Affordable-rent demand could slow construction in SF, report says

Photo: Brant Ward, The Chronicle City Controller Ben Rosenfield listened to Supervisor John Avalos...

Requiring private developers in San Francisco to rent 20 percent of units in new apartment buildings at below-market prices would slow down construction of housing, the city controller concludes.

That finding will undoubtedly fuel the debate about how best to create affordable housing in the city, especially given that the current requirement is 25 percent.

The Board of Supervisors, however, has said it will revise that number based on a feasibility analysis by City Controller Ben Rosenfield. The draft recommendations released Monday are the strongest indication yet of where that requirement will fall.

Among the conclusions:

•New apartment buildings can rent a maximum of 18 percent affordable units before new housing is likely to be impeded. The idea is that the higher the affordability percentage, the less money developers will pay for the land. At greater than 18 percent affordability, the value of the land will drop to a level so low that owners won’t sell the land.

•New condominium buildings can afford 20 percent affordability before new housing is likely to be impeded.

•There is no indication that high-rise projects can absorb greater affordability.

•Ownership projects are three times more likely than rental projects to pay the city a fee rather than include affordable housing on site. The city should increase the fee levels in order to give developers incentive to build affordable housing.

•Conduct a feasibility analysis every five years that will influence the affordability requirements.

The controller also recommends requiring the same affordability requirement for all projects in all neighborhoods. That’s significant because some affordable-housing advocates argue there should be higher requirements in neighborhoods facing significant displacement, such as the Mission District and the Tenderloin.

The feasibility analysis was sure to be controversial no matter the findings, given the concerns over housing, affordability and displacement.

Its genesis stems from Proposition C, the June ballot measure raising the affordability requirements from 12 to 25 percent. When Prop. C was first proposed, Mayor Ed Lee criticized the 25 percent requirement as arbitrary. Developers warned that it would effectively kill the creation of new housing.

Ultimately, both dropped their opposition, in part because Supervisors Jane Kim and Aaron Peskin, the sponsors of Prop. C, agreed to adjust the percentage based on the feasibility analysis.

Peskin and Kim weren’t available for comment Monday.

On Monday, affordable-housing advocates urged the controller to stick by the requirements set in Prop. C.

John Elberling, executive director of nonprofit developer Todco, said the presumption behind the draft recommendations is that the city should protect land value, when in fact, he said, it should do just the opposite.

“The landowners took the benefit of the boom,” he said Monday at a meeting of a working group helping craft the report. “There is no public-policy reason for them to be protected at all.”

He also urged the controller to recommend a long-term affordability requirement — not dependent on a feasibility analysis every five years — because he said that would be the best way to create predictability and push down land values.

The Council of Community Housing Organizations urged the controller to keep 25 percent as a baseline for affordability.

It noted that earlier this month, the developer Lennar Multifamily Communities agreed to 25 percent affordability at its 157-unit development at 1515 South Van Ness.

“This reinforces the Prop. C voter mandate as a starting point, perhaps with higher percentages for condominium projects,” the council wrote in a letter outlining its position.

The controller’s office will release its final report in September. The political debate will then begin as the supervisors decide whether to accept the recommendations.

Emily Green is a San Francisco Chronicle staff writer. Email: egreen@sfchronicle.com Twitter: @emilytgreen