Building and operating European-style social-housing projects in San Francisco “could be financially sustainable,” concluded a city report published on Monday — a win for progressives who have long prioritized targeted affordable housing to fight the city’s housing crisis.
But its construction would be difficult, if not impossible, without low-interest loans provided to the city, the report found, because bank interest rates are too high. A San Francisco “public bank,” owned and operated by the city, could issue low-interest loans, but its establishment is likely years away.
Social housing, as defined in the city’s administrative code, is any housing project owned by the city, a nonprofit, or the residents themselves, with agreements in place aimed at “ensuring permanent affordability.” The projects would house tenants with a range of incomes that would average no more than 80 percent of the surrounding area’s median income.
In San Francisco, that’s $83,900 for a single-person household, or $119,900 for a family of four.
Social housing would be distinct from the city’s current stock of affordable housing, which is almost entirely nonprofit-run. Nonprofit affordable-housing projects also have a mix of incomes, but tend to be built for low- and very-low-income tenants.
Social housing, by contrast, would have a wider range of incomes, and could be owned by the city itself, with rents paying for upkeep.
Such housing could “fill gaps” in San Francisco’s current affordable-housing portfolio by creating more middle-income and family units, the report found, which are hard for nonprofits to finance, given state and federal funding restrictions. Such housing could also avoid “segregating low-income households in separate buildings or separate neighborhoods,” the report found.
Written by the nonpartisan San Francisco Budget and Legislative Analyst and commissioned by outgoing Supervisor Dean Preston, the “Financial Feasibility of Social Housing in San Francisco” report comes as San Francisco is woefully behind in its state mandate to approve 82,000 units by 2031. Of those, 46,000 must be affordable to moderate- and low-income residents.
Preston, for his part, noted that social housing could play a role in meeting those goals, particularly “at a time when the private market has largely stalled, and federal and state funding for affordable housing is severely limited.” Private housing construction is, currently, unable to meet the goal: Construction has declined every year since the pandemic as investors seek higher returns elsewhere.
The economic downturn, Preston added in a statement, “has also created significant opportunities for site acquisitions at lower prices.”
The report included important caveats: It found that “mixed-income social housing developments” are feasible, provided the “the right combination of financing, construction and operating costs, rental income, and investments, or subsidies.”
Namely, that means low interest rates: The city would need to obtain loans with interest rates far below those offered by banks for social housing developments to make financial sense.
The report studied six different scenarios, changing tenants’ income levels, per-unit development costs, city subsidies, and other parameters to find the winning mix. In each scenario, tenants paid 25 percent of their incomes towards rent. Those rents would cover operating costs for the buildings.
In all the feasible scenarios, the city also provided millions of dollars in up-front costs to start construction — between $430,000 to $1.3 million per unit — or other subsidies.
Importantly, in all of the feasible scenarios, loans taken out by the city had interest rates between 1 and 3 percent, far lower than the 8 percent offered by banks. At today’s bank interest rates, rents from social-housing buildings would not be enough to cover the debt on funds borrowed by the city, the report found, at least not without changes like including higher-income tenants.
A public bank, or “other low-interest loan programs,” could provide the needed financing, the report found. San Francisco has, since 2022, studied the creation of a such a bank, which would hold public money and reinvest profits into various efforts, like social housing loans. The push for a public bank has been in part led by incoming District 9 Supervisor Jackie Fielder, and last year the Board of Supervisors approved a plan to begin creating one.
But that is years away at best. San Francisco must jump over a number of state and federal hurdles: Creating a “municipal financial corporation,” operating it successfully for several years, and finally winning federal approval. A San Francisco public bank could become operational in 2028 at the earliest, according to a 2022 presentation commissioned by the city.
The only other public bank in the country is the Bank of North Dakota, which was established in 1919 and has a low-interest loan program.
Also critical for social housing in San Francisco: Development and operation costs have increased by double digits since the pandemic. In a scenario using 2024 construction costs, the social housing project had “fewer very-low and low-income households, and more above-median income households” to make the project “financially sustainable.”
San Francisco has an official policy to fund social housing, after the Board of Supervisors unanimously passed a resolution proclaiming as much in 2020. Mayor London Breed returned the legislation unsigned, indicating she opposed it.
The city has also generated hundreds of millions of dollars that could be put towards social housing, according to a June 2024 city report, after voters approved Preston’s 2020 Proposition I, which established a tax on real-estate transfers. The money goes to the city’s general fund, however, and Breed has opted not to spend it on social housing.
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