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Why Is It So Difficult To Build Affordable Housing In The Bay Area?

With 100,000 jobs created in the last six years within San Francisco, a need for housing at multiple income levels has become pressing. More than 7,000 affordable housing units began construction during this time, but the need for more housing continues.


"Demand far outstrips supply," said Matt Naish, Walker & Dunlop multifamily finance group senior vice president. "The problem continues to deepen and worsen. The number of low-income renters is growing a lot faster than the number of affordable housing units coming online."

For 2017, there are 2,262 affordable housing units in the pipeline spanning 38 projects, according to the Mayor’s Office of Housing and Community Development. Through 2021, an estimated 2,403 are expected to begin construction. Another 2,550 units are expected at some point, but start dates have yet to be determined. These projects may not be enough to meet the need.

recent report by the U.S. Department of Housing and Urban Development said families living in San Francisco and in the Peninsula earning $105K are now considered low-income. This revision means more people will qualify for various forms of affordable housing, increasing demand. The median income for San Mateo and San Francisco counties is $115K.

With significant deliveries of all kinds of multifamily housing in 2017 into 2018, Bay Area rents actually went down earlier this year, but are still among the highest. Rents are about $3,343/month, 43% higher than in 2008, according to Paragon Real Estate Group. Average rents hit the $3K mark in 2014.

Rendering of Bridge Housing's 1101 Connecticut, which will add 72 units of affordable housing by summer 2018.

A growing discussion is the need for workforce housing. Depending on the area in San Francisco, people who make more than 80% of the area median income still have a very hard time finding an affordable place to live, according to Naish. In addition, low-income populations each have different needs and require unique housing options.

“What a low-income senior needs in terms of housing and services is different from what a homeless person needs or what a low-income person with disabilities needs,” he said.

There has been a bigger push to bring more affordable housing into the Mission District and roughly 700 units have been proposed, most of which target low-income families. Forge Land Co. plans to add prefabricated workforce housing to the Tenderloin, and Bridge Housing is working on an affordable housing complex in Potrero Hill. Bridge Housing has about a dozen affordable housing complexes in San Francisco, many of which focus on low-income seniors.

Another issue impacting supply of affordable housing is a lack of capital. The Low Income Housing Tax Credit funds about 90% of all affordable housing projects.

“While LIHTC is a very important piece of the puzzle, it isn’t sufficient,” Naish said. “You need other sources of capital."

He said there is a need for more public-private partnerships between cities, counties, the state and private institutions that contribute funds to help fill the gap.

Rendering of UrbanCore's planned Coliseum Transit Village

Naish said cities have not invested sufficiently in affordable housing, especially due to stiff competition within budgets. Cities and counties have not done enough or put enough resources into solving the affordable housing problem, he said.

Oakland has been making significant strides and has been using local and state funding opportunities to help fund projects with affordable housing units. Oakland has about a half dozen projects, including Coliseum Transit Village, with more than 700 mixed-income housing units in the pipeline. Sunnyvale recently added additional funding for a renovation project at a low-income senior housing building.

Additional federal sources of funding also are needed. While project-based Section 8 housing has helped meet the need for affordable housing, it is a declining subsidy. Typically, this subsidy can only be used at properties already contracted as project-based Section 8. If an owner decides to opt out of the contract or sell their property, the subsidy is lost forever.

Capital sources and landlords need better incentives to create and maintain affordable housing. Large banks participating in LIHTC, such as Bank of America, Wells Fargo, Citibank and regional banks, such as Union Bank and US Bank, often do so because it helps them meet their Community Reinvestment Act obligations, which requires banks to make investments in the communities they serve.

The tech sector also should be playing a part in solving this issue, Naish said. Tech companies have significant balance sheets and cash on hand and want to invest in their communities. If tech companies buy tax credits, they can get a return on their investment while also making a social purpose investment, according to Naish. While some tech companies have invested in LIHTCs and workforce housing, it is only one piece of the puzzle.

Walker & Dunlop senior vice president Matt Naish with his aunt, Annie Wood, and daughter Anisa (back left) and niece Annie Pon (back right).

Inclusionary zoning requirements should be expanded and more flexibility allowed in trading, buyouts, developer incentives and affordability targets, among others, Naish said. After San Francisco’s affordable housing requirement increased to 25%, many developers said projects were not penciling anymore, but Naish said the dialogue needs to stay open between developers and the public. What often happens is there is not enough collaboration, making long-term solutions elusive.

“Clearly there is a lot of development happening,” Naish said. “Inclusionary zoning has not stalled development. With that said, some proposed developments have failed because they were not feasible or they couldn’t otherwise meet inclusionary requirements.”

Reducing regulatory hurdles both in construction and the preservation and rehabilitation of existing affordable housing is needed, Naish said. What can also help is more streamlined project review and permitting and creating more flexible parking requirements. Refined regulatory requirements associated with public sources of capital also can help, so that application, allocation and ongoing reporting is efficient, he said.

“Through the deepening of public and private engagement, regulatory barriers can be reduced, capital sources can expand, smarter programs/policies can be developed, and we will better meet our affordable housing needs,” Naish said.

Walker & Dunlop works with various affordable housing developers to help preserve, construct and recapitalize affordable housing. The firm is one of the largest non-bank lenders in the industry. It provides access to various capital sources such as Fannie Mae and Freddie Mac and Federal Housing Administration and a variety of debt sources.

Find out more about the challenges and opportunities for multifamily and affordable housing at Bisnow's upcoming San Francisco Construction & Development event June 7.