New SF fee on office buildings to pay for affordable housing sails through

In most cities, a proposal to double fees on office development would elicit dire warnings: visions of hemorrhaged jobs and empty office towers.

But in San Francisco, which has seen jobs grow 38% since 2010, legislation to double a fee on office development over the next few years breezed through the legislative process, winning unanimous support on Tuesday from the Board of Supervisors.

The increase in the one-time fees creates an additional $170 million for affordable housing, for a total of $385 million over the next five to seven years.

The legislation, sponsored by Supervisor Matt Haney, would increase the fees on large office development from $28.57 to $69.60 per square foot. Biotech and smaller buildings would pay smaller fees, but roughly double what they now pay.

The fee paid by Kilroy Realty Corp.’s Flower Mart project at Sixth and Brannan streets, for example — by far the biggest office development in the city’s pipeline — would jump from $57 million to $114 million.

City Economist Ted Egan said the legislation would increase development costs by 6% and cause a modest decrease in the amount of office space built — between 125,000 and 140,000 square feet per year. That would result in between 520 and 585 fewer office jobs created each year.

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Business interests didn’t mount a stronger push against the legislation because they likely saw that it would have broad support, said Jason McDaniel, a political science professor at San Francisco State University.

There’s a sense among many residents, McDaniel said, that San Francisco is suffering from too much of a good thing — too many high-paid tech workers, too many corporate shuttles, too many fancy restaurants.

In the current political environment, a tax on commercial real estate developers represents a “sweet spot,” he said.

“There is widespread support for spending public money on affordable housing, especially if that money is coming from fees on corporations,” he said. “Voters in San Francisco feel like more jobs is a cost, not a benefit. The idea of losing jobs is not something that scares them.”

But there could be unintended consequences to the legislation, critics said.

Carl Shannon of Tishman Speyer said developers of Central SoMa projects are already paying $200 a square foot in fees.

“If you increase this fee too much or too quickly, you will drive jobs to Oakland and the Peninsula,” said Shannon, who is developing a large office project in Central SoMa.

Matt Regan of the Bay Area Council, a business advocacy group, said, “The more you tax something, the less you get of it.”

Bay Area workers have already been driven to live in far-flung areas because they can’t afford San Francisco housing — and jobs may be the next exodus, he said. Employers moving outside of San Francisco would increase greenhouse gas emissions.

“You’ve got a perfect storm for chasing jobs out of the city to less transit-rich places,” he said.

He also said that the additional taxes would just increase rents for office space, making it less affordable for small businesses and nonprofits.

“What happens is that only those companies with the margins of a tech company can afford to pay the freight required in the city,” he said. “If you ratchet up the cost of doing business, all you are going to get is tech companies and hedge funds.”

At the hearing on the bill, Haney said the city has “consistently failed to produce enough affordable housing” while job creation has taken off. While the city’s job base has ballooned 38%, the housing stock has inched up only 6%. The imbalance is driving poor and middle-class residents from the city, he said. San Francisco has seen a 23% decrease in low-income families since 2010.

The city has more sites set aside for affordable housing than it has money to build them, but a $600 million bond on next week’s ballot will help fund some of those projects.

The sense that wild tech growth is largely to blame for what ails the city — sky-high housing costs, increasing homelessness, traffic jams, widening income gaps — is common among voters, said political consultant Jim Stearns, who runs campaigns for progressive candidates and causes.

“Voters are clearly concerned, in every poll I’ve seen, that office development and job creation is outstripping our ability as a city to provide housing and transit to the people living and working here,” he said. “This is a city in which the economy is hotter than it’s ever been, and people are saying, ‘It’s going in the wrong direction.’”

Meanwhile, Mayor London Breed has expressed reservations about the legislation, arguing that it would hurt small business. But with a unanimous vote at the Board of Supervisors, she is unlikely to veto it.

“(Breed) believes that raising this fee will help to add more funding for badly needed affordable housing,” said spokesman Jeff Cretan. “However, it’s important that when we raise fees like this, that we base the increases on data and analysis, and that we consider the impacts on small businesses, which struggle to find office space in San Francisco.”

J.K. Dineen is a San Francisco Chronicle staff writer. Email: Twitter: @sfjkdineen

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