Proposal to boost affordable housing construction in San Diego takes key step

A proposal to boost low-income housing construction in San Diego with new requirements and potential penalty fees for developers is heading to the City Council for a scheduled July 29 vote.

The council’s Rules Committee voted 3-2 Wednesday in favor of the proposal, which would toughen the city’s inclusionary housing policy for the first time since it was adopted in 2003.

Supporters say the proposal is a carefully crafted plan, based on market analysis, that would boost construction of subsidized housing and help solve San Diego’s severe shortage of units affordable to firefighters, teachers and other workers.

Critics, including the local development community, say the proposal would choke off development of all kinds of local housing by making projects unattractive to land owners, lenders and developers.

Developers would have to make 10 percent of the units in a housing project affordable to families making 50 percent of the area median income, or set aside 15 percent of the units for families making 80 percent of that amount.

In 2019, the amount the city is using for 50 percent of area median income is $53,500, and the amount being used for 80 percent of the area median income is $85,600.

But developers would have other options, such as building the subsidized units in another location, remodeling other subsidized units in the city, or paying an “in-lieu” penalty fee.

In addition to boosting construction of low-income housing, the proposal aims to “encourage diverse and balanced neighborhoods with housing available for households of all income levels.”

Supporters say it would complement several other new city policies adopted in recent years, including council approval in March of wiping out parking requirements for new apartments and condominiums near mass transit.

The proposal has a similar structure to the city’s existing inclusionary policy, but the requirement are tougher.

The existing policy requires developers to make 10 percent of the units in a housing project affordable to families making 65 percent of the area median income, or pay a fee of $10.82 per square foot of the project.

Under the new policy, the income thresholds are lower and the penalty would more than double to $22 per square feet.

The proposal also includes an extra incentive for developers: for each subsidized unit they build, they wouldn’t have to pay developer impact fees that fund libraries, parks and other amenities in the neighborhoods where the housing is built.

Supporters say the existing penalty fee is too low, which has prompted nearly all developers to choose that option instead of including subsidized units in a project.

"We have to change that and we have to start somewhere," said Keith Maddox, leader of the San Diego-Imperial Counties Labor Council. "This is the right path. Workers simply can't afford to live in the city where they work."

Local developers say the proposal could stifle housing construction, contending that excessive regulations are the primary reason San Diego has a severe shortage in the first place.

“Excessive regulations got us into this mess and more regulations will not get us out of this mess," said Matt Adams, vice president of the local chapter of the Building Industry Association.

Adams told the Rules Committee that similar policy changes in Portland and San Jose have sharply reducing housing construction in those cities, the opposite of what they were seeking.

Councilwoman Barbara Bry of La Jolla, however, said Portland and San Jose chose policies much more aggressive than San Diego’s proposal, which was crafted by Council President Georgette Gomez and her staff.

“I think this is a much more moderate approach and it’s something we need to get started on,” she said. “What I like about this approach is it gives developers options.”

Councilman Chris Cate of Mira Mesa, who cast one of the “no” votes, criticized the market analysis by an outside consultant that Gomez used to craft her proposal.

He said the analysis of how developers would react to the proposal, which was prepared by Keyser Marston Associates, was confusing and lacked a narrative description, opting instead for charts and data.

“I don’t think this is ready for prime time,” Cate said. “If there is no building, there are no affordable units.”

Councilman Mark Kersey of Black Mountain Ranch suggested the proposal should target certain parts of city, particularly low-income neighborhoods where the city wants more market-rate projects that include subsidized units.

The San Diego County Taxpayers Association made a similar suggestion, proposing that the city be divided by public high school attendance boundaries and have different incentives apply in each area.

Lynn Reaser, an economist at Point Loma Nazarene University, said Gomez’s proposal would prompt construction of 162 more low-income units each year, but shrink by 875 the number of market-rate units.

Gomez said the city’s inclusionary policy has needed significant revisions for many years, but that there hasn’t been the political will to do that.

Democrats, who cast the three votes in favor of the proposal on Wednesday, increased their majority on the council from 5-4 to 6-3 last November.

The two “no” votes on Wednesday were cast by Cate, a Republican, and Kersey, a longtime Republican who switched his party affiliation to independent last month.

“Circumstances have changed,” Gomez said. “The price of housing has changed. It’s time to do something different.”

San Diego has had an inclusionary housing ordinance since 2003, but appellate court rulings in 2009 prevented the city from enforcing much of it and discouraged discussions about making it more aggressive.

A new state law enacted in January 2018, Assembly Bill 1505, authorizes cities and counties to require inclusionary units as a condition of development of residential rental units despite the 2009 ruling.

The court rulings had limited the options of cities across the state to just collecting the penalty fees, which critics say don’t come close to covering the costs of the low-income units the developers get to avoid building.

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