Auditing Affordable Housing Programs October 3, 2018 Snehi Basnet and Amanda Sobrepeña CITY & COUNTY OF SAN FRANCISCO Office of the Controller Audits Division 1
2 Outline The housing crisis San Francisco s affordable housing landscape and programs Challenges Examples of field work steps Other potential objectives 2
Housing Crisis 3 Change in income distribution as a percentage of AMI in San Francisco from 1990 to 2015 Number of middle income households have decreased San Francisco Planning Commission, San Francisco Housing Needs and Trends Report 3
Housing Crisis 4 Net in-migration was highest for households earning more than 200% of AMI. Households earning between 50-80% of AMI experienced average net out-migration of more than 4% in this period. San Francisco s middle class is shrinking 4
San Francisco s Affordable Housing Landscape 5 Median Home Prices (September 2018) $875k $1.3M $1.8M $2M 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Median Monthly Rents & Household Salary Needed to Afford $3,673 $147 k $4,795 $192 k $5,700 $228k $284k $7,100 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 5
San Francisco s Affordable Housing Landscape 6 Housing Crisis San Francisco Bay Area Definition of affordable housing 33,000 units (9 percent) in San Francisco are considered affordable housing Built under a variety of local, state, and federal programs >6,500 applicants for 95 affordable units in a new affordable apartment complex Since 1990 an average of ~1,900 units produced per year 28% of these are deed-restricted affordable units San Francisco Planning Commission, San Francisco Housing Needs and Trends Report 6
San Francisco Housing Programs 7 MOHCD Housing Programs Rental Programs Mixed Income (Below Market Rate Housing) 100% Affordable Plus Housing Small Sites Ownership Programs Below Market Rate Housing Neighborhood Preference & Displaced Tenant Preference Expansion Down Payment Assistance Loan City Second Loan Teacher Housing Middle-Income Housing Public Housing Initiatives Rental Assistance Demonstration Hope SF 7
San Francisco Housing Programs 8 Key departments involved in affordable housing in the City Sets affordable housing requirements Planning Department Mayor s Office of Housing and Community Development Department of Building Inspection Assesses compliance with building codes Finances the development of affordable housing, guides housing policy, monitors long-term affordability and physical viability of affordable housing supply 8
San Francisco Housing Programs 9 Funding for Affordable Housing Programs Affordable housing fees under the Inclusionary Housing program Affordable housing fees under the Jobs-Housing Linkage program General funds Bond financing (with voter approval) Funding from the former San Francisco Redevelopment Agency Community Development Block Grant and Home Investment Partnerships, entitlement funding from HUD 9
San Francisco Housing Programs 10 Mayor Lee s Initiative In 2014 Mayor Lee pledged to construct 30,000 new and rehabilitated homes in the City by 2020, with half available to low-income, working class, and middle-income San Franciscans 10
Below Market Rate Housing Program Overview 11 Developer Requirements Developers building structures with 10+residential units must choose one of three options (enforced by Planning Department): Market Rate Units Market Rate Units Market Rate Units BMR Units + + $149- BMR Units 521k Option 1: Onsite Units Option 2: Offsite Units Option 3: Fee Payment Since 1989, 18% of developers choose to pay the fee. However that number has increased in recent years. In 2017, almost 24 percent of developers paid the fee instead of building BMR units. 11
Trivia For a single person, what s the most can you earn in a year and still be considered lowincome in San Francisco? 12
Below Market Rate Housing Program Overview 13 Applicant Process Potential renters and buyers of BMR units apply to MOHCD, which uses a lottery system to award the units to applicants Certain preferences are given during the lottery process to remediate or prevent displacement Certificate of Preference Displaced Tenant Housing Preference Neighborhood Resident Housing Preference Live/Work Housing Preference 13
Audit Plan 14 Challenges in Planning the Audit Multiple affordable housing programs managed by MOHCD Multiple sources of data (Planning Department, DBI, MOHCD) Data reliability issues Sample selection 14
Audit Plan 15 Scope and Objectives The scope is MOHCD s BMR housing rental program, including rentals, re-rentals, and the recertification process. The main objective is to determine whether MOHCD s controls over the BMR Rental Program are adequate. The subobjectives are to determine whether MOHCD s controls ensure that: 1. BMR rental units are awarded only to eligible applicants. 2. Tenants of BMR rental units comply with program requirements, including the prohibition of re-renting the units (e.g., as a shortterm rental). 15
Audit Plan 16 Examples of Field Work Steps 1. Determine whether MOHCD has appropriate controls over the application process to ensure only eligible participants can rent (rerent) a BMR unit. Overall Procedures: Follow-up interviews of MOHCD staff Data reliability test of DAHLIA and the multiple datasets (Excel spreadsheets) MOHCD staff use for the BMR process Application Process: Review a sample of applications from households awarded BMR rental units in 2017 to see if they were eligible. Review a sample of applications removed by developers (including MOHCD s review process). Review a sample of 2017 lotteries to ensure that preferences were awarded appropriately. 16
Audit Plan 17 Examples of Field Work Steps 1. Determine whether MOHCD has appropriate controls over the application process to ensure only eligible participants can rent (rerent) a BMR unit. (continued) Marketing: Review developer marketing plans and completed projects for number of units, size, and other requirements that are established when the marketing plan is approved. Ensure marketing plan conforms with guidelines in procedure manual. 17
Audit Plan 18 Examples of Field Work Steps 2. Determine if MOHCD has appropriate controls over the recertification process to ensure only eligible participants can remain in a BMR unit. Recertification Process: Test a stratified, random sample of recertification applications for eligibility: Approved by developers Denied by developers (including assessing MOHCD s review process) Test a sample of annual recertification forms (summary documents provided by developers to MOHCD) against the corresponding recertification applications. Test a sample of BMR project units to ensure all developers are recertifying. 18
Audit Plan 19 Other Potential Objectives Are developer fees sufficient to build other low-income housing? Are the programs reaching the intended population? How efficient is eligibility screening? What is screened at the lottery application point versus after lottery results? How are fraudulent applications detected? 19
Audit Plan 20 Other Potential Objectives What preferences exist to boost someone s chances in a housing lottery? Are preferences stacked? Do preferences have the intended impact? Are most developers paying the fee or building units? Where are they building? How does that impact gentrification/displacement and concentration of low-income households? How fast does affordable housing become available when developers build it instead of paying the fee? Does the income ceiling to stay in an affordable unit allow tenants to enter the market for market-rate units? At what point do policies require removing a tenant from an affordable unit and is that reasonable? 20
Audit Plan 21 What we have learned 21
Audit Plan 22 Major Takeaways Consider and narrow down the universe of affordable housing stock The universe may be more than you can or want to tackle Leverage data but don t take it at face value Ensure reliability Narrow down your scope and objectives As always, focus on the most important questions (that you can get reliable data to answer) 22
Questions 23 Contact information: Amanda Sobrepeña Amanda.sobrepeña@sfgov.org Snehi Basnet Snehi.basnet@sfgov.org This Photo by Unknown Author is licensed under CC BY 23