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6.A. - Page 2 <br /> source. Federal Community Development Block Grant (CDBG) funds, often used to <br /> support housing-related needs, have also been reduced during the same time period. <br /> The City Council held a "Managing Growth" Study Session on February 8, 2016. <br /> Affordable housing was the topic discussed at greatest length. The Council directed that <br /> two separate processes be undertaken: <br /> 1) The Housing and Human Concerns Committee should hold community <br /> meetings and report back to the City Council with tenant protection <br /> recommendations and other affordable housing policy recommendations. The <br /> finding of this process are the subject of a separate report; and <br /> 2) Staff and the Finance and Audit Committee should summarize the City's <br /> current affordable housing funding sources and investigate potential new <br /> affordable housing funding, which is the subject of this report. <br /> Since that time, the Finance Department and the Community Development Department <br /> have compiled information related to existing funding sources and suggested potential <br /> new sources. The Council Finance and Audit Committee also met to receive an update, <br /> and made recommendations related to potential funding sources and strategies for the <br /> production of affordable housing. The following report summarizes the cost of affordable <br /> housing production, current funding sources and how that money is spent, and <br /> recommends new potential funding sources. <br /> ANALYSIS <br /> Affordable Housing Production Costs <br /> Affordable housing is expensive to build and requires deep financial subsidies. <br /> Typically, affordable housing is more expensive to develop than market rate housing. <br /> This is because affordable housing development has higher expenses related to <br /> financing, construction and labor requirements. Furthermore, regulatory requirements <br /> significantly increase the costs of affordable housing development. These requirements <br /> can include federal, state and local procurement policies, lengthy funding and <br /> entitlement approval processes, local hiring preferences and prevailing wages. <br /> Affordable housing developers generally approach a project by first identifying the target <br /> tenant population and the target income category as defined by law (for example, "Low <br /> Income" and "Very Low Income" Senior Citizens). Secondly, the rent affordable to target <br /> demographic is determined and that is translated into an ongoing income stream based <br /> on the number of units in the development. In broad terms, the cost of constructing the <br /> housing is greater than the income stream from the housing, resulting in the <br /> "affordability gap". The estimated gap for various levels of income groups is shown in <br /> the table below along with an average affordability gap for each group. <br /> Page 12 <br />