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Inclusionary Housing Program City of Oakland Economic…
Tags: affordability, city of oakland, construction type, densities, development feasibility, development projects, draft ordinance, economic impact analysis, housing development, land values, low rise, methodology, mid rise, preliminary results, pro formas, prototype, prototypes, rise condos, row houses, sensitivity analysis,Pages: 33
Language: english
Created: Fri May 11 17:39:06 2007
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Inclusionary Housing Program
City of Oakland
Economic Impact Analysis
Preliminary Results
May 17, 2007
Purpose
To analyze the impacts of potential
inclusionary housing requirements on
the feasibility of developing housing
in Oakland.
Inclusionary Requirements Tested
· Draft Ordinance, Oct. 2006
· Three Inclusionary Options:
- On-site: 15% of units affordable
- Off-site: 20% of units affordable
- In-lieu Fee: based on 20% affordable units
Other Inclusionary Parameters
· Affordability:
- For-sale units affordable at 100% AMI
- Rental units affordable at 60% AMI
· Inclusionary units at least proportional
by number of bedrooms
Approach and Methodology
1. Representative Development Prototypes
Citywide
2. Summary Pro formas of Costs and
Revenues for Prototypes
3. Costs of Inclusionary Requirements
Approach and Methodology
(continued)
4. Sensitivity Analysis of Impacts
- on development feasibility
- on land values
5. Findings and Implications for Housing
Development
6. Ordinance Parameters That Could
Influence Impacts
1) Housing Development Prototypes
· 7 Prototypes Representative of Development
Projects in Oakland
- building types
- densities
- locations serving different markets
· Focus on For-Sale Housing
Analysis shows rental housing development not feasible
[Table 1]
PRELIMINARY TABLE 1
OAKLAND HOUSING DEVELOPMENT PROTOTYPES
Prototype A
Low-rise Townhomes/ Prototype B Prototype C Prototype D
Row Houses Low-rise Lofts/Townhomes Low-rise Condos Lower/Mid-rise Condos
Construction Type wood wood wood frame on concrete podium wood frame on concrete podium
Height 3 floors including garage 3 floors including garage 3 flrs over 1 pkg on some/all site 4-5 floors over 1 level parking
Parking Location garages in units indiv. garages/surface pkg. podium/surface; above grade podium; above grade
Average Unit Size 1,300 sf 1,450 sf 1,080 sf 1,125 sf
Bedroom Mix 65% 2BR; 35% 3BR 50% 2BR; 50% 2+/3BR 32% 1BR; 32% 2BR; 36% 3BR 5% ST; 35% 1BR; 50% 2BR; 10% 3BR
Density 30-35 units/acre 30-35 units/acre 50-60 units/acre 80-100 units/acre
Locations in City East Oakland / West Oakland North Oakland / West Oakland East Oakland / West Oakland North Oakland / East Estuary
(near Oakland/Emeryville border)
Prototype E Prototype F Prototype G
Mid-rise Condos Mid-rise Condos High-rise Condos
Construction Type wood frame on concrete podium steel/concrete steel/concrete
Height 4-6 floors over parking 6-8 floors over parking 9-16 floors over parking
Parking Location podium; above grade largely above grade above/below grade
Average Unit Size 900 sf 1,000 sf 975 sf
Bedroom Mix 30% 1BR; 60% 2BR; 10% 3BR 40% 1BR; 55% 2BR; 5% 3BR 10%ST/45%1BR/35%2BR/10%3BR
Density 100-140 units/acre 140-167 units/acre 200-300 units/acre
Locations in City Downtown / Jack London Downtown / Jack London Downtown / Jack London
Source: Hausrath Economics Group
May 17, 2007
2) Summary Pro Formas for
Development Prototypes
· Base case pro formas to assess feasibility of
development without inclusionary program
· Market context:
- Current land and development costs, 2006/2007
- Project sales prices when units completed
- Market cycle evened out, somewhat
· Feasibility thresholds to evaluate return
[Table 2]
PRELIMINARY TABLE 2
RESIDENTIAL DEVELOPMENT PROTOTYPES - BASE CASE
CITY OF OAKLAND INCLUSIONARY HOUSING ANALYSIS
Prototype A
Low-rise Townhomes / Prototype B Prototype C Prototype D
Row Houses Low-rise Lofts / Townhomes Low-rise Condos Lower/Mid-rise Condos
Development Characteristics
Construction Type wood wood wood frame on concrete podium wood frame over concrete podium
Height 3 floors including garage 3 floors including garage 3 flrs over 1 pkg on some/all site 4-5 floors over 1 level parking
Parking Location garages in units indiv. garages / surface parking podium/surface; above grade podium; above grade
Parking Ratio 2 spaces/du 2 spaces/du 1 space/du; some buyer-opted lifts 1 space/du; some buyer-opted lifts
Average Unit Size 1,300 sf 1,450 sf 1,080 sf 1,125 sf
Bedroom Mix 65% 2 BR; 35% 3 BR 50% 2 BR; 50% 2+/3 BR 32% 1 BR; 32% 2 BR; 36% 3 BR 5%ST/35%1BR/50%2BR/10%3BR
Density 30-35 units/acre 30-35 units/acre 50-60 units/acre 80-100 units/acre
Location in City East Oakland / West Oakland North Oakland / West Oakland East Oakland / West Oakland North Oakland / East Estuary
(near Oakland/Emeryville border)
Development Costs Per SF Per Unit Per SF Per Unit Per SF Per Unit Per SF Per Unit
Land /a/ $34.62 $45,000 $40.00 $58,000 $25.00 $27,000 $44.44 $50,000
Hard Construction $200.00 $260,000 $210.00 $304,500 $200.00 $216,000 $250.00 $281,250
Government Permits and Fees $10.77 $14,000 $10.34 $15,000 $12.50 $13,500 $12.89 $14,500
Other Soft Costs $43.23 $56,200 $49.66 $72,000 $50.65 $54,700 $62.22 $70,000
Construction Financing $10.77 $14,000 $13.03 $18,900 $13.52 $14,600 $20.89 $23,500
Total Development Costs $299.39 $389,200 $323.03 $468,400 $301.67 $325,800 $390.44 $439,250
(excl. devel. fee & return on capital)
Revenue
Sales Price (avg.) $367.69 $478,000 $413.79 $600,000 $365.74 $395,000 $502.22 $565,000
(Less) Sales Expenses ($12.85) ($16,700) ($14.48) ($21,000) ($12.78) ($13,800) ($17.56) ($19,750)
Sales Net of Sales Expenses $354.84 $461,300 $399.31 $579,000 $352.96 $381,200 $484.66 $545,250
(Less) Development Costs ($299.39) ($389,200) ($323.03) ($468,400) ($301.67) ($325,800) ($390.44) ($439,250)
Net Revenue $55.45 $72,100 $76.28 $110,600 $51.29 $55,400 $94.22 $106,000
(for devel. fee & return on capital)
Measures of Return
Net Revenue:
As % of Devel. Costs (ROC) 18.5% 23.6% 17.0% 24.1%
Required % of Costs (ROC) 16-18% 16-18% 16-18% 18-20%
As % of Net Sales (ROS) 15.6% 19.1% 14.5% 19.4%
Required % of Net Sales (ROS) 13-15% 13-15% 13-15% 14-16%
Construction Period (months) 10 12 14 18
/a/ Land cost per building square foot.
Source: Hausrath Economics Group
May 17, 2007
Page 2 of 9
PRELIMINARY TABLE 2 (continued)
RESIDENTIAL DEVELOPMENT PROTOTYPES - BASE CASE
CITY OF OAKLAND INCLUSIONARY HOUSING ANALYSIS
Prototype E Prototype F Prototype G
Mid-rise Condos Mid-rise Condos High-rise Condos
Development Characteristics
Construction Type wood frame on concrete podium steel/concrete steel/concrete
Height 4-6 floors over parking 6-8 floors over parking 9-16 floors over parking
Parking Location podium; above grade largely above grade above/below grade
Parking Ratio 1 space/du; some buyer-opted lifts 1 space/du 1 space/du
Average Unit Size 900 sf 1,000 sf 975 sf
Bedroom Mix 30% 1 BR; 60% 2 BR; 10% 3 BR 40% 1 BR; 55% 2 BR; 5% 3 BR 10% ST/45% 1BR/35% 2BR/10% 3BR
Density 100-140 units/acre 140-167 units/acre 200-300 units/acre
Location in City Downtown / Jack London Downtown / Jack London Downtown / Jack London
Development Costs Per SF Per Unit Per SF Per Unit Per SF Per Unit
Land /a/ $62.22 $56,000 $50.00 $50,000 $45.13 $44,000
Hard Construction $296.00 $266,400 $330.00 $330,000 $370.00 $360,750
Government Permits and Fees $15.56 $14,000 $15.00 $15,000 $16.41 $16,000
Other Soft Costs $75.56 $68,000 $70.00 $70,000 $76.00 $74,100
Construction Financing $25.44 $22,900 $30.80 $30,800 $36.21 $35,300
Total Development Costs $474.78 $427,300 $495.80 $495,800 $543.75 $530,150
(excl. devel. fee & return on capital)
Revenue
Sales Price (avg.) $600.00 $540,000 $588.00 $588,000 $625.64 $610,000
(Less) Sales Expenses ($21.00) ($18,900) ($20.60) ($20,600) ($21.90) ($21,350)
Sales Net of Sales Expenses $579.00 $521,100 $567.40 $567,400 $603.74 $588,650
(Less) Development Costs ($474.78) ($427,300) ($495.80) ($495,800) ($543.75) ($530,150)
Net Revenue $104.22 $93,800 $71.60 $71,600 $59.99 $58,500
(for devel. fee & return on capital)
Measures of Return
Net Revenue:
As % of Devel. Costs (ROC) 22.0% 14.4% 11.0%
Required % of Costs (ROC) 18-20% 20-22% 22-25%
As % of Net Sales (ROS) 18.0% 12.6% 9.9%
Required % of Net Sales (ROS) 14-16% 17-19% 19-23%
Construction Period (months) 18 22 24
/a/ Land cost per building square foot.
Source: Hausrath Economics Group
May 17, 2007
Page 3 of 9
Base Case
Development Feasibility
· Feasibility Varies Among Development
Prototypes
· Feasible Projects (returns above thresholds)
- Prototype B: low-rise lofts/THs, NO/WO
- Prototype D: mid-rise condos (4-5 fls), NO/EST
- Prototype E: mid-rise condos (4-6 fls), DT
Base Case
Development Feasibility (cont'd)
· Marginally Feasible Projects (returns at thresholds)
Entry-level projects with lowest prices and costs
- Prototype A: Low-rise THs, EO/WO
- Prototype C: Lower-rise condos, EO/WO
· Infeasible or Marginally Feasible Projects
(returns below thresholds)
More costly steel/concrete construction
- Prototype F: Mid-rise condos (6-8 fls), DT
- Prototype G: High-rise condos (9-16 fls), DT
3) Costs of Potential
Inclusionary Requirements
Affordable Sales Prices:
· Critical for Impact Assessment
· Based on State Redevelopment Law
Definitions
· Calculated for Households with Incomes
at 100% AMI
[Table 3]
PRELIMINARY TABLE 3
ESTIMATING MAXIMUM SALES PRICES FOR
HOUSEHOLDS WITH INCOMES AT 100% AMI
Maximum Sales Price Calculation - Two-Bedroom Example
Two-Bedrooms
Maximum Household Income @100% AMI $75,400
Household Income Amount for Calculation (90% AMI) $67,860
Maximum Monthly Housing Cost (35% of Monthly Income) /a/ $1,979
Utility Allowance Per Month ($126)
Other Costs Per Month (See Below) /b/ ($544)
Maximum Available for Mortgage Payment $1,309
Maximum Mortgage Amount @ 6.875% $198,804
Down Payment (5%) $10,463
Maximum Affordable Sales Price $209,267
Summary of Maximum Affordable Sales Prices by Unit Sizes
Studio Unit $158,473
One-Bedroom Unit $183,149
Two-Bedroom Unit $209,267
Three-Bedroom Unit $232,662
Four-Bedroom Unit $249,326
/a/ Calculations may not sum exactly due to rounding.
/b/ Other monthly costs include:
Maintenance Reserve Per Month $25
Homeowner Association Dues Per Month $100
Property Taxes Per Month (1.32% of Sales Price) $230
Private Mortgage Insurance (.77% of Mortgage Amount) $128
Hazard and Casualty Insurance Per Month $61
Total $544
Source: Vernazza Wolfe Associates, Inc.; City of Oakland.
May 17, 2007
Cost of On-Site Compliance
· Cost defined by difference between
affordable prices and market-rate prices in
primary project
· On-site cost highest for projects in
Downtown Oakland, North Oakland, and
along Estuary
Cost of Off-Site Compliance
· Cost defined by difference between affordable
prices and development costs
· Might be different product type and less costly
construction
· Analysis treats subsidy of off-site development
as a cost to the primary project
[Table 4]
PRELIMINARY TABLE 4
ESTIMATING COSTS OF OFF-SITE INCLUSIONARY HOUSING REQUIREMENTS
Off-Site Funding Requirements - Two-Bedroom Example
Unit Size For-Sale (Square Feet) 900
Development Cost For-Sale Unit @ $330/SF $297,000
Affordable Sales Price for Two-Bedroom Unit $209,267
Gap - Difference Between Affordable Sales Price and
Development Costs - Two Bedroom Unit $87,733
Summary of Off-Site Funding Requirements by Bedroom Size
Gap for Studio Unit $6,527
Gap for One-Bedroom Unit $47,851
Gap for Two-Bedroom Unit $87,733
Gap for Three-Bedroom Unit $163,338
Gap for Four-Bedroom Unit $196,174
Source: Vernazza Wolfe Associates, Inc.; City of Oakland.
May 17, 2007
In-Lieu Fee Calculation
· In-lieu fee revenues to cover costs of
developing affordable housing
· Fee calculated as difference between
affordable prices and development cost of
City-assisted affordable projects
[Table 5]
PRELIMINARY TABLE 5
ESTIMATING IN-LIEU FEE FOR
INCLUSIONARY HOUSING REQUIREMENTS TESTED
In-Lieu Fee - Two-Bedroom Example
Unit Size in Square Feet 900
Development Cost For-Sale ($395/SF) $355,500
Affordable Sales Price $209,267
In Lieu Fee (Affordability Gap) $146,233
Summary of In-Lieu Fees by Bedroom Size
In- Lieu Fee for Studio Unit $39,027
In-Lieu Fee for One-Bedroom Unit $93,351
In-Lieu Fee for Two-Bedroom Unit $146,233
In-Lieu Fee for Three-Bedroom Unit $241,338
In-Lieu Fee for Four-Bedroom Unit $283,924
Source: Vernazza Wolfe Associates, Inc.; City of Oakland.
May 17, 2007
Why In-Lieu Fee Is Higher Than
Off-Site Cost
· Off-site development costs are based on
private market development
· In-lieu fee includes costs of City
requirements:
- Prevailing wages
- City contracting requirements
- Allowable developer fee (for off-site option,
fee included in primary project pro forma)
Comparative Costs of Compliance
· Costs vary among prototypes
· Costs for in-lieu fee and off-site options are
lower than for on-site option in 5 of 7
prototypes
· Costs are similar among options for
1 prototype
· On-site option could be the least costly
for 1 prototype
[Table 6]
PRELIMINARY TABLE 6
SUMMARY COMPARISON OF COSTS OF
INCLUSIONARY HOUSING OPTIONS, BY DEVELOPMENT PROTOTYPE
Costs of Affordable Housing per Unit in Primary Project
as Factored into Primary Project Pro Forma
On-Site Off-Site In-Lieu
Prototype Option Option Fee Option
A $37,540 $23,690 $37,240
B $54,750 $26,160 $40,390
C $26,540 $22,610 $35,820
D $51,820 $19,210 $31,570
E $48,430 $17,610 $29,560
F $55,860 $16,110 $27,690
G $59,320 $14,830 $25,970
Source: Hausrath Economics Group; Vernazza Wolfe Associates, Inc.;
City of Oakland. May 17, 2007
4) Analysis of Impacts of
Inclusionary Housing Requirements
Impact Analysis Addresses:
· Effects on Project Feasibility
· Possible Longer-term Effects on Land
Values
· Possible Implications for Development
Effects on Project Feasibility
· With inclusionary requirements, returns from
development may drop below feasibility
thresholds in most cases
· Requirements may have most effect on
feasibility of:
- Development of lower-priced housing in neighborhoods
- Development of more costly building types downtown
[Table 7]
TABLE 7
PRELIMINARY RESULTS
SUMMARY OF FEASIBILITY TESTING OF
POTENTIAL INCLUSIONARY HOUSING REQUIREMENTS IN OAKLAND
(All else remaining constant)
Development Prototypes
A B C D E F G
Low-rise THs/ Low-rise Low-rise Lower/Mid-rise Mid-rise Condos Mid-rise Condos High-rise Condos
Row Houses Lofts/THs Condos Condos (4-5 flrs) (4-6 flrs) (6-8 flrs) (9-16 flrs)
EO/WO NO/WO EO/WO NO/EST DT DT DT
ROC Feasibility Threshold 16-18% 16-18% 16-18% 18-20% 18-20% 20-22% 22-25%
(net revenue as % of devel. cost)
Base Case ROC 19% 24% 17% 24% 22% 14% 11%
ROC with Inclusionary Housing
Requirements Met:
-- On-Site 9% 12% 9% 12% 11% 3% Negative
-- Off-Site 12% 17% 9% 19% 17% 11% 8%
-- In-Lieu Fee 8% 14% 5% 16% 14% 8% 6%
NOTE: Bold indicates return (ROC) at or above threshold for feasibility.
Source: Hausrath Economics Group, Preliminary Results; with inputs from Vernazza Wolfe Associates, Inc. and City of Oakland. May 17, 2007
Possible Longer-term Effects
on Land Values/Prices
· Initially, with inclusionary requirements,
residual land values would decline
Issue: Could land prices adjust to
accommodate costs of inclusionary
requirements?
Possible Longer-term Effects
on Land Values/Prices (cont'd)
· Land price adjustments could make a difference for
prototypes with stronger feasibility in base case
- Adjustments may take time
· Lower land prices unlikely to compensate where
development is marginally feasible or infeasible in base
case
- Land residuals may become negative or drop to low levels
for 4 of 7 prototypes
- Applies for lower-priced housing in neighborhoods
and higher-cost housing downtown
[Table 8]
TABLE 8
PRELIMINARY RESULTS
SUMMARY OF EFFECTS ON LAND VALUES OF
POTENTIAL INCLUSIONARY HOUSING REQUIREMENTS IN OAKLAND
(All else remaining constant)
Development Prototypes
A B C D E F G
Low-rise THs/ Low-rise Low-rise Lower/Mid-rise Mid-rise Condos Mid-rise Condos High-rise Condos
Row Houses Lofts/THs Condos Condos (4-5 flrs) (4-6 flrs) (6-8 flrs) (9-16 flrs)
EO/WO NO/WO EO/WO NO/EST DT DT DT
Land Cost Assumed in Base Case, $31-36 $40-47 $31-37 $91-115 $129-180 $160-192 $202-303
per SF Site
Land Residual with Inclusionary
Housing Requirements Met and With
Project Return at Feasibility Threshold:
-- On-Site $15-18 $31-36 $7-9 $58-73 $75-105 Negative Negative
-- Off-Site $22-25 $47-55 $7-9 $109-136 $135-189 $38-45 Negative
-- In-Lieu Fee $11-13 $36-42 Negative $83-104 $104-146 Negative Negative
NOTE: Land residual estimates assume return from development (ROC) at the mid-point of the feasbility thresholds identified for each prototype.
Bold indicates land residual at or above land costs in base case.
Source: Hausrath Economics Group, Preliminary Results; with inputs from Vernazza Wolfe Associates, Inc. and City of Oakland. May 17, 2007
5) Possible Implications for
Housing Development
· Some Development may slow/stop
- Until market adjusts to incorporate IZ
· Land prices would stabilize and may decline
- Would take time for land prices to adjust
- Changes in land prices unlikely to fully offset
inclusionary costs in many cases
Possible Implications of
Inclusionary Requirements (cont'd)
· Over time, market increases in sales prices
may help restore feasibility
- Prices need to go up faster than
development costs
- Price increases would then cover
inclusionary costs before passing to land
Possible Implications for
Housing Development (cont'd)
· Could encourage wood-frame construction
over steel/concrete construction (already
happening to some extent)
· Smaller, marginal projects unlikely to be
built without significant adjustments
6) Possible Alternative
Ordinance Parameters
· Reduce percentage of inclusionary units
· Increase income levels targeted
· Make off-site and in-lieu fee options same
percentage of units as on-site option
· Adopt in-lieu fee below level of full gap
· Phase in program over time