The Affordable Housing Disaster

The city's condition for the bailout: Mercy Housing had to completely take over the construction management from HCDC, which would remain a co-developer of the project in name only. Public records suggest that municipal housing officials believed the city had put too much money into the project to let it, and HCDC, tank. But they did force HCDC to give up all of its $550,000 developer fee for the project. (HCDC declined to comment on these matters.)

The developer fees that nonprofits earn from affordable housing projects are calculated as percentages of overall costs. As a perverse result, these development firms are ordinarily rewarded with higher and higher fees, the more expensive the projects become.

In theory, federal and city housing officials watch over these budgets to keep waste and mismanagement under control. But it can be difficult to attend completely to complicated affordable housing projects if you get distracted by the revolving door that seems to connect the public and private sectors of San Francisco's housing bureaucracy.

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As HUD was ridding Geneva Towers of residents, L.P. Lewis, a HUD official, regularly attended tenant council meetings, advising the tenants on financial issues. Lewis retired from HUD in March 1995. But he continued to attend tenant meetings as a member of the resident council.

Lewis, although never a tenant of Geneva Towers, subsequently became president of the board of directors of the Geneva Valley Development Corporation, a nonprofit, supposedly governed by former tenants, formed to participate in building replacement housing. In his new role, he was a developer of Heritage Homes, and frequently lobbied his former HUD colleagues for money.

Federal law prohibits former HUD employees from lobbying the agency on matters in which they participated while employed by the government. This is a lifelong conflict-of-interest restriction. Public records show that Lewis apparently violated this restriction on many occasions. (Lewis and HUD officials declined to return repeated telephone calls seeking comment on this apparent conflict.)

Senior officials at the Mayor's Office of Housing were responsible for scrutinizing the finances of the three projects that are to replace Geneva Towers, and apparently took that responsibility seriously, rejecting tens of thousands of dollars in bogus invoices from suspect "consultants" allied with Mercy Housing and HCDC. That made it all the more questionable when the lead official on the project in the Mayor's Office, Alice Talcott, danced through the revolving door and into the private sector.

Talcott oversaw the finances of Heritage Homes, Britton Courts, and John King Senior Community from 1995 until late 1998. HCDC was involved in two of those projects; the nonprofit developer's financial consultant was an Oakland-based company, Community Economics, Inc. When Talcott quit working for the Mayor's Office of Housing in 1998, she almost immediately went to work for Community Economics, eventually billing HCDC thousands of dollars for consulting on Britton Courts.

In other words, Talcott went from approving and overseeing loans and grants of city money to HCDC to being paid from these same pots of money.

Government codes generally prohibit city employees from becoming financially interested in projects over which they have had authority, for at least two years after leaving municipal employment.

Talcott said she sees "nothing wrong" with what she did, and whether Lewis or Talcott broke any laws is a matter for public lawyers and the courts to decide. Clearly, however, they worked on both sides of the public-private housing fence, and they were not the only fence-hoppers.

The public record on Geneva Towers shows repeated attempts by a HUD consultant to pass himself off as a public housing tenant, in attempts to obtain government grants that he and his firm were not due. The consultant was identified, and the grants were not given -- but the consultant apparently was not punished in any way for his actions.

Meanwhile, the board of directors of HCDC is itself composed mostly of former city and federal housing bureaucrats.

These regular shifts from public to private sector cannot help but blur lines of responsibility, and raise questions about the ultimate loyalties of the government departments charged with overseeing the affordable housing program. Yet the revolving door is used so often here that it has become largely invisible, even to the most well-meaning of officials in the public housing bureaucracy.

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Years ago, San Francisco put its affordable housing eggs in the nonprofit basket. Although for-profit developers have applied for affordable housing projects, the city chooses, almost exclusively, to use a small set of nonprofits as affordable housing providers.

The results of San Francisco's nonprofit-based affordable housing policy have been entirely unimpressive, particularly in terms of numbers of units built. The city needs 18,000 affordable housing units to serve the existing population of San Francisco, according to the Mayor's Office of Housing. Fewer than 2,000 affordable housing units have been built in San Francisco since 1994. Another 2,000 or so are in the housing pipeline, awaiting approvals from the city (if opposition from neighborhood groups can be overcome).

There seems to be plenty of money available for public housing. In addition to a $100 million pot of affordable housing bond funds, the city has access to millions of dollars in affordable housing fees paid by market-rate developers, and enormous amounts of federal tax credits available to affordable housing developers. Conventional wisdom notwithstanding, there also is plenty of room for affordable housing in San Francisco.

There are, however, many constraints on the construction of affordable housing in San Francisco, including organized neighborhood opposition, illogical zoning restrictions, and rent control. But one very real constraint on affordable housing construction here is a reliance on nonprofit developers who are focused on things other than production. One local housing consultant, who asked not to be identified, said the Council of Community Housing Organizations, an umbrella organization of 20 local affordable housing developers, spends more time on backroom politics and protecting turf than it does on proposals to build more affordable housing.

And many observers say the nonprofit developers are most often the initiators of affordable housing here; when they don't propose, the city government simply does not embark on affordable housing projects.

Of course, the affordable housing problem cannot be laid wholly at the feet of the nonprofits. Even the Mayor's Office of Housing acknowledges the city's own bureaucracy has been ineffectual in attaining affordable housing goals. And some of that ineffectuality has nothing to do with nonprofits.

(For example, in response to public pressure for affordable housing, the Planning Commission required developers of market-rate multifamily housing to set aside 10 percent of their project's units as affordable housing, to be leased at under-market rates. Under that policy, some 1,400 units of affordable housing should have come on line since 1990. For a variety of Byzantine political reasons, however, they agreed to waive the affordable housing requirement for all but 112 affordable condominiums and 27 affordable apartments during that time.)

By and large, however, San Francisco's nonprofit-based approach to affordable housing has simply not built anywhere near enough of it to serve the numbers of low-income people who need places to live. What does get built often winds up being too expensive for the poor people it was meant to serve.

For all its faults, Geneva Towers was affordable. The families of Geneva Towers made $9,000 a year, on average; they paid $275 in monthly rent, on average.

When they are completed, most of the new apartments at Heritage Homes and Britton Courts, however, must be rented to families who enjoy annual incomes of, on average, $33,000. The "target" income for a four-person family in the new housing is $44,000.

A two-bedroom apartment at Heritage Homes will rent for a bit more than $1,000 a month, which is a fabulous price in San Francisco -- and entirely unattainable for the 50,000 local families who earn under $15,000 a year.

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The average live-work loft in San Francisco costs about $180,000 to build, not counting the cost of the land under it. Such lofts are aimed at an upscale clientele -- composed mostly of the widely mocked class known as young urban professionals -- with income of well above $100,000 per year.

The average unit in the developments meant to replace Geneva Towers is costing about $240,000 to build, excluding land costs. Such units are aimed, by and large, at families with incomes of less than $44,000.

In other words, luxury housing in San Francisco is being built for 25 percent less than our housing bureaucracy pays for apartment/town houses for the poor.

Comparing the costs of affordable and market-rate housing is a very inexact science; the nonprofits that produce low-income housing have overhead costs -- hiring expensive consultants to broker the complex financing, for example -- that market-rate developers do not. And for-profit developers are not a quick and dirty answer to affordable housing shortages, says national housing expert Judy Reed, president of a Seattle-based consortium of lenders.

"Affordable housing cannot just be left to capitalism, even though private developers tend to build it more quickly and for less money," she says.