Sacramento eyes updates to housing fee system as affordable housing results fall short

Sacramento officials are considering targeted changes to the city’s Mixed Income Housing Ordinance after new data showed the program is delivering fewer affordable units than originally hoped.

During a council workshop on December 9, staff walked through the 2015 ordinance, its performance to date, and a suite of proposed adjustments that would increase revenue for affordable housing and strengthen requirements for large master-planned projects.

The city’s impact-fee model, which replaced the former inclusionary system in 2015, requires most market-rate developments to pay $3.56 per square foot into a housing fund managed by the Sacramento Housing and Redevelopment Agency. In certain areas, the fee drops to $1.54, and for high-density housing, it falls to zero. Large projects of 100 acres or more must also prepare a Mixed Income Housing Strategy that may include land dedication, on-site affordable units, or other measures to offset the impacts of new growth.

From 2016 to 2024, the city collected $11.6 million in Housing Impact Fees. That money helped support the construction of 721 affordable homes. But the fee itself only paid for 55 of those homes. The rest were mainly funded by other programs, and the fee was just a small piece of the overall financing.

During the same period, another 407 affordable homes were built in large master-planned communities like Northlake and the Railyards because developers had to include affordable housing as part of their project plans.

Altogether, the city has been producing around 125 affordable homes per year under the current ordinance. That’s about the same pace Sacramento was producing under the older system that existed before 2015. Because the production rate hasn’t improved — even after switching systems — staff said it’s time to make small adjustments so the ordinance can generate more affordable housing without slowing down regular construction.

Staff said right now, some projects pay a lower housing fee, and very dense apartment buildings pay no fee at all. Because of these discounts, about 800 new homes every year avoid paying anything into the city’s affordable housing fund. Between 2016 and 2023, the city missed out on $9.8 million in revenue due to these exemptions. Staff is recommending that the city remove these discounts. If the city does that, it would collect about $1 million more per year, which could be used to help build more affordable housing.

The city is also proposing changes to how large master-planned projects handle affordable housing. Today, only developments of 100 acres or more are required to prepare a Mixed Income Housing Strategy, which outlines how the project will incorporate homes for a range of income levels. Staff is recommending lowering the threshold to 50 acres, which would bring more major development sites under this requirement.

Under this change, any project of 50 acres or more would be required to include at least 10% affordable homes priced for households earning 80 percent or less of the area median income. Staff said this would ensure that big new neighborhoods always include some affordable housing, rather than leaving it optional.

A new study using 2025 data was presented to explain why the city is recommending these changes. The study found that builders can still make most for-sale housing pencil out financially, but areas like North Sacramento and South Natomas are tighter and harder to build in. The biggest problem is rental housing. The study shows that apartment projects are not financially workable right now, even without any new requirements from the city. This means developers are already struggling to build rentals because construction costs and interest rates are too high.

The study also found that the price gap between market-rate and affordable homes has narrowed compared to earlier years. Affordable rents and home prices have gone up enough that they’re now closer to market levels. Because of that, requiring a developer to include a few affordable units doesn’t cost as much as it used to. Staff said this updated information gives the city clearer data to decide how much to adjust the ordinance without unintentionally stopping new construction.

The documents also show how Sacramento compares to other cities. In many places, developers must actually build affordable units within their projects—usually around 10 to 20 percent of the homes—or pay a large fee to avoid doing so. Sacramento doesn’t require that. Instead, Sacramento charges a smaller per-square-foot fee, which is easier for developers to pay but doesn’t produce as many affordable units as those stricter systems.

Staff told the council that Sacramento’s overall housing construction tends to rise and fall with the broader state economy, not because of this ordinance. Because of that, they believe the city can tighten the rules a little without stopping developers from building.

Under Sacramento’s long-range housing policies, the city must periodically evaluate whether this ordinance is effectively supporting affordable housing without impeding market-rate development. Staff said the recommended updates would help meet those objectives by boosting fee revenues and securing on-site affordable units in larger projects. If the council authorizes the next steps, staff will conduct outreach at the start of 2026, prepare a final draft in the spring, and return for consideration of adoption in summer 2026.