Freeing developers from having to pay for affordable housing is the latest proposal by Mayor Gavin Newsom to spur development in The City.
Currently, developers are required to either build a certain number of affordable-housing units within their projects or pay in-lieu fees that go toward off-site construction. The housing can cost a developer as much as $90,000 per unit, a fee that’s a huge hurdle even in good times, according to city officials.
Newsom is considering legislation that would increase the tax on property sales as a different way to pay for affordable housing. It would create a more stable and steady revenue stream to build affordable housing at a time when many developments are at a standstill due to the recession, the mayor said.
If The City could relieve developers of the massive upfront cost for affordable housing, it would jump-start building and generate construction jobs, according to the mayor. In the long term, it likely would lower housing prices, as developers would no longer pass on the cost of building affordable-housing units, Newsom said.
“It’s not without its critics, I’m sure, but it would be a bigger risk to not have the debate,” Newsom said.
Newsom’s advisers are still hammering out details of the legislation, deciding whether it would apply to commercial, residential or only new projects, said Jennifer Entine-Matz, Newsom’s economic adviser.
The mayor hinted at his new legislation the same week that the Board of Supervisors approved legislation that allows up to 85 percent of the required fees developers must pay The City to be deferred. Newsom also had proposed an affordable-housing component of the legislation, which would allow developers to reduce by one-third the fees for affordable-housing projects.
In exchange, developers would agree to place a permanent 1 percent transfer fee on the property that would then go back to funding affordable housing. However, the mayor recently tabled this plan, seeing that supervisors were not ready to support it.
Michael Theriault, secretary treasurer of the San Francisco Building Construction Trades Council, said increasing the transfer tax would be a more secure way of building affordable housing now.
“What we understand from developers is they have to take a great deal more in loans in order to make payments for affordable housing,” Theriault said. “It makes it more difficult for projects to get done in this economy.”