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Home My WebLink AboutCity Council - 2007-71 (2) RESOLUTION NO 2007-71 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH SETTING FORTH AN AFFORDABLE HOUSING IN-LIEU FEE AS AUTHORIZED BY ZONING& SUBDIVISION ORDINANCE 3687 SECTION 230 26 WHEREAS, on November 1, 2004 the Council adopted Ordinance No 3687 adding Zoning & Subdivision Ordinance Section 230 26 relating to the goals and objectives of the City s Housing Element which is intended to encourage very-low low and median housing, Pursuant to Section 230 26(B), a minimum of ten (10) percent of all residential construction projects of three (3) or more units must provide affordable housing units, Pursuant to Section 230 26(b)(4) developers of residential projects consisting of nine or fewer units may elect to pay a fee in lieu of providing the required affordable units on site to fulfill the City's requirement of the Inclusionary Housing Ordinance unless the affordable housing requirement is outlined as part of a Specific Plan Project The City Council has received the report from Keyser Marston Associates dated January 23, 2006 which includes an analysis pertaining to the City s Inclusionary Housing Ordinance and proposes an in-lieu fee consistent with the provisions of Zoning& Subdivision Ordinance Section 230 26 A copy of this study, as updated since January 23, 2006, is attached hereto as Exhibit A and incorporated herein by this reference NOW THEREFORE, the City Council of the City of Huntington Beach does hereby resolve as follows 1 The Keyser Marston report attached hereto as Exhibit A is received and filed 2 The proposed per project in-lieu fee shall be as follows Project Size In Lieu Fee Total Fee Three Units $9,430 $28,290 Four Units $10,600 $42,400 Five Units $11,780 $58,900 Six Units $12,960 $77 760 Seven Units $14 140 $98,980 Eight Units $15 330 $122,640 Nine Units $16,500 $148 500 3 An Affordable Housing Trust Fund shall be created and used to receive all deposits of in-lieu fees paid pursuant to Zoning & Subdivision Section 230 26 Interest shall accrue to the fund and no other funds shall be commingled 1 06 494 001/13898 Resolution No 2007 71 4 Monies in the Affordable Housing Trust Fund shall be used only to fund projects which have a minimum of fifty (50) percent of the dwelling units affordable to very-low and low income households with at least twenty(20) percent of the units available to very-low income households based on the Orange County median income adjusted for appropriate family size as published by the United States Department of Housing and Uroan Development or established by the State of California, pursuant to Health and Safety Code Sections 50079 5 and 50093, or a successor statute 5 Permitted uses of the Affordable Housing Trust Fund shall be at the Council's discretion and include for pre-development costs, land or air rights acquisition, rehabilitation land write-downs, administrative costs, gap financing and lowering the interest rate of construction loans or permanent financing 6 Any units that obtain or benefit from the Affordable Housing Trust Funds shall maintain the affordability of the units for a minimum of sixty(60) years 7 The Affordable Housing In-Lieu Fee shall be adjusted every January beginning 2008 by the Cost of Living Index 8 The City Administrator or her designee shall administer the Affordable Housing Trust Fund and shall provide an annual report to City Council, which report shall include the beginning balance, ending balance a description of the projects funded or to be funded each fiscal year The first annual report shall be provided on or before December 1, 2007 for the 2007-08 fiscal year PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a regular meeting thereof held on the 15th day of October , 2007 el" 654�_ — °ayor REVIEWED AND APPROVED APPROVED AS TO FORM 1City Administrator , Crty Attorney INITIA D AND APPROVED Dire or of Iffanning 2 06 494 001/13898 Resolution No 2007 71 Resolution No 2007 71 yip KEYSER MARSTON ASSOCIATES 99491o� ADVISORS IN PUBLIC/PRI VAT£ REAL ESTATE DEVELOPMENT �!!/� MEMORANDUM y1ob ADVISORS 1N. ,fAu EswE To Mary Beth Broeren Principal Planner REDEVELOPMENT City of Huntington Beach ORAASU HOUSING imtc DEVELOPMENT From Kathleen Head S N FRANCtSCA A.TERRY MUR Julie Romey TIMOn"C KEtir KALE EARLE WNW Dena ta.KERN Date January 23 2006 ,08ERrI WETMORE LOS ANGELES Subject. Inclusionary Housing Ordinance- in4-ieu Fee ALVn4 E.HOLUS.it KATHLEEN H HEAD LAMES A BABE PAUL C ANDERSON At our request Ke GORr D SOO-HOO Y �1 Key Marston Associates Inc (KMA)prepared the following analysis pertaining to the City of Huntington Beach (City) Inclusionary Housing Ordinance ' SAt'DtCGO ERALD M TRIMBLE (Ordinance) Specifically KMA evaluated the Ordinance provision that allows PAULC iAA"A developers of projects with nine or fewer units to pay a fee in lieu of providing affordable housing units within their project The purpose of the following memorandum is to assist the City in establishing an in-lieu fee payment schedule to be applied to small projects INCLUSiONARY HOUSING ORDINANCE REQUIREMENTS The Ordinance requirements that must be considered in establishing an in-lieu fee schedule are 9 All for-sale and rental new construction housing projects with three or more units must make at least 10%of the units available to the following households ' a For-sale units must be made available to very-low low or median income households 2 b Rental units must be made available to very-low or low income households New residential projects are defined as an entirely new project or new units added to an existing 1 project. Only new units are used to calculate the required number of affordable housing units 2 The median is defined as the Orange County median income(Median) 500 SOUTH GRAN AVENUE,SMITE 1480> LOS ANGELES CALIEORN LA 90071 l► PHONE.213 622 8095 > EAX-213 622 5204 Resolution No 2007 71 1 To Mary Beth Broeren City of Huntington Beach January 23 2006 Subje& lnclusionary Housing Ordnance-In-Ueu Fee Page 2 2 The income and affordability covenants must remain in place for at least 60 years 3 The affordable units must be a Dispersed throughout the project~ b Proportional in number bedroom size and location to the market rate units c Comparable with the market rate units in terms of the base design appearance materials and finish quality and d Constructed and occupied concurrently with or prior to the construction and occupancy of market rate units 4 For small projects defined as projects including nine or fewer units,the nnclusionary housing requirements may be satisfied by payment of an in-lieu fee established by resolution of the City Council and updated annually-3 a The in-lieu fees will be deposited into a dedicated affordable housing account b The account will only be used to provide funding assistance for construction or retention of affordable housing and for reasonable administration costs 5 Developers may choose to provide the affordable units at an off-site location as long as these units are under the full control of the Developer or other approved party The following outlines the other conditions a Off-site projects can be new construction or major physical rehabilitation of existing non-restricted units At risk units and mobile homes may also be used to satisfy this requirement_ b Off-site units must be constructed or rehabilitated prior to or concurrently with the primary project 3 The fees are to be based upon the total number and size of the new residential units Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach January 23 2006 Subject- Indusionary Housing Ordinance-in-Lieu Fee Page 3 c The sales prices or rents must be affordable to very-low low or median income households pursuant to the terms of an Affordable Housing Agreement. METHODOLOGY The vast majority of new residential projects within Huntington Beach are expected to be comprised of'for sale'projects However it is possible that rental development may also occur Recognizing that the project economics vary between ownership and rental projects and to avoid imposing onerous requirements on development,the KIIAA analysis evaluates both development types The first step in establishing an in-lieu fee is to quantify the financial impact associated with fulfilling the affordable housing requirements within market rate projects That financial impact is equal to the difference between the market rate prices and the affordable price for the required income restricted units This difference is known as the "affordability gap" and it is quantified using the following methodology l 1 The projected market rate sales prices and rents are compiled for prospective new residential projects 2 The maximum affordable prices and rents are calculated based on the standards imposed by California Health and Safety Code (Code) Sections 50052 5 and Section 50053 3 The difference between the market rate price and the defined affordable price represents the affordability gap associated with each income restricted unit required to be included in a market rate residential project 4 The affordability gap per income restricted unit is multiplied times the number of units that must be income restricted This represents the effective cost to a developer of fulfilling the inclusionary housing requirements on-site 5 Since a fee is going to be paid in-lieu of providing any affordable units on-site the effective cost is divided by the total square footage of the project This represents the Base In-Lieu Fee amount 6 The Ordinance limits the in-lieu fee option to projects with nine or fewer units The in-lieu fee analysis recognizes that the inclusionary requirement has a greater impact on smaller projects than it does for a typically sized project Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach January 23, 2006 Subject. Inclusionary Housing Ordinance-in-Lieu Fee Page 4 7 The Small Project inAeu fee reflects the number of units in the project,which can range between three and nine units To achieve this it is necessary to create a Sliding Scale In-Lieu Fee amount that can be justified based on both the affordability gap and the feasibility analysis for the three-to nine-unit projects Household Incomes The Ordinance specifically identifies the Code Section 50093 income definition for moderate income households However, the Ordinance limits the moderate income category to 100°A of the Median instead of the 120%of Median maximum that is allowed by Section 50093 The Ordinance also imposes very-low and low income restrictions To account for these requirements KMA assumed that Code Section 50105 would apply for very-low income households and that Code Section 50079 5 would apply for low income households The income information is published by the State of California Housing and Community Development Department(HCD) annually The income ranges for Orange County in ; 2005 are Very-Low Low Median Household Income Income Income Size (Section 50105) (Section 50079 5) Section 50093 1 Person $0-$26 900 $26 900-$43 000 $43 000-$53,000 2 Person $0-$30 700 $30 700- $49150 $49,150-$60 550 3 Person $0-$34 550 $34 550-$55,300 $55 300-$68150 4 Person $0-$38,400 $38 400-$61,450 $61,450-$75,700 5 Person $0-$41,450 $41,450-$66,350 $66 350-$81,750 6 Person $0-$44 550 $44,550-$71 250 $71 250-$87,800 7 Person $0-$47,600 $47,600-$76 200 $76 200-$93,850 8 Person $0-$50 700 $50 700- $81,100 $81 100-$99 900 Affordable Housing Cost Calculation Methodology The Ordinance does not identify a methodology for calculating affordable housing cost However historically the City has used the calculation methodologies imposed by the California Health and Safety Code Section 50053 defines the calculation methodology for rental units and Section 50052 5 provides the methodology for ownership units Resolution No 2007-7 i To Mary Beth Broeren City of Huntington Beach January 23 2006 Subject Inclusionary Housing Ordnance-In-Ueu Fee Page 5 AFFORDABILITY GAP ANALYSIS--OWNERSHIP PROJECTS(APPENDIX A) Market Rate Sales Prices Hanleywood Market Intelligence information indicates that the following single-family detached and attached residential projects are currently selling or recently sold out in Huntington Beach Year Product Number Built Sold Out Type of Units Seabndge Villas 4 2003 2004 Condos 344 Bel Air 2004 --- Duplex 102 Peninsula Point 2004 — Detached 13 Sea Cove 2004 --- Townhomes 106 Total Units 565 As shown in Appendix A—Table 1 the following summarizes the sales prices for each product type i Average Average Unit Size Sales Average (Sf) Prices $/Sf One-bedroom Units 811 $348 500 $430 Two-bedroom Units 1 418 $567,000 $400 Three-bedroom Units 2 484 $923 800 $367 Averages 1 841 $854 000 $464 Pncrng Assumptions The market rate sales prices are based on the following assumptions Unit Size Sales (Sf) $/Sf Prices One-bedroom Units 800 $430 $343,600 Two-bedroom Units 1 400 $400 $559,700 Three-bedroom Units 2 500 $367 $918 600 4 The project was built in the 1980 s and was converted from apartments to condommitims in 2003 Resolution No 2007 71 TO Mary Beth Broeren City of Huntington Beach January 23 2006 Subject- Inclusionary Housing Ordinance-in-Lieu Fee Page 6 Affordable Housing Cost Calculation The affordable housing cost calculations included in the Code Section 50052 5 definition are 1 The household incomes are based on a benchmark household size equal to one person more than the number of bedrooms 2 The Ordinance sets the maximum household income for moderate income units at 1001A of the Medan as published by HCD 5 3 Thirty--five percent(3513A)of the defined household income is allocated to housing related expenses These expenses are defined as mortgage debt service payments property taxes, maintenance costs, insurance costs home owner's association (HOA)dues and utility costs The Huntington Beach Redevelopment Agency(Agency) has historically calculated these costs for the City using the following assumptions a Typically the Agency estimates HOA fees inclusive of homeowner's insurance based on the actual HOA fees for a protect_ Therefore, KMA estimated the HOA fees by calculating the weighted average of the project comparables in Appendix A—Table 1 b The maintenance costs are estimated at$50 per month c The 2005 utility allowances are provided by the Orange County Housing Authority and include gas electricity trash and water expenses These costs are as follows One-bedroom Units $71 Two-bedroom Units $82 Three-bedroom Units $115 d In accordance with the Agency s methodology the property tax cost is estimated at 1 081% of the projected affordable price for the units 4 The mortgage amount that can be supported by a Median income household is based on a 30-year fully amortizing mortgage at 6 5%interest rate s s It is reasonable to assume that given a choice a developer will provide Median income ownership units rather than very-low or love income ownership units Resolution No 2007 71 To Mary Beth Broeren,City of Huntington Beach January 23 2006 Subject lnclusionary Housing Ordinance-In-Lieu Fee Page 7 Assuming the home buyer makes a down payment equal to 10%of the affordable purchase price the affordable prices for the Median income units in 2005 are One-Bedroom Two-Bedroom Three-Bedroom Units Units Units Supportable Mortgage $188 500 $217,800 $242,800 Home Buyer Down Payment 20 900 24100 27 000 Affordable Purchase Price $209 400 $241 900 $269,800 Affordability Gap Calculations The results of the affordability gap analysts for Median income households are presented in Appendix A—Table 3 The analysts identifies the gaps between the maximum affordable prices and the projected market rate sales prices for one- two-and three-bedroom units the results are summarized below- One- Two- Three- Bedroom Bedroom Bedroom j Units Units Units Market Sales Prices $343 600 $559 700 $918 600 (Less)Median Income Sales Prices (209 400) (241,9" 269,800 Affordability Gap $134 200 $317 800 $648 800 For the purposes of this analysis KMA distributed the units as follows 25%one bedrooms 25%two bedrooms and 5011/6 three bedrooms Based on these assumptions the average affordability gap per Median income unit is estimated at 3437400 Inclusionary Housing Obligation Cost The Ordinance requires developers to impose income and affordability restrictions on at least 10% of the units in an ownership project It is the KMA assumption that developers would typically minimize the financial gap by earmarking the units for Median income households rather than for very4aw or low income households When the$437 400 gap per affordable unit is distributed across all units in a project the cost is equal to $43 700 per unit($437 400 x 10% =$43 700) 6 The level annual debt service amount on a loan at 6 5%interest is equal to 7 58%muiUplied limes the original balance on the first Dust deed mortgage Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach January 23 2006 Subject lnclusionary Housing Ordinance-In-Lieu Fee Page 8 AFFORDABILITY GAP ANALYSIS—RENTAL PROJECTS (APPENDIX B) The methodology used in the KMA affordability gap analysts for rental developments can be described as follows 1 KMA obtained rents for recently renovated market rate apartment complexes in Huntington Beach from www rentnet.com 2 KMA calculated the maximum affordable rents for low income households based on the household income statics dtstrdited by HCD and the affordability standards imposed by Code Section 50053 T 3 To maximize management efficiency new apartment projects typically include at least 50 units s For the purposes of this analysis KMA created a 50-unit prototype apartment project, and estimated the affordability gap associated with the imposition of low income rents on 101/6 of the units The affordability gap was then translated into the value reduction generated by the income and affordability restrictions unposed by the Ordinance ) 4 The Ordnance does not allow projects with more than nine units to pay the in- lieu fee However given the dearth of small new apartment projects it is necessary to premise the affordability gap analysis on a larger project The gap derived from this analysts is then adjusted to reflect the characteristics associated with a project that would qualify for the in-lieu fee payment option The tables that detail the rental analysis are located in Appendix B and are organized as follows Table 1 Apartment Rental Rate Comparables Table 2. Affordable Rent for Low Income Households Table 3 Project Value—100%fl Market Rate Units Table 4 Project Value—100°/0 Low income Units Table 5 Affordability Gap Calculation—Rental Projects 7 KMA assumed that developers will choose to provide law income units rather than very4ow income units s Small investors wiii sometimes develop a smaller project to hold over the long-term However in the current market place it is far more financially advantageous to build a small condominium project rather than a small apartment project. Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach January 23 2006 Subject. Inc lusionary Housing Ordinance-ln4-ieu Fee Page 9 Market Rate Rents The vast majonty of the recently constructed apartment projects in Huntington Beach have been subject to long-term income and affordability restncbons Given the lack of new rental development,KMA gathered rent comparables for apartment buildings that have been renovated since 2000 The following illustrates the average asking rents for recently rehabilitated apartment units in Huntington Beach Unit Size Monthly Unit T (Sf) Rents $18f Studio Units 452 $1 000 $2.26 One-bedroom Units 723 $1 200 $1 67 Two-bedroom Units 988 $1 500 $1 50 Three-bedroom Units 1 364 $1 700 $1 27 Based on the current market and development trends KMA assumed that a typical apartment project would be focused on one-and two-bedroorn units Assuming a 151% premium for new construction the projected market rents for a new apartment project are as follows Unit Size Monthly Unit T (Sf) $/Sf Rents One-bedroom Units 750 $1 92 $1 443 Two-bedroom Units 1 000 $1 73 $1 729 Affordable Housing Rent Calculations The Ordinance requires 10%of the units in a rental development to be subject to very- low or low income and affordability restrictions Historically, the City has applied the Code Section 50053 affordable housing cost definition to the incusionary housing rental units The calculations are presented in Appendix B—Table 2 and the results can be summanzed as follows 1 The household incomes are based on benchmark household sizes of two persons for one-bedroom units and three persons for two-bedroom units 2 The household income is set at 600A of the Median for low income units 3 30% of the defined household income is allocated to housing related expenses Resolution No 2007 71 To Mary Beth Broeren,City of Huntington Beach January 23, 2006 Subject Inclusionary Housmg Ordinance-In-Lieu Fee Page 10 4 The maximum allowable rent must be adjusted to reflect the fact that the tenants will be required to pay for mtenor utility costs Based on the 2005 allowances provided by the County of Orange Housing Authority the utilities are estimated at $32 per month for one-bedroom units and $40 per month for two-bedroom units 9 5 The income and affordability covenants must be unposed over at least a 60-year term The maximum allowable 2005 low income rents under the defined income categories are as follows Monthly Unit Type Rents One-bedroom Units $877 Two-bedroom Units $982 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 achieved by apartments that are not subject to income and affordability restrictions As can be seen in the following table the projected market rents exceed the maximum affordable rents by 39%to 43% Thus, KMA has applied the defined affordable rents to our affordability gap analysis Market tow Unit Tyjp2 Rate Income Difference One-bedroom Units $1 443 $877 (39%) Two-bedroom Units $1,729 $982 43°Ao Affordability Gap Calculations The affordability gap calculations are presented in Appendix B Table 3 provides a pro forma analysis for a market rate project and Table 4 presents the findings for a low income project The assumptions that were applied to each scenario are i The market rate and income restricted rents are based on the assumptions discussed in the preceding section of this analysis 2 The revenue analyses include$15 per unit per month in miscellaneous income and a 5%vacancy and collection allowance 1 9 Rental utility allowances include gas and electricity expenses only Resolution No 2007 71 To Lary Beth Broeren, City of Huntington Beach January 23 2006 Subject: Inclustonary Housing Ordinance- In-Lieu Fee Page 11 3 The general operating expenses are estimated at$3 800 per unit and a$250 per unit per year allowance is provided to fund an operating and capital reserve account- 4 The property tax expense estimates vary among the market rate and income restricted apartment protects The expense cost is equal to the value supported by the protect at a 1 1%property tax rate 5 The net operating income{NOQ for both the market rate and income restricted units was capitalized at a 6 06A rate to estimate the relative values supported by market rate and low income units Based on the preceding assumptions the values per unit are estimated as follows NOI I Unit Value/unit 100%Market Rate $12 000 $200 000 100% Low Income $5 700 $95 000 Appendix B—Table 5 illustrates the affordability gaps per affordable unit,which are summarized as follows Market Rate Scenano ValueAJnit $200 000 (Less)Low Income Value/Und 95 500 Affordabrr Gap $105 000 Inclusionary Housing Obligation Cost The Ordinance requires developers to set-aside 10%of the units in a rental protect for very-low or low income households Based on the KMA analysis the affordabirity gap is estimated at an average of$105,000 per income restricted unit included in the project A developer that chooses to pay the tn-Iteu fee well not be providing any affordable units within their market rate project. To translate the weighted average affordability gap into an in4teu fee payment per market rate unit, it is necessary to multiply$105,000 times the 101%inclusionary housing requirement This equates to$10 500 per unit development in a market rate project Resolution No 2007 71 To Mary Beth Broeren,City of Huntington Beach January 23 2006 Subject. inclustonary Housing Ordinance-In-Lieu Fee Page 12 2005 MAXIMUM ALLOWABLE IN-LIEU FEES The City's objective is to establish an in-lieu fee schedule that provides the City with adequate funds to produce the inclusionary units in similar locations and product types However the primary reason the Ordinance allows projects with nine or fewer units to pay an in-lieu fee is that the City recognizes that the imposition of income and affordability restrictions has a disproportionate impact on small projects Therefore.A is necessary to establish an in-lieu fee schedule that does not render small projects economically infeasible In order to demonstrate the effective cost of fulfilling the Ordinance's production requirements the KMA financial analysis is based on the characteristics embodied by larger projects than would be allowed to pay the in-lieu fee This in turn provides the foundation for creating an in-lieu fee schedule that does not render small development financially infeasible 1 The Base In-Lieu fee is calculated at the 100%estimated affordability gap for a typically sized Project- 2 Based on the survey data presented in this report,the average ownership unit is estimated at 1 800 square feet in size and the average rental unit is estimated at 875 square feet in size 3 The Base In-Lieu fees that correlate to the financial analyses presented in the financial analysts (Base In-Lieu Fees)are as follows Per Per Per Sf of Affordable Market Rate Building Unit Unit Area Ownership Projects $437 400 $43 700 $24 Rental Projects $105 000 $10 500 $12 KMA prepared comparative pro forma analyses of 30-uni#and nine-unit"for sales projects to assist in understanding the financial characteristics of the different project sizes (Appendix C—Table 1) Based on current projections the developer profit per unit is approximately 46% less for the nine-unit project than the projected profit for the 30- und project To equalize the impact of the Ordinances production requirement for projects with 10 or more units and the in-lieu fee option provided to projects with rime or fewer units KMA reduced the Base In-Lieu Fee by 46% Resolution No 2007 71 To Mary Beth Sroeren, City of tJuntington Beach January 23 2006 Subject Inc lusionary Housing Ordinance-In-Lieu Fee Page 13 The resulting fees for nine-und projects are Per Sf of Building Area Ownership Projects $13 Rental Projects $7 It is important to recognize that the financial impacts grow at a disproportionate rate as the project size decreases To reflect this. KMA created the following sliding scale for three-to nine-und projects 10 Asa%of Small Project Project Size Base Fee Three Units 67% Four Units 64% Five Units 71% Six Units 79% ' Seven Units 92% Eight Units 93% Nine Units 100% The in-lieu fees that result from the sliding scale are Project Size Ownership Rental Three Units $7 $4 Four Units $8 $4 Five Units $9 $5 Six Units $10 $6 Seven Units $12 $6 Eight Units $12 $7 Nine Units $13 $7 701t is difficult to precisely project the financial impact generated at each project size The recommended slidng scale percentages are based on the scales currently being applied in West Hollywood and Pasadena_ Resolution No 2007 71 To Mary Beth Broeren,City of Huntington Beach January 23 2006 Subject Inclusionary Housing Ordinance-In4jeu Fee Page 14 IN-LIEU FEE COMPARISON ANALYSIS To assist the City in setting the in-heu fee payment amount, KMA compiled information from other Southern California jurisdictions that have indusionary housing requirements, and that allow in-lieu fees to be paid It is important to note, however that the majority of the surveyed cities calculate the in-lieu fee on a case-by-case basis In addition,many cities require the City Council to provide discretionary approval for a fee to be paid in-lieu of producing the affordable units For the surveyed cities that have established fee schedules the in-lieu fee is calculated on one of the following bases 1 Per square foot of building area included in the project; 2 Per unit developed in a market rate project, or 3 As a percentage of project or construction valuation The in-lieu fees charged in the surveyed cities are presented in the following tables Per Square Foot of ButKing Area Jurisdiction in-Lieu Fee Amount Chino $2 72 Duarte $6 50 Pasadena " Rental Projects $12—$22 Ownership Projects $5-$41 San Diego 13 $1 25-$2.50 Santa Monica 14 $22.33-$26 08 West Holl ood is $6 70-$13 40 "The in-lieu fee amount is only applicable to projects developed in the Preserve 12 Projects with fewer than 10 units are exempt from the Program 73 The lower fee is charged for projects with fewer than 10 units 1 4 The lower fee is charged for apartment projects and the higher fee is charged for ownership projects t5 An in-lieu fee can only be paid for projects with 20 or fewer units The fee vanes by number of units in the project. Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach January 23 2006 Subject Inclusionary Housing Ordinance-In-tjeu Fee Page 15 Per Unit in a Market Rate P ect Jurisdiction In-Lieu Fee Amount Agoura t-17r is $4 541 -$6,277 Laguna Beach" $7 047 Coronado $7 000 As a%of Pr /Construction Valuation Junsd:ction In-Lieu Fee Amount San Clemente 1 00% San Juan Capistrano 1 1 00% The in-lieu fees being charged by the surveyed cities vary widely Moreover since many cities negotiate the in-lieu fee on a case-by-case basis it is very difficult to identify the "typical' in-lieu fee being charged by cities that are implementing mclusionary housing programs However, based on the available information, the maximum supportable fee in Huntington Beach is within the range of the fees currently being charged by other Southern California cities IN4JEU FEE RECOMMENDATIONS The establishment of an in-lieu fee amount requires several subjective judgments and decisions To provide a framework for our recommendations KMA considered the following factors 1 The City s primary objective is to attract sufficient housing to fulfill the affordable housing production requirements imposed by Code Section 33413 and to eliminate the unmet need for affordable housing identified in the Regional Housing Needs Assessment(RHNA) 2 An inclusionary housing production requirement has a greater financial impact on small projects than it does on large projects To mitigate this the provision of an in-lieu fee option is an efficient method of enforcing the Ordinance without stopping the development of smaller projects i6 The lower fee is charged for apartment projects and the higher fee is charged for ownership projects "The fee is set at$46 978 per affordable lot or unit. 15%of the units are required to be affordable Resolution No 2007 71 To Mary Seth Broeren City of Huntington Beach January 23 2006 Subject Inclusionary Housing Ordinance-ln-l_ieu Fee Page 16 The preceding analysis indicates that the affordability gap is $24 per square foot for ownership units and $12 per square foot for rental projects However, it is the KMA conclusion that fees of the this magnitude are likely to render small projects infeasible To balance the City's objective to generate revenues to pursue affordable housing activities against the need to ensure that the in-lieu fee does not result in a coristraart to development KMA recommends that the in-lieu fee schedule be set as follows Pro Size Ownership Rental Three Units $7 $4 Four Units $8 $4 Five Units $9 $5 Six Units $10 $6 Seven Units $12 $6 Eight Units $12 $7 Nine Units $13 $7 KMA also offers the following recommendations 1 The City should create a mechanism for re-evaluating the in-lieu fee amount on a periodic basis KMA suggests that the re-evaluation be performed at least every two years so that the in-lieu fee can keep pace with changes in the market place 2 The Ordinance should be amended to provide the following clarifications a The Ordinance should make it clear that developers can fulfill the inclusionary requirements with Median income units for ownership projects and low income units for rental projects b The Ordinance should mandate that the affordable housing cost be calculated in accordance with the Code Section 50052-5 standards for ownership units and Code Section 50053 standards for rental unds18,and c The Ordinance should only allow new development and substantial rehabilitation as defined by the Code Section 33413 affordable housing production requirements to fulfill the off-site inclusionary housing option allowed by the Ordinance 18 The Gty has set 100%of the Median as the maximum income for the moderate income'for $ + sale'units This standard should replace the 110%of the Median applied in the Code Section 50052 5 affordable housing cost calculation Resolution No 2007-71 APPENIIX A OWNERSHIP ANALYSIS 1 Resolution No 2007 71 APPEN NX A-TABLE 1 NEW CONSTRUCTION SALES COMPARABLES #443W FEE ANALYSIS HU"NGTON BEACH.CALIFORNIA Floo"Aans Year Butt i Type Unit #of Unrt Base ProFWAddress Sold Out HOA Fee Type Unds Sae{Sf) Pnce $t5f I Seabndge Villas 2003 Condo One-bedroom 72 485 $230 000 $474 Beach Blvd&Adams 2004 $350 One bedmo n 19 760 310 000 408 One-bedroom 83 765 300 000 392 One-bedroom 46 885 360000 407 Tvjo4x d oo ms 24 970 335 000 345 Twio-bedrooms 59 1 095 405 000 370 Two-bedrooms 8 1 100 340 000 309 Twobedmoms 4 1.240 415 000 335 Two bedrooms 29 1 285 470 000 366 TotatslAverages 344 850 $330 974 $389 U Bel Aw 2004 Duplex Three-bedrooms 28 2.484 $910 000 $366 Gothard&Garfield $276 Three-bedrooms 25 2 497 898 820 360 Three4x&ooms 26 Z555 920000 360 Three-bedrooms 23 2.636 907 855 344 TotalslAverages 102 2 539 $909,45 $358 III Peninsula Pouft 2004 SFD Three-bedrooms 5 1990 $869 900 $437 Main Street&Clay $95 7 2.174 899 900 414 Three-bedrooms 1 2,260 91919M 407 Tot"Averages 13 2,110 $889.9W1 $422 IV Sea Cave 2004 Townhomes One-bedroom 26 1 770 $838 990 $474 J PCH&Goldenwest $405 Two-bedrooms 19 1 620 829 990 512 Two-bedrooms 21 1 845 917 990 498 Two-bedrooms 19 2.690 987 990 367 Thme-bedrooms 21 2.450 1 014 990 414 Totals/Averages 106 2.058 $914 603 $445 v At#aahed Units I Large Projects 552 1 834 $853140 $465 One-bedroom 246 811 $348 470 $430 Twabedfooms 183 1 418 $567 019 $400 Three-bedrooms 123 Z524 $927 399 $367 VL Oetactted Units I Smatt Project 13 2,110 $889,900 $422 Three-bedroom Unrfs 13 2,110 $889 900 $422 VIL All Units 665 1.841 $8531985 $464 One�n 246 811 $348 470 $430 Tvi"edroorns 183 1 418 $567 019 $400 Three-bedrooms 136 2,484 $923 814 $367 Source Hanteywood Market Intelligence for the City of Huntfrigton Beach i Prepared by Keyser Marston Assoctates Inc Resolution No 2007 71 APPENDIX A-TABLE.2 AIEF-ORDABt_E HOUSING PRICES -U FEE ANALYSIS HuNTINGTON BEACH.CALIFORNIA One-bedroom Two-bedroom Three-bedroom Units Units Units 1 Household Income @ 100%of County Median $60 550 $68150 $75 700 EI Income Available for Mortgage Debt Service Income Allotted for Housing 35%of tricorrte s $21.200 $23 900 $26 500 (Less)Ongoing Expenses HOA,Insurance Ma+ntenance 3 (3 792) (3 792) (3 792) Uff,hes f (852) (984) (1,380) Property Taxes @ 1 08%of Affordable Price 3 (2,262) 926" (2,914) Income Available for Mortgage Debt Service $14 294 $16 521 $18 414 b Maximum Mortgage @ 6 5%Interest Rate 5 $188 500 $217 800 $242,800 V Home Buyer Down Payment @ I OQA Affordable Price 3 $20 900 $24100 $27 000 ✓ Maximum Affordable Home Price $209 400 $241 900 $269,800 r Based on the 2005 Orange County median incomes provided by HCO Per the requirements imposed by California Health and Safety Code Section 50052.5 ttte household size is set at three persons for two-bedroom units and four persons for three-bedmom unite. The Ordinance limits the moderate income units to households earning i 000f.of the median_ z Based on California Health and Safety Code Sector;50052 5 s Based on the Redevelopment Agency's assumptions The Agency calculates the affordable prices for the City ° Based on the current Orange County utility allowances Includes gas electnaty water and trash s Based on the current 30-year fixed mortgage rate Prepared try- Keyser Marston Associates Inc Resolution No 2007 71 APPENDIX A-TABLE 3 AFFORDABILITY GAP CALCULATION-OWNERSHIP PROJECTS I"EU FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA One-bedroom Two-bedroom Three-bedroom Units Units Units I Affordabdittit Gap Calculation Market Sales Prices i $343 600 $559 700 $918 600 (Less)Maximum Affordable Sales Pnces 2 (209 400) (241900) (269 8" Affordability Gap t Affordable Unit $134 200 $317,800 $M goo Affordability Unit Type II Average Affordability Garr Calculation Gap Distribution' One-bedroom Units $134,200 251% Two-bedroom Units $317 800 25% Three-bedroom Units $648 800 W/a Average Affordability Gap!Affordable Unit $437 400 III Affordability Gap/Total Unit Calculation Average Affordability Gap 1 Affordable Unit $437 400 Affordable Units as a%of Total Units` 100/4 Affordability Gap i Total Unit $43,700 i Market rate prices are based on the following 800 sf one-bedroom units @$4301sf 1400 sf two-bedroom units @$4001st and 2 500 sf three-bedroom units @$3671sf 2 See APPENDtX A-TABLE 2 3 KMA estimate Based on the Gty Ordinance x a Prr-nared tw Kevser Marstm AzSoaates Inc Resolution No 2007 71 APPENDIX B RENTAL.ANALYSIS Resolution No 2007 71 kPPEMX B-TABLE 1 4PARTMENT 1iEWAL RATE COMPARABLES tN43EIJ FEE ANALYSIS tW"NGTON BEACH CALIFORNIA Year Tip Budd Total Unit Base Name&Address Code Renovated Units Type Rent SF/Unit $1 SF I La Quinta Hermosa 92647 1971 94 ill $1 155 725 $1 59 16211 Parkside Lane 2000 211 1405 940 $1 49 211 1415 945 $150 2l1 1 530 1 1l0 $138 2 Las BnsasNida Del Mar Apartments 92649 1976 62 Ill 1 170 800 $1 46 16602 and 16552 Sell Circle 2000 212 1450 1,200 $1.21 3 Arc hstone Huntington Beach 92647 1986 152 Ill 113W 725 $1 79 8945 Riverbend Drive 2000 211 1 650 925 $1 78 4 Huntington Breakers 92648 1985 324 011 1050 450 $2.33 21270 Beach Blvd 2000 Ill 1305 635 $2A6 Ill 1355 625 $2.17 212 1615 925 $175 212 1655 900 $1..84 212 1655 900 $184 5 Los Patos Apartments 92649 1973 71 0/1 1 000 400 $2.50 17172 Bolsa Chica 2004 111 1,2W 700 $171 211 1500 1000 $1.50 6 Maddox Apar ments 92647 1971 56 ill 1045 750 $1 39 7051 Maddox Dr 2002 211 1 300 980 $1.33 212 1400 1050 3133 7 Ocean Breeze Villas 92647 1975 288 Ill 1 125 718 $1 57 6401 Warner Ave 2000 ill 1 150 800 $1 44 211 1225 850 $144 211 1.275 900 $142 22 1450 1100 $132 312 1700 1288 $1.32 312 1750 1440 $122 8 Avalon At Pacific Bay 92647 1970 304 U1 1 195 750 $1 59 6700 Warner Ave 1999 211 1 540 1 000 $1 54 212 1495 1000 $150 9 Huntington Creek 92647 1978 194 011 990 605 $196 8211 San Angelo tar 2001 Ill 1 190 729 $163 2115 1 510 1075 $140 Sample Average Mtn. Max. Avg. Avg Sao Unit Sae Rent Rent Rent $lS_ Studios 3 452 $1000 $1100 $1000 $226 143edroom Units 11 723 $1000 $1 400 $1 200 $1 67 &Bedroom Units 17 988 $1,200 $1 700 $1 500 $1.50 3-Bedroom Units 2 1 364 11700 $1 800 $1 700 $1.27 t ! Source RerdleLcorrk 07/06/05 Prepared by Keyser Marston Associates Ins Resolution No 2007 71 APPENDIX B-TABLE 2 ,#FORDABLE RENTS FOR LOW INCOME HOUSEHOLDS EU FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA One-Bedroom Two-Bedrooms - Units' Units' 1 Low Income income @ 60%County Median 2 $36 340 $40 880 %of Income Allotted to Housing 3 30 0% 30 0% Monthly Housing Expenses $909 $1 022 (Less)Utilities Expenses` (32) (40) AA Rent $w $982 Based on the 2005 Orange County median incomes provided by HCO Per the requirements imposed by California Health and Safety Code Section 50053 the household size is set at two persons for one4xxhoorn units and three persons for Nvo4 edroom units 2 Based on the 2005 Orange County median incomes provided by HCD and the requirements imposed by California Health and Safety Code Section 50053 3 Based on the City Ordinance 4 Based on the current Orange County utility alkAvances Includes gas and electricity Prepared W Keyser Marston Associates Inc, Resolution No 2007 71 APPENDIX B-TABLE 3 PROJECT VALUE-100%MARKET RATE UNITS RENTAL PROTOTYPE t IN-LIEU FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA L Rental Income OneZedroom' 25 Units $1 443 /Unit $433000 Two-Bedrooms 2 25 Units $1 729 /tlntt 518 800 Miscellaneous Income 50 Units $15 00 A7nd 9000 Grass Incorne $960 800 (Less)Vacancy Allowance 5 00/6 of Gross Income (48 000) Effecfave Gross Income $91 Z800 If Operating Expenses General Operating Expenses 50 Units $3 800 /Dint ($190 000) Property Taxes 3 50 Units $2 201 /Unit (110 000) Operating&Capital Reserves 50 Units $250 /Unit (12 500) Total Operating Expenses ($312,50 ) 3 j fit Net Operating Income $S00 300 Per Unit $12,0oo IV JProject Value° $10 005 000 Per Und $200 000 Assumes one-bedroom units at 750 square feet and rent at$1 92/sf ` Assumes two-bedroom units at 1 000 square feet and rent at$1 73/sf 3 The value is projected based on a 6 00%6 capitalization rate The property tax rate is set at 1 10%of value. 4 The value is projected based on a 6 01/6 capitalization rate Resolution No 2007-71 APPENDIX B-TABLE 4 P—"EJECT VALUE-100%LOW INCOME UNITS fAL PROTOTYPE IN-LIEU FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA I Rental Income One-Bedroom 25 Unds $877 /Unit $263100 Two-Bedrooms 25 Unds $982 "nit 294 600 Mscellaneous Income 50 Units $15 00 /Unit 9 0M Gross Income $566 700 (Less)Vacancy Allowance 5 00/a of Gross Income (2g 300) Effective Gross Income $538 400 11 Operating Expenses General Operating Expenses 50 Units $3 800 /Und ($190 000) Property Taxes 2 50 units $1041 /Urut (52,000) Operatng&Capital Reserves 50 Units $250 Rind (12,500) Total Operating Expenses ($254.500) iia- Net Operating Incorne $283 90Q Per Unit $5 700 IV JProject Value 3 $4 732,000 Per Unit $95 000 See APPENDIX B-TABLE 2 2 The value is projected based on a 6 01%capitalization rate The property tax rate is set at i 10%of value The value is projected based on a 6 00/6 capitalization rate 1 PrnnaraA hv- Kswar Mnretnn e�<...,.�*� �.... Resolution No 2007 71 APPEWDD(B-TABLE 5 AFFORDABILITY GAP CALCULATION-RENTAL PROJECTS IN-LIEt1 FEE ANALYSIS HUNTINGTON BEACH,CALIFORNIA Net Operating Project Affordability 1 Affordabillttl Gap Income Value Gap Low Income Gap I Unit Market Rate Scenano $12 000 $200 000 Low Income Scenario 2 $5 700 M 000 Affordability Gap I Unit $105 000 0 Affordability Gap 1 Total Unit Calculation AffordabWdy Gap/Affordable Unit $105 000 Affordable Units as a%of Total Units 10°A lAffordability Gap I Total Unit $101W See APPENDIX B-TABLE 3 2 See APPENDIX B TABLE 4 1 in--A 6-- .l-.. - .�-..,....._. w............... ..._ Resolution No 2007 71 APPENDIX C IN-LIEU PEE CALCULATION t Resolution No 2007 71 APPENDIX C-TABLE 1 SMALL PROJECT ANALYSIS IN-LIEU FEE ANAL_YStS HUNTINGTON BEACH.CALIFORNIA Prototype Protect I_ Protected Sales Revenues' #of Units Sales Prices Total Revenue One-bedroom Units 5 $343 600 $1718 000 Two-bedroom Units 5 559 700 Z799 000 Ttvee-bedroom Unds 20 918 600 18 372,000 Total Project Revenue 30 $76ZW7 $22 889 000 II Land+Construction Costs $649 000 IUmt $19 456 000 Ill Developer Profit Total 15% Sales Revenues $3 433 000 Per Unit $114 000 Small Project #of Units Sales Pnces Total Revenue I Protected Sales Revenues' One-bedroom Units 2 $343 600 $687 000 ) Two-bedroom Units 2 559 700 1 119 000 Ttree-bedroom Units 5 918 600 4 593 000 Total Project Revenue 9 $711000 $6 399 000 11 Land+Construction Costs $649 000 /Unit $5 841 000 III Developer Profit Total $558 000 Profit Per Unit $62 000 Profit Differential Per Unit $52,001 %Difference 46°I ' See APPENDIX A TABLE 3 2 Based on stabilized return on total nivestment- Resolution No 2007-71 APPENDIX C-TABLE 2 2 'z IN4-IEU FEE SUMMARY kl U FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA L Base In-taeu Fee /Total Unit /Sf GBA 2005 In-Lieu Fee-Ownership Pr $43 700 ' $24 2 2005 fa-Lieu Fee Rental Projects $10 500 3 $12 n Base In-rieu Fee for Small Protects Ownership Rental Base In-Geu Fee $24 $12 Loss in Profits 46% 46% Base In-lieu Fee for Small Projects $13 $7 111 SUdin-4 Scale as a%of the Base in4w-u Fee Ownership Rental Three Unit Projects 5rA 57% Four Unit Projects 64°A 64% Five Unit Projects 71% 71% Soc Unit Projects 79°A 790/6 Seven Unit Projects 920A 92% Eight Unit Projects 9356 9396 Nine Unit Projects 100% 10011/0 t)5 Srxkno Scale In rieu Fee Ownership Rental -ibree Unit Projects $7 $4 Four Unit Projects $8 $4 Five Unit Projects $9 $5 Six Unit Projects $10 $6 Seven Unit Protects $12 $6 Eight Unit Projects $12 $7 Nine Unit Projects $13 $7 ' See APPENDIX A-TABLE 3 2 Assumes that the units averag e 1800 square feet in size 3 See APPENDIX B TABLE 5 Assumes that the units average 875 square feet in we s See APPENDIX C-TABLE 1 Ptepaied bf Keyser Marston Assoctates Inc_ Resolution No 2007 71 U- i e kri I >i EYSER W RSTON ASSOCLAII ES ADVISORS IN PU$LIC/PRIVATE REAL ESTATE DEVELOPMENT MEMORANDUM ADVISORS IN To Mary Beth Broeren Principal Planner REAL ESTATE REDEVELOPMENT City of Huntington Beach A FORDABLE HOUSING ECONOMIC DE VFLOPME NT From Kathleen Head SAN FRANCISCO A JERRY KEYSER TIMOTHY C KELLY Date April 9 2007 KATE EARLE FUNK DEBBu M KERN ROBERT J WETMORE Subject inclusionary Housing Ordinance- in-Lieu Fee Update CS VN-ELE CAIVIN E HOLLIS It KATH JAWS H "FAD in a memorandum dated January 23 2006 Keyser Marston Associates Inc (KMA) jAMCSA RABE PAR C ANDERSON recommended an in-lieu fee schedule for residential projects with nine or fewer units that GREGOR',D SOO HOO are subject to the City of Huntington Beach(City) Inclusionary Housing Ordinance l KEVIN E F^1GSFROM ILWE L ROMEY (Ordinance) The recommended schedule is presented in the following table SAI DIEGO GERALD M TRIMBIE Project Size Ownership Rental PAUL C MARRA Three Units $7 $4 Four Units $8 $4 Five Units $9 $5 Six Units $10 $6 Seven Units $12 $6 Eight Units $12 $7 Nine Units $13 $7 The KMA analysis also recommended that the City create a mechanism for re-evaluating the in lieu fee amount on a periodic basis The periodic adjustment is intended to keep the fee amount in sync with changes in new housing prices it is the KMA recommendation that the City apply an adjustment factor tied to the annual change in new home prices in Orange County This information is published by the Real Estate Research Council of Southern California in a quarterly report titled Real Estate and Construction Report' 1 The information source is Data Quick Information Systems The original data are taken from county records and the prices are calculated from the documentary transfer tax Adjustments are made to remove very high-end and very low-end sales 500 SOUTH GRAND AVENUE SUITE 1480 LOS ANGELES CALIFORNIA 90071 PHONE 213 622 8095 FAX 213 622 5204 0704009 doc HTI3 KHH gbd WWLV KEYSERMARSTON COM 14066 0041014 Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach April 9 2007 Subject. Inclusionary Housing Ordinance- in-Lieu Fee Update Page 2 KMA used the fourth quarter reports for 2006 and 2005 to derive the percentage change in Orange County sates prices for new homes That information indicates that the median price in December 2005 was$707 500 and the median price in December 2006 was $792 000 This represents an 11 94% increase If this increase is applied to the fee schedule recommended by KMA in January 2006 the resulting schedule for 2007 is as follows 2007 In-Lieu Fee Schedule Pro ect Size Ownership Rental Three Units $8 28 $4 48 Four Units $9 29 $5 04 Five Units $10 41 $5 60 Six Units $11 42 $6 16 Seven Units $13 32 $7 16 Eight Units $13 54 $7 28 Nine Units $14 55 $7 84 1 � i 0704009 doc HTB KHH gbd 14066 004/014 Resolution No 2007 71 APPENDIX C TABLE 2 2005 IN-LIEU FEE SUMMARY IN-LIEU FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA Total Fee Per 1 Base In lieu Fee Unit 2005 In Lieu Fee Ownership Projects $43 700 2005 In Lieu Fee Rental Projects $10 500 2 Average Fee Per Unit $27 100 II Base In lieu Fee for Small Proiects Base In-lieu Fee $27 100 Loss in Profit 3 46% Base In-lieu Fee for Small Projects $14 739 III Sliding Scale as a%of the Base In lieu Fee Three Unit Projects 57% Four Unit Projects 64% Five Unit Projects 71% Six Unit Projects 79% Seven Unit Projects 92% Eight Unit Projects 93% Nine Unit Projects 100% 2007 Update IV 2005 Sliding Scale In-lieu Fee 11 94% Three Unit Projects $8 420 $9 430 Four Unit Projects $9 450 $10 580 Five Unit Projects $10 510 $11 760 Six Unit Projects $11 580 $12 960 Seven Unit Projects $13 530 $15 150 Eight Unit Projects $13 690 $15 320 Nine Unit Projects $14 740 $16 500 See APPENDIX A TABLE 3 2 See APPENDIX B TABLE 5 3 See APPENDIX C TABLE 1 Prepared by Keyser Marston Associates Inc File name In lieu 08 2107 As APPX C T2 Resolution No 2007 71 ADV1%01YS 1N II;III R/I R1VArI RYAI r5TATF J)fE,FI Of WISE MEMORANDUM A1'A BOR5 IN REAL FSTA11 111101V 01MENI To Mary Beth Broeren Principal Planner kFfORDAME HOLISINC City of Huntington Beach Ror,omf( D VItormtm s N I-RANcISco From Kathleen Head &JiLMY Kvksm rimor >,L.KRO KATt EAItLL P1 Nk Date October 1 2007 13P1 E'M Kf&N term--al 1 WtimoRt Loy ANGEI e5 Subject Inclusionary Housing In Lieu Fee Calculation Methodology CALVIN L 1101LIS 11 KATHIff"H H1AA JAMS A RAItf IWt( ANIARSON In a memorandum dated January 23 2006 Keyser Marston Associates Inc (KMA) c RLt URN 1) K)o H00 recommended in lieu fee schedules for residential projects with nine or fewer units that sAN 1)1E(o are subject to the City of Huntington Beach (City) Inclusionary Housing Ordinance GiRAIDNI THIMfLt (Ordinance) Ina memorandum dated April 9 2007 KMA updated the recommended PAULL kASRRA fee schedules to reflect the percentage change in the median price for new homes in Orange County exhibited between December 2005 and December 2006 The fee schedule recommended in the April 9 2007 analysis is presented in the following table 2007 In Lieu Fee Schedule- Fee Calculated Per Square Foot of Building Area in the Project Base Fee/Sq Ft $27 $13 Project Size Ownership Rental Three Units $8 28 $4 48 Four Units $9 29 $5 04 Five Units $10 41 $5 60 Six Units $11 42 $6 16 Seven Units $13 32 $7 16 Eight Units $13 54 $7 28 Nine Units $14 55 $7 84 �)00 SOUTH C AND AVf_NUE SUITE 1480 Los ANCELES CALIFORNIA 90071 )� PUIONE 2136228095 > fAx 213 622 5204 0709027L HTB KHH gbd WW%'v UYSFRMARSTON C OM 14066 004/014 Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach October 1 2007 Subject Inclusionary Housing In Lieu Fee Calculation Methodology Page 2 PROPOSED MODIFICATIONS TO THE CALCULATION METHODOLOGY In a workshop held on July 30 2007 the Ad Hoc Ci ty Council Committee on Affordable Housing In Lieu Fees (In-Lieu Fee Committee) requested that the in lieu fee calculation methodology be modified as follows 1 The in lieu fee should be calculated based on the number of units in the project rather than on the building area in the project 2 The in lieu fee should not vary between ownership and rental projects 3 The base year in-lieu fee should be set at the average of the fee amount derived for ownership and rental projects The in lieu fee schedule identified in the January 2006 KMA analysis was based on a scale with uneven increases unit by unit between three and nine units At the City s request the currently recommended fee schedule increases the fee on a pro rata basis The in lieu fees calculations resulting from the Ad Hoc City Council Committee and City staff direction are provided in Table 1 and can be summarized as follows 2007 In Lieu Fee Schedule Fee Calculated Per Unit in the Project Base Fee/ Unit $30 337 Proiect Size Fee/ Unit Total Fee Three Units $9 430 $28 290 Four Units $10 600 $42 400 Five Units $11 780 $58 900 Six Units $12 960 $77 760 Seven Units $14 140 $98 980 Eight Units $15 330 $122 640 Nine Units $16 500 $148 500 The KMA analysis recommended that the City adjust the fee amount annually based on the annual change in new home prices in Orange County This information is published by the Real Estate Research Council of Southern California in a quarterly report titled Real Estate and Construction Report' It is the KMA assumption that this adjustment methodology will be included in the in lieu fee regulations ' The information source is Data Quick Information Systems The original data are taken from county records and the prices are calculated from the documentary transfer tax Adjustments are made to remove very high end and very low end sales 0709027 HB KHH gbd 14066 004 014 Resolution No 2007 71 To Mary Beth Broeren City of Huntington Beach October 1 2007 Subject Inclusionary Housing In Lieu Fee Calculation Methodology Page 3 FINDINGS The City s primary objectives in providing an in lieu fee option in the Ordinance is to establish an fee schedule that meets the following criteria 1 The funds should be sufficient to allow the City to produce the number of inclusionary units that would have been required within the project that has been allowed to pay the in lieu fee 2 The in lieu fee schedule should be set at amounts that do not render small projects economically infeasible It should be recognized that the currently proposed in lieu fee schedule will be insufficient to produce the inclusionary units in similar locations and product types to the market rate ownership units being developed However the establishment of an in-lieu fee schedule requires the City to make several subjective judgments and decisions To that end KMA considered the following factors 1 The primary purpose of the Ordinance is to attract good quality affordable housing units to the community There is no stated objective to provide low and moderate income households with luxury housing units 2 New ownership housing units in Huntington Beach are commonly selling for prices in excess of$1 0 million It may be considered financially inefficient to provide affordable housing for moderate income households at that market price range 3 The potential exists to create a diverse mix of affordable housing on a more cost efficient basis in rental units and/or in infill locations As such the currently proposed in lieu fee schedule may provide sufficient revenues to produce the requisite number of inclusionary units in off site locations It is the KMA opinion that the currently proposed in lieu fee schedule balances the objectives to attract affordable housing units whit e limiting the in lieu fee to amounts that can be supported by small projects If the City wishes to allow projects with more than nine units to pay a fee in lieu of producing the required affordable units it would be appropriate to use the Base Fee identified in the schedule to calculate the applicable in lieu fee amount 0709027 HB KHH gbd 14066 004 014 Resolution No 2007 71 TABLE 1 2005 IN LIEU FEE SUMMARY IN LIEU FEE ANALYSIS HUNTINGTON BEACH CALIFORNIA Average Unit Size Fee/Sq Ft I Base In lieu Fee(2005) (Sq Ft) Budding Area Fee/Unit Ownership Projects 1 800 $24 $43 700 Rental Projects 875 $12 $10 500 Average Fee Per Unit $27 100 11 Base In lieu Fee for Small Protects Base In lieu Fee $27 100 Loss in Profit' 46% Base In lieu Fee for Small Projects $14 739 III Sliding Scale as a%of the Base In lieu Fee 2 3 Unit Projects 57% 4 Unit Projects 64% 5 Unit Projects 71% 6 Unit Projects 79% 7 Unit Projects 86% 8 Unit Projects 93% 9 Unit Projects 100% Fee/Unit Total Fee 2005 Data 2007 Update IV Sliding Scale In lieu Fee 11 94% 3 3 Unit Projects $8 420 $9 430 $28 290 4 Unit Projects $9 470 $10 600 $42 400 5 Unit Projects $10 520 $11 780 $58 900 6 Unit Projects $11 580 $12 960 $77 760 7 Unit Projects $12 630 $14 140 $98 980 8 Unit Projects $13 690 $15 330 $122 640 9 Unit Projects $14 740 $16 500 $148 500 ' Based on KMA analysis dated January 23 2006 The three unit and nine unit fee amounts are based on the January 23 2006 analysis The sliding scale has been adjusted 2 to provide pro rata increases on a unit by unit basis 3 Based on the percentage change in the median price for new homes in Orange County between December 2005 and December 2006 The medians were$707 500 and$792 000 respectively The source is the Real Estate and Construction Report published by the Real Estate Research Council of Southern California Prepared by Keyser Marston Associates Inc File name in lieu 10 01 07 Table 1 Res No 2007-71 STATE OF CALIFORNIA COUNTY OF ORANGE ) ss CITY OF HUNTINGTON BEACH ) I JOAN L FLYNN the duly elected qualified City Clerk of the City of Huntington Beach and ex-officio Clerk of the City Council of said City do hereby certify that the whole number of members of the City Council of the City of Huntington Beach is seven that the foregoing resolution was passed and adopted by the affirmative vote of at least a majority of all the members of said City Council at a regular meeting thereof held on October 15, 2007 by the following vote AYES Bohr Carchio Cook Coerper Green Hansen Hardy NOES None ABSENT None ABSTAIN None CU Clerk and ex-office Jerk of the City Council of the City of Huntington Beach California