Anything that adds more money for affordable housing in San Francisco is, by default, a good thing. The Council of Community Housing Organizations is celebrating new legislation, originated by CCHO and and SF Community Land Trust, that would increase the city’s Housing Trust Fund to as much as $125 million a year.
It’s not an unusual approach, by historic standards: In essence, the Trust Fund would grow as part of what we used to call “tax increment financing.” The additional property tax money that comes in from the city’s radical upzoning would in part (a fairly small part) be dedicated to affordable housing. It’s also called “value capture.”
Sup. Myrna Melgar took on the legislation to make this new approach happen, and Mayor Daniel Lurie signed on, and it will wind up on the ballot in November. The plan is to make sure the trust fund is in the City Charter, so no future mayor or supervisors can divert the money to other purposes.
Since it’s a defined revenue stream, the city could issue revenue bonds against it, bringing in immediate money for housing.
All of that is good. As CCHO Executive Director Quintin Mecke notes:
Today, more than 17,000 approved affordable homes sit in San Francisco’s pipeline — entitled, designed, and waiting. Ready for permits. Ready on zoning. Waiting only for funding.
The Housing Trust Fund, as currently structured, falls short of what that pipeline demands.
The proposed Charter Amendment can begin to change that. This is a transformation, and we should name it as one.
Fair enough.
But there’s another side to this.
Lurie wants to repeal Prop. I, the measure that raises taxes on very high-end property sales, and reduce to almost zero the requirement that luxury housing developers provide some affordable units.
The “BUILD Act,” sponsored by Lurie and Sup. Bilal Mahmood, would amount to a massive tax cut for speculators, developers, and people who buy and sell ultra-luxury mansions. Prop. I has generated $500 million since 2021, about $100 million a year. That’s about the same amount the new fund would generate—but it already exists, and it impacts only the very rich.
Former Mayor London Breed refused to spend the money on affordable housing. Lurie hasn’t spent that money on social housing, either; his budget priority has been the cops.
Lurie also wants to cut the fees that luxury developers pay for affordable housing down to 5 percent. That’s a huge cut in revenue that the city has traditionally used for non-market units.
That plan is based on a study by the Controller’s Office. It’s a fascinating document: Under current market conditions, exactly zero new market-rate housing is feasible. The losses on every projected project are so large that the affordable housing fees are irrelevant.
If market conditions improve, and developers start to make big profits again, they will pay almost nothing to offset the displacement impacts of luxury projects.
Lurie clearly wants a deal that looks like this: The affordable housers, the supes, the building trades unions all agree to repeal Prop. I and cut affordability requirements, and in exchange, he will support a measure to create a housing trust fund that brings in about the same as the money the city already gets from a measure that the voters approved for affordable housing and he now wants to repeal.
I’ve read the Trust Fund legislation, which is complicated, but it appears that the city won’t reach the $125 million level for several years. In the meantime, if Lurie has his way, $100 million a year for affordable housing will go away.
That’s not terribly good math.
Former Sup. Dean Preston and his allies are circulating petitions that would make Prop. I permanent–and would mandate that the money go for affordable housing. Lurie will oppose that.
Some folks will say that Preston and SF’s chapter of the Democratic Socialists of America are undermining the “deal” that trades away Prop. I and inclusionary housing for this new, valuable, steady income source.
But Mecke told me that in his meetings with Melgar’s Office and Lurie’s Office, nobody said that the new trust fund hinged on everyone supporting the repeal of Prop. I and the cut in affordability requirements. “I was never asked to agree to a deal,” he said.
From the CCHO statement on Substack:
Alongside the Housing Trust Fund expansion, the Mayor and Supervisor Melgar have introduced an ordinance to significantly reduce inclusionary housing requirements — cutting the on-site affordable unit requirement from 12% to 5% for larger projects, and exempting smaller projects entirely. The rationale is economic feasibility. The Controller’s report supports it. And we understand the argument.
But San Franciscans deserve to understand what is being traded.
Inclusionary fees and units are a direct revenue stream for affordable housing — one that has produced real homes and real dollars for decades. Reducing them means less funding for the very pipeline the Housing Trust Fund is meant to fill.
The math is complicated and the tradeoffs are real. And the expansion of one funding source must stand on its own — it cannot become justification for eroding others.
The argument for repealing parts of Prop. I and eliminating almost all inclusionary requirements is that market-rate housing is stalled. But the controller’s report makes clear that neither of those changes will be enough to jump start luxury projects. The seller, not the buyer, pays Prop. I transfer taxes—and with the massive run on mansions fueled by the AI boom, the sellers are entirely able to pay those taxes. In just the past month, two mansions in Pacific Heights sold for $24 million, in both cases, at least $2 million more than the asking price.
This has nothing to do with the cost of developing housing: Most of the projects that are waiting for financing are already sold and entitled, tens of thousands of units of them. No transfer taxes apply to those deals. The cut would only benefit the rich at the cost of $100 million a year that could fund affordable housing.
And even with zero inclusionary affordable housing, the controller’s report notes, market-rate housing is not financially feasible right now. If that market changes (when and if interest rates, which are really the deciding factor, come down) then developers will be able to pay the costs of the impacts they have on the city.
The Melgar-Lurie measure makes a lot of sense. So does preserving Prop. I and reasonable inclusionary requirements. The only thing that makes no sense is trading one for the other.
So the politics of this will play out this summer and fall, as Lurie and his allies try to play off one source of affordable housing against another. There’s no reason we can’t have both.
