Melgar Proposes Funding Study for Westside Subsidized Housing

The Facts

District 7 Supervisor Myrna Melgar introduced a resolution on September 15 requesting city staff to study a potential new funding stream for subsidized housing in San Francisco's western neighborhoods. The proposal, which passed unanimously at the Board's Land Use and Transportation Committee, would direct the Controller's Office and other departments to explore establishing an Enhanced Infrastructure Financing District (EIFD). According to Keith Menconi at The Examiner, such a district would capture future property tax growth from areas upzoned by Mayor Lurie's Family Zoning Plan and dedicate it to building subsidized homes. The resolution asks city staff to report back with recommendations by November 1, 2025.

The Context

The Family Zoning Plan is projected to create capacity for approximately 36,000 new homes, but Melgar has expressed concerns that "we currently do not have a strategy for affordable housing financing on the west side of town." This is critical, as the state requires that nearly half of the 82,069 new homes San Francisco must permit by 2031 be subsidized.

Tax increment financing works by capturing the increased property tax revenue generated when property values rise due to new development. Under an EIFD, the baseline property tax revenue continues flowing to existing services, while the "increment"—the additional tax revenue above that baseline—gets redirected to fund specific improvements like subsidized housing. California has used this financing tool successfully for decades. The city previously leveraged an EIFD to help fund the 2,600-unit Potrero Power Station project.

This approach offers significant advantages over San Francisco's current inclusionary zoning system, which charges fees on individual developments that often delay projects and reduce overall housing production. Unlike these upfront fees that burden each project separately, EIFDs create a sustainable funding stream that grows with neighborhood success while spreading costs across the entire neighborhood.

The legal landscape around development fees has become increasingly uncertain following the Supreme Court's unanimous 2024 Sheetz v. County of El Dorado decision, which held that legislative permit conditions must meet the same constitutional standards as administrative ones under the Takings Clause. This ruling subjects all impact fees to "essential nexus" and "rough proportionality" requirements, regardless of whether they're imposed through legislation or administrative action. The decision has emboldened legal challenges to inclusionary zoning programs, including an active federal lawsuit Wesley Yu v. City of East Palo Alto that argues such fees are unconstitutional. If courts rule that impact fees and inclusionary requirements fail these heightened constitutional tests, cities would need alternative funding mechanisms for subsidized housing.

The GrowSF Take

We're intrigued by Melgar's proposal. GrowSF has been investigating similar tax increment financing mechanisms to fund subsidized housing, and we're eager to see the Controller's detailed analysis of this approach. This study is particularly timely given the legal uncertainty surrounding current subsidized housing funding tools—having an alternative mechanism ready would ensure that upzoning can proceed without derailing subsidized housing production if courts strike down impact fees or inclusionary requirements.