A vote at the board of supervisors on April 26th suggests that the drama over the Prop C (“Affordable Housing Requirements”) trailing legislation has ended. For now. The trailing legislation passed on a 9-2 vote (Sups. Wiener and Farrell opposed) and will take effect if/when Prop C is adopted on June 7th. Prop C is a charter amendment that, among other things, doubles the inclusionary rates for new housing development. Essentially, the trailing legislation determines which new housing projects could easily move forward and which face new hurdles. Prop C trailing legislation history can be found in our April 4, 2016 blog.
What emerged following a very intense few weeks of back-and-forth negotiations between housing builders and community activists, brokered by Sup. Jane Kim and Aaron Peskin, sounded very much like a typical compromise – no one got what they wanted, but most got something. Here’s our assessment of the good and the not-so-good results.
Good News:
A formal economic analysis is required to set the new Inclusionary rates following the passage of Prop C. This was at Mayor Lee’s insistence and something SFHAC strongly supports. Let’s use real economic data to set the Inclusionary requirements vs. a one-size-fits-all approach like the flat 25% on-site rate contemplated in Prop C.
“Geographic carve-outs” removed: Previous versions of the legislation removed projects in certain areas of the Eastern Neighborhoods Plan Area, the Mission District and SoMa from any grandfathering protection, regardless of when their applications were dated. These carve-outs threatened 2,600 units by sharply increasing their uncertainty and financial risk, ultimately threatening their being built. By removing the carve-outs from the legislation, there’s greater likelihood these projects will move forward.
120-feet building height limits: Previous versions of the legislation included sharply increased in lieu fees across the board for projects over 120 feet in height. This ignored that some special use districts have been zoned for 130-feet heights for decades. The adopted legislation removed this provision which reduced costs for code-compliant projects and probably saved a few of them.
Housing impact fees: The adopted legislation allowed housing impact fees in area plans, many quite high, to count against already mandated Inclusionary in lieu fees. Removing this double-whammy could help many projects located in the Market & Octavia or Eastern Neighborhoods by mitigating the impact of the increased requirements.
Not-So-Good News:
1,600 homes approved after January 12, 2016 will not get grandfathering protection and would be subject to unknown Inclusionary rates: In the past, when new legislation was proposed that changed the economic terms for projects that were already in the pipeline, the new terms became effective on the date of enactment. For Prop C, this would be on June 7, 2016. The trailing legislation sets a troubling precedent by reaching back to capture projects that have been working under the City’s rules for years. It leaves many existing planned, approved and unbuilt projects suddenly facing increased risk. Many developers will need to determine whether investors will fund projects at the future higher Inclusionary rates. Unanticipated new exactions or fees can make projects difficult or impossible to finance, potentially threatening their development as housing. One such example is the 550-unit development at the old UCSF campus in Laurel Heights which has been in the planning process for years. We’re not sure how jeopardizing construction of this much new housing is in the City’s best interest, but suspect the calculations are more political than policy related.
With the notable exception above, there is grudging recognition the deal achieved is probably the best possible under the circumstances. It is important to move forward and prepare for undertaking the mandated economic feasibility analysis this summer. The paramount remaining question is whether the SF Supervisors will adhere to the conclusions and recommendations of the study or whether they will establish their own requirements.
