168-186 Eddy Rendering

From Don Falk, Executive Director at Tenderloin Neighborhood Development Corporation (TNDC), with respect to the challenges of financing affordable housing development in San Francisco and the development of 168-186 Eddy Street at the corner of Taylor:

In a short time, we have seen dramatic changes in the world of affordable housing financing. The elimination of Redevelopment Agencies stripped $50 million of annual subsidy from San Francisco, and combined with State budget problems and long-term Federal deficit reduction, nonprofits’ ability to develop affordable housing faces more constraints now than any other time in the past 30 years. At the same time, the main sources of income for our senior and disabled residents—social security and disability—have been reduced multiple times.

Against this backdrop, San Francisco has become the most expensive rental market in the nation. While the economy is improving, this has not trickled down to affordable housing financing. The private real estate market cannot build for low income people profitably, so for San Francisco to remain a city for all – families and workers, not just the privileged – we cannot look to market rate developers to fulfill the need.

As a result of shrinking public resources, TNDC is thinking differently about how to finance affordable housing, and we are working on mixed-income developments at four different sites. Having shopped the site at the corner of Eddy and Taylor to multiple market-rate developers as potential joint venture partners, however, we know that new construction market-rate housing is not yet financially feasible there…though it’s a lot closer than it was a year ago, and we think we will ultimately succeed. Sites South of Market are significantly more viable than in the Tenderloin from a market-rate development standpoint.

“Affordable housing” is typically defined as rents of 30% of the area median income for people earning no more than 60% of the area median income, adjusted for household size. In real-life terms, that means maximums of about $42,000 for an individual and $62,000 for a 4-person household.

Also noted by Mr. Falk, “TNDC has never opened a pot club in the ground floor of an SRO; perhaps someone is getting us mixed up with another organization” (as was intimated by another).

24 thoughts on “Affordable Housing Headwinds And TNDC’s New Tack In San Francisco”
  1. @sf, anyone over the age of 45 remembers when San Francisco was as affordable as any other big city. In fact, my first rental and condo in Pacific Heights was MUCH less expensive than what I was living in when at university in Los Angeles in a MUCH worse neighborhood. One of the reasons I jumped to SF after college was because it was a great city at a reasonable price. (This was in 1989). I remember a fellow classmate who sold a dumpy unit in Pasadena (1991) and moved to a great full floor condo in the Marina for less cost than his unit down south. The idea that rentals here are more expenive than NYC is very sad and caused mainly by NIMBYs and Rent Control.

  2. Well, I disagree with that last comment. Here’s my take.
    I bought my first property, a condo, back in 1978, a one bedroom unit, for $72,000. Seems cheap now, right? Well, at that same time, my friends were buying entire houses in other parts of the country, such as Chicago and Seattle for prices in the range of $45-75k. They thought I was crazy. I wasn’t; those were the prices for some properties in SF at that time. We have always been higher in cost than many other cities.
    Secondly, perhaps rent control and Nimbys have some influence on prices, but it’s largely a matter of DESIRABILITY. People WANT to live here, whether renting or buying. They are willing to pay an asking price, or higher. And many have the income to pay.
    Yea, it probably sounds insane for someone to pay $1.5m for a modest 3bed 2b house in Noe, as an example. But they do and will continue to do so.
    That’s just the free market and the desire to live in SF.

  3. As long a more people want to live in SF than the city can ever expect to accommodate, prices will rise. The City can not grow big enough to accommodate everyone who wants to live here. Could the city house 2 million people? 3+ million? If you answer yes explain what the city will have to do and become to accomplish this.

  4. I think the point being made by “Give Me A Break” was that San Francisco was not “the” most expensive city back then. San Francisco has always been more expensive than many places, but I do think we need to encourage construction of affordable housing so that young people can still move here and keep the city fresh.

  5. Perhaps, but raising the cost of market rate development to subsidize below market rate projects only widens the gap between the two. It creates a cycle in which the city becomes more expensive, thus reducing the number of people who can afford living in the city. The city then, in an effort to keep it affordable sadles further expenses on these developments to subsidize low income housing. The result is a squeeze on the middle class.
    However, builing more defvelopments at market rate could relieve some of the upward pressure on prices. SF should build up and densify. Density is greener and would also generate more tax income to pay for things like low income housing, schools, infrastructure. Where as these below market rate projects will not create the same tax benefit (though they are generally dense). I agree 3 million people in SF would require the city to become much more like Manhattan but adding 200k more people would be a 25% increase in population and would likely have an impact.

  6. As I said earlier in the original thread, by definition SF is “affordable”. As far as I know, most of what’s on the market is getting sold or rented.
    Of course, “affordable” is an euphemism to “affordable to the poorer” or more precisely “affordable to the median wage earner already there thanks to existing policies”, just like “families” stands for “working class families” and “worker” stands for “low wage worker/unemployed”.
    But no-one wants to use these terms.
    Heck, most people who purchase 2M houses in Noe are working and have families! Just not the kind that TNDC likes.

  7. Woops. Adding around 120k units would likley add 200k people and would have an impact on pricing in the city

  8. There is very little political will in this city to add to new housing that is not “affordable” using lol’s definition. Park Merced is a perfect example of all the usual suspects trying very hard to stop the addition of almost 5000 new units to SF because of the remote possibility that we might lose some rent controlled units. The greater good is sacrificed for the lucky few (if you can call someone in a PM rent controlled unit lucky.)

  9. More affordable housing on developed land means less market rate housing in the existing space. Great news for landlords; basic supply and demand. Set asides make my units more expensive since there are less of them.

  10. I think there is a lot the city could do to improve affordability. For example, I live in an area which is zoned RH2, residential 2-family, and is all 25×120 lots. However, it’s an old area, so there are a few buildings which have 3-6 apartments, no parking. I have no doubt that these are significantly more affordable than the rest, but the city would not allow them to be built today. If the neighbor wanted to duplicate it, it wouldn’t be allowed, even though it seems to me that there would be practically no negative effect on anyone else (yes, his neighbor would have a bit more shadow, but at worst the city could make it conditional on the neighbor’s consent).
    The apartment-over-shop buildings, which are pretty common around here, cannot be built today because of parking requirements.
    I think that’s too bad.

  11. It’s not the job of government to make expensive areas affordable. Not everyone can afford to live in Manhattan. So what?
    You live where you can afford to live. When prices rise, Grandmas get priced out. Families get priced out. They *should* get priced out. They will also get priced in somewhere else.
    Neither is it the job of government to make existing areas more expensive.
    But San Francisco is doing both, driving up prices by adopting policies that reduce supply (zoning restrictions + Prop 13 + rent control) and allow a select group of lucky residents to live in a house or apartment that they could not afford to buy/rent at current market prices, while at the same time making harder for new entrants to buy/rent the same unit and for developers to add more property to the housing stock.

  12. As long a more people want to live in SF than the city can ever expect to accommodate, prices will rise. The City can not grow big enough to accommodate everyone who wants to live here. Could the city house 2 million people? 3+ million? If you answer yes explain what the city will have to do and become to accomplish this.
    Maybe 2 million people want to live here and are willing to pay for the infrastructure to support that. Maybe they don’t.
    At some point, as the height of the building increases, it becomes more costly, on a per-square foot basis, to add density than to add space.
    Those people will need services — schools, muni, etc, and these should be 100% financed by property taxes and development fees.
    So there is an upward sloping supply curve in which as more people want to live here, the natural price per unit of space increases. There is a downward sloping demand curve for housing in the city.
    Let those two curves cross, and where they cross, we will have the number of people living here who want to live and who are willing to pay for the added infrastructure required for them to live here.
    Liberalize the zoning laws, rationalize the tax basis, repeal rent control, let people live where they want to live, and let developers make a profit by catering to demand.
    What we will get is a much more vibrant city with a stronger economy, substantially cheaper rents, substantially higher quality housing, and more turnaround in both owner occupied and renter occupied units.

  13. Robert…it bears repeating, San Francisco can’t do anything about Prop. 13, it’s written into the State Constitution and as such preempts local ordinances.
    For that same reason, San Francisco simply can’t finance schools, public transit, police and fire departments, etc. with property taxes exclusively. There’s not enough money coming in, even in The City where Real Estate turns over frequently, to do so.
    I suspect you’re aware of this.

  14. Robert…it bears repeating, San Francisco can’t do anything about Prop. 13,
    Odds are good (more than 50%) that prop 13 will not survive the next decade.
    The state can’t afford it. Not being able to afford something is a powerful motivator for getting rid of it.
    But in any case, without any movement on property taxes, there should not be any movement on rent control. I could just as well say that rent control is untouchable, right?

  15. I must live in a different San Francisco than some of you who argue that the City was “affordable” as recently as 1989. In 1982 I sold my 4 bedroom, 3 bathroom detached home with swimming pool and citrus orchard in the “official preppy town” of Winter Park, Florida for $86,000, and moved to a new 2 bedroom/2bath condo in SF which I purchased for $215,000 (financed with a 9.375% mortgage).
    The City probably WAS affordable in the early 1960s–I’ve seen pictures of the shabby state then of what are now grand and expensively renovated Victorians. But that’s half a century ago.
    Anyway, to Mr. Falk I say, “Maybe there’s no great reason the City SHOULD be “for all” any more than Manhattan is. Manhattan has Brooklyn and Queens, we have Oakland and Hayward. Those are only minutes away by BART–closer than the outer Richmond. What’s wrong with the “affordable housing” there?

  16. I’d tend to agree that, logically, without reform of Prop. 13, there shouldn’t be any change in rent control, although I have no personal attachment to rent control.
    But, since we’re talking the politics of it, rent control is certainly “touchable”, because it can be squelched at either the state or municipal level.
    Had Proposition 98 on the June 2008 ballot passed, the only reason we’d be talking about rent control on socketsite would be in terms of how much more money SF landlords were raking in from tenants.
    People with money can do almost whatever they want politically in this state. Someday perhaps The Small Property Owners of San Francisco will get their act together and put a ballot measure together that will dismantle rent control locally.
    Btw, right wingers/nutters do not believe that “The state can’t afford” Prop. 13. They think the yearly state budget crises are just a matter of the state not “living within it’s means” and as soon as all democrats are removed from the state legislature and public employee unions are eviscerated then revenues will magically match expenses with no increase in taxes. Oh, and all illegal aliens and their U.S.-born children must be deported, too.
    Once you understand the magical thinking of this state’s right wing electorate, you’ll understand why I’d take your better than 50% odds “that Prop. 13 will not survive the next decade” for any amount of money you’d want to bet. Same thing goes for why Proposition 30 on this year’s November ballot will fail, although I wouldn’t bet anywhere near as much money against that one.

  17. Yup. Prop 13 should be repealed. Then the state of CA would get proper funding. This is a wealthy state. We can afford great schools, decent infrastructure, good healthcare. What’s happening today is a self-inflicted wound.

  18. I don’t know what planet you supply-siders are on. Building more market rate housing and prices will drop? Well the City has built way more market rate (read- high end housing) than it was supposed to under the Housing Plan (150% from 1999-2006, and likely more under the 2007-2014 plan), and way less affordable housing. Yet prices still haven’t fallen significantly (off the 2007 peak certainly, but not enough to mean it’s “affordable”). I haven’t seen any analysis that would indicate how much new “market rate” housing would be needed to significantly drop prices – 20,000 units, 50,000? It would take a huge shift in political and public will to generate those kind of numbers in what is already a fully developed city, not to mention gobs of private sector money. And investment money isn’t flooding into moderate priced apartments (except maybe for Park Merced), but has focused mainly on high end, high margin properties.
    And a big fat raspberry to LOL and Robert who would let the invisible hand of the market drive housing choices. There is true public interest in having housing for median income earners – teachers, cops, social workers, restaurant workers -it’s not just a dichotomy between $2M Noe Valley properties and TNDC low-income housing. But sadly that dichotomy is what the system now incentivizes – private money for high income, and public money for low income, and nothing for the those in the middle.

  19. Just to be clear, ‘graph five in my comment above was not describing the views I personally hold, but those that I understand the majority of ardent supporters of Prop. 13 among this state’s voters hold.
    I can’t link to them now because they’re behind a paywall, but George Skelton, the columnist for the L.A. Times routinely cranked out piece after piece reacting to polling documenting this phenomenon.

  20. @kddid –
    Referencing that we did better than the Soviet-style five-year plan of the city doesn’t really mean anything.
    In a city as desirable as SF is, we’d need to be building 10,000 units a year to keep prices in check. The market can’t do that unless we were to completely eradicate zoning laws, which would absolutely decimate land prices (a good thing), as then you’d be able to build taller, taller, taller anywhere, instead of just where the city planners have decided.
    The issue is that we actually allow soooooo little new development more intensive than is currently in place, which means that any place where upzoning is allowed has almost all of the value of that upzone quickly capturing by the incumbent landowners. We would need to upzone everything to deprive incumbent landowners of scraping that off the top (and thus relegating the entire market to the high end or the connected non-profits).
    (Not saying this would be entirely a good idea, but just saying that you can’t judge what the free market is providing by rationing 2-3 stories of height increases here and there to already developed neighborhoods or sites – that’s master planning pulling the strings there)

  21. There is true public interest in having housing for median income earners
    Agreed. But not in Manhattan. Like it or not, there are some parts of the country where median income earners cannot afford to live. Not everyone can afford a Bentley, and there is no public interest in trying to change this.
    The public interest is served by allowing the top 1% of households to live in the top 1% of properties, and the top 50% of households to live in the top 50% of properties. There is no public interest served by letting a select group of median earners live in the top 1% of properties.
    So what you *really* mean is that the public interest is served when those occupying properties (either renting or owning) can in fact afford to rent or buy those properties at current prices. If they cannot, then public interest is not served.
    And the problem in SF, with both rent control and Prop 13, is that the vast majority of residents — both owners and renters — cannot afford to occupy the property in which they live, at current market prices.
    This creates a squeeze in which the marginal price deviates significantly from the long run equilibrium price.
    This creates bubbles and reduces welfare. It also creates the illusion that San Francisco is filled with extremely wealthy owners and renters paying $2000/month to rent a 1 bedroom unit or 1.5 Million to buy a 2 BR house. The reality is that most people in the city cannot afford to pay those prices, which means that the prices are far too high — the prices are false prices due to artificial restrictions on supply.
    In fact, ignoring dead weight losses to moving, the very best prices would be obtained in an environemnt in which everyone was forced to sell their property every 2 years and purchase a new one at the going market rate. And every renter was forced to relinquish their property and rent a new one at the going market rate every 2 years also. Obviously, we don’t really want that, but what we want are the property prices that would obtain if this is how people behaved. That is why high land taxes are at least a nudge in the right direction, to clear out those who are too poor to occupy their current homes, and increase supply so that house prices fall closer to the average affordability level. And for the same reason, we should eliminate or mitigate (e.g. 2 year cap) rent control to have the same amount of turn-over. Only then will prices fall so that the average person in san francisco can afford the shelter that they have.

  22. MOHCD refuse fund this community. Pressure to reelection Ed decide get. Tishman to support construction why. Out cry of not enough BMR in Tenderlion neighborhood. What ever
    shall be sale units. Or rentals besides T L needs. Gentrified area why urban decay.

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