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08. Housing Mitigation fees COMMUNITY DEVELOPMENT DEPARTMENT CUPERTINO CITY HALL 10300 TORRE AVENUE. CUPERTINO, CA 95014-3255 (408) 777-3308. FAX (408) 777-3333 AGENDA ITEM NO. _8 AGENDA DATE: June 19, 2007 SUBJECT: Consider adopting a resolution (Resolution No. 07-109) approving housing mitigation fees (continued from June 5, 2007). RECOMMENDATION: Adopt Resolution No. 07-109, amending the 2006-07 fee schedule as follows: Residential Fees: · Raise the residential housing in-lieu fee from $1.19 per square foot to $2.50 a square foot for projects with 2-6 units. A single-unit development would be exempt as long as it is not part of a larger subdivision and was not created by a subdivision of property. Any single-family additions would continue to be exempt from the fees. Office/Retail/Hotel Fees: · Delete any reference to exempting use permits prior to 1993 contained in the Housing Mitigation Manual. · Assess the mitigation fee against office, industrial, hotel, retail and research and development projects. · Assess a reduced fee of $2.38 per square foot in the P(MP) (Planned Industrial Zone), which is limited to existing office and research and development areas located in north Vallco and a portion of south Vallco just south of Interstate 280, to encourage the expansion of the corporate headquarters of driving industry leaders. · Issue credit for any office, retail, hotel building that is currently on the ground. The credit .issued will be directly tied to the demolition permit. If the property owner agrees, the square footage shown on the most recent building permit(s) will be used to determine the existing building area. If the owner does not agree, he/she will have the option of retaining a surveyor to certify the square footage. A letter with the stamp of a surveyor will need to be submitted to the building department with the demolition permit. The surveyor certification is to ensure that the credit is certified/agreed to via an independent third party. The credit shall remain in place for two years with an automatic one-year renewal upon receipt of a written request for extension. Consider adopting a resolution (Resolution No. 07-109) approving housing mitigation fees (continued from June 5, 2007). June 19,2007 Page 2 be assessed against the entire square footage of the new building. . Redevelopment area projects and mixed-use projects of at least two-thirds residential and one- third retail/office will be exempt from the fee, recognizing that said projects are required to include Below Market Rate (BMR) housing within the development. . Adjust fees annually based upon the Consumer Price Index. . Direct staff to prepare an Affordable Housing Program ordinance detailing the housing impact fees. BACKGROUND: At the March 6, 2007 City Council meeting, the City Council requested that staff conduct additional research on the fee calculations for the residential component. Council members expressed interest in charging a fee for fractional units and reviewing a sliding scale approach to the residential fee for developments of six units or less. Furthermore, Council directed staff to research making the fee at the sixth unit high enough to discourage a developer from deliberately reducing their unit count from seven to six units to avoid building a BMR unit. Staff conducted the research and presented the findings at the April 3, 2007 City Council meeting. The staff report with detailed information can be found in Exhibit A. At this meeting, the Cupertino Chamber of Commerce requested a continuation of the fee adoption to meet with staff and discuss the fee recommendations. The item was continued to May 1, 2007 and subsequently continued again to June 5, 2007. DISCUSSION: Staff met with the Chamber five times since April 3, 2007 and have agreed on the following amendments to the current mitigation program. Reference to exempting use permits prior to 1993 will be removed from the manual. Instead credit will be issued for any office, retail, hotel building that is currently on the ground. This credit will be directly tied to the demolition permit. In order to receive the credit, the property owner will need to submit a stamped letter from a licensed surveyor certifying the existing square footage when applying for a demolition permit. The credit shall remain in place for two years with an automatic one-year renewal upon receipt of a written request for extension. Also, projects in the Planned Industrial Zone shall be assessed a lesser fee of $2.38 per square foot since the City wishes to encourage the expansion of the corporate' headquarters of industry leaders such as Apple and Hewlett Packard. FISCAL IMPACT: Housing mitigation fee revenues are dependent on the mix and volume ofprojects, but the near doubling of the fee rates and expansion of fee basis may result in as much as $500,000 per year. Nearly $344,000 was collected last year, which saw many small unit developments. With the new Regional Housing Needs Allocation (RHNA) requiring cities with lower concentrations of low and very low income to show they can provide a greater percentage of housing for these income levels. Consequently, the City of Cupertino will need greater resources to address affordable housing needs for the low and very-low Consider adopting a resolution (Resolution No. 07-109) approving housing mitigation fees (continued from June 5, 2007). June 19,2007 Page 3 income. The Housing Mitigation fees are the City of Cupertino's primary resource for affordable housing development. PREPARED BY: Vera Gil, Senior Planner APPROVED FOR SUB MITT AL: ~ Steve iasec Director of Community Development David W. Knapp City Manager Attachments: Resolution No. 07-109 Exhibit A: April 3, 2007 Staff Report with attachments DRAFT Corrected 6/18/07 RESOLUTION NO. 07-109 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO ADOPTING BELOW MARKET RATE HOUSING PROGRAM MITIGATION FEES WHEREAS, the City has conducted a Jobs Housing Nexus Study in 1992; and WHEREAS, the Housing Element of the 2005 General Plan states that an updated Jobs Housing Nexus Study shall be conducted; and WHEREAS, Keyser Marston and Associates conducted a "Jobs Housing Nexus Update" pursuant to the State Mitigation Fee Act (Government Code Section 66000, et seq.); and WHEREAS, the "Jobs Housing Nexus Update" found a nexus between the creation of jobs in new retail, hotel and office/industrial development and the resultant demand for very-low, low, median and moderate income housing for the employees; and WHEREAS, residential development also impacts affordable housing by competing for land that can be used for affordable housing and driving up land values; and WHEREAS, a fee can legally be assessed on said development and said fee will be used solely to increase and improve the supply of affordable housing serving very-low, low, median and moderate income households; and WHEREAS, the P(MP) zoning district is the primary location of several major computer companies and adjacent to the City's only regional mall located in the Vallco Redevelopment Project Area; and WHEREAS, the City wants to encourage the expansion of the corporate headquarters of these driving industry leaders and encourage the redevelopment of the regional mall; and WHEREAS, the P(MP) zoning district together with the adjacent Vallco Redevelopment Project area creates a core commercial district contributing to Cupertino's economic well-being through significant tax dollars and image enhancement; and WHEREAS, a fee reduction would provide a monetary incentive to develop in the P(MP) district and the Vallco Redevelopment Project area; and WHEREAS, the City wishes to encourage mixed use development along the major corridors NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Cupertino adopts a fee of $2.38 for office and research and development projects in the P(MP) zone which recognizes the contributions of these companies and that a $4.75 a square foot will be assessed on any new office, retail, and hotel development applications in all other zoning districts. All fees shall be adjusted annually based on the Consumer Price Index. NOW, THERE FORE, BE IT FURTHER RESOLVED that the residential in-lieu fee shall be assessed on developments of 2-6 units at a rate of $2.50 per square foot; and Resolution No. 07-109 2 NOW, THEREFORE, BE IT FURTHER RESOLVED that the following uses shall be exempt from the impact and in-lieu fees: existing single family lots, projects in a redevelopment project area and mixed use projects providing two thirds residential and one third retail/office, which recognizes that said projects are required to include Below Market Rate (BMR) housing within the development. NOW, THEREFORE, BE IT FURTHER RESOLVED that the City Council directs staff to prepare an Affordable Housing Program Ordinance detailing the housing impact fees. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Cupertino this 19th day of June 2007 by the following vote: V ote Members of the City Council AYES: NOES: ABSENT: ABSTAIN: ATTEST: APPROVED: City Clerk Mayor, City of Cupertino m..;,,,, ~ CITY Of 'CUPEIQ"INO Exhibit A City of Cupertino 10300 Torre Avenue Cupertino, CA 95014 (408) 777-3308 FAX (408) 777-3333 Community Development Department Housing SeNices Summary Agenda Item' No. 17a Agenda Date: April 3. 2007 SUBJECT: Consider the 2007-08 Fee Schedule: a) Review and approve housing mitigation fees (continued from March 6) BACKGROUND:' Housing Mitigation Fees On February 27, 2006, Council adopted Resolution 06-045 approving a fee study and directing staff to assess retail and hotel developments a housing mitigation in-lieu fee at the same rate as office and indust1i.al projects and to ,raise the fee to $4.75 per square foot. The resolution exempted redevelopment projects and certain mixed-use projects from the impact fee, but required them to provide Below Market Rate (BMR) housing units instead. The new fee was to ,be implemented with the entire fee schedule adopted at the Ap1i.l 4, 2006 Council meeting. However, the approved fee schedule, in error, raised the fee only by the cost ofliving percentage, to $2.32 per square foot and it did not add-in the retail and hotel elements. In April 2006, Council directed staff to further study the mitigation fee for residential projects. That study was completed and approved by the Housing Commission on January 11, 2007. The commission and the study recommend that the residential development fee be raised from the current $1.19 per square foot to $2.50 per square foot. At the March 6, 2007 City Council meeting, the City Council requested that staff conduct further research on the fee calculations for the residential component. Council members expressed interest in charging a fee for fractional units and reviewing a sliding scale approach to the residential fee for developments of ,six units or less. Furthermore, Council directed staff to research making the fee at the sixth unit high enough to discourage a developer from deliberately reducing their unit count from seven to six units to avoid building a BMR unit. Fractional Unit Fee: Council members were concerned that developers may be proposing fewer units in order to provide one less BMR because of current rounding practices. Currently, the city has the practice of rounding up at .5 or greater and rounding down at less than.5. For example, if a developer is proposing 24 units, the BMR requirement is 3.6 units, which is rounded up to four BMR units. However, if the developer proposes 23 units, then the BMR requirement would be 3.45 units, which is rounded down to three units. In both cases, the developer will net 20 market rate units, Consider the 2007-08 Fee Schedule: .~2.. Review and aEErove ]10USiE,g miti~~~on fe:::,~_{e.ontinued from March 61..___..._._________.__ P.pri13,2007 ' Page 2 of3 which is rounded down to three units. In both cases, the developer will net 20 luarket rate units, , but in the latter example, the developer would only be required to construct three B:MR units as opposed to the four. Staff reviewed tentative map applications from 2000 through the present to study how many subdivisions have proposed a number of units that would allow for rounding down. Of the 60 applications, eight applications proposed a number of parcels, which could be rounded down. Of these eight applications, site constraints were the reason five of the developers proposed fewer units. The remaining three developments were S'aroll Gardens, Toll Brothers and a new 21-unit development on Stelling Road. After the analysis, staff believes that with the exception of the Toll Brothers development, site constraints and density and not avoiding the B.l\1R program are the driving forces behind the developer proposing fewer units on sites. Attached is information provided by the City's consultant Keyser Marston and Associates on how to apply a fractional fee for Council review. At tIus time, Staff does not recommend charging a fee for fractional Uluts since it will increase administration costs for the program with limited projected income. Staff does believe the bigger'issue would be developers tIlat propose a Ullit count just under the requirement to build a B.l\1Runit although this has only OCCUlTed in three cases. Examples of a sliding scale approach to tile residential fee are included for review as well. The sliding scale would need to be amended to reflect Cupertino land prices and construction costs. Keyser Marston and Associates is still working 011 determuung those costs, but a conservative maximum fee would be tile $49 per square foot for condoIJJiIuums. Small lot single-family homes actually generate a higher fee because of the land cost associated witIl less dense development. Staff recOlmnends that if the City Council chooses the sliding scale approach, the $49 per square foot fee be adopted as the maximum since it is a conservative figure. FISCALIM:PACT Housulg mitigation fee revenues are dependent on the mix and volUlne of projects, but the near doubling of the fee rates and expansion of fee basis should double the revenues per project. Nearly $344,000 was collected last year. WitIl the new Regional Housing Needs Allocation (RIlNA) requiring cities with lower concentrations of low and very low income to show they can provide a greater percentage of housing for these income leve1s. Consequently, the City of Cupeliino will need greater resources to address affordabl~ housing needs for the low and velY- low income. The Housing Mitigation fees are the City of Cupertino's primary resource for affordable housing development. RECOl\1MENDATION: Adopt a resolution amendulg the 2006-07 City fee schedule as follows: . As described in previously adopted Resolution 06-045, replace the current $2.32 per square foot office/industriaVresearch and development housing mitigation in-lieu fee with a new $4.75 per square foot housing mitigation in-lieu charge for office, industrial, hotel, retail; and research and development projects. While redevelopment area projects and Consider the 2007-08 Fee Schedule: a) Review and alP-rove housing mitigation fees (continued froJ'!l_March6) April 3, 2007 Page 3 of 3 mixed use projects of at least two-thirds residential and one-third retail/office will be exempt from the fee, they must instead provide Below Market Rate Housing as part of a residential development; and · Raise the residential housing in-lieu fee from $1.19 per square foot to either a sliding scale fee with the fee for a six unit development being set at a maximum of $49 per square foot with an exemption for existing single family parcels or set a fee of $2.50 per square foot for developments of six units or less as recommended by the Cupertino Housing Commission. . APPROVED FOR SUBMITTAL: ~L David W. Knapp City Manager Attachments: Exhibit A: Fractional Unit Calculation Overview Exhibit B: Gradmited In-Lieu Fee Program Overview Exhibit C: In-Lieu Fee Analysis Exhibit A Overview of Fractional Fee Calculations City of Cupertino Below Market Rate Housing Program Many jurisdictions with below market rate housing programs include provisions for in- lieu fees for fractional uhits owed. BelQw, we outline a typical, and straightforward, methodology for calculating the amount of the fractional fee. In summary, the fractional fee equals the fractional unit owed times the average affordability gap (the foregone revenue to the developer associated with one aff6rdable unit). Fractional Unit Calculation. Cupertino's Below Market Rate Housing Program requires that 15% of new units be set aside for affordable housing, half for moderate income households and half for median income households. We assume that the first affordable unit owed is set aside for median, the second unit for moderate, the third for median and so forth. Table 1 illustrates the application of this requirement to projects of between seven and forty units. For example, a project with seven units owes 1.05 affordable units (7*15% = 1.05). The developer would provide one median unit onsite and pay a fee on the remaining 0.05 units. A project with thirty-five units owes 5.25 affordable units (35*15% = 5.25). The developer would provide five affordable units (three median and two moderate) and pay a fee on the remaining 0.25 units. Average Affordability Gap. The affordability gap is the difference between the market rate sales price and the restricted affordable sales price. Because Cupertino's program . requires 50% of units to be set aside at moderate income and 50% at median income, we used the average of the two affordability gaps (see Table 2). This equals $458,000 per affordable unit owed. Fractional Fee Calculation. The fractional fees are calculated by multiplying the fractional unit owed by $458,000. For example, the seven unit project would pay a fee equal to 0.05*$458,000, or $22,900. The thirty-five unit project would pay a fee equal to 0.25 * $458,000, or $114,500. Other Methodologies. This is just one methodology for calculating the fractional fee. It has the benefit of being straightforward and easy to update. However, there are other ways to calculate the fee. Many cities adapt their in-lieu fee for fractional fee purposes. For example, if a city has an in-lieu fee of $20' per square foot, the fractional fee could' be calculated by multiplying the average unit size times $20 times the fractional unit. This approach has the benefit of being consistent with the calculation of the in-lieu fee and does not involve calculating new affordability gaps except as part of an in-lieu fee update. Rounding Policy. The structure of the fractional fee provision is related to the rounding ,policy. Cupertino, along with many other cities, requires developers to round up if the fraction is 0.5 or greater. Other cities require rounding up at 0.7 or greater, and allow a fee for anything below 0.7. Still other programs allow the developer to pay an in-lieu fee for a fractional unit regardless of the ,fraction; in other words, the developer never has to round up. In this discussion, we assume that Cupertino continues to require that developers round up fractions of 0.5 or greater. Keyser Marston Associates, Inc. fractional fee.doc 3/29/2007 Table 1 Sample Units Owed and Fractional Units Calculations In-Lieu Fee Analysis City of Cupertino Units Provided Affordable Total Units 15% of Units Fractional 50% 50% in Project Units Provided1 Unit Median Moderate 7 1.05 1.00 0.05 1.0 0.0 8 1.2 1.00 0.20 1.0 0.0 9 1.35 1.00 0.35 1.0 0.0 10 1.5 2.00 1.0 1.0 11 1.65 2.00 1.0 1.0 12 1.8 2.00 1.0 1.0 13 1.95 2.00 1..0 1.0 14 2.1 2.00 0.10 1.0 1.0 15 2.25 2.00 0.25 1.0 1.0 16 2.4 2.00 0.40 1.0 1.0 17 2.55 3.00 2.0 1.0 18 2.7 3.00 2.0 1.0 19 2.85 3.00 2.0 1.0 20 3 3.00 2.0 1.0 21 3.15 3.00 0.15 2.0 1.0 22 3.3 3.00 0.30 2.0 1.0 23 3.45 3.00 0.45 2.0 1.0 24 3.6 4.00 2.0 2.0 25 3.75 4.00 2.0 2.0 26 3.9 4.00 2.0 2.0 27 4.05 4.00 0.05 2.0 2.0 28 4.2 4.00 0.20 2.0 2.0 29 4.35 4.00 0.35 2.0 2.0 30 4.5 5.00 3.0 2.0 31 4.65 5.00 3.0 2.0 32 4.8 5.00 3.0 2.0 33 4.95 5.00 3.0 2.0 34 5.1 5.00 0.10 3.0 2.0 35 5.25 5.00 0.25 3.0 2.0 36 5.4 5.00 0.40 3.0 2.0 37 '5.55 6.00 3.0 3.0 38 5.7 6.00 3.0 3.0 39 5.85 6.00 3.0 3.0 40 6 6.00 3.0 3.0 1. Assumes a 0.5 rounding policy. 2. Assumes that first unit goes to median, second to moderate, and so forth. Prepared by: Keyser Marston Associates, Inc. File Name: ownership.xls;Fractional Units;3/29/2007;hgr Table 2 Fractional Units Fee Calculation In-Lieu Fee Analysis City of Cupertino If the number of required units results in a fraction of less than 0.5, the developer has the option of paying a fee in-lieu of providing an additional affordable unit. Fractional Fee = Average Affordability Gap * The Fraction of the Unit Affordability Gaps Moderate Units (120% AMI) $403,000 Median Units (90% AMI) $513,000 Average Affordability Gap $458,000 Sample Calculations Average Fractional Affordability Unit Owed Gap Fee Owed 0.05 j $22,900 0.10 $45,800 0.15 $68,700 0.20 $458,000 $91,600 0.25 j $114,500 0.30 $137,400 0.35 $160,300 0.40 $183,200 0.45 $206,100 Prepared by: Keyser Marston Associates, Inc. File Name: ownership.xls;Fractional Units;3/29/2007;hgr Exhibit B Other Graduated In-Lieu Fee Programs City of Walnut Creek The City of Walnut Creek adopted a graduated fee schedule to accompany its Inclusionary housing ordinance in-2004. Residential development projects with between two and nine mlits have the option of paying anin-lieu fee. For ownership units, the fee is $2.00 per square foot for two-unit projects and increases by $1.00 per square foot per unit, to a maximum of $9.00 per square foot for nine-unit projects. For rental units, the fee is $1.60 per square foot for two-unit projects and increases by $0.80 per square foot per unit, to a maximmn of $7.20 per square foot for nine-unit proj ects. City of Menlo Park In 2003, the City of Menlo Park adopted a graduated in-lieu fee schedule for developments between five and nine units. Plior to adopting this fee schedule, the City's fee was 3% ofthe sales price for market rate units. The revised fee schedule charges 1% of the sale Plices for the first, second and third units; 2% of the sale prices for the fom1h, fifth, and sixth units; and 3% of the sale prices for the seventh, eighth, and ninth units. The individual units paying each rate are designated ill the BMR Agreement. City afNovato The City of Nova to is currently considering adopting a graduated in-lieu fee schedule for its Inc1usionai"y Housing program. The program is cun-ently primarily fee-based, with proj ects paying $11,418 per market rate unit. The City is considering a program that would require developments of seven or more units to build units onsite. The proposed graduated in-lieu fee schedule would charge a fee per square foot, as opposed to per unit, and the fee would increase to $20.00 per square foot for a seven-unit project (this fee level would be used to calculating fractional unit fees, as a seven-unit project would be required to build a unit onsite). City staff suggested that the fee for a one-unit project be set to approximate the current fee for a prototypical project. The full fee for a seven unit project ($20.00 per square foot) is approximately equal to the burden of providing one affordable unit for the prototypical condominium project in Novato. Note: The underlying Inc1usionmy programs for the three cities are fairly different, which explains much of the difference in the amounts ofthe in-lieu fee. Prepared by Keyser Marston Associates, Inc. File Name: Graduated fees. doc; 3/22/2007; hgr ., . RESOLUTION NO. 04-11 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF \VALNUT CREEK ESTABLISIDNG A FEE SCHEDULE PURSUANT TO TnE INCLUSrONARY HOUSING ORDINANCE WHEREAS. the Ino!usionary Housing Ordinance (Municipal Code section 10-2.3.901 et seq.) requires developers ofresidential projects to include a:tfcrdable housing units in the project Dr, in sOITI;e cases, to pay a fee in-lieu of including the units; WHEREAS, Municipal Code section 10-2.3.905 provides that the City Council shall adopt a resolution setting forth the amount of the fee. The fee shall reflect the average estimated cost of othelWise providing the required affordable housing units; WHEREAS, Keyser Marston Associates, a consulting fInu ~on;'lJl1issioned by the City to study housing affordability in Walnut Creek, issued a study in July 2003 detailing the gap between market prices of housing in the City and prices affordable to very low) low and moderate income households. The study included a proposed per square foot in lieu fee for rental and ownership projects based on the affordability gap; WHEREAS) the fees will be placed in an affordable housiIig fund and used exclusively fot the development of affordable housing within the City; WHEREAS, there is a reasonable relationship between the need for affordable housing and the impacts of market-rate housing development within the City. There is also a reasonable relationship between the fee's use and the impacts of market-rate housing development. Development of new market-rate housing encourages new residents to move to the City. These new residents will place demands on services provided by both the public and private sectors. Some of the public and private sector employees needed to meet the needs of the new residents earn. incomes that only allow the employees to be able to afford very-low. low or moderate income housing. This type of affordable housing is in very short supply within the City. The fees will he used to help increase the supply of affordable housing in the City; and NOW) THEREFORE, the City Council oftbe City ofWamut Creek teso!yes as follows: 1, Municipal Code section 10-2.3.904 provides in part tha.t the developer of a residential dev"elopment project of 2 to 9 units has the option of providing an affordable unit on site Or paying an in-lieu fee. The amount oftJle in-lieu fee shall be based on 'tbe fOllowing table. The: amount of the fee is doterr:nined by first selecting the number of tot a! units in the project from the left-hand column; then selecting the per square foot fee from the applicable column depending upon whether the project is a rental or ownership project; and then multiplyingtllat per square foot fel:' times the total square feet of aggregate liVing area in the entire proj oct. . ... RENtAL OWNEitSHIP uNl'!' COUNT FEE/SQ FT FEE ISQ FT 2 $1.60 $2.00 3 $2.40 $3.00 4 $3.20 $4.00 5 $4.00 $5.00 0 $4.80 $6.00 7 $5.60 $7.00 8 $6.40 $8.00 9 ' $7.20 $9.00 In-Lieu Fee Per Square Foot 2. Municipal Code section 10-2.3.904(C) provides in part that if the formula for oalculating the number ofrequired affordable uni~s results in a fraction of!ess than .7, the developer has the option of paying a fee in-lieu ofptoviding an additional affordable unit. The in-lieu fee shall be calculated as follows: Low-Income Rental Units: $111,600 times the fraction of a unit " " Very Low-mcorne Rental Units: $193,900 times the fraction oia unit Moderate-mcome Ownership Units: $185)000 times the fraction ofa unit Low-Income Ownership Units; $306,350 times the fraction of a unit Very Low-Income Ownership Units: $394,350 times the fraction ofa unit The foregoing formula shall also be used to determine the requisite value of land that may be dedicated as an alternative to providing affordable units pursuant to Municipal Code section 10- 2.3.906(B). 3. The foregoing formula will be reviewed and the in-lieu fee amoUnts re-established if necessary, within a four~year period from the date this Resolution is adopted, and thereafter, a minimum of every five years, coinciding with the Housing Element update. 4. Effective Date. The fees specified in this Resolution shall take eff~ct sixty (60) days following the adoption of this Resolution. PASSED AND ADOPTED by the City Council of the City of Walnut Creek at a regular meeting thereof held on the 3rd day of February 2004, by the following called vote: AYES: Councilmembers: Hicks, Rainey, Skrel, Regalia, Mayor Abrams NOES; Councilmembers: None ABSENT: Councilmembers: None 'Is/ Charlie Abrams Mayor ofth.e City ()fWalnut Creek " ~ Attest: Is/ Barbara M. Rivara., CMC City Clerk of the City of Walnut Creek I HEREBY CERTIFY that the foregoing resolution was duly and regularly passed and adopted by the City Council of the City of Walnut Creek, County ofContr1:l. Costa" State of CaIiforni~ at a regular meeting of said Council held on the 3td day of Februm-y 2004. Q~>>;. ~ City Clerk of the City of WaL~ut Creek . HOUSING AND REDEVELOPMENT CITY OF MENLO PARK Council Meeting Date: March 25, 2003 Staff Report #: 03-035 N{)~e-: 4Jopfe4. Agenda item # F2 REGULAR BUSINESS: Adoption of a Resolution Approving Below Market Rate (BMR) Housing Program In Lieu Fees for Housing Developments of Five to Nine Units RECOMMENDA lION The Housing Commission recommends adoption of Below Market Rate (BMR) Housing Program in lieu fees for housing developments of five to nine units. BACKGROUND On May 15, 2001, the City Council approved Ordinance No. 905, which addresses the Below,. Market Rate Housing Program, resulting in the following Municipal Code Sections. (Ordinance No. 905 is Attachment B.) Section 16.96.020 Residential Development Projects (1) Applicabilitv states that the Below Market Rate Housing Program applies to residential . housing projects oHive (5) or more units seeking a development permit, building permit or variance, as well as to condominium conversions. Section 16.96.020 (2) Requirements states that "for projects of less than 20 units, the developer shall provide not less than 10 percent of the units at below market rates to very low-, low- and moderate-income households. If the number of units required for a residential development project .includes a fraction of a unit, the developer shall provide either a whole unit or a prorated in lieu payment on account of such fraction as determined in the Below Market Rate Housing Program Guidelines." ' The BMR Guidelines previously established a fee of 3% of the sale price for market rate units for which no BMR unit is provided. This fee applies to all developments subject to the Below Market Rate Housing Program. Thus it currently applies to developments of five to nine units as well as larger developments. However, when the City Council approved Ordinance No. 905, it requested that the Housing Commission bring forvvard a proposal for in lieu fees responding to the particular needs of developments offive (5) to nine (9) housing units. The Housing Commission reviewed the BMR Housing Program Guidelines at its April 3, May 20, June 5, October 17, November 6 and December 4,2002 meetings to discuss revisions to the BMR Guidelines including a proposal setting in lieu fees for developments of five to nine units. Because of public notice requirements for a proposal for a new development fee, the Housing Commission separated the main body of the revised Below Market Rate Housing Program Guidelines from the proposal for an in lieu fee schedule for Page 2 of 4 StaffRepOlt # 03-035 developments offive (5) to nine (9) units. On December 17, 2002 the City Council approved the BMR Guidelines. The Housing Commission recommendation to adopt the new in lieu fees is proposed as an amendment to the BMR Guidelines to be a new Section 4.3.1. (See Attachment A) ANAL YSIS The Below Market Rate Housing Program was developed in response to the scarcity of housing that households with very low, low and moderate incomes can afford and the scarcity of land available for housing development. Below Market Rate housing units preferably, and in lieu fees if BMR units cannot be built, are required of new developments to address the need for lower cost housing that is not met by the marketplace. Ordinance No. 905 established five unit developments as the smallest size of devl?lopments required to participate in the Below Market Rate Housing Program. Previously, this requirement applied to developments of 10 or more units. Rate of Production The Housing Commission recommended the fee, among other reasons, for its ability to contribute funds for the production of BMR housing. The Housing Commission recognizes the priority for BMR units to be developed as a developer's contribution, rather than fees. The Commission acknowledged a recent low rate of production of projects of five to nine housing units (Attachment C). Thus the Housing Commission recognized that in the near future the monl?tary contribution from BMR in lieu fees collected from developments of five to nine units, but still is not likely to be large. Specifically, since November 1997, 90 housing units have been approved for development. Attachment C, "Projects by Size," shows the size of new developments receiving permits and the number of units developed in eath. None of the 90 units were new developments offive to nine units, although two projects added four units each to existing developments of two units each, producing six units total for each. These two projects would not be subject to ~he BMR Program as it only applies to new units. Because of the scarcity of appropriately zoned developable land in Menlo Park, it is likely that this trend of very little development in projects of five to nine units will, continue, and that the in lieu fees collected from developments of this size will have a minor impact on the BMR Fund. Nevertheless, all in lieu fees that are collected can be used to develop BMR units and to address the shortage of housing. The Housing Commission listed the following four criteria, which it used to formulate its recommendation for BMR in lieu fees for projects of five to nine units. 1) New BMR Units Preferred N The BMR Program, including the portion dealing with projects of five to nine units, has a stated primary objective of producing new BMR units rather than the payment of in lieu fees. BMR units, whether produced as inclusionary housing in market rate developments or as a result of expenditure of BMR Housing Funds, are desired by the City because of the scarcity of housing affordable to many employees who work in Menlo Park and because of the high cost of housing to residents. Many residents pay a high proportion of their incomes to rent here, and many empfoyees commute considerable distances from housing that they can afford. Page 3 of4 Staff Report # 03-035 BMR housing units alleviate this problem by providing housing that residents who rent in the City and employees who work in the City can afford. 2) Lesser Economies of Scale in Smaller Projects - Smaller developments are known to have lesser economies of scale than larger developments. BMR in lieu fees should reflect this higher cost per unit of development that smaller projects experience, so as not to discourage small project development. 3) Fees Should Increase Gradually by Project Size - If fees are set at rates that increase by project size, the change in fee amount for incrementally larger projects should be gradual. Small increments in fees would reflect increasing economies of scale and would prevent providing an incentive to build smaller projects to avoid paying the BMR in lieu fee. 4) User Friendly - It is desirable to have a fee structure that is simple to understand and use. Fee Structure The Housing Commission considered three alternative fee structures, then revised one of them to produce the recommended fee structure, which is described below. . See Attachment 0, "Alternatives for In Lieu Fee for 5 to 9 Unit Projects." Housinq units Fee rate 1, 2 and 3 4, 5 and 6 7, 8 and 9 1 % of the sale price 2% of the sale price 3% of the sale price As an example of how this structure would apply, consider a housing development of seven units. Three units would pay 1 % of the sale price, three units would pay 2% of the sale price, and one unit would pay 3% of the sale price. If the units sold for $600,000 each, the fees would be: 1 % group 2% group 3% group $600,000 x 1% x 3 + $18,000 $600,000 x 2% x 3 = $36,000 $600,000 x 3% x 1 = $18,000 Total $72,000 The individual units paying each rate would be designated in the BMR Agreement. Each group would be representative of the various sizes 'of units in the project and would be distributed throughout the project. Proposed Text - The text of the proposed Amendment to the BMR Guidelines to establish in lieu fees for housing projects offive to nine units can be found as Attachment A. Notice of the public hearing for the BMR in lieu fees for housing developments of five to nine units was published in the Almanac on February 26 and March 5, 2003. If approved, the effective date of the Resolution will be March ii, 2003. The BMR in lieu fee would then take effect 60 days after the effective date of the Resolution. IMPACT ON CITY RESOURCES , . Page 4 of4 Staff Report # 03-035 BMR in lieu fees paid into the BMR Housing Fund will depend on the projects proposed for development and will have a minor, positive impact on the amount of funds available to develop very low, low and moderate income housing in Menlo Park. POLICY ISSUE Establishing a graduated schedule for in lieu fees for residential developments of five to nine units will have a minor but positive impact on the development of housing for very low, low and moderate income families. The fee structure responds to the higher per unit costs on a graduated basis that is "experienced by small developments. The fee also meets nexus requirements because it is charged to those whq produce market rate housing' using the scarce commodity of developable, appropriately zoned land, and because it is dedicated to , providing the needed Below Market Rate housing. ENVIRONMENTAL REVIEW Revision of the Below Market Rate Housing Program Guidelines is not a project under California Environmental Quality Act guidelines. Gretchen Hillard Don de la Pen a Housing and Redevelopment Manager Director of Housing and Redevelopment Report Author PUBLIC NOTICE: Public Notification was achieved by posting the agenda, with this agenda item being listed, at least 72 hours prior to the meeting. ATTACHMENTS A. Draft Section 4.3.1 proposed to be added to Below Market Rate Housing Program Guidelines. (The existing Section 4.3.1 will become Section 4.3.2) B. Ordinance No. 905 adopted May 15, 2001 c. Projects by Size D. Alternatives for In Lieu Fee for 5 to 9 Unit Projects Table 10 Possible Graduated In-Lieu Fee Schedules Inclusionary Housing Update City of Novato, CA Condominium Prototype With Full In-lieu Fee at $20/SF WORK/NG DRAFT Moderate Fee Averaqe Unit Total Fee Units Owed Owed/SF Size Fee/Unit Paid Full In-Lieu Fee 15% $20.00/SF 1,400 SF/unit $28,000 Project Size One Unit 0.15 $8.21/SF $11,500 $11,500 Two Units 0.30 $10.18/SF $14,250 $28,500 Three Units ' 0.45 $12.14/SF $17,000 $51,000 Four Units 0.60 $14.11/SF $19,750 $79,000 Five Units 0.75 $1B.07/SF $22,500 $112,500 Six Units 0.90 $18.04/SF $25,250 $151,500 Seven Units or More 1.05 . $20.00/SF $28,000 $196,000 Note.: 7rofosed, NOT ac/.optecf. (1~ ~vJ ~ n-o+ y~ r~viewed : Totals may not sum due to rounding. Keyser Marston Associates, Inc. 16109.014/For Sale Proto wBO.xls; Table 10; 3/20/2007; hgr Page 15 Exhibit C CUPERTINO BELOW MARKET RATE HOUSING IN-LIEU FEE ANALYSIS Keyser Marston Associates (KMA) analyzed the City of Cupertino's Residential Housing Mitigation Program and calculated the maximum supportable in-lieu fees for ownership and rental housing. The City~s current fee is $1.15 per square foot, significantly below the supportable level. Our findings are presented in the tables accompanying this text. Below, we provide a brief overview of the tables. Ownership Housing Market Survey · KMA conducted a survey of new housing developments in Cupertino in order to develop a prototypical project reflecting what market rate developers are typically building in the City. For the purposes of the in-lieu fee analysis, the prototype development should represent a lower end average of the range of new houses, so KMA focused on new condominiums or townhome developments. · Table 1 shows the results of our survey. There have b~en two recent attached market rate developments marketed in Cupertino. The first is Villagio Cupertino, condominiums by Silverstone Communities that average 1,140 square feet and are a mix of one, two and three bedroom units. They have base list prices between $450,000 and $800,000, or $550 to $620 per square foot, or $580 on average. · The second is Sterling Square, townhomes developed by Taylor Woodrow Homes. The units are a mix of three and four bedroom homes and an average of 1,825 square feet. They have base list prices between $900,000 and $1,050,000, or $500 to $550 per square foot, or $534 on average. · A third project, Metropolitan by Menlo Equities, is currently under construction. While estimated sales prices are not readily available, the project is a mix of two and three bedroom units. The two bedroom units are about 1,100 square feet each, and the three bedroom units about 1,500 square feet. · Based on our survey and discussions with City staff, KMA estimated that a typical new condominium or town home development in Cupertino would have 20 units averaging three bedrooms, 1,400 square feet, and selling for about $550 per square foot, or $770,000. Keyser Marston Associates, Inc. 11413.006/001-008.doc Page 1 WORKING DRAFT August 24, 2006 Affordable Home Prices . KMA calculated updated affordable home prices for the moderate ahd median income categories. In 2004, KMA assisted the City in an update to the Below Market Rate home prices. At that time, KMA recommended basing the moderate income home prices on 30% of 110% of the Area Median Income. The most recently published home prices in the City's Mitigation Manual suggest that the City agreed with this pricing strategy. In our most recent discussion with City staff, however, KMA was directed to base the moderate income home prices on 120% of Area Median Income, which results in higher sales prices than the 2004 methodology. The median income home prices are based on 30% of 90% of , Area Median Income, which is consistent with the 2004 revisions. . For the purposes of calculating the affordable sales prices, KMA made the following assumptions: · HOA dues of $300 per month, based on what is charged at the Sterling Square development. Insurance at $1,000 per year, based on the City's assumptions from 2004. · Utilities at $1,704, based on the City's 2004 assumptions. The Santa Clara Housing Authority's Utility Allowances do not appear to have changed significantly since this estimate was calculated. · A 30 year mortgage with 7% interest and a 5% down-payment. · Property taxes at 1.05%. . The updated affordable prices are shown in Table 2. A three-bedroom moderate unit would be priced at$367,000 and a three-bedro'om median unit would be priced at $257,000. ' Affordability Gaps per Unit . KMA then calculated the 'affordability gaps' per unit, or the lost revenue to the developer when a unit is designated affordable (see Table 3). It is calculated by subtracting the market rate price from the affordable price. If a three-bedroom townhome is restricted to moderate income households, the affordability gap is the affordable price less the market price, or ($367,000 - $770,000 = ($403,000)). For median income units, the affordability gap is ($513,000). Total Affordability Gaps and Equivalent In-Lieu Fee . Table 4 calculates the total afford ability gap for the prototypical 20 unit condominium/townhome project. With a 15% BMR requirement, the project owes Keyser Marston Associates, Inc. 11413.006/001-008.doc Page 2 WORKING DRAFT August 24, 2006 three affordable units, half of which are priced for median-income households and half for moderate. For the purposes of calculating the fee, we do not round to the nearest whole unit, but allow the number of units owed to result in fractional units. Therefore, the 20 unit project owes 1.5 moderate units and 1.5 median units. The total affordability gap for the income-restricted units is $1,374,000. KMA used this figure to estimate the in-lieu fee that would result in the same total affordability gap for the developer. KMA calculated the in-lieu fee on a square foot basis, which is consistent with the current in-lieu fee; unlike the current fee, however, we do not include garage space. To generate a fee of $1,374,000 with 20 units averaging 1,400 square feet, the in-lieu would have to be $49 per square foot. Rental Housing Market Survey · There have been no market rate apartment projects developed recently in Cupertino. The newest units were built between 1997 and 1999. KMA conducted a market survey to determine current rent levels at these newer units. Table 5 summarizes our findings. In general, market rate rents have yet to return to their 2000 levels, although they are steadily increasing. Currently, rents are averaging around $2.00 per square foot, or $2,100 per month for a two-bedroom unit. · KMA assumes the average new market rate apartment unit would be an 1,100 square foot two-bedroom unit. Because current mprket rents do not support new apartment development, we cannot rely on market rents to calculate affordability gaps. Instead, KMA calculated the required market rent by estimating development costs for a new apartment project and working backwards to an implied rent level for project feasibility. For the purposes of the analysis, KMA assumes development costs in the range of $300,000 per unit. Given the high land costs and the recent increases in the cost of construction, this figure may underestimate actual development costs in Cupertino. Assuming a cap rate of 6.5%, we estimate the net operating iflcome required to support these development costs. To the net operating income, we add operating expenses of $7,500 per unit per year, which includes property taxes, common area maintenance and utilities, water, trash collection, maintenance and reserves. We estimate that market rents would have to average $2,250 a month to support development costs of about $300,000 per unit. Affordable Rents Keyser Marston Associates, Inc. 11413.006/001-008.doc Page 3 WORKING DRAFT August 24s 2006 . Table 6 provides a calculation of the affordable rent levels for low income (60% of Area Median Income) and very low income (50% of AMI) households. ' Consistent with previous estimates for the City, we assume 30% of income is spent on housin'g. Estimated utility allowances are again based on the City's 2004 estimates. Under the revised rent calculation, a two-bedroom low-income unit would rent for $1,347 per month and a two-bedroom very-low income unit would rent for $1,1'16 per month. Affordability Gaps per Unit . Table 7 provides a comparison of feasible market rate rents for a new apartment unit to the affordable rents from Table 6. Assuming 30% of income goes towards housing (including utilities), this rent level is affordable to a household earning $93,000, or 98% of AMI. . Table 7 also calculates the supportable unit value for the affordable units using , the same assumptions detailed above. A low-income unit can support development costs of $133,300 while a very-low income unit can support $90,600. . Table 8 calculates the affordability gaps. The affordability gap is the difference between the unit value supported by a market rate unit and the value supported by an affordable unit. The affordability gap for a low income unit is ($166,700) and for a very-low income unit, ($209,400). Total Affordability Gaps and Equivalent tn-Lieu Fee . Table 9 takes the affordability gaps per unit and calculates the total affordability gap and the equivalent in-lieu fee. A 120-unit apartment projeCt would owe 7.2 (40% of 15%) low-income units and 10.8 (60% of 15%) very-low income units. (We use fractional units for the purpose of this analysis.) The total affordability gap from this obligation is $3,461,760. To generate a fee of $3,461 ,7.60 with 120 units averaging 1,100 square feet, the in-lieu would have to be $26 per square foot. Keyser Marston Associates, Inc, 11413.006/001-008.doc Page 4 TABLE 1 MARKET-SALE PRICES - SINGLE-FAMILY ATTACHED PROJECTS IN-LIEU FEE UPDATE CITY OF CUPERTINO, CA Unit Mix Bd. Ba. Bldo.SF Price $/SF VILLAGIO CUPERTINO (2006), 20 Units 80 units planned. 19 Amber 4 1 1 743 $453,880 $611 currently sold. Rose 2 2 2 1,116 $633,880 $568 Orchid 2 2 2 1,125 $671,880 $597 Jasper 3 3 2 1,193 $736,880 $618 Chime 3 2 2 1,230 $676,880 $550 Lotus 3 3 2 1,350 , $750,880 $556 Magnolia 6 3 2.5 1.433 $799.880 $558 19 1,139 $658,985 $582 STERLING SQUARE (2006) 29 Units 51 units planned. 25 Plan 3 7 3 2.5 1,670 $918,000 $550 currently sold. Plan 2 7 3 2.5 1,714 $945,000 $551 Plan 1 6 4 3.5 1,942 $1,009,000 $520 Plan 4 .Q 4 3.5 2,058 $1 ,035.000 $503 25 1,825 $970,800 $534 TRA VIGNE VILLAS (2004) 46 Units Sold out. Plan 4 10 2 2 938 $450,000 $480 Plan 1 12 2 2 973 $462,000 $475 Plan 2 10 2 2 1,088 $465,000 $427 Plan 3 14 2 2 1,198 $483.000 $403 46 1,059 $466,435 $444 AVERAGE (Wt.) 44 1,482 $814,893 $558 Source: Hanley Wood. Searches conducted August 2006 and Summer 2004. Keyser Marston Associates, Inc. 11413.006/001-009.xls; Table 1; 8/30/2006; kh/mc TABLE 2 UPDATED BMR HOUSING PRICES MEDIAN, MODERATE INCOME HOUSEHOLDS IN-LIEU FEE UPDATE CITY OF CUPERTINO, CA M 1-Bdrm 2-Bdrm 3-Bdrm 4-Bdrm 5-Bdrm DERATE INCOME Income @ 120% County Median $101,280 $114,000 $126,600 $136,680 $146,880 Income Allotted to Housing @ 30% of Income 30,384 $34,200. 37,980 41,004 44,064 (Less) Ongoing Expenses' 9,230 $9,700 10,160 10,530 10,890 Income Available for Mortgage $21,154 $24,500 $27,820 $30,474 $33,174 !MaXimum Purchase Price' $279,000 $323,000 $367,000 $402,000 $437,000 I EDIAN INCOME Income @ 90% County Median $75,960 $85,500 $94,950 $102,510 $110;160 Income Allotted to Housing @ 30% of Income 22,788 $25,650 28,485 30,753 33,048 (Less) Ongoing El(penses' 8,310 8,660 9,000 9,280 9,560 Income Available for Mortgage $14,478 $16,990 $19,485 $21,473 $23,488 IMaXimum Purchase Price' $191,000 $224,000 $257,000 $283,000 $310,000 I MO , Includes utilities, homeowner association dues and property taxes based on unit value. l Debt @ 7.00% interest (7.98% mortgage constant) & down payment @ 5.00 %, of home price. Keyser Marston,Associates, Inc. 11413;006/001-009.xls; Table 2; 8/30/2006; mtn TABLE 3 AFFORDABILlTY GAPS IN-LIEU FEE UPDATE CITY OF CUPERTINO, CA WORKING DRAFT Prototype: Attached Row or Townhouse (condominium) 20 Units Averaqe Unit Size $/SF Sales Price Market Price 1,400 SF Three Bedrooms $550 $770,000 Affordable Sales Price AffordabiIity Gap Moderate (120% AMI) $367,000 ($403,000) ($513,000) Median (90% AMI) $257,000 Sources: See Tables 1 and 2 for calculation of the affordable sales prices. Square footage and market price based on proposed projects and new homes sales compiled by Hanley Wood; Keyser Marston Associates. Totals may not sum due to rounding. Keyser Marston Associates, Inc. 11413.006/001-009.xls; Table 3; 8/30/2006; hgr TABLE 4 EQUIVALENT IN-LIEU FEE CALCULATION- ATTACHED PROTOYPE IN-LIEU FEE UPDATE CITY OF CUPERTINO, CA WORKING DRAFT CondominiumlTownhome Prototype Development Proqram Unit Avq. Unit Size Number of Units Three Bedroom Units 1.400 SF 1 20 Units Required Affordability Gap per Unit Total Gap 15% of Units 3.0 Moderate Units 1.5 ($403,000) ($604,500) Median Units 1.5 ($513,000) ($769,500) ($1,374,000) Equivalent In-Lieu Fee Calculation $49/SF 1,400 SF/Unit ($1,374,000) 1. Square footage does not include garage space. Totals may not sum due to rounding. Keyser Marston Associates, Inc. 11413.006/ 001-009.xls; Table 4; 8/30/2006; hgr TABLE 5 CURRENT MARKET RENTS. SUMMARY NEWER APARTMENT UNITS IN-LIEU FEE UPDATE ANALYSIS CITY OF CUPERTINO, CA 1 BR 2 BR 3 BR Notes Sq. Fl. Rent $/Sq. Fl. Sq. Fl. Rent $/Sq. Fl. Sq. Fl. Rent $/Sq. Fl. Newer Apartment Buildings Aviare 747 $1 ,450 $1.94 957 $1,695 $1.77 Built: 1997; 20415 Via Paviso (140 units) 829 $1,550 $1.87 1,010 $1,995 $1.98 Arioso 534 $1,400 $2.62 1,197 $2,325 $1.94 Sold in 2005 for $286,000/unil. Built: 1999; 19608 Pruneridge (201 units) 546 $1,400 $2.56 1,213 $2,250 $1.85 Sold in 2000 for $238,000/unI1. 792 $1,700 $2.15 1,237 $2,275 $1.84 Flats. 829 $1,800 $2.17 About 30 du/acre. Cupertino Parll Center 753 $1,320 $1.75 896 $1,830 $2.04 Podium Garage (240 sp.). Buill: 1998; 20380 Stevens Creek (120 units) 647 $1,285 $1.99 953 $1,870 $1.96 85 du/acre. 668 $1,280 $1.92 1,165 $2,025 $1.74 753 $1,230 $1.63 1,340 $2,460 $1.84 1078 $1,900, $1.76 950 $1,945 $2.05 702 $1,260 $1.80 1,059 $1,995 $1.88 897 $1,735 $1.93 1,186 $2,460 $2.07 929 $1,862 $2.00 1,266 $3,550 $2.80 Forqe Homestead 709 $1,600 $2.26 929 $1,850 $1.99 1,262 $2,463 $1.95 Buill: 1997; 20691 Forge Way (196 units) 739 $1,700 $2.30 988 $1,975 $2.00 . Sources: Real Facts, Rent. com.. Apartments.com Keyser Marston Associates. Inc. 11413.0061001-010.xI5; Tabie5; 8/3012006;hgr TABLE 6 AFFORDABLE RENT CALCULATIONS VERY-LOW AND LOW INCOME HOUSEHOLDS iN-LIEU FEE UPDATE ANALYSIS CITY OF CUPERTINO, CA I. 1-Bdrm 2-Bdrm 3-Bdrm Low Income Income @ 60% County'-Median $50,640 $57,000 $63,300 % of Income Allotted to Housing 30% 30.0% 30% Monthly Housing Expenses . $1,266 $1,425 $1,583 (Less) Utilities Expenses (59) (78) (94) I Monthly Rent $1,207 $1,347 $1,4891 Very-Low Income Income @ 50% County Median $42,450 $47,750 $53,050 % of Income Allotted to Housing 30.0% 30.0% 30.0% Monthly Housing Expenses $1,061 $1,194 $1,326 (Less) Utilities Expenses (59) (78) , (94) I Monthly Rent $1,002 $1,116 $1,2321 II. Keyser Marston Associates, Inc. 11413.006/001-010.xls; Table 6; 8/30/2006;hgr TABLE 7 SUPPORTABLE UNIT VALUES APARTMENT UNITS - TWO BEDROOMS IN-LIEU FEE UPDATE ANALYSIS CITY OF CUPERTINO, CA Two BR Unit--1,100 SF (Three Person Household) Income Target %AMI(1) Annual Household Income Rent Month Year Less Op Exp(J) NO! Market Rent Apartment Unit $2,250 (2) $27,000 $93,120 98% ($7,500) $19,500 Affordable Rent Low Income 60% $57,000 $1,347 $16,164 ($7,500) $8,664 Very-Low Income 50% $47,750 $1,116 $13,389 ($7,500) $5,889 Rent and Values Per Square Foot 'Market $2.05 Low Income $1.22 Very-Low Income $1.01 (1) AMI = Area Median Income, which is $95,000 for a three person househoid in Santa Clara County, 2006. (2) See Table R-2 for affordable rent calculations. Market rate rent assumes an 1,100 SF unit at $2.05/SF. This rent level reflects 'normalized' market conditions. Current rents for new 2BR units are approximately $2,000 to $2,100 per month, wilich do not support current development costs. In 2000, the same apartment was renting for $2,500 to $2,600. (3) General operating expenses based on average operating expenses from similar size apartment projects ($4,500). Property taxes are based on unit value. It is important to note that property tax-exemption is NOT assumed in this analysis. (4) Net operating Income capitalized at7%. Rounded to nearest 100. Keyser Marston Associates, Inc. 11413.0061001-010.xls; Table 7; B/30/2006;ilgr Unit Value Supported(4) $300,000 $133,300 $90,600 $273 $121 $82 TABLE 8 AFFORDABILlTY GAPS PER UNIT APARTMENT UNITS - TWO BEDROOMS IN-LIEU FEE UPDATE ANALYSIS CITY OF CUPERTINO, CA Apartment Project Type Total Development Costs (Rounded) Affo'rdable Unit Value Affordability Gap Per Unit1 Two BR Unit -- 1,100 SF (Three Person Household) Low Income $300,000 $133,300 Very-Low Income $300,000 $90,600 ($166,700) ($209,400) 'Gap is the difference between development cost (value supported at market rents) and value supported at affordable rents. Keyser Marston Associates, Inc. 11413.006/001-010.xls; TableS; S/30/2006;hgr TABLE 9 EQUIVALENT IN-LIEU FEE CALCULATION - RENTAL PROTOYPE IN-LIEU FEE UPDATE ANALYSIS CITY OF CUPERTINO, CA WORKING DRAFT Apartment Prototype Development Prciqram Unit Avq. Unit Size Number of Units Two Bedroom Units 1,100 SF 1 120 Units Required Affordabilitv Gap per Unit Total Gap 15% of Units 18.0 Low Units 7.2 $166,700 $1,200,240 Very Low Units 10.8 $209,400 $2,261,520 $3,461,760 Equivalent In-Lieu Fee Calculation $26/SFI 1,100 SF/Unit $3,461,760 1. Square footage does not include garage space. Totals may not sum due to rounding. Keyser Marston Associates, Inc. 11413.006/001-010.xls; Table 9: 8/30/2006;hgr #3 RESOLUTION NO. 07-109 Corrected 6/18/07 V~>>~;( G-19--b1 - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO ADOPTING BELOW MARKET RATE HOUSING PROGRAM MITIGATION FEES WHEREAS, the City has conducted a Jobs Housing Nexus Study in 1992; and WHEREAS, the Housing Element of the 2005 General Plan states that an updated Jobs Housing Nexus Study shall be conducted; and WHEREAS, Keyser Marston and Associates conducted a "Jobs Housing Nexus Update" pursuant to the State Mitigation Fee Act (Government Code Section 66000, et seq.); and WHEREAS, the "Jobs Housing Nexus Update" found a nexus between the creation of jobs in new retail, hotel and office/industrial development and the resultant demand for very-low, low, median and moderate income housing for the employees; and WHEREAS, residential development also impacts affordable housing by competing for land that can be used for affordable housing and driving up land values; and WHEREAS, a fee can legally be assessed on said development and said fee will be used solely to increase and improve the supply of affordable housing serving very-low, low, median and moderate income households; and WHEREAS, the P(MP) zoning district is the primary location of several major computer companies and adjacent to the City's only regional mall located in the Vallco Redevelopment Project Area; and WHEREAS, the City wants to encourage the expansion of the corporate headquarters of these driving industry leaders and encourage the redevelopment ofthe regional mall; and WHEREAS, the P(MP) zoning district together with the adjacent Valko Redevelopment Project area creates a core commercial district contributing to Cupertino's economic well-being through significant tax dollars and image enhancement; and WHEREAS, a fee reduction would provide a monetary incentive to develop in the P(MP) district and the Vallco Redevelopment Proj ect area; and WHEREAS, the City wishes to encourage mixed use development along the major corridors NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Cupertino adopts a fee of $2.38 per square foot for office and research and development projects in the P(MP) zone which recognizes the contributions of these companies and that a $4.75 per square foot fee will be assessed on any new office, retail, and hotel development applications in all other zoning districts. All fees shall be adjusted annually based on the Consumer Price Index. NOW, THERE FORE, BE IT FURTHER RESOLVED that the residential in-lieu fee shall be assessed on developments of 2-6 units at a rate of $2.50 per square foot; and Resolution No. 07-109 2 NOW, THEREFORE, BE IT FURTHER RESOLVED that the following uses shall be exempt from the impact and in-lieu fees: existing single family lots, projects in a redevelopment project area and mixed use projects providing two thirds residential and one third retail/office, which recognizes that said projects are required to include Below Market Rate (BMR) housing within the development. NOW, THEREFORE, BE IT FURTHER RESOLVED that the City Council directs staff to prepare an Affordable Housing Program Ordinance detailing the housing impact fees. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Cupertino this 19th day of June 2007 by the following vote: Vote Members of the City Council AYES: NOES: ABSENT: ABSTAIN: ATTEST: APPROVED: City Clerk Mayor, City of Cupertino c~ &-/9-67 :# i Cupertino Chamber of Commerce Your Partner in Silicon Valley June 18,2007 Mr. Steve Piasecki Director of Community Development City of Cupertino 10300 Torre Avenue Cupertino, CA 95014-3202 Dear Mr. Piasecki: [c1] This letter is an agreerrient with the staff recommendation regarding the City of Cupertino's proposed Below Market Rate Housing (BMR) fee increase. On behalf of the Cupertino Chamber of Commerce, I would like to thank you for meeting with Chamber representatives, as well as resolving our concerns and working to obtain answers to the Chambers questions regarding the BMR program. As requested by the City Council, this document represents the Chamber of Commerce's response to the BMR fee increase. The following items have been discussed in detail and both parties agree that the following is the best solution for all concerned. 1. Any reference to exempting use permits prior to 1993 will be removed from the manual. 2. An assessment of $4.75 per square food mitigation fee against office, industrial, research and development projects and the newly included hotel and retail. 3. Assess a reduced fee of $2.38 per square foot in the Planned Industrial Zone, limited to existing office and research and development in the north ValIeo and a section of south ValIeo south of 280, this would be to encourage any expansion of any corporate headquarters of driving industry leaders. 4. Credit will be issued for any office, retail and hotel building that is currently on the ground. The credit issued will be directly tied to the demolition permit. The property owner agrees the square footage shown on the most recent building permit(s) will prevail. If the owner does not agree, he/she will need to pay a surveyor to certify the square footage. A letter with the stamp of a surveyor will need to be submitted to the building department with the demolition permit. The surveyor certification is to ensure that the credit is certified / agreed to via an independent third party. The credit will remain in place for two (2) years with an automatic one (1) year extension. Should no action be taken after this three (3) year period the credit will no longer be valid and mitigation fees will be assessed against the entire square footage of the new building. 5. Redevelopment area projects and mixed use projects that are at least two-thirds residential and one-third retail/office will be exempt from the fee, as these projects would be required to include Below Market Rate (BMR) housing in the development. 6. Fees to be adjusted based on the Consumer Price Index 20455 Silverado Avenue, Cupertino, CA 95014 * 408-252-7054 * www.cupertino-chamber.org Additionally the City is seeking to raise the residential housing in-lieu fee from $1.19 per square foot to either a sliding scale with the fee for a six unit development being set at a maximum of $49 per square foot with an exemption for existing single family parcels or set a fee of $2.50 per square foot for developments of six units or less as recommended by the Cupertino Housing Commission. After much discussion we agree that the best resolution for this issue is to raise the residential housing in-lieu fee from $1.19 per square foot to $2.50 per square foot for projects with 2 - 6 units. All single units being exempt if they are not part of a larger subdivision, and not created by a subdivision of property. Any single family additions would be exempt as is currently the practice We would like to thank the city staff for all their time and commitment, and hope that the city council will take into consideration the above recommendations. Very truly yours, Scott Stauffer President, Cupertino Chamber of Commerce ~/{~ Christine Giusiana CEO, Cupertino Chamber of Commerce cc.: Mayor Kris Wang and the Cupertino City Council 20455 Silverado Avenue, Cupertino, CA 95014 * 408-252-7054 * www.cupertino-chamber.org ce ~ - ( 1- ~ 7 .:t} y DRAFT Corrected 6/18/07 RESOLUTION NO. 07-109 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO ADOPTING BELOW MARKET RATE HOUSING PROGRAM MITIGATION FEES WHEREAS, the City has conducted a Jobs Housing Nexus Study in 1992; and WHEREAS, the Housing Element of the 2005 General Plan states that an updated Jobs Housing Nexus Study shall be conducted; and WHEREAS, Keyser Marston and Associates conducted a "Jobs Housing Nexus Update" pursuant to the State Mitigation Fee Act (Government Code Section 66000, et seq.); and WHEREAS, the "Jobs Housing Nexus Update" found a nexus between the creation of jobs in new retail, hotel and office/industrial development and the resultant demand for very-low, low, median and moderate income housing for the employees; and WHEREAS, residential development also impacts affordable housing by competing for land that can be used for affordable housing and driving up land values; and WHEREAS, a fee can legally be assessed on said development and said fee will be used solely to increase and improve the supply of affordable housing serving very-low, low, median and moderate income households; and WHEREAS, the P(MP) zoning district is the primary location of several major computer companies and adjacent to the City's only regional mall located in the Valko Redevelopment Project Area; and WHEREAS, the City wants to encourage the expansion of the corporate headquarters of these driving industry leaders and encourage the redevelopment of the regional mall; and WHEREAS, the P(MP) zoning district together with the adjacent Vallco Redevelopment Project area creates a core commercial district contributing to Cupertino's economic well-being through significant tax dollars and image enhancement; and WHEREAS, a fee reduction would provide a monetary incentive to develop in the P(MP) district and the Vallco Redevelopment Project area; and WHEREAS, the City wishes to encourage mixed use development along the major corridors NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Cupertino adopts a fee of $2.38 for office and research and development projects in the P(MP) zone which recognizes the contributions of these companies and that a $4.75 a square foot will be assessed on any new office, retail, and hotel development applications in all other zoning districts. All fees shall be adjusted annually based on the Consumer Price Index. NOW, THERE FORE, BE IT FURTHER RESOLVED that the residential in-lieu fee shall be assessed on developments of 2-6 units at a rate of $2.50 per square foot; and Resolution No. 07-109 2 NOW, THEREFORE, BE IT FURTHER RESOLVED that the following uses shall be exempt from the impact and in-lieu fees: existing single family lots, projects in a redevelopment project area and mixed use projects providing two thirds residential and one third retail/office, which recognizes that said projects are required to include Below Market Rate (BMR) housing within the development. NOW, THEREFORE, BE IT FURTHER RESOLVED that the City Council directs staff to prepare an Affordable Housing Program Ordinance detailing the housing impact fees. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Cupertino this 19th day of June 2007 by the following vote: V ote Members of the City Council AYES: NOES: ABSENT: ABSTAIN: ATTEST: APPROVED: City Clerk Mayor, City of Cupertino &-(q-()( =ttt f~1 tt Mary Redwine From: Sent: To: Subject: Kimberly Smith Monday, June 18, 2007 11 :28 PM Grace Schmidt; Mary Redwine; Carol Atwood FOR JUNE 19 AGENDA -Orrin's input on BMR fees Importance: High ~ BMR.xls -----Original Message----- From: Orrin Mahoney Sent: Mon 6/18/2007 7:26 AM To: Kimberly Smith Cc: David Knapp Subject: Orrin's input on BMR fees Kim, As I won't be at the Council meeting tomorrow, I would like to have my thoughts as a part of the written communications on the BMR topic. 1) With regard to the Office/Retail/Hotel fees, I completely support the proposal worked out in conjunction with the Chamber and major businesses. It is a great example of working together to achieve a solution that addresses the City's needs while understanding the concerns of our valuable commercial organizations. 2) With regard to the residential housing fee, I would still like to see a proposal that "levels" the playing field for those building two to six units to match those building 7 or more. As the attached file shows, a builder of 7 units provides a minimum of a $300,000 contribution to Cupertino's Housing program. This is based on the difference between the cost of the affordable unit and the BMR price. It's probably more, but let's conservatively use $300,000. Dividing this $300,000 by 7 units gives a per unit "subsidy" of $43,000. Dividing by 6 units makes it higher. Assuming 2100 sq feet creates a $20/sq ft equivalent. Other assumptions can easily get you to the $49/sq ft that the consultant created, but I tried to stay very conservative. Therefore, I feel comfortable with $20/sq ft. In any case, the figure is a far cry from the proposed fee of $2.50. While we can argue about whether a 15% BMR is appropriate, that is what we currently have as our policy, and I believe we should apply that consistently, from 2 to 100 or more. I do agree with the exemption for single family homes as I don't believe the individual homebuyer should be responsible for solving the City's affordable housing issues. Best regards, Orrin 1 Units Sq ft 1900 2000 2100 2200 2300 Units Sq ft 1900 2000 2100 7 Price/unit Affordable price Alternative "fee" $700,000 $300,000 $400,000 Total $57,143 per unit $30 per sq ft $29 per sq ft $27 per sq ft $26 per sq ft $25 per sq ft 7 Builder's cost Affordable price Alternative "fee" $600,000 $300,000 $300,000 Total $42,857 per unit $23 per sq ft $21 per sq ft $20 per sq ft Units Builder's cost Affordable price Alternative "fee" 7 $1,000,000 $500,000 $500,000 Total Sq ft $71,429 per unit 2500 $29 per sq ft LC ~-IC(-D/ :\:1:-8 f)~ 2-