The Planning Commission will consider Thursday/19 a plan that would dramatically raise the amount office developers are required to pay to offset the housing demand they create.
The proposal, by Sup. Matt Haney, would hike the fee from $28.57 a square foot to $69.60 a square foot. That could generate as much money for affordable housing over the next ten years as the mayor’s proposed $600 million housing bond.
It has also set off a major political battle that so far has received little news media attention. The developers are freaking out; the Planning Department is trying to derail the proposal.
That’s because Haney is asking the question that ought to be central to all development discussions: If new office buildings don’t pay for the damage they do to the city, if they are costing us more than they provide in benefits, why are we approving them?
“There is no inherent good in more office space,” Haney told me. “If development is going to happen, the developers should contribute enough to mitigate the impacts they have on the community.”
The debate over this proposal will also force local officials, from the mayor to the supes to the planning commissioners, and legions of local activists, to take a clear stand:
Are they in favor of affordable housing – and making office developers pay for it? Or are they willing to let the office developers reap big profits while they make the housing crisis worse?
Here’s the background:
Under state law, San Francisco has the right to charge developers a fee to mitigate the impacts of their projects. If a new office building creates demand for more Muni service, the city can charge the developers for that cost. (So far, the city has decided not to charge developers even a small fraction of the cost of providing Muni serviceto their office buildings.)
New office buildings attract new workers to the city, and those workers need a place to live. Many of them – roughly a third, according to city data – will not make enough money to afford market-rate housing.
So the city has the right to ask developers to pay for building affordable housing for their workforce. In fact, if that doesn’t happen, then every new office building makes the housing crisis that much worse.
Before the city can set that charge, it needs to do what’s called a “nexus study” – an economic study that links the impact of the development to the cost of mitigating it.
In this case, San Francisco hired Keyser-Marston, a respected economic-analysis consulting firm, to run the numbers. The report, which you can read here, is, like much of this stuff, a bit dense and complicated. But what is concludes is simple: New office buildings create a substantial need for affordable housing. A fee that links new offices to affordable housing is completely legal and legit.
Now: KM decided not to go all the way out and calculate what that fee would be. But the report does say that every 1,000 square feet of new office space creates a demand for 0.8 units of affordable housing. So 1 million square feet of space would create the demand for 800 units.
So what do we do with that? From the report:
This report does not include a calculation of maximum supported fee level. Maximum supported fee levels per square foot of building area may be calculated by:
1) Multiplying affordable unit demand factors summarized in Table III-6 by an affordability gap representing the estimated average net cost to produce each unit of affordable housing; and
2) Dividing by 1,000 square feet of building area.
Fair enough. I did that math. It comes out to about $188 per new gross square feet of office space. In other words, based on the KM numbers, the city has every right to charge developers $188 million for affordable housing for every million new square feet of office space.
Haney’s proposal doesn’t ask for that. He told me he’s only seeking 36 percent of the maximum the city could charge. That’s consistent with other nexus fees, like the Muni charge.
Still, it represents a chance to capture a large amount of money for affordable housing.
The developers ought to be happy – by law and logic, the fee could be a whole lot higher. But of course, they are arguing that fees that high could cause their buildings not to “pencil out.” They wouldn’t make enough profit for the international speculative financial world the puts up the money for this stuff.
Although it’s not city law, the Planning Department decided on its all that these fees should be subject to a “feasibility analysis” that looks at how much developers can afford to pay. In this case, the city’s feasibility analysis — which delayed the process by six months and potentially cost the city miliions — says that the poor developers won’t make enough money on offices if the mitigation rates go up.
Okay: Let’s break this down.
An office building has a lot of negative impacts on the city. It causes more congestion, more costs for Muni, more demand for affordable housing (and if we don’t meet that demand, more homelessness, more people facing long commutes that are bad for the planet, etc.)
What benefits does that building give to the city? If the tax revenue it brings in doesn’t meet the costs it creates, why should the city approve it? Why do we need more office buildings if they are making life in the city worse?
Why not just say to the developers: Okay, your project doesn’t work in SF. That’s fine; we don’t want it or need it.
But that’s not how the City Planning Department works. It’s largely a permit-processing office, that operates on the assumption that all development is good development.
So the planning staff recommends that the housing fee be increased by only $10 a square foot. That doesn’t even cover the cost of inflation; the original fee was set in 1996, and just to keep up with the inflation, it should be $43.61.
“This is a huge opportunity to bring some balance and equity to development and housing,” Haney told me. “This strikes at the heart of how San Francisco deals with developers.”
He said that he has no plans to back down from his number. “If people in this city say they are pro-housing, then it’s important for them to stand up.”
Whatever happens at the Planning Commission, this will wind up at the Board of Supes, where Haney said he has six votes. But that’s not enough to override a veto if Mayor London Breed decides to side with the developers.
This will be a huge test, a defining moment for a lot of local officials. We all need to pay attention.