How Requiring Too Much Affordable Housing Kills Housing

HousingWant to know the severe negative unintended consequences of the proposed ordinance to double affordable housing requirements for new housing? Read the letter to the Board of Supervisors signed be a wide cross-section of members of the housing industry in San Francisco.

The measure is being heard by the Board of Supervisors on February 23rd sometime after 2pm would go to the voters in June.

Re: Proposed Affordable Housing Ordinance increasing BMR

February 18, 2016

Dear Supervisors,

As drafted, the proposed ordinance to increase required affordable housing requirements for market-rate developments from 12% to 25% will not work. Quite the contrary, the Ordinance will devastate the industry, engender the lay-offs of thousands of union construction workers, and shut down whole sections of the construction, engineering, architectural and development businesses. Far from increasing affordable housing and reducing city-wide rents, the Ordinance will dramatically reduce the number of future affordable housing units to be built and, with future housing supply constricted, could significantly cause rental increases for non-rent- controlled units.

Very simply, given current costs, it is impossible to build housing with a 25% BMR requirement absent significant up-zonings or subsidies. Prudent lenders and equity investors require at least a 5.5% Return on Costs (ROC simply takes a project’s annual net operating income and divides it by the total costs). The Ordinance’s proposed almost doubling of affordable housing costs reduces the ROC to below financeable possibilities and long-term would drive down land values to impossibly low numbers that could stop housing construction for many years (see attached analysis). Stopping housing development in turn means that the City will neither receive the fees to build off-site affordable housing nor the affordable on-site units (12% at 55% of AMI) that would have been received under the current program.

Right now the Ordinance does not permit the grandfathering of over 8,000 units in the pipeline, many of which are affordable. The Ordinance, designed with little economic feasibility analysis, thus jeopardizes some $7.5 billion of new housing inventory: Housing that provides over $1.5 billion of construction union wages plus thousands of new affordable homes.

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.

The undersigned actually design, engineer, build, and develop the vast majority of the housing built in San Francisco. We would urge you as prudent leaders to reflect carefully on our words and tailor your Ordinance into a program that will improve affordable housing life in San Francisco as opposed to devastate it.

Sincerely Yours,

Oz Erickson Emerald Fund, Inc.

Jeff Hoopes
Swinerton Incorporated

Ross Edwards Build Group

Chris Pemberton Solomon Cordwell Buenz

Larry Smith Roberts Obayashi

Eric Tao AGI Capital

John Clawson
Equity Community Builders

Brian Spiers
Brian Spiers Development

Charles Salter
Charles M. Salter Associates, Inc.

Matt Lituchy
Jay Paul Company

Marc Babsin Emerald Fund, Inc.

Craig Allison Plant Builders

Andy Ball
Suffolk Construction Company

Patrick Kennedy Panoramic Interests

Marta Fry
Marta Fry Landscape Architects

Kennard Perry Swig Company

Alan P. Mark
The Mark Company

Steve Vettel
Farella Braun Martel

Jeff Heller
Heller Manus Architects

Larry Nibbi
Nibbi Brothers, Inc.

Bob Nibbi
Nibbi Brothers, Inc.

Michael Covarrubias TMG Partners

Dan Kingsley SKS Partners

Levon Nishkian
Nishkian Menninger Consulting and Structural Engineers

Adam Tartakovsky Crescent Heights

Michael Yarne Build, Inc.

Dean Givas
Oyster Development

Chris Meany Wilson Meany

Juan Carlos Wallace Oryx Partners

Gerry Tierney Perkins and Will

Ze Figuririnhas Jones Lang LaSalle

Brent Gaulke GerdingEdlen

Joy Ou Group One

Steve Oliver
Oliver and Company

Chris Foley Polaris Pacific

Jennifer Hernandez HK Law

John McNulty MBH Architects

Matt Field TMG Partners

Rick Christiani
Christiani Johnson Architects

Jes Pedersen Webcor Builders

Lou Vasquez Build, Inc.

Kofi Bonner Lennar Properties

Dan Safier
Prado Development

Craig Hamburg DDG Partners

David Prowler David Prowler, Inc.

Stanley Saitowitz Natoma Architects

Riaz Taplin Riaz Inc.

Mark MacDonald DM Development

Gary Arabian CBRE

Jeff Saarman
Saarman Construction Ltd.

Margaret Liu CBRE

Steven Koch
Steve Koch Associates

Benjamin Pollock Kidder Matthews

James Nunemacher Vanguard Properties

Mark Macy
Macy Architecture

Laura Sagues CBRE


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