A ballot measure designed to more than double the number of below-market-rate (BMR) units of housing that developers must provide or fund when building market-rate units in San Francisco is about to be formally proposed by Supervisors Jane Kim and Aaron Peskin.

While market-rate developments with ten or more units are currently required to provide 12 percent of the units at below market rates, build an equivalent of 20 percent of the units off-site, or pay into an affordable housing fund, the proposed ballot measure would increase the required on-site percentage to 25 percent, increase the off-site option to 33 percent, and increase the in-lieu of fee from 20 to 33 percent of the value of the required on-site units.

Of the required 25 percent of on-site units, 15 percent would be priced for low-income households earning up to 55 percent of the area median income for rentals, or up to 80 percent of the median for condo offerings. The other 10 percent would be priced for middle-income households with incomes up to 100 percent of the area median for rentals, up to 120 percent of the median for condos.

Developments with fewer than 25 units would initially be altogether exempt from having to provide any affordable units under the proposed charter amendment, but with the intent that a revised program for developments with 10 to 24 units would soon follow.

The Supervisors’ measure will likely compete with a ballot measure that’s being spearheaded by the Mayor, the specifics for which have yet to be defined but are likely to be more industry friendly.

Comments from “Plugged-In” Readers

  1. Posted by EcceMorons

    Next up will be Peskin’s and Kim’s equivalent solution to the homeless problem – lottery tickets will be given out to anyone sleeping in their own vomit on the sidewalk – the few lucky winners will have their lives changed!

    As for the rest of them, as like for the rest of the people who don’t win the lottery to get into “affordable housing”, well, “sux to be you.” But we get to claim we’re providing solutions, so remember to vote for us again!

    • Posted by lyqwyd

      Sounds about right… The beneficiaries will get to pick a house of their choosing and get permanent residency in it, while the occupant will be put out on the street, but still be required to pay the rent or mortgage.

  2. Posted by donjuan

    “Developments with fewer than 25 units would initially be altogether exempt from having to provide any affordable units under the proposed charter amendment”

    So developers are basically incentivized NOT to build dense developments.
    By requiring affordable units WITHOUT increasing height, the point of this ballot is to undercut Ed Lee’s plan.

    I really hope this gets blocked before going to the ballot. It seems like Aaron Peskin is hell-bent on stopping growth SF and enforcing irrational zoning laws. SF will continue to be 95% 2-3 story apartments.

  3. Posted by Elitist Pig

    Considering the reduction in projects this will cause, and the skyrocketing price of construction, this will probably produce the same number of BMR units as current laws. It’s all about doing nothing while appearing to do something, well played Peskin…

    • Posted by moto mayhem

      this will led to much fewer net affordable units for sure.

  4. Posted by SF_Landlord

    The more regulations and restrictions you put on building housing the less of it you will get. This is why SF has a horrible housing crunch and insane rent prices. If this is Aaron Peskin’s way of making SF an “affordable city” he is showing how out of touch he really is.

  5. Posted by Sierrajeff

    “Ballot Measure Could Ensure No More Housing Built in San Francisco”

  6. Posted by tm

    bmr is bad for people. since it really creates a virtual prison in the long run. It is much harder to sell (it isn’t easy to find people in that sweet spot of good enough credit, want your place, have enough income to get a loan, yet not exceed the income limitations), and you don’t get any returns. Like rent control, it creates a virtual prison, makes it harder to for people to make decision to move to greener pastures.

    • Posted by Noodle

      Thanks for posting that article. I’ve long wondered how BMR ownership plays out over the long run. Now I wonder if a fractional ownership model wouldn’t be better for everyone involved.

      • Posted by tm

        yeah, most people buy home to build equity & investment. Since BMR can’t raise in value more than inflation (actually can be less), buying a BMR is equivalent of borrowing money from the bank to stuff in a mattress as an investment strategy. Also, if the BMR is in the a luxury building, you don’t get a break on the common dues or common things that needs to be fixed. Which can increase dramatically over the years, which can easily make it less affordable and makes the unit even harder to sell.

        • Posted by SocketSite

          Except you and the Palo Alto Online reporter seem to be ignoring the savings and potential return from investing the difference in payments between a market-rate and below-market-rate unit in higher yield investments, such as the stock market which has historically outperformed real estate in terms of returns.

          • Posted by tm

            Well, if you have the difference in money (between a non BMR unit and a regular unit) in hand as cash to invest in the Stockmarket, why are you buying a BMR in the first place?

            The one of key things that buying real estate as a initial step to build wealth is leverage, which usually is only available to people already rich. Suppose you put $100K down on a house worth $500K. And the house raise in value for even say 10% in one year. You get 50K increase in value. that is like 50% return on your $100K down payment. (yes, you are paying interest on the loan, but if you didn’t buy a house, you’d be paying rent any ways.)

            Rich people have access to this type of “leverage” in all sort of investment vehicle, but for poor people or people just starting off, this is very important.

  7. Posted by tm

    Is especially sad, since like the payday loans, this BMR thing targets people who probably are less financially savvy. And they’ll regret it in the long run.

  8. Posted by jamesjr

    If you want less of something, regulate it.

  9. Posted by anon2

    And in the not-entirely-unlikely event that all this goes into effect at the exact moment that the national real estate market peaks, and local construction activity slows or stops, then nobody will notice the difference until the next up cycle, at which point they will have forgotten who was responsible.

  10. Posted by brooder

    This is nuts. It basically means that market rate buyers or renters will need to absorb almost 50% surcharge to pay the subsidy for the affordable units. This is just way too much and further reduces the middle class and middle class home ownership.

    • Posted by JR "Bob" Dobbs

      Lots of good arguments against BMRs, but this is not one of them. The developers will sell the market rate units for the highest price they can obtain. They would not discount them if there were no BMR units. And they will not add a “surcharge” because they are already charging the highest price they can (otherwise stated, they will add the highest “surcharge” any buyer is willing to pay regardless of any BMRs).

      • Posted by Dixon Hill

        @ JR “Bob” Dobbs–You are 100% correct and I have made that same point here many times. Developers are already charging as much as the market will bear. The cost of these units will come out of their profit. It remains to be seen whether increasing the BMR requirement will cause a reduction in the number of market-rate units built by reducing developer’s profit to a point where it isn’t worth their while. I don’t know the answer and neither do the people here who are expressing certainty that this is so.

        There are more units in the pipeline at this point than at any time in many decades, at least. I think this is a worthwhile experiment. If developers walk-away from San Francisco, that will be a sign that the city has gone too far.

        The concern trolling here, claims that BMR units are bad for the people they are intended to help, is just people who don’t like the idea of sharing their city with people less well-off than they are.

        • Posted by djoelt1

          Won’t the cost of the BMR come out of the land, not the builder’s profit? It seems like that is the most flexible place to save. The other potential source of savings is to make the BMR units smaller, with much cheaper finishes, etc.

          • Posted by Alai

            Yes, this seems likely: at least, the price developers are willing to pay for land will drop. The question is, will the current owners sell? Or will they decide that–given that the price of the land depends so much on legislation and other such factors–that it’s better to hold out anyway and leave them as underused or vacant lots. I’m sure everyone knows of empty lots that have been that way for decades.

        • Posted by neighbor

          Of course developers will always charge what the Market will “bear”. However, keep in mind that if these outrageous subsidies are required by private developers they will not be able to get financing until they can demonstrate to a Bank that they can easily make a profit while being penalized with these additional burdens…. Which translates to little or no development in the pending down cycle when pricing is down. It only hurts the middle class buyer as it stifles development and doesn’t allow for any development unless the market rate rents and sales comps remain at these temporary high levels. Similar polices created the current higher prices due to little or no available inventory developed when BMR was at 15%. These type of polices only hurts the middle class buyer/renter. Why should private developers be required to build homes for people making 39k a year? Does everyone in City government already forget 2010, 2011 and 2012 when they had to suspend collecting development fees until projects were completed in order to spur building.We are only now reaching the same pricing/rents as 2008 at the last peak.Believe it or not, supply and demand as well as interest rate increases affect pricing/rent levels. Economics 101…

          • Posted by moto mayhem

            there is absolutely no doubt this policy will increase the cost of housing in SF. its a doubly whammy. this is limiting supply to the demand of people with high incomes (don’t qualify for BMR). They are now competing for less of the units that actually get built. And again, this will lower the profit for devleopers, leading to less building

        • Posted by Cary Chubin

          The price the “market will bear” is affected by the costs of providing BMR.

      • Posted by parklife

        It’s very true that the developer will always try and obtain the highest price. But if this requirement reduces the number of developments that pencil out you will find that fewer units become available. This will further exacerbate the housing shortage putting increased upwards pressure on housing prices. It won’t matter to me, I already own my building, but this is emblematic of the unholy alliance between NIMBYs represented by Peskin and the affordable housing supporters represented by Kim.

        • Posted by JR "Bob" Dobbs

          I don’t disagree, but (a) this is a different issue from the one brooder raised, and (b) it is a very big “if” whether this requirement would reduce the number of units that get developed. It could. But it may well be that profits are high enough in this market that this would not reduce construction by a single unit.

    • Posted by Some Guy

      But it’s better for Oakland! There are still 1000’s of SFRs at $150 to $300K down in deep east oakland. Come on in, the water’s fine! Don’t mind those gunshots…

  11. Posted by BayviewSF

    BMR should be 100% rentals. It does not make sense to give free equity to a few lucky ones. Affordable housing should be 100% rental, imo.

    • Posted by moto mayhem

      agree it should be 100% rental

    • Posted by Government Shrinkage

      Wouldn’t that trigger Hawkes-Costa ban on rent-control? Does anyone know? It seemed to me that the whole BMR charade was designed because that wasn’t possible?

      • Posted by SFrentier

        Don’t worry, Aaron is working on that too! (He wants to have new units become eligible for RC, by a private agreement and deed restriction with the developer, I presume.)

        But I agree, bmr for sale is stupid; they should be all rentals.

        Btw, there is zero (or negligible) equity gain if you buy bmr, as you’re restricted to the future sales price. Like I said, so stoopid, why buy if you can’t get upside? Might as well rent.

        Silly city.

  12. Posted by R

    This will dramatically reduce land values since it is such a sizeable jump. In turn this makes the redevelopment equation less favorable towards building new vs. preserving what’s already there. Not a good policy if building housing, affordable or not, is your goal. The one nice thing about Aaron Peskin being on the board is that it makes it easy to know what to vote against. The guy is a maniac and his policy’s hurt the people he wants to protect. Despite moving endlessly towards more tenant friendly policy’s and restricting and regulating the housing market, San Francisco real estate has consistently outperformed other markets with the same type of land constraints. Translation: the policies designed to make the city affordable aren’t working.

    Outside of this, for the person above that referenced the Giant’s 40% agreement as a reference point for all housing in the city, they are in a unique site that can support that level of BMR. The market rate units will sell for a lot, but that isn’t the case everywhere in the city. The Bayview, Sunset, and Richmond are three neighborhoods with PSF prices way below Mission Bay. However the construction costs between the two areas are the same. While land is a major variable between the two, policy’s like this reduce the land’s value to the point where it’s worth zero because a profit cannot be made. When this happen, the economics of building don’t make sense and nothing gets built, resulting in lower net building even though some of the marquee projects still happen. Saying that one project did it so all projects can makes no sense.

    • Posted by moto mayhem

      here’s what anti-density, anti-growth, anti-poor, pro-amber peskin is counting on. 12% of 10,000 units is 1200. 25% of 3000 unites is 750.

      he would much prefer the latter scenario. he can say he was for “affordable housing” while at the same time decreasing the # of unit built in SF.

  13. Posted by Absolut

    i’m very pro development but I don’t think this will have a dramatic effect. It certainly won’t solve any problems but I see little impact on development or market prices. If the BMR requirement jumped to 50% instead of 25% i could see it having a much larger negative impact.

    It’s like raising taxes from 12% to 25%. It sounds like a lot but the effect is actually much smaller than if you say increased from 50% to 60%. The reason is that it is not ratio of old vs new tax/BMR rate that matters, but rather the change in how much remains.

  14. Posted by Jake

    SF should do away with the percentage scheme and have all residential construction pay an ‘affordable housing’ fee. The fee should be based on a percentage of the sale price not the number of bedrooms as it is now. Many benefits:
    1) Developer could build as many or as few units as they want without trying to keep the number under a threshold.
    2) The current fee schedule penalizes mid-cost housing more than luxury housing. This would take away the luxury incentive and make mid-cost more likely to happen. For example, currently a developer that builds 2bdrm condos that sell for $2 million pays the same BMR buyout as they would for a 2bdrm $800K unit.
    3) A fee on all residential construction would spread the cost beyond new MDU to new SFH and major remodels. A wider pool to pay should allow a lower buyout fee, which would lower the cost of new unit construction and raise the cost of flippers and mansion makeovers.
    4) Much easier and more flexible to adjust the fee up or down as the market changes than to mess with the unit percentage.
    Besides, the unit percentage formula is so arbitrary that is vulnerable to just these kind of political/capricious swings: “double it”, “40%”, “12%”, etc. Why not use a magic-8 ball?
    Even if the fee-no-percentage were designed to generate about the same number of BMR units as any of the other schemes it would be far easier to plan and budget, just like ‘normal’ fees. Also, if a developer started a project expecting to sell at one price and the market shifted either up or down sharply, then the fee would protect the developer on the downside and capture some of the boomtime bonus into the affordable pot.
    OK, bleed all over it.

    • Posted by JR "Bob" Dobbs

      Extremely sensible.

      My one concern is just a bit of realpolitik. I have no faith at all that SF would use the resulting fees to actually build any units, and certainly not to do so in any efficient manner. They would just get frittered away in studies and commissions and consultants. One advantage of the BMR rule (in a sea of problems) is that we know the units will get built.

      If we were dealing with a reasonable local govt, I’d say your proposal is flawless.

    • Posted by Jake

      Well, we just voted to authorize $300 million in new bonds to pay for more affordable housing, so I would hope we are going to get some housing that someone can afford. Maybe just the consultants and commissioners.

      SF could maintain BMR percentage rules while changing the buyout fee to be based on sale price. That would at least reduce the perverse incentive to build the most expensive units the market will bear. Again, the current buyout fee scheme rewards developers when they build fewer and more expensive units. Both of which are counter to the stated policy, but, unless I am missing something, exactly what the fees are structured to do.

      Cleaning out the Augean stables of SF RE regs may take more powerwashing than one El Niño can supply. Here’s hoping we don’t have another long drought of reason.

  15. Posted by SFRealist

    As a homeowner in San Francisco, I wholly support this proposal. It will only drive up the value of my home, which I bought many years ago.

    As a resident of San Francisco, this is a disaster. For that exact reason.

  16. Posted by MoneyMan

    The city should have developers build affordable housing south of the city in Daly City, San Bruno or South San Francisco, and give the tenants free Bart tickets. Lot’s more housing for the money.

  17. Posted by Sabbie

    Pandering for votes. There’s plenty of affordable housing within a 60 minute BART ride of SF. My parents did the commute to SF every day for decades and so do millions of others, it’s not the end of the world. I can’t afford an Audi so I drive a Hyundai.

  18. Posted by SFrentier

    This is great news for current property owners, and oh so pr do able from peskin! Developers are now being very cautious on buying land and starting entitlements on new projects that will take 3+ years to complete, because land and constructions is so expensive, and because we’re past the mid cycle of the RE boom. This will ensure that the pipeline slows down significantly, and is a great insurance policy so we don’t end up with too many new rental units 3-5 years from now. Now I can rest more assured that when the tech boom hits a wrinkle, my rentals will have that much less to fall, as any new supply will compete with existing units. Thanks Aaron, I appreciate this. You’re a genius.

  19. Posted by anon

    I know more than a few people that commute to SF and have net worths solidly in the 8 figure range. So why can’t the BMR people commute like everyone else? Subsidizing their clipper cards would be a better idea.

  20. Posted by Hitman

    Real players in this game know that it is most profitable to destroy and consolidate housing instead of building more. Thanks you communists …you play right into our hands!

  21. Posted by 4th Gen SF'er

    The way I see this is that a developer will go for as many units as possible, having a buffer zone between the BMR tenants and the tenants that pay full price (like office spaces, and or 2nd floor retail zones), cheap cheap materials in the BMR’s possibly without an elevator to get to their floors, and high HOA fees. Oh SF, what a web we weave with these giveaways!

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