Client: City of Davis (CA)
The City of Davis retained GG+A to conduct real estate economic analysis of rental and for-sale housing development alternatives to assess the impacts of the City’s affordable housing ordinance on the feasibility of development. GG+A evaluated the economics of five different for-sale product types and three affordable housing scenarios to gauge the effects of the existing City of Davis Affordable Housing Ordinance. The scenarios included 1) a “market rate” scenario in which each prototypical development is modeled as a 100 percent market rate ownership housing project with no affordable housing requirements; 2) an “on-site affordable housing” scenario in which 10 percent of units are sold at below market rate (“BMR”) prices affordable to the income levels targeted by the existing Affordable Housing Ordinance; and 3) an “in-lieu fee” scenario under which each prototypical development pays the existing fee of $75,000 per below market rate unit required (in-lieu of providing the units on site).
The real estate economics analysis was also conducted for five development prototypes that reflect the type and scale of multi-family rental housing that has been recently built, or proposed for future development, within Davis. In addition to the 100 percent market rate scenario and the “in-lieu fee” scenario, the analysis of the prototypes included an “on-site affordable housing” scenario under which 35 percent of units are rented at below market rate (“BMR”) rents affordable to the income levels targeted by the existing Affordable Housing Ordinance.
The results of the analysis of for-sale and rental housing alternatives and scenarios were presented in terms of residual land value estimates. GG+A conducted market research and interviews with developers and realtors to identify typical development costs, investment and financing parameters, obtainable price, operating expenses, and used the inputs to structure a discounted cash flow residual land value analysis of the various prototypical development alternatives. The results of the analysis were synthesized to identify how affordable housing requirements and resulting development financial feasibility change with density, construction type, parking configuration, unit type/sizes/mixture, and market orientation; and which of the prototypes, are feasible to undertake with- and without- the imposition of existing City of Davis affordable housing ordinance requirements.
GG+A counseled city staff about the policy implications drawn from the results of the analysis and the effects of the current affordable housing ordinance on housing production.