Volume 41 Number 51

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Curtis Aaron leaves his house at 9 a.m. and drives to work as a recreation center director for the San Francisco Recreation and Park Department. He tries to leave enough time for the trip; he’s expected on the job at noon.

Aaron lives in Stockton. He moved there with his wife and two kids three years ago because “there was no way I could buy a place in San Francisco, not even close.” His commute takes three hours one way when traffic is bad. He drives by himself in a Honda Accord and spends $400 a month on gas.

Peter works for the city as a programmer and lives in Suisun City, where he moved to buy a house and start a family. Born and raised in San Francisco, he is now single again, with grown-up children and a commute that takes a little more than an hour on a good day.

“I’d love to move back. I love city life, but I want to be a homeowner, and I can’t afford that in the city,” Peter, who asked us not to use his last name, explained. “I work two blocks from where I grew up and my mom’s place, which she sold 20 years ago. Her house is nothing fancy, but it’s going for $1.2 million. There’s no way in hell I could buy that.”

Aaron and Peter aren’t paupers; they have good, unionized city jobs. They’re people who by any normal standard would be considered middle-class — except that they simply can’t afford to live in the city where they work. So they drive long distances every day, burning fossil fuels and wasting thousands of productive hours each year.

Their stories are hardly unique or new; they represent part of the core of the city’s most pressing problem: a lack of affordable housing.

Just about everyone on all sides of the political debate agrees that people like Aaron and Peter ought to be able to live in San Francisco. Keeping people who work here close to their jobs is good for the environment, good for the community, and good for the workers.

“A lack of affordable housing is one of the city’s greatest challenges,” Mayor Gavin Newsom acknowledged in his 2007–08 draft budget.

The mayor’s answer — which at times has the support of environmentalists — is in part to allow private developers to build dense, high-rise condominiums, sold at whatever price the market will bear, with a small percentage set aside for people who are slightly less well-off.

The idea is that downtown housing will appeal to people who work in town, keeping them out of their cars and fighting sprawl. And it assumes that if enough market-rate housing is built, eventually the price will come down. In the meantime, demanding that developers make somewhere around 15 percent of their units available at below-market rates should help people like Aaron and Peter — as well as the people who make far less money, who can never buy even a moderately priced unit, and who are being displaced from this city at an alarming rate. And a modest amount of public money, combined with existing state and federal funding, will make affordable housing available to people at all income levels.

But the facts are clear: this strategy isn’t working — and it never will. If San Francisco has any hope of remaining a city with economic diversity, a city that has artists and writers and families and blue-collar workers and young people and students and so many of those who have made this one of the world’s great cities, we need to completely change how we approach the housing issue.

HOMELESS OR $100,000

The housing plans coming out of the Mayor’s Office right now are aimed primarily at two populations: the homeless people who have lost all of their discretionary income due to Newsom’s Care Not Cash initiative, and people earning in the neighborhood of $100,000 a year who can’t afford to buy homes. For some time now, the mayor has been diverting affordable-housing money to cover the unfunded costs of making Care Not Cash functional; at least that money is going to the truly needy.

Now Newsom’s housing director, Matt Franklin, is talking about what he recently told the Planning Commission is a “gaping hole” in the city’s housing market: condominiums that would allow people on the higher end of middle income to become homeowners.

At a hearing Sept. 17, Doug Shoemaker of the Mayor’s Office of Housing told a Board of Supervisors committee that the mayor wants to see more condos in the $400,000 to $600,000 range — which, according to figures presented by Service Employees International Union Local 1021, would be out of the reach of, say, a bus driver, a teacher, or a licensed vocational nurse.

Newsom has put $43 million in affordable-housing money into subsidies for new home buyers in the past year. The Planning Department is looking at the eastern neighborhoods as ground zero for a huge new boom in condos for people who, in government parlance, make between 120 and 150 percent of the region’s median income (which is about $90,000 a year for a family of four).

In total, the eastern neighborhoods proposal would allow about 7,500 to 10,000 new housing units to be added over the next 20 years. Downtown residential development at Rincon Hill and the Transbay Terminal is expected to add 10,000 units to the housing mix, and several thousand more units are planned for Visitacion Valley.

The way (somewhat) affordable housing will be built in the eastern part of town, the theory goes, is by creating incentives to get developers to build lower-cost housing. That means, for example, allowing increases in density — changing zoning codes to let buildings go higher, for example, or eliminating parking requirements to allow more units to be crammed into an available lot. The more units a developer can build on a piece of land, the theory goes, the cheaper those units can be.

But there’s absolutely no empirical evidence that this has ever worked or will ever work, and here’s why: the San Francisco housing market is unlike any other market for anything, anywhere. Demand is essentially insatiable, so there’s no competitive pressure to hold prices down.

“There’s this naive notion that if you reduce costs to the market-rate developers, you’ll reduce the costs of the unit,” Calvin Welch, an affordable-housing activist with more than three decades of experience in housing politics, told the Guardian. “But where has that ever happened?”

In other words, there’s nothing to keep those new condos at rates that even unionized city employees — much less service-industry workers, nonprofit employees, and those living on much lower incomes — can afford.

In the meantime, there’s very little discussion of the impact of increasing density in the nation’s second-densest city. Building housing for tens of thousands of new people means spending hundreds of millions of dollars on parks, recreation centers, schools, police stations, fire stations, and Muni lines for the new neighborhoods — and that’s not even on the Planning Department’s radar. Who’s going to pay for all that? Nothing — nothing — in what the mayor and the planners are discussing in development fees will come close to generating the kind of cash it will take to make the newly dense areas livable.

“The solution we are striving for has not been achieved,” said Chris Durazo, chair of the South of Market Community Action Network, an organizing group. “Should we be looking at the cost to developers to build affordable housing or the cost to the neighborhood to be healthy? We’re looking at the cumulative impacts of policy, ballot measures, and planning and saying it doesn’t add up.”

In fact, Shoemaker testified before the supervisors’ committee that the city is $1.14 billion short of the cash it needs to build the level of affordable housing and community amenities in the eastern neighborhoods that are necessary to meet the city’s own goals.

This is, to put it mildly, a gigantic problem.

THE REST OF US

Very little of what is on the mayor’s drawing board is rental housing — and even less is housing available for people whose incomes are well below the regional median, people who earn less than $60,000 a year. That’s a large percentage of San Franciscans.

The situation is dire. Last year the Mayor’s Office of Community Development reported that 16 percent of renters spend more than half of their income on housing costs. And a recent report from the National Low Income Housing Coalition notes that a minimum-wage earner would have to work 120 hours a week, 52 weeks a year, to afford the $1,551 rent on a two-bedroom apartment if they spent the recommended 30 percent of their income on housing.

Ted Gullickson of the San Francisco Tenants Union told us that Ellis Act evictions have decreased in the wake of 2006 Board of Supervisors legislation that bars landlords from converting their property from rentals to condos if they evict senior or disabled tenants.

But the condo market is so profitable that landlords are now offering to buy out their tenants — and are taking affordable, rent-controlled housing off the market at the rate of a couple of hundred units a month.

City studies also confirm that white San Franciscans earn more than twice as much as their Latino and African American counterparts. So it’s hardly surprising that the Bayview–Hunters Point African American community is worried that it will be displaced by the city’s massive redevelopment plan for that area. These fears were reinforced last year, when Lennar Corp., which is developing 1,500 new units at Hunters Point Shipyard, announced it will only build for-sale condos at the site rather than promised rental units. Very few African American residents of Bayview–Hunters Point will ever be able to buy those condos.

Tony Kelly of the Potrero Hill Boosters believes the industrial-zoned land in that area is the city’s last chance to address its affordable-housing crisis. “It’s the biggest single rezoning that the city has ever tried to do. It’s a really huge thing. But it’s also where a lot of development pressure is being put on the city, because the first sale on this land, once it’s rezoned, will be the most profitable.”

Land use attorney Sue Hestor sees the eastern neighborhoods as a test of San Francisco’s real political soul.

“There is no way it can meet housing goals unless a large chunk of land goes for affordable housing, or we’ll export all of our low-income workers,” Hestor said. “We’re not talking about people on welfare, but hotel workers, the tourist industry, even newspaper reporters.

“Is it environmentally sound to export all your workforce so that they face commute patterns that take up to three and four hours a day, then turn around and sell condos to people who commute to San Jose and Santa Clara?”

A THREE-POINT PLAN

It’s time to rethink — completely rethink — the way San Francisco addresses the housing crisis. That involves challenging some basic assumptions that have driven housing policy for years — and in some quarters of town, it’s starting to happen.

There are three elements of a new housing strategy emerging, not all from the same people or organizations. It’s still a bit amorphous, but in community meetings, public hearings, blog postings, and private discussions, a program is starting to take shape that might actually alter the political landscape and make it possible for people who aren’t millionaires to rent apartments and even buy homes in this town.

Some of these ideas are ours; most of them come from community leaders. We’ll do our best to give credit where it’s due, but there are dozens of activists who have been participating in these discussions, and what follows is an amalgam, a three-point plan for a new housing policy in San Francisco.

1. Preserve what we have. This is nothing new or terribly radical, but it’s a cornerstone of any effective policy. As Welch points out repeatedly, in a housing crisis the cheapest and most valuable affordable housing is the stuff that already exists.

Every time a landlord or real estate speculator tries to make a fast buck by evicting a tenant from a rent-controlled apartment and turning that apartment into a tenancy in common or a condo, the city’s affordable-housing stock diminishes. And it’s far cheaper to look for ways to prevent that eviction and that conversion than it is to build a new affordable-rental apartment to replace the one the city has lost.

The Tenants Union has been talking about this for years. Quintin Mecke, a community organizer who is running for mayor, is making it a key part of his platform: More city-funded eviction defense. More restrictions on what landlords can do with buildings emptied under the Ellis Act. And ultimately, a statewide strategy to get that law — which allows landlords to clear a building of tenants, then sell it as condos — repealed.

Preserving existing housing also means fighting the kind of displacement that happens when high-end condos are squeezed into low-income neighborhoods (which is happening more and more in the Mission, for example, with the recent approval of a market-rate project at 3400 César Chávez).

And — equally important — it means preserving land.

Part of the battle over the eastern neighborhoods is a struggle for limited parcels of undeveloped or underdeveloped real estate. The market-rate developers have their eyes (and in many cases, their claws) on dozens of sites — and every time one of them is turned over for million-dollar condos, it’s lost as a possible place to construct affordable housing (or to preserve blue-collar jobs).

“Areas that have been bombarded by condos are already lost — their industrial buildings and land are already gone,” Oscar Grande of People Organizing to Demand Environmental and Economic Rights told us.

So when activists (and some members of the Board of Supervisors) talk about slowing down or even stopping the construction of new market-rate housing in the eastern neighborhoods area, it’s not just about preventing the displacement of industry and blue-collar jobs; it’s also about saving existing, very limited, and very valuable space for future affordable housing.

And that means putting much of the eastern neighborhoods land off limits to market-rate housing of any kind.

The city can’t exactly use zoning laws to mandate low rents and low housing prices. But it can place such high demands on developers — for example, a requirement that any new market-rate housing include 50 percent very-low-income affordable units — that the builders of the million-dollar condos will walk away and leave the land for the kind of housing the city actually needs.

2. Find a new, reliable, consistent way to fund affordable housing. Just about everyone, including Newsom, supports the notion of inclusionary housing — that is, requiring developers to make a certain number of units available at lower-than-market rates. In San Francisco right now, that typically runs at around 15 percent, depending on the size of the project; some activists have argued that the number ought to go higher, up to 20 or even 25 percent.

But while inclusionary housing laws are a good thing as far as they go, there’s a fundamental flaw in the theory: if San Francisco is funding affordable housing by taking a small cut of what market-rate developers are building, the end result will be a city where the very rich far outnumber everyone else. Remember, if 15 percent of the units in a new luxury condo tower are going at something resembling an affordable rate, that means 85 percent aren’t — and ultimately, that leads to a population that’s 85 percent millionaire.

The other problem is how you measure and define affordable. That’s typically based on a percentage of the area’s median income — and since San Francisco is lumped in with San Mateo and Marin counties for income statistics, the median is pretty high. For a family of four in San Francisco today, city planning figures show, the median income is close to $90,000 a year.

And since many of these below-market-rate projects are priced to be affordable to people making 80 to 100 percent of the median income, the typical city employee or service-industry worker is left out.

In fact, much of the below-market-rate housing built as part of these projects isn’t exactly affordable to the San Franciscans most desperately in need of housing. Of 1,088 below-market-rate units built in the past few years in the city, Planning Department figures show, just 169 were available to people whose incomes were below half of the median (that is, below $45,000 a year for a family of four or $30,000 a year for a single person).

“A unit can be below market rate and still not affordable to 99 percent of San Franciscans,” Welch noted.

This approach clearly isn’t working.

So activists have been meeting during the past few months to hammer out a different approach, a way to sever affordable-housing funding from the construction of market-rate housing — and to ensure that there’s enough money in the pot to make an actual difference.

It’s a big number. “If we have a billion dollars for affordable housing over the next 15 years, we have a fighting chance,” Sup. Chris Daly told us. “But that’s the kind of money we have to talk about to make any real impact.”

In theory, the mayor and the supervisors can just allocate money from the General Fund for housing — but under Newsom, it’s not happening. In fact, the mayor cut $30 million of affordable-housing money this year.

The centerpiece of what Daly, cosponsoring Sup. Tom Ammiano, and the housing activists are talking about is a charter amendment that would earmark a portion of the city’s annual property-tax collections — somewhere around $30 million — for affordable housing. Most of that would go for what’s known as low- and very-low-income housing — units affordable to people who earn less than half of the median income. The measure would also require that current housing expenditures not be cut — to “lock in everything we’re doing now,” as Daly put it — so that that city would have a baseline of perhaps $60 million a year.

Since the federal government makes matching funds available for many affordable-housing projects, that money could be leveraged into more than $1 billion.

Of course, setting aside $30 million for affordable housing means less money for other city programs, so activists are also looking at ways to pay for it. One obvious option is to rewrite the city’s business-tax laws, replacing some or all of the current payroll tax money with a tax on gross receipts. That tax would exempt all companies with less than $2 million a year in revenue — the vast majority of the small businesses in town — and would be skewed to tax the bigger businesses at a higher rate.

Daly’s measure is likely headed for the November 2008 ballot.

The other funding option that’s being discussed in some circles — including the Mayor’s Office of Housing — is complicated but makes a tremendous amount of sense. Redevelopment agencies now have the legal right to sell revenue bonds and to collect income based on so-called tax increments — that is, the increased property-tax collections that come from a newly developed area. With a modest change in state law, the city should be able to do that too — to in effect capture the increased property taxes from new development in, say, the Mission and use that money entirely to build affordable housing in the neighborhood.

That, again, is a big pot of cash — potentially tens of millions of dollars a year. Assemblymember Mark Leno (D–San Francisco) told us he’s been researching the issue and is prepared to author state legislation if necessary to give the city the right to use tax-increment financing anywhere in town. “With a steady revenue stream, you can issue revenue bonds and get housing money up front,” he said.

That’s something redevelopment agencies can do, and it’s a powerful tool: revenue bonds don’t have to go to the voters and are an easy way to raise money for big projects — like an ambitious affordable-housing development program.

Somewhere, between all of these different approaches, the city needs to find a regular, steady source for a large sum of money to build housing for people who currently work in San Francisco. If we want a healthy, diverse, functioning city, it’s not a choice any more; it’s a mandate.

3. A Proposition M for housing. One of the most interesting and far-reaching ideas we’ve heard in the past year comes from Marc Salomon, a Green Party activist and policy wonk who has done extensive research into the local housing market. It may be the key to the city’s future.

In March, Salomon did something that the Planning Department should have done years ago: he took a list of all of the housing developments that had opened in the South of Market area in the past 10 years and compared it to the Department of Elections’ master voter files for 2002 and 2006. His conclusion: fully two-thirds of the people moving into the new housing were from out of town. The numbers, he said, “indicate that the city is pursuing the exact opposite priorities and policies of what the Housing Element of the General Plan calls for in planning for new residential construction.”

That confirms what we found more than a year earlier when we knocked on doors and interviewed residents of the new condo complexes (“A Streetcar Named Displacement,” 10/19/05). The people for whom San Francisco is building housing are overwhelmingly young, rich, white commuters who work in Silicon Valley. Or they’re older, rich empty nesters who are moving back to the city from the suburbs. They aren’t people who work in San Francisco, and they certainly aren’t representative of the diversity of the city’s population and workforce.

Welch calls it “socially psychotic” planning.

Twenty-five years ago, the city was doing equally psychotic planning for commercial development, allowing the construction of millions of square feet of high-rise office space that was overburdening city services, costing taxpayers a fortune, creating congestion, driving up residential rents, and turning downtown streets into dark corridors. Progressives put a measure on the November 1986 ballot — Proposition M — that turned the high-rise boom on its head: from then on, developers had to prove that their buildings would meet a real need in the city. It also set a strict cap on new development and forced project sponsors to compete in a “beauty contest” — and only the projects that offered something worthwhile to San Francisco could be approved.

That, Salomon argues, is exactly how the city needs to approach housing in 2007.

He’s been circuutf8g a proposal that would set clear priority policies for new housing. It starts with a finding that is entirely consistent with economic reality: “Housing prices [in San Francisco] cannot be lowered by expanding the supply of market-rate housing.”

It continues, “San Francisco values must guide housing policy. The vast majority of housing produced must be affordable to the vast majority of current residents. New housing must be economically compatible with the neighborhood. The most needy — homeless, very low income people, disabled people, people with AIDS, seniors, and families — must be prioritized in housing production. … [and] market-rate housing can be produced only as the required number of affordable units are produced.”

The proposal would limit the height of all new housing to about six stories and would “encourage limited-equity, permanently affordable homeownership opportunities.”

Salomon suggests that San Francisco limit the amount of new market-rate housing to 250,000 square feet a year — probably about 200 to 400 units — and that the developers “must produce aggressive, competitive community benefit packages that must be used by the Planning Commission as a beauty contest, with mandatory approval by the Board of Supervisors.” (You can read his entire proposal at www.sfbg.com/newpropm.doc.)

There are all kinds of details that need to be worked out, but at base this is a brilliant idea; it could be combined with the new financing plans to shift the production of housing away from the very rich and toward a mix that will preserve San Francisco as a city of artists, writers, working-class people, creative thinkers, and refugees from narrow-minded communities all over, people who want to live and work and make friends and make art and raise families and be part of a community that has always been one of a kind, a rare place in the world.

There is still a way to save San Francisco — but we’re running out of time. And we can’t afford to pursue moderate, incremental plans. This city needs a massive new effort to change the way housing is built, rented, and sold — and we have to start now, today.* To see what the Planning Department has in the pipeline, visit www.sfgov.org/site/planning_index.asp?id=58508. To see what is planned for the eastern neighborhoods, check out www.sfgov.org/site/planning_index.asp?id=67762.