Can we make building affordable housing cheaper in the Bay Area?

Building in the Bay Area, and especially in San Francisco, remains an incredibly expensive endeavor, made more-so by the fact that cities like SF add to the cost of housing with millions of dollars in fees.

This is a bit of a catch-22. While the city desperately wants developers to build more and fees make that harder, eliminating those expenses would sap many of the very reasons SF wants development to happen.

Now a handful of mostly Bay Area-based state lawmakers want to change that unsettled formula with a flurry of new bills that they hope will make it cheaper and easier to create new affordable housing by cutting down on impact fees.

What’s affordable housing?

Although the term “affordable housing” gets tossed around, few people bother to define it, and technical definitions can vary. The federal Department of Housing and Urban Development (HUD) defines an “affordable dwelling” as one that a household can obtain for 30 percent or less of its income.

Cities usually work off of Area Median Income (AMI) brackets to determine housing cost needs. The median income for a single person in San Francisco for 2019 was $86,200 before taxes, which means 30 percent comes out to $28,850 per year, or just over $2,400 per month.

Affordable housing might more accurately be called subsidized housing, since it’s largely paid for via public funds like taxes and fees. San Francisco requires a certain amount of affordable housing on big projects; sometimes developers create these units as part of the building, known as “on-site affordable housing.”

But typically developers choose to pay fees into a city fund that builds affordable homes elsewhere, usually with the help of specialized housing developers. Creating new affordable housing is an endeavor all its own, and often comes with its own set of fee-based expenses.

What’s are impact fees?

The SF Planning Department defines an impact fee as a cost imposed on a new or proposed development project “to pay for all or a portion of the costs of providing public services to the new development.”

Sometimes these are direct services like transit and utility infrastructure, while others are more indirect or abstract like privately-owned public open space or public art. In San Francisco the fee schedule borders on dizzying, summarized in an 11-page table.

Prices vary from less than $2 per square foot on some sorts of fees all the way up to thousands of dollars per foot on others. Some costs are based on a percentage of a building’s overall budget, while parking-related fees are often based on the number of spaces.

In an average year, the city collects tens of millions of dollars in impact fees. It’s actually not that much money relative to the city’s $12 billion-plus annual budget, but these moneys are critical to the funding of some city programs.

What’s happening with fees now?

This week, state lawmakers like SF-based Assemblymember David Chiu and East Bay-based Tim Grayson introduced a raft of new bills to change the way that impact fees work, particularly in regards to affordable housing.

“When it costs upwards of $750,000 to build a single unit of housing in San Francisco and California has a 3.5 million housing unit shortage, we have to find ways to encourage [...] affordable housing production,” Chiu said.

Chiu’s new bill (Assembly Bill 3148) would make fees cheaper on affordable units, but only for developments taking advantage of the state’s density bonus law—thus further incentivizing the program, which allows for larger and denser housing developments in exchange for affordable homes.

Grayson has his own bill that would make cities level fees on a per-unit rather than per foot basis. He says this will “[give] developers the option to build smaller, more affordable units without being penalized.” Most SF fees are already based on square footage, but not all cities use the same standards.

Grayson’s other bill uses state money to reimburse cities that decide to simply waive fees on affordable homes, and a third will “establish a ceiling for development fees based on the median home price in a jurisdiction.”

Also of note, Southern California-based Assemblymember Jesse Gabriel’s measure would allow developers to pay fees “under protest,” meaning that if a developer feels a fee is too high, they can choose to pay it now to keep the process moving but could keep negotiating to lower the price and get reimbursed for the difference later.

What will all of these new laws actually do?

Lawmakers are always quick to argue that solutions are rarely a case of one magic bullet and more about paring away a problem by a thousand cuts.

The real question for people looking at the likely effect of such new rules on their neighborhoods is probably the same one that the new bills will have to answer in those committee hearings: Will making it cheaper and easier to build affordable homes actually incentivize building more, or will it just offer a discount on development that’s already happening?

Answering that persuasively will likely mean the difference between what becomes a law and what doesn’t—and what it’ll mean for new development in your city.