After the bubble

Pub date November 25, 2008


Speculators will be able to sit on tracts of San Francisco land until the market improves. Development impact fees will be set too low to cover the costs of neighborhood improvements like parks, streets, and transit. Affordable housing development is intimately tied to a busted market rate-housing boom.

This is the future of the eastern South of Market, Potrero Hill, Central Waterfront, and Mission District neighborhoods as laid out in the Eastern Neighborhoods Plan, a community rezoning effort that began in 2001 that now fills a binder thicker than a weightlifter’s bicep.

After more than 30 public hearings, the plan is approaching final approval by the Board of Supervisors. While some are lauding all the heavy lifting that’s been done to get it to this stage, there are still some noticeable shortcomings.

"The plan itself is despicably deficient in terms of affordable housing," housing activist Calvin Welch told the Guardian. That sentiment was echoed by spokespeople from the Mission Anti-Displacement Coalition and the South of Market Community Action Network, who may join together in a legal challenge of the plan’s Environmental Impact Report for failing to properly consider socioeconomic impacts.

"There will be environmental impacts in terms of displacement, increased amounts of traffic and cars, increased levels of noise," said April Veneracion, SOMCAN’s organization director. "The Board of Supervisors could have addressed these inadequacies in the EIR with amendments."

Some last minute amendments were added that would audit the financing of projects and reduce land speculation — but due to a tricky legislative maneuver, even these concessions could be axed by a veto from Mayor Gavin Newsom.

The bulk of the plan rezones vast tracts of industrial land on the eastern flank of the city for housing, mixed urban use (including retail and commercial sites), and a light industrial category called "production, distribution, and repair" (PDR) that protects many of the working-class jobs remaining in San Francisco.

Building height limits will increase in some areas and remain at 40 feet in others. Between 7,000 and 10,000 new units of housing are anticipated, with affordable housing rates between 15 to 25 percent, depending on the location and project.

However, the one method of financing affordable housing — known as inclusionary housing, which requires market-rate developers to include a certain percentage of affordable units — is entirely linked to a now-waning economic boom. "Events have rendered it meaningless," said Welch. "The Eastern Neighborhoods Plan is a plan predicated on a red-hot real estate market. Planning has no ability to shift with the market and the market, since mid-September, has changed radically."

The Controller’s Office recently readjusted the city’s revenue projections, suggesting a $90 to $125 million budget shortfall in the current fiscal year, with 40 to 49 percent of that directly connected to flagging real estate transactions.

Yet housing in the Eastern Neighborhoods Plan remains primarily composed of market-rate units, fetching upward of $700,000 apiece, with "middle-income" units discounted to half that, and below-market-rate apartments still costing over $200,000 each. Development impact fees are set for $10 per square foot of construction — not enough to cover the proposed improvements that would make these industrial areas pleasant and safe for everyday residential living and working.

"In order to support the population that’s expected to move in, you need transit improvements, park improvements, street improvements," said Tony Kelly of the Potrero Boosters, a neighborhood group. "Less than half [of these] have been funded by the project."

He characterized the approved parts of the plan as "pretty weak." "They’re rezoning 500 acres of industrial land for housing — predominantly market-rate — right at a time when no one’s building market-rate housing," Kelly said. He also said the plan lacked many creative financing ideas. "When the area plans were presented to our neighborhood back in 2006, the Planning Department outlined all the things a neighborhood needs. There was a chart with 18 different ways to pay for it. How many are now in the plan? One."

Ways to ensure that developer fees are used well and land doesn’t sit fallow were introduced at the last minute. Amendments to the plan, made by Sup. Aaron Peskin, require audits of the neighborhood improvement fees and forcing developers to actually build rather than speculate — but they received a potentially fatal last-minute blow.

The Board’s first vote on the plan occurred during the Nov. 18 meeting and the bulk of the plan received unanimous support (minus Sup. Chris Daly, who is recused from voting because he owns property in the plan area).

But late in the game, a standoff arose between Peskin and Sup. Sean Elsbernd, who opposed blindly rubberstamping the last-minute amendments offered by Peskin during the previous night’s Land Use and Economic Development Committee hearing.

"We saw the actual language of this if you looked in your e-mail in the last two hours," Elsbernd said during the heat of the Board hearing. "I’d like a week to read the changes made by you last night."

The Board voted to continue the matter for a week, but then, at the end of that day’s business, Peskin rescinded the vote and forced the issue. As promised, Elsbernd severed the four Peskin amendments — a legislative tactic that allows one supervisor to slice out parts of legislation and place them into individual files for separate votes.

Peskin countered by severing another amendment, added by Sup. Gerardo Sandoval, which would have allowed special height increases for two lots on Mission Street, where the New Mission Theatre and the Giant Value store currently sit. Gus Murad, who owns the properties as well as the adjacent restaurant Medjool, has been lobbying to convert the properties to commercial and residential space.

The supervisors shot down the "spot zoning" amendment that would let future buildings on the two sites to be built higher than what’s currently allowed on Mission Street. MAC spokesperson Nick Pagoulatos later applauded the move: "It would have been a ridiculous exception to make and one that clearly favored one developer."

Despite Elsbernd’s move to sever the amendments, all four passed, but didn’t receive enough votes to block a veto from Newsom. Supervisors Carmen Chu and Michela Alioto-Pier voted with Elsbernd.

The mayor’s ability to line-item veto some key protections sought by neighborhood activists was at the heart of the move. "That’s absolutely right," Elsbernd told the Guardian, who added that although he hadn’t spoken with Newsom and didn’t know his intentions, "These are issues that absolutely concern me."

The amendments add "metering" and "use it or lose it" provisions to the plan. Metering is essentially an audit performed by the board every five years to ensure that collected developer impact fees are used properly. Peskin said that while they couldn’t meet all the requests of neighborhood groups and housing rights activists, "this was something that we could do that made good public policy sense."

Elsbernd told the Guardian he didn’t object to the concept of metering but would like oversight by the Controller’s Office. "Metering gives the Board of Supervisors full power and takes the executive out of the mix," he said of the plan as it stands now, adding that it should be viewed as a long-term protection. "This is not about Mayor Gavin Newsom. It’s about Mayor Mirkarimi or Mayor Peskin."

The "use it or lose it" requirements are designed to reduce speculation by mandating that a developer with a project that has received a green light from the Planning Department must procure a building permit within three years, after which they have one year to break ground. Currently, there’s no limit to the amount of time a developer can sit on a property, which becomes more valuable after receiving city approval.

Elsbernd said, "Three years is just not fair," but again, he said he thought there was a middle ground and would like to see project developers given opportunities to make cases for extensions. However, if the developer has one of those grandfathered projects that doesn’t have to meet the new, stricter inclusionary housing regulations or pay public benefits charges, they should "have to pay full fare, full affordability, full fees," said Elsbernd.

A second vote on the plan and its amendments is scheduled for the Nov. 25 Board meeting, after Guardian press deadline, but Elsbernd expressed optimism about a compromise as part of last-minute dealmaking. "I would say there’s a possibility, as colleagues realize the potential mayoral veto."

Still, Welch pointed out that resistance to a "use it or lose it" protection is proof that San Francisco’s real estate market is in no way immune to the economic crisis afflicting the rest of the country. "The assumption built into the Eastern Neighborhoods Plan was this robust growing market for condo development and I think the bubble has burst," said Welch. "If that isn’t the case, then why would developers care about a requirement that says you have to build in three years? The Mayor’s Office told me the phones were melting after Monday night’s amendments passed."

But Welch said one of the great ironies of a market-rate housing crash is that it makes nonprofit housing development even more competitive. "That’s why we pushed so hard for ‘use it or lose it.’ It forces developers to say to the city ‘we’ll do it,’ or ‘would you like to buy the site?’<0x2009>" He said the city should be poised to buy those sites in order to build affordable housing and suggested the city lobby Barack Obama’s administration for the funds to do it as part of the large infrastructure improvements planned by the president-elect.

"I think the way housing is financed is going to be totally transformed and the federal government is going to play a bigger role," said Welch. *