S.F. Seeks to Boost Affordable Housing Funds from Office Construction

The city’s current formula for funding affordable housing by charging office-space developers is based on a 1997 study. That could soon change.

It’s been 22 years since San Francisco took a good, hard look at its policy of taxing office developments to fund construction of affordable housing. Now, armed with more than two decades of data, some city officials are proposing a change.

The formula to collect money from most non-residential development is based on a 1997 study, whereby San Francisco collects impact fees from developers to fund everything from transit to child care. An analysis by the San Francisco Council of Community Housing Organizations (CCHO) found that the city has collected a yearly average of $7.5 million over the past decade in what is called the “jobs-housing linkage fee.”

But advocates say this method is outdated and fails to reflect the full impact of development. Instead, they say, fees charged to developers could be used to offset displacement and provide homes for the middle- and low-income people who work at new businesses.

The city has a yearly maximum of 950,000 square feet of office space allowed per year. A long-awaited update to the old 1997 Nexus study is expected to arrive in April from multiple city departments, and Supervisor Matt Haney doesn’t want to waste any opportunity. Earlier this month, he directed the City Attorney to begin drafting legislation so that his fellow supervisors would be able to jump straight into a discussion about raising the fee as soon as the study is released.

“We’re hoping that this could provide a significant injection of funds for affordable housing,” Haney says. “If we’re adding millions and millions of square footage of office space and not having a corresponding increase in housing, we are setting ourselves up for what we have, which is skyrocketing rents in the least-affordable housing market in the country.”

With the recent office construction boom in neighborhoods like Mission Bay, the amount the city collects each year has risen dramatically. (The city accounted for a total of 4.4 million square feet of commercial space in Mission Bay alone.)

At roughly $28 per square foot of commercial space built, the city reports collecting $19 million between June 2016 and June 2018.

Nevertheless, those funds have already been spent, and the Office of Economic and Workforce Development did not immediately respond to a question about the current balance of affordable-housing funds. Combined with inclusionary-housing fees and other funds, that $19 million contributed to the 100-percent affordable projects at 88 Broadway, 490 S. Van Ness Ave., 1950 Mission St., and 2060 Folsom St., which cost more than $100 million in total.

As for additional impact fees, CCHO estimates that inclusionary housing fees from residential development have brought in an average of $23 million a year for the past decade.

Boosting the jobs-linkage fee upon the study’s release is that much more urgent with the December passage of the Central SoMa Plan, which is expected to bring 33,000 more jobs and 8,000 housing units to the area — proof in itself that San Francisco’s investment in office space is much higher than that of living space.

Community groups like SOMCAN have criticized the Central SoMa plan for a lack of plentiful affordable housing — which will account for at least 33 percent of those planned units. But thanks to conversations Haney kick-started, the city may leverage more from developers before the rush begins. Anti-displacement advocates say that money needs to go toward housing not merely high-income workers, but the janitors, the administrative employees, and cafeteria workers who can’t afford market-rate rents.

“This city really needs to be able to house the new workers that this community development will bring,” CCHO spokesperson Maya Chupkov says. “I think what’s missing in this conversation beyond these impact fees is we need to think of a more robust public investment.”

Mayor London Breed is pushing for a $300 million affordable-housing bond on the November ballot. Haney feels the bond should go further, although he didn’t specify a dollar amount.

One of many ways in which the 1997 study has become outdated is the increased density of employees in existing office space over the past 20 years. In other words, there are now more people to account for when planning housing and transit needs. Ken Rich, development director for the Office of Economic and Workforce Development, says that will be a factor in the new study.

“A current Nexus study would need to account for characteristics of modern office space, such as employee density,” Rich says.

San Francisco is required to release a Nexus study to prove why it is allowed to charge a certain amount, and a feasibility study will accompany its release to caution against the alleged adverse effects of high fees stifling development. Haney’s goal is not to discourage development, but to balance the ratio of jobs to housing.

“Right now, there’s extreme demand for office space and for community development, and we need to have a corresponding investment in affordable housing in order to ensure equitable development in our city,” he says. “It’s kind of ridiculously overdue to have this study come out.”

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