What Is RHNA?
Here in California, we have a state law that mandates local governments to conduct a Regional Housing Needs Assessment (RHNA) – you might hear the acronym pronounced as “reena”.
Cities often talk about their RHNA goals and meeting their affordable housing objectives, but how does this work? These goals and contributions usually follow one of two methods.
Inclusionary Housing
This means that a developer needs to offer a certain number of homes at below-market prices which tne can be purchased by buyers in a lower income bracket. To meet this goal, let’s say a contractor wants to build a 100-home development. That developer would need to offer 10-15 of these homes at a lower price.
If the market price is $700,000, these homes could be listed 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.
In Lieu Fees
This contribution method requires the builder to pay a fee to the city for every home that gets built. The city then administers an affordable housing project with those fees. In our 100-home development scenario, the fees could range from $10,000 to $15,000 for each home. As in the previous method, the pro forma and land value are impacted.
The methods chosen typically vary from city to city. They may have personal preference or one method may be more profitable than the other.
In the past, there has been little to no repercussion from the state if cities failed to meet their RHNA goals. However, with home prices on the rise once again, the state of California appears to be threatening the withholding of city funds if their affordable housing goals fall short.
