On Tuesday, San Francisco voted to tighten up its affordable housing policy for apartment buildings. Developers of new projects with more than 25 units will be required to reserve a quarter of those as affordable, build additional affordable units off-site, or pay an equivalent fee to the city. Supporters believe the ballot measure, which passed by a 2-to-1 margin this week, will boost the city’s sparse stock of affordable apartments. (What counts as “affordable” is, as always, a whole ‘nother story.)
The question is whether San Francisco is pushing too hard—and if the city’s aggressive policy could so hamper the market that fewer affordable units end up being built.
This new measure represents a change of course for the city. In 2012, San Francisco passed a “grand bargain” that, among other things, reduced the amount of affordable housing that developers had to put in their new luxury buildings. Starting in 2013, developments of more than 10 units had to make 12 percent of on-site housing affordable (or build off-site units, or pay a fee). Supporters of that measure considered it a success, for ushering in a construction boom and establishing the Affordable Housing Trust Fund, a $1.2 billion municipal set-aside for affordable housing.
But San Franciscans, frustrated by their never-ending rent crisis, have gotten an itchy trigger finger. This week’s referendum restores to the city’s board of supervisors the power to decree the percentage of affordable units in new developments and changes the calculus for the city’s builders.
Naturally, a handful of groups in San Francisco are nervous that doubling the on-site affordable housing burden will render big residential projects totally unfeasible, putting the kibosh on market-rate growth and thereby killing off the supply of new affordable units. While it’s hard to predict the exact effect of this new law on San Francisco’s housing supply, there’s a tool that can offer some insight.
I plugged the new requirement into the Housing Development Dashboard, a Sim City-style widget built by the Terner Center for Housing Innovation at UC–Berkeley. That simulator—which does not account for the new law’s distinction between projects of 10-plus and 25-plus units—predicts that raising the required percentage of affordable housing in San Francisco to 25 percent would make more than 9,000 future units unbuildable. It also surmises that the potential supply of affordable units would decline by 2,000. Obviously, that would be a disaster for both affordable and market-rate housing in San Francisco.
The city controller’s office, which is working on an economic feasibility report to inform the board of supervisors, will issue its own conclusions this summer.
There’s real-world data, too, that might reveal how much developers fear the new regime.
It’s possible San Francisco may have unwittingly demonstrated what I’m calling the Indiana Jones Theory of Housing Regulation. The idea is that when cities increase the burden on new development, whether through inclusionary zoning, expiring tax breaks, or new building codes, they create a deadline boom, as builders rush to get approval before the new laws can take effect. Like Indiana Jones, builders try to get through before the door closes.
That has happened twice in New York City in the past decade. In the first six months of 2015, the city issued 42,000 residential building permits—more than in any full year since 1963—as developers tried to get started ahead of an expiring state tax credit. (The same thing happened on a slightly smaller scale in 2008.)
In Chicago, that dynamic played out last fall. There, the sliding door was Mayor Rahm Emanuel’s Affordable Requirements Ordinance, which took effect in October, and the result was that zoning applications tripled the monthly average in September.
Talk of changing San Francisco’s affordability requirements for large projects has been in the works since 2015. The city hasn’t released permit data for May, but if you were a developer getting started on a 30-story building, wouldn’t you have rushed to get through the door? San Francisco averaged 300 new housing units a month in 2015; we’ll have to see how May compares.
A May boomlet might signify that developers are highly reluctant to operate under the city’s new inclusionary zoning policy. On the other hand, when it comes to housing in San Francisco, the sooner it gets built, the better.