SF's Proposition E Links Office Allocation to Housing Production

On March 3, San Francisco voters will consider Proposition E (“San Francisco Balanced Development Act”)[1], which links the City’s “Proposition M” office allocation scheme, originally approved by voters in 1986, to affordable housing production. Proposition M currently limits the amount of office space that the City may approve annually, with 875,000 square feet added to the allocation for large office projects (50,000 square feet or more) each year in October. When a large office project is approved, its square footage is deducted from the available allocation. The Planning Department’s most recent Proposition M report identifies 786,993 square feet of large project office allocation available, as compared to a large office entitlements pipeline of over 6 million square feet, plus additional demand from other projects that were approved with allocation priority. Proposition E would change both the method for calculating how much annual office square footage is available and how that space is allocated.

California state law requires that cities and counties plan for housing needs at varying income levels through a Regional Housing Needs Allocation (RHNA) process. As part of the RHNA, the State determines the total amount of new housing that is needed by income level and assigns a share of that need to each local entity. Proposition E would tie Proposition M’s annual limit on large office projects to the City’s affordable housing production—if the City falls short in meeting its combined affordable housing goals for the very low, low and moderate income categories, then the available annual allocation would go down by the same percentage as the RHNA shortfall. The 2015-2023 RHNA eight-year need allocation in the specified categories is 16,333 units, or 2,042 units per year. If the City produced, for example, about 1,021 qualifying units in a given year, then the Proposition M allocation for the coming year would be reduced by 50% to 437,500 square feet. The October 2020 allocation would be reduced to reflect the entire 2015-2019 RHNA shortfall (total qualifying units produced during the period calculated against a need of 10,210 units), and thereafter the allocation would be adjusted annually.

The Planning Commission would have the authority to grant two new exceptions from the large office limit. The first is for projects subject to a development agreement that includes affordable housing, either on-site or off-site within a designated economically disadvantaged community, at a ratio of at least 809 units per 1 million square feet of new office space. The second is for large office projects in Central SoMa (defined as the boundaries of the Central SoMa Special Use District in Planning Code Section 249.78) for which a Preliminary Project Application was submitted before September 11, 2019, where the project includes qualifying space as follows: SoMa property to be conveyed to the City for affordable housing, a space of at least 10,000 square feet for community arts or neighborhood-serving retail at reduced rents, or a public safety facility. The Central SoMa exception would be limited to a total of 1.7 million square feet, and until 15,000 new housing units are produced (approved and first construction document issued) in the broader SoMa neighborhood, it could only be granted if the project would not cause the total amount of large office projects approved in Central SoMa after January 1, 2019 to exceed 6 million square feet. Office space approved using these exceptions could cause the allocation to effectively “go negative” and would be deducted from any available allocation evenly over the 10-year period following approval of each exempted project.

Finally, Proposition E would revise the criteria for evaluating office development projects to delete references to General Plan objectives, policies, and design quality, and add provisions regarding affordable housing (for projects subject to a development agreement) and other specified community improvements.

On January 27, the City’s Chief Economist published a report concluding that if past economic trends continue, Proposition E will put upward pressure on office rents, reduce employment, and result in less funding for affordable housing through the Jobs-Housing Linkage Fee.

Proposition E’s proponents dispute the Chief Economist’s report. They assert that creating a link between office development and affordable housing may incentivize affordable housing production, and that in any event, slowing the pace of office development will help to reduce pressure on housing supply and home prices. Proposition E’s critics believe that the measure will adversely impact job creation and business retention and that the City’s path to reducing housing costs must focus on dramatically increasing housing production.

[1] In December, Mayor Breed withdrew a competing ballot proposal that would have added converted office space back to annual space allocations, prioritized office space that also provides sites for affordable housing or other specified community benefits, and increased the square footage threshold for small office projects.