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Last updated: 12/10/17

SF is a special place, but paying $3,400 to live in a one-bedroom isn't normal. People are paying ridiculous rents because there isn't enough housing to accommodate growing income inequality, yet, residents are often protesting housing development projects across the city. What's the deal?

Before you blame the tech industry, consider this: SF has been dealing with a housing shortage since the 1950s. Our lack of housing isn’t just a supply and demand problem. It’s a historic, multi-faceted issue that’s the result of:

We’ve done the research to explain how we got into this messy situation. Plus, a refresher for those who aren’t familiar with affordable housing to begin with.

Let's dive in.

The Latest in California

In September 2017, state lawmakers passed 15 housing bills to help alleviate our affordable housing shortage. We have to vote on one of those bills, a ~$4B affordable housing bond (SB 3), in Nov. 2018.

But these efforts aren't enough. We need to build 180K homes every year to keep up with CA's population growth by 2025. Right now, we're building less than 80K homes a year 😬.

How did we get here?

Housing has been a hotly-debated issue in SF for decades. Let’s take a step back (in time) and see all the forces that have led to our housing shortage.

01) A history of anti-development activism

Before NYC was trying to be Silicon Valley, SF was trying to be NYC. After WWII, many business and political leaders were eager to transform SF into a financial hub. Their efforts to “Manhattanize” downtown created a residential backlash. And over the years, the ensuing tension cultivated SF’s culture of neighborhood activism.

Back in 1954, President Eisenhower launched an “urban renewal” effort under the National Housing Act encouraging local government agencies to demolish rundown neighborhoods and build new office space, hospitals, hotels, and shopping centers. It sounded great in theory, but less than one percent of federal funding went towards relocating displaced residents. Entire communities were pushed out in the process, and due to discriminatory government housing policies, SF's black population was disproportionately impacted. Residents realized they had to come together to defend their homes, and neighborhood activism began to take shape.

Here are a few important milestones that defined SF’s activist, anti-development spirit:
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Why SF has no highways
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How Fillmore lost its soul
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How SF almost became NYC

02) Politically powerful NIMBY groups

NIMBY, an acronym for Not In My Backyard, is a popular, though somewhat derogatory characterization of residents who oppose new housing developments. There are many flavors of NIMBYism, but they typically advocate for the preservation of neighborhood character, local history, the environment, childhood innocence, generally anything of maintaining the status quo. NIMBYs are typically homeowners because they're incentivized to maximize their property values, which is understandable since many people invest their life savings into their homes.

There are hundreds of NIMBY-esque neighborhood associations in SF. Many of these groups have been around for decades and wield a lot of political influence. Their members tend to be engaged voters who show up at BoS committee hearings. NIMBYs have had an outsized voice in local politics for years, but since 2016, YIMBY groups (Yes In My Backyard) have begun to mobilize their supporters too.

03) Bureaucratic planning processes

Over the years, SF has become a notoriously difficult place to build. Real estate developers need an entitlement, legal permission to build housing, from the city’s Planning Commission, a seven-member committee appointed by the Mayor and BoS, to begin construction on a piece of property. But unlike other cities, our entitlement process is rarely straightforward.

The challenge is almost anyone can slow or stop a housing project. The city empowers residents, labor unions, neighborhood organizations, literally anybody to weigh in on development projects. People can appeal by challenging an environmental report, filing a CEQA lawsuit, or requesting a public hearing (aka a Discretionary Review). As long as you’re prepared to pay a possible fee, particularly for filing DRs, the city grants you a voice. All of these efforts can derail affordable housing projects anywhere from six months to years.

Once an appeal is filed, the BoS is in charge of the project proposal. This is where the wheeling and dealing happens. Supes have the full discretion to negotiate whatever they think is best for their district. Bargaining chips can include requesting additional permitting fees, adding more affordable housing units, or hiring local construction unions. SF has a participatory permitting process, but it can also be arbitrary and unpredictable, which make housing projects riskier and more costly to developers. Ultimately, if the BoS and developers don't reach a compromise at the end of the appeals process, this is how much gets built: 👌.

04) Strict zoning policies

Since the 1960s, SF has had strict zoning policies that determine the scale, density and height of new projects. Depending on the location of the project, every parcel has different zoning and land use regulations. Some neighborhoods have specific area plans, some of which are outdated, while other areas don’t have one at all.

As the second densest city in America (second only to NYC) dealing with an affordable housing shortage, SF often encounters the question: “Why not build up?” Well, due to a “sunset zoning” ordinance passed in the 1980s, developers are prohibited from building anything tall enough to cast a shadow on parks or public spaces for more than an hour during the day. This led to a 40 ft. height limit in vast parts of the city, especially in the Sunset and Richmond districts. Zoning policies, like the sunset zoning ordinance, are intended to protect neighborhoods from being dominated by highrises, gentrification, and displacement, but it has also contributed to our affordable housing shortage.

05) Rising construction costs

SF, along with the rest of the country, has been grappling with rising construction and labor costs. Since the U.S. housing market imploded in 2008, thousands of housing construction workers lost their jobs and left the industry. There’s demand to build more housing, but there are not enough construction workers to go around. The labor shortage not only delays development projects, but it also increases workers’ wages and developers’ costs. Because of globalization, the price of construction materials, like lumber and cement, are also on the rise. How the U.S. trades with other countries affects our prices locally. This has been especially true with housing construction.

So when developers are trying to earn acceptable margins on their $50M investment, on behalf of their investors, building luxury condos begins to seem like the only solution to their problems.

06) Decades-old state laws

Californians have been waging political battles over land, housing, and taxes for a while. These are just a few key policies that make it difficult for SF and the state to build affordable housing.

In 1970, state lawmakers passed CEQA, the California Environmental Quality Act, to help protect California’s natural environment. The law requires city and state agencies to publicly disclose every project’s environmental impact, often in the form of an Environmental Impact Report (EIR), and propose alternatives to minimize the damage. While CEQA has helped reduce pollution, urban sprawl, and greenhouse gas emissions, it has also had a profound impact on land use planning, especially in SF.

Anyone can submit a CEQA appeal, sometimes anonymously. They’re cheap to file and they have about a 50% chance of winning. Also, there’s no limit to the number of times a project can be sued under CEQA.

In 2006, the SF MTA wanted to add 34 miles of bike lanes in the city. A CEQA lawsuit claiming that the city had not conducted an environmental impact review (required under CEQA) delayed the plan for four years. The MTA ended up spending more than $1M drafting a 1353-page EIR explaining in detail why better bicycle amenities would have a positive impact on the environment.

CEQA is purposely broad and powerful to protect our environment, and while it legally gives people a voice, it can also be used to slow or stop development altogether.

Prop 13
In 1978, CA voters overwhelmingly passed Proposition 13. At the time, the country was reeling from an “urban crisis”– people were losing their jobs and homes, and amidst all of that, taxes were on the rise. Prop. 13 was a popular initiative because it caps property taxes to 1% of the purchase price of the house. (Under the law, the property value can increase by 2% each year to account for inflation.) In other words, two neighboring homes can pay vastly different property taxes. If you bought a house for $70K, for instance, you would only pay $700 a year in property taxes. It doesn't matter if 30 years later, your house is now worth $1.5M and your neighbor is paying $15,000 in property taxes compared to your $1,267 ($700 + 2%/year inflation on the value of the house). It's a win for homeowners, but it has since created a slew of unintended consequences.Prop 13 causes households, equal in value, to pay vastly different amounts of property taxes, regardless of market value.
Because of Prop. 13, two houses of equal market value can pay vastly different property taxes. Property tax is capped at 1% of the purchase price, not market value, so, for example, a house bought in 1977 at $70K would pay $700. By 2017, it's taxed at $1,267, but a house bought in 2017 for $1.5 million would pay $15,000 in property taxes. In short, Prop. 13 deters homeowners from moving, which limits our housing supply, making it more expensive for residents buying new homes.
For one, state and local governments lost a major source of revenue. After Prop. 13, revenue from property taxes declined by nearly 60%. As a result, local governments had to make up the money by:
  • Not investing in as much growth so they didn’t have to deal with associated public infrastructure costs, i.e. public schools, roads, transportation, waste, etc.
  • Increasing fees on developments, thus, increasing costs for developers, prices on homes, and rents on apartments.
  • Generating tax revenue elsewhere. After Prop. 13, cities and counties increased sales, hotel, and utility taxes by 600% to make up for the lack of property tax revenue.
Cities are incentivized to approve more retail versus residential developments because they earn more from sales than property taxes. This “fiscalization of land use” contributes to our local and regional affordable housing shortage, but it's unclear by exactly how much. Prop. 13 also discourages longtime homeowners from moving, which reduces turnover in the housing market. In many ways, Prop 13. is inadvertently making it harder for people to own homes.

On the plus side, legislators are well aware of these issues, especially in light of our statewide housing crisis. Various groups are leading ballot initiatives to amend Prop. 13, but homeowners love Prop. 13, and they’re a political force to be reckoned with. (see #2)

The Ellis Act
The 1986 Ellis Act allows landlords to evict their tenants if they decide to leave the rental business (for at least five years). Its origin dates back to the late-70s, when a young landlord named Jerome Nash inherited a building from his mom in Santa Monica. A few years later, he wanted to get out of the landlord business and demolish the building, but due to tenant protection policies, the city of Santa Monica denied him a permit to evict his tenants. He sued the city and won, but it was reversed in the State Supreme Court in 1984. The reversal meant cities could legally force landlords to offer their property for rent, regardless of whether they wanted to go out of business.

Enter State Senator Jim L. Ellis from San Diego. He introduced the Ellis Act to help Nash, and for the first decade after it became law, the Ellis Act was used only a few times across the state. It all changed during the 90s dot-com boom. Landlords realized they could flip their rent-controlled properties into more profitable buildings, e.g. luxury condos or mansions.

From 1994 to 2004, over 2,000 families were forced out of their homes in SF due to the Ellis Act. The problem is that buildings that go “out of business” don't necessarily disappear from the market. Instead, they’re bought by real estate developers looking to raise rent and make a profit. From March 2016 to Feb. 2017, the SF Rent Board received 127 Ellis Act eviction filings with a total of 410 reports for alleged wrongful eviction. In a time when every housing unit counts, Ellis Act evictions are one of the many factors that choke our housing supply and contribute to SF's lack of affordable housing.

To try to prevent the misuse of the Ellis Act, SF passed a policy in 2005 requiring landlords to pay evicted tenants about $4500 in relocation assistance (adjusted annually for inflation). Then in 2015, SF upped the ante, requiring landlords to pay evicted tenants the difference between their current rent and the rent they would pay for a similar apartment for two years. In SF, this could cost as much as $50K per tenant. This law was quickly appealed and overturned. In March 2017, the First District Court of Appeal in SF ruled the ordinance illegal and “a form of ransom” against property owners.

Named after a Democrat and Republican lawmaker (respectively), the 1995 Costa-Hawkins Rental Housing Act was an 11-year effort led by landlords to end extreme forms of rent control across CA. "Vacancy decontrol" is essentially enforced, preventing cities from keeping rental units permanently rent-controlled.

In SF, this means: Housing built after January 1, 1996 are not rent-controlled. Technically, they're rent-stabilized. Landlords can raise rents on tenants living in rent-stabilized units, but they have to file a petition with the SF Rent Board and present their case to a judge, who rules on whether they can raise their rent.

More than two decades later, tenant rights’ activists and landlords are still fighting over Costa-Hawkins. On one hand, rent control helps those living in rent-controlled apartments, especially the elderly, disabled, and low-income households. Between 1995-2012, residents living in rent-controlled apartments in SF saved thousands of dollars a year, totalling $393M annually. On the flip side, during that same time period, rents across SF increased by 7% overall and cost renters $5B.

Today, 70% of SF's housing supply is still rent-controlled. Let's crunch some numbers: We have about 386K homes in SF. Around 138K (36%) of those homes are owned by homeowners, which leaves about 247K units available for rent. Roughly 172K units, or 70% of our housing supply, is rent-stabilized. That leaves about 75K rental units, which isn’t a lot for everyone else.

Rent control also disincentivizes landlords from maintaining their homes. Since their units aren’t renting at market rate, they don’t have to improve their units to attract new tenants. So depending on what kind of apartment you live in, rent control can be a blessing or another reason you're paying ridiculously high rent.

07) Regional anti-development policies

SF’s housing shortage is inherently a Bay Area problem. When cities like Brisbane (just a few miles south of SF) request developers to build 8.3M sq. feet of office space without any additional housing, it creates more jobs and employees without a plan to house them. Instead, the burden of creating housing is deferred to neighboring cities. In the case of Brisbane, the mayor publicly stated that SF would take care of their housing needs. It’s another example of how Prop. 13 affects our housing supply: incentivizing local governments to build commercial real estate to earn sales tax revenue instead of building residential homes.

To tackle this, CA created the Association of Bay Area Governments (ABAG) in 1961. Representatives from SF, Alameda, Marin, Santa Clara, Napa, Solano, Contra Costa, San Mateo, and Sonoma counties are part of a consortium that meet every month or so to sync up on regional legislative policies. This includes affordable housing, land use, the environment, natural disaster prevention and energy issues, just to name a few. The problem is ABAG has no political teeth. Cities aren’t required or punished if they refuse to build more affordable housing.

Is tech responsible?

In the past two decades, the tech industry has generated jobs, drawn more residents, and created more commercial real estate in SF. Our unemployment rate declined from 9.4% (Jan. 2010) to 3.5% (August 2017), and the national unemployment rate is 4.6% (July 2017). Tech wealth has contributed to gentrification, income inequality, and neighborhood displacement. Yet, it isn’t fair, nor accurate, to condemn the tech industry for our affordable housing shortage. Tech only comprises of 12% of private sector jobs. The challenge we’re dealing with is an accumulation of historical and present policies.

Does Airbnb affect our housing supply?

Thanks to SF’s government regulations, Airbnb has had a minimal impact on our overall housing supply. While Airbnb has been around since 2008, the city only began responding to the proliferation of short-term rentals (STRs) in Oct. 2014. Elected officials are concerned that STRs would reduce the number of bedrooms available for long-term residents, and representatives from home-sharing companies, like Airbnb, VRBO, and HomeAway, argued that they were helping hosts earn extra income. It wouldn’t be fair nor accurate to blame Airbnb for SF’s affordable housing shortage, but in an unregulated market, tenants are incentivized to convert their bedrooms to STRs, which is why the city intervened.

In May 2017, SF won a legal settlement to enforce fines and require Airbnb to remove uncertified hosts from their site, effective Sept. 2017. As of 2017, only 2,100 STR hosts are registered in SF, but more than 8,000 are listed on Airbnb. Hosts can now register through Airbnb’s platform.

What have the Mayor and BoS done about our housing shortage?

Quite a lot. In 2012, Mayor Ed Lee approved a landmark $1.5B trust fund for affordable housing programs, and in 2014 pledged to develop 30K new and rehabilitated homes, half of them dedicated to affordable housing, by 2020. How far have we come? As of May 2017, we’re about 58% of hitting that goal. Despite our ongoing struggle, here are some recent affordable housing policies:

September 2017 – Mayor’s Executive Directive. We know how time-consuming SF’s planning process can be, but on the city’s side, Mayor Lee issued a mandate for city agencies to better collaborate and cut the permit processing time by half.

May 2017 – HOME-SF (formerly the Affordable Housing Bonus Program). Spearheaded by District 4 Supervisor Katy Tang, this density bonus program incentivizes developers to build at least 30% affordable housing units in exchange for adding more density, i.e. up to two stories, to their projects. It took two years for the the city to pass HOME-SF.

July 2016 – Legalize in-law units citywide (aka Ordinance 95-17 and Ordinance 162-16). This policy allows homeowners across the city to build secondary units, or officially Accessory Dwelling Units, in their basement or backyard. Before, each district had their own set of rules and some prohibited ADU construction altogether. The goal is to create tens of thousands more in-law units throughout SF to help house more residents.

June 2016 – Proposition C. A voter-approved amendment to SF’s inclusionary housing policy empowering the BoS to negotiate the percentage of AH units with developers instead of defaulting to fixed AH percentages. It also raises the previous AH requirement from 12% to 25%.

November 2015 – Proposition A. Residents allowed the city to sell $310M in AH bonds to fund housing development for low- and middle-income households. The bond was designed to support a range of vulnerable populations, including families, seniors, and the disabled.

What you can do?

Whether you’ve been living here for two months or ten years, San Francisco is our home. Help us create a community of people who care about the city and where it’s going.

1. Share this explainer Our minds were blown while researching SF’s housing shortage, but we’ve only scratched the surface. Pick your favorite medium, and keep the facts flowing to your friends and family.

2. Contribute your experience. Have you been personally affected by SF's housing shortage? Share your story. Did you come across an interesting fact or piece of research? Send us a link. Help us improve this evolving topic.

3. Know your neighbors. Make SF a better place by understanding how other people live. It sounds basic, but say hi to your neighbors IRL. Tweets and emojis aren't substitutes for kindness.

4. Reach out to your district Supervisor. Whether it’s through social media, email, phone or in-person, tell your elected officials what you think about SF’s housing shortage. They don't hear from us enough.

5. Register to vote. We’re not going to solve our affordable housing issues overnight, but we’re going to have to approve some major housing-related ballot initiatives in 2018. If you haven't already, get excited and exercise your right to vote.

A refresher

Who qualifies for affordable housing?

Local agencies compare your annual income with the city's median income to determine whether you qualify for government subsidized affordable housing. SF's Area Median Income, which is the highest and fastest growing in the country, is $80,700/year for a one-person household.

So divide your salary by $80,700 and you have the percentage AMI to figure out what category you fall under:
  • very low (less than $44,400 a year)
  • low (80% AMI / $64,550 a year)
  • moderate (120% AMI / $96,850 a year)
  • middle-incomes (140% AMI / $113,000 a year)
Households who earn less than 60% AMI qualify for AH.

Types of housing development

  • Below market-rate housing (BMR): Homes that are priced for low-to-moderate incomes. They’re cheaper than a typical place, and you have to qualify.
  • Market-rate housing: Homes that have no price restrictions. Landlords can charge whatever people will pay for.
  • Single family homes: The stand-alone home in the burbs that some of us grew up in. (Hi Mom!) Also, Full House!
  • Multi-family residential: Think of condos and apartment buildings. Sometimes they’re called MDUs (multi-family dwelling units).
  • Mixed-income housing: When there’s a range of below market-rate and market-rate units all under one roof.
  • Mixed-use development: When a combination of retail, office, and/or residential units are part of a development project.

Other AH-isms

  • Zoning laws, or Building Code: These rules define how properties can be developed, like height restrictions, environmental considerations, and affordable housing requirements. Similarly, land use policies regulate how developers are allowed to use land.
  • Housing density: The more homes you cram into a city, i.e. the number of apartments into a building, the higher the housing density. Of course, denser isn’t always better, but given that everyone and their dogs want to live in SF, local officials and real estate developers try to make the most of our limited space.
  • Infill development: Getting creative and optimizing existing buildings, i.e. adding in-law units for rent, to create more available housing.
  • Parcel: Literally just another term for “plot of land.”
  • Planning: You and I plan birthday parties, but planning in this context is guiding the growth and development of a city. SF’s Planning Commission reviews and approves every development project and zoning policy, but the BoS are important decisionmakers too.
  • Entitlements: This is the legal approval real estate developers need in order to build on a piece of property. Once it's obtained, developers can also sell it other builders.

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