The 2000s TV show reboots and low-rise jeans aren’t the only things that made a comeback this year. So has key San Francisco affordable-housing policy. 

Recently, multiple projects requesting last-minute changes in their affordable housing agreement spurred the Board of Supervisors to fix the city’s planning code. Front and center was the 2002 Inclusionary Affordable Housing Program, an ordinance that commanded market-rate developers to contribute to the city’s affordable-housing stock.

That ordinance, which has been revised several times since 2002, says developments with 10 units or more must provide affordable housing by including it on-site, paying a fee to an affordable housing fund, building units off-site, or dedicating land.

“To my mind, way too many folks avail themselves to the in-lieu and not on-site,” said District 3 Supervisor Aaron Peskin at an Oct. 25 Board of Supervisors commission meeting. “Maybe it’s time to say goodbye to in-lieu payments.” 

Echoing him was District 5 Supervisor Dean Preston. 

It’s an innocuous suggestion that may seem offhanded, but the debate over whether on-site or in-lieu housing benefits the city more is one that has deep roots in San Francisco’s affordable housing history. Changing the ordinance could affect the way affordable housing is built for years to come. And it would be a retroactive fix, going back to the original intent of the ordinance.

So, why keep affordable housing exclusively on-site? One main point Peskin posited, and one that the original designers of the ordinance argued, is that doing so physically integrates San Franciscans of differing income levels. That’s a central tenet of the 2002 ordinance. Paying fees, Peskin said, fails to meet “our fundamental policy goal of having diverse income strata on-site.”

Given these recent discussions, it’s worth having a refresher on why the inclusionary housing ordinance was created in the first place. 

The North Star of housing policy 

Few know that history better than Mark Leno, a former supe and state legislator, author of the 2002 ordinance and the runner-up in the 2018 special mayoral election. (He lost to Mayor London Breed by less than 3,000 votes.)

“We were in a housing crisis, not unlike today,” Leno said of the early-2000s housing boom that widened the city’s economic divide.

The boom maintained segregation and inequality, argued Peter Cohen, whose group, the Council of Community Housing Organizations, helped advise the 2002 legislation. “The traditional program had been all market-rate development and 100 percent affordable,” Cohen recalled. That left room for “very little mixing.”

Aware of the problems, Leno and others created legislation aimed to offset market-rate construction by requiring developers to also contribute to affordable housing construction. “Without any requirement, no one is going to do it,” Leno said. 

The big idea at the time was that any project with at least 10 units must reserve roughly 10 percent of the building’s units at below-market prices in the same building, or on-site. That percentage has increased in recent years, to between 12 and 20 percent, depending on the size of the project.

But this novel program was risky. The city attorney expressed concern that, without other options, the city was vulnerable to legal challenges. (Presciently, so; a similar program in Southern California confronted some of those challenges, seven years later. More on that in a moment.)

One workaround was adding other options besides on-site affordable housing. So, Leno and other housing experts and advocates said developers could check off their affordable-housing requirements by constructing off-site units, or paying a fee earmarked for future affordable housing development. Boom! The 2002 Inclusionary Affordable Housing Program was born. 

Still, Leno and his co-authors put those options there solely as legal protection, he said. He argued the first option, on-site housing, yielded affordable units faster, since they went up at the same time as market-rate units. That was needed in a housing shortage, and the 2002 legislation motivated developers to choose that option. 

And, it addressed social harmony. “The intent of the legislation is ‘inclusionary,’” Leno said. “It’s beneficial to integrate people from different walks of life. There are social positives to that.”

He thus embedded an incentive for on-site development in the ordinance, hoping to encourage developers to choose that instead.

The swap

It worked. From fiscal years 2002 to 2009, 113 projects, nearly three-quarters of all projects in San Francisco, built the affordable units on-site. A quarter paid the fee.

Then came 2009 and a legal challenge from a developer against the city of Los Angeles; the court ruled that enforcing inclusionary housing policy violated the formidable state Costa-Hawkins Rental Housing Act. That decision threatened affordable on-site units until 2017, when Gov. Jerry Brown passed legislation restoring the right to mandate on-site housing. 

But in 2009, before Brown’s legislation, a Planning Department planner recalled, the ordinance was revised to cover the city’s butt. From then on until today, the in-lieu fee option became the default option to fulfill inclusionary requirements. Options to build on-site or off-site still remained, but became the “alternatives.”

The incentive to choose fees grew after the city agreed developers could defer payments. Although the sample size is smaller, during the fiscal year 2010-11, the majority of projects paid the fee, or 55 percent of projects, according to a 2012 performance audit report. By comparison, 27 percent of projects built on-site affordable housing. Some 16 percent chose both.

That report found that the 2010 ordinance changes slowed down housing construction by at least a year. In some cases, since that report, delays have extended years longer. But what about segregation, another key tenet of the ordinance? How has the shift to off-site and 100-percent-affordable buildings potentially impacted the intent to use inclusionary housing as a way to encourage social and economic integration?

Let’s flash forward. 

The modern age

San Francisco has been highly segregated since the 1980s, according to a study from the University of California, Berkeley, and remains so now. As study co-author Samir Gambhir notes, segregation could portend more inequalities in the future. Historically, segregation of racial minorities or low-income communities is linked to numerous inequalities, including redlining, lack of access to educational opportunities and gerrymandering. Priced-out residents also get displaced or move out. 

Some of those decisions set marginalized groups back for generations, and they’re still behind now. Remember who got hit hardest in the pandemic? In the Mission, overwhelming case rates partially derived from overcrowding — a symptom of a lack of adequate and affordable housing. 

Historically underserved areas, such as Treasure Island, still face disproportionate and numerous power outages today; Bayview Hunters Point residents confront health issues possibly caused by its proximity to a formerly toxic site. 

Ideals like equalizing wealth-building for people of color and working class folks, for example, are tied to homeownership. This too, has been affected by exclusionary policies.  

So how does development play a role? 

The in-lieu fee did not cause segregation. Does it reinforce it, though, by allowing affordable housing to be built in places a mile away from the original market-rate development? On-site housing doesn’t necessarily fix the city’s segregated communities, either. But according to Cohen, its design to offer integration in the same building starts to undo that harm.

Leno agreed; by sharing the same facilities, “we have a concern for each other’s issues, and that your well-being translates to my well-being, and my hardship translates to your hardship,” Leno said. 

John Elberling, head of housing developer TODCO, has lived rent-free in an affordable building for 25 years now which, as the Chronicle wrote, incited conversations between him and residents and “informed his political investments.” 

Supporters of the in-lieu fee argue that integration can be achieved by spreading 100-percent-affordable housing throughout the city. But over the 20 years of the city’s inclusionary housing ordinance, that has hardly happened. 

The vast majority of affordable rental housing projects completed between 2016 and 2018 (the last year available) are located in District 6 and 9, which encompass underserved areas like the Mission or SoMa. In recent years, eight fully affordable projects located in the Mission got approved.

Meanwhile, the Sunset nearly exploded at the thought of its first yes, first — 100-percent-affordable housing development this year, in part because units would be saved for formerly homeless residents. Some even painted it as “a harbinger of drug-filled destruction for the neighborhood,” according to the Examiner. And the Sunset isn’t alone in this.

Affordable housing developers argue that the community spaces on the ground floors of fully affordable units encourages mixing more than merely slapping an affordable floor on a market-rate building. Maybe so, if it truly attracts a cross-section of society; I enjoyed Día de los Muertos at Asociación Mayab on the ground floor of Avanza 490 and met new people. It depends on the situation.  

Still, time matters significantly. What, and who, will the city lose the longer we wait to make San Francisco equal and accessible? Already, thousands of Latinxs have been displaced from the Mission in the past decade.

Affordable housing plays a role in solving this. Undoubtedly, on-site does so faster.  

“It’s expensive to build, and the more we can build up front” we should, said Peskin’s chief of staff Sunny Angulo.

“In-lieu fees are great, but often they just sit in a pot of money that just waits for a full and complete project to be proposed,” Angulo said. She highlighted 101 Hyde St., a plot of donated land for affordable housing that faced significant delays and struggles with financing. 

On-site integration may also bridge differing ideas about how to address community issues and policies. It’s not yesteryear but today that our nation is staunchly divided. Part of that is because “we don’t know each other,” Leno said.  

“Those on the higher rungs have fewer opportunities or circumstances to ever cross paths with someone who is at their social strata. And that makes all of us that much more insensitive to the humanity of those in our communities.”

Housekeeping: What you missed and what I’m reading

From us, to you, with love:

Will Jarrett created a Mission history quiz and map showing fire increases, and Joe Eskenazi uncovered alleged building corruption ties to Paul Pelosi Jr. 

What I’m reading:

The supplementals for this included J.K. Dineen’s fabulous, even-handed profile of John Elberling, who was caught in the crosshairs over the 469 Stevenson St. project. And Noah Arroyo is always on it when it comes to well-researched tenant protection news; this time, stronger protections are in mind.  

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REPORTER. Annika Hom is our inequality reporter through our partnership with Report for America. Annika was born and raised in the Bay Area. She previously interned at SF Weekly and the Boston Globe where she focused on local news and immigration. She is a proud Chinese and Filipina American. She has a twin brother that (contrary to soap opera tropes) is not evil.

Follow her on Twitter at @AnnikaHom.

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  1. Integration has long been a goal for national institutions that seek to create unity of common identity among the American public as t means of unity and nation building. The term “melting pot” was constructed to normalize integration. But it’s never been a popular among the public. Mostly, integration has been considered a zero sum game with winners and losers. Now, multiculturism has replaced the term segregation, but it amounts to the same thing. Seeking exclusive ethnically identified enclaves to concentrate political power.

    The majority White establishment is on the bandwagon too, asserting WASP culture needs to be publicly preserved as much as any other. In reaction to that, a new term POC has come about to exclude White from multiculturism. But that’s exposed a conundrum of exactly who are POC(Arabs, East Indians, Portuguese, Chinese??).

    Essentially the whole exercise is a tortured way to avoid divisio by economic class that’s popularly equated to Communism. Regardless of any social construct, anti-Communism remains the enduring and universally beloved unifying meme in America.

  2. The big issue with on-site inclusionary units in market rate buildings is that they are ticking time bombs. After a few decades the affordability restrictions expire, at which point the owner is free to raise the rents to whatever they believe the market will bare. The affordability restrictions are written into the deeds of individual properties, which means that that any future legislation that tries to fix this by extending the duration of affordability restrictions would not apply retroactively. Rent control would offer any protection because it does not apply to buildings built after 1979. The kinds of large scale institutional investors which invest in larger market rate housing complexes, like pension funds and Wall Street REIT’s, know this. They tend to evaluate investments on longer terms and view the expiration of inclusionary affordability restrictions as a big windfall that they can count at a later point, or even sooner depending upon how old a building may be. A scenario like this recently occurred with a large apartment complex that was built in the 1980’s on the Peninsula, Foster’s Landing Apartments, in Foster City. The building was purchased by Essex Property Trust in 2014, a publicly traded REIT, 6 years before the affordability restrictions on the inclusionary units expired. The FC City Council ended up voting to allocate direct rental assistance to keep a bunch of tenants from ending up on the streets. I don’t believe SF’s inclusionary ordinance is old enough where any of the on-site units are at risk of expiring in the immediate future, but it may be a situation that the city ends up dealing with sooner or later.

    100% affordable buildings subsidized by in-lieu fees are almost always developed by non-profit sponsors who are dedicated to keeping their buildings affordable, even in the absence of affordability restrictions. What’s more is that that projects financed by in-lieu fees are usually layered with other forms public funds that allow the owners to offer the units at deeper affordability levels, with more regulatory safeguards in place for keeping the units affordable over longer periods of time. For example, in almost new 100% affordable housing buildings subsidized by the City, the City retains ownership of the land and enters into a 99 year ground lease with the non-profit sponsor. The ground lease includes all kinds of restrictions about how the building can be operated, including affordability restrictions. If the owner of such a building wishes to refinance, which tends to happen after 15 or so years, then they must receive the permission of the City, which will often require an extension of the affordability restrictions as a condition of being allowed to refinance.

  3. I’d always thought that one way to do integration in new housing would be for the City to require that height bonuses were predicated upon the City having the right of refusal to invest in half of the project at construction time, at construction costs.

    This would probably be much cheaper than the nonprofit Rube Goldberg financing assembly and construction machine. This is also a way to get 1:1 and integration from the market with public investment in permanently affordable units.

  4. “slapping an affordable floor on a market rate building”
    Exactly.
    Thank you for pointing this out.
    Within large tower complexes you may find something derisively referred to as “the section 8 floor”. Usually this is the floor with the least appealing units. Crossing paths with someone who is of a different social strata happens only in the elevator.

    Obviously the solution is to randomly distribute affordable units within the building with some type of mechanism so everybody has an equal shot at the more desirable units.

    The in-lieu fee is just a payoff or cost of doing business for big developers.
    Although grateful for any affordable units The City has been able to build, as this article accurately states – “San Francisco has been highly segregated since the 1980s”.
    And it might not be inaccurate to surmise segregation is getting more and more extreme.

    100% affordable, on the unintended consequences flip side, just adds to the distinct division of races/classes. A pitiful continuation of San Francisco’s long history of isolating the socially and economically disadvantaged.

    Great article – thank you.

    1. My understanding is that SF’s inclusionary ordinance requires a random selection of affordable units throughout the building, no poor doors, no cherry picking.

  5. The purpose of inclusionary affordable housing was to buy off opposition by the “progressive” affordable housing nonprofits at CCHO to market racist housing by offering them skin in the game.

    At this point, CCHO prefers the in-lieu fee because that is the rock of crack in their pipes that hits so much better than the mannitol debased powder cocaine of on-site because CCHO affiliates get to spend the money to keep their money train operations flush.

    Inclusionary was a dimes on the dollar mistake, as SF residents share no interests with developers, for- or non-profit.

    San Francisco should simply set infrastructure goals, housing, transit, open space, etc. that have to be met in order for new residential projects to be approved.

    Could anyone imagine what would have happened with the Central Subway or BRT lines if developers had to wait for completion to get their approvals?

    This puts the onus squarely on the developers to do the heavy lift to ensure that the infrastructure they refuse to pay for gets built to service those greater residential densities.

  6. Thanks Anika – this is a great follow up to your article from a week or so ago, appreciate the history and details!