The City is home to over 28,000 affordable housing units that were built with U.S. Department of Housing and Urban Development (HUD) subsidies, provide deeper affordability to lower income households, and are at-risk of converting to market rate housing.
Background
Today when City and state agencies provide funding for affordable housing, they require legal agreements that maintain affordability at specific levels for specific time periods, often 55 years or longer. In addition, most of San Francisco’s funding for affordable housing goes to nonprofit, mission-driven organizations committed to long-term affordability. In the past, however, federal, state, or local affordable housing programs had affordability restrictions that could expire within a few decades, allowing conversion to market-rate rents.
Importance of Preserving At-risk Affordable Housing
The affordable housing built with HUD subsidy in combination with other federal, state, and local subsidies represents a unique resource that provides deeper affordability to lower income households. Many of these older HUD properties have project-based rental assistance (PBRA) contracts provided by HUD directly to these properties which allows tenants to spend no more than 30 percent of income on rent. In addition, the PBRA provides rents based on fair market rents, helping to sustain the operation and maintenance of these aging buildings. HUD developments serve concentrations of low-income people and people of color and many of the existing households have aged in place and are now very- low- or extremely-low-income seniors relying on a fixed income.
What Are the Risks of Conversion to Market Rate?
When this HUD housing was created, long-term rent or resale restrictions were placed on the buildings to ensure they would be affordable for at least 20 years. As buildings reach the end of these 20-plus year terms, if federal, state, or local subsidies are not renewed by building owners, affordable units are at risk of converting to market-rate rents. The private building owners can choose to pay off their subsidized loans, not replace them with other public financing, and not renew rental subsidy contracts. Or the regulatory agreements can simply expire with no other requirements put in place.
Without intervention, market-rate conversion of these units and buildings will result in the loss of affordable housing and the potential displacement of existing low- and moderate-income residents since current market-rate rents in the city are not affordable to low-income households. If a building ends its affordability restrictions and its PBRA contract ends, individual tenants may receive a rent assistance voucher based on their income eligibility, but the long-term resource of affordability for that building, the community, and the city will end.
State and Local Policies Supporting Housing Preservation and Tenant Stabilization
State law requires owners to provide notice when affordability restrictions will expire or when owners are considering conversion to market-rate. The City also has an ordinance providing right to purchase publicly-funded affordable housing with expiring affordability restrictions. Preservation of at-risk affordable housing, rehabilitation of public housing owned by the San Francisco Housing Authority (SFHA), as well as acquisition of privately-owned housing that serves lower-income renters through the Small Sites Program all depend on local funding just as production of new affordable housing does.
Tenant Preference programs for city affordable housing programs (discussed in the section on tenant protections and services) include preferences for tenants adversely impacted by situations like the above where affordability covenants or other affordable housing restrictions are expiring. This new preference ensures impacted tenants will secure new affordable housing, and that, when used in conjunction with neighborhood preference, such housing will be in the same neighborhoods where tenants live if the tenants so chose, mitigating displacement.
At-risk Status of Affordable Developments
Different buildings have different levels of risk for market-rate conversion. Buildings that still have affordability restrictions in place may still be at risk for market-rate conversion. The risk level is based on how soon a building’s affordability restrictions are set to expire and the type of entity that owns the building. Those that have contracts expiring sooner are obviously at higher risk. And those that are owned by a for-profit entity, an entity whose mission does not include affordable housing, or a resident board without expertise in affordable housing are also at higher risk.
The risk categories are defined as:
- Expired = no affordability restrictions in place
- Very High Risk = expiring affordability within the next 365 days, and owner is not mission-driven housing nonprofit
- High = expiring affordability in the next 1-5 years, and owner does not have affordable housing mission.
- Moderate = expiring affordability in the next 5-10 years
- Low = expiring affordability in 10 years or more
There are 405 units that are Very High Risk and 273 units that are High Risk. Owners of some of these buildings have shown interest in converting the housing to market rate or selling to another entity for capital gain. There are 1,807 units that are Moderate Risk and 27,501 units that are Low Risk. These are lower risk buildings because they have been newly constructed or refinanced with 55-year regulatory agreements with MOHCD or SFHA owning the land and mission-driven nonprofits owning the buildings.
Fortunately, to date, the 1,491 units in buildings where affordability covenants have expired or been terminated remain affordable today because building owners continue to keep them affordable as they work with MOHCD to figure out a long-term plan. In most cases, they have been able to increase the affordability term by entering into extensions or new agreements. The City is working to preserve long-term affordability and prevent displacement at these buildings as well as others scheduled to expire.
Risk Status of Subsidized Affordable Housing1
| Risk Level for Market-Rate Conversion | Number of Units by Risk Level |
|---|---|
| Expired | 717 |
| Very High Risk | 405 |
| High Risk | 273 |
| Moderate Risk | 1,807 |
| Low Risk | 27,501 |
In addition to the need to preserve the affordability of these buildings, there is also a critical need to maintain and improve their physical conditions. In many cases, the federally-funded buildings are nearing 50-60 years old and have been minimally maintained. They are in serious and often urgent need of substantial capital improvements—if not complete rebuilds—to ensure life safety and habitability for the residents. These substantial improvements require complete systems replacement including plumbing, electrical, roofs, accessibility upgrades, new windows, and extensive dry rot mitigation.
For Future Consideration
The ideas for future consideration that have the potential to increase community stability in San Francisco are described below. They provide a starting point for agencies, decision-makers, and community members to explore stabilization efforts and identify critical pathways forward. Based on preliminary information, staff is qualifying these ideas according to the type of task, scale of resources and level of complexity to underscore that any of these ideas would require time and additional resources not currently identified. These are not City commitments or recommendations, rather informed ideas that will require careful vetting and analysis as to their reach, resource needs, feasibility, unintended consequences, legal implications, and racial and social equity considerations.
Right to purchase invocation
There are two local laws that could be used to preserve subsidized housing when it is being sold on the market. The Assisted Housing Preservation Ordinance, or Chapter 60 of the San Francisco Administrative Code, passed in 1990, requires property owners of publicly subsidized housing to notify the City of their intention to opt out of their affordability requirements and pro- vides interested parties with a process to make an offer to purchase the building. The Community Opportunity to Purchase Act (COPA), which will be implemented September 2019, requires owners to notify Qualified Non-Profits of its intention to sell any building with three or more units, and provides those organizations with the right of first offer and right of first refusal. Either law could be invoked to negotiate a sale that would preserve the long-term affordability of the building though use of right to purchase depends on funding available to actual purchase buildings and any cover necessary rehabilitation.
| Type of Response | Prevention |
|---|---|
| Type of Task | Policy Implementation, Funding
|
| Resource | Extensive funding (the kind typically required for capital investments) and staff time would be required
|
| Complexity | Medium – generally some legislation and/or some change of and existing program, and two to three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide; Statewide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD), State and local policymakers |
| Key Priority | Yes - Enhancements to Existing City Programs and Policies |
| Benefit | Using local right-to-purchase policies to acquire at-risk affordable developments would help to ensure long term affordability for current residents. |
| Challenge | Right-to-purchase depends on availability of funding and so additional funding resources are needed to implement the program. |
Incentives for long-term preservation
There need to be incentives that make preservation an attractive and viable alternative to market-rate conversion. This includes making low-cost mortgages available for acquisition and major capital improvements in exchange for renewing affordability restrictions. Additional incentives could include rent assistance for cost-burdened households in affordable housing.
| Type of Response | Prevention |
|---|---|
| Type of Task | Funding
|
| Resource | Extensive funding (the kind typically required for capital investments) and staff time would be required
|
| Complexity | Medium – generally some legislation and/or some change of and existing program, and two to three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD), Non-profit affordable housing developers, State and local policymakers |
| Benefit | Developing additional incentives to support preservation would provide additional tools to preserve at-risk affordable housing. |
| Challenge | Incentives would largely depend on availability of funding and so additional funding resources are necessary to implement preservation incentives. |
Tenant protections and right to return for residential demolitions
Some subsidized housing projects in the city may be below the potential maximum allowable height and density. To deter the speculative sale of these projects, legislation may be appropriate to build upon existing residential demolition requirements. Specifically, legislation could be introduced to require that the conditional approval for residential demolition of existing affordable housing include requirements for one-for-one replacement of the housing and a right to return for residents.
| Type of Response | Prevention |
|---|---|
| Type of Task | Regulation
|
| Resource | Generally only staff time and some program funding would be required
|
| Complexity | Medium – generally some legislation and/or some change of and existing program, and two to three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD), Non-profit affordable housing developers, State and local policymakers |
| Benefit | Requiring additional tenant protection and right of return would provide additional anti-displacement guarantees for residents of at-risk affordable housing financial deterrents to conversion to market-rate or demolition. |
| Challenge | This idea needs further assessment. |
Technical assistance for community-based organizations
A substantial number of affordable housing developments are owned and operated by smaller CBOs that are no longer active in the affordable housing space. These organizations have limited capacity to effectively steward these affordable housing assets.
| Type of Response | Prevention |
|---|---|
| Type of Task | Policy Implementation, Funding
|
| Resource | Generally only staff time and some program funding would be required
|
| Complexity | Medium – generally some legislation and/or some change of and existing program, and two to three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD), Non-profit affordable housing developers and commnity-based organizations, State and local policymakers |
| Benefit | Through technical assistance to expand capacity of CBOs that own existing at-risk affordable housing or organizations that could serve as preservation purchasers of at-risk buildings the city can help to preserve existing affordable housing. |
| Challenge | Providing technical assistance to CBOs, whether potential sellers or long-term preservation partners, will require investment of time and funding to establish relations, build knowledge and trust, and expand the staff capacity to support long term housing preservation. |
