study (per the requirements of AB 602).

Residential Impact Fee Study for the Town of Los Altos Hills 34 Fulfilling State Requirements for Adoption
The purpose of this section is to demonstrate that this study meets the requirements of the Mitigation Fee Act—the state legislation that enables local governments to charge impact fees on new development in California.

The first part of the section summarizes how the study meets the key requirements of the Act related to the purpose, use, benefit, burden, and proportionality of the fee. This is followed by a justification for the new or updated impact fee at an increased level of service, as required by AB 602. The analyses to support this justification were included in Section III.

Meeting Key Requirements of the Mitigation Fee Act
As outlined below, this section explains how the nexus study meets the key requirements of the Mitigation Fee Act related to the purpose, use, benefit, burden, and proportionality of a nexussupported impact fee. For each requirement, Strategic Economics cites the relevant code section and language and then provides a summary for how the nexus study meets the requirement. • Purpose. “Identify the purpose of the fee.” [§66001(a)(1)] The purpose of the fee is to fund the development of deed-restricted affordable housing. • Use. “Identify the use to which the fees will be put. If the use is financing facilities, the facilities shall be identified. That identification may, but need not, be made by reference to a capital improvement plan as specified in §65403 or §66002, may be made in applicable general or specific plan requirements, or may be made in other public documents that identify the facilities for which the fees are charged.” [§66001(a)(2)] The Town’s fee revenues will be used to fund affordable housing projects. However, unlike many other public facilities that are funded with impact fees, affordable housing projects are not generally guided by a capital improvement plan, or similar document. This is because most affordable housing is delivered via the activity of private (often nonprofit) developers who may utilize funding from local sources in combination with a variety of other funding and financing programs. While local governments are typically not the lead sponsor for affordable housing developments, Los Altos HIlls’s roadmap for housing production at various income levels is provided in its 2023-2031 Housing Element of the General Plan. The Housing Element establishes the specific sites, local policy conditions, and initiatives for meeting the Town’s Regional Housing Needs Allocation (RHNA). • Benefit. “Determine how there is a reasonable relationship between the fees' use and the type of development project on which the fee is imposed.” [§66001(a)(3)] The nexus study performs an economic impact analysis demonstrating that new, market rate housing development results in new demand for local goods and services. That new demand stimulates new jobs, a significant portion of which pay wages that are insufficient for worker households to afford market rate housing. Funding affordable housing for the worker households who otherwise could not afford housing in the area will help meet the new needs associated with market rate housing development. • Burden. “Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed.” [§66001(a)(4)]

Residential Impact Fee Study for the Town of Los Altos Hills 35 As stated above, the nexus study performs an economic impact analysis demonstrating that new, market rate development results in new demand for local goods and services.

That new demand stimulates new jobs, a significant portion of which pay wages that are insufficient for worker households to afford market rate housing. The need for affordable housing for these new worker households is, therefore, demonstrated by the nexus study to be reasonably related to the market rate development. • Proportionality. “In any action imposing a fee as a condition of approval of a development project by a local agency, the local agency shall determine how there is a reasonable relationship between the amount of the fee and the cost of the public facility or portion of the public facility attributable to the development on which the fee is imposed.” [§66001(b)]
The maximum nexus-justified fee for each prototype in this study was calculated by estimating the total affordable housing funding need resulting from that prototype and then dividing that amount by the square feet in the prototype. Therefore, on a per square foot basis, the maximum nexus-justified fee for each prototype is proportional to the impact of that prototype. New development that is reasonably similar in value per square foot as its corresponding prototype in the nexus study will meet the proportionality test and may be charged a fee per square foot up to the maximum justifiable fee.

Justification for an Increased Level of Service
Per the requirements of AB 602, implementation of an impact fee policy that results in an increased level of service requires that the nexus study identify and justify the proposed new level of service. If needed, this section will be updated to fulfill the requirements to justify the level of service associated with the Town’s chosen fee levels for adoption.

Residential Impact Fee Study for the Town of Los Altos Hills 36 Appendix I: IMPLAN Technical Overview and
Intermediate Nexus Analysis Tables
This Appendix includes a summary of the IMPLAN methodology for economic impact analysis and details on the distribution of occupations resulting from the IMPLAN model, as well as the distribution of household income groups and the affordable housing funding gap calculation from the subsequent steps of the nexus analysis.

Overview of Economic Impact Analysis with IMPLAN
IMPLAN is a well-established model used for regional economic impact analysis. IMPLAN is commonly used in residential nexus studies of this type. The software models how an economic stimulus, such as a significant new business activity or economic policy, ripples through a local economy. In this approach, which is sometimes referred to as “input-output” analysis, economic impacts are classified as one of three categories7:
• Direct impacts are the impacts that directly result from an original investment or policy under study, which may trigger a series of linked impacts throughout a local economy. A direct employment impact is the associated change in employment resulting directly from this stimulus. For example, if a new manufacturing facility opens in a community, workers hired to work in the plant constitute a direct employment impact. • Indirect impacts are the result of business-to-business spending, along the supply chain, that is associated with the direct investment. For example, the manufacturing plant may purchase raw materials for production from suppliers. If the suppliers are in the same region, any new hiring associated with this business activity represents an indirect impact on regional employment.
• Induced impacts refer to the downstream impacts of new household spending. In the manufacturing plant example, when the new facility and its local suppliers result in new employees moving into the region, these employees’ household spending on local goods and services would represent the induced impact on the local economy. Thus, the induced employment impact is the additional hiring (primarily in retail and services sectors) that results from this household spending.

Commercial nexus studies only consider the direct employment impacts of new commercial development. Residential nexus studies only consider the induced employment impact associated with the household spending of new residents. Neither type of study attempts to model indirect effects.

Theoretical Overlap Between a Commercial and Residential Nexus Some communities charge impact fees for both commercial and residential development. In these cases, it is theoretically possible for the combined fee programs to charge duplicative fees by “double counting” impacts: once by accounting for the direct impacts of commercial development and a second time for the induced impact of residential development. This overlap arises when commercial 7 Economic impacts may be positive or negative. For simplicity, the discussion of economic impact analysis in this memorandum is limited to positive impacts.

Residential Impact Fee Study for the Town of Los Altos Hills 37 development creates jobs that are supported by local household spending—primarily retail development serving area residents rather than business-to-business commerce.

However, this scenario lies well outside the range of feasible policy choices the jurisdictions may adopt.

The conceptual overlap between the commercial and residential nexus is limited to the portion of new commercial development that serves households in housing units that were subject to an affordable housing impact fee program. However, only a small fraction of housing units in Santa Clara County have been or will be subject to an impact fee; the vast majority of local spending in retail establishments will come from households in older housing stock or newer housing that was not subject to an impact fee. Further, all commercial linkage fees on retail in the County charge only a small fraction of the fee required to mitigate 100 percent of retail’s impact. For example, currently, the City of Santa Clara charges an impact fee of $7.71 per square foot on retail, or less than ten percent of the maximum fee justified to mitigate its impact. In summary, duplicative fee programs are only possible when both residential and commercial fees are set close to their maximums.

Intermediate Nexus Analysis Tables
FIGURE 29:JOBS PER 1,000 HOUSING UNITS IN NEXUS, BY OCCUPATION AND CORRESPONDING HOUSEHOLD INCOME,

MEDIUM SINGLE-FAMILY PROTOTYPE
SOC
Group Group Description
Very
LowIncome
LowIncome Moderate
-Income
Above
ModerateIncome Total
11 Management Occupations 0 4 4 49 57
13 Business and Financial Operations Occupations 0 1 26 20 46 15 Computer and Mathematical Occupations 0 0 3 14 17
17 Architecture and Engineering Occupations 0 0 1 1 2
19 Life, Physical, and Social Science Occupations 0 1 1 2 4 21 Community and Social Service Occupations 0 19 11 0 29 23 Legal Occupations 0 0 2 3 5
25 Educational Instruction and Library Occupations 6 20 18 6 50 27 Arts, Design, Entertainment, Sports, and Media
Occupations 1 5 5 1 12
29 Healthcare Practitioners and Technical
Occupations 0 12 13 48 72
31 Healthcare Support Occupations 70 24 1 0 94
33 Protective Service Occupations 8 1 0 0 9
35 Food Preparation and Serving Related
Occupations 148 2 0 0 150
37 Building and Grounds Cleaning and Maintenance
Occupations 17 13 0 0 30
39 Personal Care and Service Occupations 30 8 0 0 39
41 Sales and Related Occupations 61 12 8 8 89
43 Office and Administrative Support Occupations 15 64 11 0 90 45 Farming, Fishing, and Forestry Occupations 0 0 0 0 0 47 Construction and Extraction Occupations 0 3 2 0 5
49 Installation, Maintenance, and Repair
Occupations 1 12 1 0 14
51 Production Occupations 6 2 1 0 9
53 Transportation and Material Moving Occupations 32 12 1 0 44 Sources: Strategic Economics, 2025; CA TCAC, 2025; CA HCD, 2024; BLS, 2025.

Note: None of the occupations associated with new employment were categorized as Extremely Low-Income jobs.

Residential Impact Fee Study for the Town of Los Altos Hills 38 FIGURE 30: JOBS PER 1,000 HOUSING UNITS IN NEXUS STUDY, BY OCCUPATION AND CORRESPONDING HOUSEHOLD

INCOME, LARGE SINGLE-FAMILY PROTOTYPE
SOC
Group Group Description
Very
LowIncome
LowIncome Moderate
-Income
Above
ModerateIncome Total
11 Management Occupations 0 9 10 114 133
13 Business and Financial Operations Occupations 0 2 60 46 108 15 Computer and Mathematical Occupations 0 0 7 32 39
17 Architecture and Engineering Occupations 0 0 1 3 5
19 Life, Physical, and Social Science Occupations 0 2 3 5 9 21 Community and Social Service Occupations 0 44 25 0 69 23 Legal Occupations 0 0 4 7 11
25 Educational Instruction and Library Occupations 15 46 42 13 116 27 Arts, Design, Entertainment, Sports, and Media
Occupations 2 11 11 3 27
29 Healthcare Practitioners and Technical
Occupations 0 28 29 111 169
31 Healthcare Support Occupations 162 55 3 0 221
33 Protective Service Occupations 19 1 0 0 21
35 Food Preparation and Serving Related Occupations 346 5 0 0 351 37 Building and Grounds Cleaning and Maintenance
Occupations 40 30 0 0 70
39 Personal Care and Service Occupations 70 20 0 0 90
41 Sales and Related Occupations 143 27 19 18 207
43 Office and Administrative Support Occupations 36 150 26 0 211 45 Farming, Fishing, and Forestry Occupations 1 0 0 0 1 47 Construction and Extraction Occupations 0 7 5 0 12
49 Installation, Maintenance, and Repair Occupations 2 29 3 0 34 51 Production Occupations 14 4 3 0 21
53 Transportation and Material Moving Occupations 75 28 2 0 104 Sources: Strategic Economics, 2025; CA TCAC, 2025; CA HCD, 2024; BLS, 2025.

Note: None of the occupations associated with new employment were categorized as Extremely Low-Income jobs.

Residential Impact Fee Study for the Town of Los Altos Hills 39 FIGURE 31: JOBS PER 1,000 UNITS IN NEXUS BY OCCUPATION AND CORRESPONDING HOUSEHOLD INCOME –

TOWNHOMES
SOC
Group Group Description
Very
LowIncome
LowIncome Moderate
-Income
Above
ModerateIncome Total
11 Management Occupations 0 2 2 26 31
13 Business and Financial Operations Occupations 0 0 14 11 25 15 Computer and Mathematical Occupations 0 0 2 7 9
17 Architecture and Engineering Occupations 0 0 0 1 1
19 Life, Physical, and Social Science Occupations 0 0 1 1 2 21 Community and Social Service Occupations 0 10 6 0 16 23 Legal Occupations 0 0 1 2 3
25 Educational Instruction and Library Occupations 3 11 10 3 27 27 Arts, Design, Entertainment, Sports, and Media
Occupations 0 3 3 1 6
29 Healthcare Practitioners and Technical
Occupations 0 6 7 26 39
31 Healthcare Support Occupations 38 13 1 0 51
33 Protective Service Occupations 4 0 0 0 5
35 Food Preparation and Serving Related Occupations 80 1 0 0 82 37 Building and Grounds Cleaning and Maintenance
Occupations 9 7 0 0 16
39 Personal Care and Service Occupations 16 5 0 0 21
41 Sales and Related Occupations 33 6 4 4 48
43 Office and Administrative Support Occupations 8 35 6 0 49 45 Farming, Fishing, and Forestry Occupations 0 0 0 0 0 47 Construction and Extraction Occupations 0 2 1 0 3
49 Installation, Maintenance, and Repair Occupations 0 7 1 0 8 51 Production Occupations 3 1 1 0 5
53 Transportation and Material Moving Occupations 17 6 0 0 24 Sources: Strategic Economics, 2025; CA TCAC, 2025; CA HCD, 2024; BLS, 2025.

Note: None of the occupations associated with new employment were categorized as Extremely Low-Income jobs.

Residential Impact Fee Study for the Town of Los Altos Hills 40 FIGURE 32: NEW WORKER HOUSEHOLDS, AFFORDABILITY REQUIREMENTS, AND MAXIMUM FEE PER SQUARE FOOT, PER UNIT IN PROTOTYPE Prototype Number of
Households
Percentage of
Households
Average Gap (per
Household)
Maximum Fee Revenue (Total
Affordable Housing Gap)
Max Fee per
Sq. Ft.

Townhome North Santa Clara County
Extremely Low (30% AMI or lower) 0.00 0% $788,171 $0 $0 Very Low-Income (<=50% AMI) 0.14 46% $687,761 $98,603 $58 Low-Income (51- 80% AMI) 0.08 25% $540,787 $41,735 $24
Moderate-Income (81-120% AMI) 0.04 12% $393,398 $15,426 $9 Households Requiring Affordable Housing 0.26 83% $599,658 $155,764 $91 Above Moderate-Income (>=120%) 0.05 17% $0 $0 $0
Townhome Total 0.31 100% $495,420 $155,764 $91
Medium Single-Family North Santa Clara County
Extremely Low (30% AMI or lower) 0.00 0% $788,171 $0 $0 Very Low-Income (<=50% AMI) 0.26 46% $687,761 $181,604 $66 Low-Income (51- 80% AMI) 0.14 25% $540,787 $76,867 $28
Moderate-Income (81-120% AMI) 0.07 12% $393,398 $28,411 $10 Households Requiring Affordable Housing 0.48 83% $599,658 $286,882 $104 Above Moderate-Income (>=120%) 0.10 17% $0 $0 $0
Medium Single-Family Total 0.58 100% $495,420 $286,882 $104 Large Single-Family Northern Santa Clara County
Extremely Low (30% AMI or lower) 0.00 0% $788,171 $0 $0 Very Low-Income (<=50% AMI) 0.62 46% $687,761 $424,190 $85 Low-Income (51- 80% AMI) 0.33 25% $540,787 $179,547 $36 Moderate-Income (81-120% AMI) 0.17 12% $393,398 $66,362 $13 Households Requiring Affordable Housing 1.12 83% $599,658 $670,099 $134 Above Moderate-Income (>=120%) 0.24 17% $0 $0 $0
Large Single-Family Total 1.35 100% $495,420 $670,099 $134 Sources: CA HCD, 2025; CA TCAC, 2025; BLS, 2025; Strategic Economics, 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 41 Appendix II: Financial Feasibility Assumptions and
Pro Forma
Cost Assumptions
FIGURE 33: DETAILED COST ASSUMPTIONS FOR OWNERSHIP PROTOTYPES IN LOS ALTOS HILLS Unit of Measure
Medium
Single-Family
Large SingleFamily Townhomes
Land Costs per square foot $225 $75 $125
Hard Costs
Demolition and Site Work per sq. ft. land $10 $3 $40
Building Area Construction
Residential - Type V per gross sq. ft. $300 $550 $275
Parking Costs
Included in
building area
Included in
building area
Included in
building area
Soft Costs
Arch, Eng & Consulting % of hard costs 5.0% 5.0% 5.0%
Taxes, Insurance, Legal & Accounting % of hard costs 5.0% 5.0% 10.0% Other Soft Costs % of hard costs 3.0% 3.0% 3.0%
Total Soft Costs (Excluding Fees) % of hard costs 13.0% 13.0% 18.0%

Municipal Fees Shown in Separate Table
Contingency % of hard + soft costs 5.0% 5.0% 5.0%
Financing
Amount Financed (Loan-to-cost) % of hard + soft costs 55% 55% 55% Average outstanding balance % of Amt Financed 55% 55% 55% Construction Loan Fee % of Amt Financed 1.0% 1.0% 1.0%
Construction Interest (annual) 8.0% 8.0% 8.0%
Term Months 12 12 18
Developer Return
Target Developer Return-on-cost % of total dev costs 15.0% 15.0% 15.0% Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025; CoStar, 2025; Federal Reserve Bank of New York, 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 42 FIGURE 34: MUNICIPAL FEE ESTIMATES PER UNIT IN LOS ALTOS HILLS, 2025 Prototype Medium SingleFamily
Large SingleFamily Townhomes
Permits & Fees
Building Permit $10,641 $22,386 $6,751
Plan Check $6,917 $14,551 $4,388
Sewer & Water $11,236 $11,236 $11,236
Other $37,586 $77,969 $23,607
Total $66,381 $126,142 $45,982
Impact Fees
Parks $54,450 $54,450 $43,923
Schools $9,460 $17,200 $5,831
Other $10,649 $10,649 $10,649
Total $74,559 $82,299 $60,403
Sources: Town of Los Altos Hills, 2025; Strategic Economics, 2025.

Revenue Assumptions
FIGURE 35: MARKET RATE OWNERSHIP PRO FORMA REVENUE ASSUMPTIONS Medium Single-Family Large Single-Family Townhomes
Unit Size Square Feet
Share of
Units Square Feet
Share
of Units Square Feet
Share of
Units
Two Bedroom sq. ft.

- 0%

- 0%

1,400 23%
Three Bedroom sq. ft.

- 0%

- 0%

1,700 50%
Four Bedroom sq. ft.

2,750 100%

5,000 100%

2,000 27%
Average Unit Size sq. ft.

2,750

5,000

1,710
Unit Sales Value
Two Bedroom per unit $1,685,000
Three Bedroom per unit $1,890,000
Four Bedroom per unit $4,537,500 $8,000,000 $2,035,000
Average Sales Value
Per unit per unit $4,537,500 $8,000,000 $1,880,833
Marketing Expense % of Sales Price 0% 0% 5%
Net Revenue $3,300,000 $3,300,000 $1,786,792
Sources: Strategic Economics, 2025; Developer Interviews, 2025; Redfin, 2025.

Residential Impact Fee Study for the Town of Los Altos Hills 43 Detailed Pro Forma
FIGURE 36: DETAILED PRO FORMA – PER UNIT BASIS
Medium
Single-Family Large Single-Family Townhomes
Revenues
Market Rate Units $4,537,500 $8,000,000 $1,880,833
Less Marketing Costs $0 $0 ($94,042)
Total Proceeds $3,025,000 $8,000,000 $1,786,792

Development Costs

Hard Costs
Demolition and Site Work $54,450 $130,680 $87,120
Building Area $825,000 $2,750,000 $470,250
Subtotal Hard Costs $879,450 $2,880,680 $557,370

Soft Costs (excl. Fees)
Arch, Eng & Consulting $43,973 $144,034 $27,869
Taxes, Insurance, Legal & Accounting $43,973 $144,034 $55,737 Other Soft Costs $26,384 $86,420 $16,721
Subtotal $114,329 $374,488 $100,327

Municipal Fees
Affordable Housing Impact Fee $0 $0 $0
Impact Fees other than Affordable Housing $74,559 $82,299 $60,403 Other Municipal Fees $66,381 $126,142 $45,982
Fees Subtotal $140,940 $208,441 $106,385

Contingency $56,564 $175,258 $37,160
Financing $35,279 $109,309 $32,619
Summary
Residual Land Value per Unit
Total Sales Proceeds $4,537,500 $8,000,000 $1,786,792
Total Development Cost $1,226,561 $3,748,177 $833,860
Required Developer Return 15% 15% 15%
Supportable Development Cost $3,945,652 $6,956,522 $1,553,732 Residual Land Value $2,719,091 $3,208,345 $719,872
Feasibility (per Unit)
Residual Land Value $2,719,091 $3,208,345 $719,872
Typical Land Cost per Unit $1,225,125 $3,267,000 $272,250 Typical Land Value, per SF of Land $225 $75 $125
Feasibility Result Feasible
Marginally Infeasible: Land
Cost Exceeds RLV Feasible
Sources: Strategic Economics, 2025; Redfin, 2025; Developer Interviews, 2025; Town of Los Altos Hills, 2025.

ITEM 7D

THE TOWN OF LOS ALTOS HILLS
Staff Report to the City Council
April 16, 2026
SUBJECT: Report Regarding a Resolution Approving a Hybrid Public Meeting Disruption Policy Pursuant to Senate Bill 707 and Allowing for Committee Remote Participation Consistent with City Council practices FROM: Steve Mattas, City Attorney

RECOMMENDATION
That the City Council adopt a resolution to adopt a Hybrid Public Meeting Disruption Policy to incorporate new Brown Act amendments regarding meeting disruption procedures for two-way remote attendance and public outreach to underrepresented communities pursuant to Senate Bill 707, as well as to allow for remote participation of members of Town committees at Town committee meetings.

BACKGROUND
Traditional Brown Act teleconferencing rules
The Brown Act (Gov. Code § 54950 et seq.) governs the right of the public to attend and participate in meetings of local legislative bodies and provides procedural requirements for such meetings. The Brown Act requires, with specified exceptions, that all meetings of a legislative body of a local agency be open and public and that all persons be permitted to attend and participate. The Brown Act traditionally contains a set of “traditional” teleconferencing rules that allows legislative body members to attend meetings remotely by making the teleconference location available to the public, posting agendas at all locations, and requiring a quorum of the body to meet within the local agency’s jurisdiction.

AB 2449 teleconferencing rules
Beginning in 2021, the California Legislature codified revised standards for remote participation to accommodate teleconferencing as a public health measure during the COVID-19 pandemic including Assembly Bill (“AB”) 2449 (2022), which authorizes a member of a legislative body to participate in a public meeting remotely under certain circumstances that are more flexibles than the traditional teleconferencing rules. In anticipation of the expiration of the AB 2449 provisions, the California Legislature considered comprehensive changes to the Brown Act, resulting in the passage of SB 707. SB 707, signed into law on October 3, 2025, provides significant updates to the Brown Act to expand public participation and access.

Prior to SB 707 and under the Brown Act as amended by AB 2449, a member of a legislative body may participate in a public meeting remotely if “emergency circumstances” or “just cause” exist. “Emergency circumstances” means a physical or family medical emergency that prevents a member from attending in person. “Just cause” is defined as (a) a family childcare or caregiving need; (b) a contagious illness; (c) a need related to a physical or mental disability that is not otherwise accommodated; or (d) travel while on official business. Members of the legislative body that

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Resolution Adopting a Hybrid Public Meeting Disruption Policy participate remotely under these provisions are not required to identify their location on the agenda or otherwise make their location accessible to the public.

The Brown Act was also revised by AB 2449 to limit the allowed number of remote appearances under the “emergency circumstances” or “just cause” provisions for members of a legislative body to:

1. Two times per year if the body regularly meets once per month or less; (this is the applicable provision for Los Altos Hills)

2. Five times per year if the body regularly meets twice per month; or

3. Seven times per year if the body regularly meets three or more times per month.

Changes introduced by SB 707
The above provisions were set to expire on January 1, 2026. SB 707 now makes them permanent.

Additionally, the bill recasts these teleconferencing requirements to uniformly apply certain requirements. SB 707 also consolidates the two existing categories allowing councilmembers to participate remotely with more flexibility—just cause and emergency circumstances—into one. The consolidation eliminates the requirement to obtain City Council approval where the remote participant is requested for a “physical or family medical emergency.” In addition, the categories were expanded to include the need to protect immune-compromised family members and military service obligations that requires the member to be more than 50 miles outside of the jurisdiction.

Prior to SB 707, agencies are not required to provide two-way video or teleconference service to the public unless a councilmember participates by teleconference. Many agencies, including the Town, already offer videoconferencing service to the public even where no legislative-body members participated remotely. SB 707, beginning on July 1, 2026, requires eligible legislative bodies to provide a way for the public to attend meetings either through a two-way audio-visual platform or a two-way telephonic service, unless “adequate telephonic or internet service is not operational at the meeting location.” This mandate is currently set to expire on January 1, 2030.

Eligible legislative bodies must also adopt a policy, on or prior to July 1, 2026, regarding disruption of telephonic or internet services during meetings. Such policy may not be adopted on the consent calendar and must be adopted in open session.

The policy must address the procedures to recess and reconvene the meeting and the efforts that the agency will make to restore service. When a disruption occurs, the eligible legislative body must recess the meeting and make a good faith attempt to restore the service. If service is restored, the agency can reconvene. If not, the agency must wait at least 1 hour following the disruption and find that “good faith efforts” to restore service have been made and that the public interest in continuing the meeting outweighs the public interest
in remote public access.

In addition to the above, SB 707 will require eligible legislative bodies to perform local outreach to encourage public participation. These include:

1. Providing a system for electronically accepting and fulfilling requests for meeting agendas;

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Resolution Adopting a Hybrid Public Meeting Disruption Policy

2. Maintaining an accessible public meeting webpage concerning public meetings and how to participate;

3. Making reasonable efforts to invite groups that do not traditionally participate in public meetings to attend those meetings, such as outreach to media organizations serving nonEnglish-speaking communities or civic engagement organizations.

The legislative body has broad discretion to implement these efforts.

DISCUSSION
The above outlined new requirements of the Brown Act added by SB 707 apply to the Town’s City Council because it is an “eligible legislative body.” Eligible legislative bodies include a city council of a city located in a county with a population of 600,000 or more. Thus, SB 707’s requirements apply to all cities located in Santa Clara County, including Los Altos Hills. To ensure compliance with the new Brown Act requirements, staff has prepared the attached draft Hybrid Public Meeting Disruption Policy.

In addition, Mayor Bhateja proposed to staff to take this opportunity to amend the Town’s remote participation policy governing members of Town committees. It is currently the Town’s policy that only members of the City Council or the Planning Commission may utilize the Brown Act’s teleconferencing provisions at any given time. Town committees may utilize a hybrid model using an electronic device (computer/tablet/phone) for members of the public to participate, but committee members are not eligible to attend meetings via teleconferencing. Committee members must be physically present at all committee meetings in order to participate and vote.

We understand that part of the rationale for this policy was that the City Council and the Planning Commission meet in the City Council Chambers, which has been upgraded to allow for members of the public to attend in person or virtually using a teleconferencing program such as Zoom. The Town has dedicated staff to attend to the audio and visual teleconferencing needs within Council Chambers. Given that the Town’s committees run their own meetings, staff is not required to attend and assist the Town’s committees with any technical knowledge of Zoom or any other teleconference program or platform the Town may utilize.

The attached draft Hybrid Public Meeting Disruption Policy would memorialize the Town’s current policy on legislative body teleconference attendance and would additionally allow members of the Town’s committees to utilize the Brown Act’s teleconferencing provisions to participate remotely in Town committee meetings, up to a maximum of two meetings per calendar year. This limit is consistent with the Brown Act’s limit on “just cause” remote attendance that are applicable to the Council and Planning Commission currently. The draft policy further states that committee members would be required to comply with all provisions of the Brown Act and any other applicable laws and regulations.

The attached draft Hybrid Public Meeting Disruption Policy, if adopted, would go into effect on May 1, 2026. This time period is intended to allow for any necessary arrangements to be made to effectuate the policy.