Why the private market can never solve SF’s housing crisis

48hillshousingforum2

John Elberling, Dawn Phillips, Brad Paul, and Calvin Welch talk about how we got into this mess — and how we might get out

 

By Tim Redmond

April 14, 2014 — We got a great lesson in the past 30 years or so of San Francisco political history at an Urban IDEA forum last Thursday – and a picture of some astonishing challenges that we face over the next 30.

The forum focused in part on how the city has changed from the late 1970s to the present – and in part on Sup. Jane Kim’s new legislation that aims to set some level of standards for the balance between affordable and luxury housing.

But it was much more than that: Some of the best thinkers about housing policy and politics in San Francisco were batting around the central question of our time: Is there any hope for a non-gentrified city, any path that really ends the displacement of poor and working-class people and creates a long-term sustainable housing policy?

While the mayor and a lot of developers and think-tank types say the city just needs to build a lot more housing – 30,000 units in the next few years, according to Mayor Ed Lee – John Elberling, who has been fighting displacement and building affordable housing for four decades, made the alarming point very clearly:

“The private market,” he said, “will totally gentrify our city’s housing stock. There is no way to stop it.”

In other words, to build a sustainable future for San Francisco, we have to look beyond the private sector. Way beyond.

 

The long view

It’s easy to look at the current tech boom as the source of the city’s housing and affordability crisis. But Calvin Welch, a founder of the Council of Community Housing Organizations and a veteran of nearly half a century of local community organizing (oh, and a member of my board), put the situation in context.

Between 1960 and 1981, San Francisco built 30 million square feet of new downtown office space – and almost no housing. The developers had no interest in building housing; the money was in offices, and the goal was to create a new Manhattan-style financial district, with workers living in the suburbs. That’s what BART was all about – bringing people from the East and South Bay to San Francisco’s downtown.

But without that new housing, by the 1980s, San Francisco had not only used up all of its excess housing capacity (in part thanks to redevelopment projects and freeways that destroyed housing); it had used up the surplus housing capacity of the entire region. And a generation of young people decided that cities, not suburbs, were the place to live, something planners and politicians missed for many years.

“When housing gets out of balance, two things happen,” he said. “Costs rise and speculators arrive.”

Add to that the notion that the city isn’t doing economic development that creates jobs for current residents but instead is focusing on an industry that attracts new arrivals – and the boom in office space on the Peninsula, which is never matched with new housing – and you get a mess.

In the 1980s, activists began talking about linkages between office development and the cost of Muni, housing, and other city services. Every credible study showed that highrise offices paid less in taxes than they used in services – creating a structural budget deficit in San Francisco.

Now, as Dawn Phillips from Causa Justa:Just Cause pointed out, the city’s housing crisis is part of a national problem. But it has to be fought at the local level – and Phillips asked, “is it logical that we rely on private landlords to provide affordable housing?”

Even in San Francisco, it’s kind of a radical question – but it shouldn’t be. Because Phillips is right; the current situation makes no sense.

 

Can inclusionary housing do the job?

Elberling had a proposal: To create a city for everybody, we need to demand that all new housing has at least 30 percent affordable units. That’s already the standard in redevelopment projects, and it’s the standard that Kim’s legislation sets for South of Market.

But according to Elberling, the city’s Housing Trust Fund will only be able to account for about 10 percent, so the rest will have to come through strict regulation, from inclusionary housing – affordable units mandated to be built as part of market-rate projects.

“That’s certainly possible for the private sector,” he said.

And, Kim noted, it’s at the heart of what her bill would do. She wants to create a dashboard that would monitor the level of affordable and luxury housing – and whenever it gets beyond the 70-30 level, all new market-rate housing would have to jump through additional planning hoops to get a permit.

In theory, that would encourage developers to side with tenant advocates protecting existing rent-controlled housing – because if you evict tenants and remove housing from the rent-controlled stock, it skews the 70-30 ratio and would make new market-rate developments more difficult.

If the overall percentage of affordable housing fell below 30 percent, the Planning Commission would have to justify how new market-rate housing would help the balance through a conditional-use permit.

Of course, as longtime land-use lawyer Sue Hestor told me, “this Planning Commission has never seen a conditional use it doesn’t like.” But at least the dashboard would give the city, for the first time, a clue of what’s happening to the housing balance, in one district. That’s something that has never been on City Hall’s radar.

And it potentially gives developers an incentive to help find ways to fund affordable housing. That’s critical because, as the panelists pointed out, when Gov. Jerry Brown shut down redevelopment agencies, San Francisco lost $50 million a year in affordable housing money. As a region, the Bay Area needs $4 billion a year for housing subsidies, and gets about $800 million. That’s a huge shortfall.

Just the housing the mayor has talked about costs $300 million a year, and existing funding isn’t anywhere near that level.

And, of course, the 30 percent level of affordability means that for the indefinite future, 70 percent of all new housing will be set aside for the rich. That doesn’t create a sustainable city by any stretch. Not even close.

The city’s own General Plan states that more than 60 percent of all new housing needs to be available at below market rate.

After all, even if we were able to raise the minimum wage to $15 an hour, Welch noted, a tenant would have to work 130 hours a month to afford a market-rate apartment.

In other words: Our current system, with for-profit developers building most of the housing, the city getting a small bit of inclusionary housing and a modest investment of public money into building new affordable units, simply won’t solve the problem. We’re not even in the ballpark. Nothing on the table at City Hall is even close to a long-term solution.

Of which, I am convinced, there is only one.

San Francisco would have to set as a goal taking as much as 60 percent of all housing in the city out of the private market in the next 20 years.

That could mean, as Brad Paul suggested, using money to buy and rehab dilapidated buildings and put them in land trusts. That’s a start, for a few areas and a few buildings.

But overall, somebody at City Hall needs to say it, and the mayor clearly won’t: The private sector has utterly failed, and will utterly fail, to supply adequate housing in San Francisco. So we have to stop looking that way for solutions, and shift the discussion completely.

How would we get to a city where the vast majority of the housing stock is permanently out of the private market (or so tightly regulated that the price is in effect set by the city?) I don’t know. I don’t know if it’s possible. But we didn’t get into this mess in a day, and we won’t get out of it quickly, either. And if we don’t start asking the right question, we’re never going to find an acceptable answer to this crisis.

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34 Responses to Why the private market can never solve SF’s housing crisis

  1. Stephen says:

    “Every credible study showed that highrise offices paid less in taxes than they used in services – creating a structural budget deficit in San Francisco.”

    Link?

  2. Mark says:

    “How would we get to a city where the vast majority of the housing stock is permanently out of the private market” So SF residents would have to pay higher taxes to subsidize low income housing? Purchase and maintenance costs would break the already broken budget.

  3. Mark says:

    ” (or so tightly regulated that the price is in effect set by the city?)” Rent control already does this, increases costs to new residents, creates a dilapidated housing stock, encourages speculation and the burden of affordable housing falls on the shoulders of mom and pop landlords. This is clearly NOT working now, and it won’t in the future

  4. Jonathan says:

    You’re only reason argument that the city should control a huge chunk of the housing market is that the free market isn’t working. But even the use of zoning codes infringes on the behavior of the free market.

    I would say we’ve been using a hybrid system that isn’t working. Maybe it’s time to experiment with a new location on the scale between socialized housing and a completely free market?

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  7. el says:

    Leftists are genuinely mentally ill pieces of shit that should have their voting “rights” taken away, by violent force if necessary.

    • Paolo says:

      It is you, sir, of the reactionary one percent who will inevitably face the tribunal of the masses. Your time is coming.

  8. Hopefully an answer can be found, but probably not before my days on this earth are done. For example a solution to one of our many problems, public transit, was proposed 20+ years when Sue Bierman introduced Prop O which would have created a Downtown Transit Assessment District requiring that business “paid it’s fare share”. San Francisco politics has always been corrupted, from the Robber Barons to the Pac Heights Mafia, although back in the day some of them actually used their wealth for the public good. In our day Willie has probably been the most visible and effective Capo. He probably has all the money he needs by now, maybe he could experience an epiphany and find redemption by using his powers and influence to lead an effort to save our city. Virtually none of the self serving sycophants who have subsequently slithered after him, from Newsom to Wiener, have been motivated to serve in the public interest.
    Just my 2c. I still have a dream.

    • Patricia Thornton says:

      Patrick Monk’s comment is well-said (and funny, too) but unfortunately true. But we need to be engaged in this city and keep a dream of having the diversity with multiple classes of people – otherwise, it is not a city (read Jane Jacobs’ stuff).

  9. Michael says:

    “After all, even if we were able to raise the minimum wage to $15 an hour, Welch noted, a tenant would have to work 130 hours a month to afford a market-rate apartment.”

    Surely you mean 130 a week, right?

  10. El Monstro says:

    So 60 percent of San Franciscans should live in housing run by the San Francisco Housing Authority? That is your idea of how to improve San Francisco? I think you should talk to some residents of The Projects before advocating for this idea.

  11. It seems to me that the Fukushima in the room is land values. Tim and god bless their well-intentioned hearts the rest of these panelists, and Jane Kim too, have as hard a time as the rest of humanity in seeing that land values (what real estate brokers mean by “location, location,location”) are distinctly community-generated values. So long as land itself is treated as suitable material for private gain, just so long will unearned income present impossible puzzles to go unsolved by housing rights do-gooders and sloppy-minded socialist prognosticators.

    For heaven’s sake socialize land values, not partially but wholly, and then you’ll see the market begin to work pretty well with only modest interventions necessary. But so long as land values go mainly to the private lender, 30-70 calculus and byzantine strategies will be needed to keep the maze of solutions going.

    Remove land values as a source of private gain and all that remains of speculation is speculation in building housing rather than speculation in rising land values. Nobody built land, and the mere ownership of land doesn’t give land value, and yet SF land values soar . . . because of the presence of community.

    • The land doesn’t have value. It’s land’s proximity to desirable stuff that makes it valuable.

      Jobs and amenities nearby. Access to public transit. Nice weather.

      It’s isn’t complicated.

      • Remy’s point that proximity to commerce, others, and handsome natural features (the Bay, views) is what accounts for land values is exactly right. Imagine your living accommodation in Fresno: the difference in rent is the land value element in the real estate, not the actual value of the building.

        And as one who respects the axiom that “Creation (the making of something) confers ownership,” I thereby recognize that land values, being community-generated (the aggregate private sector and public sector contribution to “location, location, location”), belong to community. An adjusted property tax assessing land values at their market rate rent potential would do the trick.

      • Farris Tomley says:

        I am a little confused here. Is Salty suggesting that, uh, taxing land values . . . I guess he means the rent . . . would help the market operate? It’s true that if land rents ceased to be an object of speculation then there wouldn’t be hoarding of land–keeping it off the market as a parking lot, for instance–but how would that help the market adjust housing?

  12. Dave says:

    None of us gets to live ANYWHERE we want to in the world. I may WANT to live in Atherton, or Portola Valley, or Piedmont, but I can’t because I can’t afford to. And I don’t sit around and whine on and on about it and expect the people who live there to build and finance my desire to live there. That’s not the way the world works. The USSR tried it some time ago and it did not work. Grow up. If it doesn’t work for you financially to live in SF anymore, then move. I did, and I was born and raised in SF. Yet, I don’t have any expectation that the City somehow OWES me a place to live.

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  19. Dirk says:

    Kim’s plan seems great- but it sounds like it applies to her district alone. Uh, developers in the rest of the city aren’t acting like they feel any incentive to act human.

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  22. Rick says:

    Why stop at 60%? Why not take all of it (100%) and let the city/state decide who gets to live in SF and where. That way we can have the perfect glorious balance of whatever it is we want.

  23. Josh says:

    The problem is simple: too many people, not enough housing. The solution is similarly straightforward: build more housing. Giving the city control of 60% of the housing stock so they can enforce “affordability” will only exaggerate the problem. A handful of lucky people will get unnecessarily cheap housing and the rest will get unnecessarily expensive housing (or, more likely, no housing at all within the city limits). I agree with the poster above that no one is entitled to live in San Francisco. I often wonder if the housing activists missed this life lesson growing up, or if they secretly understand it and choose to stick their head in the sand pretending that it doesn’t apply to the bay area housing market.

  24. Actually, Josh, that’s not exactly true. Right now it costs about $500,000 to build a single housing unit in San Francisco, a bit less if you allow more height. When you figure in interest and profit — and lenders are asking for at least 15-20 percent — there is no way the private market will build housing that costs less than $650-$700K a unit, too much for working-class people. Not going to happen. The other side of this: People who have lived here, and built a community, for many years should not be forced to leave because the market suddenly got hot. Yes, seniority matters: If you have been in San Francisco for a long time, you get to stay. Same for anyplace else. If you decide to leave, fine, but you should not be forced out because some richer person wants to be here now. People who are living here now and have been here for many years ARE “entitled” to live in San Francisco — much more than people who don’t live here and want to.

    • Eric Herot says:

      There are only so many wealthy people to go around. If developers were allowed to build housing to meet demand, the cost of a single unit would eventually fall to the point where it was profitable for developers to build middle-class housing. It worked for most of history before we decided to create ultra-strict height and density restrictions (and not to mention minimum parking requirements).

    • BP says:

      That is one approach to the problem, I suppose. But it’s time you accept that when you combine that with the traditional SF let’s-preserve-everything approach and a refusal to let new housing get built to accommodate demand – and merely in the name of aesthetic choices – you’re basically extending a middle finger to the next generation.

      Be blunt about what you’re really embracing when you adopt both of those: You’re closing the city off to anyone who isn’t born here and doesn’t have forever to wait for the opportunity to start building their life. Maybe in a few decades if you’re lucky, kids!

  25. Josh says:

    A couple of thoughts:

    New housing units, even expensive new units, will reduce the demand that is currently placed on the city’s current housing stock. If a new high-rise goes up with 200 units in the $700-$2m range, those are 400 high-income individuals who are no longer outbidding existing tenants in older, more affordable apartments. San Francisco is a desirable place to live and will always attract wealthy newcomers. Without new housing, demand continues to outstrip supply and we experience rising prices which lead to more displacement of longtime residents unable to compete financially with newcomers.

    No, seniority does not matter and it’s not the “same for anyplace else.” In fact, it’s almost exactly the opposite everywhere else. If you look at any major city throughout history (including SF), you see waves of immigrants and newcomers that arrive and reshape neighborhoods over and over. Existing residents sometimes stay and sometimes go. Seniority entitlement is a made up dream that has never been upheld.

    I’m still puzzled that some people think the best solution is to keep the housing units at current levels and pretend that wealthy newcomers will pack up and leave, returning prices to 1980s levels where the “true” San Francisco residents can afford them again. This will not happen. Increasing supply won’t solve every problem that the city faces, but it is a direct response that will do more than handing control over to the city so they can pick winners and losers in the battle for housing.

  26. noydb says:

    “No, seniority does not matter and it’s not the “same for anyplace else.” In fact, it’s almost exactly the opposite everywhere else. If you look at any major city throughout history (including SF), you see waves of immigrants and newcomers that arrive and reshape neighborhoods over and over.”

    Exactly. In fact, it’s a blatantly un-American statement to suggest such a thing, as un-American as those who oppose all immigration, including legal. It’s part of the deal in America: you get to move WHERE you want and can afford, in whatever state, city, region you want. Also, how would this “seniority rule” apply to someone like Erin McIllroy who by her own admission has only lived in SF for six years?

    Why not apply this “seniority” rule to ALL Americans and all towns? Are you suggesting we close the gates to all immigration, Tim?

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