San Francisco Inclusionary Housing and Development Impact Fee Reform Legislation Nears Passage at Board of Supervisors

The “Housing Fee Reform Plan” legislation, which we reported on previously, is heading back to the Board of Supervisors next week. On Monday, July 24, the Board’s Land Use and Transportation Committee will consider the two ordinances, which cover inclusionary housing changes and impact fee reform. Committee Chair Melgar has deemed the ordinances urgent and has requested that they go to the full Board as committee reports the following day, Tuesday, July 25.

Most attention has been paid to the inclusionary housing legislation, which reduces inclusionary percentages for pipeline and new residential projects with 25 or more units, to 12% on-site for pipeline projects, and 15% on-site for new projects approved between November 2023 and November 2026. On July 13, the Planning Commission recommended approval with modifications to apply the inclusionary reductions to smaller projects, along with other timing and technical changes. These changes can be considered by the Board next week.

After the original introduction of the impact fee reform legislation, Mayor Breed introduced a substituted version that revised the impact fee waiver provisions for downtown projects containing certain non-residential uses. In the prior version of the ordinance, these projects were eligible for impact fee waivers for a three-year period if they were in the C-2 District, were between 20,000 and 200,000 square feet, were on vacant or underdeveloped sites, contained no residential uses, and contained all of the following uses:  hotel, restaurant, bar, outdoor activity, and entertainment. In the substituted version, projects in the C-2 and C-3 Districts are eligible, the project size and vacant/underdeveloped site requirements have been eliminated, and a project need only contain one of the non-residential uses mentioned above. In addition, the substituted version eliminates the requirement to have no residential uses in the fee waiver-eligible project.

Whether this change will help spur broader investment in downtown projects is unclear, as the impact fee waiver only applies to the area of a specific non-residential use. For example, an office project with a ground floor restaurant would only receive a waiver for the restaurant, and not the office, square footage. The Planning Commission has also recommended approval of the impact fee reform ordinance, with a proposed modification to eliminate all development impact fees for changes of use throughout the Planning Code. If implemented by the Board, this would be a significant change and could remove one barrier to certain conversion projects.

We will provide a further update after the Board’s expected actions next week.