San Francisco’s economic growth would be stunted, with the city losing tens of thousands of jobs and billions of dollars of gross domestic product, if voters pass Proposition E, which would tie office-space approvals to affordable housing goals, according to a report from the city’s chief economist, Ted Egan, released Monday.
The report drew polarizing reactions, with Prop. E supporters calling it “crass propaganda” and opponents calling it proof that the measure could spark a local recession.
Prop. E, the San Francisco Balanced Development Act on the March ballot, establishes strict new standards for affordable housing production — at least 2,042 units a year for low- and moderate-income households, almost triple the current rate. San Francisco has averaged 712 new affordable units a year over the past decade, the report said.
In any year when the city failed to build enough affordable housing, office construction would be reduced by the same percentage as its shortfall of the Prop. E quota.
For instance, if San Francisco continued to produce only 35% of the goals set in Prop. E, its office development would be limited to 35% of the annual allocation authorized by 1986’s Prop. M, which caps annual office approvals. Instead of Prop. M’s 875,000 square feet of new space in large developments (those over 50,000 square feet), the city could build only 306,250 square feet a year in large complexes in this example.
Prop. E has backing from a range of affordable-housing groups and eight San Francisco supervisors, who say that linking office space and affordable housing would address the city’s widening economic disparity, by enlisting developers and other business sectors to promote affordable housing construction. Business and construction groups oppose it on the grounds that it would hurt union construction workers and small businesses that need office space, as well as its overall economic impact.
Mayor London Breed in December withdrew a competing ballot measure that would have made it easier to build office space in the city. An October poll showed stronger support for Prop. E than for Breed’s counterproposal.
The report said the proposition would reduce money to build affordable housing because new office buildings fund housing production through the city’s Jobs-Housing Linkage Fee. The Office of Economic and Workforce Development had already said that Prop. E would cut $600 million to $900 million in affordable housing fees and reduce property taxes by $1 billion to $1.5 billion.
“The city economist report shows that (Prop. E) is a recession trigger,” said Jay Cheng, public policy director at the San Francisco Chamber of Commerce, which opposes Prop. E. “A ballot measure that takes bazillions of dollars from our city economy and our residents’ pocketbooks is exactly the kind of thing that could throw us into a local recession.”
Prop. E is “reckless” legislation, said Larry Mazzola Jr., president of the San Francisco Building and Construction Trades Council, which opposes the measure.
“The solution to our jobs/housing imbalance is not to stop job growth, it’s to build more housing,” he said. “Stopping jobs and office building is not the way to build more housing.”
John Elberling, executive director of nonprofit Todco, which advocates for and manages affordable housing and is sponsoring the March measure, dismissed the report as “typical ‘growth is always good’ propaganda (that) omits (and) ignores the human costs of growth.” He noted that the report had no discussion of the personal tolls of the housing crisis, such as displacement of residents.
The report used stark language.
“By further limiting office development in the face of strong demand, (Prop. E) will drive up office rents, making office space less affordable for tenants, and pricing out those employers who are unable to afford rising rents,” it said. “This will lead to a reduction in the size of the city’s economy, the city’s population and income, and employment base, relative to a baseline projection, over the next 20 years. The impact will be especially, but not exclusively, felt in office-using sectors.”
After 20 years, the economic impact would be an 8.5% reduction in the city’s gross domestic product, or $23 billion in today’s dollars, it said. Disposable personal income would be 5.9% less than otherwise expected, and the population would be 5.8% smaller. Total employment would fall by 7.9%, or 91,000 jobs in 2040, from the projected figure.
Not only would Prop. E hurt the city’s economy, it’s moving in the wrong direction, Egan wrote. Prop. M itself is about to affect the city’s economy for the first time as developers will soon hit its quota, the report said. Until now, Prop. M has not constrained office development because there was a backlog of unused allocations that rolled over every year. That is now almost consumed.
The proposition’s underlying rationale is “a belief that too much office development worsens housing affordability,” the report says.
However, it found that housing in the city has become more affordable since the end of the last recession as office production has boomed, because the new buildings led to growth in jobs and household income.
Elberling took strong issue with that conclusion, noting that the report’s statistic (from the census) that fewer low- and moderate-income households in San Francisco had to spend over 30% of their incomes on housing could be attributed to accelerated displacement of lower-income people, who were in turn replaced by higher-paid tech workers.
Egan said in an interview that data did show low-income groups’ incomes growing faster than their housing costs, although it’s still far from a rosy picture. The changes are a combination of income increases and population changes, but focus only on low- and moderate-income households, he said. That means well-compensated tech workers weren’t factored in.
“The housing burden is still very (strong), with over 50% of low-moderate households spending over 30% of their incomes on housing,” he said. “It hasn’t gotten worse; it’s gotten slightly better.”