Bay Area Affordable Housing Developers Look To Local Elections To Fix Funding Formula

Developers and investors continue to struggle with limited financing available for affordable housing projects in the Bay Area and statewide in California, despite the pressing need for more housing.

“We don’t have enough public money nor a streamlined process,” Daryl Carter, chairman and CEO of Avanath Capital, said at Bisnow’s San Francisco Multifamily and Affordable Housing Conference Feb. 13 at the Intercontinental San Francisco.

But election season could bring some welcome changes, panelists said at the event.

Both local and statewide elections contain consequences for the multifamily and affordable housing projects in the pipeline and in the future, with ballot measures to secure bond funding, lift taxes and divert county dollars to housing.

In San Francisco, two local propositions on the March 5 ballot could impact the real estate industry, and panelists advocated for both at the Bisnow conference.

Proposition A, which would enable the city to issue up to $300M in bonds to construct, develop or acquire affordable housing was widely praised as a necessary funding mechanism for affordable housing in the city.

Proposition C would exempt properties being converted from commercial to residential use from the transfer tax, which can be up to 6%. Certain affordable housing conversions are currently at least partially exempt from this tax.

Statewide, Proposition 1 would authorize $6.4B in bonds if approved, diverting some county funding to housing projects instead of addiction treatment or other services.

Affordable housing projects, which take years to come to fruition in the Bay Area, are dependent on funding from the state, which comes once a year and does not cover even half of the entitled projects statewide, panelists said.

If a project is ready to go but then fails to get the once-a-year competitive state funding for affordable housing projects, it sits on hold for another year.

The average rent in San Francisco is $2.6K, among the highest in the country, although rents have decreased by 3.9% in the last year. The vacancy rate is at 5.1%, per Apartment List data. Affordability has been a persistent issue in the Bay Area for years, first driven by highly paid tech workers and now worsened by unfavorable economic conditions for developers.

As for costs, developers noted that construction, labor and supply costs have yet to come down, making projects even more expensive, especially if firms have to project costs into the unknown future.

“I really feel that we have to have a lot of things fall into place with funding coming up and ballot measures, but it feels like there’s going to be an explosion of affordable housing in 2025-2026 assuming that some of these pieces fall into place,” Core Builders President Chrissie Davis said.

Affordable housing developers spoke in favor of statewide Proposition 1.

Panelists emphasized that housing is the first step to helping someone’s mental health and addiction needs, while also pointing to the need for funding in the area.

Panelists also spoke in favor of both Proposition A and C on the ballot in San Francisco.

Proposition C could be used as one tool of many, Grosvenor Managing Director of Investment Angela Biggs said on the panel.

“We just need housing, and we need to convert obsolete buildings,” Biggs said.

The outlook for housing projects, especially in San Francisco, was mixed.

“When I do the math in San Francisco, it doesn’t look good,” Mill Creek Residential Senior Managing Director Mike Kim said. “The formula is this: Butts in cubicles means heads on beds.”

He pointed to the soaring office vacancy rates and noted that it will take time for the market to react to demand even if the AI boom materializes.

“Assuming this magical massive demand comes to fore because AI turns out to be all that and a bag of chips, that’s still eight years of absorption before you start raising rents,” Kim said.