San Francisco mayor declines to sign law doubling office construction fees to fund affordable housing

sf housing map
This graphic shows the year that cities around the San Francisco Bay Area are projected to reach their 2040 housing targets as defined in Plan Bay Area 2040 (housing units needed to provide sufficient housing for the projected population growth) - San Francisco is projected to be 23 years late to meet its 2040 target. (Wikipedia)

San Francisco Mayor London Breed has decided not to sign legislation the city passed in October that more than doubles fees on new office construction to pay for affordable housing, protesting that it will scare off development.

“She didn’t veto it,” Supervisor Matt Haney said in a Twitter posting on Nov. 18. “But she expressed her opposition to it in a letter and returned it unsigned.” Haney had proposed the law.

Because the bill passed by an 11 to zero margin, the board would have been able to easily overcome a veto, and the new law will take effect even without Breed’s support.

The mayor’s letter dated Nov. 22 nevertheless pushes back on Haney’s plan, which increases fees on most new offices space from $28.57 per sq. ft. to $69.60 by 2022 and puts the money toward housing development.

“I remain concerned that this legislation, while well intended, will not produce the revenue it promises for affordable housing. The feasibility analysis prepared for the city demonstrated that projects could afford to pay a Jobs Housing Linkage Fee of $38.57 per square foot of new office space before they become economically infeasible to build,” the mayor wrote.

“This amount is a 35% increase above the prior fee of $28.57 per sq. ft. Despite this analysis, the legislation passed by the Board of Supervisors increases the Jobs Housing Linkage Fee on office development above the feasibility amount to $69.60 per square foot by January 1, 2021, a 144% increase above the prior fee and a 80% increase above the feasibility amount. If projects become infeasible to build, the result is less funding for affordable housing.

“The city economist also concluded this higher fee would lead to an approximate loss of 520 to 585 office jobs annually and an annual decline of between $61 -$87 million per year in office construction spending. Additionally, the fee amount set by the Board of Supervisors does not take into account the overall impacts this increase will have to property and business tax revenues. Our city controller has estimated that over the next 20 years, the lost property tax and business tax revenue associated with this fee increase will exceed the funds generated for affordable housing, resulting in loss of approximately $30 million to the city.”

“Currently companies over 100,000 sq. ft. make up over 47% of the overall market, and this number is continuing to grow. Simultaneously, office space has become scarcer and more expensive. This has forced many of our small businesses into co-working spaces where we see the average cost for space at 150% more than stand-alone space. Office developers will simply pass on this increased fee to tenants which will result in higher rents only affordable to larger and wealthier companies. While I appreciate the authors’ inclusion of a lower fee for smaller office space projects, both the size of the fee and the rate at which it grows still presents a barrier to ensuring office space is affordable and accessible for our smaller businesses.

“I firmly believe the Jobs Housing Linkage Fee can and should be increased. However, it must be done in a way that takes into account economic analysis, financial feasibility, and the different impacts experienced by our small businesses. I do not believe the ordinance, as currently before me, adequately balances these factors.”

However the Board of Supervisors continues to believe the increased levy will yield some $400 million over seven years, combining with the recently passed affordable housing bond to yield $1 billion in spending for new housing.

Haney says the San Francisco Chamber of Commerce, Labor Council, and Planning Commission all have supported the proposal.

Haney said in a statement that “San Francisco has the worst jobs-housing ratio in the Bay Area” and cited “tremendous urgency” to offset the effects of new business development in the city.”


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