Low-Cost Housing Gets Expensive In San Francisco
I have a cranky thesis about housing: Working-class people should not be forced to live in projects that advertise the poverty of the residents. "Welcome to Casa Pobreza! We Have Pride in Ourselves — Even if Nobody Else Does!"
Instead, low-income housing should be indistinguishable from the full-price product, including the same level of design and construction. And that means that developers should probably spend as much to build affordable housing as the market-rate stuff — possibly more, because low-income housing tends to receive less maintenance over the long-term than fancier units, whose owners can afford to repaint and re-roof them periodically.
That thesis is one reason why North Beach Place provides a powerful dose of reality. This development near San Francisco's Fisherman's Wharf delivers pretty much everything I could wish for in affordable housing: An attractive project in a desirable part of town, good architecture and urban design, and even high-quality retail. The price of this project, on the other hand, knocks the wind out of me: $106 million of which $93 million is the construction cost of 341 housing units.
According to my arithmetic, that means each unit costs an average of $272,000.
The price of affordable housing units varies widely by city and neighborhood, but many nonprofit organizations try to budget individual units at slightly more than $100,000. The high price of the North Beach units seems especially pertinent because the project has received tax credits worth $55 million, reportedly the largest amount ever awarded to a single project in California. Given the scarcity of tax credits, is this the best possible use of this money?
Designed in the storefront style that puts retail at the street level and apartments on upper stories, the new complex is built on a two-block site formerly occupied by an aging, bunker-style type of public housing that had become a neighborhood eyesore. North Beach Place replaces the 229 units of public housing contained in the former complex, while adding another 112 units of low- and moderate-income housing, including units for seniors, others that are accessible to people in wheelchairs, and still others for people with sight and hearing problems. The new units charge rents on a sliding scale, depending on the income of the renters, who will pay one-third of their monthly income in rent. (That will range from $250 a month up to $1,500.) The developers are The BRIDGE Housing Corporation, the Stewart Company and E.M. Johnson Interests, all of San Francisco.
From the point of view of architecture and urban design, North Beach Place is a model of how to integrate low-income housing seamlessly into an affluent community. This project is a mixed-use complex that combines public housing units with low-and moderate-rate units, including several dozen units designed for seniors. At the center of the two-block project is a turnaround for trolley cars, qualifying North Beach Place as transit-oriented. And the building provides 34,000 square feet of retail space, including an outlet of Trader Joe's, the discount/gourmet grocery store.
The presence of a popular retail anchor like Trader Joe's means residents of the entire neighborhood will use the building, which helps weave the project into the fabric of the neighborhood. The project also contains 3,000 square feet of "incubator" space in which residents can start their own businesses.
All of these urban planning and social aspects are commendable. But, again, what about the money?
Ironically, the financing scheme for North Beach Place is actually less complicated than those of many smaller low-income housing projects, which often require eight or nine different funding sources. North Beach Place has "only" five: HUD has contributed $23.2 million, which includes a $3.2 million demolition loan and a $1.45 million loan for counseling and other services to displaced residents (which represent about two-thirds of the renters in the prior project). The Mayor's Housing Office contributed $10 million to the project. Citibank provided a construction loan of $81 million for the housing, and a separate $4 million loan for the commercial space. The affordable housing program of Federal Home Loan Bank provided a $1 million grant. Those loans will be paid off, in part, by the proceeds of selling the low-income housing tax credits to investors, for an expected $48.5 million.
The federal tax credits, worth $38.5 million, will be paid out in equal installments during a 10-year period, while the state credits, worth about $17 million, will paid over four years. On average, the developers expect to receive about 86 cents on the dollar for the tax credits — a surprisingly slim discount that attests to the growing appeal of the credits to investors: In 1993, the sale of tax credits yielded 54 cents on the dollar.
Why is so much money being spent on a single project? Barbara Smith, a project manager with the San Francisco Housing Authority, has heard the question before. "That is the cost of doing business in San Francisco," she told me.
Fortunately, the San Francisco Housing Authority already owned the 4.9-acre site, which would have been unthinkably expensive in the high-rent North Beach district. The site, however, was costly in different ways. The site is located on fill—a type of soil notorious for liquefying during earthquakes. To keep the building safe, construction workers must drive piles about 60 feet deep. Other costs include remediation of lead traces in the soil, and the removal of underground fuel-storage tanks.
Smith sounded ambivalent about the project costs. "We wanted to maximize the density of the site, and there are not a lot of opportunities to build affordable housing in San Francisco," she said.
It is not news to anybody in the affordable-housing industry that building housing in dense urban areas — especially housing that a crank like me can love — is expensive. But in a state that needs thousands of affordable housing units, the budget of North Beach Place is a reminder that our housing dollars only go so far.
You remember the old joke in which the bartender observes that he does not see many kangaroos in his tavern. "At these prices," the kangaroo replies, "you may not see many more."