On September 5, the San Francisco Board of Supervisors finally passed on second reading two pieces of legislation, together referred to as the “Housing Fee Reform Plan.” The Plan, previously discussed on July 7, July 21, and July 31, plays a key role in implementing Mayor Breed’s “Housing For All” Executive Directive, reducing inclusionary housing requirements and development impact fees for both new and pipeline projects. The Plan also reactivates an expired fee deferral program, establishes a stable, 2% fee escalation rate, and locks in impact fee types and rates at the time of project approval.

The Inclusionary Housing Technical Advisory Committee (the “TAC”), together with the Controller, analyzed the feasibility of the City’s inclusionary housing requirements and provided a report informing the Plan’s new, reduced inclusionary housing requirements. Under the legislation, the TAC is required to convene again no later than January 1, 2026.

Although there is optimism that the Plan will help jumpstart both new and stalled housing projects, multifamily development feasibility still largely depends on market forces outside of City control, such as interest rates and construction costs.

The Mayor has 10 days to sign the Housing Fee Reform Plan, and the ordinances become effective 30 days thereafter.

On July 25, the Board of Supervisors passed on first reading the “Housing Fee Reform Plan” legislation (see previous posts here and here). The Board is expected to hold a second reading and finally pass the legislation in September after returning from summer recess.

The legislation consists of two ordinances. To help jumpstart housing production in the City, the inclusionary housing ordinance reduces inclusionary housing percentages and fees for certain new and pipeline projects of 25 or more units, and provides a temporary 33% reduction in the amount of other development impact fees for new and pipeline projects that can meet certain timing deadlines. The impact fee reform legislation establishes a 2% fee escalation rate, locks in the types and rates of impact fees at project approval, and reactivates an expired fee deferral program.

As discussed at the Board, market factors such as construction costs and interest rates will largely determine whether the legislation can unlock new housing. Developers of both housing and commercial projects should take note of the impact fee reform legislation, which makes major changes to San Francisco’s fee regime, but has received less attention than the inclusionary housing ordinance.

The Planning Commission had recommended eliminating development impact fees for changes of use, and applying the inclusionary housing percentage reductions to smaller, 10-24 unit projects. These changes were not adopted by the Board, but the Land Use and Transportation Committee created a copy of the inclusionary housing ordinance by duplicating the file, allowing for further discussions and potential amendments to that ordinance in the fall.

 

The “Housing Fee Reform Plan” legislation, which we reported on previously, is heading back to the Board of Supervisors next week. On Monday, July 24, the Board’s Land Use and Transportation Committee will consider the two ordinances, which cover inclusionary housing changes and impact fee reform. Committee Chair Melgar has deemed the ordinances urgent and has requested that they go to the full Board as committee reports the following day, Tuesday, July 25.

Most attention has been paid to the inclusionary housing legislation, which reduces inclusionary percentages for pipeline and new residential projects with 25 or more units, to 12% on-site for pipeline projects, and 15% on-site for new projects approved between November 2023 and November 2026. On July 13, the Planning Commission recommended approval with modifications to apply the inclusionary reductions to smaller projects, along with other timing and technical changes. These changes can be considered by the Board next week.

After the original introduction of the impact fee reform legislation, Mayor Breed introduced a substituted version that revised the impact fee waiver provisions for downtown projects containing certain non-residential uses. In the prior version of the ordinance, these projects were eligible for impact fee waivers for a three-year period if they were in the C-2 District, were between 20,000 and 200,000 square feet, were on vacant or underdeveloped sites, contained no residential uses, and contained all of the following uses:  hotel, restaurant, bar, outdoor activity, and entertainment. In the substituted version, projects in the C-2 and C-3 Districts are eligible, the project size and vacant/underdeveloped site requirements have been eliminated, and a project need only contain one of the non-residential uses mentioned above. In addition, the substituted version eliminates the requirement to have no residential uses in the fee waiver-eligible project.

Whether this change will help spur broader investment in downtown projects is unclear, as the impact fee waiver only applies to the area of a specific non-residential use. For example, an office project with a ground floor restaurant would only receive a waiver for the restaurant, and not the office, square footage. The Planning Commission has also recommended approval of the impact fee reform ordinance, with a proposed modification to eliminate all development impact fees for changes of use throughout the Planning Code. If implemented by the Board, this would be a significant change and could remove one barrier to certain conversion projects.

We will provide a further update after the Board’s expected actions next week.

In furtherance of Mayor London Breed’s “Housing For All” Executive Order issued in February (see earlier post here) and San Francisco’s daunting directive to produce 82,000 new housing units over the next 8 years (see earlier posts here and here), at the June 27, 2023, Board of Supervisors hearing, Mayor Breed and Board President Peskin introduced two pieces of legislation, together referred to as the “Housing Fee Reform Plan.” To reduce financial roadblocks to “pipeline,” or already approved but unbuilt residential projects, and to incentivize new projects, the legislation would temporarily reduce inclusionary housing requirements and would reduce and reform other City development impact fees, including through reactivation of a dormant impact fee deferral program. The proposed Housing Fee Reform Plan comes on the heels of the City’s other efforts to incentivize Downtown commercial to residential adaptive reuse projects. (See earlier posts here and here.)

Key provisions of the legislation, which is expected to be considered at the Planning Commission on July 13 and at the Land Use and Transportation Committee shortly thereafter, are as follows:

Inclusionary Housing Legislation (legislation here)

For pipeline residential and live/work projects (both rental and ownership) consisting of 25 units or more that have been finally approved, but have not obtained a building permit or paid development impact fees prior to November 1, 2023:

1. 12% on-site inclusionary requirement (8% low-income, 2% moderate-income, 2% middle-income).
2. 16.4% in-lieu fee or off-site inclusionary requirement (9.4% low-income, 4% moderate-income, 3% middle-income).
3. Separate provisions would apply to projects located in areas with specific affordable housing requirements, providing a proportional reduction to those requirements.

For new residential and live/work projects (both rental and ownership) consisting of 25 units or more that are finally approved between November 1, 2023 and November 1, 2026:

1. 15% on-site inclusionary requirement (10% low-income, 2.5% moderate-income, 2.5% middle-income).
2. 20.5% in-lieu fee or off-site inclusionary requirement.
3. Separate provisions would apply to projects located in areas with specific affordable housing requirements, providing a proportional reduction to those requirements.
4. Newly approved projects must obtain a First Construction Document within 30 months of Final Approval.

For both pipeline and new projects that meet the specified timeframes, a temporary fee reduction program would provide a 33% impact fee reduction for most fees (not including inclusionary housing fees) assessed on or before November 1, 2026.

Impact Fee Reform Legislation (legislation here)

The Housing Fee Reform Plan also includes various reform measures intended to provide more certainty regarding fees, as follows:

1. Establishes a 2% annual escalation rate for development impact fees, not including inclusionary fees.
2. Locks in the types and rates of applicable development impact fees, generally protecting against new fees and increases to existing fees between Planning Commission project approval and issuance of building permits.
3. Reactivates the expired fee deferral program, to allow project sponsors to defer 80–85% of development impact fee payments (not including inclusionary housing fees) from building permit issuance to no later than the first certificate of occupancy (typically a TCO).

We will continue to monitor these pieces of legislation and the City’s other housing production plans and Downtown revitalization efforts.

At the June 13, 2023 Board of Supervisors hearing, the “Commercial to Residential Adaptive Reuse and Downtown Economic Revitalization” legislation was introduced. The legislation would amend various Planning Code sections to facilitate office to residential conversions for qualifying “Adaptive Reuse Projects.” (See earlier post here.) The Board of Supervisors will subsequently consider the companion “Development Impact Fees for Commercial to Residential Adaptive Reuse Projects” legislation, which would waive all development impact fees for Adaptive Reuse projects, except for inclusionary housing requirements. As noted in SPUR’s office to residential conversion report, to which Coblentz provided input, Planning Code amendments and waivers of development impact fees will help make conversions more feasible, but tax abatements or incentives and reductions in inclusionary housing requirements will likely also be necessary.

The legislation incorporates the following key amendments that were recommended by the Planning Commission: a waiver of Transportation Demand Management Plan (TDM) requirements for Adaptive Reuse Projects and an increase in the amount of additional space that Adaptive Reuse Projects may include (up to 33% of the existing Gross Floor Area (GFA), instead of 20% GFA and maximum of one story as originally proposed). It also includes an  amendment recommended by the Land Use and Transportation Committee to exclude conversions of commercial use to hotel use from the definition of “Adaptive Reuse Projects.”

We will continue to monitor these pieces of legislation and the City’s other housing production plans and Downtown revitalization efforts.

In response to Mayor London Breed’s recent Executive Directive, titled “Housing For All,” on May 4, 2023, the San Francisco Planning Commission voted to recommend that the Board of Supervisors approve a package of Planning and Building Code amendments intended to spur reinvestment in the City’s commercial core. (See earlier post regarding the Mayor’s Executive Directive here.) The proposed legislation, referred to as “Commercial to Residential Adaptive Reuse and Downtown Economic Revitalization,” would affect all of Downtown and much of Union Square and SoMa.

If adopted by the Board of Supervisors, the legislation, sponsored by Mayor Breed and Board President Aaron Peskin, would:

• Facilitate residential uses Downtown. The package of amendments includes various legislative changes intended to facilitate residential uses Downtown.
  • Conversion of Downtown non-residential buildings to residential use. This amendment would create a new defined term “Commercial to Residential Adaptive Reuse,” which is “to change the use of an existing Gross Floor Area from a non-residential use to a residential use pursuant to Section 210.5.” It would add a new Section 210.5 to the Planning Code for “Commercial to Residential Adaptive Reuse Projects” that 1) are located in a C zoning district that is east of or fronting Van Ness/South Van Ness Avenue and north of Townsend Street, 2) would not increase the existing building envelope by an amount equal to more than 20% of the existing building Gross Floor Area, 3) would not add more than one vertical story, and 4) do not seek a density bonus under the State Density Bonus Law. For qualifying projects, certain development controls would be waived, including those for rear yard, lot coverage, open space, and dwelling unit mix, among other changes. To incentivize potential project sponsors to take action as soon as possible, applications for Commercial to Residential Adaptive Reuse Projects must be submitted by December 31, 2028.
  • Streamlined administrative approval for projects in the C-3 district. For projects in the C-3 district, a Planning Code Section 309 hearing would no longer be triggered for projects adding more than 50,000 gross square feet of floor area. The height triggers for a Section 309 Planning Commission hearing also would be increased from 75 feet, such that a Planning Commission hearing would be required for new construction that would exceed 120 feet in height, and for vertical additions that would cause a building to exceed 120 feet.
  • Modify height exemptions. For rooftop features listed in Planning Code Section 260(b)(1), the vertical portion of those features to which the height exemption would apply would be increased from the top 10 feet to the top 16 feet of the features where the height limit is 65 feet or less, and from the top 16 feet to the top 20 feet where the height limit is more than 65 feet. In the C-3, CMUO, and Central SoMa MUR/MUG districts, rooftop restaurants and bars that do not exceed 16 feet in height also would be exempt.
• Economically revitalize Downtown. These amendments would generally add flexibility and relax existing use restrictions in the Downtown area, and include:
  • Adding Flexible Workspace as a new defined use, and permitting Flexible Workspace where ground floor commercial uses are required.
  • Removing size limitations applicable to single retail uses in the C-3 district to allow larger retailers.
  • Allowing for pop-up uses as temporary uses in certain portions of the C Districts.
  • Principally permitting Life Science and Laboratory uses in the C-2 district, and Senior Housing and Residential Care Facilities in the C-3 district.

At its May 4th hearing, the Planning Commission proposed recommended modifications to the legislation to the Board and the Mayor for their consideration.

The Planning Commission also voted to recommend that the Board of Supervisors adopt a companion piece of legislation sponsored by Supervisors Matt Dorsey and Ahsha Safai. That legislation would exempt the residential Gross Floor Area of Commercial to Residential Adaptive Reuse Projects from all development impact fees, except for inclusionary housing requirements.

We will continue to monitor these pieces of legislation and the City’s other housing plans and Downtown revitalization efforts.