Housing in San Francisco: Only Affordable for the Upwardly Mobile

https://portside.org/2015-02-07/housing-san-francisco-only-affordable-upwardly-mobile
Portside Date:
Author: Toshio Meronek
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AlJazeera America

In 2014, Cobalt Corazon became a first-time homeowner in one of the country’s most expensive cities. After 30 solid years as a special education teacher, the odds were against him.

“Some of the wealthy young people are literally coming down with bags of cash, and whatever the offer price is, they’re offering $200,000 over — in cash,” he said of the housing crisis facing San Francisco, particularly as young, well-paid tech employees displace longtime residents. “If you're just coming here, you’d better be a Twitterite.”

After being bought out of his rent-controlled apartment by a payment from his landlord, he won a lottery for one of 220 new units that became available in 2013 through the city’s below market rate (BMR) program, which, according to its manual, aims to “maintain income and cultural diversity in San Francisco” by setting aside a percentage of newly constructed housing for “low-income, median-income and moderate-income” people like Corazon. He purchased a one-bedroom apartment in the Hayes Valley neighborhood for $212,000, about 70 percent below market value.

In exceedingly expensive markets like San Francisco and New York City, where median home prices top $1 million and one-bedroom apartments typically rent for $3,000 or more per month, these inclusionary housing programs are increasingly pitched as a solution to the affordability crisis.

It’s the key policy solution local officials are putting their weight behind as a growing tenants rights movement in San Francisco mounts an offensive against the widening inequality gap. It’s a win both for politicians, who can point to the construction of some amount of relatively affordable units in the midst of housing crises, and for developers, who can get their projects fast-tracked during an unprecedented high point for the market.

But activists argue that it does little to solve the affordability crisis. Because lower- to middle-income people still can’t afford this "affordable" housing," they say, cities are effectively subsidizing upper-middle-class people to move in and paving the way for gentrification in historically low-income neighborhoods like Hunters Point.

Furthermore, they liken inclusionary zoning to using a shot glass to bail out a sinking cruise ship. As of mid-January, 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. There was only one listing for the rental program.

More than 300 municipalities in the United States have some sort of BMR program in place. New York Mayor Bill DeBlasio recently pledged to add 200,000 BMR units over the next decade. But few cities and counties have programs as robust as San Francisco’s. There BMR units are not just incentivized but required in new developments.

In order to take part of the city’s purchase program, you must be a first-time homebuyer, make less than a set amount per year (typically less than $68,000 for an individual), attend new-homeowner classes, find a bank that will approve your mortgage, jump through a few paperwork hoops and win a lottery for new units. If you later decide to sell the place, you won’t make a windfall, because the city ties your resale price to how much local wages have increased since your purchase.

Shannon Way works for Homeownership SF, a local nonprofit that counsels residents on how to purchase homes. She said BMR is increasingly “the only option” for low- or moderate-income earners to stay in the city.She speaks with infectious optimism, but the statistics she offers are bleak. For those who meet all the criteria, she says, the odds of winning the lottery for a purchase unit are about 1 in 10. Corazon was up against 118 other applicants for 23 units available in his building. However, the odds can be much tougher. In the desirable South of Market district, 2,145 applicants recently entered a lottery for a building with just 69 BMR condos.

According to real estate website Trulia, just 15 percent of for-sale homes in the city are affordable to middle-class San Franciscans, making it the least affordable market in the nation.

Inclusionary housing became San Francisco policy in 1992 after decades of unaffordability, in a compromise among affordable housing advocates, politicians and developers who wanted to fast-track lucrative housing projects.

By the 2000s, it was clear that the few hundred units the program produced each year wouldn’t cut it. So when San Francisco’s general plan was updated in 2009 by the city department that oversees building applications, it called for 60 percent of new developments to be priced affordably.

However, with its BMR program, the city has shaved the general plan’s 60 percent rule down to a 12 to 15 percent rule.

“What we found during the [post-2007] downturn is, pushing the numbers any higher would have sent development packing,” said Sarah Dennis Phillips of the Mayor's Office of Economic and Workforce Development. Any higher than 12 to 15 percent, she argued, and developers would flee “to Oakland ... or wherever else.”

The second reason behind the number is legal and political. To developers’ delight, in 1987 California instituted the Mitigation Fee Act, a law that effectively requires governments to produce a study showing how new construction would affect the local economy, also known as a nexus study. On the basis of the study, the government has to cap the inclusionary housing percentage or risk getting sued by developers.

Under the act, the government must prove that new market-rate housing increases the need for new affordable housing. Effectively, the legislation limits the number of affordable housing units the government may require of developers. Its purpose, as clarified in the 1996 court decision Ehrlich v. City of Culver City, is to guard developers from “disproportionate and excessive fees.”

However, a 2006 nexus study that San Francisco relies on found that, including indirect and induced effects, the city could require up to 30 percent of new purchase units and 20 percent of rentals to be affordable.

For community organizers, the 12 to 15 percent is simply not enough.

“It’s really low, considering how much money they generate from having all these condos,” said Angelica Chabande, director of the South of Market Community Action Network. South of Market, known locally as SoMa, has been one of the hardest hit by displacement.

Juslyn Manalo, a housing coordinator at the Veterans Equity Center in SoMa, works with some 800 clients, including World War II vets, seniors, families and working-class residents from the neighborhood. Since 2011, her organization has helped place about eight clients in BMR units. But many more haven’t been so lucky. “It’s really sad, because some of them actually live in their cars, and some of them couch-surf,” she said. “Given the emergency state that San Francisco is in, something has to be done right now.”

Besides lack of units, tenants activists have called out some of the particulars of the BMR program as antithetical to its mission. While the inclusionary housing manual preaches about preserving cultural and income diversity, the city allowed real estate investors a separate-but-equal loophole that allows developers to pay a little more to build affordable units off site rather than construct mixed high- and low-income buildings. This way, wealthy residents don’t have to share a doorman with the not-so-wealthy.

The program’s definition of lower- to moderate-income deserves a closer look too. If you’re an individual buying in San Francisco, it usually means you make under $68,000 per year, though it’s flexible; some moderate-income people make north of $80,000, up to 120 percent of the local median income.

The San Francisco Housing Authority provided information about some clients the purchasing program has attracted. There’s the executive who makes $82,000, the analyst who brings in $78,000 and the accounting manager at $77,000. None of the residents they provided details for listed salaries under $40,000. Affordable housing advocates question whether the BMR program is actually intended to entice more upwardly mobile professionals to San Francisco, especially given that units are often one-bedrooms or studio condos geared toward single young professionals.

Also, while the median income for people who purchased through the San Francisco program was $62,952 in 2012, there’s no limit on how much you make after the place is purchased. Upwardly mobile young professionals could get plucked from somewhere outside the Bay Area, get hired at the median starting pay at Facebook ($67,900 in 2012) or LinkedIn ($66,100), under the $71,000 income limit, and continue to live in their BMR condos even if their salaries soar.

San Francisco’s BMR rental program only just audited its renters to make sure their income levels are still within the eligibility range for the program. But resources are limited, and the department has just five full-time employees.

Like Corazon, housing rights activist Ralowe Ampu blames the tech industry and the city’s coddling of it for the displacement.

Ampu is one of a dwindling number of San Francisco’s black residents, a population that has decreased by about 44 percent since 1990 — more than any other major U.S. city. The head of a city task force on the issue cited a lack of affordable housing as the top cause for black flight.

“Tech billions aren’t trickling down,” Ampu said. On the day of Twitter’s 2013 stock IPO, which made 1,600 Twitter stock option holders millionaires, about a hundred activists staged a “funeral for affordable housing” outside its SoMa office.

Just a few years ago, Facebook founder Mark Zuckerberg paid $10 million for a pied-à-terre in the trendy Mission district valued at $3.2 million so his wife wouldn’t have to commute from his company’s home base of Palo Alto while she finished a medical school fellowship in the city. He later purchased the place next door for over $1 million above its asking price.

While few tech employees have bank reserves approaching Zuckerberg’s, plenty have the cash to displace the lower-income Latino families who make up about half the Mission’s residents.

Besides the Internet barons of the latest tech boom, longtime residents compete with real estate investment companies, which snap up about 20 percent of the available stock nationally. These companies can afford to leave homes empty for years as they bet on rising prices down the road.

Housing speculators aren’t helping the situation. Land is precious in the city’s less than 50 square miles, and building or flipping homes to sell to the rich is lucrative. Real estate interests have lived up to cynical stereotypes, with companies like the Bay Property Group and law firm Bornstein and Bornstein holding rent control boot camps on the art of evicting tenants.

John Eller, the San Francisco director for the Alliance of Californians for Community Empowerment (ACCE), which works on housing rights issues, questions developers’ political connections. “Some of these same folks are investing in political action committees that are moving an agenda with the mayor or have actually invested directly in the mayor’s campaign,” he said, pointing to his organization’s report on lobbying efforts by San Francisco–based Wells Fargo, the bank with the highest foreclosure rate in California. The bank lobbied against bills meant to slow foreclosures and increase corporate taxes, triggering a report from the ACCE proclaiming that “Wells Fargo has earned record profits off the suffering of disadvantaged communities.”

The same week as ACCE released its report on the bank, Mayor Ed Lee and his predecessor Gavin Newsom (now the state’s lieutenant governor), appeared in television commercials imploring voters to approve the construction of 134 luxury condos that would sell for $2 million to $10 million apiece. Both officials have received hefty campaign contributions from real estate interests over the years.

Furthermore, there’s growing concern over the issue of absentee owners. In September 2014 journalists with the blog 48Hills tallied that 39 percent of market-rate condos in 23 buildings (for the most part built after 2000) were purchased by nonresidents who used them as second or third homes. The properties were left vacant most of the year or rented out as vacation rentals on websites such as Airbnb.

In other words, it’s a bad time to be working- or middle-class in the Bay Area but an exciting one for real estate and technology industrialists.

“Housing here is a bloodsport,” explained Rose Marie Dennis, a spokeswoman for the San Francisco Housing Authority. Her organization manages much of the city’s low-income housing, such as the Section 8 voucher program.

Many, like the pro-development, anti-rent-control think tank SF Planning and Urban Research and its new tech lobby initiative, SF.citi, formed to “consolidate a voice in promotion of tech sector interests and growth,” are posing the crisis as a supply problem, as though it could be built out of existence. But as Sarah Dennis Phillips of the Mayor’s Office of Economic and Workforce Development said, increased supply has never resulted in decreased demand in San Francisco.

Expanding the BMR program may be one way the city can begin to address the crisis. The city supervisor for SoMa has called for pushing up the amount of required BMR units in new developments to 30 percent. One point everyone can agree on: It alone won’t solve the problem.

San Francisco’s Civil Grand Jury, a government oversight panel, put it starkly in a July report on the mayor’s goal of creating 30,000 new housing units by 2020, saying, “San Francisco affordable housing programs will not resolve the housing affordability crisis currently overtaking the city … It is doubtful that the city can build its way out of the current affordability crisis, and one should not expect market rate … prices in the city to decrease even if the [mayor’s] target is met.”

In its latest audit from 2013, the federal government gave San Francisco’s housing department an F, ranking it among the worst in the nation. The city’s Section 8 voucher program’s waitlist was closed in 2001 because of a lack of available units. Likewise, the city closed its separate public housing waitlist in 2010; when it reopened it for six days in January this year, a record 10,401 homeless individuals or families signed up, bringing the total to more than 17,000. (In his State of the City address on Jan. 15, Lee announced plans to house 500 of these by next year.) The problem is spilling over into the surrounding region. San Franciscans seeking cheaper housing are moving into neighboring cities and pricing out people there, as in Berkeley and Oakland, where voucher waitlists are also closed.

“There’s not a human being you’re going to walk up to who’s not going to say housing at every level is scarce,” Dennis said.

[Toshio Meronek is a staff writer for AlJazeera America.]


Source URL: https://portside.org/2015-02-07/housing-san-francisco-only-affordable-upwardly-mobile