Board of Aldermen 09-28-2021 Page 7
creates. And so based on our analysis, and you can see here in our slide, our recommendation would be anything under
10 units, you don't require inclusionary because the impact would be financially substantial. Between 10 and 25, you
target 10% inclusionary 26 to 115, and then over 120% inclusionary. Now, the reality here is there are multiple ways to do
that and hopefully we'll continue this conversation after this presentation with ways that we could do that.
One of them is you scale it up. So it ramps up, you know, over a period of time so you don't create a single shot for the
marketplace and we think there's way that that could be done. But in terms of what the ultimate goal of an inclusionary
zoning policy, we believe this is something that is both consistent with the desires of the city to create that price diversity
but also financially feasible as we help the market kind of adjust to those changes.
Create separate thresholds for downtown. | mentioned earlier that different parts of the city have different idiosyncrasies
and frankly in this one, one of the biggest challenges is the structure podium parking. The cost to do that on a per space
basis is so much greater than a surface lot and because land is at such a premium and desire to do kind of, you know,
pedestrian level development, you have no choice but to do some form of structure to podium parking. And so our
recommendation especially since a number of the projects that are being done through subsidy programs are generally in
around downtown, is potentially consider a lower percentage threshold within the downtown area. It takes some of the
pressure off of that development because of the higher cost of development and you already also are seeing a price
controlled housing being built in downtown and frankly if you remember from the previous study, there's also a high
concentration already there. So one of the goals is to try and diversify the location of this continue pricing. Since there is
already some in downtown and it has challenges to potentially lower percentage requirement would be reasonable.
| mentioned the issue of bonus density. The use of that can mitigate the financial feasibility. When we did our analysis, a
one to one ratio seemed to mitigate the financial impact of inclusionary zoning units. So if it was 100 unit development
and you said alright we're going to require 20% inclusionary, which means 20 of those 100 units would need to be
affordable, a financial feasibility analysis showed that by allowing you to do 120 units where 20% were affordable and the
whole 100 where market rate, mitigated the impact of those 20 income controls or a below market units price to 80% of
AMI. That worked outside of downtown. Because of the structured parking issue, it was actually about two and a half
units to one. So using my 100 unit example and let’s say you had to do 10 units of affordable using you know a lower
percentage rate, then you would you need to allow them to do 125 units or two and a half times more than that 10 units
that would be affordable and that would create what we defined as that revenue neutral impact. So the bonus density is a
very strong opportunity for the city to be able to mitigate the impact of an inclusionary policy while basically minimizing the
finance.
And then finally, one of the recommendations we have moving forward is what's called “a payment in lieu of’ in certain
circumstances. Really easily what a payment in lieu of is in doing our analysis, we were able to calculate the value
difference between market rate and various particular income thresholds that we were trying to target. In this graphic over
here, you can see, you know, the value difference between a market rate unit and a unit price for a household earning
80% of AMI was for a multifamily unit was about $36,000. At 70% of AMI, it's like $62,000. That's 60%. You could see
the more subsidy you're trying to give or the lower income you're trying to target, the greater the differential between what
a market rate unit is worth to an investor and what those income control units are worth.
And so we feel in certain circumstances allowing them to pay this value difference rather than build the unit would be
valuable to the city for a couple of reasons. Number one is by using these calculations, you may end up with a partial
unit. So the example | give here is a 75 unit development with a 10% IZ requirement, would require you to build 7.5 units.
Well you can't build a half a unit and so our recommendation is rather than forcing to build eight units and “round up’,
allow them to pay the market value differential of that half a unit and 80% of AMI would be about half of this $36,000. So
it minimizes the financial impact by only making the build the full number of units and then having them contribute to your
Housing Trust Fund that differential.
The next benefit it creates is it creates a revenue stream for your trust fund. And so it's a way to get some monies instead
of building those partial units, it's able to create some revenue for the trust fund that could be used to invest in other
housing projects, either, you Know, if one project you take the money for the half unit and they build seven, you can then
provide that $18,000 to the next project and then they build eight and they're not financially impacted. So it allows you to
reinvest that money into other housing programs and not necessarily a new construction housing, it could be used for a
variety of things but it creates a revenue source.
The final thing that the payment in lieu does in very special mitigating situations, you can allow development to just
provide the cash value of that differential rather than building the units on site. This could be because an example that
other communities use is the development is in an area that is not well situated near transportation options. So providing
housing at a lower price point would be challenging for those households to be able to get to medical services, jobs, retail
