Implementing State Density Bonus Law in Berkeley November

Implementing State Density Bonus Law in Berkeley November 13, 2014 City of Berkeley Planning & Development Department

State Density Bonus Law Adopted in 1979, amended several times since Main purpose is to promote production of affordable housing Applies only to projects with 5 or more dwelling units (does not apply to group living)

State Density Bonus Law � 3 main concepts: Density Bonus Concessions/Incentives Waivers/Reductions

State Density Bonus Law �Density Bonus = “a density increase over the otherwise maximum allowable residential density as of the date of [project] application. ”

State Density Bonus Law �Maximum allowable residential density = “the density allowed under the zoning ordinance and land use element of the general plan, or if a range of density is permitted, the maximum allowable density for the specific zoning range and land use element of the general plan applicable to the project. ”

State Density Bonus Law Minimum affordability required (without bonus units): �>10% lower income (80% AMI) �>5% VLI (50% AMI) �Senior projects �Condo project with >10% moderate income (120% AMI)

State Density Bonus Law Required bonus for projects with VLI units: % VLI Units � 5 � 6 � 7 � 8 � 9 � 10 � 11 % Density Bonus 20 22. 5 25 27. 5 30 32. 5 35

State Density Bonus Law Required concessions/incentives for project with VLI units (without bonus units): % VLI Units 5 10 15 # of concessions/incentives 1 2 3

State Density Bonus Law Definition of “concession or incentive”: � “A reduction in site development standards or a modification of zoning code requirements… including, but not limited to, a reduction in setback and square footage requirements and in the ratio of vehicular parking spaces…” � � “Approval of mixed-use zoning…” “Other regulatory incentives or concessions proposed by the developer or the city… that result in identifiable, financially sufficient, and actual cost reductions. ”

State Density Bonus Law Examples of concessions awarded on previous projects in Berkeley �Additional ceiling height �Reduced parking �Reduced open space �Ground floor commercial space (in what would otherwise be an all-residential building)

State Density Bonus Law Concessions must be granted unless City finds that the requested concession: � Is not required to provide for affordable housing costs � Would have a specific adverse impact, as defined in 65589. 5, upon public health and safety or the physical environment, or on any property listed on the California Register of Historical Resources, and for which there is no feasible mitigation without rendering the project unaffordable � Would be contrary to state or federal law

State Density Bonus Law Waivers or Reductions Basis: 65915(e)(1): “In no case may a city… apply any development standard that will have the effect of physically precluding the construction of a development… at the densities or with the concessions or incentives permitted by this section. An applicant may submit to a city… a proposal for the waiver or reduction of development standards that will have the effect of physically precluding [a project with] the densities or concessions or incentives permitted under this section…”

State Density Bonus Law Waivers or Reductions Waivers or reductions do not reduce or increase the number of concessions/incentives – they implement the required concessions/incentives (and the density bonus)

State Density Bonus Law Recent amendment (AB 2222): Affordability required for 55 years (previously 30 years) Existing affordable units (or affordable units demolished or vacated in last 5 years) must be replaced as part of new project, at same level of affordability as existing Applies to applications submitted by January 1, 2015

Berkeley’s Density Bonus Procedures: Affordable Housing Mitigation Fee �Based on nexus study �Applies to projects with 5 or more new rental units �Requires fee of $28 K per market-rate unit �Fee waived if 10% of total market-rate units (including density bonus units) are provided as VLI units – works out to 9. 1% of total

Berkeley’s Density Bonus Procedures: Density Bonus = a density increase over the otherwise maximum allowable residential density…[65915. (f)] Dilemma: Most housing projects are located in district without density standards – what is “maximum allowable density” in Berkeley?

Berkeley’s Density Bonus Procedures: General Plan Density Standards The General Plan provides density ranges but states that these are “for general planning purposes” and “are not intended to be used as standards to determine the maximum allowable density on a specific parcel, ” and that “allowable densities… are established in the more detailed and specific Zoning Ordinance. ”

ZONING DISTRICTS WITH NO DENSITY STANDARDS Types of Projects Allowed in these Zoning Districts: Mixed-Use Projects • Commercial • Residential Commercial Districts and MU-R Multi-Family Residential Projects Commercial Districts, R-3, R-4, R-SMU

Four Basic Steps 1) Calculate the “Base Project” 2) Calculate Density Bonus 3) Review Concessions 4) Grant waivers/reductions of development standards

Step 1: Define the Base Project “Maximum Allowable Residential Density” ST R T LO EE T C A DJ A T EN Conditions: 1. Comply with all codes (zoning, building, fire, etc. ) 2. Substantially consistent with “byright” portion of proposed project (e. g. setbacks, commercial uses, etc. ) Project Site of Proposed Project T AD JA LO T N CE

Step 1 A Result: Square Footage, Residential Use Green = Residential Blue = Commercial

STEP 1 B: DETERMINE PROPOSED PROJECT’S AVERAGE RESIDENTIAL UNIT SIZE A/B=C A. Proposed Residential Area (sq. ft. ) B. Proposed Number of Units C. Average Unit Size

Results Thus Far: STEPS ITEM VALUE 1. A Base Project Floor Area 40, 000 sq. ft 1. B Average Unit Size 2, 000 sq. ft 1. C Base Project Unit Count 20 units 2. A # of Affordable Units % of Affordable Units 2. B % Granted for Density Bonus 2. C # of Density Bonus Units Proposed Density Bonus Project

Step 2: Define the Density Bonus Project 4 Affordable Units = 20% Total Possible Units: % Granted 27 for Density Bonus = 35% Density Bonus Units = 7

Results: STEP ITEM VALUE 1. A Base Project Floor Area 40, 000 sq. ft 1. B Average Unit Size 2, 000 sq. ft 1. C Base Project Unit Count 20 units 2. A # of Affordable Units 4 units % of Affordable Units in Base Project 20% 2. B % Increase Granted for Density Bonus 35% 2. C # of Density Bonus Units 7 units Proposed Density Bonus Project 27 units

Concession Analysis Project Assumptions Base Project (100% market rate) 10% Very Low Income units 35% Density Bonus C. Density Bonus & Concessions 20 MR 18 MR 2 BMR 25 MR 3 BMR 8 ft. 9 ft. Yield (NOI/ Costs) 5. 2% 4. 5% 4. 9% 5. 2% Return on Equity (Cash Flow/ Cash Equity) 3. 5% 3. 0% 3. 3% 3. 4% Units Ceiling height

Step 4: Waivers/Reductions granted (option 1)

Step 4: Waivers/Reductions granted (option 2)