The Need For Affordable HousingThe San Francisco Bay Area continues to be one of the priciest real estate markets in the country. Despite the recent mortgage crisis and soaring number of foreclosures, most Bay Area homes continue to be too expensive for families with average household incomes to afford. Low levels of housing production, relative to demand, contributes to this region’s high housing costs.

According to a recent report by the Non-Profit Housing Association of Northern California and Urban Habitat titled “Moving Silicon Valley Forward: Housing, Transit and Traffic at a Crossroad”, 67% of Silicon Valley’s projected job growth and its largest workforce will be in sectors paying less than $50,000 annually. This group is spending upwards of 70% of their paychecks on housing and transportation. In most Bay Area counties, as indicated in the graph below, there is a significant gap between the salaries earned by public school teachers, bank tellers, retail salespeople and the salaries required to support the housing costs.

According to a recent report by Greenbelt Alliance “Fixing the Foundation: Local Solutions for Infill Housing”, when workers are unable to find affordable places to live near job centers and transit, many Bay Area workers are forced into far-flung areas creating long commutes, grid lock and air pollution.

The adopted Plan Bay Area promotes significant infill growth at Priority Development Areas (PDA) throughout the region in close proximity to transit facilities. These infill sites provide the opportunity for cities to accommodate their fair share of affordable housing. Still, building affordable housing is not possible without local government subsidy.

As a result, local jurisdictions are exploring creative ways to continue to provide a source of funding for affordable housing and several are looking at impact fees as one option.

Affordable Housing Impact Fees

Typical Annual Salaries vs. Annual Salary Need To a�ord the average 2-bedroom apartment in

Santa Clara and San Mateo Counties.

(figure 1)

Sources: California Employment Development Department (EDD), 2010 American Community Survey (ACS), HUD.

Source: 2010 American Community Survey (ACS), Quarterly Census of Employment and Wages.

Rental Housing Supply vs. Demand For Santa Clara and San Mateo Counties.

(figure 2)

Typical Annual Salaries v. Salary Needed to Afford an Average 2-Bedroom Apartment

Source: CA Employment Development Department

AVERAGE RENT FOR A 2-BEDROOM APARTMENT:

Santa Clara County - $1,948San Mateo County - $2,517

What is a Housing Impact Fee?A Housing Impact Fee is a per square foot fee levied on market rate housing that can be used to build affordable homes. The fees are based on the idea that every person who moves into a market-rate home will generate a need for services typically provided by employees paid less than the median income, such as hair dressers, coffee baristas, gardeners, healthcare workers and preschool teachers. A Housing Impact Fee requires a nexus study, which determines how many affordable homes will be needed to house the workers required to serve the new market rate households.

Why Adopt Housing Impact Fees?As housing production rebounds in the Bay Area, the market simply isn’t producing housing for the full range of needs in most communities. As a result, workers are forced to live far from their jobs adding to traffic gridlock and green house gas emissions with increased vehicle miles traveled.

With the loss of redevelopment agencies – a key tool at the local level for funding affordable housing – as well as budget cuts to housing funds at the federal level and the depletion of state housing bond funds, funding affordable housing production is an increasingly difficult challenge for local governments.

Housing Impact Fees have emerged as an integral local government action to ensure that affordable homes are built in the Bay Area’s fastest growing communities.

What Do Housing Impact Fees Help Fund?The funds generated can be used in several ways which include funding affordable housing programs such as: first time homebuyer assistance; home improvement programs with loans and grants for renovation; and housing scholarship programs. In addition, these funds can be used to support land acquisition and provide gap funding for new construction of affordable housing. They can also be used to assist with acquisition and rehabilitation of existing market rate housing as affordable units.

What is a Nexus Study?A residential nexus study establishes a direct connection between construction of new market-rate housing and the need triggered for affordable housing, providing the economic analyses required to support potential residential housing impact fees. A nexus study is used to determine a residential housing impact fee range and is a tool for decision-makers to determine the appropriate affordable housing fee based on the construction of market-rate housing for their city.

Affordable Housing Impact Fees

Benefits of Housing Impact FeesCreates housing choices that are integral to healthy communities

Housing Impact Fees provide the funding needed to create homes affordable to a range of income levels. By providing these housing options, a community’s labor force — including hospital workers, retail clerks, bus drivers, and childcare workers — can afford to live in the communities they serve and lessen the impact on greenhouse gas emissions, traffic gridlock and hours spent on commuting. Hardworking families at all income levels can have access to good schools and safe neighborhoods.

Levels the playing field for all developers

By adopting Housing Impact Fees, local governments remove uncertainty from the development process when the fees are upfront and consistent and not negotiated as part of the development process. It enables landowners and developers to make informed financial decisions before building.

Provides flexible funding

The expenditure program for Housing Impact Fee funds is designed by the city that imposes the fee, so the program can be tailored to the specific needs of that community and can be phased to accommodate future projects.

Impact Fees for Affordable Housing Adopted by San Francisco Bay Area Cities and Counties

In the box are listed cities and counties that have adopted an impact fee. The fees are based on a nexus study and are either a per unit or a per square foot fee. It is important to note that most nexus studies are conservative in their assumptions and modeling and provide a fee range that is legally defensible.

The nexus fee reflects the local market conditions and the community’s housing needs. It enables communities and its decision-makers to adopt an appropriate fee from a range of options that take into account that community’s specific goals and targets.

As more cities embark on updating their Housing Elements, adopting an Affordable Housing Impact Fee provides for a critical source of local funding towards getting to our affordable housing goals.

Adopted Fee Nexus Study

Berkeley $20,000 / unit ($19,500 - $34,000 / unit)

Fremont $17.55 - $20.25 / sq. ft. ($17.41 - $24.97 / sq. ft.)

San Carlos $18,554 / unit ($5,325 - $66,538 / unit)

Santa Rosa $1,137 - $1,911 / sq. ft. ($7,583 - $12,741 / sq. ft.)

Walnut Creek $1.60 - $15 / sq. ft. ($28,930 - $31,550)

Mountain View $10 / sq. ft. ($17.51 - $23.63)

Marin County $0 - $10 / sq. ft.

Napa County $1,738 / unit

Main Office

303 Vintage Park Drive, Suite 250

Foster City, CA 94404

T. 650-356-2900

F. 650-357-9766

www.midpen-housing.org

ResourcesConsultants that Complete Nexus Studies for Housing Impact Fees

David Paul Rosen & Associates

EPS Economic and Planning Systems

Bay Area Economics

Keyser Marston Associates, Inc.

RRC Associates

Stanley R. Hoffman Associates

Seifel Consulting Inc.

Vernazza Wolfe Associates, Inc.

Credits

Impact Fees: The Non-Profit Housing Association of Northern California

Financing Affordable Housing through Impact Fees: Leslye Corsiglia, City of San Jose Department of Housing

Affordable Housing Impact Fees

www.draconsultants.com

www.epsys.com

www.bayareaeconomics.com

www.keysermarston.com

www.rrcinfo.com

www.stanleyrhoffman.com

www.seifel.com

mwolfe@vernazzawolfe.com