How Requiring Too Much Affordable Housing Kills Housing
Want 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
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.
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