Is the City another step closer to sorting out inclusionary housing requirements and implementation of Proposition C?  Board of Supervisors members have introduced two competing ordinances that seek to call the question regarding the City’s inclusionary housing priorities and requirements.

Very generally, the legislation introduced by Supervisors Safai, Breed and Tang comes closer to reflecting the City Controller’s recommendations regarding inclusionary housing percentages, summarized in our February blog post. It would also substantially increase the percentage of inclusionary units that are targeted for middle-income earners. By contrast, the legislation proposed by Supervisors Peskin and Kim would maintain inclusionary housing percentages and income level distributions that are closer to existing requirements.

As shown in our side by side summary chart, both ordinances would add new complexity to inclusionary housing requirements. For example, they would:

• Distinguish between requirements for ownership and rental units;
• Require rental units to remain rental for at least 30 years or meet higher requirements;
• Change income level distribution requirements;
• Revise the basis for the fee rate calculation; and
• Introduce new unit mix requirements, with an emphasis on larger, family-focused units.

Notably, the Safai/Breed/Tang legislation would apply the new unit mix requirements project-wide — not just to the inclusionary housing units — with certain exceptions.

The Peskin/Kim legislation would generally retain existing grandfathering protections for pipeline projects, and projects over 120 feet in height would generally be subject to a 30% requirement for off-site or fee compliance, as compared to the existing 33% requirement. The Safai/Breed/Tang legislation would generally retain existing grandfathering protections for pipeline projects complying with the on-site option but would generally eliminate such protections for off-site and fee compliance, although the proposed percentages are generally equivalent to or lower than existing grandfathering protections. There is an exception: existing protections for projects with an Environmental Evaluation (EE) application on file prior to January 1, 2013 would be retained in all instances.

One key issue is how inclusionary housing requirements should interact with State Density Bonus law. The Safai/Breed/Tang legislation would require that an “in-lieu” inclusionary housing fee be paid for any density bonus units, as recommended by the City Controller. As we previously reported, that requirement would be additive, meaning that millions of dollars of additional fees could be due for market rate housing projects with otherwise required inclusionary housing units provided on-site. The Peskin/Kim legislation does not currently specify that the fee would apply to density bonus units, but it proposes to increase the on-site inclusionary percentage by 5% for buildings over 300 feet — even though the City Controller reported that he found no evidence to support a higher requirement for high-rise projects.

The legislation is currently on hold under the Board’s 30 day rule, and is expected to be debated at the Land Use and Transportation Committee in the coming months. In the meantime, the Planning Commission is scheduled to hold an informational hearing on the legislation on March 16, 2017. Planning Department staff has produced a detailed analysis of the legislation, including exhibits that detail how the ordinances would impact fees and inclusionary percentages.

The City is one step closer to sorting out inclusionary housing requirements and local implementation of the State Density Bonus law now that the City Controller has released its final recommendations to the Board of Supervisors. The good news for developers is that recommended on-site and in-lieu fee percentages are below Proposition C levels. On the other hand, an “in-lieu” fee for density bonus units is now being contemplated.

The legislation passed by the Board of Supervisors in the wake of Proposition C directs the Controller, working with an appointed Technical Advisory Committee (TAC) and independent consultants, to conduct a feasibility study and make recommendations to the Board of Supervisors.

According to those recommendations, the Controller would:

• Reduce the on-site requirement from 25 percent (generally) under Proposition C to 14 to 18 percent for rental projects and 17 to 20 percent for ownership projects, with an annual increase of 0.5 percent over a period of 15 years.

• Reduce the percentage requirement used for calculating in-lieu fees from 33 percent (generally) under Proposition C to 18 to 23 percent for rental projects and 25 to 28 percent for ownership projects, with an annual increase equal to 1.3 to 1.4 times the rate of the on-site increase — if the Board of Supervisors wants to avoid incentivizing payment of the in-lieu fee.

As noted in our December blog post, once inclusionary housing requirements are finalized, the City will need to determine how they interact with the State Density Bonus law. Notably, the Controller also recommends requiring an inclusionary housing “in-lieu” fee for density bonus units, which would be additive, meaning that millions of dollars of additional fees could be due for market rate housing projects with otherwise required inclusionary housing units provided on-site. To illustrate, a 100 unit building with 20 low-income units would qualify for the maximum 35 percent density bonus under the State Density Bonus Program, yielding a 135 unit building comprised of 20 low-income units, 80 market-rate units, and 35 market-rate bonus units. Assuming here that the 20 low-income units would meet the City’s forthcoming inclusionary housing requirements, the Controller’s approach would nonetheless apply the City’s in-lieu fee to the 35 bonus units.

The Board of Supervisors will ultimately decide whether and how to implement the Controller’s recommendations, which are currently scheduled to be considered by the Planning Commission on February 23, 2017.

As we previously reported, on November 8, 2016, the voters of the City and County of San Francisco passed Proposition W (Real Estate Transfer Tax on Properties Over $5 Million) increasing real property transfer taxes. Effective December 27, 2016, the Real Property Transfer Tax is raised as follows:

• From the current rate of 2% to 2.25% for properties with a value or consideration of at least $5,000,000 and less than $10,000,000;
• From the current rate of 2.50% to 2.75% for properties with a value or consideration of at least  $10,000,000 and less than $25,000,000; and
• From the current rate of 2.50%  to 3% for properties with a value or consideration of at least  $25,000,000 or more.

Download a copy of the Transfer Tax Affidavit here.

The San Francisco Planning Commission took a major step on December 8, 2016, by approving the first market rate housing project to utilize the State Density Bonus law.

The State law, which has been in effect for almost 40 years, incentivizes developers to construct more affordable housing by providing density bonuses of up to 35 percent for projects that incorporate on-site affordable units. The amount of the density bonus varies depending on the level of affordability and the number of affordable units.  The State law provides that local development standards, such as building height and FAR limits, may be modified without new legislation if necessary to physically accommodate the additional units. It also provides for certain development concessions and incentives in the form of the waiver or reduction of local zoning requirements. The State law was recently amended to require that local jurisdictions adopt an implementation program.

San Francisco has historically offset affordable units provided under the local inclusionary housing ordinance against the density bonus percentage. This effectively eviscerated the State law.  But a 2013 California Court of Appeals case in Napa County held that even required affordable units count toward the density bonus total.  Since that case, advocates have been pushing for local compliance with the State law, which has remained elusive until now.

To date, the San Francisco Board of Supervisors has been unable to agree on a comprehensive implementation program.  Instead, it passed a local density bonus ordinance this past summer that only applies to 100 percent affordable housing projects, leaving the mixed-income component of the program at a standstill. In the meantime, projects that comply with the State law are moving forward in the pipeline. On December 8, 2016, the 333 12th Street project, relying on the State law, requested and received from the Planning Commission the maximum 35 percent density bonus (about 52 additional units). It also received a height increase of about 25 feet for the additional units, which normally would require a Height Map amendment approved by the Board of Supervisors.

What’s next for the implementation program? The mixed-income component isn’t scheduled to be considered by the Planning Commission until March 2, 2017, even though the pressure is now on. One of the major issues is sorting out the City’s inclusionary affordable housing requirements under Proposition C, which was passed by San Francisco voters last June, and the related legislation passed by the Board of Supervisors.  Once that happens, the City will need to determine how those requirements interact with State law, taking into account the 2013 Court of Appeals case.

Shortly after being sworn in as California State Senator on Monday, former San Francisco Supervisor Scott Wiener introduced SB 35, placeholder legislation addressing barriers to housing production. The legislation currently consists of a one paragraph intent statement, focusing on streamlining and providing incentives for creation of housing, and removing local barriers to creating affordable housing and complying with regional housing needs obligations.

According to press coverage, Senator Wiener ultimately intends to pursue two approaches: (1) exempting 100% affordable housing projects from certain local requirements, and (2) allowing housing developers to avoid certain local requirements in cities that are out of compliance with their regional housing needs obligations.

The legislation comes on the heels of the “By Right Housing Approvals” streamlining legislation proposed by Governor Brown, which died in the last legislative session due to opposition from a coalition of labor, environmental and other groups.  In San Francisco, the Board of Supervisors passed a Resolution urging the San Francisco legislators in Sacramento to seek amendments to the state legislation or oppose it; that Resolution was opposed by then-Supervisor Wiener and ultimately vetoed by Mayor Lee.

As we reported in our November post-election summary, affordable housing had mixed results in Bay Area elections, with notable successes on major bond and sales tax measures, and a range of outcomes on rent control and other affordable housing-related issues. In San Francisco, this summer the Board of Supervisors failed to pass mixed-income density bonus legislation, and instead approved a density bonus program limited to 100% affordable housing projects. As a Supervisor, Wiener voted for the 100% affordable density bonus legislation, and also supported the mixed-income version.

It remains to be seen what SB 35 retains or rejects from Governor Brown’s “By Right” legislation, and whether it becomes the vehicle for both the 100% affordable and regional housing needs obligation approaches that Senator Wiener is purportedly pursuing.

Existing on-site water recycling requirements for toilets, urinals and landscaping have applied to buildings of 250,000 gross square feet or larger in the Reclaimed Water Use Map (the “Map”) area since November 2015. The Map generally covers properties along large portions of the east-side and west-side of the City. The on-site water recycling requirements now apply Citywide due to the expiration of the November 2016 grandfathering deadline for projects outside the Map area. The San Francisco Board of Supervisors passed legislation yesterday that will expand the scope of existing requirements by applying them on a project-wide basis to any development of 250,000 gross square feet or larger, even if the development is located on separate parcels.

Limited exceptions were included in the new legislation for: (a) Hope SF projects, (b) projects with small domestic water meters, and (c) projects (or phases thereof) subject to a development agreement (or similar contractual agreement) with certain approvals in place before November 2015 (in the Map area) or November 2017 (outside the Map area). For other projects, some flexibility has been built in – the General Manager of the Public Utilities Commission will now have the authority to approve alternative district systems and water purchase agreements.

This is a very general summary. Please see the new legislation, which is expected to be effective next month, for detailed information.  See also the separate reclaimed water use requirements under Article 22 of the San Francisco Public Works Code, which apply to a broader range of projects in the Map area.

With rising housing costs remaining a priority concern for the region, affordable housing had a major presence on Bay Area ballots this November. As detailed below, voters in three municipalities and three counties across the Bay Area passed measures to increase affordable housing funding for low and moderate-income households. Taken together, these measures will yield about $2 billion in new housing funds.

Rent control measures were a mixed bag. Overall, six municipalities passed rent control legislation, with the protections ranging from modest to ambitious.  Voters in the City of Alameda, for instance, chose between two competing rent control proposals and rejected strong renter protections in favor of more modest rent controls.  Mountain View’s voters, by contrast, also chose between two vying rent control proposals and narrowly approved the more ambitious rent control and eviction protections.  Burlingame’s lone rent control measure was rejected, Richmond passed its first regulation governing annual rent increases, and Berkeley and Oakland, unsurprisingly, expanded their existing protections.

Here’s the roundup from the Bay Area (and just the San Francisco measures here):

Approved Affordable Housing Measures

Alameda County

Seventy two percent of Alameda County voters approved Measure A1, authorizing a $580 million housing bond to construct 8,500 units of affordable rental housing, provide housing services for homeless people, and deliver home-buying assistance to low and moderate-income home buyers.

Santa Clara County

With 67 percent approval, county voters narrowly approved Measure A, which required two-thirds approval to pass.  The measure provides a bond that allows the County to borrow up to $950 million to construct and maintain roughly 5,000 affordable housing units.

San Mateo County

Seventy percent of voters approved Measure K, extending a half-cent sales tax for 20 years.  The tax is anticipated to generate $85 million annually and will fund infrastructure upgrades and affordable housing for families, veterans, seniors, and people with disabilities.

Berkeley

Eighty three percent of voters passed Measure Z1, an unopposed measure authorizing the city to construct 500 new affordable units.

Oakland

Eighty two percent of voters approved Measure KK, a $600 million infrastructure bond that includes $100 million for affordable housing.

San Francisco

Sixty eight percent of voters approved Prop C, which allows the City to use the remaining $261 million from a 1992 general obligation fund for seismic upgrades to rehabilitate multi-unit buildings and convert them to affordable housing.

Approved Rent Control Measures

Berkeley

Seventy two percent of voters approved Measure AA, which increases a landlord’s payment to a  tenant in an owner move-in eviction from $4,500 to $15,000 (and up to $20,000 for low-income households, disabled people, the elderly, families with minor children, or tenancies that began before 1999).  The measure also requires the new $15,000 payment for any owner move-in eviction.  Previously, only low-income tenants were eligible for an owner move-in eviction payment.  The measure also prohibits owner move-in evictions of families with school-age children during the school year.

Oakland

With seventy four percent approval, Measure JJ expanded Oakland’s just-cause eviction requirements from residential units rented before October 14, 1980 to those approved for occupancy before December 31, 1995.  It also requires landlords to request approval from the City to increase rent by more than the City-established cost-of-living adjustment.

City of Alameda

Fifty five percent of voters approved Measure L1, which requires the City’s Rent Review Advisory Committee to mediate disputed rent increases of more than 5 percent, but does not cap annual rent increases.  It also limits the justifications for evicting a tenant, and in some circumstances, requires the landlord to pay relocation fees.  These measures were not as far-reaching as those proposed in Measure M1, the City’s other, competing rent control measure on the ballot (discussed below).

East Palo Alto

Nearly eighty percent of voters approved Measure J, which clarifies provisions from the City’s 2010 Rent Stabilization Ordinance.  Notably, the measure clarifies the definition and calculation of “maximum allowable rent,” limits annual rent increases to 80% of increases in the CPI, enhances informational notice requirements, and permits evictions for demonstrated nuisances or hazards.

Mountain View

Voters narrowly approved Measure V, a citizen initiative that won with fifty one percent support and which provided clearer rent controls and tenant eviction protections as compared to Measure W, the competing rent control measure proposed by the City Council (discussed below).  Measure V caps annual rent increases at 5 percent, and landlords cannot increase rent by more than the annual percentage increase in CPI.  The measure also enumerates the requirements for just cause evictions; and unlike Measure W (discussed below), does not permit exemptions from just-cause eviction requirements for landlords who pay prescribed relocation payments.

Richmond

Sixty four percent of voters approved Measure L, an initiative that established a maximum allowable rent in Richmond for the first time.  The measure establishes a maximum allowable rent based on the rent in effect in July 2015 and caps annual rent increases according to annual increases in the CPI.  The measure also enumerated the requirements for just-cause evictions.

Rejected Rent Control Measures

Burlingame

Sixty seven percent of voters rejected Measure R, an initiative to set annual rent increases to an amount equal to the CPI, and not to exceed 4 percent a year for most multi-family rental units with certificates of occupancy before February 1, 1995.  The initiative would have also established just-cause eviction restrictions for most rental units, and created a commission to set fees and implement the ordinance.

City of San Mateo

Sixty one percent of voters rejected Measure Q, which would have amended the City’s charter to permit rent regulations and just-cause eviction requirements for units with a certificate of occupancy from before February 1995.  Presently, residential landlords may charge any rent they wish and, with proper notice, remove a tenant without establishing just cause.  The measure would have also created a Rental Housing Commission to implement the new regulations.

Mountain View

In contrast to Measure V, 51 percent of voters rejected Measure W, which the City Council proposed.  The measure would have amended the City’s rent program by requiring binding arbitration for disputed annual rent increases over 5 percent in most multi-family units occupied before February 1995, but it would not have set a fixed cap on annual rent increases.  Although the measure would have also established just-cause eviction requirements, landlords would be exempted from these requirements if they complied with the City’s Tenant Relocation Assistance Ordinance.

City of Alameda

Sixty six percent of voters rejected Measure M1, a proposed City Charter amendment to limit annual rent increases to 65 percent of the CPI, create an elected Rent Control Board to impose fees and assess penalties, limit reasons for terminating tenancies, and require landlords to pay relocation fees to tenants in certain circumstances.  Measure M1’s rent control provisions were stronger than Measure L1‘s, the competing rent control proposal that passed with 55 percent approval.

Prior to the November 8 election, we reported on the long list of local propositions on the San Francisco ballot, including a number of measures impacting real estate taxes, land use and governance.  The results were of course eclipsed by national news, but there are some significant local developments, updated here.

The results are predictably unpredictable.

Voters in some cases upheld the status quo, rejecting a proposed shift in authority from the Mayor to the Board of Supervisors and an increase in the range of income eligibility for affordable housing. In other cases voters supported change, allowing development in Hunter’s Point and Candlestick Point to be exempted from the office development cap, requiring Production, Distribution and Repair (“PDR”) replacement in certain areas of the City, and increasing the real estate transfer tax (okay, maybe the tax increase was predictable).

Below are the preliminary results as reported by the Department of Elections, subject to certification by the Board of Supervisors on or prior to December 2.

There were also a number of important housing-related measures considered around the Bay.  Read our analysis from around the Bay Area here.

Summary of San Francisco Results:

Proposition L

Would have shifted authority from the Mayor to the Board of Supervisors regarding the San Francisco Municipal Transportation Authority.  REJECTED.

Proposition M

Would have shifted authority from the Mayor to the Board of Supervisors regarding the Mayor’s Office of Economic Development and the and the Mayor’s Office of Housing and Community Development.  REJECTED. 

Proposition O

Exempts new office construction at Candlestick Point and Hunter’s Point from the office allocation cap.  PASSED. 

Proposition U

Sought to expand the range of household income levels for affordable unit eligibility.  REJECTED.

Proposition W

Increases the real estate transfer tax rate by 0.25% for sales valued between $5 million and $10 million (increase from $10/$500 in purchase price to $11.25/$500), and between $10 million and $25 million (increase from $12.50/$500 in purchase price to $13.75/$500), and creates a new tier of transfer tax for sales valued above $25 million of 3% of the purchase price ($15/$500).  NOTE:  The effective date will be 10 days after the date that the vote is certified by the Board of Supervisors, which is supposed to occur no later than December 2, 2016 (for an effective date that would occur on or prior to December 12, 2016).  PASSED. 

Proposition X

Imposes replacement requirements for Production, Distribution, and Repair (“PDR”) space for certain zoning districts within SoMa and the Mission.  The replacement percentages are higher than those in the Central SOMA Plan.  PASSED.