TO: Board of Supervisors
FROM: Jennifer Palmer, Director of Housing & Community Services
REPORT BY: Jennifer Palmer, Director of Housing & Community Services
SUBJECT: Public Hearing for Affordable Housing Impact Fees
RECOMMENDATION
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Conduct a public hearing to adopt a resolution accepting the Affordable Housing and Commercial Linkage Nexus Study and updating the affordable housing residential and nonresidential (commercial) impact fees with inclusion of an annual index adjustment. (Fiscal Impact: Unknown Revenue; Affordable Housing Fund; Not Budgeted; Discretionary)
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BACKGROUND
To mitigate the impact of development, the County adopted an Affordable Housing Fund Ordinance in 1992, which created the Affordable Housing Fund to assist with funding the development of affordable housing in Napa County. The Ordinance was based on a Jobs-Housing Nexus Study conducted by the County and established a housing impact fee on non- residential construction and an inclusionary housing requirement on residential construction. The non- residential component of the program was updated and revised in 2004 and again in 2014; the residential component was last revised in 2010. The current inclusionary program has an in-lieu fee option available to all new construction and all residential projects have paid the in-lieu fee.
On January 24, 2023, the Napa County Board of Supervisors adopted its 2023 Housing Element Update which contemplates, among other things, modification to the County’s existing affordable housing in lieu and commercial housing impact fees. This was necessitated as part of the affordable housing goals, objectives, policies and programs of the County’s 2023 Housing Element Update that, among other things, require a new nexus analysis to update inclusionary in lieu and commercial housing impact fees, and to ensure that fees do not exceed the actual affordable housing impacts attributable to development projects to which the fees relate.
In August 2024, the County hired Wildan Financial Services to conduct an analysis of affordable housing fees needed to fund the share of affordable housing created by new development. The purpose of a nexus study is to quantify and document the linkages among construction of new workplace buildings, the employees who work in them, and the demand for affordable housing. Likewise, nexus studies explore the linkages between new residential construction, the expenditures of new households in Napa, new jobs generated by the expenditures, and the demand for additional affordable housing units. It estimates the number of new jobs created based on the development type and how many new workers will not earn enough to afford market-rate housing, thus requiring affordable options. The analysis establishes a connection (“nexus”) between the impact of new development and the need for affordable housing and translates that into a fee per square foot of new commercial or market-rate residential development by size and type.
Affordable housing impact fees are a cost-recovery mechanism, not an assessment or tax. The fees recover a portion, or all, of the costs incurred by the County to provide the affordable housing need generated by new development. At the full fee, the County fully covers the necessary revenue to develop the required housing. Any reduction in fees results in the need to identify outside revenues to fill the gap between the funding needed and the fee amounts collected. The Affordable Housing and Commercial Linkage Impact Fee Study (“Nexus Study”) determined the maximum justified affordable housing impact fees supportable under state law, shown below.
Maximum Justified Affordable Housing Impact Fee per Square Foot Schedule:
New Residential Rental Unit $152.00
New Residential For Sale Unit $86.00
Commercial - Office $367.00
Commercial - Hotel $405.00
Commercial - Retail/Restaurant $584.00
Commercial - Industrial $154.00
Commercial - Warehouse/Storage $50.00
The County can adopt any amount up to the maximum. The Affordable Housing and Commercial Linkage Fee Financial Feasibility Analysis provides policymakers with analysis of the net fee capacity for each of the development types included in the Nexus Study. Net fee capacity refers to a project’s total revenue or residual value after all costs. The analysis assumes that if the residual land value is less than the cost to acquire that land and build the project, the project is not feasible. The study includes an alternative feasibility analysis method that can be applied for certain developments that are built by owner-operators, such as privately owned wineries. The alternative analysis uses a total development cost model to consider the feasibility of fees within 1-3% of the project’s overall construction cost.
At the September 23, 2025, Board meeting, Staff presented Wildan’s studies and sought Board direction to prepare a resolution with intent to adopt increased impact fees. Staff recommended that the Board adopt the Affordable Housing Impact Fees at less than the maximum rates identified in the Napa County Affordable Housing and Commercial Linkage Fee Financial Feasibility Analysis nexus study. The recommended fee levels seek to balance the need for increased cost recovery from new developments without adversely impacting project(s) feasibility such that there is a significant slowing of desired commercial and residential development projects. The proposed fees incentivize the construction of smaller residences and agriculturally-focused commercial businesses in the office, industrial and warehouse sectors. The incentive to include attached ADU’s to get 3,000 square feet without incurring any impact fee is intended to address the need for greater flexibility in local housing stock. ADU’s allow property owners to adapt to changing needs, providing diverse living arrangements within existing infrastructure. They increase density in Ag Preserve without the need for large-scale development. This versatility and efficiency creates a more responsive housing supply, which benefits the entire community. It further contributes to the County’s Regional Housing Needs Allocation (RHNA) housing inventory count at a naturally-occurring affordable threshold, thereby helping to produce the very housing the impact fees would otherwise be used to develop.
Residential:
0-2,000 sq ft 0% of max $86/sq ft = $ 0/sq ft
2,001-3,000 sq ft 50% of max $86/sq ft = $43/sq ft
3,001+ sq ft 100% of max $86/sq ft = $86/sq ft
ADU/2nd Dwelling:
0-750 sq ft 0% of max $86/sq ft = $0/sq ft
751+ sq ft Per Gov Code 66310-66342, ADU fees for units larger than 750 square feet are set by the ratio of the new ADU square footage to the square footage of the existing primary residence.
Multi-Family: 0% of max $152/sq ft = $0/sq ft
Commercial:
Office 4% of max $367/sq ft = $ 14.50/sq ft
Hotel (new) 25% of max $405/sq ft = $100.00/sq ft
Retail/Restaurant 10% of max $584/sq ft = $ 58.40/sq ft
Industrial/Manufacturing 5% of max $154/sq ft = $ 7.75/sq ft
Warehouse/Storage 15% of max $ 50/sq ft = $ 7.75/sq ft
Staff recommend fees be adjusted annually per the construction cost index (CCI) to ensure market value is maintained and further recommend the fees be reconsidered by the Board if a regional or local housing bond is passed by the voters. Staff will present annual reports on revenue collection and projects.
The amount of revenue that may be collected is dependent on discretionary developer and homeowner decisions. An increase in revenue is anticipated but cannot be estimated.
PROCEDURAL REQUIREMENTS
1. Open public hearing.
2. Staff report.
3. Public comment.
4. Close Public Hearing.
5. Motion, second, discussion and vote on the adoption of the resolution.
FISCAL IMPACT
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Is there a Fiscal Impact? |
Yes |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: Adoption of the Nexus Study and fee increase implement programs within the 2023 Housing Element Update. An Environmental Impact Report, which contemplated an increase and update to impact fees, was prepared as part of the 2023 Housing Element Update process that was certified by the Board of Supervisors on January 24, 2023 (SCH Number 2022010309). No substantial evidence, as required by the CEQA Guidelines, section 15162, has been submitted that would require preparation of a subsequent or supplemental EIR, based on the following:
a. No substantial changes have been proposed in the project.
b. No evidence of changed circumstances, or new information of substantial importance to the project, has been submitted into the record, nor has any substantial evidence been introduced into the record showing that changed circumstances or new information would result in new environmental impacts, or substantially increase the severity of those already identified, nor is there substantial evidence in the record of new feasible mitigation measures or alternatives.