Stimulus Update:  Supervisor Chiu “Very Interested” in Discussing New Proposal

New Development Stimulus Proposal Aired at Housing Action Coalition Summit

The HAC held its annual summit Wednesday morning which focused on the difficulty of providing housing for middle-income families in the city. During the discussion period, panelist Brad Paul, a longtime housing and community development consultant involved in the early years of the Tenderloin Neighborhood Development Corporation, raised a concept that has been talked about quietly among housing advocates in recent months: set a transfer tax on sales of all real property throughout the city while reducing the affordable housing fees on new projects. This could stimulate the housing industry and increase overall funding for the city’s affordable housing stock at the same time.

Most people would agree that providing affordable housing is an obligation that all of society shares. Today, the burden of that obligation is borne almost exclusively by new development through affordable housing fees, fees that contribute to the high sales prices of new homes in the City. A fairer approach would be to spread the City’s obligation to provide affordable housing so that both new and existing property owners must make an equal contribution. This citywide transfer tax would do just that. A citywide transfer tax could be set at less than 1% and likely still provide more funding than current affordable housing fees on new development. It would also stabilize the city’s affordable housing fund, which is highly sensitive to rises and falls in the market (as it is tied directly to the number of new development starts). Supervisor David Chiu – a panelist at the HAC summit – stated he was “very interested” in discussing this idea further. This is a commonsense proposal that will increase the amount of affordable housing in the city while spreading the burden amongst all residents, and should be pursued by city officials and those involved in the development community.

Development Fee Deferment Clears Committee Hurdle; BMR Fee Reduction Removed

Last Monday, the Board of Supervisors Land Use and Economic Development Committee approved an amended version of the development fee deferment ordinance, sending it on for consideration by the full Board. The final version would make all development fees (including affordable housing fees) due before the first site or building permit is issued, but would allow deferment of most of the fees to be due at the issuance of the first certificate of occupancy (including temporary ones). Under the committee-amended version, for projects located in recently adopted plan areas with impact fees (such as Eastern Neighborhoods, Market & Octavia, Rincon Hill, Balboa Park, etc.), 20% of the all of the development fees would be required to be paid up front, before the building permit is issued. For projects outside of plan areas, 15% of all of the development fees would be required to be paid up front. The original concern with the fee deferment proposal was that there would be no early funds for public improvements, and the committee felt a lower down payment was needed outside of these plan areas where the funds would not go to immediate public improvements.

The 33% BMR fee reduction proposal, however, was not moved forward. The proposal would have reduced the affordable housing fee by 33% in exchange for a project sponsor subjecting a project to a 1% transfer tax on all future sales which would go into the citywide affordable housing fund. The committee expressed concern about how long it would take to recoup the reduction in affordable housing fees.

Mayor Newsom to Introduce Ordinance to Help Finance Development Fees

In related news, last week Mayor Newsom announced his intention to introduce legislation next month that would help developers finance city development fees. The legislation would likely be similar to the recently-enacted GreenFinanceSF program, which helps finance energy efficiency upgrades. A city-wide Mello-Roos district would be created, allowing the developer of a project located anywhere in the city to opt-in to the district. The developer would receive a loan from the city, or Mello-Roos bonds would be issued, to pay the development and impact fees (but not affordable housing fees). The loan/bonds would be paid off through a special tax to be paid with property taxes, and amortized over a period of time. This would provide a mechanism for a developer to pay off development fees over a longer period of time, freeing up funds to be spent on actual development and construction costs.

We’ll keep you posted on each of these proposals.

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