Slow approval process not only obstacle for city housing goals

February 19, 2019

 

 

Plans for close to 45,000 potential homes are currently approved in San Francisco — the highest number tracked by The City’s Planning Department to date — but many of these projects have yet to break ground.

In an effort to speed up the development of affordable housing, last month Mayor London Breed announced that she plans to introduce a charter amendment for the November ballot that would take away the ability of residents to appeal affordable and teacher housing projects, though details remain unclear.

“No more bureaucracy. No more costly appeals. No more not in my neighborhood. It’s simple: Affordable housing as-of-right because housing affordability is a right,” said Breed.

But public disapproval and The City’s slow approval processes aren’t the only roadblocks to the construction of residential units in San Francisco. While land use entitlements — or approvals of a development plan — in theory should allow developers to proceed to financing and construction, for-profit projects can sometimes languish for years in the post-entitlement phase.

Constraints on financing and a growing trend of flipping entitlements are significant causes for delays, with some sponsors never intending to build. And many approved units are tied up in large, complex projects with slow, phased buildouts that can stretch over decades.

Industry stakeholders and elected officials often blame the current pipeline clog on a slow city approval and permitting process.

“The planning process is very complicated. You have architects who don’t know planning code that well, there are so many nuances. Administratively [The City] has to figure out how to make the process simpler and less cumbersome,” said Jonathan Moftakhar, a realtor with Vanguard Properties.

“The amount of power they give to neighborhood groups complicates the process. You have a public that opposes practically everything that’s submitted — I don’t think it’s responsible urban planning,” he said.

Sean Keighran, president of the Residential Builders Association, which represents both developers and contractors, cited city departments “working in a bubble” as exacerbating “uncertainty” already experienced by developers due to construction loans, “high land costs, rising interest rates, rising construction costs and a softening real estate market.”

Keighran called construction loans the “highest risk of all,” adding that interest rates, now as high as 8 percent, have doubled in recent years, while real estate sales are slowing down.

“From the moment you write the offer to buy a piece of land it probably takes close to a year to submit your plans. Then you’re in planning for two years — then you have [to obtain] your post-planning entitlements and then you have to build,” said Keighran. “So from the time you bought the land, five years passed, and the economic conditions have changed dramatically in that five-year gap.”

The public process can add another six to 12 months to the planning approvals phase, according to an analysis of the development process provided by the Council of Community Housing Organizations, a nonprofit coalition of community-based housing developers and tenant advocates. Appeals can add even more delays.

But once a project is entitled, affordable housing developers will usually move quickly through the building permit and construction stage, while a private developer has the option to wait, according to Fernando Marti, CCHO’s co-director.

“Depending on the economy, and factors like construction costs — that’s where a lot of projects often stall out,” said Marti. “For [some] developers, development is not actually building the project — it’s getting the entitlement and then selling the entitlement — there’s a whole market around that.”

“No one is talking about the already approved projects that are just sitting there waiting to turn a higher profit,” said Maya Chupkov, CCHO’s communications director.

The council estimates that it can take up to four years for a for-profit project to secure financing for construction, and entitlements can be sold to other investors or “held for years with no firm requirement to build the project.”

Data on how often entitlements are sold is currently not readily available, said Marti.

Where some project sponsors may have difficulties securing financial partners to move towards construction, others see opportunity.

“Your property becomes more valuable by going through this two-year planning process and dealing with the public,” said Marti. “In the end, I may have doubled the value of my assets and I haven’t built anything — [the site] is still a parking lot.”

Moftakhar, the realtor, conceded that there are “many variables” slowing down particularly smaller, “infill” projects, which he described as “the bread and butter” of development.

“You can easily increase a property’s value in hundreds of thousands to millions of dollars just by entitling a project,” he said.

San Francisco Planning Commissioner Dennis Richards said that improvements in the planning and building permitting processes are necessary, but agreed that pinning all delays on city departments is unfair.

“It takes two people to dance,” said Richards. “As much as something sits on someone’s desk at planning, there are times where planners say, ‘What’s taking so long for the developer to come back to us? They also have time lapse and time delays. What causes sponsors to take more time than necessary? That would be great to know.“

Richards cited a 304-unit entitled development at 1 Oak St. as a “classic example” of developers pulling the brakes ahead of construction.

“We asked [developer] Build Inc. — do you intend to build this? We didn’t get an answer,” said Richards. “It was approved last year but nothing is happening — then I heard they are selling the entitlements. These are the kind of things where it’s ‘hurry up, hurry up and then nothing’— and we get a bad rap.”

While project sponsors must seek an extension of their entitlements if building permits remain outstanding after three years, they are not revoked automatically, said Planning Department Spokesperson Gina Simi. Instead, a planning commission hearing is needed.

Richards said the Planning Commission is “toying with the idea” of shortening the three-year time limit to encourage developers to break ground sooner.

“It’s called ‘use it or lose it,’” said Richards. “When you put a deadline in to perform, people perform. “

Richards added that he agrees with Breed’s efforts to streamline approvals — including removing opportunities to appeal — for affordable housing projects, but said that the public process is a critical step in vetting for-profit development plans.

“I support 100 percent or 50 percent [affordable projects] getting a pass, but that’s where it stops,” he said. “[Discretionary Review] is a mechanism for community to get some benefits out of a project.”

Of the more than 70,000 total units in The City’s pipeline, just 7,460 are currently under construction while 18,620 remain under review for approval by the Planning Department.

Notably, 42 percent of planned units are part of multi-phased projects such as Parkmerced, Candlestick Point or Treasure Island, which are expected to be built out over ten to 20 years, according to planning documents.

Some of these larger projects, such as the 10,500 units planned for the Hunters Point Shipyard and the 1,575 units at India Basin, have been tied up in litigation or environmental and regulatory issues following approval.

These types of large-scale projects undergo a slightly different approval process, including negotiations over community benefit agreements and phased construction to allow for the build out of necessary infrastructure, explained Kristy Wang, Community Planning Policy Director at SPUR.

“The issues those projects are facing — environmental issues, lawsuits, major infrastructure — are a different bucket,” said Wang. “[The City] has had people focused on that slice of the pipeline for a while. They’ve been trying to unclog the interdepartmental conflicts that those projects have been running into.”

With a goal of building 5,000 units each year to alleviate The City’s growing housing crisis, Breed has also hired Judson True, a former chief of staff for Assemblymember David Chiu, as director of housing delivery.

True will focus on post-entitlement headaches faced by large and mid-sized residential developers, such as obtaining construction permits, and said that the “entire cycle of the project has to be accelerated.”

“City departments have to work more closely together to get approved housing built, and that involves better communication, clearer schedules, and more resources,” he said.

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