Breed spokesman Jeff Cretan said that rising construction costs, high inflation and interest rates, along with a sluggish pandemic recovery “make it an absolutely appropriate time to look at our policies so we can ensure that we are building the most housing, including affordable housing, that is possible.”
Supervisor Aaron Peskin, who co-sponsored the most recent version of the city’s affordable housing mandates, said “it’s definitely time to reconvene” the committee.
The push comes as the city is seeing declines at all points in the housing production cycle. Fewer new buildings are opening. Active construction sites are way down. And applications for new projects are few and far between.
During the Planning Commission meeting on Thursday, city economist Ted Egan and Land Use Program Manager Joshua Switzky delivered a mostly grim outlook for future housing development as well as office occupancy in downtown San Francisco.
So far this year San Francisco has had 1,161 units completed, putting the city on pace to see fewer than 3,000 new homes. Compare that to 2021 when 4,649 units came online. Meanwhile, there are 4,100 units under construction, compared to the high of 10,000 units that were being built in 2016 or 2017.
The future doesn’t look much better. So far in 2022, about 800 units have been approved, with a projected 2,000 by the year’s end — or just about half of the 10-year average.
Meanwhile, tens of thousands of approved units are languishing as the cost of building has outpaced revenues that can be generated through rents or sales. Rents in San Francisco are still 14% below what they were pre-pandemic, while construction costs have gone up, Egan said.
And developers still have to pay a wide range of fees, depending on the size of the project, where it is and whether the builder is taking advantage of any of the “density bonus” programs. For example, fees on a 24-unit project developer Marc Babsin has won approvals for in Diamond Heights would exact $261,000 in fees per unit, while the builder of a stalled project at 11th and Folsom would pay about $75,000 a unit.
“We have been hearing more and more that the inclusionary numbers don’t work today,” said Supervisor Ahsha Safai. “We need to reset it. It’s an impediment.”
Much of the city’s housing pipeline remains clogged. There are 14 projects comprising 2,257 units that were entitled in 2018 or 2019 and have not started construction. While progress is being made on two phased mega-projects — Treasure Island and Mission Rock — several major projects remain stalled, including a 6,000-unit expansion of Parkmerced, 12,000 units at the Shipyard and Candlestick Point, and 1,679 units at Schlage Lock. In addition, the 8,550 units expected to be generated in large projects alongside the future Central Subway are stalled.
Developer Eric Tao, on the committee looking at fees and requirements, said he is hoping for a repeat of what happened in 2010, during the Great Recession, when late Mayor Ed Lee brought together a group of developers, building trades leaders, lawmakers and advocates to figure out how to get construction started again.
In the end, the city lowered affordable housing requirements and deferred 80% of fees so developers paid when residents moved into a building, rather than when construction permits were obtained. This change jump-started several noteworthy projects, including the 655-unit Lumina project at 201 Folsom St., a condo development that also included 198 affordable units at 1400 Mission.
“What happened is we all came together and came up with some tools,” Tao said. “I think we need to do that again. It seems like it’s harder now — everything is more politicized.”
The key is to find a “sweet spot” that Tao called “maximum feasible affordability.”
“We are not saying get rid of (fees), we are just saying defer them until we can get the thing built and stabilized,” said Tao.
Thursday’s Planning Commission meeting featured a number of builders and real estate attorneys who outlined the challenges the industry faces.
Sarah Dennis-Phillips, a senior director for Tishman Speyer, said the group’s most recent building, the 392-unit Mira, which opened in 2020, wouldn’t work financially today. Tishman Speyer has an approved project at the former Creamery cafe site South of Market, but that project is not feasible.
“The costs are simply too high to generate an acceptable return,” said Dennis-Phillips, who is also on the committee looking into fees.
J.K. Dineen is a San Francisco Chronicle staff writer. Email: email@example.com Twitter: @sfjkdineen