Mike Koozmin/S.F. Examiner file photoWorkers put the finishing touches on a development on 10th Street in October. Higher fees for developers have been suggested in the drive for more middle-income housing.

Ideas to increase middle-income housing in San Francisco floated

For two decades, San Francisco has squeezed concessions from every large residential development built on city soil. That has meant forcing below-market-rate units into each project or making developers pay a fee to opt out — an option increasingly taken in recent years.

Since 1992, there have been 1,463 below-market-rate units built that were either sold or rented out to middle-income residents. The City also has collected millions in fees during that time that have gone into building other housing.

Now, with the housing crisis squeezing the middle class, some are wondering if developers should be asked to contribute more to help alleviate the crisis.

There are several programs in The City to help provide housing for low- and middle-income residents, including the Housing Trust Fund and developer fees used to build housing, as well as units managed by the Housing Authority.

But tweaking the Inclusionary Affordable Housing Program could be one of the best ways to increase the stock of middle-income housing, said Peter Cohen, co-director at the Council of Community Housing Organizations.

As it stands, every new residential project of 10 or more units must price 12 percent of the units at below market rate, pay a fee to opt out or build below-market-rate units off-site.

“If the developers would take that program seriously and build the units and stop feeing out … we'd get more middle-income units,” Cohen said. But with the hot real estate market, developers are gladly paying the fee instead of losing profits, so tweaks need to be made to the program to prevent that.

By increasing the fees developers pay to opt out on building below-market-rate units and ratcheting up income requirements so more people in the middle are eligible, The City could incentivize the inclusion of more below-market-rate housing in ongoing construction projects, Cohen said.

An additional idea would give builders the option to have a wider variety of below-market-rate pricing for more middle-income units. What some are calling a “dial” would give builders the choice to have more middle-income units in a building, but as a concession they would have to increase the percentage of those units above what is currently mandated.

Tim Colen, executive director of the San Francisco Housing Action Coalition, said his group does not support all the proposed changes to inclusionary housing, but they do back the dial idea.

Still, more needs to be done.

“It's a good step, but it can't be the entire solution, it just can't,” he said.

Whatever happens to inclusionary housing, it is no silver bullet for San Francisco's housing problems, Colen said. The City simply has done a poor job of planning for middle-income housing construction, he said, adding that any solution has to include more building in all parts of The City, not just the most expensive eastern part of town.

While Cohen also backs the dial idea, he counters that unless additional sticks are used — increasing in-lieu fees, for instance — developers will increasingly opt out of including these units in their new projects.

Fifty-five percent of developers who received planning permits in fiscal year 2010-11 opted for the in-lieu payments, compared to only 25.2 percent of developers from July 1, 2002, to mid-2010, according to a 2012 report on housing by The City's Budget Analyst's Office.

If developers had not opted out, 1,597 additional units would have been built, according to the Mayor's Office of Housing.

But Mayor Ed Lee said during an event Wednesday that The City could in some instances build up to twice the number of units off-site as would be included on-site in a development.

“It's just basic economics that would allow you to understand that it isn't all on-site,” Lee said.

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