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SF may more than double fees on office construction

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Fee hike could raise millions for affordable housing

The final beam rising to the top of Salesforce Tower, April 2017.
The final beam rises on Salesforce Tower, 2017.
Photo by Patricia Chang

On Monday, the SF Board of Supervisor’s Land Use Committee voted 2-1 in favor of a measure that would more than double fees on new office development, potentially raising millions for affordable housing—while scaring away new developments.

The fee in question, designated the Jobs-Housing Linkage Fee, would raise money for affordable housing to offset the effects of more jobs on the city’s scarce housing market.

Currently the fee for new office construction comes in at $28.57 per square foot, and for laboratory spaces $19.04 per square foot. Under the proposal by Supervisor Matt Haney, those numbers would shoot up to $69.60 and $46.43, respectively, by 2022.

The San Francisco Controller’s Office presented a report to the committee on Monday by city economist Ted Egan analyzing the likely effects of the fee hike.

Egan says that the legislation has the potential to raise substantial new revenues for affordable housing, but at the same time, it could cost the city new jobs.

Among his findings:

  • Egan calculates that the increased fees would drive up development costs about six percent on average, leading to a loss of between 125,000 and 140,000 square feet of new office space in SF each year.
  • In turn, that square footage loss would mean “a loss of 520 to 585 office jobs,” or a “net job loss of between 1,275 and 1,500 jobs,” which would represent between 0.1 percent and 0.2 percent of all jobs in the city, on average, over the next 20 years.
  • Average spending on office construction in SF would decline between $61 million and $87 million per yer by Egan’s calculations. However, despite the decline in office development, “the increase in the fee is projected to lead to a $8 million—$9 million increase in fee revenue.”
  • Egan says housing prices would decline on account of the new fee (by about 0.2 percent), and that “the additional participants in the expanded affordable housing programs would clearly benefit, and other low- and moderate-income residents may also benefit if the growth in affordable housing lessens competition at the low end of the private housing market.”

Despite complaints from developers, Supervisors Haney and Aaron Peskin voted in favor of the fee hike. Supervisor Ahsha Safaí was the sole dissenting vote.

“When I hear from some of the larger groups and the Planning Department, I’m a little bit concerned,” he said.

Safaí added that both he and many developers are fine with an increase, but he’s concerned about the degree.

Peskin brushed off the objections, saying that the conversation was much the same the last time the city raised fees.

“They said it was going to be the end of the world as we knew it,” said Peskin. “Apparently it has not been the end of the world.”

After the committee vote, the full Board of Supervisors will take up the fee plan next week.