Housing Buzz Words Explained

Kelly Hammargren
Friday January 27, 2023 - 04:27:00 PM
Area Median Income for Berkeley 4-Person Household in 2022
Area Median Income for Berkeley 4-Person Household in 2022

Pick Your Topic – here are the answers to what is:

  • RHNA,
  • Nexus Study,
  • AMI
  • In Lieu Fees
  • Inclusionary Housing Requirements
  • the Palmer Fix,
  • Density Bonus,
  • SB 330,
  • Chart of Income Categories and Affordable Rents
  • and
  • where to go to stay current with pending California Housing Legislation.
    Regional Housing Need Allocation (RHNA) (pronounced ree na)

    Since 1969, California has required that all local governments plan to meet the housing needs of everyone in the community regardless of income. The state required process for determining how many housing units by levels of affordability, each community must plan to accommodate during the RHNA cycle is multi-layered.

    January 1, 2023 – December 31, 2031, is the sixth and current cycle. https://www.hcd.ca.gov/planning-and-community-development/regional-housing-needs-allocation 

    The California Department of Housing and Community Development (HCD) determines the total housing need based on projected job growth and distributes the housing allocations to regional councils of governments, which in turn break down and assign the allocation to communities. In the Bay Area the regional council of government is the Association of Bay Area Governments (ABAG).  

    The plan for accommodating the allocation is called the Housing Element ,which must be turned in by January 31, 2023. The Berkeley City Council approved the Housing Element on January 18, 2023. A Housing Element certified by HCD brings with it eligibility for numerous state and regional grants and funds.  

    Berkeley Mayor Jesse Arreguin is the current ABAG President. He was the Chair/President of the ABAG Committee that assigned to Berkeley, a city of 10.5 square miles, the 2023 – 2031 RHNA of 8,934 new units, of which 2446 are for very low income, 1408 are for low income, 1416 are for moderate income and 3664 for above moderate income, often called market rate housing.  

    Allocations to other bay area cities assigned by ABAG are found in this link on pages 24 – 27. https://abag.ca.gov/sites/default/files/documents/2021-05/ABAG_2023-2031_Draft_RHNA_Plan.pdf 

    It can be argued that the projections for how much new housing is needed are nothing more than a guess, and builders/developers and related industries have the most to gain by high RHNA numbers. A number of cities throughout California are suing the state over their RHNA allocations. Berkeley is not doing this. 

    The California State Auditor found many flaws in the RHNA allocations which is summarized in the article, Report Finds Housing Goals are Not Supported by the Evidence. https://voiceofoc.org/2022/04/california-state-auditor-releases-scathing-report-on-rhna-process-report-finds-housing-goals-are-not-supported-by-evidence/ 

    The Housing Element used to be an exercise that, other than providing a deep history of a community’s demographics, housing stock and potential building sites, could be set aside except for reporting out the results. Cities don’t actually build the housing. Cities just create or change zoning so the developers can build new multi-unit residential buildings to meet the assigned allocation. Accessory Dwelling Units (ADUs) and Junior ADUs (JADU) additions of new units to existing housing also count toward RHNA.  

    Part of the Housing Element is identifying potential sites for the assigned RHNA additional housing. Sites include vacant lots, parking lots, adding ADUs, JADUs to existing sites and replacing “underutilized” commercial or residential buildings with new larger multi-unit projects. One (and two) story grocery stores with parking lots have been deemed underutilized and designated as locations for buildings to be demolished and replaced.  

    Starting with the sixth cycle, communities that do not complete the Housing Element are subject to the state overriding any local zoning that limits construction of new big multi-unit buildings.  

    There is also risk to communities if they are not making progress toward RHNA by midway through the cycle. Builders/developers can override zoning and sue cities. The term “builders’ remedy” describes the situation in which RHNA is not being met and where a project that is 20% for lower income households or 100% affordable to moderate-income households cannot be denied.  

    The consultants who do the research and write Housing Elements come at an expensive cost. Even small communities can see that cost in the range of $300,000 and upwards. Berkeley has dedicated a much larger amount to the Housing Element for the sixth cycle.  

    The Nexus Study Explained with a Little History, or 

    How Are In-Lieu Mitigation Fees and Inclusionary Unit Requirements Established

    A Nexus study is how cities arrive at in-lieu fees and inclusionary unit percentages.  

    The last full Nexus study for Berkeley was completed in July 2015. The Nexus study consists of two parts: 

    1) for every 100 market rate units built, how many units need to be built to house the lower paid workers to provide the services for the higher income residents moving into those 100 market rate (high priced) units 


    2) what is the reasonable (feasible) rate for an in-lieu mitigation fee that still allows the investor to make 10% to 12% return (profit) on the cost of the project?  

    Consultants comb through recent project cost documents, review construction costs and estimate the number of workers needed for the increased housing to arrive at recommendations for the in-lieu mitigation fee to build the additional housing for the lower income workers.  

    The introduction to the 2015 Nexus study for the July 14, 2015, presentation to City Council (Arreguin and Wengraf were councilmembers) states, “The financing gap required to produce housing affordable to these new households earning 100% AMI or less resulted in a maximum impact fee of $84,392 for rental units and $96,294 for condominium units. Rather than charging the fee on a per unit basis, it is possible to translate this into square footage fee using the average unit sizes [900 sq ft] resulting in a fee of $112.24 per square feet for rental units and $97.98 per square foot for condominiums.”  

    The 2015 Nexus study recommended a $34,000 per unit fee (not $84,392) which would give the developers a 13.9% profit, not 10% to 12% profit. That 2015 $34,000 fee, if translated into gross residential square feet, would have equaled $45 per square foot.  

    Area Median Income and How It is Used Explained 

    The RHNA not only defines how much new housing must be built to accommodate an expanding population. It also contains a breakdown of how much of the housing should be assigned to each Housing and Urban Development (HUD) category of income.  

    The State of California Department of Housing and Community Development Division of Housing Policy Development (HCD) lists five categories of income limits: Acutely Low – under 15% of the Area Median Income (AMI); Extremely Low – under 30% of AMI; Very Low Income 30% - 50% of AMI; Low Income >30% AMI - 50% AMI; Low income - >50% AMI – 80% AMI; and Moderate Income >80% - 120% of AMI.  

    The Area Median Income (AMI) is the middle of the income data collected. not the average. One very high income earner could throw off an average. That is why the median is used. The 2022 AMI for Alameda County for a household of four is $142,800. The Housing Element for 2023 – 2031 approved by the Berkeley City Council on January 18, 2023, used the AMI for 2021, not 2022. The chart with this article of household incomes by category uses the 2022 HCD matrix as does the calculation of affordable monthly rents chart by income category.  

    The chart of the Median Income and break out by household size is updated every year in the spring. Here is the link to 2022 chart by county for California. https://www.hcd.ca.gov/docs/grants-and-funding/inc2k22.pdf 

    See the attached chart of income by category and how that translates into affordable rent. Affordable rent is set at a maximum of 30% of the household income including utilities.  

    The In-lieu Mitigation Fee 

    The RHNA lists four income categories for new housing purposes: very low income, low income, moderate income and above moderate income. For Berkeley the 2023 – 2031 RHNA is 8,934 new units, of which 2446 are for very low income, 1408 are for low income, 1416 are for moderate income and 3664 for above moderate income (often called market rate housing.)  

    If developers (the investors) only build market rate housing, communities will never make a dent in the supply of housing needed for lower income households. Through lawsuits and legislation, cities can charge a fee, the in-lieu mitigation fee, for the city to collect to build affordable housing at another location or to contribute to affordable housing projects.  

    The cost of building multi-unit projects is studied to arrive at an in-lieu fee that provides for a reasonable profit for the investors and contributes to filling the gap of the needed affordable housing in the community. The in-lieu mitigation fee, when properly established and balanced with inclusionary housing, affordable units in the building, is in theory the method to address the shortage of housing for the workers who are needed to provide the services to keep the residents of the new market rate buildings comfortable.  

    In Berkeley, the in-lieu mitigation fee goes into the City’s Housing Trust Fund, where over time it accumulates, and when supplemented with grants, incentives and exemptions eventually produces affordable housing like the Hope Center and Berkeley Way Bridge project.  

    The lower the fee, the more incentive there is for developers to choose paying the fee rather than providing inclusionary housing and the longer it takes to accumulate enough trust funds for the city to build housing or contribute to affordable units in other projects.  

    When the in-lieu fee is set too low, the developers opt to pay the fee and communities wait decades or may never see affordable housing projects.  

    Prior to April 1, 2023, Berkeley’s current in-lieu fee has been by per unit and not square feet. Whether a unit was a studio or a five bedroom mini-dorm or more, the fee was $46,185/unit if paid at the Certificate of Occupancy (when people can rent and move in) or $43,185/unit if paid when the building permit is issued.  

    On January 17, 2023, the Berkeley City Council voted to change the fee to be calculated per net square feet of the actual unit and to exempt any project with less than five units. Any “common” space such as mailrooms, hallways, shared gathering space will be excluded from the net square foot calculation. The second reading and vote for this amendment to Berkeley Municipal Code (BMC) 23.328 is February 14, 2023 (after the publication of this article – the content of this link will change accordingly). https://berkeleyca.gov/construction-development/permits-design-parameters/design-parameters/affordable-housing 

    Inclusionary Housing and AB1505 the Palmer Fix  

    The advantage of inclusionary affordable housing is that the affordable units arrive with the new multi-unit market rate buildings. There are not years or decades of waiting for funds to accumulate. Nor are there needs to find sites to build affordable housing projects.  

    Long term longitudinal studies show that when affordable housing is mixed in with market rate housing in high resource (wealthier) neighborhoods, young children have better outcomes in education, health and achieving a higher standard of living as adults. Setting the in-lieu mitigation fee at the maximum end of the range at least theoretically drives more inclusionary housing.  

    Cities can require inclusionary affordable housing. California Assembly Bill AB 1505, called the Palmer Fix, is the legislation that gave cities the right to require inclusionary affordable housing. http://costa-hawkins.com/wp-content/uploads/2018/02/Bill-Text-AB-1505-Land-use_-zoning-regulations_.pdf 

    Berkeley at the time of this writing does not require inclusionary affordable housing. Berkeley gives to the developer the option of paying the in-lieu mitigation fee or providing 20% affordable housing within the project, with 10% of the units set aside for low income households and 10% of the units set aside for very low income households. The developer can choose to provide a portion of affordable units and opt out of the rest by paying the in-lieu mitigation fee. When the calculation for the percentage of affordable units results in a “partial” unit, the in-lieu mitigation fee fills the gap.  

    Density Bonus to Incentivize Inclusionary Affordable Housing 

    Berkeley like most California cities has zoning code ordinances limiting the height and mass of buildings. Different commercial districts and neighborhoods have varying height and lot coverage limits.  

    The state density bonus incentivizes taller bigger projects through the density bonus. The state density bonus allows the developer to override the local zoning code and provide additional units and added height by providing onsite affordable units. The developer achieves the maximum density bonus with the fewest onsite affordable units through including very low income units. Fifteen percent very low income units results in a 50% density bonus.  

    Using the density bonus is how plans for 3000 Shattuck at Ashby are a 10-story building and 2190 Shattuck at Allston has grown to 25 stories.  

    The charts for the state density bonus are found about halfway through this legislative document Title 7 Chapter 4.3 [65915-65918] https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV&sectionNum=65915 

    California Senate Bill SB 330 - The Housing Crisis Act of 2019 

    SB 330 is in effect until January 1, 2025 unless renewed and limits the number of public hearings to five to streamline approval for projects for residential units only, mixed-use developments with at least 2/3 of square footage designated for residential use or transitional or supportive housing that meet the following conditions:  

    “Housing for very low, low-, or moderate-income households” means that either (A) at least 20 percent of the total units shall be sold or rented to lower income households, as defined in Section 50079.5 of the Health and Safety Code, or (B) 100 percent of the units shall be sold or rented to persons and families of moderate income as defined in Section 50093 of the Health and Safety Code, or persons and families of middle income, as defined in Section 65008 of this code. Housing units targeted for lower income households shall be made available at a monthly housing cost that does not exceed 30 percent of 60 percent of area median income with adjustments for household size made in accordance with the adjustment factors on which the lower income eligibility limits are based. Housing units targeted for persons and families of moderate income shall be made available at a monthly housing cost that does not exceed 30 percent of 100 percent of area median income with adjustments for household size made in accordance with the adjustment factors on which the moderate-income eligibility limits are based.”  

    The full bill can be read at https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB330 

    Section 8 Vouchers and Housing Subsidies 

    There are a variety of housing subsidy programs to fill the gap between the maximum of 30% of household income dedicated to rent including utilities and what the property owner and property managers normally charge for rent.  

    When the households for those very low income units have section 8 vouchers, then the developer / current project owner has HUD/ federal subsidies to fill the gap between 30% of the household’s income and the Area Fair Market Rent. The Fair Market Rent isn’t the full market rate (luxury pricing), but it sweetens the deal.  


    Waiting lists for affordable housing in Berkeley are so long they are closed. Subsidies and vouchers are not easy to get. Last summer, it was reported over 21,000 Berkeley residents applied for 2000 Section 8 Housing Vouchers. This leaves many many households struggling to find housing they can afford.  

    Where to Find Current Pending California Legislation on Housing 

    Livable California Community – Equity – Action https://www.livablecalifornia.org/