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Santa is back for the developers

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Buildings are seen along The Embarcadero in San Francisco on June 28, 2017. (Sarahbeth Maney/Special to S.F. Examiner)
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Last December, we wrote about the gift that Santa Claus brought to real estate developers in San Francisco: the ability to use recent changes in state density bonus law to increase heights and densities 35 percent above the existing zoning, with no additional public benefit.

To end this loophole, Assemblymember Phil Ting authored AB 915, which simply required The City’s “inclusionary housing” percentage to apply to projects that take advantage of the density bonus. It was a simple question of fairness. The San Francisco pro-housing community — from all 11 supervisors and the mayor to our community-based affordable housing, tenant and smart growth advocates, from Tenants Together to Livable City — came together to support this measure.

AB 915 passed in the state Assembly, thanks to Assemblymember David Chiu shepherding it through the Housing and Community Development Committee and thanks to the mayor and supervisors putting on the push for the Assembly floor vote. But in the final weeks for state legislation to pass, the real estate industry forced amendments to the bill in the Senate Housing Committee, by adding a gatekeeper role for the state’s housing agency to decide on an annual basis whether The City gets to implement AB 915.

That effectively killed the measure.

So what’s at stake? If you happen to be a developer in San Francisco, Santa brought you a 35 percent bonus on your profit. If you happen to own land you’re looking to sell, Santa handed you a 35 percent increase on the price of your land.

As we wrote last December when this giveaway was first exposed, it’s an unintended loophole in the State Density Bonus law that allows increased densities, heights and other economic incentives (reductions in open space or setbacks) in exchange for additional affordable housing. But San Francisco, due to the extraordinary profits to be made from housing here, already requires developers to provide a minimum of 18 percent affordable units for projects that comply with existing zoning. So, AB 915 was designed to fix that loophole specific to San Francisco, still encouraging increased density, but allowing The City to recoup part of the added value in increased affordability. Now, with the bill’s demise, developers will be able to upzone their land through the state density bonus with no additional requirements, effectively reducing their total affordable housing contribution to only 13 percent. What investor wouldn’t be slapping Santa’s back for that? And, in fact, over this past year, developers have already started taking advantage of this loophole.

What does this loophole actually mean in monetary terms? In a page straight out of “The Art of the Deal,” the first project to take advantage of this loophole, in South of Market, effectively created net “value” to the investor to the tune of about $3.8 million. After the hearing, Planning Commissioner Myrna Melgar said, “It is an unconscionable giveaway. The City should not so easily stand aside and risk letting this impact on our city’s affordable housing policy become standard practice.”

Increasing density or heights is not the issue — what is at issue is upholding the spirit of the state law, which was that builders could be allowed to exceed local zoning rules to get more profit, only in exchange for giving back more. That is the win-win that ensures “pro-housing” really leads to more affordable housing.

What’s surprising about this sudden turn for Ting’s measure is that housing organizations across the state, many of which last year worked to strengthen the state’s density bonus law, had no problem with this San Francisco-specific bill, from Housing California to the Western Center on Law and Poverty to the California Rural Legal Assistance Foundation: in short, all the respected statewide pro-housing organizations.

Groups in opposition to AB 915 read like a laundry list of the state and local real estate lobby: the California Association of Realtors, the California Apartment Association and the California Building Industry Association, as well as locally the S.F. Housing Action Coalition, BARF and YIMBY Action. This constellation of players are also the most ardent supporters of SB 35, a bill that would streamline approvals for market-rate development in gentrifying communities throughout the state. All of which begs the question: Is the goal of these groups to support greater housing affordability in our densifying urban areas, as they often contend, or is it simply to support real estate profits at whatever cost to the public good?

AB 915 could return next year. But in the meantime, the fight to protect San Francisco’s landmark inclusionary housing policy continues.

Peter Cohen and Fernando Martí are co-directors of San Francisco’s Council of Community Housing Organizations.

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