South San Francisco looks to spur affordable housing with zoning

Developers looking to build housing in South San Francisco could soon be allowed to construct taller structures or those with less parking in exchange for offering an increased number of below-market-rate units.

The City Council last month directed the changes to the city’s zoning rules be explored in an effort to bolster housing affordability by enticing developers to subsidize rents for a greater number of units within large buildings.

The city’s current rules, called inclusionary zoning, already require residential developers to set aside a certain amount of units as affordable. But councilmembers are looking to up that requirement, something that would likely necessitate easing other regulations to allow projects to continue to financially pencil out.

“We need to be housing people, not cars,” said Mayor Mark Nagales. “And to have more affordable units … if a developer’s willing to do that, that’s a win.”

While offering below market-rate units costs developers money, so can providing parking spaces, which can cost upwards of $40,000 per spot to construct. Additionally, more units in a building means more rent-payers, which allows developers to maximize a site’s profitability.

Parking requirements can vary based on where a building is located or how many bedrooms are offered, but staff estimated the city requires 1.2 spaces per unit on average in new buildings. According to a city report, reducing the required ratio to one parking space per unit (on average) would decrease project costs by 2.3%, allowing the city to up affordability requirements such that 13% of a building’s total units would need to be affordable to “low income” households.

That’s more affordability than what’s often provided within large developments, despite the city’s current rules requiring 15% of new developments be affordable to a split of “low” and “very low income” residents.

That’s because of state density bonus laws, increasingly used rules that allow developers to add more units than what a city would ordinarily permit if certain affordability requirements are met. How many units can be added and how much of a building needs to be affordable (and how deep affordability needs to be) per density bonus rules is determined on a sliding scale.

But what’s consistent is that the bonus units — which can comprise as much as 50% of a building’s total units — are not subject to a city’s local affordability requirements. This means that if South San Francisco caps density at 100 units for a given site, a developer can use density bonus rules to build 150 units, and only 15% of the original 100 units would need to be affordable.

Another option the city is looking to offer plays off that rule, taking the “bonus” a step further. The city’s ordinance would offer even more density: 80% of a building’s total units. In exchange, developers would need to maintain the 15% affordability requirement for the entire building, though the depth of affordability could be slightly less.

As mentioned, the city’s current mandate requires the 15% be split, with two thirds of units offered with rents that would consume 30% or less of the earnings for households bringing home 80% or less of the county’s median income (low income), the other one third would be available to those earning 50% or less of the median income (very low income). Developers seeking an 80% density bonus could offer all 15% of the units to the low-income bracket.

The various income levels are laid out by the state, which requires cities to build certain amounts of affordable housing at each level. Julie Barnard, the city’s acting deputy director of Economic Development and Housing, explained that while public funding was often made available to subsidize units offered at the deeper end of the affordability spectrum, those with slightly more expensive rents (like for people in the low-income classification) were more practical for developers to subsidize.

With that in mind, the council also agreed to explore offering developers an option to make 25% of a building units be affordable, but entirely to the low income bracket.

“I look at this as a buffet of options,” Nagales said of the three proposals.

Concerns

While councilmembers generally agreed all the ideas were worth exploring, some voiced concerns with requiring less parking.

“The truth is, the transportation infrastructure is not ready,” said Vice Mayor Buenaflor Nicolas, who said she would not be comfortable reducing requirements below one space per unit. “I think the minimum we’re asking for is very prudent.”

Councilmember Mark Addiego called the proposal a “great academic exercise,” and said that the parking space to housing unit ratio was largely a product of market forces, and developers would likely be hesitant to take advantage of an opportunity to offer less.

“You have to offer a product that’s desirable by the marketplace. The people who are developing know what that magic number is,” he said. “Right now if I live in an apartment in the downtown core and we talk about Caltrain, well that only takes you to certain parts of the Bay Area, you can’t cross the water on Caltrain.”

For Councilmember James Coleman’s part, he emphasized that labor standards should also be among considerations, as should environmental measures. The dichotomy between offering affordable rents or increasing construction costs by paying prevailing wages was recently highlighted, as the developer on a 480-unit project approved last year contended he was unable to do both to the council’s standards.

Things like relying on electric water heaters, adding solar panels and other environmentally friendly implementations can also drive up costs, competing with a developer’s ability to offer rent subsidies.

The developer of the 480-unit building last year estimated the cost to employ union carpenters could be near $15 million, and offering 15% of the building’s units with below-market-rate rents for 55 years would cost nearly as much. Nagales at the time pointed out that the development’s planned 560 parking spaces likely came with a similar price tag.

City staff indicated they would draft ordinances based on the council’s input and reconvene on the matter later this year.

corey@smdailyjournal.com

(650) 344-5200, ext. 105