The Facts

The Board of Supervisors voted 9-2 on July 14 to cut San Francisco's inclusionary housing requirement from 15% to 5%, and exempted buildings with fewer than 24 homes entirely, reports Aaliyah Español-Rivas at Mission Local. The inclusionary requirement is the rule that homebuilders must sell or rent a share of new homes at below-market prices. Because the builder absorbs the loss on those homes, it works like a tax on new housing.

But the new rate will not apply everywhere. District 9 Supervisor Jackie Fielder won a 6-5 amendment keeping the Mission at 8%, the highest rate in the city, over the opposition of Supervisors Dorsey, Wong, Sherrill, Sauter, and Mandelman.

The Context

Nobody builds at a loss: a project only gets financed when expected rents cover the cost of construction (land, labor, and materials), and every required below-market home is an extra cost the building must absorb. When costs are too high, builders don't just build less, they don't build at all, and that's exactly how San Francisco got here.

In June 2016, voters passed Proposition C, which raised the inclusionary zoning requirement for large projects to 25%. The city's own advisory committee warned in 2017 that anything above 18% would sink projects, but the rate stayed too-high-to-build under the previous Progressive majority. This April, the City Controller recommended going all the way to zero, warning that "requirements significantly above 0% would further threaten feasibility and would not create additional housing".

The Mission's carve-out rests on a repeatedly disproven fear that building new homes causes displacement. If that were true, then demolishing homes would make a neighborhood more affordable. The evidence points the other way: Austin built, and rents fell.

The GrowSF Take

Credit where it's due: cutting the housing tax from 15% to 5%, with a full exemption for smaller buildings, is the biggest step any Board has taken to restart homebuilding in San Francisco. It completes a drop from 25% at the 2016 peak to 5% today, and it passed 9-2. Thank you to the nine supervisors who voted yes.

Still, let's be clear about what 5% is: a political number, not an economic one. The City's own economists said even zero doesn't pencil out, and no analysis has surfaced to justify 5% instead. The Board picked a number small enough to signal seriousness but big enough to avoid the headline that San Francisco eliminated its inclusionary requirement. If the economists are right, that compromise has a cost: projects that don't pencil at 5% produce neither market-rate homes nor below-market ones, and 5% of nothing is nothing.

There is no such defense for Supervisor Fielder's Mission carve-out. The Controller said any rate above 0% "would not create additional housing." Fielder heard that and demanded 8% for her own district anyway, the highest rate in the city. That 8% will not produce a single below-market home, because the projects that would contain them won't break ground. It will simply make the Mission the one neighborhood the recovery skips: as building restarts everywhere else, the Mission's frozen supply will push prices up faster, causing exactly the displacement Fielder says she is fighting.

Now the Board should watch permit applications, and if 5% still doesn't pencil, follow its economists to zero. Either way, the Mission's 8% should be the first thing repealed.