Council President Georgette Gómez has listened to the development industry’s vociferous opposition to her signature policy initiative and has settled on a simple response.
She’s not changing anything.
The City Council is set to vote Tuesday on the proposal, which would force developers to pay for or build more low-income housing as part of their projects. Gómez says the time for negotiating is over, and she’s ready for a vote.
“We’re moving forward,” she said. “I think it’s fair.”
In May, a City Council committee approved Gómez’s proposed changes to the city’s so-called inclusionary housing ordinance. Those changes were more moderate than what Gómez had envisioned when she started pursuing the proposal in September, but industry leaders have since mobilized to argue that they’re anything but minor. They found a receptive audience at the city’s Planning Commission earlier this month.
“I can’t think of a more important issue that we’ve dealt with since I’ve been on this commission,” said Planning Commissioner Douglas Austin. “Because it will definitely have an impact on housing, and my gut tells me it’s going to have the wrong impact.”
The Planning Commission voted unanimously to reject Gómez’s proposal that had been approved by a Council committee. It instead approved eight changes to the policy, proposed by a coalition of development and real estate groups that have raised alarms that the changes will cause the industry to build fewer units even while the city has otherwise passed a series of reforms aimed at increasing housing production.
The group commissioned its own study on the proposal, from Lynn Reaser, an economist at Point Loma Nazarene University, to counter a city-commissioned study that concluded Gómez’s changes would not substantially reduce housing production. Reaser’s study argues overall development would fall by nearly 5 percent and rents would increase by 3 percent due to the changes. For every family that gets one of the new income-restricted homes, four would be priced out of the for-sale market, Reaser found.
“Your objectives on production, affordability and rent would all have the opposite effect of what you’re trying to achieve,” said Matt Adams, vice president of the Building Industry Association, during the Planning Commission hearing.
Gómez’s proposal would increase the fee developers can pay to avoid building low-income units as part of their projects, from the current $12 per square foot to $22, over the course of three years. Developers could otherwise choose to reserve 10 percent of the units in their project to people making under 50 percent of San Diego’s median income, or about $53,000, under Gómez’s proposal, rather than the city’s existing requirement that the units be reserved for people making up to 65 percent of the median income.
Those changes were not as drastic as some that Gómez had discussed when she first started working on the proposal. She had hoped to raise the required set aside to 15 percent of homes in the project, reserved for the same income level, and to increase the fee to $25 per square foot.
Those proposals were themselves more moderate than what some progressive allies had advocated for, one of which would have eliminated the option developers have to pay the fee instead of building units set aside for low-income families. She had also considered reserving homes for people earning as little as 30 percent of the median income. Gómez now says she’s done compromising.
“We’re moving forward with what got out of committee. That’s pretty much all I can say,” she said.
The industry group has moved on to eight specific requested changes – the same eight that were blessed by the Planning Commission. Those wishes were outlined in a letter to the City Council on July 16. But of the eight, four have risen to the top as the group’s primary requests:
Grandfather current projects: They want to exclude any project already underway in the city’s approval process. Projects that were conceived of and financed under one set of rules couldn’t therefore be disrupted by a sudden change.
Give them more time: The current proposal also calls for the fee increases to be phased in over the next 19 months. The industry is pushing to extend that to a full three years, arguing it can better absorb the changes over time.
Gómez said she’s not making any changes to her proposal, but she actually has already agreed, following ongoing negotiations with the development industry coalition, to those two main requests on how and when the policy changes are implemented. Though those changes do not affect the substance of the city’s inclusionary requirements long-term, they were still two of the coalition’s chief concerns. Gómez says she’s fine with it.
Lower the fee: But the coalition wants substantive changes to the policy itself as well. It’s looking to get the fee knocked down to $18 a square foot (that’s at the low end of the range that the San Diego Housing Federation, an advocacy group of low-income housing developers, had requested), and to alter the requirements for income restrictions on the new units as well.
They want to make the income-restricted homes to people with slightly higher incomes. Rather than holding off 10 percent of units for people making less than half of the median income, they want the 10 percent to go to people earning as low as 30 percent of the median or as high as 80 percent of the median, so long as the units average out to an income level of 60 percent of the median.
Those are the group’s four big asks. Their request also calls on the city to actively track the policy’s effects on housing production with an option to halt the policy if it craters; to include an option for developers to provide 15 percent of the units in their project to people making up to 80 percent of the median income (an option that was included in Gómez’s original offering); allowing developers to combine different options, like paying a portion in fees while reserving a portion of the unit requirement; and to ensure that specific communities don’t call for higher inclusionary levels in the future.
But Gómez was struck by the builders’ request for the option to build more affordable units set aside for higher income levels. That was in her opening bid, she said, and they never told her that was something they supported – until it was taken out. She thinks they’ve been moving the goal posts.
“It just feels like the conversation that I’ve been having intentionally with them at the table has never been really intentional from their side. I can’t speak to whether that is their bottom line, or if there’s going to be something else after we go to City Council. That’s a possibility, because that’s been the path that they’ve been engaging in this conversation. I’m sticking with what came from my committee and we’ll see where my colleagues land,” she said.
Tuesday’s hearing will be something of a test on how far the City Council – with its vaunted veto-proof majority – is willing to go in resisting a powerful coalition arguing that they could be introducing severe unintended consequences to the region’s housing market. Before November’s election, changes to the inclusionary housing policy specifically were specifically held up as a possible benefit of flipping the District 2 Council seat, which Democrats went on to do successfully.
It’s unclear if that veto block will be needed. Mayor Kevin Faulconer hasn’t indicated he would veto a policy that passes as Gómez is proposing it – or even that he’s thinking about it – but if all six Democrats voted together, it would send a message that his veto could be only symbolic.
Or it could be that having six Democrats on the Council simply makes it easier for Gómez to find four colleagues to vote in favor of her proposal.
Otherwise, the coalition’s only hope to change things is for five City Council members to want a change.
But there is another route: Hovering over the conversation is the unstated threat of the coalition marshaling a referendum challenge.
That hasn’t been raised publicly by any of the members, and hasn’t been part of the ongoing negotiations.
But it would hardly be the first time that a well-funded group of development or business interests went that route after a City Council vote didn’t go their way.
In recent years, an increase of the minimum wage, a change to development restrictions in Barrio Logan, new regulations on short-term vacation rentals and – in the closest analog to this situation – an increase to a fee charged on commercial developers to help pay for low-income housing – all ended with business groups collecting signatures to overturn the new measures at the ballot.
Only the minimum wage increase eventually became law.
When the City Council attempted to increase the fee charged to commercial developers to build low-income housing, a coalition of business groups in opposition spent $337,217 in 2014 on a referendum campaign. To put that in context, a lawyer for the downtown developer Bosa said the initial inclusionary proposal would have added $6 million to the cost of the company’s latest project.