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Update To San Diego’s ‘Inclusionary Housing’ Policy Taking Shape

The city-sanctioned tent encampment, below, sits on the edge of Balboa Park a...

Credit: Associated Press

Above: The city-sanctioned tent encampment, below, sits on the edge of Balboa Park as the sun sets behind buildings downtown in San Diego, Oct. 26, 2017.

San Diego City Council President Georgette Gomez's office is close to unveiling a proposed update to a city policy aimed at boosting affordable housing production by the private market.

Most new housing developments in the city have to either set aside 10 percent of their units for low-income households or pay into a fund that supports low-income housing throughout the city. Some progressives have been pushing for an update to that policy, called "inclusionary housing," that would put more pressure on developers to include subsidized homes in their projects.

For six months, Gomez convened an advisory group that included representatives from the building industry, labor, environmental and business organizations. Now her office says it is working on an inclusionary housing update that would be presented to the City Council's Rules Committee on May 15. Gomez's chief of policy, Lara Gates, said she hopes to present a final proposal to the full City Council by the fall.

Gates declined to offer specifics on how the policy would look, but said it would give developers a menu of options for compliance. Those options could include constructing affordable housing in a separate building nearby; purchasing existing housing and setting it aside for low-income renters or paying a fee that is higher than what the city currently charges. Gates said the policy would not become effective immediately after passage.

"It would have a ramp-up period so as not to shock the market," she said.

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The desire for an updated policy has put on hold a long awaited plan to increase housing density and building heights near a future trolley station in Linda Vista. The City Council was due to vote on the plan April 9. Gomez's office said that plan, called the Morena Corridor Specific Plan, will not be taken up by council members until after May 15.

Supporters of inclusionary housing say it can harness the private market to boost affordable housing production, and that it benefits the poor by giving them affordable places to live in neighborhoods with better schools and jobs. Skeptics say it can have a chilling effect on home building and ultimately make housing less affordable for low- and middle-income households.

San Francisco's inclusionary housing law is sometimes cited by skeptics as an example of how the policy can hurt affordability. The Bay Area think tank SPUR found after the city's inclusionary update was approved by voters in 2016, market-rate housing construction has stalled and city funds for affordable housing construction have gone down.

Amid pushback from some members of Gomez's working group, the city commissioned a report from real estate advisory firm Keyser Marston Associates to test how various adjustments to the policy could impact the housing market. The study tested a host of hypothetical scenarios in which developers would be forced to subsidize a greater share of their units to varying degrees.

KMA found in most cases, the added costs to home building would create a medium to high risk of projects becoming infeasible.

Lynn Reaser, an economist at Point Loma Nazarene University who sat on the stakeholder committee, released a summary of the study's findings last week at the request of the Building Industry Association of San Diego County, the San Diego Regional Chamber of Commerce and NAIOP San Diego, which represents commercial real estate developers.

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Reaser concluded the threat of projects being unable to turn a profit would hurt the market's ability to provide new housing at a time when the region already faces a severe housing shortage.

"These results indicate that most of the policy options under consideration would prevent projects from ever breaking ground," she wrote.

Stephen Russell, executive director of the nonprofit San Diego Housing Federation and another member of the stakeholder committee, said some of Reaser's summary appeared to be more of an opinion piece than an unbiased analysis of the data. He said some developers could likely absorb the cost of a higher inclusionary requirement, but that Gomez should take seriously the questions raised by the KMA report.

"We as a federation were very vocal about wanting a nuanced rather than a sledgehammer policy," he said. "You don't want to be incautious."

Gates said she appreciated Reaser's summary of the study's findings, but that they may ultimately just disagree on the costs versus benefits of the policy update.

"We really want to work with them on this, and that's why we invited them to the table as part of the stakeholder committee," she said. "But the clear fact is that the market that builds in San Diego is a luxury market, and there are a lot of people being left behind in the affordable and middle-income ranges."

San Diego City Council President Georgette Gomez's office is close to unveiling a proposed update to a city policy aimed at boosting affordable housing production by the private market. Skeptics say the proposal could chill the housing market at the worst time.

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