Building and operating European-style social-housing projects in San Francisco “could be financially sustainable,” concluded a city report published on Monday — a win for progressives who have long prioritized targeted affordable housing to fight the city’s housing crisis.
But its construction would be difficult, if not impossible, without low-interest loans provided to the city, the report found, because bank interest rates are too high. A San Francisco “public bank,” owned and operated by the city, could issue low-interest loans, but its establishment is likely years away.
Social housing, as defined in the city’s administrative code, is any housing project owned by the city, a nonprofit, or the residents themselves, with agreements in place aimed at “ensuring permanent affordability.” The projects would house tenants with a range of incomes that would average no more than 80 percent of the surrounding area’s median income.
In San Francisco, that’s $83,900 for a single-person household, or $119,900 for a family of four.
Social housing would be distinct from the city’s current stock of affordable housing, which is almost entirely nonprofit-run. Nonprofit affordable-housing projects also have a mix of incomes, but tend to be built for low- and very-low-income tenants.
Social housing, by contrast, would have a wider range of incomes, and could be owned by the city itself, with rents paying for upkeep.
Such housing could “fill gaps” in San Francisco’s current affordable-housing portfolio by creating more middle-income and family units, the report found, which are hard for nonprofits to finance, given state and federal funding restrictions. Such housing could also avoid “segregating low-income households in separate buildings or separate neighborhoods,” the report found.
Written by the nonpartisan San Francisco Budget and Legislative Analyst and commissioned by outgoing Supervisor Dean Preston, the "Financial Feasibility of Social Housing in San Francisco" report comes as San Francisco is woefully behind in its state mandate to approve 82,000 units by 2031. Of those, 46,000 must be affordable to moderate- and low-income residents.
Preston, for his part, noted that social housing could play a role in meeting those goals, particularly “at a time when the private market has largely stalled, and federal and state funding for affordable housing is severely limited.” Private housing construction is, currently, unable to meet the goal: Construction has declined every year since the pandemic as investors seek higher returns elsewhere.
The economic downturn, Preston added in a statement, “has also created significant opportunities for site acquisitions at lower prices.”
The report included important caveats: It found that “mixed-income social housing developments” are feasible, provided the “the right combination of financing, construction and operating costs, rental income, and investments, or subsidies.”
Namely, that means low interest rates: The city would need to obtain loans with interest rates far below those offered by banks for social housing developments to make financial sense.
The report studied six different scenarios, changing tenants’ income levels, per-unit development costs, city subsidies, and other parameters to find the winning mix. In each scenario, tenants paid 25 percent of their incomes towards rent. Those rents would cover operating costs for the buildings.
In all the feasible scenarios, the city also provided millions of dollars in up-front costs to start construction — between $430,000 to $1.3 million per unit — or other subsidies.
Importantly, in all of the feasible scenarios, loans taken out by the city had interest rates between 1 and 3 percent, far lower than the 8 percent offered by banks. At today’s bank interest rates, rents from social-housing buildings would not be enough to cover the debt on funds borrowed by the city, the report found, at least not without changes like including higher-income tenants.
A public bank, or “other low-interest loan programs,” could provide the needed financing, the report found. San Francisco has, since 2022, studied the creation of a such a bank, which would hold public money and reinvest profits into various efforts, like social housing loans. The push for a public bank has been in part led by incoming District 9 Supervisor Jackie Fielder, and last year the Board of Supervisors approved a plan to begin creating one.
But that is years away at best. San Francisco must jump over a number of state and federal hurdles: Creating a “municipal financial corporation,” operating it successfully for several years, and finally winning federal approval. A San Francisco public bank could become operational in 2028 at the earliest, according to a 2022 presentation commissioned by the city.
The only other public bank in the country is the Bank of North Dakota, which was established in 1919 and has a low-interest loan program.
Also critical for social housing in San Francisco: Development and operation costs have increased by double digits since the pandemic. In a scenario using 2024 construction costs, the social housing project had “fewer very-low and low-income households, and more above-median income households” to make the project “financially sustainable.”
San Francisco has an official policy to fund social housing, after the Board of Supervisors unanimously passed a resolution proclaiming as much in 2020. Mayor London Breed returned the legislation unsigned, indicating she opposed it.
The city has also generated hundreds of millions of dollars that could be put towards social housing, according to a June 2024 city report, after voters approved Preston’s 2020 Proposition I, which established a tax on real-estate transfers. The money goes to the city’s general fund, however, and Breed has opted not to spend it on social housing.
This report is huffing its own fumes. It presumes that units can be built for under <$500k yet large "affordable housing" developments in the city now cost $1.2m/unit. It also assumes land is free. Even if land was gifted by the city, the foregone property tax revenue is a cost that can't be wished away.
That's before getting into the fantasy that the city would seed a "public bank" (which is no closer to existing than the first time Jackie Fielder tried to cite it as an accomplishment) that is in the business of issuing 99 year 1% interest loans. What a joke. Who'd be paying for city employee pensions if the bank is donating all their equity to affordable housing?
So I get that SF can get some cheaper financing from a public bank but 55 year/3% interest loan seems very farfetched. Anyone have an example of something like this in the real world?
Feasible? The “feasible” scenarios assume an upfront subsidy of at least $430,000 per unit. If we want to build 46,000 units, that’s $20 BILLION that needs to magically fall from the sky in the best case scenario (or $60 billion in the worst case $1.3M per unit scenario). Then they assume loans with 3% / 55 year and 1% / 99 year terms, which is also magical thinking — or guaranteed to bankrupt the non-existent public bank. Sure social housing is “feasible” if tens of billions of dollars just appear out of thin air and the fed funds rate drops to zero. This sort of magical thinking is why progressives can’t be taken seriously.
How is it “feasible” if as you write “but its construction would be difficult, if not impossible, without low-interest loans.” ???? So, if you can get free money, you can build it? Is this a joke?
Show of hands who trusts SF to handle either a public bank or being a landlord?
Scandals of the future for ML to write about:
“SF Public Bank Officials Pressured as Social Housing Loans Skidded Into Default”. Email trail uncovered: “Give us just one more year”
“Tetra Tech Wins Social Housing Inspection Contract”. City official: “Injustice has a name: Due diligence”
I look forward to the city’s application to the FDIC for a bank that does not intend to make money.
You mean, like, a credit union? Although those are insured by the NCUA, not the FDIC, but the terms are basically the same.
Do we have European communal sensitivities to make this work. No. Sounds like “The Projects” with a fancy name .
Uhm, so a SF public bank would issue loans at low interest rates? Which begs the question how they’d cover the spread to the going rate, possibly in the neighborhood of three to four percentage points?
In addition, yes, they have social housing in Europe. What they don’t have is San Francisco’s rampant corruption, graft and rent seeking. We’d need a fundamental change in attitudes where the value of such social housing isn’t looked at in terms of how the funds going around for building and running the properties can be skimming off.
“The slums of the future!”
So the BoS passes a proclamation saying “We want to do this”, and now, _four_ years later, we get a study saying “OK, we could do this”.
It’ll be some more years to say “OK, here’s the money”, and then some more years after that to say “OK, here’s where we’ll build it”, then many more years of legal battles over where it should be built, with the inevitable CEQA lawsuits and whatnot … and then, _maybe_, years after that, we’ll start building something somewhere.
And in that time, thousands more will have moved here and rents will have climbed even further.
Would building projects like this be good? Yes. But when SF progressives get infuriated that YIMBYs are gaining traction, maybe they should understand that this is why.
I remember the time at the Community Land Trust Task Force that Calvin Welch’s late enforcer, Rene Cazenave, popped that vein in his forehead and screeched at me “YOU DON’T WANT ANY INCOME LIMITS, YOU DON’T WANT ANY INCOME LIMITS!” because the way to scale a land trust economically veered off of the affordable housing reservation and ran through median income San Franciscans.
Tax exempt mortgage revenue bonds are another financing vehicle that offers up relatively low interest rates. Peskin passed legislation to authorize this over the summer and apparently at least one TEMRB project is moving forward.
Instead of funding the construction of affordable buildings with general obligation bonds and gifting the structures to a nonprofit, the City should leverage monthly housing payments from a range of incomes to cover as much of the costs of construction, operations and maintenance as possible and then use other revenue sources, tax revenues or general obligation bonds to cover the gap. The city would be investing in itself rather than subsidizing tenants.
Once the notes are paid off the City would own housing free and clear and the economics get much more pleasant.
The goal is for social housing to gain sufficient market share so that by sheer numbers, the City can force the private market to set rents affordably by out competing landlords by eliminating profit from the economic equation.
I responded to Rene, “Through the chair, listen, hippie, my tax dollars pay your salary and it is not appropriate for the hired help to put words in the mouth of task force members during a formal meeting. My allegiance is to our neighbors, not your business model.”
Both CCHO (Calvin and Rene) and MOH (Olsen Lee) balked at the idea of using TEMRBs to acquire units at risk of displacement in 2002. A decade later GOB revenues were used for acquisition of units by nonprofits in direct competition with the originators of the concept, the Community Land Trust which just scored a building on 14th Street.
Imagine had this institutional inertia, corruption, not carried the day back when units went for $400K! We could have used TEMRBs to acquire countless rent control units at risk of displacement. We can never build to meet global demand, but we sure as hell can stabilize our neighbors in their homes. The City should be a provider of housing that does not break the bank for the unrich, not just those eligible for traditional affordable housing which has had plenty of time but has failed to scale to meet the challenge.
The good thing about the 2028 bank timeline is that Willie Brown will most likely be out of the picture, so a public bank can be created without the master of corruption having his sticky fingers in fractional reserve lending.
Marcos,
Just now read this piece and thread and I’m betting most of the barrage aimed at Joe B’s work was written by Chat Bots.
Just (believe it or not) the old english teacher in me.
Too many similarities.
Salomon, yet again, last man standing.
Or, typing as it were.
Henry George Society still meeting here ?
Go Niners !!
h.