The Land Use and Transportation Committee will hear two critical housing measures Monday/10, in both cases pitting developers against the affordable housing community.
The letters supporting and opposing the two bills tell a remarkable story about the reason so little housing is getting built in San Francisco (hint: It has nothing to do with neighborhood opposition, CEQA, historic preservation, or any of the other factors the Yimbys like to blame).
The first measure, sponsored by Mayor Lurie and Sups. Danny Sauter and Bilal Mahmood, is really complex and hard to understand. But in essence, it would allow the city to use tax-exempt bond financing and federal tax credits to underwrite some market-rate construction projects, if they agree to slightly more affordable housing than the law currently requires.
That is: the city would use tools that are normally limited to 100 percent affordable housing projects to make some market-rate projects more feasible—in other words, more profitable.
The federal tax credits and the bonding capacity are limited, and will become even more scarce during the Trump Administration. So the city is considering giving for-profit developers access to what are very limited resources.
From Council of Community Housing Organizations Executive Director John Avalos:
Although it is suggested as part of the rationale, we don’t see this legislation as a way to facilitate more affordable housing units. That’s because the amount of additional affordable units above current requirements is negligible and will have a superficial impact on affordability. Although there is no direct investment that the city must pay, this legislation further enables public subsidies to advance market rate development and there is an opportunity cost for using tax exempt bond financing.
Avalos suggests three amendments:
First, adding tighter language that determines how MOHCD manages the “queue” of applicants that seek to use these subsidies, making sure that market projects never jump the queue to displace any 100% affordable projects. Second, creating an ability to re-assess the program if conditions change, for example if it becomes more difficult in the future for 100% affordable projects to be awarded state CDLAC and TCAC funding. Currently, MOHCD reports that 100% affordable projects are being fully funded, but that may change, as has happened in the past, and if so, this will only intensify competition between market and 100% affordable projects. Third, if the city’s goal in this legislation, as was explained by Planning staff, is to tie the requirement to the current inclusionary rate which can change over time, then we recommend that the City use the tried and tested standard that worked during our last recession, the post 2008 recession era. During that time, the CDLAC requirement was 33% greater than the underlying on-site requirement. This approach would be simple, straightforward, and reasonable, and would be durable through the ups and downs of real estate cycles.
The second measure would eliminate any affordable housing requirements for developers who turn offices into luxury units.
That plays right into the ultimately flawed Yimby narrative, that more market-rate housing will bring prices down for everyone.
There’s a credible argument that allowing more housing downtown will revitalize the area. Still, this legislation would encourage more luxury development, making downtown a high-end district, and do nothing to promote the city’s legal goal of creating 48,000 new affordable units.
Emerald Fund, one of the city’s most successful housing developers, supports the measure—and the developer’s letter says a lot about the current crisis:
Today, new market-rate housing development in San Francisco is not financially feasible. Construction costs and fees are among the highest in the world while, on the revenue side, rents are still 15% below pre-COVID rents. It costs more to build new housing in San Francisco than the housing is worth once complete. As a result, it is not possible to attract the necessary debt or equity, as a potential project would be unable to illustrate how the investment or loan funds will be paid back. This is why San Francisco has no tower cranes up today and is producing less housing than any major city in the country.
Yes: the problem isn’t “obstacles,” it’s construction costs, financing, and—imagine—rents not high enough. The developers won’t build until they can charge higher rents–which undermines the entire concept that more housing will bring prices down.
More:
Our analyses have gleaned that approximately 1/3 to 1/2 of the potential office-to-residential conversions could reach financial feasibility if the following public policy levers are pulled: federal historic tax credits (available for most of the buildings we studied), elimination of transfer taxes (accomplished with Prop C in March 204), reduction of property tax increment (made possible through Assemblymember Ting’s AB 2488), and the elimination of affordable housing requirements.
SOMA Pilipinas and the South of Market Community Action Network expressed serious concerns:
This legislation would allow projects that are 100% market rate, with zero affordable housing. The legislation would completely remove the following impact fees for conversion projects:
● Affordable Housing Fee
● Child Care Impact Fee
● Downtown Park Fee
● Public Art Fee
● School Impact Fee
It appears that the legislation applies to new construction projects as well, as “eligible projects” include projects that demolish the existing non-residential building and construct a new residential building. This is different from “adaptive reuse” as this ordinance has been described.
more:
Removing all impact fees from conversion projects hurts residents in the South of Market, sets a dangerous policy precedent, and undermines the City’s commitment to building complete neighborhoods. The impact fees support desperately needed affordable housing, childcare, schools, parks and other community serving infrastructure. The fees are the result of the City’s policy that new construction should help contribute to the infrastructure impacts that come with new development, new residents, and new workers and acknowledges that market-rate housing has an infrastructure impact on a neighborhood. These conversion projects need to pay their fair share to create the infrastructure needed to match the increased needs from new residents. The City is entering a budget deficit and there are stalled affordable housing projects in the South of Market such as 967 Mission St that have no funding. Exempting projects will exacerbate the existing underfunded affordable housing, parks, schools, childcare, and other badly needed neighborhood amenities in SOMA.
From CCHO:
This legislation is emblematic of race to the bottom of standards for development and would pave the way for private development with lower public benefits and no level of affordability. Moreover, this legislation overrides the City’s Regional Housing Needs Assessment goals to build affordable housing at a faster rate than market rate housing. While we support efforts to convert commercial to residential uses, these efforts should align with the City’s affordable housing strategies. This legislation would subvert them. A key rationale for this legislation, as cited in the findings, is to address the “twin problems of under-utilized office space and lack of affordable and available housing in San Francisco.” However, it is puzzling that in contending to address housing affordability, the legislation eliminates the affordable housing requirement for these conversion projects. We challenge the notion that any new housing is affordable housing, when market rates consistently require incomes significantly above the median income of everyday San Franciscans.
That hearing starts at 1:30 pm.
Mayor Lurie will appear for Question Time Tuesday/11 to explain how he intends to keep Muni funded. It’s a critical question for the city; the SFMTA is already planning on cutting service, and more cuts could be ahead.
At the last SFMTA meeting, the comments made something very clear: People in this city rely on, and generally really love, the transit system. It’s one of the most popular functions of government. My all metrics, Muni has been improving; ridership is back to more than 70 percent of pre-pandemic levels, service is faster and more frequent, the bus rapid-transit lanes are a success.
And yet, mostly because hardly anyone drives downtown and parks in city lots any more, Muni is desperately short of cash.
There’s no lack of creative solutions; some of them would require, say, Uber and Lyft or the tech shuttles to pay more money to keep Muni afloat. Not sure that our mayor, who is trying to be pals with the tech industry, would go for that.
So … what else does he have in mind? Sup. Myrna Melgar is posing the question. You can hear Lurie’s answer right a 2pm.
