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From the March 2007 Newsletter:
By David Fix
As small property owners, we sometimes feel that San Francisco’s supervisors spend all their time passing laws that afflict us. Let’s be fair. That isn’t really true. Quite frequently their desire to regulate leads them to pass bad legislation afflicting other segments of San Francisco’s economy.
For example: Supervisor McGoldrick introduced a resolution whose virtues are so evident to him that he wanted the Board of Supervisors to pass it without any committee hearings to consider its effects and without any opportunity for public comment. The resolution urges the Planning Commission to initiate and recommend amendments to the Housing Element of the General Plan to provide that the Residential Inclusionary Affordable Housing Program should apply to housing developments of all sizes. This is a significant change and deserves debate and public comment.
Supervisor McGoldrick also wants to amend the “Inclusionary Affordable Housing Program,” the City’s effort to assure that each year new “below-marketrate” (BMR) for-sale and for-rent units come onto the market. Under his proposal, new buildings of 2-4 units would be subject to these “inclusionary housing” rules. It was just last year that the Board changed the rules to lower the inclusionary housing requirement from new buildings of 10 units or more to ones with only five units or more. They also increased the required number of affordable units from 12% to 15% of units in the project. Now Supervisor McGoldrick wants to apply these rules to buildings of all sizes.
If a developer builds a two-unit building and provides inclusionary housing in the building, he would be providing a 50% housing subsidy! If his costs per unit increase, the price he must charge for the unrestricted units must increase to cover his costs. How many buildings of 2-4-units does the Board of Supervisors think will be built under this restriction?
The developer can choose from two other possibilities under the existing law. He can build affordable units on another site within a mile radius—but then must provide for 20% inclusionary housing. The third choice is to pay “in-lieu fees” to the city, which range from $116,000 to $357,000 per unit, depending on the unit’s size. Most new buildings of 2-3 units now have 2-3 bedrooms per unit. The fee for units of this size is $250,000 and $357,000, respectively. The developer must pay this per unit fee for 20% of the number of units built. On a two-unit building, if the developer opts to pay the inlieu fee for 20% of the units, he would pay a fee equal to 40% of the subsidized value of those units (two units times 20%). For a 3-bedroom unit, the fee would be $143,000. This cost would be added to the price of the units sold, thereby driving prices up and families out.
Supervisor McGoldrick wrote a letter to the editor in the SF Examiner on February 23 stating, “For example, for a new five-unit building, the developer can choose to pay five-tenths of the cost to fill the “affordability gap” between a market rate unit compared to an affordable unit. My proposed legislation will require that two- to four-unit buildings also participate in the fractional in-lieu fee. Thus, a two-unit building will pay two-tenths.” This is not how the current formula works according to the Planning Dept. and the Mayor’s office of Housing. The in-lieu fee for a two-unit building would be 20% times two units, or 40% of a unit, twice as much as the Supervisor states. Why stop here; why not include single-family homes?
Has Supervisor McGoldrick done any research or financial analysis of this proposed legislation to determine its impact on building new housing? For that matter, has the Board of Supervisors even studied the impact of the changes made last year? The City needs new housing, yet Supervisor McGoldrick wants to pass legislation that will make it even more expensive for families to own or rent in San Francisco.
Mr. McGoldrick previously submitted legislation to lower the inclusionary housing provided by some large developers from 15% to the pre-2006 12%. The effect would be to encourage large developments and discourage small ones—not to mention making it more difficult for small developers to become large ones.
When will the supervisors learn? They make more restrictive rent control laws; as a result, owners keep their units off the market, thus driving up prices of available units as the total supply decreases. This law will have the same effect on new development
The Board does everything in its power to prevent Ellis Act evictions, under the premise of preserving affordable housing. Many people want to live in neighborhoods with smaller buildings. Making it more difficult and expensive to build smaller buildings will just encourage more Ellis evictions when people sell existing small buildings. Do the supervisors consider the consequences of legislation before they introduce it?
Even Randy Shaw, Executive Director of the Tenderloin Housing Clinic, which “seeks to preserve and stabilize low-income housing in the Tenderloin and surrounding communities,” opposes this legislation.
While this measure does not directly affect us as small property owners, and might even increase the rents we get for vacant units by deterring the construction of new units, SPOSFI feels that it is contrary to the best interests of the City. Public policy should be encouraging the construction of new units to increase the stock of housing available for rent and purchase. Achieving that objective requires less regulation, not more. I urge you to express to the supervisors and the Mayor your opposition to this ill-conceived proposal.
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