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Council of Community Housing Organizations Policy Brief: Inclusionary Zoning Ordinance Proposed Amendments 2006

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What the Current Policy Requires: San Francisco’s Inclusionary Zoning Ordinance of 2001 mandates that any new housing development (or conversion) of 10 or more units must reserve 10% of its units to be sold or rented at “below market rate”—they are commonly referred to as BMR units. Developers may choose to build BMRs off-site at a higher percentage (15%). Whether on-site or off-site, these percentages go still higher for any development requiring a conditional use permit (to 12% for on-site, and 17% for off-site). Alternatively, developers can opt to pay to the City’s Affordable Housing Fund an in-lieu fee which is intended to equal the gap between the cost to develop a unit and the amount a targeted household can afford to pay.

Results: According to the Mayor’s Office of Housing (MOH) 1,418 BMR units were created between 1992 and 2006-69% rental and 31% ownership; 56 of these were created since the ordinance became city-wide policy in 2001. MOH estimates that 2,000 new BMR units are “in the pipeline” for construction over the next few years, most of which will be ownership units. This policy has been the only source of new, affordable homeownership units for working households in San Francisco since 2001.

Who Benefits: Ownership units are only sold to first-time homebuyers (defined as not having owned a property within the past three years). Affordable prices are currently based on HUD’s Area Median Income (AMI) which includes neighboring counties of San Mateo and Marin. Ownership units are usually priced affordable for 100% AMI, or $85,500 for a household of three. Rental units are usually priced for 60% AMI, or $51,300 for a household of three.

A wide coalition of groups has been working towards improving this legislation, to close various loopholes in the policy, including the Council of Community Housing Organizations (CCHO) and Housing Justice. Supervisors Daly, McGoldrick & Maxwell have proposed separate but cohesive amendments to the current legislation. With the addition of these amendments, the ordinance will be able to better meet the goal of providing truly affordable housing to San Franciscans of modest means.

Policy Weaknesses & Proposed Amendments:

  • San Francisco’s housing construction projections fall short of housing needs: Current policy requires that only 10-12% of on-site units and 15-17% of off-site units be made “affordable” for sale or rental. Only on a case-by-case basis has the community been able to persuade developers to include up to 20% affordable units in their developments (e.g., 1880 Mission Street).

    Amendment: To increase the percentage of “affordable” on-site units per development from 10 or 12% to 20%. (Daly)

  • Too few rental units are being produced under the current policy. There are no incentives presently for developers to produce rental units, which are more deeply affordable.

    Amendment: Allow developers to use California Debt Limit Allocation Committee (CDLAC) tax-exempt bonds to help fund their obligations under this ordinance as long as they building rental housing, and provide 20% on-site rental units affordable at 50% AMI, or 25% off-site units affordable at 50% AMI. (Maxwell)

  • Midsize developments evade policy: Community groups have witnessed a number of 8-9 unit buildings built across the city, especially in the Mission, Excelsior, and Bernal Heights, which conveniently evade the affordable housing requirements. Lowering the unit size threshold will increase the number of new BMR units built each year and spread the economic cost across more developers.

    Amendment: To lower the unit size threshold by applying the ordinance to any development of 5 or more units, thus increasing the number of projects required to provide BMR units. (McGoldrick)

  • Current income limits are too high: Affordability of BMRs is currently based on HUD-defined Area Median Income (AMI) which includes neighboring counties with higher median income levels-San Mateo and Marin:

    100% of HUD AMI in 2005:

    • 1 person = $66,500,
    • 2 people = $76,000,
    • 3 people = $85,500,
    • 4 people = $95,000,
    • 5 people =$ 102,600
  • Census data shows that San Francisco’s median income is approximately 20% lower than the AMI. According to the Mayor’s Office of Housing MOH (2000 Census Data adjusted to 2004):

    • 10,000 SF households earn 100-110% AMI (3% of the population)
    • 30,000 households earn 80-100% AMI (10% of population)
    • 55,000 households earn 50-80% AMI (20% of population)
    • 95,000 households earn less than 50% AMI (33% of population)
  • BMR units that are priced affordable for 100% AMI are priced for exactly that income level, which only 10% of households can afford. Lowering the income limit will allow more households to afford the “affordable price”.

    Amendment: To decrease the affordable income limit by replacing the regional AMI indicator with a City and County of San Francisco Median Income (SFMI), which would lower income restrictions, thus making units more affordable to more households. (Daly)

  • Developments on adjacent but separate lots evade policy: The community has witnessed a number of new developments of 10 or more units that have evaded the Inclusionary Ordinance because the developer purchased 2 or 3 adjacent, smaller parcels in order to build a larger development of 10 or more units.

    Amendment: To include developments on adjacent but separate parcels within this zoning ordinance. (Maxwell)

  • Developers can choose not build on-site in exchange for a relatively small fee, undermining the purpose of an “inclusionary” policy. Current policy allows developers two alternatives to including affordable units on-site: 1) build affordable units off-site at a slightly higher percentage rate (15-17%); or, 2) pay an in-lieu fee to the City’s Affordable Housing Fund. Building off-site affordable units evades the ability of this ordinance to produced integrated buildings, and the alternate in-lieu fees per unit do not add up to the construction costs of any new housing unit, thus losing this policy’s leveraging power.

    Amendment: to discourage the development of off-site BMR units by mandating that off-site units be built within one mile of the market rate development. (Maxwell)

  • Re-sale BMR units evade restrictions: New construction, ownership, BMR units are sold to qualified buyers through a public lottery, whereby all applicants have an equal chance to “win” the chance to purchase a unit. MOH monitors the marketing and selection process with a Procedural Manual that defines the process.

    But re-sale units are left up to the owner to market and sell. Some BMR units allow an owner to hire a Realtor to market and sell the unit, thus allowing a prospective buyer to have their own representation. However, since the extreme change in the City’s real estate market, re-sale units have been known to sell to the “highest bidder” (the seller asks for additional cash for “personal property” such as appliances, window coverings, lighting and even flooring). This practice has fueled anger within the community, yet there is currently neither legislative nor administrative mandate against this behavior. Additionally, the demographic data of BMR buyers shows un-equitable representation among ethnicities: In 2005 Asian households represented approximately 68% of BMR buyers, yet only 33% of the city’s population; Latino households represented less than 5% of BMR buyers, yet approximately 11% of the city’s population; and no African American household purchased a BMR unit in 2005.

    Amendment: To improve the marketing and selection process for new and re-sale units to ensure that these affordable units are advertised across all communities and are sold/rented through a public lottery so as to prevent exclusive practices currently being experienced. (Maxwell)

For more information please contact: Tracy Parent, MEDA 415.334.3016

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Author: Street Sheet Editor

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