San Francisco Developer Proposes Private Housing Project in 2014. City Delays For Years Before Deciding to Spend Millions Developing the Site Itself. Construction Might Start by 2022.

Delaying housing projects for years will not make cities more affordable.

A San Francisco developer appears to have won a battle but lost a war. The city granted the company permission to start building an apartment building, but only after it agreed to conditions so onerous that the project has become totally uneconomical. Now the city will take over the project. Eventually.

Lennar Multifamiely Properties (LMP) spent years trying to get permission to build a 157-unit mixed-use apartment building at 1515 South Van Ness Street in San Francisco's Mission District, with 12 percent of these units being rented out at a discount to low-income renters.

These plans, first floated in 2014, sparked protests from neighborhood activists in the Mission, many of whom oppose the construction of any new market-rate housing in the rapidly gentrifying neighborhood.

With the aid of friendly city politicians and a byzantine approval process, these activists were able to delay approval of the project until the developer agreed to a number of concessions.

In March 2017, LMP agreed to double the number of affordable units in the building, to rent out commercial space in the building at below-market rates, to pay $1 million to a neighborhood community group, and to allow the Van Ness site to be used as a temporary homeless shelter for nine months before construction started.

The homeless shelter had come and gone by June 2018—and then the site sat vacant for more than a year while the costs of labor and materials continued to rise.

Finally, San Francisco Mayor London Breed announced this week that the city would be purchasing the site to build a 150-unit affordable housing complex instead.

Reports in the San Francisco Chronicle and Mission Local suggest that the city will pay $18 million for the land and that the project will cost another $45 million to develop. Provided a new housing bond is approved by voters in November, construction will start in about three years.

Should that bond fail, things could take longer.

That a building first proposed in 2014 might begin construction in 2022 is, we're told, a victory for housing affordability. By stopping a market-rate development and replacing it with public housing, low-income residents will purportedly have more housing options.

"On this land, we fought Lennar—and this is a happy ending," said Roberto Hernadez, a prominent anti-development activist, to Mission Local.

"For too long we have not built enough housing, especially affordable housing, and we are working to change that with investments like this one," San Francisco Mayor London Breed told the Chronicle.

It may sound plausible, but it's probably wrong. Indeed, this is an excellent example of why San Francisco's housing affordability problems keep getting worse. As the city waits another half decade or so for affordable housing to be completed at the South Van Ness site, the wealthier residents who would have moved into that building will instead compete with lower-income renters for existing units, bidding up their price.

Had LMP's project been allowed to go forward when it was first proposed, those same renters would have vacated their existing units, opening up more housing for those who are unlikely to be able to afford to rent a new, market-rate apartment.

This is not just speculation. A March working paper by the economist Evan Mast suggests that new luxury developments increase supply while reducing demand in poorer neighborhoods throughout the city, which can have an immediate, depressing effect on rents in those areas.

Mast looked at 802 new luxury market-rate developments across 12 cities, identifying the individual residents moving into these buildings and where they were moving from. He found that 30 percent of the residents of new luxury developments were coming from neighborhoods that had below-median incomes. When he looked at who was moving into the units these people were vacating, he found that even more of this second cohort were coming from below-median income neighborhoods.

By following these moves back six rounds, Mast found that some 48 percent of movers were coming from below-median income neighborhoods, and that 20 percent of these movers were coming from the poorest fifth of neighborhoods.

"These findings suggest that housing markets aren't nearly as segregated as some might fear, if you work your way down the migration chain far enough," writes Nolan Gray in CityLab. "This suggests that even pricey new units could free up a lot of existing housing."

San Francisco's politicians and many of its neighborhood activists reject this view of housing, instead reflexively opposing new market-rate construction. The likely result of this that more and more people in the city will continue to compete over a stagnating supply of units while waiting years for new public housing to come online.

None of this, of course, even touches on the costs to the taxpayer who will now foot the bill for a development that was going to be funded by private capital.

Meanwhile, the city's housing crisis continues unabated.