San Francisco Officers Pitch Cuts to Reasonably priced Housing Necessities To Kickstart Building
San Francisco lawmakers have reached an agreement to temporarily scale back the need for affordable housing for new housing construction in the city. This is the latest move aimed at boosting the economic recovery and boosting dozens of stalled projects.
Real estate developers have long blamed affordable housing demands for increasing the high costs and challenges of building in one of the country’s most expensive housing markets. The agreement reflects a local economic downturn that has garnered national attention after the market, which saw the fastest rise in office rents of any major US city before the pandemic, now has some of the highest office vacancy rates.
Under officials’ housing fee reform plan, quotas would be scaled back, reducing the number of affordable units developers must include for approved projects as well as projects proposed over the next three years. The measure also lowers some development effect fees that are charged when new residential buildings are built to cover all or part of the cost of providing public services for a project such as open space or transportation.
“We are fundamentally changing the way we approve and build housing in San Francisco,” Mayor London Breed said in a statement to CoStar News. “By reforming our fees and setting them based on data, we can ensure we create new housing, jobs and the economic benefits we all want our city to have.”
It is estimated that the measure will push through about 8,000 housing units across the city that have already been approved but have not yet started construction. Approximately 2,500 of these units are planned in and around downtown San Francisco, which has evolved from a vibrant hotspot to an area with significant office vacancy rates.
Even then, multifamily rates in the city remain among the highest in the United States, averaging more than $3,100 per month.
Across the country, leaders in major cities like San Francisco, New York and Washington, DC are scrambling to restore momentum lost by the pandemic by attempting to shift the focus to new housing construction to spur demand and activity. Some have suggested ways to facilitate the conversion of vacant office buildings into housing, while others are cutting red tape around development to streamline the permitting process.
However, the commercial real estate situation in San Francisco is relatively grim compared to other cities in the United States, with the office vacancy rate rising to over 17%, according to data from CoStar, compared to about 7% in 2019. In some parts of downtown, the Availability rate at nearly 30% and with rental activity largely subdued, there are no signs of a turnaround imminent.
The combination of remote work, record-breaking sublease availability and office vacancy rates, and deteriorating socioeconomic conditions has resulted in a budget deficit of nearly $800 million since the pandemic began. Additionally, office leasing and investment is now a small fraction of what it was before 2020, meaning this important source of tax revenue is unlikely to be available again any time soon.
The housing fee reform plan is expected to go into effect on November 1 after being approved by the Board of Directors and signed by Breed. The changes expire after a period of three years unless otherwise renewed.
If approved, the proportion of inclusive housing – or the number of affordable units required for each housing project – will be reduced to between 12% and 16%. Breed’s office said this would bring “special relief” to projects that have already been approved but have been halted due to rising construction and financing costs.
Market pricing developers in San Francisco, under current requirements, are required to allocate 22% of a project’s total number of housing units to affordable housing, which is limited to households earning 50% or less of the metro area’s median income.
And based on 2023 data from the U.S. Department of Housing and Urban Development, a household of four earning less than $72,050 per year is eligible for affordable housing in San Francisco.
The measure would also change the way the city calculates development impact fees, which the mayor’s office says is based on a structure that is “unpredictable and results in significant increases in costs over the life of a project.” The proposed changes would limit these charges to a 2% annual increase going forward.
According to the Breed Bureau, impact fees, which vary by project and square footage, have increased by more than 30% in just the last five years.
“Our inclusive housing laws have always been about maximizing the largest possible number of affordable housing units that the private market can handle,” Supervisor Aaron Peskin, who helped draft the measure, said in a statement.
He added, “This temporary reduction in affordable housing commitments is intended to spur housing construction at this critical time of San Francisco’s economic recovery.” which they have already received approval.
