Affordable Housing Is a Black Hole

Are we living in a black hole and I just passed through a wormhole into another universe? That’s the only explanation I can think of for a recent New York Times article (no paywall) by Ezra Klein praising a new mid rise in San Francisco “that might be the answer to San Francisco’s homelessness crisis.” Built in three years (half the normal time in the Bay Area) using modular construction methods, the building costs less than $400,000 per unit compared with $600,000 to $700,000 for other similar projects in San Francisco.

The reddish-brown color isn’t paint; it’s rust, or what the architect calls “weathered steel.” That’s just as well in San Francisco’s rainy, salty environment as I doubt many people will want to see this building last for very long. Photo by Bruce Damonte, David Baker Architects.

My first thought was “$400,000 still sounds pretty high for any kind of ‘affordable housing.'” My second thought was, “How big are those housing units anyway?”

It turns out Tahanan, the name of the housing project, fits 145 housing units in a total of 63,000 square feet. That’s 434 square feet per unit. Some of that square footage is lobby, halls, and so forth, so I was going to guess that the actual housing units themselves averaged around 400 square feet. In fact, they average just 260 square feet, meaning 40 percent of the building is common area (which is another reason why mid rise costs so much). The total construction cost of the project was $41.1 million, which works out to $652 per square foot for the whole project or $1,090 per square foot for the actual living areas.

That’s only the construction cost. The $41.1 million divided by 145 units is under $300,000, and since Klein says the total cost was nearly $400,000 per unit, the land and other factors must add up to $100,000 more per unit. This means the total cost of Tahanan is roughly $1,500 per livable square foot, around ten times the cost of single-family homes in many other cities.

It was at that point that I realized I must be in a different universe, because no one in my universe would think that $652 per square foot, much less $1,500 per square foot, was a reasonable cost for housing. I also would like to think I live in a universe where celebrated reporters like Klein are intelligent enough to do this kind of simple arithmetic themselves, but I guess that’s too much to hope for in any universe.

The median listing price per square foot in San Francisco is under $750. I know that San Francisco homes usually sell for more than the listing price, but not for twice as much. In many parts of the country, beautiful single-family homes can be purchased for less than $200 per square foot including the land, permits, hook-ups, and so forth. Instead of understanding this, Klein is so blinded by the density-is-affordable myth that he is all agog because he thinks $400,000 for a 260-square-foot room is inexpensive.

The city of San Francisco estimates there were about 7,750 homeless people in the city in 2022. At the bargain price of $400,000 per person, it will only cost the dwindling number of San Francisco taxpayers $3.1 billion to house them all. That’s assuming that giving every homeless person their own room with a bed and a stocked refrigerator doesn’t attract more homeless people to San Francisco. This $3.1 billion, by the way, is enough to buy around 16,000 average-priced single-family homes averaging 1,600 square feet in some other parts of the country.

Tahanan was built by a non-profit group called Mercy Housing that thrives on the homeless crisis. According to its 2021 IRS filing, Mercy Housing California (there are also affiliates in Atlanta, Boise, Denver, Phoenix, Seattle, and other cities) paid its president more than $300,000 (including “other compensation”), paid three vice presidents more than $200,000 each, and paid nine more vice presidents well over $100,000 each. The United States works with only one vice president, but Mercy needs twelve in California alone, at least one of which earns as much as Kamala Harris.

If Mercy Housing really lived up to its name, it would show some mercy on the taxpayers that it is bilking out of hundreds of millions of dollars to build super-expensive housing that no one would ever really want to live in if they could get a 1,600-square-foot single-family home for little more than half the price. But don’t count on it. As long as groups like Mercy Housing are in charge, building affordable housing will be like throwing your money into a black hole.