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How to finance Low-income housing

June 1, 2015

By Guest Writer

The article below shows, very clearly, the deeply serious problem we have with affordable housing nonprofits depending on in lieu fees from huge market rate development towers; which in turn leads the nonprofits to support projects which are bad for the city.

It is crucial that we vastly increase funding for affordable housing and make that funding totally independent of real estate developer money and projects.

And we need to institute a citywide moratorium on market rate housing and simply force these massively wealthy developers to actually build real and substantial affordable housing until San Francisco is made whole.

Here is the article:

Luxury tower shortfall hurts low-income family housing deal
By J.K. Dineen : SF Chronicle – May 28, 2015 excerpt

A low-income family housing development planned for the Tenderloin is facing a $10 million shortfall after a downtown builder scaled back a deluxe waterfront project slated to help bankroll the affordable complex.

Facing opposition from neighborhood residents, New York developer Paramount Group has agreed to shrink a long-planned tower proposed for 75 Howard St. from 290 to 220 feet. The latest modification marked the second time the project has been chopped — originally the developer had hoped to build a 348-foot tower.

The shortened proposal, first reported by the San Francisco Business Times, cuts Paramount’s “in lieu” payment — the amount of cash the developer pays into the city’s affordable housing fund — from $19.6 million to between $9 million and $10 million. That money is earmarked to help pay for 168-186 Eddy St., a 103-unit project Tenderloin Neighborhood Development Corp. is set to build on a surface parking lot at the corner of Taylor and Eddy streets.

Money to be replaced

“It is disappointing,” TNDC Executive Director Don Falk told The Chronicle. “I had hoped that their (75 Howard) project might find political acceptance, in which case our affordable family project at Eddy and Taylor would have really benefited.”

Falk said he is confident that the money will be replaced.

“Mayor (Ed) Lee and Supervisor (Jane) Kim are genuinely committed to seeing Eddy and Taylor happen. I am confident with their support we are going to find that $10 million and get the building built.”

The latest twist in the 75 Howard St. saga shows how in San Francisco the fate of affordable and market-rate housing are inexorably linked. Affordable builders like TNDC rely on the deluxe housing to fund their projects. Meanwhile, savvy market-rate builders successfully win community support for large downtown projects by agreeing to produce desperately needed housing for poor and moderate-income residents.

Calculations tricky

But the calculations are always tricky — and ever shifting. In the case of 75 Howard St., the political opposition to a tower that rose well beyond the waterfront height limit of 220 feet threatened to mobilize the “No Wall on the Waterfront” coalition that successfully torpedoed projects like the condominiums at 8 Washington St. For a while it seemed as if Paramount had a political ace in the hole in the form of the Tenderloin project. But in the end the waterfront height issue trumped the affordable housing card.

Falk called neighborhood opposition to the taller tower “understandable.”

Negotiating 2 years

TNDC has owned the site for seven years and has been negotiating the deal with Paramount for over two years. The delays and most recent setback mean that TNDC probably will be further slammed by rising construction costs, which have increased 60 percent since the group started working on Eddy and Taylor. While a hot market allows market-rate developers to make up for rising construction by charging a higher price per square foot, that’s not an option for affordable developers.

“Construction costs are creating very, very strong headwinds,” Falk said. “In the affordable housing world our rents don’t go up when there is a hot economy. The only way to pay is more public subsidy.”

Supervisor Kim said that Taylor and Eddy has an advantage over other affordable housing sites because it’s entitled, designed and already owned by a below-market-rate housing developer. “It’s a location where we already have site control, and there are only a limited number of those in the pipeline.”

And even the new version of 75 Howard St. is not satisfying everyone. David Osgood, who has led the effort against the project, said it should be brought down farther and tapered in a way that it doesn’t cast shadows on Rincon Park.

– Eric

Another way to finance Low-income housing may come from Washington in the form of tax incentives. Is this a better solution?

SB 377 on Senate Floor this Week… As a reminder, though not part of the Building Homes and Jobs Package, SB 377 (Beall) is complimentary to AB 35 (Chiu) in that it would allow the sale of State Low Income Housing Tax Credits. This would significantly increase the value of the state Low Income Housing Tax Credit (LIHTC) and therefore the public benefit by largely eliminating the federal tax impacts currently created when investors claim state credits. There is no additional fiscal impact to the state and several other states already allow tax credits to be “certificated” in this manner.

For the SB 377 Fact Sheet and template support letter, please click HERE.

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