Affordable Housing Fees Study presented to City of Watsonville presented by Darin Smith and Michael Nimon May 31, 2018 Oakland Denver Los Angeles Sacramento Economic & Planning Systems, Inc. One Kaiser Plaza, Suite 1410, Oakland, CA 94612 510.841.9190

Presentation Overview Introduction Fee Calculations Comparison to Other Jurisdictions Feasibility Findings Fee Level Recommendations Questions? Economic & Planning Systems, Inc.

About Economic & Planning Systems (EPS) Consulting on land use plans and policies since 1983 Work for both public and private sector clients Extensive housing-related experience: Nexus and In Lieu Fee Studies Sonoma County, Santa Rosa, Rohnert Park, Walnut Creek, Sunnyvale, Mountain View, San Mateo, Palm Desert, Burbank, Calistoga, Pleasanton, Petaluma, Alameda, Mono County Inclusionary Zoning Ordinances Housing Elements Gentrification and Displacement Issues Market and Feasibility Analysis Density Bonus Implementation Studies Community Benefits Negotiations Economic & Planning Systems, Inc. 2

EPS Scope of Services Reviewed existing affordable housing ordinances and fees Calculated maximum fees Ownership Housing In-Lieu Fees Rental Housing In-Lieu Fees Commercial Linkage Fees Surveyed fees in other jurisdictions Tested feasibility of maximum fees to inform fee level recommendations Present: Working with staff and stakeholders to establish appropriate fee level updates and other related policy updates Economic & Planning Systems, Inc. 3

Watsonville Affordability Definitions Economic & Planning Systems, Inc. 4

Financing Gap to Build Affordable Housing Example of Key Inputs for Median Income Households Assumes City would subsidize rental apartments averaging 3BR Costs based on market prices for land, labor, materials, and capital Values determined by household income level Economic & Planning Systems, Inc. 5

Financing Gap to Build Affordable Housing by Income Level Economic & Planning Systems, Inc. 6

For-Sale Residential Development In-Lieu Fee Calculation In lieu of building units onsite, developers pay City to subsidize affordable units elsewhere in the City. On-site requirement and distribution vary by project size Economic & Planning Systems, Inc.

For-Sale Housing In-Lieu Fee (Maximum) Fee is equivalent of 15% Inclusionary Requirement Cost of inclusionary requirement: 5% median-income units 5% moderate-income units 5% above moderate-income units EPS calculation of $19,001 per market-rate unit Economic & Planning Systems, Inc.

Rental Residential Development In-Lieu Fee Calculation In lieu of building units onsite, developers pay City to subsidize affordable units elsewhere in the City. On-site requirement is 20% inclusionary with the distribution shown below Economic & Planning Systems, Inc.

Rental Housing In-Lieu Fee (Maximum) Fee is equivalent of 20% Inclusionary Requirement Cost of inclusionary requirement: 5% very low-income units 5% low-income units 5%Median-income units 5% Section 8 units EPS calculation of $36,579 per market-rate unit Economic & Planning Systems, Inc.

Commercial Linkage – Nexus Calculations New businesses Additional job creation Lower income employees need affordable housing Economic & Planning Systems, Inc. 11

Commercial Linkage – Example Economic & Planning Systems, Inc. 12

Commercial Linkage – Maximum Fee Levels Economic & Planning Systems, Inc. 13

Comparable Jurisdiction Map Economic & Planning Systems, Inc. 14

Ownership Housing Fee Comparison Map of Surveyed Jurisdictions (Colored Jurisdictions) Economic & Planning Systems, Inc. 15

Rental Housing Fee Comparison Map of Surveyed Jurisdictions (Colored Jurisdictions) Economic & Planning Systems, Inc. 16

Commercial Linkage Fee Comparison Map of Surveyed Jurisdictions (Colored Jurisdictions) Economic & Planning Systems, Inc. 17

Cost Incidence of a Fee Analysis conservatively assumes cost is borne by the consumer, who must pay higher prices or rents for a developer to receive reasonable return Economic & Planning Systems, Inc.

Feasibility Test Example EPS-Calculated Maximum Fee Economic & Planning Systems, Inc. 19

Feasibility Test Findings Economic & Planning Systems, Inc. 20

Feasibility Test Findings Watsonville’s existing affordable housing fees are generally consistent with other surveyed jurisdictions Maximum single family in-lieu fees appear to be feasible and within comparable range Maximum multifamily in-lieu fees are well beyond the range and threaten feasibility Maximum fees calculated in commercial linkage nexus studies greatly exceed feasible levels Linkage Fees more consistent with the range among the surveyed jurisdictions appear feasible Economic & Planning Systems, Inc. 21

Fee Level Recommendations Economic & Planning Systems, Inc. 22

EPS/City Staff Fee Recommendation Economic & Planning Systems, Inc. 23

Questions? Economic & Planning Systems, Inc. 24