Sacramento City Council
December 5, 2023

City of Sacramento
City Council - 5PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2023-01202 12/5/2023 Discussion Item 15.

Mixed Income Housing Ordinance - Preliminary Recommendations File ID: 2023-01202
Location: Citywide
Recommendation: Review and comment on Mixed Income Housing Ordinance Preliminary Recommendations.

Contact: Greta Soos, Associate Planner, (916) 808-2027, [email protected]; Matt Hertel, AICP, Long Range Planning Manager, (916) 808-7158, [email protected], Community Development Department
Presenter: Greta Soos, Associate Planner, (916) 808-2027, [email protected], Community Development Department
Attachments:
1-Description/Analysis
2-Mixed Income Housing Ordinance Preliminary Recommendations 3-Phase 2 Preliminary Recommendations Planning and Design Commission Comments 4- Phase 2 Preliminary Recommendations Comments Received 5-Phase 1 Focus Group Meeting Summaries
6-Phase 1 Outreach Written Comments Received
7-Mixed Income Housing Ordinance Draft Report
Additional Description/Analysis
Issue Detail: The City of Sacramento is currently reviewing its existing Mixed Income Housing Ordinance (17.712 of City Code). The ordinance, which was last updated in 2015, establishes requirements for how new residential development contributes to the production of affordable housing in the City. Staff are bringing Preliminary Recommendations, found in Attachment 2, for a new revised Mixed Income Housing Ordinance to City Council for review and comment.

These Preliminary Recommendations were informed by the findings of the Mixed Income Housing Ordinance Draft Report (found in Attachment 7 and discussed below), identified policy objectives, and stakeholder outreach conducted as part of the Mixed Income Housing Ordinance project. The

File ID: 2023-01202 12/5/2023 Discussion Item 15.
project team met with interested parties and stakeholders through focus groups, the City’s Housing Policy Working Group, and the City’s Planning and Design Commission to gather input on policy objectives and potential ordinance options for consideration.

After receiving feedback on the Preliminary Recommendations, staff will return with final recommendations for review and comment in Winter 2023, and will bring a final ordinance forward for adoption in Spring 2024.

The Mixed Income Housing Ordinance Draft Report (Draft Report) includes three main components.

The first is a historical analysis of the current (2015) and previous (2000) Mixed Income Housing Ordinances. The second component is a series of case studies of program requirements in other local and non-local jurisdictions. The third component is a financial feasibility analysis of alternatives such as on-site affordable unit requirements and varying levels of development impact. A summary of the Draft Report findings can be found on pages 4 through 14 of the Draft Report.

In addition to the findings of the Draft Report, the following policy objectives were used to guide the development of the Preliminary Recommendations. These policy objectives are:

1. Increase affordable housing production

2. Ensure long-term affordability

3. Affirmatively Further Fair Housing

4. Anti-displacement

5. Mixed income developments/communities

6. Do not pose a constraint to overall housing production Using this foundational research and policy direction, staff is recommending revising the current impact fee-based ordinance using the recommendations found in Attachment 1-MIHO Preliminary Recommendations. These recommendations draw from the financial feasibility analysis findings, case study research, and current market considerations.

File ID: 2023-01202 12/5/2023 Discussion Item 15.

Policy Considerations: Policy Considerations: An update to the Mixed Income Housing Ordinance is consistent with the following 2021-2029 Housing Element policies and implementation programs:

H-2.1 Provide Opportunities for Affordable Housing Throughout the City. The City shall ensure that there are sites zoned appropriately for affordable housing in each of the City’s 10 community plan areas, especially high resource areas.

H-2.3 Assist in the Development of Affordable Housing. The City and SHRA shall assist affordable housing developments through site identification, direct funding, supporting funding applications, land donation, expedited permit review, and other incentives.

H-4.3 Promote Mixed Income Neighborhoods. The City shall promote mixed income neighborhoods with an equitable distribution of housing types for people of all incomes throughout the City by encouraging new affordable housing in high resource areas and promoting homeownership opportunities throughout the City, particularly in low resource areas.

H1. Review Mixed Income Housing Ordinance
The City shall evaluate the effectiveness of the Mixed Income Housing Ordinance (MIHO). The City shall conduct an economic feasibility study to guide any decisions on changes to the ordinance, including the consideration of a mandatory inclusionary housing component. In this evaluation of the ordinance, the City will engage a broad range of stakeholders to ensure a variety of voices and interests are heard and considered. Based on the findings of the evaluation and the study, the City shall consider amendments to the ordinance with the goal of increasing the amount of affordable housing built in the City while ensuring the requirements do not pose a constraint to overall housing production. •Implements which Policy(ies): H-2.1, H-4.3
•Timeframe: Initiate economic feasibility analysis in 2021, complete analysis by Spring 2022, and receive decision on ordinance from City Council by end of 2022. •Responsible Department or Agency: Community Development; SHRA •Objective: Increase the number of affordable housing units throughout the City.

Economic Impacts: Ensuring housing opportunities are available for individuals and families of all income levels will promote equitable housing outcomes and economic stability for all Sacramentans.

Environmental Considerations: The informational update in this report is not a project under the California Environmental Quality Act (CEQA), because it is an administrative activity that does not involve any commitment to a specific project which may result in a potentially significant physical impact on the environment, as contemplated by Title 14, California Code of Regulations, Sections 15378(b)(2) and 15378(b)(4) and is, therefore, not subject to CEQA pursuant to CEQA Guidelines Section 15060(c)(3).

File ID: 2023-01202 12/5/2023 Discussion Item 15.

Sustainability: A sustainable community includes housing for current and future households of all income levels. Considering revisions to the Mixed Income Housing Ordinance will help to implement the City’s Housing Element, which is designed to provide housing opportunities for all residents.

Commission/Committee Action: At its November 1, 2023, meeting, the Sacramento Housing and Redevelopment Commission reviewed and commented on the staff recommendation for this item. At its November 9, 2023, meeting, the Planning and Design Commission reviewed and commented on the staff recommendation for this item. A summary of comments received by the Planning and Design Commission can be found in Attachment3-Phase 2 Preliminary Recommendations Planning and Design Commission Comments.

Rationale for Recommendation: City Council input will inform final recommendations on any changes to the Mixed Income Housing Ordinance.

Financial Considerations: There are no direct financial considerations associated with this report.

Attachment 2 – Mixed Income Housing Ordinance Preliminary Recommendations 1 Mixed Income Housing Ordinance Preliminary Recommendations 1) On-site Affordability Requirement
Consider establishing the following options for projects to include affordable units on-site:

For-Sale
Option A 10% at 80% AMI prices
Option B 10% affordable rental units at an average of 60% AMI or below Option C Alternative mix that provides the same or greater affordability Rental
Option A 12% at 70% AMI rents
Option B 10% at 60% AMI rents
Option C 8% at 50% AMI rents
Option D Alternative mix that provides the same or greater affordability In addition to the above requirements, the following would apply:
 Affordable rental units must have a minimum term of 30 years.  Projects may calculate the affordable unit requirement as a percentage of bedrooms or livable square footage, instead of a percentage of units.  For-sale affordable homes could be made affordable through the use of a shared appreciation note1 or through use of scaled equity over time.  Exempt projects would include:

1. Projects adding ten or fewer primary dwelling units (not including any Accessory Dwelling Units).

2. Projects with an in-force development agreement adopted prior to the current ordinance.
1 https://www.treasurer.ca.gov/publications/ca-dream-for-all-report.pdf (Page 24) Attachment 2 – Mixed Income Housing Ordinance Preliminary Recommendations 2 Affordable Rents and Sales Prices

For reference, below is a table showing affordable sales prices and rents using 2023 State Income Limits2:

Affordable Sales Prices
Three-bedroom example
Affordable Rent
Two-bedroom example
Low Income, 60% of AMI $169,100 Very Low Income, 50% of AMI $1,072 / Mo.

Moderate Income, 80% of AMI $290,600 Low Income, 60% of AMI $1,314 / Mo.

Moderate Income, 100% of AMI $376,300 Low Income, 70% of AMI $1,555 / Mo. *AMI=Area Median Income

The average rent for existing rental units in Sacramento is approximately $1,650 per Month (including older units) and the median sales price for existing homes is approximately $455,000. New market rate for sale units require ~86% to 241% of AMI to afford, and new market rate rental units require ~102% to 120% of AMI to afford.

2) Alternatives To Including Affordable Units On-Site

In-Lieu Fee
Consider adoption of in-lieu fees to the following levels:

In-Lieu Fee Recommendations
Market Area (see page 3) Rental For-Sale
Central City $10/SF $10/SF
Inner South & East and West of I-5 $7/SF $10/SF
Southern Neighborhoods $3.54/SF $6/SF
North Sacramento and South Natomas $3.54/SF $5/SF
North Natomas $3.54/SF $7/SF
Note: These fee amounts do not account for the annual CCI escalation that occurs every fiscal year on July 1 once the Ordinance is in place.

Land Dedication
Land dedication may be made to SHRA within a half mile of the project site for development of affordable housing, subject to approval and any conditions to be established in the Ordinance or adopted guidelines.

2 2023 State Income Limits. California Department of Housing and Community Development Division Of Housing Policy Development. https://www.hcd.ca.gov/sites/default/files/docs/grants-and- funding/income-limits-2023.pdf
Attachment 2 – Mixed Income Housing Ordinance Preliminary Recommendations 3 Market Areas

Attachment 2 – Mixed Income Housing Ordinance Preliminary Recommendations 4 3) In-Lieu Fee Phase In
A phase-in of new fees could be considered given the currently weaker market conditions so that projects that move forward in the near term would not be subject to the full rates.

Phased in Fee Rates
Rental
Market Area Step 1 Rate Per
Square Foot
(current HIF Rate)
Step 2 Rate Per
Square Foot (50%
increase between
$3.54 and final
rate)
Final Fee Rate Per
Square Foot
Central City $3.54 $6.77 $10
Inner South & East and West of I-5 $3.54 $5.27 $7
Southern Neighborhoods $3.54 $3.54 $3.54
North Sacramento and South
Natomas $3.54 $3.54 $3.54
North Natomas $3.54 $3.54 $3.54
Note: These fee amounts do not account for the annual CCI escalation that occurs every fiscal year on July 1 once the Ordinance is in place.

For-Sale
Market Area Step 1 Rate Per
Square Foot
(current HIF Rate)
Step 2 Rate Per
Square Foot
(50% increase
between $3.50
and final rate)
Final Fee Rate Per
Square Foot
Central City $3.54 $6.77 $10
Inner South & East and West of I-5 $3.54 $6.77 $10
Southern Neighborhoods $3.54 $4.77 $6
North Sacramento and South
Natomas $3.54 $4.27 $5
North Natomas $3.54 $5.27 $7
Note: These fee amounts do not account for the annual CCI escalation that occurs every fiscal year on July 1 once the Ordinance is in place.

Phase in Triggers
o January 1, 2025: Step 1 goes into effect
o July 1, 20XX: July 1 following the calendar year in which building permits for 2,500 market rate unit building permits (excluding deed-restricted affordable and ADU housing units) are pulled, Step 2 goes into effect
o July 1, 20XX: July 1 following the second calendar year that 2,500 market rate unit building permits (excluding deed-restricted affordable and ADU housing units) are pulled, 100% of fee rate goes into effect

Attachment 2 – Mixed Income Housing Ordinance Preliminary Recommendations 5 4) Incentives for On-Site Units
If in-lieu fees are permitted by-right and adopted at the levels identified above, the expectation is that most projects will pay fees rather than provide inclusionary units on-site, because this would be the least costly and most straightforward alternative. However, subject to funding availability, incentives could be given to projects that do elect to provide inclusionary units on- site. Some potential options are as follows:
 Reduction of Impact fees – For projects providing on-site affordable units, the City could provide reduced impact fees (amount to be specified) beyond those offered via the zero- dollar rate program, by offering reduced impact fees on market-rate units.

 Infrastructure improvements – The City could cover some of the cost of off-site infrastructure improvements for projects providing on-site affordable units such as curb, gutter, or sidewalk improvements.

 Density Bonus (if units are income restricted for at least 55-years, consistent with State Density Bonus Law)– When building on-site units, developers will be able to use state density bonus law concessions and incentives (and also the City Ministerial Approval of Infill Housing process in certain cases).

5) Large Projects
Consider establishing the following options for large development projects. Large scale development projects include projects with 750 or more units and a site size of 15 or more acres.

Large-Scale Developments
Option A 15% for-sale affordable at 80% AMI prices
Option B 20% affordable rental units at an average of 60% AMI rents or below
Option C A combination of the above two options
Option D Alternative mix that provides the same or greater affordability

Land dedication may be made to SHRA within a half mile of the project site for development of affordable housing, subject to approval and any conditions to be established in the Ordinance or adopted guidelines.

Attachment 3-Phase 2 Preliminary Recommendations Planning and Design Commission Comments Mixed Income Housing Ordinance Preliminary Recommendations Planning and Design Commission Feedback Summary
November 9, 2023

Public Comments:
 Chris Norem, North State BIA:
 Opposed to preliminary recommendations. Have serious concerns about what this would do to the feasibility of housing development in the City. This will drive new housing out of the city and raise housing prices.
 There is no analysis showing that 2,500 market rate units means we are in a healthy housing market.
 Support a broad-based tax or funding source such as EIFDs.  James Allison, Midtown Association:
 Opposed to preliminary recommendations. Removing exemptions sends negative signal to developers. There isn’t an adequate housing supply, and the only solution is to build more housing.
 John Vignocchi, Urban Capital & Chair of Region Builders:
 Urban Capital developed the Grace project with 100% workforce units and has plans to build more of these affordable housing types.
 Strongly opposed to recommendations. This proposal threatens to kill infill housing production. We need to create more housing, but this proposal will lead to less housing.  The City should buy our privately financed units at $350k per unit instead of supporting affordable housing projects that cost $650k per unit.  The City needs a permanent affordable housing measure.  Matt Anderson, D4 Resident:
 We are not building enough housing and need to look at ways to build more housing.

Commissioner Comments:
 Commissioner Chase:
 Has there been use of the shared appreciation note concept for for-sale products used in our region?
 We need to look at incentives for housing development.  Commissioner Macias Reed:
 Do not want us to be where San Francisco is now, removing inclusionary requirements because they were too restrictive.
 When planning entitlement applications come forward, doesn't mean that the project will be built, needs to pencil.
 High interest rates are impeding feasibility and construction. Concerned about increasing overall cost of housing. Additional costs will trickle down to renters or homebuyers. Less construction will have a negative impact on jobs and trades.

Feasibility analysis shows infeasibility.
 Urge staff to not make housing production more constrained. Can we conduct feasibility analyses on a regular basis?
 Commissioner Kadin:
 Our goal is to build more subsidized affordable housing, which is incredibly expensive.

We should raise funds to support this equitably, not just on new development.

Attachment 3-Phase 2 Preliminary Recommendations Planning and Design Commission Comments  Prop 13 made it difficult for us to pass new taxes on property which is why we are here.

We turn to impact fees and taxing new development. The people that already own their homes/most privileged aren't paying a dime of these impact fees. When you add costs, they are passed on to renters and buyers. There is a trade-off, funding some affordable housing, but at expense at other renters that don't get to live in deed-restricted units. 90% of lower-income households live in market rate housing. This policy would only result in 100-150 new affordable units per year at 2022 housing production rates.  The best thing we can do is to increase housing abundance. Understand the pressure to do something but concerned with the entire concept. Should focus on pursuing a more broad-based tax. Analyze parcel tax, progressive real estate transfer fee - these would generate more funding.
 Commissioner Buckley:
 Think it's a good proposal. Policy objectives clearly drove recommendations. Ultimately a values choice: how do we want to grow? Has generally been exclusive communities.  Would like to have incentives in place to drive onsite build option. Look at other jurisdictions for ideas about incentives.
 Affirmatively Furthering Fair Housing (AFFH) is an obligation of City set by the state.  Suggest other requirements for land dedication beyond ½ mile of project site to help meet AFFH goals.
 Vice Chair Wallace:
 $10 in-lieu fee seems high in Central City. Appreciate the phase-in triggers.  Concerned about this driving development to nearby jurisdictions with lesser requirements.
 Advocate of racial equity & AFFH. This will make it harder for middle class black and brown people to build wealth.
 Like idea to leverage Housing Choice Vouchers. In addition to this, look at broad based tax.
 Commissioner Xiong:
 CA Association of Realtors Chief Economist stated California hasn't created enough new housing to satisfy demand. Not enough supply for demand.  Increasing fees to a point where developers think building is less feasible results in less homes.
 Commissioner Yeung:
 We are arguing about 1 - 2% of Total Development Cost to projects.  If private development projects are already providing privately financed affordable housing projects, why is this proposal being opposed?
 Question to consultant: would this wreck development from happening?  David Doezema: Rents and prices may need to increase by approximately 2% to offset proposed fee increase
 Planning staff & developers should get together and sharpen pencils and figure out a solution.
 The use of property tax exemptions for affordable units should be part of this proposal.
 Don't think a permanent large housing trust fund will happen. MIHO won't solve the issue but will leverage more funds. Supply & demand - won't build enough housing units to make housing affordable enough, would take 20-30 years.  Support the work that you are doing.
 Consider triggering fees to go down when the market is weak.

Attachment 3-Phase 2 Preliminary Recommendations Planning and Design Commission Comments  Make costs as certain as possible and less variable.

 Commissioner Lamas:
 Like the proposal. Would like to see onsite requirement, but this strikes a balance. With MIHO trying to create a safety net for the 90% of low-income that live in market rate housing. Want them to only pay 30% of income.
 Commissioner Boyd:
 Folks at 30% Area Median Income have the highest need for housing. Don't give incentives to developers.
 Chair Hernandez:
 Support mixed income housing and communities. Do share some of the same concerns raised by the development community. Questions about phased-in approach. Why was the 2,500 threshold selected? Can we create offramps?
 Urge infill development community to come up with solutions and ideas. Staff should increase outreach to the development community.

Planning & Design Commission
Meeting Time: 11-09-23 17:30
eComments Report
Meetings Meeting
Time
Agenda
Items
Comments Support Oppose Neutral
Planning & Design Commission 11-09-23
17:30
16 10 2 8 0
Sentiments for All Meetings
The following graphs display sentiments for comments that have location data. Only locations of users who have commented will be shown.

Overall Sentiment
Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) Planning & Design Commission
11-09-23 17:30
Agenda Name Comments Support Oppose Neutral

2. Status Update on the Revisions to Vehicle and Bicycle Parking Requirements Project File ID: 2023-01375
1 1 0 0

3. Mixed Income Housing Ordinance Preliminary Recommendations File ID: 2023-01201
9 1 8 0
Sentiments for All Agenda Items
The following graphs display sentiments for comments that have location data. Only locations of users who have commented will be shown.

Overall Sentiment
Agenda Item: eComments for 2. Status Update on the Revisions to Vehicle and Bicycle Parking Requirements Project File ID:
2023-01375
Overall Sentiment
Kay Crumb
Location:

Submitted At: 7:21pm 11-08-23
Revise biking and parking requirements.

Eliminate parking minimums and establish maximums. While developers may create more parking than is required, most parking spots remain empty 90% of the time. This is a waste of valuable land that can be used for housing and businesses. Amount of parking needed is based on superstion, not data.

Ample parking encourages more driving, which is directly opposed to Sacramento's CAAP . Please see Santa Barbara for an example of limited parking leading to fewer cars, with more walkable streets leading to more business.

Any available bike parking requirements would have an impact on bike ridership. Sacramento should be a leader in bike infrastructure. Many shopping centers have no or hidden bike parking. Parking in front of businesses Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) should be a privlidge given to cyclists if the city wants to truly encourage active transportation.

Agenda Item: eComments for 3. Mixed Income Housing Ordinance Preliminary Recommendations File ID: 2023-01201 Overall Sentiment
Nick Avdis
Location:

Submitted At: 5:08pm 11-09-23
As a life long resident of the City of Sacramento and a development interests' representative, I am writing to express opposition to the proposed changes to the Mixed Income Housing Ordinance. While well-intentioned, these changes would impose unworkable burdens on new housing production at a time when supply is already inadequate and in growing instances, infeasible. This will perversely exacerbate the housing availability issues these measures purport to solve.

Our city faces real housing access and affordability challenges. However, the root cause is a systemic housing shortage driven by decades of restrictive policies that constrict home construction. Adding restrictive mandates and substantial fees at this moment would halt new development when it is most needed. Industry data reveals land sales for multi-family projects have dropped significantly. This approach ignores current market realities.

Feasibility studies based on hypothetical “strong market” conditions provide little practical guidance now.

Pushing ill-timed mandates without regard for actual constraints will only reduce options for new home construction.

This is the wrong policy at the wrong time. Please keep the current ordinance in place.

Nick Avdis
Avdis & Cucchi, LLP
1415 L Street, Suite 410
Sac, 95814
Ben Raderstorf
Location:

Submitted At: 4:21pm 11-09-23
My name is Ben Raderstorf, I'm a district 4 resident, and while I strongly support the city's desire to find new revenue and resource streams to fund long-term subsidized affordable housing, I have very real concerns about a plan to do so by effectively taxing new housing production (either through in-kind affordable subsidy requirements — often referred to as IZ — or in-lieu affordable housing fees).

First, I have real concerns about efficacy of this strategy. A growing number of studies find that IZ in-kind affordable subsidy requirements or in-lieu fees, even when carefully designed to ostensibly have minimal unintended consequences, still effectively function as a "new multifamily rental housing tax" and therefore discourage new housing production. This should not be surprising: a mandate that increases costs specifically for new multi-family rental housing will, at best, raise rents in those projects, and at worst, will stop them from being built entirely. For example, even when paired with generous upzoning incentives, Seattle's IZ program resulted in Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) *almost no new housing* being built (see here:
https://furmancenter.org/files/publications/Upzoning_with_Strings_Attached_508.pdf) This means that not only did it fail to deliver new subsidized affordable units for Seattle's vulnerable populations, the program also contributed to the city's ongoing housing supply shortages, which experts agree is the long-term cause of the affordability crisis in cities like Seattle and Sacramento.

This is because in-kind or in-lieu affordable subsidy requirements (IZ) are effectively trying to solve a short-term crisis (lack of sufficient subsidized affordable housing) by levying a tax on the thing we need to solve the underlying long-term, structural crisis (increasing our overall housing supply). I think of it as akin to funding climate change mitigation programs by taxing renewable energy developers. Y es, taxing solar panels might help raise funds to build more flood control infrastructure in the short term, but it will also disincentivize solar energy development and exacerbate climate change in the long-term.

Second, I have big concerns about the equity implications. Because IZ functions as a "new rental housing tax," the eventual costs of the program are passed on to market-rate renters. An increasing body of evidence finds that the rental housing market is surprisingly interconnected, and higher rents for newer, upmarket units quickly translate to higher rents for all renters, and vice versa (see:
https://twitter.com/braderstorf/status/1712149081932648538). The unfortunate reality is that 90% of low-income Californians live in market-rate rental units, and so any program that has the potential to raise market rents has a very high likelihood of being regressive on net.

To me, those equity concerns are personal. My wife and I own an own home, which is old enough to have never paid into any subsidized affordable housing funds in Sacramento (or for that matter, *ANY* impact fees of any kind). This means that we — along with most of the other highest-resource households in the city — are distributionaly exempt from this specific proposal. In other words, IZ would personally cost me and people like me $0. That is a mistake and unjust. I strongly urge the city to instead pursue a citywide parcel tax to fund affordable housing, which would place the burden of paying new affordable housing where it belongs: primarily on owners like me, and much less so on renters. Short of that, I also support a sales tax measure over an IZ measure, although that too is far more regressive than a parcel or income tax.

Louis Mirante
Location:

Submitted At: 3:34pm 11-09-23
My name is Louis Mirante and I am a District 4 resident. I write to oppose the idea that we should adopt a mandatory inclusionary zoning ordinance in Sacramento. I write to request the City find alternatives to produce deed-restricted housing.

IZ is expensive. In general, IZ requires developers to build and operate homes at a long-term loss. Due to high housing construction costs, developers cannot build homes that are affordable to someone making 80 percent of area median income, which is why we subsidize developers to do that activity. In theory and in practice, IZ reduces the production of housing generally by increasing the per unit cost of the market rate housing that is allowed by requiring these units to cross subsidize the low income part of the projects. In theory and in practice, extracting deed restrictions for a certain amount of housing increases the market rate price of housing and ensures that only extreme luxury projects are feasible because only extremely high rent projects can absorb the cross subsidy - middle class people cannot subsidize low income people alone, nor should Sacramento expect them too.

In places like Seattle that have recently adopted IZ, high interest rates, high construction costs, and high exaction costs have conspired to significantly reduce the amount of housing that is being built. Specifically, research on the Seattle IZ ordinance finds that almost no new housing was proposed in the zone where IZ applied, and it probably actually reduced the number of deed-restricted homes that were built. That research is here:
https://furmancenter.org/files/publications/Upzoning_with_Strings_Attached_508.pdf Perhaps more importantly, supporters of IZ cannot identify a market where IZ has worked. There are now scores of reports of how IZ thwarts production - in fact, the State of California is currently in the process of forcing some jurisdictions to reduce their IZ - but there are no markets where IZ has been associated with a reduction in rents.

Nor can there be, because IZ "works" in theory by simply shifting rental costs to different people to the extent they Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) do not render development infeasible. No city with IZ has become more affordable because of it.

This is not true of raw production overall, such as the production MIHO would harm. There is a robust and growing body of academic literature that finds decisively that new market rate production at a large scale prevents rents from rising and, in the long term, reduces them against inflation. This roundup is a great place to start on that: https://www.lewis.ucla.edu/research/market-rate-development-impacts/. We should seek to amplify that process rather than tax it or otherwise slow that.

If Sacramento wants to subsidize housing, as it should, we should tax ourselves for it. Taxing only new development is politically more appetizing for some by it does not work to reduce housing costs. It increases housing costs, and, worst of all, creates the false mis-impression we are doing something to help low income people, weakening energy for other activities.

Inclusion is not the problem with IZ, nor is "inclusionary zoning" inherently inclusive. When, as is the case with the current recommendations, the developer and their residents are paying the cost of inclusionary zoning and footing the bill for the subsidy, IZ is exclusionary as it increases housing costs mostly by limiting new supply and by redistributing rental costs to market rate tenants. IZ also yields very little housing in cities with it, accounting for a few dozen to a few hundred homes per year in places like San Fransisco. If Sacramento wants affordable units from its inclusionary ordinance, it should pay for the subsidy costs associated with that. Those costs are real, they are expensive, and in markets like Sacramento where rents are lower than nearby areas in our construction market, they pose the risk of driving development back to the Bay Area. Sacramento should strive to be the cheapest, most attractive place to develop in Northern California if it wishes that development to continue.

I would enthusiastically support a real solution to Sacramento's problems. Council should propose and I would enthusiastically support a parcel tax for affordable housing. As a homeowner, I think this is the fairest solution because every property owner (and, eventually, every renter) pays it, and because everyone pays, it creates a real, robust source of revenue for building the *thousands* of homes we need. Sticking the bill solely on new tenants and developers is at best a weak side step from taking responsibility for the crisis and in practice makes the affordable housing crisis worse.

I strongly urge you to abandon mandatory IZ and focus instead on finding property tax funding for housing.

Michael Ault
Location:

Submitted At: 3:28pm 11-09-23
Planning Commissioners,
On behalf of the Downtown Sacramento Partnership and the 66 blocks we represent within the urban core, we are writing in opposition to any changes to the existing Mixed Income Housing Ordinance at this time. Adding another layer of costs to housing developments will significantly jeopardize Sacramento’s future housing supply goals.

While the past five years have demonstrated modest success for Sacramento’s housing market, current limitations such as construction costs, labor costs, and rising interest rates, continue to affect development prospects: over the past 6 months, the downtown Sacramento housing market has seen a 91% reduction in the number of construction starts of multifamily housing units.

Furthermore, the feasibility analysis conducted by Keyser Marston associates demonstrated that an inclusionary zoning ordinance would render most projects infeasible in the current economic climate -- especially when coupled with new development impact fee rates going into effect next year. At a time when housing construction starts are dramatically slowing down due to macroeconomic headwinds, we must be careful not to further throw cold water on an already cooling market.

The need to combat the statewide housing shortage and affordability crisis has never been more dire – but the solution lies in building more housing supply of all types. Average rents in the Sacramento region dropped by 2% in June 2023, largely due to the healthy supply of new apartments coming available over the past few years.

Incentivizing the construction of more infill housing development ultimately benefits all renters by increasing Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) supply. Conversely, inclusionary zoning policies in other California jurisdictions, on average, reduce overall supply by 7 percent and increase prices by 20 percent.

We must not remake the mistakes seen in cities like Portland – which saw a 33% year over year decline in construction starts after implementing its inclusionary zoning ordinance in 2017 – and San Francisco – which is currently reforming its inclusionary zoning ordinance after determining it infeasible to build housing. Further restrictions on construction result in fewer homes, including affordable units, from being built. When the goal is to create more housing, we must be extremely careful of legislation which has been demonstrated to have adverse effects on housing production in similar markets.

If the City of Sacramento is truly committed to addressing the acute need for more housing and assisting the homelessness crisis in our city, we must not apply further cost burdens to an already difficult market. Downtown Sacramento Partnership stands ready as a partner in finding solutions to ensure the production of housing of all types is encouraged in the City of Sacramento.

Now is simply not the time to send market signals that will further prevent the production of infill housing and effectively incentivize sprawl-model growth patterns. The Partnership acknowledges the thorough work demonstrated by staff and looks forward to continued dialogue and creative solutions to advance the production of housing in Sacramento.

Thank you,
Michael Ault
Executive Director
Downtown Sacramento Partnership
Matt McDonald
Location:

Submitted At: 1:24pm 11-09-23
Planning Commissioners,
The California Apartment Association, which represents over 60,000 housing providers statewide and over 3,000 in Sacramento County, is opposed to any changes at this time to the existing Mixed Income Housing Ordinance.

We are deeply concerned that the changes proposed and considered tonight by the Planning Commission will effectively end new multifamily development in the City of Sacramento.

In recent years, the City of Sacramento and it’s elected officials have repeatedly and passionately argued for increased housing supply. This is a mission we wholeheartedly support. However, the changes proposed in the ordinance are counterproductive to increased housing supply and lower housing costs.

In particular, a doubling of the affordable housing fee per square foot is a reckless idea with no regard to developer cost, market conditions, financing, and regional competitiveness. Development does not happen in a vacuum – the city must adopt nimble policies toward new housing development that incorporate existing real- world variables that housing builders must contend with each day, such as current interest rates, other city fees (that the city is increasing right and left), increased cost of materials and construction, and the significantly lower fee structures of nearby communities.

The changes proposed are not a reasonable basis for increasing housing supply in Sacramento. We urge the Planning Commission to reject changes to the ordinance.

CAA
Matt McDonald
Vice President, Local Public Affairs
California Apartment Association
980 Ninth Street, Suite 1430, Sacramento, CA 95814
Kenneth Turton
Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) Location:

Submitted At: 12:55pm 11-09-23
To the Planning Commission:

I would like to provide the following comments in response to staff’s recommendations regarding the proposed Mixed Income Housing Ordinance for consideration at this afternoon’s presentation to the Planning and Design Commission:
• Turton Commercial Real Estate has sold land or redevelopment properties resulting in the development of over 3,000 units of housing in the last decade. We have sold more land in the urban core for multi-family development than all other competitive firms combined. We are the proverbial “Canary in the Coal Mine”. • Through Q1 2023 the industry has watched margins compress as a result of labor, material and operating expense inflation, rising interest rates and decreasing rent revenue to the point where there were virtually no new land sales for ground up market rate multi-family housing projects. By Q3 2023 land escrows are down 92% (and those that are in contract are not for housing). Industry escrows in general are down 85%. • If nothing were to change regarding cost of goods and services, financing, and operating expenses, we do not expect to see any new market rate housing built in the next two – four years except for those projects that are already under construction.
• We are still selling land for affordable housing development, but for every $4 or proposed affordable housing projects we are putting into contract, there is only $1 available for the housing subsidies required to bridge the financing gap.
• This scenario will not change until long term interest rates (10 – 30-year financing) reduces to a sub 5% level including construction financing. Current construction financing loan rates are at 8% - 10% depending on borrower, project and projected loan-to-value.
o Suffice to say we won’t see interest rates below 5% again until the long term projected 10-year treasury yield drops below 3%.
o This will require a significant economic downturn (recession) which impacts the stock market to the extent US Treasury bonds become the default investment vehicle reducing the need to maintain higher interest rates to attract demand.
o Even if that downturn were to begin tomorrow, the impact to the long term projected 10-year treasury yield would take 2 – 4 years.
• We have not seen variables like this since 2007 and it took 5 – 6 years (to 2012/13) and a dramatic reduction in borrowing costs to resume development.
• Thus, in the current market, any additional cost to housing construction will exacerbate economic impediments and further delay the supply of desperately needed housing units we need to meet demand and provide housing at affordable levels.
• The key to driving down housing costs to city residents is increasing supply. When supply exceeds demand, prices must go down. Incentivizing affordable housing either through architectural design or subsidy is wonderful and we are highly supportive. Creating economic impediments to building new housing is extremely counter- productive and illogical.
• The new housing ordinance fee of $10/SF is completely paradoxical to achieving the goals of the council. It will result in less housing, and therefore less affordable housing, than before. This is especially true when combining this cost with the new general plan fee increases.
• If the goal of the planning department is to generate additional fees for infrastructure upgrades and (potentially) additional affordable housing allocations, there are other ways to achieve the objective while still incentivizing housing (and affordable housing) development which I would be happy to discuss.

Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) • The new housing ordinance fee and the 2024 General Plan fee increase in its current form are absolutely the wrong solutions at the wrong time.

Best regards,
Ken Turton
President
Turton Commecial Real Estate
John Hodgson
Location:

Submitted At: 9:11pm 11-08-23
As a resident of midtown Sacramento who has worked on numerous multi-family, single-family and mixed use projects within the City of Sacramento for the last 25 years I oppose this proposed Mixed Income ordinance.

Simply stated this proposed ordinance combined with the recent significant increases in City fees for sewer, water, drainage and parks will guarantee that no new multi-family buildings will be built in the City for a long time.

The intent of this proposal is to provide more affordable housing. It will instead have the opposite effect of reducing the number of residential units being built.

It is also very likely this proposed ordinance will drive housing investment out of the City of Sacramento. Those companies investing in housing projects will look to jurisdictions with less onerous requirements. Nearly every other jurisdiction in the region has significantly less housing fees and much more reasonable inclusionary housing requirements. There are no neighboring jurisdictions to the City of Sacramento that have the type of inclusionary zoning requirements or a $10 per square foot fee as proposed by this ordinance. The affordable housing fee for a new 2200 sq. ft. single-family home would increase from approximately $7000 per house to $22,000. That’s $15,000 or a 215% increase! That’s at least three times higher than any other jurisdiction in the Sacramento region.

Currently it is infeasible to build a market-rate multi-family apartment in the City of Sacramento. The City’s own data confirms that fact. There are numerous local developers with approved projects ready to build that can’t go forward since they can’t finance them. More significantly there is a soon-to-be released study by UC Berkeley which has specifically looked at multi-family apartments in midtown Sacramento and concluded they are very far from being feasible even before calculating the impact of the additional proposed City fees.

This proposed ordinance will have other consequences. If there is little or no residential housing being built in the City of Sacramento there will be a significant reduction in housing trust funds available to support affordable housing projects. There will also be less jobs for construction workers. Costs of housing will continue to rise because there will be a lack of supply and a continued strong demand for housing.

Please reject this proposed Mixed Income ordinance. This will kill housing development in most parts of the City and it will have extraordinarily negative impact on Midtown and Downtown Sacramento.

John Hodgson
The Hodgson Company
2514 Chinatown Alley
Sacramento, CA 95816
[email protected]
www.thehodgsoncompany.com
Kay Crumb
Location:

Submitted At: 7:25pm 11-08-23
Please allow for most mixed income housing and guarantees to house ouroat vulnerable piplations.

Alberto Esquivel
Location:

Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) Submitted At: 5:32pm 11-08-23
SKK Developments' comments on the proposed MIHO are in the attached document.

Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) SKK Developments submits the following comments in response to staff’s recommendations regarding the proposed Mixed Income Housing Ordinance ahead of this afternoon’s presentation to the Planning and Design Commission.

Based on the comments below, we ask that no changes be made to the existing Mixed Income Housing Ordinance.

SKK Developments has developed 1,890 residential units in the City of Sacramento over the past 20 years, most of which have been in the Central City. SKK is very much in favor of mixed income (mixed use) neighborhoods, and that is one of the reasons we have chosen to make significant investments in the City. All the above units have been developed in low-income neighborhoods. Please note that this is entirely consistent with Housing Element H-4.3: “The City shall promote mixed income neighborhoods with an equitable distribution of housing types for people of all incomes throughout the City… (emphasis added).

Mixed income projects (on-site requirements) are infeasible. All other things being equal, SKK Developments would like to develop mixed-income housing projects; however, infill development and high-density housing is more costly to develop even before the cost (reduced revenue) of providing affordable units. Unfortunately, the high rents and sales prices associated with new developments are necessary for these projects to be built; they would not be feasible otherwise. Furthermore, the current affordable housing finance system (tax credits, mortgage revenue bonds, local funding sources) does not facilitate mixed income developments, i.e., projects with “on-site” affordable housing. However, it is designed to fund projects that are 100 percent affordable. In fact, such projects have been developed successfully throughout the City as staff’s analysis indicates. Such projects can be expected to be developed feasibly in the future as these types of projects are less sensitive to current adverse market conditions. We hope that changes will occur that will encourage mixed income projects, but until then such developments will remain infeasible.

Inclusionary housing is not a Fair Housing issue in the Central City. We disagree with any assertion that inclusionary housing (at least as it pertains to the Central City) is a “fair housing” issue (Equity Considerations). Requiring new units to be produced at significantly reduced rents when good quality units at affordable levels are available in the same neighborhood goes well beyond the ordinance’s stated purpose of providing lower income works with affordable housing. On the contrary, unfairness occurs when otherwise low-income residents don’t qualify to rent new units because their income is not low enough.

There is no justification for changing the MIHO, and proposed changes are counterproductive. Based on the above, it is unclear why changes are necessary to the current ordinance, particularly, when the City’s and other analyses show that the proposed changes make new projects infeasible. Inclusionary requirements unquestionably increase the costs of development, further necessitating higher market rents to make projects feasible. Until such rents are supported, the constraint on supply caused by the lack of new development will cause rents of all units to increase, which is the unintended consequence of the policy. The policy makes all other housing less affordable, which has the most impact on the “missing middle” workforce residents.

The Feasibility Analysis supporting changing the MIHO is poor for the following reasons.

1. Assumptions are out of date. Much of the analysis appears to have been done in early 2023 or earlier. Relevant economic conditions – interest rates, rents, vacancy, construction costs, other fees (City Utility fees) etc. - have only worsened since then, making additional inclusionary requirements even less feasible.

2. The “ex post” analysis used is irrelevant and should not be the basis for a change in policy.

A large part of the feasibility study is concerned with “conditions that prevailed until Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) ‘recently’”. The analysis looks back to conditions that prevailed at the end of the last real estate cycle, prior to the current downturn, to determine how much more a project could have afforded to pay in fees. This ignores how projects are analyzed and the risks that must be undertaken to successfully complete projects. An after-the-fact analysis is never used in proforma project analysis. Proforma analysis is based on future expectations of the inputs to the analysis - prices/rents, development costs, financing costs – often years in advance of actual project completion. Projects are underwritten and land acquisition prices negotiated to achieve minimum profitability threshold criteria without “extra room” to account for extraordinary cost increases.

3. “Conditions that prevailed until recently” will not return. There is no logical reason to expect that the assumed baseline conditions will return. Interest rates may not decline for a long period of time, if ever. Rent and home prices are relevant only insofar as they relate to development costs which continue to increase to unprecedented levels.

4. The economics of housing developments in the Central City do not support an increase of $10 (to $20) per square foot as stated in the analysis. The assumptions used in the analysis to arrive at this conclusion are clearly faulty and do not reflect our experience. Staff’s recommendation would add approximately $10,000 to a typical 900 square foot apartment in the Central City, which would necessitate a rent increase of $90 per month for all units within the development to achieve feasibility. Furthermore, the feasibility of for sale housing in the Central City is overstated. One need only compare the number of ownership units developed in recent years compare to the City as a whole to realize that ownership housing is marginally feasible in the best of circumstances, much less after the extraordinary cost increases recommended by staff. Finally, such an extraordinary increase would result in the highest affordable housing fee of any jurisdiction in the region, almost triple of that of other jurisdictions.

We have valued all the work that community development staff have done to incentivize and support housing development to date and are gravely concerned this proposal moves us in the wrong direction.

We appreciate you taking our comments into consideration, thank you – Marisa, Sotiris & the Entire SKK Developments Team

Marisa Kolokotronis
Director, Operations | SKK Developments
C: 916.425.0626

Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) November 21, 2023
Greta Soos
Project Manager, City of Sacramento
915 I Street
Sacramento, CA 95814
RE: Sacramento Association of REALTORS® Comments for the Mixed-Income Housing Ordinance Preliminary Recommendations from October 26, 2023 On behalf of the Sacramento Association of REALTORS® (SAR) and our 7,000+ members, we appreciate the opportunity to comment and work in partnership with staff on housing solutions for the Mixed-Income Housing Ordinance.

Despite acknowledging the severe housing shortage in our region, SAR has observed the city's significant efforts to prioritize policies that encourage housing production. This is evident from the numerous residential construction projects currently underway in the city. Therefore, it is surprising to see the initial recommendations, which would significantly increase the expense of new housing construction, potentially reducing the number of housing projects being built.

Based on the for-sale model provided, the minimum offer price for affordable housing is still too high for someone who earns 80% of the area median income (AMI) to qualify. Even with down payment assistance and no debt, a person in this category can only be eligible for a $225k house at today's rates. In contrast, the median house price in the City of Sacramento is currently $490K as of October 2023. Sadly, the current pricing structure does not align with the feasibility standard, and it could lead to affordable housing being concentrated in specific neighborhoods, which will only perpetuate the geographical disparities in access to affordable homes.

SAR's mission is to create and promote pathways to homeownership. However, we are concerned that the Mixed-Income Housing Ordinance places an unfair financial burden on middle-income families. The ordinance requires new housing projects to fund affordable housing on their project site, which can cost hundreds of thousands of dollars or pay an in-lieu fee more than other jurisdictions in the region. These costs are then passed on to the new homeowners in that project, which could cause home prices to increase by 6% and make it difficult for thousands of families in Sacramento to afford a home.

While on-site units provide an opportunity for affordable housing for those who qualify, it's important to recognize that this approach also puts a strain on residents who are already struggling with high housing costs. We believe that there are better ways to address the affordable housing issue that does not disproportionately impact middle-income families is to make sure more housing is being built at a rapid pace. The only way the city will accomplish that is to make Sacramento a desirable place to build.

Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) Furthermore, adopting the preliminary recommendations may inadvertently worsen the housing crisis by pushing development toward the outer fringes of our region or stop it altogether. Policies that deter growth have more significant economic impacts, such as a shortage of local job opportunities and diminished contributions to the housing trust fund. The net result would exacerbate the already mounting housing costs, as historical evidence underscores that housing prices rise in response to a lack of supply.

It's important to acknowledge that the additional costs of the policy aren't happening in isolation. The city has been updating all its housing policies, which has led to increased fees for sewer, water drainage, and parks. As a result, it puts Sacramento at a competitive disadvantage compared to neighboring jurisdictions without such fees.

We hope to continue participating in this critical conversation as a housing stakeholder in Sacramento and look forward to collaborating closely with staff to help meet the city's housing goals. Don't hesitate to get in touch with Erin Teague with any questions at [email protected]
Thank you for your consideration,
Erin Teague
Government Affairs Director
Sacramento Association of REALTORS®
Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) 2339 Gold Meadow Way #205, Gold River, CA 95670
November 20, 2023
Greta Soos
City of Sacramento
Subject: Proposed Inclusionary Zoning City of Sacramento Dear Greta,
On behalf of Next Generation Capital, we oppose the City of Sacramento’s proposed on -site mandatory inclusionary housing ordinance and tax on housing because it will result in fewer new housing units being constructed for all residents of the City of Sacramento.

As a builder of many infill projects in the city, we are interested in creating much-needed attainable housing in the City of Sacramento, we would like to work successfully with the City of Sacramento to help meet the city’s housing needs.

When the City of Sacramento shifted away from its inclusionary zoning policy in 2015, the net effect was a marked acceleration of new housing opportunities throughout the city that far outpaced statewide construction rates.

Investment in the City of Sacramento is now slowing as a result of market factors and higher interest rates so now is not the time for additional taxes on housing. An on-site inclusionary policy would require all new housing projects to absorb extraordinary costs which would be reflected in the costs of new homes and hurt middle income families.

There are no jurisdictions abutting the City of Sacramento with such high affordable housing fees or requirements.

An unintended potential implication of an Inclusionary Zoning policy is that more builders, including affordable builders, would simply do projects outside the city limits where there is greater flexibility and project feasibility. This would likely result in additional vehicle miles traveled by future homeowners to get to their jobs in Sacramento.

As an alternative, the City should consider a citywide tax to raise revenue or adopt the in lieu fee program currently employed by the City of Folsom, whereby every new market rate housing unit is charged 1% of the sales price.

Instead of charging a fixed per square foot amount as done under the current policy, affordable housing fees collected by the city can increase over time and be more flexible because they are based on the price of the home, not the size of the home. Therefore, if housing prices increase, the city will col lect more affordable housing revenues. We would also suggest that the city explore creating a new private housing trust that can accept contributions from a wide variety of sources, including community reinvestment funding, which the City is not currently pursuing or utilizing.

Again, it is our hope to be good partners with the city in delivering much needed additional housing units. Thank you for your consideration of our concerns.

Thank you for your time.

Brian Hanly
C.E
.O.

Attachment 4-Phase 2 Preliminary Recommendations Comments Received (as of 11/29/2023) Attachment 5- Phase 1 Focus Group Meeting Summaries
Mixed Income Housing Ordinance Phase 1 Outreach - September 2023 Focus Group Summaries of Key Statements (summarized for brevity and clarity)

Downtown Sacramento Partnership
 Disagreement with “prior market” evaluation, as it is unknown when we will return to those market conditions. Too simplistic to think that we will be back where we were 1-2 years ago. In our experience, construction costs don’t come down.
 Developers are inherently optimistic people, but that optimism does not mitigate the challenges projects are currently facing.
 Under the current market, it is impossible to deliver urban rental projects for under $450K/unit and low-income product is currently costing over $850K/unit. 5 years ago, urban market rate cost was $225K/unit. Suburban product can currently be built for around $350k/unit  The 6.5% threshold yield on cost assumed in the study is a little too low to obtain the capital required for rental developments. Housing production is the key to affordability – building market rate housing brings prices and rents down. Seattle is a good example of this.  The $0 impact fee for high density was the best thing the City did for housing development. It sent a signal to the market that Sacramento was serious about attracting infill housing.  When new fees are added on market rate development, the cost is passed on to renters.  Traditional affordable housing projects are too costly to develop. The City should purchase market rate developments after they are built – the total cost would be less in comparison to traditional affordable housing developments and allow units to come online quicker than building.
 We need to figure out how to produce high-end ownership housing in the downtown core.  Inclusionary requirements are an old way of thinking. Need to think of how to make our public dollars go further.

North State Building Industry Association
 Does not think the current ordinance should be changed. It is working well.  If considering a change, the Folsom model of charging the in-lieu fee as a percentage of the sale price is good because it adjusts to the strength of the market and is dependent on the how the project actually performs.
 Rentals should have no requirement based on the results of the feasibility study.  The city is currently leading the region in building rental product  City should commit to redoing a feasibility analysis within a certain timeframe

Sacramento Housing Alliance, Sacramento Area Congregations Together, and Legal Services of Northern California
 Would like the report to acknowledge that the proformas that were provided for the analysis are “unverified.”
 Believes objective 6 (do not constrain overall housing production) is problematic, as costs and rents vary widely, and developers have control to design projects to match the market.

Attachment 5- Phase 1 Focus Group Meeting Summaries
 The fees collected from this should not be earmarked for “workers”, because a growing work force exacerbates the already scarce supply of affordable housing for everyone  Support having different requirements for different sub-markets of the City.  Build in a review of the ordinance every 4-5 years.
 Look at option for developers to set-aside units for Housing Choice Vouchers. Some projects using the Los Angeles TOC ordinance (which provides density and other incentives for projects providing on-site affordable units near transit) have elected to provide ELI units (at a reduced inclusionary percentage) in part because the units could be occupied by voucher holders, offsetting the cost of the affordable units.
 Focus policy on 60% AMI or below, because 80% AMI rents are close market rent.  An inclusionary policy is one of the best ways to affirmatively further fair housing.  Would like to address extremely low income housing in this conversation. Many of the low income individuals do not have income and we must understand how to house this population.

If it is infeasible, we need to be able address this in some way.  The City should consider being a debt holder with low interest rates.

Midtown Association Infill Housing Working Group
 If the State sold properties in Sacramento, the property tax revenue could be used to invest in naturally occurring affordable housing (200K/unit).
 Fees should be lowered as density goes up.
 Market conditions 6 months from now do not look like the “prior market” used in the feasibility analysis. Do not want to constrain development for years to come.  The City policies to-date have been to incentivize infill housing development. It seems that that is no longer the case, and if so, it should be clearly stated.  Any level of inclusionary policy would be a constraint to overall housing production (objective 6).  The “prior market” used in the feasibility analysis is never coming back.  Use a phased-in model for any new requirements.

September 15, 2023
C
ity of Sacramento Planning Division
City of Sacramento
915 I Street
Sacramento, CA 95814
Re:

City Mixed Income Housing Ordinance Proposals
Mr
. Hertel,
T
he Midtown Association is writing to recommend that the City of Sacramento not make adjustments to its current Mixed Income Housing Ordinance. Following the City’s publication of its independent feasibility analysis study, modifications to the ordinance under the current economic climate would be inappropriate due to the problematic assumptions made surrounding past conditions, evidence that changes would directly counter the City’s own expressed Housing Element goal of not posing constraints on overall housing production, and its impacts to development feasibility in the City of Sacramento.

Ina
ccuracy in Assumptions of Past Market Favorability
I
n reviewing the current ordinance, the City enlisted the support of technical experts to provide their analysis. The conclusion of the economic feasibility study clearly indicates that Sacramento’s housing markets are unable to sustain any additional fee increases or even the most modest of inclusionary requirements. Only by applying “recent favorable” conditions can any modification to the existing ordinance be justified. First, there is no certainty that conditions will improve at any point in the immediate future. Policy cannot be set on the assumption that past trends will return. There is no indication on when, if ever, interest rates will decrease, or that development costs will decline. In fact, there is no historical context that would point to any decreases in these costs, which have consistently risen in recent decades. Land, construction materials, labor, and regulatory costs will all continue to factor into a developer’s willingness to take on a project. There is no reasonable assumption that outside forces will decrease the cost of development.

Whi
le the study attempts to capture the various moving parts that contribute to the development process, it fails to understand the complexity of the decision- making processes that developers and lenders must undertake when planning for a new project. Even with high- interest rates, the capital market remains competitive. Developers must demonstrate that their projects can be successful through their own rigorous pro forma analysis, and City projections that indicate a project “might” be able to absorb additional costs will be a market signal that Sacramento is not a city that can support investment.

A
n ex-post analysis is simply not an accurate way of indicating potential future feasibility. Utilizing past factors is irrelevant in determining forecasts for future market conditions, creating a flawed assumption that new factors can simply be plugged into the equation’s test criteria to determine past feasibility. This is misguided as it ignores the likelihood that past projects simply could not have been underwritten with the inclusion of this new criteria.

Attachment 6- Phase 1 Outreach Written Comments Received If City leadership is set in pursuing an inclusionary mandate, it should conduct a more appropriate sensitivity analysis to determine what factors would need to change in the current market in order to achieve feasibility. This way conditions are based in the real world that is in front of us, and not looking back to justify how a different ordinance could fit under the best possible circumstances.

Inc
lusionary Mandates Constrain Overall Housing Production T
he effectiveness of inclusionary policies is illustrated by the City’s own independent analysis. In addition to seeking to determine feasibility in the City of Sacramento, consultants also looked to comparable policies that have been implemented in other localities. Not only does this analysis indicate that there has been no considerable increase in affordable housing production, the re ha ve been significant decreases in overall unit production in several of the localities studied.

T
he cities of Davis, Portland, Davis, and San Jose all experienced significant decreases in the number of housing units permitted in the years immediately following inclusionary mandate implementation. In fact, in an effort to remedy this issue, the City of San Jose heavily revised its ordinance only three years after initial implementation, significantly diminishing its requirement.

T
he economics of new housing production must be sustainable and make projects feasible. Developers must recover the costs of construction through the promise of future rental revenues. Without subsidy, inclusionary requirements serve as a tax, inherently limiting the potential real value of the completed project. To make projects feasible, they must pass along the forgone revenue to the remaining market rate units, recouping that loss by increasing their rental costs. An inclusionary mandate simply means rent increases to market rate units, actually raising the City’s total median rental price.

Sa
cramento Exceeds City Goals in Affordable Unit Production – The Current Model Works I
ndicated in both the independent analyses of Sacramento’s production trends and the City’s own Housing Element Progress Report, Sacramento actually leads in affordable housing production compared to surrounding markets. That is not, however, sufficient to meet overall housing unit production.

S
acramento needs more housing across the board. According to the most recent housing element update, the city was far behind in the production of housing for all income levels. Equally as important however, it also showed that the proportion of building permits that meet the low or very low income level exceeds the ratio identified in the Regional Housing Needs Assessment . In fact, according to the City’s 2022 Housing Element Progress Report, 56% of all units produced were low or very low income, a higher percentage than the 37% sought by the city.

Pr
ojects today are already including affordable units, with no requirement to do so. These developers are able to leverage strategies to maximize density and affordability, while still keeping their completion attainable. They are able to achieve this through creative design and customizing projects to their individual needs. These are real units being produced that would not be feasible with a blanket requirement.

Attachment 6- Phase 1 Outreach Written Comments Received Additional City Fees Will Continue to Challenge Production T
his year alone, the Department of Utilities is proposing its own massive increase to Development Impact Fees, in some cases far exceeding 100%. By the City’s own calculations, a 200 -unit apartment building would see its fees raised by $705,371, a 115% increase from the current fee structure. This amounts to a final total of $1,319,549 in DOU fees, alone. The feasibility analysis takes this into account, and applying these fee increases to current market conditions, even before changes to the MIHO, there is no submarket in the City in which development is feasible.

Whi
le this proposal is currently the farthest along in the policy process, others have been proposed that would greatly increase costs such as labor, by as much as 30%. None of these conversations can happen within a vacuum, and they must be given attention within the context of this entire policy area. While each of these proposals might be able to warrant justification within some context individually, there is no conceivable scenario in which they can exist collectively.

I
nstead of creating further restrictions, the c ity should look to encourage new development , giving projects the autonomy to be creative and build as is feasible, while giving real incentives to help improve the feasibility of constructing new affordable units. While well intentioned, inclusionary zoning policies actually achieve the opposite of their intention, reducing diversity housing stock and increasing rental and purchase prices, while producing fewer affordable units.

T
he burden of alleviating a consequence of several decades of poor policymaking should not fall on the housing providers who are already working to alleviate the City’s desperate housing shortage. The policy directions that have been taken by the state and city that have created barriers to new construction are the root of the current housing climate seen across the state. While those decisions are not a product of current policymakers, passing the responsibility to solve this issue is not good policy.

Sin
cerely,
E
mily Baime Michaels
Executive Director
Midtown Association
Attachment 6- Phase 1 Outreach Written Comments Received PO Box 1708| Sacramento CA 95812-1708
Phone: 916.455.4900
SHA
Board of Directors
Cathy Creswell
President
Jennifer Fleming
Vice President
Valerie Feldman
Co-Secretary
LaShawnda Barker
Co-Secretary
Rachel Smith
Treasurer
Stephan Daues
Stephan Daues Consulting
Tamie A. Dramer
Chair
Nur Kausar
At Large
September 14, 2023
Greta Soos, Associate Planner
Matt Hertel, Principle Planner
City of Sacramento
Community Development Department
300 Richards Blvd.

Sacramento, CA 95811
Dear Greta and Matt:

RE: Mixed Income Housing Ordinance Revision
Thank you for conducting two public meetings and sharing the draft consultant report and the City staff report providing background, research and City policy objectives regarding the update of the City’s Mixed Income Housing Ordinance. We appreciated hearing directly from the consultant and learning more about the City’s considerations and goals for the ordinance update. SHA board members and allies provided input during these meetings. This letter provides additional preliminary feedback on behalf of the Sacramento Housing Alliance and our partners Sacramento Area Congregations Together.

Consultant Report on Feasibility

1. This highly technical report should include clear and plain language to support the publics understanding. There should either be a separate document that presents the data and conclusions using language that can be readily understood, or the report should be revised to include that clarity
. This report will be a critical component of the City’s decision-making regarding the mixed income housing ordinance, and without a less technical presentation of the data, the community cannot meaningfully participate in a discussion about its conclusions.

2. The report should include more specific descriptions of the sources and quantities of data used and how it was gathered and verified. We understand that it was difficult getting actual financial information from market-rate builders. As a result, much of the report’s conclusions are Attachment 6- Phase 1 Outreach Written Comments Received PO Box 1708| Sacramento CA 95812-1708
Phone: 916.455.4900
SHA
Board of Directors
Cathy Creswell
President
Jennifer Fleming
Vice President
Valerie Feldman
Co-Secretary
LaShawnda Barker
Co-Secretary
Rachel Smith
Treasurer
Stephan Daues
Stephan Daues Consulting
Tamie A. Dramer
Chair
Nur Kausar
At Large
based on assumptions from incomplete data. Subsidized affordable housing developments provide publicly available financial information and project proformas. This same level of information should be available for analysis for market-rate development proposals if the information is to be relied on for public decision making, Relying on a report that is based on assumptions is not a path forward to an effective policy.

3. The report should disclose the assumptions about the level of profit expected for market-rate developments, how those assumptions have changed, and why.

4. SHA supports accounting for the City’s housing submarkets within the ordinance.

A reasonable ordinance could establish and adjust a
developers’ obligation in part based on the submarket’s dynamic. We also do not think the report supports impact of recent development. Our lived experience shows that recent high end market rate development has not had any impact on the affordability of rents for lower income households in Sacramento. In addition, consideration of submarkets could facilitate the City’s ability to meet its obligation to affirmatively further fair housing including ensuring affordable housing is sited in high opportunity areas. Its critical the City take all necessary actions to comply with its compliant housing element.

Staff Report

1. SHA endorses establishing policy objectives as a lens when considering any revisions to the mixed income housing ordinance.

Adopting such objectives will guide the public, stakeholders and policy makers when considering potential revisions. We especially support using the City’s adopted housing element goals to guide this effort.

The adopted housing element goals have already been vetted by the community and other stakeholders and have been approved by the State Department of Housing and Community Development. In addition, it is important that all proposed changes specifically describe their consistency with the adopted housing element. Any revisions which are inconsistent with or could act to undermine adopted housing element goals, policies or programs would bring the element out of compliance with state law.

2. Current reliance on a fee only obligation precludes achieving one of the most important outcomes of an effective mixed income housing ordinance, greater community integration. Sacramento, like most cities, has a history of redlining and intentional segregation. One of the Attachment 6- Phase 1 Outreach Written Comments Received PO Box 1708| Sacramento CA 95812-1708
Phone: 916.455.4900
SHA
Board of Directors
Cathy Creswell
President
Jennifer Fleming
Vice President
Valerie Feldman
Co-Secretary
LaShawnda Barker
Co-Secretary
Rachel Smith
Treasurer
Stephan Daues
Stephan Daues Consulting
Tamie A. Dramer
Chair
Nur Kausar
At Large
most effective strategies to overcome such actions is an effective mixed income/inclusionary ordinance.

3. Given the extent of unmet affordable housing needs and the gap between actual development of housing affordable to lower income households and the established Regional Housing Need, it is imperative the City adopt policies and standards that will result in the actual production of affordable homes. This requires the ordinance include a priority for on-site affordable units, or under limited circumstances, allow development of affordable units within close proximity to the new market rate units. It may be appropriate under limited circumstances to offer an in lieu fee alternative, but the fee must be set at a level that does not incentivize fee only options but rather creates opportunity for development of actual new affordable development.

4. We support providing some flexibility in meeting the requirements of the ordinance. Staff proposed considerations, such as establishing flexible options for meeting on site affordability requirements and allowing a modified percentage of affordable units based on total number of bedrooms, are worth exploring. We also support establishing a minimum project size threshold (such as 5 or 10 units).

5. The staff report highlights potential financial tools or incentive options.

We do not support providing any scarce public subsidy resources to meet inclusionary requirements. However, it may be appropriate for the City to evaluate additional regulatory incentives that could facilitate compliance.

6. The City’s past practice has been to respond promptly to reduce requirements when market conditions weaken, but when market conditions improve and would support stronger inclusionary requirements, no changes are proposed. To reverse that pattern, the City could consider establishing requirements that tie specific conditions that would trigger a reduction or increase in the requirements for a specific period of time. This could only be done with a transparent and public process but might avoid the dramatic policy changes that have taken place in the past and provide some level of certainty about how changing market conditions would impact requirements.

7. The City should evaluate the potential of an option for market rate developers to set-aside a percentage of units for tenant-based Housing Choice vouchers. This could ensure the availability of new units for Attachment 6- Phase 1 Outreach Written Comments Received PO Box 1708| Sacramento CA 95812-1708
Phone: 916.455.4900
SHA
Board of Directors
Cathy Creswell
President
Jennifer Fleming
Vice President
Valerie Feldman
Co-Secretary
LaShawnda Barker
Co-Secretary
Rachel Smith
Treasurer
Stephan Daues
Stephan Daues Consulting
Tamie A. Dramer
Chair
Nur Kausar
At Large
very low income households and facilitate compliance with the ordinance.

Thank you for your consideration of our preliminary comments on the City’s update of the Mixed Income Housing Ordinance. We look forward to continuing to contribute to this important effort. If you have any questions about our comments, do not hesitate to reach out to us.

Sincerely,
Jonathan Cook, Executive Director
Cathy Creswell, Board President
Attachment 6- Phase 1 Outreach Written Comments Received Comments on Draft Mixed Income Housing Ordinance Report Submitted by Sacramento ACT
September 13, 2023
Thank you for the opportunity to submit the following comments on the City of Sacramento’s MIHO draft report. We are happy to follow up with additional discussions to clarify any of these points.

1. The need for a new ordinance. The need for a new ordinance is glaringly obvious in the very low housing production being created under the current ordinance, which is simply not doing the job.

2. Very low income housing. We are concerned that none of the options examined will create any housing that is affordable to very low-income families. If this is the case, that should be stated clearly as a headline takeaway for decisionmakers in order to dispel any notion that a new ordinance will somehow address all of the community’s housing needs.

3. Summary needed. The draft report is highly technical and needs a section or separate report that presents the assumptions and finding in a way that is more accessible to the public.

4. Validity of feasibility analysis. We are skeptical of the information the feasibility analysis is using about developer profitability and how that figures into the feasible/unfeasible conclusions.
a. The assumptions are not transparent or are so highly technical that we doubt that many will understand them.
b. The assumptions are not based on any real information about development profitability. At this point in the process, if developers have not been willing to share actual cost and profitability data, then the feasibility analysis should assume that the current situation is very profitable for developers and that they will be willing absorb some of the affordability requirements.

5. Problematic terminology. Using the terms “Feasible” and “Infeasible” is a poor choice of wording because it conveys a level of certainty that the data does not support. We strongly suggest that you adopt different language and suggest two alternative sets of terms that are more appropriate given all of the uncertainty in the analysis. These are:
a. “More likely to succeed”, “Uncertain”, and “Less likely to succeed” b. “Probable Success”, “Uncertain Success”, “Less Probable Success”.

Attachment 6- Phase 1 Outreach Written Comments Received

6. Other project implementation options. In the section on other policy implementation, there is a note about adjusting fee structure annually based upon “CCI”. We are not sure if this refers to Consumer Confidence Index or Commodity Channel Index. The latter is very volatile is probably not a good choice. Instead, we suggest looking at an interest rate escalator/de-escalator that would lower fees as interests rates go up and increase fees as they drop. It is very important to build something into this ordinance that is responsive to changing market conditions. In the past, we responded to poor market conditions by loosening inclusionary requirements but we have not tied an increase in inclusionary requirements to improvements in market conditions.

Attachment 6- Phase 1 Outreach Written Comments Received 1536 Eureka Road o: 916 677 5717
Roseville, CA 95661 northstatebia.org
September 15, 2023
Mr. Matt Hertel
Principal Planner |Long Range Planning Manager
City of Sacramento
Community Development Department
300 Richards Blvd. Sacramento CA 95811
Re: Inclusionary Zoning Feasibility Report and Ordinance Dear Mr. Hertel,
This letter responds to the city’s request for feedback and policy considerations following the issuance of the feasibility analysis and the city’s anticipated development of policy options on affordable housing relative to the Mixed Income Housing Ordinance. We appreciate the city staff reaching out to the industry to seek input.

The North State Building Industry Association represents more than 500 member companies, and most builders creating housing in the City of Sacramento today, including affordable as well as market rate builders. As a general principle, the building industry believes strongly in creating housing for all and it works to deliver housing products demanded by local elected leaders and the public. The lack of affordable housing is a broad-based societal issue, with causes that emanate from lack of educational and job opportunities, and as such the issue demands widespread public participation. The housing industry, which is providing a new flow of supply under very competitive market conditions, is acting to keep prices in check and is not causing affordability issues in the marketplace.

The City of Sacramento should be commended for all of its groundbreaking work to create more housing. When the City shifted to an in lieu fee, reduced its park fees, streamlined its development approval processes, the result was rapid delivery of housing units on a scale that far outstripped the statewide rates. We are proud to have supported these efforts and partnered with the city on its pro-housing efforts.

The BIA must however strongly oppose a move towards an Inclusionary Zoning because it would threaten the progress the city has made in the last eight years to deliver new housing because the policy is in effect a new tax on housing. Our market research indicates that home prices would rise 6%, rents would increase 8% and it would result in a loss of production of 4- 5% and a loss of 1,700 units over 10 years. This would exacerbate the missing middle issues the City hopes to reduce. While our market research is several years old, these findings are consistent with trends observed in other jurisdictions that have adopted inclusionary policies, most notably Portland. Given that interest rates have doubled since the time of our report, it is likely that the effects would be far worse than these cited figures.

Attachment 6- Phase 1 Outreach Written Comments Received 1536 Eureka Road o: 916 677 5717
Roseville, CA 95661 northstatebia.org
It is salient to note that even our affordable housing builders oppose a move towards inclusionary zoning due to the negative effect it will have on their ability to attract state resources under funding formulas. Affordable housing builders believe that any city policy should provide flexibility to achieve projects of scale. Specifically, policies should give market rate developers flexibility of an in-lieu fee, offsite consolidation, and onsite production options to achieve projects of scale for maximum unit production. Having larger affordable housing communities allows for professional management, onsite services, necessary amenities, and most importantly, increases the competitiveness for state tax credit and bond awards.

HISTORIC PERFORMANCE
The Kaiser Marston report demonstrates that the City of Sacramento is already producing far more affordable housing than its neighbors on a straight unit count basis.

Kaiser Marsten
Report, May 24th
2023
Population Low & Very
Low Moderate
TOTAL
Affordable
Units
Combined
Affordable
Housing Units
Per 100k
population
California 39,029,342 126,488 119,301 245,789 6 Sacramento 528,001 4,133 8,927 13,060 25 West Sac 55,064 268 1,457 1,725 31
Roseville 154,817 380 4,645 5,025 32
Folsom 83,269 468 884 1,352 16
Davis 67,048 316 752 1,068 16
Portland 635,067 7,780 7,780 12
Denver 713,252 5,759 5,759 8
San Jose 971,233 3,140 2,873 6,013 6
The Kaiser Marston report from February 17th 2023 also provides evidence that the in lieu fee program has been more successful that the prior inclusionary fee program when compared on a yearly output basis of affordable housing. According to the report, a total of 1,985 units were produced under the Inclusionary policy between 2001-2015, at a rate of 132 units per year. The In Lieu Fee program has produced a total of 856 units between 2016-2021, at a rate of 171 units per year. The In Lieu Fee program produced 29% more affordable units overall than the Inclusionary policy.

However, specific performance of the In Lieu Fee policy demonstrates that the City of Sacramento may have even more room to deliver more units under the current policy. More Attachment 6- Phase 1 Outreach Written Comments Received 1536 Eureka Road o: 916 677 5717
Roseville, CA 95661 northstatebia.org
affordable units have been brough online since 2016 in other neighboring jurisdictions using and in lieu fee when looking specifically in relation to actual new housing units and not at the overall population of the jurisdictions. The data figures obtained this year by the BIA from Folsom and Elk Grove include projects that may be under construction currently and therefore inconsistent with the data available to Kaiser Marston at the time of its report earlier this year. This analysis also does not factor in the remaining fund balance of over $1 million held by the City of Sacramento which will presumably fund new units in the near future. Despite the possible limitations of the analysis, it seems worth considering that the in lieu fee programs in other jurisdictions may be able to produce proportionally more affordable units. We have specifically advocated for the in lieu fee program carried out by Folsom as one model worthy of policy consideration.

Since 2016 Affordable Units For Sale Housing Units
Sold 2016-2021
Affordable Units Per 1000
units housing
Sacramento 856 8,009 107
Folsom 964 2,760 357
Elk Grove 1,047 3,582 299
Sources City of Folsom, City of Elk Grove
and Kaiser Marson Report
CIRB Data

FEASIBILITY ANALYSIS
The market analysis performed by Kaiser Marston indicates that an Inclusionary Zoning requirement would render infeasible all rental housing, and most for-sale housing throughout the City of Sacramento. It is our belief that after spending more than a year procuring this independent analysis, that the City should take its findings seriously and avoid invoking a policy that is known to create a halt to housing production goals that are important to the City, the state and the region’s planning agencies. Most of our builders take issue with the notion that the market will return to previous conditions with near zero interest rates. Most costs rise over time 0 100
200
300
400
Folsom Elk Grove City of Sac
Affordable units built per 1000 new
home units
since 2016
Attachment 6- Phase 1 Outreach Written Comments Received 1536 Eureka Road o: 916 677 5717
Roseville, CA 95661 northstatebia.org
and do not return to prior levels. Similarly, our downtown builders dispute the notion that their projects would remain feasible under a $10-20 per square foot fee and point to the overall lack of downtown production that vividly illustrates a lack of project feasibility under even current conditions. Additionally, a proforma analysis is customarily forward looking and looking back at certain market conditions that made one project possible is not an adequate prediction of future market conditions that will most likely never be identical.

POLICY ALTERNATIVES
Since the current in lieu fee program is providing more affordable housing per year than the Inclusionary policy, and there may be room to enhance its performance, it is suggested that the city work within the parameters of the more successful in lieu policy and look at methods of adding more revenue from a broader set of sources.

1. Form an Enhanced Infrastructure Financing District

2. Increase City income by enhancing the In Lieu Fee to a Percentage of home price as done in Folsom.

3. Ensure existing resources are spent timely. The city’s analysis indicates that there are millions of dollars in unspent funds still available from the in lieu fee program.

4. The city should develop a policy to count some proportion of ADUs as affordable housing.

5. Pursue solutions involving the conversion of existing unregulated units to long term deed restricted units would be a more efficient means (cost, certainty and timing of delivery) of providing affordable housing compared to new construction.

6. Take active steps to pursue a bond measure to add additional funds.

Please let me know if you have any questions about the content or data in this letter. Thank you for your consideration.

Sincerely,
Chris Norem
North State BIA
Attachment 6- Phase 1 Outreach Written Comments Received September 8, 2023
City of Sacramento Community Development Department
Attn: Greta Soos, Project Manager
300 Richards Boulevard, 3rd Floor
Sacramento, CA 95811
RE: Mixed Income Housing Ordinance
Dear Greta:

On behalf of the Downtown Sacramento Partnership and the 66 blocks we represent within the urban core, I am writing to express concern related to the pursuit of a Mixed Income Housing Ordinance in Sacramento. While the Partnership is appreciative of the hard work staff and the consultant team have put forth in their efforts to conduct multiple studies and perform stakeholder outreach, adding another layer of costs to housing developments would significantly jeopardize Sacramento’s future housing supply goals.

While the past five years have demonstrated modest success for Sacramento’s housing market, current limitations such as construction and labor costs, and rising interest rates, have drastically affected development: over the past 6 months, the downtown Sacramento housing market has seen a 91% reduction in the number of construction starts of multifamily housing units. Furthermore, the feasibility analysis conducted by Keyser Marston associates demonstrated that an inclusionary zoning ordinance would render most projects infeasible in the current economic climate. At a time when housing construction starts are dramatically slowing down due to macroeconomic headwinds, we must be careful not to further throw cold water on an already cooling market.

The need to combat the statewide housing shortage has never been more dire – the solution lies in building more housing supply of all types. As reported by Colliers, average rents in the Sacramento region dropped by 2% in June 2023, largely due to the healthy supply of new apartments coming available over the past few years. Incentivizing the construction of more, infill housing development ultimately benefits all renters by increasing supply. We must not remake the mistakes seen in cities like Portland – which saw a 33% year over year decline in construction starts after implementing its inclusionary zoning ordinance in 2017 – and San Francisco – which is currently reforming its inclusionary zoning ordinance after determining it infeasible to build housing. Further restrictions on construction result in fewer homes, including affordable units, from being built. When the goal is to create more housing overall, we must be extremely careful of the unintended consequences of legislation which has demonstrated to have had adverse effects on housing production in similar markets.

If the City of Sacramento is truly committed to addressing the acute need for more housing and assisting the homelessness crisis in our city, we must not apply further cost burdens to an already difficult market. There must be a delay in implementation until certain economic thresholds are met, and inclusionary policies must focus on incentives, not barriers to continued housing development. Downtown Sacramento Partnership stands ready as a partner in finding creative solutions to ensure the production of housing of all types is encouraged in the City of Sacramento.

Attachment 6- Phase 1 Outreach Written Comments Received Now is simply not the time to send market signals that will further prevent the production of infill housing and effectively incentivize sprawl-model growth patterns.

The Partnership would again like to acknowledge the thorough work demonstrated by staff and look forward to continued dialogue and creative solutions to advance the production of housing in Sacramento.

Sincerely,
Michael T. Ault
Executive Director
Downtown Sacramento Partnership
Attachment 6- Phase 1 Outreach Written Comments Received

September 12, 2023

Greta Soos
Project Manager, City of Sacramento
915 I Street
Sacramento, CA 95814

RE: Sacramento Association of REALTORS® Comments for the Mixed-Income Housing Ordinance Draft Report from August 15

On behalf of the Sacramento Association of REALTORS® (SAR) and our 6,000+ members, we appreciate the opportunity to comment on the Mixed Income Housing Ordinance Draft Report from August 15. We acknowledge and understand the critical housing shortage facing our region. Therefore, SAR does not oppose affordable housing requirements. Still, we must be willing to think beyond traditional tax models that drive up the cost of housing. Instead, we must create a unique structure that blends the best practices from other jurisdictions provided in the Draft Report that gives Sacramento a sustainable housing policy for the future.

Based on the Draft Report, it shows that Inclusionary Zoning is infeasible for all rental housing and most for-sale housing throughout the city. Compiled with the pressure from the current market trends, SAR recommends that any updates to the policy enhance the in-lieu fee to a percentage of home price and provide a variety of options for compliance that allows flexibility based on the project.

As the local REALTOR® Association, SAR is always focused on creating and promoting pathways to homeownership, and our biggest concern is that the cost of Inclusionary Zoning falls hardest on middle-income families. Inclusionary Zoning forces new housing projects to be the primary or sole funders of affordable housing on their project site, often costing hundreds of thousands—or millions—of dollars. These substantial costs are then shifted to the new homeowners in that project. Inclusionary Zoning would raise home prices by 6% and price thousands of families out of homeownership in the City of Sacramento.

We hope to continue participating in this critical conversation as a housing stakeholder in Sacramento and look forward to collaborating closely with staff to help meet the city's housing goals. Please contact Erin Teague with any questions at [email protected]

Thank you for your consideration,

Erin Teague
Government Affairs Director
Sacramento Association of REALTORS®
Attachment 6- Phase 1 Outreach Written Comments Received

cc: Mayor Steinberg, City of Sacramento
Councilmember Kaplan, City of Sacramento
Councilmember Loloee, City of Sacramento
Councilmember Talamantes, City of Sacramento
Councilmember Valenzuela, City of Sacramento
Councilmember Maple, City of Sacramento
Councilmember Guerra, City of Sacramento
Councilmember Jennings, City of Sacramento
Councilmember Vang, City of Sacramento

Attachment 6- Phase 1 Outreach Written Comments Received

Sacramento Community Land Trust
P .O. Box 188709
Sacramento, CA 95818

September 14, 2023
Greta Soos, Associate Planner
Matt Hertel, Principal Planner
City of Sacramento
Community Development Department
300 Richards Blvd.

Sacramento, CA 95811

RE: Mixed Income Housing Ordinance Analysis Draft Report

Dear Greta and Matt,

Thank you for allowing additional time for the public to review and comment on the draft report on the Mixed Income Housing Ordinance (MIHO.) We understand there were previous public meetings prior to the release of the draft, and we hope our perspective will initiate ongoing engagement between the city, consultants and our network of affordable housing community partners with the goal of helping the city meet its affordable housing obligations.

The Sacramento Community Land Trust (SacCLT) works to prevent displacement and build neighborhood power in historically discriminated neighborhoods to combat the deterioration and market speculation by fostering multigenerational equitable development. Our primary objective is to preserve affordability and community cohesion by preventing displacement through shared ownership. Our secondary objective is to build community power to ensure more equitable development. We value smart growth, diverse communities, and anti- displacement policy measures and goals.

The first challenge we notice with the feasibility report is the advanced language used in both the summary and detailed report. For the public’s understanding, more plain-language tactics should be used, at least in the executive summary. In addition, the draft report should have been available in various languages most spoken in the City of Sacramento to allow diverse communities to participate.

The report should include more descriptive information on the data gathered, verified and used. We found it concerning that most of our non-profit affordable housing partners were not Attachment 6- Phase 1 Outreach Written Comments Received

consulted with, interviewed or notified of the opportunity to provide analysis or perspective on affordable development challenges and opportunities. While we agree that labor, materials and land remain valuable resources that make increasing the housing stock for those under the area AMI possible, we see immediate solutions to the housing affordability challenge should include making changes to the ordinance to meet the needs we have today, as other cities referenced in the report have done. The report suggests that updating the ordinance may not be feasible at this time, but there should be a mechanism to compel the city to make flexible adjustments in strong markets as they do when markets are weak.

In addressing the staff report, we commend the City of Sacramento for identifying potential regulatory and process incentives to meet inclusionary housing requirements, including land dedications to nonprofits and opportunities to purchase properties below market rate. We find it concerning that none of the potential requirements meet anti-displacement objectives. We recommend revisiting and revising the potential requirements to meet anti-displacement objectives and increase the likelihood of ensuring long-term affordability and affirmatively furthering fair housing. Furthermore, we are intrigued by the possibility of flexible ordinance options and our organization looks forward to further engagement while possibilities are explored.

We are aware that our affordable housing partners, Sacramento Housing Alliance (SHA,) have submitted a similar memo outlining some challenges and opportunities as the city considers updating the MIHO. We support their suggestions and recognize their concerns as common interests.

Again, thank you for extending the comment period for responding to the Mixed Income Housing Ordinance analysis and staff memorandum. We look forward to working together to strengthen housing opportunities and protections for our Sacramento communities.

Sincerely,

Tamika L’Ecluse
Executive Director
Sacramento Community Land Trust
[email protected]

Cc:

Board of Directors
Sacramento Community Land Trust
Attachment 6- Phase 1 Outreach Written Comments Received

DRAFT

FEASIBILITY ANALSYIS,
HISTORICAL PERFORMANCE and

CASE STUDY RESEARCH

Supporting Proposed Updates to the

MIXED INCOME HOUSING ORDINANCE

Prepared for
City of Sacramento

Prepared by
Keyser Marston Associates, Inc.

March 31, 2023

Table of Contents

1.0  EXECUTIVE SUMMARY 1

2.0  INTRODUCTION 1

3.0  HISTORIC PERFORMANCE OF MIXED INCOME HOUSING ORDINANCE 1

4.0  FINANCIAL FEASIBILITY ANALYSIS 2

4.1  Housing Market Context 2

4.2  Analysis Limitations 7

4.3  Subareas Evaluated 7

4.4  Residential Prototypes 9

4.5  Affordability Levels Addressed 10

4.6  Methodology for Financial Feasibility Analysis 11

4.7  Approach to Current Market Conditions 12

4.8  Revenue / Supported Unit Values 12

4.9  Development Cost Estimates 16

4.10  Residential Land Sales Values 18

4.11  Feasibility Analysis Findings 21

4.12  Feasibility Findings: For-Sale Projects 22

4.13  Feasibility Findings: Rental Projects 24

4.14  Scenario Testing 26

4.15  Rental Project Scenario Testing 28

4.16  Compliance Cost Analysis 29

4.17  Potential Ways Development Projects May Respond to an Increased Requirement 33 5.0  DEVELOPMENT COMMUNITY CONTACTS 36

6.0  REQUIREMENTS IN OTHER JURISDICTIONS AND CASE STUDY RESEARCH 41

6.1  Local Jurisdiction Requirements 41

6.2  Large City Inclusionary Programs 46

6.3  Case Study Research, Select Local and Large City Programs 47

List of Charts
Chart 1. Median Home Prices, Sacramento County ......................................................................................................................... 3 Chart 2. Median Number of Days on Market, Sacramento County ................................................................................................... 3 Chart 3. Trend in Home Sale Prices Per Square Foot, City of Sacramento ..................................................................................... 4 Chart 4. Rents and Vacancy Rate Trends, City of Sacramento ........................................................................................................ 5 Chart 5: New Home Pricing by Subarea, Summer 2022, and Estimated Prototype Pricing ........................................................... 13 Chart 6: New Home Pricing by Subarea, Winter 2023, and Estimated Prototype Pricing .............................................................. 14 Chart 7. Asking Rents, Recently Built Apartments, Winter 2023 .................................................................................................... 15 Chart 8. Estimated Cost Per Square Foot Comparison, ................................................................................................................. 30 Chart 9. Estimated Cost Per Square Foot Comparison, ................................................................................................................. 31 Chart 10. Estimated Cost Per Square Foot Comparison, ............................................................................................................... 31 Chart 11. Estimated Cost Per Square Foot Comparison, ............................................................................................................... 32 Chart 12. Estimated Cost Per Square Foot Comparison, ............................................................................................................... 32 Chart 13. Estimated Cost Per Square Foot Comparison, ............................................................................................................... 33

List of Tables
Table 4-1. Submarkets ...................................................................................................................................................................... 7 Table 4-2. Prototype Residential Projects Evaluated ........................................................................................................................ 9 Table 4-3: Sacramento County Income Limits ................................................................................................................................ 10 Table 4-4. Estimated Household Income (% of AMI) Required to Afford Market Prices and Rents ............................................... 11 Table 4-5. Estimated Home Prices ................................................................................................................................................. 13 Table 4-6. Market Rent Estimates .................................................................................................................................................. 14 Table 4-7. Net Operating Income and Investment Supported, Current Market, 100% Market Rate ............................................... 16 Table 4-8. Development Costs and Builder Margin, Current Market, Not Including Land .............................................................. 17 Table 4-9. Residential Land Sale Transactions, 2019 to 2022 ....................................................................................................... 20 Table 4-10. Land Cost Estimates, Prototype Projects (Minimum Supported Land Values for Feasible Project) ............................ 21 Table 4-11. Feasibility Criteria ........................................................................................................................................................ 22 Table 4-12. For-Sale Feasibility Findings, Current Market Conditions, New Utility Fees, Existing HIF .......................................... 23 Table 4-13. For-Sale Feasibility Findings, Prior More Favorable Market Conditions, Existing Utility Fees, Existing HIF ........................................................................................................................................................................... 24 Table 4-14. Rental Feasibility Findings, Current Market Conditions, New Utility Fees, Existing HIF ............................................. 25 Table 4-15. Rental Feasibility Findings, Prior More Favorable Market Conditions, Existing Utility Fees, Existing HIF ........................................................................................................................................................................... 25 Table 4-16. For Sale Project Scenario Testing ............................................................................................................................... 27 Table 4-17. Rental Project Scenario Testing .................................................................................................................................. 29 Table 6-1. Affordable Housing Requirements, SACOG Region, Jurisdictions with Population over 50,000 ............................................................................................................................................................................................. 41 Table 6-2. Affordable Housing Requirements, Local Jurisdictions ................................................................................................. 43 Table 6-3. Large City Inclusionary Program Overview ................................................................................................................... 46

Appendix Tables

Keyser Marston Associates, Inc. Page 1
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

1.0 EXECUTIVE SUMMARY

[To be Added]

2.0 INTRODUCTION

[To be Added]

3.0 HISTORIC PERFORMANCE OF MIXED INCOME HOUSING ORDINANCE

[Previously completed and published]

Keyser Marston Associates, Inc. Page 2
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

4.0 FINANCIAL FEASIBILITY ANALYSIS

This section presents a financial feasibility analysis addressing a range of residential development types in Sacramento and the ability to sustain alternative affordable housing fee and on-site inclusionary requirements. The purpose is to help inform the design of updated requirements at levels that are sustainable for market rate projects and to provide information regarding how alternatives requirements compare in terms of effects on the economics of new residential development projects.

4.1 Housing Market Context

For-Sale Housing Market

After a boom period during the pandemic driven by a confluence of factors, including historically low interest rates and increased demand, which drove a substantial escalation in prices, the for- sale housing market has now cooled substantially. Median prices countywide rose 360% over a ten-year period from 2012 to their peak in mid-2022. Since peaking in mid-2022, median prices have declined approximately 14%, driven by the increase in mortgage interest rates.

Sales activity slowed through the second half of 2022 as borrowing costs increased, pushing some buyers out of the market and encouraging others to wait for an anticipated pricing correction. Existing homeowners who locked in very low rates that were available until recently now have a powerful incentive to remain in their existing home, stifling demand from “move up” buyers. These factors have led to softening prices.

Charts 1, 2 and 3 on the following pages show longer-term trends in median prices and median number of days units are on the market, as well as a shorter term view of pricing trends.

Keyser Marston Associates, Inc. Page 3
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

Chart 1. Median Home Prices, Sacramento County

Source: California Association of Realtors

Chart 2. Median Number of Days on Market, Sacramento County

Source: California Association of Realtors

$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Jan‐00
Oct‐00
Jul‐01
Apr‐02
Jan‐03
Oct‐03
Jul‐04
Apr‐05
Jan‐06
Oct‐06
Jul‐07
Apr‐08
Jan‐09
Oct‐09
Jul‐10
Apr‐11
Jan‐12
Oct‐12
Jul‐13
Apr‐14
Jan‐15
Oct‐15
Jul‐16
Apr‐17
Jan‐18
Oct‐18
Jul‐19
Apr‐20
Jan‐21
Oct‐21
Jul‐22
0 10
20 30
40 50
60 70
Jan‐00
Oct‐00
Jul‐01
Apr‐02
Jan‐03
Oct‐03
Jul‐04
Apr‐05
Jan‐06
Oct‐06
Jul‐07
Apr‐08
Jan‐09
Oct‐09
Jul‐10
Apr‐11
Jan‐12
Oct‐12
Jul‐13
Apr‐14
Jan‐15
Oct‐15
Jul‐16
Apr‐17
Jan‐18
Oct‐18
Jul‐19
Apr‐20
Jan‐21
Oct‐21
Jul‐22

Keyser Marston Associates, Inc. Page 4
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Chart 3. Trend in Home Sale Prices Per Square Foot, City of Sacramento Sales between July 2021 and February 2023 of units built since 1990 between 1,700 and 2,200 square feet and priced between $200 and $450 per square foot.
1 Source: CoreLogic

Despite currently less favorable conditions, homebuilders have expressed optimism of a return to stronger market conditions in a year or two. As homebuilder Lennar put it in their 2022 annual report:

….. very limited new home inventory, exis ting homeowners protecting extremely low mortgage interest rates, and a now chronic production shortfall over the past decade, have left the industry in the middle of what we believe can be a fairly short duration correction without an inventory overhang to resolve, since the fundamental underpinnings of supply and demand in the housing market remain strong. 2 Multiple local homebuilders shared the optimism that current conditions may represent more of a shorter-term correction than a sustained downturn. A healthy economy with low unemployment, chronic undersupply of housing, and potential for moderating interest rates once inflation cools, support this optimism. Local builders are proceeding with pipeline projects on the expectation of improved conditions on the horizon and are looking to position themselves to take advantage of it.

1 This narrow band of unit sizes is intended to isolate trends in pricing from changes in the types of units that are being sold. 2 Lennar 2022 annual report accessed at https://investors.lennar.com/~/media/Files/L/Lennar-IR-V3/documents/annual- reports/2022-annual-report-v1.pdf
$150
$200
$250
$300
$350
$400
$450
$500
Jul‐21 Oct ‐21 Jan ‐22 Apr ‐22 Aug ‐22 Nov ‐22 Feb ‐23
Home Price Per Square Foot

Keyser Marston Associates, Inc. Page 5
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Cooling market conditions have also helped to rein in construction costs, which had escalated substantially during the pandemic. Multiple local developers indicated that construction costs have decreased relative to 2022, driven by an increase in the number of contractors bidding on work, more competitive bidding, as well as an easing of pandemic-related supply chain issues, although costs are still higher than pre-pandemic.

Rental Housing Market Trends

Sacramento has experienced a strong cycle for development of new rental housing with approximately 5,000 rental units produced in five years. Strong feasibility for development of new rentals has been supported by rapid escalation in market rents; interest in living in the urban core; supportive City land use policies aimed at encouraging new housing such as flexibility on density and parking; and a favorable investment climate and low interest rate environment that put upward pressure on valuations of completed projects and downward pressure on the returns needed for feasibility.

Chart 4 shows trends in rents and vacancy rates since 2012. Average rents in Sacramento increased approximately 70% over the 2012 to 2022 period to approximately $1,650 per month.

Rents for newly built apartments reflect an approximately 50% premium over averages for existing units. As a large supply of new units have been delivered to the market over the last year, vacancy rates have risen from a low near 4% to approaching 8%. Average rents for newly built units have also decreased slightly from their 2021 peak. Vacancy rates in new projects are currently substantially higher than these averages as lease up of newly delivered units occurs.

Chart 4. Rents and Vacancy Rate Trends, City of Sacramento

Source: CoStar

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%
$‐
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 YTD
Vacancy Rate
Asking Rent Per Month
Avg Rent ‐ All Units Avg. Rent ‐ Units Built Since 2017 Overall Vacancy

Keyser Marston Associates, Inc. Page 6
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Recent shifts in the market have altered the conditions that supported a sustained period of strong feasibility for rentals. Emerging trends that are now constraining feasibility of rentals include:

 The historically large number of new rental units under construction or recently completed are placing downward pressure on rents, as the market absorbs the new units.

 Development costs have increased substantially from earlier in the market cycle. Until recently, these rising costs could be sustained by rising rents, increasing market values, and strong demand. However, rent growth has now peaked and turned slightly negative.

 Rising interest rates mean projects must achieve higher returns to justify development risk relative to safer investment alternatives which now pay far higher interest rates than a year or two ago. Higher borrowing costs means a given amount of rental income can no longer support the same level of debt, which places downward pressure on building valuations, upward pressure on cap rates, and upward pressure on the returns a project must generate to attract investors. Rising interest rates also increase the cost of construction financing, adding development cost.

 Rental developers are reporting that some equity investors have paused further investments in new projects or are waiting until it is clearer how the market will respond to the new supply now under construction and other market changes. Some investors are reportedly demanding substantially higher returns, which projects are unable to support.

These factors suggest a pause or slowdown in new rental construction starts is likely until conditions improve. Examples of market adjustments that would support improved feasibility include reduced land prices, more competitive bidding by contractors, renewed rent growth, moderating interest rates, renewed interest by equity investors, or some combination of these factors.

Rental developers interviewed for this assignment viewed the current more challenging conditions for rental feasibility as temporary and many indicated they would continue to pursue opportunities for future projects in Sacramento. Developers expressed optimism that projects currently experiencing challenges securing financing, eventually would be financed and move forward. In fact, one developer was closing on construction financing for a major local rental project on the day interviewed. Land transactions for multifamily development sites in late 2022, including a multifamily site in Delta Shores
3 and a site in downtown4, also demonstrate optimism

3 https://www.bizjournals.com/sacramento/news/2022/11/04/jackson-square-properties-delta-shores.html 4 https://www.bizjournals.com/sacramento/news/2022/11/23/skk-buys-cascade-site-d-s.html

Keyser Marston Associates, Inc. Page 7
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE among market participants that multifamily development will “pencil” in the future, although several state they are looking for opportunities at a low land basis.

4.2 Analysis Limitations

This analysis, by its nature, can only provide an overview-level assessment of development economics because it is based on prototypical projects rather than specific projects. Every project has unique characteristics that will dictate rents or sale prices supported by the market as well as development costs and developer return requirements. Each developer will assess the project’s risk and return and assemble project financing differently. This feasibility analysis is intended to reflect prototypical projects in Sacramento, but it is recognized that the economics of some projects may look better, and some may look worse than those of the prototypes analyzed.

The feasibility analysis represents a snapshot of real estate market conditions as of the time this analysis was prepared. Real estate development economics are fluid and are impacted by constantly changing conditions with regard to rent potential and sale prices, construction costs, land costs, and costs of financing. A year or two from now, conditions will undoubtedly be different than they are today.

4.3 Subareas Evaluated

The feasibility analysis provides separate findings for five geographic “subareas” or “submarkets” of Sacramento. The purpose is to capture differences in market and feasibility conditions by location, and to capture variation in the types of housing, unit sizes, and density of housing being built by area. The five submarkets are identified in Table 4-1 and Map 1.

Submarkets were selected based on a review of development activity and market data, with a goal of grouping areas that are seeing similar projects at similar prices and rents. City staff provided input on the submarket definitions and feedback was also solicited as part of a Housing Policy Working Group meeting in September 2022.

Table 4-1. Submarkets
Subarea Name Description
1 Central City Includes Railyards, River District, Central City Specific Plan 2 Southern Neighborhoods Bounded by I-5, Fruitridge, Broadway, 65th, US. 50, southern City limits. 3 North Sacramento and South Natomas North of American River Except North Natomas 4 North Natomas North of I-80, West of Steelhead Creek
5 Inner South & East and West of I-5 South of American Rive r to Fruitridge / Broadway / US-50, plus West of the I-5

Keyser Marston Associates, Inc. Page 8
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Map 1. Geographic Areas Addressed (Submarkets)

North
Natomas
North Sacramento
/ South Natomas
Southern
Neighborhoods
Inner
South &
East +
West of I-5
Central
City

Keyser Marston Associates, Inc. Page 9
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

4.4 Residential Prototypes

For purposes of this feasibility analysis, KMA analyzed the following residential unit types:
 Single Family Detached
 Small Lot Single Family
 Attached Townhomes
 Rental apartments
o Higher density (7-8 stories, wood frame over a podium) o Medium density rentals (4-5 stories, surface or tuck under parking) o Lower density rentals (3-4 stories, surface or tuck under parking)

These prototypes are based on projects in the City’s current development pipeline and are intended as representative of the range of projects the City is currently seeing. Prototypes are customized for each submarket in terms of representative average unit sizes and densities, as summarized in Table 4-2. Appendix B Tables 6A to 6E provide a summary of the pipeline projects reviewed by KMA in identifying programmatic assumptions for the prototypes.

Programmatic details and estimated pricing were reviewed as part of housing policy working group meeting in September 2022 and were circulated by email for review and input at that time.

Table 4-2. Prototype Residential Projects Evaluated
For-Sale Rental

Single
Family
Detached
Small Lot
Detached and
Townhomes(1)
Higher
Density
Medium
Density Lower Density
Parking Type Attached
garage
Attached
garage
Podium
garage (0.75
spc/unit)
Surface /
Tuck Under
(0.5 spc/unit)
Surface / Tuck
Under (1-1.5
spc/unit)
No. of Stories one to two two to three 7 to 8 4 to 5 3 to 4

Density (units per acre)

North Natomas 9 dua 18 dua N/A N/A 30 dua
North Sacramento / South Natomas 9 dua 18 dua N/A N/A 30 dua Central City N/A 26 dua 200 dua 100 dua N/A
Inner South & East and West of I-5 8 dua 20 dua N/A N/A 37 dua Southern Neighborhoods 11 dua 18 dua N/A N/A 30 dua

Average Unit Size (square feet)

North Natomas 2,100 sf 1,600 sf N/A N/A 900 sf
North Sacramento / South Natomas 1,900 sf 1,500 sf N/A N/A 900 sf Central City N/A 1,850 sf 690 sf 770 sf N/A
Inner South & East and West of I-5 2,300 sf 1,700 sf N/A N/A 770 sf Southern Neighborhoods 1,750 sf 1,450 sf N/A N/A 900 sf (1) Analyzed as attached townhomes in Central City area and small lot detached homes in other locations.

Keyser Marston Associates, Inc. Page 10
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

4.5 Affordability Levels Addressed

The analysis includes evaluation of units affordable to the following household income categories:

 Very Low Income: households earning up to 50% of Area Median Income (AMI);  Low Income: households earning over 50% of AMI, up to 80% of AMI; and  Moderate Income: households earning over 80% of AMI, up to 120% of AMI

Households are categorized by income tier based on income limits published by the California Department of Housing and Community Development (HCD). For reference, the 2022 median income for a family of four in Sacramento County is $102,200. Table 4-3 identifies income limits for each income category.

Table 4-3: Sacramento County Income Limits
Household Size (Persons)
Income Category % of AMI 1 2 3 4 5 6
Very Low Income 50% AMI $35,500 $40,550 $45,600 $50,650 $54,750 $58,800 Low Income 80% AMI $56,750 $64,850 $72,950 $81,050 $87,550 $94,050 Median Income 100% AMI $71,550 $81,750 $92,000 $102,200 $110,400 $118,550 Moderate Income 120% AMI $85,850 $98,100 $110,400 $122,650 $132,450 $142,250 Source: California Department of Housing and Community Development, 2022 Income Limits.

AMI = Area Median Income

Affordable prices and rents for the income categories addressed in the analysis are shown below.

Affordable Price (average across prototypes)
Low Income price at 70% AMI $181,000
Moderate Income price at 90% AMI $297,000
Moderate Income price at 110% AMI $374,000

Affordable Rent / Month (average across prototypes)
Very Low Income rent at 50% of AMI $936 / Month
Low Income rent at 60% of AMI $1,147 / Month
Low Income rent at 80% of AMI $1,568 / Month

Affordable prices and rents represent averages across the prototypes and differ slightly by prototype depending on the average bedroom count. Supporting calculations are provided in Appendix A Tables 11 and 12.

Estimated market rate prices and rents discussed in the following section were also translated into the estimated percentage of area median income that households would need to have to be able to afford the units. Estimates are presented in Table 4-4. As shown:

Keyser Marston Associates, Inc. Page 11
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE  Market prices for newly built for-sale housing are estimated to require between 112% to 273% of area median income to afford, depending on location and whether the household has a 20% cash down payment

5.  Market rate rents for newly built apartments are estimated to range from 114% of median to 133% of median, depending on location.

Market pricing and rents in North Sacramento and South Natomas and the Southern Neighborhoods submarket prototypes were found to fall into the upper end of the range that Moderate Income households can afford for rentals and for-sale units for buyers that have a 20% cash down payment (which not all buyers will have).

Table 4-4. Estimated Household Income (% of AMI) Required to Afford Market Prices and Rents for New Units Single Family Small Lot SFD and Attached Rentals

5% down
payment
20% down
payment
5% down
payment
20% down
payment
North Natomas 176% 141% 145% 116% 121%
North Sacramento / South Natomas 139% 112% 122% 97% 114% Central City* n/a n/a 250% 200% 129%
Inner South & East and West of I-5 273% 218% 219% 175% 133% Southern Neighborhoods 143% 114% 127% 102% 119%
* Estimate for rentals in the Central City area represents the average of the two rental prototypes.

4.6 Methodology for Financial Feasibility Analysis

The financial feasibility analysis estimates the costs to develop a new market rate residential project and the sales revenues or rental income that would be generated by the project upon completion. If the sales revenues or rental income are sufficient to support the development costs and generate a sufficient profit margin, the prototype is considered feasible. This approach to financial feasibility, known as a pro forma approach or income approach, is standard practice in the real estate industry and is utilized in one form or another by all developers when analyzing new construction projects.

This analysis organizes the pro forma as a “residual land value analysis,” meaning the pro forma solves for what the project can afford to pay for a development site based on the sales/income projections and the non-land acquisition costs of the project. It then compares the residual land values with land costs in the current market in order to test whether developers can afford to buy land and develop projects. For rentals, the pro forma analysis also identifies returns assuming purchase of a site at a representative land cost.

5 A 20% down payment reduces monthly mortgage payments and eliminates a need for mortgage insurance, this in turn reduces the income estimated to be needed to afford the unit, due to lower monthly housing costs.

Keyser Marston Associates, Inc. Page 12
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

4.7 Approach to Current Market Conditions

As evident from a substantial track record of recently completed projects, Sacramento has experienced a sustained period where residential development has been generally feasible. As described above, over the past year, conditions have become less favorable, and feasibility is starting to become more challenging.

Developers interviewed for this assignment advised that they were continuing to look for ways to move forward with current projects, would continue to pursue opportunities for future projects in Sacramento, and would continue to make progress on predevelopment work for planned projects with the goal of positioning projects to move forward when conditions are right.

Given the on-the-ground evidence of recent strong feasibility conditions and optimism regarding improved conditions expressed by market participants, the pro forma analysis incorporates two scenarios with respect to market conditions:

 Current Market Conditions – which reflect softening of home prices and rents, higher financing costs, and increased threshold return on costs requirements for rentals.

 More Favorable Recent Conditions – a pro forma reflecting more favorable recent conditions in which projects were broadly feasible is provided to allow the impact of affordable housing requirements on the economics of feasible projects to be understood.

The approach of testing how potential modified requirements impact the economics of projects, starting from a baseline of a feasible project under current requirements, is arguably more informative than evaluating how requirements would affect the economics of projects under conditions in which new projects are less likely to move forward. This approach is also generally in line with how developers indicated they are approaching current conditions, seeking to weather a correction in the market while positioning projects to take advantage of potentially improved conditions in the future.

4.8 Revenue / Supported Unit Values

For-Sale Project Sales Revenues

Market home prices were estimated based upon a review of prices for new homes being marketed for sale and resales of newer existing homes. Market data was originally reviewed, and prices were estimated in summer 2022. Pricing was subsequently adjusted downward as of winter 2023 based on updated pricing data for new homes and a review of trends in resale prices for existing homes. Pricing data for both periods is presented in Charts 5 and 6 on the following pages. Additional market data supporting pricing estimates is provided in Appendix B. Pricing estimates are summarized in Table 4-5.

Keyser Marston Associates, Inc. Page 13
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

Table 4-5. Estimated Home Prices
Average Winter 2023 Estimate Summer 2022 Estimate
Unit Size Price Price/SF Price Price/SF
Single Family Detached

North Natomas 2,100 sf $611,000 $291 $650,000 $310
North Sacramento / South Natomas 1,900 sf $484,000 $255 $515,000 $271 Inner South & East and West of I-5 2,300 sf $940,000 $409 $1,000,000 $435 Southern Neighborhoods 1,750 sf $484,000 $277 $515,000 $294

Small Lot SFD and Townhomes
North Natomas 1,600 sf $494,000 $309 $525,000 $328
North Sacramento / South Natomas 1,500 sf $414,000 $276 $440,000 $293 Central City 1,850 sf $817,000 $442 $860,000 $465
Inner South & East and West of I-5 1,700 sf $729,000 $429 $775,000 $456 Southern Neighborhoods 1,450 sf $423,000 $292 $450,000 $310

Chart 5: New Home Pricing by Subarea, Summer 2022, and Estimated Prototype Pricing

Keyser Marston Associates, Inc. Page 14
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Chart 6: New Home Pricing by Subarea, Winter 2023, and Estimated Prototype Pricing

Rental Project Income

Rental income for the apartment prototypes is estimated based on rental data for recently built apartments in Sacramento by geographic area. Estimated rents are summarized in Table 4-6.

Chart 7 shows rent data as of winter 2023 and rent estimates for each apartment prototype.

Additional supporting data on market rents is provided in Appendix B. Comparing asking rents for the same properties in summer 2022 versus winter 2023, asking rents decreased within the Central City and North Sacramento / South Natomas area but appeared to be more stable in other locations. This is likely driven by absorption of a large supply of new units being delivered primarily in and around the Downtown.

Table 4-6. Market Rent Estimates
Average Winter 2023 Estimate Summer 2022 Estimate
Unit Size Rent/Mo Rent/SF/Mo Rent/Mo Rent/SF/Mo
North Natomas 900 sf $2,500 $2.78 $2,500 $2.78
North Sacramento / South Natomas 900 sf $2,350 $2.61 $2,450 $2.72 Central City - Medium Density 770 sf $2,450 $3.18 $2,600 $3.38 Central City - Higher Density 690 sf $2,550 $3.70 $2,700 $3.91 Inner South & East and West of I-5 770 sf $2,350 $3.05 $2,350 $3.05 Southern Neighborhoods 900 sf $2,300 $2.56 $2,300 $2.56

Keyser Marston Associates, Inc. Page 15
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

Chart 7. Asking Rents, Recently Built Apartments, Winter 2023

For the Southern Neighborhoods subarea, only one newer rental property was identified and it was built a few years prior to other comparables. As such rents in this subarea are estimated to exceed this comp.

Developer Investment Supported, Rental Projects

The first step in estimating the amount of developer investment that can be supported in a new rental development is to calculate Net Operating Income (NOI). NOI is equal to the annual rental income, minus operating expenses and a 5% allowance for credit loss and vacancy. As shown in Table 1-1, the NOI for market rate units is estimated to range from $18,200 to $23,400/unit/year depending on the submarket and average unit size under current market conditions.

NOI is divided by a return on cost (ROC)
6 to estimate the amount of developer investment (debt
and equity) that can be supported by the rental income from the project. A 6.5% threshold developer return on cost is used, which represents a 1.5% spread over the 5% capitalization rate
7 applicable to the most recent multifamily property sale we identified in Sacramento, which

6 Return on Cost (ROC) represents the ratio between net operating income and development cost of the project. 7 A capitalization rate or “cap rate” represents the ratio between net operating income and the market value of the completed project.

Keyser Marston Associates, Inc. Page 16
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE occurred in August 2022 (H16 and Eleanor Apartments). Rising interest rates are placing upward pressure on cap rates, which in turn places upward pressure on the ROC developers need to finance projects and published investor surveys show a market expectation that cap rates are likely to increase.

On this basis, the supported investment under current conditions with 100% market rate units is estimated to range from $280,000 to $361,000 depending on the prototype and estimated rents by area, as shown in Table 4-7.

Table 4-7. Net Operating Income and Investment Supported, Current Market, 100% Market Rate

Net Operating
Income (NOI)
Return on Cost
(ROC) Requirement
Developer Investment Supported
(=NOI/ ROC)
North Natomas $20,210 6.5% $310,900
North Sacramento / South Natomas $18,500 6.5% $284,600 Central City - Medium Density $21,365 6.5% $328,700
Central City - Higher Density $23,465 6.5% $361,000
Inner South & East and West of I-5 $19,700 6.5% $303,100 Southern Neighborhoods $18,230 6.5% $280,500
Note: See Appendix A Table 6 for supporting details and estimates for other scenarios.

For scenarios based on prior more favorable market conditions, a lower threshold ROC of

6.05% is applied, which reflects a lower 4.7% cap rate, based on the average cap rate for four multifamily property sales, summarized in Appendix A Table 7, that occurred from 2020 through February 2022, prior to the significant rise and interest rates, plus a spread of 1.35% over this average cap rate, between the 1.25% to 1.5% spread cited by multiple local multifamily developers.

4.9 Development Cost Estimates

The direct costs of development include all contractor labor and material costs to construct the project including general requirements, contractor fees, and contingencies. As shown in Table 4-8, the direct construction costs are estimated between $194,000 to $333,000/unit depending upon the unit type and size. Key variables with respect to direct costs include the size of the unit, the type of parking, and overall density. In general, higher density prototypes are more costly on a per square foot basis than lower density prototypes. The cost estimates have been made based on cost figures for current and pipeline projects provided by developers who are active in the local market, cost figures sourced to local developers included in official statements for recent Community Facilities District bonds, review of developer pro formas for similar building types, and third party sources such as RS Means and the Marshall and Swift Valuation Service.

Keyser Marston Associates, Inc. Page 17
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-8. Development Costs and Builder Margin, Current Market, Not Including Land

Unit
Size
Direct
Const (1)
Fees and
Permits(1)
Other
Indirects Financing
Builder
Margin(2)
Sales &
Closing
Costs
Development
Cost, Builder
Margin,
Except Land
Single Family Detached

North Natomas 2,100 sf $248,000 $84,400 $60,500 $31,900 $61,100 $19,900 $505,800 N Sacramento / S Natomas 1,900 sf $219,000 $57,200 $50,000 $27,800 $48,400 $15,700 $418,100 Inner South & East and W of I-5 2,300 sf $315,000 $65,800 $87,200 $50,700 $94,000 $30,600 $643,300 Southern Neighborhoods 1,750 sf $217,000 $56,900 $49,800 $26,300 $48,400 $15,700 $414,100

Small Lot SFD or Townhomes
North Natomas 1,600 sf $218,000 $72,500 $50,400 $25,600 $49,400 $16,100 $432,000 N Sacramento / S Natomas 1,500 sf $194,000 $51,300 $43,300 $22,400 $41,400 $13,500 $365,900 Central City 1,850 sf $333,000 $61,200 $81,100 $41,900 $81,700 $26,600 $625,500 Inner South & East and W of I-5 1,700 sf $286,000 $50,800 $71,300 $36,200 $72,900 $23,700 $540,900 Southern Neighborhoods 1,450 sf $196,000 $49,200 $44,000 $22,400 $42,300 $13,700 $367,600

Rentals

North Natomas 900 sf $261,200 $30,500 $50,000 $20,200 n/a n/a $361,900 N Sacramento / S Natomas 900 sf $261,200 $28,800 $39,400 $18,500 n/a n/a $347,900 Central City - Medium Density 770 sf $248,400 $26,000 $40,700 $21,400 n/a n/a $336,500 Central City - Higher Density 690 sf $267,000 $28,000 $40,900 $23,500 n/a n/a $359,400 Inner South & East and W of I-5 770 sf $233,800 $27,200 $38,100 $19,700 n/a n/a $318,800 Southern Neighborhoods 900 sf $238,800 $26,400 $38,900 $18,200 n/a n/a $322,300 (1) Including contingency
(2) Includes existing housing impact fee and proposed increased utility fees. (3) Threshold net builder profit margin estimated at 10% of sales. For rentals, developer returns are reflected as part of the return on cost used to identify supported investment, described in Section 4-8.

See Appendix Tables 5 and 6 for additional information.

Indirect costs of development include architecture and engineering (A&E), municipal fees and permits costs, taxes, insurance, overhead, debt financing costs, etc. The higher density prototypes tend to have higher indirect costs on a per square foot basis because they have more complex design and engineering issues than single family homes and because they take longer to build, which increases financing costs.

Estimated fees and permit costs include proposed new utility fees that have not yet been adopted by the City. Proposed utility fees represent an estimated net increase of between $7,900 and $17,300 per unit over existing fees. For scenarios that include affordable housing on-site, the City’s existing program of exempting affordable units from certain municipal fees is taken into consideration in the estimates.

Estimated financing costs under current market conditions reflect an interest rate of 9%. For scenarios that reflect prior more favorable conditions, an interest rate of 6% is applied.

Keyser Marston Associates, Inc. Page 18
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE The for-sale pro forma analyses reflect a threshold builder net profit margin of 10% of sales revenue. For rental projects, profit to the developer is captured as part of the 6.5% threshold return on cost, discussed in the prior section.

Total development cost plus a threshold builder profit margin is estimated to range from roughly $319,000 to $643,000/unit in the current market scenario, depending on the prototype, not including land, as summarized in Table 4-8. See Appendix A Tables 5 and 6 for additional details.

Dev
rent Market, Not Including Land

4.10 Residential Land Sales Values

Data on residential land sales was accessed from sources including CoStar, a third-party vendor of market data, reporting by the Sacramento Business Times on land transactions, and comparable sales presented in appraisals. Table 4-9, provides a summary of the residential land sale transactions by type.
 Medium and High Density Residential Sites – Land targeted for higher density development in the Central City area, generally at densities of 100 units per acre or more (consistent with the medium and high density apartment prototypes) sold at an average price of $149 per land square foot and $36,000 per unit based on nine transactions since 2019. Outside of the Central City, medium and high density sites were located mainly in the Inner South and East Neighborhoods subarea and had average pricing of $73 per land square foot or $45,000 per unit. Generally, sites targeted at higher densities were priced lower on a per unit basis, but higher on a per square foot basis, compared to development sites targeted for lower densities.  Lower Density Apartment Sites – Land targeted for lower density apartment development outside of the Central City area, ranging from 21 to 40 units per acre, (consistent with the lower density apartment prototype) sold at an average price of $17 per land square foot and $25,000 per unit based on 12 transactions since 2019.  Lower Density Single Family and Attached For-Sale sites – Residential lots outside of the Central City area sold for an average price of $26 per land square foot and $125,000 per unit based on 18 transactions since 2019. The condition of lots at sale is an important consideration in pricing. Finished lots with necessary intract street and utility improvements will sell for a premium over lots without these improvements in place.

Finished lots in Northlake sold for an average of $24 per square foot and $130,000 per unit. Finished lots in Parkbridge Village sold for an average of $105,000 per unit and around $20 per square foot.
 Raw and Partially Improved Land – Raw or partially improved land that lacks infrastructure necessary for development sold for an average of $3 per square foot of land or $23,000 per unit. Sales were primarily in the North Natomas area and consisted

Keyser Marston Associates, Inc. Page 19
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE of land planned for development primarily at single family densities. Appendix A Table 9 provides two examples of horizontal land development costs for the Delta Shores and Northlake projects drawn from developer-reported information included in recent bond offering documents. For Delta Shores, the expenditure represents a cost of $19 per land square foot and for Northlake $12 per land square foot, not including land purchase and $28 and $17 per square foot with land purchase costs included. This, along with the sales data for unimproved land, demonstrates that most of the value associated with finished lots within larger master plans is represented by horizontal improvements such as new streets and utilities that the developer makes in creating buildable lots. A small share of finished lot values for greenfield development sites is represented by the underlying value of raw land prior to infrastructure improvements and entitlements.  Commercial and Industrial Land – since some residential sites in areas with limited land availability occur on former commercial and industrial properties, sales data for commercial land was also accessed. Prices averaged $30 per square foot based on eleven transactions in the inner south and east neighborhoods and spanned a wide range of pricing from $13 to $95 per square foot.

Keyser Marston Associates, Inc. Page 20
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-9. Residential Land Sale Transactions, 2019 to 2022 No. of Average Sale Price
Development Type Sales Density Min. Max. Average (1)
Apartment Sites

Medium & High Density, Central City (99 - 208 du/ac) 9 181 dua

Land Price/ sf land $83 $201 $149
Land Price/ unit

$22,000 $64,000 $36,000

Medium Density, outside Central City (63-110 du/ac) 5 70 dua

Land Price/ sf land $62 $101 $73
Land Price/ unit $22,000 $50,000 $45,000

Lower Density Apartment Sites (21-40 du/ac) 12 29 dua

Land Price/ sf land $8 $30 $17
Land Price/ unit $13,000 $45,000 $25,000

Commercial / Industrial Land, Inner S&E Neigh. 11 n/a $13 $95 $30 Land Price/ sf land

For-Sale Residential Development Sites

Residential Lots 18 9 dua

Land Price/ sf land $11 $41 $26
Land Price/ unit $45,000 $341,000 $125,000

Raw Land and Paper Lots (lacks infrastructure) 6 6 dua

Land Price/ sf land $1 $6 $3
Land Price/ unit

$4,000 $36,000 $23,000
(1) Averages weighted based on land area and unit count, for price per square foot and price per unit, respectively. dua = dwelling units per acre
See Appendix A, Table 8 for details.

The land sale data described above was used to estimate land costs by prototype project, as shown in Table 4-10. Figures represent the supported land value targeted in the analysis for a project to be identified as feasible.

Keyser Marston Associates, Inc. Page 21
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-10. Land Cost Estimates, Prototype Projects (Minimum Supported Land Values for Feasible Project) Values Per Square Foot of Land Values Per Residential Unit

Single
Family
Small Lot
and Attached Rental
Single
Family
Small Lot and
Attached Rental
Central City N/A $120 Med. Dens: $103
High Dens: $161
N/A $201,000 Med. Dens: $45,000
High Dens: $35,000
Inner South & East and West of I-5 $65 $80 $42 $354,000 $174,000 $50,000 North Natomas $25 $30 $17 $121,000 $73,000 $25,000
North Sacramento / South Natomas $25 $30 $17 $121,000 $73,000 $25,000 Southern Neighborhoods $25 $30 $17 $99,000 $73,000 $25,000

4.11 Feasibility Analysis Findings

The financial feasibility analysis is based on the relationship between the project’s revenue potential, the estimated development costs, and a reasonable developer return commensurate with the cost of funds and development risk.

For-Sale Projects Feasibility Analysis Approach – The pro forma analysis for for-sale projects is structured as a residual value analysis. Residual land values are derived by subtracting the development costs and builder profit margin before land acquisition from the estimated net sales revenues. If the residual value exceeds the cost to acquire a site for development, the prototype is generally determined to be feasible. If the residual value is less than the cost to acquire and prepare the site, the prototype will need to address economic challenges. The for-sale pro forma provides a land residual for a finished lot condition and must be compared to values for finished lots with intract and backbone streets in place.

Rental Project Feasibility Analysis Approach -The pro forma analysis for rental projects is, like for-sale projects, structured as a residual value analysis. With the land values supported by the economics of rental projects compared to land costs as one metric for evaluating feasibility.

Additionally, for rental projects, additional metrics are presented including return on cost and total development cost as a percentage of the amount of debt and equity investment that can be supported by the rental income from the project. Land values are a smaller share of overall development costs for rental projects than with for-sale projects and tend to be far more sensitive to changes in the pro forma. The two additional feasibility metrics are provided as separate indicators of feasibility that are tied to overall project economics.

Each prototype projects is placed into one of the following three feasibility categories for each scenario that is tested:

1) Feasible – project type is generally feasible and likely to develop.

2) Marginal Feasibility – projects type has weaker feasibility and may require some improvement in its economics to move forward.

Keyser Marston Associates, Inc. Page 22
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE 3) Infeasible / Challenged – project type has more challenging feasibility and is not likely to move forward without more significant improvements to the pro forma, such as higher prices and rents or lower costs.

Table 4-11 shows the specific criteria applied in placing projects into these three feasibility categories. While criteria used with for-sale and rental projects are expressed differently, they are roughly equivalent

8. Table 4-11. Feasibility Criteria
Feasibility Category For-Sale Feasibility Cr iteria Rental Feasibility Criteria Feasible Sales revenues support the development cost
of the project, threshold developer return, and
purchase of a site at prevailing land costs
(within 10% of estimated land cost).

Development costs including land are in
balance with the developer investment
supported by the project’s rental income
(within 3%).

Marginal Feasibility Supported land value of 70% or more of the estimated land cost
Development costs including land are more
than the developer investment that can be
supported by the project’s rental income, but
within 3-7%.

Infeasible / Challenged Supported land value less than 70% of the estimated land cost
Development costs including land significantly
exceed (by more than 7%) the developer
investment supported by the project’s rental
income.

4.12 Feasibility Findings: For-Sale Projects

Findings with current market conditions and proposed new utility fees – Table 4-12 summarizes the residual land value conclusions for the for-sale prototypes under current market conditions, assuming proposed new utility fees, and assuming payment of the City’s existing housing impact fee (with all the existing incentives in place including the $0 fee for higher density). The financial feasibility analysis shows that for-sale projects are being challenged by downward pressure on prices, the new utility fees that are proposed, and higher financing costs in today’s market. The only prototypes classified as feasible are the small lot and attached prototypes in the Central City and Inner South and East neighborhoods, supported by higher pricing in those locations. The other prototypes had more marginal feasibility based on supported land values below prevailing land costs. The North Sacramento / South Natomas prototypes were found to be infeasible, driven primarily by lower sales prices. The supporting pro forma table for this scenario is provided in Appendix A Table 5A.

8 For example, if a for-sale project supports a land value within 10% of prevailing land costs, the threshold used to determine feasibility, its development costs plus a builder margin would be within 2% to 4% of project revenues, which is roughly equivalent to the feasibility criteria applied to rental projects.

Keyser Marston Associates, Inc. Page 23
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-12. For-Sale Feasibility Findings, Current Market Conditions, New Utility Fees, Existing HIF Unit Size
Sales
Prices
Development
Cost
Excluding
Land
Supported
Land
Value
Estimated
Land Cost
Supported
Land Value
as % of
Land Cost
Feasibility
Conclusion
Single Family Detached

North Natomas 2,100 sf $611,000 ($505,800) $105,200 $121,000 87% M N Sacramento / S Natomas 1,900 sf $484,000 ($418,100) $65,900 $121,000 54% I Inner South & East and W of I-5 2,300 sf $940,000 ($643,300) $296,700 $354,000 84% M Southern Neighborhoods 1,750 sf $484,000 ($414,100) $69,900 $99,000 71% M

Small Lot SFD and Townhomes

North Natomas 1,600 sf $494,000 ($432,000) $62,000 $73,000 85% M N Sacramento / S Natomas 1,500 sf $414,000 ($365,900) $48,100 $73,000 66% I Central City 1,850 sf $817,000 ($625,500) $191,500 $201,000 95% F Inner South & East and W of I-5 1,700 sf $729,000 ($540,900) $188,100 $174,000 108% F Southern Neighborhoods 1,450 sf $423,000 ($367,600) $55,400 $73,000 76% M

F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged
Findings with prior market conditions and existing utility fees – Feasibility was also tested under recent more favorable market conditions, before rising interest rates began to have more of an impact on pricing, and with current lower utility fees. Findings are shown in Table 4-13. As shown, the for-sale prototype projects are identified as generally feasible, which is consistent with the fact that substantial new market rate development has been occurring. The supporting pro forma table for this scenario is provided in Appendix A Table 5C.

Keyser Marston Associates, Inc. Page 24
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-13. For-Sale Feasibility Findings, Prior More Favorable Market Conditions, Existing Utility Fees, Existing HIF Unit Size
Sales Price
or
Supported
Investment
Per Unit
Development
Cost
Excluding
Land
Supported
Land
Value
Estimated
Land Cost
Per Unit
Supported
Land
Value as
% of Land
Cost
Feasibility
Conclusion
Single Family Detached

North Natomas 2,100 sf $650,000 ($493,300) $156,700 $121,000 130% F N Sacramento / S Natomas 1,900 sf $515,000 ($401,600) $113,400 $121,000 94% F Inner South & East and W of I-5 2,300 sf $1,000,000 ($622,300) $377,700 $354,000 107% F Southern Neighborhoods 1,750 sf $515,000 ($401,700) $113,300 $99,000 114% F

Small Lot SFD and Townhomes

North Natomas 1,600 sf $525,000 ($420,100) $104,900 $73,000 144% F N Sacramento / S Natomas 1,500 sf $440,000 ($350,400) $89,600 $73,000 123% F Central City 1,850 sf $860,000 ($603,800) $256,200 $201,000 127% F Inner South & East and W of I-5 1,700 sf $775,000 ($524,100) $250,900 $174,000 144% F Southern Neighborhoods 1,450 sf $450,000 ($355,800) $94,200 $73,000 129% F

F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged

4.13 Feasibility Findings: Rental Projects

Rental findings with current market conditions and proposed new utility fees – Table 4-14 summarizes the residual land value conclusions for the rental prototypes under current market conditions, assuming proposed new utility fees, and assuming payment of the City’s existing housing impact fee (with all the existing incentives in place including the $0 fee for higher density). The financial feasibility analysis shows that rental projects are currently challenged, despite a recent and sustained period of strength in the Sacramento market. A combination of softening rents, upward pressure on cap rates and return requirements from rising interest rates, higher financing costs, and the proposed increase in utility fees results in deterioration of the economics of rental projects. As indicated in Table 4-14, all of the prototype rental projects were found to be infeasible in this scenario. Development costs are out of balance with the amount of investment supported by rental income. As shown, the rental income from the prototype projects is estimated to support only approximately 76% to 92% of estimated development costs. A more detailed pro forma table is provided in Appendix A Table 6A.

Keyser Marston Associates, Inc. Page 25
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-14. Rental Feasibility Findings, Current Market Conditions, New Utility Fees, Existing HIF

Unit
Size
Developer
Investment
Supported
by Rent
Dev. Cost,
Except
Land
Supported
Land
Value
Land
Cost
Per Unit
Dev.

Cost with
Land
Investment
Supported
by Rents
as % of
Dev Cost
Feasibility
Finding
North Natomas 900 sf $310,900 ($361,900) ($51,000) $25,000 $386,900 80% I N. Sacramento / S. Natomas 900 sf $284,600 ($347,900) ($63,300) $25,000 $372,900 76% I Central City - Med. Density 770 sf $328,700 ($336,500) ($7,800) $45,000 $381,500 86% I Central City - High Density 690 sf $361,000 ($359,400) $1,600 $35,000 $394,400 92% I Inner South & East and W of I-5 770 sf $303,100 ($318,800) ($15,700) $50,000 $368,800 82% I Southern Neighborhoods 900 sf $280,500 ($322,300) ($41,800) $25,000 $347,300 81% I F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged
Rental feasibility findings with more favorable recent conditions and current utility fees – Feasibility was also tested under recent more favorable market conditions and existing utility fees. Findings are presented in Table 4-15. Rents in this scenario are 4% to 6% higher than estimates under current conditions for the North Sacramento / South Natomas and Central City prototypes and are the same for other areas (softening of rents appears greater in the Central City where more new units are undergoing initial lease up). The threshold return on cost was set at 6.05%, as described above, based on lower recent cap rates. Financing costs are lower based on lower recent interest rates. Development costs were adjusted to reverse a portion of recent escalation. In essence, this scenario models the economics of rental projects as they existed under recent conditions that supported a robust period for rental development activity in Sacramento, although these conditions have since deteriorated. As shown, development costs are in balance with the developer investment supported by the rental income from the project.

The supporting pro forma table for this scenario is provided in Appendix A Table 6C.

Table 4-15. Rental Feasibility Findings, Prior More Favorable Market Conditions, Existing Utility Fees, Existing HIF

Unit
Size
Developer
Investment
Supported
by Rent
Dev. Cost,
Except
Land
Supported
Land
Value
Land
Cost Per
Unit
Dev.

Cost with
Land
Investment
Supported
by Rents
as % of
Dev Cost
Feasibility
Finding
North Natomas 900 sf $334,000 ($310,200) $23,800 $25,000 $335,200 100% F N. Sacramento / S. Natomas 900 sf $324,600 ($295,300) $29,300 $25,000 $320,300 101% F Central City - Med. Density 770 sf $381,400 ($322,600) $58,800 $45,000 $367,600 104% F Central City - High Density 690 sf $416,100 ($344,900) $71,200 $35,000 $379,900 110% F Inner South & East and W of I-5 770 sf $325,600 ($269,200) $56,400 $50,000 $319,200 102% F Southern Neighborhoods 900 sf $301,300 ($274,600) $26,700 $25,000 $299,600 101% F F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged

Keyser Marston Associates, Inc. Page 26
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

4.14 Scenario Testing

As described above, two versions of the pro forma were developed, one assuming current market conditions, for which project feasibility is weaker, even under existing requirements, and one based on more favorable recent conditions when projects were generally feasible. Scenario testing measures the impact of alternative affordable housing requirements and increased utility fees relative to a base case pro forma for a feasible project under recent more favorable market conditions. Projects are likely to proceed when conditions support improved feasibility or when there is an expectation improved conditions will exist by the time new units are marketed for sale or rent. The approach of evaluating impacts relative to a feasible project allows the impact of potential requirements to be understood apart from recent adverse changes in market conditions. Scenarios assume increased utility fees unless otherwise noted.  Base Case for comparison: existing housing impact fees and existing utility fees.  On-Site Affordable Units, with 5%, 10% and 15% affordable units and new utility fees o Affordable pricing at Low (70% of AMI) and Moderate at 90% and 110% of AMI; o Affordable rents at Very Low (50% AMI), and Low at 60% and 80% of AMI.  Provision of affordable units in a stand-alone LIHTC affordable project was evaluated in certain subareas. This solution will likely be limited to larger master plans with adequate scale to set aside a site for a stand-alone affordable project.  Affordable Housing Fee Scenarios – potential fee levels were tested at a range of fee levels ranging from retention of the existing housing impact fee up to an increased rate of $20 per square foot of net livable area.

For-Sale Projects Scenario Testing

Results of the scenario testing for for-sale projects are summarized in Table 4-16.

The North Sacramento and South Natomas for-sale prototypes show the weakest feasibility across all scenarios, indicating greater sensitivity to potential increases in requirements, driven by the lower market pricing in this area.

The Southern neighborhood prototypes remained in a feasible range with requirements up to 10% Moderate units or an increased housing impact fee of up to $10 per square foot.

Projects in the Central City, North Natomas, and small lot single family projects in the Inner South and East and Southern neighborhoods remained in a feasible range with up to 10% Low or 15% Moderate units or fees up to $20 per square foot.

Keyser Marston Associates, Inc. Page 27
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Providing affordable units in a separate stand-alone affordable project supported by tax credit and other funding sources in conjunction with a non-profit partner could reduce the cost of producing the affordable units and generally enhances feasibility relative to providing for-sale affordable units. However, this is mainly an option for larger master plans and most smaller projects will not have sufficient scale or an appropriate site for a standalone tax credit rental project to be a workable option.

Table 4-16. For Sale Project Scenario Testing
No. Description
App A
Table
Central
City
Southern
Neighborhoods
North
Sacramento
and South
Natomas
North
Natomas
Inner South &
East and
West of I-5
Townhome SF Sm lot SF
Sm
lot SF
Sm
lot SF Sm lot
1 Current Market, New Utility Fees,
Existing HIF 5A F M M I I M M M F
2 Current Market, Existing Utility Fees,
Existing HIF 5B F M F I M F F M F
3 Prior Market, Existing HIF & Utility
Fees (Base Case for scenarios 4-22) 5C F F F F F F F F F 4 5% Moderate at 110% AMI 5D F F F M F F F F F
5 5% Moderate at 90% AMI 5E F F F M F F F F F
6 5% Low at 70% AMI 5F F F F M F F F F F
7 10% Moderate at 110% AMI 5G F F F M F F F M F
8 10% Moderate at 90% AMI 5H F F F M F F F M F
9 10% Low at 70% AMI 5I F M F I M F F M F
10 15% Moderate at 110% AMI 5J F F F M F F F M F
11 15% Moderate at 90% AMI 5K M M F I M F F M F
12 15% Low at 70% AMI 5L M I M I I M M M F
13 10% in Stand-Alone LIHTC Project (1) 5M n/a F F M F F F n/a n/a 14 15% in Stand-Alone LIHTC Project (1) 5N n/a F F M F F F n/a n/a 15 20% in Stand-Alone LIHTC Project (1) 5O n/a F F M F F F n/a n/a 16 No Change to HIF + New Utility Fees 5P F F F M F F F F F 17 Existing HIF with incentives removed
+ New Utility Fees 5Q F F F M F F F F F
18 HIF @$5/SF + New Utility Fees 5R F F F M F F F F F
19 HIF @$7.50/SF + New Utility Fees 5S F F F M F F F F F 20 HIF @$10/SF + New Utility Fees 5T F F F I M F F F F
21 HIF @$15/SF + New Utility Fees 5U F M M I M F F F F
22 HIF @$20/SF + New Utility Fees 5V F M M I I F F F F
(1) Primarily an option for larger master plans. Would have an average affordability level of 60% AMI or less. This option is not likely to be practical for most projects in the Central City and Inner South and East neighborhoods based on typically smaller site / project size, thus lacking the scale to do a separate stand-alone LIHTC project.

F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged

Keyser Marston Associates, Inc. Page 28
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Appendix Table 1B provides another version of the for-sale scenario testing in which current less favorable market conditions are assumed in all scenarios. As shown, projects in the Central City can absorb an increase in the HIF to $7.50 plus the new utility fees. Projects in the Inner South and East neighborhoods could support a 5% on-site requirement or fees up to $15 per square foot; however, projects in all other subareas would be challenged by any increase in requirements with current less favorable market conditions.

4.15 Rental Project Scenario Testing

Results of the scenario testing for rental projects are summarized in Table 4-17. The combination of increased utility fees and an on-site affordability requirement was found to be challenging for rental projects to sustain, even at a relatively modest 5% affordability requirement. Projects were able to sustain increased utility fees and application of the full existing HIF rate to all projects (removing the $0 rate for higher density). Projects in some areas were able to sustain a somewhat larger increase in fees, as indicated. The greater sensitivity to increased requirements in rental projects compared to for-sale is partly a function of proposed utility fees that are higher for rental projects on a per square foot basis compared to for-sale projects.

Keyser Marston Associates, Inc. Page 29
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 4-17. Rental Project Scenario Testing
App
A
Table
Central City Southern
Neighborhoods
North
Sacramento
and South
Natomas
North
Natomas
Inner South
& East and
West of I-5 No. Description Med Den High Den
1 Current Mkt, New Utility Fees, Existing
HIF
6A I I I I I I
2 Current Mkt, Existing Utility Fees,
Existing HIF
6B I M I I I I
3 Prior Market, Existing HIF & Utility
Fees (Base Case for scenarios 4-19)
6C F F F F F F
4 5% Low @80% AMI 6D F F M M M F
5 5% Low @60% AMI 6E F F M M M M
6 5% Very Low @50% AMI 6F M F M M M M
7 10% Low @80% AMI 6G M F M M I M
8 10% Low @60% AMI 6H I F I I I I
9 10% Very Low @50% AMI 6I I M I I I I
10 15% Low @80% AMI 6J I M I I I I
11 15% Low @60% AMI 6K I M I I I I
12 15% Very Low @50% AMI 6L I I I I I I
13 No Change to HIF + New Utility Fees 6M F F F F F F
14 HIF @$5/SF + New Utility Fees 6N F F M F M F
15 HIF @$7.50/SF + New Utility Fees 6O F F M M M F
16 HIF @$10/SF + New Utility Fees 6P F F M M M F
17 HIF @$15/SF + New Utility Fees 6Q F F M M M M
18 HIF @$20/SF + New Utility Fees 6R M F I M I M
19 Existing HIF with incentives removed
+ New Utility Fees
6S F F F F F F
F= Feasible

M= Marginal Feasibility
I= Infeasible / Challenged

If the scenario testing in Table 4-17 were performed assuming current less favorable market conditions, all the scenarios with increased affordable housing requirements and increased utility fees would be identified as infeasible.

4.16 Compliance Cost Analysis

The cost of complying with alternative affordable housing requirements was expressed as a cost per net square foot of livable area within the project. The purpose is to assist in understanding the relative impact of various alternatives on the economics of residential development projects.

The proposed net increase in utility fees is illustrated and is reflected in all scenarios.

The identified dollar per square foot costs of providing affordable units within the project is based on the net impact to the pro forma from setting aside a share of units at affordable prices

Keyser Marston Associates, Inc. Page 30
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE and rents. Costs are higher where there is a larger difference between market rate and affordable prices and rents.

Charts 8 through 10 present the results of the compliance cost analysis for for-sale projects.

Charts 11 through 13 present the compliance cost analysis for rental projects. Where there are multiple prototypes within a particular subarea, an average of the two prototypes is presented in the charts. The North Natomas, Southern Neighborhoods and North Sacramento and South Natomas subareas are combined as an average given similar compliance costs. Supporting analysis is provided in Appendix A Tables 2A and 2B.

Chart 8. Estimated Cost Per Square Foot Comparison,
Alternative Affordable Housing Requirements, For-Sale Projects, Central City

Keyser Marston Associates, Inc. Page 31
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Chart 9. Estimated Cost Per Square Foot Comparison,
Alternative Affordable Housing Requirements, For-Sale Projects, Inner South and East Neighborhoods and West of I-5

Chart 10. Estimated Cost Per Square Foot Comparison,
Alternative Affordable Housing Requirements, For-Sale Projects, Average of Southern Neighborhoods, N. Natomas, and N. Sacramento / S. Natomas

Keyser Marston Associates, Inc. Page 32
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Chart 11. Estimated Cost Per Square Foot Comparison,
Alternative Affordable Housing Requirements, Rental Projects, Central City

Chart 12. Estimated Cost Per Square Foot Comparison,
Alternative Affordable Housing Requirements, Rental Projects, Inner South and East Neighborhoods and West of I-5

Keyser Marston Associates, Inc. Page 33
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Chart 13. Estimated Cost Per Square Foot Comparison,
Alternative Affordable Housing Requirements, Rental Projects, Average of Southern Neighborhoods, N. Natomas, and N. Sacramento / S. Natomas

Additional metrics to assist in evaluating the alternative affordable housing requirements are provided in the appendix including:

 Estimated impact on residual land values (Appendix A Tables 3A and 3B); and

 Combined cost of fees, permits and affordable housing requirements as a percentage of total development costs of the project (Appendix Tables 4A and 4B).

4.17 Potential Ways Development Projects Could Respond to an Increased Requirement

There are a variety of ways development projects could potentially respond to a new or significantly increased requirement, just as projects adapt to fluctuations in home prices, rents, construction costs and other factors. A minor change in costs may not result in a substantive adjustment to the economics of projects and may not lead to material effects, while a more substantive change might elicit one or more of the following possible outcomes:

 Adjustments to Land Costs – Developers purchase development sites at values that will allow for financially feasible projects. When a housing fee or inclusionary housing requirement is in place, developers “price in” the requirement when evaluating a project’s economics and negotiating the purchase price for development sites. When

Keyser Marston Associates, Inc. Page 34
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE affordable housing fees or inclusionary requirements are increased, it is possible that downward pressure on land costs could result as developers adjust what they can afford to pay for land. This downward pressure on land prices can, to some degree, bring costs back into better balance with the overall economics supported by projects. While adjustments to land costs are possible, several factors limit the extent to which adjustments can occur. Existing uses on a site that generate income or alternative land uses that compete for a site will tend to dampen the potential for downward adjustments to land price. Landowners have expectations regarding the value of their property and may hold the property off the market rather than accept a less attractive price, especially if the property is generating income, or it may take time for pricing expectations to adjust.

For larger master plan developments with substantial infrastructure requirements, a reduction in the value supported by the residential units affects the resources available to fund infrastructure and constrains the ability to absorb reduced land values while maintaining a viable financing plan for required infrastructure. As indicated in the analysis in Appendix A Tables 3A and 3B, adjustments to land values needed to absorb potential modified requirements can be quite substantial depending on the scenario, suggesting that adjustments to land values are unlikely to be the only shock absorber needed for projects to adapt to a substantial increase in requirements, particularly with respect to rentals.

 Improving Market Conditions Sustain Feasibility – When prices and rents are rising, it can help absorb the cost of a new requirement and allow projects to move forward despite an added cost.

 Narrower Range of Market Conditions where Projects Pencil – If a new requirement makes projects significantly more challenging, projects may only move forward under a narrower range of market conditions, or in the extreme case, not at all. For example, following a downturn in the market, once conditions begin to improve again and new development projects start to move forward, a significant new requirement could increase the length of time for projects to begin moving again. In effect, projects may wait for market conditions to support somewhat higher market prices or rents before they will move forward. In the extreme case, projects may not develop at all if requirements are too high for any market condition the jurisdiction is likely to see.

 Shift in Development to Other Communities – If a new requirement makes it substantially more costly to build in the City of Sacramento relative to other nearby communities, projects in nearby communities may “pencil” before projects in the City of Sacramento do. This could result in other communities absorbing a larger share of new residential development compared to the City of Sacramento. As we all know, decisions about where to live often balances a complex set of considerations, personnel preferences, and connections to place and family. As the urban core of the region, Sacramento will

Keyser Marston Associates, Inc. Page 35
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE always have something special to offer. These factors may mitigate, to some degree, the potential that development would shift elsewhere.

Changes that represent a tiny fraction of the overall development cost of a project may not have a material effect. For more substantive changes, a combination of all the above adjustments may occur, or changes may be weighted toward one type of adjustment or another, depending on conditions specific to the jurisdiction. For example, a community or neighborhood where market conditions are very strong and supply is very limited may see new requirements absorbed mainly through adjustments to land values, while a community where market conditions are not as strong and potential purchasers of new units tend to be more cost sensitive may be more likely to see projects shift toward other jurisdictions or move forward under a narrower set of market conditions.

Keyser Marston Associates, Inc. Page 36
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

5.0 DEVELOPMENT COMMUNITY CONTACTS

KMA reached out to developers active in the Sacramento market to help inform the feasibility analysis and to supplement available market data. Development professionals with the following organizations were interviewed:
 SKK Developments
 Anthem Properties
 St. Anton Communities
 Signature Homes
 Urban Capital
 Next Generation Capital
 Bardis Homes
 Jamboree Housing
 Mutual Housing
 29
th Street Capital

In addition to the developers listed above, KMA contacted seven additional developers who either declined or did not respond to one or more requests for an interview.

The developers we spoke with provided a wide range of insights on topics including market conditions, construction and development cost estimates, expectations regarding their own projects, how affordable housing obligations affect their pro forma, preferences regarding on- site units versus fee payment, among other topics. The following themes emerged from these developer interviews:

1. Feasibility has become challenging for new rentals – Although Sacramento has experienced a cycle of strong feasibility for new rental developments; recent shifts in market conditions have eroded the more favorable conditions that existing until recently. Key factors that have impacted feasibility of rentals include:

 Thousands of units are now under construction or have been recently completed. New deliveries of completed projects have caused rents to soften. The ability of the market to absorb this level of new supply has not been tested.

 Development costs have increased substantially from the early years of the strong cycle for rental development that Sacramento has experienced. Previously, rising costs were offset by rising rents and strong demand; however, rent growth has abated.

 Remote work has persisted, reducing the daytime population that contributes to the vibrancy of the urban core and the incentive to live near work, reducing the attractiveness of rentals within the Central City and contributing to softening rents.

Keyser Marston Associates, Inc. Page 37
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE  Cap rates have been drifting upward, which in turn places upward pressure on the returns needed for a project to pencil.

 Rising interest rates mean projects must achieve higher returns to justify development risk relative to safer investment alternatives such as U.S. treasuries, which now pay much higher interest rates.

 Developers are being more cautious about underwriting, for example, not projecting rents will continue to trend upward.

 Some equity investors have exited the market or are waiting until it is clearer how the market will respond to the new supply now under construction and other market changes. Some equity investors are seeking substantially higher returns that many projects are not able to support.

2. Adverse conditions are viewed as temporary – Adverse conditions for rental development are viewed as potentially temporary or cyclical in nature. Rental developers expressed greater optimism regarding the medium- to longer-term time horizon and were exploring approaches to move forward with the pipeline projects they have, are continuing to seek equity investors, and / or are positioning projects to move ahead when conditions improve.

Despite a challenging environment one developer was closing on construction financing for a new rental project and another had applied for building permits for a multifamily project.

Others are pursuing sites for future projects at lower land prices. Examples of adjustments that were cited as potentially enabling projects to move forward include changes in expectations for land prices, more competitive bidding by contractors, more favorable market conditions (rent growth), renewed interest by equity investors, or some combination of these.

3. For-sale housing market conditions – For-sale developers noted that the market slowed substantially in the second half of 2022 as many buyers stayed on the sidelines. With interest rates peaking in late fall and then dropping somewhat, buyers began to come back into the market and sales have picked up. For-sale developers agreed that current market conditions are less favorable than they have been, but opinions varied regarding both current conditions and near-term expectations for improvement. On the more optimistic side, there was an expectation for a “normal” year in 2023 and a good year in 2024 and confidence about moving forward with current projects. Another characterized current conditions as not great but not as adverse as the great recession, with optimism for significant improvement by 2025. On the more pessimistic end of the spectrum, a substantial drop in pricing of 15% to 20% was cited, with differential impacts to the middle of the pricing spectrum oriented to “move-up” buyers, who now have little incentive to sell their existing home and give up existing favorable interest rates on current mortgages. Developers cited a lack of supply as something that would help drive a recovery.

Keyser Marston Associates, Inc. Page 38
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

4. Costs – A number of developers interviewed provided information regarding current construction costs, which helped inform development of the pro forma analysis described in the prior section. Several developers confirmed that construction costs have decreased from last year as contractor bids have become more competitive and lumber pricing has eased.

Cost decreases in the range of 10 to 15% were cited relative to last year, although still higher than in 2019, before the pandemic.

5. Fees versus on-site requirements – Several developers expressed a strong preference to have a fee option and strongly encouraged the City to consider retention of the fee option rather than move toward a mandatory requirement to include affordable units within the project. One developer cited greater uncertainty regarding the ultimate cost of an affordable housing obligation compared to a fee requirement that makes the fee much easier to evaluate during the predevelopment state. One developer cited very high gaps between market prices and affordable prices for an on-site for-sale product. Providing a site for an affordable project financed with low income housing tax credits within a larger master plan community was seen as a more favorable solution that would not present the same challenges as a mixed income on-site requirement would, and several developers had experience with this approach. One market rate developer was somewhat of an outlier in indicating a more optimistic view that developers could accommodate make an on-site affordable unit requirement work, presuming incomes in the moderate range are targeted and cautioning that flexibility on the City’s part was very important. One developer indicated that proposed changes to the MIHO are viewed as a “threat” and expressed concerns an on-site requirement or significantly increased fee would substantially impair the feasibility of projects, particularly given a more challenging environment at this time.

6. Property management considerations – Several developers cited property management and service delivery challenges with including a limited number of on-site affordable units dispersed within a larger market rate rental project. The reason is that market rate property managers and owners do not have experience qualifying households for occupancy of affordable units and are not equipped to provide supportive services to those who need it.

With only a small number of affordable units, projects would likely lack the scale needed to hire a dedicated property manager with the relevant expertise.

7. Value of Density Bonus – Several developers suggested that a density bonus, which is available through State law, would be unlikely to encourage them to include affordable units on-site in the Sacramento market. In part, this is due to sufficient flexibility in zoning regulations, such that a density bonus was not seen as necessary. Another factor was the expectation that including affordable units on-site would be challenging financially. Some developers expressed a favorable view of density bonus policies generally, without indicating whether such a policy is likely to be utilized in the Sacramento context.

Keyser Marston Associates, Inc. Page 39
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

8. Impact of New Requirements - Several developers indicated that the cost of affordable housing requirements comes out of residual land value while several other developers suggested that costs are passed on to market rate home buyers and renters.

9. Affordable Housing Projects Financed with LIHTCs – At least three of the developers interviewed had experience with 100% affordable projects. The following summarizes feedback that relates to 100% affordable projects financed with tax credits:

 Land is one of the most important factors for an affordable project to move forward. Not all sites are equal, sites in areas where projects are able to earn the required points for access to amenities is important and location in a high resource area is also a benefit.

 A minimum project size of 50 to 80 units was cited while a project size of 120 to 150 units was cited as preferable. Smaller projects were cited as more difficult due to a lack of operating economies of scale for property management and services.

 Recently there has been more funding for affordable housing available through the State, but the private activity bond volume cap has been reached, which has made securing tax exempt bonds and 4% tax credit financing competitive and resulted in a backlog of projects.

 The ordinance should allow sufficient flexibility so that 100% affordable projects can respond to how funding is prioritized at the State level, which changes over time.

 Fee waivers for affordable units that the City provides are very helpful. Expediting plan check or putting affordable units at the front of the line would also be helpful.

 Providing a seamless or more coordinated process between the City, County and SHRA would be helpful for supporting affordable projects.

 One affordable developer raised concerns regarding SHRA fees and requirements as adding cost and time to affordable projects relative to other jurisdictions. One example cited was requiring affordable units to use more costly materials for countertops.

 State subsidy sources typically require payment of prevailing wage, which results in higher development costs in the range of 20% to 40%. Some affordable developers have a model of avoiding the payment of prevailing wage by structuring projects in a manner that avoids pursuing certain subsidy sources that would trigger prevailing wage, but this approach also drives what affordability levels the project is able to serve.

 Affordable developers were asked to provide feedback on whether or how an inclusionary requirement affects their financing, given concerns raised by building

Keyser Marston Associates, Inc. Page 40
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE industry representatives to that effect. In response, it was clarified that, if a LIHTC affordable project is being built to meet an inclusionary requirement for a market rate project, there can be scoring implications for certain project types in certain locations under the 9% tax credit program but not the 4% tax credit program. Under the 9% tax credit program, large family projects located in a High or Highest Resource area 9 are
eligible to receive a scoring boost that can help them secure financing, but only if the project is not also satisfying an inclusionary requirement. In contrast, with the 4% tax credit and tax exempt bond program, projects meeting an inclusionary requirement are eligible for the same scoring boost as other projects in a High or Highest Resource Area.

While there are provisions related to adjustments to threshold basis limits as well, which place upper limits on amounts considered for calculation of tax credits, we were advised threshold basis limits are generally not an operative constraint in the Sacramento market because the eligible basis on which tax credits are calculated is generally below threshold basis limits.

9 A map showing the location of these areas is available here: https://belonging.berkeley.edu/2023-ctcac-hcd-opportunity-map . The North Natomas, Inner South and East and Central City subareas include areas designated as High or Highest Resource, but designations vary by U.S. Census tract.

Keyser Marston Associates, Inc. Page 41
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

6.0 REQUIREMENTS IN OTHER JURISDICTIONS AND CASE STUDIES

Understanding affordable housing requirements in other jurisdictions can provide helpful context in considering revised requirements. This section provides an overview of inclusionary programs and affordable housing fees in jurisdictions within the Sacramento region as well as other large cities. A more in-depth review is provided for seven cities.

6.1 Local Jurisdiction Requirements

An overview of affordable housing requirements applicable to residential development in ten local jurisdictions and the City of Sacramento is provided in Table 6-1. The jurisdictions include cities within the SACOG area with populations over 50,000 that have affordable housing obligations, plus Yolo, Sacramento, Sutter and Placer counties. The summary provides an overview of the basic requirements (affordable units onsite, affordable housing impact fees, etc.) and alternative compliance options, organized by type of program.

Table 6-1. Affordable Housing Requirements, SACOG Region, Jurisdictions with Population over 50,000 Program Type Ownership Housing Both Rental and Ownership Impact fees only Elk Grove
Choice of fee or on-site units Folsom

Sacramento
Sutter County
Sacramento County
Placer County**
On-site units are required;
alternatives by approval only
West Sacramento
Yolo County*
Davis
Other program structures Roseville (Require ments vary by Specific Plan and parcel.) Rancho Cordova (Affordable Housing Plans in certain areas.) SACOG cities and counties over
50,000 with no program
El Dorado County
Yuba County
Citrus Heights Yuba
City
Lincoln
Rocklin
*Allows fees for smaller projects.
** Requires units for large projects.

Table 6-2 provides information regarding the provisions of each program, including:
 Population from the US Census Bureau and the California Department of Finance.  Year adopted or most recently updated.
 Program requirements including whether the program requires onsite units, a fee payment, offsite units, or a choice. While some cities technically offer a choice, the fee payment is often significantly less costly than onsite units, suggesting that most projects are likely to pay the fee.

Keyser Marston Associates, Inc. Page 42
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE  Minimum project size. Many programs exempt small projects, either from providing onsite units (allowing fee payment instead of units) or from any housing obligation. The minimum project size is presented by unit tenure and is shown separately for fee payment and build requirements.
 Onsite Requirement / Option. Percent of units required and income level of the affordable units.
 Impact / In-lieu Fee. Current fee levels and how the fees are assessed.  Deed Restriction Term. The length of the deed restriction for the inclusionary units by tenure.
 Other Compliance Options. Alternative compliance options such as off-site units and dedicating land for affordable housing. Some programs require City/County approval of these options, while others allow them by right.

The review of local programs identified the following:
 Many local programs have a 10% onsite option or requirement, including Sacramento, Folsom, West Sacramento, Placer County and Roseville. Yolo County and Davis have higher onsite percentages, while Sutter County has a lower requirement.  Fees in the Greater Sacramento area are assessed in a wide range of formats, including per square foot of market rate units, a flat rate per affordable unit owed, a flat rate per market rate unit, and 1% of the lowest market sales price in the project.  Programs with onsite requirements allow for alternative compliance options including land dedication and offsite construction. Additional compliance options allowed in some jurisdictions include acquisition and rehabilitation of affordable units, credits, preservation of existing units and custom proposals. Most require approval from the jurisdiction.

The information is summarized from ordinances, guidelines, staff reports, and fee resolutions.

For more detailed information, please consult the source documents or city/county staff.

Table 6-2 Affordable Housing Requirements Survey
City of Sacramento City of Folsom City of West Sacramento City of Elk Grove 525,041 81,224
53,637
178,997
Adopt
ed 2000; Updated 2015 Updated 2013 Updated 2014 / 2020 Adopted 2013 Fee w/ onsite option For sale units only - onsite requirement w/ fee option. Onsite requirement. Fee per unit.

For In-lieu/Impact Fee 1 No rental req. n/a 1
For Build Requirement n/a 5n /a
For In-lieu/Impact Fee 1 10 units n/a 1
For Build Requirement n/a n/a 5 n/a
10% Low FS: 3% VL and 7% Low R: 5% VL and 5% Low
FS: 10% Low none
Income Levels for Pricing Low @ 80% AMI Not specified. R: VL @ 50%AMI, L @ 60% AMI or in accordance with funding programs used to
finance units
FS: 70% AMI
n/a
Impact / In-Lieu Fee 1-2 units <20 dua: $3.49 psf
Multi-units <40 dua: $3.49 psf
Units in Housing Inventive Zone:
$1.51 psf
Other units (high density, converted
units): no fee
FS: 1% of the lowest priced for-sale unit multiplied by # of units in project
For custom lot subdivisions, 0.5% of estimated cost of
least expensive e home anticipated, multiplied by # of
units
w/Council approval: $7,551/ mkt unit 1-2 units: $6,030 / unit 3 + units: $3,617 / unit
Deed Restriction Term 30 years FS: 20 years / R: 30 years FS: 45 years R: 55 years
n/a
Other Compliance Options None specified. Off-site units, Credits, Land dedication, Acq/rehab, other proposals approved by City Council.

FS projects can provide rental units.

With Council approval: Acq/rehab, off-site units,
preservation of units, other proposals.

Comments Fee deferrals and modified development standards available for on-site units.
75 units have been created. From 2014-6/2022, no
onsite units were produced and $16 million in in-lieu
fees were collected. The city has assisted six affordable projects with the fee revenue.

Regulatory and financial incentives may be considered.

Abbreviations: FS - For Sale, R - Re Abbreviations: FS - For Sale, R - Rental, Mod - Moderate Income, L - Low Income, VL - Very Low Income, ELI - Extremely Low Income psf - per square foot, dua - dwelling upsf - per square foot, dua - dwelling units per acre Population Data for cities from US Census and unincorporated county populations from CA Dept. of Finance.

Chart data from City / County websiteChart data from City / County websites, Housing Elements, Municipal Codes, etc.

Notes: This chart presents an overview, and as a result, terms are simplified. For use other than general comparison, please consult the code and staff of the jurisdiction.

Population
Minimum Project Size - For Sale
Year Adopted / Updated
Minimum Project Size - Rental
Onsite Requirement/Option
Base Obligation
Prepared by Keyser Marston Associates, Inc.

Filename: C:\Users\DDoezema\Desktop\Sac City\Inclusionary Programs 3.30.23; OtherCities; 3/31/2023;hgr

Table 6-2
For In-lieu/Impact Fee
For Build Requirement
For In-lieu/Impact Fee
For Build Requirement
Income Levels for Pricing
Impact / In-Lieu Fee
Deed Restriction Term
Other Compliance Options
Comments
Population
Minimum Project Size - For Sale
Year Adopted / Updated
Minimum Project Size - Rental
Onsite Requirement/Option
Base Obligation
Affordable Housing Requirements Survey
City of Davis City of Roseville City of Rancho Cordova Yolo C ounty 66,799 151,901 80,413 35,900 (unincorporated)
1990, temporary amendment 2018. Update in process. 1988 2015 Onsite units. Onsite units. Onsite
5 1
temporary amendment - city may approve fee pmt. 7
5 1
200 (partial build requirement) FS: 10
FS: SFD on lots > 5,000 sf, 25%. SFD on lots <5,000 sf, 15%.

Attached, 10%. Stacked condos or mixed use, 5%.

R: temporary requirement is 5% L, 5% VL and 5% ELI . Percent of units, bedrooms, or beds.

FS: 10% (4% VL, 4% L, 2% Mod)
R: 10% (5% Low, 5% VL)
FS: 10% Low and 10% Mod
R: 20+ units: 25% VL and 10% Low
R: 7-19 units: 15% VL and 10%
Low
FS: Moderate, with average at 100%.

R in FS projects: <65% AMI average, with 80% max.

R: Low @ 80%, VL @ 50%, ELI @ 30%
Not specified.
$78,150 per affordable unit with Council approval
(Fees can only be paid for up to 50% of obligation in projects with 200+ dwelling units.)
Case-by-case and currently $278,849 Sliding scale based on units in project. Single units fee $1,292
(FS) and $1,761 (R). Full fee:
$12,920 (FS) and $17,610 (R)
R: In perpetuity
FS: Capped appreciation, city has right of first refusal.

FS: 20 years (resets at sale)
R: permanent
Developer may proposed an individualized program.

Acquisition and deed-restriction of existing units with 30+ year lifespan.

Land dedication.

Temporary Amendment allows for an ongoing payment of funds from the project (at least annual).

Offsite, Land Dedication
FS units must be >50% 3BR, with remainder 2BR.

Onsite units that meet state density bonus requirements are also awarded one-for-one city density bonus.

Small projects (<15 units) in city core may request financial assistance from City, pay fee, or use combination fee/ onsite.

City has had the 10% Affordable Housing Goal since inception and has produced over 3,500 units.

Abbreviations: FS - For Sale, R - Rental, Mod - Moderate Income, L - Low Income, VL - Very Low Income, ELI - Extremely Low Income psf - per square foot, dua - dwelling units per acre
Population Data for cities from US Census and unincorporated county populations from CA Dept. of Finance.

Chart data from City / County websites, Housing Elements, Municipal Codes, etc.

Notes: This chart presents an overview, and as a result, terms are simplified. For use other than general comparison, please consult the code and staff of the jurisdiction.

The City has a Housing Element Policy that
requires new residential projects within the
newly developing areas of the City
(generally in the large, vacant areas south
of Highway 50) to include an Affordable
Housing Plan for the project that identifies
the project’s plan for providing affordable
housing. These areas are typically high
resource and promote inclusion of
affordable housing in high opportunity
areas. Compliance options includes onsite
affordable units, land dedication, rehab of
existing units, or in-lieu fees. For example,
the Affordable Housing Plan for Jaeger
Ranch (K. Hovnanian) includes in-lieu fees
of $3,808 to $4,800 per unit, depending on
unit type.

The City of Roseville does not have a city-wide inclusionary housing policy but has a General Plan Goal that 10% of all new housing units will be affordable to moderate, low and very low income households. The goal is implemented through the City’s Specific Plans, which assign affordable housing obligations on a parcel-by-parcel basis.

Prepared by Keyser Marston Associates, Inc.

Filename: C:\Users\DDoezema\Desktop\Sac City\Inclusionary Programs 3.30.23; OtherCities; 3/31/2023;hgr

Table 6-2
For In-lieu/Impact Fee
For Build Requirement
For In-lieu/Impact Fee
For Build Requirement
Income Levels for Pricing
Impact / In-Lieu Fee
Deed Restriction Term
Other Compliance Options
Comments
Population
Minimum Project Size - For Sale
Year Adopted / Updated
Minimum Project Size - Rental
Onsite Requirement/Option
Base Obligation
Affordable Housing Requirements Survey
Sutter County Sacramento County Placer County
20,088 (unincorporated) 604,272 (unincorporated) 112,687 (unincorporated) 1995 2014 2020
Onsite Fee Onsite
10 1 8
n/a n/a 100
10 1 8
n/a n/a 100
FS: 5% Mod
R: 2.5% VL and 2.5% Low
The fee amount owed is
converted to units owed
based on the "Average
Public Subsidy/Unit."
For Sale:

Specific Plan/ Master Plan: 10% (4% VL, 4% L, 2% Mod)
All Other: 10% Mod
Rentals:

Specific Plan/ Master Plan: 10% (4% VL, 4% L, 2% Mod)
All Other: 10% (4% VL, 6% L)
Not specified Low @ 80%, VL @ 50% Not specified.
$28,900/unit owed
(10% of CA HOME single family max
purchase price for County)
$3.66 psf $2.45 psf
FS: 5 years
R: 5 years
FS: 30 years
R: 55 years
55 years
Off-site construction, land dedication Onsite units, land dedication, purchase credits
banked with SHRA.

Equivalency proposals may be submitted with alternative compliance actions.

Projects with onsite units may receive
fast track processing, fee waivers,
reduction of design standards,
infrastructure improvements, technical
and financial assistance.

Mixed income developments
at a density of at least 17
dua with 20% low onsite are
exempt.

Residential projects with 50% of units smaller than 1,600 sf are exempt. Mixed use projects with >70% residential are exempt.

Infill sites and sites located in "transit priority area" are exempt.

Incentives available include fee waivers and priority processing.

Abbreviations: FS - For Sale, R - Rental, Mod - Moderate Income, L - Low Income, VL - Very Low Income, ELI - Extremely Low Income psf - per square foot, dua - dwelling units per acre
Population Data for cities from US Census and unincorporated county populations from CA Dept. of Finance.

Chart data from City / County websites, Housing Elements, Municipal Codes, etc.

Notes: This chart presents an overview, and as a result, terms are simplified. For use other than general comparison, please consult th e
Prepared by Keyser Marston Associates, Inc.

Filename: C:\Users\DDoezema\Desktop\Sac City\Inclusionary Programs 3.30.23; OtherCities; 3/31/2023;hgr

Keyser Marston Associates, Inc. Page 46
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

6.2 Large City Inclusionary Programs

Inclusionary requirements for nine major cities with inclusionary programs are summarized in Table 6-3. The jurisdictions include Atlanta, Boston, Chicago, Denver, Los Angeles, Portland, San Diego, San Jose, and Seattle. Six have city-wide programs, three have programs that are triggered by rezoning, and one program applies in certain geographic zones of the city (Los Angeles has both a city-wide program and a program triggered by rezoning). Of the nine cities surveyed, only Los Angeles has an impact fee program, while the others all have inclusionary requirements with an in-lieu option. All allow payment of fees with approximately half assessed per square foot and half on a per unit basis.

Table 6-3. Large City Inclusionary Program Overview
City Applies to Program Type
On-Site
Inclusionary
Percentage
Fee
Structure Description
Year
Adopted
Atlanta Certain
zones
Inclusionary with
fee option
10 to 15% Per Unit Requires 15% at 80% AMI or 10% at
60% AMI. In-lieu fee varies by area.

Menu of incentives for projects subject to
ordinance.
2018
Boston Rezonings Inclusionary with
fee option
13% Per Unit Triggered by re-zoning, City land or
assistance. 13% on-site affordable. In-
lieu fee varies by zone. Update pending.
2000,
updated
2015
Chicago Rezonings Inclusionary with
fee option
8% to 20% Per Unit Rental: 10-20% depending on AMI level and location. Ownership: 8% to 20%
depending on AMI level and location. In-
lieu fee option per unit owed that varies
by zone and share of required units
provided on-site.
2007,
updated
2021
Denver Citywide Inclusionary with
fee option
8% to 15% Per Unit New on-site requirement of 8% to 15% depending on zone and AMI level;
parking and fee reductions apply for
onsite units; density bonus available for
projects exceeding base requirements.

Replaced a prior fee program, which was
preceded by an inclusionary requirement.
2001
amended
2016,
2022
Los
Angeles
Varies by
program
Impact Fee;
Inclusionary
(triggered by
rezoning);
Density bonus
and incentive
(transit areas)
varies by
program
Impact fee City-wide impact fee program + an
inclusionary program triggered by
rezonings that comes with a prevailing
wage requirement + density bonus and
incentive program substantially
exceeding State density bonus focused
on transit-rich locations.
2017;
2016

Keyser Marston Associates, Inc. Page 47
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Table 6-3. Large City Inclusionary Program Overview
City Applies to Program Type
On-Site
Inclusionary
Percentage
Fee
Structure Description
Year
Adopted
Portland Citywide Inclusionary with
fee option
10% to 20% Per
Square
Foot
20% inclusionary with option of 10% at
lower AMI. In-lieu fee applies on per
square foot basis and varies by market
area. Incentives for on-site units include
property tax and excise tax exemptions,
parking requirement exemptions, density
/ FAR bonus.
2016
San Diego Citywide Inclusionary with
fee option
10 to 15% Per
Square
Foot
Rental: 10% at low or very low; For-sale
10% at median or 15% at moderate.
2003,
updated
2019
San Jose Citywide Inclusionary with
fee option
15% Per
Square
Foot
15% inclusionary requirement. Rental
requirement split between three income
categories with in-lieu fee varying based
on AMI level and percent affordable units
on-site. Fee structure provides large
incentive for at least 5% on-site.
2010; in
litigation
until
2015;
amended
2021
Seattle Citywide Inclusionary with
fee option
5% to 11% Per
Square
Foot
Inclusionary percentage from 5% to 11%
depending on market area and level of
up zoning that occurred. In-lieu fee varies
by market area and zone.
2016
amended
2019

6.3 Additional Review of Select Local and Large City Programs

Of the programs surveyed, seven were selected for more in-depth research. Selections were made by the City and informed by the results of a survey administered to members of the City’s Housing Policy Working Group as well as input provided as part of a September 2022 meeting.

Four local cities were chosen: West Sacramento, Roseville, Folsom and Davis. Three large cities were chosen: Denver, Portland and San Jose.

KMA accessed available information regarding program provisions and contacted city staff in each community to help provide a more in-depth understanding of how the programs are working. Following are highlights and key themes that emerged from this review:

 Each jurisdiction determines the appropriate balance between onsite units and collecting fee revenues. Onsite units have the benefits of creating mixed income housing, building affordable units at the same time as the market rate units, and encouraging market rate developers to produce units cost-effectively. Collecting fee revenues creates a funding source that cities can leverage to provide gap funding for 100% affordable projects, with the potential to develop more units at deeper affordability levels.

Keyser Marston Associates, Inc. Page 48
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE  Unless fees are set at a level to encourage onsite units, developers tend to choose a fee option if it is available. Many cities have onsite requirements with an in-lieu fee option that in practice is essentially a fee-only program. Cities that set fees high enough to encourage onsite units have had success with developers building units onsite.

 Incentives can be effective in encouraging policy goals if they are meaningful in the local market. The value of density bonuses, for example, varies widely by jurisdiction and neighborhood. Portland and West Sacramento vary incentives by geographic area.

 Cities with diverse market areas can vary requirements and incentives by geographic area or a measure of local market strength. For example, Denver’s requirements vary by the median land value per square foot for each census tract, with stronger requirements in tracts with higher land values. Portland’s fees and incentives are different in two of the city’s Plan Areas.

 The large cities surveyed (Portland, Denver, San Jose) have newer programs. A key feature of all three programs is a menu of compliance choices for developers. The choices are calibrated by the cities to encourage certain policy goals, such as onsite units in general or units at particular income levels. The menus provide flexibility for developers and ideally will create a range of affordable unit types in the city.

 The City of Denver designates sites larger than 10 acres and sites receiving public financing as “High Impact Developments,” and requires an enhanced approval process with public engagement for these projects.

 Both Portland and Davis allow inclusionary obligations to be determined by the number of bedrooms instead of the number of units. The cities’ programs differ in how they are structured, but both allow developers to set aside fewer larger units, which can benefit both the city and the developer.

Keyser Marston Associates, Inc. Page 49
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

WEST SACRAMENTO

Program History and Requirements

The City of West Sacramento first
adopted a citywide ordinance in 2005; it
was significantly modified in 2014, with
additional revisions in 2020. The
ordinance requires 10 percent of all multifamily rental units be made available at affordable rents, with half at Very Low and half at Low. Ten percent of all for-sale units must be made available at affordable prices to Low Income households. Rental units can be substituted for for-sale units. Inclusionary units must generally be built on-site and dispersed throughout the project to avoid over-concentration of inclusionary units.

Units must be similar in materials and appearance to market rate units within the same subdivision. Inclusionary units may be smaller than market rate units but must contain at least 90 percent of the interior living space of the smallest market rate unit. The number of bedrooms in multifamily rental inclusionary units should be generally consistent with the bedroom mix of market rate units within the same residential project. The minimum affordability term is 55 years for rental units and 45 years for for-sale units.

The ordinance provides alternatives to the onsite requirements including payment of in-lieu fees (which are placed in the City’s Housing Trust Fund); acquiring, rehabilitating, and converting existing market rate units to inclusionary units; construction of inclusionary housing units at an off site location; or acquiring and preserving at-risk affordable rental units. The in-lieu fee is currently set at $7,551 per market rate unit for both rental and for-sale units. Approval of an alternative is solely at the discretion of the City Council.

The City Council approves payment of in-lieu fees only if the Council determines that doing so would advance the goals set out in the City’s Housing Element. For example, the City might allow fee payment if a project is located in a neighborhood with significant existing affordable housing, or if the City has identified a 100% affordable project in the development pipeline that it would like to provide with funding assistance. The City states that it has a clear preference for onsite compliance but in practice has approved use of in-lieu fees for most projects.

Population 53,637
Land Area 21 square miles
Adopted 2005, amended in 2014 and 2020
Program Structure Inclusionary requirement, in-lieu fee with approval
Inclusionary Percentage 10%
Income Levels for
Inclusionary Units
Rental: Very Low and Low
For-Sale: Low
In-Lieu Fee Amount $7,551/ market rate unit, (in-lieu fee option requires Council approval)
10-Year Housing Production
Multi-Family:

Single-Family:

Ten-Year Total

1,659
1,073
2,732
Source: US Census.

Keyser Marston Associates, Inc. Page 50
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE In-lieu fees are deposited into the City’s Housing Trust Fund and are used to promote development of affordable housing as follows:
 Gap financing loans to residential projects containing affordable housing;  Infrastructure improvements in support of affordable housing; and  Predevelopment activities in support of affordable housing.

A unique feature of the program is the City’s
incentives within the City’s priority Urban Infill
Area (UIA), if an applicant’s project is located
within the City’s priority Urban Infill Area (UIA),
the project may be eligible for the Urban Infill Area
Incentive and subsequent discount on their in-lieu
fee. UIA Incentive discounts are granted based on the adjusted density of a project. The adjusted density allows applicants to receive dwelling unit equivalents (DUEs) for project features such as structured parking, public open space, and ground floor commercial space.

The objective of the UIA Incentive is to facilitate development in the City’s priority Urban Infill Areas where development costs are typically higher than in other areas of the City. This incentive program is designed to encourage the type of development that the City would like to see in these areas of the City. The City tends to accept in-lieu fee payments for projects in the UIA because there is a significant amount of existing affordable housing in these areas and the City does not want to create an over-concentration of affordable housing in a particular area.

Affordable Housing Production

Since 2014, 14 projects were approved to satisfy the inclusionary requirement through in-lieu fee payment with aggregate in-lieu fee revenue from the 14 projects of $6.3 million. Just one project, the KIND project, provided unassisted onsite rental units. The KIND project provided 23 deed restricted Low Income units.

The City assisted several affordable housing projects using in-lieu fee moneys in the Housing Trust Fund. Recent projects include Mercy Housing’s 85-unit permanent supportive housing project, which leveraged approximately $3.7 million in local funds for the $30+ million project, and Jamboree’s proposed West Gateway Place Phase II 59-unit affordable housing development, which will leverage approximately $2.7 million in local Housing Trust Funds for the $24 million project. The City also assisted the earlier phase of the West Gateway Place project, which created 76 units of affordable housing, and The Rivermark Apartments, which created 69 units.

In total, the City’s inclusionary housing program has created 312 affordable units since 2014.

Projects in the West Sacramento’s Urban
Infill Area may qualify for reductions in in-lieu
fees based on inclusion of features such as
structured parking, public open space, and
ground floor commercial.

Keyser Marston Associates, Inc. Page 51
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Program Effectiveness

West Sacramento’s inclusionary ordinance provides the City with flexibility to accept alternative compliance options when it is in the City’s best interest to do so, and otherwise requires onsite units. City staff indicate that the combination of flexibility and control provided by the program’s structure enables the City to achieve a variety of affordable housing objectives. In addition, the ordinance provides incentives to encourage development of desired housing types in certain areas of the City. City staff believe that these incentives have been effective in encouraging high-density housing in the City’s priority Urban Infill Areas.

The program requires onsite for sale units at Low Income. Ownership units at this income level can be challenging administratively, as it is sometimes difficult to find qualified buyers. In addition, the lower price point can make feasibility challenging for developers. This is an issue future updates to the program may seek to address. The flat-rate per unit in-lieu fee structure for both rental and for-sale projects is another feature staff indicated the City may consider revising as part of a future update.

Keyser Marston Associates, Inc. Page 52
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

ROSEVILLE

Program History and Requirements

The City of Roseville does not have a
city-wide inclusionary housing policy but
has a General Plan Goal that 10% of all
new housing units will be affordable to
moderate, low and very low income households. The goal is implemented through the City’s specific plans, which assign affordable housing obligations on a parcel-by-parcel basis. A specific plan is a comprehensive planning document that guides the development of a defined geographic area.

The City of Roseville has sixteen subareas that
have been planned for urban development. These
include an Infill Area, the North Industrial area,
and fourteen specific plan areas. Within each
specific plan, the City identifies certain parcels
that carry affordable housing obligations. The
number of required affordable units, whether the
units are rental or for-sale, and the income levels
of the units are specified.

The City’s specific plans vary widely. In general,
each specific plan estimates the total housing that
will be built in the plan area, and then calculates
the minimum affordable housing obligation at
10% of the total. The plans then identify the
specific parcels that will include affordable units to
achieve the 10% goal, with a mix of income levels
specified in the General Plan policy (20% middle – defined as 80 to 100% AMI, 40% low and 40% very low). A table excerpted from the City’s Sierra Vista Specific Plan is included to the right as an example.

Population 151,901
Land Area 44 square miles
Adopted 1988
Program Structure General Plan policy implemented
through Specific Plans. Onsite units.

Inclusionary Percentage 10%
Income Levels for
Inclusionary Units
Rental: Low, Very Low
For Sale: Moderate, Low, Very Low
In-Lieu Fee Amount $278,849 / aff unit w/approval
10-Year Housing Production
Multi-Family:

Single-Family:

Ten-Year Total

1,295
9,816
11,111
Source: US Census.

Keyser Marston Associates, Inc. Page 53
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Alternatives to onsite construction vary by specific plan. Typical alternatives include an in-lieu fee, transfers/credits, density bonuses, and allowing carriage units or granny flats in lower density areas. Compliance strategies also vary by specific plan area, with some plan areas building out according to the plan and others involving trading of affordable housing obligations across parcels. The City does not allow clusters of affordable housing development but does encourage and prefer 100% affordable projects funded with Low Income Housing Tax Credits.

Occasionally, the City will provide financial assistance to these 100% affordable developments, but not typically. The City does not place restrictions on market rate development within Specific Plans based on whether the affordable housing has been produced yet.

The City’s in-lieu fee is based on average development costs of recent affordable housing units.

It is currently set at $278,849 per affordable unit. Not all Specific Plan Areas allow for payment of an in-lieu fee. In general, the City Council requires projects to build affordable units instead of paying a fee. City staff estimates that only 10% of projects comply through in-lieu fee payment.

A recent example of a project that paid an in-lieu fee is a small ownership project that owed two affordable units; the City requested an in-lieu fee based on the affordability gap of the ownership units (the difference between the market price and the restricted price) and the developer agreed to pay the city $700,000 instead of providing the units.

The inventory of land parcels with affordable housing obligations is published on the City’s website. Since the program was adopted, the City has seen a wide range of compliance strategies, depending on market conditions, project feasibility, and the attributes of specific sites.

Affordable Housing Production

According to the City, a total of 3,509 affordable units have been developed as part of the Roseville Affordable Housing Program, with 78% rental units and 22% for sale units. This production total amounts to an average of approximately 110 affordable units developed per year. The City recently announced $10 million in funding commitments to three proposed multifamily rental affordable housing developments, totaling 264 new affordable units.

Program Effectiveness

According to the City, the success of this program
is due to the City’s commitment to its goal and its
collaborative process with development
proposals in the production of this housing, as
well as partnerships with local affordable housing developers. The City has a reputation of requiring affordable units to be built and does not typically allow developers to pay in-lieu fees.

The City’s program is well-established, consistent, and predictable, allowing developers to predict and plan their compliance.

Consistency and predictability allow
landowners and developers to predict
and plan their compliance

Keyser Marston Associates, Inc. Page 54
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE FOLSOM

Program History and Requirements

The City of Folsom has an inclusionary
housing program that requires developers
of all new for-sale residential projects
greater than 10 units to include at least 10% of their units as affordable to lower-income households. The City does not apply inclusionary requirements to rentals.

First established in 2002, the City's inclusionary
program has undergone several revisions,
including significant revisions in 2013, which
reduced the inclusionary requirement from 15% to
10%, added an in-lieu fee alternative, and removed inclusionary requirements pertaining to rental units. Since then, all developments have paid the in-lieu fee instead of providing units onsite.

The in-lieu fee is set at 1% of the sales price for the lowest priced unit in the development multiplied by the total number of units in the project. The in-lieu fee is payable at the time of the building permit on a per-unit basis. Once the in-lieu fee has been set for an initial twelve months, the amount of the fee is evaluated on January 1st of each following year. In the event the lowest priced for-sale residential unit or anticipated home in the subdivision changes by ten percent or more, the amount of the in-lieu fee is adjusted for the remaining units or lots in the subdivision. The fee is typically in the range of $6,000 - $10,000 per market rate unit.

Affordable Housing Production

Prior to 2013, when the in-lieu fee option was added, the City’s inclusionary program produced about 80 deed-restricted affordable ownership condominiums. These units are still deed- restricted and typically owned by seniors.

Population 81,224
Land Area 28 sq. miles
Adopted 2013
Program Structure Inclusionary requirement w/ fee option, for sale units only.

Inclusionary Percentage 10%
Income Levels for
Inclusionary Units
For Sale: Low and Very Low
In-Lieu Fee Amount 1% of sales price for lowest priced unit per market rate unit.
10-Year Housing Production
Multi-Family:

Single-Family:

Ten-Year Total

1,070
3,663
4,733
Source: US Census.

Folsom’s onsite requirement paired
with a low in-lieu fee is effectively a
fee-based program.

Keyser Marston Associates, Inc. Page 55
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE From 2013 through June 2022, the City collected $16 million in in-lieu fees. Since 2013, the City’s Housing Fund has assisted six affordable rental projects. (The City’s Housing Fund is primarily funded by inclusionary in-lieu fees, with some additional funding from commercial linkage fees and former redevelopment bond funds) The projects include Bidwell Pointe Apartments (100 low-income units), Talavera Ridge Apartments (6 extremely-low-income units), the Parkway Apartments (72 low-income units), Bidwell Place Apartments (75 units), Sage Senior (110 units), and Mangini Place (150 units).

Program Effectiveness

The City of Folsom experienced rapid growth over the past few years and the fee-based program has been successful in generating funds that the City uses to assist in the production of affordable rental housing. The structure of the fee (1% of the lowest sales price of the market rate units) is difficult to administer, as it creates a timing issue and can be complicated for large projects. The City may consider moving toward a fee per square foot if the program is updated in the future, as it is easier to administer and apply. The City has explored expanding the program to include rental development, but City Council has chosen not to move forward with this so far. City staff indicated that updating the ordinance would have limited impact, at least in the near term, as most of pipeline development projects have development agreements in place that lock in compliance with the existing ordinance.

In on-going monitoring and compliance of the stock of approximately 80 affordable ownership units that were produced prior to program changes adopted in 2013, some challenges have arisen due to homeowner misunderstandings or gaps in communication regarding the nature of resale restrictions that apply to inclusionary units and fluctuations in affordable resale prices that have occurred due to changes in mortgage interest rates.

Keyser Marston Associates, Inc. Page 56
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE DAVIS

Program History and Requirements

The City of Davis adopted an inclusionary
ordinance in 1990 and has updated the
program several times since. The City is
currently in the process of updating the
inclusionary requirements for rental
projects.

Davis’s current requirement is as follows:

Rental Projects
 Rental units within vertical mixed-use development must provide 5% at Low.  Rental projects with 20 or more units, other than vertical mixed use projects, are required to set aside 10% of units at Very-Low Income and 25% of units at Low Income.  Smaller rental projects (5 to 19 units), other than vertical mixed use projects, are required to set aside 10% at Very Low and 15% at Low.
 See also the temporary rental requirements listed below.

For-Sale Projects
 Single family detached projects with large lots (5,000 sf or larger) are required to set aside 25% at Moderate, while single family
detached projects with smaller lots (<5,000 sf)
are required to set aside 15% at Moderate.
(Projects in Davis have been primarily higher
density, with few single family detached projects.)
 Single family attached units are required to
provide 10% at Moderate.
 Stacked condominiums or ownership units within vertical mixed-use development must provide 5% at Moderate.

Projects with fewer than five units are exempt.

Population 66,799
Land Area 10 square miles
Adopted / Updated 1990, temporary update 2018. Update
in process.

Program Structure Inclusionary requirement, in-lieu fee with approval.

Inclusionary Percentage Rental: 15% (temporary requirement) For Sale: 5% - 25%, depending on unit
type and size.

Income Levels for
Inclusionary Units
Rental: Low, Very Low, Extremely Low
For Sale: Moderate
In-Lieu Fee Amount $78,150 per affordable unit, with
approval.
10-Year Housing Production
Multi-Family:

Single-Family:

Ten-Year Total

894
624
1,518
Source: US Census.

Adoption of AB 1505 spurred
Davis to temporarily reduce its
rental inclusionary requirements;
reduction may become
permanent.

Keyser Marston Associates, Inc. Page 57
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

Temporary Rental Inclusionary Requirement

In 2018, the City Council “temporarily” amended its rental inclusionary requirements in response to enactment of AB 1505 (which restored the ability to implement inclusionary requirements for rentals State-wide). Temporary requirements were meant to serve as a bridge until the City could complete a comprehensive update, the change added an alternative affordable housing requirement option:

 For rental projects providing affordable units onsite, 15% of units or 15% of bedrooms, with an even mix of Low, Very Low, and Extremely Low Income units.

Alternatives

Compliance options for rental projects under the permanent ordinance are limited to onsite construction and land dedication. In addition, the City allows for an individualized compliance program as long as it generates an equivalent level of affordability as the onsite requirement.

The temporary requirements allow rental projects to propose alternative compliance strategies, including but not limited to “providing affordable housing by bedroom or individual bed, or pledging to the city a continuing payment of funds to be submitted to the city at least annually.”

The temporary requirements also allow the City Council to consider several factors in determining whether to approve an alternative rental affordable housing proposal, including whether the project meets a specific housing need, includes unusually high infrastructure costs or other cost burdens, includes a public subsidy or other public financing from a source other than the City, or provides a deeper level of affordability such as the extremely low income level.

Further, the Council may, at its discretion, require a higher total percentage for larger market rate projects that have greater economies of scale, or require a lesser percentage for smaller projects that have lesser economies of scale. The sunset date on this temporary amendment has been extended by City Council multiple times and was June 30, 2023, as of the time of review.

Compliance options for for-sale developments with fewer than 200 units include:
 On-site construction of affordable ownership or rental units;  Acquisition and recordation of permanent affordability restrictions on existing housing units within the city;
 Dedication of an affordable housing site; and
 Payment of in-lieu fees, if approved by the City Council.

Compliance options for for-sale developments with more than 200 units include:
 On-site construction of affordable ownership units;
 On-site construction of affordable rental units.

Keyser Marston Associates, Inc. Page 58
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE  On-site construction of accessory dwelling units for rental to fulfill up to half of the requirement,
 Payment of in-lieu fees for no more than 50 percent of the affordable housing obligation of the project, if approved by the City Council; and
 Dedication of an affordable housing site;

An alternative approach to meeting affordable housing requirements may be approved if it provides equal or greater affordability. On-site construction of affordable units for ownership developments must provide a mix of two- and three-bedroom units, with at least 50 percent three-bedroom units. Smaller and larger size units can be provided depending on local housing needs and project character.

Payment of in-lieu fees must be approved by the City Council. The payments are determined according to the adopted fee schedule revised annually. The housing in-lieu fee is currently $78,150 per affordable unit. Discounts are given for vertical mixed-use projects and projects that include 75 percent stacked condominiums.

Incentives

The City awards a one-for-one density bonus for projects that include on-site affordable units.

The City also typically offers reduced parking standards for projects that provide affordable units.

In addition, city staff will work with the developers of small projects (15 units or fewer) located within the City’s core area to provide construction subsidies to encourage onsite affordable units, as necessary. These projects are eligible to pay the in-lieu fee as well, or a combination of the in-lieu fee and onsite compliance.

Affordable Housing Production

Approximately 1,800 affordable units have been produced since the adoption of the ordinance in 1990, with 1,100 of those units remaining permanently affordable. The City cites the variety of development types that have been provided to meet the housing needs of the community as one of the biggest accomplishments of the program. There are affordable homes and apartments, for rent and for purchase, spread throughout the city, in mixed income developments, and 100% affordable developments. There are cooperative housing projects, senior-specific housing, and supportive housing for individuals with special needs.

According to City staff, developers choose a wide range of compliance options, including onsite, land dedication, in-lieu fees, and individualized housing plans. One development project will provide profit-sharing with the Housing Trust Fund, with annual payments in perpetuity based on

Keyser Marston Associates, Inc. Page 59
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE the revenue stream of the development. Projects that are eligible to pay the in-lieu fee typically select the fee option, as the fee is set below the cost of other compliance options.

Proposed Update

The City’s Housing Element includes a plan to undertake a comprehensive update to the City’s Affordable Housing Ordinance. The process for updating the ordinance includes conducting a study to determine appropriate inclusionary proportions and affordability levels, analyze in-lieu fees and other alternatives to providing units on site, and evaluate other parameters of the ordinance as appropriate. As a part of the update process, the City will evaluate whether new policies increase affordable housing opportunities throughout the City to avoid over concentration of affordable housing in any particular area of the City.

The City is currently conducting a comprehensive review of the inclusionary requirements for rental developments, with a goal of adopting a permanent ordinance before the temporary requirements sunset in June 2023. A feasibility analysis of multifamily rental housing was presented to City Council in January 2023, as part of this update process. Based on the findings of the feasibility analysis, it is likely that the City will adopt an onsite requirement similar to the temporary requirement, with alternative compliance options that provide flexibility for developers. If the updated ordinance still allows for payment of an in-lieu fee, it is likely that the City will update the in-lieu fee to more accurately reflect the affordability gap between market rate and affordable inclusionary units.

Keyser Marston Associates, Inc. Page 60
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

PORTLAND

Program History and Requirements

The City of Portland adopted an
Inclusionary Housing ordinance in 2016,
in response to a change in Oregon law
that reversed a statewide ban on inclusionary ordinances.

Oregon law places the following limits on inclusionary housing ordinances: cities cannot require more than 20% of units to be affordable, cities cannot require units to be rented or sold below 80% of Median Family Income (MFI), inclusionary housing ordinances can only apply to projects with 20 or more units, cities must provide incentives, and there must be a fee option.

Compliance Options

Consistent with the maximums permitted under Oregon law, Portland requires projects with 20 or more units to set aside 20% of units at 80% MFI. Alternatively, developers may choose one of the following compliance options:
 Set aside 10% of units at 60% MFI.
 Build units offsite equal to 20% of units at 60% MFI or 10% at 30% MFI.  Establish affordability restrictions for existing
offsite units, equal to 25% at 60% MFI or 15%
at 30% MFI.
 Provide a modified percentage of affordable
units that maintains the same total number of
bedrooms within the affordable units
(“reconfiguration of bedrooms option”).
 Payment of an in-lieu fee of $23 per gross
square foot, or $27 in the Central City and
Gateway Plan Districts.

Population 641,162
Land Area 133 square miles
Adopted / Updated 2016
Program Structure Inclusionary requirement w/ fee
option.

Inclusionary Percentage 20%
Income Levels for
Inclusionary Units
80% Median Family Income
In-Lieu Fee Amount $23 - $27 per gross square foot.
10-Year Housing
Production
Multi-Family:

Single-Family:

Ten-Year Total

35,601
7,146
42,747
Source: US Census.

Keyser Marston Associates, Inc. Page 61
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Incentives

The City’s program provides a range of incentives
designed to reduce compliance costs and
encourage onsite units at 60% MFI. Incentives
include a 10-year property tax exemption for
affordable units, construction excise tax exemption
for affordable units, parking exemptions, FAR bonuses, and System Development Charge (impact fee) exemptions for the affordable units. Projects located in the Central City Plan District with an FAR of 5:1 or greater that provide inclusionary units are eligible to receive the 10-year property tax exemption on the full residential portion of the building, not just the affordable units.

For projects with multiple buildings, inclusionary units may be consolidated in one building onsite. The consolidated building is not eligible to receive subsidy funding from the Portland Housing Bureau.

The City is currently conducting a “Calibration Study” to examine and assess the Inclusionary Housing program. In particular, the City is studying adjustments to the program for for-sale projects, offsite production of units, the reconfiguring of bedrooms option, and possible changes to the tax-exemption incentive.

Affordable Housing Production

Since the program’s inception in 2017, privately funded market rate projects have provided 332 inclusionary units. An additional 274 inclusionary units are under construction and 327 are in permitting. There are 990 projected affordable units in predevelopment. The units are an even mix of income targeting between 60% and 80% MFI. The City collected in-lieu fee revenues from one project totaling $4.2 million. The City has not yet allocated the fee revenues to an affordable project.

Compliance Options Being Utilized

The City’s program is designed to comply with state law while providing incentives to achieve policy goals. In particular, the City is most interested in inclusionary units at 60% MFI. The program has been successful in achieving this outcome, as most projects comply by setting aside units onsite, and almost half of the units are set at 60% MFI. The in-lieu fee option, which is set at a level to encourage the production of units, has only been used by one project. In addition, one developer has complied with the ordinance by providing offsite units (two buildings “sent” their inclusionary units to a third building in the same neighborhood with similar units).

Developers have chosen to reconfigure the bedroom mix of the inclusionary units in order to provide fewer overall units, particularly in the Central City Plan Area, where the tax exemption incentives can apply to the entire building in certain circumstances.

Incentives offered under Portland’s
inclusionary program vary by
geographic area.

Keyser Marston Associates, Inc. Page 62
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE DENVER

Program History and Requirements

In 2021, the Colorado passed state
legislation enabling cities to apply
inclusionary housing requirements to
rental projects. The new law requires
cities to offer options and at least one alternative to onsite compliance. In addition, it requires incentives to help offset the cost of compliance.

Following enactment of the new State legislation, the City of Denver adopted its “Expanding Housing Affordability” policy, which modified the City’s existing affordable housing linkage fee, adopted in 2017.

Base Requirement

Residential developments of 10 or more units must set aside 8% to 15% of the units as affordable or pay an in lieu fee. The in lieu fee ranges from $250,000 to $478,000 depending on unit type and market area. The City offers incentives including flexible parking requirements, height incentives and permit fee reductions to help offset the cost of the inclusionary units.

Projects less than ten units are required to pay the affordable housing linkage fee that was previously in place, but the amount is being increased and is set to be fully phased in by July 2025. For units less than 1,600 square feet, the fully phased in fee will be $5 per square foot.

For units larger than 1,600 square feet, the fee will be $8 per square foot. (The fee for other residential uses such as congregate living will be $7 per square foot.)

The Expanding Housing Affordability program establishes two distinct market areas with differing requirements. Market areas are updated every three years and are based on the median land value per square foot by census tract. The market areas are:

Population 711,463
Land Area 153 square miles
Adopted / Updated 2001, updated 2016, 2022
Program Structure Inclusionary requirement w/ fee
option
Inclusionary Percentage 8% - 15%, depending on income
level, unit type, market area
Income Levels for
Inclusionary Units
Rental: 60% or 70% (average)
For Sale: 80% or 90% (average)
In-Lieu Fee Amount $250,000 - $478,000, depending
on unit type and market area
10-Year Housing Production
Multi-Family:

Single-Family:

Ten-Year Total

35,601
56,385
73,941
Source: US Census.

Keyser Marston Associates, Inc. Page 63
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE  High Market Areas, which includes census tracts with a median land value equal to five (5) or more times greater than the citywide median land value; and
 Typical Market Areas, which include all other census tracts.

In Typical Market Areas, projects with 10 or more units can choose to set aside 8% of units at 60% AMI (rental) and 80% AMI (ownership), or 12% at an effective average of 70% AMI (rental) and 90% AMI (ownership). In High Market Areas, the onsite percentages increase to 10% and 15% of total dwelling units.

Incentives

There are three base incentives for projects providing
onsite affordable units. Projects are eligible for a building permit fee reduction equal to $6,500 per affordable unit in Typical Market Areas and $10,000 per affordable unit in High Market Areas. Projects are also eligible for a
reduced parking standard. Ground floor commercial
uses in residential buildings providing onsite affordable units are exempt from paying the affordable housing
linkage fee.

Projects that set aside a higher percentage of affordable units are eligible for an increase in building height and floor area ratio and an exemption from parking requirements, in addition to the base incentives. In Typical Market Areas, enhanced incentives are available to projects that provide 10% at 60% AMI (rental) and 80% AMI (ownership), or 15% at an average of 70% AMI (rental) and 90% (owner). In High Market Areas, the percentage thresholds to qualify for enhanced incentives are 12% and 18%, depending on the income level of the units.

Alternatives

Consistent with state law in Colorado, Denver provides an in-lieu fee option, in the amounts shown in the table below. Fees are adjusted annually based on the CPI-U index.

Denver’s
requirements vary
by market area.

Keyser Marston Associates, Inc. Page 64
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE Denver In-Lieu Fees
Market Area
Onsite Percentage to be used
for the Fee Calculations Development Types
Fee per affordable
unit required
High Market Area 10% of dwelling units Rental development $311,000 Ownership development $478,000
Typical Market Area 8% of dwelling units
Townhouses $250,000
Ownership development, dwelling
units other than townhouses $408,000
Rental development of one to
seven stories $250,000
Rental development of eight or
more stories $295,000

Affordable units must remain affordable for 99 years. Units must be functionally equivalent in construction and appearance, interspersed among the other units in the development, and proportionate in the number of bedrooms.

Applicants may propose an alternative approach to satisfy the requirements of the Expanded Housing Affordability policy, such as land dedication, deeper affordability, larger family units, or offsite units. The applicant must demonstrate how the proposed alternative provides outcomes that better support the city’s goals and policies. Alternatives may be approved at the staff level.

The City designates large projects (10 or more acres) or projects receiving public financing as “High Impact Developments.” High Impact Developments must finalize and record a compliance plan approved by the City. The plan must demonstrate how the proposed development meets or exceeds the affordability requirements, and it must also be informed by and responsive to a documented community engagement process.

Affordable Housing Production

The prior affordable housing linkage fee program, which also applies to non-residential development, generated $24 million in fees between 2017 and 2020. Under that program, onsite units were allowed as an alternative to the fee, but no incentives were provided. Only three affordable units were provided on-site under the former program between 2017 and 2020. The Expanding Housing Affordability ordinance went into effect July 1, 2022; however, projects approved since then and through June 2023 are grandfathered under the prior linkage fee program rules and are not subject to the new program. As such there isn’t yet data on housing production under the new program.

Keyser Marston Associates, Inc. Page 65
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE

SAN JOSE

[To Be Added]

Population 1,013,240
Land Area 178 square miles
Adopted / Updated 2010; first implemented 2016;
amended 2021
Program Structure Inclusionary w/ fee option
Inclusionary Percentage 15%
Income Levels for
Inclusionary Units
R: 5% each at Very Low,
Low, Median
FS: 15% at Moderate
In-Lieu Fee Amount Rental
Moderate Market Areas:
$19.68/SF net livable area
Strong Market Areas:
$45.26/SF net livable area
For-Sale
$26.32/SF net livable area
10-Year Housing Production
Multi-Family:

Single-Family:

Ten-Year Total

23,281
2,761
26,042
Source: US Census.

Keyser Marston Associates, Inc. Page 66
\\SF-FS2\wp\18\18996\036\001-003.docx WORKING DRAFT - SUBJECT TO CHANGE APPE

NDIX TABLES
Part A - Summary Tables Appendix A
Summary of Scenario Testing, For-Sale, Assuming Prior More Favorable Market Conditions for Scenario Testing
Table 1A
Summary of Scenario Testing, For-Sale, Assuming Current Market Condition for Scenario Testing Table 1B Summary of Scenario Testing, Rentals Table 1C
Dollar Per Square Foot Cost Relative to Existing Requirements: For-Sale Table 2A Dollar Per Square Foot Cost Relative to Existing Requirements: Rentals Table 2B Percentage Change In Residual Land Value: For-Sale Table 3A Percentage Change In Residual Land Value: Rental Table 3B Total Fees/Permits/Affordable Housing Costs as % of Total Development Cost of Unit: For-Sale Table 4A Total Fees/Permits/Affordable Housing Costs as % of Total Development Cost of Unit: Rental Table 4B Part B - For-Sale Pro Forma Tables
For-Sale Pro Forma Tables, Sce
narios 1 to 22 Table 5A to 5V
Part C - Rental Pro Forma Tables
Rental Pro Form
a Tables, Scenarios 1 to 19 Table 6A to 6S
Part D - Supporting Analysis and Data
Recent Multifamily Residential Property Tran
sactions Table 7
Residential Land Sales Table 8
Infrastructure Costs Comps, Master Plan Developments Table 9 Estimated Cost, Provision of Units in Stand Alone LIHTC Project Table 10 Affordable Rents Table 11
Affordable Home Price Calculation Table 12
Estimated Fees and Permit Cost Detail Table 13
Part E - Market Survey Tables Appendix B
Prototype Projects Table 1
Geographic Area Definitions Table 2
New Homes Marketing and Pricing as of April 2022 Table 3 New Home Re-Sales by Geographic Area Table 4
Asking Rents for Recently Built Apartments by Location, Winter 2023 Table 5 Projects: Central City Area Table 6A
Projects: South Neighborhoods Table 6B
Projects: North Sacramento and South Natomas Table 6C
Projects: North Natomas Table 6D
Projects: Inner South and East Neighborhoods Table 6E
Change in Asking Rents in Newer Apartment Buildings, Summer 2022 to Winter 2023 Table 7 Apartment Unit Mix Table 8
New Homes for Sale April 2022 and January 2023 Table 9
Home Price Trends, July 2021 to February 2023 Table 10
Single Family Detached Sales, Built Since 2017 and Sold July 2021 to June 2022 Table 11

APPENDIX A - PART A

FINANCIAL FEASIBILITY ANALYSIS SUMMARY TABLES

Appendix A Table 1A
Summary of Scenario Testing, For-Sale, Assuming Prior More Favorable Market Conditions for Scenario Testing Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix A
Table
Central
City
Townhome SF SF sm lot SF SF sm lot SF SF sm lot SF SF sm lot Existing HIF, Current and Prior Market Conditions, With and Without New Utility Fees 1 Current Market, New Utility Fees, Existing HIF Table 5A FMM I I MM M F 2 Current Market, Existing Utility Fees, Existing HIF Table 5B FMF I M FF M F 3 Prior Market, Existing Utility Fees, Existing HIF Table 5C FFF F F FF F F 5% On-Site For-Sale Affordable Units
4 Prior Market, New Utility Fees, 5% @ Mod@110% AMI Table 5D FFF M F FF F F 5 Prior Market, New Utility Fees, 5% @ Mod@90% AMI Table 5E FFF M F FF F F 6 Prior Market, New Utility Fees, 5% @ Low @70% AMI Table 5F FFF M F FF F F 10% On-Site For-Sale Affordable Units
7 Prior Market, New Utility Fees, 10% @ Mod@110% AMI Table 5G FFF M F FF M F 8 Prior Market, New Utility Fees, 10% @ Mod@90% AMI Table 5H FFF M F FF M F 9 Prior Market, New Utility Fees, 10% @ Low@70% AMI Table 5I FMF I M FF M F 15% On-Site For-Sale Affordable Units
10 Prior Market, New Utility Fees, 15% @ Mod@110% AMI Table 5J FFF M F FF M F 11 Prior Market, New Utility Fees, 15% @ Mod@90% AMI Table 5K MMF I M F F M F 12 Prior Market, New Utility Fees, 15% @ Low@70% AMI Table 5L MIM I IM MM F Include Stand-Alone LIHTC Affordable Project (primarily an option for larger master plans) 13 Prior Market, New Utility Fees, 10% in LIHTC Project Table 5M n/a F F M F F F n/a n/a 14 Prior Market, New Utility Fees, 15% in LIHTC Project Table 5N n/a F F M F F F n/a n/a 15 Prior Market, New Utility Fees, 20% in LIHTC Project Table 5O n/a F F M F F F n/a n/a n/a = not likely to be practical based on typically smaller site / project size Affordable Housing Fee Scenarios
16 Prior Market, New Utility Fees, Existing HIF Table 5P FFF M F FF F F 17 Prior Market, New Utility Fees, remove HIF incentives Table 5Q FFF M F FF F F 18 Prior Market, New Utility Fees, HIF @$5/SF Table 5R FFF M F FF F F 19 Prior Market, New Utility Fees, HIF @$7.50/SF Table 5S FFF M F FF F F 20 Prior Market, New Utility Fees, HIF @$10/SF Table 5T FFF I MFF F F 21 Prior Market, New Utility Fees, HIF @$15/SF Table 5U FMM I M FF F F 22 Prior Market, New Utility Fees, HIF @$20/SF Table 5V FMM I I FF F F F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged
Scenario
Southern
Neighborhoods
North Sacramento
and South Natomas North Natomas
Inner South & East
and West of I-5
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; FSsum

Appendix A Table 1B
Summary of Scenario Testing, For-Sale, Assuming Current Market Condition for Scenario Testing Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Central
City
Townhome SF SF sm lot SF SF sm lot SF SF sm lot SF SF sm lot Existing HIF, Current and Prior Market Conditions, With and Without New Utility Fees 5% On-Site For-Sale Affordable Units
4 Current Market, New Utility Fees, 5% @ Mod@110% AMI MMM I I MF M F 5 Current Market, New Utility Fees, 5% @ Mod@90% AMI MIM I IM MM F 6 Current Market, New Utility Fees, 5% @ Low @70% AMI MI I I IM MM F 10% On-Site For-Sale Affordable Units
7 Current Market, New Utility Fees, 10% @ Mod@110% AMI MIM I IM MM F 8 Current Market, New Utility Fees, 10% @ Mod@90% AMI MI I I IM MM M 9 Current Market, New Utility Fees, 10% @ Low@70% AMI M I II I I IIM 15% On-Site For-Sale Affordable Units
10 Current Market, New Utility Fees, 15% @ Mod@110% AMI M I MI I M MI M 11 Current Market, New Utility Fees, 15% @ Mod@90% AMI III I I II I M 12 Current Market, New Utility Fees, 15% @ Low@70% AMI III I I II I I Include Stand-Alone LIHTC Affordable Project (primarily an option for larger master plans) 13 Current Market, New Utility Fees, 10% in LIHTC Project n/a I M I I F M n/a n/a 14 Current Market, New Utility Fees, 15% in LIHTC Project n/a I I I I F M n/a n/a 15 Current Market, New Utility Fees, 20% in LIHTC Project n/a I I I I M M n/a n/a n/a = not likely to be practical based on typically smaller site / project size Affordable Housing Fee Scenarios
16 Current Market, New Utility Fees, Existing HIF FMM I I MM M F 17 Current Market, New Utility Fees, remove HIF incentives FI I I IM MM F 18 Current Market, New Utility Fees, HIF @$5/SF FI I I IM MM F 19 Current Market, New Utility Fees, HIF @$7.50/SF FI I I IM MM F 20 Current Market, New Utility Fees, HIF @$10/SF MI I I IMI M F 21 Current Market, New Utility Fees, HIF @$15/SF MI I I I I I M F 22 Current Market, New Utility Fees, HIF @$20/SF MI I I I I I M M F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged
Scenario
Southern
Neighborhoods
North Sacramento
and South Natomas North Natomas
Inner South & East
and West of I-5
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; FSsum (PM)

Appendix A Table 1C
Summary of Scenario Testing, Rentals
Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix A
Table
Southern
Neighborhoods
North Sacramento
and South
Natomas
North
Natomas
Inner South &
East and West
of I-5
Med Density High Density
Existing HIF, Current and Prior Market Conditions, With and Without New Utility Fees 1 Current Mkt, New Utility Fees, Existing HIF Table 6A II I I I I 2 Current Mkt, Existing Utility Fees, Existing HIF Table 6B IM I I I I 3 Prior Mkt, Existing Utility Fees, Existing HIF Table 6C FF F F F F 5% On-Site Affordable Units
4 Prior Mkt, New Utility Fees, 5% Low @80% AMI Table 6D FF M M M F 5 Prior Mkt, New Utility Fees, 5% Low @60% AMI Table 6E FF M M M M 6 Prior Mkt, New Utility Fees, 5% Very Low @50% AMI Table 6F MF M M M M 10% On-Site Affordable Units
7 Prior Mkt, New Utility Fees, 10% Low @80% AMI Table 6G MF M M I M 8 Prior Mkt, New Utility Fees, 10% Low @60% AMI Table 6H IF I I I I 9 Prior Mkt, New Utility Fees, 10% Very Low @50% AMI Table 6I IM I I I I 15% On-Site Affordable Units
10 Prior Mkt, New Utility Fees, 15% Low @80% AMI Table 6J IM I I I I 11 Prior Mkt, New Utility Fees, 15% Low @60% AMI Table 6K IM I I I I 12 Prior Mkt, New Utility Fees, 15% Very Low @50% AMI Table 6L II I I I I Affordable Housing Fee Scenarios
13 Prior Mkt, New Utility Fees, Existing HIF Table 6M FF F F F F 14 Prior Mkt, New Utility Fees, HIF @$5/SF Table 6N FF M F M F 15 Prior Mkt, New Utility Fees, HIF @$7.50/SF Table 6O FF M M M F 16 Prior Mkt, New Utility Fees, HIF @$10/SF Table 6P FF M M M F 17 Prior Mkt, New Utility Fees, HIF @$15/SF Table 6Q FF M M M M 18 Prior Mkt, New Utility Fees, HIF @$20/SF Table 6R MF I M I M 19 Prior Mkt, New Utility Fees, remove HIF incentives Table 6S FF F F F F F= Feasible
M= Marginal Feasibility
I= Infeasible / Challenged
Central CityScenario
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; Rsum

Appendix A Table 2A
Dollar Per Square Foot Cost Relative to Existing Requirements: For-Sale Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix A
Table
Central
City
Townhome SF SF sm lot SF SF sm lot SF SF sm lot SF SF sm lot 3 Prior Market, No Change in Requirements Table 5C $0 $0 $0 $0 $0 $0 $0 $0 $0 5% On-Site For-Sale Affordable Units
4 Prior Market, New Utility Fees, 5% @ Mod@110% AMI Table 5D $17 $7 $8 $8 $9 $6 $6 $15 $19 5 Prior Market, New Utility Fees, 5% @ Mod@90% AMI Table 5E $19 $9 $10 $10 $11 $8 $8 $17 $21 6 Prior Market, New Utility Fees, 5% @ Low@70% AMI Table 5F $21 $12 $13 $13 $15 $10 $11 $19 $23 10% On-Site For-Sale Affordable Units
7 Prior Market, New Utility Fees, 10% @ Mod@110% AMI Table 5G $28 $10 $9 $11 $10 $11 $9 $26 $28 8 Prior Market, New Utility Fees, 10% @ Mod@90% AMI Table 5H $31 $14 $14 $14 $14 $14 $13 $29 $32 9 Prior Market, New Utility Fees, 10% @ Low@70% AMI Table 5I $37 $20 $21 $20 $21 $19 $20 $34 $38 15% On-Site For-Sale Affordable Units
10 Prior Market, New Utility Fees, 15% @ Mod@110% AMI Table 5J $39 $13 $11 $13 $11 $15 $12 $37 $38 11 Prior Market, New Utility Fees, 15% @ Mod@90% AMI Table 5K $44 $19 $18 $18 $18 $20 $18 $42 $44 12 Prior Market, New Utility Fees, 15% @ Low@70% AMI Table 5L $52 $28 $28 $27 $28 $28 $28 $48 $52 Include Stand-Alone LIHTC Affordable Project (primarily an option for larger master plans) 13 Prior Market, New Utility Fees, 10% in LIHTC Project Table 5M n/a $7 $9 $8 $11 $4 $6 n/a n/a 14 Prior Market, New Utility Fees, 15% in LIHTC Project Table 5N n/a $9 $11 $10 $13 $5 $8 n/a n/a 15 Prior Market, New Utility Fees, 20% in LIHTC Project Table 5O n/a $10 $13 $11 $15 $6 $10 n/a n/a n/a = not likely to be practical based on typically smaller site / project size Affordable Housing Fee Scenarios
16 Prior Market, New Utility Fees, Existing HIF Table 5P $10 $6 $7 $8 $9 $5 $7 $8 $9 17 Prior Market, New Utility Fees, remove HIF incentives Table 5Q $10 $8 $10 $10 $11 $5 $7 $8 $13 18 New Utility Fees, HIF @$5/SF Table 5R $11 $10 $11 $11 $13 $7 $8 $9 $14 19 New Utility Fees, HIF @$7.50/SF Table 5S $14 $12 $14 $14 $16 $9 $11 $12 $17 20 New Utility Fees, HIF @$10/SF Table 5T $17 $15 $16 $16 $18 $12 $14 $15 $19 21 New Utility Fees, HIF @$15/SF Table 5U $22 $20 $22 $22 $23 $17 $19 $20 $25 22 New Utility Fees, HIF @$20/SF Table 5V $27 $26 $27 $27 $29 $22 $24 $25 $30 Note: figures are calculated using the pro forma results and reflect the net change in supported land value per square foot of net livable area.

Inner South & East
and West of I-5
Dollar Per Square Foot Cost Increase Relative to Existing Requirements (includes combined impact of affordable housing changes and utility fee increase)
Scenario
Southern
Neighborhoods
North Sacramento
and South Natomas North Natomas
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; FSCC

Appendix A Table 2B
Dollar Per Square Foot Cost Relative to Existing Requirements: Rentals Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix A
Table
Southern
Neighborhoods
North Sacramento
and South
Natomas
North
Natomas
Inner South &
East and West
of I-5
Med Density High Density
3 No Change Table 6C $0 $0 $0 $0 $0 $0
5% On-Site Affordable Units
4 New Utility Fees, 5% Low @80% AMI Table 6D $27 $35 $14 $19 $14 $20 5 New Utility Fees, 5% Low @60% AMI Table 6E $32 $40 $20 $22 $20 $24 6 New Utility Fees, 5% Very Low @50% AMI Table 6F $34 $43 $22 $24 $22 $26 10% On-Site Affordable Units
7 New Utility Fees, 10% Low @80% AMI Table 6G $42 $54 $23 $27 $24 $30 8 New Utility Fees, 10% Low @60% AMI Table 6H $51 $64 $31 $37 $32 $39 9 New Utility Fees, 10% Very Low @50% AMI Table 6I $56 $70 $35 $41 $36 $44 15% On-Site Affordable Units
10 New Utility Fees, 15% Low @80% AMI Table 6J $56 $73 $30 $38 $33 $40 11 New Utility Fees, 15% Low @60% AMI Table 6K $70 $88 $44 $50 $47 $54 12 New Utility Fees, 15% Very Low @50% AMI Table 6L $77 $96 $50 $56 $53 $61 Affordable Housing Fee Scenarios (net increase above existing, including new utility fees) 13 New Utility Fees Only, No HIF Change Table 6M $13 $14 $9 $11 $9 $13 14 New Utility Fees, HIF @$5/SF Table 6N $18 $19 $12 $15 $10 $14 15 New Utility Fees, HIF @$7.50/SF Table 6O $20 $22 $15 $17 $13 $17 16 New Utility Fees, HIF @$10/SF Table 6P $23 $24 $17 $20 $15 $19 17 New Utility Fees, HIF @$15/SF Table 6Q $28 $29 $22 $25 $20 $24 18 New Utility Fees, HIF @$20/SF Table 6R $33 $34 $27 $30 $25 $29 19 Prior Mkt, New Utility Fees, remove HIF incentives Table 6S $16 $18 $11 $13 $9 $13 Note: Figures are calculated using the pro forma results and reflect the net change in supported land value per square foot of net rentable area.

Scenario Central City
Dollar Per Square Foot Cost Increase Relative to Existing Requirements (includes combined impact of affordable housing changes and utility fee increase)
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; RCC

Appendix A Table 3A
Percentage Change In Residual Land Value: For-Sale
Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix A
Table
Central
City
Townhome SF SF sm lot SF SF sm lot SF SF sm lot SF SF sm lot 3 Prior Market, No Change in Requirements Table 5C 0% 0% 0% 0% 0% 0% 0% 0% 0% Baseline Residual Land Value/Unit for Feasible Project $256,200 $113,300 $94,200 $113,400 $89,600 $156,700 $104,900 $377,700 $250,900 5% On-Site For-Sale Affordable Units
4 Prior Market, New Utility Fees, 5% @ Mod@110% AMI Table 5D -12% -12% -12% -14% -15% -8% -9% -9% -13% 5 Prior Market, New Utility Fees, 5% @ Mod@90% AMI Table 5E -13% -15% -15% -17% -19% -11% -12% -10% -14% 6 Prior Market, New Utility Fees, 5% @ Low@70% AMI Table 5F -15% -19% -20% -22% -24% -14% -17% -12% -16% 10% On-Site For-Sale Affordable Units
7 Prior Market, New Utility Fees, 10% @ Mod@110% AMI Table 5G -20% -16% -14% -18% -17% -14% -14% -16% -19% 8 Prior Market, New Utility Fees, 10% @ Mod@90% AMI Table 5H -23% -22% -21% -24% -24% -19% -20% -18% -22% 9 Prior Market, New Utility Fees, 10% @ Low@70% AMI Table 5I -26% -31% -32% -33% -36% -26% -30% -21% -26% 15% On-Site For-Sale Affordable Units
10 Prior Market, New Utility Fees, 15% @ Mod@110% AMI Table 5J -28% -20% -17% -22% -18% -21% -18% -23% -26% 11 Prior Market, New Utility Fees, 15% @ Mod@90% AMI Table 5K -32% -29% -27% -31% -30% -27% -28% -25% -30% 12 Prior Market, New Utility Fees, 15% @ Low@70% AMI Table 5L -37% -43% -43% -45% -47% -37% -42% -29% -36% Include Stand-Alone LIHTC Affordable Project (primarily an option for larger master plans) 13 Prior Market, New Utility Fees, 10% in LIHTC Project Table 5M n/a -11% -14% -14% -18% -5% -9% n/a n/a 14 Prior Market, New Utility Fees, 15% in LIHTC Project Table 5N n/a -14% -17% -16% -21% -7% -12% n/a n/a 15 Prior Market, New Utility Fees, 20% in LIHTC Project Table 5O n/a -16% -20% -19% -25% -9% -14% n/a n/a n/a = not likely to be practical based on typically smaller site / project size Affordable Housing Fee Scenarios
16 Prior Market, New Utility Fees, Existing HIF Table 5P -7% -10% -11% -13% -16% -7% -10% -5% -6% 17 Prior Market, New Utility Fees, remove HIF incentives Table 5Q -7% -13% -15% -16% -19% -7% -10% -5% -9% 18 New Utility Fees, HIF @$5/SF Table 5R -8% -15% -17% -19% -22% -9% -13% -6% -10% 19 New Utility Fees, HIF @$7.50/SF Table 5S -10% -19% -21% -23% -26% -13% -17% -7% -11% 20 New Utility Fees, HIF @$10/SF Table 5T -12% -23% -25% -28% -31% -16% -21% -9% -13% 21 New Utility Fees, HIF @$15/SF Table 5U -16% -31% -33% -36% -39% -23% -29% -12% -17% 22 New Utility Fees, HIF @$20/SF Table 5V -19% -39% -41% -45% -48% -30% -37% -15% -20% Inner South & East
and West of I-5
Percentage Change In Residual Land Value
Scenario
Southern
Neighborhoods
North Sacramento
and South Natomas North Natomas
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; FSRLV

Appendix A Table 3B
Percentage Change In Residual Land Value: Rental
Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix A
Table
Southern
Neighborhoods
North Sacramento
and South
Natomas
North
Natomas
Inner South &
East and West
of I-5
Med Density High Density
3 No Change Table 6C 0% 0% 0% 0% 0% 0%
Baseline Residual Land Value/Unit for Feasible Project $58,800 $71,200 $26,700 $29,300 $23,800 $56,400 5% On-Site Affordable Units
4 New Utility Fees, 5% Low @80% AMI Table 6D -36% -34% -48% -57% -53% -27% 5 New Utility Fees, 5% Low @60% AMI Table 6E -42% -39% -68% -69% -75% -33% 6 New Utility Fees, 5% Very Low @50% AMI Table 6F -45% -42% -74% -75% -82% -36% 10% On-Site Affordable Units
7 New Utility Fees, 10% Low @80% AMI Table 6G -55% -52% -78% -84% -92% -41% 8 New Utility Fees, 10% Low @60% AMI Table 6H -67% -62% -104% -115% -122% -53% 9 New Utility Fees, 10% Very Low @50% AMI Table 6I -73% -67% -118% -127% -138% -60% 15% On-Site Affordable Units
10 New Utility Fees, 15% Low @80% AMI Table 6J -74% -70% -101% -118% -125% -55% 11 New Utility Fees, 15% Low @60% AMI Table 6K -92% -86% -148% -155% -177% -74% 12 New Utility Fees, 15% Very Low @50% AMI Table 6L -101% -93% -169% -173% -200% -83% Affordable Housing Fee Scenarios
13 New Utility Fees Only, No HIF Change Table 6M -17% -14% -29% -34% -33% -18% 14 New Utility Fees, HIF @$5/SF Table 6N -23% -19% -41% -45% -39% -20% 15 New Utility Fees, HIF @$7.50/SF Table 6O -27% -21% -49% -53% -49% -23% 16 New Utility Fees, HIF @$10/SF Table 6P -30% -24% -58% -60% -58% -26% 17 New Utility Fees, HIF @$15/SF Table 6Q -36% -28% -75% -76% -77% -33% 18 New Utility Fees, HIF @$20/SF Table 6R -43% -33% -91% -91% -96% -40% 19 Prior Mkt, New Utility Fees, remove HIF incentives Table 6S -21% -17% -36% -40% -33% -18% Scenario Central City
Percentage Change In Residual Land Value
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; RRLV

Appendix A Table 4A
Total Fees/Permits/Affordable Housing Costs as % of Total Development Cost of Unit: For-Sale Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix
A Table
Central
City
Townhome SF SF sm lot SF SF sm lot SF SF sm lot SF SF sm lot 3 Existing Requirements Table 5C 6.4% 10.7% 10.6% 9.5% 10.3% 14.0% 14.7% 5.8% 6.1% 5% On-Site For-Sale Affordable Units
4 Prior Market, New Utility Fees, 5% @ Mod@110% AMI Table 5D 9.5% 12.6% 12.3% 11.7% 12.6% 14.6% 15.0% 8.6% 10.8% 5 Prior Market, New Utility Fees, 5% @ Mod@90% AMI Table 5E 10.0% 13.4% 13.2% 12.4% 13.5% 15.2% 15.8% 9.0% 11.3% 6 Prior Market, New Utility Fees, 5% @ Low@70% AMI Table 5F 10.7% 14.5% 14.5% 13.6% 14.9% 16.2% 17.0% 9.7% 12.1% 10% On-Site For-Sale Affordable Units
7 Prior Market, New Utility Fees, 10% @ Mod@110% AMI Table 5G 12.2% 13.5% 12.7% 12.5% 12.7% 16.1% 15.8% 11.5% 13.3% 8 Prior Market, New Utility Fees, 10% @ Mod@90% AMI Table 5H 13.1% 15.1% 14.5% 14.0% 14.5% 17.4% 17.4% 12.3% 14.4% 9 Prior Market, New Utility Fees, 10% @ Low@70% AMI Table 5I 14.5% 17.4% 17.2% 16.2% 17.3% 19.4% 19.8% 13.5% 16.0% 15% On-Site For-Sale Affordable Units
10 Prior Market, New Utility Fees, 15% @ Mod@110% AMI Table 5J 14.9% 14.5% 13.2% 13.2% 12.9% 17.7% 16.6% 14.3% 15.8% 11 Prior Market, New Utility Fees, 15% @ Mod@90% AMI Table 5K 16.3% 16.8% 15.9% 15.4% 15.6% 19.7% 19.0% 15.5% 17.4% 12 Prior Market, New Utility Fees, 15% @ Low@70% AMI Table 5L 18.4% 20.3% 19.9% 18.8% 19.7% 22.6% 22.6% 17.4% 19.9% Include Stand-Alone LIHTC Affordable Project (primarily an option for larger master plans) 13 Prior Market, New Utility Fees, 10% in LIHTC Project Table 5M n/a 13.5% 14.0% 12.7% 14.5% 14.6% 16.2% n/a n/a 14 Prior Market, New Utility Fees, 15% in LIHTC Project Table 5N n/a 14.6% 15.3% 13.8% 15.8% 15.5% 17.3% n/a n/a 15 Prior Market, New Utility Fees, 20% in LIHTC Project Table 5O n/a 15.8% 16.7% 14.9% 17.2% 16.5% 18.5% n/a n/a n/a = not likely to be practical based on typically smaller site / project size Affordable Housing Fee Scenarios
16 Prior Market, New Utility Fees, Existing HIF Table 5P 8.6% 12.8% 13.0% 12.2% 13.6% 15.6% 16.7% 7.7% 8.3% 17 Prior Market, New Utility Fees, remove HIF incentives Table 5Q 8.6% 14.3% 14.4% 13.7% 15.0% 15.6% 16.7% 7.7% 10.2% 18 New Utility Fees, HIF @$5/SF Table 5R 9.4% 15.4% 15.5% 14.8% 16.1% 16.7% 17.8% 8.5% 11.0% 19 New Utility Fees, HIF @$7.50/SF Table 5S 10.7% 17.2% 17.3% 16.7% 17.9% 18.5% 19.4% 9.8% 12.3% 20 New Utility Fees, HIF @$10/SF Table 5T 11.9% 19.0% 19.0% 18.5% 19.7% 20.3% 21.1% 11.0% 13.6% 21 New Utility Fees, HIF @$15/SF Table 5U 14.4% 22.5% 22.3% 22.0% 23.2% 23.7% 24.3% 13.5% 16.1% 22 New Utility Fees, HIF @$20/SF Table 5V 16.7% 25.8% 25.5% 25.5% 26.5% 26.9% 27.4% 16.0% 18.6% Proposed New Utility Fees as % of TDC 2.3% 2.1% 2.4% 2.7% 3.2% 1.7% 2.0% 1.9% 2.3% Inner South & East
and West of I-5 Scenario
Southern
Neighborhoods
North Sacramento
and South
Natomas North Natomas
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; FS%TDC

Appendix A Table 4B
Total Fees/Permits/Affordable Housing Costs as % of Total Development Cost of Unit: Rental Feasibility Analysis
Sacramento MIHO Review Working Draft - Subject to Substantial Change Appendix
A Table
Southern
Neighborhoods
North Sacramento
and South
Natomas
North
Natomas
Inner South &
East and West
of I-5
Med Density High Density
3 No Change Table 6C 7.1% 7.4% 7.7% 7.9% 8.0% 7.5%
5% On-Site Affordable Units
4 New Utility Fees, 5% Low @80% AMI Table 6D 9.9% 10.9% 8.8% 9.3% 8.4% 8.1% 5 New Utility Fees, 5% Low @60% AMI Table 6E 10.8% 11.9% 10.5% 10.3% 10.0% 9.3% 6 New Utility Fees, 5% Very Low @50% AMI Table 6F 11.3% 12.3% 11.1% 10.9% 10.5% 9.8% 10% On-Site Affordable Units
7 New Utility Fees, 10% Low @80% AMI Table 6G 12.9% 14.3% 11.4% 11.7% 11.2% 10.6% 8 New Utility Fees, 10% Low @60% AMI Table 6H 14.9% 16.2% 13.8% 14.5% 13.4% 12.8% 9 New Utility Fees, 10% Very Low @50% AMI Table 6I 15.8% 17.1% 15.0% 15.6% 14.5% 14.0% 15% On-Site Affordable Units
10 New Utility Fees, 15% Low @80% AMI Table 6J 15.9% 17.7% 13.5% 14.8% 13.6% 13.1% 11 New Utility Fees, 15% Low @60% AMI Table 6K 18.9% 20.5% 17.7% 18.1% 17.3% 16.4% 12 New Utility Fees, 15% Very Low @50% AMI Table 6L 20.3% 22.0% 19.6% 19.8% 19.0% 18.1% Affordable Housing Fee Scenarios
13 New Utility Fees Only, No HIF Change Table 6M 6.9% 7.2% 7.5% 7.6% 7.8% 7.3% 14 New Utility Fees, HIF @$5/SF Table 6N 8.8% 8.9% 9.5% 9.4% 8.6% 8.0% 15 New Utility Fees, HIF @$7.50/SF Table 6O 9.8% 9.7% 10.8% 10.7% 9.9% 9.1% 16 New Utility Fees, HIF @$10/SF Table 6P 10.7% 10.5% 12.2% 12.0% 11.1% 10.2% 17 New Utility Fees, HIF @$15/SF Table 6Q 12.6% 12.2% 14.8% 14.4% 13.5% 12.3% 18 New Utility Fees, HIF @$20/SF Table 6R 14.5% 13.8% 17.4% 16.8% 15.8% 14.5% 19 Prior Mkt, New Utility Fees, remove HIF incentives Table 6S 8.3% 8.4% 8.6% 8.6% 7.8% 7.3% Proposed New Utility Fees as % of TDC -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% Scenario Central City
Prepared by: Keyser Marston Associates
Filename:Sac City Feas 3-31-23; R%TDC

APPENDIX A - PART B

FOR-SALE PRO FORMA TABLES

Appendix A Table 5A Current Market (downward pricing trend / more incentives, higher interest) For-Sale Pro Forma Existing HIF Requirement
Feasibility Analysis New Water/Sewer/Drainage Fees
Sacramento MIHO Review Page 1 of 3 Working Draft - Subject to Substantial Change

Living Area Net SF 1,850 sf 1,750 sf 1,450 sf
Average Number of Bedrooms 2.8 bedrooms 3.25 bedrooms 3.0 bedrooms Density 26 du/acre 11 du/acre 18 du/acre
Stories/ Construction Type 3 stories/ wood 1-2 stories/ wood 2 stories/ wood Parking Ratio/ Type 2.0 garage 2.0 garage 2.0 garage
Revenue Per SF Per Unit Per SF Per Unit Per SF Per Unit Market Rate Units 100% $442 $817,000 $277 $484,000 $292 $423,000 Low 0% $95 $175,880 $104 $182,075 $123 $179,000
Mod@90% AMI 0% $156 $288,900 $171 $299,700 $203 $294,300 Mod@110% AMI 0% $197 $363,660 $216 $377,525 $256 $370,600 Average Gross Sales Price $442 $817,000 $277 $484,000 $292 $423,000 <Less> Closing Costs 3.25% sales ($14) ($26,600) ($9) ($15,700) ($9) ($13,700) Revenue Net of Sales Expense $427 $790,400 $268 $468,300 $282 $409,300 Development Costs Per NSF Per Unit Per NSF Per Unit Per NSF Per Unit Direct House Costs $180 $333,000 $124 $217,000 $135 $196,000 Fees & Permits, excl. hsg $30 $54,700 $31 $54,300 $32 $47,000 Housing Impact Fee $4 $6,500 $1 $2,600 $2 $2,200
Marketing/Model Costs 1.75% sales $8 $14,300 $5 $8,500 $5 $7,400 Warranty/Insurance 1.5% sales $7 $12,300 $4 $7,300 $4 $6,300 Other Indirects 9% directs $16 $30,000 $11 $19,500 $12 $17,600 Builder Overhead/G&A 3% sales $13 $24,500 $8 $14,500 $9 $12,700 Financing $23 $41,900 $15 $26,300 $15 $22,400
Total House Costs $280 $517,200 $200 $350,000 $215 $311,600 Finished Lot Residual
Net Sales Revenue $427 $790,400 $268 $468,300 $282 $409,300 <Less> Development Costs ($280) ($517,200) ($200) ($350,000) ($215) ($311,600) <Less> Net Builder Profit 10% sales ($81,700) ($48,400) ($42,300) Lot Value (Finished Lot) $191,500 $69,900 $55,400
$/Land SF $M/Acre Land $/Land SF $M/Acre Land $/Land SF $M/Acre Land Residual Lot Value $115 $5.0 $18 $0.8 $23 $1.0
Lot Cost Estimate $120 $5.2 $25 $1.1 $30 $1.3
Feasibility Finding
Single Family Detached
Southern Neighborhoods
Feasible Marginal Feasibility Marginal Feasibility
Appendix A Table 13
Attached Townhomes Small Lot Detached
Central City
Prepared by Keyser Marston Associates, Inc.

C:\Users\DDoezema\Desktop\Sac City\Sac City Feas 3-31-23

Appendix A Table 5A
For-Sale Pro Forma
Feasibility Analysis
Sacramento MIHO Review

Living Area Net SF
Average Number of Bedrooms
Density
Stories/ Construction Type
Parking Ratio/ Type
Revenue
Market Rate Units
100%
Low 0%
Mod@90% AMI 0%
Mod@110% AMI 0%
Average Gross Sales Price
<Less> Closing Costs

3.25% sales
Revenue Net of Sales Expense
Development Costs
Direct House Costs
Fees & Permits, excl. hsg
Housing Impact Fee
Marketing/Model Costs

1.75% sales
Warranty/Insurance 1.5% sales
Other Indirects 9% directs
Builder Overhead/G&A 3% sales
Financing
Total House Costs
Finished Lot Residual
Net Sales Revenue
<Less> Development Costs
<Less> Net Builder Profit
10% sales
Lot Value (Finished Lot)
Residual Lot Value
Lot Cost Estimate
Feasibility Finding
Appendix A Table 13
Current Market (downward pricing trend / more incentives, higher interest) Existing HIF Requirement
New Water/Sewer/Drainage Fees

1,900 sf 1,500 sf 2,100 sf 1,600 sf

3.60 bedrooms 3.3 bedrooms 3.6 bedrooms 3.3 bedrooms
9 du/acre 18 du/acre 9 du/acre 18 du/acre
2 stories/ wood 2 stories/ wood 2 stories/ wood 2 stories/ wood

2.0 garage 2.0 garage 2.0 garage 2.0 garage
Per SF Per Unit Per SF Per Unit Per SF Per Unit Per SF Per Unit $255 $484,000 $276 $414,000 $291 $611,000 $309 $494,000 $98 $186,380 $122 $182,690 $89 $186,380 $114 $182,690
$162 $307,260 $201 $300,780 $146 $307,260 $188 $300,780 $204 $387,220 $253 $378,910 $184 $387,220 $237 $378,910 $255 $484,000 $276 $414,000 $291 $611,000 $309 $494,000 ($8) ($15,700) ($9) ($13,500) ($9) ($19,900) ($10) ($16,100) $246 $468,300 $267 $400,500 $281 $591,100 $299 $477,900 Per NSF Per Unit Per NSF Per Unit Per NSF Per Unit Per NSF Per Unit $115 $219,000 $129 $194,000 $118 $248,000 $136 $218,000 $29 $54,300 $33 $49,000 $37 $77,100 $42 $66,900
$2 $2,900 $2 $2,300 $3 $7,300 $4 $5,600
$4 $8,500 $5 $7,200 $5 $10,700 $5 $8,600
$4 $7,300 $4 $6,200 $4 $9,200 $5 $7,400
$10 $19,700 $12 $17,500 $11 $22,300 $12 $19,600
$8 $14,500 $8 $12,400 $9 $18,300 $9 $14,800
$15 $27,800 $15 $22,400 $15 $31,900 $16 $25,600
$186 $354,000 $207 $311,000 $202 $424,800 $229 $366,500 $246 $468,300 $267 $400,500 $281 $591,100 $299 $477,900 ($186) ($354,000) ($207) ($311,000) ($202) ($424,800) ($229) ($366,500) ($48,400) ($41,400) ($61,100) ($49,400)
$65,900 $48,100 $105,200 $62,000
$/Land SF $M/Acre Land $/Land SF $M/Acre Land $/Land SF $M/Acre Land $/Land SF $M/Acre Land $14 $0.6 $21 $0.9 $21 $0.9 $25 $1.1
$25 $1.1 $30 $1.3 $25 $1.1 $30 $1.3
Infeasible / Challenged
Small Lot Detached
North Sacramento and South Natomas North Natomas
Small Lot Detached Si ngle Family Detached
Infeasible / Challenged Marginal Feasibility Marginal Feasibility Single Family Detached
Prepared by Keyser Marston Associates, Inc.

C:\Users\DDoezema\Desktop\Sac City\Sac City Feas 3-31-23

Appendix A Table 5A
For-Sale Pro Forma
Feasibility Analysis
Sacramento MIHO Review

Living Area Net SF
Average Number of Bedrooms
Density
Stories/ Construction Type
Parking Ratio/ Type
Revenue
Market Rate Units
100%
Low 0%
Mod@90% AMI 0%
Mod@110% AMI 0%
Average Gross Sales Price
<Less> Closing Costs

3.25% sales
Revenue Net of Sales Expense
Development Costs
Direct House Costs
Fees & Permits, excl. hsg
Housing Impact Fee
Marketing/Model Costs

1.75% sales
Warranty/Insurance 1.5% sales
Other Indirects 9% directs
Builder Overhead/G&A 3% sales
Financing
Total House Costs
Finished Lot Residual
Net Sales Revenue
<Less> Development Costs
<Less> Net Builder Profit
10% sales
Lot Value (Finished Lot)
Residual Lot Value
Lot Cost Estimate
Feasibility Finding
Appendix A Table 13
Current Market (downward pricing trend / more incentives, higher interest) Existing HIF Requirement
New Water/Sewer/Drainage Fees

2,300 sf 1,700 sf

3.5 bedrooms 3.0 bedrooms
8 du/acre 20 du/acre
1-2 stories/ wood 3 stories/ wood

2.0 garage 2.0 garage
Per SF Per Unit Per SF Per Unit
$409 $940,000 $429 $729,000
$81 $185,150 $105 $179,000
$133 $305,100 $173 $294,300
$167 $384,450 $218 $370,600
$409 $940,000 $429 $729,000
($13) ($30,600) ($14) ($23,700)
$395 $909,400 $415 $705,300
Per NSF Per Unit Per NSF Per Unit
$137 $315,000 $168 $286,000
$25 $57,800 $30 $50,800
$3 $8,000 $0 $0
$7 $16,500 $8 $12,800
$6 $14,100 $6 $10,900
$12 $28,400 $15 $25,700
$12 $28,200 $13 $21,900
$22 $50,700 $21 $36,200
$226 $518,700 $261 $444,300
$395 $909,400 $415 $705,300
($226) ($518,700) ($261) ($444,300)
($94,000) ($72,900)
$296,700 $188,100
$/Land SF $M/Acre Land $/Land SF $M/Acre Land
$55 $2.4 $87 $3.8
$65 $2.8 $80 $3.5
Small Lot Detached Single Family Detached
Inner South & East and West of I-5
Marginal Feasibility Feasible
Prepared by Keyser Marston Associates, Inc.

C:\Users\DDoezema\Desktop\Sac City\Sac City Feas 3-31-23

Appendix A Table 5B Current Market (downward pricing trend / more incentives, higher interest) For-Sale Pro Forma Existing HIF Requirement
Feasibility Analysis Existing Water/Sewer/Drainage Fees Sacramento MIHO Review Page 1 of 3 Working Draft - Subject to Substantial Change

Living Area Net SF 1,850 sf 1,750 sf 1,450 sf
Average Number of Bedrooms 2.8 bedrooms 3.25 bedrooms 3.0 bedrooms Density 26 du/acre 11 du/acre 18 du/acre
Stories/ Construction Type 3 stories/ wood 1-2 stories/ wood 2 stories/ wood Parking Ratio/ Type 2.0 garage 2.0 garage 2.0 garage
Revenue Per SF Per Unit Per SF Per Unit Per SF Per Unit Market Rate Units 100% $442 $817,000 $277 $484,000 $292 $423,000 Low 0% $95 $175,880 $104 $182,075 $123 $179,000
Mod@90% AMI 0% $156 $288,900 $171 $299,700 $203 $294,300 Mod@110% AMI 0% $197 $363,660 $216 $377,525 $256 $370,600 Average Gross Sales Price $442 $817,000 $277 $484,000 $292 $423,000 <Less> Closing Costs 3.25% sales ($14) ($26,600) ($9) ($15,700) ($9) ($13,700) Revenue Net of Sales Expense $427 $790,400 $268 $468,300 $282 $409,300 Development Costs Per NSF Per Unit Per NSF Per Unit Per NSF Per Unit Direct House Costs $180 $333,000 $124 $217,000 $135 $196,000 Fees & Permits, excl. hsg $20 $37,400 $25 $43,900 $25 $36,700 Housing Impact Fee $4 $6,500 $1 $2,600 $2 $2,200
Marketing/Model Costs 1.75% sales $8 $14,300 $5 $8,500 $5 $7,400 Warranty/Insurance 1.5% sales $7 $12,300 $4 $7,300 $4 $6,300 Other Indirects 9% directs $16 $30,000 $11 $19,500 $12 $17,600 Builder Overhead/G&A 3% sales $13 $24,500 $8 $14,500 $9 $12,700 Financing $22 $40,800 $15 $25,600 $15 $21,800
Total House Costs $270 $498,800 $194 $338,900 $207 $300,700 Finished Lot Residual
Net Sales Revenue $427 $790,400 $268 $468,300 $282 $409,300 <Less> Development Costs ($270) ($498,800) ($194) ($338,900) ($207) ($300,700) <Less> Net Builder Profit 10% sales ($81,700) ($48,400) ($42,300) Lot Value (Finished Lot) $209,900 $81,000 $66,300
$/Land SF $M/Acre Land $/Land SF $M/Acre Land $/Land SF $M/Acre Land Residual Lot Value $126 $5.5 $21 $0.9 $28 $1.2
Lot Cost Estimate $120 $5.2 $25 $1.1 $30 $1.3
Feasibility Finding
Central City Southern Neighborhoods
Feasible Marginal Feasibility Feasible
Appendix A Table 13
Attached Townhomes Single Family Detached Small Lot Detached Prepared by Keyser Marston Associates, Inc.

C:\Users\DDoezema\Desktop\Sac City\Sac City Feas 3-31-23

Appendix A Table 5B
For-Sale Pro Forma
Feasibility Analysis
Sacramento MIHO Review

Living Area Net SF
Average Number of Bedrooms
Density
Stories/ Construction Type
Parking Ratio/ Type
Revenue
Market Rate Units
100%
Low 0%
Mod@90% AMI 0%
Mod@110% AMI 0%
Average Gross Sales Price
<Less> Closing Costs

3.25% sales
Revenue Net of Sales Expense
Development Costs
Direct House Costs
Fees & Permits, excl. hsg
Housing Impact Fee
Marketing/Model Costs

1.75% sales
Warranty/Insurance 1.5% sales
Other Indirects 9% directs
Builder Overhead/G&A 3% sales
Financing
Total House Costs
Finished Lot Residual
Net Sales Revenue
<Less> Development Costs
<Less> Net Builder Profit
10% sales
Lot Value (Finished Lot)
Residual Lot Value
Lot Cost Estimate
Feasibility Finding
Appendix A Table 13
Current Market (downward pricing trend / more incentives, higher interest) Existing HIF Requirement
Existing Water/Sewer/Drainage Fees

1,900 sf 1,500 sf 2,100 sf 1,600 sf

3.60 bedrooms 3.3 bedrooms 3.6 bedrooms 3.3 bedrooms
9 du/acre 18 du/acre 9 du/acre 18 du/acre
2 stories/ wood 2 stories/ wood 2 stories/ wood 2 stories/ wood

2.0 garage 2.0 garage 2.0 garage 2.0 garage
Per SF Per Unit Per SF Per Unit Per SF Per Unit Per SF Per Unit $255 $484,000 $276 $414,000 $291 $611,000 $309 $494,000 $98 $186,380 $122 $182,690 $89 $186,380 $114 $182,690
$162 $307,260 $201 $300,780 $146 $307,260 $188 $300,780 $204 $387,220 $253 $378,910 $184 $387,220 $237 $378,910 $255 $484,000 $276 $414,000 $291 $611,000 $309 $494,000 ($8) ($15,700) ($9) ($13,500) ($9) ($19,900) ($10) ($16,100) $246 $468,300 $267 $400,500 $281 $591,100 $299 $477,900 Per NSF Per Unit Per NSF Per Unit Per NSF Per Unit Per NSF Per Unit $115 $219,000 $129 $194,000 $118 $248,000 $136 $218,000 $21 $40,400 $24 $35,400 $32 $66,600 $35 $56,600
$2 $2,900 $2 $2,300 $3 $7,300 $4 $5,600
$4 $8,500 $5 $7,200 $5 $10,700 $5 $8,600
$4 $7,300 $4 $6,200 $4 $9,200 $5 $7,400
$10 $19,700 $12 $17,500 $11 $22,300 $12 $19,600
$8 $14,500 $8 $12,400 $9 $18,300 $9 $14,800
$14 $26,900 $14 $21,500 $15 $31,300 $16 $25,000
$179 $339,200 $198 $296,500 $197 $413,700 $222 $355,600 $246 $468,300 $267 $400,500 $281 $591,100 $299 $477,900 ($179) ($339,200) ($198) ($296,500) ($197) ($413,700) ($222) ($355,600) ($48,400) ($41,400) ($61,100) ($49,400)
$80,700 $62,600 $116,300 $72,900
$/Land SF $M/Acre Land $/Land SF $M/Acre Land $/Land SF $M/Acre Land $/Land SF $M/Acre Land $16 $0.7 $25 $1.1 $23 $1.0 $30 $1.3
$25 $1.1 $30 $1.3 $25 $1.1 $30 $1.3
North Sacramento and South Natomas North Natomas
Infeasible / Challenged Marginal Feasibility
Single Family Detached Small Lot Detached Single Family Detached Small Lot Detached Feasible Feasible
Prepared by Keyser Marston Associates, Inc.

C:\Users\DDoezema\Desktop\Sac City\Sac City Feas 3-31-23

Appendix A Table 5B
For-Sale Pro Forma
Feasibility Analysis
Sacramento MIHO Review

Living Area Net SF
Average Number of Bedrooms
Density
Stories/ Construction Type
Parking Ratio/ Type
Revenue
Market Rate Units
100%
Low 0%
Mod@90% AMI 0%
Mod@110% AMI 0%
Average Gross Sales Price
<Less> Closing Costs

3.25% sales
Revenue Net of Sales Expense
Development Costs
Direct House Costs
Fees & Permits, excl. hsg
Housing Impact Fee
Marketing/Model Costs

1.75% sales
Warranty/Insurance 1.5% sales
Other Indirects 9% directs
Builder Overhead/G&A 3% sales
Financing
Total House Costs
Finished Lot Residual
Net Sales Revenue
<Less> Development Costs
<Less> Net Builder Profit
10% sales
Lot Value (Finished Lot)
Residual Lot Value
Lot Cost Estimate
Feasibility Finding
Appendix A Table 13
Current Market (downward pricing trend / more incentives, higher interest) Existing HIF Requirement
Existing Water/Sewer/Drainage Fees