Housing Fee Reform Legislation

San Francisco officials have introduced a number of new policies they hope will jump start the construction of new housing in San Francisco, which has largely stalled due to high construction costs, rising interest rates, and general economic uncertainty.

Mayor London Breed and Board of Supervisors President Aaron Peskin have introduced a package of ordinances called the “Housing Fee Reform Plan” to reduce inclusionary housing requirements and reform development impact fees. The move comes with a rare acknowledgment from leaders across the political spectrum that the City’s notoriously onerous fee- and regulatory- regimes are at least partially responsible for making housing development infeasible.

The first ordinance would reduce inclusionary housing requirements that currently require (in most cases) developers to set-aside 22 percent of new housing units in a project as deed-restricted, permanently affordable units, or else provide 30 percent off-site affordable units. Developers also currently have the option to pay an in-lieu fee for 30 percent of their total housing units.

For already approved projects, the measure proposes to lower these rates to 12 percent of on-site units or 16 percent if provided off-site or via an in-lieu fee. For new housing projects, the affordable set-aside would reduce to 15 percent for on-site units or 21 percent for off-site or in-lieu fee. This legislation also would reduce all other development impact fees by 33 percent. These reduced inclusionary housing set-asides and impact fees would remain available for the next three years, when market conditions will be re-evaluated and, at least in theory, the rates will be recalibrated.

The second piece of legislation focuses on reforming the way development impact fees are calculated and collected to make them more predictable and stable over time. Instead of being tied to construction cost estimates, the fees will simply increase by a fixed-rate of 2 percent each year. Impact fee amounts will also be assessed upon project approval instead of when the project begins construction to avoid unexpected fee increases. In addition, the ordinance would allow developers to defer the payment of up to 85 percent of impact fees – excluding any inclusionary housing fees – until project completion, rather than the current practice of paying all fees upon issuance of a building permit.

These bills are based on the recommendations of the Affordable Housing Technical Advisory Committee assembled by the Controller’s Office. If approved by the Board of Supervisors, this legislation could go into effect as early as November 1, 2023.