Please join Mayor Ed Lee, Reuben & Junius, Bob Nibbi and Nibbi Brothers for an evening reception and fundraiser in support of Proposition C, the Housing Trust Fund Initiative, on October 10, 2012, from 5:30-7 p.m. at Reuben & Junius’ office, One Bush Street, 6th Floor. To RSVP, please contact Connie Addington at email@example.com or (415) 567-9000.
What is Proposition C?
Prop. C will roll back inclusionary requirements by 20 percent and create a more predictable environment for housing investment by restricting future increases in affordable housing exactions.
Mayor Lee was instrumental in bringing together both market-rate and affordable housing developers to craft Prop. C, the affordable “Housing Trust Fund Initiative” on this November’s ballot. Prop. C will provide a stable source of funding to replace the loss of Redevelopment Agency financing. The trust created by Prop. C will eventually result in a dedicated funding stream of $50.8 million per year for affordable housing.
How will Proposition C reduce inclusionary requirements?
Prop. C requires the City to reduce by 20 percent the on-site inclusionary requirements, as they existed on July 1, 2012. The reduced requirement will take effect on January 1, 2013. For example, a project that now has an on-site requirement of 15 percent will only be required to make 12 percent of its units affordable. Thus, a 100-unit project will only have to provide 12 on-site units rather than 15. Assuming two-bedroom units, here’s how the finances might break down—conservatively—in a neighborhood like Hayes Valley. If the units were to be “for sale” BMR units, the City mandated sales price would be about $295,000, the actual market price for that unit could be $780,000, resulting in a $485,000 difference between market rate and below market rate prices. For a 100 unit project that will only have to provide 12 on-site units rather than 15, the savings in this hypothetical would be almost $1.5 million dollars. There would also be savings under the rental BMR program. A typical BMR rental price is $1,275 a month compared to $3,700 a month for a market rate rental. This is a difference of $2,095 a month and on the same hypothetical 100 unit project would result in a monthly savings of $6,285.
Approved projects will qualify for the reduced inclusionary requirement, so long as they have not received their “first construction document” as of January 1, 2013. First construction document means the first building permit issued for a development project or, in the case of a site permit, the first building permit addendum issued or other document that authorizes construction of the development project. An addendum for demolition, grading, shoring, pile driving, or site preparation work is not considered a “first construction document.” In order to receive the reduced inclusionary requirement, approved projects must:
1) Make a one-time application to the Planning Commission for a modification of conditions of approval to reduce the inclusionary requirement by 20 percent or change their election to provide on-site units; and
2) Demonstrate to the Commission that the reduction will enable the project to obtain financing and commence construction within one year.
If the previously approved project does not receive its first construction document within a year of the Planning Commission action, the reduced inclusionary requirement is rescinded, unless the Zoning Administrator determines at a public hearing that the sponsor made good-faith efforts but was unable to obtain the first construction document for reasons beyond its control.
What projects are ineligible for a reduced inclusionary requirement under Prop C.?
Prop. C establishes a “basic on-site inclusionary requirement” of 12 percent. No project can go below this basic level. Right now, projects 120+ feet in height are subject to a general citywide requirement of 12 percent, so they aren’t eligible for a reduction under Prop. C.
Projects with a development agreement or subject to redevelopment requirements are also ineligible for the reduction in inclusionary requirements, as are projects in which the City has a proprietary interest.
How does Prop. C restrict future increases in affordable housing exactions?
The cost burden of complying with the City’s inclusionary requirements has increased dramatically. Fifteen years ago, there was no uniform affordable housing requirement. Today, the average two-bedroom unit in a market-rate development is subject to a $67,000 fee to subsidize affordable housing. Prop. C will cap future cost escalation by barring the City from adopting any land use legislation, administrative regulation, or imposing new conditions of approval on a permit that would increase a project sponsor’s cost of complying with the inclusionary requirement beyond levels existing on January 1, 2013. This will lock in the reduced inclusionary obligations for the next 30 years, unless altered by the voters. Prop. C will also prevent the City from adopting any new other affordable housing fees.
There are some exceptions, however. Inclusionary requirements can be increased when large areas or individual projects are rezoned or otherwise receive bonuses that significantly increase residential development potential. As well, the restriction would not apply in redevelopment areas, infrastructure finance districts, or areas where tax increment can be used to fund affordable housing.
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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