HomeMy WebLinkAboutOrd 1283 and Res 2015-27 - Ch 3.47 - Affordable Housing Impact FeeCITY OF PALM DESERT
DEPARTMENT OF COMMUNITY DEVELOPMENT
STAFF REPORT
REQUEST: ADDITION OF CHAPTER 3.47 "AFFORDABLE HOUSING IMPACT
FEE" TO THE PALM DESERT MUNICIPAL CODE TO ESTABLISH
AN AFFORDABLE HOUSING FEE FOR NEW RESIDENTIAL
DEVELOPMENT WITHIN THE CITY OF PALM DESERT
SUBMITTED BY: Lauri Aylaian, Director of Community Development
APPLICANT: City of Palm Desert
73-510 Fred Waring Drive
Palm Desert, CA 92260
DATE: April 23, 2015
CONTENTS: 1.
Ordinance No. 1283
2.
Resolution No. 2015- 27
3.
Exhibit "A": Nexus -Based Affordable Housing Fee Analysis for
Rental Housing dated April 2, 2015, by Economic & Planning
Systems, Inc.
4.
Exhibit "B": Nexus -Based Affordable Housing Fee Analysis for For -
Sale Housing dated April 2, 2015, by Economic & Planning
Systems, Inc.
5.
Exhibit "C": Memorandum dated March 18, 2015, from Darin Smith
and Martin Romo, Economic & Planning Systems, Inc., regarding
Implementation Considerations for Palm Desert Affordable
Housing Impact Fees
6.
Estimate of Costs for the City of Palm Desert Affordable Housing
Program as Approved in Housing Element Adopted for 2014-2021,
dated April 13, 2015
7.
Computation of Potential Fee Revenue, 4 pages, undated
8.
Legal Notice
Recommendation
Waive further reading and:
1. Approve and file the Nexus -Based Affordable Housing Fee Analysis
for Rental Housing and the Nexus -Based Affordable Housing Fee
Staff Report
Affordable Housing Impact Fee
Page 2 of 9
April 23, 2015
Analysis for For -Sale Housing, both dated April 2, 2015, and by
Economic & Planning Systems, Inc., and together the "Nexus Study."
2. Pass Ordinance No. 1283 to second reading approving the
addition of Chapter 3.47 "Affordable Housing Impact Fee" to the Palm
Desert Municipal Code.
3. Adopt Resolution No. 2015- 27 establishing a fee of $2.00 per
gross square foot as the Affordable Housing Impact Fee for new
residential development in the City of Palm Desert.
Executive Summary
Approval of the staff recommendation will implement a new fee on residential
development, balancing two long-standing goals of the City of Palm Desert: providing
housing that is affordable to the city residents who work in service -industry jobs, and
remaining development -friendly to builders in the community. The proposed fee will
offset a portion of the revenue stream that was lost when the State eliminated
redevelopment tax increment funding, and will lessen the burden that new market -rate
residential development imposes on affordable housing in Palm Desert.
Background
The structure of this report is organized so as to break a relatively complex subject
down into components that, together, will describe the need for affordable housing in
the Palm Desert, the resources available to meet that need, and the large gap that
exists between the two. It will then describe the mechanism —a fee —available to the
City to help close the gap between needs and available resources, and how such a fee
must be tempered so as to respect the competing interests in the City as a whole.
Finally, the report will include an analysis of the magnitude of revenue the fee would
generate and how that revenue would be used to most effectively address the original
need.
The Need
The median home sales price in Palm Desert is currently $329,700. To be able to
afford a home of this value, an individual or a family would have to have an annual
income of approximately $75,000. This income is 30% more than a teacher with a
Bachelor of Arts degree earns in Desert Sands Unified School District, even at the
highest step in the pay schedule. It's more than a Palm Desert police officer makes until
he or she reaches the 9th step in a 13-step salary schedule. And it's over 70% more
than a registered nurse earns at Eisenhower Medical Center.
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The average rent for a two -bedroom apartment in Palm Desert approaches $1,000 per
month, which is affordable to a household earning $40,000 annual —more than the
entire salary of two full-time retail clerks or minimum wage workers. This situation is
likely part of the reason why the US Census Bureau reports that 9.8% of Palm Desert
residents lived below the poverty level in 2009-2013.
The numbers and examples given here are for Palm Desert, but they reflect the
conditions in a number of the cities in the Coachella Valley. What sets Palm Desert
apart from the others are two things: 1) the number of retail and hospitality jobs in Palm
Desert is far greater than other Valley cities; and 2) Palm Desert's affordable housing
program is far more aggressive and more closely managed than that of other Valley
cities. Palm Desert has historically put a strong emphasis on providing a variety of
housing options at a range of prices. This is best illustrated by the fact that 1,867 of
37,409 housing units —both single family homes and apartments —in the city have
affordability covenants in place to assure that there are affordable homes for those who
do not earn enough to buy or rent at the market rate. This equates to 5% of the existing
housing stock in the City being designated as affordable housing.
Important in consideration of the need for future housing in Palm Desert is the city's
expected growth. Current business development activity is focusing on opportunities to
grow the hotel and hospitality sectors, as well as higher education opportunities near
the university campuses. The targeted hospitality and education sectors both look for a
reliable work force, and they both benefit when their workers are engaged and active in
their own community. Students who need to work while they attend school need nearby
residential options in order to juggle school and jobs simultaneously. And hospitality
workers who can visit their children's schools during their lunch break or after their shift
are able to participate in athletic and academic events on a regular basis. They don't
need to split their loyalties or their dedication between the place where they live and
the place where they work.
In addition, the build out of the City will add a large number of market -rate dwelling
units, including homes, condominiums, and apartments. At projected densities, Palm
Desert should see 3,351 to 4,469 more market -rate units constructed, as demonstrated
on the vacant land inventory in the Computation of Potential Fee Revenue attached to
this staff report. Each of these dwelling units will be occupied by people whose needs
will be filled by retail sales clerks, restaurant servers, nurses, teachers, beauticians,
gardeners, bank tellers, and a host of others who earn less than is needed to afford to
buy or rent an appropriate home in Palm Desert. As such, the development of new
market -rate housing in Palm Desert will burden the City beyond what is identified in the
Estimate of Costs attached to this report. The quantification of this additional need is
the subject of the Nexus Study discussed in detail later in this report.
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Available Resources
The loss of redevelopment in 2011 has had a significant and adverse impact on the
City of Palm Desert's ability to pursue the production of affordable housing. Between
1998 and 2011, the City produced approximately 1,000 affordable housing units, an
average of 77 units annually. However, in the four years since the dissolution of
redevelopment, the City has produced no new affordable housing.
While 20% of the tax increment monies coming into the Redevelopment Agency were
allocated to affordable housing, the City is now reduced to relying upon the money in
the Housing Mitigation Fee account. This account is funded from a 1 % fee levied on
new commercial construction projects in the City; no such fee has ever been levied on
residential development. The fee was established in 1990 for "low income housing."
The concept behind the fee is that when new commercial projects are built in the City,
they bring new employees to fill the jobs they create. Since so much of Palm Desert's
commercial development is retail in nature, many of the employees are earning
relatively low wages that require subsidy in order for the workers to live in the City. The
current balance in this fund is approximately $2,437,700.
The Low Income Housing Fee charged to commercial development should generate
approximately $5.1 million of revenue to the Housing Mitigation Fee account between
the present date and the time, assumed to be 20 years from now, when the City will be
built out.
The Gap
The affordable housing gap springs from two sources, the need that exists today and
the need that will occur as the City is built out over the course of the next 20 years. The
amount of the gap, then, must be quantified for the current need and for the future
need.
To quantify the need that will accrue as the City is built out, a nexus -based study was
undertaken. That study, which is discussed in greater detail below, determined the cost
necessary to fully mitigate the impact that new market -rate housing has on Palm
Desert's affordable housing demand. Applying those costs to the lowest end of the
possible range of development densities for future growth, and assuming that the future
single-family homes developed will have sales prices above $200,000 but less than
$600,000 and that future rental units are split 25%, 50%, 25% respectively, between
one -bedroom, two -bedroom, and three -bedroom units, yields the following gap:
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Dwelling Unit
Gap
Quantity for Build -Out
Total
$200K SFH
13,406
270
$3,619,620
$400K SFH
22,940
810
$18,581,400
$600K SFH
33,182
270
$8,959,140
1-BDR APT
14,650
500
$7,325,000
2-BDR APT
15,772
1000
$15,772,000
3-BDR APT
20,969
500
$10,484,500
Total
4 741,660
In addition, the State of California requires that all cities and counties adopt a
comprehensive general plan, and that this plan identify the cities' future growth in a
number of areas, including housing. In fact, the mandatory Housing Element is the only
component of the general plan that is required to be prepared, submitted to the State,
reviewed, and approved on a specified interval. Palm Desert's Housing Element was
last submitted and approved in 2013; the plan covers the years 2014-2021.
In order to quantify the value of today's need for affordable housing in Palm Desert, an
estimate of cost was prepared for the goals and programs identified in the Housing
Element. This Estimate of Costs for the City of Palm Desert Affordable Housing
Program as Approved in Housing Element Adopted for 2014-2021 is appended to this
staff report, and totals approximately $112.6 million.
A straight summation of the two amounts above —one for the need already identified in
the current Housing Element and one for the affordable housing needs that will be
incurred during build -out —is a simplistic approach to estimating the money required to
meet Palm Desert's affordable housing needs. By its very nature, cost effective
affordable housing is opportunistic, and it is especially so when considering a 20-year
timeline. For this reason, it is important to be able to provide affordable housing
through a variety of mechanisms. As the City is built out, there will be times when one
approach to providing affordable housing is less expensive per unit than another, while
a few years later the market conditions will yield opposite results. Additionally
complicating the prediction of how cost effective affordable housing will be produced
during the coming 20 years are the facts that distressed properties are a fundamental
building block of affordable housing opportunities, and property owners may be
reacting to life conditions rather than to market conditions when they sell. New tax
incentives may be introduced that make it less expensive to build than to renovate
apartments —or vice versa —or a glut of apartments may suddenly make it least
expensive to buy affordability covenants in existing market -rate apartments.
For these reasons, meeting Palm Desert's affordable housing needs will be best
accomplished by pooling existing resources plus future revenues from the proposed
fee, and applying them where they will most effectively yield the greatest impact on the
goal of providing affordable housing. This can best be done by applying any available
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funding to the affordable housing program as described in the currently adopted City of
Palm Desert General Plan Housing Element.
As a consequence of the forgoing, there will be a gap of $57,203,960 between the cost
of the necessary affordable housing to meet the needs of future market -rate residential
development and the revenue available to meet that need.
Closing the Gap: A Fee
City staff has worked for several years to fill the gap between need and available
resources by working collaboratively with residential developers. A variety of non -
monetary methods have been employed to encourage developers of market -rate
housing to include an affordability component in their projects, all without meaningful
results save for the recently approved Millennium master plan, whose affordable
apartments won't be constructed for several years.
It has become clear that subsidizing dwelling units to an affordable level comes at a
price, and for -profit developers will not voluntarily lower their expected returns just to
"do the right thing." Accordingly, City staff looked for an appropriate mechanism by
which the City could develop a revenue stream that would replace some of the
redevelopment tax increment money that was lost, and that would at least offset the
burden that will result from the expected build out of the remainder of the market -rate
residential development in the City. The resulting concept was the imposition of a fee,
called an "affordable housing in -lieu fee" in some communities, which responds to the
demand for affordable housing that is a direct result of market -rate housing, and which
allows the assessing agency to produce the affordable dwelling units that are needed.
Affordable Housing In -Lieu Fees have been established by a number of cities in
California, most of which are in northern California and all of which have more
expensive housing markets than does Palm Desert. To establish and adopt such a fee,
a nexus study must be performed to determine the actual cost per dwelling unit of the
impact of market -rate housing on the need for affordable housing; that amount is then
set as the maximum amount that the City can charge per market -rate unit developed.
The City can adopt any fee less than the maximum amount. Cities in California have
adopted fees in amounts up to $29.79 per square foot, with the majority of fees ranging
between $15 and $25 per square foot. A list of adopting cities and the amounts of their
fees is contained in Exhibit C.
The concept behind such a nexus -based fee is that it is possible to determine the
income of buyers and renters of market -rate housing by working back from the amount
of their loan or rent. From that inferred income amount, one can also calculate the
discretionary income of the individuals, and attach that to a detailed spending pattern
of persons in that particular income bracket. Once the amount spent on categories such
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as dining out, entertainment, clothing, electronics, etc. is established, it can be applied
to industry -wide data on the wages of each category of expenditures as a percentage
of their gross revenue. This information is then converted into the number of jobs (or
portions thereof) required to fill the needs of the buyer of a market -rate home of a
certain value. And from there, the number of jobs generated is used to determine the
number of new households that will be formed, which is the key to understanding just
how many affordable housing units will be required to support a given number of
market -rate dwelling units. This number, of course, is directly related to the value of the
home or rental apartment. Someone who can afford to buy a million dollar home has a
great deal more discretionary income than does the buyer of a $250,000 home, and
needs more retail clerks, servers, and landscapers to support them than does the buyer
of the less expensive home.
Economic & Planning Systems, Inc. of Oakland, California, was retained to perform two
nexus studies for the City. One study evaluated the impact of for -sale market -rate
housing on the need for affordable dwelling units, while the second evaluated the
impact of rental properties (apartments) on the same need. These two studies are
attached as Exhibits "A" and "B," respectively, to this staff report and together are
referred to as the Nexus Study. The Nexus Study determined that the maximum fee for
for -sale units would range from $9.24 per square foot for homes costing $200,000 to
$12.38 per square foot for homes selling for $1.2 million, and from $13.97 per square
foot for three -bedroom apartments to $20.21 for studio apartments.
Tempering the Fee
Although a nexus study is necessary for a municipality establishing a new development
fee, it is not in and of itself sufficient for establishing a fee. Cities such as Palm Desert
are complex entities that have varied interests, policies, priorities, and financial
conditions. What might seem reasonable when viewed through the lens of one policy
objective could be at odds with actions taken in support of another policy objective. In
this instance, it might appear appropriate to adopt a $10 to $15 per square foot fee to
assure a supply of housing that is affordable to the many service industry employees
who work in Palm Desert, yet doing so would undermine Palm Desert's efforts to bring
construction -related jobs to the City, since such a fee could make the City's residential
housing market more expensive than similarly built housing in other Valley cities that
do not have this fee. Therefore, it is important to temper the findings of the Nexus Study
with other considerations.
In the weighing of considerations, it is important to acknowledge the interests of the
residential developers and single family homebuilders in Palm Desert, all of whom will
be opposed to an increase of fees charged for development here. However, it is also
important to consider the interests of retailers, hoteliers, restaurant owners, skilled care
givers, and businesses that employ clerical and technical workers, all of whom would
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welcome more housing opportunities for their employees in Palm Desert. A balance of
interests must be achieved.
To find this balance, a summary of considerations for Palm Desert Affordable Housing
Impact Fees was prepared by Economic & Planning Systems, Inc.; it is attached to this
report as Exhibit "C." This paper addresses a number of considerations, including the
fact that Palm Desert is situated among many cities that charge no such fee, and that
the housing and land values here are more modest than those found in other California
cities that have adopted affordable housing fees. It concludes that a range of fees
between $2.50 and $4.00 per square foot would be more appropriate and more
financially viable than the fees necessary to fully mitigate the impact of new market -rate
development on the need for affordable housing. The paper calculates the total
development fees for three sample housing prototypes, and determines the fee
expense as a percentage of land value, ultimately recommending an impact fee of only
a few dollars per square feet, with the possible exception of the luxury home market,
which could support higher fees.
Conclusion and Recommendation
After consideration of all information provided in the Nexus Study, the Implementation
Considerations memo, the cost estimates, other potential revenue, and in light of Palm
Desert's desire to be development -friendly by maintaining development fees that are
not out -of -line with other cities in the Coachella Valley, staff finds that a fee of $2.00
per square foot is reasonable to impose on new market -rate housing. Because the
addition of one or more bedrooms to an existing home increases the residential
capacity of the home, which consequently increases the demand for service -industry
workers to support the needs of the greater number of residents, the fee should apply
to any home renovations or expansions that increase the number of bedrooms in the
dwelling unit. Additionally, the fee should not apply to the development of, or addition
to, any dwelling units that are subsidized so as to be affordable to families or
individuals with restricted incomes.
Environmental Review
The establishment of an affordable housing impact fee constitutes the creation of a
government funding mechanism that involves no commitment to a specific project, and
therefore is a non -project in terms of CEQA
Fiscal Analysis
The estimate of potential revenue for an affordable housing impact fee of $2.00 per square
foot applied to residential development through build -out of the City, assumed to be in 20
years, is $14.0 to $24.5 million, depending on the densities of future development and the
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sizes of dwelling units constructed. As discuss above, the revenue from this fee could be
used most effectively to provide affordable housing through a variety of programs, such as
those identified in the current Housing Element. These programs include purchasing and
renovating existing, blighted housing units; purchasing extensions for affordability
covenants that are set to expire in the near future; providing financial assistance to private
developers for constructing and operating new multi -family dwelling units; etc. A detailed
calculation of this potential revenue is attached to this report.
Submitted By:
Lauri Aylaian, Director of Community opment
Reviewed:
gd��M�
Paul S. Gibson, Director of Finance
M. Wohlmuth, City Manager
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ORDINANCE NO. 1283
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PALM
DESERT, CALIFORNIA, ADDING A CHAPTER TO THE CITY OF PALM
DESERT MUNICIPAL CODE TO ESTABLISH AN AFFORDABLE
HOUSING FEE FOR ALL NEW RESIDENTIAL DEVELOPMENT WITHIN
THE CITY OF PALM DESERT
THE CITY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, DOES
ORDAIN AS FOLLOWS:
WHEREAS, the City Council of the City of Palm Desert, California, held a duly
noticed public hearing on the 23rd day of April 2015, to consider an affordable housing
impact mitigation fee to be assessed against all new market rate residential development
within the City; and
WHEREAS, that at said public hearing, upon hearing and considering all testimony
and arguments, if any, of all interested persons desiring to be heard, and after considering
the staff report and its exhibits, the City Council found the following facts to justify their
actions as described below:
1. There exists a shortage of very low, low, and moderate income housing within
the city of Palm Desert and surrounding communities.
2. As the city is built out over the next twenty (20) years, the residents who move
into the new market rate housing development will require goods and services
that are produced, provided, and/or sold by persons who have service industry
jobs, which are typically lower -paying jobs that do not compensate their
employees highly enough that they can afford to live in market -rate housing in
the city of Palm Desert.
3. The city of Palm Desert stands to benefit when there is a balance between jobs
offered in the city and the housing provided therein: traffic is lessened when
fewer workers need to commute in from other cities; parents work near to where
their children attend school and can more easily engage in school -related
activities; families can participate in more activities in their communities by virtue
of spending less time commuting to and from work; and residents and visitors
alike are serviced by people who are proud of Palm Desert, which is their home.
4. The City of Palm Desert understands the importance of continual planning for
affordable housing and intends to encourage, in accordance with the approved
Housing Element, the integration of affordable housing throughout the community
by requiring that market -rate residential development be complemented with
affordable dwelling units either within or adjacent to the market -rate units; the
City is also prepared to accept payment of a reasonable impact fee in lieu of
requiring that all market -rate developers simultaneously construct affordable
dwelling units, when such requirement is not consistent with the goals and
policies of the General Plan or is otherwise not feasible.
ORDINANCE NO. 1283
5. The former City of Palm Desert Redevelopment Agency, which was the primary
source of funding for Palm Desert's affordable housing program, was abolished
by the State of California in 2011, leaving only nominal funding available through
which the City can assist the private sector in the provision of subsidized
affordable housing.
6. With sufficient funding, the City of Palm Desert can assist in providing affordable
housing by: acquiring blighted housing stock, renovating it, and establishing
affordability covenants on it; providing below -market rate interest loans to
developers of affordable housing; providing land at reduced or no cost to not -for -
profit affordable housing developers; purchasing extensions of affordability
covenants on existing affordable units when those covenants are scheduled to
expire; purchasing affordability on suitable existing market -rate dwelling units;
and other means that will stabilize or increase the inventory of affordable housing
stock in the city of Palm Desert.
WHEREAS, the City Council considered the "Nexus -Based Affordable Housing Fee
Analysis for Rental Housing" and the "Nexus -Based Affordable Housing Fee Analysis for
For -Sale Housing," both dated April 2, 2015, and prepared by Economic & Planning
Systems, Inc. of Oakland, California, and attached to the staff report as Exhibits "A" and "B,"
respectively, and referred to collectively as the "Nexus Study," which Nexus Study
establishes the nexus between construction of new market rate housing and the need for
affordable housing in the community, and which Nexus Study also demonstrates that
affordable housing impact fees of $9.24 to $12.38 per square foot for for -sale housing units
and $13.50 to over $20.00 per square foot for rental housing units would be needed to fully
mitigate the impacts on the need for affordable housing of new market rate units with sales
prices between $200,000 and $1.2 million; and
WHEREAS, the nexus exists for all new residential construction, including any
residential remodel or addition that increases the number of bedrooms, thereby increasing
the capacity for residents, whether the new home or addition be a custom home or a tract of
homes, and whether the home(s) be single family or multi -family; and
WHEREAS, the City Council also considered the Memorandum regarding
Implementation Considerations for Palm Desert Affordable Housing Impact Fees dated
March 18, 2015, prepared by Economic & Planning Systems, Inc. of Oakland, California,
and appended to the staff report as Exhibit "C," which recommends that affordable housing
impact fees lower than the maximum permissible fees be adopted; and
WHEREAS, the City Council desires to adopt and implement affordable housing
impact fees for both residential rental development and residential ownership development,
including for residential remodel or addition projects that increase the number of bedrooms
in a residence, to mitigate the impact of this market rate development on the need for
affordable housing, while ensuring that those market rate developments remain
economically feasible; and
WHEREAS, the proposed affordable housing impact fee is reasonably related to the
impact resulting from the type of development upon which the fee will be imposed and the
fees generated and will not exceed the reasonable cost estimate of the housing program.
2
ORDINANCE NO. 1283
The fee rate is projected to generate approximately $14.0 to 24.5 million of the total $112.6
million required to facilitate implementation of the goals and programs described in the
currently adopted Housing Element of the City of Palm Desert Comprehensive General
Plan, which is only 12.4 to 21.8% of the total program mitigation costs.
NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Palm
Desert, California, does hereby determine that it is in the public interest that market rate
residential development in the City be supplemented by affordable residential development
to provide housing opportunities for the workers needed to fill jobs created to service the
residents in the new market rate development.
BE IT FURTHER ORDAINED AS FOLLOWS:
Section 1: Accounting and disbursement of fees: The affordable housing impact
fees collected shall be deposited into the City's affordable housing fund
to be used only for the provision of affordable housing in accordance
with policies and programs identified in the approved Housing Element
of the City of Palm Desert General Plan, and
Section 2: Chapter 3.47 is hereby added to the City of Palm Desert Municipal Code
to read as shown in attached Exhibit "D."
PASSED, APPROVED, AND ADOPTED by the City Council of the City of Palm
Desert, California, at its regular meeting held on the _ _ day of by the
following vote, to wit:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
RACHELLE D. KLASSEN, CITY CLERK
PALM DESERT, CALIFORNIA
APPROVED AS TO FORM:
DAVID J. ERWIN, CITY ATTORNEY
SUSAN MARIE WEBER, MAYOR
3
ORDINANCE NO.1283
EXHIBIT "D"
CHAPTER 3.47 AFFORDABLE HOUSING IMPACT FEE ON NEW MARKET RATE
RESIDENTIAL DEVELOPMENT
3.47.10.1 Purpose, Use, and Findings.
A. There exists shortage of very low, low, and moderate income housing within the
City of Palm Desert and surrounding communities.
B. As the City of Palm Desert is built out over the next twenty years, the residents
who move into the new market rate housing development will require goods and services
that are produced, provided, and/or sold by persons who have service industry jobs, which
are typically lower -paying jobs that do not compensate their employees highly enough that
they can afford to live in market -rate housing in the city of Palm Desert.
C. The City of Palm Desert stands to benefit when there is a balance between jobs
offered in the city and the housing provided therein: traffic is lessened when fewer workers
need to commute in from other cities; parents work near to where their children attend
school and can more easily engage in school -related activities; families can participate in
more activities in their communities by virtue of spending less time commuting to and from
work; and residents and visitors alike are serviced by people who are proud of Palm Desert,
which is their home.
D. The City of Palm Desert understands the importance of continual planning for
affordable housing and intends to encourage, in accordance with the approved Housing
Element, the integration of affordable housing throughout the community by requiring that
market -rate residential development be complemented with affordable dwelling units either
within or adjacent to the market -rate units; the City is also prepared to accept payment of a
reasonable impact fee in lieu of requiring that all market -rate developers simultaneously
construct affordable dwelling units, when such requirement is not consistent with the goals
and policies of the General Plan or is otherwise not feasible.
E. The former City of Palm Desert Redevelopment Agency, which was the primary
source of funding for Palm Desert's affordable housing program, was abolished by the State
of California in 2011, leaving only nominal funding available through which the City can
assist the private sector in the provision of subsidized affordable housing.
F. With sufficient funding, the City of Palm Desert can assist in providing affordable
housing by: acquiring blighted housing stock, renovating it, and establishing affordability
covenants on it; providing below -market rate interest loans to developers of affordable
housing; providing land at reduced or no cost to not -for -profit affordable housing
developers; purchasing extensions of affordability covenants on existing affordable units
when those covenants are scheduled to expire; purchasing affordability covenants on
existing, suitable market -rate dwelling units; and other means that will stabilize or increase
the inventory of affordable housing stock in the city of Palm Desert.
4
ORDINANCE NO. 1283
G. The City Council considered a nexus -based affordable housing fee analysis for
rental housing and a nexus -based affordable housing fee analysis for for -sale housing,
collectively referred to as the "Nexus Study," which Nexus Study establishes the nexus
between construction of new market rate housing and the need for affordable housing in the
community, and which Nexus Study also demonstrated that affordable housing impact fees
of $9.24 to $12.38 per square foot for for -sale housing units and $13.50 to over $20.00 per
square foot for rental housing units would be needed to fully mitigate the impacts on the
need for affordable housing of new market rate units with sales prices between $200,000
and $1.2 million.
H. The nexus exists for all new residential construction, including any residential
remodel or addition that increases the number of bedrooms, thereby increasing the capacity
for residents, whether the new home or addition is a custom home or a tract of homes, and
whether the home(s) be single family or multi -family.
I. The City Council also studied implementation considerations, including the
financial impact of such fees on potential development in the City, and concluded that it was
appropriate to adopt affordable housing impact fees lower than the maximum permissible
fees.
J. The City Council desires to adopt and implement affordable housing impact fees
for both residential rental development and residential ownership development, including for
residential remodel or addition projects that increase the number of bedrooms in a
residence, to mitigate the impact of this market rate development on the need for affordable
housing, while ensuring that those market rate developments remain economically feasible.
K. The City Council of the City of Palm Desert does hereby determine that it is in the
public interest that market rate residential development in the city be supplemented by
affordable residential development to provide housing opportunities for the workers needed
to fill jobs created to service the residents in the new market -rate development.
3.47.020 Accounting and Disbursement of Fees. The affordable housing impact
fees paid pursuant to this chapter shall be deposited into the City's affordable housing fund
to be used only for the provision of affordable housing in accordance with policies and
programs identified in the Housing Element of the City of Palm Desert General Plan which
is approved and adopted at the time of payment of fees.
3.47.030 Calculation and Payment of Fee.
A. The affordable housing impact fee paid pursuant to this chapter shall be applied
to new market rate residential development. For the purposes of this chapter, "new market -
rate residential development' is defined as the construction of any new dwelling unit,
including for -sale or rental homes, apartments, time-share units, and condominiums, or the
remodel of or addition to any such dwelling unit, which remodel or addition creates one or
more new bedrooms.
B. Calculation of fee shall be based upon the gross square feet of the dwelling unit
or, in the case of a remodel or addition described in 3.47.030 A, upon the gross square feet
of the new bedroom(s).
5
ORDINANCE NO. 1283
C. The fee enacted by this chapter shall be paid to the City of Palm Desert prior to
issuance of the building permit for the dwelling unit.
3.47.040 Exemptions. The affordable housing impact fee shall not apply to
mobile homes, to new dwelling units on which affordability covenants are recorded if those
covenants are for a period of thirty (30) years or longer, or to any new single family home
that is less than 1,250 square feet in size and situated on an infill lot.
0
RESOLUTION NO. 2015- 27
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM
DESERT, CALIFORNIA, ESTABLISHING FEES PURSUANT TO CHAPTER
3.47 OF THE MUNICIPAL CODE OF THE CITY OF PALM DESERT
WHEREAS, it is determined that there is a need for affordable housing in Palm
Desert, and the State of California has mandated that local governments provide for
affordable housing through their zoning and development ordinances, Palm Desert has
chosen to use its police power land use planning authority to provide for affordable housing;
and
WHEREAS, applicable goals, policies and actions of the adopted 2004 City of Palm
Desert Comprehensive General Plan, including the Housing Element, demonstrate the need
for affordable hosusing in Palm Desert; and
WHEREAS, on April 23, 2015, the City Council approved an ordinance creating
Chapter 3.47 "Affordable Housing Impact Fee" of the Palm Desert Municipal Code that,
among other things, includes establishment of an Affordable Housing Impact Fee to be
adopted by the City Council and applicable only to development of new market -rate
residnetial for -sale and rental dwelling units, including additions and remodels to existing
units when those additions/remodels increase the number of bedrooms in existing dwelling
units, that shall be based upon the cost of mitigating the impact of market -rate units on the
need for affordable housing in the city, and
WHEREAS, the City Council has considered and adopted an ordinance to add
Chapter 3.47 to the Municipal Code to also implement goals, policies, and actions of the
2013 Housing Element update; and
WHEREAS, on April 23, 2015, the City Council considered the "Nexus -Based
Affordable Housing Fee Analysis for Rental Housing" and the "Nexus -Based Affordable
Housing Fee Analysis for For -Sale Housing," both dated April 2, 2015, and prepared by
Economic & Planning Systems, Inc. of Oakland, California and referred to collectively as the
"Nexus Study," which Nexus Study demonstrates that affordable housing impact fees of
$9.24 to more than $20.00 per square foot of new market rate development would be
needed to fully mitigate the impacts of such development on the need for affordable
housing; and
WHEREAS, to ensure the economic feasibility of residential development, including
new market -rate units and the addition of new bedrooms to existing residential
development, the memorandum entitled Implementation Considerations for Palm Desert
Affordable Housing Impact Fees dated March 18, 2015, prepared by Economic & Planning
Systems, Inc., recommends that affordable housing impact fees lower than the maximum
permissible fees be adopted; and
WHEREAS, the City Council desires to adopt and implement affordable housing
impact fees for market -rate residential development while ensuring that that development
remain economically feasible; and
RESOLUTION NO. 2015- 27
WHEREAS, affordable housing impact fees collected shall be deposited into the
City's Affordable Housing Fund to be used only for the provision of affordable housing
consistent with the goals and programs identified in the currently adopted Housing Element
of the Palm Desert Comprehensive General Plan so as to provide housing options to
persons and families of very low, low, and moderate income; and
WHEREAS, at least 10 days prior to the date this resolution is to be considered,
data was made available to the public indicating the amount of cost, or estimated cost,
required to provide the service for which the fee or service charge is levied and the revenue
sources anticipated to provide the service, including general fund revenues in accordance
with Government Code Section 66019; and
WHEREAS, at least fourteen days prior to the date this resolution is to be
considered, notice was mailed to those persons who had requested same in accordance
with Government Code Section 66019; and
WHEREAS, notice of the hearing on the proposed fees was published twice in the
manner set forth in Section 6062a as required by Government Code Section 66018; and
WHEREAS, a public hearing was conducted and the public notice and availability of
estimated costs were available to the public at least ten days prior to the meeting, all in
accordance with Government Code Sections 66018 and 66019.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Palm
Desert, California, does hereby approve establishment of an affordable housing impact fee
of two dollars ($2.00) per square foot of gross building area for new residential market -
rate for -sale and rental dwelling units, including new bedrooms added to existing market -
rate dwelling units.
PASSED, APPROVED, and ADOPTED by the City Council of the City of Palm
Desert, California, at its regular meeting held on the day of , 2015,
by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
RACHELLE D. KLASSEN, CITY CLERK
CITY OF PALM DESERT, CALIFORNIA
SUSAN MARIE WEBER, MAYOR
2
EXHIBIT "A"
Report
Nexus -Based Affordable Housing
Fee Analysis for Rental Housing
Prepared for:
City of Palm Desert
Prepared by:
Economic & Planning Systems, Inc.
April 2, 2015
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Table of Contents
EXECUTIVESUMMARY................................................................................ ................... 1
1. AFFORDABILITY GAP ANALYSIS...................................................................................7
ProductType.......................................................................................................... 7
Development Cost Assumptions................................................................................ 9
RevenueAssumptions.............................................................................................. 9
Affordability Gap Results........................................................................................ 10
2. DEMAND -BASED NEXUS FEE CALCULATION................................................................... 11
Market -Rate Household Income Levels..................................................................... 11
Household Expenditures and Job Creation by Income Level ......................................... 11
Demand for Public -Sector Workers.......................................................................... 15
Combined Demand for Income -Qualified Workers ...................................................... 16
FeeCalculation..................................................................................................... 16
APPENDIX A: Household Expenditures and Employment Generation
APPENDIX B: Income Levels for Worker Households
List of Figures and Tables
Figure 1 Illustration of Nexus -Based Housing Fee Methodology ........................................... 2
Table 1
Summary of Housing Impact Fees or Unit Equivalents per Market -Rate Unit ............. 6
Table 2
Financing Gap Analysis -- Rental Product Type ....................................................
8
Table 3
Required Income by Unit Type- Market -Rate Rental Apartments ...........................
12
Table4
HUD Income Limits........................................................................................
17
Table 5
Maximum Impact Fee Calculations -- Studio ......................................................
18
Table 6
Maximum Impact Fee Calculations -- 1 Bedroom ................................................
19
Table 7
Maximum Impact Fee Calculations -- 2 Bedroom ................................................
20
Table 8
Maximum Impact Fee Calculations -- 3 Bedroom ................................................
21
EXECUTIVE SUMMARY
Economic & Planning Systems, Inc. (EPS) was retained by the City of Palm Desert (City) to
conduct a nexus study analyzing the impact that development of market -rate rental housing has
on the demand for below -market -rate housing and, based on the results, to determine the
defensible nexus -based fee that could be charged to market -rate development.
The technical approach used herein quantifies the impacts that the introduction of market -rate
rental apartments have on the local economy and the demand for additional affordable housing.
As new households are added to the community, local employment also will grow to provide the
goods and services required by the new households. To the extent that these new jobs do not
pay adequate wages for the employees to afford market -rate housing in the community, the new
households' spending is creating a need for affordable housing. A nexus -based affordable
housing fee is therefore based on the impact of the new market -rate homes on the demand for
affordable housing. The fee calculated in this study represents the maximum fee that may be
charged to new market -rate housing units to mitigate their impacts on the affordable housing
supply. Such fees are then used by the City to subsidize the production of new affordable units
for lower -income households not accommodated by market -rate projects.
Calculating the impact of market -rate development in the City on affordable housing needs, and
the fees needed to mitigate those impacts, involves three main analytical steps:
Step #1. Estimate the typical subsidy required to construct units affordable at various
income levels (the "affordability gap"). The analysis focuses on very -low, low-, and median -
income households.
• Step #2. Determine the market -rate households' demand for goods and services, the jobs
created by that demand, and the affordable housing needs of workers in those jobs.
Step #3. Combine the affordability gap with the affordable housing demand projections to
compute the maximum supportable nexus -based affordable housing fees per market -rate
unit.
These technical steps are illustrated in Figure 1 and detailed in the body of this Report and the
attached Technical Appendices. The findings regarding each of these steps are presented below.
Economic & Planning Systems, Inc.
Figure 1
Illustration of Nexus -Based Housing Fee Methodology
Step #1
Affordability Gap Analysis Affordable
(Subsidy Required to Construct Unit Value
Affordable Units) by Income
minus Development
Costs
equals F Affordability
Gap
If negative Subsidy
/I Required
No Subsidy
u positive Required
Required Total Workers to
Step #2 Market Rate Household Household Provide Goods and Total Demand for
Affordable Housing Demand Unit Rents Income Expenditures Services by o Affordable Units for
(Generated by Market Rate Housing) Level by Category Expenditure Category Workers
Step #3 Affordability multiplied=Demand Maximum
Compute Impact Fee equals Supportable Nexus -
per Market Rate Unit Gap (Subsrd Requved) by Based Housing Fee
Y
(per Markel rate unit)
Economic & Planning Systems, Inc 2/5/2015
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
1. The costs to construct affordable housing units affordable to many households
exceed those units' values based on the rents or prices that the households can
afford to pay. The subsidy required to construct affordable housing units in Palm
Desert ranges from roughly $58,000 for a Median Income household to $164,000
for a Very Low Income (VLI) household. Moderate Income households do not
appear to require subsidies, as affordable prices for such households appear able to
support the costs of construction.
An "affordability gap analysis" evaluates whether or not the costs to construct affordable
units exceed the values of units that are affordable to lower- and moderate -income
households. For each affordable housing income level (Very Low Income [VLI], Low Income
[LI], Median Income, and Moderate Income) this analysis estimates the subsidy required to
construct affordable housing units.
The affordability gap analysis assumes that the average affordable unit for all income levels
will be a 2-bedroom unit in a multifamily development. The estimated costs to construct the
prototypical affordable unit are based on published data sources (RS Means Cost Estimator)
indexed to Coachella Valley labor and materials costs, and have been vetted with developers
active in Coachella Valley. The costs of land acquisition are included in these development
cost calculations, and have been based on recent appraisals for residential land in Palm
Desert. For units that are eligible for non-competitive Low Income Housing Tax Credits
(4 percent tax credits), the value of those tax credits is deducted from the development
costs.
A household's ability to pay is estimated based on standard percentages of income available
for housing costs at each household income level. Income available for housing costs is then
converted into a monthly affordable rent and a capitalized unit value or an affordable
mortgage payment and supportable home price. This unit value is then compared to the
costs of development to determine the subsidy, if any, required to make the unit affordable
to each income level.
2. The demand for affordable housing generated by the expenditures of new
households in Palm Desert increases along with the market -rate rent price (and
related renter income). For example, a one -bedroom unit that rents for $1,200 per
month is estimated to create demand for 0.109 affordable housing units requiring
development subsidy, while a 3-bedroom unit that rents for $1,900 per month
creates demand for 0.156 affordable units.
A justified nexus fee is based on the total demand for affordable housing units generated by
construction of market -rate units. The link (or nexus) between market -rate housing and
increased demand for affordable housing is that residents of market -rate units demand goods
and services that rely on many wage earners (for example, retail sales clerks) who typically
cannot afford market -rate housing and thus require affordable housing.
Because more expensive housing units require renters to have higher incomes, and higher
income households create more jobs through their spending, the nexus impacts and thus the
justified fees for rental units vary according to the rental price range of the market -rate
units. Typically, larger apartments (i.e., more bedrooms) command higher rents, so their
occupants are required to have higher household incomes than renters of smaller units.
Economic & Planning Systems, Inc.
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
Thus, larger units create more jobs as a result of their occupants' spending. Nexus impacts
and the justified fees for market -rate rental apartments, therefore, vary based on unit size.
This analysis evaluates the demand for affordable housing generated by a range of for -rent
unit sizes. For each unit size, the demand -based nexus fee calculation involves the following
steps:
A. Market -Rate Household Income Levels. The required income levels of households
occupying new market -rate housing are derived based on the rental rate, assuming
standard housing cost expenses as a proportion of overall household income. For
example, a typical household renting a recently constructed market -rate two -bedroom
unit for around $1,400 per month would have an annual income of roughly $64,000, if
they spent 30 percent of their income on housing costs (rent and utilities).
B. Household Expenditures. Based on the household income computed in Step A,
Consumer Expenditure Survey data was used to evaluate the spending patterns of the
household. This analysis provides an estimate of how much the household spends on
specific categories of expenditures, such as "Food at Home." As the households' income
increases along with the price and size of the market -rate units, the total spending on
goods and services also increases. The Consumer Expenditure Survey also indicates that
these relationships are not linear (e.g., a household with twice the income does not
necessarily spend twice as much on food).
C. Job Creation and Worker Households. Having estimated the households' spending on
various items, that spending is then converted into an estimation of jobs created. For
each expenditure category, data regarding average worker wages and the ratio between
gross business receipts and wages were used to translate these household expenditures
into the total number of private -sector workers. For selected public -sector jobs that
typically grow in proportion to the local population size (e.g., teachers), the demand for
new workers was estimated by relating current levels of employment in such categories
to the current population and applying this ratio to future development. Because each
new worker does not represent an independent household (Palm Desert has an average
of 1.52 workers per working household), the total number of new households created is
somewhat less than the number of new jobs created. EPS has further adjusted the
household formation rates to reflect the expectation that a certain proportion of workers
will not form their own households, particularly those of younger ages.'
D. Worker Households by Income Category. Each worker household generated is
assigned to an income category —Very Low Income (VLI), Low Income (LI), Median,
Moderate, and Above Moderate —based on its estimated gross wages. This provides the
total number of households generated at each income level by construction of market -
rate units at various price points. The results indicate that residents of lower -priced units
generate fewer worker households requiring affordable housing than do residents of
higher -priced units.
1 BLS data indicates that 12.5 percent of retail/restaurant workers are age 16-19, but an average of
only 1.9 percent of workers in other industries. EPS has assumed that such young workers do not
form their own households.
Economic & Planning Systems, Inc.
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
These steps of the nexus -based fee calculation provide the total number of income -qualified
workers required to meet the needs for goods and services generated by market -rate
housing. The number of workers servicing market -rate housing (at each unit size) is then
converted to total income qualified households requiring affordable housing subsidy, and
each such household is assumed to require one housing unit.
3. This analysis calculates the fees that could be charged to fully mitigate the impact
that new market -rate housing has on Palm Desert's affordable housing demand at
various representative unit sizes. These fees could range from roughly $12,000 for
studio apartments to $21,000 for 3-bedroom apartments.
The nexus fee is calculated by applying the number of affordable units needed by income
qualified households to the affordability gap for each housing income category. This
calculation is made for several different apartment sizes. Table 1 summarizes the maximum
nexus -based fees calculated for representative rental unit sizes. The City may also consider
whether to allow developers to provide affordable units within their projects, rather than
paying the nexus -based fee. Table 1 illustrates the proportions of affordable units that
correspond to the fee calculation and demands created by the market -rate units. For
instance, a project offering only two -bedroom units would effectively mitigate the demand
being created by the market -rate units if it provided 0.117 affordable units (very -low, low,
and median income) for each market -rate unit. Please note that these maximum fees are
based on the nexus relationship of affordable housing demand created by new market -rate
units; EPS recommends that the City consider the feasibility impact of imposing fees while
setting any fee on rental housing.
Economic & Planning Systems, Inc.
Table 1
Summary of Housing Impact Fees or Unit Equivalents per Market -Rate Unit
Palm Desert Housing Impact Fee, EPS #141134
Market -Rate
Maximum
Affordable Units Generated/100
Market -Rate Units
Unit Size
Impact Fee
Total
Low (50%)
Low (60%)
Low (80%)
Mad (100%)
Studio
$12,123
9.2
4.1
1.1
2.6
1.3
1 Bedroom
$14,650
10.9
5.2
1.3
3.0
1.4
2 Bedroom
$15,772
11.7
5.7
1.4
3.2
1.5
3 Bedroom
$20,969
15.6
7.6
1.8
4.2
1.9
Source Economic & Planning Systems, Inc
E—c—c d Plannmg Systems, Inc 21WO15 P 1141000s1141134PalmDesemModeA 141134ren1modo/020515 rlsi
1. AFFORDABILITY GAP ANALYSIS
For any nexus -based affordable housing fee calculation, it is necessary to estimate the subsidy
required to construct affordable housing units. Table 2 shows the subsidy needed to produce
multifamily housing that is affordable to very low-, low-, median- and moderate -income
households.
Product Type
This analysis assumes that new lower -income worker households would be housed in multifamily
developments in Palm Desert. Developable residential land in Palm Desert is assumed to be
approximately $200,000 per acre, based on an appraisal provided to the City by Lidgard and
Associates. EPS has assumed that these projects will have an average density of 20 units per
acre, and be built in wood -frame buildings of two to three stories with surface parking.
In order to determine the average household size of future affordable housing units, EPS used
two estimates from the Census Bureau. The American Community Survey indicates that the
average household size in Palm Desert is 2.05 people while the average family size is 2.75
people. The household size figure is significantly skewed by the high population of retirement -
age people in Palm Desert, where 46.1 percent of all households have one or more members
over age 65 (vs. only 24.9 percent statewide). The average family size is considered more
representative of worker households in Palm Desert, so the average household size for future
workers is assumed to round up to three people and EPS uses this assumption to determine the
applicable income limits for the new units. The assumption that the average worker household
requires a two -bedroom unit is expected to be conservative, as many working families in the
Coachella Valley have more than three members. By assuming an average two -bedroom unit
size rather than something larger, the costs of construction and subsidy for affordable housing
are expected to be minimized.
California State law (California Health and Safety Code Section 50052.5) assumes that a 2-
bedroom unit is occupied by a 3-person household, and this assumption is used in this analysis.
An affordable 2-bedroom unit in Palm Desert is assumed to have a gross size of about 1,200
square feet (accounting for shared lobbies, hallways, etc.) and a net size of 1,000 square feet —
both somewhat smaller than recently constructed market rate units, but similar to recent
affordable housing developments.
This analysis assumes that all new affordable housing would be rental units, rather than for -sale
units. This assumption reflects the fact that many households at lower incomes will not have
adequate wealth reserves for down payments on homeownership units, and may have further
difficulty absorbing the ongoing costs of homeownership (taxes, repairs, etc.) that they can
effectively avoid by renting their homes rather than buying.
Economic & Planning Systems, Inc. 7 . 1.1-1.1- . 1.1 -11-.111-1.1-1.
Table 2
Financing Gap Analysis - Rental Product Type
Palm Desert Housing Impact Fee, EPS 0141134
2 Stories Multifamily With Surface Parking
Very Low Low Low Median Moderate
Income Income Income Income Income
Item (50% All (60% AMI) (80% AMI) (100% All (120% AMI)
Development Program Assumptions
Density/Acre
20
20
20
20
20
Average Gross Unit Size
1,200
1,200
1,200
1,200
1,200
Average Net Unit Size
1.000
1.000
1.000
1,000
1.000
Average Number of Bedrooms
2
2
2
2
2
Average Number of Persons per Household
3
3
3
3
3
Parking Spaces/Unit
2.0
2.0
2.0
2.0
20
Cost Assumptions [11
Land/Acre [2)
$200.000
$200.000
$200,000
$200.000
$200.000
Land/Unit
$10.000
$10.000
$10,000
$10.000
S10.000
Direct Construction Costs/Gross SF [31
$150
S150
$115
$115
$115
Direct Construction Costs/Unit
$180,000
$180,000
$138,000
$138,000
$1,38.000
Parking Construction Costs/Space
$2.500
$2.500
S2,500
$2.500
$2,500
Parking Construction Costs/Unit
$5,000
$5.000
$5,000
$5.000
$5,000
Subtotal, Direct Costs/Unit
$185.000
$185,000
$143.000
$143.000
$143,000
Indirect Costs as a % of Direct Costs (41
60%
60%
35%
35 %
351/6
Indirect Costs/Unit
$111,000
$111,000
$50.050
$50.050
$50.050
Total Cost/Unit
$306,000
$306,000
$203.050
$203.050
$203.050
less Value of 4% Tax Credits (5)
-$118,400
-$118,400
$0
$0
SO
Net Cost/Unit
S187.600
$187.600
$203.050
$203.050
$203.050
Maximum Supported Unit Value
Household Income (8)
$27.350
$32.820
S43.700
$54,700
$65.640
Income Available for Housing Costs/Year (71
$8.205
$9.846
$13.110
$16.410
$19,692
less Utility Allowance [81
$2.400
$2.400
$2,400
$2,400
$2.400
Remaining Income Available for Rent
$5.805
$7.446
$10.710
$14.010
$17,292
Operating Expenses per Unib'Year [9)
$4,500
$4,500
$6,031
S6,031
$6,031
Net Operating Income
$1,305
$2,946
$4.690
$7,990
$11.262
Capitalization Rate 110)
5.59,6
5.5 %
5.5 %
5.5%
5.51/
Total Supportable Unit Value
$23.727
$53,564
$85.082
$145.082
S204,755
Financing Gap
$163.873
$134,036
$117,968
S57,968
SO
(1) Costs for 50-60 % AMI units assume projects are built by non-profit builders. and require prevailing wage. For units at 80.120 % of AMI. EPS has assumed lower development costs
consistent with for -profit builders' cost bases, and do not assume prevailing wage.
[21 The land costs represent an expected price for developable residential land, per
a December 2014
appraisal provided to the City of Palm Desert.
(3) Includes costs for labor and materials.
141 Includes Costs for architecture and engineering: entitlement and fees: project management.
marketing. commissions. and general administration. financing and charges. insurance.
and
contingency. Tax credit projects (at or below 60% AMI) are assumed to include developer fee at 14%
of eligible basis.
(5140,; Tax Credits are assumed to be received for units at 60% AMI or below. Value
of tax credits is estimated at 40% of eligible basis. which is all drect and indirect costs but excludes
land
costs.
16) Based on HCD 2014 income limits for Riverside -San Bernardino -Ontario MSA.
(71 Assumes housing cosy to be 30% of gross household income.
(81 Based on Housing Authority of Riverside County Allowances for Tenant Furnished Utilities and other Services assuming an apartment using natural
gas for heating and cooking.
(9) Operating expenses include costs of tenantsutilities. Units for households above 60% AMI are assumed
to be built as for -profit
projects and thus subject to property tax.
1101 Capitalization rate estimated by EPS based on recent apartment Industry investment
standards.
Ecn,«.,«,. a damn„, srv«,.,. 11, vs70 15 $ GR�1000 s.t011.7��almOaaMAIMMI'.rH tJlNnlmnnatt;$p5r5 a<.
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
Development Cost Assumptions
Affordable housing development costs include land costs, direct costs (e.g. labor and materials),
indirect or "soft" costs (e.g., architecture, entitlement, marketing, etc.), and developer profit.
For rental projects, operating costs also must be incorporated into the analysis. Data from
recent Palm Desert development and recent land transactions have been combined with EPS's
information from local housing developers and published data sources to estimate development
cost assumptions for a prototypical project in Palm Desert. These cost assumptions are shown
on Table 2.
Projects offering units affordable to households at or below 60 percent of Area Median Income
(AMI) are typically eligible for "4%" Low Income Housing Tax Credits, which yield equity equal to
roughly 40 percent of the "eligible basis" of the development (all project costs excluding land
acquisition). Such projects are subject to prevailing wage requirements, however, which
increase their direct costs substantially. Also, the developer's fee for such projects is included as
an indirect cost, and can represent up to 15 percent of the eligible basis.2 These added costs
are more than offset by the value of the tax credit, however, so the net cost of development for
such units is estimated to be slightly less than the cost of developing units for households at 80
to 120 percent of AMI.
Revenue Assumptions
To calculate the values of the affordable units, assumptions must be made regarding the
applicable income level (moderate, median, LI, and VLI) 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 —The maximum allowable incomes used in each affordable housing income
category are consistent with those set forth by the federal government (U.S. Department of
Housing and Urban Development [HUD]): VLI = 50 percent of Area Median Income (AMI), LI
60%= 60 percent of AMI, LI 80%= 80 percent of AMI, Median Income = 100 percent of AMI,
and Moderate Income = 120 percent of AMI.
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 income qualified renter households shall spend 30 percent of their gross
income on housing costs, including rent and utilities.
Other Costs Included for Rental Units —In addition to rent payments, the analysis assumes
$200 per month in utility costs based on the Riverside County Housing Authority utility
allowance table. This amount is subtracted from the total available housing costs (30
percent of household income) to determine the net amount available for rent payments.
2 Limited by Section 10327(c)(2) of the CA Code of Regulations, Title 4, Division 17, Chapter 1.
Economic & Planning Systems, Inc.
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
Operating Costs for Rental Units —The analysis assumes that apartment operators incur
annual costs of $4,500 per unit for VLI and LI 60% units and about $6,000 for LI 80%,
Median, and Moderate units. EPS has assumed the LI 80%, Median, and Moderate income
units would be built by for -profit builders and subject to property taxes.
Affordability Gap Results
Table 2 shows the subsidies for construction of for -rent apartments for VLI through moderate -
income households. The affordability gap ranges from $0 for moderate -income households (i.e.,
moderate -income households can afford home prices adequate to cover the costs of
construction) to roughly $164,000 for VLI households. The affordability gap for VLI households
is much higher because these households have significantly less income available for housing
costs, while construction costs remain essentially the same.
The affordability gaps by income level then were used to calculate the justified nexus -based fees
by multiplying this required subsidy by the number of units required to house workers providing
goods and services to new market -rate housing development. This methodology is discussed in
more detail in the following chapter.
Economic & Planning Systems, Inc. 10 ,,...,m,:,,, .,.,:,.. a ...,,,.,..
Z. DEMAND -BASED NEXUS FEE CALCULATION
The maximum supportable nexus fees are based on both the affordability gap, calculated in the
previous chapter, and the estimated impact that new market -rate 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 units 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
determined the minimum income required to rent a market -rate apartment at various bedroom
sizes, as shown in Table 3. Average rents for various apartment sizes (studio, and 1, 2, and 3
bedrooms) are based on a survey of rental rates for six of the most recent market -rate
multifamily projects developed in Palm Desert. 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 Riverside County Housing Authority utility
allowance table, 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 $46,000 for a studio apartment to roughly $85,000 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 Palm
Desert are "net new" households to the City. To assume otherwise —for instance, that only those
buyers or renters of new housing units relocating from outside Palm Desert should be counted in
the impact analysis —would require assuming that the homes left by those households
Economic & Planning Systems, Inc. 11
Table 3
Required Income by Unit Type- Market -Rate Rental Apartments
Palm Desert Housing Impact Fee, EPS #141134
Apartment Size
Average
Rent [1]
Utility
Allowance [21
Required Income by Unit Type
Annual Rent
Subtotal Rent and Utility
and Utilities Expenditures
Minimum
Annual Household
Income Required [31
Formula
A
B
C= A-B
D=C'12
E= D/30%
Studio
$975
$165
$1,140
$13,680
$45,600
1-Bedroom
$1,200
$175
$1,375
S16,500
$55,000
2-Bedroom
$1,400
$200
$1,600
$19,200
$64,000
3-Bedroom
$1,900
$229
$2,129
$25,548
$85,160
[1] Based on average rents for available multifamily rentals in each unit size in early January 2015 within the City of Palm Desert
Properties include The Vineyards. Canterra, Mirabella, Ariana, The Regent, and The Enclave.
[2] Based on Housing Authority of Riverside County Allowances for Tenant Furnished Utilities and other Services assuming an
apartment using natural gas for heating and cooking
131 Assumes that a maximum of 30 % of annual household income is dedicated to utility and rent expenditures.
Sources ForRent com, U S Department of Housing and Urban Development, Economic & Planning Systems, Inc
Economic B Planning Systems. Inc 2152015 P 041000s', 141134PalmDeserllModeP141134renfmodel020515 xlsx
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
relocating within Palm Desert would be demolished or left vacant in perpetuity. This would only
be the case were the City experiencing a significant loss of population and housing inventory, as
has occurred, for instance, in Detroit. Palm Desert has not experienced such declines.
The Consumer Expenditure Survey from the United States Bureau of Labor Statistics provides
data for households at a variety of income levels, detailing the amounts that typical households
spend on things like "Food at Home," "Apparel and Services," and "Vehicle Maintenance and
Repairs." Interestingly, household expenditures by category are not uniformly proportional to
household income levels. For example, households earning around $55,000 (adequate to rent a
new one -bedroom apartment) spend roughly 12.3 percent of their income on food and drink (at
home and eating out), while households earning $85,000 who can afford to rent a new three -
bedroom apartment spend only about 10.5 percent of their income on these items. Because of
these and other differences in proportionate spending, the expenditure profile varies at different
income levels.
The household's typical expenditures were converted to the number of jobs created by their
spending. The first step in this process is to determine how much of an industry's gross receipts
are used to pay wages and employee compensation. EPS relied on data from the Economic
Census,3 which provides employment, gross sales, and payroll data by industry for Riverside
County. In certain instances, Riverside County data was not available for every Economic
Census industry —in those cases, EPS relied on statewide Economic Census data for that
industry.
To link the Economic Census data and the Consumer Expenditure Survey data, EPS made
determinations as to the industries involved with expenditures in various categories. For
example, purchases in the Consumer Expenditure Survey's "Food at Home" category would likely
involve the Economic Census's "Food & Beverage Stores" industry, where gross receipts were
nearly 10 times the employees' wages. By contrast, purchases in the Consumer Expenditure
Survey's "Entertainment Fees and Admissions" category were attributed to the Economic Census'
"Arts, Entertainment, and Recreation" industry, where gross receipts are only about 4 times the
employees' wages. Where more than one Economic Census category was attributable to a
Consumer Expenditure Survey category, EPS estimated the proportion of expenditures
associated with each Economic Census category.
After determining the amount of the household's expenditures that were used for employee
wages, an estimation of the number of employees those aggregate wages represent is required.
EPS calculated the number of workers supported by that spending using the average wage per
worker (also from the 2007 Economic Census). These wages ranged from a low of roughly
3 Note that the Consumer Expenditure Survey data is based on information current as of 2013 and
data from the Economic Census was published in 2007, the most recent year for which comprehensive
regional data is available at the time of this publication. Because the data sources were from different
years, EPS converted the 2013 expenditures to 2007 dollars using the Consumer Price Index (CPI) for
the Riverside -San Bernardino -Ontario Statistical Area (MSA) from the Bureau of Labor Statistics.
Economic & Planning Systems, Inc. 13 ..m ..-,-..,,,,,ow,.,,.. 1"..
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
$14,000 per year for workers in the food services industry to a high of roughly $85,000 average
salary for legal services.°
This methodology recognizes that a range of occupations and incomes exist in a given industry
sector. For instance, the methodology used to generate Tables A-1 to A-4 in Appendix A
distinguishes between the typical incomes of workers in different types of retail stores (e.g.,
"food and beverage stores" versus "general merchandise stores"), rather than assuming all retail
sector workers earn the same income. However, the average wage is used for each sub-
category of industry employment and represents a reasonable proxy for the range of incomes in
that group: while some employees will have higher wages and require lower subsidies, others
will have lower incomes and require higher subsidies. Using the average approximates the total
housing subsidy needed by workers in that industry.
To calculate the number of households supported by the expenditures of market -rate housing
units, EPS estimated the employees' household formation rates. Importantly, employees
generated from the increase in housing units do not all form households; some employees, in the
retail and food services industries in particular, are young workers and do not form households.
Data from the Bureau of Labor Statistics indicates that 12.5 percent of retail/restaurant workers
are age 16-19, but an average of only 1.9 percent of workers in other industries. EPS applied
these discounts to household formation to get a more accurate calculation of households formed
by the employees and the average total incomes of those households.
To get the overall households' income rather than the individual workers', the wages of workers
forming households were multiplied by the average of approximately 1.52 workers per working
household in Palm Desert.5 This assumption implies the workers in a given household will have
roughly equivalent pay per hour. While certainly there will often be some variation in wages per
employee within a household, on average this assumption is reasonable because it implies
comparable levels of education and training among all workers in a household. The average
household incomes then are allocated to various income categories to estimate the number of
affordable housing units demanded in each income category (VLI, LI, Median, and moderate -
income).
4 Note that the average salary reported for legal services reflects the full range of workers employed
by that industry sector, including administrative staff and entry-level employees, as well as the
attorneys.
5 Workers per working household based on American Community Survey (ACS) Census data current
as of January 2015. The average workers per working household estimate is calculated by taking the
total number of people in the labor force and dividing it by the number of households with earnings.
This methodology seeks to provide a conservative estimate of household formation by excluding
households without workers or earnings (such as those with retired persons).
Economic & Planning Systems, Inc. 14 ..,.,o.�,.,,,...,m,.,,
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
A simplified example of these calculations follows:
A. Number of Households (prototype project)
B. Average Household Income (in the project)
C. Aggregate Household Income (A x B)
D. Average Income Spent on Retail (Consumer Expenditure Survey)
E. Aggregate Retail Spending (A x D)
F. Retail Gross Receipts: Payroll Ratio (Economic Census)
G. Estimated Retail Payroll (E _ F)
H. Average Retail Wage (Economic Census)
I. Estimated Total Retail Jobs (G _ H)
J. Percent Age 20+ (Bureau of Labor Statistics)
K. Total Retail Workers Forming Households
J. Average Workers/Household (Census Data)
K. Estimated Households Created (I _ J)
L. Average Household Income (H x J)
M. Income Category (HCD Income Standards)
1,000
$75,000
$75 million
$20,000
$20 million
10:1
$2 million
$20,000
100
87.5%
88
1.52
58
$30,400
LI 60%
In this simplified example, 1,000 new market -rate apartments rented to households earning
$75,000 per year would create demand for 58 housing units for retail workers' households
typically earning less than 60 percent of AMI. Actual calculations and impact distinctions by type
of household expenditure for various rental unit sizes are shown in the series of tables presented
in Appendix A.
Demand for Public -Sector Workers
In addition to the jobs created by the spending of the new market -rate households, this analysis
also aims to evaluate the number of public -sector employees generated by the public service
demands of new market -rate households. Rather than a comprehensive computation of public -
sector employment, the analysis aims to be conservative by sampling only certain public -sector
jobs (e.g., teachers and transportation providers) that are expected to grow in proportionate
measure to household growth.
Data from the 2013 Occupational Employment Survey for the Riverside -San Bernardino -Ontario
MSA was used to determine the number of these public -sector employees needed to serve new
market -rate development, and the average annual wage among each selected public -sector job
type. EPS reviewed the data and sampled occupations that were public sector -related, as shown
in Table A-5 in Appendix A.
Based on the ratio of the selected public -sector jobs to the total households in the MSA, EPS
estimates that approximately 62 government jobs or 41 households with a government
employee are required per 1,000 total households. These figures are conservative (i.e., low)
because numerous types of public -sector jobs are not included in this analysis (such as federal
postal workers, County health and human services workers, etc.). Also, please note that EPS
has no basis to distinguish differences in the number of public -sector workers demanded by
households based on different income levels or in different sizes of units, so the same numbers
of public -sector jobs are assumed to be generated by units of all sizes and prices.
Economic & Planning Systems, Inc. 15
Nexus -Based Affordable Housing Fee Analysis for Rental Housing
04102115
Combined Demand for Income -Qualified Workers
The total number of income -qualified households required to support the expenditure and public -
sector service needs of new market -rate units were determined based on the affordable housing
income limits from HUD for a 3-person household. Table 4 summarizes the HUD income limits
used to compute the total number of income -qualified households generated by construction of
market -rate units.6 The numbers of income -qualified households required to provide goods and
services to new housing units are detailed in Appendix B.
The nexus methodology used herein computes the total number of income -qualified households
generated by market -rate units and calculates the impact fee based on the estimated cost to
subsidize the production of units to meet that affordable housing demand. This methodology
does not suggest that all lower income service workers serving City residents reside in the City,
but it does assume that new development should mitigate for the new affordable housing
demand it creates.
Fee Calculation
The affordability gap analysis quantifies the subsidy required to construct affordable housing at
various income levels (VLI, LI, Median, etc.). Analysis of consumer expenditures that rely on
lower wage workers provides an estimate of the total number of income -qualified households
generated by new for -rent units. Then for each category of market -rate units, the nexus -based
fee is calculated by applying the total number of income -qualified households generated to the
affordability gap computed for each affordable household income level. The analysis provides
the maximum supportable nexus -based fees for new housing development in the City of Palm
Desert.
Tables 5 through 8 show the impact fee calculation by number of bedrooms for rental units.
The total impact fees required for a representative project of 100 units is calculated by
multiplying the number of affordable units required per income level by the cost of subsidizing
such housing. All income -qualified households are assumed to be housed in multifamily units
and the subsidies needed are calculated as the affordability gaps shown in Table 2. The
resulting maximum impact fee for market -rate rental units ranges from approximately $12,000
for a studio apartment to roughly $21,000 for a 3-bedroom apartment.
6 To correspond to the available data regarding employee wages, the 2007 Riverside County
affordable housing income limits from HUD and HCD were used to determine the number of income -
qualified households, based on household expenditures, while 2013 income limits were used for
public -sector employment.
Economic & Planning Systems, Inc. 16
Table 4
HUD Income Limits
Palm Desert Housing Impact Fee, EPS #141134
2007
2013
2014
Percentage of
Max Income Threshold
Max Income Threshold
Max Income Threshold
Affordability Category
County Median
3-person household
3-person household
3-person household
Very Low Income (LI) - 50%
31 % - 50%
$26,650
$28.700
$27,350
Low Income (LI) - 60%
51 % - 60%
$31,980
$34,440
$32.820
Low Income (LI) - 80%
61 % - 80%
$42.600
$45.900
$43,700
Median Income (Med)
81 % - 100%
$53,300
$57,400
$54,700
Moderate Income (Mod)
101 % - 120%
$63,960
$68.880
$65,640
Above Moderate Income (Above Mod)
120%+
'Note. Data for Riverside -San Bernardino- Ontario, CA MSA
Sources US Department of Housing and Urban Development, California Department of Housing and Community Development. Economic 8 Planning Systems. Inc
Ecmom,c d Plwn,nq Syvoms, Inc 21-W015 P1141000si 141134PalmDowrAModcl114/13*oaf dd020515 xi=
Table 5
Maximum Impact Fee Calculations — Studio
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total In -Lieu Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C = A - B) (D = C / 100)
Affordable Units - Very Low Income (50%)
4.1
$163.873
$678,298
Affordable Units - Low Income (60%)
1.1
$134,036
$153.471
Affordable Units - Low Income (80%)
2.6
$117,968
$306,101
Affordable Units - Median Income
1_3
$57,968
$74,445
Total
9.2
$1,212,314
m
(1] Subsidies are based on financing gap for rental units, as shown on Table 2.
Source. Economic 8 Planning Systems, Inc.
$12,123
Economc 6 Planning Systems. Inc 2/6,7015 P110000sV11134P.ImDe-,tYMocf r.1U131ren1mndeI020515 .ts.
Table 6
Maximum Impact Fee Calculations — 1 Bedroom
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total In -Lieu Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
5.2
$163,873
$854,638
Affordable Units - Low Income (60%)
1.3
$134,036
S176,458
Affordable Units - Low Income (80%)
3.0
$117,968
$351,532
Affordable Units - Median Income
1_4
$57,968
$82,409
Total
10.9
$1,465, 036
[1] Subsidies are based on financing gap for rental units, as shown on Table 2
Source Economic 8 Planning Systems, Inc
$14,650
Ecnno 6 Pl-r g $y,1e . Inc 2/812015 P 1141000s�. 141134Pu1mDe r iM.W 141134,-1—da1020515 415r
Table 7
Maximum Impact Fee Calculations — 2 Bedroom
Palm Desert dousing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total In -Lieu Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
5.7
$163,673
$931,400
Affordable Units - Low Income (60%)
1.4
$134,036
$185,351
Affordable Units - Low Income (80%)
3.2
$117.968
$373,284
Affordable Units - Median Income
1_5
$57,968
$87.202
Total
11.7
$1,577,237
o (11 Subsidies are based on financing gap for rental units. as shown on Table 2.
Source. Economic 8 Planning Systems, Inc.
$15,772
Econooec 6 Plam—g Systems. Inc 21WO15 P 1141000sN41134PaImDesed'•ModeA141134rentmodol020515 +Isr
Table 8
Maximum Impact Fee Calculations — 3 Bedroom
Palm Desert Housing Impact Fee, EPS #141134
Total In -Lieu Fee Required
Affordable Units
Financing Gap per
Per 100 Market -Rate Per Market Rate Unit
Required Per 100
Affordable Unit [1]
Units
Item
Market -Rate Units
(A)
(B)
(C = A - B) (D = C / 100)
Affordable Units - Very Low Income (50%)
7.6
$163,873
$1,240,652
Affordable Units - Low Income (60%)
1.8
$134,036
$246,633
Affordable Units - Low Income (80%)
4.2
$117,968
$496,701
Affordable Units - Median Income
1_9
S57,968
$112,944
Total
15.6
$2,096,930 $20,969
ti [1] Subsidies are based on financing gap for rental units, as shown on Table 2
Source. Economic & Planning Systems, Inc.
Econom¢ & Plammng Systems. Inc 2WO 15 P 1141000s114I 134Pa/mDesvrAModeAI 41134,ent—de1020515 rls,
APPENDICES:
Appendix A: Household Expenditures and
Employment Generation
Appendix B: Income Levels for Worker Households
APPENDIX A:
Household Expenditures and
Employment Generation
Table A-1 Estimated Average Annual Household Expenditures and
Associated Employment Generation - Studio .......................A-1
Table A-2 Estimated Average Annual Household Expenditures and
Associated Employment Generation - 1 Bedroom .................A-2
Table A-3 Estimated Average Annual Household Expenditures and
Associated Employment Generation - 2 Bedroom .................A-3
r
Table A-4 Estimated Average Annual Household Expenditures and
Associated Employment Generation - 3 Bedroom .................A-4
Table A-5 Representative Government Employment and Wages,
2013..............................................................................A-5
TaWi A-1
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A-4
Table A-5
Representative Government Employment and Wages, 2013 [1]
Palm Desert Housing Impact Fee, EPS #141134
Item
2013 Govt.
Employment
[2]
2013 MSA
Total HH [3]
Govt. Empl/
1,000
County HH
Govt.
Employee 2013 Avg.
HH [4] Wage [2]
Govt.
Employee
HH Income
[4]
2013 Income
Category [5]
Protective Service Occupations
33,990
1.297.675
26
17.3
$49,516
$83.715
Above Mod
Preschool Teachers, Except Special
Education
3.170
1,297.675
2
1.6
530,837
552,135
Med
Kindergarten Teachers, Except Special
Education
2,250
1.297,675
2
1 1
$68.240
$115,372
Above Mod
Elementary School Teachers, Except
Special Education
17.170
1.297,675
13
8.7
$73.835
$124,831
Above Mod
Middle School Teachers. Except Speaa
and Vocational Education
5.170
1,297,675
4
2.6
$75.221
$127,174
Above Mod
Secondary School Teachers, Except
Special and Vocational Education
6.370
1.297.675
5
3.2
$70,952
$119,957
Above Mod
D Special Education Teachers, Preschool,
v,
Kindergarten, and Elementary School
2.280
1,297.675
2
1.2
$79,187
$133.879
Above Mod
Special Education Teachers, Middle School
640
1.297.675
0
0.3
$69.495
$11.7,493
Above Mod
Special Education Teachers. Secondary
Scholl
930
1,297,675
1
0.5
$68.281
$115.441
Above Mod
Teachers and Instructors, All Other
2.610
1.297.675
2
1.3
$58,528
$98.952
Above Mod
Bus Divers, Transit and Intercity
1.020
1.297.675
1
0.5
$39,593
$66.939
Mod
Bus Drivers. School
4.710
1,297.675
4
2.4
$34,959
$59.104
Mod
Total
62
40.8
(1] Not a comprehensive list of government employment. Rather a sampling of government lobs for which employment is likely to be directly affected by
increases in local population.
(2] Government employment and wages based on 2013 Occupational Employment Statistics data for Riverside -San Bemardino-Ontano MSA.
(3) Riverside -San Bemardino-Ontano MSA figure from 2013 ACS Census data
[4] Assumes 1.52 workers per working household per 2009-2013 Census data
(5] See Table 4
Sources 2013 Occupational Employment Statistics. CA Employment Development Department, US Census. Economic d Planning Systems, Inc
Ecavvm6P°�Sy ,e - 2•r•20a v.:.:op..1.
APPENDIX B:
Income Levels for Worker Households
Table B-1 Household Generation per 1,000 Market Rate Units -
Studio............................................................................B-1
Table B-2 Household Generation per 1,000 Market Rate Units -
1 Bedroom...................................................................... B-2
Table B-3 Household Generation per 1,000 Market Rate Units -
2 Bedroom...................................................................... B-3
Table B-4 Household Generation per 1,000 Market Rate Units -
3 Bedroom......................................................................B-4
Table B-1
Household Generation per 1,000 Market Rate Units - Studio
Palm Desert Housing Impact Fee, EPS #141134
Total
Industry Employees HH [11 Very Low Low (60%) Low (80%) Med Mod Above Mod
Retail
Unspecified Retail
2
1
0
1
0
0
0
0
Food & Beverage Stores
17
10
0
0
10
0
0
0
Food Services and Drinking Places
49
29
29
0
0
0
0
0
Health and Personal Care Stores
3
2
0
0
0
2
0
0
General Merchandise
4
2
0
2
0
0
0
0
Furniture and Home Furnishings Stores
2
1
0
0
0
1
0
0
Building Material and Garden Equipment and Supplies Dealer
2
1
0
0
0
1
0
0
Electronics and Appliance Stores
7
4
0
4
0
0
0
0
Clothing and Clothing Accessories Stores
4
2
2
0
0
0
0
0
Motor Vehicle and Parts Dealers
6
3
0
0
0
0
0
3
Gasoline Stations
4
2
0
2
0
0
0
0
Sporting Goods, Hobby, and Musical Instrument Stores
3
2
2
0
0
0
0
0
Miscellaneous Store Retailers
4
2
0
2
0
0
0
0
Nonstore Retailers
0
0
0
0
0
0
0
0
Arts, Entertainment, & Recreation
3
2
0
0
2
0
0
0
MedicallHeahh
Ambulatory Health Care Services
2
1
0
0
0
0
0
1
General Medical and Surgical Hospitals
1
1
0
0
0
0
0
1
Nursing and Residential Care Facilities
4
3
0
0
3
0
0
0
Social Assistance
2
1
0
0
1
0
0
0
Services
Personal and Household Goods Repair and Maintenance
6
4
0
0
4
0
0
0
Services to Buildings and Dwellings
9
6
0
0
6
0
0
0
Waste Management and Remediation Services
2
2
0
0
0
0
0
2
Real Estate and Rental and Leasing
1
0
0
0
0
0
0
0
Personal Care Services
5
3
3
0
0
0
0
0
Dry Cleaning and Laundry Services
1
0
0
0
0
0
0
0
Auto Repair and Maintenance
7
5
0
0
0
5
0
0
Veterinary Services
1
1
0
0
0
1
0
0
Photographic Services
0
0
0
0
0
0
0
0
Educational Services
9
5
5
0
0
0
0
0
Accounting
2
1
0
0
0
1
0
0
Architectural Engineering. and Related
1
0
0
0
0
0
0
0
Specialized Design Services
1
0
0
0
0
0
0
0
Death Care Services
1
1
0
0
0
0
0
1
Legal Services
0
0
0
0
0
0
0
0
Government
U
41
4
4
9
Z
M
Total HH Generated Per 1,000 Market -Rate Units
226
139
41
11
26
13
3
45
% o/ Total Affordable Households
1
0
0
0
0
0
Total Income -Qualified HH Generated Per 100 Market -Rate Units 12:
4.1
1.1
26
1.3
0.3
0.0
(1 ] Assumes 1 69 workers per wdrker household based on the 2010 Census Includes a 12 5% discount for retail and 1 9% discount for other ,ndustnes to account for workers under age 20
[2] Exdudes above moderate -income households because these incomes are adequate to acquire market -rate housing
Spume Economic 8 Planninq Systems lrL
Ecu,nm��6 Purn.p5ryemf art L�YZf!'S P'.:�r(xAJa r1!!JIPymGe�MNWn''�: rJ4erNm Mro'JX)515 a�u
Table B-2
Household Generation per 1,000 Market Rate Units - 1 Bedroom
Palm Desert Housing Impact Fee, EPS 0141134
Industry Total Employees HH [1] Very Low Low (60%) Low (80%) Med Mod Above Med
Retail
Unspecified Retail
2
1
0
1
0
0
0
0
Food 8 Beverage Stores
18
11
0
0
11
0
0
0
Food Services and Drinking Places
59
35
35
0
0
0
0
0
Health and Personal Care Stores
3
2
0
0
0
2
0
0
Genera! Merchandise
4
2
0
2
0
0
0
0
Furniture and Home Furnishings Stores
3
2
0
0
0
2
0
0
Building Material and Garden Equipment and Supplies Dealer
2
1
0
0
0
1
0
0
Electronics and Appliance Stores
8
5
0
5
0
0
0
0
Clothing and Clothing Accessories Stores
4
2
2
0
0
0
0
0
Motor Vehicle and Parts Dealers
6
4
0
0
0
0
0
0
Gasoline Stations
4
2
0
2
0
0
0
0
Sporting Goods. Hobby, and Musical Instrument Stores
5
3
3
0
0
0
0
0
Miscellaneous Store Retailers
5
3
0
3
0
0
0
0
Nonstlre Retailers
1
0
0
0
0
0
0
0
Arts, Entertainment, 3 Recreation
4
3
0
0
3
0
0
0
Medical/Health
Ambulatory Health Care Services
3
2
0
0
0
0
0
0
General Medical and Surgical Hospitals
2
1
0
0
0
0
0
0
Nursing and Residential Care Facilities
6
4
0
0
4
0
0
0
Social Assistance
2
1
0
0
1
0
0
0
Services
Personal and Household Goods Repair and Maintenance
5
3
0
0
3
0
0
0
Services t0 Buildings and Dwellings
11
7
0
0
7
0
0
0
Waste Management and Remediation Services
2
2
0
0
0
0
0
0
Real Estate and Rental and Leasing
1
0
0
0
0
0
0
0
Personal Care Services
6
4
4
0
0
0
0
0
Dry Cleaning and Laundry Services
1
1
0
0
1
0
0
0
Auto Repair and Maintenance
8
5
0
0
0
5
0
0
Veterinary Services
1
1
0
0
0
1
0
0
Photographic Services
0
0
0
0
0
0
0
0
Educational Services
15
9
9
0
0
0
0
0
Accounting
2
1
0
0
0
1
0
0
Architectural. Engineering, and Related
1
0
0
0
0
0
0
0
Specialized Design Services
1
0
0
0
0
0
0
0
Death Care Services
1
1
0
0
0
0
0
0
Legal Services
0
0
0
0
0
0
0
0
Government
62
41
Q
0
Q
2
26
Total HH Generated Per 1,000 Market -Rate Units
258
158
52
13
30
14
3
36
Total Income -Qualified HH Generated Per 100 Market -Rate Units [2]
5
1
3
1
0
0
I' I Assumes 1 56 workers per worker household bawd on the 2011 ACS Census Includes a 12 5% discount for retad and 1 9% discount for other ,nduvnes to account for workers under age 20
(2) Excludes above moderale income householdsbecausetheso incomes are 9dequateto acquire market rate housing
5otime Economc 3 Planning Systems. Inc
Etonn+•r[PO�.nO Sr•Nma •�• )/510i5 v,r�/WOsi�ri:MPewOrrwrMr,rM r�rrN.mOnmNi:fl�tl rk.
Table B-3
Household Generation per 1,000 Market Rate Units - 2 Bedroom
Palm Desert Housing Impact Fee, EPS k141134
Total
Industry Employees HH [1] Very Low Low (60%) Low (80%) Mod Mod Above Med
Retail
Unspecified Retail
2
1
0
1
0
0
0
0
Food& Beverage Stores
18
10
0
0
10
0
0
0
Food Services and Drinking Places
62
36
36
0
0
0
0
0
Health and Personal Care Stores
3
2
0
0
0
2
0
0
General Merchandise
5
3
0
3
0
0
0
0
Furniture and Home Furnishings Stores
3
2
0
0
0
2
0
0
Building Material and Garden Equipment and Supplies Dealer
3
2
0
0
0
2
0
0
Electronics and Appliance Stores
8
5
0
5
0
0
0
0
Clothing and Clothing Accessories Stores
5
3
3
0
0
0
0
0
Motor Vehicle and Parts Dealers
7
4
0
0
0
0
0
0
Gasoline Stations
4
2
0
2
0
0
0
0
Sporting Goods. Hobby. and Musical Instrument Stores
5
3
3
0
0
0
0
0
Miscellaneous Store Retailers
5
3
0
3
0
0
0
0
Nonstore Retailers
1
0
0
0
0
0
0
0
Arts, Entertainment, & Recreation
5
3
0
0
3
0
0
0
Medical/Health
Ambulatory Health Care Services
3
2
0
0
0
0
0
0
General Medicai and Surgical Hospitals
2
1
0
0
0
0
0
0
Nursing and Residential Care Facilities
7
4
0
0
4
0
0
0
Social Assistance
3
2
0
0
2
0
0
0
Services
Personal and Household Goods Repair and Maintenance
7
4
0
0
4
0
0
0
Services to Buildings and Dwellings
11
7
0
0
7
0
0
0
Waste Management and Remediation Services
2
2
0
0
0
0
0
0
Real Estate and Rental and Leasing
1
0
0
0
0
0
0
0
Personal Care Services
6
4
4
0
0
0
0
0
Dry Cleaning and Laundry Services
1
1
0
0
1
0
0
0
Auto Repair and Maintenance
8
5
0
0
0
5
0
0
Veterinary Services
2
1
0
0
0
1
0
0
Photographic Services
0
0
0
0
0
0
0
0
Educational Services
18
11
11
0
0
0
0
0
Accounting
2
1
0
0
0
1
0
0
Architectural, Engineering. and Related
1
0
0
0
0
0
0
0
Specialized Design Services
1
0
0
0
0
0
0
0
Death Care Services
1
1
0
0
0
0
0
0
Legal Services
1
0
0
0
0
0
0
0
Government
§a
41
2
4
9
2
3
2�
Total HH Generated Per 1,000 Market -Rate Units
272
167
57
14
32
15
3
36
Total Income -Qualified HH Generated Per 100 Market -Rate Units [2]
6
1
3
2
0
0
11) Assumes 1 69 workers per worker household bawd on the 2010 Census Includes a 12 5% discount for retail and 1 9 % discount for other indusries to account for workers under age 20
121 Excludesabove moderate-inwme householdsbecausethese ,ncomes are adequateto acquire market rate housing
Source Economc a Planning Systems. Inc
Er,s�v.�.6 PYnnnp SvaMma mr :N1Gi3 P iafpppa:I��itaP�arb�a�n4•.per/iairJ�i�nmM�9:05 rS.m�
Table B-4
Household Generation per 1,000 Market Rate Units - 3 Bedroom
Palm Desert Housing Impact Fee, EPS #141134
Total
Industry Employees HH [1) Very Low Low (60%) Low (80%) Med Mod Above Med
Retail
Unspecified Retail
3
2
0
2
0
0
0 0
Food 8 Beverage Stores
24
14
0
0
14
0
0 0
Food Services and Drinking Places
83
48
48
0
0
0
0 0
Health and Personal Care Stores
4
2
0
0
0
2
0 0
General Merchandise
6
4
0
4
0
0
0 0
Furniture and Home Furnishings Stores
4
3
0
0
0
3
0 0
Building Material and Garden Equipment and Supplies Dealer
4
2
0
0
0
2
0 0
Electronics and Appliance Stores
10
6
0
6
0
0
0 0
Clothing and Clothing Accessories Stores
7
4
4
0
o
0
0 0
Motor Vehicle and Parts Dealers
9
5
0
0
0
0
0 0
Gasoline Stations
6
3
0
3
0
0
0 0
Sporting Goods. Hobby, and Musical Instrument Stores
7
4
4
0
0
0
0 0
Miscellaneous Store Retailers
7
4
0
4
0
0
0 0
Nonstore Retailers
1
0
0
0
0
0
0 0
Arts. Entertainment, & Recreation
7
4
0
0
4
0
0 0
MedicallHeahh
Ambulatory Health Care Services
3
2
0
0
0
0
0 0
General Medical and Surgical Hospitals
2
1
0
0
0
0
0 0
Nursing and Residential Care Facilities
9
6
0
0
6
0
0 0
Social Assistance
4
2
0
0
2
0
0 0
Services
Personal and Household Goods Repair and Maintenance
9
6
0
0
6
0
0 0
Services to Buildings and Dwellings
14
9
0
0
9
0
0 0
Waste Management and Remediation Services
3
2
0
0
0
0
0 0
Real Estate and Rental and Leasing
1
1
0
0
0
1
0 0
Personal Care Services
8
5
5
0
0
0
0 0
Dry Cleaning and Laundry Services
1
1
0
0
1
0
0 0
Auto Repair and Maintenance
11
7
0
0
0
7
0 0
Veterinary Services
2
1
0
0
0
1
0 0
Photographic Services
1
0
0
0
0
0
0 0
Educational Services
24
14
14
0
0
0
0 0
Accounting
3
2
0
0
0
2
0 0
Architectural, Engineering, and Related
1
1
0
0
0
0
0 0
Specialized Design Services
1
1
0
0
0
0
0 0
Death Care Services
1
1
0
0
0
0
0 0
Legal Services
1
0
0
0
0
0
0 0
Government
�2
41
0
Q
Q
2
Q x
Total HH Generated Per 1,000 Market -Rate Units
342
209
76
18
42
19
3 36
Total Income -Qualified HH Generated Per 100 Market -Rate Units [2:
8
2
4
2
0 0
(1 f Assumes 1 69 workers per worker household based on the 2010 Census Includes a 12 5% discount for retail and 1 9% discount for other industries to account for workers under age 20
(2) Excludes above mocerate-mcome households because these incomes are adequate to acquire market -rate housing
Soume Economic d Planning Systems Inc
Ecm.m��t Py,wySyre,ns irc HY)f)r] Pr�r(YIUn���r rJ,PnrnrDew.r�Mubl''.r�r r.Warym mb/tliV]r!./a.
EXHIBIT "B"
Report
Nexus -Based Affordable Housing
Fee Analysis for For -Sale Housing
Prepared for:
City of Palm Desert
Prepared by:
Economic & Planning Systems, Inc.
April 2, 2015
�C J'JG"t;i
Q,,? i'a";rr Plaza, >Jrte i i:0
Onni�nJ, LA 94612
510 6'41 c 19_" te'
510 "10 2080 Ll � EPS # 141134
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Table of Contents
EXECUTIVESUMMARY......................................................................................................1
1. AFFORDABILITY GAP ANALYSIS...................................................................................7
ProductType.......................................................................................................... 7
Development Cost Assumptions................................................................................ 9
RevenueAssumptions.............................................................................................. 9
Affordability Gap Results........................................................................................ 10
2. DEMAND -BASED NEXUS FEE CALCULATION................................................................... 11
Market -Rate Household Income Levels..................................................................... 11
Household Expenditures and Job Creation by Income Level ......................................... 11
Demand for Public -Sector Workers.......................................................................... 15
Combined Demand for Income -Qualified Workers ...................................................... 16
FeeCalculation..................................................................................................... 16
APPENDIX A: Household Expenditures and Employment Generation
APPENDIX B: Income Levels for Worker Households
List of Figures and Tables
Figure 1
Illustration of Nexus -Based Housing Fee Methodology ........................................... 2
Table 1
Summary of Housing Impact Fees or Unit Equivalents per Market -Rate Unit .............
6
Table 2
Financing Gap Analysis -- Rental Product Type ....................................................
8
Table 3
Income Required to Purchase Homes at Various Prices ........................................
12
Table 4
HUD Income Limits..................................................................
Table 5
Maximum Impact Fee Calculations -- $200,000 Unit ...........................................
18
Table 6
Maximum Impact Fee Calculations -- $400,000 Unit ...........................................
19
Table 7
Maximum Impact Fee Calculations -- $600,000 Unit ...........................................
20
Table 8
Maximum Impact Fee Calculations -- $800,000 Unit ...........................................
21
Table 9
Maximum Impact Fee Calculations -- $1,000,000 Unit ........................................
22
Table 10
Maximum Impact Fee Calculations -- $1,200,000 Unit ........................................
23
EXECUTIVE SUMMARY
Economic & Planning Systems, Inc. (EPS) was retained by the City of Palm Desert (City) to
conduct a nexus study analyzing the impact that development of market -rate for -sale housing
has on the demand for below -market -rate housing and, based on the results, to determine the
defensible nexus -based fee that could be charged to market -rate development.
The technical approach used herein quantifies the impacts that the introduction of market -rate
homes have on the local economy and the demand for additional affordable housing. As new
households are added to the community, local employment also will grow to provide the goods
and services required by the new households. To the extent that these new jobs do not pay
adequate wages for the employees to afford market -rate housing in the community, the new
households' spending is creating a need for affordable housing. A nexus -based affordable
housing fee is therefore based on the impact of the new market -rate homes on the demand for
affordable housing. The fee calculated in this study represents the maximum fee that may be
charged to new market -rate housing units to mitigate their impacts on the affordable housing
supply. Such fees are then used by the City to subsidize the production of new affordable units
for lower -income households not accommodated by market -rate projects.
Calculating the impact of market -rate development in the City on affordable housing needs, and
the fees needed to mitigate those impacts, involves three main analytical steps:
Step #1. Estimate the typical subsidy required to construct units affordable at various
income levels (the "affordability gap"). The analysis focuses on very -low, low-, and median -
income households.
Step #2. Determine the market -rate households' demand for goods and services, the jobs
created by that demand, and the affordable housing needs of workers in those jobs.
Step #3. Combine the affordability gap with the affordable housing demand projections to
compute the maximum supportable nexus -based affordable housing fees per market -rate
unit.
These technical steps are illustrated in Figure 1 and detailed in the body of this Report and the
attached Technical Appendices. The findings regarding each of these steps are presented below.
Economic & Planning Systems, Inc.
Figure 1
Illustration of Nexus -Based Housing Fee Methodology
If negative Subsidy
Required
Step #1
Affordability Gap Analysis Affordable Develo ment
(Subsidy Required to Construct Unit Value minus p equals Affordability
affordable Units) by Income Costs Gap
No Subsidy
If positive Required
Required Total Workers to
Step #2
Market Rate
Household
Household
Provide Goods and
Total Demand for
Affordable Housing Demand
g
Home Price
Income
Expenditures
by Category
Services by
Affordable Units for
Workers
(Generated by Market Rate Housing)
Level
Expenditure Category
Step #3 Affordabilit Demand for Maximum
Compute Impact Fee y multiplied Affordable Units for equals Supportable Nexus -
Gap p Gap by Workers Based Housing Fee
per Market Rate Unit (Subsidy Required) (per market rate unit) (per market rate unit)
Economic B Planning Systems. Inc 2/5/2015 P .1d10005 141134Pe11nyesert MWItlei f3e!orseremcaei0205' 5.Is+
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
1. The costs to construct affordable housing units affordable to many households
exceed those units' values based on the rents or prices that the households can
afford to pay. The subsidy required to construct affordable housing units in Palm
Desert ranges from roughly $58,000 for a Median Income household to $164,000
for a Very Low Income (VLI) household. Moderate Income households do not
appear to require subsidies, as affordable prices for such households appear able to
support the costs of construction.
An "affordability gap analysis" evaluates whether or not the costs to construct affordable
units exceed the values of units that are affordable to lower- and moderate -income
households. For each affordable housing income level (Very Low Income [VLI], Low Income
[LI], Median Income, and Moderate Income) this analysis estimates the subsidy required to
construct affordable housing units.
The affordability gap analysis assumes that the average affordable unit for all income levels
will be a 2-bedroom unit in a multifamily development. The estimated costs to construct the
prototypical affordable unit are based on published data sources (RS Means Cost Estimator)
indexed to Coachella Valley labor and materials costs, and have been vetted with developers
active in Coachella Valley. The costs of land acquisition are included in these development
cost calculations, and have been based on recent appraisals for residential land in Palm
Desert. For units that are eligible for non-competitive Low Income Housing Tax Credits
(4 percent tax credits), the value of those tax credits is deducted from the development
costs.
A household's ability to pay is estimated based on standard percentages of income available
for housing costs at each household income level. Income available for housing costs is then
converted into a monthly affordable rent and a capitalized unit value or an affordable
mortgage payment and supportable home price. This unit value is then compared to the
costs of development to determine the subsidy, if any, required to make the unit affordable
to each income level.
2. The demand for affordable housing generated by the expenditures of new
households in Palm Desert increases along with the market -rate home price (and
related buyer income). For example, a home that sells for $200,000 is estimated to
create demand for 0.1 affordable housing units requiring development subsidy,
while a unit that sells for $1.0 million creates demand for 0.356 affordable units.
A justified nexus fee is based on the total demand for affordable housing units generated by
construction of market -rate units. The link (or nexus) between market -rate housing and
increased demand for affordable housing is that residents of market -rate units demand goods
and services that rely on many wage earners (for example, retail sales clerks) who typically
cannot afford market -rate housing and thus require affordable housing.
Because more expensive housing units require buyers to have higher incomes, and higher
income households create more jobs through their spending, the nexus impacts and thus the
justified fees for for -sale units vary according to the price range of the market -rate units.
Nexus impacts and the justified fees for market -rate homes, therefore, vary based on home
price.
Economic & Planning Systems, Inc.
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
This analysis evaluates the demand for affordable housing generated by a range of home
prices. For each unit price, the demand -based nexus fee calculation involves the following
steps:
A. Market -Rate Household Income Levels. The required income levels of households
occupying new market -rate housing are derived based on the home price, assuming
standard housing cost expenses as a proportion of overall household income. For
example, a typical household buying a recently constructed market -rate unit for around
$400,000 would have an annual income of roughly $93,000, if they spent 30 percent of
their income on housing costs (mortgage, taxes, insurance, and HOA expenses).
B. Household Expenditures. Based on the household income computed in Step A,
Consumer Expenditure Survey data was used to evaluate the spending patterns of the
household. This analysis provides an estimate of how much the household spends on
specific categories of expenditures, such as "Food at Home." As the households' income
increases along with the price of the market -rate units, the total spending on goods and
services also increases. The Consumer Expenditure Survey also indicates that these
relationships are not linear (e.g., a household with twice the income does not necessarily
spend twice as much on food).
C. Job Creation and Worker Households. Having estimated the households' spending on
various items, that spending is then converted into an estimation of jobs created. For
each expenditure category, data regarding average worker wages and the ratio between
gross business receipts and wages were used to translate these household expenditures
into the total number of private -sector workers. For selected public -sector jobs that
typically grow in proportion to the local population size (e.g., teachers), the demand for
new workers was estimated by relating current levels of employment in such categories
to the current population and applying this ratio to future development. Because each
new worker does not represent an independent household (Palm Desert has an average
of 1.52 workers per working household), the total number of new households created is
somewhat less than the number of new jobs created. EPS has further adjusted the
household formation rates to reflect the expectation that a certain proportion of workers
will not form their own households, particularly those of younger ages.'
D. Worker Households by Income Category. Each worker household generated is
assigned to an income category —Very Low Income (VLI), Low Income (LI), Median,
Moderate, and Above Moderate —based on its estimated gross wages. This provides the
total number of households generated at each income level by construction of market -
rate units at various price points. The results indicate that residents of lower -priced units
generate fewer worker households requiring affordable housing than do residents of
higher -priced units.
1 BLS data indicates that 12.5 percent of retail/restaurant workers are age 16-19, but an average of
only 1.9 percent of workers in other industries. EPS has assumed that such young workers do not
form their own households.
Economic & Planning Systems, Inc. 4
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
These steps of the nexus -based fee calculation provide the total number of income -qualified
workers required to meet the needs for goods and services generated by market -rate
housing. The number of workers servicing market -rate housing (at each unit size) is then
converted to total income qualified households requiring affordable housing subsidy, and
each such household is assumed to require one housing unit.
3. This analysis calculates the fees that could be charged to fully mitigate the impact
that new market -rate housing has on Palm Desert's affordable housing demand at
various representative unit sizes. These fees could range from roughly $13,400 for
units sold at $200,000 to $58,400 for units sold at $1.2 million.
The nexus fee is calculated by applying the number of affordable units needed by income
qualified households to the affordability gap for each housing income category. This
calculation is made for several different market -rate home prices. Table 1 summarizes the
maximum nexus -based fees calculated for representative home prices. The City may also
consider whether to allow developers to provide affordable units within their projects, rather
than paying the nexus -based fee. Table 1 illustrates the proportions of affordable units that
correspond to the fee calculation and demands created by the market -rate units. For
instance, a project offering new homes in the $400,000 range would effectively mitigate the
demand being created by the market -rate units if it provided 0.17 affordable units (very -low,
low, and median income) for each market -rate unit. Please note that these maximum fees
are based on the nexus relationship of affordable housing demand created by new market -
rate units; EPS recommends that the City consider the feasibility impact of imposing fees
while setting any fee on new housing.
Economic & Planning Systems, Inc.
Table 1
Summary of Housing Impact Fees or Unit Equivalents per Market -Rate Unit
Palm Desert Housing Impact Fee, EPS #141134
Market -Rate
Unit Price
Maximum
Impact Fee
Percent
of Price
Total
Affordable Units
Low (50%)
Generated/100 Market -Rate Units
Low (60%) Low (80%)
Med (100%)
$200.000
$13,406
6.7%
10.0
4.8
1.2
2.7
1.3
$400,000
$22,950
5.7%
17.0
8.3
2.0
4.6
2.1
$600,000
$33,182
5.5%
24.4
12.3
2.5
6.8
2.8
$800,000
S39,551
4.9%
28.8
15.0
2.7
8.2
2.9
$1,000,000
$48,945
4.9%
35.6
18.6
3.3
10.2
3.6
S1,200,000
$58,390
4.9%
42.5
22.2
3.9
12.2
4.3
Source Economic 8 Planning Systems, Inc
Econ-c 6 Planning Systems, lnc 2/52015
1. AFFORDABILITY GAP ANALYSIS
For any nexus -based affordable housing fee calculation, it is necessary to estimate the subsidy
required to construct affordable housing units. Table 2 shows the subsidy needed to produce
multifamily housing that is affordable to very low-, low-, median- and moderate -income
households.
Product Type
This analysis assumes that new lower -income worker households would be housed in multifamily
developments in Palm Desert. Developable residential land in Palm Desert is assumed to be
approximately $200,000 per acre, based on an appraisal provided to the City by Lidgard and
Associates. EPS has assumed that these projects will have an average density of 20 units per
acre, and be built in wood -frame buildings of two to three stories with surface parking.
In order to determine the average household size of future affordable housing units, EPS used
two estimates from the Census Bureau. The American Community Survey indicates that the
average household size in Palm Desert is 2.05 people while the average family size is 2.75
people. The household size figure is significantly skewed by the high population of retirement -
age people in Palm Desert, where 46.1 percent of all households have one or more members
over age 65 (vs. only 24.9 percent statewide). The average family size is considered more
representative of worker households in Palm Desert, so the average household size for future
workers is assumed to round up to three people and EPS uses this assumption to determine the
applicable income limits for the new units. The assumption that the average worker household
requires a two -bedroom unit is expected to be conservative, as many working families in the
Coachella Valley have more than three members. By assuming an average two -bedroom unit
size rather than something larger, the costs of construction and subsidy for affordable housing
are expected to be minimized.
California State law (California Health and Safety Code Section 50052.5) assumes that a 2-
bedroom unit is occupied by a 3-person household, and this assumption is used in this analysis.
An affordable 2-bedroom unit in Palm Desert is assumed to have a gross size of about 1,200
square feet (accounting for shared lobbies, hallways, etc.) and a net size of 1,000 square feet —
both somewhat smaller than recently constructed market rate units, but similar to recent
affordable housing developments.
This analysis assumes that all new affordable housing would be rental units, rather than for -sale
units. This assumption reflects the fact that many households at lower incomes will not have
adequate wealth reserves for down payments on homeownership units, and may have further
difficulty absorbing the ongoing costs of homeownership (taxes, repairs, etc.) that they can
effectively avoid by renting their homes rather than buying.
Economic & Planning Systems, Inc. 7 . 1 m�....... ......�
Table 2
Financing Gap Analysis - Rental Product Type
Palm Desert Housing Impact Fee, EPS #141134
Item
Very Low
Income
(50% AMI)
2 Stories Multifamily With Surface Parkin
ow Low a Ian
Income Income Income
(60% AMI) (80% AMI) (100% AMI)
Moderate
Income
(120 % AMI)
Development Program Assumptions
Density/Acre
20
20
20
20
20
Average Gross Unit Size
1.200
1.200
1.200
1,200
1,200
Average Net Unit Size
1,000
1.000
1.000
1.000
1.000
Average Number of Bedrooms
2
2
2
2
2
Average Number of Persons per Household
3
3
3
3
3
Parking Spaces/Unit
2.0
2.0
2.0
2.0
2.0
Cost Assumptions [1]
Land/Acre (21
$200,000
$200.000
$200.000
$200.000
$200.000
Land%Unit
$10,000
$10.000
$10,000
$10.000
$10,000
Direct Construction Costs/Gross SF (31
$150
$150
$115
$115
$115
Direct Construction Costs/Unit
$180,000
$180.000
$138.000
S138.000
$138,000
Parking Construction Costs/Space
$2,500
$2.500
S2,500
$2,500
$2.500
Parking Construction Costs/Unit
S5,000
$5,000
S5.000
$5,000
$5.000
Subtotal, Direct Costs/Unit
S185,000
$185.000
$143.000
S143.000
$143.000
Indirect Costs as a % of Direct Costs (41
60%
60%
35 %
35%
3 5 %6
Indirect Costs/Unit
S111,000
$111,000
$50,050
$50,050
$50,050
Total Cost'Unit
$306.000
$306.000
$203,050
S203.050
$203.050
less Value of 4% Tax Credits (5]
-$118.400
-$118.400
$0
$0
$0
Net Cost/Unit
$187.600
$187.600
$203,050
$203.050
$203.050
Maximum Supported Unit Value
Household Income (6]
$27.350
$32.820
S43,700
$54.700
$65,640
Income Available for Housing Costs/Year [71
S8.205
$9.846
$13.110
$16.410
$19,692
less Utility Allowance [8]
$2.400
$2.400
$2,400
$2,400
$2.400
Remaining Income Available for Rent
$5.805
$7.446
$10.710
$14,010
$17,292
Operating Expenses per Unit/Year (91
$4,500
$4.500
$6,031
$6.031
$6.031
Net Operating Income
$1.305
$2.946
S4,680
$7,980
$11.262
Capitalization Rate [10)
5.5%
5.5%
5.5%
5.5%
5.5%
Total Supportable Unit Value
$23.727
$53.564
$85.082
$1.45.082
$204,755
Financing Gap
$163,873
$134.036
$117,968
$57.968
$0
[1) Costs for 50-60 % AMI units assume protects are built by non-profit builders.
and require prevailing wage.
For units at 80-120% of AMI. EPS has assumed lower development costs
consistent with for -profit builders' cost bases, and do not assume prevailing wage.
121 The land costs represent an expected price for developable residential land,
per a December 2014 appraisal provided to
the City of Palm Desert.
131 Includes costs for labor and materials.
(4] Includes costs for architecture and engineering: entNement and fees: project management. marketing, commissions. and general administration:
financing and charges. insurance.
and
contingency. Tax credit projects (at or below 60% AMI) are assumed to include developer fee at 14% of eligible
basis.
(5) 4 % Tax Credits are assumed t1 be received for units at 60% AMI or below
Value of tax credits is estimated at 40% of eligible
basis, which is all
direct and indirect costs but excludes land
(6] Based on HCD 2014 income limits for Riverside -San Bernardino -Ontario MSA.
(7) Assumes housing costs to be 30% of gross household income.
(8) Based on Housing Authority of Riverside County Allowances for Tenant Furnished
Utlities and other Services
assuming
an apartment using natural
gas for heating and cooking
191 Operating expenses include costs of tenants' utilities. Units for households
above 60% AMI are assumed
t7 be built as for -profit protects and thus subject to property tax
(10] Capitalization rate estimated by EPS based on recent apartment industry investment
standards.
Econp 6Plr,nrnry 5,We Inc 2'STC 15 8 P- 141000s'.141174P:dm,D,, l'Moan"1411341nsalenxx 1020515r11,
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
Development Cost Assumptions
Affordable housing development costs include land costs, direct costs (e.g. labor and materials),
indirect or "soft" costs (e.g., architecture, entitlement, marketing, etc.), and developer profit.
For rental projects, operating costs also must be incorporated into the analysis. Data from
recent Palm Desert development and recent land transactions have been combined with EPS's
information from local housing developers and published data sources to estimate development
cost assumptions for a prototypical project in Palm Desert. These cost assumptions are shown
on Table 2.
Projects offering units affordable to households at or below 60 percent of Area Median Income
(AMI) are typically eligible for "4%" Low Income Housing Tax Credits, which yield equity equal to
roughly 40 percent of the "eligible basis" of the development (all project costs excluding land
acquisition). Such projects are subject to prevailing wage requirements, however, which
increase their direct costs substantially. Also, the developer's fee for such projects is included as
an indirect cost, and can represent up to 15 percent of the eligible basis.2 These added costs
are more than offset by the value of the tax credit, however, so the net cost of development for
such units is estimated to be slightly less than the cost of developing units for households at 80
to 120 percent of AMI.
Revenue Assumptions
To calculate the values of the affordable units, assumptions must be made regarding the
applicable income level (moderate, median, LI, and VLI) 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 —The maximum allowable incomes used in each affordable housing income
category are consistent with those set forth by the federal government (U.S. Department of
Housing and Urban Development [HUD]): VLI = 50 percent of Area Median Income (AMI), LI
60% = 60 percent of AMI, LI 80% = 80 percent of AMI, Median Income = 100 percent of
AMI, and Moderate Income = 120 percent of AMI.
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 income qualified renter households shall spend 30 percent of their gross
income on housing costs, including rent and utilities.
• Other Costs Included for Rental Units —In addition to rent payments, the analysis assumes
$200 per month in utility costs based on the Riverside County Housing Authority utility
allowance table. This amount is subtracted from the total available housing costs (30
percent of household income) to determine the net amount available for rent payments.
2 Limited by Section 10327(c)(2) of the CA Code of Regulations, Title 4, Division 17, Chapter 1.
Economic & Planning Systems, Inc. 9 > .,.,a.,%,,,,,. m—. ".a.�.,.,.111..1�,o. ",... .
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
Operating Costs for Rental Units —The analysis assumes that apartment operators incur
annual costs of $4,500 per unit for VLI and LI 60% units and about $6,000 for LI 80%,
Median, and Moderate units. EPS has assumed the LI 80%, Median, and Moderate income
units would be built by for -profit builders and subject to property taxes.
Affordability Gap Results
Table 2 shows the subsidies for construction of for -rent apartments for VLI through moderate -
income households. The affordability gap ranges from $0 for moderate -income households (i.e.,
moderate -income households can afford home prices adequate to cover the costs of
construction) to roughly $164,000 for VLI households. The affordability gap for VLI households
is much higher because these households have significantly less income available for housing
costs, while construction costs remain essentially the same.
The affordability gaps by income level then were used to calculate the justified nexus -based fees
by multiplying this required subsidy by the number of units required to house workers providing
goods and services to new market -rate housing development. This methodology is discussed in
more detail in the following chapter.
Economic & Planning Systems, Inc. 10 .-1-1., "...—.
2. DEMAND -BASED NEXUS FEE CALCULATION
The maximum supportable nexus fees are based on both the affordability gap, calculated in the
previous chapter, and the estimated impact that new market -rate 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 units 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 homes have on the need for affordable housing, EPS
determined the minimum income required to purchase a newly constructed home at various
prices, as shown in Table 3. These calculations are predicated on the assumption that a
household will spend 30 percent of their income on housing costs (mortgage principal and
interest, taxes, insurance, and homeowner association dues). As shown, required household
incomes range from approximately $50,000 for a $200,000 unit to roughly $265,000 for a $1.2
million home.
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 Palm
Desert are "net new" households to the City. To assume otherwise —for instance, that only those
buyers or renters of new housing units relocating from outside Palm Desert should be counted in
the impact analysis —would require assuming that the homes left by those households
Economic & Planning Systems, Inc. 11 0-il. m...rt%.-;"",.-. ..,,l,,..-,.
Table 3
Income Required to Purchase Homes at Various Prices
Palm Desert Housing Impact Fee, EPS #141134
Annual
Annual
Annual
Total
Required
Assumed
Down
Beginning
Mortgage
Taxes
HOA+
Annual
Household
Base
Payment at
Mortgage
Payment
at 1.25%
Insurance
Housing
Income
Price
20%
Principal
[1]
[2]
Fees [3]
Costs
[4]
S200,000
$40,000
$160.000
$10,408
$2,500
$2,184
$15,092
$50,300
$400,000
$80,000
$320,000
$20,816
$5.000
$2,184
$28,000
S93,300
S600,000
$120,000
$480,000
$31.225
$7,500
$2,184
$40.909
$136,400
$800,000
$160,000
$640,000
S41,633
$10.000
$2,184
$53,817
$179.400
$1,000,000
S200,000
$800,000
$52,041
$12,500
$2,184
$66,725
$222,400
$1,200,000
$240.000
$960,000
S62,449
$15,000
$2,184
$79,633
$265,400
[1] Assumes 5.0 % interest for 30 years, reflecting higher than current rates but well below historical averages.
[2] Tax rate allows for some special assessments above 1 00 % basic tax rate
[31 A Redfin com survey of Palm Desert homes for sale on January 19, 2015 indicates an average HOA fee of $182/month for units listed at $550,000 or less.
Some of these projects may include insurance costs in the HOA fees, while others may not. To be conservative, EPS has assumed that the average HOA fee
does include insurance
141 Assumes households spend 30 % of total household income on total annual housing costs.
Source: Economic & Planning Systems, Inc.
Ecwom,c 6 Plammng Systems, Inc 21SQ015 P 114f000s,14ll34PalmDesertVModeAI41134rorxalemodo1020515 rlsr
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
relocating within Palm Desert would be demolished or left vacant in perpetuity. This would only
be the case were the City experiencing a significant loss of population and housing inventory, as
has occurred, for instance, in Detroit. Palm Desert has not experienced such declines.
The Consumer Expenditure Survey from the United States Bureau of Labor Statistics provides
data for households at a variety of income levels, detailing the amounts that typical households
spend on things like "Food at Home," "Apparel and Services," and "Vehicle Maintenance and
Repairs." Interestingly, household expenditures by category are not uniformly proportional to
household income levels. For example, households earning around $50,000 (adequate to
purchase a new $200,000 home) spend roughly 12.3 percent of their income on food and drink
(at home and eating out), while households earning $222,000 who can afford to buy a new $1.0
million home spend only about 7.0 percent of their income on these items. Because of these and
other differences in proportionate spending, the expenditure profile varies at different income
levels.
The household's typical expenditures were converted to the number of jobs created by their
spending. The first step in this process is to determine how much of an industry's gross receipts
are used to pay wages and employee compensation. EPS relied on data from the Economic
Census,3 which provides employment, gross sales, and payroll data by industry for Riverside
County. In certain instances, Riverside County data was not available for every Economic
Census industry —in those cases, EPS relied on statewide Economic Census data for that
industry.
To link the Economic Census data and the Consumer Expenditure Survey data, EPS made
determinations as to the industries involved with expenditures in various categories. For
example, purchases in the Consumer Expenditure Survey's "Food at Home" category would likely
involve the Economic Census's "Food & Beverage Stores" industry, where gross receipts were
nearly 10 times the employees' wages. By contrast, purchases in the Consumer Expenditure
Survey's "Entertainment Fees and Admissions" category were attributed to the Economic Census'
"Arts, Entertainment, and Recreation" industry, where gross receipts are only about four times
the employees' wages. Where more than one Economic Census category was attributable to a
Consumer Expenditure Survey category, EPS estimated the proportion of expenditures
associated with each Economic Census category.
After determining the amount of the household's expenditures that were used for employee
wages, an estimation of the number of employees those aggregate wages represent is required.
EPS calculated the number of workers supported by that spending using the average wage per
worker (also from the 2007 Economic Census). These wages ranged from a low of roughly
3 Note that the Consumer Expenditure Survey data is based on information current as of 2013 and
data from the Economic Census was published in 2007, the most recent year for which comprehensive
regional data is available at the time of this publication. Because the data sources were from different
years, EPS converted the 2013 expenditures to 2007 dollars using the Consumer Price Index (CPI) for
the Riverside -San Bernardino -Ontario Statistical Area (MSA) from the Bureau of Labor Statistics.
Economic & Planning Systems, Inc. 13
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
$14,000 per year for workers in the food services industry to a high of roughly $85,000 average
salary for legal services.4
This methodology recognizes that a range of occupations and incomes exist in a given industry
sector. For instance, the methodology used to generate Tables A-1 to A-6 in Appendix A
distinguishes between the typical incomes of workers in different types of retail stores (e.g.,
"food and beverage stores" versus "general merchandise stores"), rather than assuming all retail
sector workers earn the same income. However, the average wage is used for each sub-
category of industry employment and represents a reasonable proxy for the range of incomes in
that group: while some employees will have higher wages and require lower subsidies, others
will have lower incomes and require higher subsidies. Using the average approximates the total
housing subsidy needed by workers in that industry.
To calculate the number of households supported by the expenditures of market -rate housing
units, EPS estimated the employees' household formation rates. Importantly, employees
generated from the increase in housing units do not all form households; some employees, in the
retail and food services industries in particular, are young workers and do not form households.
Data from the Bureau of Labor Statistics indicates that 12.5 percent of retail/restaurant workers
are age 16-19, but an average of only 1.9 percent of workers in other industries. EPS applied
these discounts to household formation to get a more accurate calculation of households formed
by the employees and the average total incomes of those households.
To get the overall households' income rather than the individual workers', the wages of workers
forming households were multiplied by the average of approximately 1.52 workers per working
household in Palm Desert.5 This assumption implies the workers in a given household will have
roughly equivalent pay per hour. While certainly there will often be some variation in wages per
employee within a household, on average this assumption is reasonable because it implies
comparable levels of education and training among all workers in a household. The average
household incomes then are allocated to various income categories to estimate the number of
affordable housing units demanded in each income category (VLI, LI, Median, and moderate -
income).
4 Note that the average salary reported for legal services reflects the full range of workers employed
by that industry sector, including administrative staff and entry-level employees, as well as the
attorneys.
5 Workers per working household based on American Community Survey (ACS) Census data current
as of January 2015. The average workers per working household estimate is calculated by taking the
total number of people in the labor force and dividing it by the number of households with earnings.
This methodology seeks to provide a conservative estimate of household formation by excluding
households without workers or earnings (such as those with retired persons).
Economic & Planning Systems, Inc. 14
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
A simplified example of these calculations follows:
A.
Number of Households (prototype project)
1,000
B.
Average Household Income (in the project)
$75,000
C.
Aggregate Household Income (A x B)
$75 million
D.
Average Income Spent on Retail (Consumer Expenditure Survey)
$20,000
E.
Aggregate Retail Spending (A x D)
$20 million
F.
Retail Gross Receipts: Payroll Ratio (Economic Census)
10:1
G.
Estimated Retail Payroll (E _ F)
$2 million
H.
Average Retail Wage (Economic Census)
$20,000
I.
Estimated Total Retail Jobs (G _ H)
100
J.
Percent Age 20+ (Bureau of Labor Statistics)
87.5%
K.
Total Retail Workers Forming Households
88
J.
Average Workers/Household (Census Data)
1.52
K.
Estimated Households Created (I _ J)
58
L.
Average Household Income (H x J)
$30,400
M.
Income Category (HCD Income Standards)
LI 60%
In this simplified example, 1,000 new market -rate homes sold to households earning $75,000
per year would create demand for 58 housing units for retail workers' households typically
earning less than 60 percent of AMI. Actual calculations and impact distinctions by type of
household expenditure for various home prices are shown in the series of tables presented in
Appendix A.
Demand for Public -Sector Workers
In addition to the jobs created by the spending of the new market -rate households, this analysis
also aims to evaluate the number of public -sector employees generated by the public service
demands of new market -rate households. Rather than a comprehensive computation of public -
sector employment, the analysis aims to be conservative by sampling only certain public -sector
jobs (e.g., teachers and transportation providers) that are expected to grow in proportionate
measure to household growth.
Data from the 2013 Occupational Employment Survey for the Riverside -San Bernardino -Ontario
MSA was used to determine the number of these public -sector employees needed to serve new
market -rate development, and the average annual wage among each selected public -sector job
type. EPS reviewed the data and sampled occupations that were public sector -related, as shown
in Table A-5 in Appendix A.
Based on the ratio of the selected public -sector jobs to the total households in the MSA, EPS
estimates that approximately 62 government jobs or 41 households with a government
employee are required per 1,000 total households. These figures are conservative (i.e., low)
because numerous types of public -sector jobs are not included in this analysis (such as federal
postal workers, County health and human services workers, etc.). Also, please note that EPS
has no basis to distinguish differences in the number of public -sector workers demanded by
households based on different income levels, so the same numbers of public -sector jobs are
assumed to be generated by units of all prices.
Economic & Planning Systems, Inc. 15
Nexus -Based Affordable Housing Fee Analysis for For -Sale Housing
04102115
Combined Demand for Income -Qualified Workers
The total number of income -qualified households required to support the expenditure and public -
sector service needs of new market -rate units were determined based on the affordable housing
income limits from HUD for a 3-person household. Table 4 summarizes the HUD income limits
used to compute the total number of income -qualified households generated by construction of
market -rate units.6 The numbers of income -qualified households required to provide goods and
services to new housing units at various prices are detailed in Appendix B.
The nexus methodology used herein computes the total number of income -qualified households
generated by market -rate units and calculates the impact fee based on the estimated cost to
subsidize the production of units to meet that affordable housing demand. This methodology
does not suggest that all lower income service workers serving City residents reside in the City,
but it does assume that new development should mitigate for the new affordable housing
demand it creates.
Fee Calculation
The affordability gap analysis quantifies the subsidy required to construct affordable housing at
various income levels (VLI, LI, Median, etc.). Analysis of consumer expenditures that rely on
lower wage workers provides an estimate of the total number of income -qualified households
generated by new for -sale units. Then for each category of market -rate units, the nexus -based
fee is calculated by applying the total number of income -qualified households generated to the
affordability gap computed for each affordable household income level. The analysis provides
the maximum supportable nexus -based fees for new housing development in the City of Palm
Desert.
Tables 5 through 10 show the impact fee calculation for different prices of homes. The total
impact fees required for a representative project of 100 units is calculated by multiplying the
number of affordable units required per income level by the cost of subsidizing such housing. All
income -qualified households are assumed to be housed in multifamily units and the subsidies
needed are calculated as the affordability gaps shown in Table 2. The resulting maximum
impact fee for market -rate rental units ranges from approximately $13,400 for homes sold at
$200,000 to roughly $58,400 for homes sold at $1.2 million.
6 To correspond to the available data regarding employee wages, the 2007 Riverside County
affordable housing income limits from HUD and HCD were used to determine the number of income -
qualified households, based on household expenditures, while 2013 income limits were used for
public -sector employment.
Economic & Planning Systems, Inc. 16 o...,e�,.,.,:,...;ma,. •w �.,.,:, w„o.:,.,.gym..
Table 4
HUD Income Limits
Palm Desert Housing Impact Fee, EPS #141134
2007
2013
2014
Percentage of
Max Income Threshold
Max Income Threshold
Max Income Threshold
Affordability Category
County Median
3-person household
3-person household
3-person household
Very Low Income (LI) - 50%
31 % - 50%
$26,650
$28,700
$27,350
Low Income (LI) - 60%
51 % - 60%
$31,980
$34,440
$32.820
Low Income (LI) - 80%
61 % - 80%
$42.600
$45,900
$43,700
Median Income (Med)
81%- 100%
$53,300
$57,400
$54,700
Moderate Income (Mod)
101 % - 120%
$63,960
$68.880
$65,640
Above Moderate Income (Above Mod)
120%+
'NoteData for Riverside -San Bernardino -Ontario, CA MSA
Sources US Department of Housing and Urban Development. California Department of Housing and Community Development, Economic 8 Planning Systems, Inc.
Ec—c d Pi—gq Sysemc. lnc 2/5'2015 P11410001141134Pa1mOeserfM.d.Af41f341a-le,,AgO2Obl5:I-
Table 5
Maximum Impact Fee Calculations — $200,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total Impact Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
4.8
$163,873
$781,605
Affordable Units - Low Income (60%)
1.2
$134,036
$161,379
Affordable Units - Low Income (80%)
2.7
$117,968
$321,492
Affordable Units - Median Income
1_3
$57,968
$76,165
Total
10.0
S 1.340,640
m [1) Subsidies are based on financing gap for rental units, as shown on Table 2.
Source: Economic & Planning Systems, Inc
$13,406
Econw d PI--g Systems, Inc 2/84015 P 1141000sl 1e 1134Pa1mDes fr Modet.. 1411341ws 1l de1020515 x/sx
Table 6
Maximum Impact Fee Calculations — $400,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total Impact Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
8.3
$163,873
$1,357,807
Affordable Units - Low Income (60%)
2.0
$134,036
$270,207
Affordable Units - Low Income (80%)
4.6
$117,968
$544,178
Affordable Units - Median Income
2_1
$57,968
$122,847
Total
17.0
$2, 295, 039
[11 Subsidies are based on financing gap for rental units, as shown on Table 2.
Source Economic & Planning Systems, Inc
$22,950
Econom,c & Plnm,ng Systems. Inc 21WO 15 P 1141000s' 141134PelmDeserllM.d.AY41134/orselemode1020515 Is.
Table 7
Maximum Impact Fee Calculations — $600,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total Impact Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
12.3
$163,873
$2,015.437
Affordable Units - Low Income (60%)
2.5
$134.036
$340,053
Affordable Units - Low Income (80%)
6.8
$117,968
$802,698
Affordable Units - Median Income
2_8
$57,968
$160,058
Total
24.4
S3,318,246
N
O
[1] Subsidies are based on financing gap for rental units, as shown on Table 2.
Source. Economic & Planning Systems, Inc
$33,182
Economm & PI —mg Systems. Inc 21WO15 P-!141000s;141/34PalmDese,f•ModeE1d1134lorselon od,1020515 rlsr
Table 8
Maximum Impact Fee Calculations — $800,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total Impact Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
15.0
$163,873
$2,456,571
Affordable Units - Low Income (60%)
2.7
$134,036
$357,010
Affordable Units - Low Income (80%)
8.2
$117,968
$971,179
Affordable Units - Median Income
2_9
$57,968
$170,312
Total
28.8
$3, 955.072
1J
[1] Subsidies are based on financing gap for rental units, as shown on Table 2
Source Economic & Planning Systems, Inc
$39,551
Econom,c & PI-nn,g Systems, Inc 2/d2015 P 1141000s1141134PaImDeseH Made5141134/ws Il de1020515 rlsr
Table 9
Maximum Impact Fee Calculations — $1,000,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total Impact Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
18.6
$163,873
$3,045,381
Affordable Units - Low Income (60%)
3.3
$134.036
$436,264
Affordable Units - Low Income (80%)
10.2
$117,968
$1,203.958
Affordable Units - Median Income
3_6
$57,968
$208,894
Total
35.6
$4.894,497
N
N
[1] Subsidies are based on financing gap for rental units. as shown on Table 2.
Source. Economic 8 Planning Systems, Inc.
$48,945
Ec000mc 6 Planning Systems, Inc 2/0/2015 P 1141000s!.141134PalmOesertlModeA..1411341asalemode1020515 xlsx
Table 10
Maximum Impact Fee Calculations — $1,200,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Item
Affordable Units
Required Per 100
Market -Rate Units
(A)
Total Impact Fee Required
Financing Gap per Per 100 Market -Rate Per Market Rate Unit
Affordable Unit [1] Units
(B) (C=A-B) (D=C/100)
Affordable Units - Very Low Income (50%)
22.2
$163.873
$3,634,191
Affordable Units - Low Income (60%)
3.9
$134,036
$520,613
Affordable Units - Low Income (80%)
12.2
$117,968
$1.436,738
Affordable Units - Median Income
4_3
$57,968
$247,477
Total
42.5
$5,839,019
N
W
[1 ] Subsidies are based on financing gap for rental units, as shown on Table 2.
Source. Economic 8 Planning Systems, Inc
$58,390
Econo 6 Pl—n g Systems. Inc 2/6/2015 P 114 lOOOsll4l l34PalmDeserf$Mode111411341wwlem de1020515 xlsx
APPENDICES:
Appendix A: Household Expenditures and
Employment Generation
Appendix B: Income Levels for Worker Households
APPENDIX A:
Household Expenditures and
Employment Generation
Table A-1 Estimated Average Annual Household Expenditures and
Associated Employment Generation - $200,000 Unit ............A-1
Table A-2 Estimated Average Annual Household Expenditures and
Associated Employment Generation - $400,000 Unit ............A-2
Table A-3 Estimated Average Annual Household Expenditures and
Associated Employment Generation - $600,000 Unit ............A-3
Table A-4 Estimated Average Annual Household Expenditures and
Associated Employment Generation - $800,000 Unit ............A-4
Table A-5 Estimated Average Annual Household Expenditures and
Associated Employment Generation - $1,000,000 Unit .......... A-5
Table A-6 Estimated Average Annual Household Expenditures and
Associated Employment Generation - $1,200,000 Unit .......... A-6
Table A-7 Representative Government Employment and Wages,
2010............... ............................................................... A-7
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Table A-7
Representative Government Employment and Wages, 2010 [1]
Palm Desert Housing Impact Fee, EPS #141134
Item
2013 Govt.
Employment
[2]
2013 MSA
Total HH [3]
Govt. Empli
1,000
County HH
Govt.
Govt. Employee
Employee 2013 Avg. HH Income
HH [4] Wage [2] [4]
2013 Income
Category [5]
Protective Service Occupations
33.990
1.297.675
26
17.3
$49,516
$83.715
Above Mod
Preschool Teachers. Except Special
Education
3.170
1.297,675
2
1.6
$30.837
$52,135
Med
Kindergarten Teachers, Except Special
Education
2,250
1.297.675
2
1.1
$68,240
$115.372
Above Mod
Elementary Schooi Teaches, Except
Specal Education
17,170
1.297.675
13
8.7
$73,835
$124.831
Above Mod
Middle School Teachers, Except Special
and Vocational Education
5,170
1.297.675
4
2.6
575.221
$127.174
Above Mod
Secondary School Teachers, Except
Special and Vocational Education
6,370
1.297.675
5
32
$70,952
$119.957
Above Mod
Spec,ai Education Teachers. Preschool,
Kindergarten, and Elementary School
2.280
1.297,675
2
1.2
$79.187
$133.879
Above Mod
Special Education Teachers, Middle School
640
1.297.675
0
03
$69.495
$117,493
Above Mod
Special Education Teachers, Secondary
School
930
1,297.675
1
0.5
$68,281
$115,441
Above Mod
Teachers and Instructors. All Other
2.610
1,297.675
2
1.3
$58.528
$98.952
Above Mod
Bus Dnvers, Transit and Intercity
1,020
1,297,675
1
0.5
$39.593
$66.939
Mod
Bus Drivers, School
4,710
1,297.675
4
2A
$34,959
$59.104
Mod
Total
62
40.8
[1 ] Not a comprehensive list of government employment. Rather a sampling of government jobs for which employment is likely to be directly affected by
increases in local population.
[2] Government employment and wages based on 2013 Occupational Employment Statistics data for Riverside -San Bemardino-0ntano MSA.
[3] Riverside -San Bemardino-0ntano MSA figure from 2013 ACS Census data.
[4] Assumes 1 52 workers per working household per 2009-2013 Census data
[5] See Table 4.
Sources 2013 Occupational Employment Statistics, CA Employment Development Department. US Census. Economic 6 Planning Systems, Inc
E "a"..—"Srs1a' ,a i'si 5 1.111b i., —Jn..,n'Y ' r u1-1-10Y1^• —
APPENDIX B :
Income Levels for Worker Households
Table B-1 Household Generation per 1,000 Market Rate Units -
$200,000 Unit................................................................. B-1
Table B-2 Household Generation per 1,000 Market Rate Units -
$400,000 Unit.................................................................B-2
Table B-3 Household Generation per 1,000 Market Rate Units -
$600,000 Unit................................................................. B-3
Table B-4 Household Generation per 1,000 Market Rate Units -
$800,000 Unit.................................................................B-4
Table B-5 Household Generation per 1,000 Market Rate Units -
$1,000,000 Unit..............................................................B-5
Table B-6 Household Generation per 1,000 Market Rate Units -
$1,200,000 Unit..............................................................B-6
Table B-1
Household Generation per 1,000 Market Rate Units - $200,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Total
Above
Industry
Employees
HH [1j
Very Low Low (60 % )Low (80 % J
Med
Mod
Mod
Retail
Unspecified Retail
2
1
0
1
0
0
0
0
Food & Beverage Stores
17
10
0
0
10
0
0
0
Food Services and Drinking Places
54
32
32
0
0
0
0
0
Health and Personal Care Stores
2
2
0
0
0
2
0
0
General Merchandise
3
2
0
2
0
0
0
0
Furniture and Home Furnishings Stores
3
2
0
0
0
2
0
0
Building Material and Garden Equipment and Supplies Dealer
2
1
0
0
0
1
0
0
Electronics and Appliance Stores
7
4
0
4
0
0
0
0
Clothing and Clothing Accessories Stores
4
2
2
0
0
0
0
0
Motor Vehicle and Parts Dealers
6
3
0
0
0
0
3
0
Gasoline Stations
4
2
0
2
0
0
0
0
Sporting Goods, Hobby, and Musical Instrument Stores
4
2
2
0
0
0
0
0
Miscellaneous Store Retailers
4
2
0
2
0
0
0
0
Nonstore Retailers
1
0
0
0
0
0
0
0
Arts, Entertainment, & Recreation
4
2
0
0
2
0
0
0
Medical/Health
Ambulatory Health Care Services
2
2
0
0
0
0
0
2
General Medical and Surgical Hospitals
2
1
0
0
0
0
0
1
Nursing and Residential Care Facilities
6
4
0
0
4
0
0
0
Social Assistance
2
1
0
0
1
0
0
0
Services
Personal and Household Goods Repair and Maintenance
5
3
0
0
3
0
0
0
Services to Buildings and Dwellings
10
7
0
0
7
0
0
0
Waste Management and Remediation Services
2
1
0
0
0
0
0
1
Real Estate and Rental and Leasing
1
0
0
0
0
0
0
0
Personal Care Services
5
3
3
0
0
0
0
0
Dry Cleaning and Laundry Services
1
0
0
0
0
0
0
0
Auto Repair and Maintenance
7
5
0
0
0
5
0
0
Veterinary Services
1
1
0
0
0
1
0
0
Photographic Services
0
0
0
0
0
0
0
0
Educational Services
14
8
8
0
0
0
0
0
Accounting
2
1
0
0
0
1
0
0
Architectural, Engineering, and Related
1
0
0
0
0
0
0
0
Specialized Design Services
1
0
0
0
0
0
0
0
Death Care Services
1
1
0
0
0
0
1
0
Legal Services
0
0
0
0
0
0
0
0
Government
�2
41
0
0
0
2
36
Total HH Generated Per 1,000 Market -Rate Units
241
148
48
12
27
13
7
41
Total Income -Qualified HH Generated Per 100 Market -Rate Units
4.8
1
3
1
1
4
[1 ] Assumes 1.69 workers per worker household based on the 2010 Census Includes a 12 5 % discount for retail and 1.9 % discount
for other industries to account for workers under age 20.
(2] Excludes above moderate -income households because these incomes are adequate to acquire market -rate housing
Source. Economic & Planning Systems. Inc.
e'cmamc&%e gsystems 1n 21,2015 B-1 v.141000s 141134�aimDe n!Wn f N 1134ro.sWo..,od.ic205 f-vs,
Table B-2
Household Generation per 1,000 Market Rate Units - E400,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Industry
Total
Employees
HH[1)
Very Low Low (60Y)Low(80%)
Med
Mod
Above
Mod
Retail
Unspecified Retail
3
2
0
2
0
0
0
0
Food & Beverage Stores
26
15
0
0
15
0
0
0
Food Services and Drinking Places
91
53
53
0
0
0
0
0
Health and Personal Care Stores
4
2
0
0
0
2
0
0
General Merchandise
7
4
0
4
0
0
0
0
Furniture and Home Furnishings Stores
5
3
0
0
0
3
0
0
Building Material and Garden Equipment and Supplies Dealer
4
2
0
0
0
2
0
0
Electronics and Appliance Stores
11
7
0
7
0
0
0
0
Clothing and Clothing Accessories Stores
7
4
4
0
0
0
0
0
Motor Vehicle and Parts Dealers
10
6
0
0
0
0
6
0
Gasoline Stations
5
3
0
3
0
0
0
0
Sporting Goods. Hobby, and Musical Instrument Stores
7
4
4
0
0
0
0
0
Miscellaneous Store Retailers
8
5
0
5
0
0
0
0
Nonstore Retailers
1
0
0
0
0
0
0
0
Arts, Entertainment, & Recreation
7
4
0
0
4
0
0
0
Medical/Health
Ambulatory Health Care Services
4
2
0
0
0
0
0
2
General Medical and Surgical Hospitals
2
2
0
0
0
0
0
2
Nursing and Residential Care Facilities
10
6
0
0
6
0
0
0
Social Assistance
4
3
0
0
3
0
0
0
Services
Personal and Household Goods Repair and Maintenance
10
6
0
0
6
0
0
0
Services to Buildings and Dwellings
16
10
0
0
10
0
0
0
Waste Management and Remediation Services
4
2
0
0
0
0
0
2
Real Estate and Rental and Leasing
1
1
0
0
0
1
0
0
Personal Care Services
9
6
6
0
0
0
0
0
Dry Cleaning and Laundry Services
2
1
0
0
1
0
0
0
Auto Repair and Maintenance
12
8
0
0
0
8
0
0
Veterinary Services
2
1
0
0
0
1
0
0
Photographic Services
1
0
0
0
0
0
0
0
Educational Services
27
15
15
0
0
0
0
0
Accounting
3
2
0
0
0
2
0
0
Architectural, Engineering, and Related
1
1
0
0
0
0
0
1
Specialized Design Services
1
1
0
0
0
0
0
1
Death Care Services
2
1
0
0
0
0
1
0
Legal Services
1
1
0
0
0
0
0
1
Government
62
41
0
0
0
2
3
3366
Total HH Generated Per 1,000 Market -Rate Units
369
224
83
20
46
21
10
44
Total Income -Qualified HH Generated Per 100 Market -Rate Units
8
2
5
2
1
4
(1) Assumes 1.69 workers per worker household based on the 201 0 Census. Includes a 12.5 % discount for retail and 1.9 % discount for
other industries to account for workers under age 20
(2) Excludes above moderate -income households because these incomes are adequate to acquire market -rate housing
Source. Economic & Planning Systems, Inc.
F.cv.o & P—N Syetema. Inc VS2015 B-2 P1141000x'.141134PYmDeseMM/ ,f141134fosdemode1020515 U,
Table B-3
Household Generation per 1,000 Market Rate Units - $600,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Total Above
Industry Employees HH [1] Very Low Low (60%) Low (80%) Med Mod Mod
Retail
Unspecified Retail
5
3
0
3
0
0
0
0
Food & Beverage Stores
33
19
0
0
19
0
0
0
Food Services and Drinking Places
130
76
76
0
0
0
0
0
Health and Personal Care Stores
5
3
0
0
0
3
0
0
General Merchandise
9
5
0
5
0
0
0
0
Furniture and Home Furnishings Stores
7
4
0
0
0
4
0
0
Building Material and Garden Equipment and Supplies Dealer
5
3
0
0
0
3
0
0
Electronics and Appliance Stares
15
9
0
9
0
0
0
0
Clothing and Clothing Accessories Stores
9
5
5
0
0
0
0
0
Motor Vehicle and Parts Dealers
15
9
0
0
0
0
9
0
Gasoline Stations
6
4
0
4
0
0
0
0
Sporting Goods, Hobby, and Musical Instrument Stores
10
6
6
0
0
0
0
0
Miscellaneous Store Retailers
9
5
0
5
0
0
0
0
Nonstore Retailers
1
1
0
0
0
1
0
0
Arts, Entertainment, & Recreation
16
9
0
0
9
0
0
0
Medical/Health
Ambulatory Health Care Services
5
3
0
0
0
0
0
3
General Medical and Surgical Hospitals
3
2
0
0
0
0
0
2
Nursing and Residential Care Facilities
15
10
0
0
10
0
0
0
Social Assistance
8
5
0
0
5
0
0
0
Services
Personal and Household Goods Repair and Maintenance
14
9
0
0
9
0
0
0
Services to Buildings and Dwellings
22
14
0
0
14
0
0
0
Waste Management and Remediation Services
4
3
0
0
0
0
0
3
Real Estate and Rental and Leasing
2
1
0
0
0
1
0
0
Personal Care Services
13
9
9
0
0
0
0
0
Dry Cleaning and Laundry Services
2
1
0
0
1
0
0
0
Auto Repair and Maintenance
16
11
0
0
0
11
0
0
Veterinary Services
2
1
0
0
0
1
0
0
Photographic Services
1
1
0
0
1
0
0
0
Educational Services
47
27
27
0
0
0
0
0
Accounting
4
3
0
0
0
3
0
0
Architectural, Engineering, and Related
1
1
0
0
0
0
0
1
Specialized Design Services
1
1
0
0
0
0
0
1
Death Care Services
2
1
0
0
0
0
1
0
Legal Services
1
1
0
0
0
0
0
1
Government
¢2
41
0
0
Q
2
3
36
Total HH Generated Per 1,000 Market -Rate Units
501
304
123
25
68
28
13
47
Total Income -Qualified HH Generated Per 100 Market -Rate Units
12
3
7
3
1
5
[1 ] Assumes 1.69 workers per worker household based on the 2010 Census Includes a 12 5 % discount for retail and 1.9 % discount for
other industries to account for workers under age 20.
[2] Excludes above moderate -income households because these incomes are adequate to acquire market -rate housing.
Source Economic & Planning Systems, Inc.
Econom,c&Plan gS1Sm 1m 21S20!5 B_3 P 141000s-14113aP.-O-1lbde/N!134f.sv-e1020515 x(..
Table B-4
Household Generation per 1,000 Market Rate Units - $800,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Industry
Total
Employees
HH [11
Very Low Low (60 % )Low (80%)
Med
Mod
Above
Mod
Retail
Unspecified Retail
4
3
0
3
0
0
0
0
Food 8 Beve rage Stores
31
18
0
0
18
0
0
0
Food Services and Drinking Places
136
79
79
0
0
0
0
0
Health and Personal Care Stores
5
3
0
0
0
3
0
0
General Merchandise
10
6
0
6
0
0
0
0
Furniture and Horn a Furnishings Stores
8
5
0
0
0
5
0
0
Building Material and Garden Equipment and Supplies Dealer
6
3
0
0
0
3
0
0
Electronics and Appliance Stores
16
9
0
9
0
0
0
0
Clothing an d Clothing Accessories Stores
10
6
6
0
0
0
0
0
Motor Vehicle and Parts Dealers
1s
8
0
0
0
0
8
0
Gasoline Stations
5
3
0
3
0
0
0
0
Sporting Goods. Hobby, and Musical Instrument Stores
15
9
9
0
0
0
0
0
Miscellaneous Store Retailers
11
6
0
6
0
0
0
0
Nonstore Retailers
1
1
0
0
0
1
0
0
Arts, Entertainment, 8 Recreation
22
12
0
0
12
0
0
0
M edica ltHea Ith
Ambulatory Health Care Services
5
3
0
0
0
0
0
3
General Medical and Surgical Hospitals
3
2
0
0
0
0
0
2
Nursing and Residential Care Facilities
18
12
0
0
12
0
0
0
Social Assistance
12
8
0
0
8
0
0
0
Service s
Personal and Household Goods Repair and Maintenance
14
9
0
0
9
0
0
0
Services to Buildings and Dwellings
32
21
0
0
21
0
0
0
Waste Management and Remediation Services
4
3
0
0
0
0
0
3
Real Estate and Rental and Leasing
2
1
0
0
0
1
0
0
Personal Care Services
13
8
8
0
0
0
0
0
Dry Cleaning and Laundry Services
2
1
0
0
1
0
0
0
Auto Repair and Maintenance
16
11
0
0
0
11
0
0
Veterinary Services
2
2
0
0
0
2
0
0
Photographic Services
2
1
0
0
1
0
0
0
Educational Services
83
48
48
0
0
0
0
0
Accounting
5
3
0
0
0
3
0
0
Architectural, Engineering, and Related
1
1
0
0
0
0
0
1
Specialized Design Services
2
1
0
0
0
0
0
1
Death Care Services
2
2
0
0
0
0
2
0
Legal Services
1
1
0
0
0
0
0
1
Government
U
41
0
0
0
2
3
36
Total HH Generated Per 1,000 Market -Rate Units
576
348
150
27
82
29
13
47
Total Income -Qualified HH Generated Per 100 Market -Rate Units
15
3
8
3
1
5
(1] Assumes 1.69 workers per worker household based on the 2010 Census. Includes a 12.5% discount for retail and 1 9% discount for
other industries to account for workers under age 20
(21 Excludes above moderate -income households because these incomes are adequate to acquire market -rate housing
Source. Economic 8 Planning Systems. Inc
F,wn c d P1V Sete Ine 2/S^015 B_4 P 04100OV141134PamDeWe LMOder.1411341asai mWO(020515 visa
Table B-5
Household Generation per 1,000 Market Rate Units - $1,000,000 Unit
Palm Desert Housing Impact Fee, EPS #141134
Total
Industry Employees HH [11 Very Low Low (60 k) Low (80%) Med Mod Above Mod
Retail
Unspecified Retail
5
3
0
3
0
0
0 0
Food & Beverage Stores
38
22
0
0
22
0
0 0
Food Services and Drinking Places
168
98
98
0
0
0
0 0
Health and Persona! Care Stores
6
3
0
0
0
3
0 0
General Merchandise
12
7
0
7
0
0
0 0
Furniture and Home Furnishings Stores
10
6
0
0
0
6
0 0
Building Material and Garden Equipment and Supplies Dealer
7
4
0
0
0
4
0 0
Electronics and Appliance Stores
19
11
0
11
0
0
0 0
Clothing and Clothing Accessories Stores
12
7
7
0
0
0
0 0
Motor Vehicle and Parts Dealers
18
10
0
0
0
0
10 0
Gasoline Stations
7
4
0
4
0
0
0 0
Sporting Goods, Hobby, and Musical Instrument Stores
18
11
11
0
0
0
0 0
Miscellaneous Store Retailers
13
7
0
7
0
0
0 0
Nonstore Retailers
2
1
0
0
0
1
0 0
Arts, Entertainment, & Recreation
27
15
0
0
15
0
0 0
Medical/Health
Ambulatory Health Care Services
6
4
0
0
0
0
0 4
General Medical and Surgical Hospitals
4
3
0
0
0
0
0 3
Nursing and Resident:al Care Facilities
22
14
0
0
14
0
0 0
Social Assistance
15
10
0
0
10
0
0 0
Services
Personal and Household Goods Repair and Maintenance
18
11
0
0
11
0
0 0
Services to Builcings and Dwellings
40
26
0
0
26
0
0 0
Waste Management and Remediation Services
5
3
0
0
0
0
0 3
Real Estate and Rental and Leasing
2
1
0
0
0
1
0 0
Personal Care Services
16
10
10
0
0
0
0 0
Dry Cleaning and Laundry Services
3
2
0
0
2
0
0 0
Auto Repair and Maintenance
20
13
0
0
0
13
0 0
Vetennary Services
3
2
0
0
0
2
0 0
Photographic Services
2
2
0
0
2
0
0 0
Educational Services
103
60
60
0
0
0
0 0
Accounting
6
4
0
0
0
4
0 0
Architectural, Engineering, and Related
2
1
0
0
0
0
0 1
Specialized Design Services
2
1
0
0
0
0
0 1
Death Care Services
3
2
0
0
0
0
2 0
Legal Services
2
1
0
0
0
0
0 1
Government
62
41
0
0
0
2
3 36
Total HH Generated Per 1,000 Market -Rate Units
698
421
186
33
102
36
15 50
Total Income -Qualified HH Generated Per 100 Markel -Rate Units
19
3
10
4
2 5
(1 1 Assumes 1.69 workers per worker household based on the 2010 Census. Includes a 12.5 % discount for retail and 1.9 % discount for other industries
to account for workers under age 20
(2] Excludes above moderate -income households because these incomes are adequate to acquire market -rate housing.
Source Economic & Plannng Systems, Inc
E::--:aor:,,, ,vsnn.,.,.. r„, J'S 015 B-5 ar000rurruvasn�e.nxmnr.rarrw�.. �nacxsrs,rs.
Table B-6
Household Generation per 1,000 Market Rate Units - $1,200,000 Unit
Palm Desert Housing Impact Fee, EPS 9141134
Total
Industry Employees HH [11 Very Low Low (60%) Low (80%) Med Mod Above Mod
Retail
Unspecified Retail
7
4
0
4
0
0
0
0
Food & Beverage Stores
45
26
0
0
26
0
0
0
Food Services and Drinking Places
201
117
117
0
0
0
0
0
Health and Personal Care Stores
7
4
0
0
0
4
0
0
General Merchandise
15
8
0
8
0
0
0
0
Furniture and Home Furnishings Stores
12
7
0
0
0
7
0
0
Building Material and Garden Equipment and Supplies Dealer
8
5
0
0
0
5
0
0
Electronics and Appliance Stones
23
13
0
13
0
0
0
0
Clothing and Clothing Accessories Stores
14
8
8
0
0
0
0
0
Motor Vehicle and Parts Dealers
22
12
0
0
0
0
12
0
Gasoline Stations
8
5
0
5
0
0
0
0
Sporting Goods, Hobby, and Musical Instrument Stores
22
13
13
0
0
0
0
0
Miscellaneous Store Retailers
15
9
0
9
0
0
0
0
Nonstore Retailers
2
1
0
0
0
1
0
0
Arts, Entertainment, 3 Recreation
32
18
0
0
18
0
0
0
Medical/Health
Ambulatory Health Care Services
7
5
0
0
0
0
0
5
General Medical and Surgical Hospitals
5
3
0
0
0
0
0
3
Nursing and Residential Care Facilities
27
17
0
0
17
0
0
0
Social Assistance
18
12
0
0
12
0
0
0
Services
Personal and Household Goods Repair and Maintenance
21
14
0
0
14
0
0
0
Services to Buildings and Dwellings
47
31
0
0
31
0
0
0
Waste Management and Remediation Services
6
4
0
0
0
0
0
4
Real Estate and Rental and Leasing
2
2
0
0
0
2
0
0
Personal Care Services
19
12
12
0
0
0
0
0
Dry Cleaning and Laundry Services
3
2
0
0
2
0
0
0
Auto Repair and Maintenance
24
16
0
0
0
16
0
0
Veterinary Services
4
2
0
0
0
2
0
0
Photographic Services
3
2
0
0
2
0
0
0
Educational Services
124
71
71
0
0
0
0
0
Accounting
7
4
0
0
0
4
0
0
Architectural, Engineering, and Related
2
1
0
0
0
0
0
1
Specialized Design Services
2
1
0
0
0
0
0
1
Death Care Services
4
2
0
0
0
0
2
0
Legal Services
2
3
0
0
0
0
0
3
Government
62
41
0
0
0
2
3
36
Total HH Generated Per 1,000 Market -Rate Units
821
496
222
39
122
43
18
54
Total Income -Qualified HH Generated Per 100 Market -Rate Units
22
4
12
4
2
5
[11 Assumes 1.69 workers per worker household based on the 2010 Census. Includes a 12 5 % discount for retail and 1.9 % discount for other indusine:
to account for workers under age 20.
(21 Excludes above moderate -income households because these incomes are adequate to acquire market -rate housing.
Source Economic & Planrtng Systems. Inc
Er.-6P6i SysI- 1n 2/5,2015 B-6 P II1000a.lIf1JlPnlnbsffrn•M,w'W f�ffy,fp�yy,n.Hlw0i05f5+Is.
MIBIT "C"
MEMORANDUM
To: Lauri Aylaian, City of Palm Desert
From: Darin Smith and Martin Romo
Date: March 18, 2015
Subject: Implementation Considerations for Palm Desert Affordable
Housing Impact Fees; EPS # 141134
Economic & Planning Systems, Inc. (EPS) has been retained by the City
of Palm Desert to prepare nexus studies demonstrating the impact that
new market -rate housing production has on demand for affordable
�.` housing. The nexus studies have been provided under separate cover to
the City. This memorandum is intended to document some of the issues
the City may wish to consider in adopting a nexus -based impact fee on
new residential development.
Summary of Findings
This analysis has led EPS to the following findings:
1. Nexus -based affordable housing impact fees are uncommon
in the competitive market area surrounding Palm Desert.
None of the other cities in the Coachella Valley has a City-wide
impact fee program or even more traditional inclusionary zoning
program to address affordable housing needs. Only Palm Springs has
any such program at all —a fee that it applies only in a section of the
City. Similarly, affordable housing impact fees and inclusionary
zoning are uncommon throughout most of Riverside and San
Bernardino Counties. California jurisdictions that have adopted
nexus -based impact fees to date tend to be coastal cities or those in
significantly more costly housing markets, like the Bay Area.
2. The maximum impact fees calculated in the nexus studies
..,._
would represent a significant financial burden on new
O^cr.as Plaza, sw:, '4!0
housing construction. The maximum fees equate to $10 or greater
per square foot of housing development, while market -rate prices for
9C ter
most homes in Palm Desert have been roughly $217 per square foot.
Thus, the maximum fees represent about 5 percent or more of value
c'k^d
for most units in the City —a cost burden that likely would either
drive land values significantly downward or reduce developers'
interest and ability to finance and sell new housing in Palm Desert.
www.epsys.com
Memorandum March 18, 2015
Palm Desert Affordable Housing Fee Considerations Page 2
3. A fee between $2.00 and $4.00 per square foot would be more feasible in Palm
Desert. Fees at this level would represent a smaller impact on overall housing development
costs and a smaller reduction of land values and/or developer profit margins. Many other
jurisdictions have adopted fees well below the maximum levels calculated in the nexus
studies, and Palm Desert could take a similar approach.
4. Palm Desert could adopt a fee that varies according to the size of the new housing
unit. The affordable housing impact fees adopted in Sonoma County and Santa Rosa in
recent years are scaled to have a lower impact on smaller, less expensive units, and a higher
but still nexus -supported fee level for larger, more expensive units. Of the 13 jurisdictions
whose affordable housing impact fees EPS has reviewed for this assignment, Palm Desert's
housing market is most like those in Sonoma County and Santa Rosa (many modestly priced
homes but some luxury development as well), and Palm Desert may consider a graduated
fee schedule similar to those in Sonoma County and Santa Rosa. EPS believes that a fee set
at roughly 1 percent of unit value —which varies by unit size —would represent a marginal
change to local development economics and would not be disruptive to development activity.
Survey of Other Jurisdictions
In February 2015, EPS contacted each of the nine cities in the Coachella Valley to discuss their
current practices requiring new housing development to either provide income -restricted
affordable units within otherwise market -rate developments (traditional "inclusionary zoning") or
to pay either a fee in -lieu of inclusionary units or an impact fee based on a nexus study such as
that EPS has prepared for Palm Desert. None of the other jurisdictions currently has such
requirements Citywide. Only Palm Springs has any such program, whereby new housing
developments in the South Palm Canyon section of the City are required to pay a fee of $3,120
per unit that is then used to augment affordable housing subsidies in the City. EPS also
contacted several major jurisdictions elsewhere in Riverside and San Bernardino Counties and
found similar results —no standard practice of requiring affordable housing units or fees from
market -rate development. The results of this regional survey are shown on Table 1.
P: U 41000s U 4l l34PalTDesert�ReOoa 1141134_ /easmemo_ 031815. do
Memorandum
Palm Desert Affordable Housing Fee Considerations
Table 1 Affordable Housing Impact Fees in Region
March 18, 2015
Page 3
Jurisdiction
Fee Level
Riverside County
Coachella Valley
Cathedral City
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Coachella
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Desert Hot Springs
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Indian Wells
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Indio
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
La Quinta
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Palm Desert
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Palm Springs
Single Family homes built in the South Palm Canyon pay $3,120/unit.
Rancho Mirage
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Other Cities in County
Riverside
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Moreno Valley
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Perris
No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
San Bernardino County
San Bernardino No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Ontario No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Rancho Cucamonga No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Fontana No Affordable/Inclusionary Housing Fee Listed on Fee Schedule
Sources City website and staff: EPS
However, there are a number of California jurisdictions in which affordable housing impact fees
have been adopted in recent years. As shown on Table 2, these jurisdictions tend to be in
higher -priced markets such as coastal cities or in the San Francisco Bay Area. Inclusionary
zoning has been even more prevalent throughout California, with some 150 jurisdictions
requiring affordable units or in -lieu payments in a poll conducted in 2009.1
1 http://www.calruralhousing.orq/#!inclusionary-housing-database/clhn6
P:�141000s1141134PalinDesertlRepor[1141134, /easmemo. 031815.docx
Memorandum March 18, 2015
Palm Desert Affordable Housing Fee Considerations Page 4
Table 2 Summary of Nexus -Based Affordable Impact Fees in California Cities
City
Amount (/SF) Avg. Home Price'
Santa Rosa
$1.00 - $6.55
$450,800
Sonoma County
$2.16 - $7.45
$492,500
San Carlos
$2.38 - $28.57
$1,354,200
Cupertino2
$3.00
$1,613,600
West Hollywood
$11.97 - $25.67
$663,500
Walnut Creek
$15.00
$715,900
Mountain View
$17.00
$1,181,500
San Jose
$17.00
$744,100
Fremont
$19.50
$752,300
Carlsbad
$20.00
$699,800
Solana Beach
$25.28
$1,109,900
Berkeley
$28.00
$869,900
Santa Monica
$29.79
$1,139,300
Palm Desert TBD $329, 800
(1) Data from Zillow.com, 2/27/15
(2) A nexus study is in progress to update fee.
(3) This figure represents the City's current in -lieu fee; a nexus -
based impact fee is being studied for adoption.
Source: City websites and Staff; EPS
This survey reveals that Palm Desert would be unique in its competitive housing market area in
requiring affordable housing payments from market -rate development. It also reveals that, in
general, the level of the adopted impact fee is much higher in places with high housing costs
than in places with lower home values. Palm Desert's recent average housing prices have been
lower than any of those other jurisdictions that have implemented nexus -based impact fees.
Feasibility Considerations
The creation of a new fee of any sort is appropriately viewed against the prevailing market
conditions and development cost structure to determine whether such a fee can be absorbed by
development without having deleterious effects. If the fee is too high, the overall cost of
construction increases without necessarily having a positive impact on home sales prices or rent
rates. When costs increase but values stay constant, the result may be some combination of
reduced land values for landowners and/or reduced profit margins for developers. In either case,
the profit incentive to develop new market -rate housing may be diminished, and the overall
production of such housing can decrease. Below, EPS has evaluated the impact that impact fees
at various levels may have on overall development feasibility.
P:\1410005\141134Pd1mDesert\Repoli"141134_/easmemo 031815.docr
Memorandum
Palm Desert Affordable Housing Fee Considerations
Maximum Nexus Based Fees
March 18, 2015
Page 5
EPS's nexus studies have calculated the maximum fee levels associated with for -sale homes at
various prices and rental units of various types (1 BR, 2 BR, etc.). Some jurisdictions apply the
impact fees as a percentage of unit price or value, while others convert the fees to an amount
per square foot for more consistency with their practices regarding other fees (such as for parks
or transportation). Because EPS's maximum fees were based on unit pricing directly rather than
assumptions regarding unit square footages, it is appropriate to translate those maximum fees
into fees per square foot for easier comparison to some other jurisdictions.
EPS has reviewed the pricing of 132 newer homes (built after 1999) that have been sold in Palm
Desert between August 2014 and February 2015. The data demonstrate that home prices have
averaged $217 per square foot, but that the larger the units, the higher the average price per
square foot.
$600
$500
$400
$300
$200
$100
Average Home Price/SF for Palm Desert Units
Built after 1999 and Sold Aug. 2014-Feb. 2015
Source: Redfin.com
$217 $169
$545
$179 $187 $192 $256
_ ■ Avg $/SF i
Similarly, the data show that the average newer unit sold in Palm Desert was 2,263 square feet,
but that the lowest priced units averaged 1,452 square feet and the most expensive averaged
nearly 4,000 square feet.
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
Average Home SF by Price Range for Palm Desert Units Built
after 1999 and Sold Aug. 2014-Feb. 2015
Source: Redfin.com
21263 1,452 2,287 2,784
All Units $100-300K $300-500K $500-700K $700-900K 5900K+
P. `,141000sV 41134PalorDesea�Report� 141134- feasmemo- 031 R 15. oocr
Memorandum
Palm Desert Affordable Housing Fee Considerations
March 18, 2015
Page 6
Using these data representing pricing and sizes of Palm Desert's newer housing stock, EPS has
estimated the typical sale value for various sizes of units, and the maximum nexus -based fee
that would correspond to those unit sizes. Table 3 demonstrates that the maximum fees would
range from $9.24 to $12.38 per square foot for for -sale units.
Table 3 Maximum For -Sale Housing Impact Fees per Square Foot
Market -Rate Maximum Assumed Max Fee
Unit Price Impact Fee Sq. Ft. [1] per Sq. Ft
$200,000
$13,406
1,452
$9.24
$400,000
$22,950
2,287
$10.03
$600,000
$33,182
2,784
$11.92
$800,000
$39,551
3,208
$12.33
$1,000,000+
$48,945
3,952
$12.38
[1] Square footages based on recent home sales in Palm Desert
Sources: Redfin.com; Economic & Planning Systems, Inc.
For rental units, the maximum rental fees per square foot are even slightly higher, ranging from
$13.59 to over $20. Table 4 shows these calculations based on prevailing unit sizes for market -
rate apartments in several Palm Desert properties.
Table 4 Maximum Rental Housing Impact Fees per Square Foot
Market -Rate Maximum Assumed Max. Fee
Unit Size Impact Fee Sq. Ft. [1] per Sq. Ft.
Studio
$12,123
600
$20.21
1 Bedroom
$14,650
805
$18.20
2 Bedroom
$15,772
1,161
$13.59
3 Bedroom
$20,969
1,501
$13.97
[1] Based on average unitsizes in Palm Desert apartments including:
The Vineyards, Canterra, Mirabella, Ariana, The Regent, and The Enclave
Source: Economic & Planning Systems, Inc.
Applying these maximum fee levels to potential housing prototypes suggests that development
feasibility would be significantly and negatively affected. As one measure of such impacts, EPS
has estimated the reduction in land value that would occur at these fee levels. As another
measure, EPS has compared the new affordable housing impact fees to the existing fee burden
for new development in Palm Desert. These comparisons are shown on Table S.
P-k141000.sk14ll34PalmDesertlReponkl41134 /ea.smemo 031815do
Memorandum March 18, 2015
Palm Desert Affordable Housing Fee Considerations Page 7
Table 5 Feasibility Impact of Maximum Fee Levels
Housing Prototypes
Item
Low -Density
Single Family
Moderate Density
Single Family
Multifamily
Development Program Assumptions
Total Units
35
60
260
Total Acres
10
10
13
Density/Acre
3.5
6.0
20.0
Average Gross Unit Size
2,500
2,500
1,200
Average Net Unit Size
2,500
2,500
1,000
Land Values
Land/Acre [1]
$200,000
$200,000
$200,000
Total Land Cost
$2,000,000
$2,000,000
$2,600,000
Other Development Fees
Fees/Unit [2]
$39,038
$36,686
$6,069
Total Fee Expense
$1,366,330
$2,201,160
$1,577.940
Potential Affordable Housing Impact Fees
Assumed Fee Level per Sq. Ft. [3]
$10.03
$10.03
$13.59
Total Fee Expense
$877,893
$1,504,960
$3,532,834
as % of Land Value
44%
75%
136%
as % of Other Fees
64%
68%
224%
per a December 2014 appraisal provided to the
[2] Fees/Unit for single-family projects are based on a November2014 surveybythe Desert Valley Builders Association.
Fees/ multifam ily unit are based on an accounting of actual fees paid bythe most recent project in Palm Desert.
[3] Assumed housing fee based on maxmum fee for unitsizes most comparable to those assumed forthis analysis.
Sources: DVBA; City of Palm Desert; EPS
As demonstrated, affordable housing impact fees set at the maximum nexus -supported levels
would have a significant effect on development economics. For example, assuming that a low -
density single-family project of 35 units paid fees at $10.03 per square foot and that market -rate
home prices would not increase to absorb that added cost, the amount the developer could pay
for land would be reduced by an estimated 44 percent. Many landowners would likely resist
selling their property at this steep discount compared to currently achievable prices, and
developers and investors would likely seek opportunities in areas with higher potential profit
margins, so overall housing production in the City may diminish. Similarly, the new housing
impact fee would increase overall fees paid by the development by roughly 64 percent —certainly
not a marginal or negligible increase compared to current fee levels. The impacts are most
dramatic for multifamily development, where the maximum fee would effectively eliminate all
land value for that product type and the total fee burden would more than triple from current
circumstances.
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Memorandum
Palm Desert Affordable Housing Fee Considerations
March 18, 2015
Page 8
EPS concludes that the maximum fee levels calculated in the nexus study would represent an
infeasible outcome for new housing development in Palm Desert.
Other Potential Fee Levels
The maximum fees calculated in the nexus studies represent the upper limit that the City could
charge to new housing development. However, in many communities, the fees adopted have
represented only a fraction of the maximum nexus -based fees. Given that Palm Desert is
situated among many communities that charge no such fees and that housing and land values
are more modest than those found in other California cities that have adopted fees, it is
appropriate to consider lower levels of fees for adoption.
Table 6 follows the same format as Table 5, but presumes lower fee levels that the City might
consider. As shown, the fees' impact varies by product type, such that a $2.50 fee on single
family homes would have a less negative impact than a fee on multifamily at $2.00 per square
foot. Also, fees much above these levels appear to have a significant impact on key feasibility
metrics, such as residual land value.
Based on this feasibility analysis, EPS believes it would be prudent for the City of Palm Desert to
adopt a modest affordable housing impact fee of only a few dollars per square foot for most new
residential development. However, it is noteworthy that Palm Desert does have a luxury housing
market in which prices per square foot can be more than double those of the general housing
stock. These units tend to be much larger, and are shown in the nexus study to create a greater
impact on affordable housing demand and subsidy requirements. As such, it may be appropriate
for the City to create a scaled fee schedule that requires lower fees for smaller, less expensive
units, and higher fees per square foot for larger, more expensive units. As shown on Table 2,
the City of Santa Rosa and the County of Sonoma have such graduated fee schedules, requiring
as little as $1.00 per square foot for units around 1,000 square feet (with total exemptions for
still -smaller units), and up to $7.00 or so for the largest, luxury units. EPS believes such a
schedule may be appropriate for Palm Desert, with the top end being roughly $5.50 per square
foot - roughly 1 percent of the home values for large luxury units, and just under half of the
maximum supportable fees calculated in the nexus studies. Indeed, a fee for all home sizes and
prices set around 1 percent of unit value may be worth considering, as this fee level is indeed
marginal to overall home values and should not materially disrupt development activity in Palm
Desert.
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Memorandum March 18, 2015
Palm Desert Affordable Housing Fee Considerations Page 9
Table 6 Feasibility Impact of Alternative Fee Levels
Housing Prototypes
Low -Density Moderate Density
Item Single Family Single Family Multifamily
Development Program Assumptions
Total Units
35
60
260
Total Acres
10
10
13
Density/Acre
3.5
6.0
20.0
Average Gross Unit Size
2,500
2,500
1,200
Average Net Unit Size
2,500
2,500
1,000
Land Values
Land/Acre [1]
$200,000
$200,000
$200,000
Total Land Cost
52,000,000
$2.000,000
$2,600,000
Other Development Fees
Fees/Unit [2]
$39,038
$36,686
$6,069
Total Fee Expense
$1,366,330
$2,201,160
$1,577,940
Potential Affordable Housing Impact Fees
Assumed Fee Level per Sq. Ft.
$2.50
$2.50
$2.00
Total Fee Expense
$218,750
$375,000
5520,000
as % of Land Value
11 %
190/0
20%
as % of Other Fees
16%
17%
33%
Assumed Fee Level per Sq. Ft.
$4.00
$4.00
$3.00
Total Fee Expense
$350,000
$600,000
$780,000
as % of Land Value
18010
30%
30%
as % of Other Fees
26%
27%
49%
j1 ] Expected price for developable residential land, per a December 2014 appraisal provided to the City of Palm Desert.
[2] Fees/Unit for sing le-familyprojects are based on a November2014 survey by the Des ertVaIley Builders Association.
Fees/multifamily unit are based on an accounting of actual fees paid by the most recent project in Palm Desert.
Sources: DVBA; City of Palm Desert; EPS
P-1141000s'',141134Palm Desert\Repon%141134_ f—memo_ 031815. docx
ESTIMATE OF COSTS FOR THE
CITY OF PALM DESERT AFFORDABLE HOUSING PROGRAM
AS APPROVED IN HOUSING ELEMENT ADOPTED FOR 2014 — 2021
City of Palm Desert — Affordable Housing Impact Fee
This estimate is prepared in anticipation of the Palm Desert City Council's consideration of
adopting an affordable housing impact fee for new residential development. It is a
quantification of the costs that the City of Palm Desert will incur during the next twenty years
(2015 — 2035) implementing the goals, policies, and programs identified in the Housing
Element of the City of Palm Desert Comprehensive General Plan.
In order to systematically approach this estimate, each goal, policy, and procedure has been
addressed independently in the order in which it appears in the Housing Element. A total is
provided at the end of the estimate, as is an accounting of the other monies that the City has
available to apply to the same needs The new information, including the estimate of cost, is
provided in bold italic font, the remainder of the text comes directly from the Housing
Element.
Note that, since the time that the Housing Element was adopted, the City of Palm Desert
Redevelopment Agency was dismantled according to State directive. Ownership of assets and
allocation of funds and obligations have changed as a result. To simplify "tatters for this
estimate, the term "City" is used generically to encompass the City of Palm Desert, the
Successor Agency to the Palm Desert Redevelopment Agency, and the City of Palm Desert
Housing Authority.
And, finally, it is anticipated that the city will be "built out, "meaning that 95% or more of all
vacant residential parcels will have been developed, in twenty years. Therefore, no revenue
front the proposed fee is anticipated after the end of the build out period, and no costs expected
past that same time window are included in the cost estimates provided below.
GOALS, POLICIES AND PROGRAMS
Goal 1
A variety of housing types that meet all of the housing needs for all income groups within the
City. No hard (capital) costs assignable to this goal.
Goal 2
The preservation and maintenance of the high quality of the City's affordable housing supply.
No hard costs assignable to this goal.
Affordable Housing Estimate of Costs - 4/13/2015 Page 1
Policy 1
New affordable housing projects shall be encouraged in all areas of the City. Special attention
will be made to distributing the units so that large concentrations of affordable housing in any
one area are avoided. No hard costs assignable to this policy.
Program LA
The Agency shall implement the following affordable housing projects for extremely low, very
low, low and moderate income households during the planning period:
• 31 units at Canterra Phase II
• 21 units at Emerald Brook
• 200 units at Dinah Shore and Portola
• 72 units at Carlos Ortega Villas
• 16 units at Sagecrest Apartments
Carlos Ortega Villas are currently under construction, and the cost of that project is already
secured from fund sources independent of the proposed fee.
The Sagecrest Apartments and the units at Dinah Shore and Portola will be built on land that
the City currently owns, either itself or through its housing authority. No firm decision has
been made as to whether the City will construct and operate these units itself, or will select a
private developer to build the apartments and manage them thereafter. Experience with
developing affordable housing projects in the past indicates that private developers can
produce multi family housing projects at a lower cost per unit than tali the City. Therefore,
for the sake of determining the cost of the programs and policies of the currently adopted
Housing Element, the most conservative estimate of cost will be as if the City contributes the
land to a private (either for profit or not -for -profit) developer, who builds the housing and
records affordability covenants on the units.
According to the Table 2 on Page 8 of the Nexus -Based Affordable Housing Fee Analysis for
Rental Housing, by Economic & Planning Systems dated 2 April 2015, the financing gap for
private -sector development of two-story multi family apartments with surface parking is:
Very Low Income $163,873 including land $153,873 w/o land
Low Income $134,036 including land $124,036 w/o land
Low Income $117,968 including land $107,968 w/o land
This means that the City needs to assist a private developer in the amount of $117,968
(minimum) per unit to provide affordable multi family housing on land that the developer
owns, or $107,968 (minimum) per unit if the City also provides the land.
Affordable Housing Estimate of Costs - 4/13/2015 Page 2
Consequently, the minimum cost of Program LA for Sagecrest Apartments and the City -
owned land at Dinah Shore and Portola is:
Dinah Shore and Portola: $107,968 X 200 units = $21,593,600
SagecrestApartments: $107,968 X 16 units = $1,727,488
And the cost for Program LA at Phase If of Canterra and for Emerald Brooks is:
Canterra, Phase II. -
Emerald Brooks:
TOTAL COST FOR PROGRAM LA:
Program 1.13
by developer — no added cost to City
$117,968 X 21 units = $2,477,328
$ 25, 798,416
The Agency shall pursue the planning and implementation of the following projects for
extremely low, very low, low and moderate income households during the planning period:
• 520 units that will include single family for -sale and multi -family for rent units at Gerald
Ford Drive and Portola
• an additional 51 units at the Vineyards
The cost per dwelling unit of providing single family homes is greater than: for multi family
homes. Therefore, to be conservative, the cost estimate of Program I.B will assume that all
dwelling units are multi family units. Similarly, the conservative assumption is made that
50% of the units are for low income households, while 50% are for moderate income
households. To include very low and extremely low income households would significantly
increase the estimated cost of this program.
According to the Nexus -Based Affordable Housing Fee Analysis for Rental Housing, Table 2
on Page 8, by Economic & Planning Systems dated 2 April 2015, the financing gap for
private -sector development of two-story multi fancily apartments with surface parking is:
Moderate Income no financinggap
Low Income $117,968 including land $107,968 w/o land
This means that the City needs to assist a private developer in the amount of $117,968
(minimum) per unit to provide affordable multi family housing on land that the developer
owns, or $107,968 (minimum) per unit if the City also provides the land. In the case of
moderate income households, a private developer can produce affordable housing without any
financial assistance from the City or from other third parties.
Affordable Housing Estimate of Costs - 4/13/2015 Page 3
Consequently, the cost of Program LB for the 520 units at Gerald Ford and Portola, the
Successor Agency to the Palm Desert Redevelopment Agency owns the land, and half of the
units (for moderate income households) would need no financial assistance. Therefore, the
cost estimate for Program 1.B is:
260 units at Gerald Ford and Portola
Vineyards Apartm eats:
TOTAL COST FOR PROGRAM]. B:
Program 1.0
$107,968 X 260 units = $28,071,680
$117,968 X 51 units = $ 6,016,368
$ 34, 088, 048
The City shall encourage and facilitate the development by private parties of the following
projects for extremely low, very low, low and moderate income units:
• 432 units at Key Largo
• 194 units at Frank Sinatra and Cook Street
• Approximately 302 units at Dinah Shore and 35t' Avenue (southeast corner)
• 52 units at Frank Sinatra and Cook Street ("The Vineyards" / northwest corner)
The City shall annually contact the owners/developers of these lands and review with them the
City and Agency incentives, and financing options available through the Redevelopment
Agency, State and federal loan and grant programs, and local non-profit agencies to assure that
all potential financial mechanisms are being considered for the project(s).
There are no quantifiable hard costs associated with this program. The assumption is made
here that the "City and Agency incentives" mentioned in this program do not include
providing grants or subsidizing the development.
Program 1.D
The Agency shall continue to implement the Self Help Housing program, and shall identify 15
households to be assisted by the program in this planning period.
The City already owns the properties on which these homes will be constructed. No new hard
costs are assignable to this program.
Program 1.E
The City shall maintain its inventory of sites zoned for PR-7 and R-3, and shall encourage the
incorporation of extremely low, very low, low and moderate income housing units into these
projects as they are brought forward.
No hard costs assignable to this program.
Affordable blousing Estimate of Costs - 4/ 13/2015 Page 4
Program 1.F
In order to assure that sufficient lands are available for affordable housing projects described in
Programs LA and 1.13, the City shall undertake or shall process private party Changes of Zone
on the following parcels to provide zoning that is consistent with the General Plan and
supportive of residential uses. Where necessary, General Plan amendments will also be
undertaken:
• The east side of Monterey, at the western City limits
• 20 acres of land at the southeast corner of Gerald Ford and Portola
• 10 acres of land at the northeast corner of Dinah Shore and Portola
• 19.6 acres of land at the southwest corner of University Park Drive and Cook
• 34 acres of land at the southwest corner of 35t' Avenue and Dinah Shore
19 acres of land at the southeast corner of 35`h Avenue and Dinah Shore
• The south side of Fred Waring Drive on the east side of San Pablo Avenue and on the
west side of San Pablo north of Santa Rosa.
This work has been completed; no estimated costs to the City remain.
Program 1.G
The City will encourage further land divisions resulting in parcel sizes that facilitate multifamily
development affordable to lower income households in light of state, federal and local financing
programs (i.e. 50-100 units) as development proposals are brought forward. The City will also,
as part of the rezoning process or other outreach by 2012, meet with property owners to discuss
incentives available for land divisions (e.g., 2-5 acres) encouraging the development of housing
affordable to lower income households. The City will offer incentives for land division
encouraging the development of affordable housing including, but not limited to:
priority to processing subdivision maps that include affordable housing units,
expedited review for the subdivision of larger sites into buildable lots where the
development application can be found consistent with the Specific Plan,
financial assistance (based on availability of federal, state, local foundations, and private
housing funds).
This work has been ongoing; there are no estimated hard costs to the City. It is assumed that
other agencies (.state, federal, private foundations, etc.) will provide the financial assistance.
Program 1.H
Properties described in Program 1.F will be designated R-3 pursuant to Government Code
Section 65583.2 (h) and (i) and permit a minimum of 16 units per site at a minimum density of
20 units per acre. At least 50% of the need will be accommodated on sites allowing exclusively
residential uses by right. The City's zoning standards currently permit multifamily uses without a
CUP or other discretionary permit.
This work has been completed, no estimated costs to the City remain.
Affordable Housing Estimate of Costs - 4/13/2015 Page 5
Policy 2
The City shall encourage the rehabilitation of existing housing units through a variety of
programs.
This work is ongoing and has no estimated hard costs associated with it.
Program 2.A
The Agency shall annually fund an Acquisition, Rehabilitation, and Resale Program for 10
blighted homes each year.
This program buys, rehabilitates, and resells homes for the amount of investment in the homes
that the City has. The net cost to the City is only the amount of subsidy that is provided to the
buyer, which is typically $75,000 to $100,000 per home. Therefore, the conservative cost
estimate for the program for twentyyears would be:
(10 homes) X ($75,000 subsidy per home) X (20 years) = $15,000,000
However, it is unlikely that the City could ever acquire, rehabilitate, and resell this many
homes for this long of a period. A more conservative assumption would be that five homes per
year could be rehabilitated if funding were available. Therefore, the cost estimate used for
this calculation will be:
(5 homes) X ($75,000 subsidy per home) X (20 years) = $7,500,000
Program 2.B
The Agency shall annually fund the Single Family Rehabilitation Program and Housing
Improvement Program, for 20 households each year.
Historically, this program: has been funded at $250,000 per year. However, it is unusual for
the total amount to be spent due to low application rates and staffing limitations. With an
adequate funding stream, this program: would likely cost the following amount over a twenty
year period.
(10 homes) X ($15,000 per home) X (20 years) = $3,000,000
Program 2.0
The Agency shall pursue and utilize Neighborhood Stabilization Program (NSP) funding to the
greatest extent possible, and shall use that funding to assist homeowners in the purchase and
rehabilitation of blighted single family homes for up to four homes per NSP funding cycle.
The Neighborhood Stabilization Program: is accomplished with grant funding. No hard costs
are incurred by the City.
Affordable Housing Estimate of Costs - 4/13/2015 Page 6
Policy3
The City shall preserve existing affordable housing units.
The preservation of existing affordable housing is accomplished by buying extensions for
affordability covenants that are set to expire. The attached spreadsheet entitled "Developer
Projects" shows the affordable housing in the city, the number of units in each, the level of
subsidy, and the dates on which the affordability covenants expire. If no action is taken
within the twenty-year period during which build -out of the city is anticipated, 181 affordable
units will have lost their affordability restrictions. The cost of extending the affordability
restrictions is calculated by summing for all of the units:
(# of months between the expiration date and the end of the twenty-year period) X
(monthly subsidy needed for that particular unit).
The amount of subsidy needed varies depending on the income of the individual or family
occupying the unit. In order to estimate the cost of extending the covenants on these 120
units, recent income and market rental rates have been used for typical residents in the City's
affordable housing program. Specifically, the data used is:
Average
Monthly
Market Rate
Income Level
Subsidized
Subsidy
for 2-Bdr Unit
Rent
Needed
Extremely Low
987
298
689
Very Low
987
552
435
Low
987
937
50
Moderate
987
987
-0-
From this information, the cost to the City of Policy 3 is estimated to be as follows:
Shadow Hills Estates —16 units for 240 months @ moderate income: No cost
The Regent Palm Desert —103 units for 228 months @ low income: 51,174,200
Santa Rosa Way Property —1 unit for 240 months glow income: S 12,000
Canterra Phase I — 61 units for 20 months @ low income: S 61,000
TOTAL 51,247,200
Program 3.A
The Agency shall continue to subsidize existing affordable housing units in the City, including
apartment units it owns now and in the future.
The City strives to offset the cost of this subsidy by the revenue generated by operation of the
City -owned units. Therefore, no new hard costs are anticipated to be paid for by the proposed
fee.
Affordable Housing Estimate of Costs - 4/13/2015 Page 7
Program IB
The Agency shall maintain the existing resale restrictions and other subsidies on its 303
ownership units.
There is no direct hard cost to the Cityfor this program.
Program IC
The Agency shall maintain ownership of its 1,111 existing rental housing units in order to assure
long term affordability for these projects.
The City's affordable rental units are generally operated such that the expenses are offset by
rental revenue. Therefore, no direct hard costs to the Cityfor this program are included in the
cost estimate.
Program ID
The Agency shall continue its program of acquiring market rate apartment projects for
rehabilitation and conversion to affordable units, with the goal of converting 350 through the
planning period. Efforts shall be focused on blighted properties in Palma Village,
Redevelopment Project Area 4, and south of Highway 111 between Portola Avenue and Deep
Canyon Road.
In past years, the City has purchased blighted multi family housing properties and
rehabilitated the units in order to provide decent, safe, and sanitary affordable housing stock.
The cost of these projects varies widely based upon the acquisition: costs and the degree of
blight present. Because of the dissolution of redevelopment, it is unlikely that they City would
be able to accomplish this goal during the planning period (2014 — 2021 for the Housing
Element), regardless of the adoption of an affordable housing impact fee. However, if
funding is available, it is not unreasonable to believe that the goal could be net during the
twenty-year build nut period for which this fee is contemplated.
To estimate this cost, two assumptions are made: that the City would select a private developer
to do the work if doing so would be more cost effective than having the City do it, and that
such a rehabilitation project would only be undertakes: if it were less expensive than
demolishing the blighted units and building anew.
According to the Nexus -Based Affordable Housing Fee Analysis for Rental Housing cited
above under Program LA, the cost of constructing new multi family affordable housing units,
including land and assuming 4% tax credits are available, is $187,600 per unit. As noted
above, the renovation would only be done if doing so is less expensive than building anew, so
the conservative assumption is made that the renovation costs would be 60% of new
construction. Thus, the estimated cost for this program is:
(350 units) X ($187,600 per unit) X (60%) = $39,396,000
Affordable Housing Estimate of Costs - 4/13/2015 Page 8
Program IE
The City shall encourage the preservation of existing mobile home parks by non-profit agencies
or organizations, in order to preserve their affordability. The City will directly contact CVHC,
DACE and others should a mobile home park be put up for sale, and assist through permit
streamlining in its sale, if possible.
There is no direct hard cost to the Cityfor this program.
Program IF
The Agency shall coordinate between affordable housing developers and social service agencies
when new projects are developed to encourage the integration of services such as child care, job
training, vocational education, and similar programs into new affordable housing projects
through direct contact with both parties. For on -site child care, the Agency shall consider
allocation of the City's Childcare Mitigation Fee to new projects which provide the service.
There is no direct hard cost to the City for this program, other than for child care facilities
which are funded through a separate mechanism.
Policy 4
The City shall continue to strive to meet the State -mandated special shelter needs of large
families, female headed households, single parent families, senior citizens, and disabled
individuals and families, and shall consider including units for such households in its projects.
There is no direct hard cost to the Cityfor this program.
Program 4.A
The City shall continue to enforce the provisions of the Federal Fair Housing Act. The City shall
continue its referral program to the County Fair Housing Office, and shall maintain information
at City Hall and the Agency's affordable housing complexes.
There is no direct hard cost to the Cityfor this program.
Program 4.B
The City shall work with the Senior Center and other appropriate agencies in assisting whenever
possible in the housing of disabled residents, through participation by the Redevelopment
Agency.
There is no direct hard cost to the Cityfor this program.
Program 4.0
The City shall meet with non-profit developers and other stakeholders annually, beginning in
2011, to establish and implement a strategy to continue to provide housing affordable to
extremely low-income households. The City shall also consider prioritizing local financial
resources and applying for State and federal funding specifically targeted for the development of
housing affordable to extremely low-income households, such as CDBG, HOME, Local Housing
Affordable Housing Estimate of Costs - 4/13/2015 Page 9
Trust Fund program and Proposition 1-C funds. The City shall continue to consider incentives,
such as increased densities, modifications to development standards, priority processing and fee
deferrals as part of the financing package for projects which include extremely low income units.
There is no direct hard cost to the Cityfor this program.
Policy 5
The City shall strive to provide shelter for the homeless.
The costs for achieving this goal are contained in the programs described below.
Program 5.A
The City shall continue to work with CVAG on a regional solution for homelessness, including
the Multi -Service Center in North Palm Springs, and the beds and services it will provide.
The City contributes annually to Roy'.s Resource Center, which is tl:e Valley -wide shelter for
homeless persons. The contribution for the current fiscal year is $105,000. Assuming that the
City's contribution averages 75% of the current contribution over the twenty-year period of
consideration, the total cost will be:
(75%) X (20 years) X ($105,000) = $1,575,000
Program 5.13
The City shall amend the Zoning Ordinance as follows:
a. Allow emergency shelters by right in the Industrial zone and only subject to the same
development and management standards that apply to other allowed uses within the
Industrial zone. Approval shall be through a non -discretionary design review process.
b. Transitional and supportive housing shall be subject to only those restrictions that apply to
other residential uses of the same type in the same zone
c. Define Single Room Occupancy facilities.
d. Amend the definition of "Family" to be consistent with current federal standards.
e. Allow group homes of 7 or more in the R-1 and R-2 zones, in addition to the R-3 zone.
f. Allow Single Room Occupancy facilities in the Industrial zone, subject to approval of a
conditional use permit.
The Zoning Ordinance shall be clarified to state that handicapped ramps are permitted in the
front, side or rear yard setback of any residential structure. A reasonable accommodation
procedure shall be established to provide exception in zoning and land use for persons with
disabilities.
These modifications to the zoning ordinance have been made. There should be no additional
direct hard cost to the Cityfor this program.
Program 5.0
The City shall encourage local organizations, such as the Coachella Valley Rescue Mission,
Martha's Village and Catholic Charities, to apply to the City for the assignment of CDBG funds
for homeless services.
Affordable Housing Estimate of Costs - 4/13/2015 Page 10
(Program 5.C, continued)
This program is ongoing. Grant monies are used for capital costs resulting from the
applications for funding that are received.
Policy 6
The City shall continue to utilize restrictions, applicant screenings, and other appropriate
mechanisms established as conditions of approval in order to preserve affordable for sale
housing units for the long term.
This policy is ongoing and has no associated capital costs.
Program 6.A
The City shall keep in regular contact with the Riverside County Housing Authority to ensure
that Section 8 housing assistance within the City is actively pursued. At least 30 households
should be assisted every year.
There are no hard costs to the Cityfor this Program.
Program 6.13
The Agency shall work with affordable housing organizations to preserve the affordability of the
Regent Palm Desert project (formerly known as Sevilla or Saint Tropez), which is currently at
risk of losing its affordability restrictions in 2016. The Agency may consider financial assistance
or purchase, assistance in preparing applications for funding through state and federal programs
for third party ownership, and other means to assure the long term affordability of the project.
See the discussion and cost estimate under Policy 3, above.
Policy 7
The Redevelopment Agency shall annually allocate funds to eligible projects for review and
consideration, in conformance with its Five Year Implementation Plan.
The Redevelopment Agency has been dismantled at the direction of the State, and no longer
prepares a five year implementation: plan.
Policy 8
The City Council shall consider, as an additional incentive, the reduction, subsidizing or
deferring of development fees to facilitate the development of affordable housing.
There are no direct hard costs to the Cityfor implementing this policy.
Policy 9
The City shall continue to address the needs of the senior population in development of housing.
There are no direct hard costs to the Cityfor implementing this policy.
Affordable Hoasing Estimate of Costs - 4/13/2015 Page 1 I
Program 9.A
The City shall maintain the Senior Housing Overlay District and the Second Unit Housing
standards in the Zoning Ordinance.
There are no direct hard costs to the Cityfor implementing this policy.
Program 9.B
The City shall continue to encourage the development of assisted living facilities for seniors.
This ongoing program produces outstanding results, and involves no direct hard costs to the
City.
Policy 10
The City shall implement the State's density bonus law.
This work has been completed. No hard costs will be incurred by the City.
Policy 11
The City shall maintain the Rental Subsidy Program, the Mortgage Subsidy Program and the
First Time Homebuyers Program.
The rental subsidy program is accomplished through the City -owned affordable housing
apartments wherein the rental revenue offsets the operations and maintenance costs.
Therefore, no capital costs are included in this estimate. The first time home -buyers program
uses repayments and interest to replenish the down payment assistance, so no hard costs are
included in this estimate. The mortgage subsidy program is trot currently active.
Policy 12
Promote the jobs/housing balance through the development of housing with convenient access to
commercial land uses, schools, available public transport and employment centers.
There are no hard costs to the City associated with this policy.
Policy 13
Encourage energy conservation through the implementation of new technologies, passive solar
site planning and enforcement of building codes.
Implementing this ongoing policy requires no capital expenditures by the City.
Program 13.A
The City shall maintain an Energy Conservation Ordinance which mandates conservation in new
construction beyond the requirements of the California Building Code.
Implementing this ongoing policy requires no capital expenditures by the City.
Affordable Housing Estimate of Costs - 4/13/2015 Page 12
Program 13.13
The City shall encourage Green Building techniques, recycling in demolition, and the use of
recycled, repurposed and reused materials in all new affordable housing projects to the greatest
extent possible.
This policy will be implemented in the event that the City chooses to build its own affordable
housing projects in the future. However, no cost is included in this estimate, since any such
estimate would be purely speculative.
TOTAL COST ESTIMATE FOR AFFORDABLE HOUSING PROGRAMS IDENTIFIED
IN THE APPROVED HOUSING ELEMENT: 112.604.66
Total of other funds available to the City of Palm Desert for accomplishing these programs
(see attached 112015 Trial Balance as of 03/31/2015): 2,437,718.59
Affordable Housing Estimate of Costs - 4/13/2015 Page 13
COMPUTATION OF POTENTIAL FEE REVENUE
City of Palm Desert — Affordable Housing Impact Fee
The computation of potential fee revenues begins with identifying the amount of vacant
land in Palm Desert on which market rate housing can be developed. For this, an
inventory of vacant residential land has been prepared using the current approved
Housing Element inventory as a basis, and supplementing it with other vacant parcels
which are being considered for residential development. This inventory is presented
below.
Assessor's Parcel No.
General Plan/Zone
Size
(Acres)
Potential
Units @ Max.
Density
694-130-017 D
R-M, R-HO/PCD
10.21
176
694-130-021 G)
R-M, R-HO/PR-20
24.16
200
694-130-018 (D)
R-M, R-HO/PR-20
3.48
72
694-190-008 (H)
MU/PR-20
15 of
29.36
160
694-200-014 (J)
R-M, R-HO,
MU/PR-20
11.46
194
694-130-012 1
R-M, R-HO/PR-5
33.71
235
694-130-003 (F)
R-M, R-HO/PR-20
18.92
302
685-010-005 A
C-R/PR-20
30
432
694-310-001 & 005 B
C-R/PR-22
10
200
694-120-012 1
I-BP/PR-20
10
200
627-273-018
R-M/R-3
0.3
7
627-273-005
R-M/R-3
0.3
7
625-171-001
R-M/R-3
0.3
7
627-121-044
R-H/R-3
0.25
6
627-121-045
R-H/R-3
0.25
6
627-301-022
R-H/R-3
0.31
7
627-153-007
R-H/R-3
0.22
5
627-101-033, -038, -039, -002, -
017
R-M/R-3
1.64
22
6 7- 41-010 through 013, -29, 031
R-M/OP* and R-2
1.20
19
627-051-002
R-M/R-2
0.16
2
627-031-030
RM/R-2
0.17
2 -71
Affordable Housing Impact Fee Revenue Calculation Page 1
627-052-006
R-M/R-2
0.17
2
627-052-031
R-M/R-2
0.16
2
627-052-033
R-M/R-2
0.16
2
627-084-001
R-M/R-2
0.22
2
627-084-003
R-M/R-2
0.19
2
627-182-004
R-M/R-1
0.20
1
627-182-005
R-H/R-1
0.20
1
627-182-006
R-H/R-1
0.17
1
627-351-042
R-M/R-2
0.20
2
627-351-019
R-M/R-1
0.17
1
625-224-001
R-M/R-1
0.19
1
625-126-009
R-H/R-3
0.14
2
625-061-018
R-M/R-1
0.15
1
625-021-008
R-M/R-1
0.19
1
625-031-011
R-M/R-1
2.20
1
625-032-011
R-M/R-1
0.21
1
624-241-008
R-M/R-1
0.12
1
Total Units (Table III-38 of
Housing Element
177.1
2,285
Potential Santa Rosa Golf
Course Project
79.5
306
Millennium — SFHs and
apartments
63
660
132 Acre Site Shepherd Lane
132
660
170-Acre Site — Specific plan
under development — assume
75% residential
127
1,270
Less affordable apartments on
City land
-20
-400
TOTAL POTENTIAL AT MAX.
DENSITY
558.E
4,781
TOTAL POTENTIAL UNITS AT
LIKELY DENSITY (6-8 Dwelling
Units / acre
3,351 to 4,469
Affordable Housing Impact Fee Revenue Calculation
Page 2
COMPUTATION OF POTENTIAL FEE REVENUE (continued)
City of Palm Desert — Affordable Housing Impact Fee
The total fee potential for all new residential development equals the sum of the fees for
each Dwelling Unit (DU), plus the sum of fees for additions to existing homes. A range
of fees will be calculated, since there are a range of manners in which the undeveloped
residential property in Palm Desert may be developed. The total fees collected will
depend upon the density of future residential development, and the size of the dwelling
units (both homes and apartments). Although the development pattern in Palm Desert
has historically been suburban, low density, single -story, single-family golf resort style
homes, the changing demographics and lifestyles indicate that future development
might be unlike development to date. Therefore, there is necessarily a degree of
uncertainty in these calculations.
Formulas:
Total Fee Revenue = Fees from new dwelling units + Fees from additions to existing dwelling units
Fee for Each Dwelling Unit = (Gross Square Feet of Dwelling Unit) X (Fee per Gross Square Foot)
Fee for Average DU = (Gross Square Feet of Average DU) X (Fee per Gross Square Foot)
Total fees for all new DU's = (Fee per GSF) X (average GSF of new DU's) X (total # of new DU's)
FIRST:
Calculate the total fees for all new dwelling units using expected densities of
development and estimated sizes of homes and apartments:
From the inventory table on the previous page, the total number of new dwelling units
may be as low as 3,351 but may be as high as 4,781.
Assuming that, in response to changing demographics and lifestyles, future
development of the inventoried lands will feature homes smaller than those historically
constructed in Palm Desert, the average size of new market -rate DU's is likely to be
between 2,000 and 2,500 gross square feet (GSF).
On the low end of the range, at an average size of 2,000 GSF, the potential fee
revenue for 3,351 dwelling units would be:
Sum of fees for all new DU's = ($2.00 per GSF) X (average of 2,000 GSF) X (3,351 DU's)
_ $13.4 Million
Affordable Housing Impact Fee Revenue Calculation Page 3
while on the high end of the density range, but still with an average size of 2,000 GSF, the fee
revenue for 4,781 dwelling units would be:
Sum of fees for all new DU's = ($2.00 per GSF) X (average of 2,000 GSF) X (4,781 DU's)
_ $19.1 Million
Now for the high end of the range, at an average size of 2,500 GSF, the potential fee revenue
for 3,351 dwelling units would be:
Sum of fees for all new DU's = ($2.00 per GSF) X (average of 2,500 GSF) X (3,351 DU's)
_ $16.8 Million
and the fee revenue for 4,781 dwelling units would be:
Sum of fees for all new DU's = ($2.00 per GSF) X (average of 2,500 GSF) X (4,781 DU's)
_ $23.9 Million
NEXT:
Calculate the total fees for additions and remodels to existing homes.
Note that the number of residential remodels and additions that increase the number of
bedrooms is not directly tracked. However, an approximation can be made by starting
with the number of residential remodel/addition projects with construction values of
$15,000 or more in one year. (A bedroom addition likely will cost more than $15,000.)
In the calendar year 2014, the City of Palm Desert issued 178 building permits for
residential remodels and additions with a value of $15,000 or more. Assuming that 2/3
of these projects are for interior remodels of bathrooms, kitchens, and other living
space, without involving an increase in the number of bedrooms, there are 1/3 of 178 or
60 existing homes that increase the number of bedrooms, presumably by one bedroom
each, over the course of one year. The affordable housing impact fee for these projects
over the course of 20 years would be:
(60 bedrooms) X (avg. 250 SF per bedroom) X ($2.00 per GSF) X (20 years) _
$600,000
The total fee potential for all new residential development equals the sum of the fees for
each DU, plus the sum of fees for additions to existing homes. From the information
above, the project range of the total fee revenues is:
Low end: ($13,400,000 to $19,100,000) + $600,000 = $ 14.0 to $19.7 million
High end: ($16,800,000 to $23,900,000) + $600,000 = $ 17.4 to $24.5 million
Affordable Housing Impact Fee Revenue Calculation Page 4
CITY OF PALM DESERT
PUBLIC HEARING NOTICE
NOTICE OF INTENT TO ADOPT AN AFFORDABLE HOUSING IMPACT FEE FOR
NEW MARKET -RATE RESIDENTIAL DEVELOPMENT. NOTICE IS HEREBY GIVEN
that on Thursday, 23 April 2015, the Palm Desert City Council will consider approval of
two nexus -based studies and adoption of an ordinance establishing an affordable housing
impact fee and a resolution establishing the amount of that fee for new development of
new market -rate for -sale and rental housing in Palm Desert, California. For the purpose of
this proposed fee, "new development of market -rate for -sale and rental housing" includes
single family homes, condominiums, time-share units, apartments, and additions to, or
remodels of, existing dwelling units when such additions/remodels include the addition of
bedroom(s). Dwelling units on which affordability restrictions have been placed for thirty
(30) or more years are exempt from the proposed ordinance.
The adoption of such a fee constitutes the creation of a government funding mechanism or
other government fiscal activity that does not involve any commitment to any specific
project that may result in physical environmental impacts and, accordingly, is not
considered a project under the provisions of the California Environmental Quality Act
(CEQA).
PUBLIC HEARING: Said public hearing will be held before the City Council of the City of
Palm Desert on Thursday, 23 April 2015 at 4:00 p.m. in the City Council Chamber at the
Palm Desert Civic Center, 73-510 Fred Waring Drive, Palm Desert, California, at which
time and place all interested persons are invited to attend and be heard. Written
comments concerning all items covered by this public hearing notice shall be accepted up
until the date of the hearing. At least ten (10) days before the hearing, the nexus studies
and other information will be made available to the public to indicate the estimated cost of
providing the affordable housing required to support future market -rate development and
the revenue sources anticipated to be available to fund that affordable housing. This
information will be available for review in the Department of Community Development at
the above address between the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday.
If you challenge the proposed actions in court, you may be limited to raising only those
issues you or someone else raised at the public hearing described in this notice, or in
written correspondence delivered to the City Council at, or prior to, the public hearing.
Lauri Aylaian, Director of Community Development
City of Palm Desert
73-510 Fred Waring Drive
Palm Desert, CA 92260
(760) 346-0611
laylaian@cityofpalmdesert.org
PUBLISH: DESERT SUN RA ELLE D. KLASSEN, ITY CLERK
12 and 19 April, 2015 CITY OF PALM DESERT, CALIFORNIA
GOVERNMENT CODE
SECTS. 66000 - 66025
Current Requests for Notice
As of January 2015
Ms. Gretchen Gutierrez, CEO
Desert Valleys Builders Association
75100 Mediterranean
Palm Desert CA 92211
Ms. Jennifer Cusack, Region Mgr.
Local Public Affairs - S. C. E.
36100 Cathedral Canyon Drive
Cathedral City CA 92234
Ms. Deborah McGarrey, Public Affairs
Southern California Gas Company
75095 Mayfair Drive
Palm Desert CA 92211-5102
Mr. Nathan A. Miller, Dir. Govtl. Affairs
Riverside Co. Chapter - B I A So. Cal.
3891 11 th Street
Riverside CA 92501
hECEIVED
CITY CLERK'S OFFICE
PALM DESERT. CA
2015 APR 23 AM 10: 09
April 23, 2015
Re: City of Palm Desert — City Council Agenda — April 23, 2015
Objections to Proposed "Affordable Housing Impact Fees" and Request for Continuance of
Council Consideration
To the Honorable Mayor and Members of the City Council:
d%
BIA
R i1'ersidc'
C oulat• C'h(1Ptc11*
3891 11" Street
Riverside, California 92501
(951) 781-7310
Fay 9951)781-0509
This letter is respectfully submitted on behalf of the Riverside County Chapter of the Building
Industry of Southern California and its members, in response to the proposal that the City adopt a new
and unsanctioned "impact fee" to be used to subsidize "affordable housing" in the City of Palm Desert.
This letter summarizes some of our concerns and potential legal complications to the proposed new
"affordable housing impact fee."
The Council is respectfully urged to reject the proposal, at least in its present form, and to
instead direct City Staff to work with the BIA and other critical stakeholders to develop a more lawful,
effective and market driven approach to improving the affordability of housing in Palm Desert.
Below you find a brief summary of our general objections to the proposed fee as well as a list of
our legal concerns on the matter. Additionally, Attachment A elaborates on each specific legal issue.
Introduction and Request for Deferral of Council Consideration:
It should be noted at the outset that we greatly appreciate the opportunity to comment. We do
regret that we have been forced to communicate our concerns in this rushed manner, and so close to
the scheduled Council meeting. However, BIA and other members of the public were not given
adequate prior notice of this proposed action, nor any meaningful opportunity to review the associated
nexus studies that assumes supports the proposed resolutions. The BIA did not receive notification until
April 13, 2015 and then had to request for an electronic copy of the study which was not initially
provided. There were no advance informal meetings between staff and the affected stakeholders, nor
any study sessions or opportunities to question the consultant about the novel methodology and
assumptions used in creating the nexus studies, nor to discuss the negative impacts of this fee on all
housing construction activity in Palm Desert. We strongly recommend that this matter be deferred and
continued, to allow for further public review and input, should the Council choose or choose not to
consider it at a later date.
The BIA does not question the importance of attempting to improve the affordability of housing
in Palm Desert and other Riverside County communities. That is a worthy and legitimate public
An Athh.I:t 01U;r ti.at rn.ii ASFO. ;a:uui :d Ilom" 131111dolr .uid the U1110rni,i 1311ild][19 Indumi As<<xi.uion
objective. The BIA and its members are among the most supportive advocates for constructive,
reasonable, and lawful measures that will actually improve the supply and affordability of housing,
including policies promoting the increased production of homes affordable to residents in all income
ranges. Local governments concerned about the affordability of housing should therefore be
encouraging new housing production and adopting policies to incentivize new housing development as
opposed to creating new burdens on housing development that many have determined to be counter-
productive as such is the case with inclusionary zoning type impact fees.
Housing "impact fees" and their relational inequities are regressive. They disproportionately
burden entry-level renters and homebuyers. They are generally ineffective and in many cases counter-
productive to their objective. Planning professionals and housing advocates increasingly recognize them
as constraints on the production of housing and the supply of affordable housing in particular.
This letter summarizes legal objections to the proposed imposition of affordable housing impact
fees and deficiencies of the purported nexus study. However, the City is urged to also take note of the
policy criticisms and economic objections to such the proposed impact fees and exactions (E.g., Cal. Gov.
Code § 65589.5(a)(2): "The excessive cost of the state's housing supply is partially caused by activities
and policies of many local governments that limit the approval of housing, increase the cost of land for
housing, and require that high fees and exactions be paid by the producers of housing.")
• Objections to Unlawful Fees on New "For Sale" Homes
• No Statutory Authority for "Impact Fees" to Fund "Affordable Housing"
• The Proposed "Impact Fees" Are NOT Justified by the "Nexus Studies"
• The Purported "Nexus Studies" Are Flawed and Fail to Meet Evidentiary Requirements to
Demonstrate a Reasonable Relationship Between New Housing Development and Increased
Public Needs for Privately -Subsidized Affordable Housing
• Failure to Comply With the Mitigation Fee Act
• The Proposed New "Impact Fees" Would Violate California Constitutional Prohibitions Against
"Special Taxes" Without Voter Approval
• General Plan "Consistency" Issues
• State Housing Law Issues
• Denial of Equal Protection of the Laws and Substantive Due Process
• Unlawful Fees on New "For Rent" Homes
• Unlawful Circumvention of State Rental Housing Law
We again appreciate the opportunity to comment and respectfully reserve the right for
additional review of the study and supplemental documentation to determine additional legal conflicts
and issues as our time frame to do so in this circumstance has been unfortunately limited.
If you have any questions regarding this request of notification please do not hesitate to contact me at
(951) 505-2594 or nmiller@riversidebia.org.
Sincerely,
( � x4x�
Nathan A. Miller
Director of Government Affairs
An AYi=a.tt, i,l thr tiaU:ui.il A,sot i.uum id Ilo le U1111dci s and thr r: IM"! 111A Hu;;1lirr9 Indushy A�stxmlion