The ballot measure: 25% below-market-rate
No exceptions, no developer handouts, no corruption
The June ballot will have a proposed law authored by Jane Kim and Aaron Peskin. The proposal is to increase the percentage of required below-market-rate (BMR) housing in new housing developments from 12% to 25%. More coverage here and here.
In public, Peskin and Kim claim that developers can afford this increased inclusionary percentage:
The mayor, developers, construction trade unions and several moderate supervisors all opposed it, and up until last week tried unsuccessfully to amend it. They said the 25 percent below-market requirement — more than double the current requirement of 12 percent — would cripple the housing market and actually result in less affordable housing.
Supervisors Jane Kim and Aaron Peskin, who authored the measure, dismissed those claims as hyperbole and said developers need to contribute more to alleviate the housing crisis. (San Francisco Chronicle, March 1, 2016)
In public, Peskim insist the 25% requirement won’t kill any projects and won’t make any projects infeasible. The increased subsidy will come out of profits, he says, and leave enough profit left over for the project to remain worth building.
In private, no one believes this. Peskin is negotiating (right now, actually) with developers whose projects would be killed under the 25% requirement. He is offering them lower inclusionary percentages in exchange for their agreement to not fund an opposition campaign for the charter amendment. Developers are happy to take this deal. After the charter amendment passes in June, very few new projects will be proposed because the 25% inclusionary percentage will be too high, which increases the value and profit for the projects built by developers who cut a deal with Aaron.
In February, a group of developers, designers, builders and engineers wrote a letter opposing the 25% inclusionary proposal. In it they insist that there are projects in the pipeline today that will become infeasible because of the new rate, and there are future projects that will never be proposed if the 25% inclusionary requirement is enacted. At very least, the letter asks, can current projects be exempted from the new requirement, “grandfathered”?
Supervisors, as designed your Ordinance will cripple the housing industry, cause massive union worker lay-offs, likely raise rents and lower the number of affordable units delivered in San Francisco. At the very minimum, we would ask you to change the Ordinance and insert language that permits: 1) grandfathering and 2) subordinates the 25% BMR objective to reasonable economic feasibility (to be determined by the Controller’s office but similar to a basic ROC analysis). These changes should be put into the Ordinance and not dealt with in some trailing legislation. The goal of 25% affordable housing is a good one, but it must be subordinated to economic feasibility. 25% of nothing is nothing.
Randy Shaw, founder of the Tenderloin Housing Clinic and author of Beyond Chron agrees, and recognizes that if the 25% legislation is allowed to kill projects in progress, developers will be forced to destroy the legislation at the ballot, to protect their projects:
“Grandfathering” involves when the higher requirements take effect. If I read the Kim-Peskin proposal correctly, only already entitled properties will open under the old 12% rules. I hope this extreme position is a bargaining chip because it is not fair. Housing developments waiting years for approval due to the city’s glacial process should not now face higher requirements.
Many developers got financing based on economic assumptions that the higher inclusionary requirements change. Unless the city goes back some number of years to grandfather these projects in, I see litigation and a heavily funded opposition campaign facing the charter amendment.
The Kim-Peskin measure is still a work in progress. Its final form gives progressives a chance to show they can work with developers to get more affordable housing built. Or it could otherwise confirm their opponents’ suspicions that more stringent requirements are designed to ensure that only the biggest, most upscale housing projects get constructed.
Not wanting to see his ballot measure go down in flames, Peskin is, right now, “negotiating” with developers:
Developer Eric Tao, the lead negotiator representing the industry in talks with the city, said that all sides continue to work together on a compromise that will boost the city’s production of affordable units without killing off new projects. (San Francisco Business Times, March 1, 2016)
Peskin is buying off developers who have projects in the pipeline. He is offering them reduced inclusionary rates in exchange for their commitment to not oppose the charter amendment. The developers that successfully negotiate a reduced inclusionary percentage will see their projects open to a market that is even more constrained than the one we have today.
This is what corruption looks like, and here’s what you can do about it: Print out a blank copy of the flyer above. Sign your name, date it, tape it to a pole outside of your house or your work place, take a picture of it, and tweet it to @SFYIMBY or email me. Also email me to participate in a direct action to fight this corruption.
