Even pro-housing cities in San Mateo County struggle with stricter oversight

While RHNA cycles are not a new practice, the latest 2023-31 cycle is poised to be one of the most difficult, as a wave of new state laws over the last several years and a deepening affordability crisis is putting pressure on HCD to crack down on underperforming cities and, in many cases, double cities’ minimum housing allocations from their previous cycles.

Even for places like South San Francisco, however, generally considered more pro-housing compared to some of its neighbors, progress in the first year of the RHNA cycle has been slower than expected. According to a recent City Council report, the city produced only 3%, or 116 units, of its total allocation in the first year of the eight-year cycle, even though it typically aims for approximately 12%, or around 475, of its total amount each year.

The challenge comes not necessarily from insufficient, local-level practices, but instead from unfavorable macroeconomic conditions, such as high interest rates, that are not bringing in the same number of development requests as years prior, Tony Rozzi, Economic and Community Development deputy director, said.

“We haven’t been issuing building permits because of the tumultuous financing market right now,” Rozzi said.

Jeremy Levine, policy manager at Housing Leadership Council, added that South City’s underproduction is likely due not to any housing element deficiencies but a general slowdown in the private market.

“South San Francisco has made more changes than almost any other city on the Peninsula to promote housing, and it’s important to keep thinking about what they can do to make development work, because the financial environment is different than it was five years ago,” Levine said. “When interest rates were 1%, the cost of delaying a project wasn’t that bad, but when it’s 6% or 7%, the cost to delay is so much higher.”

But HCD will still need to discern whether cities are underperforming due to economically-induced obstacles or a city’s self-imposed barriers. When it comes to housing element compliance, the state is generally less concerned with how much housing the city ultimately constructed, but whether its housing and zoning policies could realistically accommodate its assigned RHNA numbers, assuming the accompanying development proposals were submitted.

“The state will generally recognize that cities are facing financial difficulties, and they’ll continue to focus on things the cities can control like the zoning and entitlements process, and there’s a lot of work to be done there still,” Levine said.

While South San Francisco has a state-certified housing element, hang-ups abound in other jurisdictions in San Mateo County. Portola Valley just received a decertification letter from the state, as the city failed to make zoning change commitments by its deadline. And while HCD hasn’t rescinded other Peninsula cities’ certifications, plenty of others in the county, such as San Bruno, Half Moon Bay and Belmont, still have not received an official stamp of approval, over a year into the 2023-31 cycle.

Penalties vary, but prolonged noncompliance could put cities at the back of line for certain state funds. And more recently, developers are starting to leverage builder’s remedies, which allow them to skirt local zoning and density limits if a city does not have a valid housing element in place. Foster City recently received such an application from a property owner who has been trying to develop a piece of land for about 15 years to no avail, and Pacifica has received about five builder’s remedy applications.

That doesn’t mean cities should be immediately alarmed, but it does create more pressure, Levine said.

“[HCD] is going to be more strict, but they’re not going to decertify left and right. They’re going to be strategic and work with cities to help them catch up,” he said. “There aren’t a ton of state penalties for underproduction, but they are going to hold cities accountable for the policy commitments they’ve made.”