On Tuesday, July 21, the Board of Supervisors passed an ordinance that would significantly reduce San Francisco’s Inclusionary Affordable Housing rate and development impact fees. The legislation is awaiting the Major’s signature and final approval.
The key changes and their potential implications for projects moving through the development pipeline are outlined below.
Inclusionary Housing: Higher Unit Thresholds, Lower Percentages
The headline change is a new size threshold. Today, inclusionary requirements generally kick in at 10 units. Under the amended legislation, that threshold jumps to 25 units, meaning projects with fewer than 25 units would no longer be subject to inclusionary housing obligations.
For projects that clear the 25-unit bar, the required percentages themselves are also coming down substantially: the on-site requirement for ownership and rental projects would drop to 5% (down from the 15% interim rate that currently applies), and the in-lieu fee and off-site rate would drop to 10% (down from the 20.5% interim rate that currently applies). Supervisors framed this as a deliberate trade-off, reducing inclusionary obligations in exchange for a more stable long-term funding source for affordable housing and a greater likelihood that stalled housing projects move forward.
Here is a summary of the new rates:
On-Site: 5% BMR Rate
Ownership: 4% at low income (80% AMI) and 1% at moderate income (100% AMI)
Rental: 4% at low income (55% AMI) and 1% at moderate income (80% AMI)
Off-Site and Fee: 10% BMR Rate
Ownership: 8% at low income (80% AMI) and 2% at moderate income (100% AMI)
Rental: 8% at low income (55% AMI) and 2% at moderate income (80% AMI)
This new baseline will not apply uniformly across the City. Commissioner Fielder’s July 14 amendment carved out the Mission Area Plan, preserving a higher 8% on-site requirement there (6% low-income and 2% moderate-income) for rental and ownership projects. Additionally, a higher 15% off-site and fee rate (12% low-income and 3% moderate-income) would apply in the Mission Area Plan, SoMa Neighborhood Commercial Transit District, North of Market Residential Special Use District, South of Market Youth and Family Special Use District, Urban Mixed Use (UMU) District, and Western SoMa Special Use District.
The legislation also gives projects the option to dedicate land to the City as an alternative to paying the inclusionary fee or providing on-site affordable units, adding a tool that was not previously available citywide. Notably, these reduced rates are not limited to brand-new applications. The legislation creates a process that allows sponsors of previously approved projects that have not yet received a First Construction Document (“Pipeline Projects”) to request modifications to existing conditions of approval to take advantage of the lower inclusionary rates. Pipeline Projects may also seek a three-year entitlement extension and the removal of Planning Code requirements that are no longer applicable at the time the modification request is submitted.
It is important to note that projects utilizing the State Density Bonus Law—a pathway generally available to projects with five or more units—must continue to provide on-site affordable units to qualify for density bonus benefits. Given that requirement, the reduced local inclusionary rates may prompt some developers to take a closer look at the Housing Choice SF program as an alternative entitlement pathway.
Development Impact Fees: Broad Reductions and Deferred Payment Timing
On the fee side, the legislation would reduce all Article 4 development impact fees by 67%, excluding only the Inclusionary Housing Fee. Projects that have already received a First Construction Document could still receive the benefit of those reductions for deferred fee amounts that remain unpaid, although no refunds would be issued for fees already paid.
The ordinance also extends and expands an existing fee waiver program for certain commercial projects in C‑2 and C‑3 districts. Projects containing Retail Sales and Service uses or Entertainment, Arts and Recreation uses would continue to receive waivers from Article 4 development impact fees attributable to new floor area devoted to those uses.
The amendment extends the C-2 and C-3 waiver program sunset date to December 31, 2029, and allows projects that received Final Approval before November 1, 2023, and have neither been issued a First Construction Document nor paid impact fees to benefit from the waiver as well.
Project sponsors may generally pay 15% of Article 4 development impact and in‑lieu fees before issuance of the First Construction Document and defer the remaining 85% until prior to issuance of the first Certificate of Occupancy. Pipeline Projects that have not yet paid fees may elect to participate in the deferral program even if their original conditions of approval required payment before construction permits.
Taken together, the lower rates and the deferral option are intended to ease near-term project economics and encourage stalled or marginal projects to move into construction.
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