Public funding for affordable housing production and preservation is crucial to cover the gap between the cost of developing, operating, and maintaining housing of decent quality and the revenue generated from rents that are affordable to people of low and moderate incomes.
Background
How is Affordable Housing Funded?
Typically, affordable housing developers must combine several funding sources to cover the cost of affordable housing construction or acquisition and rehabilitation. The ability to access federal and state funding as well as private investment is usually contingent on the availability of local subsidy making San Francisco’s local funding crucial to affordable housing production and preservation efforts. The Mayor’s Office of Housing and Community Development (MOHCD) estimates that for every local dollar of subsidy up to two dollars of additional investment in affordable housing is generated.
Nationally the largest subsidy for affordable housing development1 is the Low-Income Housing Tax Credit (LIHTC), a federal tax credit given for investment in affordable rental housing. Despite its importance, LIHTC covers only a portion of affordable housing development costs and without funding provided by local government it is nearly impossible to leverage tax credits and other sources to make affordable housing financially feasible. In addition, construction and land costs are much higher in San Francisco than most other parts of the state or country make local funding more essential to affordable housing.
San Francisco’s Funding and Expenditures for Affordable Housing
The Mayor’s Office of Housing and Community Development (MOHCD) administers most of San Francisco’s local affordable housing funding and works with affordable housing developers and state and federal agencies to assemble the financing needed for affordable housing developments. San Francisco’s voters and elected officials have established several local funding sources for MOHCD’s affordable housing production and preservation investment including:
- Local tax revenue invested from the City’s general fund,
- In-lieu fees paid by developers of market-rate housing who choose not to include affordable housing on site under the City’s Inclusionary Housing Program,
- Jobs-housing linkage fees paid by developers of new office space,
- Voter-approved affordable housing bonds, and state and federal funds like HOME dollars that the city receives.
Up until 2012, the largest source of local affordable housing funding in San Francisco and other cities and counties in California came from Redevelopment Agencies and the revenue they raised through tax increment financing (TIF). Redevelopment was ended in California in 2012 reducing this source, however, San Francisco’s Office of Community Investment and Infrastructure (OCII) manages the implementation of already approved redevelopment plans and continues to fund affordable housing that was already designated for development as part of these redevelopment area plans.
The following chart shows San Francisco’s affordable housing expenditures from 2005-2018 by funding source. Expenditures vary widely from less than $40 million in some years to nearly $140 million in other years due to the variability of the funding sources. Up until 2012, Redevelopment provided well over 50 percent of annual affordable housing funding. Since then, Redevelopment has declined and other sources, such as impact fees, have increased in importance. Many of these funding sources are one-time allocations (housing bonds) or fluctuate annually with economic and budgetary conditions (in-lieu fees, jobs housing linkage fees, general fund contributions, and federal and state grants).
The amount of local funding available annually determines how much affordable housing is produced or preserved and how quickly affordable housing projects are completed. Affordable housing development sites can sit for years and preservation opportunities may be missed due to lack of funding. The number of units produced and preserved annually reflects the variability in funding shown in previous charts ranging from less than 500 units to nearly 1500 units in different years.
Annual funding expended does not neatly align with annual units produced or preserved because permitting, financing, constructing, and certifying housing for occupancy may not occur in the same year funding was provided. In addition, MOHCD may fund an affordable development over several years including site acquisition, predevelopment work, and construction. In 2016 and 2018 the city provided local funding and was able to use federal funding available through the RAD program along with tax credits and private investment to rehabilitate over 3,000 affordable housing units owned by SFHA.
What Are New Funding Initiatives?
In 2018 over 61 percent of San Francisco voters approved Proposition C to provide permanent funding for homeless programs including housing through a gross receipts tax on businesses that have revenues over $50 million per year. If implemented, Proposition C is estimated to generate $300 hundred million annually for homeless programs. The Proposition currently faces a legal challenge about whether it met California’s voter approval requirements applicable for some local taxes.
In September 2018, Mayor London N. Breed announced a commitment of $100 million in City funding to purchase affordable housing made using modular construction built in San Francisco. The commitment represents the first production order for a new modular housing facility that will be built in the City in partnership with the San Francisco Building Trades. In early 2019, Mayor Breed also announced a ballot measure that would amend the charter to guarantee as-of-right approval for 100 percent affordable housing if the development meets local regulations.
In April 2019, Supervisor Fewer introduced an ordinance to amend the Administrative Code to establish the Affordable Housing Production and Preservation Fund. This Fund will receive 50 percent of all projected excess Education Revenue Augmentation Fund (ERAF) revenue for the purpose of funding land acquisition and production of new 100 percent affordable housing projects as well as acquisition and preservation of existing housing to make that housing permanently affordable. The Board of Supervisors passed the ordinance in June 2019.
In May 2019, Mayor Breed and Board of Supervisors President Norman Yee announced a $600 million Affordable Housing Bond, which would fund the creation, preservation, and rehabilitation of affordable housing in San Francisco.
Issues Related to Funding Affordable Housing
The variability of local funding sources and the need for multiple sources to help make an affordable housing project feasible leads to inconsistent numbers of affordable housing produced or preserved year over year. The ability to leverage federal and state funding and use innovative and flexible funding sources also depends on local funding availability. The crucial role that local funding plays in production and preservation of affordable housing and protections for current residents emphasizes the need to sustain and expand consistent affordable housing funding to the extent possible.
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.
Increase affordable housing funding
Continue to pursue additional funding through local and regional bond measures, among other potential sources. Federal and State funding for affordable housing has dropped significantly in recent decades, leaving local municipalities to increasingly find alternative funds for 100 percent affordable housing projects.
| Type of Response | Mitigation |
|---|---|
| Type of Task | Funding
|
| Resource | More information required |
| Complexity | Complex (generally major legislation, and/or new program required, and more than three agencies involved)
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD) |
| Key Priority | Yes - Enhancements to Existing City Programs and Policies |
| Benefit | Additional sources would provide an increased, stable stream of funding for affordable projects. |
| Challenge | Some sources rely on significant voter support, such as placing new bond measures on the ballot. |
Low-Income Housing Tax Credits
Learn More »FOOTNOTES:
1. Affordable housing development is not the largest government housing subsidy program. At over $70 billion per year, the federal mortgage interest deduction, which primarily benefits higher income homeowners, is by far the largest government housing subsidy. Homeowners can also deduct local property taxes from their income. For lower income renters the largest subsidy is tenant rental assistance, often called Housing Choice Vouchers (HCVs) or Section 8, which helps lower income renters afford housing in the private market. In some cases, rental assistance in project-based, providing deeper affordability for tenants in specific housing developments. Because federal funding for rental assistance is limited, most households that could qualify for assistance based on income and need do not receive rental assistance. For more on government housing spending see the Center on Budget and Policy Priorities (CBPP) analysis of federal spending and housing needs.
