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San Diego City Council Approves Controversial Inclusionary Housing Amendments

Construction workers set up the framing of an apartment building in North Par...

Photo by Andrew Bowen

Above: Construction workers set up the framing of an apartment building in North Park, July 23, 2019.

The San Diego City Council on Tuesday formally approved a set of amendments to the city's regulations on what percentage of a housing development's units must be reserved for low- and moderate-income tenants.

The council approved the amendments 5-4 on a ratifying second vote, as required by the city charter to approve new ordinances. The council approved the amendments by the same 5-4 vote on first reading — with Chris Cate, Mark Kersey, Scott Sherman and Vivian Moreno voting against — on July 30.

The amendments to the inclusionary housing regulations would require developers to lease 10% of developments with 10 or more rental units at or below 50% of the county area median income for a family of four, $53,500, or 15% of units at or below 80% of the AMI for a family of four, $85,600.

In addition, developments with units for sale would be required to make 10% of them available for a family of four making at or below 100% of the AMI or 15% for a family of four making at or below 120% of the AMI. Developers also have options to build the requisite affordable units at a separate site, albeit with fewer incentives.

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The city currently has similar rules in place, but developers can pay a $12.73 "in-lieu" fee per square foot to avoid offering units below market rate or to families who make less than the area median income. The amendments would also offer incentives for building affordable housing on-site and the in-lieu fee would increase to $22 per square foot by the start of fiscal year 2023.

City Councilwoman Georgette Gomez first proposed inclusionary housing amendments in 2017 but lacked the council president's power to docket agenda items until her colleagues unanimously appointed her to the position last December.

Her justification for the amendments is based on a study by the consulting group Keyser Marston Associates, which found that the ordinance would be economically feasible due to its three-year phase-in and incentives for development like the elimination of the city's development impact fee on affordable housing units that are built on-site.

Gomez noted that the city adopted the first regulations of inclusionary housing in 2003 and those have not crumbled the city's housing market, at least on their own.

She also said that she already compromised by reducing the in-lieu fee ceiling and adjusting number of units that would trigger the affordability requirements and wouldn't budge on additional compromises requested by developers.

"I really want to stress the importance that this regulation is just one piece in the very complex puzzle to resolve housing overall," she said. "The bottom line is that we do have an insufficient housing assistance and especially the people that get impacted the most are the vulnerable residents" of districts four, seven, eight and nine.

The amendments received the support of the San Diego Housing Federation and the San Diego and Imperial Counties Labor Council.

"We don't see this as an ending, we see this as a beginning today to future discussions about the future of inclusionary and affordable housing," labor council Executive Treasurer-Secretary Keith Maddox said.

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A separate study completed by economists at Point Loma Nazarene University found that the ordinance would decrease housing units built annually by about 5% and increase home prices 2.5% and rents 3%.

Critics, which include the Building Industry Association of San Diego County and the San Diego County Regional Chamber of Commerce, argued that the amendments amount to a tax on builders that will make them flee to cheaper markets like San Antonio, Texas, and development in San Diego will stagnate as a consequence.

"Our recommendations are very modest in nature," said BIA Vice President Matthew Adams. "Reducing the in-lieu fee, expand the phase-in, make sure we have the protections investing for projects that are already on the books and allow for income averaging."

Opponents also argued the city's housing growth in the neighborhood of Grantville should be the city's model rather than increasing red tape. The result of upzoning incentives in the neighborhood's community plan, about 2,000 units have been built in Grantville over the last three years, roughly a quarter of which are affordable.

"That wasn't the result of a government mandate or new regulation or a new fee," said Sherman, whose district includes Grantville. "We got out of the way and made it easier to produce housing so people could actually afford to live in these places."

Six council votes were required to override a potential mayoral veto. Sherman and Cate called on Mayor Kevin Faulconer to do so after the council first approved the amendments at the end of July.

Faulconer has not taken a public stance on either side of the amendments. He will have 10 business days after receiving the ordinance from the city clerk to sign or veto it. Should he sign the ordinance, it would go into effect at the beginning of the next fiscal year, July 1, 2020.

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