ELECTION 2020
BBefore COVID-19, San Francisco already faced a once-in-a-century crisis: a deficit of tens of thousands of new homes needed to make it an affordable, livable city once again.
Now the pandemic has blown a billion-dollar hole in the city budget and scuttled development plans. If SF couldn’t build enough housing before, it now seems almost like a pipe dream.
But in the upcoming election, voters have a chance to approve thousands of units of public housing, financed by perhaps hundreds of millions of dollars in new taxes. If those plans pass, some advocates will push even harder for sources of cash for affordable housing and continue to oppose market-rate development, which currently provides key affordable funding.
Two measures, 10,000 homes
Proposition K asks SF voters to authorize 10,000 new units of public rental housing, but it has no budget or other details. Its aim is to address a state constitutional amendment from the 1950s, crafted to hamstring low-rent development, that requires a city to get voters’ permission for new public housing plans.
‘Ordinarily, one may take false comfort that private developers are going to create enough housing. In tough times, policymakers can’t fall back on that.’
— Supervisor Dean Preston
Some money for Prop K’s new housing would come from the complementary Proposition I, which would double the tax on transfers of SF properties valued at $10 million or more. The SF controller projects that the tax could “generate significant but volatile additional revenues,” from just $13 million to perhaps $346 million annually.
[Correction: A previous version of this story misstated the minimum property value that would trigger the additional tax.]
The twin measures are the brainchildren of Supervisor Dean Preston, who made the goal of 10,000 homes an important part of his campaign last year. “Municipal housing has got to be one of the tools” to relieve the housing crunch, Preston tells The Frisc. “Ordinarily, one may take false comfort that private developers are going to create enough housing. I think in tough times, policymakers can’t fall back on that.”
If that sounds like a dig against market-rate development, it is. Preston’s zeal for “100% affordable housing” is conspicuous, but not unique. The phrase is of nearly talismanic importance in SF housing circles, but it can mean a lot of different things.
Affordable for whom?
Homes dubbed affordable are not necessarily affordable or accessible for all SF residents, nor are they meant to be. A more accurate term would probably be subsidized housing — homes that are priced not by the ups and downs of market forces, but by municipal mandate.
It’s all based on an annual measurement of incomes in San Francisco. The city prices homes to be affordable at different income brackets, from as low as 20 percent or 25 percent of the area median income, or AMI, up to 140 percent or higher.
For 2020 San Francisco’s AMI is $89,650 annually for a single person (before taxes), or $128,100 for a family of four. That means what SF deems affordable can be subsidized for a household earning as much as $179,000.
‘It’s just not feasible for locals to raise the kind of capital to do anything but a cosmetic exercise.’
— Matt Regan, Bay Area Council
That may seem like a lot of money, but even those earners may have trouble affording SF’s market, even with the pandemic driving prices in some neighborhoods down. Buying or renting one of these homes means winning a city-run housing lottery against often hundreds of other hopefuls.
Preston and his allies are inherently suspicious of market-rate development, but San Francisco’s finances are structured so that funding for affordable housing is dependent upon market-rate housing.
It’s a complicated dance. To get permission to build lucrative new market-rate homes in San Francisco, developers agree to also create a certain number of more cheaply priced homes, sometimes at the same site. More often, though, they funnel fees into a city fund that pays other developers, specialists in affordable housing, to create housing elsewhere — a process that takes years.
Affordable to buy doesn’t mean affordable to build. Estimates vary, but per one widely cited 2019 assessment by the nonprofit think tank Bay Area Council, it may cost in excess of $737,000 to create a single affordable unit in SF. UK-based services company Turner & Townsend calculated that SF is the most expensive city for housing construction in the world.
California issues quotas to cities for new housing. Based on state goals, SF has permitted 138% of the market-rate homes in its quota by 2023, according to the state’s latest report, but is on track to build only 31% of the nearly 11,000 units in the quota figure for the lowest-income residents. (At the moderately affordable level, the unit numbers are even worse than that, exacerbating the housing crunch for teachers, nurses, and other professionals who may have sizable earnings but are nevertheless being priced out of San Francisco.)
“It’s prohibitively expensive to build, and a large part of that is that our process takes so many years,” Andy Lynch, spokesperson for Mayor London Breed, tells The Frisc. Breed’s own housing crusade has been to shorten the pipeline, but city lawmakers have not agreed with her proposals.
In short, demand for subsidized housing has never been higher, and neither have the barriers to creating it — and all of that was before COVID-19.
Drop in the bucket
The $1.5 billion hole in SF’s budget, which will be balanced only if voters come through this November, has also made private developers very skittish. A major slump in market-rate development would potentially dry up the city’s key source of new affordable housing fees.
SF has some funding sources insulated from market fluctuations; for example, in 2019, voters approved $600 million worth of bonds to build housing for the lowest earners. But the scale of the housing crisis is sort of like the world’s least welcome stage magician: It can make $600 million vanish in the blink of an eye. Put every single dollar toward affordable housing construction, and the city would only gain about 800 units.
It might seem counterintuitive, but private financing could step in if the downturn makes land and construction cheaper, especially for the lowest-income housing. “If you’re a private developer, you could now see more sources available for affordable housing than for a riskier luxury development,” which has happened during previous economic crises, Julie Mahowald, interim CEO of the housing nonprofit Housing Trust Silicon Valley, tells The Frisc.
“When the market goes bad, affordable developers become the only game in town,” says Matt Regan, VP of public policy for the Bay Area Council.
However, Regan insists that the sheer volume of housing needed — running into trillions of dollars — is far outside the scope of city government: “It’s just not feasible for locals to raise the kind of capital to do anything but a cosmetic exercise.”
Preston knows that Props K and I would provide only a sliver of the housing needed. But a yes vote in November, he says, could spur more ambitious proposals that might be dead in the water without a crisis. (A year ago, the current eviction prohibitions would have sounded like a fantasy, he points out.)
Regan and Preston agree that today’s system of paying for affordable housing by taxing market-rate construction isn’t tenable. But their solutions diverge. Regan wants to reinstate the residential property taxes that California’s Prop 13 froze in the 1970s. (A state proposition this November would only repeal Prop 13’s commercial freeze.) Preston wants to tax billionaires and build city-owned housing on public land.
Now it’s up to the voters. What they say in November will help determine the direction of San Francisco’s response to the crisis.
Adam Brinklow has lived in and written about San Francisco for 13 years, covering local communities for outlets like Curbed SF, SFGate, San Franciscomagazine, SF Weekly, and EDGE SF.