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SF’s inclusionary housing rates look for ‘sweet spot’

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Housing units are under construction in Mission Bay. (Emma Chiang/Special to S.F. Examiner)
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San Francisco needs more affordable housing, but how much should be mandated from developers remains up for debate.

Months after San Francisco voters supported an increase to The City’s inclusionary housing requirements, the first batch of recommendations for setting new affordable housing policies will go before the Planning Commission for an informational hearing Thursday.

San Francisco voters in June approved Proposition C, which requires developments with at least 25 homes to include 25 percent of those units at below market rate, including 15 percent for low-income residents and — for the first time — 10 percent for middle-income residents.

Among the five recommendations from the Controller’s Office, which were also vetted by a Technical Advisory Committee comprised of representatives appointed by the mayor and Board of Supervisors, are the implementation of different affordable housing requirements for rental and for-sale properties and an annual increase in the requirements.

Meanwhile, Supervisor Jane Kim, who sponsored Prop. C, said Wednesday she and Supervisor Aaron Peskin are exploring various recommendations for setting inclusionary housing rates that could include different requirements for different neighborhoods or building types. She expects such changes to go before the Board of Supervisors before the end of the year.

“The one-size-fits-all doesn’t really make sense,” Kim said. “Land swaths are vastly different, there’s a big difference between buildings. We really want to be thoughtful but also we really want to push aggressively to build as much affordable housing as possible.”

The recommendations set to go before the Planning Commission on Thursday include setting the on-site requirements at 14 to 18 percent for rental properties, and 17 to 20 percent for home ownership projects — both less than the 25 percent initially mandated in Prop. C.

Prop. C returned authority from voters to the Board of Supervisors to change inclusionary housing requirements and requires the City Controller to conduct feasibility studies of affordable housing requirements if and when the board adjusts the 25 percent inclusionary housing rate.

The current inclusionary rate varies based on when projects were filed with the Planning Department. Before June, developments with at least 10 residential units were required to include at least 12 percent of the homes at below market rate or 20 percent off-site, or pay a fee.

The cost of below-market-rate homes is determined by The City’s area median income, which, in 2015, was $71,350 for one person and $101,900 for a four-person household.

Many say prices for homes will drop if more housing is produced. But how to both generate as many affordable units as possible from of a developer without adversely impacting the cost of housing is the challenge.

An analysis by the Controller’s Office found that for each percentage point change to the inclusionary requirement for both rentals and condominiums, an additional 175 below-market-rate units would be constructed over the next 15 years.

Previously, research by the Controller’s Office on the potential impact of Prop. C found that if construction of new housing dropped by 18 percent, housing prices and rents for all new and existing market-rate units would increase by about 2 percent.

Eric Tao, CEO and managing principal of the San Francisco-based real estate firm AGI Avant, served on the eight-member advisory committee that met with city staff and a consulting team commissioned by the Controller’s Office over the summer to vet the recommendations that are set to go before the Planning Commission on Thursday.

The committee’s goal, Tao explained, was to “maximize the amount of below-market-rate housing units by market-rate developers without jeopardizing the overall production of housing in San Francisco.” In other words, to find that “sweet spot,” he said.

Following the passage of Prop. C, Tao said he has anecdotally heard from other developers in San Francisco that the number of new residential projects that weren’t grandfathered into the older inclusionary rate has plummeted. Tao attributed the uncertainty around new inclusionary rates, coupled with an all-time high of construction costs, to that slowdown.

“We may be the victims of our own success,” Tao said. “All the units that we’re delivering right now in San Francisco have caused the rent to soften.”

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