great things of san francisco it is neighborhood neighborhood have dentist corrosive are coffeehouses but 2, 3, 4 coffeehouses in month neighborhoods that are on their own- that's >> [gavel] all right good afternoon everyone. welcome to our special rules committee meeting of february 16, 2016. i am katy tang chair of the committee. to my left i have supervisor malia cohen and to eric mar and joined by aaron peskin today. our clerk is derek evans and i would like to thank our sfgtv staff. with that clerk do you have any announcements? >> thank you madam chair. please silence all cell phones

and electronic devices. completed speaker cards and files somebody submitted to the clerk. >> thank you and i know both items on the special committee is related but we will call them separately so please item 1 please. >> item 1 is a initiative oar from the mayor for the proposed initiative ordinance submitted are by the mayor for the voters for june 7, 2016 for election entitled ordinance mending the planning code to maximize inclusionary or affordable housing and economic feasibility studies. >> we have staff here. >> we will have this presentation and if you get the powerpoint on the screen thank you. i want to be very clear the clear of this initiative ordinance is establish a pathway to maximize the amount of affordable housing that the

city can require of developers. the current requirements are too low. not only are they too low but they're a one size fits all rules and acts if a luxury tower downtown has the same economics as a project in another neighborhood. the economics are different and the rules need to be different the mayor directed staff to bring working groups to bring stakeholders together for these requirements and it's underpinned by a feasibility study by a independent consultant as all have done and in recent memory every time the board introduced a new fee or the inclusionary requirements it's done with a feasibility study and looking how much it

could be increased and feasibility and killing the golden goose. this is the third initiative in a serious of policy measures relating to maximizing of affordability that the mayor has put in front of voters with some of the other supervisors responding to what he knows to be the voters number one concern which is affordability. proposition k in 2014 made it the policy of the city to build or rehabilitate 30,000 units by 2020, have of which would be affordable to low, moderate and middle income san franciscan and proposition k clarified and the strengthened policies using public land for affordable housing. this 2016 directive would turn from public to private development projects understanding that we need both halves of the coin to get it right and turn to private development projects and

seeking to maximize the contribution from the private developers to the housing stock and make sure the city has a factual basis to accomplish that. >> before you move on i believe supervisor peskin has a question or comment? >> thank you madam chair. i want put this in some legislative and historical context as well as some political context starting -- first of all i welcome mr. bridges comments they think there is a widespread sentiment that the current inclusionary rate at 12% is too low for the current market conditions and i welcome that, and i think that is what precipitated the introduction of a charter amendment on december 15 of 2015 by supervisor kim and myself which i believe lead to the january 19 introduction of this

measure as well as another measure that we will discuss as the next item on the agenda, but i actually wanted to harken back to a decade and a half ago when the city actually did not have an inclusionary law. it had an inclusionary policy that was used in some instances and not used in other instances, and my then colleague on the board of supervisors mark leno introduced the first inclusionary law i will at section 3 17 of the planning code if my memory serves and it was quite contentious. as a matter of fact there were people in the development industry who while they didn't oppose it indicated that if -- as a matter of fact senator leno and i were having this conversation a few days ago if it was 1/10 of 1% north of 5% it would kill new development starts. we actually without a

feasibility study picked 10% which was the guideline that planning had been working with and life went on just fine. by the time i left office at the beginning of 2009 that number had grown to 15%. after i left office in a deal that i'm not interesting -- or important to revisit, but in exchange for creating a housing trust fund there was a charter amendment that put the inclusionary -- dropped it from 15 to 12% and stuck it in the charter. i don't want to second guess that but once it went into the charter the conversation in the legislative branch, in the planning department, in the community, in the development industry about changing that number became impossible without a vote. now, let me go to the political context. i just ran a somewhat charged race for supervisor, and i can tell you at least in the northeast corny of san francisco that everybody

knows that 12% is much too low. yes, the cost per square foot of building today is astronomically high and the sale prices are high and i do not begrudge developers making money. i am delighted they hire union labor in many instances and it provides a modicum of affordable housing but i believe, and i believe -- many of our colleagues share the sentiment that we can and should do better. this is not a new crisis. this crisis has been going on for a number of years. the fact that we have not as a city been acting more quickly is troublesome to me. the fact that a feasibility study could have, should have done last year, the year before, the year before that where we could have captured many more units. now,

we are in the process of moving forward with the charter amendment in june rather than in november in order to capture more projects moving forward so that we can actually have a higher level of affordability for working class san franciscan for the individuals who build these projects, for teachers, for firefighters, for everyday people in this town which is by anybody's estimation at a crisis. that i think is what supervisor kim and i have been attempting to do. i am delighted to have a conversation about fiscal feasibility but now let me deal with the last political reality and i want to be very clear, honest and transparent about this. it is my profound hope that because of the way the charter amendment is designed which takes it out of the charter and allows us collectively as a government to legislate going forward, which

is our goal. take those numbers up when building prices go down, and sale prices stay high to bring those numbers down when we're in a recession it should be a dynamic law, but i would hope that on or before march 1 and i had this conversation personally with the mayor that the two items before us today will be removed from the ballot. the mayor will remove his. the four members of the board who signed on to the next item that is not been us but called in a few minutes will remove theirs and we will collectively find the sweet spot, figure out grandfathering, get this thing out of the charter and should have never went in 2012 and doing the work incumbent upon us and to build units that nobody

can afford but units that are expensive that some folks that work in the town can afford. >> thank you supervisor peskin for the lengthy conversations and if we can go on to the presentation. >> supervisor it sounds like we're on the same page but before moving back to the presentation it maybe the first time that the inclusionary was introduced. there wasn't a feasibility study and raised to 15 i am sure there has been -- and we will give you a list in the presentation about eight times since there there have been feasibility studies so i think i said "in recent memory" and depends on your definition of "recent" and we agree that 12 is too low but we have serious concerns about figuring out what the right number is. it's clearly above 12 and some projects it's probably 25 but we don't think it's 25 for most or all projects. we will be getting into that conversation.

if i could have the next slide so as you recall -- >> [inaudible] >> there we are. i am just summarizing the proposed initiative ordinance and what it says is briefly it's fairly simple. the controller and the planning department within six months of the passage of the ordinance should lead a study looking at the feasibility of changes to the inclusionary requirements. that study should be repeated every 24 months. supervisor peskin that's the sort of response to your well taken point that the economy goes up and down and our requirements need to figure out a way to go up and down with the economy. again in response to that sort of two rigid existing requirements they don't do that now. they just stay where they are no matter where the economy it is. the initiative ordinance would say they're justed if they're too low for afford for private developers and in effect leaving housing on the table or

too high and killing projects and not getting the affordability and that way directs that the planning department would bring to the planning commission legislation for the inclusionary based on this analysis and the commission has the normal process would refer to the board of supervisors. it continues to say that adjustments should address all three ways of providing inclusionary housing, on site, off site and in lou fees and this is different from the current inclusionary rules. it should cover a range income levels. we nbl san francisco we should be providing affordable housing for people making 55% of median income and defined as low income housing and up to 150% of income and two teachers salaries and one child. those

households need to be served by inclusionary at the 120-1 50 ami level and lastly the feasible idstudy mand mandated on this -- sorry the changes for the inclusionary are based on the study and the nexus and not the same as a feasibility study and all other relevant data so what i will pass this on to my colleague leslie who will hopefully describe a little more about what we see as a feasible idstudy doing and how it can help set the policy correctly. >> good afternoon supervisors. so we just like to take a few minutes to walk through some of the critical questions that the study should answer and the first one on people's minds what are is the sweet spot for affordable housing and without

making it not feasible and we don't know yet. we suspect it's higher for today's rates for most sites and projects but we did preliminary analysis of the new proposed inclusionary rates and i will share them in the next item on the agenda and the analysis suggests the rates are not feasible for all types of development so the economic feasibility studies will dig deeper and getting an important policy change like this right. it would define the concept of feasibility and the economic conditions that a developer would or not choose to build housing and in numerical terms and test the different housing proposals and rule out the ones that numbers fell below the feasibility study threshold. another important question is whether there is a better alternative to the one size fit

approach that we currently take. we apply the same rate to all projects regarding of neighborhood or project and luxury high rises are subject to the same rates compared to other neighborhood and these buildings should shoulder the burden of more affordable housing and feasibility but the maximum rate are dealer killers for many of the smaller neighborhood projects with smaller margins so we should seriously move beyond the single rate system. otherwise we will have luxury projects providing less than fair share of affordable housing or modest projects never built because the burden is too great and neither wi are we maximizing affordable housing creation so this study will enable us to take the nuisanced approach even further to figure out how to tailor a policy for housing needs. we could study how to

best expand the program with different enemies such for teachers and firefighters and in a way not to privilege one over another. many developers meet this by two options. they designate options on site that are affordable or pay in lieu fees. each of the options has a different rate and currently under today's policylet two rates are cal braitded so one option is not essentially cheaper or more expensive for a developer to choose and we get a combination of units and in lieu fees which is ideal and this housing can meet the needs of different kinds of families. the proposed initiative requires that we do a feasibility study at least every 24 months and ensures that we and the

successors can consider the housing requirements if conditions change over time so by contrast what happens if we don't have the flexibility? well, this is exactly the situation that we're in now. our inclusionary rates were at low levels when the housing market was weak and the board hasn't been able to change them as conditions change. the other side of the coin is the new rate that we set right now hopefully with the feasibility study could work well to maximize affordable housing in today's market but less than optimal during a future downturn so that's why we want to mandate this study happens every two years and keep a constant eye on the market and maximize this. the study will allow us not to have the pitfall of setting the affordable housing requirements too high. we know when a developer

considers to move forward with a project they look at the revenues with the proposed cost and the rate of return to buy the land and construct the project. if the rate of return is too low funding sources won't lend money and the builder can't build the project. this translates into lower rate of return and lower returns relative to the project's costs. ideally developers could get the this back by and pay less for land and balancing out the reduced revenue and reduced cost. however, this is only a possibility if the developer has not already bought the land and even then they have to convince the owner to sell at a low price which is challenging because many of the remaining opportunities sites in san francisco have revenue generating uses on them already. if i'm a landowner with a

profitable parking lot or a refail store i will only consider selling to a developer if they offer enough money to forgo the revenue stream into the future and the less money the developer can offer to pay for the land the less likely they're willing to find a seller so this is the back of envelope example to illustrate how a landowner may e the offer. it's say it's a 10,000 square foot parcel and retail or commercial business. based on the revenue stream that parcel could generate as retail commercial under today's rent we believe it's worth about $8 million. in a neighborhood with 75-foot height limit and fit 60 units on that land and if you do the division if the land cost is $8 million and $130,000 per unit and in the ball bark what

developers believe they can pay today but if the land drops below $8 million it's irrational for the landowner to sell. now it's possible that land prices could drop somewhat before running into this situation on some potential housing parcels, but again it's about finding the sweet spot which is what we need the feasibility study in order to do. so how does it work from a technical perspective? we need to include a lot of research about the inputs that a developer considers when evaluating the feasibility things like costs and rental and condo prices and today's numbers and historical numbers and used how conditions might change into the future, understand land dynamics fully and look at prices just to ascertain how

sticky they are and pin pointing the value of housing opportunity sites, parking lots, storage, retail sites under the current uses. as i described earlier it would operationalize the concept of development feasibility and test different proposals to see whether they meet this metric and for the promising proposals it would test them under varying conditions. based on our experience working with economic consultants on other projects we believe it could take as short as two, three months to do it correctly once the consultant is hired and i will turn it back over to ken rich to conclude. >> so i wanted to quickly -- we're almost done here -- talk about some precedents we believe are relevant. the planning code does in section 410 require the controller to report how much

impact requirements affect affordability. we're not sure how much it's been followed but we're trying to connect the second part of it and once it's done and essentially done more often than every five years it should translate into the planning department upon the advice of the controller and other experts proposing changes to the inclusionary ordinance. that part hasn't been done. we feel that is very important and secondly as i promised you -- let me see if i can read it from the notes quickly. i got it and precedents and on the screen and going back to the early parts of the inclusionary housing ordinance and the rincon and market octavia plan and the plans at market and special use district, eastern neighborhoods and was

long with financial analysis, the transit center district around trans bay and the transportation sustainability fee and under development and you will see this in front of you in around a year or less the central soma area plan which has an extensive feasibility study associated with this. next slide. so to conclude we pretty much said these things. we feel that the current requirements are too low and we feel increasing the extractions particularly inclusionary housing is the most financially costly of all without a feasibility study is risky to do and i want to repeat we feel strongly that the requirements are one size fits all want that's not good for the city at this point and we need a more nuisanced is the of requirements and not possible without a feasibility study and with that we will end the presentation

and we're available for questions. >> thank you for your presentation. supervisor peskin. >> thank you madam chair. i guess to mr. rich and this is not in anyway meant to be combative, but given the incredible spike in housing prices and incredible amount of new construction that's happened in this cycle why hasn't there been effort by your department or the housing office to conduct the feasibility study. we don't need a ballot initiative to do it. we can hire someone to do the study. why didn't we do it last year or the year before? i don't know. i wasn't here. >> thank you supervisor for the question. it was increasingly clear that we need to turn to the private side. i characterized the total picture of affordability of the programs and the private side. last

year you know the mayor was engaged in passing a historically housing bond for $310 million. only done once in past history. failed before that. there were efforts by the departments sitting here with me focused on that. as soon as that passed in november of last year we immediately -- the mayor had us immediately turn to -- okay. what about the private side and the mayor wanted to raise the inclusionary requirements and called a working group together and we engage an economic consultant. that was done and took a few weeks. as you know these don't happen overnight. we got that going fairly quickly and it's moving and the intention was to aim for november 2016 ballot understanding we did have to

change the charter. we didn't believe we could get the feasibility study required and all the stakeholders around the table in time for the june ballot cut off which was four, five months before the election, so that's what has been going on. in fact when -- when supervisor kim's charter amendment and follow up initiative ordinance came out we actually side tracked very briefly our consultants who were on board at that time with the study to specifically look at that proposalbecause we knew we had to look at the economics of that and we did that. in the next item we can talk briefly about those findings. now that is done we're turning back to the feasibility study but even before that side track not done in time for june and now certainly won't be but by november it can be done. >> and through the chair while i welcome this widespread

belief or fact that the inclusionary percentage can go up i am nervous about this and let's talk about what 25% means because in reality the proposal set forth in the charter amendment until the board acts is move the 12% at 55% of ami back to the 15% where it was, and then add a working person's layer up to 120% of ami, and additional 10% of that. that's how we get to the 25%. look i have been in the real estate business since the 1980's and gotten lots of appraisals and they like feasibility studies are an art, not a science, and they're different appraisers to get the answers you want. you can cook a feasibility study.

i'm nervous that there is this predetermination that in many instances -- or i don't know your name -- most is the word you used. most instances that 25% is at 15 and 10% that we discussed is going to be overly burdensome. when we see as recently as last week relative to the project in the mission street on bryant 40%. what we see at mission and m and sea lot [inaudible] and seeing across the board so i am nervous that there is already a predetermination. i want to say for the record i have met with -- maybe not every but most of the market rate housing developers one-on-one, and when you meet with them one-on-one they will generally tell you if we were given this instruction

in 2012 we would be building at 25% now. you stick them in a room and as far as 99% of them are males they won't do that. they won't say that in the fraternity meeting but when meeting one-on-one "hey, this comes out of the land cost. we can do it, so how can we trust in you not doing the feasibility study in 13, 14, 15 and it's not cooked and you haven't come to a predetermination that 25% is too high? >> supervisor i think there are two things there to respond to. first of all i am glad you brought up projects like 5m and the giants. i want to be make it clear that the projects that hit the high numbers, 30, 40%, in every single instance bar none they received dramatic city subsidy and 5m got and the

giants are getting. in the form of cash 5m got cash from the city and the linkage fee reinvested in the project. we thought it was predid you not policy but it's clear they couldn't come without the city subsidy and one ability folsom is another one out there. >> >> and every time we have the means and the ability to find the subsidy and a project affordable we do it because it's a great policy rather than putting the cash somewhere and spending it later. we want to do with a project in front of us. i don't think there are projects out of the high teens or 20 when there is 80-20 financing deal available on their own steam. your second point how can you make sure we don't cook a feasibility study. anything can be cooked. i would

say appraisals are more black boxy than the study and we expect you to scrutinize everything that the controller and everyone does and there is a time that the board has to go through it. you raised the transportation sustainability fee based on the feasibility study -- not you supervisor but before you came on the board. i assume that it was accurate and therefore acted on that so we 1r-9 obligation to help you scrutinize any study you got. >> i actually voted on it. >> that's true, yes. >> thank you. before we go to a question from supervisor cohen i want to acknowledge supervisor kim that joined us today and to build on that and i am glad there were discusses on giants and the 5m project because in other neighborhoods in the city where we won't see large projects like that i think -- my concern it could go to item 1

or two really, but you mention there are some points where there are projects where whether there is a percentage too high or what not won't be able to move forward and can you talk about the analysis behind that and what i guess the unit size would look like for projects that potentially not move forward under a certain percentage? again because i am more concerned about the smaller size projects. >> so as a hunch we are also more concerned about the smaller size projects and i will say in general everything is expensive in san francisco right now but in general our small and medium projects that occur out of the core of the city are significantly cheaper even though they're still expensive. i don't want anyone to think that anything is cheap but if you look at projects out on ocean avenue or in other parts of the city and what they're

marketing the rent for while it's expensive it's market dedly cheaper in this part of the city and because the rents are cheaper it makes them reasonerable not to afford the inclusionary because they don't have the huge revenue and also you can't build very high out there the projects can't get the amortization with the units and it's our hunch it will be confirmed or denied that those projects are most vulnerable to that. >> and do you have an idea of what you mean with medium and small size? >> 50 to 100 units. as supervisor peskin it is it's an art and not a science. i don't know where the cut off would occur but probably less than 100 units out in the outer

neighborhoods. >> thank you. supervisor cohen. >> thank you. i appreciate the spirited discussion. i have a question for you. what are other cities doing? are they doing feasibility studies for affordable housing? >> thank you. i can speak to this one. it's fairly ubiquitous for other cities to do thesed is its. los angeles, seattle, bc, vancouver. oakland is looking into one to implement a inclusionary housing policy and the bay area of bay area governments recommends it all cities changing their programs and in fact we're not aware of any cities that have mandatory inclusionary housing that is not backed up by a feasibility study -- >> i will interject here. what cities did you study or find the answer to this question? what cities did you survey that you call to find out if they did the study or not?

>> so this is based on staff's expertise, our research, what we know is out there. we could do a systematic survey as part of a study but we haven't gone through the 50 largest cities sis matically but one other example is in new york city they have a proposed inclusionary policy being considered and underpinned by a feasibility study. what it actually found in kind of the weak and moderate market areas of new york city the proposed inclusionary housing requirement would have killed any development and any investment so they have have taken inclusionary housing out of those neighborhoods. i don't think we're suggesting that would happen here but it's an example of the city being really responsive to a feasibility study. >> okay. thank you. >> supervisor mar. >> thank you. i wanted to thank supervisor peskin for

giving the historical and political context on the debate on the two competing initiatives but i have a question off the top. i acknowledge like supervisor peskin our city is wide out of balance for low income to middle income people to survive and stay in the city. that's why creative efforts like the kim-peskin initiative is being moved forward, but i guess my question is why do we need a ballot initiative from the mayor's office to do more studies? and why is this even necessary to put as a ballot measure? >> great question. >> i think as you're aware we're starting down that road anyway. i think the mayor felt in order to make sure -- frankly as he saw proposals coming up not based on the feasibility study he felt it was important for the voters to make that connection that there not only

be a feasibility study but the staff propose changes to the ordinance on a regular basis on that board, so it's important. it's one thing to do a feasibility study but we need to get it in front of changes to the proposed measure and we're seeing changes of the measure not with the luses lus -- inclusionary and the mayor cosponsored with some members of the board and let the voters weigh in and agree if they're willing do and how do you get this and now turning to the private sector we're seeing in order to really get at inclusionary housing and affordability you need to understand the economics and he felt like that rose to the level of a policy statement from the voters. >> i think supervisor peskin's question earlier why didn't you

do the feasibility studies earlier? we could easily do them legislatively can't we? >> i think i answered that when the supervisor peskin asked. we are engaged with the bond that took incredible work. nobody thought we could pass it. we passed it and as soon as that was over we turned to the private side and starting with the feasibility study so i don't think that's fair. we did it as soon as the opportunity came up. >> thank you. supervisor kim. >> thank you. just to actually ask again supervisor mar and peskin's question and with the ballot and we didn't have previously incredible amount of money coming to the budget and the voters authorized a housing bojd and we didn't have one previously and $106 million and

now that the bond has passed why not start the study today without going to the voters? >> again the best way to answer it it's in the spirit and follows -- two things again. it follows from the two policy statements from the voters and supervisor kim i think you were a cosponsor of and established priorities by the voters. we believe this rises to the level of an important priority and we should make sure we're maximizing affordable housing and creating inclusionary ordinance that serves a large range much income and will -- of income and increase the affordable housing and not decrease it. it sounds like to us as important as the previous prop k's and it's on the ballot and it happens and has to happen. >> okay. i agree. not everything that we put on

ballot and many can be done via the board of supervisors by ordinance and the proposition k's can be done in the legislative process but we set goals. in the first case we establish we wanted to hit 33% production of affordable housing, 50% with middle income housing and we wanted to hear from voters that that was a goal that san francisco should be working towards, and the second place -- and the second prop k it was an ordinance to prioritize surplus properties for the production of affordable housing for formerly homeless to middle income households and because that ordinance hadn't been truly been followed for the previous 13 years as originally authored by supervisor chris daly it amend sense to go to the voters and we need a mandate because the city didn't follow the previous versions of the ordinance and we thought going to the voters would give it

more teeth but my understanding we always did feasibility studies and the percentages are feasible for developers and i think all of us in the room want to see maximum housing production and affordability production of the housing production that we have, so i still question whether this needs to go to the ballot. i would encourage our city departments to begin that fiscal feasibility today because i would like to see the numbers and as we go on to the next item and talk about what the numbers could look like and think getting rid of a ceiling in the charter that i think we all agree upon. we want to zoo what the -- we want to see what the numbers are and maximize the housing production so my question or thought remains the same. this isn't necessary for the ballot that we can go forward with this today. >> thank you. supervisor peskin. >> thank you madam chair. further to supervisor kim's

comment and maybe this is just one supervisor's view of the world, but there's certain things that one must go to the electorate in order to achieve. if we want to float a bond, if we want to raise a tax, if we want to change one word in the charter. all of that as a matter of law must go before the electorate. the fundamental issue before us, and i think there's agreement on this is we err'd or -- the world changed and we shouldn't have put the inclusionary rates in the charter. the charter amendment that supervisor kim and myself and cosponsored by a number of other members of the board put on the ballot is really aimed at one thing which is taking it out of the charter and allowing us all, the executive branch and

the legislative branch to do our jobs and pursuant to fiscal feasibility studies. i am delighted to hear about the notion of tiered parts of the city that would have different inclusionary rates. we should have been doing it years ago but this is the only way we it have that mature sophisticated policy conversation if it comes out of the charter, so i quite frankly am -- let's be frank with the public which is the measure that we are discussing right now which you admits not necessary, and the measure that we're about to discuss which i admit was in response to your measure, the administration's measure, is also arguably not necessary so hopefully between now and the end of this month we will remove both measures from the ballot and work on the ordinance that

will succeed the passage of the charter amendment, so we can raise nose those numbers. i find with feasibility now or in the future whether 24, 36 month basis. i would like an inclusionary law if someone smarter than me can figure it out that would self adjust and the cost of construction or housing went up or down and spit out an inclusionary or in lieu percentage. i don't know we will ever figure out how to do that. that's rocket science but i think we should cut to the chase and negotiate this in public and why don't we get rid of both unnecessary ballot initiative and work on the successor ordinance. >> i thinks that sounds like a plan. >> i think our hearing is over then. >> thank you for the comments

supervisor peskin and i will state the obvious and we have common goals here to adjust what the affordability rate is in the city and i am hopeful after this hearing there is more discussion and hopefully a positive result to this so are there other questions or comments on item 1 colleagues? okay. so at this time i will open up item 1 to public comment. i have a couple of cards. some don't state whether you want to come up for item 1 or two but first let me state those that stated which one. [calling speaker names] come on up. >> good afternoon supervisors and thanks for the opportunity to speak and from the outset i am tim colen on behalf of the 300 members of the housing coalition and our members

actually were intimate involved in the city's inclusionary ordinance in 2002 and it has been our policy ever since we should support an inclusionary rate that gives the most affordable housing and that's never changed . obviously we're concerned about where this is going now. in our experience it's unprecedented that a change is made to the inclusionary rate without feasibility analysis and i think it's essential that somehow changes of this magnitude that can have such profound impact on the housing market have to be grounded in real world data, and our position has been we have to follow this and follow the data. it will tell us where to go and the second thing is i think it's what would really alarm us and would be unfortunate is a policy that hammered which we expect

it will smaller scale, lower cost construction outside of the urban core. if we can't get something that keeps the incentives for that to continue to be produced but greatly accelerate it there's not much hope for us in terms of ever getting our hands on the affordability crisis, so i think be cautious. be humble. do the analysis and follow where the numbers go and thanks. >> thank you. next speaker please. if i called your name please line up towards the windows. >> good afternoon supervisors. my name is mark mcdonald. i'm a principal with dm development a local development firm. i am here today to support the mayor's proposal to request a feasibility analysis for implementing new affordable housing requirements. affording more affordable housing is paramount to our city in terms

of keeping it diverse, thriving and competitive and i am pleased to say every residential project we built includes these units on site but the requirements to double the requirements to 25% is untenable especially for smaller and medium boutique projects which we specialize in building. based on current costs and rents it will be challenging if not impossible to build housing with the 25% requirement without up zoning or subsidies and significant surtail market rate housing production and stifle the new units that the ordinance is intended to create so instead of rush this to ballot it's imperative to conduct a proper feasibility study and create affordable housing to responsible levels without shutting down the production of

all levels and devastating the industries and the construction trades and it's imperative we have responsible grandfathering provisions for projects that filed applications and made significant financial want haves to move forward under the original rules. thank you for your time and i hope you seriously consider the concerns and a thoughtful study and discussion as a city we could build more affordable housing, not less. thank you. >> thank you very much. i'm going to call a couple more cards. [calling speaker names] >> hello. my name is kerry miller and a independent reeps broker in the city and been here for four years and came from chicago initially so i am initially encouraged. sounds like people are working things

out. that's great. it would save us a lot of time. i understand there's a large need for bmr and inclusionary housing. there isn't a lot of discussion what happens for middle class san franciscan and make more than average middle class citizen in a city but the reality is they're renting until they buy somewhere else and they're buying a vacation home before buying in the city and market rate is what there is available to take care of the folks and like most places and not a lot of concern for these folks in the meetings but that's what the small time developer is doing and important to keep in mind intended consequences versus unintended consequences and the things that everything that goes to a ballot initiative will find the right solution and not necessarily born out over time. i think prop 47 had good

intentions behind it and now there is broken blases and bikes get up and walk away all over the city. it's important to keep in mind if you pass a blanket number, 25% across the board, there will be lots vacant indefinitely and i don't think that's what the city needs. the crisis doesn't need more impediment to development. that's all. thank you. >> thank you very much. next speaker please. >> hello. i am [inaudible] a local market rate developer. first i would like to thank everyone for being involved in the legislation. we are really supportive of any way to increase affordable housing within the city. however, we are concerned about the impact of the new legislation on existing projects. as an example we submitted a 44 unit project for planning almost two years ago and under the existing structure and if the rules were to change the project would be

significantly impacted and at risk. we therefore would appreciate and support some feasibility analysis for the projects to make sure it does what it's set out to do. thank you. >> i am carlos wallace. dear supervisors i appreciate your time today and the candid comments back and forth from both sides of the room and supervisor peskin you outlined a solution that we're looking for and a solution of common sense and as a personal note i care about the housing in the city. i lived here for 20 years and we have projects in the pipeline that would be negatively affected without a solution but i have kids growing up in the city and i worry about their ability to buy housing when they grow up. they're 13 years old

now and if they're not high income earners i don't know where they will be and have trouble buying housing when they grow up and it's a problem we need to tackle together but i think it's important to set a rule, make it clear, and be cautious when it's changed and right now you're talking about a big change that potentially can ice thousands of in the city now or the future so if you're changing the rule it has to be cautious because the markets will react and we could find ourselves ten years from now with little production. some projects may work at 25% but many may not so the feasibility study proposed whether via the mayor's proposal or some compromised ordinance that comes into place at the same time as the charter amendment is extremely important to move cautiously i think is very

important for people in your position. as a sign of respect to the city the residents and everybody that wants to solve the affordability crisis in the city. thank you. >> thank you. next speaker please. >> thank you supervisors. my name is joe and with avalon bay communities. we're the developer and owner of about 3,000 units in san francisco and currently building 300 more in the dog patch. i live in san francisco and earlier in my career i respond spent eight years building affordable housing with a non-profit and i know how difficult and critical it is that we're building new affordable housing . inclusionary housing is a key tool in the tool box to do this and it's critical to maximize the effectiveness of this tool. i am actually very eager to be joining with you and with city staff to be working on ways to maximize this most effectively. i don't believe it can be done

arbitrarily or by decree. it's a great way to get the highest percentage but the only way to get the projects paying that percentage is with a formula and careful look at feasibility. the mayor's housing working group is working on this. i think there is tons of potential and an opportunity for san francisco to be a leader in this area, and supervisor peskin mentioned the rocket science of coming up with a formula that is automatically. i don't think it's impossible and i think you know we can -- we have a lot of smart people in this room and other rooms in the building. i think we can come up with a formula that adjusts automatically with the conditions and it's the only way to ensure that the public gets as much it deserves from this policy while not leaving anything on the table. as one final note i am a market rate housing developer. i will provide a little anecdotal evidence. we control a piece of land in san francisco and would like to use it and add to the

city stock and affordable housing. at 12% we may be able to make it work under the market conditions. with 25% we can't make that investment. i can't get people to invest in the project. thank you very much for the time. >> thank you very much. next speaker please. >> good afternoon rules committee. we're saving nickels, saving dimes, working until the sun don't shine. since we left our affordable housing behind we're city blue bayou but we're coming back some day when we got more pay, and we're blue bayou, where the folks are fine and we make some dimes and the city shines with their fishing boats, with their lobster float if you could only see that we want affordability

housing. everybody plays with housing rules sometimes. there's no exception to the rules. i ain't lying. it maybe factual, maybe cruel. make it happen, won't you? thanks. >> thank you very much. next speaker please. >> supervisors, recently we lost a housing advocate in dr. espinola jackson and she she would make a

statement and affordable to who. i have been involved with this issue of affordable housing for the last 35 years. maybe before -- one individual on the right side was doing some sort of housing but the rest of you were not there, and i studied all the devious [inaudible] richard blum and jon stewart company and witness to what i say. this city has sold out affordable housing meaning you cheated on those people that made this city our neighborhoods and favor the developers. now, i represent the first people [inaudible] who have been in this area for 13,000 years. all this land was stolen so here we have the thrives deciding how to make

best of the land making millions of dollars. now, who challenged the academy of arts university who took so many rental units away? why are they giving all the developers the public housing that the department of defense paid for 100 times over? so that this middle class families and people that we really want to stay here in san francisco and indigenous -- and i can say that -- (off mic). >> thank you very much. next speaker please and before that i will call up the cards where they didn't indicate whether they're speaking on item 1 or two. [calling speaker names]

>> hi. my name is sonia and i want to take issues with peskin's claim earlier that life went on fine after the first inclusionary fees were instituted. life is not fine. we're in a horrible housing crisis. things are fine for housing associations and others but generally it's not fine. high fees can i have marginal development and that's the development we want the most, stuff that happens at the beginning of the cycle aka the end of the recession when people most need jobs and in the neighborhoods and low profit margin and projects at the end of the cycle and wind up being sold when they open at the bottom for a third off. those are the most delicate projects and those are harm

and when you willy-nilly set the fees too high and that's what i am really keen on you know based this on the feasibility analysis and it's true that the feasibility analysis can be cooked either way. right? they can be cook that you can afford a higher or a lower fee. it's obviously a political process. i would suggest airing on the lower fee side for the development. thanks. >> thank you very much. next speaker please. >> supervisors. i am build inc. and i want to thank you all for the concern about housing. i certainly share it. affordable housing is critical in san francisco. and two things i'm going to say. one is we've got to get the percentage right whether with a feasibility study or some other way. we don't want to kill the goose that's laying the golden eggs

here and get the grandfathering right we have a pipeline that is creating huge community benefits right now. i sit on the market octavia board and our budget in the next five years for the pipeline projects is $40 million in fees and directly impact that neighborhood. multiply that over the entire city and you see that throttling the production of housing at all levels of affordablity would be greatly deteleious to people living in san francisco. it's important to keep that housing pipeline going. the affordable housing market rate housing are linked. if we don't either delink them or if we stifle the production of market rate housing it is going no doubt will have a

chilling effect on the production of affordable housing, so please consider carefully what you're doing here, and find the right path for us. thank you. >> thank you very much. next speaker please. >> hi. my name is oz ericson and president of emerald fund. just one point before i address this issue. i was on the committee that senator leno's committee on affordable housing. i went to meetings for nine months every wednesday at 12:00 o'clock and contrary to what supervisor peskin says we considered economics of that affordable housing very, very carefully, spent an enormous amount of time on it and widely supported by many of the market rate developers contrary to

what supervisor peskin says. i was one of them. i worked very hard on it. it was very good legislation and that should be the way what we approach this legislation. we should do an economic analysis to make sure it's prudent. i have passed out a letter that was signed by the people who build, develop and construct well over 90% of the housing in the city. you can not build despite what supervisor peskins and i would love to hear the names of these individuals. you cannot build with 25%. it is impossible. it drives the land below zero. you can't do it. you have raised this twice that you talked individually. i have had budgets run by six of the market rate developers and flee of the affordable housing -- three of the affordable housing developers. it's impossible. you pass this. you kill housing. you layoff thousands

of union jobs. you should amend the legislation and include an economic feasibility into the ordinance. that's the way you should do it and grandfather the projects. it's too important for the city. thank you very much. >> madam chair if i may respond. >> supervisor peskin. >> because his comments were directed at me. first of all relative to the letter that just received because you're requesting my veracity. i have been contacted by folks that have never seen the letter and did not authorize their name -- >> you have been contacted by one person that said that by the swig company. i have a letter from the swig company authorizing it. that's true. they have done it -- >> [inaudible] >> all right. >> [inaudible] >> take it off line. that would be great. >> respectfully calm down. it's not correct. it's not the swig company but i would like

to also go back to 15 years ago because you're questioning my veracity. yes, there was a negotiation and yes it was done in conjunction with people in the development company as supervisor kim and supervisor mar and of the sponsors of this measure are trying to do. my point to mr. rich was it was done absent a feasibility study. it was a negotiation. that was the point that i was making. i suggest you calm down, but we want to get this thing right and we appreciate your input. >> thank you. and now if we can move on to the next speaker please. thank you. >> hi. my name is alyssa and representing spur. we support the mayor's measure for the feasibility analysis to inform san francisco's inclusionary housing requirements. inclusionary housing produced thousands of units since introduced in san francisco and

we agree there's more to be done and there is room for change. we agree we should periodically challenge our assumptions but finding the right level is key to maximizing the production of affordable housing. too low and not asking enough and too high developers will not produce housing at all levels that we like. it can be done thoughtfully and smart based on the controller and the department and inform discussion that is currently under way. spur hopes that the discussion reports market rate and affordable housing rather than pitting one against the other. we continue to believe that what it will take to drive down housing cost is a set of changes to enable the production of more housing at all price levels. supervisors we encourage you to incorporate teasablity language into the charter amendment currently on the table. thank you. >> thank you very much. next

speaker please. >> good afternoon supervisors. my name is lea chang [inaudible] and in san francisco doing development for 25 years and an advocate for affordable housing but we're concerned about the proposed amendment on the table right now. first increasing the percentage as you propose is not economically feasible to obtain any capital projects -- [inaudible] you have to show a certain return and what you're asking those returns are not achievable. the end result would be end to housing supply and bmr supply and on site, off site -- in lieu fees. second any policy that we believe needs to to be made with this significance requires a analysis and feasibility study and we highly encourage that the

supervisors consider such and last that we ask that you consider the projects in the pipeline be grandfathered in and not unreasonably subjected to a significant change like this. we appreciate your time and ask you to consider these points. thank you. >> thank you and at this time if anyone wants to speak on item 1 on the agenda please line up by the windows and come up for public comment. >> thank you supervisors. my name is patrick kennedy and the owner of panoramic interest. . share the desire to produce affordable housing in the city as well and have focused our firm's efforts building affordable units by design, micro apartments and the similar. i would like to bring to your attention a to --

potential issue and cost to hawkins and that bill as you know limits rent control on new construction and old construction, and although there is a san jose case that upheld inclusionary requirements it specifically limited to for sale units, and if you double the inclusionary requirement and make projects both going forward and the past ones financially infeasible i think there's a very good chance you may drive developers to the courts to question the legality of the inclusionary requirements in san francisco in light of cost to hawkins. i have been part of the development community here supporting the 12% set aside and the current efforts to see whether more can

be done, but i think to summarily decide to impose a 25% requirement could in fact be the straw that breaks the camel's back and throw all of this bmr question into the courts with nobody benefiting from it. thank you. >> thank you. next speaker please. >> good afternoon. my name is craig hemberg with ddt. we're a local real estate investment firm. thank you for the opportunity to speak today regarding the mayor's proposed feasibility analysis and inclusionary housing requirements. during the previous recession our firm purchased several of the market octavia freeway parcels from the city. we then spent the next five years working very closely with the neighborhood and local jurisdictions to design and

build multi-family projects and help to sell the vision of the market octavia plan. all of our projects fall in the smaller and moderate scale, 35 to 50 units and for sale condominiums. we included on site inclusionary units in all of our projects and very proud to say that. in preparation for today's hearing i reviewed our performance to better understand how increasing the on site inclusionary component or percentage 25% and the revenues to off set the change. on average our units sold below the current average per unit sale price of 1.1 million dollars. our average unit size was 150 square feet in size. in order to make the same projects work with a 25% on site inclusionary

percentage our average unit prices would have have to increase over 140, $150,000 per unit. essentially wiping out our land base in the project so they could be zero and our projects would not come to the same returns. unfortunately given current construction costs and increases we have seen over the years north of 20% long lead times and the politicized -- (off mic). >> thank you. sorry. we have to give everyone the same amount of time. next speaker please. >> my name is jon stewart. i am a resident of san francisco and principal in our company and been involved with affordable housing for 30 years. we don't oppose the 25% threshold per se. in fact with a 12% let threshold the

way it's turned out in the market is probably too low. we think there are cases where deals could go through in excess of 25% particularly with public support. we oppose the one size fits all. what are you going to do with a small in fill project? let's say it's a lazy asset to bring into play and no economy of scale, 50 units. what is the unit if you have a environmentally challenged site and high land basis because you have to clean it up. what is the plan for the market changing in two years when rents plummet faster than costs? my recommendations are four fold briefly. if we solve this problem through an ordinance and i am in agreement with supervisor peskin we shouldn't do it through the city charter. let's make a provision for change at a global systemic

level, the number for all projects. one. two, let's make a provision of change at the project level and there are good deals you don't want to baby the baby out with the wash on so i think you want to look at two folds. let's address the grandfathering and lastly i hate to say this and presumptuous and bringing the for profit and non-profit communities in and go to a bond school. remember the adage from divorce lawyers and a muses me -- [inaudible] leisure. >> thank you. and last call again for public comment on item 1? >> good afternoon. my name is david sternberg, i do have

comments about the second item which i'm going to hold until that comes before us but regarding the nekts nexus study i still to this day don't understand why real estate developers have to bear the burden of all of the affordable housing that the city supplies. i don't understand why people that benefit from buying houses for $50,000 and 20 years later they're worth $2 million why they don't bear that burden? why people that flip existing houses bear that burden? why microsoft or any of those companies that maybe in the city paying payroll tax and paying taxes on that why they don't bear the burden? i'm not an attorney. i'm not a politician. but it seems that there are three forms that could generate

an ongoing constant amount of money for affordable housing, and that would be transfer taxes, payroll taxes and property taxes. again developers are here d business the same as everybody else in the business and i have been an architect in the town for 40 years. most of my clients are building small to medium projects. they're not wealthy people like so people think. they're not land rapers. by the pay city fees and capital gains taxes and need money for the next project you're poor again, so i just don't understand. maybe somebody can explain it to me. thank you. >> thank you very much. any other members of the public who wish to comment on item 1? seeing none. public comment is now closed. [gavel] and colleagues any additional comments or questions on the

first item? supervisor peskin. >> i just want to make one kind of overarching observation which is i'm delighted that we all agree that the number should go up. i appreciate the gentleman that said proceed cautiously. i agree but where was that caution in 2012 when the market was already going through the roof when some decision was made to reduce the percentage from 15 to 12%? where were the advocates who claim to care about affordable housing and claim to want to obtain as much as is feasible where were they in 2012? mr. rich with all respect, and i mean it sincerely. i think the administration can do a bond at the same time that it can be do a feasibility study. they're not mutually exclusive. i am

delighted that we have sparked this conversation. i am delighted that we have sparked it six months earlier in june rather than november because i don't think we can or should wait and i for one look forward to working with my colleagues on the board and the administration to find that sweet spot. >> thank you. supervisor kim. >> i wanted to respond to a couple of things. i know supervisor peskin mentioned this earlier but i have talked to developers also, personally more than one and 25% is feasible and they can do as long as it's baked into the deal as they move into the process and i am happy to make sure they speak publicly and i think we need to be careful when we scare people about job loss. i think that's inappropriate and that we're scaring people about the future and depend on construction. construction is doing well in san francisco and i never seen

an inclusionary housing policy that has hurt our housing construction and what hurts it is our economy. it's financing. it's not building more affordable housing and mad rot housing and for the workers in the city today. i want to address who contribute toss affordable housing? first when we reformed the business tax a few years ago and moved from payroll tax to gross receipts we did actually dedicate a portion to the housing trust fund growth. we have also looked at increasing the real estate transfer tax every few years and in fact i have two ballot measures in the hopper today and 1% increase to the hotel tax where our hotels and tourists contribute to helping us house family homelessness, the fastest growing demographic in the community today. that hopefully will be on the ballot in june. in november we're looking at

increase in the transit tax and luxury building and $5 million or more and $25 million or more and everybody is contributing to the affordable housing crisis and not just the developers although they play a key role as they build and profit in the city we expect them to give back to the city. yes we want you to build more affordable housing so to say that only one category folks is targeted to build affordable housing i think is incorrect so just wanted to address that point. i know we will make further comments as we speak about the next ballot initiative. >> thank you. supervisor cohen. >> thank you. my question is through the chair to supervisor kim and my apologies if my question makes you feel uncomfortable but in the interest of transparency and discourse in the conversation who developers are you talking to? who has agreed and acknowledged that 25% is doable?

>> supervisor i am happy to speak to you off line and get the developers to speak publicly themselves but i have definitely heard from a number of developers and we should clarify when talking about 25%. 15% is always what developers have done and that is building affordable housing at 55% of ami and below. what we're merely asking is build another 10% for middle income housing and requires less subsidies and much of the market rate housing should be affordable to middle income housing and it's not and they're building at two 70% of income and seeing the numbers developers are often building for housing of four that make $270,000 a year and i don't know how many people in the room that make that much in san francisco but it's a problem and a problem that developers say theant

can't build this housing and make 80 to $100,000 a year and can't live in san francisco and if developers can't build to this category and we're in a lot of trouble but i have to remind the board and many in the room that over ten years ago when talking about increasing inclusionary from ten to 15% developers said over and over again it would kill all development and it did not so i think it's important as we continue to move forward and push the envelope what it means to build in the city and yes we need to do the analysis. yes, we need to make sure everyone's at the table but we all need to give a little more. >> so i guess i'm going to take a page out of your book supervisor kim. you didn't really answer my question and i think it's fair for us to put it out in the public. i too talk to developers all the time as chair of the land use committee and being the supervisor for district 10 there where there

is a plethora of development happening and i don't that as a good thing but it's a reality, a reality that i have a pretty good ear with the development community, and i quite frankly and i will go back to everyone, big and small ones and surveying them. i want to know which developers are saying that 25% is certainly doable. the other thing and i want to make sure that i heard from the mayor's office correctly they didn't say nobody is able to did but my take and understanding is most of the development community wouldn't be able to do this. i'm not looking to do favors for the development community and we need to come to the right number and supervisor peskin nailed it and you put on a measure and the mayor's office put on a measure and it's bullshit and we need to keep it going and there are important things that we need to

deal with. [applause] thank you. there are important things that we need to deal with, homelessness being one and talk about building for them and the affordable housing crisis. it's frustrating that we have a special rules committee and all these people come for the conversation and admittedly we can deal with it by pulling it off so it's frustrating to sit here and deal with this. let's get on to item number 2 and get on with it. >> thank you supervisor cohen. any other questions or comments from colleagues? okay. seeing none can we get a motion to file item 1. >> yes. >> second. >> moved and seconded. the hearing is filed and now call item two mr. clerk. >> item two is a hearing for the initiative ordinance by four or more supervisors for the june 7, 2016 election ordinance amending planning code to set

forth the minimum inclusionary affordable housing fee requirement. >> thank you. do any of the sponsors wish to make comments on this? >> i think it's been made. >> any department staff wish to comment on the second item? >> sorry. >> i'm sorry. mr. rich. >> we wanted to quickly go over a couple of things and i wanted to preface this we definitely understand there's been a lot of discussion about compromises and discussions that should occur. i am obviously not authorized to have a negotiation sitting here in the board chambers but we understand it will happen and we understand there's a lot of stakeholders such as the construction trades and others that want to be part of that conversation. i did want to spend a quick moment having my colleague describe and we will do it quickly because it sounds like this is a short presentation why we are concerned about a 25% across the

board number. again very clearly there are times when 25% will work. it will certainly work when there is a lot of public investment in a project. it will probably also work sometimes anyway when there is significant up zoning from 40 feet to 200 feet and may work but i wanted emily to take you through quickly the overall concern with 25 percent. i do want to point out unlike the charter amendment which we're not talking about today the initiative ordinance before you today can't be changed and if put on the ballot by the voters it could only be changed by going to the ballot so we feel the obligation to give you the results of a preliminary preliminary analysis on the 25% because it can't be changed in the form before us today so go ahead. >> and if i may -- >> supervisor peskin. >> before she speaks let's just be clear, and i have been remarkably transparent. had

the previous item not been introduced on january 19 at 4:24 p.m. this item wouldn't have been introduced ten minutes later. that's reality, so i just want to put that on the record. >> certainly. we just have to respond to something before the committee. >> i actually have a question for either sponsor of this particular item, number two. i mean out of a very basic level can you talk how it is that we arrived at the 25% across the board? any sponsor, supervisor kim or supervisor peskin? >> i think supervisor kim touched on it and as you have heard and scene and interestingly enough when i was quizzing mr. rich about projects that went far north of 25 the response was "those were on city land. those had been conferred major height increases or density increases or what have you." that doesn't address the

situation from last week relative to the project on bryant street. here's a perfect example and it's not a 25% example but we had a situation on december 8 with the board and rejected a project on van ness and the financial terms and low and behold said the developer can do 8% more affordable housing at the same sale price the city is offering. the reason i am telling you this it's our job to move the numbers as high as we can and still have market rate with affordable housing occur. we know that the numbers can and should have moved north of 15 for 55% ami and below, and as supervisor kim said we believe that creating an inclusionary amount for middle income actually -- because it

requires significant less subsidy is feasible and while we're not naming folks -- excuse me, in the fraternity, that told us they believe it's feasible going forward because ultimately it's a function of land costs, and yes we have heard from at least one individual that says at 25%, 15 and 55 and ten at 120 that you would drive land costs down to where the land cost is zero. that is absolutely not true. nobody in the business is saying that except it's scare tactics, hyperbole and brought a wonderful conversation and to all of us agree that prop c is a conversation of the past and our job to find the sweet spot. >> if i may add on. and i appreciate developers or examples going beyond the 15%

but what analysis went into how you arrived at the 25%? supervisor kim you're the sponsor. supervisor kim. >> so going to the charter amendment and the ballot initiative that is before us today the main premise of the charter amendment is what we of course all agree on and get rid of any ceiling in the charter that restricts the amount of affordable housing that our developer community can build and currently set at 12%. we are bringing back our original percentage point which we know builders can build at which is 15% on site and on top added 10% for middle income housing and we believe developers can do. with that said because we want to spend to make sure these projects are feasible for broad range of developments for 25 units and above we set this as merely an interim controls and the important part of the

amendment is read the board to be flexible and how much affordable housing our private developer community can build and in many cases as mr. rich points out with city subsidies and achieve higher and 33 and 40 of affordable housing housing. the measure before us today and sets a floor of 25%. we are again open to withdrawing this measure with the krawrl of the other measure as well and we know there are conversations with projects in the pipeline that depended on the previous formula and far enough down the road in their process where it would be difficult to change their pro forma. that is one piece of the negotiation. the second of course is what is feasible for the wide range of developments to build in the city? what can large and medium size projects do? of course we

excluded projects 24 and under because we believe they can't build more than they currently do. that is really the conversation before us. i don't think in the room is trying to halt development or layoff construction jobs. what we're trying to do is push the envelope on the discussion what has become the number one issue in san francisco today which is maximizing our affordability and building the most affordable housing and middle income that we can and these ballot measures kick off the dialogue and ensure that we have that conversation so our offices have already started meeting with the developer community to see what we can do and again i want to reiterate we can pass this all via ordinance as long as we remove both ballot measures that are before us at rules committee today. >> okay. i appreciate and hope that certainly there will be more discussion. i think the main question again is what kind of analysis was done behind the

25%. i will just say that i appreciate us trying to incentivize building housing for middle income, absolutely, but if there is a percentage that means that potentially we may not see that that is concerning to me so again i wanted to what analysis went into the 25%. >> mr. rich you had something. >> through the chair if it's okay i would like emily to do what i said and a quick presentation. i want to comment on supervisor peskin for the land going to zero. staff hasn't said it will go to zero but below the current use would support and retail rents are high in san francisco. if you have a piece of land with a retail store on it or a parking lot that is worth a lot of money so it doesn't have to go to zero for development to stop, but just below the current value of

the land and with lots of sites and commercial corridors you have i business or parking lot bringing in hundreds of thousands a year and capitalize that and get a piece of land and emily will show seven, eight million dollars and in many cases a developer under 25 couldn't pay them. that landowner will not sell the land so that's the issue. it's not about a zero land value. >> before the presentation i want to ask are you saying that development cannot do 15% affordable and 10% middle housing in any scenario? >> no not any scenario but in many scenarios that's what we're saying. >> so you're saying in some scenarios it's impossible for developers to hit 25% and it's a surety. >> yeah, that's what i am saying and based on a surety and looks like many projects can't

hit 25%. that's correct. >> all right. let's move to the presentation. >> i will be brief and i will go over the slides and part of the record and in your packet so as ken mentioned we had an economic consultant teed up for the feasibility study with the working group and do the analysis of the 15% plus the 10%, the 25% proposal so to be clear this isn't the feasibility study but backed up by extensive research by the consultants and vetting by the mayor's working group so you find the report in the packet. it's also posted on-line at the mayor's office of housing and community development website. the consultants looked at a number of types and midrise, low rise and apartments and condos and studied the inr inclusionary rate of 25% and the in lieu rate of 33%. i will walk through

one case as an example. it's a midrise apartment project so seven story rental building and assuming it has on site inclusionary and 12% under today's requirement and 25% under the proposed requirement, so just as the first exercise we want to show what a rate of return would be for this project under today's market conditions so the industry standard for a return for this type of rental project is return on cost and it's a slsmcasion and divide annual revenue and the development costs and that's what an investors looks at when deciding to give money to a project or not worth it and give the money elsewhere so with this building and the 25% the preliminary analysis showed 4.nine return and substantially

below what financial institutions are targeting today and i would stress is a historic low and based on the interest rates are today. so that difference between the foirntd 9% and the five and a half to 6 percent is significant and it strongly suggests that a developer who is trying to build this project wouldn't be able to get financing. the project wouldn't be able to go forward unless of course they found a way to adjust one of the other inputs and the return on cost equation so looking at revenues adjusting the market rate housing revenues line is -- you know that is set by the market the affordable housing revenue is set by the inclusionary policy and based on the 25% in this case so they're not things we can adjust. construction costs are largely driven by regional factors and that

leaves land and part of the discussion today so if uktd change you could convince the developer to go down in land value and change the value so that's what we looked at next. we took -- first of all we studied this project under the current rates of 12% and calculated a land value that a developer could reasonably afford to pay a owner and hit the five and a half minimum return on costs. it came out $138,000 per unit and vetted with the mayor's office working group we found that was really in line with what their comfortable paying for land today. we then adjusted the land value -- sorry, plugged in the 25 percent affordable housing requirement which changed the top of the equation, the revenue line. we kept the return on costs constant and the minimum of five and a half percent and see how far land value would have to go down to

keep that constant. for this particular prototype it needs to drop by 40%. again the land value that ken mentioned we described in the previous presentation for that same type of same piece of land, same type of projected retaining a retail use, you know that $8 million value comes up about $130,000 per student so the 82,500 is substantially below what the land is worth to the owner running their current business. this is just one example in your packets and the report posted on line we show the land value changes for the different types and it varies by building type, by tenure type. and the feasibility analysis of course would explore that further. there is one more thing to synthesize from the numbers and how much a developer could pay

for land under the new policy if they're planning on building on site unders versus the in lieu fee and what we found with the exception of one product type, a low rise apartment building, the economics will work notably better to do the in lieu fee rather than built inclusionary units. >> what do you mean by low rise if you could break out the low and high? >> we about it based on construction type and why we segmented it and construction costs are higher when you get into a taller building type and it's in the packets. i believe we're at five stories for low rise and seven for midrise -- i don't have it in front of me and 12 for high rise is the minimum threshold. it maybe lower for high rise in fact, but in any case only when you have this low rise apartment building which

will have the lowest relative construction costs does it make economic sense for a developer to do the on-site program and in every other case when you have the choice of 25% on site or 33% in lieu it makes more sense to do the in lieu so what we could end uch having is almost all of our projects deciding topate in lieu fee and very few of providing on site inclusionary and as i said in the previous presentation we think would be a good policy is a mix to serve as many families as possible. that concludes this. i wanted to give an example now that the numbers are out there. >> thank you very much for the presentation. colleagues any questions or comments? okay. i just have one quick question. i know in this particular initiative measure there are three extensions from the requirement so for example one if they're on a site and a

height limit has been approved by the vote of the electors. secondly if they entered into a development agreement and third if they procured a final discretionary inclusionary approval and i don't know if this is for planning staff or who else and wanting to know what the exception covers and currently in the pipeline or why they're in here? >> good afternoon supervisor. john ram planning department. i don't have the numbers on that in front of me but there are a number of projects that received entitlements and meaning planning commission approval or staff approval that aren't yet under construction. they're in the process of being approved primarily through the building of inspection and i don't have the numbers in front of me and i don't know if we have them here

either. with the other question that was certainly the exceptions they wanted to put in there. i will say i am of staing a working group and the mayor's request to look at which should be done and looking at entitlement application to actual entitlement so there's a range of options on the table that we're discussing right now. >> thank you. supervisor kim. >> thank you. this maybe a question for director ram or ken rich, but in looking at an ordinance which is sponsored by our president and also our mayor which increases affordable housing in the viz dare i don't and fill more corridor and to 23%. i know this is in case where the developments elect to go to the higher density or height in the rezoning and i am curious that in kind of the greatest height or bulk that we

could provide in this rezoning what would most of those projects qualify? would they be low rise? midrise? high rise? >> you're referring to the visadaro corridor. >> yes and fillmore. >> in that case the rezoning was not an increase in height. it was removing a density limit. >> okay. >> which we did in planned areas so that had a dramatic effect on the area and what could be built on the site and the controlling factor is not the units per acre but the height and bulk and prop c allows us to ask for more affordability -- >> i think that's a positive thing. i support the direction that this legislation is moving in, but if we take out the constraint on the density what would most of these projects qualify as, low rise, midrise, high rise with the mayor's office? >> i believe most are below

65 feet so i guess midrise per your analysis if i have that correctly. >> (inaudible). >> they are low rise and based on the building type i guess. >> so we believe that midrise projects can achieve 23% affordability some. >> maybe it's low rise affordable itd. -- >> i'm sorry. i don't know if that qualifies under the analysis. >> i'm sorry. is there a further question. >> yes. this ordinance states that certain types of buildings and elect to no longer have the density bulk constraints and reach 23% of affordability on site and i am curious to these developments and what are they,

low rise, midrise, high rise? >> i think they're generally low rise and the zoning in there changed and with that you do as (paused)i wasn't involved in that piece of legislation but this is voluntary. a developer would have the ability to look at going by the old rules and doing fewer units and the affordability and the density and affordability and it's a choice made.

>> i appreciate that. but if you're putting forth legislation to increase the affordability and it's not symbolic and developers will elect to move the density constraint and build at 23%. that's the hope; right? so i then move to the next step is that you do believe that low rise developments can hit 23% affordability, that it's possible? >> again it's possible. >> i heard previously was that you believe that certain types of developments could never achieve 25% -- >> supervisor -- >> and -- in other cases you're saying -- >> supervisor -- >> and please let me finish. >> and that's what i got from the presentation and never achieve that and we putting forth legislation that developers could do that. >> the situation there supervisor -- the situation

there caught us by surprise. maybe it shouldn't have. the land was bought before there was a inc.ling of a zoning change and assuming that you had four, five story height limit and in that zone fairly limited ability. out the sites and not like doubling the height. if you left the density increases the same but doubled the height you would get the same number of units and in a case there has been public subsidy conferred. it can take two forms. one is cash and one is more development capacity. these parceled doubled or tripled the capacity and therefore it could work, yes. >> what would prevent the landowners selling on the market with the additional value conferred?

it would limit what they sell for; right? >> i didn't understand the question. sorry. >> you are saying that the land was prebought i think the assumption is that the landowners will develop because there is a wind fall and it's limited (pause, change of captioners).

>> i'm hearing that we are actually in agreement in this room that what we are impact the the greatest when it comes to land based on affordability is land value. we have how we maximize this is actually grandfathering. the real issue is the grandfathering issue and not in the future where it will impact the land sale.

>> in order to make that statement be true in my opinion you would have to assume that most parcels in the city could get a density bonus like the ones in dwis droe, when emily made the presentation she just made, she assumed a doubling, i think more in this case of a doubling of a number of units done on the parcel. we said from the beginning, when you begin offsetting, it sometimes works. you could propose that the 25 come along with a doubling of the zoning and that would frankly be a lot closer in working with more cases. >> it wouldn't be fair to say that it's impossible for low rise projects to achieve 20%. it's possible, just depends on the number of factors required. >> it's a factor and in general a subsidy from the city from a

development capacity. >> it would not be impossible ? >> with those conditions i just stated, not impossible. >> thank you. >> thank you, colleagues, any other questions or comments? okay. i'm going to open up for public comment. please lineup. names names ( calling speaker names ) >> i'm going to call a couple more cards. >> committee chair, before we go to public comment. i have a question for you. i don't know if this was already proposed. i wanted to know if owd did a ballot analysis of this measure? >> that's what we presented. there is a report, a much

more detailed report in your packet. we presented the review of that. >> did you answer my question? i didn't hear it. did you answer the question that 25% is not the right percentage? >> i think our position is no percentage is the right percentage. we are hoping for many projects that might be built in this city. >> do you have a percentage that would work? >> not until we complete the feasibility study. >> how long is the feasibility study going to take? >> a few months. okay. any other questions? okay. seeing none, let's go to public comment.

public speaker: hello. we are aware that the ordinance follows a legislation but it's a 25% requirement for the ordinance. if the ordinance is required for inclusionary housing. it will make matters worse. it's important to ensure that the 25% requirement is not already too high. the information gives us no -- assurance that 25% is not too high. to ensure that any increase requirement for inclusionary housing does not mean that fewer units means inclusionary housing. thank you. >> next speaker, please. public speaker: we are encouraged by supervisor's presentation hearing today as essentially being

part of our -- as being a bargaining chip that would drive negotiation with regard to more rational higher housing percentage. >> i myself was astonished at the number. it could be easily higher. it would be higher in different degrees depending on circumstances so that it would be a calculated result and where and when and how much it could be increased. as noted we did a public records request and the information we received, the actual feasibility had been considered. we are not confronted by private assurances from developers

to say something publically that i have usually said only in labor circles and with all due respect with never underestimating a capitalist stabbing you in the back. in the 1980s supported or opposed an extension of an exemption for mission bay from the prop m requirements. so these are possible that with developers who feel they will be grandfathered in and the properties with more value and the rents higher after deconstruction of the measure that frustrates construction. we would ask you to take this into consideration. thank you.

public speaker: good afternoon. my name is tony rodriguez. my mom and dad met in san francisco. they got married, they had great paying jobs and bought a house and raised four of us. i like them followed on with the american dream. i went to school here. joined the union jobs that paid well. met my wife and got married and bought a house in the city but now that dream doesn't seem to be there for my kids. my two kids who are narcotics, -- nurses, they went to live outside of the city. my other kids can't even buy a house let alone rent a house. i am for affordable housing. what really scares me is this cat and mouse game. we are held hostage, my kids

are held hostage and the rest of san francisco are held hostage by this game. i understand the need for affordable housing and the 12% being way too low, but to put forth something that the voters are going to vote on and not do a feasibility study. i don't understand that. the only thing i have seen so far is that it's going to hurt. every report i have read it says it's going to hurt. so why the rush? it takes 10 years to approve a project and yet you are rushing through this like it's got to be done tomorrow. instead, do it responsibly, get the study out there. that's your job, not our jobs. say this is a good ordinance. you need to do that. be responsible, thank you. >> thank you. next speaker please. public speaker: hello.

my name issalia from spurs. there is more information based on what we have seen. from staff, we do not think that 25% is viable. imposing this requirement will disrupt the production of many thousands of units that are in the pipeline plus units that have not been built yet. some community members don't believe that market race housing plays a role in affordability so they don't care if the numbers are too high. we have to remember that most of us won't win the lottery affordable housing or otherwise and we have to navigate our way through the unsubsidized market. this will apply the only way to impact affordability through much of the population. it does matter if you bring it to a

halt. 25% may sound great, but we ask you to insure it is the right requirement. it should support both the market rate and affordable housing rate. we urge you to withdraw this measure and ask you for the language acquired for this analysis. >> thank you. i think i see supervisor kim on the roster? no. okay. after public comment. all right. i'm going to call a couple more speaker cards. ( calling speaker names ) >> public speaker: good

afternoon, my name is john, local 38 union. over the last few years our building and trades union have taking their work. these city residents will take their income and search for better houses for their families. we want these city residents to stay here in the community to bring prosperity and example of accomplishment for them. to get inclusionary housing right and i will vote for all of us. get it wrong, those will face long commutes and strains for themselves and their families. right now we believe that 25% housing inclusionary requirements gets it wrong, thank you. >> thank you, next speaker, please. public speaker: thank you. on behalf of the housing coalition. a little history. i want to stand up for

planning. the facts are that in 2011, the city delivered 269 units of which half were for affordable redevelopment. in 2012 it was starting to get a little better, but you have to remember at that time that was the greatest regulation that anyone of us can ever remember. non-union was at 35%. staff was down to skeleton crews. there would be no distinction that there would be housing boom in 2012. we are crawling out of a huge hole. i would say on the 25% by the same logic, 50% would be better on housing. we agree that affordable housing is necessary. what is it so special about the 25%?

then on this issue of the land price taking it down to zero, i'm your last expert. this is not my area of expertise, but i assume the analysis. what's clear in the limited cases that been analyzed is it takes residual land value, it takes a hit of 25, 35, 40%. you have seen the example here. i know there is this bond myth that we can do this and the landowner will take the hit on the price. what i hear again and again and again from our members is that it's not remotely how it works on the real world. you are telling a landowner, what i offered you last week, i will pay you 40% less. that owner is likely to say, that parking lot looks pretty good right now. we are going to start to see falling applications.

public speaker: morgan. i think we should proceed cautiously. i know we do need more affordable housing and you know the market rate is real high, extremely high, but it's driving the market right now. i remember 8 years ago when all the other surrounding cities and other counties, you know the housing thing just collapsed and this thing was the only thing that was keeping all of us working, you know,

realistically we need affordable housing and we should proceed cautiously and don't monkey around too much with this market because there is a lot of people getting jobs now in the inner cities, in some of the inner districts and bayview with city build and it's doing a lot of positive things. you know, i think we should proceed cautiously to this. and be careful. >> thank you, next speaker, please. public speaker: good afternoon. we recognize and support the

need to include housing mandates but we understand the effects of the members livelihoods. the question is not to just raise the levels but to maximize the production of housing and help meet the overwhelming needs and demands that is driving much of the displacement in town. carpenters in local 22 are asking the right to the inclusionary housing by reform of regulatory analysis. those who higher the contractors as well as the investment community including pension advisors worry that the proper design would hurt our numbers. we are concerned that as

currently designed, this change will also incentivize developers to drive down labor standards for all workers and cut opportunities for local workers to enter apprenticeship programs. we also continue to work on solutions and proposals to increase affordable housing production and support labor standards for construction workers and provide opportunities for san franciscans enter the trade in sustainable construction careers. as you move forward, we want to caution you that simply moving this aside is essentially approved. 25% is still something. >> thank you very much. thank you. next speaker, please.. public speaker: i want to state a number of facts.

the last four housing elements that was sent for us to review, each of those housing elements are before our courts because our faulty documentation. so, from mac russ to mr. green. i followed them, read all of them and they truly do not address affordable housing. so we can revive it again and again which has been done here, but the most important thing that i want the planning department and those so-called experts is your heart in the right place. i don't see that. i don't see that. it's how you initiate things, keep things hid from the public and when it comes to affordable housing you have the lottery system and

i went to the system. it's a gimmick. even if you have very good credit. whose got the money to put $300,000, $400,000 down to make reasonable mortgage payments? who in this city? so we are bluffing ourselves and the people at home are hurting. in the last 10 years over 40,000 distant families have left san francisco. if you want to build higher type of housing for the new comers and destroy our cities, destroy the culture, destroy the hard work of good san franciscans, think about it, think about it. too many gimmicks. >> thank you. next speaker,

please. public speaker: good afternoon, again, david sternberg, architects. first off, supervisor kim, i appreciate you responding to the comments that affordable housing financing may come from other sources, but it sounded like it was minimal at best. so i should still like to state my opinion. i don't understand why developers have to bear the burden. but having said that, i walked into this meeting having no idea that these were not serious proposals, that they were just posturing from one side of our government to the other. now that i have heard that, let's remove them. we've done it before. we've had committees from both sides

with anti-bills with economic input. let's get to work. thanks. >>supervisor katy tang: thank you. next speaker, please. public speaker: good afternoon. villalobos, 251. if you go forward, i think it's responsible. we have names of developers supporting this. i don't see any. i would like to see one of them. and again, i would just like to echo everybody's overwhelming opinion on this. like somebody said, 25% of 0, it's still zero, you are killing jobs. thank you. >>supervisor katy tang: thank you. next speaker, please. public speaker: good afternoon, supervisors and planning

department. i think this is one of those rare things where everybody's working hard to come to a resolution and i believe both sides have already stated clearly that they have a resolution, mr. peskin, we are happy to have you back and sticking up for the city which was long over due. but i believe peskin and supervisor cohen said it best which is withdraw both legislations and let's do it responsely. i applaud the planning department and board of supervisors for coming up with a resolution. let's move forward and let's be done with this. thank you. >>supervisor katy tang: thank you. next speaker, please. public speaker: good afternoon, supervisors. to what the last speaker said, we pull both legislations because if owners from one to another,

maybe we should cool off and think about the legislation and let's walk together. i think we all agree that something has to be done. it how we achieve the goal which will be the most important of all. if we make it too trek yann -- it doesn't make things better. maybe it's kumbaya time. let's walk together and drop what it is right now. let's get back to the table and sit down and work it out. thank you, supervisors. >>supervisor katy tang: thank you. next speaker, please. public speaker: supervisors, ken buckley in san francisco. i will keep it short. i think i like what cohen said. i will leave it at that. thank you.

public speaker: supervisors , i'm from san francisco. i want to give an example of my own personal experience. i have a project i'm working on now. the project is a 15-unit project that we've had since 2010. after 2012 we were working on a financial project. prop c passed in 2012 and it was cut 12% and low and behold we got financing. i know it's worth only -- this goes back, right? i have another project in the pipeline okay that's coming up around 20 units. i don't know where we are going to get financing. that's all i'm saying. thank you for your time. bye. public speaker: supervisors, good afternoon, john with the residential

builders. i appreciate the experience of initiative to work with the legislative branch to figure this out. i thank everybody for coming together here to get this right. we have made several attempts to the 2002 to 2006, through 2012. if you look back at prop c, it was bad. if you look back at 2012, there were construction back in 2010. no financing could be acquired. at the same time we developed and what is being dmantelled by the state and to get funding and building affordable housing. at this time we should look at many different aspects. one size doesn't fit all.

i look forward to get things right this time and hopefully everyone can get it together and figure this out. public speaker: sean, good afternoon. i'm happy to hear the words of a withdrawal. that would be very encouraging to everybody. this conversation ultimately deals with grandfathering, on-site policies, off site policies and land dedication policies. it needs to deal with different sizes and scales and different types and different economic conditions. sometimes we are in booms, sometimes we are in bust. it would be nice to have policies that address this. different neighborhoods have different resale values. different deal structures. sometimes people get high

bonuses, sometimes people get land, sometimes people get cash. these policies need to be nuanced. it is almost possible to achieve this in ordinance. this conversation when it happens needs to have every group at the table. hopefully that conversation will strive to maximize the percentage of affordability. deal with the grandfathering issue. create a new set of rules that we can rely upon and they will not change in the middle of the game. most importantly, we need to create a policy which creates a stable economically viable projects for our members so we can provide for our families. that's what this needs and unfortunately this ordinance or anything short of gathering around the table will not achieve it. thank you.

public speaker: hello, supervisors, any other name is greg. just to reiterate some of the comments that have been said. i would ask you to go back to the drawing board to reconsider what has been also been put out. >>supervisor katy tang: thank you very much. any other public comment on item 2. is there any additional public comment? seeing none, public comment is closed. >> what marks the sentiment that everybody seems to be expressed to come through and both matters will be withdrawn. the charter amendment was introduced originally on the 15th day of december of last year which is about 2 months ago. we could have done a few, according to you, mr. richards 2 months to do this report. that report could be done

now and we can be negotiating the feasibility report. please go out and get one. we'll have one by the middle of april. it will inform our discussions. let's see what process i think members of the board would like to work with you to ensure that happens. i also want to note that yes, nobody realized that in 2012 the market would take off. that was 4 years ago. the way i look at this is that a lot of folks in the development community have had at a minimum a 3% inclusionary holiday for 4 years in one of the most robust markets that this country has and maybe one of the most robust markets we have seen since the gold rush. i want to take that into account. what am i saying? it's that some of

these individual corporations have made millions and millions of dollars. mr. sternberg who asks, who is paying, after the passage of prop a which we all supported. every proneers -- property owners in san francisco are paying, many are paying for the next 30 years. everybody is shouldering the burden and there are handful of individuals who have a turn to pay as well and they have had an inclusionary holiday. let's make it right. >>supervisor katy tang: thank you. supervisor kim? actually i think supervisor peskin made all the concluding remarks. so i will submit. >> all right. thank you. i guess there is a lot of work to be done. thank you very much for being here today and so at this time then i would like to see if there is a motion to file

this hearing? >> so moved. >> all right. seconded by supervisor mar and we'll take that without objection. this hearing is filed. mr. clerk, anymore items today? >> there are no more items. >> all right. this meeting is adjourned. [ meeting is adjourned ]

you. >> well to the epic center are you ready for the next earthquake did you know if you're a renter you can get

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>> city of san francisco >> mayor's disability council meeting. please stand by... >> >>