OAKLAND IMPACT FEE FIVE-
YEAR REVIEW AND
UPDATE PHASE 2:
DEVELOPMENT FEASIBILITY
ANALYSIS AND HOUSING
STRATEGY STUDY
Planning and Building Department
CED Committee
October 22, 2024
1 Agenda
▪ Backgrou nd and Cont ext
▪ Key H ighl igh ts - Marke t Fe asi bi li t y Anal ysi s an d H ous ing Stra te gy St ud y
▪ Imp ac t Fe e Program Refi ne ment s
1. Conver t AH IF from a Fe e Per Uni t to a Fe e Per Squ are Foot
2. Re vi ew Fe e Zon e Bou nda rie s for Re si de nt ia l Dev el opme nt
3. Esta bl ish Pro je ct Uni t Th re shol ds for Resi d ent ia l Deve lop me nt
4. Chan ge s to Imp act Fee Le vel s
5. Chan ge s to Imp act Fee Pay men t Ti min g and Ph ase -In
6. In creas e On -si te Afforda bl e Uni ts Req ui reme nts 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
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
• Perceived 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
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 Two Paths – Same Set of Options
Inclusionary Program with On-Site
Percentage of Affordable Housing
• Can pay a Fee instead of
building on site based on
amount of market-rate
development
• Off-site compliance
Affordable Housing Impact Fee
based on Amount of Market Rate
Development
• Specified percentage of
affordable units on-site
• Off-site compliance
Alternative Means of Compliance
18 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.
19 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
20 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
21 Impact Fee Program
Refinements
22 Impact Fee Program Refinements
1. C onvert the A ffordable H ous ing Im pact Fee fro m a Fee Per Unit t o a Fee Per Square Foo t
2. Rev iew Fee Z o ne Bo undar ies for Res ident ial
D ev elo pment
3. E stabl ish Pro jec t Uni t Thresho lds for Res ident ial D ev elo pment
4. D eterm ine ap pro priate Im pact Fee Lev els
5. C hanges to Impac t Fee Paym ent Ti ming and Phase - In
6. Inc re as es in On -s ite A ff ordable Unit Requirement s in lie u o f p ay ing t he AH IF
23 1. 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.
24 2. 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.
25 3. 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 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
26 3. 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 27 4. 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.
28 5. 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 29 5. 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
30 6. 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.
31 6. 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
32 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%
CED Feedback/Staff
recommendations
1. Convert the AHIF from Fee per Unit to Fee per
Sq.Ft . – A s required by AB 602(2021)
2. No cha nge to Impa ct Fee Z ones for Residentia l
Projects
3. No cha nge to level o f Impac t Fees
4. Add Project Unit Threshol ds for A HIF
5. Change timing of Impact Fee Payment
6. Inc rease on -site afforda ble units requirements
33 Next Steps
• Fall 2024
• November – December 2024 - Update Policy
Recommendations based on CED Feedback
• Early 2025
• Adoption Hearings
34 LEARN MORE
Visit the website below
https://www.oaklandca.gov/projects/5-year-
impact-fee-review-and-update-reports
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