The Agenda, March 13-19: The next big housing battle

Safai and Breed offer a developer giveaway packaged as "middle-class" housing. Kim and Peskin have an alternative.

Two competing plans for affordable housing come before the Planning Commission Thursday/16, and they reflect the new politics of the Board of Supes and very different visions for what the city should demand from developers.

The details are complicated (you can read a summary, of sorts, here) but the bottom line is this:

Sups. Jane Kim and Aaron Peskin are asking developers to give more
Sups. Jane Kim and Aaron Peskin are asking developers to give more

Supervisors Jane Kim and Aaron Peskin want to force developers to pay for more affordable housing. Supervisors Ahsha Safai, London Breed, and Katy Tang want the city to charge less.

This is all wrapped up in talk of “middle class housing,” which everyone wants, and technical jargon about “Area Median Income,” but the real issue is this:

Should the city mandate that developers pay the maximum they can afford to bring more housing for low-income and working-class people into the city’s mix – even if we lose some luxury projects in the process?

Or should we give developers benefits for selling and renting units at prices that aren’t that much lower than what they can charge on the open market anyway?

The larger issue: How much are we going to rely on private developers to set the housing agenda?

 

The immediate matter at hand is the percentage of affordable units that the city can demand from market-rate housing developers. An overwhelming majority of voters approved Prop. C last year, allowing the supes to set that rate.

The Controller’s Office has done a study that looks at how much we can charge developers without them walking away because a project isn’t “feasible.” When some of these operators are charging $42 million for a penthouse, I don’t really find grounds to worry about their financial solvency, but the official city position is different. If we charge too much, these poor speculators and their international investment capital will be unable to do us the great favor of constructing housing for millionaires who probably don’t even live here, and some of these garish and pointless projects might not ever be built.

(Never mind that every study says that San Francisco has built way too many high-end housing units, that there’s no logical reason to build any more, and that more luxury condos don’t do anything the help the housing crisis for the city’s workforce.)

So we have to be nice to these predators. And that means the most we can charge them is less than what we need to offset their impacts on the city.

Now that we have that part straight … Kim and Peskin at least want to max out the allowable envelope.  That means that for large rental projects (more than 25 units) the developer would have to make 24 percent available at below market rate, and large condo projects would have to sell 27 percent of those units at a discount.

Safai, whose first major bill is a reflection of his pro-real-estate political loyalties, would set those number at 18 and 20.

But it gets trickier.

A bit of background on how the below-market-rate plan works: If I’m a developer with a 100-unit condos project, and I want to make a lot of money, my goal is to sell every one of those condos for the highest return I can get. If I have to sell 27 percent a less than market-rate, I am making less money. (I’m not losing money – no market-rate housing developer has lost money on a San Francisco project in quite some time.)

So what’s below market rate? Well, if you ask Kim and Peskin, 15 percent of those units have to be affordable to people who make less than 80 percent of the Area Median Income – that amounts to $68,900 for a family of two, or $85,150 for a family of four.

Since federal guidelines say nobody should pay more than 30 percent of their income for housing, that family of four should pay $2,128 a month. If these are condos, that has to cover the mortgage and homeowners’ association fees, which means that unit has to sell for less than $400,000. If the other condos are selling for $750,000 or more, each below-market unit “costs” the developer several hundred grand.

The same rule applies to rentals: Under the Kim-Peskin law, 15 percent of rental units have to be affordable to people making 55 percent of AMI, which is $59,200 for a family of four. That rent level is $1,485 a month. If the other units are renting for between $3,500 and $7,000 (on the low end of new projects), the developer is subsidizing a fair amount of rent. If the other units are renting for $10,000 or more a month, which is not unusual, then the subsidy is deeper.

What Safai, Breed and Tang want to do is not only lower the actual percentage or required affordable units – they want to raise the amount of income that qualifies as “affordable.” They are saying, and will repeat over and over, that they want to build housing for “the middle class,” for example, teachers. There’s a serious crisis at the local school district; we can’t find enough teachers because they can’t afford the rent.

(A little aside here: If the mayor hadn’t made it his business to turn San Francisco into a roaring tech free-for-all, we might not have had such a housing crisis in the first place.)

So they want to earmark more of the affordable housing for people earning higher incomes. That would mean, for example, that developers could meet their affordable-housing obligations by selling condos to people making as much as 140 percent of AMI – and that’s $150,000 a year for a family of four.

A starting public-school teacher makes a little more than $40,000.

Let’s go back to the numbers: A family with income of $150,000 can afford a monthly housing payment of $3,750. So now that “below-market-rate” condo can sell for $750,000 (I am basing this all on current mortgage rates of 3.92 percent on a 30-year fixed).

If most of the other condos are selling for $750,000, the developer isn’t actually paying anything at all. If they’re selling for $1 million, the developer is paying a relatively modest subsidy.

Go to the rental side: The Safai plan allows developers who rent to people earning as much as 110 percent of AMI to call those units affordable housing. That income level is $118,450, which means $2,961 a month in rent. So the developer pays a lot less.

None of this is to say that people who make middle-class incomes shouldn’t have access to housing, including to city-sponsored affordable housing. But every time you increase the allowable rent – and at the same time cut the required number of affordable units – you are giving away money to private developers.

If we are looking at logic here – that is, what can a developer afford to do – then if we allow higher AMI levels, and thus reduce the developer subsidy, we should increase by a proportionate amount the number of units that developer has to make available. You are renting to people at 10 percent less than market-rate? Then 50 percent of your units should be discounted. That’s more middle-class housing, right? And that’s what we all want.

We should also think about the price of the market-rate units: If every condo is going for north of a million bucks, as many are, and some are going for $42 million, then the developer is making lots, lots of money, and can easily afford more subsidized apartments.

You build housing for nothing but the multi-millionaire class, which does nothing for the city’s housing crisis? You can pay to make 30 percent of those units affordable to the middle class.

But why would we let a developer count as “affordable housing” units that are being sold or rented at essentially the same as the market-rate units in the building?

And if it turns out the the affordability level the city is asking for is not “feasible” — that is, a developer decides that only housing that is mostly for the rich will return enough money for the investors — then why do we care? Let them walk; they aren’t helping the problem anyway.

 

Let’s make it even worse.

The state of California, in its wisdom, is now offering private developers a “density bonus” of as much as 35 percent over existing zoning for projects that have as little as 12 percent affordable housing. So let’s look at our 100-unit building. The city might – might – require that 27 percent of the units be affordable (and even under the Kim-Peskin bill, 12 percent of those can go to people making 120 percent of AMI).

That’s 27 units in the building.

Now add the 35 percent gift from Gov. Jerry Brown and the size of the building goes to 135 units. The city can’t put any affordability requirements on those extra profit-making apartments or condos. So the 27 percent quickly becomes 20 percent.

And in the Safai bill, 20 percent becomes 14 percent.

Under the Safai “middle class” housing measure, two starting teachers with no kids who look for a one-bedroom apartment wouldn’t qualify for most of the ownership opportunities and only a fraction of the rental opportunities. And that’s if they win the lottery for a very small number of available apartments.

The way we build housing in this city, and this state, is insane.

The Planning Commission meeting starts at noon. This will come before the Board of Supes in a few more weeks – and we will see how the new majority, aligned with the mayor and the real-estate industry, plays out.

For now, it’s clear that Safai has been loyal to the people who paid to put him in office. And if the rhetoric goes on and on about “middle-class housing,” and we get a proxy class war here, it will be because nobody has taken the time to run the numbers and understand what it actually at stake.

Which is: In the Age of Trump, are we going to let private real-estate developers and the needs of their international capital investors determine what is best for San Francisco? Or are we going to say that we can, and should, tightly regulate housing and treat it as a human right?

 

  • 4th Gen SF

    First question, what is the AMI for SF, and for the N Bay, S Bay & E Bay? Serious question.

    Now for my comment:

    Let’s go back to the numbers: A family with income of $150,000 can afford a monthly housing payment of $3,750. So now that “below-market-rate” condo can sell for $750,000 (I am basing this all on current mortgage rates of 3.92 percent on a 30-year fixed).

    Not true at all. That is too low to afford $3750 per month. Our fam income is slightly less and we are literally struggling month after month & our mortgage is less. Factor in that horribly high prop tax, and if they work for themselves the high fed & state taxes & you are not rolling in dough, you’re eating veggie food most of the time because you’re forced to & it’s a struggle. The SF Chron & the Guardian interviewed a tech guy making $160k a year & he’s struggling. It’s way too much of a struggle, I don’t know at what level it is when people are not struggling but $150k is nothing here in SF/SFBA & I”m not kidding. It’s a struggle & you are not middle class. perhaps that qualifies you as “working class” or lower middle class where you’re struggling but you are at that level.

    • Do Something Nice

      You right wingers always have this solution when people are being displaced: Go someplace cheaper to live and stop whining.

      • curiousKulak

        … and that’s whats meant by an “inclusive City”?

        • Do Something Nice

          Talk with the right-wing nutcases (like Trump voter and Le Pen supporter ‘4th Gen SF’) and libertarians about being inclusive. I’m merely repeating their own words to them.

          • curiousKulak

            You either speak what you believe, which makes you just like them. Or you speak that which you do not believe, which makes you a hypocrite and, in that case, a closet facist.

            WWMLKD?

          • Do Something Nice

            Thanks for the “Hallmark Card” moment.

            I will treasure it always.

      • SF Sunset Guy

        how do you know 4th Gen SF’s political orientation / philosophy / outlook from what they wrote?

        Do something nice? How about a little tolerance…even for a difference of opinion. Sheesh.

        • Do Something Nice

          From previous comments. And sorry, I will never have any ‘tolerance’ for anyone supporting Nazi’s like Le Pen.

          I can’t easily search on his/her/its support of Trump, but he/she/it has posted that several times. Here is a link to the post that has the Le Pen comment.

          http://48hills.org/2017/01/31/sf-city-attorney-is-taking-trump-to-court-over-immigration-policy/#comment-3131176850

          • SF Sunset Guy

            Saw the link, thanks. Marine LePen is a reactionary-conservative French politician, not a Nazi though. 4th Gen’s profile is private, so there’s not much more to go on.

          • Do Something Nice

            LePen is much like her Nazi father.

            And here you go – this is one of many comments where he says he voted for Trump:

            http://48hills.org/2017/01/09/california-democratic-party-mess/

          • SF Sunset Guy

            His / her vote for trump was hardly worth the ink used to print the ballot.

            Jean-Marie LePen sounds like an awful guy, but I can’t see where he was a Nazi (from wikipedia anyhow)

  • Sanchez Resident

    Private developers should not be building rental housing in the City. The City should build and manage all the rental housing in the City. We should be building housing blocks for teachers, firemen, and policemen. These vital City employees should be housed within the boundaries of the City.

    • No_Diggity

      Whilst I agree with you in theory, in practice San Francisco is terrible at building, managing and maintaining just about everything that it attempts. Agendas, mismanagement and LAZY overly self entitled city employees are pretty much the death of any good idea in this city / county.

    • 4th Gen SF

      The only problem with this is that the city did maintain rental housing in the form of housing projects and it was disastrous, a huge fail. They really don’t do a good job of managing housing.

    • Jonathan Bonato

      Sanchez Resident – One City basically did do that in past fifty years – the City of Singapore. They built a million units of housing, 90% of it affordable homeownership, where people pay 20-25% of income to own their home, with 99 year ground lease. Wish that could happen here, but this is the USA, so its very different. But Singapore wasn’t just a City, but it became a nation state in 1965, and they figured out a scheme that worked to finance the construction, and by selling units, at affordable prices, they ensured the homes would be well taken care of and paid for by residents of the City. I wish we could something like that here, but we are part of the entire United States of America, and USA basically builds the overwhelming majority of its housing with market rate, for profit developers.

  • goodmaab

    Link this to the article on google and Apple campus and “tech hub” and u can see what needs to occur philanthropy by tech industry in housing and transit… Tax the corporations adequately and require equitable development. Public housing is what is needed co-ops and alt forms of ownership see prior 1940’s development of public housing models called garden city movement…. Agree with Sanchez resident market forces will not solve this and the city agencies need to start buying land and developing solutions….

  • curiousKulak

    I was going along with your numbers until I saw the ‘$118k income can afford $2950 in rent’. But, if housing is to consume 30% of income, then the possible rent is not $2950 but $3500. How many other figures are poorly calculated or simply wrong?

    One other critique: I would suggest that developers aren’t “subsidizing”, per se. If you have to offer a condo for $400k instead of $750k, thats a “forgoing” of profit. However, if the actual cost of construction is >$400k (which is more likely; lets posit = $500k). Then the developer is forgoing $250,000 and subsidizing to the tune of $100,000 in this example. But, maybe they can lower the amenities (vinyl instead of tile; formica instead of granite, fiberglass showerstall instead of marble) to the point where the “subsidy” is minimized – and THEN its only a forgoing of profit.

    But I’m not sure why you feel that private developers should be in the ‘subsidy’ – or even ‘forgoing’ – business, when you allow the City Retirement Board free reign to profit on the Capitalist marketplace.

  • Yonathan Randolph

    Let me preface this by saying I respect Tim Redmond for his good intentions and good work on topics that don’t involve the market.

    But this article is so chock-full of misunderstandings that it is exactly what makes people shake their heads and call San Francisco progressives “economically illiterate” assholes.

    When some of these operators are charging $42 million for a penthouse, I don’t really find grounds to worry about their financial solvency

    First, Proposition C was not about reducing the profit of developers. Instead, it was about reducing the profit of landowners. For the most part, developers buy the land from landowners before they propose a project, and if the inclusionary housing requirements increase, then the price of land decreases. Here is Jane Kim explaining the distinction to Sonja Trauss while promoting Prop C. Throughout the article, Tim repeatedly speaks of developer profits and “predator” developers when he should really direct his angst at landowners (which he is himself, by the way). But there is a limit to how low you can push land values down using inclusionary requirements: how much the next best use is worth. Below that, the housing just doesn’t get built.

    I don’t care about developer profits. I do care about the amount of new housing supply that is created, because less supply makes housing less affordable. This is how the Inclusionary Housing Report puts it (which the Controller wrote after Proposition C was passed): “if land owners do not sell their land to housing developers at the lower offering prices that result from increased inclusionary requirements, the overall supply of available land for residential development will diminish, and along with the supply of housing units… the reduced supply of housing will tend to push up prices.”

    millionaires who probably don’t even live here

    Whether the owner lives in the unit or not does not really matter. An absentee landlord usually just takes a unit out of the ownership market and puts it in the rental market. What matters is whether or not the unit is vacant, which your linked analysis did not examine.

    (Never mind that every study says that San Francisco has built way too many high-end housing units, that there’s no logical reason to build any more, and that more luxury condos don’t do anything the help the housing crisis for the city’s workforce.)

    By this Tim is referring to progress on RHNA targets in the ABAG reports and SF Planning dashboards for above-moderate income households. The RHNA targets do not indicate that we have built too many of any kind of unit; they are a legal minimum that cities must plan for in their housing element. And again, Tim misunderstands the economic signals. If all the construction that is built is sold at too high a high price, this is a signal that we need to build more, not less! See inclusionary housing expert Rick Jacobus’s article Why Aren’t We Building Middle Income Housing? for more about this.

    So we have to be nice to these predators. And that means the most we can charge them is less than what we need to offset their impacts on the city.

    By “impacts” Tim is referring to the Residential Nexus analysis, which has been debunked time and time again. Now, there have been some credible investigation of localized cost increases caused by residential development, but at the citywide and regional level, when we are in a housing crisis, new housing of all kinds is helpful.

    And if it turns out the the affordability level the city is asking for is not “feasible” — that is, a developer decides that only housing that is mostly for the rich will return enough money for the investors — then why do we care? Let them walk; they aren’t helping the problem anyway.

    Here we get to Tim’s fundamental misunderstanding of (or, if we are charitable, his callous ambivalence about) the housing market. Assertions like this make me doubt Tim’s claims to have taken advanced economics classes. It is not true that new housing “does nothing” for the housing crisis. When a high-income household moves into a new unit, they free a unit somewhere else for another household to live in. Yes, the high-income household is not the marginal household, but there is a marginal household who is better off due to the new construction. When the region allows more housing to be built, it prevents housing prices from rising as high as it would have. In short, more housing supply reduces housing prices. Perhaps Tim knows all this but is unsympathetic to the middle class professionals who are at the margin of being forced out of the city today. Tim either does not know or does not care that we need a lot more housing to reduce market prices of housing.

    The state of California, in its wisdom, is now offering private developers a “density bonus”… Now add the 35 percent gift from Gov. Jerry Brown

    The density bonus was passed in 1979. Yes it was Jerry Brown, but it was Jerry Brown’s original terms of office! The density bonus only increases the amount of subsidized and market-rate housing. It does not reduce it. Upzoning in exchange for more deed-restricted units is exactly the kind of win-win solution we should be pursuing today to make San Francisco more affordable to all people.

    • playland

      Good points…re:

      So we have to be nice to these predators. And that means the most we can charge them is less than what we need to offset their impacts on the city

      The progressive “analysis” on this one only looks at development fees. It never stops to think about the hefty annuity that the city gets in the form of RE taxes; the very stuff that keeps bond interest lower.

  • Don Sebastopol

    The higher the BMR percent the slower the development and the less affordable for the middleclass. Market rate units pay for BMR units. In a hot market a large development can make money and increase the BMR percent.

  • Don Sebastopol

    It would be interesting to see the occupations and employers of those who buy or rent BMR units. How many are teachers, nurses, etc. From what I can determine, those who buy BMR condos are young professionals early in their careers; and many are tech workers, not firefighters. Those who buy BMR condos are not really any different from market rate buyers, only younger. Most who are lower income don’t stay lower income forever. But I guess there is nothing wrong with a program that allows young people to become owners at an earlier age.

  • Kraus

    “Force”, “Impacts”, “Predators”.

    These are the words Tim uses when he vilifies those that have created (and continue to create) virtually all of the housing in this city or and other city — including the home he currently enjoys.

    Tim rightly considers housing a “right”, but then proceeds to consistently argue against its creation — thus denying access to this right by the vast majority of us who do not own a $1M+ home — like he does.

    Nevertheless, he want to “force” housing developers to do this or that.

    He refers to them as “predators”.

    He wants them to pay for the “impacts” of creating more housing — what about the “impacts” of not building adequate amounts of housing?

    I think we need to start heavily taxing NIMBY’s like Tim for denying people access to reasonably-priced housing by limiting its supply in order to protect his “way of life” and sustain and subsidize his selfish/nostalgic/obsolete ideology.

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