In the face of increasing pressure on tenants, the City developed the Small Sites Program with community organizations, non-profits, developers, lenders, and realtors to support non-profit and for-profit entities to successfully acquire multi-family rental buildings placed on the market and rehabilitate to preserve them.
Background
What is the Small Sites Program?
Launched in 2014, the program was created to protect low- and moderate-income tenants and establish long-term affordable housing in smaller rental properties throughout San Francisco. It is generally less costly to acquire rather than build new housing, and it is generally more effective to stabilize tenants in their existing homes rather than relocate them. The Mayor’s Office of Housing and Community Development (MOHCD) operates, monitors and provides subsidies for the program, and for- and non-profit organizations are responsible for the acquisition, rehabilitation, and management of Small Sites buildings.
Since 2014, the Small Sites program has acquired 38 buildings (308 units). Additionally, 20 commercial spaces in some of the participating small sites buildings will be preserved through the program. Since its first year, the program expanded to include buildings with risk factors: ADUs, mixed-use buildings, commercial developments, SROs, and larger buildings.
As of February 2018, the average acquisition cost per unit is $360,568, excluding closing or rehabilitation costs. The average rehabilitation costs per unit, not including construction contingency, is $65,339. The San Francisco Housing Accelerator Fund (SFHAF) is one of several sources of funding, depending on availability and need. SFHAF allows for more rapid and flexible funding that Small Sites acquisition requires to purchase at-risk properties on the market.
Why is Preserving Small Sites Important?
The Small Sites program preserves affordable housing for low- and middle-income residents and can contribute to neighborhood and commercial stability when ground floor commercial spaces exist in acquired residential buildings.
Key Trends
Most small sites are in the eastern portion of the city in predominantly low-income neighborhoods: Tenderloin, Mission and Excelsior.
This could be due to the capacity of community organizations and the building typologies in these neighborhoods. These neighborhoods are either at risk of gentrification and displacement or experiencing gentrification and displacement.1
In 2018, Latinx residents made up 42 percent and white residents make up 30 percent of small site tenant residents.
This and the trend below may be somewhat indicative of both neighborhood-based organization capacity to acquire small sites and their targeted tenant populations to protect when tenant-occupied buildings are listed for sale.
In 2018, the majority (76 percent) of households were classified as extremely low- to low-income tenants, where income data is available.
Most existing and future small sites buildings are one- to nine-unit buildings.
One third of small site units are studios and another third are one bedroom.
Eviction rate from the program is less than 1 percent.
What’s Happening Now to Enhance the Small Sites Program?
The Board of Supervisors passed Community Opportunity to Purchase Act (COPA) in April 2019, which provides affordable housing non-profits the right of first purchase and the right of first refusal should a landlord decide to sell a multifamily residential building of at least 3 units or land that is zoned to accommodate at least 3 dwelling units. MOHCD is tasked with implementing COPA.
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. The Housing Affordability Strategy is currently investigating potential funding sources to produce and preserve affordable housing in the city.
The San Francisco Housing Accelerator Fund (SFHAF) and Council of Community Housing Organizations (CCHO) are convening Peer Preservation Learning forums with community organizations to discuss housing protection and preservation opportunities related to the Small Sites Program.
MOHCD is developing a “Large Sites” acquisition program for larger buildings (25 to 100 units), which would offer greater opportunities to subsidize units at deeper affordability levels.
Issues Related to Small Sites Preservation
The biggest challenge to the Small Sites Program is San Francisco’s inflated market prices. Without a market intervention, the program is forced to operate within a hot market. Therefore, organizations are competing to purchase buildings at inflated costs, limiting the number of buildings that can be acquired at any given time. This creates a challenge for the program: to use the limited resources to purchase larger, more cost-effective buildings for long-time preservation of affordable housing; or, to purchase smaller, higher-cost units where tenants are at imminent risk of eviction. Eviction activity is happening more frequently in the two- to four-unit buildings.
Currently, there are six community organizations utilizing the Small Sites Program, of which only a few are implementing the program outside of their “host” neighborhood. This leaves limited service in most areas of the city that are eligible. Additionally, participating project sponsors receiving City subsidies to perform housing preservation work must have a high capacity and previous history of development. While other organizations may express interest in participating in the program, an inexperienced portfolio and/or low staff capacity may preclude them from participation. Most of the site selection is opportunity-driven.
City funds are always used to cover gap financing in the acquisition of small sites, yet limited resources restrict the number of projects that can be acquired. There is a need for dedicated equity for acquisition; otherwise the scale of the program will be limited. Currently, the only dedicated source of funds is a portion of in-lieu fees and the rest are one-off or sources that are volatile, short-term, and dependent on the real estate market.
Smaller sites also have steeper compliance challenges than larger- and moderate-sized acquisitions and rehabilitations. Small buildings, often operated by non-professionalized individuals or mom-and-pop businesses, tend to need the most improvements. When buildings get acquired through the Small Sites Program, the rehabilitation needed to bring smaller buildings up to code is much costlier and more burdensome. The rigorous rehabilitation requirements can consume all an organization’s resources and prevent them from acquiring more buildings.
MOHCD currently collects detailed demographics data on households participating in the Small Sites program. This has been helpful in monitoring and tracking progress of the program. However, some of the data has gaps and does not provide a complete picture of the households and commercial tenants that are in the program.
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 program efficiency through policy changes
Eligibility criteria of small sites clarification
Creating metrics based on displacement and gentrification risk, risk of eviction, building size and unit type could inform Small Sites Program priorities. Residents of eligible buildings that fall outside of these criteria could be redirected to a different program, such as the BMR Program.
| Type of Response | Mitigation |
|---|---|
| Type of Task | Data, Regulation, 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), San Francisco Housing Accelerator Fund (SFHAF), and community partners |
| Benefit | Clarification of selection criteria could potentially alleviate the preservation versus anti-displacement challenge that the Small Sites Program is currently experiencing. |
| Challenge | Narrowing the scope of eligibility for small sites could impact prospective acquisitions and reduce the overall number of small sites acquisitions. |
Increase program efficiency through policy changes
Small Sites Program and process review
The Small Sites Program does not currently have a process in place to comprehensively assess for adjustments. Mayor's Office of Housing and Community Development (MOHCD) staff could explore working with partners in the program (nonprofit organizations, lenders, realtors, tenants, etc.) to develop a set of metrics or targets for evaluation and process for which to monitor these metrics. As tenants have previously declined participation in the program, data on why they made this decision would also be a useful tool for program evaluation. These assessments could be incorporated into Mayor's Office of Housing and Community Development (MOHCD)’s annual report of the Small Sites program.
| Type of Response | Mitigation |
|---|---|
| Type of Task | Data
|
| Resource | Generally only staff time would be required
|
| Complexity | Less Complex (generally no or limited legislation and/or an existing program, and one agency involved)
|
| Timing | Short Term (1 year or under)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD) and community partners |
| Benefit | Expanding data collection could help further amendments to the small sites program. |
| Challenge | Getting more information and storing this data requires additional staff resources. Tenants may not be comfortable providing the requested information. |
Increase program efficiency through policy changes
Systematic and proactive site identification
Various City agencies, such as Planning and Mayor's Office of Housing and Community Development (MOHCD), receive timely information on foreclosures, property transfers, and major rehabilitations. If shared with non-profits, this information could provide a signal that these buildings could be become Ellis Act evictions or buy-outs. Equipped with this information, non-profits would be aware of potentially eligible properties earlier in the process, have more opportunities to acquire buildings and protect existing tenants. Finding a way to systematize the identification and use of these “trigger points” would facilitate the implementation of Small Sites Program process. Preventing evictions or buy-outs is more affordable than an acquisition or rehabilitation once the building has already been sold and purchased by private investors.
| Type of Response | Prevention |
|---|---|
| Type of Task | Data
|
| 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), Housing Accelerator, and community partners |
| Benefit | Organizations and agencies interested in preserving affordable units can be notified ahead of time in order to gather funds and other needs for acquisition in a timely manner. |
| Challenge | Such a notification will most likely need to be public information, thus giving everyone a fair chance at acquisition but potentially creating bidding wars. |
Increase program efficiency through policy changes
Non-profit capacity-building
As included in the recent Notice of Funding Availability for the Small Sites Program, expanding the reach of the Small Sites Program and the organizational capacity to support it can be achieved through an increase in outreach and information dissemination to tenants in other eligible areas through partnerships with homeownership counseling agencies and tenant counseling organizations. Neighborhoods with fewer Small Sites do not have dedicated community organizations with experience in property acquisition, development, and management. Building non-profit capacity in neighborhoods experiencing high eviction rates and hosting several eligible buildings for the program could expand the use of the program to areas of need in the city. Additionally, non-profits identified gaps needed to support preservation: tenant relocation, marketing and leasing up, and property management; and, they requested training to expand these service areas.
| Type of Response | Early intervention, Prevention |
|---|---|
| Type of Task | Funding, Policy implementation
|
| 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 | Neighborhood-based |
| Partners | Mayor's Office of Housing and Community Development (MOHCD), Housing Accelerator, and community partners |
| Key Priority | Yes - Enhancements to Existing City Programs and Policies |
| Benefit | Improved efficiency of the Small Sites Program increases its potential to be scaled up, allowing for more buildings to be acquired and preserved and more at-risk tenants that could be stabilized. |
| Challenge | These changes can be costly and time intensive, which could hinder the program’s ability to serve at-risk tenants. |
Affordable housing acquisition through Community Opportunity to Purchase Act
The Board of Supervisors recently passed COPA, which provides affordable housing non-profits the right of first purchase and the right of first refusal could a landlord decide to sell a multifamily residential building of at least three units or land that is zoned to accommodate at least three dwelling units.
| Type of Response | Prevention |
|---|---|
| Type of Task | Policy implementation
|
| 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 developers, community partners |
| Benefit | Greater opportunity for non-profits to acquire affordable housing at-risk and ensure it remains affordable. Preventing eviction of tenants who might be at risk from a sale. |
| Challenge | Limited funding to support acquisition efforts. Need to build community capacity to purchase and manage buildings throughout the City. |
Planning fee and code changes to improve program efficacy
The addition of ADUs in Small Sites projects could be prioritized and their approval streamlined be streamlined and under the Office of ADU. The Small Sites program would benefit from ADU fee waivers through the City process.
| Type of Response | Mitigation |
|---|---|
| Type of Task | Regulation, Policy implementation
|
| 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 | Short Term (1 year and under)
|
| Geographic Scale | Citywide |
| Partners | Planning Department |
| Benefit | Changes to the Planning Fee and Code can help project sponsors allocate more funding towards acquisition and rehabilitation of more buildings. |
| Challenge | Changes to the Planning Fee and Code can be a lengthy process. |
Increased and Consistent Funding
Consistent funding for housing preservation
There is an opportunity to identify a consistent source of funding for both affordable housing preservation and production. The Small Sites Program could receive a portion of the funding depending on good purchase opportunities. Currently, project sponsors rely on the Small Sites Program development fees to cover their staffing costs, which only get received upon approval of the project. Securing funding to do technical assistance would build the capacity of other non-profits who want to utilize the SSP to acquire and rehabilitate properties. This would also help ensure that the portfolio and knowledge is shared amongst various organizations, as well as increase the geographies and populations served. Funding could also provide renovations to minimize maintenance costs.
| Type of Response | Mitigation, Prevention |
|---|---|
| Type of Task | Funding
|
| Resource | Extensive funding (the kind typically required for capital investments) and staff time would be 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) and community partners |
| Key Priority | Yes - Enhancements to Existing City Programs and Policies |
| Benefit | A higher and more predictable amount of funding would allow the program to scale up and increase its pace acquisition. |
| Challenge | Limited funding is available and allocating more resources towards acquisition and preservation could take away funding from new affordable housing production. |
Increased and Consistent Funding
Identify additional funding sources
The San Francisco Housing Accelerator Fund (SFHAF) has helped and can continue to provide acquisition funding for projects and alleviate MOHCD’s limitations related to deploying acquisition funding at the speed of the market. However, the HAF program is costly and does not have a dedicated source of funding. The City’s Preservation and Seismic Safety Program (PASS) has been providing low cost and long term “takeout” financing for Small Sites projects. However, the PASS funds are limited and don’t revolve.
| Type of Response | Prevention |
|---|---|
| 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), San Francisco Housing Accelerator Fund (SFHAF), and community partners |
| Key Priority | Yes - Enhancements to Existing City Programs and Policies |
| Benefit | A higher and more predictable amount of funding would allow the program to scale up and increase its pace acquisition. |
| Challenge | Limited funding is available and allocating more resources towards acquisition and preservation could take away funding from new affordable housing production. |
