Housing Affordability: A Report Card

Housing affordability is the No. 1 problem in San Francisco and, increasingly, in the other cities of the region. It threatens everything that makes the Bay Area a great place to live — our diversity, our openness, our culture, our environment and our economic competitiveness. Exorbitantly expensive housing prices make it impossible for more than a narrow elite to live and participate in our cities.

SPUR has done more work on this issue than probably anything else over the past several years. Our approach proceeds from two primary ideas:

1. Try many different solutions.

There is no silver bullet. San Francisco needs to add to the overall housing supply and fix regulations and invest in subsidized housing … and perhaps investigate other approaches as well. The scale of the crisis calls for all of these strategies to be deployed at once. And as close followers of SPUR’s work know, in some cases we think it may be smart to look outside of housing policy for our most effective responses to the affordability crisis.

2. Think at the regional scale while acting at the local scale.

San Francisco cannot solve the problem on its own. The city makes up only 10 percent of the region and shares an economy, labor market, housing supply, transportation system and environment with 110 other cities ringing the Bay. The reason we have a housing problem is that so many cities have made it hard to build housing, even as two million more people will move to our region in the next 25 years.

All the cities in the Bay Area with good transit must accept a portion of this growth. The alternative is to displace people to sprawling exurban subdivisions, which contributes to traffic, pollution, poor public health and loss of open space, all while further driving up costs in the central cities.

However, there are very weak “levers” at the regional scale that can get cities to accept new residents. We need a coalition of cities willing to be ethical participants in our region: San Francisco needs to do its part, so does San Jose, Oakland, Mountain View, Palo Alto, Berkeley and Milpitas.

The region’s big three cities — San Francisco, Oakland and San Jose — have an especially important role to play. They have the greatest capacity to add housing near jobs and transit, which will enable people to lead connected and sustainable lives.

What follows is a report card of what San Francisco has achieved in housing, where we’ve been set back, and what is before us in the upcoming year:

Achievements

The Housing Trust Fund established a significant new source of funding for affordable housing.

San Francisco made a major step forward in 2012 with the establishment of a Housing Trust Fund. Housing is expensive to create — the average unit in San Francisco costs $470,000 to build — and housing that is subsidized to be affordable isn’t any less expensive to build.[1] By our latest estimate, close to $300,000 dollars in subsidy is needed to make a single unit affordable in San Francisco, and many sources of funding have disappeared as the federal and state governments have dramatically cut their assistance over the past decade. San Francisco’s Housing Trust Fund will provide a dedicated source of local funding for the next 30 years.

San Francisco started to rethink its approach to public housing.

San Francisco’s 6,300 units of public housing form a critical portion of the citywide supply of housing affordable to low-income residents, and the units have been in danger of loss through neglect. The city is partway through one of the most ambitious programs to renew and rethink public housing in America, which involves both physically renovating the units and, in most cases, moving them into nonprofit management. The largest and most troubled public housing sites are being completely rebuilt through the HOPE SF program, which strives to create mixed-income communities and use housing as a lever to address intergenerational poverty for families who have long been isolated from the prosperity of the rest of San Francisco. HOPE SF provides opportunities for residents to work toward economic mobility.

Units can no longer be kept empty for vacation rentals.

As the housing crisis has escalated, attention has increasingly focused on the impact of short-term rentals on the city’s housing market through sites like Airbnb and VRBO. This fall, the Board of Supervisors approved legislation to regulate short-term rentals and ensure their use is benefitting permanent residents of the city. The new law, passed in October, requires that in order to legally rent out a unit for vacations or other short-term use, the unit must be lived in by a permanent San Francisco resident for at least 275 days a year. The permanent resident must register their property with the city and pay the hotel tax as well.

The city took some small steps to improve the housing review and approval process.

Mayor Ed Lee convened a housing working group with a broad cross section of stakeholders to tackle the often boring yet critically important topic of “process improvements.” This yielded a list of small changes that when added together can represent a real time savings for getting new housing developments approved. These changes include: expediting projects that provide more than the requisite affordable housing; organizing a better system for case management in order to move projects with more housing through city review faster; and cutting the time it takes to get clearance for projects that already have CEQA environmental approval under existing neighborhood plans. The group will next tackle the way the current city process addresses the most common planning code exceptions and work to reduce duplicative review processes that slow projects with redundant hearings.

Secondary units were legalized — partially.

The Board of Supervisors adopted two pieces of legislation allowing secondary or “in-law” units in portions of the city. These are added units built on an existing residential property — usually within a garage or basement. The first of the new laws sets up a process for bringing existing secondary units into legal status. A second piece of legislation allows for the creation of new secondary units within the Castro neighborhood. We hope the Castro legislation serves as a successful pilot for other districts and other cities.

We passed major new funding for transit.

Though not directly related to housing, the passage this fall of Prop A — the local transportation bond dedicated to improvements in Muni service and street safety — is an important step toward reducing people’s household transportation costs, the second most significant household cost next to housing. SPUR worked hard to build support for the measure, and we are encouraged by its passage and what appears to be a broad pattern of voter support across the region for transit, biking and walking. In San Francisco, the passage of Prop A, Prop B (which boosts Muni funding to keep pace with population growth), and the rejection of Prop L (which would have rolled back the transit-first policy) all signaled emphatic public interest in investing in transportation options that both reduce reliance on cars and make the city more affordable.

San Francisco and Oakland raised the minimum wage.

Raising the minimum wage will provide an important boost to the income of households struggling with the high cost of living in the Bay Area. SPUR’s work on the recently published Regional Economic Prosperity Strategy includes advocacy for “raising the floor” as one of the most vital strategies for improving economic security for the region’s lower-wage workers. Most of San Francisco’s leadership backed Proposition J, a local measure that will raise the minimum wage in San Francisco to $15 per hour by 2018. Prop J and a similar measure in Oakland passed with major support in November and will usher in significant wage increases in both cities.

Looking Ahead to 2015

The Central SoMa Plan.

The Central SoMa plan, which will upzone land to take advantage of the Central Subway, is the next — and last, at least for now — major plan area that the Planning Department is working on in San Francisco. While it will primarily be a location for new jobs, there will still be some new housing, and the increased development will likely generate funding for both transit and affordable housing. Central SoMa offers an important opportunity to get a new plan area right.

Treasure Island, Park Merced, Hunters Point, Pier 70 and Schlage Lock.

The city has approved major mixed-income housing projects at Treasure Island, Park Merced and Hunters Point over the last several years. Schlage Lock was approved this year, and Pier 70 will come up for approval soon. After lawsuits, various financing hurdles, ballot initiatives and other holdups, these projects are now finally moving forward. Though it will be many more years before they are fully built, together they will contribute more than 26,000 new units of housing in some of the city’s more affordable and overlooked neighborhoods. Although these projects are quite different from one another — merely sharing the attribute of being large-scale, single-ownership megaprojects — we expect that given their locations and formats, the price points of these housing units will reach a broad spectrum of affordability.

Citywide secondary units.

The coming year may see efforts to extend the permitting of secondary units to other areas of the city. Secondary units require no additional land, are less expensive to build than other forms of housing and can provide supplemental income and flexible housing to many members of the community. Additionally, by making it possible to distribute less expensive housing throughout the city, these units also present a promising way to add to our housing stock without impacting the aesthetic character of lower-density neighborhoods.

Reform the planning process to welcome projects that fit within the zoning.

San Francisco has perhaps the most byzantine development review process of any major city in America. In many localities, if housing fits within existing zoning and complies with the rules, it is permitted, period. But in San Francisco, every project is considered “discretionary,” meaning it is impossible to build anything without going through years of planning review, including a series of public notifications, hearings and design studies. Project opponent appeals can require the whole process to be repeated again. San Francisco’s Planning Department reviews four times as many projects as New York City does, though it has one-tenth the population.[2] Our current process slows down housing production and makes every new unit more expensive. If we want to fix our housing market in the long run, we will need to move to a system that provides more certainty to both residents and potential investors in new housing, which means moving to the more common North American planning system of treating zoning as the area for public debate, rather than project approvals consistent with zoning.

Photo by Bruce Damonte, Courtesy David Baker Architects

Completed in 2014, Bayview Hill Gardens by David Baker Architects provides 73 safe and stable homes to formerly homeless families and transition-aged youth. Photo by Bruce Damonte

More rounds of transit investment.

Viable public transportation is a key strategy for making a city affordable to its residents. The Mayor’s 2030 Transportation Task Force helped identify the cost of necessary improvements to the city’s roads and Muni infrastructure, estimating it at $10.1 billion over the next 15 years. This year’s Prop A was the first step in coming up with that funding, and more measures are planned for 2016.

More neighborhood planning.

One of San Francisco’s great planning success stories is the Market & Octavia Plan. The Planning Department worked for more than a decade to build consensus about where new development should and should not go, along with identifying a set of public realm improvements that were needed. We’re seeing the results now in high-quality development reknitting the neighborhood. At a different scale, the same thing was done for Rincon Hill and Transbay, and to a lesser degree with some of the Eastern Neighborhoods Plans. San Francisco’s Planning Department knows how to conduct careful, nuanced neighborhood planning as well as any planning department in the country. It’s now time to to continue the progress with a new set of neighborhood plans.

Updating and improving the inclusionary program.

One of the charges of the Mayor’s Housing Working Group is to take a close look at San Francisco’s current inclusionary program to see if it’s as effective as it should be. (“Inclusionary” refers to the city’s requirement that new market-rate residential developments include either a percentage of on- or off-site units affordable to low- and moderate-income families or pay an affordable housing fee.) Two aspects of the program will probably be updated in 2015: The city is evaluating the existing option to build affordable units off-site to increase flexibility and effectiveness, particularly in the case of joint partnerships between market-rate and affordable developers; and the city is exploring the concept of a “dial” that would provide an option for market-rate developers to meet their inclusionary obligation through dedicating a higher percentage of their units to housing moderate-income families.

Creating a density bonus program.

State law has long mandated that cities offer density bonuses and other incentives and concessions to projects that contain on-site affordable units. Except for a cumbersome process for 100 percent affordable projects, San Francisco has never implemented such a program. After a court decision clarified that cities must offer such bonuses, incentives and concessions to any project that fulfills even the minimum inclusionary housing requirement, the city has begun the work to create a local density bonus ordinance that hopefully will be easier to implement and result in many developers taking advantage of the program to deliver both more units and more affordable units.

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[1] “The Real Costs of Building Housing,” by Mark Hogan, The Urbanist, February 2014

[2] “Growing pains, The Economist, Dec, 7, 2013