Proposition C Treats Symptom Not Cause Of City’s Housing Unaffordability

How does a city allay its affordability quagmire?  With one-bedroom median rent breaching past $3,500, would-be and existing residents of San Francisco are faced with an oppressive housing market.  Solving such a crisis, which also includes 1.1 million median home prices, requires understanding of the complicated set of factors that led to the highest rents in the nation.  Over the years, layers of enacted city ordinances that limited building heights, restricted population densities, authorized rent control, and mandated Below Market Rate (BMR) units have either limited the number of new market rate homes or suppressed the rents landlords can charge their tenants.  Throw in a surge of demand from five years of economic prosperity, nationwide trends of increased urbanization, and the inward city migration of cash flush technology companies and the basic laws of supply and demand engage.  Supervisors Jane Kim and Aaron Peskin think they have “at least one solution” for our affordability woes, which they have placed on this year’s ballot as Proposition C.

Current Inclusionary Affordable Housing rules dictate that developers wanting to construct residential buildings with 10 or more units must either add a percentage of BMR homes to their projects or pay an Affordable Housing Fee, a fee equivalent to 20% BMRs.  BMRs can either be incorporated onsite at 12% of total homes or offsite at 20%.  Those qualifying for BMRs can make up to 55% of Area Median Income (AMI) for rental units and up to 90% AMI for home ownership.

Proposition C aims to increase the Affordable Housing Fee to 33% BMR equivalency, though the number might be recalibrated after a feasibility study, and set new higher affordability requirements of 25% BMRs onsite and 33% offsite.  BMR eligibility would expand to include a portion of units for those making up to 120% of AMI.  The measure also contains a provision that empowers the Board of Supervisors to change the fees, percentages, and scope of eligibility without voter approval.

By incorporating a larger proportion of BMRs in new housing developments, Proposition C strives to stymie the exodus of the city’s low income residents by increasing the ratio of BMR units to market rate homes.  But is expanding the ratio treating a symptom and not the cause of the stratospheric rents and home values?  And if the proposition is approved, could it contribute to even higher market rate housing prices?

Though pro-growth forces, which include the mayor’s 30,000 homes by 2020 initiative, are slowly breaking down the barriers to larger denser residential buildings, decades of underdevelopment has precipitated an exclusive and limited housing market.  Capitalistic forces in such an artificially restricted market have pushed rents to unaffordable limits and necessitated an affordable housing program to preserve an economic class balance within the city.  In order to achieve the maximum efficiency from such a program, the affordability requirements should be high enough to house the low income populations but low enough not to be cost prohibitive for developers.  25 unit buildings, the minimum building size under the proposition’s target scope, have thinner profit margins than residential skyscrapers and could become cost prohibitive with the inclusion of more BMRs.  In addition, higher BMR ratios will reduce the number of market rate homes and potentially contribute to higher median rents.  Since the economic impacts of 25% and 33% BMR requirements have not been properly analyzed or vetted, voters need to be weary of such impetuous figures.

A more pragmatic citywide solution would involve incentivizing developers to include more BMRs in their projects by allowing them to build taller and larger buildings.  Despite its controversies involving resident displacement, the original density bonus plan was a promising start.  Isolated projects such as 160 Folsom (a 400 ft single building at 40% affordable), 5M (multiple buildings at 40% affordable), and Mission Rock (multiple buildings at 40% affordable) prove that the city and private developers can make such solutions feasible.

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