Affordable housing plan on SF ballot will stall affordable housing, says economist

In a few weeks San Franciscans will vote on whether or not to put an additional cap on office development in SF relative to the amount of new affordable housing built. But now the city’s own economist has thrown cold water all over the idea.

The measure, Proposition E, dubbed the San Francisco Balanced Development Act, says that if passed the city will have to either meets it affordable housing goals or reduce the amount of new office space permitted.

Right now SF already has a cap of 875,000 square feet of office development annually, the result of 1986’s Proposition M.

But under Proposition E, if SF misses its affordable housing targets by 10 percent in a year, that existing office space cap would drop 10 percent the next year, and so on. Backers call it a solution to the problem of runaway job growth, which has created housing demand that the city can’t relieve; either SF will build more homes or be forced to wean itself off of business development.

But Ted Egan, City Hall’s economist, released a report Monday lambasting the tradeoff plan, saying that not only will it hurt SF’s economy, but it’ll most likely result in even less affordable housing.

The problem, says Egan, is that this entire scheme depends on the city hitting its state-designated housing goals—a target SF never hits. Among his conclusions:

• First, Egan notes that Proposition E wouldn’t create any new housing or make it any easier to produce more housing, meaning that if the city is under-developing affordable housing now—and it is—it will continue to do so.
• Second, Egan points out that one of the primary sources for affordable housing funding is office development, since the city charges housing fees on construction specifically to account for some of the jobs-housing imbalance. So if less affordable housing translates to fewer offices, that in turn will likely mean even less housing.
• As a result of that bad cycle, “office supply constraints will put further upward pressure on office rents in the city.” The report projects that by 2040, SF’s gross domestic product will decline 8.5 percent from what it would without Proposition E.
• While those companies that create the demand for office space (and the construction industry itself) would be affected first, the ripple effects of those losses would spread out to affect industries like retail and hospitality.
• In short, according to Egan, “tying future office development to an affordable housing target that the city has never met” is not a formula that will yield positive results.

Despite these criticisms, Proposition E has a lot of boosters at City Hall—eight city supervisors, who voted to put it on the ballot, remain convinced that it will help keep the city’s jobs-to-housing balance in check. [Correction: Eight lawmakers support the proposition, but they did not put it on the ballot.]

Notably, the city has a new $600 million affordable housing bond, meaning that Proposition E supporters can perhaps push for the city to outbuild Egan’s expectations and thus unravel his predictions.

According to the Association of Bay Area Governments, the regional group that administers the state’s housing needs, between 2015 to 2017, SF permitted 1,200 homes priced for “very low income” residents, and 952 in the “low income” range—19 and 21 percent, respectively, of the total needed by 2023. (Estimates for 2018 and 2019 are not yet available.)

Proposition E goes to voters on Tuesday, March 3.