The California mandate and San Francisco’s housing debate

The labels, “NIMBY” and “YIMBY,” are all too familiar these days, but beyond the blunt edges of those characterizations lies an intricate policy debate on housing that will shape the future of California cities in profound ways. And ground zero is San Francisco.

Under a state housing plan passed in 2022 and subsequently modified too many times to easily summarize, California is mandating – under threat of severe penalties – that San Francisco add 82,069 units of new housing within eight years, as part of the state’s effort to address what is widely viewed as a housing shortage. In varying degrees, the same mandate applies to cities and towns everywhere in California, although, curiously, the law contains an amendment that makes San Francisco’s progress toward housing goals subject to an annual review while the rest of the state is audited every four years. 

While most observers agree that San Francisco’s approval process for new developments has long been exceedingly slow and overburdensome (a 2023 report by the California Department of Housing found that it takes San Francisco an average of 605 days to issue a building permit – the next slowest jurisdiction in the state was 418 days), a growing debate has emerged over whether California’s solution is in fact the remedy that the city has long needed or a potentially toxic pill that will kill the city’s charm and have the opposite effect of its purported intention, which is to uplift the beleaguered middle and lower classes. 

“The real issue is: how big is San Francisco going to be, and for who?” said former San Francisco Mayor Art Agnos, who was also the Regional Director of the U.S. Department of Housing and Urban Development and for years has been a vocal critic of large scale developments in the city. “Do we want unrestricted growth so it looks like Houston or Hong Kong? And do we want to imagine it in a way that allows the middle and lower class to continue living in the city, or will it become a high income city reserved for the rich and nobody else?” 

Proponents and critics weigh in

Proponents of California’s plan, meanwhile, say that housing costs in San Francisco are already way too high and that the most effective way to meaningfully lower them is by ramping up supply – which the city has long failed to do on its own. They argue that the “NIMBY” movement is inverting that reality – saying new developments will raise costs – as a smokescreen for the more selfish goal of preserving the familiarity and convenience of their existing habitat.

The state’s mandate can be traced back to California’s Regional Housing Needs Allocation law, passed in 1969, which obligated (at least theoretically) all cities and towns to draw up housing plans every eight years that met their demographic needs. That law included a state audit of all municipalities after each eight-year cycle, with fairly benign penalties for jurisdictions found out of compliance.

Through a flood of new legislation around land use and housing, California has essentially updated the RHNA by, among other things, demanding much higher numbers of new homes in the current eight-year cycle that began last year (the target for San Francisco in the previous cycle was 28,869), increasing the compliance review to every four years (and annually for San Francisco) and stipulating much more severe penalties for cities found out of compliance. Those penalties include the potential loss of state grants (hundreds of millions of dollars worth, in San Francisco’s case) and the revocation of their ability to apply their own zoning laws and building codes (the latter is often referred to as “the builder’s remedy” for putting more decision-making power in the hands of developers). 

“It’s too hard to build in San Francisco – and it’s not just San Francisco,” said Corey Smith, Executive Director of the Housing Action Coalition, a non-profit that advocates for expanded housing in California. “The problem is that there’s such a shortage that when market rate housing becomes available, it’s only available for high earners.”

Meanwhile, Mayor London Breed says the city is striving to meet California’s goals and has been pulling out the stops. In an email response to an inquiry, Mayor Breed’s office said that those measures include reducing procedural requirements for building, waiving or reducing fees for affordable housing and accessory dwelling units (small living spaces added to existing properties), easing restrictions that limit the conversion of office buildings into housing, expanding public financing and prioritizing the review of projects that propose 100 percent affordable housing. 

Perhaps most controversially, the city has also approved widespread “upzoning,” or the building of high rise apartments and condos in neighborhoods where old height limits, now dramatically increased, used to forbid such projects. California’s mandate stipulates that new developments be structures of multiple housing units, with minimum requirements varying by location (a long-time criticism of California housing policies holds that the state’s overdependence historically on sprawling, single family homes – and the frequent rejection by NIMBYs of increased density – represents a poor allocation of resources and has contributed to a housing shortage); however, in San Francisco – where the amount of horizontal space is limited and the return on a small apartment may not warrant the effort and cost of building it – a number of projects are slated to be well beyond that minimum, and skyward.

“The upzoning is required by state law to maintain certification,” said Annie Yalon, Public Relations Manager for the city’s Planning Department. “Without compliant rezoning legislation, San Francisco risks losing certification for the (RHNA), which could lead to a loss of vital state grants … (as well as) lawsuits and state-imposed penalties.”

Affordable housing at risk

Affordability projects have long been highlighted by champions of housing expansion, and California’s mandate originally stipulated that all new projects include at least 22 percent affordable units (“affordability” in this case is defined as a rent or mortgage that’s 30 percent or less of the region’s median household income, which in 2023 was $100,850 for a one-person household and $115,300 for a two-person household). Yet, because affordable units reduce profit margins and make attracting new developers more difficult, the 22 percent requirement has since been reduced by the state to 12 percent. In San Francisco, developers also have the option to include zero affordable units and instead pay a substantial fee that, according to Mayor Breed’s office, goes entirely into the city’s affordable housing fund to subsidize other projects.

Even with the lowered affordability threshold, a common critique of the mandate is that California’s timetable is unattainable in large part because developers aren’t always willing to build. Since California’s mandate went into effect, for example, many builders have been deterred by high costs and high interest rates for loans. San Francisco Planning Department records show that while the city has a whopping 43,000 residential units “in the pipeline” (with about 24 percent planned as affordable units), it has completed only 1,030 total units this year through August and has 5,654 units currently under construction. In 2023, the city completed only 1,532 units. Sources say the city’s pace will likely accelerate, though probably not enough.

“We say to city leaders that (compliance) is never going to happen,” said Lori Brooke, co-founder of Neighborhoods United, an alliance of neighborhood associations and other civic groups that opposes the state mandate. “We’re going to fall out of compliance so projects will be ministerially approved and the builder’s remedy will apply – who, what and where (the developers) want. The builder’s remedy is not the penalty, it’s the plan.” 

Brooke added that the RHNA’s target of 82,000 units has become even more impractical after a decline in the city’s population during the pandemic (she said that although the law was implemented in 2022, the mandate’s numbers were calculated years before), but that the mandate contains a provision that the eight-year target is unchangeable. A 2022 report by the Budget and Legislative Analyst found that, for various reasons, San Francisco’s existing housing units already had a 14.9 percent vacancy rate – a figure much higher than the national average at that time (the city subsequently passed a tax on vacant homes, which in turn has prompted a lawsuit).

Although Smith agreed that San Francisco is behind the 8-ball, he contends the city made its own bed.

“People complain it’s unfair they have to build all this housing, but I think it’s unfair they weren’t building housing before,” he said. “San Francisco notably has the longest development timelines in the state of California. We’re the worst actor. The housing that would have (spared the city from more severe obligations) could have been built in 2017, 2018 and 2019. That was prior to the pandemic, and that’s when projects were not moving forward even though the economy was strong. San Francisco before the pandemic made it so hard to build housing that there were no new projects.”

Meanwhile, opponents of California’s mandate point to the plowing ahead of building projects despite the reduced affordability requirement (which San Francisco is trying to offset with subsidies) as evidence that a plan which Sacramento touts as a lifeline for financially struggling residents – and has even tied in with the issue of homelessness – is in reality catering largely to the wealthy. As further evidence, they cite a trail of sizable campaign donations from real estate moguls to Sacramento legislators who have led the charge of pro-housing reforms (which, to be fair, does not necessarily imply causation in the same direction; interest groups may fund political campaigns based on existing policy positions).

They also contend that the local real estate boom – and especially the use of upzoning to allow high rise apartments and condos with minimal affordable housing – will actually drive up the city’s home prices rather than decrease them.

“Overnight the planning department has taken a highlighter and gone into what they claim are transit or commercial corridors with the theory of, ‘let’s build in areas of transit and high resources,’” Brooke said. “Except they’re already extremely overbuilt as it is – so they want to pierce existing height limits to do it.”

Brooke said many such developments will become bastions of the wealthy – much like some of the pricey residential tower projects undertaken in recent years downtown. She also said this is likely to cause a gentrification ripple effect where surrounding property values go up and developers – lured by increasing property values, relaxed restrictions and the unique profitability of luxury high rises in some of the city’s most desirable zones – increasingly turn their eye to renovating or replacing old buildings that they previously wouldn’t touch, resulting in displacement of residents and small businesses. 

Smith, however, said such claims were far-fetched scare tactics. He cited a 2015 study by the San Francisco Controller which found that 84 percent of new housing occupants were existing San Francisco residents relocating within the city, not people from outside. The Controller’s Office said it did not have more recent data on that question, but Smith said it’s likely that a similar percentage prevails today, given that the report comes from the pre-covid years when capital was flowing and conditions were as ripe as ever for displacement.

Regarding the question of affordability, Smith said the Housing Action Coalition supports as much affordable and low income housing as possible, but that it also sees value in projects that are fully market rate due to the benefits from supply and demand.

“We know that market rate housing helps prevent displacements and evictions,” he said. “High income earners are going to be here anyway, but providing opportunities to live in new homes opens up the older housing stock so people like me who work in non-profits can afford to live here.”

Yalon agreed that increased homebuilding would make San Francisco more affordable, not less.

“Beyond subsidized affordable housing and inclusionary housing, the rezoning and related efforts will increase the variety and types of housing available, adding fourplexes, accessory dwelling units, townhomes, and mid-sized multi-family buildings – all of which tend to be more affordable than single-family homes,” she said. 

Smith added that, while fast growth opponents tend to champion their stewardship of the local environment, opposition to urban density ends up contributing to environmental degradation on a larger scale – encouraging sprawling homes of few occupants and increasing the number of commuters traveling to the city from outside places. 

The ‘lazy solution’

Opponents of the mandate, meanwhile, mostly agree that some homebuilding inside the city is fine, but see the proposed housing boom as reckless. They say advocates of heavy urban infilling don’t take into account the city’s already considerable density and the strain that steep increases in houses and population could put on things like traffic, public transportation, pollution, utility systems and – the old NIMBY classic – sweeping views.

“One of San Francisco’s hallmarks is that we’re not Manhattan,” Brooke said. “You walk somewhere and it’s not like being stuck in a rat’s maze. You always get a sense of the space and vistas and beauty, and when you start building high rises in these corridors … people are going to be shocked when they see what this ends up looking like. We don’t have any issue with thoughtful, complete projects. But this is the lazy solution –  just ‘build baby build’ – and it’s a disservice and it’s misleading to our constituents.”

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