San Francisco wants to buy out landlords before luxury developers do

By LIZA VEALE MAR 1, 2017   http://kalw.org/post/san-francisco-wants-buy-out-landlords-luxury-developers-do#stream/0 

Cheap rental housing can feel like a vanishing resource in San Francisco. Property owners are selling buildings for multiples of what they originally bought them for, and who can blame them? But the consequence is that almost all the units are getting fixed up and turned into luxury housing. It’s the way of the market, and it can seem inevitable. But what if it’s not?

In San Francisco, the city has begun trying to preserve its existing affordable housing by buying out landlords before flippers can get to them first. It’s called the Small Sites Acquisition and Rehab Program. And it just got a big boost in funding thanks to Prop C, which passed last November.

When San Francisco residents Rhea and Joel St. Julien had a baby, they knew they wanted to move out of their one bedroom apartment. They were determined to stay in the city, but they couldn’t find anything they could afford on social worker and artist salaries. Well, their daughter is six now. She still sleeps on a couch next to their bed. They refuse to leave the city.

“We’re just really stubborn!” says Joel. “I think we're stubborn about commitment.”

“We've been together 16 years,” adds Rhea, “So we don’t quit.”

But that stubbornness just paid off. A few months ago, they put their names in a lottery to live in the Pigeon Palace, an old Victorian apartment building they were told was lifetime affordable housing. They didn’t have the details, they’d been disappointed by low-income housing lotteries before, it felt like a shot in the dark. Then, their names were drawn.

“Resisting displacement!” Rhea cheers, “We are so excited.”

Buying out private landlords

What is this too-good-to-be-true lifetime housing? It’s a unit in a rent-controlled building that used to be privately-owned, but was bought by a non-profit, the San Francisco Community Land Trust. Rents are set on a sliding scale, according to residents’ income.

The city has begun putting up money for organizations like the land trust, to rescue the homes of working and middle class people. Over the past two years, 22 rent controlled buildings in San Francisco have been put into the hands of nonprofits. When buildings are bought this way, it’s the last time they will ever be bought or sold again.

“This is permanent,” says Rhea, “we will die in this apartment.”

Most people living in these buildings were already living there. But once a unit frees up—someone moves or passes away—they can bring in a new family like the St. Juliens.

“Real estate is a very capitalistic game in San Francisco,” says Tyler MacMillan, director of the Community Land Trust that bought the Pigeon Palace.

The plan is about rescuing small apartment buildings that are rent controlled and for that reason especially attractive to real estate speculators, who can command higher rents if they can evict existing tenants.

“So the Small Sites strategy simply takes that opportunity at those buildings away, and says 'You're not going to come displace the folks at this property because we're gonna put it in trusts, and you’re not going be able to buy it and flip it and evict everyone,'” Macmillan says.

The Small Sites strategy was kicked off a couple of years ago after grassroots organizers petitioned the city to start a loan program. Nonprofits do the operations, but the city pays for the buildings and the rehab work. The rents from tenants go toward paying that money back to the city. But the rents are low, so it will be a while.

“Folks wonder ‘how the heck does that loan ever get paid back?’” says MacMillan. “Usually it's a 30-year loan that gets refinanced a number of times. So you see the city of San Francisco really investing in the long haul. It may be a hundred years until they get their money but that's how important preserving these units is to the city.”

The city isn’t making money off investing in real estate this way. Neither are the nonprofits. But, eventually, if we can imagine San Francisco in a century, the buildings will be paid off, and the rent will just go toward maintenance and paying people to operate them — like Tyler Macmillans of the future.

Is it scalable?

In some countries, pretty substantial portions of the housing stock are guaranteed affordable housing, either because they’re owned by nonprofits or the government. For example, in Amsterdam and Hong Kong, half of the housing is publicly owned. Currently 10% of San Francisco’s is nonprofit owned, and that’s mostly big affordable housing complexes. How much more could come from the Small Sites?

The city hopes to buy about 100 rent controlled units per year. At that rate, all the rent controlled units in the city could be bought in just under 2,000 years. We can't do more because buying housing is expensive.

“The program needs a lot more funding,” says Kate Hartely, who runs the loan program as Deputy Director of the Mayor’s Office of Housing.

“Some people have criticized our program for being expensive, but from our perspective that extra cost is well worth it.”

Hartley explains that it actually can cost slightly more for the city to buy and rehab existing housing than to build brand new affordable housing. That’s because when the city builds they can tap into federal sources of funding, but that funding is reserved specifically for very low income people. The small sites program serves a range of incomes that average out to a little below the middle, therefore no federal funding is available.

“In our Small Sites Programs we take the tenants as we find them,” says Hartley. “Some people make good decent salaries, some people are on SSI, there are seniors, people who are disabled on fixed incomes.”

In the long run, she says, it costs less to keep it going, because the higher income tenants are subsidizing the lower income tenants and that’s a subsidy that costs the city nothing.

“It's this great income mix that at the end of the day, even though we put in a slightly higher amount at the beginning, creates a financially self sustaining model,” says Hartley.

Hartley says Small Sites is also one of the only strategies the city has for keeping middle income residents from being displaced. It might seem like middle income people should be easier to help because they don’t need as much of a subsidy, but there aren’t actually many governmental policies that help them with rental housing.

Moreover, Hartley says San Francisco needs to do something about these rent controlled units. Without making an investment now to keep them, it’s almost guaranteed that all the people living in them will eventually be replaced by higher paying ones.

An ongoing loss of affordable housing

“Eventually our rent controlled stock will all move to market rate rents,” says Hartley, “so it's really an ongoing loss of affordable housing.”

But when the Small Sites program reclaims these units from the market, the city gets to hold on to residents who aren’t rich, but who might enrich the city. For example, social workers and artists like Joel and Rhea St. Julien.

Joel says the social work he does with young people is more personal now, it’s the future of his neighborhood, his city.

Now that he’s not leaving San Francisco, he feels like he’s “investing in what will last, and I'm part of that and I have say in that.”

For Rhea, the best part is living without the precariousness of being a renter in this city.

“When you don't have resources, you don't have a 10 year plan, you’re just figuring it out as it goes. So we weren't thinking about old age other than the fact that we will never retire,” she says. “But this changes everything it changes how we think about our family, most importantly, but it changes how we want to put roots here.”

“Putting roots down” makes a difference. When people have lifetime stable housing they can build connections to everyone around them. This has been studied. Regardless of how poor a neighborhood is, when residents stay put for good, crime goes down, health improves, neighborhood schools perform better, and social nets keep people from falling through the cracks. That’s why it’s not just about the lucky ones like Rhea and Joel, it’s about the whole city.