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:
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?