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She wants to build 4 rental units on a lot in downtown. That's an apartment building. Why should an apartment building with 4 units be exempt from offering affordable housing? She will not be occupying those four units. She will be staying in her fifth unit.

If I paid rent to my parents in college would that make their house a 2-unit rental?

I am okay with a certain amount of gray area in the rental market, especially for informal or family situations. If these units ever hit the general market you can hit them with tighter rules later.

Again, in this case, she would not be exempt, she would pay a one time fee for the housing program.

Did your parents build 2 additional units in a building detached from their house and charge rent, including to people who weren't you from day 1?

If so, then yes. (Assuming it didn't fall under accessory dwelling unit rules.)

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