Editor’s Note: In the Feb. 10 Backyard, we reported on what holds San Francisco renters back from embracing the affordable housing-connected Small Sites Program. Find that part of the story here. In addition to those challenges, SSP advocates say the mayor’s handling of the program, including the required formula for calculating rents, is also hindering success. Read on for the details.

“This is a program that needs to be happening in big cities all over the country,” says Chloe Jackman. “The city needs to be invested in protecting this.”

Jackman is a fan of San Francisco’s Small Sites Program (SSP), which helps nonprofits acquire and rehabilitate buildings with three to 25 units where tenants are at risk of eviction, and keeps the units affordable and under nonprofit ownership. Jackman had worried about being evicted when nonprofit Mission Economic Development Agency (MEDA) — enabled by SSP — stepped in and purchased the building where she and her family rent. (Read more of Jackman’s story here.)

To date, SSP has preserved 63 buildings around the city, home to 655 households, according to the San Francisco Housing Accelerator Fund, a CDFI that provides loans for nonprofits in the program. The city’s subsidy kicks in after the first year and keeps the units affordable, while maintenance and operations are paid for by the nonprofit.

In an 8-3 vote last November, the city’s Board of Supervisors set aside an additional $64 million for SSP, paid for with a new transfer tax increase on property sales. The vote, supported by over 40 community groups, was opposed by Mayor London Breed and the three city supervisors on the basis that SSP had ongoing financial issues stemming from vacancies. The mayor previously said she would refuse to spend the money if approved, and she is under no obligation to; the funds have been placed in escrow through a veto-proof majority.

Advocates contend some of the financial issues stem from Breed’s rigid program guidelines, and the rest are part of the learning curve of an innovative program.

Immediately after the November vote, Breed made a joint announcement with two of the supervisors who opposed the $64 million allocation, stating the city would add a one-time additional $10 million to the program and usher in reforms by March 2022. No mention was made of the $64 million.

SSP does have an issue with vacancies, primarily in buildings’ higher-rent units. MEDA’s 10% vacancy rate as of November is about on par with market rate units across San Francisco. But the program needs to rent such units to subsidize the lower-rent units. And advocates point to the formula used to determine cost of rent as a central problem.

Under the program’s current guidelines, the average rent in each building must be at a level affordable to people making 80% of area median income (AMI). The Mayor’s Office of Housing and Community Development (MOHCD), which administers the program, says this is necessary so that SSP can pay for ongoing maintenance and operations. But relying on AMI can lead to wild disparities of income levels within the same building.

For instance, if some rents are set to be affordable to tenants making 30% of AMI — $28,000 for a single person — to get to the program-mandated average rent, other rents in the building have to be a price that someone making 120% of AMI, or $111,900 for a single person, could afford.

But there’s disagreement over whether the 80% of AMI figure should be a hard and fast rule. Peter Cohen and Fernando Marti are co-directors of Council of Community Housing Organizations, which represents 21 community-based housing developers throughout the city. They say the mayor’s office has not offered enough flexibility for nonprofits to decrease some rents and fill vacancies. If they are able to pay for operations and maintenance even with lower average rents, they should be permitted to do so, especially when there are vacancies, Cohen and Marti contend.

They say the formula was initially proposed as an unofficial goal but became a mandate. Now the mayor’s office insists on keeping it, they say.

“The mayor’s office will not budge,” Cohen says.

The San Francisco Housing Accelerator Fund’s CEO, Rebecca Foster, says there’s a range of factors that lead some of the buildings to require a higher per-unit subsidy than others, mostly related to how dilapidated the building was allowed to become.

Foster says COVID has harmed the program too. Some mixed-use buildings had ground-floor businesses that helped cross-subsidize affordable rents, and like all small businesses, they were hit hard by the pandemic.

Opponents of SSP assert that nonprofits are inefficient landlords and that allotting $64 million to acquisition and rehabilitation rather than producing new housing is a poor use of resources.

“We’re not huge fans of the program,” says Charley Goss, community affairs manager with the San Francisco Apartment Association, a nonprofit that advises private landlords. “We believe that the private market, property manager and owners with experience in the industry, can manage the properties better than the city or publicly funded nonprofits.” He also says the program doesn’t change the underlying problem that leads to high rents: the city’s limited housing stock.

“The Small Sites Program doesn’t add a single unit of housing to the housing stock,” he says.

But research has shown that acquisition and rehabilitation programs serve a different, complementary purpose to new housing production, according to Karen Chapple, a UC Berkeley professor who conducts research for the school’s Urban Displacement Project. Chapple says that research on housing acquisition and rehabilitation is limited — because only a handful of jurisdictions across the country practice it. But the approach has been highly successful at preventing displacement, according to a review of the literature the group published.

New housing production also prevents displacement in the long-term by decreasing overall rents, but does so with unevenly felt impacts. This can include, paradoxically, some short-term displacement, as well as rent increases in older housing stock and a loss of extremely low-income units, according to Chapple’s research.

“By building new units, you’re creating churn,” Chapple says, referring to the constant moving in and out of buildings when construction occurs. “The housing preservation and tenant protections are just superior at stabilizing communities.”

“Even if you’re replacing low income with low income, you’re still displacing those first low-income households,” she says of how neighborhoods experience churn. “The impacts are so slight that you could probably mitigate them by preserving some units. This is why the Small Sites Program is so interesting.”

She says housing production is necessary but gets over-emphasized while preservation, including housing acquisition like SSP, is downplayed. “I think we’ve sort of favored it at the expense of preservation, which is underlooked,” she says.

And housing production is a long-term, not a short-term strategy as it can take five years or more for a unit to go from construction to availability for rent.

Acquisition and rehabilitation is also far cheaper than building new. A report by the housing nonprofit Enterprise Community Partners found that acquiring and rehabilitating properties in the Bay Area could be done at 50% to 70% of the cost of building new units. Units acquired and rehabilitated in the Small Sites Program from 2014-2019 were on average 69% of the cost of building them from scratch, according to the report.

Advocates are hoping that some of the $64 million will go to broadening the city’s acquisitions so more buildings can be purchased, though the mayor has been resistant to this type of expansion according to CCHO.

“The moment where we’re all at collectively is how do we scale this program,” Foster says.

But first the city will need to address how to tweak the Small Sites Program to make it work for everyone. At the November Board of Supervisors meeting that ended with the 8-3 vote in favor of allocating $64 million to SSP, elected officials debated the program’s merits.

Supervisor Hillary Ronen argued that the funding would help preserve rent-controlled buildings where lower income seniors reside. “We must save every one of those buildings that we can save, and it is so important that we pass this today, and that the mayor spends this money, and that we don’t play stupid political games with people’s lives,” Ronen said at the meeting. A dissenting supervisor, Myrna Melgar, argued that the program was akin to a car with two flat tires and that a cap on per-unit subsidies would make it impossible to acquire buildings in the districts she represents.

Mayor Breed’s office sent a statement to Next City saying the mayor is committed to reforming the Small Sites Program so that it “advances the City’s housing preservation and community stabilization goals.” While the statement did not specify what reforms will be put in place, the mayor’s office said by the end of March it will implement recommendations to “broaden the reach of the program across the City, enhance cost-effectiveness to ensure the greatest impact possible, and assist community-based partner organizations to successfully participate in the program.”

As for the funding source, the transfer tax increase on property sales, or Proposition I, is projected to exceed $171 million this year and increase in the years ahead. That money must be spent through the city’s Housing Stability Fund, but the dispute over SSP signals future disagreements over how to use these funds to address the housing crisis. Cohen hopes the city uses Proposition I funds for housing acquisition of all kinds, including SROs and multifamily buildings.

“We’re trying to get out of the idea that this money is locked in an overly prescriptive use,” he says. “This was the first test run.”

Disclosure: Eric Shaw, board chair of Next City, is Director of the Mayor’s Office of Housing and Community Development for the City and County of San Francisco. Board members retain no influence over editorial decisions. For a complete list of Next City board members, visit the About section.