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7 of 19 <br /> <br />It is important to note that the LIHF, when charged in-lieu of building on-site units, is <br />charged per market rate unit, not per inclusionary unit. This is illustrated in the example <br />below, for a hypothetical 100-unit multi-family project: <br /> <br /> <br />Scenario A: Project provides on-site inclusionary units: <br />Inclusionary Requirement: 15% (15 low- or very-low income deed-restricted units <br />built on site) <br />Affordable Housing Fees Paid: $0 <br /> <br />Scenario B: Project opts to pay LIHF instead of building on-site: <br />Inclusionary Requirement: 15% (0 deed-restricted units built) <br />Affordable Housing Fees Paid: 100 x $51,077 = $5.08 Million <br /> <br /> <br />The City Council has expressed concern that the in-lieu fee rate does not adequately <br />address the cost to construct affordable units, and that fees charged should match (or <br />come close to meeting) that amount. While it is difficult to put a precise value on the <br />project-specific cost to construct a unit (since that will vary significantly based on unit <br />type, size, construction and land costs), and factor in the degree of subsidy needed to <br />maintain the unit’s affordability, the current fee falls well short of that value, particularly <br />for single-family and townhome units.3 <br /> <br />As a policy matter, there is a correlation between the value of the total fees paid, and <br />the cost to construct the deed-restricted units. Specifically, the more closely aligned the <br />amount of in-lieu fees paid, and the cost to construct the on-site affordable units, the <br />less incentive a developer has to “fee out” of the on-site inclusionary requirement. <br /> <br />However, if the City increases both the inclusionary rate and the corresponding in-lieu <br />fee, it could place significant additional financial cost burdens on a project, potentially <br />affecting financial feasibility to the point where the project cannot be built at all. On the <br />other hand, if the in-lieu fee continues to reflect a substantial discount, then developers <br />have little incentive to build units on site. Thus, ideally, the inclusionary rate and the <br />corresponding in-lieu fee should be set at levels that meet the City’s housing policy <br />goals, do not unduly affect project feasibility, and are as closely aligned in terms of the <br />cost to the developer as possible. <br /> <br />Sewer and Water Connection Fee <br />The sewer and water connection fees support the City’s enterprise funds and cover the <br />developer’s “fair share” of cost for infrastructure improvements to the systems to meet <br />future demands based on population growth. An update of the water and sewer <br />connection fees is needed to bring those fees in line with current system, system <br />improvements needed to accommodate growth, and the projected cost of those <br />improvements. <br /> <br />3 For example, assuming that a housing unit costs $750,000 to construct, then the same 15 units not constructed in <br />the hypothetical 100-unit project would cost 15 x $750,000 or $11.25 Million to build. Some proportion of this <br />would be recouped through sale or rental of the unit but is nonetheless substantially greater than the roughly $5 <br />Millon collected in LIHF in the project example.