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2. DEMAND-BASED NEXUS FEE CALCULATION The maximum supportable nexus-based fees are based on both the affordability gap, calculated in the previous section, and the estimated impact that new market-rate rental units have on the need for affordable units, as reflected in the number of income-qualified local workers required to support the residents of market-rate apartments and the total subsidy required to construct housing for those workers. This approach is based on the following logic: (a) residents of market-rate housing have disposable incomes and require a variety of goods and services (including private sector goods and services and government services); (b) the provision of those goods and services will require some workers who make moderate or lower incomes and cannot afford market-rate housing; and (c) fees charged to market-rate projects can mitigate the impact of those projects on the increased need for affordable housing. Market-Rate Household Income Levels Households with larger incomes typically spend more on goods and services, therefore creating additional lower income jobs, which in turn generate a greater demand for affordable housing. To assess the impact that market-rate rental units have on the need for affordable housing, EPS estimated the minimum income required to rent a market-rate apartment at various bedroom sizes, as shown in Table 4. Average rents for various apartment sizes (studio, and 1, 2, and 3 bedrooms) are based on a survey of rental rates for five market-rate multifamily projects recently developed in Pleasanton. New apartment rents are significantly higher, on average, than rental rates for existing rental housing stock, both because the newer units are of better-than-average quality and because the higher rents are required to cover the costs of construction. The rents for the most recent apartment projects were used, rather than average rents for all apartments, because these newer apartments best represent the rents that can be expected with new market-rate apartment development. Assuming utility costs for each unit size based on the City of Pleasanton Housing and Redevelopment Department Allowances for Tenant Furnished Utilities and Other Services, the minimum household income needed to rent each unit is then computed, predicated on the assumption that a household will spend 30 percent of their income on housing costs (rent and utility payments). As shown, required household incomes range from approximately $76,560 for a studio apartment to roughly $143,520 for a 3-bedroom apartment. Household Expenditures and Job Creation by Income Level Having established the income requirements for renting apartments of various sizes, the fee calculation then requires an analysis of the household spending patterns at those required income levels. Consistent with nexus fee calculations and impact analysis for schools, parks, roads, etc., this analysis also assumes that all households renting new market-rate units in Pleasanton are"net new" households to the City. To assume otherwise—for instance, Economic&Planning Systems, Inc. 12 P:\351000051111PIeau oree ReportyAflordabk_Nous g 151111report02261BrenWLEo.