San Francisco’s Family Housing Opportunity Special Use District – Formulated for Failure?

Suburban Houston Development

A bill sponsored by Supervisors Myrna Melgar and Joel Engardio, creates a citywide “Family Housing Opportunity Special Use District” (SUD). The bill passed unanimously by the Board of Supervisors on July 25, 2023 and is expected to be signed by Mayor Breed. The bill is meant to make it easier to replace single-family houses with smaller-scale apartment buildings. The stated purpose of the legislation is “to incentivize the development of multifamily housing in the City’s well-resourced neighborhoods.” The bill is part of a host of modest bills designed to address San Francisco’s housing crisis and to meet increased Regional Housing Needs Allocation goals in the upcoming 2023-2031 Housing Element cycle, which total 82,069 units over eight years, more than 2.5 times the goal of the previous eight-year cycle.

A Guide to SUD

The boundaries of the SUD, generally fit within the Well-Resourced Neighborhoods Map in the 2023-2031 Housing Element. These are generally single-family-home-zoned neighborhoods on the west side of the City. While multi-family homes and ADU’s may already be permitted in these neighborhoods, the law aims to streamline the permitting processes to spur the development of small multifamily buildings in these low-density neighborhoods. The law simplifies project approval by exempting certain eligible projects (that do not demolish rent-controlled units) from conditional use authorization, neighborhood notification requirements and public-initiated discretionary review. The law also allows development of up to four units per lot within the district, with certain restrictions, described below.

The legislation has stated concerns about preventing developers from profiting off the bill by purchasing and demolishing new single-family homes and replacing them with apartment buildings. To address this, the law requires that any project sponsor must own a single-family home for one year prior to the application, with a five-year ownership requirement for properties with two or more units. There are exceptions to this for owners who inherited property or jointly own it. There are also restrictions on the types of properties that can be demolished, preventing the demotion of rent-controlled units, or units in which there was a history of buyouts, or a no-fault eviction. Each project is also required to include some two-bedroom units, and any fourth unit on a single lot needs to be in a building’s rear yard.

The most promising aspect of the new law is the density exceptions that can significantly increase the number of units per lot. The law permits the development of four units per lot on qualifying projects, up to eight units on two merged lots, and up to twelve units on projects merging three lots. (For reasons unknown, the law’s permissible lot mergers are only allowed in RH-1 districts. This, despite the fact that the SUD contains zoning districts that are both denser, and that include many single-family homes).

These density bonuses could potentially incentivize owners to take a risk on a project, and might actually move the needle on the construction of new housing on San Francisco’s west side. However, the law’s density bonuses come with a strong restriction: Every unit in a project that is built pursuant to the density bonus will be subject to the City’s Rent Control Ordinance. This restriction has the potential effect of limiting the number of multi-unit buildings that will actually be built. Requiring rent-controlled units could hinder financing for project sponsors and make it less attractive to investors. If a long-time single-family homeowner had any appetite to develop their own property, it will likely be curbed by the prospect of becoming a landlord in San Francisco’s current rent control environment, and a potential reduction in the property value. Moreover, as we have seen in San Francisco, rent control also creates disincentives for landlords to invest in the improvement of their properties. With limited rental income potential, some landlords are forced cut back on renovations, which could lead to a decrease in the overall quality of the City’s housing stock that the City is looking to add. On balance, with these drawbacks undercutting the stated goals of the legislation, is this new ordinance formulated for failure?

Contact A Land Use Attorney Today

If you want to learn more about the possibility of developing your property in the SUD, or have any other land use questions, you should contact Andrew R. Catterall at Zacks & Freedman, PC for guidance. Contact us at your convenience to request a consultation.

Neither this website nor this post are intended to create an attorney-client relationship.