1330 Broadway, Suite 450 Oakland, CA 94612
510. 841.9190 www.epsys.comThe Econom i cs of La n d Use
INCLUSIONARY
HOUSING PROGRAM
AND COMMERCIAL
LINKAGE FEE STUDY
City Council/Planning
Commission Joint Study Session
City of Vallejo
November 24, 2025
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 1 AGENDA
1. Inclusionary Housing Program Overview
2. Commercial Linkage Fee Overview
3. Feasibility Findings & Conclusions
4. Other Tools to Advance Housing in Vallejo
5. Voting Options
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 2
FEEDBACK FROM JULY STUDY SESSION
What We Heard
• Interest in continuing to explore
inclusionary program adoption,
despite current feasibility
challenges
• Look into options to delay or
phase in program enforcement to
align with market conditions
• Evaluate along with other housing
strategies or programs in the City’s
Housing Element (e.g., public land
housing)
• Explore developer concerns in-
depth
• Commercial linkage fee was not
discussed
Response
• Demonstrate with greater detail
how Inclusionary Housing works
and where it is used as a policy
tool for affordable housing
• Explore implementation options or
adjustments for inclusionary
policies in challenging market
conditions
• Show policy design options that
influence applicability of IH
strategies to projects
• Contacted developers with
projects in pipeline
• Provide information on
Commercial Linkage Fee
INCLUSIONARY HOUSING PROGRAM
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 4
BACKGROUND ON INCLUSIONARY HOUSING
• First adopted in 1974 [National Low
Income Housing Coalition]
• Purpose is to help cities fund
and create more affordable
housing
• Encourages dispersing
affordable units throughout the
city instead of concentrating it in
certain areas.
• California jurisdictions have 240
active inclusionary housing
ordinances or affordable housing
impact fees
[Grounded Solutions Network]
• 1,068 programs nationwide;
common policy in California.
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 5
HOW INCLUSIONARY HOUSING WORKS
Example: A developer is seeking to build a 100-unit project.
OWNERSHIP
(single-family detached)
RENTAL
(multi-family)
Inclusionary
Requirement
12% overall inclusionary requirement
at 100% Moderate
10% overall inclusionary requirement
at 50% Moderate and 50% Low
Outcome Build 88 market-rate units and 12
affordable
Build 90 market-rate units, 5
Moderate Income units, and 5 Low
Income units
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 6
HOW INCLUSIONARY HOUSING WORKS
Example: A developer is seeking to build a 100-unit project.
OWNERSHIP
(single-family detached)
RENTAL
(multi-family)
Inclusionary
Requirement
12% overall inclusionary requirement
at 100% Moderate
10% overall inclusionary requirement
at 50% Moderate and 50% Low
Outcome Build 88 market-rate units and 12
affordable
Build 90 market-rate units, 5
Moderate Income units, and 5 Low
Income units
In-Lieu Fee
Alternative Pay in-lieu fee (assume $24 per SqFt) Pay in-lieu fee (assume $19 per SqFt) Calculation Assume 2,000 SqFt per unit
Fee = $24 * 2,000 * 100 = $4.8M
Assume 1,000 SqFt per unit
Fee = $19 * 1,000 * 100 = $1.9M
Outcome Build 100 market-rate units and pay
$4.8 million in-lieu fee
Build 100 market rate units and pay
$1.9 million in-lieu fee
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 7
INCLUSIONARY PROGRAM COMPARISON
• Benicia is the only Solano County city with an inclusionary requirement, although others (Fairfield, Vacaville) have also recently explored. • For-sale requirements range from 10 to 15 percent and peer cities primarily target Moderate Income units.
5%
7.5%
6%
5%
7.5%
12%
6%
10% 10%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Benicia Concord El Cerrito Hayward Oakland* Richmond
For-Sale Inclusionary Requirements in Peer Cities
Low Moderate *Oakland has affordable housing impact fee requirements and presents an on-site affordable housing option as alternative.
No requirements: Solano County, Dixon,
Rio Vista, Suisun City, Antioch, Martinez
In consideration: Fairfield, Vacaville
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 8
INCLUSIONARY PROGRAM COMPARISON
• Rental requirements range from 6 to 10 percent and some peer cities add Very Low Income units, but still mostly Moderate Income.
1%
5%
1%
5%
3%
5%
4%
5%
3% 10% 10%
0%
2%
4%
6%
8%
10%
12%
14%
Benicia Concord El Cerrito Hayward Oakland* Richmond
Rental Inclusionary Requirements in Peer Cities
Very Low Low Moderate
No requirements: Solano County, Dixon,
Rio Vista, Suisun City, Antioch, Martinez
In consideration: Fairfield, Vacaville
*Oakland has affordable housing impact fee requirements and presents an on-site affordable housing option as alternative.
COMMERCIAL LINKAGE FEE
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 10
COMMERCIAL LINKAGE FEES OVERVIEW
• Commercial linkage fees require developers on non-
residential projects to pay an impact fee that funds local affordable housing production.
– A separate but complementary tool to inclusionary housing to fund affordable housing development
• Requires a nexus study to demonstrate the housing need generated by new non-residential development.
– Calculates the nexus-based maximum based on the amount of subsidy required but jurisdictions generally adopt below maximum level to maintain feasibility and support ongoing economic development.
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 11
COMMERCIAL LINKAGE FEES OVERVIEW
NEW OFFICE NEW EMPLOYEES &
HOUSEHOLDS
Including those who are Low Income
HOUSING
Local and affordable
generates who need
pays
COMMERCIAL
LINKAGE FEE
Impact fee to fund local
affordable housing
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 12
COMMERCIAL LINKAGE FEE COMPARISON
• Fees per square foot are usually set much lower than the calculated maximum
• Of the cities surveyed, most do not currently have a commercial linkage fee
$2
$8.05
$2 $2
$8.05
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Richmond Oakland*
Fee per Square Foot
Non-Residential Commercial Linkage Fee
Commercial Lodging Industrial
No requirements: Solano County,
Dixon, Rio Vista, Suisun City, Antioch,
Martinez, Hayward, Benicia, Concord,
El Cerrito
In consideration: Fairfield, Vacaville
*Oakland’s fee is applicable to all square footage above 25,000 square feet. It does not apply to Lodging.
FEASIBILITY FINDINGS
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 14
CURRENT REGIONAL HOUSING MARKET CHALLENGES
• Recent market data and trends suggest a slow housing market with high construction costs and modest market rents or sale prices. – Regional housing permits last year were second lowest since 1967 (only 2009 was worse) But housing has been feasible previously and will be again.
Source: MTC Vital Signs
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 15
DO INCLUSIONARY REQUIREMENTS IMPACT
FEASIBILITY?
• Short answer: Yes.
– Inclusionary units must be sold or leased below market value but cost the same to construct as the market-rate portion.
– Inclusionary requirements reduce the project’s total value, may make it infeasible if close to or below development cost.
• Other factors affecting feasibility (i.e., whether project can be built):
– Land costs
– Construction costs
– City requirements (e.g., impact fees, entitlement process) – Density allowances
– Achievable rents or sale prices
• Ability to absorb requirements vary by location and market conditions An inclusionary housing feasibility analysis identifies the level of inclusionary requirements that the project can bear and remain feasible, given local market values and current development costs.
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 16 Development
Cost
Sales Proceeds
With In-Lieu Fee:
Development Costs Rise
Development
Cost
Sales Proceeds
With Inclusionary: Sales
Proceeds Decline
$11M
$10M
ILLUSTRATION OF IMPACTS ON FEASIBILITY
$0
$2
$4
$6
$8
$10
$12
$14
Development
Cost
Sales Proceeds
Cost or Value (in millions)
Without Inclusionary
$10M
$13M
15% developer profit
threshold: $11.5M $11M
$13M15% developer profit
threshold: $12.7M
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 17
INCLUSIONARY HOUSING FEASIBILITY FINDINGS
• Even without the inclusionary requirement, most types of housing face feasibility challenges in Vallejo right now.
Category Estimated Market
Value per Unit
Estimated Development
Cost per Unit
Feasibility
For-Sale Single-Family
Detached $792,000 $791,000 Marginal
For-Sale Single-Family
Small Lot $576,000 $627,000 No
Multifamily
Condominium $403,000 $733,000 No
Rental Low Density
Multifamily $415,000 $500,000 No
Rental High Density
Multifamily $415,000 $530,000 No
But housing has been feasible previously and will be again! Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 18
DEVELOPER FEEDBACK
An inclusionary requirement would cause some developers to leave the Vallejo market entirely and seek development opportunities elsewhere The Vallejo market cannot absorb inclusionary
requirements similar to other communities with higher
sale prices or more affluent demographics
Source: EPS conversations with developers active in Vallejo and surrounding markets.
Modest in-lieu fees or land
dedication may be more feasible
than on-site units Developers are pessimistic that market prices will rise in the near future
Market-rate developers don’t have
access to funding sources typical for
100% affordable projects
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 19
CHALLENGES ARE NOT UNIQUE TO VALLEJO
• Example jurisdictions that have reduced inclusionary requirements or fees in response to slowed housing production:
– Redwood City: reduced affordable housing requirements by 25% (Sept. 2025) – San Francisco: reduced inclusionary requirements (July 2023) – Santa Ana: revised ordinance to lower in-lieu fees (2021) – Santa Rosa: reduced inclusionary requirements overall, further reduction in Downtown area to encourage residential projects (2019)
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 20
HYPOTHETICAL COMMERCIAL LINKAGE FEE SCENARIO
• EPS nexus study found rationale for up to $90/SqFt but this would represent a great increase to overall development costs. • Commercial linkage fees are usually set much lower than the calculated maximum for feasibility reasons.
• If it would have been applied to current development pipeline, a hypothetical $2 per sq. ft. fee could have generated $851,000.
Land Use Sq. Ft. of Pipeline
Development
$2/sq. ft. CLF revenue
Commercial 237,636 $475,272
Lodging 49,741 $99,482
Industrial 138,161 $276,322
Total 425,538 $851,076
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 21
FEASIBILITY CONCLUSIONS
Conclusion #1: Implementation of a new Inclusionary Housing Ordinance at this time is likely to negatively impact feasibility for new housing projects.
Conclusion #2: Implementation of a Commercial Linkage Fee is also likely to negatively impact feasibility for new non-residential projects, but the extent of that impact depends on the selected fee amount.
POLICY TOOLS & OPTIONS
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 23 IMPLEMENTATION CONSIDERATIONS –
INCLUSIONARY HOUSING
Options for implementing inclusionary ordinances in response to housing production challenges in the market:
• Phasing in requirements or in-lieu fee over a period of time • Market-based triggers for policy to (fully) kick in
– E.g., number of units entitled
• Vary requirements or fees by housing type or in specific areas to incentivize desired developments
• Exempt projects already in development pipeline
• Provide alternative means of compliance that are less impactful on feasibility (in-lieu fees, land dedication, etc.)
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 24 IMPLEMENTATION CONSIDERATIONS –
LINKAGE FEES
Options for implementing linkage fees in light of economic development goals:
• Adopt modest fees that raise revenue while keeping projects feasible
• Phasing in fees over a period of time
• Market-based triggers for policy to (fully) kick in
– E.g., number of square feet entitled
• Vary fees by geography or building type to incentivize desired developments
• Exempt projects already in development pipeline
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 25
EXAMPLES FROM OTHER CITIES
• Cities may update their requirements or change enforcement in response to changing economic conditions, allow developers greater flexibility in complying with requirements, or to support desired project types in achieving feasibility.
– Long Beach: phasing in inclusionary requirements over 3 years, with market triggers (Mar. 2025)
– Berkeley: exempts in-lieu fee on the first 5,000 square feet of housing, supports construction of “missing middle” housing types (Jan. 2025) – Washington D.C.: program was first adopted in 2006 but not implemented or enforced until 2009.
– San Jose: revised program to include more options for compliance (2021) – Sonoma County and San Mateo County: linkage fees adopted at fraction of maximum rates by multiple cities to mitigate competitive concerns Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 26
OTHER TOOLS & POLICIES
• The City has other options to advance affordable housing development in Vallejo. These policies:
– Generate funding for affordable housing
– Encourage development of affordable projects by streamlining or prioritizing their approval
• Existing policies, programs, and incentives identified by City staff:
– Density Bonus Law
– Streamlined Ministerial Review (SB 35)
– Housing on Faith-Based Lands (SB 4)
– Affordable Housing and High Roads Jobs Act
– State Surplus Land Act
– Financial Incentives
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 27
OTHER TOOLS (CONTINUED)
• Incentives for Transit-Oriented Development
• CEQA Streamlining for Infill and Mixed-Use Housing
• Housing Crisis Act of 2019 (SB 330)
• Streamlining Small Lot Subdivisions (SB 684 and SB 1123) • Urban Lot Split and Duplex Development (SB 9)
• Adaptive Reuse/Commercial-to-Residential Conversions (AB 1490, AB 1532)
• Statewide Parking Reductions Near Transit (SB 2097)
• ADU & JADU Laws
Q&A + DISCUSSION
Economic & Planning Systems, Inc. City of Vallejo Inclusionary Zoning and Commercial Linkage Fee Study 29
DISCUSSION & VOTING OPTIONS
1. What direction would you like staff to take regarding an Inclusionary Housing Ordinance?
A. Proceed with drafting an Inclusionary Housing Ordinance, with flexibility to explore full, phased, or reduced requirements.
B. Do not proceed at this time and revisit once market conditions improve.
2. What direction would you like staff to take regarding a Commercial Linkage Fee Ordinance
?
A. Proceed with drafting a Commercial Linkage Fee Ordinance, with flexibility to explore fee levels up to $2 per sq. ft.
B. Do not proceed at this time and revisit once market conditions improve.