San Francisco November 2016

San Francisco
November 2016

Ballot analysis and recommendations

Overview chevron_right Prop U
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Prop U

Affordable Housing Eligibility

Affordable Housing Requirements for Market-Rate Development Projects

Increases the income eligibility limit for below-market-rate rental units offered through the city’s inclusionary housing program.

Vote NO

What the Measure Would Do

Under San Francisco’s inclusionary housing program, developers of market-rate housing are currently required to provide a certain percentage of affordable units for each housing development they build.1 Rental units count toward this requirement if they are affordable to households in two designated categories: low-income households earning up to 55 percent of area median income (AMI) and moderate-income households earning up to 100 percent of AMI.2 Rents for these units are set by the Mayor’s Office of Housing and Community Development at 30 percent of these two income amounts; the rent does not vary based on the actual household income of the renter.

Prop. U would increase the income eligibility limit for all new and existing on-site inclusionary rental housing units to 110 percent of AMI (currently $118,450 for a household of four), instead of the current mix of 55 percent and 100 percent of AMI. It would also change the way rent is charged, setting an affordable unit’s rent at 30 percent of an individual household’s income, which could be any income under 110 percent of AMI. If this measure is adopted, developers would not know the amount of rent they could collect until specific tenants are identified for the units.3 In addition, the measure would require the city to change its agreements with existing property owners to allow for this change. This measure would not change the income eligibility limit for for-sale units or for affordable units built off site.

If passed, this measure could be amended by a two-thirds vote of the Board of Supervisors.

The Backstory

San Francisco first introduced the concept of inclusionary housing in 1992, when the Planning Commission set a policy for housing developers to include below-market-rate units in their projects. The program has undergone four major changes over the intervening years. In 2002, legislation was passed to make inclusionary housing a citywide requirement; in 2006, the percentage requirements were increased, also legislatively; in 2012, San Franciscans voted to decrease the percentage requirements, to create the Housing Trust Fund and to require all future changes to the program to go before the voters. In June 2016, Prop. C increased the inclusionary requirements and removed them from the City Charter, thus allowing the inclusionary requirements to be changed legislatively in the future, rather than going back to the voters.

June 2016’s Prop. C increased the requirement for on-site affordable housing from 12 percent to 25 percent. It further specified that 15 percent of the housing be for low-income households and 10 percent be for moderate-income households. As a result of legislation tied to Prop. C, the Controller’s Office is conducting a financial feasibility study of the percentage requirements. The feasibility analysis is intended to form the basis for future inclusionary levels. A preliminary report released in early September recommended setting the requirements at 14 to 18 percent for rental projects and 17 to 20 percent for condo projects, as well as setting a schedule of annual increases at 0.5 percent per year for 15 years.4 As of this writing, the Controller’s Office is continuing to study a few additional questions and will issue a final report later this year.

The San Francisco Association of Realtors has led the effort for this measure, pointing to the city’s shrinking middle-income population and the consequent need for additional housing targeted to the middle class. Between 1990 and 2014, middle-income households (earning 50 to 150 percent of AMI) shrank from 49 percent of San Francisco’s total households to 40 percent, while the percentages of low- and upper-income households have grown in that same time period.5

Prop. U was placed on the ballot by signatures collected by the San Francisco Association of Realtors. It could have been passed legislatively and does not need to be on the ballot. The measure requires a simple majority (50 percent plus one vote) to pass.

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Pros

  • Prop. U would make more housing opportunities available to moderate- and middle-income households, an important but shrinking segment of the city’s population. There are few funding sources (federal, state or local) available to assist with creating housing for individuals and families considered moderateor middle-income.

Cons

  • Inclusionary housing requires complicated financial calculations and is best administered through a legislative process that is informed by technical studies. It would have been more appropriate to make these kinds of policy changes legislatively so that they could be fine-tuned over time. Putting them on the ballot means any adjustments would have to go back to the voters.

  • The existing inclusionary policy already serves some moderate-income buyers and renters. Because Prop. U’s new eligibility requirements would combine low- and middle-income households, this measure’s attempt to better serve middle-income residents could come at the expense of lower-income households.

  • This measure would unilaterally change the terms of existing inclusionary requirements for housing that is already occupied, which could result in landlords suing the city.

  • This measure would expand the pool of eligible households without increasing the number of affordable inclusionary units available, making it even more competitive to secure an inclusionary unit.

SPUR’S Recommendation

Middle-income families are important to San Francisco’s diversity and economy, and this segment of the population is shrinking. The city needs to provide more housing for these households, but this measure is not the right way to accomplish it. Given the complexity of inclusionary housing policy, a legislative process informed by technical studies is a better way to make decisions about how much inclusionary housing the city needs and who should be eligible to live in it. The ballot box is no place for this kind of decision-making.

It’s also important to note that Prop. U does not add more housing to the pool of inclusionary units available at below-market rents. This means that it would reduce the opportunities for certain low-income households by putting them into competition with a greater number of households for the same number of inclusionary units. While we recognize its good intentions, we can’t put our support behind this measure.

1 Under Prop. C passed in June 2016, 25 percent of units built on site must be affordable. The developer may also opt to build 33 percent of units off site or pay an equivalent in-lieu fee. Prop. U would only apply to instances where the developer builds the affordable units on site.

2 As calculated by the U.S. Department of Housing and Urban Development, 55 percent of AMI in San Francisco is $41,450 for one person and $59,250 for a family of four. One hundred percent of AMI in San Francisco is $75,400 for one person and $107,700 for a family of four. The Mayor’s Office of Housing and Community Development has a helpful chart of the various income definitions.

3 As drafted, Prop. U would make the rent 30 percent of the household’s income, which could vary from 10 percent of AMI to 110 percent of AMI. So the rent could vary from $80 to $2,000. The developers and all existing below-market-rate landlords would not be able to select higherincome households for their below market-rate units (and thus charger higher rents) because the Mayor’s Office of Housing and Community Development runs the lottery and the wait list.

4 http://sfcontroller.org/sites/default/files/Preliminary%20Report%20September%202016.pdf

5 Briefing Book, State of the Housing Market Update 2014, San Francisco Mayor’s Office of Housing and Community Development and Seifel Consulting

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