Proposed Development
Addressing San Francisco’s affordability crisis will require increased construction of affordable multifamily residential units. To begin to combat this challenge, I am proposing the development of new units affordable to San Francisco residents earning about 70% of the area’s median income, where a nearly 13,000 unit shortage currently exists (ACS, 2017). This affordable development, called Golden Gate Apartments, will be located at 3160 Mission Street. The parcel is located along a major transit corridor with mixed use development in the amenity-rich Bernal Heights neighborhood of San Francisco. The development site is located along four metro routes, and is just blocks away from a main Bay Area Rapid Transit station. Because of the high rates of renting in this income group, the proposed development will be renter-occupied. Higher-density multifamily developments have the capacity to increase the city’s supply of residential units, so I have chosen to construct a multistory apartment building. The 7-story development will have 48 1-bedroom, 1-bathroom units across the top 6 floors, with the first floor designated as commercial. This will allow the building to maintain the character of the mixed-use transit corridor it is located on. Each 700 square foot unit will rent for $1,550 per month, which is affordable to households earning $70,000 annually.
Addressing San Francisco’s affordability crisis will require increased construction of affordable multifamily residential units. To begin to combat this challenge, I am proposing the development of new units affordable to San Francisco residents earning about 70% of the area’s median income, where a nearly 13,000 unit shortage currently exists (ACS, 2017). This affordable development, called Golden Gate Apartments, will be located at 3160 Mission Street. The parcel is located along a major transit corridor with mixed use development in the amenity-rich Bernal Heights neighborhood of San Francisco. The development site is located along four metro routes, and is just blocks away from a main Bay Area Rapid Transit station. Because of the high rates of renting in this income group, the proposed development will be renter-occupied. Higher-density multifamily developments have the capacity to increase the city’s supply of residential units, so I have chosen to construct a multistory apartment building. The 7-story development will have 48 1-bedroom, 1-bathroom units across the top 6 floors, with the first floor designated as commercial. This will allow the building to maintain the character of the mixed-use transit corridor it is located on. Each 700 square foot unit will rent for $1,550 per month, which is affordable to households earning $70,000 annually.
Due to the competitiveness of San Francisco’s real estate market, the costs associated with development are higher than they have been in the past, and investor funding is needed. The value of this parcel of land has risen substantially since its last sale for $508,325 in 1993 (San Francisco Planning Department, n.d.). The land is currently assessed at $379,894 and the existing structure at $379,402 for a total acquisition price of $759,296. The current structure, a one-story auto shop, occupies the entire square footage of the property (8,858 square feet), and would cost an estimated $44,290 to demolish. In all, the purchase and demolition of this property would cost $803,586, or about $90.72 per square foot. Total construction costs add to a projected $6,314,654, although it is likely that this number would be higher due to San Francisco’s extensive environmental review process and the Bay Area’s labor shortage (Reid & Raetz, 2018). The high cost of land and development will require 60% of this project be financed through loans. The remaining 40% of costs would be covered by developer equity.
Due to the competitiveness of San Francisco’s real estate market, the costs associated with development are higher than they have been in the past, and investor funding is needed. The value of this parcel of land has risen substantially since its last sale for $508,325 in 1993 (San Francisco Planning Department, n.d.). The land is currently assessed at $379,894 and the existing structure at $379,402 for a total acquisition price of $759,296. The current structure, a one-story auto shop, occupies the entire square footage of the property (8,858 square feet), and would cost an estimated $44,290 to demolish. In all, the purchase and demolition of this property would cost $803,586, or about $90.72 per square foot. Total construction costs add to a projected $6,314,654, although it is likely that this number would be higher due to San Francisco’s extensive environmental review process and the Bay Area’s labor shortage (Reid & Raetz, 2018). The high cost of land and development will require 60% of this project be financed through loans. The remaining 40% of costs would be covered by developer equity.
The strength of San Francisco’s housing market allows developers to accept lower target returns, and the project’s actual returns indicate that construction is feasible. Because there is such a strong demand for affordable housing in San Francisco, this development is very low-risk. A recent housing project, Natalie Gubb Commons, which is affordable to those earning 50% of the area median income, had over 7,000 households apply for just 95 units (Garfield, 2018). Although Golden Gate Apartments do target a higher income group, there is still significant demand: in the $50,000-$75,000 income bracket, there are nearly 13,000 more households than housing units affordable to them (ACS, 2017). About 4,000 of these households currently rent units that are unaffordable (ACS, 2017). Therefore, Golden Gate’s units probably will not take long to completely fill. The developer and investors may be willing to accept lower-than-average targets due to the project’s low risk, such as a 10% total project unleveraged return and 22% pre-tax leveraged return. Because of the zoning allowances described further in the following paragraph, this project is financially viable. The actual unleveraged return is 15.5%, and the actual pre-tax leveraged return is 26.2%. Actual returns therefore exceed target returns, making the project profitable to develop.
The strength of San Francisco’s housing market allows developers to accept lower target returns, and the project’s actual returns indicate that construction is feasible. Because there is such a strong demand for affordable housing in San Francisco, this development is very low-risk. A recent housing project, Natalie Gubb Commons, which is affordable to those earning 50% of the area median income, had over 7,000 households apply for just 95 units (Garfield, 2018). Although Golden Gate Apartments do target a higher income group, there is still significant demand: in the $50,000-$75,000 income bracket, there are nearly 13,000 more households than housing units affordable to them (ACS, 2017). About 4,000 of these households currently rent units that are unaffordable (ACS, 2017). Therefore, Golden Gate’s units probably will not take long to completely fill. The developer and investors may be willing to accept lower-than-average targets due to the project’s low risk, such as a 10% total project unleveraged return and 22% pre-tax leveraged return. Because of the zoning allowances described further in the following paragraph, this project is financially viable. The actual unleveraged return is 15.5%, and the actual pre-tax leveraged return is 26.2%. Actual returns therefore exceed target returns, making the project profitable to develop.
Although no subsidies or tax incentives are needed to make Golden Gate Apartments viable, its feasibility is contingent on a clause in the city’s zoning ordinance that provides allowances in site plan requirements to affordable housing projects. Because of the severity of San Francisco’s housing shortage, the city adopted the 100% Affordable Housing Bonus Program, which gives automatic relaxed density and site plan requirements to developments where all units are affordable to residents earning less than 80% of the area median income (San Francisco, California Planning Code, 2018). Key aspects of this program include a 3-story height bonus, exemption from lot area related density restrictions, reduced landscaping requirements, exemption from parking requirements, and priority processing. These changes of requirements allow for a higher density of units to be constructed, lowering the per-unit cost. Taking advantage of this program enables Golden Gate Apartments to be financially viable.
Although no subsidies or tax incentives are needed to make Golden Gate Apartments viable, its feasibility is contingent on a clause in the city’s zoning ordinance that provides allowances in site plan requirements to affordable housing projects. Because of the severity of San Francisco’s housing shortage, the city adopted the 100% Affordable Housing Bonus Program, which gives automatic relaxed density and site plan requirements to developments where all units are affordable to residents earning less than 80% of the area median income (San Francisco, California Planning Code, 2018). Key aspects of this program include a 3-story height bonus, exemption from lot area related density restrictions, reduced landscaping requirements, exemption from parking requirements, and priority processing. These changes of requirements allow for a higher density of units to be constructed, lowering the per-unit cost. Taking advantage of this program enables Golden Gate Apartments to be financially viable.
If rented for market rate, Golden Gate Apartments would not be affordable to households in the target income bracket; however, the 100% Affordable Housing Bonus Program allows the developer to profitably rent units affordable to households within this income range. At market rate, the proposed units would rent for about $2,900 (Zillow, n.d.). To afford this, a household would need an income of $116,000, which is considerably higher than the city’s median income of $103,801. However, due to the allowed changes in site plan and density granted by the 100% Affordable Housing Bonus Program, more units can be constructed so that the price is able to be reduced to $1,550. At this new rent, households earning $70,000, about 68% of the area median income, would spend just under 30% of their income on housing costs.
If rented for market rate, Golden Gate Apartments would not be affordable to households in the target income bracket; however, the 100% Affordable Housing Bonus Program allows the developer to profitably rent units affordable to households within this income range. At market rate, the proposed units would rent for about $2,900 (Zillow, n.d.). To afford this, a household would need an income of $116,000, which is considerably higher than the city’s median income of $103,801. However, due to the allowed changes in site plan and density granted by the 100% Affordable Housing Bonus Program, more units can be constructed so that the price is able to be reduced to $1,550. At this new rent, households earning $70,000, about 68% of the area median income, would spend just under 30% of their income on housing costs.
To encourage affordable housing construction, San Francisco’s 100% Affordable Housing Bonus Program allows affordable projects such as Golden Gate Apartments to be out of compliance with many of the NC-3 zoning district’s normal regulations, as long as the character of the surrounding neighborhood is maintained (San Francisco, California, Planning Code, 2018). According to the city’s zoning ordinance, the maximum residential density in this district is 73 units per acre, but I am proposing 236 units per acre, triple the allowable density. Typically, 1 parking spot per unit is required, but the proposed development incorporates no parking. The 100% Affordable Housing Bonus Program waives both of these regulations. 25% of the lot area is required to be landscaped as a rear yard in the NC-3 zone, but this development provides only 20%, as the program allows for this reduction. The parcel is zoned for 5 stories, but a 3-story density bonus is given for the construction of more affordable units. (However, in order to best blend into the Bernal Heights neighborhood, my development proposes only a 2-story bonus.) Although it is technically out of compliance with the NC-3 zoning district’s regulations, Golden Gate Apartments achieves the 100% Affordable Housing Bonus Program’s goal of providing affordable housing without compromising the character of existing neighborhoods.
To encourage affordable housing construction, San Francisco’s 100% Affordable Housing Bonus Program allows affordable projects such as Golden Gate Apartments to be out of compliance with many of the NC-3 zoning district’s normal regulations, as long as the character of the surrounding neighborhood is maintained (San Francisco, California, Planning Code, 2018). According to the city’s zoning ordinance, the maximum residential density in this district is 73 units per acre, but I am proposing 236 units per acre, triple the allowable density. Typically, 1 parking spot per unit is required, but the proposed development incorporates no parking. The 100% Affordable Housing Bonus Program waives both of these regulations. 25% of the lot area is required to be landscaped as a rear yard in the NC-3 zone, but this development provides only 20%, as the program allows for this reduction. The parcel is zoned for 5 stories, but a 3-story density bonus is given for the construction of more affordable units. (However, in order to best blend into the Bernal Heights neighborhood, my development proposes only a 2-story bonus.) Although it is technically out of compliance with the NC-3 zoning district’s regulations, Golden Gate Apartments achieves the 100% Affordable Housing Bonus Program’s goal of providing affordable housing without compromising the character of existing neighborhoods.