INC WSIO NARY ZONING ANALYSIS 1 5
ownership unit it is determined by the sales value of the unit. In the case of affordable units, the
amount of rent or sale price is limited to the target income threshold of the inclusionary zoning policy.
This results in lower revenue to a developer. This loss of revenue translates into a loss of value (hence,
the value gap) and negatively impacts the overall financials of a developer because the cost of
construction and land to build either an affordable or market rate unit are essentially the same. As
part of the modeling process, an option was created to utilize the difference in value due to the loss of
revenue in determining the fee amount to charge for fractional units.
Table 6 presents an example case of the calculation of the payment-in-lieu across the affordability tiers
for a development that has 25 units, utilizing the value gap approach.
Inclusionary Percentage
Calculated Units Based on IZ Perce
Whole Units
Fractional Units
Cash P nt Amount on Fractional
Total Project Units
Inclusionary Units
Market Rate Units
Cash P ent in Lieu
Source: RKG Associates, Inc.
From a financial standpoint, the calculated fee in-lieu payment is added to the initial cost of the
development, which ultimately influences the overall financial return. Depending on the project size,
a large fee in-lieu could have a detrimental impact. Typically, asmall project tends to be more sensitive
to greater upfront costs because small dollar amount changes can have an outsized impact as
compared to larger projects.
SCENARIO ANALYSIS
Development Programs
To test the model and the underlying development assumptions, RKG ran eight development
scenarios. Table 7 presents the model calibration for each of the eight scenarios. The scenarios were
chosen by the city to understand the impact of the IZ changes on prototypical developments. One key
difference in terms of development costs is that of parking; in multifamily scenarios podium level
parking was assumed for developments located in the Downtown subarea.
