CFAH

Mayor Ed Lee and Board of Supervisors President London Breed have officially called for a 2016 ballot measure to increase the required percentage of below market rate (BMR) units of housing private developers must provide or fund when building market-rate units in San Francisco.

“In prosperous times like these, we can require developers to build even more housing for lower and middle income residents as part of any new project, especially large new development projects,” said Mayor Lee. “I am confident that working together with the Board of Supervisors and the housing community we can create a consensus charter amendment for the November 2016 ballot that increases inclusionary requirements in a strong economy and shortens the timeline for new housing construction and development.”

Market-rate projects with ten or more units in San Francisco are currently required to provide 12 percent of the units at below market rates (BMR), build an equivalent of 20 percent affordable units off-site, or pay into an affordable housing fund.

Mayor Lee plans to reconvene a working group of City officials, housing advocates, community leaders and representatives from different sectors of the real estate industry to draft the Charter Amendment for the ballot measure, starting next month.

As always, the devil will be in the details. And don’t be surprised if the proposed measure raises the required affordability limits, not to mention height limits, along with the required allocations, a move which could produce more expensive ‘affordable’ units to the benefit of the private development teams.

Comments from Plugged-In Readers

  1. Posted by Rainer Wilke

    Call me when he brings up ‘At Will’ development on projects 100% within their zoning for their parcel.

  2. Posted by Dave

    12% is a pathetic number for on-site BMR.

    Lee is feeling the pressure but the last sentence does not surprise. This will benefit developers.

    Hopefully a competing initiative is put on that does not give even more away to developers. Which I feel SF has done for too long.

    • Posted by Hunter

      12% just for the lowest earners wouldn’t be so bad—except for the fact that there’s no requirement for middle-income housing (sometimes known as “most of the people in any city”) that is insane. We need to add something like 30-40% specifically for average earners in order to actually supply the housing that most residents need. (Right now we’re building less middle-income housing than anything else.)

      [Editor’s Note: San Francisco Missed Its Affordable Housing Target By A Mile]

      • Posted by moto mayhem

        why would we pay for middle income earners who can easily afford to live right outside the city South SF< San BRuno, Oakland, etc and commute. They are not in dire financial straights. They are making a choice to squeeze their finances. If my family and I made <200K, we would use our financial sense to move to oakland or san bruno. we should not be subsidizing middle class people

  3. Posted by EcceMorons

    “In prosperous times like these….”

    Famous last words.

    • Posted by Amewsed

      Wrong timing. We are nearing the end of a business cycle.

  4. Posted by Dave II

    Does the Mayor and legislative folks think these prosperous times will last forever? When things come crashing down, all the market rate people will sell at a loss and the BMR people will be the only ones left in the building. The owner of the building will not be able to cover the costs involved and will end up in bankruptcy. That is a lot of residential buildings going into the ground.

    • Posted by Dave

      I don’t think things will crash but surely slow down. This seems a little late for the train IMO. Should have been done 3/4 years ago.

      If things slow this enticement will not mater much I suspect.

      How they write height bonuses will be interesting. it will be fought in the neighborhoods and probably does better applied to higher density zoned areas. A blanket bonus IMO does not work and is not practical. Targeted bonuses are more appropriate IMO but writing that in an initiative gets tricky.

    • Posted by SocketSite

      …all the market rate people will sell at a loss and the BMR people will be the only ones left in the building.

      By definition, the market-rate units would remain market rate, even when sold at a loss. And the share of market-rate to below-market-rate owners would remain the same.

      That’s not to say you couldn’t end up with market rate units which are worth less than the BMRs, as has happened here before.

    • Posted by Jon @ SFBARF

      Without seeing any actual proposal, it seems like doing it as a ballot measure is crazy. If the market or situation turns, it will take another vote to fix or fine tune.

  5. Posted by Louis

    If you are an affordable housing advocate, sorry, this is beyond too little and beyond and late. If you’re a developer, you won’t have to deal with this till the next cycle, after the next recession. Typical politicians Epiphany when it’s too late to address the problem. If you are a property rights type commentator, this weak announcement should not cause you too much agitation.

  6. Posted by sassyboyfrisco

    Remind me again why we should pay for and/or subsidize people? Entitled, if so, because of what?

    • Posted by soccermom

      Votes.

    • Posted by JR "Bob" Dobbs

      Votes, yes. But also the give-and-take of living in a civilized society.

      I’m able to take a rather sizable tax deduction for the mortgage interest I pay – a “subsidy” from the taxpayers. Why? The legislators decided that was a good policy for a variety of reasons. When we needed the police to help out when our daughter’s bicycle was stolen, they did so (and recovered the bike) – all for no charge. Why? Same thing.

      I could clearly go on and on. I obviously pay taxes, but so does just about everyone else. Governed societies make decisions about the taxes that citizens pay and the “subsidies” that some or all citizens are provided. Nothing remarkable about that.

      • Posted by Hunter

        Nice to hear another logical property owner explaining the way social benefits work, and that they improve life for all of us. I’ll add: The greatest societies are those that care for those at the bottom of the ladder—and judging from the desperate, drug-addled, mentally ill folks on SF streets, we clearly aren’t doing enough.

        • Posted by Sabbie

          Some of these affordability limits are ridiculous. Two people working full time and making the upcoming minimum wage of $15/hr would not qualify for a lot of these units, they would have to cut their hours in order to qualify. Can we at least give people a LITTLE incentive to improve their lot?

        • Posted by lyqwyd

          It’s a good theory, unfortunately it doesn’t actually work out that way. BMR requirements actually result in distinctly higher prices for the vast majority of people. They certainly create a windfall for a few lucky low income people, but hurt far more low income and pretty much all middle class people.

          The reason is that prices are based on supply and demand. If there’s more demand than supply, then prices go up, and if there is more supply than demand, then prices go down. The reality is that BMR requirements both reduce supply, and increase demand.

          By requiring BMR, the developer has to make a greater profit margin on the non-BMR units, which results in marginally profitable developments will not get built, thus reducing supply. It also discourages some developers from building at all, they go to other cities, which results in less competition.

          At the same time, it does little to reduce demand for market rate properties, but adds significant demand for the BMR properties, which would otherwise have been market rate. Sure, a few of the market rate buyers will get discouraged and go elsewhere, but this will tend to be those at the lower end of affording housing in SF.

          Ultimately this results in prices rising faster than they would have otherwise, at least for the vast majority of people that will not get a BMR property, either because they are not poor enough, or lucky enough (note: most people who qualify for BMR will still not get to take advantage since the supply will never be anywhere near the demand)

          This is supporting by economic theory, as well as ample real world evidence, just look around, SF has some of the strictest BMR requirements, and is also one of the most expensive cities in the country.

          • Posted by Mark F.

            Someone who understands economics. Refreshing! But “progressives” operate in their own special economic reality.

          • Posted by JR "Bob" Dobbs

            We’re talking about two different things. The broad question above was “why should we pay for and/or subsidize people?” We do this in a million ways for a million reasons. You’ve argued a different point — that BMR requirements are bad policy because they contribute to higher housing costs. I don’t necessarily disagree (although the claim that strict BMR requirements are the cause of expensive housing is weak, and confuses correlation with causation — maybe Detroit should adopt strict BMR policies and thereby elevate housing prices?), but that is a separate issue from generally “subsidizing” people. The mortgage interest deduction and Prop 13 and a host of other laws that “subsidize” property owners are also bad policy imho (as is rent control) — and they also drive up housing costs. But society disagrees with me, and I accept that (and won’t complain about the “subsidies” given to me).

            Many good laws/policies also drive up housing costs — zoning, environmental restrictions, nuisance laws, building codes. I’m certainly not of the view that something that increases costs is necessarily “bad.” Economics are a factor in policymaking, but not the be all and end all.

          • Posted by lyqwyd

            “although the claim that strict BMR requirements are the cause of expensive housing is weak”

            I didn’t make that claim, I claimed that it causes prices rise up faster than they would otherwise, which is supported by my arguments. SF would be expensive either way, just less so for the vast majority of people without BMR.

            I don’t have any argument with the idea of helping those that need it, which is why I didn’t comment on that. I believe there are much more effective ways of doing that than BMR.

            “The mortgage interest deduction and Prop 13 and a host of other laws that “subsidize” property owners are also bad policy imho (as is rent control) — and they also drive up housing costs.”

            Agreed

            “Many good laws/policies also drive up housing costs”

            Sure, but BMR is bad policy that drives up housing costs.

          • Posted by James

            AMEN! I’m not a rabid free marketeer but having to fork over money for these well-intentioned but poorly run programs isn’t effective.

          • Posted by two beers

            Okay, Mr Supply & Demand, explain how building Ferrari’s lowers the cost of Ford Fiestas.

            Get back to me after you’ve researched “fungibility” and “market segmentation.”

            The simplistic model you learned in Econ 1 is actually more complex and nuanced than your teacher told you.

          • Posted by anon

            If there were a limit on the number of cars that could be built, then yes, building some more Ferraris on top of that would have the effect of lowering the cost of Fiestas (all else being equal). Isn’t that obvious?

          • Posted by lyqwyd

            Are you disputing supply and demand, or are you just talking about segmentation? If the former then no further conversation is required, we’ll never see eye to eye. If the latter, then I’ve already addressed market segmentation in my original post.

            Also your analogy is extremely flawed, a better analogy would be if the government required Ford to sell 12% of production at lower than cost to build them. What do you think would happen to the Fiesta? At best the price would go up significantly for all the market rate Fiestas, and less significantly for higher priced cars, at worst, Ford would stop producing Fiestas at all.

            But thanks for the idea, I think my revised analogy is a more concrete explanation of the problems with the BMR program.

            I’m in favor of helping those in need, but the BMR program hurts more people than it helps, particularly those that it’s purporting to be helping.

          • Posted by sfcommie

            If they build enough of Ferrari apts and condos and the price comes down to $4k/mo, I’ll be the first to move up to Ferrari and leave my current Fiesta apt that cost 2600/mo to the well deserved. Hence, lower price for Fiesta apts. Make sense?

          • Posted by JR "Bob" Dobbs

            lyqwyd, can you cite a single example of a developer deciding to not build market rate units as a result of BMR requirements? Pretty easy way to test your hypothesis. I’m not aware of a single such example.

            And, as you’re aware from the first week of Econ 1, the selling price of a unit is independent of the building costs (which are sunk costs). Builders are selling at the highest price they can get whether the construction cost of a unit was $1 or $1 billion. You are correct that – hypothetically – builders could decide to build fewer units, resulting in lower supply (and higher prices given a fixed demand). Hence, my query whether you are aware of a builder’s real-life decision to build even one fewer market rate unit in SF as a result of BMR requirements.

            I’m not in favor of the BMR requirements for a host of policy reasons (mainly that there are far more efficient means of providing low cost housing, such as public housing). But the evidence that BMR requirements drive up market rate housing prices is nil. I could be proven wrong, so feel free to provide such evidence, and I would gladly accept it.

            To sfcommie’s point, my understanding is BMR requirements are typically accompanied by approvals to build more market rate units – resulting in lower prices for the “Ferrari” units (with demand assumed constant).

          • Posted by two beers

            “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

            -Upton Sinclair, early 20th Century Realtor.

          • Posted by lyqwyd

            “selling price of a unit is independent of the building costs”

            yes, but the profit is very dependent on the building cost.

            “You are correct that – hypothetically – builders could decide to build fewer units, resulting in lower supply (and higher prices given a fixed demand).

            I’m glad you agree to that, but it’s more than just hypothetical, do you dispute any of the following:

            – Any rational for-profit builder will not pursue a development that pencils out as a loss.
            – BMR requirements will reduce the profitability of a project.

            If you disagree with my statements, please explain why I’m wrong. If you agree, then clearly BMR requirements prevent development of projects that would be marginally profitable without those requirements. These would tend to be the type of projects that are targeted toward lower income, and middle class people. The fact that very little middle class development is happening in SF is evidence in support of the theory that BMR has a significant on development.

            “Hence, my query whether you are aware of a builder’s real-life decision to build even one fewer market rate unit in SF as a result of BMR requirements.

            It doesn’t matter, your question is Affirming the Consequent. The fact that I cannot cite an example does not disprove my theory. Could Stephen hawking point out a single black hole when he came up with the theory?

            I believe helping poor people afford housing is a good thing, it’s just that BMR doesn’t do it (except for the few lucky lottery winners), and actually makes things worse.

          • Posted by lyqwyd

            Good point two beers, a lot of the supporters of BMR are those benefitting from the program at the expense of the general population.

          • Posted by soccermom

            How does requiring an auto manufacturer to deliver a discounted Ford Fiesta* with every new car he sells help anyone except the lucky few Fiesta recipients?

            And would we expect manufacturers to then produce Honda Accords or Ferraris, knowing they have to deliver the Fiesta either way?

            *The Fiesta may be getting a bad rap here. Apparently the car nerd journalists are all over the sporty ST version…

          • Posted by JR "Bob" Dobbs

            lyqwyd, there is an alternative explanation (which is why you need facts to prove your theory): builders are making such high profits on market rate units that they will continue to build as many as they can even if forced to build possibly less profitable BMR units. The net effect simply transfers some of the profits from the builders to the public (or, at least, the BMR tenants). And that is the effect unless you can demonstrate that at least a single market rate unit is not getting built because of the BMR requirements — and it appears there is zero evidence of that.

            Black holes have nothing to do with it (Stephen Hawking had lots of evidence to support his hypotheses). You have stated a hypothesis and nothing more than that, and I asked if you had any evidence to support it. If there is any such evidence, I’d accept it. But there is none that I’ve seen.

          • Posted by anon

            JR, I wasn’t aware that all developers made public all of their decisions. How would you possibly know that a developer decided not to build something, unless they publicly announced it? Are you just talking about the tiny number of cases where a developer would have announced something and then changed their mind? That’s like maybe 0.0000000000007% of decisions lol.

            On the other hand, there are obvious cases where developers have stepped forward to build after height limits were increased or other development restrictions dropped. Are you disputing those cases?

          • Posted by sparky-b

            JR “Bob” Dobbs, in regards to your questions:

            “can you cite a single example of a developer deciding to not build market rate units as a result of BMR requirements”

            I can say this: There are 70 or so 5-9 unit building in the “pipeline” right now, in 2012 there was 1 in the 5-9 range. In January of 2013 the BMR requirement changed from 5 units gives one to 10 units.

            [Editor’s Note: And the smoking pellet gun: New Plans For Parcel Across From Parque Ninos Unidos.]

          • Posted by lyqwyd

            @soccermom: you missed the point nobody here is suggesting Ford or any other auto maker should be forced to start selling cars below market rate, and I personally like the Fiesta

          • Posted by lyqwyd

            Thanks sparky, that’s a great bit of concrete evidence!

          • Posted by JR "Bob" Dobbs

            There are 70 or so 5-9 unit building in the “pipeline” right now, and in 2012 there was 1 in the 5-9 range. Accepting that for the sake of argument, that sounds like some pretty good evidence that there are a lot more market rate units being built, not fewer.

            I’m not saying lyqwyd’s hypothesis is clearly wrong. I’m just saying it (like any hypothesis) needs evidence. So far, I’ve seen none. I’m happy to accept it if shown to me. It sounds like we’re all in agreement with my main point, which is that this BMR policy cannot result in fewer market rate units unless it, in fact, causes builders to construct fewer market rate units. That’s not a given at all. And that’s all the evidence I’m looking for.

          • Posted by lyqwyd

            “builders are making such high profits on market rate units that they will continue to build as many as they can even if forced to build possibly less profitable BMR units.”

            That’s not incompatible with my theory, I’ve already pointed out that BMRs have the majority of their negative impact at the lower end, which is why we see lots of luxury development, with very little middle class development. The luxury developers still make decent profit, and the lower end developers have moved to greener pastures in other cities.

            “The net effect simply transfers some of the profits from the builders to the public (or, at least, the BMR tenants)”

            It does not transfer it to the public, but only to BMR beneficiaries. And If that were the only thing it does I wouldn’t be particularly bothered by BMR.

          • Posted by lyqwyd

            Bob, you seem to have missed the part where the number in the pipeline increased from 1 to 70 after BMR requirements were removed on 5-9 unit properties.

          • Posted by JR "Bob" Dobbs

            No, I get the point. But even accepting the correlation vs. causation issue for the sake of argument, the bottom line is that 70 times the number of 5-9 unit buildings are now coming down the pike. But your hypothesis relies on fewer market rate units being built, not far more.

            Now would these 5-9 unit buildings be 10- or 20- or 30- unit buildings but for the BMR requirements? Maybe. But one needs evidence, not conjecture. Unless the net effect is that fewer market rate units are built because of the BMR rules – and there is concrete evidence to support that – then your hypothesis is just a hypothesis and not a “fact” or even a “theory.”

          • Posted by SocketSite

            As we noted above, New Plans For Parcel Across From Parque Ninos Unidos, in which a parcel which was sold with exploratory plans for 16 units is moving forward with 9.

            That being said, BMR requirements have an outsized impact on 5-9 unit developments which are a relatively small segment of the overall market, so don’t let the tail wag the dog. And with respect to the pipeline jump from 2012 to today, well…

    • Posted by Jack

      Because we live in a democracy?

  7. Posted by Jake

    Is the Inclusionary Housing Program Fee Schedule indexed by the price of the units being built in a project or is it a flat fee for all market rate units in a project based on bedrooms as it appears on the MOH (namelink)?

    Somebody’s on here’s gotta know.

    FWIW, if it isn’t indexed based on the price of the units in a project, then it would reward developers building the most expensive market rate units as they would reduce the effective tax that these fees represent. Basically a recipe for building as many luxury condos as the market will bear and as few “affordable” units as allowed by the percentage.

    Seems to me a more progressive fee/tax scheme could get more middle priced units built, be more responsive to the boom/bust cycle than jiggling the percentages via ballot, get at least as many BMR built, and more total units built boom or bust.

    Anyway, seems half-witted to vote on the percentages and not vote on the fee/tax structure.

  8. Posted by Jimmy Pesto

    but I thought we had zillions in the affordable housing fund/tax to pay for things!

    but we voted already for a housing bond!

    but we voted for all those other things! we voted to give Lennar total control over an entire section of the city to ‘build housing’! They didn’t!

    we keep voting for this crap and yet the rents are high and [shacks] sell for a zillion bucks. the definition of insanity is…

  9. Posted by anon

    Rent Control and Affordable Housing – two things that I can’t wait to escape from.

    So many leeches in this world.

    • Posted by two beers

      And how do you feel about abolishing those other leech programs, Prop 13 and mortgage interest deduction?

  10. Posted by Louis

    The only reason the lead-from-way-behind mayor is pursuing this is to fend off a much higher BMR requirement certain to come from the BOS. This is purely political move and an attempt to insulate the effect on the housing development sector. The gratuitous good political will that might accrue from this to the Mayor would only impress those disconnected from housing politics. 12% BMR is a policy relic that’s largely irrelevant now, 20% is the pragmatic baseline for major projects, and many would argue it already headed to 30%.

    Someone please explain why a “national” city that likes to think of itself as having “global” importance cant field a credible candidate to run against a tepid incumbent with debatable accomplishments. Looks to me like Mark Leno or Dennis Herrera could have won in a walk, and they are not exactly “leadership” material.

  11. Posted by sfcommie

    Nothing’s wrong with making hay while the sun is out. Developers are building as fast as they can and the higher ‘tax’ won’t deter them because they still make money in his lofty market. The problem is when the suckers go home. The BMR requirement will stop contruction cold sooner than it should and make the housing problem even worse than before in the next bubble. They should lower it (to zero) as well as raise it according to the market. Milk it as much as you can, but don’t kill the goose.

    • Posted by sparky-b

      I couldn’t agree more, we are going to have the law on the books for decades and this market is going to last 2 more years. Money is going to get more expensive to borrow, prices will come down/plateau and the BMR will be at 30%. Meanwhile the permit costs go up, throw in the transit impact fee, recipe for no building

  12. Posted by moto mayhem

    can we please just take care of the homeless and the transporation problem 1st?

    there are clearly enough people willing to pay the current prices to live here, but with the mass homeless issue and 3rd world transport, its becoming less of a nice place to live. Maybe the city is purposely making the homeless problem worse in order to drive down house prices. We are starting to see a large tick up in the inner richmond.

  13. Posted by SocketSite

    UPDATE: A competing ballot measure has been drafted and is about to be proposed.

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