The City of San Diego Rules Committee voted to approve an increase to the city’s inclusionary housing requirement on all new residential projects. Inclusionary is a government mandate that all new housing developments set aside a specific number of homes at below market cost. The new rules would also require a $22 per square foot fee charged on new homes in lieu of the set aside requirement.

At the end of almost 3 hours of testimony from industry leadership and others, the Committee voted 3-2 to move the proposal to the full city council. Voting yes were Council President Georgette Gomez and Councilmembers Chris Ward and Barbara Bry. Councilmembers Chris Cate and Mark Kersey voted against the plan citing the negative impact the new restrictions would have on housing prices, rents and supply.

A city study found that construction costs and rents would have to increase to offset the losses associated with the inclusionary mandates. A subsequent analysis by Point Loma Nazarene University Economist, Dr. Lynn Reaser concluded that overall housing production would plummet by nearly 900 units each year as a result of the new mandates.

The proposal comes at a parlous time for housing production with permit activity down 73% compared to the same period last year. Most analysts attribute the steep decline to rising construction material costs and government regulations that lead to higher prices. The draft policy moves to the Planning Commission in June followed by a full City Council hearing in late July.