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Report on Effectiveness of Housing Opportunity Ordinance and Council Options December 4, 2018 Page 4 3) Modify the concession so that a Density Bonus has merit -based criteria to align with policy priorities adopted by City Council on March 20, 2018 in the Affordable Housing Funds Policies and Procedures to provide more very low-income units on-site, serve special needs populations and/or provide deeper affordability. Il. In -Lieu Fee Payment versus On -Site Development Requirement: The current Ordinance allows a developer to opt -out of building inclusionary housing units on-site by paying the in -lieu fee. Since the creation of the Ordinance in October 2011, only 33 affordable housing units have been developed on-site and 108 units are currently under construction. This is a total of 141 affordable housing units. (Staff do not currently have an estimate on how many additional affordable housing units will be produced through RFP # 18-056.) Meanwhile, as stated above, if the same 9 developers who opted to pay the in -lieu fee had built the units on-site, the city would have approximately 393 low-income units or 263 very low-income units. This is nearly two or three times the amount of affordable housing units created. Every private market decision by a developer is based on the economics of their project and their profit margin. Specifically, if it is more cost effective for a developer to pay the in -lieu fee versus developing the affordable housing units on-site with restrictive rental/ownership covenants, a developer will choose the option to pay the in -lieu fee. Therefore, regarding the calculation of the in -lieu fee payment option versus on-site development requirement, staff will study the following policy options for future City Council consideration: 1) No change. 2) Eliminate the in -lieu fee entirely as an option thereby requiring the development of units on-site or off-site. 3) Modify the in -lieu fee to be more comparable to other cities. Ill. In -Lieu Fee Payment Timing: The current Ordinance requires a developer to pay their in -lieu fee prior to issuance of a building permit. The timing of the in -lieu fee payment has become an issue for some developers of multi- phase and single-phase projects. In one case, a developer requested to phase their in -lieu fee payment in three phases such that they could close on their financing. In another case, a developer requested to pay their in -lieu fee at the issuance of their certificate of occupancy instead of their building permit. In addition, for large phased developments, it can be difficult for the City to administer and a burden for the developer to finance. Therefore, regarding the timing of the in -lieu fee payment, staff will study the following policy options for future City Council consideration: 1) No change. 2) Allow the payment of in -lieu fees in phases based on a developer's project schedule, to be negotiated by staff. 3) Allow the payment of in -lieu fees at the issuance of the certificate of occupancy or when the building permit is finalized. L.