Inclusionary Affordable Housing Program

From 1992 until 2002 the City required affordable units for certain projects of 10 units or more that received conditional use approvals. The City adopted an Inclusionary Housing Ordinance (Planning Code Section 315) in 2002 that set requirements on market rate development to include affordable units at 12% of the total. The City prepared a Nexus Study in 2007 in support of the program. The report demonstrated the necessity of affordable housing to mitigate the impacts of market rate housing, and the inclusionary requirements were increased to 15% of total units. The City's inclusionary housing requirements are later moved to Section 415 of the Planning Code. The City updated the nexus analysis in 2016.

Inclusionary requirements are one of several funding sources for the city’s affordable housing program. Prior to 2011, the San Francisco Redevelopment Authority had been the city’s largest provider of affordable housing funds. In 2011 Governor Jerry Brown and the state legislature dissolved Redevelopment Agencies throughout the state. In 2012, in response to this loss and the slowing of housing development during the Great Recession, the voters amended the San Francisco Charter to create the Affordable Housing Trust Fund, which included a provision to lower and to set the on‐site inclusionary requirement at 12%. As a Charter amendment, the Inclusionary rate could only be revised again by the voters.

In March 2016, the Board of Supervisors unanimously adopted a resolution declaring that it shall be City policy to maximize the economically feasible percentage of inclusionary affordable housing in market rate housing development. In June, as housing prices rose drastically, San Francisco voters approved a Charter Amendment (Proposition C), which restored the City’s ability to adjust affordable housing requirements for new development by ordinance. The passage of the Proposition C then triggered the provisions of trailing ordinance [BF 160255, Ord. 76‐164], adopted by the Board of Supervisors in May 2016, which amended the Planning and Administrative Codes to 1) increase the Inclusionary Affordable Housing requirements, pending further action by the Board of Supervisors; 2) provide lower inclusionary rates for projects in the pipeline at the time (“grandfathered rates”), 3) require an Economic Feasibility Study by the Office of the Controller; and 4) establish an Inclusionary Housing Technical Advisory Committee (TAC) to advise the Controller.

The Planning Commission considered the findings of the Controller’s Economic Feasibility Study that was required by Proposition C to advise the Board of Supervisors of the maximum economically feasible Inclusionary requirements on February 23, 2017, and held an informational hearing on proposed amendments to the Inclusionary Affordable Housing Program on March 16, 2017. The Planning Commission considered two ordinances on April 27, 2017, and adopted specific recommendations on amendments to the Inclusionary Program. Following this Commission hearing, the sponsors of the two ordinances collaborated to draft this revised ordinance [Board File No. 161351v4], the “Consensus” ordinance, which was presented to the Planning Commission on June 7, 2017, and was ultimately passed by the Board of Supervisors and the Mayor in August 2017.

The Consensus ordinance was the most significant change to the City’s inclusionary program since it was adopted. Not only did it increase the required on-site, off-site and fee rates for residential projects, but it also introduced a variety of new controls and requirements, including moderate- and middle-income “tiers” in addition to low-income units, annual increases to the on-site inclusionary rates, area-specific rates, and minimum unit sizes. The Consensus ordinance was also coupled with a new Citywide dwelling unit mix requirement.

Modifications

In 2019, the inclusionary program was further modified to change the methodology of calculating the affordable housing fee. Prior to 2019, the fee was levied on a per-unit basis, and the fee was indexed annually based on MOHCD’s gap funding costs. In 2019, the City began calculating the affordable housing fee on a per-square-foot basis, as described below.

In 2021, Supervisor Ronen proposed an ordinance [Board File No. 210868] to modify the inclusionary program to clarify issues related to project tenure and establish tracking procedures and post-entitlement milestones for projects with affordable units.

On January 1, 2019, residential development projects paying the Affordable Housing Fee will be subject to a fee based on the Gross Floor Area of residential use, rather than the number of dwelling units. The fee will be applied to the applicable percentage of the project, as set forth in Section 415.5 of the Planning Code:

Affordable Housing Fee: fee per square foot of Gross Floor Area of residential use, applied to the applicable percentage of the project:

• Small Projects (fewer than 25 dwelling units): 20% of the project’s Gross Floor Area of residential use
• Large Projects (25 or more units), Rental: 30% of the project’s Gross Floor Area of residential use
• Large Projects (25 or more units), Ownership: 33% of the project’s Gross Floor Area of residential use

Note: The Development Impact Fee Register in place at the time of payment shall be applied. However, a project for which a Site Permit has been issued prior to January 1, 2019 shall remain subject to the fee method and amount set forth in the impact fee register in place as of December 31, 2018. Additionally, projects with an Environmental Evaluation Application that were accepted prior to January 1, 2013 pursuant to Planning Code Section 415.3(b) shall also remain subject to the fee method and amount set forth in the impact fee register in place as of December 31, 2018.

This change is pursuant to amendments to Section 415.5 that were adopted by the Board of Supervisors in July, 2017 (Board File No. 161351). Specifically, the Code requires that the Fee reflect MOHCD’s actual cost to subsidize the construction of affordable housing units over the past three years, and directed the Controller to develop a new methodology for calculating, indexing, and applying the Fee, in consultation with the Inclusionary Housing Technical Advisory Committee (TAC). In May, 2018 the Controller and TAC determined that the Fee should be applied on a per gross square foot basis to ensure that MOHCD’s cost to construct the required amount of off-site affordable housing is appropriately and equitably captured from all projects, regardless of the size and number of units distributed within the project. The Controller directed MOHCD, in consultation with the Planning Department, to convert MOHCD’s per unit cost to a per-square-foot fee, based on the average residential Gross Floor Area of projects that have paid the Fee in the past three years.

Pursuant to Section 415.5 and the specific direction of the Controller and TAC, MOHCD shall update the amount of the Affordable Housing Fee each year on January 1, using the MOHCD average cost to construct an affordable unit in projects that were financed in the previous three years and the Planning Department’s average residential Gross Floor Area of projects that have elected to pay the Fee and have been entitled in the same time period. Each year this analysis will be updated to include new projects from the most recent year, and drop older projects that no longer fall into the three-year period of analysis. The updated Fee amount will be included in the Development Impact Fee Register that is posted December 1 and effective on January 1.