San Francisco, CA—Today, Mayor London N. Breed signed the Housing Stimulus and Fee Reform Plan into law. Mayor Breed and President of the Board of Supervisors Aaron Peskin introduced the legislation to unlock the housing pipeline and accelerate the planning, approval and construction of existing and new projects citywide. The Plan temporarily reduces inclusionary housing requirements on new and already approved development projects and reforms and defers development impact fees in order to spur development projects and economic activity.
"We are fundamentally transforming how we approve and build housing in San Francisco,” said Mayor London Breed. “These new rules will spur new housing across the city and unlock projects that have been approved but are stuck because of how expensive it has become to build. We need more housing, and we need more changes to our laws so we can have more homes for kids who are growing up here, for working people who want to live here, and for our seniors who want to stay in the communities they know and love.”
“This collaborative effort is a significant, time-certain incentive program that sends a clear message that San Francisco is serious about building new market-rate housing in this difficult economic climate — both jumpstarting pipeline projects and enticing new ones,” said Board of Supervisors President Aaron Peskin, who co-authored the legislative package. “Next we must use our collective momentum to pass an affordable housing bond in March of next year to build the thousands of affordable units we desperately need.”
Mayor Breed signed the legislation at 395 3rd Street, a parking lot which is slated for over 500 units of new housing in the South of Market area to be developed by Strada Investment Group, including approximately 80 affordable homes. The Plan signed into law today will help that project and others like it to move forward, where it was previously struggling to be feasible.
The Housing Stimulus and Fee Reform Plan bases San Francisco’s policies on data and sets fees at levels to support new housing. As previously structured, San Francisco’s current fee structure has contributed to a decline in new project proposals and the stalling of thousands of already approved homes in the pipeline by compounding already escalating costs. The approved legislation encourages new housing proposals and helps unlock pipeline projects so they can quickly begin construction, resulting in desperately needed new housing, an increase in construction jobs, and growth of the City’s tax base.
This new law has the potential to unlock almost 8,000 already approved but unbuilt units in the pipeline across the City. In Downtown areas alone, there are over 2,500 units in this pipeline that when built, will accelerate the mixed-use vision set forth in the Mayor's Downtown Roadmap.
There are over 10,000 units in proposed projects that are not yet approved that will be able to take advantage of the reduced inclusionary package, which will enable them to move more quickly from approval into construction.
“This legislation is probably the most impactful effort San Francisco has made to support housing production in at least a decade,” said Michael Cohen, Founding Partner of the Strada Investment Group. "The legislation is so important because it seeks to directly address the single biggest barrier to housing production today – financial feasibility. While there is still more work to do and some issues are beyond the City’s control – like federal fiscal policy – by very significantly reducing the portion of housing production costs that are within the City’s control, this initiative will ultimately allow much more housing to be built much sooner. This legislation gives us the confidence to advance our project at 395 3rd Street, which will provide over 500 units of housing in the heart of San Francisco.”
“Group i acknowledges and appreciates the efforts by Mayor London Breed and City staff to lower the barriers for creating new housing in San Francisco. Our greatest strength is our people. Group i is honored to contribute to the San Francisco rebirth by making our city accessible to workers and families,” said Joy Ou, Group i “By communicating and responding to the needs of the development community, City staff have shown themselves to be full partners in the development ecosystem that contributes to great cities. The reduced percentage of inclusionary housing will go a long way in making housing a reality. Group i is looking forward to starting construction on 62 homes at 770 Woolsey and 45 apartments in the office to residential conversion at 988 Market.”
“I am encouraged to see the Mayor and Board of Supervisors working collaboratively with the development and affordable housing communities to create legislation that addresses today’s economic realities,” said Carl Shannon, Tishman Speyer. “While not a silver bullet, this legislation is an important step in the collective effort to restart housing production, which has essentially been frozen since the pandemic.”
This legislation is informed by the City’s Inclusionary Housing Technical Advisory Committee (TAC) process, wherein the City Controller secures an independent consultant to conduct a feasibility study which the TAC uses to make recommendations to the Mayor and Board of Supervisors on what inclusionary rates will generate the most affordable housing that is economically feasible. The legislation goes beyond the TAC recommendations to not only focus on unsticking pipeline projects but creating incentives to spur new housing development proposals.
This legislation is a key piece of Mayor Breed’s Housing For All Plan, which is the City’s effort to allow for 82,000 new homes to be built over the next 8 years. This legislation meets obligations set out in the City’s Housing Element, which was unanimously approved by the Board of Supervisors in January and certified by the State.
"We are all impacted by San Francisco's housing affordability crisis,” said Rich Hillis, Director of the SF Planning Department. “This legislation is a key component to building more housing diversity so that our current residents are able to stay and thrive while also meeting the needs of future generations."
“San Francisco’s diverse workforce is vital to our economy. The Housing Stimulus and Fee Reform Plan will allow us to stay competitive, create predictability for builders and investors and ensure housing continues to advance, accelerate and get built for all of our workers and families,” said Anne Taupier, Director of Development with the Office of Economic and Workforce Development. “The legislation shows real progress toward the city’s housing goals and supports our economic growth and vitality.”
Setting Inclusionary Housing Requirements Based on Data
San Francisco’s previous inclusionary housing requirements, which are what certain housing projects must set aside for affordable housing, were among the highest in the country and had not been reevaluated since 2017. An analysis conducted by the Controller showed that inclusionary housing levels set in 2017 made the current construction of new housing infeasible, and the TAC proposed reductions accordingly to spur new housing development.
This new plan reduces inclusionary requirements for both Pipeline Projects — those that are already approved by the City — and new housing projects. In addition, the proposal reduces all other development impact fees by 33% for the next three years.
Stabilizing and Reforming Impact Fees
San Francisco charges a number of impact fees on new construction projects to cover partial or total costs of public infrastructure such as open space, transportation, and arts as designated in the annual impact fee register published by the Planning Department. The structure of how these fees has been calculated is unpredictable and causes severe cost escalations through the life of a project. By simplifying and standardizing these fees, San Francisco can create stability for projects to move forward without disruption and certainty for developers seeking financing.
The Impact Fee Reform legislation changes the way development impact fees are escalated so they are no longer tied to a complicated construction cost estimate and instead are simply raised by 2% annually. The approved legislation allows development projects to lock in the type and rate of impact fees they will need to pay at the time they are approved by the City – instead of continuing to increase the fee rates each year until a project is able to break ground. It also reinstates the fee deferral program so projects don’t have to pay development impact fees until after construction.