9.15.2021.Downtown_Commission_Meeting_ Backup — original pdf

Backup

Downtown Density Bonus Program Affordable Housing Fee Calibration September 15 Downtown Commission Content Resolution No 20210422-039 Draft Fees Fee Calibration Discussion Next Steps Resolution No 20210422-039 FAR Policy •Amend City Code section 25-2-586 (Downtown Density Bonus Program) to amend subsection (B)(6). •The amendments shall maximize participation in the Program and maximize community benefits, especially the funding of permanent supportive housing and housing vouchers. •Before deliberation on the code changes by the Planning Commission or City Council, the City Manager is directed to present a report on Floor to Area Ratio best practices. Interim Fees •Implement interim revisions to the in-lieu affordable housing fees for residential development for the Downtown Density Bonus Program; •Implements interim revisions to the in-lieu affordable housing fees for non-residential development for the Downtown Density Bonus Program and Rainey Density Bonus Programs; and •Moves revised fees described above to the City Fee Schedule so they can be updated more effectively. Fee Calibration •Update the fee-in-lieu analysis provided by EcoNorthwest to reflect current market conditions and existing zones of the Downtown Density Bonus Program area and return to Council with, if necessary, an item for action no later than August 26, 2021, or prior to budget approval if possible. 3 Resolution No 20210422-039 ▪ The City Council directs the City Manager to post an item for action on May 20, 2021 that accomplishes the following: – Implements interim revisions to the in-lieu affordable housing fees for residential development for the Downtown Density Bonus Program; – Implements interim revisions to the in-lieu affordable housing fees for non-residential development for the Downtown Density Bonus Program and Rainey Density Bonus Programs; and – Moves revised fees described above to the City Fee Schedule so they can be updated more effectively. 4 LDC Revision Calibrated DDBP fees Interim Fees Based on LDC Revision calibrated fees for the Downtown Density Bonus Program: - Calibrated using late 2019 market - Based on new zones of the LDC dynamics Revision - Calibrated to a site’s base zoning not the downtown sub-district - Tuned to specific requirements of proposed LDC Revision from January 28, 2020 memo from economic consultants, EcoNorthwest 5 Resolution No 20210422-039 ▪ Update the fee-in-lieu analysis provided by EcoNorthwest to reflect current market conditions and existing zones of the Downtown Density Bonus Program area and return to Council with, if necessary, an item for action no later than August 26, 2021, or prior to budget approval if possible. 6 2021 Calibrated Fees 2021 Interim Fees ▪ The in-lieu fees for residential Base Zoning or District Residential Commercial CBD $12 $18 development could be higher than the interim fees. – Increased construction costs – Increased condo sales prices – Removal of artificial cap on sales prices All other base zones $10 Rainey (all zones) $5 $12 $12 ▪ The interim in-lieu fees for commercial development are not supported by current commercial market conditions. – Decrease in market office rents – Increase in operating costs (including property taxes) $ per square foot of bonus area 7 2021 Calibrated Fees - Calibrated by City of Austin staff using a modeling tool created by economic consultants, EcoNorthwest - Incorporated feedback from Downtown Austin Alliance and the Real Estate Council of Austin - Staff recommend revisiting again next fiscal year due to uncertain future of commercial market 2021 Calibrated Fees Base Zoning or District Residential Commercial CBD $12 to $24 $2.50 to $18 All other base zones $10 to $16 $2.50 to $12 Rainey (all zones) $5 to $18 $2.50 to $12 8 Fee Calibration 9 Zoning and Affordability Requirements Public Policy Viable sites Land Development Can Occur Market Feasibility Rents, Sales Prices, Operating and Construction Costs Capital Competitive Returns on Capital 10 Fee Calibration ▪ DDBP is a voluntary program that relies on an incentive-based approach to having the private market deliver community benefits ▪ We employ the same financial considerations a real estate developer would use to evaluate the value of bonus entitlements compared to base entitlements ▪ Without participation in the bonus, no bonus units – market-rate or affordable – will be constructed ▪ Careful calibration needed to maximize public benefit and achieve policy goals Development Benefit Public Benefit 11 Calibrating Density Bonuses $$$$$ $$$$ $$$ $$ $ 0 Public Affordability Benefit Bonus Value Development Benefit via Bigger Buildings Value of Building to Base Entitlements Value of Building to Bonus Entitlements Value of Building to Bonus Entitlements Minus Affordability Requirement Density Bonus Value $$$$$ $$$$ $$$ $$ $ 0 Poorly calibrated requirements result in less bonus uptake and therefore fewer public benefits; potentially none if only base entitlements are used. Bonus Value Public Affordability Benefit Development Disbenefit of Bonus Building Value of Building to Base Entitlements Value of Building to Bonus Entitlements Value of Building to Bonus Entitlements Minus Affordability Requirement Discussion and Next Steps 14 Discussion Maximize Community Benefit • Fees in lieu of affordable housing are specifically directed towards low barrier approaches to housing people who are chronically homeless Keep flexibility and resilience in program to account for fluctuations in market • Development conditions are rapidly evolving, but the future of demand for downtown office space is uncertain Recalibration Frequency • Annually in the near term due to uncertain circumstances, but potentially less frequently going forward • Provide some predictability for projects to plan around • Tune to market conditions to maximize community benefits while not disincentivizing development Next Steps ▪ Design Commission briefing: September 27 ▪ City Council: September 30 Contact Erica Leak (Erica.Leak@austintexas.gov) and Sam Tedford (sam.tedford@austintexas.gov) 16 Additional Informational Slides 17 2014 Fees – Ordinance No 20140627-105 Development Type Downtown District Development Bonus Fee ($/SF Bonus Area) Core/Waterfront District Residential Lower Shoal Creek & Rainey Street District All other districts Office Hotel All districts All districts $10 $5 $3 No fee No fee 18 Calibration approach •Informs allowed building size and use •Includes parameters for base and bonus entitlements Zoning •Informs rent and sales price limits for affordable units •Affordable rent and sales price limits are the same across the city •Includes information on how much a building will cost to build and operate •Includes information on what rents and sales prices are possible Affordability Policy Real Estate Market Data •Considers the building area allowed under zoning and other regulations •Uses the real estate market data to assess the financial feasibility of a building Pro Forma •Compares the value of a base building to a bonus building •Determines additional value of bonus to calibrate viable affordable housing contribution Calibrated Results 19 Staff Calibrated Inputs ▪ Zoning – Tune to existing LDC zones and bonus entitlements – Identify base to bonus combinations on the ground today – Determine most prevalent zoning/bonus combinations and potential (re)development parcels ▪ Affordable Housing Policy – HUD Median Family Income 2021 – Maximum rents and sales prices of affordable units ▪ Real Estate Market Data – Market rate rents and sales prices – Parking demand – Construction costs – Operating costs – Investment metrics 20 Zoning and Site Inputs ▪ 13 Base to Bonus Combinations – 4 base zones – 10 bonuses ▪ Prototypical Lot sizes – 10,000 sq ft – 15,000 sq ft – 20,000 sq ft – 30,000 sq ft – 40,000 sq ft FAR = Floor Area Ratio Base Zone Bonus Entitlement CBD CBD DMU DMU DMU DMU CS CS CS CS CS CS MF-4 25:1 FAR; unlimited height 15:1 FAR; unlimited height 25:1 FAR; unlimited height 15:1 FAR; unlimited height 15:1 FAR; 400’ height 8:1 FAR; 200’ height 15:1 FAR; 400’ height 8:1 FAR; 200’ height 5:1 FAR; 120’ height 4:1 FAR; 100’ height 3:1 FAR; 90’ height 3:1 FAR; 50’ height 3:1 FAR; 90’ height 21 Affordable Housing Policy Inputs ▪ 2021 HUD Median Family Income for the Austin MSA – $98,900 for a family of four ▪ Increased max rents and max sales prices ▪ No change to onsite set-aside rates ▪ No change to affordability depth ▪ 50% of bonus value is directed towards fees (proportion of bonus upside dedicated to affordable housing community benefit – fees or onsite) 22 Discussion – Residential in focus Key Differences from 2019 Calibration ▪ Significantly Increased Construction Costs ▪ Significantly Increased Sales Prices 2021 Calibrated Fees CBD $12 to $24 All other base zones $10 to $16 Rainey (all zones) $5 to $18 ▪ Moderately Increased Rents Key Considerations: Maximizing Housing ▪ Increased Operating Expenses ▪ Removed artificial cap on sales prices to compensate for parking maximum impact • Maximize the affordable housing community benefit and provide more housing vouchers for people experiencing homelessness • Keep flexibility and resilience in program to account for fluctuations in market • Incentivize the creation of housing downtown 23 Discussion – Commercial in focus Key Differences from 2019 Calibration ▪ Moderately Increased Construction Costs ▪ Decreased Market Rents ▪ Increased Operating Expenses ▪ Uncertainty in future demand for Downtown office space 2021 Calibrated Fees CBD $2.50 to $18 All other base zones $2.50 to $12 Rainey (all zones) $2.50 to $12 Key Considerations: Future of Commercial Market • Under today’s conditions commercial fees are not viable…but neither is new construction generally. • Keep flexibility and resilience in program to account for fluctuations in market • Estimate circumstances under which commercial construction would be viable again and set fee to that rate • Assume annual recalibration 24 Income – Construction Costs – Investment Returns = RLV After rents and sales operating costs and commissions Materials, Labor, Planning, Permitting, etc Needed to attract capital for the project Residual Land Value / How much could a developer pay for land RLV = $0 Returns Construction Costs Income > Construction Costs + Returns RLV = $2.5 psf Returns Construction Costs Income > Construction Costs + Returns Income Income Income = Construction Costs + Returns RLV = -$1 Returns Construction Costs RLV = $5 psf Returns Construction Costs Income > Construction Costs + Returns Income Income B A S E B L D G A B A S E B L D G B B O N U S B L D G C B O N U S B L D G D 25