“Booming Economy Leads to Housing Crisis”

Organized Labor, February 28, 2014

By Paul Burton, Contributing Writer

As San Francisco’s economy continues to boom, drawing more high-paid workers into the area, the city once again is in an affordable housing crisis that threatens to dislocate middle and working class people.

With average rents increasing more than 17 percent between 2012 and 2013, labor leaders, community activists, politicians and planners have all put forth ideas to address the issue and protect San Francisco’s heritage as a residence for a broad social and economic spectrum of citizens.

“The rising economy and subsequent building boom have put many of our members back to work,” said SFBCTC Secretary-Treasurer Mike Theriault, “But our members are also the middle class and are facing a lot of economic pressure around housing as more and more of our city focuses on high-end renters and buyers. The Building Trades is committed to working on solutions for affordability that protect both our growth and our residents.”

Anti-Growth Backlash
Last year, the city experienced a backlash against the development of new high-end housing along the waterfront with the rejection of the 8 Washington project in the November election. While the project would have supplied $11 million for the city’s affordable housing fund, it was perceived as another project for wealthy buyers. The rejection of 8 Washington was seen as the culmination of a groundswell of anger over rising housing costs, driven in part by an influx of well-paid tech workers setting up in new offices and condos downtown.

After the November election, Gabe Metcalf, director of San Francisco Planning and Urban Research (SPUR) organized a meeting that included a group of developers, along with Theriault. SPUR has been studying issues of development and housing for three decades and recently released a series of reports addressing the housing crisis. Metcalf told Organized Labor that, “It was clear a year ago when we wrote our 2012 annual report that we were entering another phase in the boom-bust cycle of capitalism. It was predictable.”

Metcalf noted that during boom times, labor costs go up, materials cost goes up, land prices go up and the cost of borrowing money goes up – leading to housing costs going up. Along with the inevitable ups and downs of markets, there is also a political cycle in San Francisco, Metcalf said, that is now experiencing an anti-growth backlash. He noted that developers want to be part of the solution for affordability, but they have investors who expect a return on their investment and who can take their money anywhere. One reason for a boom now in San Francisco, he pointed out, is that there is less competition for funds due to the global recession, so projects in the Bay Area have become more financially reliable and a better investment. Metcalf said it would be naïve to think developers would try to find investors who were willing to take a smaller return on their investment in order to bring down costs. The cost of developing housing is also impacted by how tax policies and priorities are set at the state and national level.

He said that while the housing crisis was predictable, “We didn’t predict how bad the affordability problem would be. So we thought about it in 2013 and started to pull together a list of ideas. There is no single silver bullet.”

The report further notes that, “The lack of housing production in San Francisco has exacerbated this phenomenon. San Francisco has averaged a production of 1,500 units per year for the past 20 years. During the recession, almost no housing was produced (just 269 units of housing were brought to market in 2011). Fortunately, the past 18 months have seen the development of a substantial amount of housing by San Francisco standards – with roughly 4,000 units of housing in the works for 2013 alone… However, it is unlikely this production will be sufficient to meet the incredible demand generated by the city’s exploding economy. San Francisco is currently the fastest-growing county in the United States for private sector employment, outpacing Austin, San Mateo, Houston and Santa Clara. In fact, San Francisco added nearly twice as many tech jobs as Santa Clara County and roughly 20 percent more than San Mateo County, meaning that the geography of Silicon Valley is changing.”

SPUR’s proposals include protecting existing rent-controlled stock along with building more affordable housing. Metcalf said the City needs to “make it a lot easier faster and cheaper to add more housing at all levels – not just affordable housing.” He noted that, “the mayor went big with the Affordable Housing Trust Fund [Prop. C], but more affordable housing could be built.”

Political Proposals
Recent proposals by Mayor Ed Lee, Supervisor David Chiu and Supervisor Scott Wiener each take different approaches to the problem, but call for more construction of housing units, especially affordable housing, as well as helping tenants.

In his State of the City Address on Jan. 17, Mayor Ed Lee proposed a plan to meet housing goals that mirrored some of the points raised by SPUR.

“The state of our great city is still vital and strong – as strong, financially and economically as we have ever been in our history,” said Mayor Lee. “This same robust economic recovery and renewed confidence in our future provides us with the resources and resolve to move forward with an ‘affordability agenda’ as our priority for the days ahead. We remain focused on creating jobs, building housing, improving our transportation system, and making sure our youth have a world class education. We will continue to ensure that San Francisco remains a place where people from every background can call home.”

Emphasis on Working People
The emphasis on building “housing units within financial reach of working, middle income San Franciscans” could be good news for union members, including those in the building trades, who are priced out of “market rate” housing but don’t qualify for affordable housing for lower income earners.

The mayor said he will “ask housing leaders, developers, advocates and property owners to participate in a Task Force which will examine potential solutions under these tenets, develop a plan for their execution, and form a coalition around their implementation.”

Proposals will likely include reforming the permitting process and increasing efficiencies; initiatives such as an expanded down payment assistance program; new legislation, land use and legislative reforms to incentivize increased affordability and onsite inclusionary housing; and additional funding sources that can help middle income families without impacting the funding streams already dedicated to producing more deeply affordable homes.

On-Site Affordable Housing
New legislative proposals have been announced in response to the City’s housing crunch that address some of the points in the Mayor’s agenda. On Jan. 14, Supervisor Scott Wiener introduced legislation amending the Planning Code to exclude Affordable Housing Units from density limits. In an opinion piece in the San Francisco Chronicle, Supervisor Wiener noted that San Francisco is in the midst of a housing affordability crisis, and that, “One key aspect of our strategy needs to be creating more permanently affordable housing. I recently introduced legislation to incentivize developers of market-rate projects to include affordable units in their buildings, rather than paying a fee for construction of the units elsewhere. On-site affordable housing construction is the fastest way to create more affordable units. The legislation encourages more on-site affordable units by providing that if a developer chooses to designate at least 20 percent of units as affordable (i.e., more than the 12 percent legal minimum), those affordable units will not count against the unit density limits in place. That means that the developer can build a higher number of affordable units without requiring a reduction in the number of market-rate units. Purely affordable housing developments will also be relieved of unit density limits. The legislation, which won’t change height or bulk limits, will allow for creation of more housing overall and particularly more affordable units.”

In his district newsletter, Supervisor Wiener also commented that, “We need to work to continue to increase our housing supply, not just for low-income residents, but also for middle class people who don’t qualify for traditional affordable housing. Our housing crisis results partly from a byzantine project approval process, that often waters down or kills badly needed housing projects.”

SPUR’s Gabe Metcalf noted that the City could reduce costs for building projects by creating a way for projects to be mandated and not just discretionary. He said the Board of Supervisors can deny projects, and doesn’t have to OK more housing, so the political support for housing development more than anything will help create more housing.

As SPUR’s “The Uneven Housing Recovery” report pointed out, “The biggest challenge to addressing the Bay Area’s housing costs is political. There is a great policy paradox in regional planning – namely, the places with the greatest demand are anti-growth and the places that are pro-growth don’t have enough market demand to support new construction. Add to this the fact that some of the tools to create affordable housing, such as inclusionary housing (in which municipal and county planning ordinances require a given share of new construction to be affordable by people with low to moderate incomes), are under attack, and you have the conditions for a perfect storm. We need to change some of these dynamics if we are ever going to address the extraordinary cost of housing in our increasingly unaffordable region.”

Mayor Lee’s outline for expanding housing construction may also include land use reforms, such as enabling more development of unused city-owned land. Metcalf said that, “It’s an idea that’s been out there for a long time. We just need to mobilize the will to implement ideas that in the past were seen as too difficult, too expensive or too controversial.”

Council of Community Housing Organizations
The Council of Community Housing Organizations (CCHO) also offered a response to Mayor Lee’s plan. The organization’s co-directors, Peter Cohen and Fernando Marti, spoke at an SFBCTC delegates meeting on December 5, 2013, about the current housing crisis in San Francisco and how labor and housing advocates could work together to deal with development issues.

CCHO put forth its own proposals for how the City can reach its goal of a minimum 1,500 low and moderate income affordable units per year as part of a plan to build 5,000 units annually. It calls for prioritizing affordable housing development on “underutilized publicly-owned sites, including those owned by the City’s enterprise departments, that are viable for affordable housing” as well as an accelerated permitting process for affordable housing and mixed-income developments.

CCHO called for rebuilding public housing with the right resources. “We commend Mayor Lee for taking the unprecedented step of confronting the federal abandonment of public housing. Our community housing organizations are committed to working with our public housing tenants to rehab and rebuild their homes the right way with a community based housing model. But we know that public housing can’t and shouldn’t be rebuilt ‘on the cheap’ as was done in the past. If we are not going to ‘rob Peter to pay Paul’ with the Prop C funds that support the citywide pipeline of new affordable housing development, the City needs to commit a separate dedicated source for the public housing renovation program.”

Other points in the CCHO plan include ensuring that built on-site (inclusionary) and off-site “below-market-rate” units are built in all private developments, ensuring equity in transit and neighborhood services, and reclaiming rent-controlled buildings from speculators.

Ellis Act Reform
Proposals to help tenants stay in their homes and protect rent-controlled units have also been put forward recently by Supervisors David Chiu, John Avalos and David Campos.

According to a SPUR report, the median rental price for a one-bedroom apartment in San Francisco increased by 27 percent to $2,795 in 2013 from $2,195 in 2011. For a two-bedroom during the same time period, the price rose by 33 percent – ten times the rate of inflation. As housing prices have gone up, pressure to convert rent-controlled apartments to condos and displace tenants has increased. Chiu’s measure, passed by the Board of Supervisors in December, would help tenants in publicly funded housing who are evicted under the Ellis Act, which enable landlords to evict tenants when they convert the units from rentals to condos or take them out of the rental market.

“We have to move forward with a comprehensive set of policies, including building more housing, protecting the housing stock we have, and ensuring tenants, seniors and families who have lived here for years don’t get evicted and continue to have a place in our city,” Chiu said.

Proposed legislation by Supervisor Avalos would make it more difficult for property owners to merge multiple rental units into a single-family home and take it out of the rental market. “Part of our general plan is to preserve the apartment stock we have,” Avalos said. “This legislation comes out of that value, to keep existing tenants in their homes and disincentivize Ellis Act evictions.”

The San Francisco Chronicle reported Feb. 4 that, “Between March 2012 and February 2013, 116 households in San Francisco were evicted using the Ellis Act, a practice tenants rights groups say is being used by real estate speculators to clear buildings of mostly low-income families and residents so they can make more money when they sell those units.”

Supervisor Campos proposed legislation to require that landlords pay the difference between the rent paid by an evicted tenant and what the rent the tenant would have to pay for a comparable rental for two years. The amount could be above the $5,261 in relocation fees that the city now requires building owners to pay to a tenant evicted under the Ellis Act.

Federal Aid
Mayor Lee’s public housing improvement plan got a boost last month with the announcement that the Obama administration awarded the City a Rental Assistance Demonstration (RAD) program award. The U.S. Department of Housing and Urban Development’s RAD program is one of a number of federal resources that San Francisco has pursued in order to preserve its public housing stock and will leverage approximately $180 million in investor equity and other new resources and allow for the rehabilitation of up to 4,584 public housing units.

The approval represents a crucial first step in a three-year process to preserve and rehabilitate up to 41 public housing developments that will improve and upgrade public housing stock for residents, according to the Mayor’s Office.

While the mix of proposals may lead to some progress and solutions for the crisis in housing availability and affordability, housing advocates, developers, labor and community organizations will need to continue to work together with elected officials to build a city affordable to all residents. The boom-bust cycle will likely continue.

As SPUR’s Gabe Metcalf noted, growth isn’t bad. “We cut the unemployment rate in half from 10 to 5 percent,” he said. “It’s a good thing to be in a region with a growing economy rather than a region with a stagnant economy, like Detroit.”