Homes for whom?

New inclusionary housing ordinance delicately balances the city's affordable housing needs with the developers' demand for big profits
"Inclusionary housing program" is a bureaucratic term that seems to invite mental drift. And when the Board of Supervisors’ Land Use Committee considered updating the program's standards July 12, there was enough mind-numbing economic and regulatory minutiae to sedate the standing-room-only crowd.
But there were also diamonds in that jargony rough. For one thing, San Francisco is now poised to finally force housing developers to spend more of their astronomical profits on housing that sells or rents for far less than the city's equally obscene housing market dictates. And that's been made politically possible by an unlikely deal that has downtown developers such as Oz Erickson, affordable housing activists including Calvin Welch, the market-friendly Mayor's Office of Housing, and progressive Sup. Chris Daly all on the same side.
In the process, a city-commissioned report has lifted the financial veil from big-money housing development in San Francisco, revealing that those who build the biggest high rises require a profit margin of at least 28 percent — or a take-home profit of about $250 million — before they'll take on a project.
"It used to be illegal [usury to seek such high interest on loaned money], so 28 percent is a sobering number," Welch said at the hearing.
The public good likely to come from this ordinance — if the current compromise can hold for a few more weeks — is a fairer system for getting people into below-market-rate (BMR) units, policies designed to encourage more housing construction for a wider income mix, and ways to involve more developers and phase in the program so as not to disrupt ongoing projects.
But before we get too deep into the program's details, let's take a step back, because the backstory of how we got to this compromise is an intriguing tale with important political implications, particularly for downtown's current public enemy number one: Chris Daly.
The story really began last summer when the developers of those big new luxury high-rise condos known as One Rincon Hill were trying to get their final approvals. Daly and many of his constituents were concerned that this lucrative project didn't include enough community benefits or BMR housing.
So the supervisor stepped in and negotiated with the developer a $120 million deal with a huge low-cost-housing element. In the end, the developer agreed to provide affordable units equivalent to about 25 percent of the project.
That's more than double the city's current inclusionary housing requirement, which mandates that 12 percent of the units be available below market rate. The requirement rises to 17 percent if the units are built off-site, and developers can pay the city a fee in lieu of doing the actual construction.
The deal got Daly thinking: If the Rincon developers could afford 25 percent, then others probably could too. So he used some of the developer's money he'd extracted to fund a study looking at how increasing the mandates to 20 and 25 percent would impact housing construction in the city.
Last fall, the Planning Department and Mayor's Office of Housing assembled a technical advisory committee — made up of cochairs Erickson and Welch and a mix of for-profit and nonprofit developers plus community representatives — to work with the study's consultants.
Daly put his efforts in the form of an ordinance last October. Sup. Sophie Maxwell also had introduced legislation to strengthen the inclusionary housing program, which has been combined with the Daly legislation. And Sup.