One of the bitter ironies of this boom economy is that a widening range of our city’s workforce is shut out by the real estate market.
This isn’t because the pace of market-rate production hasn’t kept up with demand. It is simply that, in the city with the highest growth in income inequality in the nation, housing prices chase the highest dollar, leaving working people of many types fending for themselves.
Right now, there is a lot of rhetoric around middle-income housing with little in the way of concrete proposals. Some are trying to curry favor with voters by pitting the need for middle-class housing against support for low-income families. Others claim that The City has done enough for affordable housing. However, the City’s own numbers belie such assertions. The Third Quarter-2014 Residential Pipeline Summary shows that only 55 percent of needed low-income housing has been produced over the last six years. By contrast 103 percent of market-rate housing need has been built.
Nor is our city’s workforce being helped by turning housing units into pied-a-terres for wealthy nonresidents, or by dedicating apartments for corporate suites and vacation rentals, or by unscrupulous speculation on rental apartments to flip them to tenancy-in-common units and condos. The reality of evictions (1,977 evictions reported by the Rent Board for 2014) is a stark contrast to pronouncements about how well The City’s affordable-housing production is keeping up with the crisis of displacement.
The housing crisis is relative, of course. Far more low-income workers face serious rent burdens and threats of displacement — and many upper-middle-class professionals can still afford to rent or buy in certain neighborhoods. But if we are to truly address this crisis, we must resist attempts to pit San Francisco residents against each other along class lines, and instead acknowledge what lies at the heart of both low- and middle-income workers’ struggle for housing: that real estate development is currently serving only the needs of the very top.
No attempt to further incentivize the market will change this. Instead, if we are to ensure housing for the majority of our city’s workforce we must both increase public funding for affordable housing and more aggressively harness private capital and real estate development to produce moderate and middle income housing.
Who is the middle?
Proposition K, the housing balance measure passed by voters in November, mandates The City to build not only at least 33 percent affordable housing, but also another 17 percent affordable to the middle class. This is a sensible 1:1 ratio of price-restricted housing to match the number of unaffordable units produced by the market.
The Mayor’s Office of Housing defines middle income as households making between 50 and 150 percent of the area median income — in dollars and cents that is roughly from $35,000 to $100,000 annual income for a one-person household, and from $50,000 to $150,000 for a family of three. For comparison, construction laborers, postal service clerks, and school paraprofessionals and entry-level teachers are all under 100 percent of the median income for one-person households, while families composed of two credentialed teachers could be earning up to 140 percent of the AMI.
We can look at the income distribution in one San Francisco neighborhood to understand how this squeeze on the low to middle-income spectrum plays out over time. Since 2000, the Mission lost roughly 3,000 households that earned under $75,000, while households earning between $75,000 and $100,000 stayed roughly the same, and the neighborhood gained roughly 6,000 households earning over $100,000.
As the market isn’t currently providing the housing San Franciscans need, the City must aggressively harness private development and investment to address the widening affordability gap that the real estate market is creating. Four ways this can be done:
Downpayment assistance: The City has a very successful revolving-loan fund that has helped hundreds of first-time homebuyers — with almost zero defaults. In 2012, the Proposition C Housing Trust Fund added an additional $15 million to that program. While venture capitalists are busy playing the tech casino game, we need to find prudent investors, whether from technology or pension funds, willing to put their money into a stable investment that will support our moderate- and middle-income workers. This would seem like the least that the technology sector could do after the open arms and tax breaks they have been given.
Increasing inclusionary housing: Currently, most of our new moderate-income housing has come from The City’s inclusionary housing ordinance, which requires developers to offer a portion of their new units at below-market rates. This program could clearly be expanded to do more. We know from 13 years of the program’s existence that it is more than feasible for market-rate developers to provide below-market units on-site — some have built 20 percent on-site units at current zoning. The challenge however is that many developers simply choose to pay a relatively modest fee (compared to their sales prices) instead of including affordable units with their projects. We need to ensure that more developers actually build units.
The current fixed pricing for BMRs works well for many smaller households, but leaves out households with, for example, two teachers who together earn too much to qualify for the two and three bedroom units. Allowing a dial that adjusts the number of below-market-rate units provided based on the income levels served, especially for larger units, would maintain the intent of the program while benefiting a wider range of residents.
Trading density for more affordable units: If we are going to allow developers to build higher-density buildings, with greater profits, it should be in exchange for producing a greater percentage of below-market units. Already new microunit projects and group housing tech dorms that greatly increase density are moving forward with no additional affordability. Here again, the idea of the private investment sector stepping up to the plate by creating a privately funded buy-up program to subsidize additional price-restricted units above the inclusionary level is worth exploring. The City should proceed with caution, however, carefully crafting decisions to change densities or heights by neighborhood, with attention to maintaining a human scale and to affordable construction methods. All these ideas need to be additive to our existing rules, rather than chipping away at our current inclusionary policy.
Housing for families: Today’s real estate market incentivizes the construction of studios and microunits, allowing developers to cram more units (and profit) onto each floor. But there is an acute demand for family-sized units which the market is not providing. To provide more family units, The City could require inclusionary units to be measured as a percent of total floor area of a market-rate development (rather than a set number of units) and require developers to provide a mix of modest-sized one-bedroom, two-bedroom and three-bedroom apartments, along with family-friendly amenities in larger buildings, such as ground floor childcare and playground open space.
By focusing on concrete solutions that address the failures of the current development market to provide housing for all, rather than resorting to divisive political rhetoric about the middle class, we can house our City’s workforce.
Fernando Marti and Peter Cohen are co-directors of San Francisco’s Council of Community Housing Organizations.