Battle is brewing over SF development fees
With the need for office space seemingly insatiable — both Google and Salesforce are said to be looking to expand their footprints by at least 1 million square feet — a fight is shaping up over how much money developers should contribute to the housing demand their new towers generate.
At issue is the future of the so-called “jobs-housing linkage fee,” a tax on developers currently set at $28.57 per square foot. The fee was set in 1997 at about $18 a square foot and has had gradual increases since then.
While affordable housing advocates have long argued that the fee is laughably low and should easily be twice what it is, a new jobs-housing study and feasibility report — prepared by the city’s economic development officials and their consultants — is much more cautious. The feasibility study, set to be released Friday, states that construction costs and other fees are already straining office developers and that any increase of more than $10 a square foot would stall or ultimately squash projects.
“It’s in the city’s interest to make sure that projects remain feasible so that the city can continue to fund critically needed affordable housing, new open space and other essential services,” said Ken Rich, director of development for the Office of Economic and Workforce Development.
But Supervsior Matt Haney, who represents the district where most of the new office development is taking place, said he thinks the economy may be able to support an increase of more than $10. He has already introduced legislation to raise the fees to $37 a square foot, but he says he will likely amend it with an even higher number.
“We are experiencing one of the biggest office booms in San Francisco in decades — we need to build places for people to live,” said Haney. “We can’t keep creating tens of thousands of jobs and not build housing. That is unsustainable over the long term.”
San Francisco in recent years has had a dramatic jobs-housing imbalance, creating one housing unit for every seven jobs. And because so many of the jobs are high-paying tech positions, the housing crunch is driving out longtime residents.
The jobs-housing study — called a Nexus report — is a legal requirement for California cities wishing to reset development fees. It looks at how much residential demand is driven by various types of commercial development. The new study concludes that for every 100,000-square-foot office development in San Francisco, about 81 new affordable housing units are needed.
While the new fees would be applied citywide, the current fight is focused on the 6 million square feet of office complexes set to be built as part of the Central SoMa plan, a rezoning of a 17-block area west of Second Street, east of Sixth Street, north of Townsend Street, and south of Howard Street. Under the current jobs-housing fee requirements, developers would pay $171 million in fees.
Central SoMa developers say that while jobs-housing fees may have inched up slowly over 22 years, the plan is laden with other required fees. Developers must pay fees that will fund transit, child care, community facilities, public art, open space and other infrastructure needs. In total, the plan will generate $2.1 billion in fees and public benefits, including about 2,500 affordable housing units.
The jobs-housing study warns that laying on additional fees would put “the city is at risk of not receiving the billions of dollars in public benefits” and also jeopardize “significant amount of projected annual citywide tax revenues.”
The demand for office space, particularly among tech companies, heated up in 2011 following the great recession and has not slowed down. Companies like Uber, Square, Airbnb, Twitter, Slack, Pinterest, Facebook, Google and Salesforce have all leased entire buildings.
At the moment, prospective tenants are in the market for about 7.5 million square feet of space. CBRE Research Director Colin Yasukochi said that higher fees would likely lead to higher rents. While tech companies may be willing to pay the those rents, other types of tenants — such as law firms, architecture companies and nonprofits — could be forced to leave the city.
“The higher cost of doing business has a disproportionate effect on non-tech companies,” Yasukochi said. “Tech companies have a higher tolerance for higher costs.”
But Haney said that the need for affordable housing has reached a “boiling point, and this is one of the only tools we have to build housing for the jobs we are creating.”
“The goal is not to kill projects. The goal is to have balance of jobs and housing,” Haney said. “I think most San Franciscans would say that the thing we really need is more housing. I’m not seeing anyone jumping up and down demanding more offices.”
Developers always warn that new or increased fees will kill off projects, said Maya Chupkov of the Council of Community Housing Organizations, a nonprofit that advocates for affordable housing development. But the jobs-housing linkage fee was increased in 1987 and again in 1997, and both hikes were followed by building booms, Chupkov said. If anything, the extra fees could depress land values a bit.
“If you look around, there are projects breaking ground and there are examples in the past that when fees went up development still continues when the economy and market are hot,” Chupkov said. “We can’t keep kicking the can down the road. With the Central SoMa plan coming we have an opportunity to help the community in SoMa and make sure all the developments pay their fair share.”