California has some of the most expensive housing in the nation, and San Diego is no exception. Since 2002, rents in San Diego have increased 32 percent and now average between $1,500 and $2,800 per month, depending on unit size.
Costs are rising, in part, because the city can’t keep up with demand. Developers were expected to bring 5,800 new units online in 2017, but this still isn’t close to enough. According to a recent report by San Diego Housing Commission, the city needs to almost triple the amount of housing it builds each year just to keep pace with demand.
And the development that has occurred, hasn’t translated into units that are affordable to the masses. The bulk of the units coming online are affordable to just 15 percent of local renters, according to Marcus & Millichap.
Background: Inclusionary Housing in San Diego
The City of San Diego does have an inclusionary housing ordinance. The ordinance, adopted in 2003, requires housing developers of two units or more to set aside at least 10 percent of their projects for low- and moderate-income residents.
However, since 2009, the portion of the ordinance has rarely been enforced. In 2009, a state appeals court ruled that a similar affordable-housing set-aside requirement in Los Angeles was effectively an illegal expansion of rent control.
Instead, in 2011, the City of San Diego began collecting one-time impact fees “in-lieu” of developing affordable units on site. The current fee varies, from $1.41/SF to $7.03/SF depending on the project’s size. The city then uses those fees to provide loans to support affordable housing projects. In practice, though, the ordinance allows for a number of exemptions, waivers and variances – which means that this provision of the ordinance has had a limited impact on the city’s affordable housing stock.
AB 1505 Presents a Renewed Opportunity
Last fall, Governor Jerry Brown signed Assembly Bill 1505 into law. In doing so, he provided cities like San Diego with another tool to combat the housing affordability crisis. Under the legislation, cities can establish inclusionary housing requirements as a condition of development—regardless of whether the development receives governmental assistance (which was previously the requirement).
AB 1505 specifies that cities and counties may adopt ordinances that “require, as a condition of the development of residential rental units, that the development include a certain percentage of residential units affordable to, and occupied by” households at or below moderate-income levels.
AB 1505 took effect on January 1, 2018.
City Councilor Proposes a Slate of Changes
San Diego City Councilor Chris Ward is urging his peers to waste no time. AB 1505 opened the door, he says, and the city should act swiftly. In a letter to the Mayor, he urges the city to “take advantage as soon as possible of the opportunities available from the implementation of AB 1505 and to maximize tools for the immediate production of new affordable housing.”
Specifically, Councilman Ward has proposed the following slate of changes to the city’s inclusionary housing requirements:
- Require developers to build no less than 10 percent inclusionary housing on-site for projects that involve a zoning increase, City-owned land, or public financial assistance.
- Require developers to build no less than 10 percent inclusionary housing on-site for projects located in Transit Priority Areas or in any five of the San Diego neighborhoods identified as having 40% of necessary housing capacity: Mira Mesa, Mission Valley, City Heights, North Park, and Uptown.
- Modify income levels and set-asides, such as:
- Adding a requirement for a minimum percentage (no less than 10 percent) of housing to be affordable to very low- and low-income households (30 to 60 percent AMI), and
- Adding a requirement that a minimum percentage of housing (20 percent) be affordable to moderate- and middle-income households (no more than 150 percent AMI).
- Increase the affordable housing requirement by 5 percent when a developer elects to build affordable units off-site.
- Raise the in-lieu fee payments to greater incentivize the production of on-site affordable housing units.
More to Come
It remains to be seen whether these changes will be adopted and if so, what the specifications around the changes will be. The City Council has tasked city staff with exploring these options, and others, to come up with a more comprehensive plan on improving housing affordability.
We will continue monitoring proposals such as these, as any changes to the city’s inclusionary zoning requirements could certainly impact San Diego property owners and investors.