Berkeley consultants recommend keeping $56.25 in‑lieu fee, exempting first 5,000 sq ft amid debate over 'Hard Hats' costs

Consultants presented a rental housing feasibility study to the Berkeley City Council and recommended keeping the city’s in‑lieu fee at $56.25 per square foot while exempting the first 5,000 square feet of each project that chooses the fee option to improve feasibility for smaller "missing‑middle" developments. The consultants also urged indexing the fee to construction costs and said the market — not the fee alone — is driving most current infeasibility.

Dina Belser, who led the findings presentation, said the study used multiple pro‑forma assumptions and two return thresholds: a 6% yield‑on‑cost feasibility threshold for rental prototypes and 8% for forsale product types. “The yield on cost is the measure that is typically used for rental projects, and we used a 6% feasibility threshold,” Belser said, summarizing the methodology and the limits of pro‑forma snapshots.

The report showed that under current market inputs — high construction and financing costs and slowed rent growth — almost all tested rental prototypes were not feasible except group living accommodations, while some for‑sale missing‑middle prototypes appeared feasible on paper but are not being built because of site constraints and a small developer pool.

Rick Jacobus, the consultant who presented policy recommendations, said the most practicable change would be operational: "exempt the first 5,000 square feet of every project" that opts to pay the fee, which would make a small difference for large downtown projects and a bigger difference for projects around 6,000 sq ft. Jacobus recommended holding the fee at $56.25 now rather than raising it to a theoretical $58 per foot and to continue the city’s adopted practice of indexing future increases to the construction cost index (the next scheduled index increase the consultants noted is 07/01/2025).

Public comment highlighted sharp differences. Representatives from building trades supported the Hard Hats standard and faulted the study for not consulting labor. EJ Sai of Sheet Metal Workers Local 104 said the ordinance "has the potential to create a positive and sustainable future for the construction industry," and urged council to consider the lack of trades representation in the consultant work. Several labor speakers also said the Hard Hats provisions focus on health care and apprenticeship standards and do not directly set wages.

Developers and local business groups urged caution and more analysis. Patrick Kennedy, a Berkeley developer who said he has built student housing here for 25 years, praised the report’s detail but warned that consultant assumptions about Hard Hats and prevailing‑wage impacts could materially change feasibility: he cited an example in which a reported 20% hard‑cost increase could add roughly $1,000 a month to rent for certain student units. John Dalrymple, representing construction trade workers, told council the report was "fundamentally flawed" on its Hard Hats analysis and urged inclusion of trades in follow‑up work; other trades representatives said a more rigorous data set (including aggregated project financials under NDA) would help.

Council members framed the next steps as more outreach and analysis rather than immediate policy change. Councilor Hunt said the council would not provide direction at the meeting and asked staff to arrange deeper discussion with both labor and developers, noting that the feasibility results presented did not incorporate the consultants’ Hard Hats inputs into the core feasibility runs. The mayor noted Hard Hats is already adopted city law and said repeal was not on the table; the mayor and several council members asked staff to explore whether adjustments to other fees or targeted exemptions could mitigate impacts while keeping labor standards in place.

No fee increase or ordinance change was adopted at the session. The council carried a motion to adjourn the special meeting and signaled they will return to the issue with additional staff analysis, follow‑up meetings with labor and developer stakeholders, and more time to review the consultants’ assumptions and underlying data.