American Canyon Affordable Housing Nexus Study: Background Report

American Canyon Affordable Housing Nexus Study: Background Report City of American Canyon Final Report DAVID PAUL ROSE N & ASSOCI ATES D E V E L O P M E N T, F I N A N C E A N D P O L I C Y A D V I S O R S

City of American Canyon Affordable Housing Nexus Study: Background Report P R E P A R E D F O R : City of American Canyon Community Development Department 4381 Broadway Street, Suite 201 American Canyon, CA 94503 P R E P A R E D B Y : David Paul Rosen & Associates 1330 Broadway, Suite 937 Oakland, CA 94612 510-451-2552 510-451-2554 Fax david@draconsultants.com www.draconsultants.com 3941 Hendrix Street Irvine, CA 92614 949-559-5650 949-559-5706 Fax nora@draconsultants.com www.draconsultants.com Final Background Report i

Table of Contents Executive Summary... 1 Introduction... 1 Target Income Levels and Affordable Housing Cost... 2 Affordability Gap Analysis... 3 Nexus Analysis... 6 Nexus Fees in Other Cities... 6 1. Background and Introduction... 11 1.1 Target Income Levels... 12 2. The Nexus Rationale... 14 2.1 The Relationship Between Job Growth and Population Growth... 14 2.2 The Relationship Between Construction and Job Growth... 15 3. Summary of Affordable Housing Needs... 17 3.1 Household Income Distribution... 17 3.2 Tenure... 18 3.3 Overpayment... 19 3.4 Substandard Housing Conditions... 22 3.5 Overcrowding... 23 3.5 Homeless... 24 3.6 Disabled... 25 3.7 Elderly... 25 3.8 Existing Affordable Rental Housing... 25 3.9 Allocation of Regional Housing Needs... 26 4. Affordability Gap Analysis... 28 4.1 Methodology... 28 4.2 Housing Development Costs... 29 4.3 Calculation of Per Unit Subsidy Amounts... 30 5. Residential Nexus Analysis... 31 5.1 Impact Methodology and Use of the IMPLAN Model... 31 5.2 The IMPLAN Model... 32 5.3 Disposable Income of New Households... 33 5.4 Projected Employment Generation... 34 5.5 Projected Household Growth... 35 5.6 Projected Very Low and Low Income Households... 35 6. Non-Residential Nexus Analysis... 37 6.1 Overview of Non-Residential Nexus Methodology... 37 6.2 Non-Residential Nexus Methodology and Assumptions... 38 Appendix A: Supporting Technical Tables... 41 Final Background Report ii

List of Tables ES-1. Affordable Housing Income Limits by Percent of Area Median Income, City of American Canyon, 2014... 3 ES-2. Per Unit Affordability Gaps, Very Low Income Households... 4 ES-3. Per Unit Affordability Gaps, Low Income Households... 4 ES-4. Per Unit Affordability Gaps, Moderate Income Households... 5 ES-5. Justifiable Residential Nexus Fees Per Housing Unit... 7 ES-6. Justifiable Residential Nexus Fees Per Square Foot... 7 1. Affordable Housing Income Limits by Household Size, City of American Canyon, 2014... 13 2. Household Income Distribution, City of American Canyon, 2012... 17 3. Households by Tenure, City of American Canyon and Napa County, 2010... 19 4. Percent of Households Paying More than 30% and More than 50% of Gross Income on Housing, City of American Canyon, 2011... 20 5. Overcrowded Households, City of American Canyon, 2010... 24 6. Average Per Unit Affordability Gaps by Income Level and Housing Prototype... 30 A-1 Housing Prototype Projects... 41 A-2 Affordable Rents and Prototype Supportable Mortgage, Renter Housing Prototype... 42 A-3 Affordable Mortgage By Income Level, Owner Housing Prototypes... 43 A-4 Estimated Development Impact Fees for Construction of Housing Prototypes... 44 A-5 Estimated Development Costs, Owner Prototype #1, Large Lot SFD... 45 A-6 Estimated Development Costs, Owner Prototype #2, Small Lot SFD... 46 Final Background Report iii

A-7 A-8 A-9 A-10 A-11 A-12 A-13 A-14 A-15 A-16 A-17 A-18 A-19 A-20 A-21 A-22 A-23 Estimated Development Costs, Owner Prototype #3, Townhomes... 47 Estimated Development Costs, Renter Prototype #4, Stacked Flat Apartments... 48 Summary of Per Unit and Per Square Foot Total Development Costs, Housing Prototypes... 49 Owner Housing Affordability Gap to Cost Calculations, Prototype #1, Large Lot SFD... 50 Owner Housing Affordability Gap to Cost Calculations, Prototype #2, Small Lot SFD... 51 Owner Housing Affordability Gap to Cost Calculations, Prototype #3, Townhomes... 52 Renter Housing Affordability Gap to Cost Calculations, Prototype #4, Stacked Flat Apartments... 53 Estimated Disposable Income of New Homebuyers, Owner Housing Prototypes... 54 Estimated Disposable Household Income of New Renter Households, Rental Housing Prototype... 55 Estimated Employment Impacts by Industry Sector, Prototype #1, Large Lot SFD... 56 Estimated Employment Impacts by Industry Sector, Prototype #2, Small Lot SFD... 57 Estimated Employment Impacts by Industry Sector, Prototype #3, Townhomes... 58 Estimated Employment Impacts by Industry Sector, Prototype #4, Stacked Flat Apartments... 59 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #1, Large Lot SFD... 60 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #2, Small Lot SFD... 61 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #3, Townhomes... 62 Estimated Qualifying Very Low, Low and Moderate Income Households, Prototype #4, Stacked Flat Apartments... 63 Final Background Report iv

A-24 National Retail Worker Distribution by Occupation... 64 A-25 National Hotel Worker Distribution by Occupation... 65 A-26 National Manufacturing Worker Distribution by Occupation... 66 A-27 National Warehouse Worker Distribution by Occupation... 67 A-28 Wages by Occupational Grouping, Napa County, First Quarter 2014... 68 A-29 Estimated Occupational Distribution of New Employee Households by Land Use Type... 70 A-30 Estimated Qualifying Very Low Income Households by Land Use Type... 71 A-31 Estimated Qualifying Low Income Households by Land Use Type... 72 A-32 Estimated Qualifying Moderate Income Households by Land Use... 73 A-33 American Canyon Home Sales, 2011 to 2014... 74 A-34 Profile of Selected Rental Properties, City of American Canyon Market Area, Projects Built Since 2001... 75 List of Charts 1. 2. 3. 4. Household Income Distribution, City of American Canyon, 2012... 18 Percent of Renter Households Paying More than 30% of Income on Housing by Household Income Level, City of American Canyon and Napa County, 2011... 21 Renter Households Paying More than 30% of Income on Housing by Household Income Level, City of American Canyon, 2011... 22 Regional Housing Need Allocation, City of American Canyon, 2014 to 2022... 27 Final Background Report v

Executive Summary Introduction The City of American Canyon first adopted its Inclusionary Housing Ordinance in 2001 and last updated its inclusionary housing in lieu fee in 2009. Since that time, recent court cases have changed the legal landscape for inclusionary housing ordinances in California. The City of American Canyon (City) retained David Paul Rosen & Associates (DRA) to prepare a nexus study examining the legality and basis for establishing a rational nexus between market-rate residential development and non-residential development and the need for affordable housing in the City. To the extent that new market-rate residential and non-residential development in the City increases demand for housing and exacerbates the City s shortage of affordable housing, the City has a strong public interest in, and a legal basis for, causing new affordable housing to be developed to meet this additional demand. This report summarizes the assumptions and analysis of DRA s nexus analysis. In designing a fee on new residential and non-residential development to assist the provision of affordable housing, the basis for the fee is that such development has a deleterious impact by increasing employment, which also increases the demand for housing for the added employees, because market-rate housing development, with no public assistance, will not provide housing affordable for the additional lowerearning employees. A nexus study is intended to determine whether: (1) those who must pay the fee are contributing to the problem that the fee will address; and (2) the amount of the fee is reasonably justified by the magnitude of the fee-payer's contribution to the problem. Nexus fees have been successfully upheld against legal challenge where the fees met standards set by case law. City of American Canyon Affordable Housing Nexus Study: Final Background Report 1

The case law is inconclusive regarding whether inclusionary housing ordinances, which require a share of newly constructed housing to be affordable to people with low and moderate incomes, must be justified by a nexus study or can rely on the police power of local government to adopt laws and policies that protect the public s health, safety and welfare. The California Supreme Court has granted a petition for review in California Building Industry Association v. City of San Jose (Case No. S212072) to resolve this issue. Because the issue is unsettled, this study provides support for affordable housing fees through a nexus study. In 2009, in Palmer/Sixth Street Properties, L.P. v City of Los Angeles (2009) 175 Cal. App. 4 th 1396, the California Court of Appeal held that forcing Palmer to provide affordable housing units at regulated rents conflicts with the right afforded residential landlords under Costa-Hawkins Act to establish the initial rental rate and the rate upon vacancy for a dwelling unit. However, the Costa-Hawkins Act does not apply where the owner has agreed by contract to build affordable housing in consideration for a direct financial contribution or other form of assistance specified in state density bonus law. As a consequence of Palmer, the City cannot impose inclusionary requirements on rental housing unless the City provides monetary or other assistance. Instead, the City may mitigate the impacts of rental housing on the need for affordable housing by imposing a fee justified by a nexus study. This nexus study examines the impacts of new market-rate rental and owner housing development in American Canyon on the need for affordable housing. Target Income Levels and Affordable Housing Cost The nexus analysis uses State income limits for Napa County. Very low income households are defined as households with incomes up to 50 percent of area median income (AMI), or $43,050 for a four-person household in Napa County in 2015. Low income households are defined as households with incomes between 51 percent and 80 percent of AMI, or $65,900 or less for a four-person household in 2014. Moderate income households are defined as those households earning between 81 and 120 percent of AMI, or $103,300 or less for a four-person household. All of these income limits are based on the 2014 State income limits for Napa County. The 2015 State area median income for the County is $86,100. Table ES-1 shows 2015 very low, low and moderate income limits for the City of American Canyon for household sizes of one to six persons using HUD household size adjustment factors. City of American Canyon Affordable Housing Nexus Study: Final Background Report 2

Table ES-1 Affordable Housing Income Limits by Household Size 2015 Household Size 30% AMI 50% AMI 80% AMI 120% AMI One Person $18,100 $30,150 $46,150 $72,300 Two Persons $20,700 $34,450 $52,750 $82,650 Three Persons $23,300 $38,750 $59,350 $92,950 Four Persons $25,850 $43,050 $65,900 $103,300 Five Persons $27,950 $46,500 $71,200 $111,550 Six Persons $30,000 $49,950 $76,450 $119,850 Source: 2015 State median household income for Napa County of $86,100, adjusted by household size and income level; DRA. Affordability Gap Analysis The affordability gap analysis compares the cost of developing housing in the City to the amount very low, low, and moderate income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at these target income levels. The per unit subsidy required to make new housing affordable to very low, low, and moderate income residents was calculated by subtracting per unit development costs from the per unit mortgage or home price supportable from affordable rents and owner housing cost. The resulting per affordable housing unit subsidies required by unit bedroom count are shown in Table ES-2 for very low income households, Table ES-3 for low income households, and Table ES-4 for moderate income households. The results of the gap analysis show significant affordability gaps for all prototypes for very low and low income households. Given the relatively high median income for Napa County, there are no gaps for some unit sizes and prototypes at the moderate income level. The purpose of the gap analysis is to determine the fee amount that would be required to develop housing affordable to the very low and low income households who will need to find housing in the City in connection with new City of American Canyon Affordable Housing Nexus Study: Final Background Report 3

market-rate residential and non-residential development in the City. Therefore, no other housing subsidies, or leverage, are assumed. Table ES-2 Per Unit Affordability Gaps Very Low Income Households 2015 Prototype #1 Large Lot SFD Prototype #2 Small Lot SFD Prototype #2 Townhome Prototype #2 Apartment Unit Bedroom Count One Bedroom N/A N/A N/A $198,200 Two Bedrooms N/A N/A $114,000 $260,900 Three Bedrooms $200,800 $171,800 $134,800 $348,900 Four Bedrooms $317,700 $290,300 $158,200 N/A Five Bedrooms $481,700 $423,100 N/A N/A Average 1 $385,700 $306,400 $135,500 $234,800 N/A=Prototype does not have units with specified bedroom count. SFD= Single-Family Dwelling 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: DRA. Table ES-3 Per Unit Affordability Gaps Low Income Households 2015 Prototype #1 Large Lot SFD Prototype #2 Small Lot SFD Prototype #2 Townhome Prototype #2 Apartment Unit Bedroom Count One Bedroom N/A N/A N/A $174,500 Two Bedrooms N/A N/A $51,000 $234,300 Three Bedrooms $130,100 $101,100 $64,100 $319,100 Four Bedrooms $241,500 $214,100 $81,200 N/A Five Bedrooms $405,500 $346,900 N/A N/A Average 1 $309,700 $231,300 $65,100 $209,500 N/A=Prototype does not have units with specified bedroom count. SFD= Single-Family Dwelling 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: DRA. City of American Canyon Affordable Housing Nexus Study: Final Background Report 4

Table ES-4 Per Unit Affordability Gaps Moderate Income Households 2015 Prototype #1 Large Lot SFD Prototype #2 Small Lot SFD Prototype #2 Townhome Prototype #2 Apartment Unit Bedroom Count One Bedroom N/A N/A N/A $55,800 Two Bedrooms N/A N/A $0 $100,800 Three Bedrooms $0 $0 $0 $170,900 Four Bedrooms $19,100 $0 $0 N/A Five Bedrooms $183,100 $124,500 N/A N/A Average 1 $88,200 $12,300 ($139,500) $82,500 N/A=Prototype does not have units with specified bedroom count. SFD= Single-Family Dwelling 1 Weighted average based on the unit distribution by bedroom count for the housing prototypes in Appendix Table A-1. Source: DRA. City of American Canyon Affordable Housing Nexus Study: Final Background Report 5

Nexus Analysis The methodology used for the residential nexus analysis begins with the estimated sales prices or rents of a prototypical residential subdivision or apartment complex and moves through a series of linkages to the incomes of the households that purchase or rent the units, the annual expenditures of those households on goods and services, the jobs associated with the delivery of these goods and services, the income of the workers performing those jobs, the household income of those worker households, and finally to the affordability level of the housing needed by those worker households. The consumer expenditures of residents in the new market-rate housing and jobs generated by these expenditures are estimated using the IMPLAN model, a model widely used for the past 25 years to quantify employment impacts from personal income. The methodology used for the non-residential nexus analysis estimates the number of households at very low and low income levels associated with the employees that work in a building of a given size and land use type in the City, and calculates the development impact fee required to make housing affordable to those households. The result of above methodologies is the estimated number of households by prototype living in the City and qualifying as very low and low income as a result of new development activity in the City. DRA uses the results of the housing affordability gap analysis to calculate the development impact fee required to make housing affordable to the very low and low income households who will need to find housing in the City in connection with new market-rate residential and nonresidential development in the City. Nexus Fees in Other Cities DRA surveyed supported and adopted affordable housing nexus fees and inclusionary in lieu fees in selected Northern California communities. The survey of residential nexus and in lieu fees is summarized in Table ES-5. The survey of non-residential nexus fees is summarized in Table ES-6. Of the thirteen cities surveyed in the residential fee survey, eleven have adopted residential nexus fees ranging from a low of $1.00 per square foot to a high of nearly $45 per square foot.. City of American Canyon Affordable Housing Nexus Study: Final Background Report 6

Sacramento completed a draft nexus study but is still in the process of reviewing its Mixed Income Housing Ordinance and Yountville considers inclusionary housing in lieu fees on a case-by-case basis. Based on a survey of Napa County jurisdictions with non-residential nexus fees, fee levels range from a low of $0.50 per square foot for warehouse uses to a high of $80.00 per square foot for retail development. City of American Canyon Affordable Housing Nexus Study: Final Background Report 7

Table ES-5 Justifiable and Adopted Residential Nexus and Inclusionary Housing In Lieu Fees in Selected Northern California Communities February, 2015 City Supported Fee Per Unit 1 Supported Fee Per SF 1 Adopted Fee Berkeley $34,000 per unit $37.78 based on 900 SF unit $28,000 per unit (equals $31.11 based on 900 SF unit) Calistoga 2 $47,212 N/A $12,000 per single-family home 3 East Palo Alto $19,700 to $47,900 per unit $22.70 to $44.72 per SF Fremont 4 N/A $19.60 to $25.20 per SF $22.70 to $44.72 per SF $19.50 per SF owner; $22.50 per SF owner on lots over 6,000 SF; $19.50 renter $10 per SF Mountain View $35,000 to $64,000 per unit N/A Napa City 5 $13,300 per unit N/A $2.20 per SF single-family and rental; $16,600 per condo; $3.75 per SF rental unit condo; $29,800 per unit single-family Napa County 6 N/A N/A $9.00 per SF for units 1,200 to 2,000 SF; $10.75 per SF for units 2,001 to 3,000 SF and $12.25 per SF for units over 3,000 SF Pleasanton 7 N/A N/A $10,880 per unit for SFD; $2,696 per unit for multifamily Sacramento 8 $24,200 to $30,000 $25.47 to $35.41 per N/A per unit SF St. Helena 9 N/A N/A 2.5% of construction valuation San Carlos $43,101 per unit $42.04 to $45.28 per SF Varies by number of units but generally $23.54 to $28.27 per SF Santa Rosa 10 $7,500-12,700 per $9.95-13.73 per SF $1.00-$6.55 per SF unit Yountville 11 N/A N/A N/A N/A = Not Available City of American Canyon Affordable Housing Nexus Study: Final Background Report 8

Notes to Table ES-5: 1 Based on a nexus study 2 Nexus study completed September 2014 3 Planning Commission has recommended this revision to the City s inclusionary housing ordinance and in-lieu fee. 4 Nexus study conducted in 2011. 5 Nexus study conducted in 2011. 6 Nexus study conducted in 2010. Owner fee was adopted as an in lieu fee. 7 Nexus study completed in 2013. The City did not change its Low Income Housing Fee based on the nexus study. Adopted fees are current as of January 1, 2014. Multifamily fee applies to rental and owner units as well as SFD units less than 1,500 square feet. 8 Draft of study completed in July 2013. The effort is still ongoing as of October 2014. 9 Nexus study completed in October 2013. 10 Nexus study completed in February 2013. 11 Nexus study completed in May 2005. 12 In-lieu fees are considered on a case-by-case basis only. Source: DRA. City of American Canyon Affordable Housing Nexus Study: Final Background Report 9

Table ES-6 Non-Residential Nexus Fees in Selected Northern California Communities February, 2015 Fees Per Square Foot by Land Use City Office Hotel Retail Industrial Warehouse Calistoga 1 $1.00/SF 2 $1.40/SF 2,3 $80.00/SF 2 $0.50/SF 2 $0.50/SF 2 Napa $5.25/SF $9.00/SF $7.50/SF $4.50/SF $3.60/SF County 4 Napa City 5 $1.00/SF $1.40/SF $0.80/SF $0.50/SF $0.50/SF St. Helena 6 $4.11/SF $3.80/SF $5.21/SF $1.26/SF $1.26/SF Santa Rosa None None None None None Yountville 7 $17.51/SF 8 $8,757/room $17.51/SF 7 $351/seat 9 $17.51/SF 8 $17.51/SF 8 1 Development Impact Fee Study was completed in September 2014. 2 Listed as Housing In-Lieu Fee on Development Impact Fee Schedule. 3 Applies to all tourist accommodations. 4 Non-Residential Jobs-Housing Nexus Fee Study Update completed in April 2014. 5 Commercial Development Housing Impact Fee Nexus Study completed in December 2011. 6 Development Impact Fee Study was completed in July 2013. 7 Development Impact Fee Study was completed in May 2005. 8 Impact fee of $17.51/SF applies to all commercial development 9 Restaurant impact Source: DRA. City of American Canyon Affordable Housing Nexus Study: Final Background Report 10

1. Background and Introduction The City of American Canyon (City) retained David Paul Rosen & Associates (DRA) to prepare a nexus study examining the legality and basis for establishing a rational nexus between market-rate residential and non-residential development and the need for affordable housing in the City. To the extent that new market-rate residential and non-residential development in the City increases demand for housing and exacerbates the City s shortage of affordable housing, the City has a strong public interest in, and a legal basis for, causing new affordable housing to be developed to meet this additional demand. In designing a fee on new residential development to assist the provision of affordable housing, the basis for the fee is that such development has a deleterious impact by increasing employment, which also increases the demand for housing for the added employees, because market-rate housing development, with no public assistance, will not provide housing affordable for the additional lower-earning employees. A nexus study is intended to determine whether: (1) those who must pay the fee are contributing to the problem that the fee will address; and (2) the amount of the fee is reasonably justified by the magnitude of the fee-payer's contribution to the problem. Nexus fees have been successfully upheld against legal challenge where the fees met standards set by case law. The case law is inconclusive regarding whether inclusionary housing ordinances, which require a share of newly constructed housing to be affordable to people with low and moderate incomes, must be justified by a nexus study or can rely on the police power of local government to adopt laws and policies that protect the public s health, safety and welfare. The California Supreme Court has granted a petition for review in California Building Industry Association v. City of San Jose (Case No. S212072) to resolve this issue. Because the issue is unsettled, this study provides support for affordable housing fees through a nexus study. In 2009, in Palmer/Sixth Street Properties, L.P. v City of Los Angeles (2009) 175 Cal. App. 4 th 1396, the California Court of Appeal held that forcing Palmer to provide affordable housing units at regulated rents conflicts with the right afforded residential landlords under Costa-Hawkins Act to establish the initial rental rate and the rate upon vacancy for a dwelling unit. However, the Costa-Hawkins Act does not apply where the owner has agreed by contract to build affordable housing in consideration for a direct financial contribution or other form of assistance specified in state density bonus law. City of American Canyon Affordable Housing Nexus Study: Final Background Report 11

As a consequence of Palmer, the City cannot impose inclusionary requirements on rental housing unless the City provides monetary or other assistance. Instead, the City may mitigate the impacts of rental housing on the need for affordable housing by imposing a fee justified by a nexus study. 1.1 Target Income Levels The nexus analysis uses State income limits for Napa County. It calculates an affordable housing nexus fee for the following income categories: Households with incomes up to 50 percent of area median income (AMI), or approximately $43,050 for a four-person household; Households with incomes between 51 percent and 80 percent of AMI, or between $43,050 and $65,900 for a four-person household; and Households with incomes between 81 percent and 120 percent of AMI, or between $65,900 and $103,320 for a four-person household. All of these income limits are based on the 2014 State income limits for Napa County. The 2015 State area median income for the County is $86,100. Table 1 shows 2015 income limits for the City of American Canyon for these income categories for household sizes of one to six persons, as well as for the extremely low income category that includes households with incomes under 30% of AMI. City of American Canyon Affordable Housing Nexus Study: Final Background Report 12

Table 1 Affordable Housing Income Limits by Household Size 2015 Household Size 30% AMI 50% AMI 80% AMI 120% AMI One Person $18,100 $30,150 $46,150 $72,300 Two Persons $20,700 $34,450 $52,750 $82,650 Three Persons $23,300 $38,750 $59,350 $92,950 Four Persons $25,850 $43,050 $65,900 $103,300 Five Persons $27,950 $46,500 $71,200 $111,550 Six Persons $30,000 $49,950 $76,450 $119,850 Source: California published State income limits for Napa County for 2015, based on the State area median income for Napa County of $86,100; DRA. City of American Canyon Affordable Housing Nexus Study: Final Background Report 13

2. The Nexus Rationale This section describes and substantiates the relationship between new residential and non-residential development and the need for affordable housing, as quantified using DRA s nexus methodology. This relationship has been well documented and nexus fees have been successfully upheld against legal challenge where the fees met standards set by case law. Fees on development in California are subject to two overlapping sets of legal requirements, constitutional requirements of nexus and "rough proportionality" under the U. S. Supreme Court cases of Nollan v. California Coastal Commission (1987) 483 U. S. 825 and Dolan v. City of Tigard (1994) 512 U. S. 374, and California's statutory "reasonable relationship" requirements under California Government Code sections 66000-66010. Although legally distinct, these two standards are substantively similar and in practice a development fee that satisfies one will almost certainly satisfy both. The California Supreme Court in Ehrlich v. City of Culver City (1996) 12 Cal. 4th 854, 867 concluded that the two standards "for all practical purposes, have merged." The legal requirement is that a local government charging a fee make some affirmative showing that: (1) those who must pay the fee are contributing to the problem which the fee will address; and (2) the amount of the fee is justified by the magnitude of the fee-payer's contribution to the problem. In designing a fee on new residential or commercial development to assist the provision of affordable housing, there is now likely to be little dispute that such development, by increasing employment, also increases the demand for housing for the added employees, and that market-rate housing development, with no public assistance, will not provide housing affordable for the additional lower-earning employees. The main legal concern is the amount of responsibility for providing housing that is assigned to new development, and thus the appropriate fee level. 2.1 The Relationship Between Job Growth and Population Growth The basis of the nexus fee concept is growth in lower to moderate income households. New population growth in most U.S. regions occurs in response to job growth. Growth in the greater San Francisco Bay area, and in American Canyon, is predominantly job driven. Many factors underlie the reasons for growth in employment in a given region. These factors are complex, interrelated, and City of American Canyon Affordable Housing Nexus Study: Final Background Report 14

often associated with forces at the national or even international level. However, most people coming to the region would not come if they could not expect to find a job. People born in the local area would not stay without jobs. In the short-term, economic cycles and other factors can result in population growth without jobs to support the growth. If an economic region in the U.S. does not maintain job growth in the long term, however, there is an out-migration to regions where job growth is occurring. Many cities in the Midwest during the 1970s and 1980s experienced such outmigration. 2.2 The Relationship Between Construction and Job Growth Job growth does not occur in most industry sectors without buildings to house new workers. Therefore, new buildings are constructed to accommodate the workers associated with job growth. Any new building in American Canyon may be occupied partly or wholly by employees relocating from elsewhere in American Canyon or the greater San Francisco Bay area. Buildings are often leased entirely to firms relocating from other buildings in the same jurisdiction. However, when a firm relocates to a new building from elsewhere in the region, they vacate building space somewhere else, which in turn is filled by new firms and employees. Somewhere in the chain there are jobs new to the region. The net effect is that new buildings accommodate new employees, although not necessarily inside of the new buildings themselves. Just as new commercial buildings make room for new firms and their employees relocating to the area, so new residential construction makes room for new population and households moving to the area. Even if the household moving into a new unit may be relocating from the same jurisdiction, the household vacates an existing unit that, in turn, is filled with another household. Again, somewhere in the chain new population and households are added to the region. New market-rate housing development accommodates growth in population and households. The arrival of new population creates demand for additional jobs in retail outlets and services that follow housing growth. A portion of the income of the residents in new market-rate housing units will be spent to purchase a range of goods and services, such as purchases at local supermarkets and restaurants or services at local dry cleaners. These purchases in the local economy in turn generate employment at a range of different compensation levels. City of American Canyon Affordable Housing Nexus Study: Final Background Report 15

New housing affordable to lower income households is not added to the supply in sufficient quantity to meet the needs of new employee households associated with new commercial and residential buildings. This is because the cost to build new housing, or to acquire and rehabilitate existing housing, is more than the rents or home prices that lower income households can afford to pay. The retail and service sectors, in particular, include a high proportion of low paying jobs. DRA s nexus analyses are designed to demonstrate the economic relationship between residential and non-residential development and the need for affordable housing in the City. The nexus methodology used by DRA quantifies the estimated increase in lower income households associated with new commercial and residential development, and estimates the costs of providing housing affordable to these new households. These costs are then translated into the maximum supportable nexus fee that may be levied on commercial and residential development. DRA employs consistently conservative assumptions, so that the resulting calculations of the maximum fees understate the maximum nexus calculation for each land use type. This methodology is consistent with the standards of reasonable relationship established by Supreme Court case law and Government Code sections 66000-66010. City of American Canyon Affordable Housing Nexus Study: Final Background Report 16

3. Summary of Affordable Housing Needs This report summarizes key measures of affordable housing need in the City of American Canyon and identifies the existing inventory of subsidized rental housing, including units at risk of conversion to market rate. Data sources include the American Community Survey (ACS) and the 2010 U.S. Census, among others. 3.1 Household Income Distribution The need for affordable housing in American Canyon is driven by the household incomes of its households. Table 2 and Chart 1 summarize the income distribution of American Canyon households in 2012, compared to that for Napa County as a whole. The median household income in American Canyon was 20 percent higher than that of the County in 2012, at $83,609 and $69,571, respectively. Table 2 Household Income Distribution City of American Canyon and Napa County 2012 Annual Household City of American Canyon Napa County Income Number of Households Percent of Households Cumulative Percent Percent of Households Cumulative Percent Less than $10,000 78 1% 1% 3% 3% $10,000 to $14,999 166 3% 5% 4% 8% $15,000 to $24,999 321 6% 11% 8% 15% $25,000 to $34,999 319 6% 17% 8% 23% $35,000 to $49,999 396 7% 24% 12% 36% $50,000 to $74,999 1,130 21% 45% 18% 54% $75,000 to $99,999 739 14% 59% 13% 66% $100,000 to $149,000 1,286 24% 83% 18% 84% $150,000 to $199,999 494 9% 92% 8% 92% $200,000 or More 428 8% 100% 9% 100% Total 5,357 100% -- 100% -- Sources: ACS 5-year estimates; City of American Canyon 2015 to 2023 Draft Housing Element, October 2014; DRA. Approximately 11 percent of the City s households earn less than $24,999 per year, which equals only 29 percent of the 2014 HUD Area Median Income (AMI) for Napa County ($86,100) and supports an affordable rent of only $625 per month for a two-bedroom unit housing a family of four. Another 13 percent of households earn between $25,000 and $34,999, or between 29 percent and 40 City of American Canyon Affordable Housing Nexus Study: Final Background Report 17

percent of the County AMI. An additional 24 percent earn between $35,000 and $74,999, or between 40 percent and 87 percent of County AMI. American Canyon has a lower percentage of households in the lower income categories than Napa County as a whole. While 11 percent of City households earn under $25,000, the figure is 15 percent for the County. A total of 24 percent of households in the City earn less than $50,000, compared to 36 percent for the County. The percentage of households earning less than $75,000 is 45 percent for American Canyon and 54 percent countywide. 3.2 Tenure Table 3 summarizes the distribution of households by tenure (renter and owner) in 2010 for the City of American Canyon and Napa County. American Canyon has a higher proportion of owner households than Napa County as a whole, with a homeownership of 78.5 percent compared to 62.6 percent countywide. The large proportion of owner housing results from the single-family housing built within the City of American Canyon Affordable Housing Nexus Study: Final Background Report 18

Southeast Specific Plan and residential subdivisions along the Napa River/Estuary at the west end of the City. Table 3 Households by Tenure City of American Canyon and Napa County 2010 American Canyon Napa County Households Percent Households Percent Owner 4,443 78.5% 30,597 62.6% Renter 1,214 21.5% 18,229 37.4% Total 5,657 100% 48,876 100.0% Sources: U.S. Census Bureau; City of American Canyon 2015 to 2023 Draft Housing Element, October 2014; DRA. 3.3 Overpayment According to HUD s standard, households paying more than 30 percent of their gross income on housing are considered to be cost-burdened (paying more than they can afford for housing). Households paying greater than this amount have less income remaining for other necessities such as food, clothing, utilities and health care. The problem is most severe for families with limited incomes. Table 4 shows the percentage of renter and owner households by income level in the City of American Canyon paying more than 30 percent of gross income on housing, based on data from the City s 2014 Draft Housing Element. It also shows the percentage of households paying more than 50 percent of gross income on housing, who are considered severely cost-burdened. According to 2011 estimates, 100 percent of all renters earning less than 30 percent of AMI were costburdened, along with 95 percent of renters earning between 30 percent and 50 percent of AMI and 61 percent of those earning between 50 percent and 80 percent of AMI. Eighty percent of renters earning less than 30 percent of AMI pay over half of their income for housing, along with a third of those earning between 30 percent and 50 percent of AMI. Owner overpayment may be considered a choice, as some households choose to pay a higher percentage of their income for the benefits and security of owning a home. The 30 percent payment standard is considered low for owners. Lenders typically allow owners to pay 35 percent or more of gross income for mortgage principal, interest, taxes and insurance. Homeowners with very limited incomes City of American Canyon Affordable Housing Nexus Study: Final Background Report 19

may need assistance with home maintenance and repairs to stay in their homes for the long term. Table 4 Percent of Households Paying More Than 30% and More than 50% of Gross Income on Housing by Income Level 1 City of American Canyon 2011 Income Level: Tenure: < 30% AMI 30% - 50% AMI 50% - 80%AMI 80% - 100%AMI Renters Owners Renters Owners Renters Owners Renters Owners >30% of Income on Housing 100.0% 77.2% 95.1% 55.4% 60.9% 48.9% 52.9% 37.0% >50% of Income on Housing 80.0% 57.9% 34.1% 38.5% 19.6% 29.3% 0.0% 4.0% 1 Percentage of households by tenure and income level overpaying for housing from the Comprehensive Housing Affordability Strategy (CHAS), 2007 to 2011, prepared by the U.S. Department of Housing and Urban Development (HUD). Sources: U.S. Department of Housing and Urban Development; City of American Canyon 2015 to 2023 Draft Housing Element, October 2014; DRA. Chart 2 displays the percent of renter households paying more than 30 percent of their household income on housing by income level in the City of American Canyon and Napa County. At income levels below 100 percent of AMI, American Canyon has a higher percentage of cost-burdened households than the County as a whole. Chart 3 shows the number of renter households paying more than 30 percent of their household income on housing by income level in the City of American Canyon, as of 2011. A total of 247 low income households with incomes up to 80 percent of AMI are cost-burdened, and another 115 moderate income households within incomes between 80 percent and 100 percent of AMI are cost-burdened. City of American Canyon Affordable Housing Nexus Study: Final Background Report 20

Chart 2 Percent of Renter Households Paying More than 30% of Income for Housing by Household Income Level City of American Canyon and Napa County 2011 120% 100% 80% 60% 40% 20% 0% Less than 30% AMI 30% to 50% AMI 50% to 80% AMI 80% to 100% AMI Over 100% AMI American Canyon Napa County City of American Canyon Affordable Housing Nexus Study: Final Background Report 21

Chart 3 Renter Households Paying More than 30% of Income on Housing by Household Income Level City of American Canyon 2011 160 140 120 100 80 60 40 20 0 50 Less than 30% AMI 57 30% to 50% AMI 140 50% to 80% AMI 90 80% to 100% AMI 25 Over 100% AMI 3.4 Substandard Housing Conditions The City of American Canyon conducted a housing survey in 2009 of housing conditions in neighborhoods with concentration of homes greater than 20 years old and in mobile home parks to document housing conditions and the magnitude of the City s housing rehabilitation needs. While age does not always correlate with substandard housing conditions, neighborhoods with a preponderance of homes more than 30 years old are more likely than newer neighborhoods to have a concentration of housing problems related to deferred maintenance and a need for housing rehabilitation. The windshield survey ranked housing condition based on certain criteria listed in the CDBG Grant Manual. All of the units surveyed were found to be in sound condition, or in need of minor or moderate repairs. The survey did not identify any units in need of substantial rehabilitation or any dilapidated units. City of American Canyon Affordable Housing Nexus Study: Final Background Report 22

3.5 Overcrowding HUD defines overcrowding, for the purposes of the U.S. Census, as more than one person per room, excluding bathrooms and kitchens, and severe overcrowding as 1.5 persons per room or more. Overcrowding is often a symptom of housing unaffordability, as households double up or fit into smaller units to reduce housing costs. As shown in Table 5, based on 2010 Census data, there were 45 overcrowded or severely overcrowded renter households in the City, representing almost 20 percent of renter households. This is a much smaller percentage than in the county as a whole, where nearly half of all renter households (49 percent) were overcrowded or severely overcrowded. A total of 190 owner households in the City were overcrowded or severely overcrowded, representing about 14 percent of owner households. This compares with approximately 15 percent of owner households countywide. It should be noted that there are no federal legal standards for overcrowding. In a reasonable effort to allocate scarce financial resources for affordable housing, housing programs use occupancy standards, which typically allow for up to two persons per bedroom plus one to occupy an affordable housing unit (e.g., five persons in a two-bedroom unit). City of American Canyon Affordable Housing Nexus Study: Final Background Report 23

Table 5 Overcrowded Households 1 City of American Canyon 2010 American Canyon Napa County Households Percent Households Percent Renter Occupied Overcrowded (1.01 to 1.5 persons per room) 15 6.6% 1,175 30.0% Severely Overcrowded (1.5 persons per room or more) 30 13.2% 750 19.2% Total Renter Households 228 100.0% 3,915 100.0% Owner Occupied Overcrowded (1.01 to 1.5 persons per room) 160 11.6% 699 11.5% Severely Overcrowded (1.5 persons per room or more) 30 2.2% 219 3.6% Total Owner Households 1,375 100.0% 6,061 100.0% 1 Data from 2010 U.S. Census. Sources: U.S. Census Bureau; City of American Canyon 2015 to 2023 Draft Housing Element, October 2014; DRA. 3.5 Homeless The nature of the homeless population makes exact counting difficult. The 2013 Napa City and County Continuum of Care documented that there were 68 unsheltered and 177 sheltered homeless persons in Napa County, for a total of 245 homeless persons. More than half of the sheltered homeless consisted of persons in family households. None of the unsheltered included persons in families. With 194 year-round active beds in the County, including 109 for households with children and 85 for singles, there is an unmet need for 51 beds. City of American Canyon Affordable Housing Nexus Study: Final Background Report 24

3.6 Disabled Individuals with ambulatory impairments, self-care limitations, or other conditions that may require special housing accommodations or financial assistance. The 2008 to 2012 ACS reported that approximately 1,600 residents in the City, or 8.4 percent of the City s non-institutionalized population have conditions that may affect their ability to live independently in conventional residential settings. This is lower than the countywide rate of 10.7 percent. The disabled population in American Canyon includes 98 people aged 5 to 17 years, 651 persons between 18 and 64 years, and 851 persons over the age of 65. 3.7 Elderly The proportion of the population in American Canyon over 65 years of age has decreased in recent years. According to the 2000 Census, 13.4 percent of the population (1,306 persons) was above the age of 65. By 2010, the percentage declined to 9.6 percent of the population (1,865 persons). This trend is expected to continue as more families with children move into new residential neighborhoods. 3.8 Existing Affordable Rental Housing The City of American Canyon has one permanent affordable housing rental development, Vineyard Crossings, developed and operated by MidPen Housing, a regional affordable housing developer. The project was completed in 2007 and includes a total of 145 units in 13 three-story buildings on 7.21 acres. The project includes units affordable to households earning 30 percent of AMI, 35 percent of AMI, 50 percent of AMI and 55 percent of AMI. Amenities at Vineyard Crossings include a pool, multiple tot lots, and a community center with a fitness center and computer lab. The Vineyard Crossings community also includes a childcare center providing child care to low-income families operated by Child Start, a local nonprofit. City of American Canyon Affordable Housing Nexus Study: Final Background Report 25

The bedroom mix and unit sizes at the Vineyard Crossings project are as follows: Bedrooms: 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Total No. of Units: 24 63 55 3 145 Unit Size (SF): 583 898-935 1,107-1,176 1,413 The Lodge at Napa Junction, a 216-unit market rate apartment development built in 2006, originally contained 11 very low income and 11 low income units. The affordability restrictions on these units expired in October, 2014. The City has no affordable projects at risk of conversion to market rate in the next ten years. 3.9 Allocation of Regional Housing Needs Each region of the State is assigned a regional housing need by the California Department of Housing and Community Development (HCD). Councils of Governments (COGs) prepare regional housing needs plans that assign a share of each region s housing need by income level to each city and county. For the City of American Canyon, that assignment is made by the Association of Bay Area Governments (ABAG). Chart 4 below summarizes the Regional Housing Need Allocation (RHNA) for the City of American Canyon for the 2014 to 2022 period. The source of these figures is the City s 2015 to 2023 Housing Element. The City has a total RHNA of 392 units, or an annual need of about 44 units. This includes a need for 116 very low income units for households with incomes below 50 percent of AMI 1, 54 low income units for households with incomes between 50 percent and 80 percent of AMI, and 164 moderate income units for households with incomes between 80 percent and 120 percent of AMI. City of American Canyon Affordable Housing Nexus Study: Final Background Report 26

Chart 4 Regional Housing Need Allocation City of American Canyon 2014 to 2022 180 160 140 120 100 80 60 40 20 0 58 58 54 58 Extremely Low (0-30% of AMI) Very Low (31%-50% of AMI) Low (51%-80% of AMI) Moderate (80%-120% of AMI) 164 Above Moderate (Over 120% of AMI) City of American Canyon Affordable Housing Nexus Study: Final Background Report 27

4. Affordability Gap Analysis The affordability gap analysis compares the cost of housing development in the City to the amount very low and low income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at target income levels. The methodology, key assumptions and findings of the affordability gap analysis are summarized below. The resulting affordability gaps are used to estimate the maximum residential and non-residential nexus fees required to mitigate new demand generated by each building type for housing affordable to very low and low income households. Detailed calculations for the gap analysis are found in Appendix A tables at the end of the text. 4.1 Methodology The first step in the gap analysis establishes the amount a tenant or homebuyer can afford to contribute to the cost of renting or owning a dwelling unit. This analysis uses the income level and affordable housing cost definitions defined in prior sections of this report. The second step estimates the costs of constructing or preserving affordable housing in the City. DRA calculated the affordability gap for three owner prototypes and one renter prototype considered representative of recent and proposed new single-family and multifamily development in the City. The prototypes used in this analysis are detailed in Appendix Table A-1. Prototype #1 is a large lot detached single-family infill product. Prototype #2 is a small lot detached single-family infill product. Prototype #3 is an attached townhome development. Prototype #4 consists of stacked flat apartments. Affordability gaps are calculated for one-, two- and three-bedroom units for renters, and two- through five-bedroom units for owners, depending upon the prototype. The third step in the gap analysis establishes the housing expenses borne by the tenants and owners. These costs can be categorized into operating costs, and financing or mortgage obligations. Operating costs are the maintenance expenses of the unit, including utilities, property maintenance, property taxes, management fees, property insurance, replacement reserve, and insurance. For the rental prototype used in this analysis, DRA assumed that the landlord pays all but certain City of American Canyon Affordable Housing Nexus Study: Final Background Report 28