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Nexus-Based Affordable Housing Fee Analysis for Rental Housing Draft Report 02/26/18 Development Cost Assumptions Affordable housing development costs include land costs, direct costs (e.g., labor and materials), and indirect or"soft" costs (e.g., architecture, entitlement, marketing, etc.). For rental projects, operating costs also must be incorporated into the analysis. Data from recent East Bay developments and recent Pleasanton land transactions have been combined with EPS's information from various market-rate and affordable housing developers to estimate appropriate development cost assumptions for use in Pleasanton. These assumptions are shown on Tables 2 and 3. EPS has investigated the listed prices of multifamily residential land in Pleasanton's boundaries and urban growth limit, as shown on Appendix Table A-1. EPS has further estimated the costs of direct and indirect development costs for multifamily housing based on reviews of recent Bay Area project pro formas, with adjustments for location factors. As shown on Tables 2 and 3, the total costs for for-sale housing development are slightly higher than for rental apartments due to higher levels of finish and liability insurance required for condominium development. Revenue Assumptions To calculate the values of the affordable units, assumptions must be made regarding the applicable income level (moderate, median, and low) and the percentage of income spent on housing costs. In addition, translating these assumptions into unit prices and values requires estimates of operating expenses, capital reserves, and capitalization rates. The following assumptions were used in these calculations: • Income Levels— This analysis estimates the subsidy required to produce units for households earning 50, 60, 80, 100, and 120 percent of Area Median Income for a three-person household. In 2015, AMI in Alameda County for these households was $84,150, as shown in the California Department of Housing and Community Development's (HCD's) income limits chart. • Percentage of Gross Household Income Available for Housing Costs—HCD standards on overpaying for rent indicate that households earning less than 80 percent of AMI should pay no more than 30 percent of their gross income on housing costs. For this analysis, EPS has assumed that all households shall spend 30 percent of their gross income on housing costs, including rent in rental projects or mortgage payments, homeowner association fees, insurance, and property taxes for for-sale units. A sample of homeowner association fees in the Pleasanton area is shown on Appendix Table A-2, and the average fee is incorporated into these calculations. • Operating Costs for Rental Units—The analysis assumes that apartment operators incur annual operating costs of $6,200 per unit, which include the cost of utilities, for units affordable at 80 percent of AMI or below. EPS has assumed the units for median income households and above would have similar operating costs but would be built by for-profit builders and thus also subject to property taxes. Economic&Planning Systems, Inc. 10 P:\151o0os\151111PleasantonFee\ReportWRordable_Housing\151111report031610renfal.Eoa