Affordable Housing

What Is RHNA?

In a previous post, we talked about affordable housing programs, income levels, and how affordable home pricing is calculated.  Here in California, we have a state law that mandates local governments to conduct a Regional Housing Needs Assessment – you might hear the acronym pronounced as “reena”.

In past years, I would often hear the cities talking about their RHNA goals and that would typically result in some type of contribution from your development toward their affordable housing objectives.  One method would be “inclusionary housing”, which means that a developer would need to offer a certain number of homes at below-market prices that could be purchased by the lower income buyers.  As example, maybe a 100-home development would need to provide 10 – 15 of the homes at these lower prices.  If the market price is $700,000, these 10 – 15 homes might need to sell for somewhere between $250,000 to $400,000.  The developer or builder will need to account for this revenue shortfall in the pro forma, which usually always means a lower land value.

Another contribution method is “in lieu fees”.  In this case, the builder will pay a fee to the city for every home that gets built and the city administers an affordable housing project with collected fees.  It might be that these fees can be $10,000 to $15,000 for each of the 100 homes, which again means the pro forma and land value are impacted.  It varies city by city as to whether these in lieu fees are preferred over the inclusionary housing.

Maybe 10 to 15 years ago, I would hear from the cities about their RHNA needs, but never really saw any penalty from the state if these RHNA goals were not met.  However, with the home prices once again rising here in California, I am starting to hear that the state government is now threatening to withhold other funds from these cities unless they start meeting these affordable housing goals.  And as a result, we are starting to hear cities pushing for more housing projects – not something the development industry has heard for quite some time.

If you have some comments or questions, we welcome you to share with us below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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