The Agenda, April 10-16: How much affordable housing should developers pay for?

The plan to allow developers to pay less for affordable housing in the Divisadero Street Corridor is back at the Board of Supes Land Use Committee Monday/10.

Under Sup. London Breed’s plan for Divisadero, developers will get to build more density — that is, more units, which means more money — but the mandates for affordable housing don’t match those generous allowances.

The measure is part of this move on the board to create more “middle-class housing,” which is defined as housing for people making more than 120 percent of the Area Median Income (that’s $129,000 a year for a family of four). In fact, the definition goes up to 140 percent of AMI, which amounts to $150,000 a year.


This map shows the parcels along Divisadero that will get more density
This map shows the parcels along Divisadero that will get more density

Now: That sounds like a lot of money, and in most parts of the world it would put someone well above the middle class, but this city is so expensive (thanks to Mayor Lee’s policies) that $150,000 doesn’t seem like that much when you get into the housing market.

Two public school teachers, who live together and both have advanced degrees and 15 years of experience, fall into the 120 percent of AMI category. We desperately need housing for teachers (although two first-year teachers together would make only about $100,000 and thus wouldn’t qualify for the higher-end housing that Breed is proposing.) An teachers aren’t thrilled with the idea of setting aside housing for wealthier people at the expense of lower-income people.

We also desperately need housing for hotel workers, restaurant workers, nonprofit workers, government workers, health-care workers, and a lot of other people who make this city function every day. (The biggest employers in San Francisco are government, health care, and hospitality. Tech is way down the list.)

I still don’t understand why “middle-class housing” means a jump from 55 percent of AMI to 120 percent; there are lots of people in between who are ignored in this plan.

But let’s go back to the developers.

The way affordable housing works, a developer who sets aside, say, 15 percent (the city’s old standard) of units for people earning 55 percent of AMI (a family of four with $51,000 a year income) has to subsidize the difference between market-rate rent and the amount that family can pay. It’s a chunk of money – as we noted last week:

One of those differences, as Dean Preston, a tenant lawyer who challenged Breed last fall, noted, is that burden on the developer. Let’s assume these are rental units that could be priced at $4,000 a month. Longstanding federal policy puts “affordable” housing at 30 percent of a person’s income. So if some of the units have to be rented to people who make $51,000 a year – and thus can afford $1,275 a month in rent – the developer is on the hook for what amounts to a $32,700 a year subsidy.

But if those units only have to be affordable to someone who makes 140 percent of AMI, and can thus afford $3,700 a month rent, the subsidy is only $3,600 a year. That’s a huge savings for the developer.

“You don’t see a chamber full of developers here saying this is too much of a burden,” Preston said. “What Breed suggests is tripling the rents that those folks will pay and adding to the profits of developers.”

I have no problem with setting aside some affordable housing for people who earn the salaries of teachers and bus drivers and nurses. But if the developer is getting “affordable housing” credit for paying almost nothing, then the city’s getting a bad deal.

And remember: The developers are getting the right to build more units in the same space, a benefit that helps their bottom line.

How about this: You want to count housing for people who make $150,000 a year as affordable. But that’s less money out of your pocket than you pay for the first permit fees (far less than you pay your lawyers and lobbyists and agents). It’s decimal dust in the project’s financing.

So you shouldn’t get away with making only nine percent of the units “affordable” at this level. How about 40 percent, or 50 percent? It’s not the much below market-rate anyway.

How about we say this: You build a 100-unit building. The city gives you added density, so you can make more money. Setting aside 15 percent of your units for low-income people will cost you about 490,000 a year. (Is that too much for developers to afford? Apparently not, since many of them have agreed to it in the past, and the buildings have still gone up, the investors have been paid, and nobody seems to be missing any meals.)

So sure, let’s move some of that money around. Say only ten percent of units get the full subsidy, making them affordable to people who earn less than 55 percent AMI; that means you have used up $320,00 in subsidies. There’s $170,000 left.

You want to subsidize people at 140 AMI? Each apartment costs you $3,600 a year. If my math is right, you can make 47 percent of the remaining units “affordable.”

Bounce it around how you want, the bottom line is that the developers get a big break every time you raise the “affordable” level. That’s nothing but a giveaway.

The percentage of “affordable” units needs to go up, a lot, every time we raise the level of rent those units can go for.

The same calculus, of course, goes for affordable condos. You sell for less than market value and you are giving the city a subsidy. That’s part of the price you pay for the right to build immensely lucrative housing in SF. Let’s price that subsidy out and spread it around, instead of cutting the amount developers pay in the name of building middle-class housing.