San Francisco needs more affordable housing. This is one statement that nearly everyone with a stake in the city can agree on.
Under state law, SF must plan for more than 82,000 new homes by January of 2031, and more than half must be affordable. In 2023, SF added only 971 affordable homes to its housing stock, none in the “extremely low-income” category. The pipeline for all housing is stuck.
Sup. Dean Preston says a federal subsidy, created during the Obama administration, could yield more than 3,600 new affordable homes, nearly 8 percent of what SF must produce or plan for.
But SF isn’t tapping into it enough, according to Preston, while other major cities are getting in on the act. “My goal is to make sure our city is leveraging every opportunity to create affordable housing,” Preston said in an emailed statement.
The salvo from Preston, which includes a resolution backed by his board colleagues, is the latest chapter in a long-running feud between the supervisor and the Breed administration on housing.
SF housing officials say there’s a reason they haven’t taken greater advantage of the federal program: the subsidies are more complex than Preston is letting on – which means his numbers don’t add up.
Public to private
Once upon a time, the federal government served as the primary funder of affordable housing in American cities. But politics turned against public housing projects in the latter half of the 20th century, and state and local governments have struggled to keep up with the demand for subsidized housing.
These days, the U.S. Department of Housing and Urban Development (HUD) pays the rent for some of the lowest-income Americans via Section 8 housing vouchers, but the buildings themselves are mostly privately owned.
By most assessments, it’s a long shot that the feds would once again open the taps, although some housing parties are holding out hope. Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez just reintroduced a “green new deal” plan for housing, for example.
Meanwhile, Preston says SF must capture at least a trickle of federal investment through the Faircloth-to-RAD program. It’s a complex scheme: “Faircloth” refers to the Faircloth Limit, a 25-year-old federal rule that caps the number of public housing units HUD can fund in U.S. cities.
RAD stands for Rental Assistance Demonstration, a program that lets cities turn public housing into Section 8 homes with private owners. “You have an aging property, and Congress isn’t going to approve any funds to maintain it, so people say, ‘Why can’t we just convert this over to Section 8?’” says David Weber, senior policy analyst at the Public Housing Authorities Directors Association.
Faircloth-to-RAD lets cities develop new homes up to their Faircloth Limit, and immediately convert them into private housing, with HUD committing via Section 8 to subsidize rent for 20 years for low-income renters. Because of that guarantee, developers and lenders say it’s easier to borrow money and finance some of these projects.
“While RAD was initially designed to assist with rehabilitating existing public housing units, [FTR] has recently led to a new opportunity for [local public housing authorities] to expand their overall supply of units,” researchers at UC Berkeley’s Terner Center noted in a 2023 analysis.
That “new opportunity” to build new units, not rehab old ones, is what SF must target. The city has already converted more than 3,400 public housing units – most of its stock – into privately owned affordable homes. The only unconverted public residences are the HOPE-SF communities in the city’s southeast, and they’re not eligible for Faircloth-to-RAD.
How many new units SF could build to be eligible under FTR is a complicated moving target, but it’s now roughly the number of units Preston says the city is leaving on the table.
So far, FTR has helped create new housing in other cities, but not at the scale Preston is suggesting. For example, in 2022, Miami-Dade County built 27 new affordable homes to supplement a larger project, according to the Terner report.
Preston’s calculations
If Faircloth-to-RAD spurred the creation of more than 3,600 “deeply affordable” homes, as Preston suggests, it would more than double the affordable homes currently under construction in SF. That’s quite a boon.
“We need to explore all options for affordable housing and follow the lead of other big cities and mayors,” Preston said during an April 2 Board of Supervisors meeting, during which all his colleagues supported his nonbinding resolution that demanded as many new FTR homes as possible.
Update, 7/19/24: The San Francisco Housing Authority said last month that 750 of the 3,667 units eligible under the FTR program were now in the early planning stages. This week, Preston’s office released a list of the projects, including senior housing at Ocean Beach (216 units) and a former church near Laguna Honda Hospital (115 units).
The financing for [these] units results in a pretty low subsidy level in San Francisco.
Tom Davis, department of housing and urban development
When asked about the resolution and Preston’s suggested totals, both the Mayor’s Office of Housing and Community Development and the San Francisco Housing Authority responded with nearly identical answers. They’re working on it, they said, but there are big caveats.
“MOHCD and SFHA are currently assessing Faircloth to RAD opportunities for San Francisco and are seeking to identify potential pilot projects that will be feasible given the technical complexities of the program,” wrote MOHCD spokesperson Anne Stanley.
Both agencies added that “the Faircloth-to-RAD program only provides low-level rent subsidy and does not provide construction financing, which must be leveraged/augmented by other funds to cover costs of project operations.”
Unpacking the caveats
The first caveat is the low amount of rent subsidies SF would receive. Based on HUD’s calculations under the Faircloth-to-RAD program, they could amount to as little as $600 a month for a renter, which doesn’t cover too much in our expensive city. Tom Davis, director of recapitalization at HUD, confirmed the amount: “The financing for [these] units results in a pretty low subsidy level in San Francisco.”
The second caveat – FTR doesn’t cover construction financing – is important because SF would have to build new units from scratch, not convert them from existing stock. But new construction is a more complex proposition than conversion. Affordable housing isn’t affordable to build. Labor and materials are expensive, and economies of scale matter. The smaller the project, the higher the per-unit cost.
Asked to respond to the caveats, Preston’s office forwarded an email he wrote on April 2 to MOHCD. “We do not maintain that FTR alone will make deeply affordable units pencil for all projects,” it reads.
However, the District 5 supervisor believes SF can create leverage with the RAD subsidies, combining them with federal tax credits for low-income housing, or with other private and public funding sources, to create more powerful financial packages.
The Terner Center’s research confirms other cities have successfully combined these elements; the question is whether San Francisco can cobble together enough to create a meaningful difference. The SF Housing Authority has pledged to release a feasibility study in coming weeks.
Meanwhile, the state is demanding tens of thousands of new affordable homes, markets remain skittish on new construction, and for all of its economic malaise, San Francisco is scarcely cheaper for low-income renters now than it’s ever been.
However, new local rules should make it harder for NIMBY neighbors to protest. The prospect of poor or disadvantaged people moving in nearby often turns ugly, and San Francisco isn’t immune. Any chance to create more low-income housing seems like a big opportunity – no matter how modest.