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HomeMy WebLinkAboutExhibit 6Exhibit 6 EPS Draft Memorandum 19 IN DRAFT TECHNICAL MEMORANDUM To: Sharon Wood, David Lepo and Brandon Nichols, City of Newport Beach From: Darin Smith and Melina Raffin Subject Inclusionary Housing In -Lieu Fee Study; EPS #17062 Date: October 11, 2007 Economic & Planning Systems, Inc. (EPS) was retained in 2004 by the City of Newport Beach to conduct an analysis of the City's inclusionary housing program, with specific focus on the calculation of an appropriate fee that housing developers may pay in lieu of providing affordable units within their development projects. Since EPS's initial study, the City has revised their inclusionary policy, thus requiring a revised analysis of the in- lieu fee. This Technical Memorandum presents an update of the findings of EPS's analysis and documents the methodology used to calculate the in -lieu fee. STUDY OVERVIEW AND SUMMARY OF FINDINGS The key findings of EPS's analysis are as follows: 1. Through the Housing Element of the General Plan, the City of Newport Beach has an inclusionary housing program that requires residential developers to either provide 15 percent of the total units in their projects as affordable housing units, or pay a fee in lieu of providing those units. The City proposes to li mit the inclusionary ordinance requirement to projects of at least 11 units. 2. The City's inclusionary housing policy does not require that the affordable units be of the same type or quality as the market -rate units in any given project. Thus, it is likely that some developers will elect to provide affordable units as rental apartments, even if the market -rate units in their projects are for sale. 3. The City has indicated that developers should have the choice of providing units for households of very low - income, low- income, or moderate income. Because units for lower - income households require higher construction subsidies, the percentage of units required varies by income category. BERKELEY SACRAMENTO DENVER 2501 Ninth St., Suite 200 Phone: 510- 841 -9190 Phone: 916 -649 -8010 Phone: 303 - 623 -3557 Berkeley, CA 94710 -2515 Fax: 510- 841 -9208 Fax 916- 649 -2070 Fax: 303 -623 -9049 www.epsys.com a Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 2 4. EPS has determined that the following percentages would have essentially equivalent financial impacts on residential development projects (see Table 1): 10% Very low - income rental units, or 15% Low - income rental units, or 20% Moderate - income for -sale units 5. Using these equivalencies, the Inclusionary Housing In -Lieu fee has been calculated at a maximum of $26,500 per market -rate unit. REVIEW OF THE CITY'S INCLUSIONARY HOUSING POLICIES CURRENT INCLUSIONARY POLICY The 2000 -2008 Housing Element for the City of Newport Beach established a policy that reads as follows: Policy 2.2 Encourage the housing development industry to respond to housing needs of the community and the demand for housing as perceived by the industry, with the intent of achieving the Regional Housing Needs Assessment construction goals within five (5) years. The program set forth to accomplish this policy is Housing Program 2.2.1, which states that the City will: "Require a proportion of affordable housing in new residential developments or levy an in -lieu fee. The City's goal over the five -year planning period is for an average of 15 percents of all new housing units to be affordable to very low—, low -, and moderate - income households. The City shall either (a) require the payment of an in -lieu fee, or (b) require the preparation of an Affordable Housing Implementation Plan (AI-HP) that specifies how the development will meet the City's affordable housing goal, depending on the following criteria for project size: 1. Projects of 50 or fewer units shall have the option of preparing an AMP or paying the in -lieu fee. 2. Projects where more than 50 units are proposed shall be required to prepare an AI-11F." 1 In determining the number of whole affordable units required, the City proposes that any decimal fraction less than 0.50 shall be rounded down to the nearest whole number, and any decimal fraction greater than or equal to 0.50 shall be rounded up to the next whole number. P. N 17000, U 7062Nemp aBeaeh \Canes\ 17062mm1011071a l \ Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 3 Furthermore, this housing program allows the affordable units to be provided at an off - site location approved by the City, and is silent and thus flexible about the types of affordable units that must be provided. While some jurisdictions require that the affordable units be of the same type, size, and /or quality as the market -rate units in a given project, the Newport Beach policy allows the developer to provide their affordable units in the most efficient product types possible. This allowance of flexibility is important in calculating the in -lieu fee. PREVIOUS IN -LIEU FEE STUDIES The City commissioned a study in 1999 for the formal establishment of an in -lieu fee program; however, that study did not result in a formalized in -lieu fee program. In addition, EPS was retained by the City in 2005 to conduct an in -lieu fee analysis of the City's then - current inclusionary housing policy, which required residential developers to provide 20 percent of the total units in their projects as affordable housing units. That study also did not result in a formalized in -lieu fee program, because the City has since reduced the inclusionary requirement from 20 to 15 percent. However, despite not having a formal in -lieu fee program to date, the City has negotiated in -lieu fees with several developers in recent years. Examples of in -lieu fee received from past projects include the following: Development Project Market -Rate Units Fee per Unit Total Fees Ford 404 $5,000 $2,020,000 Sailhouse 90 $6,000 $540,000 Cann Lofts q2002 22 $6,359 $139,898 15th St. Townhomes 42 $8,000 $336,000 Total or Avera e2 558 $5,441 $3,035,898 The City committed $1.8 million of the in -lieu fee reserve to the Bayview Landing senior affordable housing project. For future in -lieu fee expenditures, the City's Affordable Housing Task Force has created a program that identifies preferred options for the use of the funds. AFFORDABLE HOUSING SUBSIDY CALCULATION METHODOLOGY The calculation of an appropriate fee in lieu of the development of inclusionary housing units requires the estimation of the subsidy required to develop an affordable unit. For this subsidy calculation, the value of the affordable unit (as calculated through sale values or capitalized rental operating income streams) is compared to the costs to 2 This amount may not represent the complete amount that has been received by the City to date. PA 17000s \77062NeuTm Be ch \ Cones \ 17062mm101107Aa 0 Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 4 develop the unit including "direct" costs (labor and materials), "indirect" costs (design, permits, financing, etc.), and land acquisition costs. KEY ASSUMPTIONS EPS sent the preliminary development cost, revenue, and valuation assumptions to numerous developers of market -rate and affordable housing in Orange County and Southern California (see Appendix A), and conducted telephone interviews with representatives of several companies. EPS made several adjustments to the original assumptions based on these groups' input. Based on information and direction received from City staff, market -rate and affordable housing developers, and EPS research EPS has determined that the following assumptions shall be used to calculate the affordable housing subsidy. Type of Unit To accurately reflect market conditions and calculate required development subsidies, it is important to ensure that the rent assumptions for affordable units are in fact below market rates. Staff from the City of Newport Beach conducted a survey of 13 market - rate apartment complexes in July 2007, and found that no units were affordable to very low - income households and very few were affordable to low- income households, but most were affordable to moderate - income households (see Appendix B). For this reason (and another discussed in the "In -Lieu Fee Calculation" section below), EPS has assumed that moderate - income households would occupy for -sale units. All very low- and low - income affordable housing units developed with subsidy from the in -lieu fee are assumed to be multifamily rental units, while moderate - income units are assumed to be multifamily condominiums. These assumptions are consistent with the letter of the Housing Element which does not require that inclusionary affordable units built by the developer be the same type of unit as the market -rate units. EPS has further assumed that the inclusionary units would be mixed by number of bedrooms, with 40 percent of all units as one - bedroom units (for two- person households), 40 percent of all units as two- bedroom units (for four - person households), and 20 percent of all units as three- bedroom units (for six - person households) .3 While any given development project may have a different mix to serve specific market niches (e.g., families, singles, seniors, etc.), the unit distribution described above is a simplifying assumption that is similar to the distribution of rental units within the City as found in the 2000 Census. For purposes of cost estimation, one - bedroom units are assumed to be 725 square feet, while two- bedroom units are 1,050 square feet and three- bedroom units are 1,250 square feet. These unit sizes are generally in the lower half of the size ranges discovered in a survey of Newport Beach apartment complexes, which showed one - bedroom units 3 The City's Housing Element establishes that the maximum household income for a given affordable unit shall assume two people per bedroom, except for efficiency units (one person). A' \17000s \17062NewponB each \Comes \17062r 101107dm Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 5 ranging from 626 to 1,152 square feet, two- bedroom units from 926 to 1,546 square feet, and three- bedroom units from 1,160 to 1,700 square feet. The unit sizes and the distribution of units by number of bedrooms are assumed to be the same regardless of the income level being served. Development Value The value of each unit is determined either by its sale price (for homeownership units) or the capitalized value of its net operating income stream (for rental units). Rental Development Value Monthly Rent The Housing Element states that for each income category, monthly rent is assumed to equal 30 percent of gross monthly household income. Moreover, EPS has assumed that inclusionary units within each category will be affordable at the maximum income within that category. For instance, a "low- income" household may have an income anywhere from 51 percent to 80 percent of Orange County's Median Family Income (MFI). EPS has assumed that the maximum monthly rent in this income category will be based on 80 percent of MFI, rather than 51 percent or some other middle figure (such as 65 percent). This assumption has the result of minimizing the housing production subsidy; however, the language of the Housing Element appears to allow for this possibility for those developers who would produce inclusionary units, so the same allowance is made for those who would pay the in -lieu fee. Table 2 shows the income levels and associated allowable monthly rents for rental units of different sizes. It is also necessary to assume a certain amount of vacancy for calculating the effective gross income stream from a rental project. EPS has assumed at stabilized operations an affordable multifamily apartment complex in Newport Beach would have 5 percent annual vacancy. Operating Expenses Annual operating expenses for rental apartments are assumed at $4,200 per one- bedroom unit, $4,500 per two - bedroom unit, and $4,800 per three - bedroom unit, regardless of income level. These operating expenses cover property management, common utilities, marketing, maintenance, taxes, and similar expenses. Capitalization Rate A rental unit's net operating income (effective gross income less expenses) is converted to a unit value through use of a capitalization rate. The capitalization rate reflects an investor's perceived risk as well as the investor's opportunity cost. For a multifamily rental project in the City of Newport Beach, the capitalization rate is assumed to be 7.0 percent. This rate may be slightly higher than what might be achieved under present market conditions, but reflects a somewhat longer term rate that should be robust through market fluctuations. The calculations for apartment development values are shown on Table 3. P: \ 17000s\ 17062NeWdBeaeh \Caves\ 17062mm101107.do 41 Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum page 6 For -Sale Development Value City policy dictates that the price of a for -sale affordable home cannot exceed three times the annual income of the occupying household. The Year 2007 income limits established by the U.S. Department of Housing and Urban Development for Orange County are shown on Table 4, as are the maximum allowable home prices. It is worth noting that not all jurisdictions limit the affordable home prices to three times the annual income, and that Newport Beach's policy results in lower prices than might be allowed in other jurisdictions for similarly sized households. However, this effect is offset somewhat by Newport Beach's allowance of two persons per bedroom. Many jurisdictions base income levels on households of sizes equal to the number of bedrooms plus one (e.g., three- person household in a two - bedroom unit, four - person household in a three - bedroom unit), but Newport Beach allows four people in a two- bedroom unit and six in a three bedroom unit. The corresponding income limits are higher for larger households; thus, the affordable price allowed for a three - bedroom unit is higher for a six - person household than it would be for a four - person household. Development Costs The cost of development must be compared to the development value to determine if there is a need for financial subsidy. EPS has made a variety of cost assumptions, as detailed below. One overarching assumption is that development costs are the same regardless of the income level being served. The calculations for development costs are shown on Tables 5 and 6 for apartments and condominiums, respectively. Direct Construction Costs Direct construction costs include the costs for labor and materials for the buildings and standard site improvement (surface parking, landscaping, etc.) as well as contractor fees. EPS has assumed that direct construction costs would equal $140 per gross square foot of each apartment building, and $150 per square foot for condominiums because of the higher level of finish typical of for -sale development. These figures account for slight cost variations among unit sizes. Indirect Costs Indirect costs include architecture and engineering costs, financing costs, permits and fees, and other development expenses beyond those required for actual labor and materials. For both apartments and condominiums, EPS has assumed that indirect costs will equal 35 percent of direct construction costs. Land Costs Development costs must account for the price of the land underlying the apartment building. EPS has assumed that land entitled for multifamily housing in Newport Beach P: \ 170005 \ 17062Newpmteeach \Cones \ 17062mm101107.dw 1 1 Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 7 would cost $3,250,000 per acre.4 EPS has further assumed that both apartments and condominiums would be built at 20 dwelling units per acre, resulting in a land cost of $162,500 per unit. Developer Profi t As is standard for rental apartment development, developer profit is accounted for in the development value calculations through the capitalization rate and is thus not included as a separate line item for development costs. For condominiums, however, developers must realize their profit at the time of sale, as there is no ongoing revenue stream. EPS has assumed a 10 percent profit margin for developers of for -sale units affordable to moderate - income households. CALCULATIONS Detailed calculations of development values and costs for each unit size and income level are shown on Tables 7 and 8, for apartments and condominiums, respectively. The indusionary housing development subsidy is calculated by subtracting the development costs from the development value. If the result is negative, a subsidy is required in the amount shown. Those tables also show the "weighted average" subsidy by income level, assuming the units are distributed among one -, two -, and three - bedroom units as discussed above. As shown on Table 7, rental units for very low- and low -income households require subsidy regardless of the unit size, as the costs of development exceed the value of the units. Table 8 shows that affordable condominium units require greater subsidy than apartment units. This result is because the construction costs are slightly higher, the developer profit adds an additional cost, and the City's policy -based method for calculating allowable unit prices for for -sale housing (three times household income) yields lower unit values for condos than does the method for rental prices (30 percent of income on rent). 4 This $3,250,000 per acre land value was derived from EPS's conversations with market -rate and affordable housing developers. P: \17000s \17062Nempo B..h \Carrel\ 17062.10110Zda a� Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 8 IN -LIEU FEE CALCULATION METHODOLOGY To calculate the in -lieu fee, the total cost that would have been incurred by the developer to produce the affordable units is divided by the number of units produced. For instance, a developer of a 20 -unit project would be required to build three inclusionary units to achieve the City's overall goal of "an average of 15 percent of all new residential development ... affordable to very low- low -, and moderate - income households." if each inclusionary unit required a subsidy of $100,000, the developer who builds the units would have borne a total subsidy of $300,000. If the developer opts to pay the in -lieu fee instead of producing the units, and thus produces 20 market -rate units, the total subsidy of $300,000 would be divided by 20 market -rate units to result in an in -lieu fee requirement of $15,000 per market -rate unit. The actual assumptions and calculations are discussed below. CALCULATIONS The primary assumption required to calculate the in -lieu fee is the proportionate income distribution of the households to be served by affordable housing units. Whereas some jurisdictions require that inclusionary units be provided to a mix of income- levels within the same project, the City of Newport Beach has suggested that developers should be given the option of providing affordable units for very low -, low -, or moderate - income households. As such, it is imperative that an economic equivalency be established among these income levels, so that developers will not simply provide 15 percent of units for moderate - income households (that require the least subsidy) and do not produce any housing affordable to low- or very low- income households. The City has detemuned that the basis for the economic equivalency shall be an inclusionary requirement that 15 percent of new units be affordable to low - income households. As shown on Table 7, the subsidy required to produce an apartment unit affordable to low- income households is roughly $171,000. Thus, a 100 -unit development providing 15 apartments affordable to low- income households would bear an implied subsidy of $2,560,000. If no such affordable units are produced and the developer builds 100 market -rate units, the cost of the implied subsidy spread over 100 units would be $25,600 per market -rate unit. Because the subsidies per unit are greater for very low - income units, fewer very low - income units would generate the same overall economic impact to the development project. Similarly, moderate - income units require less subsidy, so more moderate - income units are required to generate the equivalent economic impact. On Table 9, EPS has calculated the economic equivalencies, which are summarized as follows: P. \17000s \17062NemportReach \Cone\ 17062mm101107.dm Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 9 Income Level Average Subsidy per Unit Percent of Units In -Lieu Fee per Market -Rate Unit Very Low rental $272,000 10% $27,200 Low rental $171,000 15% $25,650 Moderate for -sale $133,000 20% $26,600 Averse $177,000 15% $26,500 Using this methodology, the in -lieu fee to be paid by developers choosing not to construct affordable units within their projects would be $26,500 per market -rate unit. Please note that EPS has evaluated the equivalency if a developer chose to provide moderate income rental units. As discussed earlier, many market -rate apartments in Newport Beach are actually affordable to moderate income households. hi addition, because of the method required by the City to calculate the maximum affordable for -sale price (three times gross household income), the maximum price of a moderate income for -sale unit is actually lower than the capitalized value of a moderate income rental unit (compare those values on Tables 3 and 4) while the development costs are higher for condominiums than for rental apartments (see Tables 5 and 6). Thus, the subsidy required for moderate income rentals is lower than the subsidy for moderate income for - sale units ($36,000 versus $133,000). To provide the equivalent subsidy of a project providing 15 percent low income units, a developer would have to provide about 75 percent of total units in a project as rentals affordable to moderate income households. ADDITIONAL CONSIDERATIONS SETTING THE FEE AMOUNT This study calculates the maximum fee that can be charged to developers for whom the City approves fees instead of the provision of inclusionary units. The City does have legal leeway to set the fee at any level up to the maximum allowable fee. FEE ESCALATION The Inclusionary Housing In -Lieu Fees calculated herein reflect current income levels, allowable rent rates, unit values, and development costs. Each of these items is likely to change over time. In the past, the City of Newport Beach has adjusted its negotiated in- lieu fees according to an annual inflation measure, such as the Consumer Price Index. Other jurisdictions use similar measures, such as the Construction Cost Index or the rate of increase in the Median Family Income. Such a measure avoids the need to re- calculate the fee over time. However, the City may wish to consider a regular re- calculation of the fee every few years to ensure that the fee continues to capture the full subsidy required to produce affordable housing units in the City of Newport Beach. In either case, the method and frequency of re- calculation should be written into the Inclusionary Housing In -Lieu Fee ordinance. P: \17000s \17062Newpa�&e 6\Corces\ 17062mm 101107.do }01 Sharon Wood, David Lepo and Brandon Nichols October 11, 2007 Draft Technical Memorandum Page 10 PARTIAL SATISFACTION OF THE INCLUSIONARY REQUIREMENT Through City approval of the AI-HP, some developers may propose to provide some portion of the required inclusionary units within their own project, while paying the In- Lieu Fee for the remainder of their required units. In such instances, the City should determine the total amount of the subsidy required for the project and charge the difference between the subsidies associated with the units provided in the project and those that will be required offsite. Thus, a 100 -unit development providing 10 apartments affordable to low - income households would need to provide five additional low- income affordable units off -site, or a total subsidy of $854,000 ($171,000 per affordable unit not built). APPLICATION OF CALCULATIONS IN THE COASTAL ZONE Consistent with State law, Section 20.86 of the City's planning and zoning code ( "Low and Moderate Income Housing within the Coastal Zone ") states, "When demolition or conversion activities involve low- and moderate - income units, replacement units shall be provided on a one for one basis." This requirement is intended to be met through the actual provision of units, preferably on -site, but under certain circumstances, the developer can pay a fee in lieu of providing the affordable units. The per -unit subsidies calculated on Tables 7 and 8 of this document can be used to determine the in-lieu fees required of developers whose projects result in a loss of units in the Coastal Zone occupied by lower - income households. For example, if a proposed Coastal Zone project would result in one fewer two- bedroom rental unit occupied by a low- income household, the developer would pay a fee of $178,100 in lieu of replacing that unit on site or off site. P: \17000s \17062NewportB each \Cmres \17062mm101107.d" E Table 1 In -Lieu Fee per Market -Rate Unit by Income Level City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Income Level (1) Average Subsidy Per Unit Percent of Units In -Lieu Fee per Market -Rate Units Very Low (50% of MFI) Rental $272,000 10% $27,200 Low (80% of MFI) Rental $171,000 15% $25,650 Moderate (120% of MFI) For -Sale $133,000 20% $26,640 Weighted Average $177,000 15% $26,500 (1) Median Family Income (MFI) as defined by U.S. Department of Housing and Urban Development (HUD) Year 2007 annual incomes are set at maximum within each category. Sources: U.S. Department of Housing and Urban Development; Economic & Planning Systems, Inc. Ec mlc & Planning Systems, Inc. 1011212007 DRAFT P. U 7000s117062NewportBeachVAode1117062MOde1101f07 .xls 105 Table 2 Annual Incomes and Monthly Rents by Income Category City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS#17062 Income Level (1) 1 BR (2- person HH) Unit Size 2 BR (4- person HH) 3 BR (6-person HH) Very Low (50% of MFI) Annual Income $34,650 $43,300 $50,250 Monthly Income $2,888 $3,608 $4,188 Monthly Rent (2) $866 $1,083 $1,256 Low (80% of MFI) Annual Income $55,450 $69,300 $80,400 Monthly Income $4,621 $5,775 $6,700 Monthly Rent (2) $1,386 $1,733 $2,010 Moderate (120% of MFI) Annual Income $83,175 $103,950 $120,600 Monthly Income $6,931 $8,663 $10,050 Monthly Rent (2) $2,079 $2,599 $3,015 (1) Median Family Income (MFI) as defined by HUD. Year 2007 annual incomes are set at maximum within each category. (2) Monthly Rents are calculated at 30% of gross monthly income. Sources: U.S. Dept. of Housing and Urban Development; Economic & Planning Systems, Inc Economic & Planning Systems, lx. 10/12/2007 IRE P: 117000417062NewportSeachlModeAl 7082MOM101107 .x1s J� -� Table 3 Affordable Apartment Value by Income Category and Unit Size City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Moderate (120% of MFI) Unit Size Monthly Rent 1 BR 2 BR 3 BR Income Level (1) (2- person HH) (4- person HH) (6- person HH) Very Low (50% of MFI) ($1,248) ($1,559) ($1,809) Monthly Rent $866 $1,083 $1,256 Annual Rental Income $10,395 $12,990 $15,075 less Vacancy at 5% $19,505 I6M 754 Effective Gross income $9,875 $12,341 $14,321 less Operating Expenses ($4,200) ($4,500) 4 8 Net Operating Income $5,675 $7,841 $9,521 divided by Capitalization Rate 7.00% 7.00% 7.00% Unit Value $81,075 $112,007 $136,018 Low (80% of MFI) Monthly Rent $1,386 $1,733 $2,010 Annual Rental Income $16,635 $20,790 $24,120 less Vacancy at 5% k= ($1,040) ($1,206 Effective Gross Income $15,803 $19,751 $22,914 less Operating Expenses ($4,200) ($4,500) ($4,8001 Net Operating Income $11,603 $15,251 $18,114 divided by Capitalization Rate 7.00% 7.00% 7.00% Unit Value $165,761 $217,864 $258,771 Moderate (120% of MFI) Monthly Rent $2,079 $2,599 $3,015 Annual Rental Income $24,953 $31,185 $36,180 less Vacancy at 5e /a ($1,248) ($1,559) ($1,809) Effective Gross Income $23,705 $29,626 $34,371 less Operating Expenses ($4,200) 450 ($4,800) Net Operating Income $19,505 $25,126 $29,571 divided by Capitalization Rate 7.00% 7.00% 7.00% Unit Value $278,641 $358,939 $422,443 (1) Median Family Income (MFI) as defined by HUD. Year 2007 annual incomes are set at maximum within each category. Source: Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/12/2007 PA 17000su 7O62NewportaeacMM0UeA17062MO dell o11o7. #s 16.5 Table 4 Annual Incomes and Allowable Home Sale Prices by Income Category and Unit Size City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Low (80% of MFI Annual Income $55,450 Unit Size $80,400 Home Price (2) 1 BR 2 BR 3 BR Income Level (1) (2- person HH) (4- person HH) (6- person HH) Very Low (50% of MFI1 $83,175 $103,950 $120,600 Annual Income $34,650 $43,300 $50,250 Home Price (2) $103,950 $129,900 $150,750 Low (80% of MFI Annual Income $55,450 $69,300 $80,400 Home Price (2) $166,350 $207,900 $241,200 Moderate (120% of MFI) Annual Income $83,175 $103,950 $120,600 Home Price (2) $249,525 $311,850 $361,800 (1) Median Family Income (MFI) as defined by HUD. Year 2007 annual incomes are set at maximum within each category. (2) Home prices are calculated at three times gross annual income, per City policy. Sources: U.S. Dept. of Housing and Urban Development; Economic & Planning Systems, Inc. Economic & Planning Systems, Ina 10112/2007 DRAFT P: 117000s11 7062NewporOeachWode111 7062Mode1101107.xis J6� Table 5 Rental Apartment Development Costs by Unit Size City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS#17062 Improved Land Costs per Acre $3,250,000 Unit Size $3,250,000 Units /Acre 1 BR 2 BR 3 BR Item (2- person HH) (4- person HH) (6- person HH) Unit Size Net Square Feet per Unit 725 1,050 1,250 Gross Square Feet per Unit (1) 853 1,235 1,471 Direct Costs per Gross Square Foot $140 $140 $140 per Unit $119,412 $172,941 $205,882 Indirect Costs as percent of Direct Costs 35 % 35% 35% per Gross Square Foot $49 $49 $49 per Unit $41,794 $60,529 $72,059 Improved Land Costs per Acre $3,250,000 $3,250,000 $3,250,000 Units /Acre 20 20 20 per Unit $162,500 $162,500 $162,500 Total Costs per Gross Square Foot $380 $321 $300 per Unit $323,706 $395,971 $440,441 (1) Gross square footage is calculated assuming an efficiency ratio of 85 %. Sources: Market -rate and Affordable Housing Developers; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10112/2007 DRAFT P. 07000s117062Newportaeachl Modell f 7062Model f 0l 107. xis )g1 Table 6 For -Sale Condominium Development Costs by Unit Size City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Direct Costs $335,221 Unit Size $460,294 per Gross Square Foot 1 BR 2 BR 3 BR Item (2- person HH) (4- person HH) (6- person HH) Unit Size Net Square Feet per Unit 725 1,050 1,250 Gross Square Feet per Unit (1) 853 1,235 1,471 Direct Costs $335,221 $412,647 $460,294 per Gross Square Foot $150 $150 $150 per Unit $127,941 $185,294 $220,588 Indirect Costs as percent of Direct Costs 35% 35% 35% per Gross Square Foot $53 $53 $53 per Unit $44,779 $64,853 $77,206 Improved Land Costs per Acre $3,250,000 $3,250,000 $3,250,000 Units/Acre 20 20 20 per Unit $162,500 $162,500 $162,500 Developer Profit Total Other Costs per Unit $335,221 $412,647 $460,294 % of Total Other Costs 10% 10% 10% per Unit $33,522 $41,265 $46,029 Total Costs per Grass Square Foot $432 $367 $344 per Unit $368,743 $453,912 $506,324 (1) Gross square footage is calculated assuming an efficiency ratio of 85 %_ Sources: Market -rate and Affordable Housing Developers; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 1011212007 DRAFT P. kl7000sll7062NewparlBeachlMade ill7062Mode1101107.xis L6� DRAFT Table 7 Affordable Apartment Subsidy by Unit Size and Weighted Average City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Low (80% of MFI) Unit Size Value per Unit 1 BR 2 BR 3 BR Weighted Income Level (2- person HH) (4- person HH) (6- person HH) Average (1) Very Low (50% of MFI) - $157,945 - $178,106 - $181,670 - $170,755 Value per Unit $81,075 $112,007 $136,018 $104,436 Cost oer Unit $323,706 $395,971 $440,441 $375,959 Subsidy per Unit - $242,631 - $283,963 - $304,423 - $271,522 Low (80% of MFI) Value per Unit $165,761 $217,864 $258,771 $205,204 Cost per Unit $323,706 $395,971 $440,441 $375,959 Subsidy per Unit - $157,945 - $178,106 - $181,670 - $170,755 Moderate (120% of MFI) Value per Unit $278,641 $358,939 $422,443 $339,521 Cost per Unit $323,706 $395,971 $440,441 $375,969 Subsidy per Unit - $45,065 - $37,031 - $17,998 - $36,438 (1) Weighted averages assume the following unit mix, based on 2000 Census: 1 BR 40% 2 BR 40% 3 BR 20% Sources: U.S. Census Bureau; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/12/2007 P: 117000s117062NewpotBeachlMode1117062MOde 1101 WAS ,6, Table 8 Affordable Condominium Subsidy by Unit Size and Weighted Average City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Low (80% of MR) Unit Size Value per Unit 1 BR 2 BR 3 BR Weighted Income Level (2- person HH) (4- person HH) (6- person HH) Average (1) Very Low (50% of MR) - $202,393 - $246,012 - $265,124 - $232,386 Value per Unit $103,950 $129,900 $150,750 $123,690 Cost per Uni $368,743 $453,912 $506,324 $430,326 Subsidy per Unit - $264,793 - $324,012 - $355,574 - $306,636 Low (80% of MR) Value per Unit $166,350 $207,900 $241,200 $197,940 Cost per Un $368,743 $453,912 $506,324 $430.32 6 Subsidy per Unit - $202,393 - $246,012 - $265,124 - $232,386 Moderate (120% of MR) Value per Unit $249,525 $311,850 $361,800 $296,910 Cost per Unit $368,743 $453,912 $506,324 $430,326 Subsidy per Unit - $119,218 - $142,062 - $144,524 - $133,416 (1) Weighted averages assume the following unit mix, based on 2000 Census: 1 BR 40% 2 BR 40% 3 BR 20% Sources: U.S. Census Bureau; Economic & Planning Systems, Inc. Ec mlc & Plannkg Systems, Inc. 1011212007 P117000s117062Newpo tBeachlModa1117062Mode 1101107.xfa I ft> LL LL N �D O r ac N IL W >1 '6 N d d LL 3 d J C C O � R C v 7 R O U = d LL A ='E d rc IM A y d 3 m O Z Og S R d C Z O d 7 O m Loa rn °o =lam R O O N IN O > r d D fR cli Y � E � y G >> J d A L0 d Ea 3 y 0 � Q a`''i d a v O �am �Oa y d CO d 'c c 9 d '3 N-O a� O E O N Z d _ to «d E d r� oa = o F x z x r �C d d Y L R m O. N LL 3 d J c c .N 0 S C O .d 7 c a i c m K Gi E C_ 3 O c 3 O d W c d C 0 a d y a d `m a m R O a v O t N d N c o E U a c c W O R R O E O w v E n 'c N � a m y N 7 N w c E N m c W a ob O 0 W 0 m a h c m m C `\ R O O N IN O LL Y � R L d_e 00 N d o N d � R ° E - o °O m J �I c N fA 0 0 O O O O 0 N o 2 N N� N i N di E � y G >> J d A L0 d Ea 3 y 0 � Q a`''i d a v O �am �Oa y d CO d 'c c 9 d '3 N-O a� O E O N Z d _ to «d E d r� oa = o F x z x r �C d d Y L R m O. N LL 3 d J c c .N 0 S C O .d 7 c a i c m K Gi E C_ 3 O c 3 O d W c d C 0 a d y a d `m a m R O a v O t N d N c o E U a c c W O R R O E O w v E n 'c N � a m y N 7 N w c E N m c W a ob O 0 W 0 m a h c m m C `\ APPENDIX A p- FI:_ Appendix A Development Industry Contacts City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS#17062 Company Contact Website Affordable Developers Jamboree Housing Laura Archuleta www.jamboreehousina com National Community Renaissance (National CORE) (1) Byron Ely www.schdc.orc Olson Company John Reischl www theolsori com Related Companies (1) Gino Canon www.related.com The Irvine Company (1) Dan Miller www.irvinecompany.com Market Rate Developers Brookfield Homes John O'Brien www.brookfieldhomes.00m Centex Homes (1) David Hutchins www.oentexhomes.com Fieldstone Homes John Laing Homes (1) Ralph Debbisch Jennifer Shirk www.fleldstone- homes.com www.iohniainghomes.com Lennar Homes (1) Donna Kelly www I nnnar,com Pardee Homes Kristy Scott www.i)ardeehomes.com Richmond America Homes Shea Homes (1) Jeff Hollenbeck Bob Gillis www.dchmondamerican.com www.sheahomes.com Standard Pacific Homes Kathie Villan www.standardoacifichomes.com Warmington Homes (1) Jared Knickmeyer www.warminutonhomesca.com William Lyon Homes (1) Pat McCabe www lyonhomes com Other Building Industry Association of Orange County Brian Starr www biaoc.com (1) EPS conducted phone interviews with the representatives of these companies regarding the preliminary development cost, revenue, and valuation assumptions. Source: Economic & Planning Systems, Inc. Economic & Plannimg Systems, Inc 10/122007 P117000s117062New wtBeachIModeN17062Modd101107.x)s 1 [ 3 Economic & Planning Systems Read Esmle Ecc.mke Regiowd Ernwmics Public Rwam Lm Ul Pudicy APPENDIX B 1 �q Appendix B Rental Rate Survey City of Newport Beach Affordable Housing In -Lieu Fee Study; EPS #17062 Apartment Complex 1 BR (2- person HH) Monthly Rents 2 BR (4- person HH) 3 BR (6- person HH) Baypointe $1,899 $2,229 - Bayport $1,590 $1,880 $2,425 Bayview $1,590 $1,880 $2,425 Baywood $1,590 $1,880 $2,425 Mariner's Square $1,790 $2,240 $2,485 Newport Bluffs $1,815 $2,295 $3,040 Newport North $1,516 $1,845 - Promontory Point $2,195 $2,395 - The Colony $2,705 $3,015 - Newport Ridge $1,905 $2,215 - Coronado at Newport South $1,099 $1,679 - Coronado at Newport North $1,199 $1,649 - Fairway at Big Canyon $2,150 $3.400 - Average $1,773 $2,200 $2,560 Low $1,516 $1,649 $2,425 High $2,705 $3,400 $3,040 Income Level (1) Very Low (50% of MFI) $866 $1,083 $1,256 Low (80% of MFI) $1,386 $1,733 $2,010 Moderate (120% of MFI) $2,079 $2,599 $3,015 (1) See Table 2. Sources: City of Newport Beach; Economic & Planning Systems, Inc. Economic & Plsnnmg Systems, Inc. 10/12/2007 ■- P:117000s117062Newportgea hWoMtl7062ModeH01107xts �6