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San Francisco continues to experience a housing crisis that requires a broad spectrum of land use and financing tools to address. The Housing Element of the City's General Plan calls for 38% of all new housing production to be affordable for lower income households below 80% of area median income and 19% of new housing affordable to be built for moderate/middle income households up to 120% of area median income. San Francisco's inclusionary housing program, which requires housing developers to provide affordable units as part of their projects, is a critical component of the City's programs to expand affordable housing options. The Inclusionary Housing program is one of the City's tools for increasing affordable housing dedicated to lower income San Franciscans without using public subsidies, and in particular it is a useful tool for creating any affordable housing to meet the growing need of moderate/middle income households.
The City adopted an Inclusionary Housing ordinance in 2002 that set requirements on market rate development to include affordable units at 12% of the total for the first time. The inclusionary program has successfully resulted in more than 2,000 units of below-market, permanently affordable housing since its adoption. The City prepared a Nexus Study in 2007 in support of the program. The report demonstrated the necessary affordable housing in order to mitigate the impacts of market rate housing, and the inclusionary requirements were increased to 15% of total units. The City's inclusionary housing requirements are codified in Section 415 of the Planning Code. The City is now in the process of updating that nexus analysis.
In 2011, Governor Jerry Brown dissolved the State Redevelopment Agency, which was the City's primary permanent funding stream for affordable housing. In 2012, in response to this loss, the voters amended the San Francisco Charter to create the Affordable Housing Trust Fund, which included a provision to lower the on-site inclusionary requirement to 12%. In November 2014, in response to an escalating affordable housing crisis, the voters passed Proposition K, which set forth a policy directive to the City to ensure that additional affordable housing is a minimum of 33% of its overall housing production to low- and moderate/middle-income households up to 120% of the Area Median Income and at least another 17% affordable to households from 120% to 150% of the Area Median Income.
The Board of Supervisors has proposed to the voters a Charter amendment that will appear on the June 7, 2016 ballot. The Charter amendment would authorize the City to enact by ordinance subsequent changes to the inclusionary housing requirements, including changes to the minimum or maximum inclusionary or affordable housing obligations applicable to market rate housing projects.
On March 1, 2016, the Board of Supervisors unanimously adopted Resolution No. 79-16 declaring that (1) it shall be City policy to maximize the economically feasible percentage of affordable inclusionary housing in market rate housing development to create housing for lower and moderate/middle income households; (2) if the voters adopt the proposed Charter amendment on June 7, the Board intends to adopt a future ordinance requiring the Controller and other City departments to conduct a periodic economic study to maximize affordability in the City's inclusionary housing requirements; and (3) the future ordinance would create an advisory committee to ensure that the economic study is the result of a transparent and inclusive public process.
The purpose of this Section 415.10 is to study how to set inclusionary housing obligations in San Francisco at the maximum economically feasible amount in market rate housing development to create housing for low and moderate/middle income households, at the income levels set forth in Section 415.10(d), and with guidance from the City's Nexus Study, which should be periodically updated.
(b) Triennial Economic Feasibility Analysis. With the support of independent consultants as deemed appropriate by the Controller and with advice on setting qualifications and criteria for consultant selection from the Inclusionary Housing Technical Advisory Committee established in Administrative Code Chapter 5, Article XXIX, the Controller, in consultation with relevant City Departments and the Inclusionary Housing Technical Advisory Committee, shall conduct a feasibility study of the City's inclusionary affordable housing obligations set forth in Planning Code Section 415et seq., including but not limited to the affordable housing fee and on-site and off-site alternatives, and shall submit a report to the Board of Supervisors by July 31, 2016 and by October 31 for subsequent years. Thereafter, the Controller, in consultation with the Department and the Inclusionary Housing Technical Advisory Committee, shall repeat this process at least every 36 months, or more frequently as deemed necessary by the Controller in response to a significant shift in economic or market conditions.
(c) Elements of the Economic Feasibility Analysis. The economic feasibility analysis required by subsection (b) of this Section 415.10 shall include sensitivity analyses of key economic parameters that can vary significantly over time, such as, but not limited to: interest rates; capitalization rates; equity return rates; land prices; construction costs; project scale, available state and federal housing finance programs including Low Income Housing Tax Credits readily available for market rate housing; tax-exempt bond financing; Federal Housing Administration and U.S. Department of Housing and Urban Development mortgage insurance; available City or local housing finance programs, such as Enhanced Infrastructure District (EIFD) and tax increments; zoning changes that increase or decrease development potential; variable City exactions, including community benefit fees, capacity charges, community facilities districts; the value of state density bonus, concessions and incentives under California Government Code Section 65915 and any other state law that confers value to development and which project sponsors may attempt to avail themselves of and public-private partnership development agreements where applicable and other factors as deemed reasonably relevant.
(d) Report to Board of Supervisors. The Board of Supervisors may review the feasibility analyses, as well as the periodic updates to the City’s Nexus Study evaluating the necessary affordable housing in order to mitigate the impacts of market rate housing. The Board of Supervisors will review the feasibility analyses within three months of completion and may consider legislative amendments to the City’s Inclusionary Housing in-lieu fees, on-site, off-site or other alternatives, and in so doing will seek consultation from the Planning Commission, adjusting levels of inclusionary or affordable housing obligations and income levels up to maximums as defined in Section 415.2, based on the feasibility analyses, with the objective of maximizing affordable Inclusionary Housing in market rate housing production, and with guidance from the City’s Nexus Study. Any adjustment in income levels shall be adjusted commensurate with the percentage of units required so that the obligation for inclusionary housing is not reduced by any change in income levels. The Board of Supervisors may also utilize the Nexus Study in considering legislative amendments to the Inclusionary Housing requirements. Updates to the City’s Inclusionary Housing requirements shall address affordable housing fees, on-site affordable housing and off-site affordable housing, as well as the provision of affordable housing available to low-income households at or below 55% of Area Median Income for rental units and up to 80% of Area Median Income for ownership units, and moderate/middle-income households from 80% to 120% of Area Median Income.
Section header and division (d) amended; Ord. 158-17, Eff. 8/26/2017.