Under Measure E, office building construction would be limited if state-mandated affordable housing targets aren’t met. (Kevin N. Hume/S.F. Examiner)

Prop. E ties office development to housing production

Controllers report says measure would reduce funds for affordable housing

A measure on the March 3 ballot will curtail office development if San Francisco fails to deliver on affordable housing development.

Proposition E is effectively an expansion of Proposition M, a cap on office development approved by voters in 1986 when the impact of office development on housing costs was also a concern. That measure allows office development of up to 875,000 square feet a year for buildings greater than 50,000 square feet and 75,000 square feet for buildings between 25,000 and 50,000 square feet. The limit gets lowered the following year if a large development surpasses it; any square footage not allocated in one year is rolled over to the next.

But that measure did not go far enough to stem the housing and transportation impacts of The City’s recent job boom, according to John Elberling, executive director of the nonprofit housing developer Todco. Elberling is listed as the primary proponent of Prop. E.

“It’s clear now after 30-plus years of experience that the Prop. M limit was not sufficient to really have the impact on the future of The City that we had hoped,” Elberling said. “Something had to be done.”

Should San Francisco voters approve Prop. E, office development will be scaled back if The City doesn’t meet affordable housing targets based on the state-assessed Regional Housing Needs Allocation (RHNA). The 875,000-square-foot cap on large projects would be reduced by the same percentage that San Francisco fails to meet those targets.

Just 1,626 housing units for low-income residents are currently in the pipeline out of an estimated 15,629 needed through 2026, according to an October report from the Budget and Legislative Analyst’s Office.

The measure also specifically caps large office projects in the South of Market neighborhood until at least 15,000 new housing units are produced in that area, but includes carveouts for some projects already in the pipeline. In addition, it changes some of the criteria by which the Planning Commission will evaluate office projects.

A Controller’s Office report estimated an annual revenue loss from Prop. E of $11.5 million per year in property and business taxes, reaching up to $231 million annually after 20 years.

It also estimates a loss of $39 million per year in affordable housing funding generated by office development, since developers pay a Jobs-Housing Linkage Fee to offset the impact of projects. The Board of Supervisors boosted those fees in October from $28.57 per square foot to $69.90 by January 2021. At the time they were estimated to bring in $400 million for affordable housing within a decade.

Housing and tenant groups like the Council of Community Housing Organizations, San Francisco Tenants Union and the Affordable Housing Alliance back the measure.

However, groups that are more development minded, including SPUR, the San Francisco Housing Action Coalition and YIMBY Action, are concerned about the office shortage Prop. E will create, increasing costs of current office space that will impact less profitable organizations like nonprofits.

“That’s short-sighted to the point of lunacy,” said Laura Foote, executive director of YIMBY Action. “It’s important to pay attention to that [jobs-housing] balance, but the conclusion that people should draw is that we need more housing. It’s a pessimistic verging-on-dystopian mindset to say that we should stop jobs.”

Foote advocated for a larger housing bond or parcel tax for more stable funding, instead of pegging affordable housing revenue to a variable economy. She also called for The City to make building affordable housing easier.

SPUR has also raised concerns about the loss of funds for affordable housing, and the potential for the measure to encourage sprawl by pushing office developments into outlying communities.

“Downtown San Francisco/SoMa is one of the best locations in the region for jobs,” the nonprofit’s voter guide notes. “Because the area is served by the highest-capacity transit, far fewer workers commute by car to these jobs, which reduces congestion, greenhouse gas emissions and air pollution. While we hope that businesses that cannot locate or stay in San Francisco choose to take root in downtown Oakland, downtown San Jose or other locations near regional transit, that hasn’t been the case historically.”

Elberling called the controller’s report “baloney” but acknowledges that the nature of the economy makes it hard to predict exactly when Prop. E’s impacts would kick in.

“It’s really a forward-looking bill,” Elberling said. “The City’s economy as a whole will keep growing. What we’re trying to do is to encourage developers to develop affordable housing.”


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