Affordable housing, inclusionary housing, below market-rate (BMR) housing, middle-income housing. All these buzzwords describe different aspects of San Francisco’s efforts to address the escalating shortage of housing for those who can’t afford to buy or rent a home in the city’s hyper-competitive market.

So far, the Board of Supervisors has instituted no new rent control policies that impact buildings of 10 units or less. But encroachments on a basic tenet of rent control have raised a red flag, so we need to be aware of what’s going on.

No New Rent Control After 1979?

Inroads are being made into the primary limitation of the Rent Ordinance: that it not cover buildings constructed after 1979. Even state law exempts new construction from local rent control laws. But development agreements are changing that. Trinity Plaza, at 8th and Market, was one of the first new projects that applied rent control to new construction. The agreement that allowed the project to move forward resulted in 360 of the 1,700 rental apartments being placed under rent control. The deal also provided for inclusionary housing: 160 units are to be offered at rates affordable to those earning just 60% of median income.

In 2015, voters approved Prop D, which allowed a new project to be built at Mission Rock with 1,500 units, 40% affordable to low- and middle-income renters. The project was on Port of San Francisco property, so it had to be approved by a ballot initiative.

Other similar projects, those on private land, can be approved by the Board of Supervisors directly. For example, a $1.2 billion plan for Parkmerced calls for razing 1,500 aging rent-controlled apartments, making way for a new, transit-oriented community. Of the nearly 9,000 units proposed to be built over the next 20 years, a development agreement would require that 3,200 of those would be rent-controlled, even though they would normally be exempt. Surprisingly, tenant activists oppose the deal, fearing that a future corporate owner could challenge those rent control provisions as being counter to San Francisco law. Proponents and the city argue that the deal is ironclad, with provisions that ensure any attempt to circumvent rent control would have consequences.

As a philanthropic gesture, another developer, who has been very successful in real estate, is proposing to build 103 units in the Excelsior that would be either permanently rent-controlled or BMR. Per city regulations, BMR rentals are not subject to rent control, and can be converted to market-rate housing at any time by the owner when vacated. However, this project is noteworthy because it will provide housing for moderate and middle-income families from the outset. Half of the units (51) would be rented at market value and permanently rent-controlled.

The other half (52) would be divided as follows: 25% for families making 120% of area median income ($103,000 for two people); 10% for families making 80% of AMI ($68,900); and 15% for families making 55% of AMI ($47,400). In exchange, the project is permitted to build more than the originally allowed 79 units. While the developer has offered the deal to the city as a philanthropic gesture, aware of the housing plight of so many, he has made it clear that this is not a sound or feasible business model. 

Questions Raised About Affordable Housing

And that’s precisely the question being raised about inclusionary and affordable housing requirements that are now being increased by the Board of Supervisors for new developments. With the passage of Prop C last June, the city now has the authority to require more than the original 12% BMRs that was mandated in the City Charter for new developments. So the question is: at what point will developers walk away from projects and not build at all because the requirements for BMRs are too high? How much affordable housing will be built if a developer can’t make a profit? Will diversity in income levels create a more positive community in a building or cause strife among the tenants?

Affordable housing parameters in San Francisco can range from 20% of AMI (usually operated by nonprofits) to 150% for middle-income families. That’s a very broad range of incomes. In its headlong drive to provide more affordable housing to everyone who wants to live in our very expensive city, the Board of Supervisors appears oblivious to these critically important underlying questions. Only time will tell how things play out.

 

Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.