For more years than we care to count, Reuben & Junius has been appearing at the Planning Commission in support of multi-unit residential projects. At most, if not all, of those hearings, one Planning commissioner or another, or speakers opposing the project would consistently and predictably raise questions of the project sponsor and/or make critical comments about the Planning Department’s project processing such as; (1) will these residential units be for sale or for rent – the complaint being that very little product was being produced that would be affordable to the middle-class; (2) if the units are going to be for-sale condominiums, how much will they cost; and (3) the Planning Department has no means of tracking the cumulative production of residential projects and their respective affordability level.
Generally, we were able to deflect the questions with a combination of lack of knowledge of market conditions in the coming years and the fact that there are no Planning Code provisions that required a project sponsor to declare rental vs. for sale, rental or for sale price points, or any other proprietary information.
Housing Production Reports
Things may change. Supervisors Christina Olague, Jane Kim, David Campos, and Eric Mar have proposed adding a new Article 5, “Housing Preservation and Production” to the Planning Code. The portion of the legislation that we wish to highlight is entitled Housing Production Reports. This section would require Planning Department staff reports to the Planning Commission for individual developments to include: (a) the expected unit type and household income levels of buyers or renters of the proposed projects, and (b) how the units in the project would address the City’s quantified production goals for housing at different income levels.
Under state law, housing developments cannot be denied just because production targets have been exceeded. Nonetheless, project opponents in San Francisco routinely urge that projects be denied because “we’ve already built enough market-rate housing already.” According to the legislation, San Francisco exceeded its market-rate housing production targets for the 1999-2006 period by more than 50 percent. Had the reporting requirement been in place in 2006, for example, market-rate developments would have gone to the Planning Commission with a staff report indicating that production targets for such housing had been met. Again, this alone is not an adequate basis for denying a project, but it is nonetheless problematic for staff reports to include information that can be easily weaponized by the City’s seasoned development foes. Indeed, with the City’s affordable housing requirements set uniformly on a city- or district-wide basis, it is hard to see what purpose – other than empowering opponents – the project-level reporting requirement will accomplish.
In addition to project-based reporting, running data would need to be updated on a quarterly basis. And although couched as an effort to maintain an accurate continuous total of housing approvals and how those new approvals address the City’s production goals as expressed in the Housing Element of San Francisco’s General Plan, it is hard to see how this data will be assembled absent a requirement that project sponsors provide detailed economic forecast information (sales or rentals, price points, buyer/ renter anticipated gross income levels, unit costs, etc.). In that the legislation requires that the Planning staff provide the data prospectively as residential projects are processed for entitlement, it seems logical and likely that project sponsors will be required to participate in assembling the information with regard to their respective projects.
Predicting The Future Is Not Easy
It has been our experience in the San Francisco market that economic cycles are inevitable and that they are both short and steep. The role of a speculative residential developer requires a great deal of guesswork in trying to anticipate delivery of product into the right market. It is virtually impossible to assemble a site, even one that includes a single parcel, conceptually design a project, submit applications to the Planning Department and pursue those applications through entitlement, prepare construction drawings and submit for plan check through the Department of Building Inspection, obtain financing, and then spend at least a year constructing a building, all within one cycle. In fact, perhaps the most unpredictable segment in that sequence is the time spent at the Planning Department, which can often exceed a year, notwithstanding the number of units contained in the proposed project, which ultimately means that residential developers are at the mercy of a process that they cannot control and also at the mercy of market forces that are virtually impossible to time.
To the extent that the proposed “Housing Preservation and Production” legislation seeks to maintain accurate up to date factual data on the construction of housing and who that housing will serve, it may make more sense to collect the data as projects are completed and sold or rented.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
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