Sticker Shock for SF Housing Solutions

by on April 28, 2015

As frustration grows over San Francisco’s skyrocketing rents and evictions, a new hurdle has emerged: the sharply rising cost of solutions. Sticker shock has hit the three key strategies San Francisco has used to address its housing crisis—the Master Leasing program for homeless adults, the Small Sites Acquisition Program to combat Ellis evictions, and the building of new affordable housing.

The real estate boom that compels increased city funding  for these affordable housing strategies imperative has also dramatically raised their cost.

New Affordable Housing

Nearly everyone supports building more nonprofit owned affordable housing. But with the federal and state government dropping the ball (though Assembly Speaker Atkins is spearheading a housing funding bill this year whose passage appears promising), San Francisco must find local resources.

San Francisco passed a $1.3 billion Housing Trust Fund in 2011, and Mayor Lee is also leading the effort to place an affordable housing bond on this November’s ballot. San Francisco has done quite a bit to tap local resources, a fact forgotten by those who continue to blame Mayor Lee for inaction.

The Mayor set the housing bond at $250 million, the maximum amount that would not require a tax increase. But real estate and construction costs have risen so much in the past months alone that the mayor’s office is considering new strategies to raise the amount of the bond that would also not trigger a tax hike (those downplaying that issue need to check San Francisco’s recent history of failed housing bonds).

Driving up the cost of affordable housing is not simply rising land and construction costs. Rather, the gap between market rents and what tenants can afford to pay requires ever increasing subsidies, particularly when the city is trying to provide affordable units for low-income families.

I noted in pushing for a housing bond in 2014 that SPUR had concluded that it costs $470,000 to build a single unit. But that estimate may have been low. For example, Mercy Housing’s new project at the former site of the Hugo Apartments at Sixth Street and Howard will cost $690,000 a unit.

Steeply rising affordable housing costs explains why TNDC, for the first time in its history, had to scale back a project, the Eddy/Taylor family housing development. With $1million creating fewer than two units, adding to the nonprofit affordable housing supply is more difficult than ever (and this explains why some see market rate development as a plus for creating below-market inclusionary units).

Small Site Acquisition

Tenant activists have been arguing for years that the city should just buy up the small buildings whose longterm tenants face Ellis evictions. Mayor Lee agreed. But since $9 million was placed in a small sites acquisition fund, the per unit subsidy cost has gone from around $300,000 per unit to $450,000.

That’s a 50% price increase in 2015 alone. Buying existing buildings is still cheaper than new construction, but the skyrocketing prices means the city will be able to purchase fewer buildings under the Small Sites program than was originally contemplated.

Rising Master Lease Costs

When the city in 1998 began funding nonprofit groups to master lease SROs for the formerly homeless, the market was very different from today. Nearly all of the SROs leased by the Tenderloin Housing Clinic (which I head) were from longterm owners who bought their hotels well before prices skyrocketed.

Today, SROs are a very valuable commodity. Purchase prices have steeply risen, as seen in the recent effort to evict Chinatown SRO tenants at 2 Emery Lane following the 32-unit building’s purchase for a whopping $2.7 million.

These rising prices mean the city must pay a lot more to expand its master leasing program. Most longterm owners interested in leasing have already done so. New opportunities involve owners whose recent purchases leave them with high mortgage costs and the need to charge higher rents for nonprofit leases.

Mayor Lee is seeking a 500 unit increase in master leased units. This dramatic expansion will not come cheap. In fact, the city has already paid more than double pre-2012 leasing amounts for newly purchased properties. As with building affordable housing and purchasing small properties, San Francisco will pay far more for housing the formerly homeless than it has in the past.

The Positive News

That San Francisco will have to pay significantly more to preserve its economic diversity is very unfortunate. But the real estate boom has also filled city coffers. There is more general fund money available than ever before to address the housing crisis.

Having committed to 500 new master lease units and to the Small Sites program, Mayor Lee’s budget will include nearly $20 million in new general fund dollars for affordable housing. This is on top of the Housing Trust Fund and the November housing bond.

It’s hard to see how San Francisco could spend more on housing this year.

There is an obvious lesson here. It’s always during times of skyrocketing rents and evictions that pressure builds for more affordable housing spending. Yet this is also the periods when the city must spend more to get less.

The next time San Francisco’s real estate market starts to decline (assuming there is a next time),  instead of focusing elsewhere San Francisco should go all in on acquiring as much affordable housing as the budget will allow.

Randy Shaw is Editor of Beyond Chron. He describes how Tenderloin nonprofits took advantage of down times to acquire housing in his new book, The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco.

Randy Shaw

Randy Shaw is the Editor of Beyond Chron and the Director of San Francisco’s Tenderloin Housing Clinic, which publishes Beyond Chron. Shaw is the author of four books on activism, including The Activist's Handbook: Winning Social Change in the 21st Century, and Beyond the Fields: Cesar Chavez, the UFW and the Struggle for Justice in the 21st Century. His new book is The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco

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