More Affordable-Housing Bonds?

On March 5 San Francisco voters will decide whether their city should issue $300 million in bonds to subsidize the construction of affordable housing. The matter is likely to be approved, given the voters’ track record on similar measures. In 2015 they authorized $310 million in general obligation bonds to subsidize affordable housing. In 2016 they added an additional $250.7 million. And in 2019 they approved a record $600–million bond measure.

So what does the city have to show for it all? The housing crisis has reached new heights, affordable units are as scarce as ever, and the Mayor’s Office of Housing and Community Development (MOHCD) has averaged $482 million in unspent funds for each of the past five years.

Maybe it’s time to acknowledge that “spending” isn’t a solution to the housing shortage.

It should be reasonable enough to oppose issuing any new bonds until the funds raised from previous measures are exhausted, but this sidesteps the problem of why the MOHCD has such difficulty spending the money it already has.

According to April’s performance audit of affordable-housing financing, “the accumulation of fund balance is a symptom of the lengthy project approval process and project delays for affordable and other housing projects.” In other words, subsidies might make otherwise unprofitable ventures economically viable, but they do nothing to overcome the regulatory barriers that impede construction.

The primary culprit behind the housing shortage is San Francisco’s uniquely onerous permitting system, which subjects all permits to discretionary review and empowers any citizen to contest a permit at any point in the construction process.

Permit delays add considerable expense to the building process. Builders typically finance new projects with loans, which means they have to service interest-accumulating debt for years while navigating an ocean of red tape. They also have to pay fees for each review hearing, even those initiated by private citizens, which can be numerous and unpredictable.

The desire to minimize citizen-led hearings compels city planners to be paralyzingly meticulous when conducting the initial permit review. This is an enormous task due to what the planning department itself described as a “labyrinthine” zoning code, which consists of nearly a million words.

Discretionary projects, which include all developments in San Francisco, are also subject to the California Environmental Quality Act (CEQA). Environmental review further adds to the cost of each project. One of the most reliable methods for delaying unwanted projects is to challenge environmental-impact reports. The law firm Holland & Knight conducted an extensive survey of CEQA litigation and discovered “widespread” abuse of environmental review, often to “advance non-environmental interests.”

One affordable-housing project in San Francisco’s Tenderloin district amply demonstrates how these problems constrain the housing supply. The apartment building on the corner of Eddy and Taylor streets, which offers 113 affordable units, accumulated $1 million in permit fees and took an astonishing 11 years to complete.

Given that local policies significantly inflate construction costs, affordable-housing bonds force taxpayers to cover compliance costs, but subsidies cannot fix San Francisco’s glacial permitting process. One 90-unit project that received a $15 million subsidy in 2019 from the previous bond measure has an estimated completion date of 2025. The same development in most cities outside of California would take less than 18 months.

The bond measure that voters will decide on in March promises to saddle the city with even more debt that will have to be covered by a dwindling population of taxpayers. But it will have no greater effect on the housing supply than the past three bond measures.

If San Francisco truly wants to promote the construction of affordable housing—or any housing—the city needs to end its ridiculous system of discretionary-permit review and dramatically liberalize its zoning policies. Where is the ballot measure to give citizens an opportunity to approve these necessary reforms?