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Real Estate Investor

Density bonuses and high-in-the-sky housing

So you say you want affordable housing?
San Francisco Mayor Ed Lee has looked for new ways to respond to the lack of affordable housing in the city. Photo: Zboralski

It’s not always fun being the top dog.In early March, Oakland Mayor Libby Schaaf issued a statement acknowledging that “Oakland is the fourth most expensive housing market in the country, just behind San Francisco, New York, and Boston. With the rise in rents in our city outpacing the increase in incomes faster than any other place in the country, protecting our residents from displacement is my top priority.”

That didn’t stop her from suffering the indignity of having to watch as a Chamber of Commerce summit held in her city was derailed by protestors demanding more affordable housing. According to her office, she tried to meet with the protestors, but when they refused, she left the conference.

So it’s not just us. It’s not just San Francisco.

In fact, in the past year, protests about insufficient affordable housing have taken place in Boston, Chicago, New York, San Jose, Seattle, and elsewhere. Whether it’s boomtown-crazy city San Francisco or places with far less of a tech invasion and far more available land on which to build, affordable housing is a challenge that has got political leaders, activists, and developers flummoxed and increasingly at loggerheads.

How do you create and preserve affordable housing when incomes for most people have stagnated or declined over the past few decades, yet building costs have risen dramatically and the government has largely stopped being an engine of housing production?

In an already densely populated city such as San Francisco, it’s a challenge for multiple reasons. Land is scarce, obviously. Costs are high, thanks to big-city expenses and to costly delays engendered by bureaucracy and a very generous community-input policy. And affordable housing is expensive in any case, requiring layers of subsidies, regulatory compliance, and paperwork.

Can enough be done here to eliminate the affordable housing crisis, or is the best we can do just amelioration?

GOVERNMENT HELP

Allow me to interject a personal comment. When I was in grade school, my family moved from the grand metropolis of Green Bay, Wisconsin, to Manitowoc, a 45 minute drive away. There, we lived not far from Custerdale, a neighborhood in which my mother had lived in the 1930s and 1940s. It was an area of hundreds of neat but small ranch houses, nearly all of them the same design and size, merely customized differently over the years as new owners added awnings, new porches, or aluminum siding.

The story of Custerdale, as I heard it from my newspaper-editor mother, was that it was a government project to provide affordable housing during the Depression. The government was building all sorts of housing projects in an attempt to support families coping with the swingeing effects of the economic collapse. Unfortunately for the folks of Manitowoc, they were accidentally sent the housing intended for a Florida development, and those undeserving Floridians received the well-insulated housing intended for the cold winters of Manitowoc, Wisconsin. That might or might not be a true story, but it reflected the locals’ belief that they had been saddled with substandard housing.

But ask someone sleeping on a friend’s couch in San Francisco if they’d rather have a cookie-cutter Custerdale house, and they’ be crazy if they didn’t jump at the chance. In February 2015, Al Jazeera reported that San Francisco’s affordable housing was unaffordable to the people who needed it. Even if they could afford it, the news service said, there wasn’t enough of it. “As of mid-January [2015], San Francisco, a growing city of nearly 900,000, had just 16 below-market-rate units available for purchase, with one-bedroom condos going for well over $300,000,” Al Jazeera’s Toshio Meronek reported. “There was only one listing for the rental program.”

San Francisco Mayor Ed Lee’s administration set itself the goal of creating or rehabilitating 30,000 units in the city by 2020. Paragon Real Estate Group estimates that in 2014, affordable housing — including family, senior, individual/SRO, and homeowner housing — made up 21 percent of the new units in the city. (This did not include units acquired and rehabbed by nonprofits.) In addition, Paragon notes, that year San Francisco collected about $30 million from developers “as partial payments of in-lieu fees for projects” to help fund off-site affordable housing elsewhere in the city.

That 30,000 is still insufficient to support the city’s population growth. Just since 2010, the city has gained more than 60,000 new residents, and its population is expected to continue growing, nearing 1 million by 2030. In fact, San Francisco’s population has grown by tens of thousands of people every decade since 1980. The current U.S. Census estimate for 2015 is 865,000, nearly 200,000 more than in 1980. But housing production at all price levels is still below what it was in the 1970s, when the city’s population actually shrank by about 36,000, according to Paragon.

BONUS TIME?

One proposal is a plan to introduce a bonus to developers of housing on certain lands, giving them incentives to make 30 percent or more of the on-site units affordable. They will be able to build up to two additional levels higher than current zoning regulations allow; if they make 100 percent of the units affordable, they will be able to build up to three levels higher than current zoning allows.

According to the city, the density bonus would apply to about 30,000 parcels in mixed-use and commercial corridors. But it says that only about 240 sites in the city are likely to be candidates for this program, because the others already have functioning buildings providing revenue that is “more valuable than any of the development benefits offered under this program.” Still, it estimates that the use of the density bonus could increase the maximum number of affordable units on those sites from 900 (under current rules) to at least 4,000.

The city’s defense of its proposed density program is available for anyone to read (sf-planning.org/index.aspx?page=4233), and it takes on the common criticisms of the effort, such as that it will spawn more skyscrapers or take away rent-controlled units (the city rejects both claims, and in particular cites an amendment to the proposal that would protect rent-controlled units from such danger). The city didn’t need to adopt its own density bonus program; there is a statewide one. However, the Planning Department argues that the proposed San Francisco density bonus program will facilitate the creation of more affordable units than the state program.

If the density bonus plan becomes law and does what its supporters claim it could do, then 4,000 new units of affordable housing will be a large jump over the 2,782 that S.F. Planning reports were built in 2010–14. That was out of a total of 9,480 units at all price levels. Over that same time period, the percentage of total units that were affordable has dropped from 40 percent to 21 percent, despite the increase from 582 to 757 affordable units produced; the numbers of market-rate units being created grew even faster, making the affordable numbers appear even smaller by comparison.

OTHER ARROWS IN THE QUIVER

The city has other tools at its disposal to encourage housing for low- and moderate-income residents.

Under its inclusionary housing policy, new developments with at least 10 units need to set aside at least 12 percent of the units as affordable. In addition, San Francisco offers down payment assistance, improvements to city-owned public housing units, and the city is working to rehabilitate and thereby preserve existing affordable at-risk units.

One of the most contentious aspects of current policy is the encouragement of market-rate housing. It has spawned criticism that low- and middle-income residents are being forced out of their apartments to make way for luxury condominiums. But Mayor Lee argues that it is necessary to build such units to redress the decades-long failure to build sufficient housing in the city. That lack of available market-rate housing has pushed well-heeled buyers and renters into less-expensive housing, driving up the cost in a classic supply-and-demand reaction.

Why doesn’t the government step in and develop affordable housing itself? To put it bluntly, that’s just not what governments do anymore in the United States. Two years ago, I interviewed in these pages Andre Shashaty, an affordable housing expert and advocate and president of the Partnership for Sustainable Communities. He noted that America had “written off” federal involvement in affordable housing, and that meant slashing and eliminating federal subsidies to localities for doing the same. “The long-term trend is that we have retreated from an activist government role in providing public housing,” said Shashaty.

It is telling that even a self-avowed socialist like Senator Bernie Sanders, who has championed affordable housing in his career, does not include the housing crisis among the 26 topics that are listed on his presidential campaign website’s “Issues” page.

Aside from limited development assistance from state and federal bonds and tax credits, provision of affordable housing is not a national concern. There are no new Custerdales being built. Cities such as San Francisco are left to grapple with this problem largely on their own, and the Libby Schaafs and Edwin Lees of the world will continue to be the target of ire.

The debate over the density bonus program will continue. Another 4,000 affordable units isn’t a solution; but it’s part of a response to the problem. And after that program either becomes active or is defeated by opponents, another program will become the target of controversy. There is no escaping that, because none of these initiatives will solve the problem. Even with inevitable economic downturns, followed by inevitable economic upturns, the population pressure will continue, and this city will remain an expensive place to develop, redevelop, buy, rent, and live.

There are 140,000 or so more people coming to the city in the medium-term future, and we’re not ready for any of them.

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John Zipperer is a former senior editor of Affordable Housing Finance and Apartment Finance Today, and former new media editor at the CCIM Institute. E-mail: [email protected]