Prop E is a Very Bad Idea– Here’s Why
Feb 24, 2020
The future of San Francisco's office development will be left up to voters to decide in March, pending the approval of proposition E and the amendment to proposition M.
Proposition E would limit future office growth in San Francisco as a function of the city’s shortfall of new affordable housing. It’ll also increase the office space cap for smaller office developments by reclassifying projects between 25,000 and 100,000 square feet as “small.”
Proposition M, which originally passed in 1986 by voters, will be amended to limit annual office development approvals across the city to 925,000 square feet. Smaller projects containing less than 50,000 square feet of office space are reserved 75,000 square feet of approvals. Larger projects are reserved for the rest of the office space allocation.
Both propositions will put a halting brake on any new office developments while increasing costs on current projects. If passed, these ballot measures will cripple San Francisco’s economic growth.
San Francisco already faces challenges of having the most expensive homes, residential rents and office rents. As a result, we have become a city where not only the wealthiest residents but also the most well-funded office tenants.
Recently, San Francisco has lost two of our oldest traditional office tenants– Charles Schwab and McKesson Corporation, both moving their headquarters to Texas. Many local firms, particularly non-tech, is struggling with rental increases above 40 percent.
Rather than stop the construction of office space, San Francisco should be considering ways to ease office construction to meet the demand. Our city officials seem to always blame landlords and developers for the woes of our city. The reality is the reason why we have such high costs of office space and high cost of living here is that we have created an over-regulated system to get projects through our city permitting and planning processes.
Prop E does not offer any streamlining to assist in the development of either office or residential. Forcing office developers to match square footage to affordable housing will only kill office development entirely. We are quickly taking away all of the incentives for developers to build in San Francisco.
Mayor Breed announced this week plans to go directly to the voters to introduce measures to streamline the permitting and planning process to speed up the delivery of affordable housing as well as below-market-rate (BMR) housing. The petition would streamline the approval for 100 percent affordable housing and projects that include more on-site affordable homes than currently required by the City plan – shaving years off the approval process. She has indicated that she has not been able to convince the Board of Supervisors to take such action, so she is now seeking signatures from voters directly.
Our city officials need to go back and take basic Economics 101. We live in a supply-and demand-economy. If there is demand, you must increase the supply. If your supply outpaces the demand, prices will drop and construction will end.
We don’t have “greedy” landlords or developers– what we do have is an incredibly bureaucratic and costly system to secure necessary permits to get any project up and running. Fix that and we won’t have to worry about coming up with SB50 measures. The problem will fix itself.
Written by: Hans Hansson
Hans Hansson is President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email email@example.com or call him at (415) 765-6897. You may also check out his website, hanshansson.com.