© 2000 Tom Wetzel
Topics:
Causes of the Housing Affordability Crisis
The Dot-Com Influx
Displacing Employers
Why isn't enough housing being built?
Billions Needed for New Housing
Limited Equity Housing Co-ops
As rents have escalated to absurd levels and evictions roll through neighborhoods like the Mission, San Francisco's affordable housing crisis has reached epic proportions -- signalling a massive failure of the private and public sectors.
The median rent last year in S.F. was between $800 and $900 for occupied units. But that includes all the rent-controlled units. Rents for vacant one-bedroom apartments this year are rapidly approaching $2,000 in rental surveys.
So any person who is evicted or wants to move is faced with a doubling of their rent. Having to move thus means a personal crisis, and possible forced relocation out of the city.
From 1989 to 1998 rents in San Francisco increased 38% while the median income of renter households increased by 9.6% and median income of renter households with children increased only 6.3%. The government defines an affordable housing outlay as requiring no more than 30% of your income. Last year, 41% of renting households in S.F. were paying more than 30% of their income for housing. Since then, rents have risen another 29% in the city.
The Ellis Act, a law passed by the state legislature as an end run around rent control and other local tenant protections, permits a landlord to evict everyone in a building, to stop being a provider of rental housing. An Ellis Act eviction is often the first step in selling a building to a group of buyers for a Tenants-In-Common conversion. Ellis Act evictions in the Mission district alone went from 14 in 1995 to over 660 last year. Citywide 2,761 households were evicted between June 30, 1999 and June 30, 2000.
A key factor in the current crisis is the failure of the private sector to build a sufficient number of dwelling units to keep up with the growth in jobs located in San Francisco.
During the past decade about 10,000 dwelling units have been built. Most of these units have been expensive condo units, targeted at an upscale market. (See Let Them Live in Lofts.) The current median price of all houses and condos in the city is $475,000.
This 233-unit building across the street from the new Giants baseball
stadium is an example of the sort of housing that is being built.
Eikon Investments -- the same company that acquired
the Armory in the Mission district -- is selling 1,000-square foot condos in this building
for $700,000 to $1 million each. The upscale restaurant at left (MoMo's) is in a former
printing plant.
During this same period the city has added 80,000 residents. This growth in residents is a direct consequence of the huge growth in jobs in the high-tech sector in San Francisco. During the third quarter of 2000, $1.6 million in venture capital was pumped into high-tech or multi-media startups in San Francisco. Despite the dot-com shakeout, and layoffs at a number of startups, venture capital has been pouring into high-tech startups in the Bay Area at the rate of $6 billion per quarter over the past year. This doesn't include the growth of the more entrenched Internet-related firms that generate much of their capital internally. This is driving a regional growth in jobs at a time when inadequate housing construction is a state-wide problem in California.
So there is a huge mismatch between the growth in jobs and the lack of growth in housing. In recent years S.F. has only been building one new dwelling unit for every 6.5 new jobs.
If the current trend continues, it will only get worse. Mission Bay is projected to add 30,000 more jobs, mostly highly paid high tech jobs. Although Mission Bay will also build 6,000 dwelling units, that is only enough housing for about a third of the new employees. Most of the other 20,000 will also probably want to live in S.F. Where are they going to live?
Inadequate housing construction was already a problem in San Francisco before the current dot-com boom. During the decade of the 1980s the city lost 9,000 rental housing units to demolitions or condo or Tenant-in-Common (TIC) conversions. Between 1988 and 1996 the city built, on average, less than 1,200 dwelling units per year.
The pumping of hundreds of million a year of venture capital into high-tech companies in the city and the addition of tens of thousands of high paid positions to the city's job mix has greatly intensified the difficulty of finding affordable housing while adding a new problem of displacement of community-serving nonprofits and small businesses, blue collar businesses employing city residents, and even medical offices.
The job mix in the high-tech sector is weighted very heavily towards highly paid professional and management positions. For example about 75% of the employees in the high-tech sector have four-year or higher college degrees. This is more than twice the average of adult city residents as of 1990. One symptom of the dot-com boom is that the proportion of employed city residents who are professionals or managers has risen in the last decade from 35% to 40%.
The high salary levels mean that the high-tech workforce can outbid working class residents for residential space. Given the failure to adequately increase the housing supply to accommodate the new residents, what we've seen is an epidemic of Ellis Act and owner-move-in evictions. Landlords opportunistically take advantage of the strong upscale housing market to convert rental buildings to condos or tenant-in-common arrangements.
As a result of this, the supply of rental units in S.F. shrunk by 5,000 over the past decade, despite the addition of 80,000 new residents.
Working class tenants in San Francisco are thus being squeezed between two forces:
Part of the reason for the information-industry influx into the city is that a city location is a competitive advantage in attracting people to work for them.
A characteristic of the Internet-related or dot-com industry is that it is less tied down than traditional industry to constraints about location. It can be located any place that has good Internet connections.
Rapid growth in the high-tech sector has created a labor shortage, with firms competing for a limited pool of people with the credentials and experience they want. So one way of attracting employees is locating in an interesting urban place with a lot of cultural and other amenities rather than a sterile suburban office park where the nearest restaurant is a mile away.
Another effect of the high-tech invasion is the huge bidding war for commercial space. Presently $150 million a year in venture capital is pouring into high tech firms in San Francisco. Flush with cash, these firms can outbid other businesses, as well as non-profits and arts groups, for commercial space.
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This means that working people in S.F.
are seeing the companies they work for (or might work
for in the future)
driven out of business or forced to relocate
to sites in the suburban hinterland. So it's not just
that workers in the city can't afford to live here anymore,
many of them may have their jobs disappeared or relocated
out of the city. For example, on the street where I live in the Mission there was a sweater factory that employed about 30 people, mostly Asian and Latino men, mostly Mission residents. That firm was evicted so that the factory building where it was locate could be converted to high-tech office space. The S&C Ford auto repair facility at 17th and Rhode Island, a unionized shop with hundreds of employees, was forced out of its site for a high-tech office project. Another result of the Palo-Alto-ization of S.F. is that, as the proportion of working class residents and blue-collar industries in S.F. diminishes, the influence of the labor movement will be weakened. This will in turn leave the remaining unionized public employees and services workers in a weaker political position. Proposition L -- an initiative that is partly an outgrowth of the anti-gentrification movement in the Mission district -- is directed especially at stopping displacement of current tenants from commercial space (from local businesses to arts groups to nonprofits). The idea is to preserve the economic diversity of the city by reserving certain parts of the remaining industrial or commercial spaces for uses other than high-tech office space, and thus save other types of uses from displacement. | 
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But Proposition L does not address the fact that not enough new housing is being built to accommodate job growth.
Some people argue that the reason not enough new housing is being built is because strong city protections for renters discourages it. (See for example, Peter Byrne's article in SF Weekly, The Case for Ending Rent Control.) This cannot be the salient factor, though, because there are other urban areas of California that have a similar problem where the rent controls or renter protections are weaker than San Francisco. Los Angeles has much weaker rent protections than San Francisco but has a similar housing affordability crisis.
The housing affordability crisis is not limited to San Francisco:
One factor is that generations of unfettered land speculation here has bid up land prices to stratospheric levels. High costs make it difficult, if not impossible, for private for-profit developers to build housing in urban areas in California that is affordable to the average working person.
Another contributing factor to the high cost is the off-street parking requirements that virtually every jurisdiction in California has written into its zoning codes. This raises the per unit cost of construction and means that fewer units can be built on a building site. This is one of the ways that California's reliance upon the automobile contributes to lack of affordable housing.
While the private for-profit development industry is falling behind throughout California in providing affordable housing, the existing city funds for affordable housing are inadequate to build a sufficient number of new units. Just to replace the 5,000 rental units that were lost during the past decade would cost $1.15 billion, since the typical cost for a new unit of affordable housing in S.F. is about $230,000. To build the 20,000 new dwelling units needed just to make up for the Mission Bay shortfall would cost $4.6 billion.
This is why the city needs a "Billions for Affordable Housing" campaign as a follow-on to Proposition L.
The city needs to take land out of speculative bidding, to build community ownership, otherwise it won't be able to ensure affordability. A number of cities in Asia and Europe have adopted the approach of buying up city land to minimize speculative runups in price. (See Learning from Vienna.) Stockholm, for example, bought up 70% of its terrain and built numerous transit villages around rapid transit stations.
This need not mean going back to the type of public housing projects built in American cities in the '50s and '60s, however. The problem with traditional American public housing was that it was a program targeted only for the poor, and managed by an indifferent and paternalistic bureaucracy. Concentrating poor people in a poverty ghetto is just asking for trouble.
A broad range of incomes are affected by the current housing affordability crisis. This suggests that the aim should be the development of mixed-income housing developments.
The city need not actually manage any housing built this way. It can simply provide the funding, and acquire both existing apartment buildings as well as underutilized parcels where new apartments could be built. Tom Ammiano's proposal of a city income tax should be revisited as a possible way to finance a program of this kind.
There are a number of underutilized parcels already owned by the city that could be used for mixed use mixed income housing developments. An example in the Mission district is the large, underutilized parking lot at 17th and Folsom, shown below.
City-owned parking lot at 17th and Folsom.
There are a number of possibilities for controlling the work of design and management of such developments. Much of the affordable housing that has been built in San Francisco has been the work of the non-profit housing developers like Mission Housing, which rely on public funds.
This mixed use structure at 16th and Valencia, built by Mission
Housing, is an example of structures built by non-profit housing
developers. This structure was built on the ruins of a residence
hotel that was destroyed in 1975 by an
arson fire in which a number of tenants died.
Another option is the development of limited equity housing cooperatives. The idea here is that the land would be provided at below-market-rate to housing cooperatives, on condition that they are structured to prevent further real estate speculation. At the same time, the residents would get the benefit of control over their own space which goes with ownership.
An example is the Route 2 Co-op in Los Angeles, which was built on land originally acquired by Caltrans in the early '60s for the Glendale Freeway. This included 90 apartment buildings and over 120 houses in an area of central Los Angeles. When the freeway was cancelled by Governor Jerry Brown in the '70s, the former homeowners demanded their houses back. However, the speculative runup in real estate prices during the decade of Caltrains ownership made it difficult for some of them to buy at market prices. Moreover, many of the renters also wanted to stay.
The resulting agreement provided the land at a below market price to a co-op that included both the former homeowners and the apartment dwellers. Because of the public subsidy, each member can only sell their house or apartment back to the coop if they leave. The amount of real estate appreciation that would go to the departing member in such coops can vary, depending on the arrangement with the government entity that provided the original subsidy as well as agreement among the members.
Whatever institutional arrangement is deemed best for an affordable housing program, the bottom line is that the city itself has to take responsibility for ensuring that the needed supply of affordable housing is available.
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