Real Estate

The housing gap

Home prices and evictions have spurred a resistance movement to the city’s boomtime growth
Tech companies that have provided their San Francisco employees with shuttle bus transportation to work have become targets of activists photo: steve rhodes / flickr

Part three of a four-part series (Part 4, Part 2)

Perhaps all of San Francisco’s heated political debates about growth would be solved if people could just live in those Google buses.

The famous private transportation system of the tech companies has become a focal point for activists who are really complaining about higher housing costs and evictions, which they blame on the influx of tech workers into the city.

District 2 Supervisor Mark Farrell says he has received complaints from constituents about the urban growth and housing problems, “but not as much as the media may portray it to be.” In response to predictions that the city’s population will surpass 1 million by 2030, he said “The only thing we can be certain of is that the number we throw out there today is going to be wrong. There are arguments that it will continue to grow at this current pace, and arguments that it will not.” He noted that as we move further from the last deep recession, “at some point, the growth — whether it be population, real estate prices, or what have you — will come down. Will it be as dramatic as the crash in 2000, 2001? Will it be more mild? Will it take 10 years for that to happen? I don’t have the answer; but regardless of that answer, I don’t believe we are doing our jobs as city officials unless we plan for the future and have a vision of the San Francisco that we would like to be a part of and our children to be raised in in 10, 20, 30, 40 years.”

Supervisor Scott Wiener, says this isn’t the only city experiencing growth problems. “It’s also a worldwide phenomenon. It is simply a fact of life that cities, including San Francisco, are growing,” he told the Marina Times. “We’ve grown by 75,000 people in the past decade; we’re projected to grow by another 150,000, and I think that’s real. Some people have the view that if we just don’t build the housing, they won’t come, but we know from our history that that is not true. Our choice is whether we prepare for it. If we don’t prepare for it, our current rent of $3,200 is going to start looking cheap; we’ll increasingly become a city without a middle class. Our transportation problems will get worse and worse.”

On the transportation side, Wiener and other mass transit advocates back ride sharing and improvements to what he calls the neglected city Muni system. Some of that might be alleviated by the Transportation 2030 measure that city voters will be asked to approve on the November 2014 ballot; it would provide for $1.5 billion for street repaving, improvements to Muni vehicles and on-time records, and more, though it might be insufficient to deal with what he says is $2 billion just in deferred maintenance for Muni.

On the housing side, things are more complicated. Some people advocate focusing on affordable housing (see Real Estate Roundup, page 23); others urge penalties for market-rate developers; still others seek to find a mix.

“There are plenty of smart ways to add housing,” said Wiener, who has championed expanding legalized inlaw housing. “We have plenty of buildings in the city that have unused space that can be turned into housing. It’s important that people understand we do not have a choice about population growth. It is going to grow, and it is important we have housing to absorb that growth or we’ll be in an even worse situation than we are today regarding housing and affordability.”

San Francisco has done “a horrible job over the past few decades to plan for what has now become a massive [housing] supply and demand imbalance,” said Farrell. “One school of thought says we need to densify every part of San Francisco — everyone shares in the densification. Another school of thought says that we need to protect existing neighborhoods and just densify certain parts of San Francisco. I think the answer lies somewhere in between. There’s a real danger that if you seek to densify every part of San Francisco, you’re going to lose the heart and soul of different neighborhoods in the city, many of which are in District 2. If we turn into a city that only has condominiums, even if they’re larger condominiums, you’ll lose a number of people inherently that want a five-feet-by-five-feet backyard.”

Developing new housing in San Francisco is particularly expensive, due to scarce land, high construction costs, long and complicated city planning and permitting, and politics.

San Francisco’s 837,000 residents are squeezed into fewer than 50 square miles, creating the second densest large city in the United States. It has 17,867 people per square mile; by comparison, nearby San Jose has about 5,250 people per square mile, and Oakland has about 7,000. Unlike cities spread across vaster acreage, San Francisco doesn’t have large amounts of undeveloped or underdeveloped land available. So developers of new housing are forced to pay more to reuse land — tearing down existing structures and possibly doing environmental remediation (former gas station and dry cleaning locations being particularly challenging).

When the economy’s strong and competition for construction services is heated, that also means the costs rise. And with every step of the long journey through city planning and permitting departments, along with the possible objections by neighbors that can delay and thus add cost and uncertainty to a project, the expense of the development increases. Another factor that adds cost is post-construction litigation; one developer says he no longer builds condos in California because there is a greater than 90 percent chance condo developers will be sued for some construction defect or another.

These costs can be recouped from people who will eventually purchase or rent the units, in the form of higher purchase prices or rents; they can also be recouped in the form of subsidies. The federal government has largely exited the subsidy business (see “We’ve written it off,” Marina Times, May 2014), so subsidies now have to come from local bond issues, local and state governments, and — most of all — tax credits. The result is a complicated layering of subsidies that developers — for-profit and nonprofit alike — must assemble to create any non-market rate housing.

Ted Egan, San Fran-cisco’s controller, laid out the challenges to getting the number of housing units needed to make a difference. In a report on “Housing and the Economy,” the tradeoffs and limitations were spelled out:

• Giving $75,000 in downpayment assistance to each low-income city household would help each household be able to afford a quarter of the three-bedroom units on the market. However, doing that for each of the 56,000 low-income households would cost $4.2 billion. “It would also have the effect of inflating housing prices somewhat, limiting the effectiveness of the subsidy.”

• San Francisco could subsidize the construction of permanently affordable housing, “but the per-household cost would be significantly higher.”

• “Increasing the supply of market-rate housing in the city would put downward pressure on all housing units. Based on the past relationship between housing supply and price, the addition of 100,000 new housing units would reduce housing prices for a low-income household to a similar extent as a $75,000 down-payment subsidy. … Of course, this would occur without housing subsidy.”

• “However, 100,000 new housing units represents all the net new housing the city has constructed since the 1920s, before it was fully built-out.” Egan added that this level of new construction wouldn’t occur “without a significant change in the regulatory framework.”

“As you think of housing development and infrastructure development, we need to plan for having more people in San Francisco,” said Farrell. “The reality is, if it comes to a time when we have a recession — let’s just say sooner rather than later — and it causes many people to leave our city, we’re not going to be sorry for building infrastructure; we’re not going to be sorry for building [housing] inventory.”

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