CITY COUNCIL REGULAR MEETING AGENDA PACKET

Pleasanton Comprehensive Fee Update and Nexus Study November 2024 45 Affordable Housing In-Lieu Fee The City of Pleasanton’s Inclusionary Zoning Ordinance (IZO) requires that new market-rate residential development projects include a certain percentage of housing units at rents or sale prices that are affordable to lower-income households. This program also includes the option for new development to pay a fee in-lieu of providing affordable units on-site, as an alternative means of compliance. This Chapter provides the calculation needed to establish the maximum allowable in-lieu fee amount that corresponds to the City’s IZO requirements. When a developer builds the affordable units on-site, the project’s development costs are not significantly affected as it usually costs roughly the same to build a market- rate unit as an affordable unit, unless the units are materially different. However, the revenue the developer can expect from the affordable units is less than the revenue from the market-rate units. The developer is, in effect, subsidizing the development of the affordable units. Generally, the deeper the affordability for the units, the greater the amount of subsidy needed for the development. As an alternative to on-site construction of the full inclusionary requirement, the developer may request to pay in-lieu fees. Pleasanton’s IZO also allows for smaller residential projects, below a threshold number of units, to pay in-lieu fees. In-lieu fees, which are a common alternative means of complying with an inclusionary requirement, are typically calculated based on the financial subsidy needed to support the development of affordable units that are not being provided on-site. The fee revenues are collected in a dedicated fund that can be utilized to support the production and preservation of affordable units in the city. IZO Policy Scenarios EPS worked closely with City staff to develop the inclusionary housing scenarios used in this analysis. Additionally, the study process was informed by input from City Council received at two separate public meetings in May and August, 2024. It is important to stress that the affordable housing in-lieu fee represents only one component of a large IZO policy framework that has been developed by City staff with City Council input, and which will be considered separately as part of a comprehensive update to the Ordinance. Other elements of the IZO will play a more significant role in the amount and type of affordable housing developed in the city over time. EPS calculated an updated maximum in-lieu fee to align with the proposed changes to the IZO recommended by City staff and supported by City Council as illustrated in Table 27. Specifically, the calculations reflect the City’s intent to change the inclusionary percentage for ownership units (generally, single-family units) from 20 percent to 15 percent, bringing it into alignment with the inclusionary percentage for rental properties (generally, multi-family units). The subsidy between market rate and Page 106 of 893