Dollars or sense?

Pub date September 28, 2010
WriterRebecca Bowe

It’s no secret that San Francisco is a particularly costly place to live. It consistently ranks in the top 10 most expensive cities nationwide, and it isn’t uncommon to see people renting out their walk-in closets as makeshift bedrooms to make ends meet.

There’s ample evidence that the city’s market-rate housing is out of reach for many families, middle-class workers, and low-income populations, particularly during the recession. Yet the shortage of affordable housing is a problem that is going largely unaddressed at City Hall.

The city’s General Plan estimates that a full 61 percent of new housing would have to be affordable to satisfy the housing needs of city residents, but even the most demanding development standards fall far short, producing only about half that amount. And while most new affordable housing is built for low-income people, a sizable portion is intended for first-time homebuyers with salaries at the highest threshold of affordability. In recent years, about one-third of new “affordable housing” was built to sell to people with “moderate” incomes.

So as big plans are mapped out for new residential developments composed of mostly market-rate units, what’s the strategy for addressing the underlying affordability gap? And will it ever be enough to keep from further turning San Francisco into a city of rich people while its workers are forced to live elsewhere?

This map, which appears in San Francisco’s Five-Year Consolidated Plan, charts concentrations of low- and moderate-income households in the city using HUD 2000 income data. Under federal guidelines, people with low and moderate income could be eligible for affordable housing.

A San Francisco Unified School District proposal to create new housing for San Francisco teachers underscores just how mismatched housing prices are to income. The National Low Income Housing Coalition (NLIHC) estimates that San Francisco renters paying market rate in 2010 would have to earn $56,240 to afford rent a one-bedroom apartment, $70,400 for a two-bedroom unit, and $94,000 for a three-bedroom unit, assuming they spend no more than about one-third of their income on housing.

A starting teacher’s salary in San Francisco is $50,000, so early-career educators may feel the squeeze. A survey of teachers conducted for the proposal found that 81 percent of respondents were renters, most living with unrelated roommates. More than half had plans to relocate in five years to a city where they could afford to be homeowners.

Housing was a hot-button issue at the Sept. 16 Planning Commission hearing on the environmental impact review for a hospital and housing complex that California Pacific Medical Center wants to build near Van Ness Avenue.

“The CPMC EIR fails miserably to analyze the income of the CPMC work force, and where it’s supposed to be housed,” affordable housing advocate Calvin Welch told the Guardian. “It’s a profoundly important question. If they are [providing] jobs that produce incomes that are insufficient to pay for average market-rate housing in San Francisco, who’s responsibility is it going to be to build housing for that workforce?”



San Francisco has a reputation as a diverse, politically engaged hub that supports emerging artists, independent thinkers, and advocates for youth, workers’ rights, healthy ecosystems, protections for the most vulnerable segments of society, and hundreds of other causes. Without economic diversity — which is only possible when housing is available to people with a range of incomes — it might be a different place.

NLIHC estimates that 65 percent of San Francisco households are renters, and a significant number are what the Mayor’s Office of Housing (MOH) calls “cost-burdened,” shelling out more than a third of their incomes on rent. To get by, tenants have been known to cram roommates in like sardines, or cling tenaciously to a rent-controlled unit.

In a thick report outlining affordable housing goals for 2010–14, MOH and two other city agencies clearly articulate the housing challenges facing low-income renters. For one thing, the report says rents are going up despite the economic recession and declining home prices. And most people’s salaries don’t stretch far enough to cover those high prices. Even though there are 16 billionaires and some fabulously wealthy CEOs residing in San Francisco, the majority of people work in more mundane occupations like waiting tables, retail, office work, nonprofit jobs, teaching, health care, or public service.

The MOH report notes that despite the city’s relatively high median income, there’s a widening gap between top earners and people on the lower end of the spectrum, so few households actually wind up in that middle zone. “In fact, over a quarter of San Francisco’s population earns under 50 percent of [area median income],” the report states. For individuals in 2010, this translates to one in four people earning $34,800 or less. Compounding that problem are recent unemployment figures indicating that nearly one in 10 is jobless.

About one half of San Francisco’s population is considered low- or moderate-income, the housing report notes, using the standards used to formulate affordable housing prices. MOH uses a tiered income matrix, calculated using federal guidelines, to determine who could qualify for housing below the market rate. If you make $20,900 or less, you’re counted as “extremely low income.” You’re “very low income” if you make between $21,000 and $34,800, “low income” if you earn between $35,496 and $55,700, and if you make between $56,376 and $83,500, you count as “moderate income.” Even these figures are skewed higher because they include data from wealthy Marin County. As a point of comparison, U.S. Census data estimates that the median income for American workers was $29,530 over the last several years.

Most of the new affordable housing constructed in San Francisco is aimed toward people in the lowest ranges, but in recent years one-third was built for those with moderate incomes, which could gentrify some parts of the city. “Supervisorial Districts 3, 6 and 10 had rates of more than 40 percent extremely low and low-income,” the MOH report notes. “These three districts make up the entire eastern part of the city.”

A Guardian analysis of Bureau of Labor Statistics occupational and wage estimates for 2009 suggests that about 71 percent of people who work in San Francisco (many commute from less expensive places) earned less than that highest “moderate” salary limit of $83,500. It suggests that the vast majority of the workforce could not afford market-rate housing unless they sought it in pairs or groups.

“A big issue is the inability of San Francisco’s employment market to produce jobs that pay people enough to afford housing,” Welch says. “There’s a mismatch between market-rate income and market-rate housing costs. We’re housing somebody else’s workforce.”

Another stab at assessing the affordable housing need gazes into the future. The Housing Element of the San Francisco General Plan includes an estimate for the city’s future housing needs for the better part of the decade. The city should build 31,200 new housing units to meet its need, the General Plan says, and “at least 39 percent of these new units must be affordable to very low and low-income households. Another 22 percent should be affordable to households with moderate incomes.”

What this adds up to is a full 61 percent of new residential development in San Francisco ought to be dedicated to some form of affordable housing. The calculation reveals a lot about the condition San Francisco is in, but it might as well be chalked up as a hollow academic exercise. Indeed, the report deems this goal “unrealistic.” The reality of the market and chronic government deficits ensures that there will not even be an attempt to meet it.



The trouble with affordable housing is that developers won’t build it unless there is a financial incentive. “The only way it works is not in the marketplace,” Welch said. “There’s no such thing as affordable land, affordable sheetrock, affordable architects, or affordable engineers. The profound condition … is that the market cannot produce affordable housing.” As long as developers can make higher profits building market-rate, they will.

That’s why government steps in to subsidize or mandate new affordable housing construction or preserve existing stock. Under the Inclusionary Housing Ordinance, if developers decide not to build the required 15 percent of affordable units, they must pay an in-lieu fee that gets funneled into an affordable housing fund.

In a good year, MOH Executive Director Douglas Shoemaker told the Guardian, the city receives $10 to $15 million from these fees, which is used in partnership with developers to build affordable projects. That system hasn’t worked so well lately. Last year funds for affordable housing were depleted instead of bolstered. Developers who paid their fees in anticipation of building new projects requested refunds after their projects were stalled, Shoemaker told the Guardian, so MOH gave back up to $12 million to developers instead of using that money to build new affordable housing.

This year, Mayor Gavin Newsom introduced what he called an “economic stimulus” program that allowed developers to defer payment of in-lieu fees. This guarantees that it will be a long, long time before new affordable housing can be built using those funds. So as it stands, the inclusionary housing law isn’t so effective at producing new affordable housing.

Projects done in conjunction with the San Francisco Redevelopment Agency, meanwhile, do include higher portions of affordable housing. With all of the planned Redevelopment projects combined — Treasure Island, the Hunter’s Point shipyard, and others — the city can expect to see perhaps 7,000 new affordable housing units in coming years, a portion of which will be condos meant for people in the “moderate” income range. It may well be better than other cities have offered, but it doesn’t begin to address the true need for more than 19,000 units outlined in the General Plan.

Shoemaker noted that San Francisco is a cut above the rest when it comes to affordable-housing requirements. “I just don’t think you could find a city that has more aggressive goals,” he said, noting that in major redevelopment areas, “We’re getting like 30 percent of homes to be affordable on some level.” Yet Shoemaker acknowledged, “the need is intense,” and “there’s more people we would like to serve.”

Olson Lee, deputy executive director of the San Francisco Redevelopment Agency, also described San Francisco as taking a very aggressive stance on affordable housing. Redevelopment devotes 50 percent of its tax-increment financing to affordable housing, where the state requires just 20 percent, Lee said. And some Redevelopment project areas include twice as much affordable housing as is required by state law, he added. “The city has done a tremendous amount of affordable housing,” he said. However, “the fact of the matter is, there’s a greater demand for affordable housing than the number of units.”

From 2005 to 2009, there were 3,607 new affordable housing units constructed, mostly for people at the lowest end of the pay scale, MOH reports. But in that same time frame, 3,465 rental units were converted to condominiums. One could argue that the city essentially broke even with its affordable housing stock in a decade where housing prices almost doubled. As San Francisco housing prices skyrocketed, the city’s 170,000 rent-controlled units served as the saving grace for the majority who couldn’t afford market-rate, and condo conversions continue to threaten the erosion of that very significant housing stock.

Debra Walker, a candidate for District 6 and a tenant representative on the Building Inspection Commission, told the Guardian that she believes a new financing system is needed for affordable housing. “The argument for development is that we get affordable housing money out of it,” she said, but “the inclusionary doesn’t get us enough housing. We cannot include affordable in those high-rises, because they’re so expensive to build.”

She has talked up the idea of a real estate transfer tax that would create a dedicated fund that could then be used in partnerships with affordable-housing developers. Shoemaker, for his part, noted that having a dedicated revenue stream for affordable housing would be very helpful. A committee comprised of the San Francisco Planning and Urban Research Association, Welch, developer Oz Erickson, and Shoemaker was formed earlier this year and actually arrived at a deal, but Newsom ultimately rejected it. Other creative solutions, Walker says, might include reusing shuttered commercial properties or building cheaper by design using different building materials. “It’s about looking at what it is we need,” she said, “and realizing people are in a pinch.”

The greatest complicating factor of the current system, in which the city relies on market-rate development to get new affordable housing, is that even though there a some 40,000 new residential units in the pipeline, developers can’t secure financing to start building them. For now, in the down economy, they only exist on paper.

“They’ll never get built,” Welch predicts, and as long as Newsom continues to extend entitlements for those planned projects in hopes that the market will get a jump, “it’s freezing September 2008 conditions, evidently forever,” limiting opportunities to build something more reasonable.

“They’re zombies,” Welch added. “Who the fuck is going to pay $2 million for a new condo when they can buy a $4 million building for $1 million in foreclosure?” But if the need for affordable housing began to be addressed, he said, something might start to happen. “If you converted half the pipeline units to rental,” he theorized, “they might get built.”