Can S.F. Kick-Start Housing Construction? This Little-Known Committee Might Hold the Key

Nov 2, 2022


With housing construction stalled in San Francisco because of soaring interest rates and inflation, an obscure city committee met Thursday to debate whether to try to revive residential development by cutting the number of affordable units required.

The committee is charged with meeting every three years to study the city’s inclusionary housing requirement — namely the share of affordable units required in a market-rate project.

The committee will analyze the current economics of housing development — land value, construction costs, rents and sales prices — and eventually make a recommendation about whether the share of affordable units needs to be adjusted.

Currently, most larger projects have to make 22% of units affordable but that will slowly bump up to a peak of 24% in 2027.

The Inclusionary Housing Technical Advisory Committee makes its recommendations to the Board of Supervisors, which will ultimately decide what to do.

The stakes are high. State housing officials will likely closely watch those decisions a s part of their ongoing review of the city’s housing policies. San Francisco’s housing approval process is the longest in the state and the city is the most expensive place to build in California.

Whether the city takes action to encourage more housing construction could also be a factor in whether the state approves San Francisco’s housing element, a blueprint for how the city would meet its housing mandate to plan for 82,000 homes by 2031. If the state doesn’t certify the housing element, the city could lose crucial state funding.

The eight-member panel will be charged with wading into the larger debate between moderates and progressives playing out in the city over how to approach the housing crisis. That debate — and the inability of the two sides to compromise — resulted in two dueling housing streamlining measures on the November ballot.

The panel includes four mayoral appointees and four appointed by the Board of Supervisors. A majority of appointees need to vote for an approach to move forward.

The supervisors’ appointees are Peter Cohen and Fernando Marti, former co-directors of the Council of Community Housing Organizations, as well as Chinatown Community Development Center Deputy Director of Operations Whitney Jones and Shannon Way, executive director at Homeownership SF.

The mayor’s appointees are Jesse Blout of Strada Investment Group, Sarah Dennis-Phillips of Tishman Speyer, San Francisco Housing Accelerator Fund Executive Director Rebecca Foster and Eric Tao, a veteran San Francisco residential builder with L37.

At the meeting Thursday, Tao said the goal is to set the formula at a level that produces the maximum number of affordable units. If the market is booming and developers are lining up to break ground, the city can raise the requirement without making projects economically infeasible. But if the market is struggling — as it is now — and thousands of units are stalled out, the city can lower requirements in the hopes that it spurs builders to get going.

“Our role today is to get housing production moving again, and find the right balance,” Tao said.

The real estate economics group Century Urban will compile a report for the committee on whether the current mandate is “economically feasible.”

The latest draft of the housing element includes a section on the feasibility of building in the current market. It cites a survey of developers and land use attorneys, which found that 55% of participants say they or their clients “have no plans to keep building in San Francisco after their current projects are entitled, and 27% say they or their clients are considering stopping development in San Francisco but haven’t finalized their decision.”

But even if the committee cuts the inclusionary requirement, it might not be enough to jump-start housing construction. Inclusionary rates are only one factor that makes it so expensive to build in San Francisco.

Committee members expressed an interest in looking at other fees and policies that may be hindering the development of housing, even if it’s not part of the committee’s formal role.

“All we have to work with is the inclusionary percentage,” Jones said. “The question is whether that is the right way to move projects forward.”

City Controller Ben Rosenfield, who led the meeting, said the committee might be able to go beyond its narrow scope and highlight other issues that influence building.

There are about 40,000 units in the city’s pipeline that have been approved but are stalled.

“Today my biggest challenge isn’t finding land; it’s building the tens of thousands of units in the pipeline,” Tao said. “I’m just focused on production.”

The housing element said many high-rises have stalled and uncertainty around housing production deters many developers from even proposing projects.

So far this year San Francisco has had about 1,500 units completed, putting the city on pace to see fewer than 3,000 new homes by year’s end. Compare that to 2021 when 4,650 units came online. Meanwhile, there are 4,100 units under construction, compared to the high of 10,000 units that were being built in 2016 or 2017.