Planning for Growth

Three proposals for the temporary modification of Prop. M
Article
June 21, 2001

II. Recommendations
Given our underlying assumptions, the San Francisco Planning and Urban Research Association proposes the following:


1. Redefining where we grow
Development of new office space should be encouraged where it can be served by existing and planned transit and where it is not incompatible with existing neighborhoods. New development should be within walking distance of BART and Muni Metro stations, and along major Muni transit lines, in commercial and industrially zoned areas. The attached map indicates where we believe growth can be encouraged, and areas we believe need further study.

• We encourage growth in the downtown core and within walking distance of the Market Street transit spine. There is also great potential for growth along the eastern portion of the city: around the Transbay Terminal, Yerba Buena, and parts of South of Market. There is also substantial opportunity along the Muni metro extension and the soon to be developed 3rd street light rail corridor, from SOMA through Mission Bay and parts of the Central Waterfront. Though now off the transit grid, Hunter's Point Shipyard provides space for business services, multi-media and other uses to expand in a location near Highway 101, and provides an opportunity for economic development benefiting the Bayview/Hunter's Point community. Ultimately, additional transit must be provided there as well. (see attached map.)

• The Planning Department should comprehensively review zoning for the entire eastern sector of the city to ensure that there is room for employment and housing development. The South of Market zoning, which specifically disallows office for the most part, should be modified to ensure that there is adequate space to develop office space in transit accessible areas of SOMA near downtown and along the Muni Metro extension, while preserving and increasing housing enclaves in other parts of SOMA.

• The Industrial Protection Zones, which currently allow multi-media and office as well as industrial uses, should be more narrowly defined geographically and should protect critical production, distribution and repair ("PDR") functions only.

• ß Areas that adjoin residential neighborhoods, and areas that lack good transit access need particular study to determine the type and scale of growth. The Northeast Mission and Lower Potrero Hill/Showplace Square are areas where use conflicts and impacts are most evident, and should be carefully studied. The same is true of the Central Waterfront, which is currently being studied by the Planning Department. (See attached map)

2. Deciding how fast to grow: Three Alternatives
We can accommodate more growth than Proposition M currently allows, on a temporary basis, to relieve the current space crunch, provided that the impacts of growth are adequately addressed up front. SPUR proposes three creative alternatives to the Prop M cap and each is described below. The selected alternative should be in effect for five years, and we recommend that it may be renewed by a majority of the voters. The "where we should grow" map would apply to all three alternatives.

The variables in the three alternatives deal with how to treat space intended for government workers, how to treat space intended for a large single-user project in the Presidio, and how to treat large redevelopment projects like Mission Bay, because all of these projects are not subject to control by the Planning Commission even though they count against the 875,000 square feet annual cap for "large" office buildings. Therefore, if the federal, state, or city government builds an office building to house its workers, that removes that amount of space from the cap available to the private market. Due to the change of use of the proposed Lucas complex at the Presidio (from the Letterman Hospital complex to office use), that project will also count against the cap. The timing of these projects undermines the city's ability to respond to the current need for new commercial office space for a wide variety of users. Another variable in the alternatives deals with when development occurs during the five year temporary relaxation of Proposition M controls. All of the alternatives allow roughly the same amount of gross office space development over the five year period.

The current category of buildings which are 25,000 square feet to 49,999 square feet (the "small building" category) should be preserved at the status quo amount of 75,000 square feet per year. There is currently no competition in this category since few buildings have sought approval; there remains as of June 1, 2000 a reserve of over 700,000 square feet. However, given that more and more owners of smaller buildings are seeking to convert to office space, this category may run into a shortage during the next couple of years, and it therefore serves as a useful safety valve.

Regardless of which alternative is chosen, the Planning Commission should be directed to adopt and measure indicators to track the impact of development on office rates, vehicular congestion, transit usage, housing prices and other relevant factors on an annual basis through the life of the ordinance. The planning department should report these findings to the Planning Commission and the Board of Supervisors with any recommendations for adjustment, if warranted. Any adjustment would require a subsequent popular vote. Further, these alternatives do nothing to change the existing environmental review process; all required environmental reviews remain in force.

Alternative 1
The Proposition M growth cap would be increased to 7,500,000 square feet over five years (an average of 1,500,000 square feet per year) in order to accommodate increased demand for new office space. Approval and development could occur at any time during the five year period. City, state and federal projects housing government workers would be excluded from this annual limit, as would all projects at the Presidio. The rationale for this alternative is that imminent projects like Lucas at the Presidio (900,000 square feet for a single user) and the new federal office building at 7th and Mission (650,000 square feet.), as well as a prospective city office building on Golden Gate Ave. effectively eliminate the opportunity for any commercial office space in other areas of the city and thereby intensify pressure on private market office rents. Excluding these projects from the cap will allow the City to accommodate commercial growth, which could otherwise be choked off entirely during the next few years. Alternative 2

alternative 2
In alternative 2 the Prop M Cap would be increased to 2,000,000 square feet, but government projects would not be excluded. Rather, half of the total (1,000,000 square feet) would be reserved for commercial developments outside of Mission Bay, the Presidio, Treasure Island and Hunter's Point Shipyard. The remaining 1,000,000 square feet would accommodate development at Mission Bay, the forenamed base-reuse sites and city, state and federal office projects (pre-entitled and exempt projects). If projects in this second category total more than 1,000,000 square feet in a year, they count against square footage from future years. If second category projects total less than 1,000,000 square feet per year, the remainder can be appropriated to commercial developments. The rationale for this approach is that it provides for a predictable flow of new commercial development, particularly in areas outside of Mission Bay, while still keeping an overall cap on office development over the five year period.

Alternative 3
Alternative 3 would allow 5,000,000 additional square feet of office development in the central office district (c-3-o and c-3-o-(sd)) at any time during the five year period. Alternative 3 would then apply the remaining 950,000 square foot per year cap to the permissible areas on the SPUR map. In this alternative all government and Mission Bay projects would apply against the 950,000 square foot cap as they do now. The rationale for this alternative is that it encourages dense downtown development, where transit and other commercial amenities are excellent, and allows development to respond to market need, while keeping the same overall cap on total development.

Alternative Total Sq. Ft. over 5 years What it does Exactions
1 9,000,000- 9,500,000 Up to 7,500,000 square feet over five years of commercial office space.Excludes federal, state and city projects from Cap ­ (actual square footage unknown, but anticipated to be between 1,500,000 and 2,000,000) Increased
2 10,000,000 Up to 2,000,000 square feet of office per year Half for commercial, half for pre-entitled and Government projects. Increased
3 9,750,000 Lifts the Cap for central business district (5,000,000); Apply existing Cap to remaining approved areas (4,750,000) Increased

 

3. Confronting the jobs housing imbalance
The connection between job growth and demands on the local housing supply are well known. With the recent rapid increase in housing costs the city cannot responsibly advocate more job growth without real progress on increasing the supply of housing of all types, and affordable housing in particular. For that reason, any change to Prop M must include increased exactions to promote the construction of housing, as well as changes to existing regulations to encourage significantly more housing construction in San Francisco.

SPUR and the newly formed Housing Action Coalition have proposed the following measures that should be introduced concomitantly with any temporary relaxation of Proposition M.

• Rezone underutilized land currently zoned for industrial and commercial uses to encourage moderate to high density housing.

• Provide density bonuses city-wide for projects that provide affordable units.

• Increase heights and densities along neighborhood commercial corridors and major transit routes.

• Revise height and bulk limits in certain residentially zoned districts to better synchronize them with Building Code height restrictions and building envelopes that are feasible to construct.

• Increase the housing density permitted on downtown lots.

• Reduce residential parking requirement in areas well served by transit. Housing exactions imposed on office, as well as hotels, retail and other commercial development must be increased:

• Housing exactions will be indexed to take into account the increase in construction costs since they were initially implemented. If exactions had been indexed from the beginning, rates would now be $11.75, as opposed to the existing $7/square foot.

• Housing exactions should be reinvested in the neighborhoods most immediately impacted by project approval.

4. Addressing the impact of growth on traffic, transit, and parking
Transit has the potential to serve the needs of new employees and ameliorate the quality-of-life impacts of growth, but only if Muni provides adequate service to growing areas of the city. Transit impact fees must be increased to address the real costs of transit improvements, particularly in areas that are not currently well served. If transit impact fees had been increased by inflation since inception, they would now be over $8 per square foot, combated to $5 now. • Congestion and parking impacts should be avoided by directing large scale growth to areas well served by the transit system.

• Planned improvements to transit service in SOMA should be immediately implemented.

• Transit exactions should be uniform throughout the city, and not limited to the downtown core.

• Transit jitneys or other on-site mitigations should be provided by developers of large projects in areas without ready access to transit.

• Parking requirements for new development should correspond to the official Transit First policies of the city. Additional vehicular congestion should not be allowed to choke auto and transit mobility.

5. Addressing the impact of growth on neighborhoods, non-profits, support businesses, and quality of life.

High demand and low supply has resulted in rising lease rates for non-profit and support businesses that are critical to the continued economic success of San Francisco. An increase in supply of new space and a rationalizing of where office and digital industry growth is directed will begin to address these issues, however growth should include increasing the amount of affordable space for non-profits and small businesses as well as the amount of open space and mixed use development. The following is a priority order list of potential mitigations.

• Developments that provide free or affordable commercial space (<50% of market rent) for non-profits either in new development or elsewhere should receive preference in the Prop M "beauty contest," and the greater the amount of affordable space the greater the preference.

• Mixed use developments that combine open-space, housing, light industrial, and/or retail should receive preference in the "beauty contest."

• New commercial developments should respect the scale of existing neighborhoods.

• Training programs should be more closely knit to Digital Industry companies by financial support and provision of on-site space.

• Displaced businesses should receive a displacement fee from the developer to mitigate the expenses associated with relocation.

III. Background
The Bay Area's economy is undergoing profound changes that have intensified over the past five years. The Bay Area has emerged as the global leader in the knowledge-intensive industries of computers and electronics, bioscience, multi-media, and environmental technologies. These knowledgeintensive industry clusters provide high wage jobs and fuel Bay Area small business growth. However, prosperity has its downside, including increasing housing and commercial real estate costs, business displacement, and traffic congestion. In San Francisco all of these positive and negative trends are magnified. Proposition M was put in place by the voters to control growth and reduce its impact on housing and transit. Therefore a review of employment, housing and transit trends has informed Spur's policy recommendations and is included here as background. Employment: Since 1990, the City of San Francisco has added 24,000 new jobs. Business Services has grown more in absolute numbers than any other segment of the economy over the past 10 years adding 13,942 jobs. Most of the growth in Business Services is the result of expansion of the Digital Industry. Construction (4,452) and retail trade (8,366) have also seen major job growth. Major declining industries requiring large amounts of land include federal government particularly through the closing of the Presidio Base (-13,938), wholesale trade (-7,395), and manufacturing (-3,449).

The rapid growth in knowledge intensive sectors has resulting in corresponding growth in per-capita income. The Bay Area ranks first in percapita income in the US, surpassing New York in 1997. As a whole Bay Area residents enjoy higher incomes, and fewer residents fall below the poverty line than in comparative regions. Only 21% of Bay Area residents fall into the lowest income category (below $24,999), compared with 30% for New York and LA.

In San Francisco, the median income remained the same as a percent of the mean income between 1990 and 1998. This means that income inequality has not increased during this period even though household income has increased.

1990 Mean
1990 Median
Difference
 
1998 Mean
1998 Median
Difference
SF income
SF income
% of mean
 
SF income
SF income
% of mean
$46,659
$33,414
72%
 
$69,711
$49,528
71%

Source: Bay Area Economic Forum, The Bay Area: Winning in the Global Economy, Sept. 1999, P.18

 

Commercial Real Estate: Employment and business growth means that demand for commercial space in San Francisco has never been higher. Citywide vacancy rates are at a five-year low (1.3%); lease rates are at an all time high (over $60.00/sq. ft./year). In 1999, over 10 million square feet of leases were finalized, and in the first quarter of 2000, over 4.9 million of leasing activity took place in SF. Demand for new commercial space of all types in San Francisco remains high.

Housing: For every two jobs created in the Bay Area, the region has generated less than one new unit of housing. In the 90's there were 24,000 new jobs added to the economy and 8,471 new housing units. Higher salaries and an inadequate housing supply have pushed Bay Area housing prices to the highest in the nation. The housing shortage is worst for those with low incomes.

According to a 1998 study by ABAG, the City of San Francisco has a housing shortage of 23,405 units. The shortage in affordable units is greatest for people with very low and above moderate incomes.

 

San Francisco Housing Units: Unmet Need

 

Income Category Total Unmet Units Needed Percent
Very Low Income 5,617 24%
Low Income 3,742 16%
Moderate Income 4,681 20%
Above Moderate Income 9,361 40%
Total 23,401 100%

Source: ABAG, Housing Needs Determination, 1998, p.48

 

In San Francisco a family earning the median income can afford only 11 percent of the homes on the market, according to the National Association of Home Builders. From 1997-1998 the average cost of a home in San Francisco increased by 18.2%. That typical home sold for $328,000 in 1998 or $234/square foot.

According to the SF Planning Department, average rents for a two-bedroom apartment rose from $928 in 1990 to $1,978 in 1998. Since rental prices in San Francisco are controlled in part by rent control, long time residents have more affordable rents than new comers do. All housing built before 1978 is under rent control; all housing built after 1978 is rented at market rate. About 23,318 units of housing have been built since 1978 and are not under rent control. The remaining 312,687 units are owner occupied or controlled by San Francisco rent control laws.

Transportation: Bay Areas traffic congestion has significantly worsened in recent years. It is the third most congested region in the United States after Los Angeles and Washington D.C. (Source: Texas Transportation Institute). Ten percent of Bay Area commuters use public transportation in the form of trains, ferries, or buses. The Bay Area ranks sixth in the United States in its percentage of commuters using public transportation. New York City leads the nation with 27 percent.

In San Francisco, much of the recent new development and conversion of existing space is far away from the Market Street transit spine and is primarily accessed by private auto rather than transit. This has increased traffic congestion in the South of Market, the Mission and lower Potrero Hill areas.

Transit investments have not kept up with demand, and the Muni system actually declined significantly during the 1990's, leading many to abandon it for the private automobile. In the past few years the system has finally begun to turn around with significant capital investments in new vehicles, and better funding for maintenance and operations. MUNI is just beginning to address the growth of South of Market, and has much catching up to do before transit service is adequate in this and other fast growing neighborhoods.

Defining the Digital Industry
Within the debate about how much growth is right for our city, there is much discussion about the Digital Industry &shy; the most visible powerhouse behind the growth. However, for all the talk, many are not aware of the diversity within the "dot-com" community. The Digital Industry is composed of a diversity of industrial segments, including: Access Providers, such at Verio, MindSpring, or Netcom, which provide consumers with an enabling account whereby they can access the web. Business Service Providers, companies that help businesses establish a web presence by providing, web design, development, consulting, hosting and security. Includes companies like Organic, Circle, Smartage, and Sapient. Most of these firms are profitable and have multiple locations around the world.

Software Developers, companies that produce and market software for license or sale to internet businesses or users, includes Macromedia, PTK.com, and RAPT

Content Developers, that provide news, music, video, photo houses, training developers, or other content that is placed on a web site, e.g. zd.com.

Content Services, generate revenue from advertising sales and their ability to generate clicks to their site based on robust content, examples include netnoir.com, guru.com, listen.com, and latino.com

E-commerce, which provide virtual retail, like Pets.com, Quakka Sports and CNET, for individuals looking to purchase items online.

E-channel, which provide retail websites for brick and motor retailers like Gap.com and Charles Schwab.com.spur logo

 


    Preserve Prop M Initiative
Square feet of private development      
Over 5 years 7.5 million 6.985 million 4.75 million
Over 10 years 12.25 million 10.45 million 9.5 million
Exemptions All government occupied space and the Presidio All government, Presidio, Hunter's Point, Pier 30-32 All government, Presidio, Hunter's Point, Pier 70
Where Office Allowed Downtown, Part of SOMA, Mission Bay, Hunter's Point Downtown, Part of SOMA, Mission Bay, Hunter's Point Downtown, Mission Bay, Hunter's Point
Non-Profits Bonus in Beauty Contest 10% of new dev't; 50% market rent; 10% FAR bonus 10% new development;33% market; no bonus
Neighborhoods Study NEMIZ, Potrero, Part of SOMA. Study NEMIZ, Potrero, Part of SOMA. NO office in NEMIZ Study NEMIZ, Potrero, Part of SOMA including Townsend Corridor. NO office in NEMIZ
Conditional Use for Office, 6,000-25,000 No No Yes
Live/Work Conversion Office requires permit Is residential - no office conversion allowed Is residential - no office conversion allowed
Exactions Increase by inflation - to 25 from 15 Increase to 24.50 from 15 Index to inflation
About the Authors: 

SPUR Prop. M Task Force