Planning Commission
Memorandum
Community & Economic Development Department Planning Division 3900 Main Street, Riverside, CA 92522 | Phone: (951) 826-5371 | RiversideCA.gov
October 13, 2022
CITY PLANNING COMMISSION MEETING : OCTOBER 13 , 2021
AGENDA ITEM NO.: 6
DISCUSSION ITEM
RECOMMENDATION
Conduct a Workshop to discuss Proposed Amendments to Title 19 that implement the Inclusionary Housing Policy as directed by the City Council Housing & Homelessness Committee.
BACKGROUND
On August 18, 2022, the Planning Commission held a public hearing on the P roposed Amendments to Title 19 (Zoning) of the Riverside Municipal Code to implement an inclusionary housing program, update the Density Bonus Ordinance and consider clean- up items. Following discussion, the Planning Commission voted to bifurcate the item, continuing discussion of the Proposed Amendments related to inclusionary housing to a Workshop (Exhibit 1). Additional information related to a proposed in-lieu fee component was specifically requested (Exhibit 2).
The purpose of this Workshop is to present Proposed Amendments to Title 19 (Zoning) of the Riverside Municipal Code intended to implement an Inclusionary Housing Program at the recommendation of the City Council Housing and Homelessness Committee, as requested by the Planning Commission at the public hearing of August 18, 2022.
The Workshop will focus on the relationship between the specific policy direction given by the Housing & Homelessness Committee (HHC) and the proposed Title 19 (Zoning) Proposed Amendments (Exhibits 3 and 4).
Following the Workshop on October 13, 2022, a separate public hearing on the matter will be held by the Planning Commission immediately following the Workshop to consider the Proposed Amendments.
Case Number Not Applicable
Request Workshop – Inclusionary Housing Proposed Amendments to Title 19 (Zoning)
Project Location Citywide
Wards All
Staff Planner
Matthew Taylor, Acting Principal Planner
[email protected]
951-826-5944
October 13, 2022
DISCUSSION
In recent years, the State of California has identified the shortage of housing, particularly affordable housing, as a legislative priority. A housing shortage negatively impacts the State's economic competitiveness, contributes to homelessness, and results in long commutes, increasing production of greenhouse gas emissions, air pollution, and poor public health.
A household is considered able to afford its housing if its total housing -related expenses do not exceed 30-35% of its gross income. Affordable housing frequently refers to housing that is priced so that it does not exceed this threshold for households wh o earn at or below 80% of the Area Median Income (AMI), which in Riverside is $87,400 (2022) for a family of four.
Given the existing housing conditions, on May 18, 2021, the City Council authorized hiring a consultant to explore the feasibility of implementing an inclusionary housing policy in the City of Riverside. Inclusionary housing policies typically require a portion of newly constructed residential units to be set aside, for sale or rent, to lower- or moderate - income households to increase the availability of affordable housing for all income levels.
Over the past year, City staff and the consultant have prepared a study of the feasibility of implementing such a policy in Riverside, with input and direction from the City Council HHC. On May 23, 2022, the HHC reviewed a draft policy and feasibility analysis (Exhibit 5) and directed staff to develop an ordinance to implement the policy for Planning Commission and City Council consideration (Exhibit 3).
The Workshop will specifically cover:
1. Inclusionary requirements;
2. Exemptions;
3. Affordability terms;
4. Unit characteristics;
5. Off-site requirements; and
6. In-lieu fee option.
STRATEGIC PLAN
The Inclusionary Housing Workshop aligns with Strategic Priority No. 2 – Community Well- Being. The Workshop aligns with Goal 2.1 – Facilitate the development of a quality and diverse housing supply that is available and affordable to a wide range of income levels.
The Workshop also aligns with Strategic Priority No. 5 – High Performing Government and Goal 5.3 Enhance communication and collaboration with community members to improve transparency, build public trust, and encourage shared decision-making.
In addition, the project aligns with the five Cross-Cutting Threads as follows:
1. Community Trust – The Workshop allows for community input into the Title 19 Proposed Amendments that implement the policy direction from the HHC.
October 13, 2022
2. Equity – The Workshop allows residents to understand the policy direction from the HHC and provisions for affordable housing.
3. Fiscal Responsibility – The Workshop provides ways that the City and developers can work together to create new affordable housing.
4. Innovation – The Workshop incorporates a summary of latest best practices for streamlining and promoting housing development and promote equitable communities.
5. Sustainability & Resiliency – The Workshop identifies ways that the Code changes will promote infill development that will help reduce greenhouse gas emissions by reducing vehicle miles traveled, as well as providing an alternative to greenfield sprawl development.
EXHIBITS LIST
1. City Planning Commission Minutes – August 18, 2022
2. Draft Technical Memorandum – Inclusionary Housing In-Lieu Fee Analysis
3. Housing and Homelessness Committee Policy Direction
4. Draft Inclusionary Housing Ordinance - Proposed Title 19 Amendments
5. Housing and Homelessness Committee Report – May 23, 2022
6. Workshop Presentation
Prepared by: Matthew Taylor, Acting Principal Planner
Approved by: Mary Kopaskie-Brown, City Planner
PLANNING COMMISSION
MINUTES
THURSDAY, AUGUST 18, 2022, 9:00 A.M.
PUBLIC COMMENT IN PERSON
/TELEPHONE
ART PICK COUNCIL CHAMBER
3900 MAIN STREET
APPROVED Planning Commission Minutes – August 18, 2022 1
COMMISSIONERS
PRESENT: R. Kirby, L. Mooney , J. Parker, T. Ridgway, J. Rush, R. Singh, J. Wilder ABSENT: C. Roberts
(partial meeting)
STAFF: M. Kopaskie-Brown, M. Taylor, M. Da
vis, A. Beaumon, P. Nitollama, C. Scully,
F. Andrade
Chair Kirby called th
e meeting to order at 9:00 a.m.
ORAL COMMUNICATIONS FROM THE AUDIENCE
There were no comments from the audience.
CONSENT CALENDAR
The Consent Calendar was unanimously approved as presented below affirming the actions appropriate to each item.
MINUTES
The minutes of the June 23, 2022 and July 14, 2022, were approved as presented.
PLANNING COMMISSION ATTENDANCE
The Commission excused the absence of Commissioner Parker (vacation) and Commissioner Ridgway (business) from the meeting of July 14, 2022.
Motion made by Commissioner Rush and Seconded by Commissioner Ridgway, to approve the Consent Calendar as presented.
Motion Carried: 7 Ayes, 0 Noes, 1 Absent, 0 Abstention
AYES: Kirby, Mooney, Parker, Ri dgway, Rush, Singh, Wilder NOES: None
ABSENT: Roberts
ABSTENTION: None
Workshop - Exhibit 1 - Planning Commission Minutes - August 18, 2022
PLANNING COMMISSION
MINUTES
THURSDAY, AUGUST 18, 2022, 9:00 A.M.
PUBLIC COMMENT IN PERSON /TELEPHONE
ART PICK COUNCIL CHAMBER
3900 MAIN STREET
APPROVED Planning Commission Minutes – August 18, 2022 2
PUBLIC HEARINGS
PLANNING CASE PR-2022-001391 – AMENDMENTS TO TITLE 19 (ZONING) – WARDS ALL Proposal by City of Riverside to consider amendments to Title 19 (Zoning) of the Riverside Municipal Code, including but not limited to Articles VII (Specific Land Use Provisions), VII (Specific Land Use Provisions). VIII (Site Planning and General Development Provisions), IX (Land Use Development Permit Requirements an d Procedures) and X (Definitions of Title
19. The proposed amendments are intended to:
1) Establish Chapter 19.535 (Inclusionary Housing) to implement General Plan policies to facilitate the production of housing affordable to very low-, low- and moderate- income households in new residential development projects; 2) Repeal and replace Chapter 19.545 (Densit y Bonus) to clarify and streamline existing provisions and align the City’s Density Bonus program with recently adopted State law; and
3) Complete clean-up items for Title 19 to: a) Clarify setback requirements and permit exemptions for on-sale of alcoholic beve rages associated with bona fide full- service public eating places; b) Adjust a llowances for the provision of off-site, off- street vehicle parking for certain land uses ; and c) Revise the required findings of fact for the granting of Fair Housing Requests for Reasonable Accommodation to comply with State law and affirmatively further fair housing.
Matthew Taylor, Senior Planner, presented the staff report. He indicated that comment letters were received after publication of the report and were distributed to the Commission this morning. Public Comment: Commissioner Roberts announced she was on-line and listening to the discussion. Ms. Kopaskie-Brown stated that a link would be sent to her to join the meeting directly. Rose Mayes, Executive Director Fair Housing Council; Maribel Nunez, Inland Equity Partnership; Juanita Cadera, Fair Housing Council; Corinne Parker; Elizabeth Ayala; Damien O’Fa rrel, CEO Parkview Legacy Foundation; Beverly Arias; Gabriella Mendez; and Kayla Booker spoke in support of Inclusionary Housing. Andre Sururti; Andrew Sall, Grea ter Riverside Chambers of Commerce; Jason Hunter; Lou Monville, Building Industry Association; Andrew Walcker expressed their concerns regarding the Inclusionary Housing policy and ordinance. The public hearing was closed.
Commissioner Roberts joined the meeting virtually.
PLANNING COMMISSION
MINUTES
THURSDAY, AUGUST 18, 2022, 9:00 A.M.
PUBLIC COMMENT IN PERSON /TELEPHONE
ART PICK COUNCIL CHAMBER
3900 MAIN STREET
APPROVED Planning Commission Minutes – August 18, 2022 3 Following discussion it was moved by Chair Kirby to recommend that the City Council: 1) Determine that Planning Case PR-2022-001391 is exempt from further California Environmental Quality Act (CEQA) review pursuant to Section 15061(b)(3) (General Rule), as it can be seen with certai nty that approval of the projec t will not have an effect on the environment; and 2) Approve PR-2022-001391 (Zoning Text Amendment), with the omission of the Inclusionary Housing port ion (Chapter 19.535) based on the findings outlined in the staff report. He asked that Chapter 19.535 be returned to the Committee for further definition.
Motion failed due to lack of second.
Commissioner Roberts disconnected from the meeting.
Motion by Commissioner Ridgway to recommend that the City Council: 1) Determine that Planning Case PR-2022-001391 is exempt from further California Environmental Quality Act (CEQA) review pursuant to Sectio n 15061(b)(3) (General Ru le), as it can be seen with certainty that approval of the project will not have an effect on the environment; and 2) Approve PR-2022-001391 (Zoning Text Amendment), with the omission of the Inclusionary Housing port ion (Chapter19.535) based on the findings outlined in the staff report. He asked that Chapter 19.535 go back to staff for publication of fee schedule, reevaluate Section 8 for insertion and promotion of that opportunity, and suggested a shareholder meeting or wo rkshop prior to adoption of the final ordinance.
Anthony Beaumon, Deputy City Attorney, asked for clarification of the “publication” of in lieu fees.
Commissioner Ridgway stated that instead of publication, a recommendation of the actual fee.
Ms. Kopaskie-Brown clarified that the motion was to move on with items 2 and 3 and to continue item 1. She suggested a Planning Commission workshop at the next available meeting to go over the policy direction from the City Council Housing and Homeless Committee.
PLANNING COMMISSION
MINUTES
THURSDAY, AUGUST 18, 2022, 9:00 A.M.
PUBLIC COMMENT IN PERSON /TELEPHONE
ART PICK COUNCIL CHAMBER
3900 MAIN STREET
APPROVED Planning Commission Minutes – August 18, 2022 4 Commissioner Ridgway reiterated that the motion was to approve items 2 and 3; continue item 1 and request a Planning Commission workshop to further understand and explore that policy/ordinance.
The motion was Seconded by Chair Kirby.
Motion Carried: 7 Ayes, 0 Noes, 1 Absent, 0 Abstention
AYES: Kirby, Mooney, Parker, Ri dgway, Rush, Singh, Wilder NOES: None
ABSENT: Roberts
ABSTENTION: None
Chair Kirby advised of the 10-day appeal period.
A City Council public hearing is required for final approval.
COMMUNICATIONS
ITEMS FOR FUTURE AGENDAS AND UPDATE FROM CITY PLANNER
Ms. Kopaskie-Brown updated the Commission on upcoming items for the September 1, 2022 meeting. She indicated that the inclusionary housing workshop could be held on September 29. A few of the commissioners indicated they would be unable to attend the September 29
th meeting and agreed to moving this to the October 13, 2022 meeting.
ADJOURNMENT
The meeting was adjourned at 10:54 a.m. to the meeting of September 1, 2022 at 9:00 a.m.
The above actions were taken by the City Planni ng Commission on September 1, 2022. There is now a 10-day appeal period that ends on August 29, 2022. During this time, any interested person may appeal this action to the City Council by submitting a letter of appeal and paying the appeal fee. In the absence of an appeal or re ferral, the Commission’s decisions and conditions become final after 5:00 p.m. on August 29, 2022.
Minutes approved as presented at the September 1, 2022 meeting.
D RAFT M EMORANDUM
Intr
oduction
The City of Riverside is currently considering the adoption of an inclusionary housing ordinance. If adopted, the ordinance would require that residential developments consisting of more than two units include five or 10 percent of dwelling units at below- market-rate rents or sale prices affordable to Low or Moderate- income households, depending on the development’s density.
The affordable rates are based on income standards established by the State of California’s Department of Housing and
Community Development (HCD).
The ordinance would also allow, as an alternative to providing required units, for development projects to pay an in-lieu fee to support the development of affordable units elsewhere in the City. In-lieu fees are typically calculated to reflect the financial subsidy needed to support the development of affordable units that are not being provided on-site. The fee revenues are collected into a dedicated fund that can be utilized to support the production and preservation of affordable units in the City. Under the City’s proposed ordinance, the fee would be based on the subsidy needed to provide a higher proportion of affordable units—either eight or 15 percent, depending on the development type—than would be required if the units were built on-site as part of the market-rate development. The fee can also be paid for any fractional affordable units required on-site, as an alternative to “rounding up” and building an additional unit.
Economic & Planning Systems, Inc. (EPS) has been working with the City to develop its inclusionary housing ordinance, which includes calculating an appropriate inclusionary housing in-lieu.
This memorandum describes EPS’s estimates of the subsidy, or “financing gap” associated with the development of affordable units, and the resulting fee calculation based on this subsidy.
To: City of Riverside
From: Economic & Planning Systems
Subject: Riverside Inclusionary Housing In-Lieu Fee Analysis; EPS #204046
Date: August 28, 2022
DRAFT
FOR DISCUSSION ONLY
Workshop - Exhibit 2 - Draft Technical Memorandum - Inclusionary Housing In-Lieu Fee Analysis Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 2
Economic & Planning Systems, Inc. (EPS) Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx A summary of the calculated fees is included in Table 1 below.
Table 1 Proposed Inclusionary Housing In-Lieu Fees for City of Riverside Financing Gap Analysis
Product Prototypes
The analysis assumes that the collected in-lieu fees would be used to subsidize the production of lower-income units similar to the type of future residential development anticipated in the City. The prototype residential products used in this analysis are the same as those utilized in EPS’s analysis of the inclusionary housing policy1 and were informed by research on trends in the local and regional housing markets, as well as interviews with local developers, and were approved by City staff to utilize in this analysis.
The assumptions for the prototype products are summarized in Table 2. As shown, the rental product prototype is a two-bedroom, 850 net square-foot apartment unit, developed at a density of 32 units per acre with one surface parking space per bedroom.
The for-sale product prototypes include a three-bedroom, 1,500 square foot attached townhome developed at a density of 15 units per acre, and a four-bedroom, 2,500 square foot detached single-family home developed at a density of 10 units per acre. Both for- sale products are assumed to include attached parking.
1 See staff report from February 28, 2022 Housing and Homelessness Committee Meeting, https://aquarius.riversideca.gov/clerkdb/0/doc/341286/Page1.aspx Item Formula
Multifamily
Rental
Townhome
For-Sale
Single-Family
For-Sale
Affordability Level Low-Income Low-Income Moderate-Income Value Per Unit a $246,937 $218,213 $510,701
Cost Per Unit b $328,720 $375,105 $615,561
Subsidy Per Unit c = a-b ($81,784) ($156,892) ($104,860) Fee Per Affordable Unit c $81,784 $156,892 $104,860
Inclusionary Percentage for In-Lieu Fees d 15% 15% 8%
Fee Per Market Rate Unit e = c*d $12,268 $23,534 $8,389 Average Unit Size f 850 1500 2500
Fee Per Affordable Sq. Ft. g = c/f $96.22 $104.59 $41.94 Fee Per Market Rate Sq. Ft. h = g*d $14.43 $15.69 $3.36 Unit Type
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 3
Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx Economic & Planning Systems, Inc. (EPS) Table 2 Prototype Unit Characteristics
Unit Category Unit Type Tenure Density
Multifamily 2BR, 850 sq. ft. Rental 32 units/acre
Townhomes 3BR, 1,500 sq. ft. For Sale 15 units/acre
Single-Family 4BR, 2,500 sq. ft. For Sale 10 units/acre Maximum Affordable Housing Rents
Income levels for affordable housing units are set for the County of Riverside by the California Department of Housing and Community Development (HCD) on an annual basis. Table 3 shows the income limits for 2022 for three, four-, and five-person households, as this analysis assumes the household size for each prototype would equal the number of bedrooms plus one.2 The income limits correspond to the City’s proposed ordinance, which sets the maximum income for Low-Income households at 70 percent of Area Median Income (AMI) and for Moderate-Income households at 110 percent of AMI.
Consistent with State guidance, the analysis assumes that Low-Income households spend no more than 30 percent of their gross annual income, and Moderate-Income households no more than 35 percent of their gross annual income, on total housing costs. For rental units, this includes rent and utilities.
3 For for-sale units, housing costs include mortgage
principal and interest, property taxes, and homeowner’s insurance payments (collectively, “PITI”), plus annual Homeowners Association (HOA) fees. After subtracting taxes, insurance, and HOA fees from a household’s maximum affordable housing costs budget, the remaining budget was used to calculate a maximum affordable house purchase price, based on common mortgage term assumptions.4
As summarized in Table 3, a three-person Low-Income household earning 70 percent of AMI (adjusted) can pay up to $1,404 per month for a two-bedroom rental unit (including utilities). For comparison, based on data provided by CoStar, EPS estimates that the market-rate rent for a newly constructed unit of the same size in Riverside is approximately $2,570 per month.
For for-sale units, a four-person Low-Income household earning 70 percent of AMI can pay up to $995 on monthly mortgage payments (principal and interest), which translates 2 Based on California Health and Safety Code Section 50052.5. 3 The utility allowance for a rental unit is based on a schedule published by the Riverside County Housing Authority, updated annually
(https://www.harivco.org/Portals/0/UtilityAllowanceChart/2022/Utility%20Allowance%20Chart--%207-1 - 2022--Standard--APARTMENT.pdf?ver=2022-07-07-114411-617) 4 Estimates of sale prices assume a 30-year fixed mortgage with a 4.5 percent effective interest rate, plus a 10 percent down payment from the homebuyer.
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 4
Economic & Planning Systems, Inc. (EPS) Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx into a maximum purchase price of $218,213 for a three-bedroom townhome unit. Based on recent home sales data, EPS estimates that a newly constructed market-rate unit of the same size could achieve a sale price of $400,000 in Riverside. A five-person Moderate-Income household earning 110 percent of AMI can pay up to $2,329 on monthly mortgage payments (principal and interest), which translates into a maximum purchase price of $510,701 for a four-bedroom single-family home unit. EPS estimates that a newly constructed market-rate unit of the same size could achieve a sale price of $625,000 in Riverside.
Table 3 Maximum Affordable Rents and Sale Prices for Prototype Units Unit Types
Low-Income
(70% AMI)
Moderate-Income
(110% AMI)
Multifamily Rental Units
2022 Maximum Income (3-person household) [1] $56,156
Maximum Housing Cost Allowance (30%) [2] $16,847
Maximum Monthly Rent (2-bedroom unit, incl. utilities) $1,404 Typical Market Rate [3] $2,571
For-Sale Townhome Units
2022 Maximum Income (4-person household) [1] $62,404
Maximum Housing Cost Allowance (30%) [2] $18,721
Annual Other Housing Costs [4] $6,780
Ma
ximum Sale Price (3-bedroom unit) [5] $218,213
Typical Market Rate [3] $400,000
For-Sale Single-Family Units
2022 Maximum Income (5-person household) [1] $103,840
Maximum Housing Cost Allowance (35%) [2] $36,344
Annual Other Housing Costs [4] $8,397
Maximum Sale Price (4-bedroom unit) [5] $510,701
Typical Market Rate [3] $625,000
[1] Income levels are based off the 2022 median household income for Riverside County, as reported by CA HCD. [3] Based on EPS market research.
Sources: State of CA HCD; City of Riverside; County of Riverside Housing Authority; Zillow; CoStar; EPS Not Applicable
Not Applicable
[2] Maximum housing cost allowance is based on 30% of maximum income for low-income households and 35% of maximum income for moderate-income households.
[4] Other housing costs for for-sale units include taxes, insurance, and HOA fees, as estimated by EPS. [5 ] M ax imum sale pr ic e for eac h inc ome lev el assumes mor tgage pay ment equal to 3 0 % of max imum monthly inc ome for low-income households, and 35% of maximum monthly income for moderate-income households, minus other housing costs, on a 30-year mortgage with a 4.5% annual interest rate and 10% down payment.
Not Applicable
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 5
Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx Economic & Planning Systems, Inc. (EPS) Development Cost Assumptions
Residential development costs include land costs, direct or “hard” costs (e.g., labor and materials), and indirect or “soft” costs (e.g., architecture, entitlement, fees, marketing, etc.). Land cost estimates used in the analysis are based on data from recent land transactions in Riverside. Since the prototypes modeled in this analysis are lower-density than those typically found in Downtown Riverside and surrounding areas, this analysis uses a land cost reflective of areas outside of the Downtown, which are typically lower.
Other development cost estimates are derived from housing market research and EPS interviews with housing developers both within Riverside and the larger Inland Empire region. These assumptions are shown in Table 4 through 6 and indicate that the total cost per unit is approximately $329,000 for rental apartments, $375,000 for townhome units, and $616,000 for single-family units. These figures represent “prototypical” projects; the actual costs for a given project will vary by location and project design characteristics.
Revenue Assumptions
To calculate the value of the affordable units, several revenue-related assumptions were made regarding applicable income levels and the percentage of household income that can be put towards housing costs, including rent. In addition, translating a revenue estimate into a total value per rental unit estimate required assumptions for operating expenses and capitalization rates. The following assumptions were used:
• Income Levels—The analysis estimates the subsidy required to produce rental unit s
f
or three-person households earning 70 percent of AMI; for-sale townhome units for four-person households earning 70 percent of AMI; and for-sale single-family units for five-person households earning 110 percent of AMI, as shown above in Table 3. • Pe
rcentage of Gross Household Income Available for Housing Costs—State guidelines indicate that Low-Income households should pay no more than 30 percent of their g
ross income on housing costs, and Moderate-Income households should pay no m
ore than 35 percent of their gross income on housing costs. EPS calculated the rents and sale prices that each income category would be able to pay net of other ho
using-related costs (e.g. utilities, insurance and taxes, HOA fees). • Op
erating Costs for Rental Units—The analysis assumes that affordable apartment o
perators incur annual operating costs of $4,500 per unit on units affordable to Low- Income households, which include the cost of management, maintenance, and common utilities (those not paid by tenants). These operating costs assume that all a
ffordable apartments constructed for Low-Income households would be exempt from property taxes, as allowed by State law.
• Ca
pitalization Rate—A capitalization rate is used for the rental prototype, and represents the rate of return that an investor in a real estate project expects to receive. The rate generally indicates the project’s relative risk (e.g. a lower capitalization rate suggests that a project is less risky, and therefore an investor is
wil
ling to accept a lower rate of return because the return is more guaranteed). The DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 6
Economic & Planning Systems, Inc. (EPS) Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx value of a project is calculated by dividing the net operating income (NOI) by the capitalization rate. For the rental prototypes, EPS utilized a capitalization rate of 5.0 percent.5
• Pr
ofit Margin—A profit margin is used for the for-sale prototypes, and represents the rate of return that an investor in a real estate project expects to receive. The profit margin is added as an additional cost on the developed units. EPS utilized a profit m
argin of 14 percent, based on the firm’s work in similar markets throughout C
alifornia.
Financing Gap Results
Table 4 shows the subsidies required for construction of rental apartments for three- person households at Low-Income levels (70 percent of AMI). As shown, such units are estimated to cost approximately $329,000 to develop, while the estimated operating income from those units at affordable rents would translate to values of $247,000 per unit. Based on this analysis, a rental unit affordable to a Low-Income household would require a subsidy of approximately $82,000.
Table 5 shows the subsidies required for construction of for-sale townhome units affordable to four-person households earning Low-Income levels (70 percent of AMI). As shown, these households could afford to pay up to roughly $218,000 for a home, while such homes are estimated to cost approximately $375,000 to build, requiring a subsidy of approximately $157,000. Table 6 shows the subsidies required for construction of for- sale single-family units affordable to five-person households earning Moderate-Income levels (110 percent of AMI). As shown, these households could afford to pay up to roughly $511,000 for a home, while such homes are estimated to cost approximately $616,000 to build, requiring a subsidy of approximately $105,000. 5 Based on H1 2021 cap rate surveys for suburban multifamily development in the Inland Empire region, published by CBRE, a real estate services firm (https://www.cbre.com/insights/reports/us-cap-r ate- survey-h1-2021)
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 7
Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx Economic & Planning Systems, Inc. (EPS) Table 4 Financing Gap Pro Forma Analysis for Prototype Rental Unit Affordable Low-Income (70% AMI) Households
Description Factor Unit Multifamily Rental
DEVELOPMENT PROGRAM
Bedrooms 2
Dwelling Units/Acre 32
Unit Square Feet (Net) 850
Common Area 15%
Unit Square Feet (Gross) 978
Parking Spaces Per Unit 1
COST ESTIMATE
Land Acquisition $435,600 /acre $13,613
Direct
Site Improvement $5.00 /land sf $6,806
Construction Costs $205 /bldg. sq. ft $200,388
Parking (Surface) $5,000 /space $5,000
Contractor Contingency 10% of other direct costs $21,219 Subtotal Direct $233,413
Indirect 35% direct costs $81,695
Cost Per Unit $328,720
VALUE ESTIMATE
Maximum HH Income (3-person) 70% AMI $56,156
Maximum Annual Rent Per Unit 30% annual income $16,847
Annual Operating Expenses $4,500 /unit ($4,500)
Net Operating Income Per Unit $12,347
Value Per Unit 5.00% capitalization rate $246,937
Subsidy Per Unit $81,784
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
Page | 8
Economic & Planning Systems, Inc. (EPS) Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx Table 5 Financing Gap Pro Forma Analysis for Prototype For-Sale Townhome Unit Affordable to Low-Income (70% AMI) Households
Description Factor Unit A mount
Per Unit
DEVELOPMENT PROGRAM
Bedrooms 3
Dwelling Units/Acre 15
Unit Square Feet 1,500
COST ESTIMATE
Land Acquisition $435,600 /acre $29,040
Direct
Site Improvement $5.00 /land sf $14,520
Construction Costs $125 /bldg. sq. ft. $187,500
Contractor Contingency 10% of other direct costs $20,202 Subtotal $222,222
Indirect 35% of direct costs $77,778
Developer Profit 14% of all costs $46,066
Cost Per Unit $375,105
VALUE ESTIMATE
Maximum HH Income (4-person) 70% AMI $62,404
Annual Housing Costs Allowance 30% annual income $18,721 Annual Other Housing Costs [1] $6,780
Maximum Sale Price [2] $218,213
Subsidy Per Unit $156,892
[1] Includes estimates for taxes, insurance, and HOA fee [2] Assumes mortgage payment equal to 30% of maximum monthly income (minus taxes and insurance) on a 30-
year mortgage w ith a 4.5% annual interest rate and 10% dow n payment.
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
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Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx Economic & Planning Systems, Inc. (EPS) Table 6 Financing Gap Pro Forma Analysis for Prototype For-Sale Single-Family Unit Affordable to Moderate-Income (110% AMI) Households
Description Factor Description Amount
Per Unit
DEVELOPMENT PROGRAM
Bedrooms 4
Dwelling Units/Acre 10
Unit Square Feet 2,500
COST ESTIMATE
Land Acquisition $435,600 /acre $43,560
Direct
Site Improvement $5.00 /land sf $21,780
Construction Costs $125 /bldg. sq. ft. $312,500
Contractor Contingency 10% of other direct costs $33,428 Subtotal $367,708
Indirect 35% of direct costs $128,698
Developer Profit 14% of all costs $75,595
Cost Per Unit $615,561
VALUE ESTIMATE
Maximum HH Income (5-person) 110% AMI $103,840
Annual Housing Costs Allowance 30% annual income $31,152 Annual Other Housing Costs [1] $8,397
Maximum Sale Price [2] $510,701
Subsidy Per Unit $104,860
[1] Includes estimates for taxes, insurance, and HOA fee [2] Assumes mortgage payment equal to 35% of maximum monthly income (minus taxes and insurance) on a 30-
year mortgage w ith a 4.5% annual interest rate and 10% dow n payment.
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
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Economic & Planning Systems, Inc. (EPS) Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx In -Lieu Fee Calculation
Table 7 translate the subsidies calculated above into in-lieu fees. As described in the introduction to this memo, the City is proposing to base the in-lieu fee on a higher inclusionary requirement than what is required for building affordable units on-site. For rental units, the requirement associated with paying the in-lieu fee would be subsidizing a number of units affordable to Low-Income families equivalent to 15 percent of market- rate units built, higher than the 10 percent affordable units that would be required if built on-site. For townhome units, the proposed requirement associated with paying the in-lieu fee would be to subsidize a number of units affordable to Low-Income families equivalent to 15 percent of market-rate units built, again higher than the 10 percent affordable units that would be required if built on-site. For single-family units, the requirement would be to subsidize a number of units affordable to Moderate-Income families equivalent to eight percent of market-rate units built, higher than the 5 percent affordable units that would be required if built on-site.
As shown in Table 7, the inclusionary percentage is applied to the per unit subsidy for each prototype, in order to calculate a fee per market-rate unit. The analysis further converts the fee per market-rate unit to a fee per market-rate square foot, based on the prototype unit sizes. As shown, the fee for rental units would be $12,268 per market- rate unit and $14.43 per market-rate square foot; the fee for townhome units would be $23,534 per market-rate unit and $15.69 per market-rate square foot; and the fee for single-family units would be $8,389 per market-rate unit and $3.36 per market-rate square foot.
Table 7 In-Lieu Fee Calculation
Item Formula
Multifamily
Rental
Townhome
For-Sale
Single-Family
For-Sale
Affordability Level Low-Income Low-Income Moderate-Income Value Per Unit a $246,937 $218,213 $510,701
Cost Per Unit b $328,720 $375,105 $615,561
Subsidy Per Unit c = a-b ($81,784) ($156,892) ($104,860) Fee Per Affordable Unit c $81,784 $156,892 $104,860
Inclusionary Percentage for In-Lieu Fees d 15% 15% 8%
Fee Per Market Rate Unit e = c*d $12,268 $23,534 $8,389 Average Unit Size f 850 1500 2500
Fee Per Affordable Sq. Ft. g = c/f $96.22 $104.59 $41.94 Fee Per Market Rate Sq. Ft. h = g*d $14.43 $15.69 $3.36 Unit Type
DRAFT
FOR DISCUSSION ONLY
Draft Memorandum: Riverside Inclusionary Housing In-Lieu Fee Analysis August 28, 2022
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Z:\Shared\Projects\LA\204000s\204046_Riverside Inclusionary \Reports\In-Lieu Fee Memo\204046 Riverside Inclusionary Housing_In -Lieu Fee Analysis_Draft EPS Memorandum_8.28.22.docx Economic & Planning Systems, Inc. (EPS) While it is useful to think of the total in-lieu fee as it may apply to each market-rate unit, it is also useful to know the fee per affordable unit, as some projects will be required to provide a certain number of units but may meet any fractional obligation through payment of a fee. The fee per affordable unit is equivalent to the subsidy needed to develop that unit. For example, under the proposed inclusionary requirement, an 85-unit rental project would be required to provide 12.75 affordable units. If 12 units are provided on site, the additional 0.75-unit requirement could be met by charging a fee of
0.75 times the $81,784 per affordable unit subsidy, or a total payment of $61,338. An 85-unit townhome project would also be required to provide 12.75 affordable units, and if 12 units are provided on site, the additional 0.75-unit requirement could be met by charging a fee of 0.75 times the $156,892 per affordable unit subsidy, or a total payment of $117,669. Finally, an 85-unit single-family project would be required to provide 6.8 affordable units. If six units are provided on site, the additional 0.8-unit requirement could be met by charging a fee of 0.8 times the $104,860 per affordable unit subsidy, or a total payment of $83,888.
DRAFT
FOR DISCUSSION ONLY
INCLUSIONARY HOUSING
RECOMMENDATIONS
MAY 23, 2022 HOUSING & HOMELESSNESS COMMITTEE
1 1. Inclusionary Requirement – initiate program at a place where our market can bear and then make changes over time
Development Type % of Units Affordability Level
Multifamily 10% Low-income - 70% of Area Median Income (AMI) High-Density Single Family (e.g., Townhome) 10% Low-income - 70% of AMI Low-Density Single-Family 5% Moderate-income - 110% of AMI
2. Ex
emptions to Inclusionary Housing Requirement
a. Residential projects with fewer than three units
b. Residential projects that have submitted a complete application - Staff is developing definition for complete application that will require City Council approval
3. Aff
ordability Term
a. Rental units: 55 years
b. For-sale units: 45 years, equity share provision if properties are sold to a non-income eligible homebuyer c. 99-year lease on Housing Authority-owned properties
4. Si
ze of Affordable Housing Units
a. Multifamily rental projects: Require on-site or off-site affordable units to reflect the mix of market-rate units (e.g., same proportion of one- bedrooms, two-bedrooms, etc.) b. Ne t leasable areas of at least 90 percent of the average size of the market-rate units of similar bedroom counts (up to 10% smaller in size than market rate units)
5. Off-S
ite Affordable Housing Units
a. Allow developers to meet their inclusionary housing requirement by providing affordable housing units off-site.
b. Require that the number of off- site affordable housing units be equivalent to a higher proportion of the market-rate units than if the inclusionary requirement is met on-site. i. Must be built within the Ward - 15% of the units
ii. Overconcentration and development of off-site affordable units - Staff is developing definition for overconcentration that will require City Council approval
6. In-Lie
u Fee
a. Any fee requires direction and approval by City Council b. Allow payment of an in-lieu fee for all or a portion of the inclusionary housing requirement c. In-lieu fees based on the percentage of affordable units required if the inclusionary units were provided outside the boundaries
d. Also required for any fractional units required for multifamily and townhome projects
7. Nex
t Steps:
a. Planning Commission: August 2022
b. City Council: September 2022
Workshop - Exhibit 3 - Housing and Homeless Committee Policy Direction