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<br /> <br />Draft Summary Report: Eugene Housing Tools & Strategies 7 <br /> Financial Feasibility: Financial feasibility is just one of several factors for cities to consider in <br />making decisions on implementing a new tax or fee. In order to provide the City of Eugene with <br />guidance on how a new construction excise tax could impact development decisions, Strategic <br />Economics conducted a pro forma analysis that tested the financial impact of a construction <br />excise tax of one percent on several housing prototypes. Financial feasibility was tested using <br />a static pro forma model that measures return on cost (or ROC, used for for-sale residential <br />development) or yield on cost (YOC, used for rental properties). Return on cost and yield on <br />cost are commonly used metrics indicating the profitability of development projects. <br />The pro forma model included five housing prototypes: <br /> Single-Family Detached – An 1,800 square foot 3 bedroom, 2.5 bathroom for sale house at a <br />density of nine dwelling units per acre. <br /> Townhouse – A 1,400 square foot 3 bedroom, 2.5 bathroom for sale townhouse at a density <br />of 13 dwelling units per acre. <br /> Apartment – A 3-story wood frame apartment building with an average unit size of 900 square <br />feet and surface parking at a density of 25 units per acre. (This prototype does not represent <br />the more dense multifamily construction that is occurring in the downtown.) <br /> Cottage Cluster – A cluster of eight rental cottages with 800 square feet, 1 bedroom and 1 <br />bathroom each at a density of 16 dwelling units per acre. <br /> ADU – A 750 square foot rental unit with 1 bedroom and 1 bathroom. <br /> <br />The results of the financial feasibility analysis are as follows12: <br /> Single-Family Detached – According to the results of the pro forma analysis, the single-family <br />detached prototype meets the threshold of feasibility and the addition of a one percent <br />construction excise tax on the single-family detached prototype also meets the threshold of <br />feasibility. <br /> Townhome – According to the results of the pro forma analysis, the townhome prototype meets <br />the threshold of feasibility and the addition of a one percent construction excise tax on the <br />townhome prototype also meets the threshold of feasibility. <br /> Apartment – According to the results of the pro forma analysis, the apartment prototype only <br />marginally meets the threshold of feasibility and the addition of a one percent construction <br />excise tax on the apartment prototype does not meet the threshold of feasibility. <br /> Cottage Cluster – According to the results of the pro forma analysis, the cottage cluster <br />prototype does not meet the threshold of feasibility and the addition of a one percent <br />construction excise tax on the cottage cluster prototype also does not meet the threshold of <br />feasibility. <br /> ADU – Because property owners in Eugene typically build ADUs for reasons other than or in <br />addition to generating rental revenue, this prototype was not tested in the same manner as <br />the others. Only development costs were evaluated. <br /> <br />12 Data sources for the financial feasibility analysis include: interviews with developers; RS Means; similar pro formas; and data provided by <br />the City of Eugene. <br />December 12, 2018, Work Session - Item 2