[Originally published by Market Urbanism]
[Editor’s note: Scott posted this on his blog BigCitySparkplug.com in the Fall of 2012, following a San Francisco ballot measure. In the 3.5 years since, the city’s housing prices have further increased, while the underlying causes described in the article remain unaddressed.]
San Francisco, CA–Among the propositions passed in San Francisco on Tuesday, ranging from the practical (consolidating elections), to the symbolic (condemning the U.S. Supreme Court’s stance on corporate personhood), was one backed by both the city’s moderates and its progressives: Proposition C. This measure, which passed on a nearly two-thirds vote, will create an affordable housing trust fund. The trust will both give down payment assistance to homeowners, and fund construction of nearly 35,000 affordable units. Many units will be built by private developers, who will have their city-imposed affordability mandates reduced as a way to encourage construction.
But the trust fund will come at a price. It will get an upfront payment of $20 million, and receive an annual sum that grows from this figure by a few million each year, meaning the annual sum should reach $50 million by 2024. Such payments will extend for three decades, until the trust’s overall value reaches $1.5 billion. The money will come from the city’s general fund, mainly via property and hotel taxes. Meanwhile, the regulations that make San Francisco’s housing so unaffordable—and that make expensive, taxpayer-subsidized trusts like this necessary—will escape reform.
One of these barriers is the city’s rent control laws, which freeze prices for units built before 1979. This has burdened landlords who have to compete against those charging market rates, and caused the proliferation of under-maintained housing. It has also prevented new construction, since tenants living in these units cannot be removed, thereby delaying the wrecking ball on many buildings.
Another barrier is excessive tenants’ rights laws. If landlords wish to evict a tenant on “just cause”—a.k.a. bad behavior—they must issue multiple notices and endure lengthy litigation. If they wish to evict them on “no-fault causes,” they must pay thousands in relocation fees, and can do this only if planning to move into the apartment themselves. Such policies have spiked landlords’ business costs, which ultimately get passed down to tenants. And again, the lack of tenant turnover prevents property owners from demolishing older buildings and replacing them with new, higher-density uses.
A third barrier is the aforementioned affordability mandates on developers. If Proposition C got one thing right, it was recognizing that by decreasing such mandates, the city would actually increase the number of affordable units, since the relaxed standards would encourage builders to build. But this line of thinking hasn’t been pursued to its logical conclusion; instead, city development policy remains dominated by inclusionary zoning set-asides. For example, if developers build something with 10 or more units, they must ensure that 12% of them are affordable. These regulations have been found to discourage construction, and make market-rate housing more expensive.
However the biggest problem with San Francisco’s housing policy is that officials and citizens alike are hostile to new buildings, especially tall ones, even when they are built in appropriate locations. The most recent example is 8 Washington, a residential project proposed in the financial district. The lot where the building would go is now dominated by tennis courts, which are well below scale in comparison to the surrounding high-rises. The lot’s zoning allows for buildings, also below scale, of 84 feet. The developers wanted to increase this to 136 feet, and after much wrangling, got approval from city hall. But in response, a neighborhood group organized a petition, and now the rezoning will go up for vote next November. [8 Washington’s developers lost that vote, and by 2016, have yet to get the project approved.]
One criticism of the project is that its units are not affordable. But it will still add to the city’s overall number, curbing the demands that wealthy residents would otherwise put on housing in surrounding neighborhoods. The project has nonetheless been resisted by advocates of the poor, who believe that by preventing new expensive housing, they will magically keep prices down for the older stock.
What all this implies about San Francisco is that the city, because of its political leanings, mistrusts the private sector. If housing there is unaffordable, residents blame it on “the market,” and respond by endorsing anti-market policies like price controls, supply caps, strict tenant-landlord regulations and subsidies. Then when San Francisco’s housing becomes even more expensive–it now has America’s highest rents–they just double down on these same policies. The latest such policy will cost taxpayers a whopping $1.5 billion over the next few decades.