1 Economic & Planning Systems, Inc.
The Economics of Land Use
949 South Hope Street, Suite 103 Los Angeles, CA 90015 213.489.3838 www.epsys.com
Economic & Planning Systems, Inc.
The Economics of Land Use
CITY OF RIVERSIDE
INCLUSIONARY HOUSING
PROGRAM STUDY
Housing and Homelessness
Committee Meeting Update
February 28, 2022
Economic & Planning Systems EPS PPT Presentation | 1
AGENDA
Study Process To-Date
Review of Inclusionary Housing Policies in Other Cities Review of Feasibility Analysis
Overview of Stakeholder and Community Outreach To-Date Preliminary Recommendations for City Program
Discussion
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Attachment 3
2 Economic & Planning Systems EPS PPT Presentation | 2
STUDY PROCESS TO-DATE
• EPS engaged by City
May 2021
• EPS preliminary technical analysis
June-August 2021
• Presentation of preliminary findings to Housing and Homelessness Committee
September 2021
• Meetings with targeted stakeholder groups
November 2021
• Community town hall presentation
January 2022
Economic & Planning Systems EPS PPT Presentation | 3
AFFORDABLE HOUSING CONTEXT FOR RIVERSIDE
Riverside Affordable Housing Standards for 2021
Affordability Category 6th Cycle RHNA
Allocation
2021 Max Income
(3 person
household)1
Maximum Rent
(2‐bedroom unit)2
2021 Max Income
(4 person
household)1
Maximum Sale Price
(3‐bedroom home)3, 4
2021 Max Income
(5 person
household)1
Maximum Sale Price
(4‐bedroom home)3
Extremely Low Income (ELI) ‐ 30% AMI 2,431 $21,960 $549 [6] [6] [6] [6] Very Low Income (VLI) ‐ 50% AMI 2,430 $35,550 $889 $39,500 $114,440 $42,700 $147,845 Low Income (LI) ‐ 70% AMI 2,064 $49,802 $1,245 $55,335 $202,498 $59,762 $239,779 Moderate Income (MOD) ‐ 110% AMI 3,139 $76,725 $2,238 $85,250 $423,481 $92,070 $478,887 Above Moderate Income ‐ >120% AMI 7,394 N/A N/A N/A N/A N/A N/A Typical Market Rates [5] $2,571 $400,000 $625,000
[1] Income levels are based off the median household income for Riverside County, as reported by CA HCD. [2] Maximum rent for each income level is based on 30% of maximum income for ELI, VLI, and LI; and 35% of maximum income for MOD. [5] Based on EPS market research. Estimated rates are for 2‐bedroom, 850 sq. ft. rental unit; 3‐bedroom, 1,500 sq. ft. for‐sale townhome; and 4‐bedroom, 2,500 sq. ft. single family home. [6] Inclusionary programs do not typically include ELI requirements for‐sale housing.
Sources: State of CA HCD; City of Riverside; CoStar; Zillow; EPS Multifamily Rental Units For‐Sale Townhome Units Single Family For‐Sale Units [3] Maximum sale price for each income level assumes mortgage payment equal to 30% of maximum monthly income for ELI, VLI, and LI, and 35% of maximum monthly income for MOD (minus taxes and insurance), on a 30‐year mortgage with a 3.5% annual interest rate and 10% down payment.
[4] The maximum sale price for four‐person households at moderate income is higher than the estimated market‐rate price for townhome products in Riverside. Therefore, EPS's analysis does not include moderate‐income inclusionary requirements for townhomes.
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3 Economic & Planning Systems EPS PPT Presentation | 4
INCLUSIONARY HOUSING POLICIES IN CALIFORNIA
Source: Grounded Solutions Network
Over 170 cities and counties in California
have inclusionary housing policies
Riverside
Riverside
Economic & Planning Systems EPS PPT Presentation | 5
IHP IN COMPARABLE JURISDICTIONS – FOR SALE
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IHP IN COMPARABLE JURISDICTIONS – RENTAL
Economic & Planning Systems EPS PPT Presentation | 7
FEASIBILITY ANALYSIS
Developed prototype rental and for-sale market-rate products that the City might see developed in the future.
Tested feasibility of several scenarios of developing on-site affordable units, using typical return metrics
5.25% return on cost for rental projects
15% profit margin on for-sale projects
Also estimated an in-lieu fee and assessed the feasibility impacts of paying fee as compared to building on-site units
– Fee calculated as subsidy needed to support development of affordable units off-site (Unit value at affordable levels – Cost of building unit) – EPS calculated fees for select inclusionary requirements – if City opts to include fee option, calculation will be updated to reflect preferred requirement
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5 Economic & Planning Systems EPS PPT Presentation | 8
PROTOTYPE PRODUCTS
Mid-Density Multifamily
(~30 units/acre)
Infill Multifamily
(~60 units/acre)
Downtown Multifamily
(~100 units/acre)
Townhomes
(~15 units/acre)
Single Family Homes
(~10 units/acre)
Main & 9th Raincross Promenade The CORE
Autumn GroveCoronado Riverwalk
Economic & Planning Systems EPS PPT Presentation | 9
INCLUSIONARY SCENARIOS - RENTAL
Scenarios for multifamily rental include:
– 15% and 10% of units for low-income households
– 10% of units for very low-income households
– In-lieu fee on 10% low-income requirement (~$13,000 per market rate unit) Higher density projects
achieve lower return on
cost, and options for
including affordable
units are limited
Mid-density projects
have more room to
feasibly include
affordable units
Payment of in-lieu fee is
a feasible option
5.65%
5.26% 5.39% 5.26% 5.43%5.51%
5.07% 5.21% 5.11% 5.33%5.52%
5.07% 5.22% 5.12% 5.34%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
No Inclusionary 15% Low 10% Low 10% Very Low In ‐Lieu Fee Mid‐Density Infill Downtown
Return
Threshold:
5.25%
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6 Economic & Planning Systems EPS PPT Presentation | 10 INCLUSIONARY SCENARIOS – FOR SALE TOWNHOMES
Scenarios for for-sale townhomes include:
– 10% of units for low-income households
– 5% of units for very low-income households
– In-lieu fee on 10% low-income requirement (~$17,000 per market rate unit) Townhome projects achieve
yield on cost well above
threshold without affordable
units
Both inclusionary scenarios
and payment of in-lieu fee
would still produce a feasible
yield on cost
21.6%
15.6%
17.2% 16.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
No Inclusionary 10% Low 5% Very Low In ‐Lieu Fee
Return
Threshold:
15%
Economic & Planning Systems EPS PPT Presentation | 11
INCLUSIONARY SCENARIOS – FOR SALE SINGLE FAMILY
Scenarios for single family detached homes include:
– 5% of units for moderate-income households
– 2% of units for very low-income households
– In-lieu fee on 5% moderate-income requirement (~$7,000 per market rate unit) Single family projects just barely
achieve profit margin threshold
without affordable units
Both affordable scenarios and
payment of the in-lieu fee would
produce a barely feasible profit
15.7%
14.4% 14.3% 14.5%
0.0%
5.0%
10.0%
15.0%
20.0%
No Inclusionary 5% Moderate 2% Low In ‐Lieu Fee
Return
Threshold:
15%
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SUMMARY OF FEASIBILITY RESULTS
For-sale single family home products are limited in feasibly providing inclusionary units
For-sale townhomes products appear able to support inclusionary requirements, but are a less common product
Multifamily rental products at ~30 units/acre appear to feasibly support inclusionary requirements, and are a common product Higher-density multifamily rental products in and near Downtown tend to have higher costs, and providing affordable units is less feasible
Payment of in-lieu fee yields a higher return than providing on-site units
Economic & Planning Systems EPS PPT Presentation | 13
STAKEHOLDER FEEDBACK
EPS hosted two stakeholder workshops in November 2021, and presented to the Riverside Chamber of Commerce’s Economic Development Council in January 2022
Workshop #1 included housing advocates and developers of affordable housing projects. Seven stakeholders attended the meeting, and provided following primary feedback:
– Importance of including affordable units in market-rate developments, to avoid clustering of affordable units in existing low-income areas of City – Some but not unanimous support for consideration of in-lieu fee option, as it can result in more affordable units in the long-run through funding leverage – Program should include option for land donation and/or collaboration with nonprofit builders for separate buildings to meet inclusionary requirement – would be relevant for larger projects
– Encouraging City to explore other tools for developing permanent/long-term affordable housing, including co-ops and community land trusts, and other funding sources such as transient occupancy tax (TOT)
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STAKEHOLDER FEEDBACK
Workshop #2 included developers of market-rate residential projects. Sixteen stakeholders attended the meeting and provided following primary feedback:
– Desire for flexibility from City in negotiating on a project-by-project basis, to reflect that every project has unique cost factors
– Concern that feasibility models may underestimate development costs, in which case financial returns are overestimated and projects may be less able to absorb the costs of inclusionary requirements
– Interest in having incentives that will reduce costs elsewhere in a project, although higher density allowances do not always improve project feasibility because construction costs can increase
– Combined with other City policies that are adding costs to development, such as VMT reduction and electrification policies, addition of inclusionary requirements can push a lot of projects into infeasibility
– Better option to get affordable units is to support building of 100% affordable projects on City-owned land; alternately, City should share in cost of inclusionary requirements somehow
Economic & Planning Systems EPS PPT Presentation | 15
COMMUNITY FEEDBACK
EPS and City hosted a community webinar on January 12, 2022 Approximately 50 individuals signed on to meeting
Primary feedback included:
– Overall support for an inclusionary housing policy
– Preference to require units on-site rather than allow in-lieu fee; fee should be higher than cost of providing on-site units to discourage the fee option – Questions about other means of encouraging development of affordable units, such as density bonuses (which the City and State do have)
– Stated need for provision of affordable housing that serves special needs population 14 15
9 Economic & Planning Systems EPS PPT Presentation | 16
ELEMENTS OF AN INCLUSIONARY HOUSING POLICY
Cities have wide latitude in structuring inclusionary policy – there is no “one size fits all”
Inclusionary Requirement: Proportion of new units that must be affordable
Affordability Levels: Income levels that are served by affordable units Included/Exempted Developments: Can include a minimum project size or particular project types
Requirements for rental vs. for-sale units
District-based Requirements
In-Lieu Fee Option
Economic & Planning Systems EPS PPT Presentation | 17
PRELIMINARY RECOMMENDATIONS
Given EPS’s research and analysis, and the stakeholder and community feedback, we would make the following preliminary recommendations to the City in developing an inclusionary housing program:
1. Inclusionary requirements
a. Multifamily – 10% of units affordable to low-income households (70% AMI)* b. Townhome - 10% of units affordable to low-income households (70% AMI) * c. Single family – 5% of units affordable to moderate-income households (110% AMI) *These requirements would automatically qualify projects for use of State density bonus
2. Develop an in-lieu fee to align with the above requirements Allowances for payment of fee should be based on City priorities (e.g. encouraging on-site units/mixed-income properties vs. maximize local support for affordable projects)
3. Consider a phased-in approach for requirements to allow markets to adjust, and set timeline for revisiting requirements in light of new market conditions 16 17
10 Economic & Planning Systems EPS PPT Presentation | 18 Questions/Discussion
Economic & Planning Systems EPS PPT Presentation | 19
TOPICS FOR DISCUSSION/FEEDBACK
Questions/concerns/feedback regarding recommended
inclusionary requirements
Changes to requirements? Exemptions for any uses?
City questions/preferences regarding use of in-lieu fee What are the priorities?
Timeline for program implementation
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COMMITTEE RECOMMENDATIONS
Receive an update on the Inclusionary Housing Program Study for the City of Riverside, including preliminary recommendations on inclusionary housing program requirements; and
Provide staff with direction on how to proceed with the Inclusionary Housing Program Study.20