What is Best Way to Build More Affordable Housing??

by Tim Colen on February 9, 2016

San Francisco is a few years into an unprecedented housing affordability crisis characterized by the heartbreaking displacement of too many renters who cannot keep up with exploding prices. Following the painful loss of SF Redevelopment funding and with the continued decline of federal and state support, the City urgently needs new tools to preserve the its diversity and help keep residents that would otherwise be pushed out.

The tension related to this has polarized the civic conversation and made it hard to reach consensus on what actions to take. The San Francisco Housing Action Coalition (SFHAC) believes that one logical solution is to increase the supply of permanently affordable housing for the many folks who cannot possibly afford market-rate housing.

A proposal recently came forward that specifically offers a way to achieve this. Supervisors Jane Kim and Aaron Peskin introduced a charter amendment for June’s primary election that would more than double the City’s on-site Inclusionary housing requirements put on new market-rate housing from the existing 12 percent to 25 percent. Proposals for ways to increase the production of subsidized housing are welcome and Supervisors Kim and Peskin should be applauded for attempting it.

However, it would be useful to know in advance how much affordable housing the proposed June ballot measure would actually produce. That is, if the current 12 percent on-site Inclusionary rate built x amount of affordable homes, will 25 percent at least double that amount?

The SFHAC completely supports an Inclusionary rate that produces the maximum amount of affordable housing.  For instance, if the ratio were set too low on the future market-rate homes built, the City would get too few affordable homes from market-rate developers in return; they wouldn’t be “paying” their fair share.

On the other hand, if the rate were set too high, more projects would become economically infeasible and less affordable housing would be produced overall.  It seems the trick is to set the rate so that the maximum number of projects go forward and each delivers its required number of affordable homes.

Is 25 percent the right number to maximize affordability?  The SFHAC doesn’t know, but the stakes to get it right are high.

Preliminary economic analyses recently conducted by a group of experts within the Mayor’s Office of Housing indicate our housing affordability could worsen if the Inclusionary rate was raised to a point that too many new development proposals would be abandoned.

If the production rate of market-rate housing was reduced because the inclusionary rate makes them infeasible, the required affordable housing that it delivers or fees it pays would also be curtailed. Also, a sharp drop-off of all types of housing production would do nothing to slow the relentless current demand for an already inadequate supply that largely drives the displacement crisis.

Unfortunately, we don’t know if the proposed Kim-Peskin charter amendment was analyzed for its economic effect on housing production prior to its introduction. If not, this would be unusual since all previous changes to the Inclusionary rate since 2002 were made after conducting detailed economic feasibility analyses.

Besides the concerns listed above, there are other risks to not knowing what effect the proposed charter amendment would have. These include the following:

  • If the income levels to qualify for affordable housing are set too low, large numbers of SF’s middle-income folks who are numerically the worst served by our housing market would be left out. There are too many local residents in all neighborhoods at risk of displacement who earn too much to qualify for current Inclusionary housing
  • If new housing production falls significantly, revenue to the General Fund would be reduced as future property taxes drop from current levels. It’s not clear this has been fully considered. As we know, the General Fund has enjoyed a budgetary windfall from the last 2-3 years of housing development, even though our current budget is still in deficit.
  • If housing construction were to fall, it would undoubtedly affect construction, one of the 4 or 5 largest sectors of the City’s economy.       We tend to forget that less than 5 years ago, during the Great Recession, employment among the City’s trade unions took an enormous plunge, something they vividly remember.
  • If both affordable and market-rate housing production go down, displacement pressures will go up. The City’s population and employment continue to increase; Ellis Act reforms do not appear likely in 2016; and protections of existing rent-controlled housing are still inadequate. Without more housing at all income levels, more renters will be pushed out by continuing heavy demand.

It is ironic that the Planning Department’s modest density bonus plan that is currently being working on has been being subjected to enormous controversy after holding dozens of community meetings and public hearings, while a well-intentioned charter amendment that might dramatically change our housing market has had virtually no public review or analyses.

Nevertheless, Supervisors Jane Kim and Aaron Peskin are to be commended for proposing a way to increase our production of permanently affordable housing. SFHAC supports this important goal, but believes that it is equally important to know in advance whether the charter amendment would help achieve this.

Tim Colen, Executive Director

San Francisco Housing Action Coalition


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