Affordable Housing in Lieu Fee Update

Background:

The City’s Affordable Housing Implementation Procedure (Open in new window) requires 15% of units in new market-rate housing projects to be income-restricted to very-low, low, and moderate income households per income limits established by the California Department of Housing and Community Development (HCD). As an alternative to building affordable units on-site and as a way to meet a project’s affordable housing obligation, the Procedure provides a menu option allowing developers to pay an affordable housing in-lieu fee.   

The City uses an approved formula to calculate the affordable housing in-lieu fee. The formula is intended to ensure the City is receiving comparable value from residential developers utilizing the in-lieu fee menu option instead of providing on-site affordable units. The fee, which is charged per market-rate unit in a residential project, has not been updated since 2011.  

City staff has commissioned an Affordable Housing and In-Lieu Fee Analysis ("Analysis"), which evaluates three different approaches for the City to update its affordable housing in-lieu fee and tested whether the application of the resulting in-lieu fees would render development projects infeasible. The Analysis found that the City's existing in-lieu fee formula, with input values updated to reflect current market conditions, is the only methodology of the three studied that renders all development projects financially feasible. 

Therefore, staff is recommending retention of the City’s existing formula with updates to the input values to reflect current market conditions. Under this recommendation, the affordable housing in-lieu fee is planned to increase from $16,693 to $44,061 per market-rate unit.