HomeMy WebLinkAbout14 - Affordable Housing In-lieu FeeG
CITY OF NEWPORT BEACH
PLANNING DEPARTMENT
3300 NEWPORT BOULEVARD
NEWPORT BEACH, CA 92658
(949) 644 -3200; FAX (949) 644 -3250
Agenda Item No.:
Staff Person:
REPORT TO THE MAYOR AND CITY COUNCIL
SUBJECT: Affordable Housing In -lieu Fee
November 22, 1999
14
Patricia L. Temple
(949) 644 -3228
ACTION: Adopt Resolution No. 99 -_, establishing a fee to be paid by residential
developers in lieu of providing on -site affordable housing, and direct staff to
develop guidelines for the use of the in -lieu fee as part of the Housing
Element update.
BACKGROUND
The Housing Element of the General Plan includes a requirement for all developments of ten units
or more to provide affordable housing (meeting State and Federal cost limitations) either on or off
site. The Housing Element does not include a provision to pay a fee in lieu of providing the
affordable housing, but it also does not preclude the City from adopting such a fee. In the past, two
projects (28'h Street Marina and One Ford Road) were allowed to pay a fee in lieu of providing on
site affordable housing. The affordable units for the 28'h Street Marina project were constructed by
another developer in the West Newport area, and the City currently has $2,020,000 in housing in-
lieu fees collected from the One Ford Road project.
A developer is currently processing a subdivision map for redevelopment of The Shores
apartments, located on Sea Lane in the Harbor View Hills area. The developer desires to pay a fee
in lieu of providing the required affordable housing. Since the fee imposed on the One Ford Road
project was established in 1994, and residential prices and development costs have risen
significantly since then, staff retained the consulting firm of Keyser Marston Associates to assist
staff in determining an appropriate affordable housing in -lieu fee for the City.
ANALYSIS
In order to identify an appropriate fee, the consultant conducted four different analyses, as
described below:
1. A financial gap analysis of the cost a developer would have to incur to fulfill the current
inclusionary housing requirement.
2. A financial gap analysis of the costs associated with acquiring existing rental properties and
then converting the units into designated affordable housing units.
3. A description of the methodology to calculate the in -lieu fee amount.
4. A summary of the in -lieu fees charged by other cities that are similar to Newport Beach in
terms of demographic characteristics.
The two financial gap analyses were based on current market conditions and the current income
limitations for affordable housing units. The results of these two analyses revealed that the cost to
provide on -site, for sale, affordable housing in new development is $70,000 per unit in the
subdivision at an inclusionary requirement of 10 %; and the cost to provide an affordable rental unit
is $104,000 for very low income, and $80,000 for low income. .
Based on the fact that the City's primary unmet obligation under the Regional Housing Needs
Allocation (RHNA) is for low and very low income housing, and that this level of affordability is
best achieved in rental housing, the in -lieu fee calculations were done on the cost to provide low
and very low income rentals. Depending on the percentage imposed as the affordable housing
requirement, the in -lieu fee was calculated at $9,200, $13,400 and $18,300 per developed unit, for a
5 %, 10% and 20% inclusionary requirement, respectively.
The consultant also provided information on other cities' in -lieu fees. This revealed that cities with
similar demographics to Newport Beach have fees which vary from $2,770 to $9,200 per
constructed unit. However, four cities have fees based on square footage, with a resulting fee
estimated from $3,400 to $37,100 per unit.
The final part of the consultant's analysis was an estimate of how much public money would be
needed to attract sufficient rental units to meet the City's RHNA goals. Based on the pro forma
analyses in the report, a total of $15,000,000 is needed. Since the City already has $2 million from
the One Ford Road project, an additional $13 million is needed.
Using this figure, staff then estimated the potential for smaller in -fill residential projects, or
redevelopments such as that proposed at The Shores site. Based on factors such as the age, type and
style of existing development, and the type of in -fill projects seen in the past, staff estimated this
potential at 1,130 new or reconstructed residential units which could be subject to an affordable
housing requirement or fee. If these units paid a fee to produce the $13 million needed, the fee
would be $11,500. Staff would like to emphasize that this estimate is based on our best
"guestimate," and should not be viewed as a precise projection of future building activity.
Using an in -lieu fee can help the City provide funds for smaller developers to produce affordable
housing. This could work in a manner similar to the City's past use of Community Development
Block Grant Funds. However, an in -lieu fee program is not likely to produce sufficient affordable
housing production to satisfy all our regional requirements. Therefore, the payment of the in -lieu
fee should be at the City's option (approved by the Planning Commission or City Council), and the
City should continue to look for large -scale development (such as Banning Newport Ranch) to
provide on site affordable housing as set forth in the Housing Element.
RECOMMENDATION
The City has the potential for smaller in -fill developments or reconstruction projects throughout the
City where the provision of on -site affordable housing may not be feasible. Therefore, we believe
that the City Council should consider the formal adoption of a fee, as opposed to negotiating a
Affordable Housing In -lieu Fees
November22,1999
Page 2.
payment on a project by project basis. This will give the development community a known fee
structure as they evaluate new development projects, and will also provide the City a source of
funds to incentivize the construction of affordable housing to meet the City's regional goals.
The fee assessed the One Ford Road project was $5,500 per unit, with a discount to $5,000 per unit
if the developer participated in a process to identify a site for implementation of the housing. Based
on the staff analysis above which indicated a fee of $11,500, staff is of the opinion that a fair fee
would be a doubling of the previously used $5,500 fee, or $11,000 per constructed dwelling unit.
This program has the potential to be a preferred option for the residential development community.
Therefore, as a follow -up to this action, staff should be directed to develop guidelines for the use of
the in -lieu fee as part of the Housing Element update.
Submitted by: Prepared by:
SHARONZ. WOOD PATRICIA L. TEMPLE
Assistant City Manager Planning Director
. Attachments: 1. In -lieu Fee Analysis prepared by Keyser Marston Associates
2. Draft Resolution
Affordable Housing In -lieu Fees
November22, 1999
Page 3.
K E Y S E R M A R S T O N ASSOCIATES I N C.
500 SOUTH GRAND AVENUE. SUITE 1480
LOS ANGELES, CALIFORNIA 90071
PHONE: 2131622 -8095
FAX 213/622 -5204
WEB SITE: WWW. KMAINC.COM
h'AIIPdel: � dil
To: Patricia Temple, Planning Director
City of Newport Beach
From: Kathleen Head
RECEIVED BY
PLANNING DEPARTMEN7
CITY OF: NE%VP"-P7
OCT i 3 1999
AM PIM
71819110111112111213141016
cc: Sharon Wood, Assistant City Manager
City of Newport Beach
Date: October 11, 1999
Subject: Inclusionary Housing Ordinance:
In -Lieu Fee Analysis
ADVISORS IN:
REAL ESTATE
REDEVELOPMENT
AFFORDABLE HOUSING
ECONOMIC ELOPN
FISCAL IMPACT
INFRASTRUCTURE FINANCE
VALUATION AND
LITIGATION SUPPORT
Los Angeles
Calvin E. Hollis, 11
Kathleen H. Head
lames A. Rabe
San Diego
Gerald M. Trimble
Robert 1. Wetmore
Paul C. Marra
SAN FRANCISCO
A. Jerry Keyser
Timothy C Kelly
Kate Earle Funk
Denise E. Conley
Debbie M. Kcm
Martha N. Packard
In accordance with your request, Keyser Marston Associates, Inc. (KMA) has prepared a
financial analysis to assist the City of Newport Beach (City) in creating an in -lieu fee program
that can be applied to selected residential projects that are subject to the City's Inclusionary
Housing Ordinance. The in -lieu fee is intended to be used by the City to assist in filling the
unmet need for affordable housing units that was established in the City's adopted Housing
Element.
BACKGROUND STATEMENT
The City's Inclusionary Housing Ordinance requires that all new residential developments
allocate between 10% and 20% of the homes in the project to low and moderate income
households. This program was originally adopted to assist the City in attracting units to fulfill
the "fair share" requirement imposed by the Regional Housing Needs Assessment (RHNA)
developed by the Southern California Association of Governments.' The Inclusionary Housing
Ordinance currently requires all residential developers to satisfy their affordable housing
obligation by creating the requisite number of units. However, at this time the City wishes to
provide an option for the developers of selected projects to pay a fee in -lieu of developing the
units.
' The RHNA serves as the basis for the City's Housing Element.
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To: Patricia Temple, Planning Director
Subject: Inclusionary Housing Ordinance
October 11, 1999
Page 2
The purpose of the KMA analysis is to identify a reasonable in -lieu fee to be imposed on
selected projects. To that end, the analysis is comprised of the following components:
1. A financial gap analysis of the cost a developer would have to incur to fulfill the
currently imposed inclusionary housing requirements;
2. A financial gap analysis of the costs associated with acquiring existing rental projects
and then converting the units into designated affordable housing units;
3. A description of the methodology that can be employed to calculate the in -lieu fee
amount, and;
4. A summary of the in -lieu fees being charged by other cities that are similar to Newport
Beach in terms of demographic characteristics.
FINANCIAL GAP ANALYSIS
The Inclusionary Housing Ordinance does not require developers to fulfill their affordable
housing requirement within the project that generates the obligation. However, recognizing
that the majority of the small scale developers within the community will not have access to
another development site, effectively these developers are required to fulfill the affordable
housing obligations on -site. These affordable housing units can either be "for sale" or rental
units, but again the site limitations will typically dictate that the affordable units complement the
market rate units in the project.
Financial Gap: "For Sale Units"
It is our understanding that the City wishes to provide the in -lieu fee option to the developers of
selected "for sale" housing projects. In quantifying the appropriate in -lieu fee amount, the first
test is to identify the financial gap associated with providing the units within the proposed
project. This is done by comparing the achievable prices for unrestricted market rate units to
the maximum affordable price for income restricted units.
The information used to identify the financial gap is presented in Appendix A at the conclusion
of this memorandum. The methodology used tq quantify the financial gap can be described as
follows:
1. KMA compiled information related to recent new home sales within Newport Beach.
The average sales price for these units was defined as the achievable market rate
price for the purpose of the financial gap analysis (Appendix A — Table 1).
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2. The maximum affordable housing price calculation for moderate income households is
presented in Appendix A — Table 2. The key assumptions used in the calculations are:
a. Moderate income households are defined as households earning no more than
120% of the Orange County Median income (Median).2
b. For a unit to be considered affordable, a moderate income household cannot spend
more than 30% of their gross income on housing related expenses. These
expenses include mortgage payments, property taxes, insurance, utilities and
maintenance costs.
c. It was assumed that the home buyers would contribute a down payment equal to
5% of the home's estimated market value. It was further assumed that the home
buyer would obtain a 30 -year fixed interest rate mortgage.
3. The projected market rate price was compared to the estimated maximum affordable
price to determine the financial gap associated with providing moderate income units
on the project site.
Based on the information presented in Appendix A, KMA set the market rate sales price at
$950,000, and the maximum affordable price for moderate income households at $246,000.
Thus, the financial gap is equal to $704,000 per moderate income unit that must be provided
in a project. If the inclusionary housing requirement is applied to 10% of the units, the gap is
equal to approximately $70,000 per unit in the subdivision. Comparatively, if the requirement
is applied to 20% of the units, the gap is equal to approximately $141,000 per unit in the
subdivision.
The preceding analysis is presented to illustrate the cost that would be incurred by a developer
to fulfill the inclusionary requirement within a market rate "for sale" housing project. Based on
this analysis it can be concluded that an in -lieu fee of less than $70,000 per unit in a project
would generate less cost to a developer.than providing the inclusionary units on -site.
Financial Gap: Rental Units
It is a fundamental premise of this analysis that the City intends to use the in -lieu fee revenues
to assist in acquiring and rehabilitating existing substandard apartment projects in the
community, and then imposing income and affordability restrictions on the projects. In
developing this concept, the following issues were considered:
z Based on the household income data published by the United States Department of Housing and
Urban Development (HUD) annually.
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1. Several large scale apartment projects are currently in the predevelopment stage
within the City. Given that the developers of these projects are subject to the City's
Inclusionary Housing Ordinance, there is a significant potential for these projects to
fulfill the City's RHNA obligation to provide 96- moderate income units.
2. In all likelihood the prospective acquisition /rehabilitation projects are already occupied
by moderate income households, and thus these units have already been factored into
the RHNA calculations. However, if the City requires the units to be set -aside for very-
low or tow income households, then the unmet need for very-low and low income units
will be decreased, while the obligation to provide additional moderate income units will
increase accordingly.'
3. KMA assumed that the City would select "for profit' or non - profit developers to
undertake the acquisition and rehabilitation projects. The City's role would be limited to
providing financial assistance to bridge the gap between the development costs and
the amount of private investment that could be supported by the project economics.
To estimate the financial gap associated with undertaking acquisition and rehabilitation
projects, KMA prepared conceptual pro forma analyses. The full analyses are presented in
Appendices B and C, and are organized as follows:
Table 1: Estimated Development Costs
Table 2: Stabilized Net Operating Income
Table 3: Financial Gap Calculation
It is important to remember that the City has not yet identified any potential acquisition and
rehabilitation projects. Therefore, the KMA pro forma analyses are conceptual in nature, and
should only be used to provide order of magnitude estimates of the financial gap associated
with undertaking such a project. Based on that assumption, the pro forma analyses results
can be summarized as follows:
Development Costs
Property Assemblage Costs
The property assemblage costs consist of the following components:
3 In the event the selected projects are already occupied by very-low or low income households, the
calculations will have to be adjusted.
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1. The properties would have to be acquired at the current fair market value. To estimate
the values currently being obtained for small scale apartment projects, KMA compiled
data from apartment sales in the community occurring over the past year.
2. Recognizing that the City would play an integral part in any transaction undertaken
under this program, the City would be responsible for providing any displaced tenants
with the relocation benefits accorded by State law. However, it is impossible to
accurately estimate the relocation cost burden until a project has been selected, and
information regarding the tenants' household sizes and incomes has been obtained.
The financial analysis is based on a prototypical 10 -unit building. Based on the available
information, KMA estimated the property assemblage costs at $135,000 per unit.
Rehabilitation Costs
It is important to understand that the scope of rehabilitation work required to bring a building
up to a decent, safe and sanitary level will vary from project -to- project. In addition, it is
possible that as a policy decision, the City may opt to require the selected projects to be
rehabilitated to a higher quality level than would be necessary simply to comply with the basic .
building code standards. As such, it is very difficult to estimate the rehabilitation costs before
a project has been selected, or development standards have been defined.
Based on our experience with acquisition and rehabilitation projects undertaken in other
Orange County cities, we find that the costs typically range from $10,000 to $25,000 per unit.
Under the assumption that the City would not impose extraordinary restrictions on the projects,
KMA set the direct rehabilitation costs at $15,000 per unit. In addition, KMA provided a 35%
allowance for indirect costs and financing costs to be incurred during the rehabilitation
process. The resulting rehabilitation cost estimate is set at approximately $20,000 per unit.
Total Development Costs
As discussed above, the property assemblage costs are estimated at $135,000 per unit and
the rehabilitation costs are estimated at $20,000 per unit. Thus, the total development costs
are estimated at $155,000 per unit.
Stabilized Net Operating Income
Estimated Revenues
For the purposes of the financial analysis, KMA estimated the net operating income for the
Prototypical acquisition/rehabilitation project assuming the units are set -aside for very-tow
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income households earning less than 50% of the Median, and for low income households
earning less than 80% of the Median. The assumptions used to estimate the achievable rents
can be summarized as follows:
The household incomes were based on two- person households for one - bedroom units,
four - person households for two- bedroom units, and; six - person households for three -
bedroom units.
2. 30% of the defined household income is allocated to housing related expenses.
3. The maximum allowable rent must be adjusted to reflect the fact that the tenants will be
required to pay for interior utilities costs. Based on the allowances provided by the
Orange County Housing Authority, the utilities costs are estimated at $31 per month for
one - bedroom units, $41 per month for two- bedroom units and $48 per month for three-
bedroom units.
The maximum affordable rents under the income categories are:
Unit Type Very-Low Income Low Income
One - Bedroom $652 $1,062
Two - Bedroom $813 $1,325
Three - Bedroom $943 $1,537
As a practical matter, tenants will not be willing to pay rent that exceeds the prevailing rate in
the market area. As such, it is important to estimate the rents that could be generated by the
units being evaluated if they were rented without affordability restrictions. Based on a survey
performed by KMA, market rents currently fall within the following range:
One - Bedroom
$800
Two - Bedroom
$1,000
Three - Bedroom
$1,300
When the market rents are compared to the maximum affordable rents, the achievable rents
for the unit types being tested are estimated as follows:
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Unit Type Very-Low Income Low Income
One - Bedroom $652 $800
Two - Bedroom $813 $1,000
Three - Bedroom $943 $1,300
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Subject: Inclusionary Housing Ordinance Page 7
On -going Costs
The gross income generated by the project must be reduced by an allowance for vacancy and
collection costs plus on -going operating expenses. These costs are estimated as follows:
The vacancy and collection allowance is set at 5% of the projected gross income.
2. The general operating expenses are estimated at $2,750 per unit per year.
3. The property tax expense is set equal to 1 % of the estimated acquisition price for the
property.
4. A $300 per unit per year allowance is provided for a reserve account for capital repairs.
Based on the preceding assumptions, the stabilized net operating income under the two
affordability alternatives is estimated as follows:
I Net Operating Income
ry-Low $51, 000
w $75,900
Financial Gap Calculation
As discussed previously, the financial gap is equal to the difference between the amount of
private investment that can be supported by the project, and the project costs. Based on the
development cost and net operating cost estimates discussed previously, and applying a
threshold developer return of 10 %, the financial gap calculations for the two alternatives can
be summarized as follows:
Very -Low Income Low Income
Supportable Private Investment,.: $516,000 $759,000
Estimated Development Costs 1,553,000 1,553,000
Total Financial Gap $1,037,000 $794,000
Financial Gap Per Unit $103,700 $79,400
IN -LIEU FEE CALCULATION
The City's Inclusionary Housing Ordinance requires that 10% to 20% of all units developed in
new housing developments be allocated to low and moderate income households. The
Ordinance allows the City to identify the specific percentage, and to define the affordability
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standards, on a project -by- project basis. A§ such, there is not one in -lieu fee amount that
could be substituted for the developer's obligation to provide affordable housing units.
However, it is assumed that the in -lieu fee is intended to generate sufficient revenues to allow
the City to fulfill the selected projects' inclusionary housing obligations in off -site locations.
As discussed previously, it is our assumption that the City's unmet need for moderate income
units will be fulfilled in new apartment projects that are currently in the predevelopment stage.
Therefore, the in -lieu fee revenues should be used to create units to fulfill the City's unmet
need for very-low and tow income housing. Based on the results of the financial gap analysis,
the in -lieu fee amount should be set using the following parameters:
The financial gap per very-tow income unit is estimated at approximately $104,000. Assuming
that the in -lieu fee would be distributed across all the units to be developed in a project, the fee
per unit can be calculated as follows:
Inclusionary Requirement Fee Amount
10% $10,400
15% $15,200
20% $20,700
The financial gap per low income unit is estimated at approximately $79,000 per unit. The
resulting in -lieu fee amount per unit in a project would be:
Inclusionary Requirement Fee Amount
10% $7,900
15% $11,600
20% $15,900
It is clear that there are numerous alternative affordability allocations that could be applied by
the City in establishing the in -lieu fee amount. For example, if the City set the fee at a
sufficient amount to provide an equal number of very-low and low income units, the fee should
be set as follows:
Inclusionary Requirement Fee Amount
10% $9,200
15% $13,400
20% $18,300
Comparatively, if the City set the fee at the amount required to provide 25% of the units at
very-low income and 750/6 of the units at low income, the fee can be calculated as follows:
For example, in a 100 -unit project, the inclusionary requirement would apply to 10 to 20 of the units.
the in -lieu fee option was selected by the developer, the established fee amount would be assessed to
all 100 - units.
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Subject: Inclusionary Housing Ordinance
Inclusionary Requirement Fee Amount
10% $8,500
15% $12,500
20% $17,100
October 11, 1999
Page 9
The preceding examples illustrate the in -lieu fee calculation methodology under several
potential scenarios. To set a specific fee amount it will be necessary for the City to establish
the following parameters for projects that are allowed to select the in -lieu fee option:
The percentage of units that would be subject to the inclusionary requirement, and;
The percentage allocation between very-low and tow income units that will be applied
for calculation purposes.
IN -LIEU FEES COMPARISON
To assist the City in identifying an in -lieu fee amount, KMA compiled information pertaining to
the in -lieu fees charged by other jurisdictions that have inclusionary housing requirements.
For the surveyed cities, the in -lieu fee is calculated on one of the following bases:
1. Per unit constructed in the project;
2. Per square foot of gross building area included in the project, or;
3. Per dollar of project valuation.
To convert the various fees into an estimated fee per unit, KMA employed the following
methodologies:
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In -Lieu Fee
Jurisdiction
Amount
Per Untt
Laguna Beach
$2,664
Santa Cruz
$4,400
Coronado
$6,400
Santa Barbara County
$2,741 - $9,166
Per Square Foot of Gross
Building Area
Huntington Beach
$1.00
Rancho Palos Verdes
$1.10
Santa Monica
$7.10
West Hollywood
$5.46 - $10.90
Per Dollar of Project Valuation
San Clemente
1%
San Juan Capistrano
1%
To convert the various fees into an estimated fee per unit, KMA employed the following
methodologies:
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1. In the four cities that apply the fee on a per unit basis, the in -lieu fees range from
approximately $2,700 to $9,200 per unit.
In the four cities that apply the fee based on the project square footage, KMA made the
conversion based on the assumption that the average new unit in Newport Beach
would include 3,400 square feet of gross building areas. Based on that assumption,
the fee ranges from $3,400 to $37,100 per unit.
3. Two cities calculate the in -lieu fee based on 1% of the project's total value. If it is
assumed that the average market value for the units is $950,000, the fee would total
$9,500 per unit.
As can be seen above, KMA estimates that eight of the 10 surveyed cities currently levy in -lieu
fees in the range of $2,700 to $9,500 per unit. Comparatively, KMA estimates that Santa
Monica and West Hollywood are effectively assessing fees in the range of $24,000 to $37,000
per unit, respectively.
ISSUES FOR CONSIDERATION
1. Developers in Newport Beach are currently obligated to produce affordable units to
fulfill the Inclusionary Housing Ordinance requirements. As discussed previously, the
cost to provide the affordable units is estimated to range from $70,000 to $141,000 per
unit depending on whether the inclusionary requirement is set at 10% or 20% of the
total units developed in the project. Comparatively, the financial gap analysis indicates
that if the in -lieu fee is used to fund an acquisition and rehabilitation program, the fee
could be set at $7,900 to $20,700 per unit, depending on the income and affordability
standards that are applied.
2. The City allowed Pacific Bay Homes to pay an in -lieu fee for a residential project that
was originally proposed to include 400 - units. This fee was set at $5,000 per unit, for a
total of $2 million.
3. The vast majority of cities that were surveyed by KMA levy an in -lieu fee that is less
than $10,000 per unit. While two of the surveyed cities are currently assessing
significantly higher fees, these cities appear to be the exception rather than the rule.
4. The City currently has an established unmet need for 100 very-tow income units and
61 tow income units. Based on the pro forma analyses included in this evaluation,
5 Based on the unit types identified in Appendix A — Table 1.
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KMA estimates that the public cost to attract these units totals approximately $15
million. Thus, it would be advantageous to deposit at least $15 million in in -lieu fee
revenues into a trust fund to fulfill the outstanding obligations.
The City has already deposited $2 million in in -lieu fees into the affordable housing
trust fund. Thus, it is estimated that $13 million in additional in -lieu fees will need to be
collected to fulfill the City's entire outstanding obligation to provide affordable housing.
NEXT STEPS
The City staff should identify the residentially zoned sites on which it is likely to allow
the in -lieu fee option to be selected. After the development capacity for these sites is
established, it will be possible to determine the fee amount per unit that would have to
be charged to reach the City's goal of obtaining at least W million in total in -lieu fee
revenues. 13
2. The City should determine whether they wish to set the in -lieu fee based on the
financial gap associated with developing affordable units, or if they would prefer to set
the fee based on the fee structures currently being imposed in other cities.
3. After the base year in -lieu fee amount is set, it will be necessary to create a formula for
increasing the fee each year to reflect the inflation /value appreciation that will occur
over time.
:1
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APPENDIX A
AFFORDABILITY GAP CALCULATION
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3 -Bdrm Unit
I. Income Available for Housing Related Expenses
Moderate Income @ 120% of Median $ 95,100
Income Allocated to Housing Related Expenses 30%
Income Available for Housing Related Expenses $ 28,500
II. Estimated Expenses
Utilities (600)
Taxes, insurance 8 Maintenance (1,800)
Property Taxes @ 1 % Market Value (9,500)
Total Expenses $ (11,900)
III. Supportable Home Price
Funds Available for Mortgage Debt Service $ 16,600
Debt @ 7.50% Interest (8.39% Mtg Const.)
TABLE 2
198,000
AFFORDABILITY CALCULATION
MODERATE INCOME "FOR SALE" UNITS
Total Supportable Home Price
IN -LIEU FEE ANALYSIS
246,000
NEWPORT BEACH, CALIFORNIA
3 -Bdrm Unit
I. Income Available for Housing Related Expenses
Moderate Income @ 120% of Median $ 95,100
Income Allocated to Housing Related Expenses 30%
Income Available for Housing Related Expenses $ 28,500
II. Estimated Expenses
Utilities (600)
Taxes, insurance 8 Maintenance (1,800)
Property Taxes @ 1 % Market Value (9,500)
Total Expenses $ (11,900)
III. Supportable Home Price
Funds Available for Mortgage Debt Service $ 16,600
Debt @ 7.50% Interest (8.39% Mtg Const.)
$
198,000
• Downpayment @ 5% Market Value
48,000
Total Supportable Home Price
$
246,000
IV. Financial Gap Calculation
Total Supportable Home Price
$
246,000
(Less) Market Value
(950,000)
Estimated Financial Gap
$
(704,000)
0
Prepared by: Keyser Marston Associates, Inc.
File Name; Acq_Rebab; Affordability; 10/11/99
APPENDIX B
PRO FORMA ANALYSIS
VERY -LOW INCOME ALTERNATIVE
0
0
u
I. Total Property Assemblage Cost 10 Units
11. Rehabilitation Costs
Direct Costs 10 Units
Indirect 8 Financing Costs 35% Direct Cost
Total Rehabilitation Costs
111. (Total Development Costs
Per Unit
Prepared by: Keyser Marston Associates, Inc.
File Name: Ao0_Rehab; Very-Low, I WI1199
$ 135,000 /Unit
$ 15,000 /Unit
$ 1,350,000
$ 150,000
53,000
$ 203.000
$ 1.553.000
$ 155.300
TABLE 1
ESTIMATED DEVELOPMENT COSTS
10 UNIT PROTOTYPICAL PROJECT
VERY -LOW INCOME ALTERNATIVE
IN -LIEU FEE ANALYSIS
NEWPORT BEACH, CALIFORNIA
u
I. Total Property Assemblage Cost 10 Units
11. Rehabilitation Costs
Direct Costs 10 Units
Indirect 8 Financing Costs 35% Direct Cost
Total Rehabilitation Costs
111. (Total Development Costs
Per Unit
Prepared by: Keyser Marston Associates, Inc.
File Name: Ao0_Rehab; Very-Low, I WI1199
$ 135,000 /Unit
$ 15,000 /Unit
$ 1,350,000
$ 150,000
53,000
$ 203.000
$ 1.553.000
$ 155.300
TABLE
10
STABILIZED NET OPERATING INCOME
$
10 UNIT PROTOTYPICAL PROJECT
Very-Low Income a. 50% of Median
VERY -LOW INCOME ALTERNATIVE
Gross Income
IN -LIEU FEE ANALYSIS
NEWPORT BEACH, CALIFORNIA
2 Units @
I. Income'
10
Units @
$
10 /Month
Very-Low Income a. 50% of Median
Gross Income
One - Bedroom
2 Units @
$
652 /Month
$ 15,700
Two - Bedroom
6 Units @
$
813 /Month
58,500
Three - Bedroom
2 Units @
$
943 /Month
22,600
Laundry/Misc. Income
10
Units @
$
10 /Month
1,200
Gross Income
$ 98,000
(Less) Vacancy and Collection
5.0%
Gross Income
(4,900)
Gross Effective Income
$
93,100
II. Operating Expenses
General Operating Expenses
10
Units @
$
2,750 /Unit
$ 27,500
Property Taxes
10
Units@
$
1,200 /Unit
12,000
Operating 8 Capital Reserve
10
Units @
$
200 /Unit
2,000
Total Operating Expenses
10
Units @
$
(4,150) /Unit
$
(41,500)
III. INet Operating Income
$
51,600
Based on lesser of maximum affordable rent or the projected market rent: one -bdrm - $800, two -bdrm = $1,000 S three -bdrm = $1,300 0
Prepared by Keyser Marston Associates, Inc.
File Name: Acg_Rehab; Very-Low; 10/11/99
L1
I. Warranted Private Investment
Net Operating Income TABLE 2 $ 51,600
Threshold Developer Return 10%
Total Warranted Investment $ 516,000
II. Estimated Development Cost TABLE 1 $ 1,553,000
Prepared by: Keyser Marston Associates, Inc.
File Name: Acg_Rehab; Very-Low; 10111/99
TABLE 3
FINANCIAL GAP CALCULATION
10 UNIT PROTOTYPICAL PROJECT
VERY -LOW INCOME ALTERNATIVE
IN -LIEU FEE ANALYSIS
NEWPORT BEACH, CALIFORNIA
L1
I. Warranted Private Investment
Net Operating Income TABLE 2 $ 51,600
Threshold Developer Return 10%
Total Warranted Investment $ 516,000
II. Estimated Development Cost TABLE 1 $ 1,553,000
Prepared by: Keyser Marston Associates, Inc.
File Name: Acg_Rehab; Very-Low; 10111/99
u9a#Llm 4a
PRO FORMA ANALYSIS
LOW INCOME ALTERNATIVE
0
0
0
I. Total Property Assemblage Cost 10 Units
II. Rehabilitation Costs
Direct Costs 10 Units
Indirect & Financing Costs 35% Direct Cost
Total Rehabilitation Costs
$ 135,000 /Unit
$ 15,000 /Unit
$ 1,350,000
$ 150,000
53,000
$ 203,000
Total Development Costs $ 1,553,000
Per Unit $ 155,300
Prepared by: Keyser Marston Associates, Inc.
File Name: AccLRehab; Low; 10/11/99
1
.TABLE
ESTIMATED DEVELOPMENT COSTS
10 UNIT PROTOTYPICAL PROJECT
LOW INCOME ALTERNATIVE
IN -LIEU FEE ANALYSIS
NEWPORT BEACH, CALIFORNIA
0
I. Total Property Assemblage Cost 10 Units
II. Rehabilitation Costs
Direct Costs 10 Units
Indirect & Financing Costs 35% Direct Cost
Total Rehabilitation Costs
$ 135,000 /Unit
$ 15,000 /Unit
$ 1,350,000
$ 150,000
53,000
$ 203,000
Total Development Costs $ 1,553,000
Per Unit $ 155,300
Prepared by: Keyser Marston Associates, Inc.
File Name: AccLRehab; Low; 10/11/99
TABLE 2
•
STABILIZED NET OPERATING INCOME
10 UNIT PROTOTYPICAL PROJECT
LOW INCOME ALTERNATIVE
IN -LIEU FEE ANALYSIS
NEWPORT BEACH, CALIFORNIA
I. Ind'
Low Income 0 80% of Median
One - Bedroom
2
Units @
$
800 /Month
$ 19,200
Two- Bedroom
6
Units @
$
1,000 /Month
72,000
Three - Bedroom
2
Units @
$
1,300 /Month
31,200
Laundry/Mlsc. Income
10
Units @
$
10 /Month
1,200
Gross Income
$ 123,600
(Less) Vacancy and Collection
5.0%
Gross Income
(6,200)
Gross Effective Income
$
117,400
II. Operatinct Expenses
General Operating Expenses
10
Units @
$
2,750 /Unit
$ 27,500
Property Taxes
10
Units @
$
1,200 /Unit
12,000
Operating 8 Capital Reserve
10
Units @
$
200 /Unit
2,000
Total Operating Expenses
10
Units @
$
(4,150) /Unit
$
(41,500)
III. INet Operating Income
$
75,900
Based on lesser of maximum affordable rent or the projected market rent: one -bdrm = $800, two -bdrm = $1,000 8 three -bdrm = $1,300 0
Prepared by. Keyser Marston Assopiates, Im.
File Name: Aog_Rehab; Low; 10/11/99
•TABLE
3
FINANCIAL GAP CALCULATION
10 UNIT PROTOTYPICAL PROJECT
LOW INCOME ALTERNATIVE
IN -LIEU FEE ANALYSIS
NEWPORT BEACH, CALIFORNIA
r-J
I. Warranted Private Investment
Net Operating Income TABLE 2 $ 75,900
Threshold Developer Return 10%
Total Warranted Investment $ 759,000
II. Estimated Development Cost TABLE 1 $ 1,553,000
Financial Gap $
Per
Prepared by: Keyser Marston Associates, Inc.
File Name: Acq-Rehab: Low. 10/11/99
RESOLUTION NO. 99-
A RESOLUTION OF THE CITY COUNCIL OF .
THE CITY OF NEWPORT BEACH ADOPTING
A FEE IN -LIEU OF PROVIDING
AFFORDABLE HOUSING IN SMALLER
RESIDENTIAL DEVELOPMENTS
WHEREAS, the Housing Element of the General Plan contains policies and
programs to facilitate the construction of affordable housing in new residential development; and
WHEREAS, the Housing Element requires new residential development greater
than 10 units to provide affordable housing, if feasible; and
WHEREAS, the Housing Element does not preclude the payment of fees in -lieu
of providing affordable housing; and
WHEREAS, provision of affordable housing is not always feasible in smaller
residential developments; and
WHEREAS, the payment of an in -lieu fee would provide funds for the City to
facilitate the development of affordable housing in the City; and
WHEREAS, the City has in the past allowed the payment of a fee in -lieu of
provision of affordable housing; and
WHEREAS, it better for both the City and development community to have
certainty as to the amount of an affordable housing in -lieu fee as opposed to negotiating a fee on
a project -by- project basis.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Newport Beach that an affordable housing in -lieu fee be established at $11,000 per dwelling unit
constructed, if approved by the Planning Commission or City Council.
BE IT FURTHER RESOLVED that the fee will be subject to adjustment on a
yearly basis under the parameters established in the Newport Beach Municipal Code.
ADOPTED this day of 1999.
MAYOR
►"Y :yl9
CITY CLERK
INOU -22 1999
0 31
'RECEIVED ;
.,,
f d May. or Dc- is O'Neil and City Council Me
Ctiy of Np Fport Beach k
;?3�_,� ,. ,
P.O. 6 1768
Newport Beach, CA 92658 -8915
Subject: Pronosed Affordable Housing in Lieu Fee - Agenda Item No. 14,
November 22, 1999 Council Agenda
Dear Mayor O'Neil and City Council members-...
On behalf of the Building Industry Association of Southern California,
Orange County Chapter (BIA/OC), I am writing to request a continuance of not
less than 60 days for city council consideration of the proposed "Affordable
Housing in -Lieu Fee ".
The proposed fee would more than double the most recent exaction for
affordable housing compliance, There has been limited consultation with
impacted property owners on the fee, or with the BIA/OC. The underlying
assumptions in the Keyser Marston study have not been subject to public scrutiny
Given that what has historically been a project -by- project negotiated fee is
now recommended to be unilaterally applied on a city -wide scope, BIA/OC would
request being consulted. We would like to work with your staff to develop a fee in
a collaborative process that is fair, just, and equitable.
Sincerely,
Christine Diemer Iger, Esquires
Chief Executive Officer
Cc: BIA/OC Board of Directors
Carol Hoffman, The Irvine Company
L. J. EdgcomblTim McSunas, John Laing Homes
Mike Schlesinger, Taylor Woodrow
Homier Bludau, City Manager
Sharon Wood, Director of Planning and Building
La Vonae Harkless, Qy Clerk
%WTSEAVEAN.YNNEWewpart Hawing Fee 1122"Aw
o-f O_ _— ✓
Chapter
Building Industry AAridx:ia!i;
of Southern California
9 Executive Cire:e
Suite 100
Irvine, California 92614
949.553.9500
fax 949.553.9507
hitp://www.biasc.org
PRESIDENT
GREGORY CuMaNS
A.MnO CO
?S ?VICE °RE ANT
JEFFREY PROd}TOR
BROOKFIE:O HOMES
aNC 110E PRESIDENT
FrIC WISiENBFPG
onesay CF S O.
SECRETARY
DENTS CUt•.MBER
iENNAR /GREYSTONE HOME!
REAS;RER
STS-J6 CAMERON
F'E'.D5TCNE COMMON 7 :SS
ASSCOWE VICE PRESIOEN,
ANN ROMANO
ANN ROMANO ASSOCIATES
MEMBER-AT v.RGE
CHUCK ROWLEV
C�4ICAGC TITLE
MEM6E7- A7.LARG9
GERALD GATES
BEAZER HCMES
MEMBER- AT.LARGE
TOM STEELE
::H.ARCWCOD CREATIONS
iMMEDIA,E PAST PRUDEN:
SCOTT A. ALLEN
CITATION HOMES
CHIEF :xECUiwE OFFICER
CHRISTINE M. OIEMER
An Affiliate ol. the
V dl•,.nnl !\ago NSCnf1 ai
}come Hu;!dery and the
C Homi a Building
inhwm Aarnciatiun