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Page 3 of 8 <br />As noted, staff has incorporated the various points of City Council direction at the August 20 <br />workshop into a comprehensively revised and updated IZO. Attachment 1 includes the text of <br />the draft IZO Amendments (Chapter 17.44, starting on page 8 of Attachment 1) in <br />redline/strikeout format. In addition to items on which the City Council provided specific <br />direction, the proposed revisions include various other updates, clarifications and <br />improvements to the IZO, principally intended to provide more clear and objective standards, <br />clarify procedures, and align the ordinance with more standard language in definitions and <br />other terms. Substantive changes to the IZO are outlined below. <br /> <br />Inclusionary Rate and Affordability Levels (17.44.040.B. and C.) <br />The amended IZO establishes the inclusionary rate and affordability levels for ownership and <br />rental projects. As described above, consistent with majority City Council direction, it includes: <br />• For-Sale Projects (attached and detached): 15% inclusionary; units affordable to <br />households making up to a maximum of 120% Area Median Income (AMI) – i.e., <br />moderate income <br />• Rental Projects: 15% inclusionary; units affordable to households making a maximum of <br />50% and 60% Area Median Income (AMI) – i.e., very-low and low-income. (This split <br />affordability is recommended, based on further analysis by EPS, in support of a City <br />Council request to study this option). <br /> <br />The proposed 15% rate and recommended affordability levels provide an appropriate balance <br />between achieving the City's affordable housing goals, while representing a more feasible rate <br />for attached and detached single-family projects. While there is potentially a significant <br />developer cost to subsidize inclusionary for-sale units due to the large gap between affordable <br />and market sales prices, other proposed amendments to the IZO would provide projects with <br />significantly more flexibility to meet the requirements of the IZO on-site, and thus improve <br />feasibility. Furthermore, staff's analysis found there would be a minimal future number of large, <br />single-family detached projects subject to the IZO, and the change from a 20% inclusionary <br />rate to a 15% rate will not meaningfully affect inclusionary unit production. <br /> <br />With respect to multi-family projects, as previously presented to City Council, it is currently an <br />extremely challenging environment for multi-family construction, and few, if any, projects are <br />likely to be feasible under current economic conditions, even if the inclusionary rate were to be <br />substantially reduced. However, since the current 15% rate has been feasible in the past, and <br />anticipating there will be improvement in the multi-family construction market over time, staff <br />recommended, and City Council supported, retaining the multi-family rental inclusionary rate at <br />15%, which will also help the City meet it's affordable housing goals. <br /> <br />The August 20 report also suggested the City Council could consider other near-term tools to <br />help stimulate multi-family rental housing production, which comprises the largest share of the <br />remaining units that could be zoned and built under the Housing Element, such as temporarily <br />permitting projects to “fee out” of up to a third of their inclusionary requirement. The City <br />Council will have the opportunity to consider this concept as part of the discussion and <br />adoption of the Affordable Housing fee. <br /> <br />Threshold Project Size <br />As recommended by City Council, the IZO has been amended to reduce the minimum project <br />Page 89 of 658