SF Voters Approved Big Money for ‘Social’ Housing. Officials First Have to Squabble Over It
A higher tax on real estate is raising millions of dollars. It’s not going to solve our affordability crisis.
In the thick of San Francisco’s housing crisis, a recent tax increase is raising cash meant to build more housing. But the distance between the spirit and the letter of the measure behind the tax has put it at the center of City Hall’s feckless politics about growth.
November 2020’s Proposition I, supported by 57.5 percent of voters, doubled the transfer tax for real estate sales over $10 million. High-end property owners in San Francisco are now paying some of the highest taxes compared with other California cities, with the windfall generating an estimated $171 million a year.
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The idea of the measure, led by Sup. Dean Preston, was for the proceeds to create affordable homes and to prevent evictions. That notion, which animated the Prop I campaign, has its limits. The Breed administration has ignored Prop I supporters and rebuffed their spending proposals. Thanks to the notorious Prop 13 from 1978, Breed has the legal right to determine how the money is spent, and right now, it’s going into SF’s general fund, which can be used at her administration’s discretion.
Now that the Prop I coffers are swelling, Preston and a coalition of affordable housing advocates are redoubling their political pressure. An entity known as the Housing Stability Fund Oversight Board, appointed by the Board of Supervisors to monitor Prop I funds, recently sent a series of spending recommendations to the mayor.
So what exactly is social housing?
The Prop I campaign was organized under the banner of what Preston and allies call “social housing,” which seeks to distinguish itself from negative associations people have about government-funded housing. (There’s a grain of truth to them: SF’s public housing authority has been in trouble for decades.) At its heart, social housing is affordable housing. For instance, the oversight board would like to encourage government-funded cooperatives (such as this one) to give residents a chance to buy and sell their homes at affordable rates.
SF desperately needs more homes, especially affordable ones. In the last eight years, the city produced roughly half the affordable units that state lawmakers had mandated. Now, the future is even more grim. SF is currently planning how to respond to the state’s new mandates, which require the city to produce more than twice as much affordable housing as previous years.
What’s more, most residential growth in the past two decades has occurred in SF’s eastern neighborhoods. The foremost recommendation from the oversight board is a strategy to build affordable housing in wealthy parts of the city’s west side, where a history of racial exclusion has led to single-family zoning restrictions.
Instead of waiting for existing properties to go on the market, which is more likely to happen in the denser eastern areas of the city, the oversight board wants to push $60 million of the annual Prop I revenue toward land purchases in wealthier neighborhoods, with the goal of developing affordable housing. It’s a novel approach to what planning officials call “geographic equity.”
The problem is $60 million doesn’t get you very far around here. While costs vary from one neighborhood to the next, the Mayor’s Office on Housing and Community Development (MOHCD) estimates that this would be enough for about 600 units. Many neighborhoods remain low-rise by design; even with proposed zoning reforms, the amount of homes allowed per lot would not be substantial.
After land acquisition, of course, there’s construction. The oversight board’s recommendation allocates just $27 million to build, which on its own would produce about 45 1,000-square-foot units, according to MOHCD. The city could boost that yield with state and federal tax credits — which are a key component of affordable housing construction — but Lydia Ely, the deputy director of MOHCD, noted that some of the Prop I recommendations would make affordable projects ineligible for state or federal dollars. (Ely is a member of the oversight board.)
A house divided
At first glance, the new recommendations seem to create more conflict. After all, the mayor dismissed previous Prop I recommendations from Preston and his colleagues on the board. Last November, they voted 8–3 to move $64 million to the city’s Small Sites Program, which purchases apartment buildings to prevent the eviction of tenants. Breed balked at the request. In a letter to the board, she criticized Small Sites for not spending money it already has on hand, and she argued that rehabilitating existing affordable housing was a higher priority.
Small Sites is indeed beset with problems. Backing the mayor, Sup. Myrna Melgar described more funds for the program as “putting the cart before the horse.” Kyle Smeallie, a legislative aide for Preston, remains frustrated about the mayor’s refusal: “The idea that we wouldn’t keep funding [Small Sites] because we need updates is absurd,” he tells The Frisc. (Breed eventually added $10 million to the program and promised reforms.)
The Small Sites fight, and Prop I more broadly, is part of an ongoing rumble between the mayor and board. Since she took the high office in 2019 with a pro-housing agenda, Breed has been unsparing when supervisors have blocked or delayed new homes. Her November letter was a typical example: “Meanwhile, the Board of Supervisors has repeatedly been an obstacle to adding much-needed housing stock, from delaying or rejecting new projects on infill or parking lots, to voting down systemic reforms that streamline 100 percent affordable and teacher housing projects.”
The mayor’s point is that projects like 469 Stevenson — the parking lot she’s referring to in the letter — already generate affordable housing through what’s known as the “inclusionary” model, where market-rate projects add affordable units to their buildings or opt out by paying a fee. At 469 Stevenson, supervisors kneecapped a proposal to transform a Nordstrom valet lot in SoMa into 495 homes, including 120 affordable units. They argued that potential gentrification outweighed the benefit of all these new homes. (The Frisc examined one supervisor’s rationale for voting no and found it flawed.)
But supervisors are also reluctant to speed up projects that meet an even higher affordable bar, which is why Breed’s letter expressed frustration about “systemic reforms.” Her latest streamlining plan, Affordable Homes Now, would expedite approval of projects that meet certain density and affordability requirements. It died in committee earlier this year, and will head to the November ballot if it gathers enough signatures. (Smeallie, Preston’s aide, says the supervisor is concerned that Affordable Homes Now allows wealthier people to qualify for affordable housing.)
Breed’s office did not respond to a request for comment.
Room with a view for compromise
As is common in San Francisco, what we get when one side blames the other for lack of progress is stasis.
Some of the new Prop I recommendations from Preston and the oversight board aim to sway Breed at last. At a May 4 hearing, housing advocates reiterated their goal of creating “100 percent educator housing,” which is also one of the mayor’s talking points.
In Breed’s rebuttal letter last year, she wanted to prioritize renovation of older housing. Now the Prop I proposal suggests $10 million for upgrades, such as new elevators and safety enhancements. Those recommendations might sit well across City Hall after an SF Chronicle investigation exposed the disrepair and dysfunction behind the city’s single-room occupancy hotels.
The most likely scenario is a compromise, where the mayor accepts some recommendations and ignores the rest. All the Prop I dollars — $171 million a year through 2026, according to the city controller’s estimate –- would certainly increase the city’s annual affordable housing budget. But with the California attorney general on the prowl for cities that shirk their housing mandates, SF will need to spend far more than Prop I’s bounty. For affordable housing alone, the number is north of $1.5 billion per year, according to the SF Planning Department.
In the face of that figure, every dollar certainly helps. The city’s inclusionary system is prone to economic vicissitudes, and another downturn could be coming. The mayor argues that the supervisors have created a catch-22: They reject housing developments like 469 Stevenson, which would generate affordable units, while at the same time they decry the dearth of alternate funding for affordable housing, like bond money and Prop I’s tax hike.
Long-term, some supervisors would love to stop relying on market-rate projects to add to the affordable stock — with, say, an overhaul of California’s Prop 13, or a massive federal program that backs next-generation social housing. But until we get there, if ever, the mayor and the Board of Supervisors will keep bickering about why we’re in a housing crisis.
Broad agreement and a future-focused vision over Prop I funds would be a good thing for our city, but those dollars are essentially worthless if it takes years of infighting to spend them.
Adam Echelman covers housing and development for The Frisc.
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