Is some housing better than none? SF project wins key OK...

A blighted lot once home to the Lucky Penny restaurant cleared a major hurdle Thursday toward a long-awaited transformation into 101 apartments in a neighborhood that has seen little new housing development in recent years.

Some six years after the developer, Presidio Bay Ventures, bought the parcel, San Francisco’s Planning Commission unanimously approved legislation allowing the company to pay a $4.5 million fee to meet its affordable-housing obligations, rather than build below-market-rate units on-site.

As the developer grappled with ballooning costs, Thursday’s vote was a make-or-break decision for the project’s viability, the project’s supporters said.

In a scenario emblematic of the difficulties and expense of building housing in San Francisco, Presidio Bay’s Cyrus Sanandaji said it could no longer afford to build below-market-rate units at the site. The debate about the project reflects an ongoing conflict in San Francisco about how much developers should pay to boost affordable housing. Some developers have said that rising fees and high requirements for affordable housing on-site have killed projects, resulting in fewer affordable and market-rate homes as the city struggles with a massive shortage.

Initial projected construction costs at the Lucky Penny site rose from $38 million a little more than two years ago to $49 million today while the firm worked to win approvals for the project at Geary Boulevard and Masonic Avenue. Presidio Bay had originally agreed to rent 23 units at below-market rates, but it now says it would not be able to finance the project under those constraints.

Supervisor Catherine Stefani, who authored the legislation allowing Presidio Bay to instead pay a fee that would satisfy its affordable housing requirements, told the commission that flexibility represented the difference between a 101-unit apartment building and an “unproductive, deteriorating” lot.

“Building housing now is far better than the alternative of letting this site sit vacant,” Stefani told the commission. “We must take action. If we’re going to address this housing crisis, we have to make sure that the projects actually get built.”

The parking-free project sits on major bus lines and next to a grocery store, making it a transit-friendly development where residents could live car-free, planners said.

And while the commission’s approval represents a significant step for the project, Stefani’s legislation still needs to pass the Board of Supervisors. The measure is expected to go before the board’s Land Use Committee early next month, but it’s up to committee Chair Aaron Peskin to choose the date.

A Planning Department staff report recommended Presidio Bay be compelled to build the affordable units on-site. The report argues that existing city policy requires on-site affordable units at projects, like the Lucky Penny site, that receive so-called density bonuses. The project had already won approval to increase its density from 21 units.

The on-site option is also compelling, Commission Vice President Kathrin Moore said, because it can help affordable units be built faster and cheaper, as construction costs continue to rise year after year. Since Presidio Bay is ready to begin construction this year, the units could be built long before officials decide what to do with the fees they collect.

Plus, a building with a mix of people from different economic backgrounds represented “the promise of cities — that we can all live together across income brackets and across life experiences,” said Commissioner Milicent Johnson.

Commissioners were ultimately swayed in part because Stefani said the $4.5 million will be earmarked for affordable housing near the project. They were also receptive to support from seven representatives from the building and construction trades who also urged the commissioners to approve the legislation. Presidio Bay has committed to using only unionized labor to build the 101 units.

The prospect of actually getting housing built in Stefani’s district — which the supervisor admitted has “historically built very little housing” — proved too alluring to resist.

“We are thrilled with the support from the planning commission and look forward to the Board of Supervisors approving the amendment and putting shovels in the ground this year,” said Boe Hayward, a consultant working for Presidio Bay.

Dominic Fracassa is a San Francisco Chronicle staff writer. Email: dfracassa@sfchronicle.com Twitter: @dominicfracassa