Would Capping Office Space Ease San Francisco’s Housing Crunch?

Voters in San Francisco will soon weigh a Solomonic compromise on housing in the city: a zero-sum building moratorium that ties new office space to affordable housing.

Proposition E, a measure coming up on the primary ballot in March, would limit future office growth in San Francisco as a function of the city’s shortfall of new affordable housing. Under this new accounting, in any year that the city fails to live up to its state-mandated obligation to approve new affordable housing, the legal cap on new office space would be lowered by the same degree. A miss on housing would mean a proportionate dip in new office space.

If this proposal sounds complicated, that’s because it is. The amount of new office space that’s allowed in San Francisco is already capped, thanks to a 1986 ballot measure; given the city’s well-known failures on the affordable housing front, new office space production would almost certainly take a hit under this initiative. A one- or two-digit percent default on the goals set by California would result in a one- or two-digit percent reduction in office construction.

By design, Proposition E sets up a trade-off between office space and affordable housing, according to the initiative’s sponsor, John Elberling, the executive director of Todco, a nonprofit affordable housing management group based in the central South of Market (SoMa) district. “Either we’re going to significantly increase our affordable housing or reduce our office development,” Elberling says. “It’s going to be one or the other.”

The March measure is the latest in a long line of ballot initiatives that aim to cool San Francisco’s incandescent housing market by tamping down demand. Four years ago, voters narrowly defeated a ballot measure for a building moratorium on new construction in the Mission District of 18 to 30 months. Efforts to block new construction reflect a broad belief that high housing costs will eventually drive tech companies out of San Francisco. Proposition E makes the connection explicit: If the city can’t get new affordable housing, then it can’t have new industry.

Prop E will put new pressure on what Elberling describes as the Bay Area’s “growth industry.” Under the new dispensation, developers as well as other sectors that derive benefits from growth will have a strong incentive to make sure that affordable housing gets built. The idea is to turn developers into a lobby for affordable housing. “It would be in their self-interest,” he says. “They will push harder for more funding for more affordable housing.”

Further, the measure would expedite developments that include their fair share of affordable housing units (or pay for them to be built elsewhere). Should San Francisco fail to hit its housing targets, the Prop E regulation will instead slow new office projects—a win-win scenario, from Elberling’s perspective. “When you’re in a hole,” he says, “you stop digging.”

But addressing the city’s jobs-housing imbalance by driving jobs out of the area would be short-sighted, says Nick Josefowitz, policy director of the Bay Area urbanist nonprofit SPUR—especially because San Francisco is “one of the most transit-oriented places west of the Mississippi.” Already, offices are moving out in search of cheaper real estate; the payment-processing company Stripe fled for the more suburban city of South San Francisco this fall. Under Prop E, more offices looking to expand may have to look to the San Francisco Peninsula or to the East Bay—areas that are less connected by transit than San Francisco while similarly strapped for cheaper housing.

“When looking at the jobs-housing balance, it’s more appropriate to look at it at the regional level,” Josefowitz says. “People are commuting all over this region … many coming in from the Central Valley. What I think is important is that the entire region steps up to build … enough affordable housing to house our residents rather than trying to necessarily dice up the jobs-housing balance in small cities at that scale.”

Other opponents of Prop E have a different concern: The cap won’t do enough to slow office growth, especially in the short term. “I really think that Prop E is much ado about very little,“ says Randy Shaw, the author of a book on California’s housing supply crisis, Generation Priced Out. In his proposal, Elberling ensured that the measure will exempt 5.5 million square feet of office space across SoMa, where seven building permits have already been approved. Because of the “staggering” amount of office space not covered under the proposal, it could take 10 to 15 years for the intended targets to start brushing up against the limits, Shaw says.

In central SoMa, Elberling’s proposal not only grandfathers in the projects already underway, it would actually expedite their construction. Under Proposition M, the 1986 measure, the city set strict limits on office construction to prevent the “Manhattanization” of San Francisco; the new measure would allow these seven buildings to sidestep those restrictions. “If we stuck with Prop M as it is, it would take a long time for central SoMa plans to be built out,” says Sonja Trauss, co-executive director of the California Renters Legal Advocacy and Education Fund* and a founding figure in California’s “Yes In My Backyard” movement. “This ballot measure is going to create a flood of new offices, without doing anything to guarantee that we’ll have more affordable housing.”

Plus, the housing demand created by those new office jobs will likely be for market-rate units, not affordable ones, Josefowitz says. “One of the things we’re seeing in the Bay Area and especially in San Francisco is that office rents are going up and up and up, and it’s really displacing small- and medium-sized businesses, nonprofits, and companies who employ low-wage workers. I think limiting the supply of office space is just going to exacerbate that problem,” Josefowitz says. “The last businesses left in San Francisco as rents rise are going to be the ones paying their employees the most.”

Eventually, the intended effect of Prop E could be more pronounced. Over the last three years, San Francisco has only hit 68 percent of the state’s affordable housing target. Had Prop E been in place already (and not facilitating rapid construction in SoMa), the city’s 875,000-square-feet annual cap on office construction would have been lowered by 280,000 square feet (reflecting the 32 percent affordable housing shortfall). Current property owners would stand to gain as new opportunities grow rarer—much as homeowners benefit under a moratorium on new housing.

Over the long run, the measure might dramatically slow new office growth in San Francisco. Pipeline projects accelerated by Prop E now will essentially borrow cap space from the future; millions of square feet of greenlit offices will be deducted under caps over the next decade. (So if the qualifying developments in SoMa introduce 1.7 million square feet of office space now, then 170,000 square feet will be subtracted from the city’s cap for each year over 10 years.) Beyond the handful of projects in the pipeline, the measure would altogether suspend new office development in SoMa unless and until the city builds 15,000 new market-rate and affordable units in the neighborhood—a significant lift.

Rent-strapped SF voters appear to be willing to buy the premise behind Prop E: An October poll of 600 likely primary voters in San Francisco found that a majority (56 percent) supported the proposal. San Francisco Mayor London Breed initially sponsored a countermeasure that would have negated the measure; when pollsters offered details about Prop E versus Breed’s alternative, support for the ballot measure ticked slightly up while support for her countermeasure fell. She has since withdrawn it. “She can, it seems, read a poll—and has ceded the field,” wrote Joe Eskanazi of the online news site Mission Local. The sort of funded opposition to construction constriction that might typically come from developers has been muted, too, thanks to Elberling’s generous exemptions.

Plenty of players in the Bay Area housing debate profess to share the same basic goal: San Francisco needs more places for workers to live and more affordable housing. But the best means for achieving that end vary widely, as other proposed measures attest. One seismic proposal slated for November’s ballot would exclude most commercial property from protections under Proposition 13, the 1978 measure that slashed and capped California property taxes. And in the legislature, State Senator Scott Wiener is once again advancing Senate Bill 50, a bill to increase the legal density of housing near transit. The $600 million affordable housing bond San Francisco voters passed last November is also part of this mix.

“God willing, we’ll be successful and we’ll have a building boom of affordable housing,” says Trauss. “If I’m optimistic … maybe [Prop E] won’t matter at all.”

*CORRECTION: A previous version of the article misstated the location of the San Francisco Peninsula. In addition, Sonja Trauss was incorrectly identified.  

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