OAKLAND IMPACT FEE FIVE-
YEAR REVIEW AND
UPDATE PHASE 2:
DEVELOPMENT FEASIBILITY
ANALYSIS AND HOUSING
STRATEGY STUDY
Planning and Building Department
CED Committee
July 23, 2024
1 General Plan Update Phase 2Agenda
▪ Background and Context
▪ Key Highlights - Market Feasibility Analysis and Housing Strategy Study
▪ Impact Fee Program Refinements
1. Convert AHIF from a Fee Per Unit to a Fee Per Square Foot
2. Review Fee Zone Boundaries for Residential Development
3. Establish Project Unit Thresholds for Residential
Development
4. Changes to Impact Fee Levels
5. Changes to Impact Fee Payment Timing and Phase -In
6. Increase On -site Affordable Units Requirements
2 General Plan Update Phase 2
Background and Context
3 • Four impact fees
• Affordable Housing Impact Fee (AHIF) on residential development Transportation Impact Fee (TIF) on all development
• Capital Improvements Impact Fee (CIF) on all development • Jobs/Housing Impact Fee (JHIF) on office and warehouse development
• JHIF adopted earlier and in effect since 2002
• AHIF, TIF, CIF in effect since Sept. 2016
• Phased in: July 2020 reached full adopted amount
• Impact fees increase with inflation.
4 Oakland’s Impact Fee Program
• Applies citywide
• Three types of residential development
• Single-Family, Townhome, Multifamily
• No minimum size threshold
• Fees assessed per unit
• Different fees for three impact fee zones - zones and their fee levels reflect differences in the cost of housing, the feasibility of market-rate development, and the demand for new housing. • Phased in: July 2020 reached full adopted amount
• July 2021: Annual increase per construction cost inflation • Cumulative 35% increase since September 2021 (15% increase in 2023)
5 Affordable Housing Impact Fee
Impact Fee Zones – Residential Projects
• On-site or off-site options allow developers to reduce or eliminate need to pay impact fees
• 5% of total proposed units affordable to very-low-income households
• 10% of total proposed units affordable to low- or moderate- income households
• Mixed compliance: if fewer units provided, developer pays proportionately lower AHIF
• These on-site percentages are also minimum required to take advantage of Density Bonus incentives
7 AHIF: Alternative Compliance
1. Development Feasibility Analysis
• Review the market and economic feasibility context for development in Oakland
• Identify and analyze options to modify and refine impact fees in terms of potential benefits and ability to implement without impacting development feasibility.
2. Housing Strategy Study
• Implement Action 3.3.7 from the Housing Element
• Identify preferred means to increase affordable housing production in Oakland using the private development market
• Affordable housing impact fees on market-rate residential development • Inclusionary on-site options as an alternative to impact fees or on-site requirements
8 Goal of Current Study
General Plan Update Phase 2
Key Highlights -
Development Feasibility
Analysis
9 • Market and economic feasibility assessment for
• Office
• Housing
• Retail and Dining
• Hotel
• Warehouse/Industrial Development
• Oakland’s economy and real estate market are still recovering and adjusting to the pandemic after-effects.
• Uncertainty about the extent and timing of recovery
• Downtown Oakland in particular continues to struggle. • Local real estate market has not reached a stabilized situation 10 Development Feasibility Analysis
• Current economic conditions today are very different from the strong market context prior to the pandemic. Many sectors are now facing:
• Reduced demand, higher vacancies, and lower rents
• Higher capital and construction costs
• Increases in crime with additional impact on the desirability and costs of Oakland locations
• Developers, investors, and property owners facing loan defaults, property seizures, and low-value sales.
• Impact fee levels are not the only key determinant of project feasibility • New construction is not feasible in most sectors
11 Development Feasibility Analysis
General Plan Update Phase 2
Key Highlights - Housing
Strategy Study
12 100% Affordable Housing – Funding Sources
1. Bond Sources – Not on-going, continues until money runs out • Measure KK - $100 million, entirely drawn down
• Alameda County Measure A1 – $88.9 Million for Oakland, entirely drawn down
• Measure U - $350 million, underway
2. Affordable Housing Trust Fund – Primary source of on-going capital funding
• AHIF paid by developers of market rate housing: $27.8 million collected from Sept. 2016 – June 2023
• JHIF paid by developers of new office and warehouse space • "Boomerang funds" - 25% allocation of former Redevelopment tax increment set-aside funds set aside for affordable housing 13 AHIF Revenue for Affordable Housing
• $27.8 million collected
from developers of
market rate housing
between September
2016 and June 2023
• $25.1 million of the
AHIF awarded to 9
projects
• 565 affordable units
received some level of
AHIF funding
55%33%
11% 2%
Percent of Units by Income Category
Extremely Low
Income
Very Low Income
Low Income
Manager's Unit
14 Table 3: Total Number of Units by Income
Category – Projects Receiving AHIF Funding
Extremely Low Income (ELI) 308
Very Low Income (VLI) 188
Low Income (LI) 60
Manager’s Unit 9
Total Number of Units 565
Framework -100% Affordable Housing
• Average cost of developing an affordable unit = $800,000 per unit • Average city capital subsidy = $150,000 per unit
• $25 million in Affordable Housing Impact Fee revenue funded 9 housing projects producing 565 affordable housing units • All 565 units received some level of AHIF funding.
• If the AHIF were the only funding source available, at an average local capital subsidy of $150,000 per unit, the AHIF revenue would fund 167 affordable housing units.
15 Role of Market Rate Development in Affordable
Housing Production
• Development agreements for larger projects (examples: Brooklyn Basin, Oak Knoll, BART station area plans—Lake Merritt, MacArthur, West Oakland)
• AHIF paid by private developer based on amount of market rate housing in a development project
• On-site affordable units instead of (in lieu of) the AHIF • On-site affordable units to satisfy Density Bonus requirements and AHIF
16 Two Paths to Generate Affordable
Housing
INCLUSIONARY PROGRAMS
(sometimes called INCLUSIONARY
ZONING)
• Require market rate
development to make some
units in the project affordable
to low- and moderate-income
households.
• Authority is the local
government police power—
the same authority that allows
local governments to regulate
the size and use of buildings
and to require open space.
IMPACT FEES
• Assessed based on amount of
market-rate development
• Generate funding for
affordable housing elsewhere
in the city
• Like other impact fees, are
governed in California by the
Mitigation Fee Act
• Nexus analysis to establish
relationships and proportional
impact
17 Development Trends in the Use
of Density Bonus Ordinance
• Most multifamily development projects use the Density Bonus ordinance.
• Many projects provide more than the minimum required by the AHIF on-site option.
• To gain more market-rate units than otherwise allowed (bonus units which help offset the cost of providing affordable units on- site) and
• To gain the cost savings from concessions and waivers of development standards.
• Most mixed-income density bonus projects (65%) are mid-rise buildings of five- eight stories.
18 Key Findings
• The Density Bonus program offers significant cost savings and, in most cases, revenue enhancements that offset the additional costs of providing on-site affordable units.
• As was the intent of the state legislation establishing the California Density Bonus program, more market rate units are produced than would otherwise be the case and affordable units are produced without public subsidy.
• The advantages of the density bonus program are such that many developers provide more than the required affordable units to • Be exempt from the AHIF under the on-site option
• Get additional concessions and waivers
19 Key Findings (con'td)
• Current development feasibility context supports production of a higher percentage of on-site affordable units
• The current AHIF cost combined with depressed market-rate rent levels supports an increase in the minimum on-site percentages for the on-site option
20 General Plan Update Phase 2
Impact Fee Program
Refinements
21 General Plan Update Phase 2Impact Fee Program Refinements
1. Convert the Affordable Housing Impact Fee from
a Fee Per Unit to a Fee Per Square Foot
2. Review Fee Zone Boundaries for Residential
Development
3. Establish Project Unit Thresholds for Residential
Development
4. Determine appropriate Impact Fee Levels
5. Changes to Impact Fee Payment Timing and
Phase -In
6. Increases in On -site Affordable Unit
Requirements in lieu of paying the AHIF
22 General Plan Update Phase 21. Convert AHIF from Fee Per Unit to Fee Per Sq.Ft
▪ AB 602 (2021) requires impact fees updated after 2021 to be assessed per square foot of residential development
▪ Current AHIF is assessed and charged per unit, regardless of size - larger units, such as 2- and 3-bedroom units, pay the same fees as smaller units, such as studios and one-bedroom units
▪ With the new approach, units that are larger than average will pay more than the per-unit fee and units that are smaller than average will pay less than the per-unit fee.
▪ Converting to a fee per square foot reduces fee cost for small units and improves feasibility for naturally occurring affordable housing.
Staff Recommendation – Update the current AHIF fee structure to be assessed per square foot of residential development. 23 General Plan Update Phase 22. Review Fee Zone Boundaries for Residential Projects
▪ Residential projects have three impact fee zones
▪ Zones and their fee levels reflect differences in the cost of housing, the feasibility of market-rate development, and the demand for new housing
▪ Analysis and findings from the market feasibility context and housing strategy study indicate no reason to change impact fee zone boundaries or the variations in fees between zones.
Staff Recommendation – Current impact fee zone
boundaries and the fee variations between zones remain
the same.
24 General Plan Update Phase 23. Project Unit Thresholds for Residential ▪ Currently no minimum size/unit threshold
▪ All residential development projects, except ADUs are subject to the AHIF
▪ Smaller residential developments pay a disproportionately larger share in comparison to more significant residential developments, ▪ Inequities and cost burdens on small, emerging or BIPOC developers ▪ Pros of Establishing a Unit Number/Size Threshold
▪ Aligns with Action 3.2.1 of the 2023-2031 Housing Element and implementing Planning Code changes (Ord. 13763 C.M.S)
▪ Encourages missing middle and multi-unit housing types in currently single-family-dominated neighborhoods.
▪ Affordable housing impact fee costs are proportionately assessed and charged
25 General Plan Update Phase 23. Unit Number/Size Thresholds for AHIF Staff Recommendation
1) Exempt the following projects from paying the AHIF
▪ Projects providing between 2 and 4 units
▪ Single-family homes of 1,750 square feet or less
2) Continue to charge AHIF on
▪ Larger subdivisions as part of a PUD, irrespective of the unit size or if they provide 2-4 units
▪ Residential units exceeding 1,750 square feet
3) Continue to charge TIIF and CIIF on all residential projects 26 General Plan Update Phase 24. Level of Impact Fees
▪ Current development conditions in Oakland are significantly impacted by reduced demand, higher vacancies, lower rents, and higher construction and capital costs
▪ While Impact fee levels are not the only key determinant of project feasibility, analysis does not support
▪ Increasing the current level of impact fees to allow the market time to adjust further without increasing development costs (OR) ▪ Reducing impact fees as it would not likely make a significant difference to encourage new development that is not otherwise likely to move forward
Staff Recommendation – Maintain current fee levels, only adjusting for inflation, to allow the market time to adjust further without increasing development costs.
27 General Plan Update Phase 25. Timing of Impact Fee Payment • Current payment schedule
• AHIF: 50% at building permit / 50% at certificate of occupancy • JHIF: 25% at building permit / 50% at certificate of occupancy / 25% 18 months after project completion
• TIF and CIF: 100% at building permit (these fees are smaller amounts) • Staff analyzed the following options related to fee payment timing • AHIF
o Option 1: Require 100% to be paid at building permit issuance o Option 2: Require 100% to be paid at certificate of occupancy - JHIF
o Option 1: Require 50% at building permit issuance and 50% at certificate of occupancy
o Option 2: Require 100% to be paid at building permit issuance o Option 3: Require 100% to be paid at certificate of occupancy 28 General Plan Update Phase 25. Timing of Impact Fee Payment (cont’d) • Aligning the JHIF and AHIF payment schedules will increase administrative efficiency.
• Options are:
o AHIF and JHIF - 100% at Building Permit Issuance
o Additional cost to projects, particularly in a high-interest environment o Fee revenue available for use earlier for the AHTF
o AHIF and JHIF - 100% at Certificate of Occupancy
o Reduce project costs
o Fee revenue available later for the AHTF
o In alignment with SB 937
oTIF and CIF to Certificate of Occupancy
o Was not separately modeled, but if the City moves the AHIF and JHIF to certificate of occupancy, these fees would likely also be moved to be in sync.
Staff Recommendation – Defer the AHIF, JHIF, TIF, and CIF to certificate of occupancy
29 General Plan Update Phase 26. Increases in on-site affordable units in lieu of AHIF
• Most multifamily projects use the Density Bonus program - cost savings, additional concessions and waivers
• Provide affordable units on-site at higher percentages than required by inclusionary programs or the City’s current on -site options in lieu of the AHIF
• For multifamily development, the current development feasibility context supports the production of a higher percentage of on -site affordable units
• The current AHIF cost combined with depressed market -rate rent levels supports an increase in the minimum on -site percentages for the on-site option for very low-income and low-income units. 30 General Plan Update Phase 26. Increases in on-site affordable units in lieu of AHIF (cont’d)
Staff Recommendation
• Increase the AHIF on-site alternative by zone
• Proposed increases reflects the value of incentives (bonus market-rate units) and cost savings (concessions and waivers) associated with the density bonus program
31 Income Levels Current Requirement Proposed Changes to Zone 1 and 2
Proposed Changes to
Zone 3
Very Low Income (VLI) 5% 10% 5% (keep as is)
Low Income (VLI) 10% 12% 10% (keep as is)
Moderate Income (MI) 10% 15% 15%
General Plan Update Phase 2CED Feedback/Staff
recommendations
1. Convert the AHIF from Fee per Unit to Fee per
Sq.Ft . – As required by AB 602(2021)
2. No change to Impact Fee Zones for Residential
Projects
3. No change to level of Impact Fees
4. Add Project Unit Thresholds for AHIF
5. Change timing of Impact Fee Payment
6. Increase on -site affordable units requirements
32 General Plan Update Phase 2
Next Steps
• Fall 2024
• August 2024 – September 2024 - Update Policy
Recommendations based on CED Feedback
• October 2024 – Adoption Hearings
33 LEARN MORE
Visit the website below
https://www.oaklandca.gov/projects/5-
year-impact-fee-review-and-update-
reports
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