SR-08-26-2014-3Bo{ City Council Report
City
Santa Monica
City Council Meeting: August 26, 2014
Agenda Item: 3 °B
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Affordable Housing Production Program Fee Resolutions
Recommended Action
Staff recommends that the City Council adopt the attached Resolutions that would
automatically increase the Affordable Housing Unit Base Fee for new market -rate
apartments and condominiums and the Affordable Housing Unit Development Cost by
7.2 percent.
Executive Summary
The proposed adjustments to the Affordable Housing Unit Base Fee and Affordable
Housing Unit Development Cost reflect changes in land and construction costs.
On June 13, 2006, the City Council approved the methodology for ascertaining changes
in these costs and thereby calculating the adjustment. The attached resolutions have
been prepared in accordance with the approved methodology. The Affordable Housing
Unit Base Fee and the Affordable Housing Unit Development Cost would be 7.2 percent
higher than the existing amounts and would become effective
November 1, 2014, if approved.
Background
The Affordable Housing Production Program (AHPP), Chapter 9.56 of the City's
Municipal Code, implements Proposition R, which establishes that not less than
30 percent of all newly constructed multi- family housing in the City annually must be
affordable to low- and moderate - income households for at least 55 years. The AHPP
was adopted by the City Council on July 21, 1998 and has been periodically amended,
as necessary. The AHPP requires developers of new market -rate, multi - family housing
to contribute to affordable housing goals by designating a portion of a development's
total residences as affordable housing, constructing affordable housing off site,
1
designating land for affordable housing development, or paying the Affordable Housing
Unit Base Fee.
The Fee is updated annually based upon changes in land and construction costs.
When a developer chooses to designate a portion of a project's total residences as
affordable housing, the number of affordable residences that must be provided is based
on the number of market -rate units in the development. Oftentimes, the calculation of
required affordable residences results in a fraction. In that instance, when the fraction is
0.75 or more, the number is rounded -up to a whole number. However, any fraction less
than 0.75 can be satisfied by payment of a fee. The amount of the fee is based upon
the Affordable Housing Unit Development Cost, which is also automatically adjusted
annually based upon changes in land and construction costs. For example, if a
developer is required to provide 4.7 units of affordable housing within a development,
the developer would be required to designate four affordable units and pay 0.7 times the
Affordable Housing Unit Development Cost to satisfy the requirement associated with
the fraction.
Discussion
Annual Fee Adiustments
Section 9.56.070 of the City's AHPP provides that the Affordable Housing Unit Base
Fee and the Affordable Housing Unit Development Cost shall be adjusted annually by
Council resolution based on changes in construction and land costs. The fee adjustment
methodology is detailed in Section 2 of the AHPP Administrative Guidelines and reflects
the methodology approved by Council in 2006. The fees are adjusted based on two
factors: 1) changes in construction costs as measured by the Engineering News
Records Construction Cost Index, and 2) changes in land costs measured by using the
proxy of change in median condominium sales prices. The previous annual adjustment,
adopted by Council on August 27, 2013, increased the fees by 0.8 percent ($0.22 per
square foot for apartments and $0.26 per square foot for condominiums).
2
The table below summarizes this year's proposed adjustment to the fees, which would
be increased by 7.2 percent based on this year's changes in land and construction
costs.
The proposed Resolutions, Attachments A and B, would adjust the fees accordingly,
effective November 1, 2014. Details of the. calculations prepared by HR &A Advisors for
the Affordable Housing Unit Base Fee and the Affordable Housing Unit Development
Cost are provided in Attachments C and D. The revenue implications are minimal and
depend on development activity in any given year.
On August 15, 2014, the City published notice in the Santa Monica Daily Press of this
hearing and the availability of the HR &A Advisors' analyses. The City republished this
notice on August 21, 2014. Copies of these analyses have been available in the City
Clerk's Office for public review since August 15, 2014.
3
2013
2014
F ee Description
:
Amount
Amount
�°
Change ;;
Affordable Housing Unit Base Fee —
$27.79
$29.79
+7.2%
Apartments per square foot
Affordable Housing Unit Base Fee —
$32.46
$34.80
+7.2%
Condominiums (per square foot
Affordable Housing Unit Development
$291,613
$312,609
+7.211'o
Cost
The proposed Resolutions, Attachments A and B, would adjust the fees accordingly,
effective November 1, 2014. Details of the. calculations prepared by HR &A Advisors for
the Affordable Housing Unit Base Fee and the Affordable Housing Unit Development
Cost are provided in Attachments C and D. The revenue implications are minimal and
depend on development activity in any given year.
On August 15, 2014, the City published notice in the Santa Monica Daily Press of this
hearing and the availability of the HR &A Advisors' analyses. The City republished this
notice on August 21, 2014. Copies of these analyses have been available in the City
Clerk's Office for public review since August 15, 2014.
3
Financial Impacts & Budget Actions
The proposed rate change in the Affordable Housing Production Program (AHPP) fee
will increase annual revenues by an estimated $20,000 - $30,000 depending on
development activity levels. Revenues will be deposited at account 04264.404400 and
budget is included in the FY 2014 -15 adopted budget.
Prepared by: Jim Kemper, Housing Administrator
Approved:
Andy Agle, Director
Housing and Econo is evelopment
Attachments:
Forwarded to Council:
Rod Gould
City Manager
A. Resolution Automatically Adjusting the Affordable Housing Unit Base Fee -
S.M.M.C. 9.56.070(b)
B. Resolution Automatically Adjusting the Affordable Housing Unit Development
Cost - S.M.M.C. 9.56.070(c)
C. HR &A Analysis: Proposed FY 2014 -15 Annual Automatic Adjustment for the
Affordable Housing Unit Base Fee
D. HR &A Analysis: Proposed FY 2014 -15 Annual Automatic Adjustment for the
Affordable Housing Unit Development Cost
Il
Attachment C
HP&kAnalyzc. Advise. Act.
700 South Flower Street, Suite 2730, Los Angeles, CA 90017
T: 310 -581 -0900 1 F: 310- 581 -0910 1 www.hraadvisors.com
July 23, 2014
Mr. Barry Rosenbaum, Esq.,
Senior Land Use Attorney
Office of the City Attorney
City of Santa Monica
1685 Main Street
Santa Monica, CA 90405
Re: Proposed FY 2014 -15 Annual Automatic Adjustment for the
Affordable Housing Unit Base Fee
Dear Mr. Rosenbaum:
This letter summarizes the results of applying the annual adjustment calculation methodology
adopted by the City to establish the Affordable Housing Unit Base Fee pursuant to Santa Monica
Municipal Code Section 9.56.070(b) ( "the affordable housing unit base fee shall be adjusted
[annually] based on changes in constructions costs and land costs). This methodology was approved
by the Santa Monica City Council at a public hearing on June. 13, 2006, based on the
recommendation of HR &A in a letter to City staff dated April 24, 2006. A copy of the April 24,
2006 letter is included for reference as Attachment A hereto. The City Council approved the last
annual increase for FY 2013 -14 using this methodology when it adopted Resolution No. 10763
(CCS) on August 27, 2013.
For the construction cost inflation component of the calculation approach, the Engineering News
Record's (ENR) Construction Cost Index specific to the Los Angeles metro area is utilized, because it
is updated monthly and is readily available via the Internet by subscription. The applicable index
change was 4.4 percent measured between March 2014 (the current budget adoption year) and
March 2013, as compared with a zero percent change between March 2012 and March 2013.
Although there is no comparable index for inflation in land cost, the City- adopted method uses the
weighted average annual change in median condominium sale prices, by ZIP Code, as a proxy
measure for land cost changes measured for the immediately preceding calendar year. The 2013
median condo price changes by City ZIP code were published in the Los Angeles Times in January
2014, using Los Angeles County Assessor data compiled by Dataquick. The weighted average
change for the City during 2013 was +15.4 percent, as compared with a 3.2% increase during
2012, evidencing a strengthening recovery in the local housing market from the 2007 -2009
national recession.
The relative balance between land cost inflation (based on changes in median condo prices) and
construction cost inflation (based on a construction cost index) continues to be based on development
cost data for the two most recently completed and /or under - construction multi- family affordable
developments assisted by the City. For the current analysis, the two City - assisted projects are 2802
Pico Boulevard and 430 Pico Boulevard. The City - adopted calculation approach uses a simple
average of the ratio between land purchase price and the sum of land cost and hard construction
cost to derive the land value percentage (25.3 %). The inverse of the land value percentage is the
construction cost share (74.7 %).
HR &A Advisors, Inc. I Los Angeles I New York I Washington, D.C.
Barry Rosenbaum, Esq.
City of Santa Monica
July 23, 2014
Table 1, on the following page, presents the annual adjustment calculation establishing the
Affordable Housing Unit Base Fee for FY 2014 -15. It shows that a weighted average inflation
index using this City Council- approved approach results in a +7.2 percent annual increase (as
compared with a 0.8 percent increase for FY 2013 -14):
® $34.80 per square foot for condominium developments (an increase of $2.34 per square foot
from the FY 2012 -13 Fee); and
® $29.79 per square foot for apartment developments (an increase of $2.00 per square foot
from the FY 2012 -13 Fee).
It is my understanding that the results of the calculations shown in Table 1 will be the basis for a
Resolution changing the Affordable Housing Base Fee for FY 2014 -15. We are available to assist
you in presenting the Resolution to the City Council.
Sincerely,
V I�
PAUL J. SILVERN,
Vice President
ADVISORS, INC. Page 2
Table 1
Affordable Housing Unit Base Fee Annual Inflation Adjustment Calculations for FY2014 -15
LandCastinliation
Median Price Change
ZIP Code 2012 -2013 #Condos Sold
Calculation
Weights
Weighted Avg.
90401 -12-2%
17
3.6%
-OA %
90402 -1.0%
29
62%
-0.1%
90403 17.0%
200
42.6%
72%
90404 29.9%
110
23.4%
T0%
90405 7.1%
114
242%
1.7%
470
100.0 %
15.4%
Source: Dalaquick Information Services (available on -line at:
$ Change
Condos
-
hffp1M1vww.dgnews.com /Charts /Annual-ChailsA A- Times- Charts/APLATI l aspx)
$34801
$2.34
Apartments
Construction Cost Inflation
7.2%1
$29.79
$2.00
Engineering News Record's Construction Cost Index —Los Angeles
March 2013 Index Value 10283.93
March 2014 Index Value 10731.68
Percentage Change 2013 -2014 4.4%1, ,:.
Source: Engineering News Record (subscription required; data are available from HR&AAdvisors, Inc.)
Derivation of Land Cast and Construction Cost Calculation Weights
Hard Construction
Most Recent CCSM Family Rental Projects Land Cost Cost Sum
2802 Pico $ 3,625,000 $ 12,630,138 $ 16,255,138
430 Pico $ 4,500,000 $ 11,361,066 $ 15,861,066
$ 8,125,000 $ 23,991,204 $ 32,116,204
25.3% 74.7% 100.00%
Source: Housing Division, City of Santa Monica
Inflation Factor Derivation
Inflation Value
Weight WId.AVg.
Land Value Inflation
15.4/6
25.3% 3.99/6
Construction Cost Inflation
4.4%
74.7% 3.3%
71$ -
AcgustedFees
FY 201344 Fees
Inflation Factor
Updated fees
$ Change
Condos
$32.46
72%
$34801
$2.34
Apartments
$27.79
7.2%1
$29.79
$2.00
For information Only:
Consumer Price Index Change, LhRiv -Or Co.,
NI Urban Consumers, 1982-84 =100
Mar. 2013 Index Value 239.995
Mar. 2014 Index Value 242.491
Percentage Change Mar. 2013 -Mar. 2014 1.0%
Source: US Bureau of Labor Statistics (available at: httplNrww.bls.goV /cpi)
Prepared by: HR&AAdvisors, Inc.
HR &A ADVISORS, INC.
ATTACHMENT A
April 24, 2006 HR &A Letter re: Annual Adjustment Methodology
Analvre. Advise. Act.
IIAmiuron, IIAnnarvm.& Amcinii 3y INC.
P°ery. F1,W hl k AW4"AmICOM110f,
April 24, 2006
Mr. Ron Barefield
Housing Administrator
City of Santa Monica
2121 Cloverfreld Blvd., Suite 100
Santa Monica, CA 90405
Re: Annual Adiustment for the Affordable Housing Feo
Dear Ron:
Per your request, this letter summarizes an annual adjustment approach Ave recommended
for the City of Santa Monica's ( "City ") Affordable Housing Fee, which developers of multi-
family residential developers may elect to pay, pursuant to Santa Monica Municipal Code
Section 9.56.070, as amended. This recommendation was included in Section V of our recent
report, 2005 Update, The Nexus Between New Market leate Mrdti- Family Developments to the
CO of Santa Monica mid the Need forAffordable Housing, July 1, 2005 CT 005 Nexus Study
Update ").
In order to better ensure that the Affordable Housing Fees remain consistent with
changing market conditions, It would be prudent for the City to apply an annual adjustment
Index, but to use an inflation concept other than the Consumer Price Index (CPI). While the CPI
is often used to make inflation adjustments because of its convenience, the monthly changes in
the value of consumer goods that dominate the CPI are not be the most appropriate basis for
measuring change in the City's cost to develop affordable housing, However, to be meaningful,
any alternative index must rely on data that is readily accessible to City staff for calculating the
change, and for the public's information.
A suitable alternative approach would need to measure annual changes in land cast and
construction costs, which together account for about 75 -80 percent of the cost of new affordable
housing development.' There are, in our experience, several well- established construction cost
indices. We recommend Engineering News Record's (ENR) Construction Cost Index, because it
' 'Pile other 20-25% consists ofprol'essional fees mid other "soft costs "and financing costs, neither of
which is regularly monitored by third party sources for Inflation chonges.
280028m Srnsa, SUrra325, SANrA MONICA, CA1.1ronNm 90405 . TaL: 310,581.900 . 11=310.591.0910
Les ANOnLss NO, CALIFORNIA POxn,AND, OR Ninv Yom
Ron Barefield
Housing Division
City of Santa Monica
April 24, 2006
Is updated monthly and is readily available via the Internet. However, there is no comparable
index of changes in land cost. One proxy measure that could be used for land cost changes is
change in median condominium purchase prices? Since the median condo sale price for the City
as a whole would be skewed by the tendency for sales to be concentrated in a few subareas, a
more neutral measure would be the weighted average annual change in median condo sale prices
by ZIP Code. These data are published by the Los Angeles Tines each January, using Los
Angeles County Assessor data compiled by Dataquick. They are also available call subscription
basis from other vendors, such as First American Re=d Estate Solutions.
The relative balance between land cost inflation (based on changes in median condo
prices) and construction cost inflation (based on a construction cost index) could be determined
based on current development cost data for recently completed or construction -in- progress multi-
family affordable developments assisted by the City. We reconrriend using a simple average of
the ratio between land purchase price and the sum of land cost and hard construction cost to
derive the land value percentage; the inverse of this ratio would be the construction cost share.;
Since the proposed annual inflation adjustments to the Affordable Housing Fee will be
adopted by Resolution of the City Council as part of the annual budget process each June, wo
recommend that City staff measure the weighted average annual change in median condominium
price for the immediately preceding calendar year, and the construction cost index change
between March of the budget adoption year laid March of the immediately preceding year, We
recommend using the annual change in median condo prices in the calculation, rather then year -
over -year changes in March or any other month, because median monthly prices can vary
significantly due to the number of sales and particular composition of the sales in any particular
month. 'File annual average tends to smooth out these effects. We recommend the monthly year -
over -year approach for construction costs, however, because construction represents a much
larger share of total project cost. Using the most recently available construction cost inflation
data better ensures that the Affordable blousing Fee will keep pace with the actual cost to the
City of developing affordable housing.
Table I below, which is a variation on Table V -5 from the 2005 Nexus Study Update,°
illustrates how such run annual index could be constructed and applied to the recently adopted
Affordable Housing Fees for new market rate apartment and condominium projects, for
FY 2006 -07. It shows, for example, that a weighted average inflation index as proposed herein
s Consistent with the City's historical experience, this assumes that atoll new affordable nmld- family
projects will be developed in nnrlli- family districts, although settle recent projects include riles in commercial
districts. Unlike residential property, there is no readily available data source for commercial land price changes.
Por example, if [Ito average land cost for recent projects was $3.0 million and average hard construction
cost was $9.0 million, the land to land plus construction cost ratio would be 25 %(S3.0 million /(53.0 tuition +$9.0
million) and the construction cost to land cost plus construction cost ratio would be 75 %.
a Table V -5 was based on Citywide average fees, which was one alternative fee schedule presented in the
2005 Nexus Study Update. Table I herein uses the alternative tvetghred average fees, which were also presented in
the 2005 Nexus Study Update, and it was these fees that the City Council actually adopted on October 11, 2005.
HAhuLTON, RABINOVITZ & ALSCn0I,13R, INC. Page 2
Ron Barefield-
Housing Division
City of Santa Monica
April24, 2006
would result in a 7.9 percent annual increase, compared with a 5.2 percent increase based on
construction costs alone, or 5.1 percent based on the CPI.
It is my understanding that the inflation adjustment approach described above will be
presented to the City Council on May 9, 2006. We are available to assist you, as needed, with
that presentation.
Sincerely
UL 7. LVERN�,
Partner
HA,NnLTON, RADINOVrrz & ALScumER, INc. Page 3
Ron BaraFold
I lousing Division
City of Santa Monica
April 24, 2006
Source: Housing Division, City of Santa Monica
Inflation Fecrar Derivatten
Tabfo i
Affordable Hauslnp Fee Amuail r0atlon Adlualmont Caicul Ilc (or FY 200607
Inflation Value
Land Cost Ingatien
Land Value Inflation
14.8%
28.3°% 4.2%
Modlan Annual Price
Calculation
6.2%
ZIP Code
Change Curing 2006 #Condos$otJ
Weights Wolghlod
Avg
Mal 36.8% 27
4.6%
1.6%
Inflation Factor Updated Few 1
00402 -2.1% 30
6.0%
-0.1%
7.9%1 $28.15
00403 9.8°% 237
39.5%
3.0%
7.9% . $24.10
00404 26.6% 162
274%
6.0%
00406 10.6% MA
24.0%
2.5-4
600
1
14.8%
Source: Los Angeles Times, Real Estate
Section, p. K19, January 22.2008 (based on DataQuIck
Information Systems)
Construction Cost iflallon
Engineering Nmvs Record's Construction
Cost
Index
March 2006 Index Value
71300
March 2008 Index Value
7,692
Percentage Change 20052006
6.2%
MOMMMMEMIZZIazzlil
Source: Engineering Nows Record (available at http:/ )VA�v. enr. constmcllon. com/featur esiconeco tsubs /0nst[ndexHist.asp)
Oedva tlon otLand Cost and Cans(mction Cost Calculation Weights
Most Race.( CCSM Family Rants l Projects Land Cost Hard construction
Total
1424 Broadway
$ 3,640,000 5 870,000 5
11,740.000
2601 Santa Monica Boulevard
$ 3,250,000 $ 81100.000 $
111350,000
2200 Main Street
S 8,120,000 1 9123910 5
12.243910
$ 10,010,000 $ 26,323,910 $
35,333,910
28 °l. 72°%
100%
Source: Housing Division, City of Santa Monica
Inflation Fecrar Derivatten
Inflation Value
Weight WId.AVg�
Land Value Inflation
14.8%
28.3°% 4.2%
Construction Cost ln0auon
6.2%
71.7%
Adjusted Few
Oct, 2006 Base Fees
Inflation Factor Updated Few 1
$ Change
Condos
$26.06
7.9%1 $28.15
$2.07
Apartments
$22.33
7.9% . $24.10
$1.77
Fortmermation Only;
Consumer Price Index Change.LA-RIV.Or Co..
All Urban Consumers
Fob. 2005 Index Value 197.4
Feb, 20081ndex Value 207.6
Percentage Change 2005.2000 6.1%
Source: US Bureau of Labor Slausucs (available al: httpJANNi.bls.gov /cpl)
Prepared by, Hamilton, Rabinovirz & Aischuler, me.
HANHLTON, RABINOVITZ & ALSCHULER, INC. Page 4
Attachment D
HP&A I Analyze. Advise. Act.
700 South Flower Street, Suite 2730, Los Angeles, CA 90017
T: 310 -581 -0900 1 f: 310 -58 "1 -0910 1 www.hraadvisors.com
July 23, 2014
Mr. Barry Rosenbaum, Esq.,
Senior Land Use Attorney
Office of the City Attorney
City of Santa Monica
1685 Main Street
Santa Monica, CA 90401
Re: Proposed FY 2014 -15 Annual Adjustment for the
Affordable Housing Unit Development Cost
Dear Mr. Rosenbaum:
This letter summarizes the results of applying an annual adjustment to the Affordable Housing Unit
Development Cost pursuant to Santa Monica Municipal Code (SMMC) Section 9.56.070(c) (" .. .
Commencing on July 1, 2007 and on July P of each fiscal year thereafter, the City's affordable
housing unit development cost shall be adjusted based on changes in construction costs and land
costs ... "). The inflation methodology is the same as that used to produce annual adjustments for
the Affordable Housing Unit Base Fee, pursuant to SMMC Section 9.56.070(b). That methodology
was approved by the Santa Monica City Council at a public hearing on June 13, 2006, based on
the recommendation of HR &A in a letter to City staff dated April 24, 2006. A copy of the April
24, 2006 letter is included for reference as Attachment A hereto.
SMMC Section 9.56.070(a)(4) provides that developers of market rate multi- family housing are
eligible to pay a fee equal to a fraction of an affordable unit when the number of units otherwise
required by Section 9.56.050(d) is less than 0.75. In such cases, the amount of the fee is equal to
the City's Affordable Housing Unit Development Cost multiplied by the fractional unit. The City's
Affordable Housing Development Unit Cost is defined as the average cost to the City to develop a
unit of housing affordable to low- and moderate - income households. The Affordable Housing Unit
Development Cost was originally estimated to be $239,949, as contained in the nexus study
prepared by HR &A in 20051 to support the imposition of the Affordable Housing Unit Base Fee.
The amount of the Affordable Housing Unit Development Cost is equal to the City's total cost to
develop a unit of affordable housing (i.e., land, construction, professional fees and other "soft" costs
and financing costs) minus the amount of construction loan that can be supported by the net
operating income derived from operating a typical City- assisted affordable housing development.
A 2005 -2007 cumulative inflation increase for the Affordable Housing Unit Development Cost to
$265,632 using the approved methodology was adopted by the City Council when it approved
Resolution No. 10230 (CCS) on July 24, 2007. The City Council approved the last annual increase
Hamilton, Rabinovitz & Alschuler, Inc., The Nexus Between New Market Rate Multi- Family Developments in the City of
Santa Monica and the Need for Affordable Housing, 2005 Update, July 1, 2005, prepared for the City of Santa
Monica.
HR &A Advisors, Inc. 1 Los Angeles 1 New York 1 Washington, D.C.
Barry Rosenbaum,Esq.
City of Santa Monica
July 23, 2014
for FY 2013 -14 using this methodology when it adopted Resolution No. 10764 (CCS) on August
27, 2013.
For the construction cost inflation component of the calculation approach, the Engineering News
Record's (ENR) Construction Cost Index specific to the Los Angeles metro area is utilized, because it
is updated monthly and is readily available via the Internet with a subscription. The applicable
index change was 4.4 percent measured between March 2014 (the current budget adoption year)
and March 2013, as compared with a zero percent change between March 2012 and March 2013.
Although there is no comparable index for inflation in land cost, the City- adopted calculation
method uses the weighted average annual change in median condominium sale prices, by ZIP Code,
as a proxy measure for land cost changes measured for the immediately preceding calendar year.
The 2013 median condo price changes by City ZIP code were published in the Los Angeles Times
in January 2014, using Los Angeles County Assessor data compiled by Dataquick. The weighted
average change for the City during 2013 was 15.4 percent, as compared with a 3.2% increase
during 2012, evidencing a strengthening recovery in the local housing market from the 2007 -2009
national recession.
The relative balance between land cost inflation (based on changes in median condo prices) and
construction cost inflation (based on a construction cost index) continues to be based on development
cost data for the two most recently completed and /or under - construction multi - family affordable
developments assisted by the City. For the current analysis, the two City - assisted projects are 2802
Pico Boulevard and 430 Pico Boulevard. The City- adopted calculation approach uses a simple
average of the ratio between land purchase price and the sum of land cost and hard construction
cost to derive the land value percentage (25.3 %). The inverse of the land value percentage is the
construction cost share (74.7 %).
Table 1, on the following page, presents the annual adjustment calculation establishing the
Affordable Housing Unit Development Cost for FY 2014 -15. It shows that a weighted average
inflation index using the City Council- approved approach results in a 7.2 percent annual increase
(compares with a 0.8 percent increase for FY 2013 -14), to $312,609, which is a $20,996 increase
compared with the FY 2013 -14 Unit Cost.
It is my understanding that the results of the calculations shown in Table 1 will be the basis for a
Resolution changing the Affordable Housing Unit Development Cost for FY 2014 -15. We are
available to assist you in presenting the Resolution to the City Council.
Sincerely,
04�1 -
PAUL J. SILVERN,
Vice President
HR &A ADVISORS, INC. Page 2
Barry Rosenbaum, Esq.
City of Santa Monica
July 23, 2014
Table 1
Affordable Housing Development Cost Annual Inflation Adjustment Calculations for FY 2014 -15
Land Costlydlafton
ZIP Code
Median Price Change
2012 -2013
It Condos Sold
90401
-12.2%
17
90402
-1.0%
29
90403
17.0%
200
90404
29.9%
110
90405
7.1%
114
$ 11,361,066
$ 15,861,066
470
Source: Dataquick Information Services (available on -line at:
httpJ/www.dgnews.com/ Charts / Annual- Chads&A- Tme"harts/ZIPLATI l espx)
Construction Cost leflation
Engineering News Record's Construction Cost Index —Los Angeles
March 2013 Index Value 10283.93
March 2014 Index Value 10731.66
Percentage Change 2013 -2014 4.4 %.j
Calculation
Source: Engineering News Record (subscription required; data are available from HR&AAdvisom, Inc.)
Derivation ofLandCost andConstructton Cost Calculafton Welghfs
3.6% -0.4%
62% -0.1%
42.6% 72%
23A% 7.0%
242% 1.7%
100.0% 15A%
Source: Housing Division, CifyofSanta Monica
Inflation Factor Derivation
Inflation Value Weight Wtd. Avg.
Land Value Inflation 15.4% 25.3% 3.9%
Construction Cost inflation 4.4% 741% 33%
_.. 7.2Y..j
Adjusted Unit Cost
FY 201344 Cost/Unit Inflation Factor I Updated CostfUnit -.; $ Change
Affordable Housing Development Cost $291,613 7.2% $312,6091 $20,996
Forinlormafton Only:
Consumer Price Index Change, LAtRiv -Or Co.,All
Urban Consumers, 1982 -84 =100
Mar. 2013 Index Value 239.995
Mar. 2014 Index Value 242.491
Percentage Change Mar .2013- Mar.2014 1.0%
Source: US Bureau of Labor Statistics (available at hIIpJAvww.bis.gov /cpi)
Prepared by: HR&A Advisors, Inc.
HR &A ADVISORS, INC. Page 3
Hard Construction
Most Recent CCSM Family Rental Projects
Land Cost
Cost
Sum
2802 Pico
$
3,625,000
$ 12,630,138
$ 16,255,138
430 Pico
$
4,500,000
$ 11,361,066
$ 15,861,066
$
8,125,000
$ 23,991,204
$ 32,116,204
25.3%
74.7%
100.0%
Source: Housing Division, CifyofSanta Monica
Inflation Factor Derivation
Inflation Value Weight Wtd. Avg.
Land Value Inflation 15.4% 25.3% 3.9%
Construction Cost inflation 4.4% 741% 33%
_.. 7.2Y..j
Adjusted Unit Cost
FY 201344 Cost/Unit Inflation Factor I Updated CostfUnit -.; $ Change
Affordable Housing Development Cost $291,613 7.2% $312,6091 $20,996
Forinlormafton Only:
Consumer Price Index Change, LAtRiv -Or Co.,All
Urban Consumers, 1982 -84 =100
Mar. 2013 Index Value 239.995
Mar. 2014 Index Value 242.491
Percentage Change Mar .2013- Mar.2014 1.0%
Source: US Bureau of Labor Statistics (available at hIIpJAvww.bis.gov /cpi)
Prepared by: HR&A Advisors, Inc.
HR &A ADVISORS, INC. Page 3
ATTACHMENT A
April 24, 2006 HR &A Letter re: Annual Adjustment Methodology
HR &A ADVISORS, INC.
A,, vie. Advise. Act.
Irnma.Tos, RAmeovaz &Arscuuruq Inc.
, Wtv.. Fdmd4 &Afmlagemenl Comullanlr
April 24, 2006
Mr. Ron Barefineld
Housing Administrator
City of Santa Monica
2121 Cloverfneld Blvd., Suite 100
Santa Monica, CA 90405
Re: Annual Adjustment for the Affordable Housing Feo
Dear Ron:
Per your request, this letter summarizes an annual adjustment approach we recommended
for the City of Santa Monica's ( "City ") Affordable Housing Pee, which developers of multi-
family residential developers may elect to pay, pursuant to Santa Monica Municipal Code
Section 9.56.070, as amended. This recommendation was included in Section V of our recent
report, 2005 Update, the Nexus Between New Mmket Rate Multi - Family Developments in the
City of Santa Monica and the Needfordffordable Housing, July 1, 2005 ("2005 Nexus Study
Update ").
In order to better ensure that the Affordable Housing Fees remain consistent with
changing market conditions, it would be prudent for the City to apply an annual adjustment
Index, but to use an Inflation concept other than the Consumer Price Index (CPI), While the CPI
is often used to make inflation adjustments because of its convenience, the monthly changes in
ilia value of consumer goods that dominate the CPI are not be the most appropriate basis for
measuring change In the City's cost to develop affordable housing. However, to be meaningful,
any alternative index must rely on data that is readily accessible to City staff for calculating the
change, and for the public's information.
A suitable alternative approach would need to measure annual changes in land cost and
construction costs, width together account for about 75 -80 percent of the cost of new affordable
housing development.' There are, in our experience, several well- established construction cost
indices. We recommend Engineering News Record's (ENR) Construction Cost Index, because it
I Tho other 20 -25% consists of professional fees mid other "soft costs "and financing costs, neither of
which Is regularly monitored by third party sources for inflation changes.
280028THSmneer, SUa025,SAWA MON(CAt CAMORNIA 90405 a 9)3E:310.581.0900 • NAx:310.581.0910
Lai Amami No, CNAromu PORVANII,OR NEWYaw
Ron Barefleld
Housing Division
City of Santa Monica
April 24, 2006
is updated monthly and is readily available via the Internet. However, there is no comparable
index of changes in land cast. One proxy measure that could be used for land cost changes is
change in median condominium purchase prices.2 Since the median condo stile price for the City
as a whole would be skewed by the tendency for sales to be concentrated in a few subareas, a
more neutral measure would be the weighted average annual change in median condo sale prices
by ZIP Code. These data are published by the Los Angeles 27ines each January, using Los
Angeles County Assessor data compiled by Dataquick. They are also available on a subscription
basis front other vendors, such as First American Real Estate Solutions.
The relative balance between land cost inflation (based on changes in median condo
prices) and construction cost inflation (based on a construction cost index) could be determined
based on current development cost data for recently completed or construction -in- progress multi-
family affordable developments assisted by the City. we recommend using it simple average of
the ratio between land purchase price and the sum of land cost and hard construction cost to
derive the land value percentage; the inverse of this ratio would be the construction cost share,;
Since the proposed amoral inflation adjustments to the Affordable Housing Pee will be
adopted by Resolution of the City Council as part of the annual budget process each June, we
recommend that City staff measure the weighted average amoral change in median condominium
price for the immediately preceding calendar year, and the construction cost index change
between March of die budget adoption year and March of the immediately preceding year. We
recommend using the annual change in median condo prices in the calculation, rather then your-
over-year changes in March or any other month, because median monthly prices can vary
significantly due to the number of sales and particular composition of the sales in any particular
month. 'file annual average lends to smooth out these effects. We recommend the monthly year -
over -year approach for construction costs, however, because construction represents a much
larger share of total project cost. Using the most recently available construction cost inflation
data better ensures that the Affordable Housing Fee will keep pace with the actual cost to the
City of developing affordable housing.
Table I below, which is a variation on Table V -5 from the 2005 Nexus Study Update;
illustrates how such rut annual index could be constructed and applied to the recently adopted
Affordable Housing Fees for new market rate apartment and condominium projects, for
FY 2006 -07. It shows, for example, that a weighted average inflation index as proposed herein
Consistent with Ole City's historical experience, this assumes hint most new affordable multi- family
projects will be developed in multi- fardly districts, although some recent projects include sites in commercial
districts. Unlike residential property, there is no readily available data source for commercial land price changes.
' For example, iflite average land cost for recent projects was $3.0 million and average hard construction
cost was $9.0 million, the land to land plus construction cost ratio would be 25 %($3.0 million / ($3.0 million +$9.0
roll lion) and the construction cost to land cost plus construction cost ratio would be 75 %.
Table V -5 was based on Citywide average fees, which was one alternative fee schedule presented in the
2005 Nexus Study Update. Table I herein uses thealtemalive tveigHrerl cnerage fees, which were also presented in
the 2005 Nexus Study Update, and it was these fees that the City Council actually adopted on October 11, 2005.
HAMILTON, RARINOVITZ & AISCIATLER, INC. Page 2
Pon Baretield
Housing Division
City of Scoria Monica
April 24, 2006
would result in a 7.9 percent annual increase, compared with a 5.2 percent increase based on
construction costs alone, or 5.1 percent based on the CPI.
It is my understanding that the inflation adjustment approach described above will be
presented to the City Council on May 9, 2006. Wo are available to assist you, as needed, with
that presentation.
r(e rl�yj (per
AUI, J. LVE( 2N,
Partner
HAMILTON, RAtllNOVITZ& ALSCHULER, INC. Page 3
Ron Bareflold
Housing Division
City of Santa Monica
April 24, 2006
Source: LasAngolas Times, Real bands S26lion, P. R18, January 22, 2008 (based on Oala0mak Infounanon Systems
Construction Cost Inflation
Englneedng Nevis Record's ConsmactIon Cost
Index
Much 2005 Index Value 7,309
March 2000 Index Value 7,692
Percentage Change 2005 -2000 6,2y,
Source: Engfnew ng Nevis Record (available at hIIpJNnvv. om,conaWdion.com/(ealures /ceneco /subs /consltndoxHist.esp)
Derivation of Land Cost and Construction Cost Calculation Weights
Most Rocont CCSM Family Rental Projects Land Cost Hard Construction Total
1424 Broadway s 3,640.000 S 811001000 S 11,740,000
2601 Santa Monica Boulevard $ 3,260,000 $ 8,100,000 $ 11,350,000
2200 Main Street $ 3.120.000 S 0,123,010 $ 42,243,010
$ 10,010,000 $ 26,323,910 11 35,333,910
28% 72% 100%
Source: Housing Division, City of Santa Monica
Inflation FactorDe6vfIon
11111anon Value Weight Wid. Avg.
Land Value Inflation 14.8% 28.3% 4.2%
Construction Cost Infaton 0.2% 71.7% 0814
7.8°M
eenecievieAM
Ad /ustedFees
Oct. 2008 Bas. Fees Inflation Factor UFueled Foos 11 Change
Condos $26.08 7.0%1 $28.16 $2.07
Aeronauts $22.33 7.8% 1 $24.1011 $1.77
Fprtmarmaton Only:
Consumer Price Index Change, LAPJv,Or Co.,
All Urban Consumers
Feb. 2005 Index Value 197.4
Feb. 2000 indox Value 207.6
Percanage Change 2006.2000 511%
Source: US Bureau or Labor Suntan" (available al: htlp1Awnv.bls.gev /cp1)
Prepared by, Hamilton. Rebinovita & AtachulaL Inc.
HANILUMN, RABINOVL'fz & A4SCIR)LEB, INC. Page 4
Tm,A1
Affordable Housing Fee Annual Inflellon Atlluslmont Calculall.nater FY 2000.07
Land Cost Inflation
Macau Annual Pace
Calculation
21P Code
Change During 2005
#Condos Sold
Weigh Ls
Weighted Avg.
00401
35.0 °:0
21
A.0%
1.0%
80402
-2.1%
30
5.0%
-0.1%
90403
9.8%
237
39.6'' /e
3.855
90404
26.5%
162
27.0%
0.0%
90405
10.6%
1.43
24.0%
9AA
600
1-
14.81
Source: LasAngolas Times, Real bands S26lion, P. R18, January 22, 2008 (based on Oala0mak Infounanon Systems
Construction Cost Inflation
Englneedng Nevis Record's ConsmactIon Cost
Index
Much 2005 Index Value 7,309
March 2000 Index Value 7,692
Percentage Change 2005 -2000 6,2y,
Source: Engfnew ng Nevis Record (available at hIIpJNnvv. om,conaWdion.com/(ealures /ceneco /subs /consltndoxHist.esp)
Derivation of Land Cost and Construction Cost Calculation Weights
Most Rocont CCSM Family Rental Projects Land Cost Hard Construction Total
1424 Broadway s 3,640.000 S 811001000 S 11,740,000
2601 Santa Monica Boulevard $ 3,260,000 $ 8,100,000 $ 11,350,000
2200 Main Street $ 3.120.000 S 0,123,010 $ 42,243,010
$ 10,010,000 $ 26,323,910 11 35,333,910
28% 72% 100%
Source: Housing Division, City of Santa Monica
Inflation FactorDe6vfIon
11111anon Value Weight Wid. Avg.
Land Value Inflation 14.8% 28.3% 4.2%
Construction Cost Infaton 0.2% 71.7% 0814
7.8°M
eenecievieAM
Ad /ustedFees
Oct. 2008 Bas. Fees Inflation Factor UFueled Foos 11 Change
Condos $26.08 7.0%1 $28.16 $2.07
Aeronauts $22.33 7.8% 1 $24.1011 $1.77
Fprtmarmaton Only:
Consumer Price Index Change, LAPJv,Or Co.,
All Urban Consumers
Feb. 2005 Index Value 197.4
Feb. 2000 indox Value 207.6
Percanage Change 2006.2000 511%
Source: US Bureau or Labor Suntan" (available al: htlp1Awnv.bls.gev /cp1)
Prepared by, Hamilton. Rebinovita & AtachulaL Inc.
HANILUMN, RABINOVL'fz & A4SCIR)LEB, INC. Page 4
Reference:
Resolution No. 10833 (CCS)
H
Resolution No. 10834 (CCS)