If you were not experiencing vertigo trying to make sense of the peculiar characteristics of housing in San Francisco, the March 28 panel discussion — sponsored by Citibank and put on by the San Francisco Housing Action Coalition (SF-HAC, pronounced 'hack') — on how to produce "middle class" housing would have set your head spinning.

It is apparent to anyone paying attention to the whole enchilada of housing politics and economics that this phenomenon tends towards the counterintuitive. Since 2000, we have seen in San Francisco an increase in the supply of housing by 15,000 units — and a decrease in demand due to a drop in population between 25,000 and 50,000 people.

Classical economics dictates that a drop in demand and an increase in supply should lead to a drop in price. But over that 6 year interval, we have seen the price of housing almost triple, with the median purchase price rising from about $300,000 per unit to just under $800,000 per unit.

The panel was introduced by Ron Miguel, who as leader of The Planning Association for the Richmond was instrumental in down-zoning the West Side a generation ago. This has closed off all but the industrial lands on the East Side to development, and has been a major contributor to the structural housing shortage in San Francisco. Of course, the seminal role of the introducer in contributing to the structural housing crisis was not addressed.

Former HUD Secretary and San Antonio mayor Henry Cisneros was the star attraction on the panel. Cisneros currently serves as chairman of City View, a development corporation focused on building middle-income housing commonly known as "workforce housing." That term was rendered radioactive in San Francisco after a failed ballot measure supported by Mayor Newsom in his first few months of office that would have granted substantial height and density bonuses for below market-rate housing — targeted at upper moderate income folks.

Cisneros put forth some interesting ideas that might work in other jurisdictions which enjoy more land — hence more flexibility in creating housing. But not being steeped in the structural constraints on housing particular to San Francisco, his recommendations frequently fell flat footed. He was trying to use classical economics to describe the behavior of actors in a part of space where the normal laws of economics simply do not apply.

Arthur Evans (not THAT Arthur Evans), CEO Emeritus of AF Evans builders — whose operation has been one of the more community-friendly builders in town — recounted how they tried to build modest housing that would not appeal to the rich but rather the middle class. Yet he bristled at the onerousness of the entitlement process. He also suggested that partnerships between the City and private builders be explored where public money could be invested into building housing at construction time and cost — with the City holding clear title to the percentage of units it paid for.

Both Cisneros and Evans lamented the snail's pace that characterizes the entitlement process for housing in San Francisco. But they neglected to acknowledge that the astronomical rates of profit that most developers seek lead many to initially propose horrific projects which maximize profits.

San Francisco's public process might be onerous, but it is only onerous proportionate to the tendency of builders to overreach at the outset. At the end of the day, it is the only tool that communities have to ensure that neighborhood character is respected in new construction as required by Section 101.1 of the Planning Code, and the ResidentialDesign Guidelines.

Finally, SF Mayor's Office of Housing deputy Director Doug Shoemaker filled in for director Matt Franklin to explain the City's position. He had to walk the diplomatic tightrope of being a once-progressive housing activist who now does housing policy for an administration long on ambitious press releases, fluff and hair gel — but short on making good on those many promises. Shoemaker and Franklin have been dispatched to ensure that the Planning Department's disastrous Eastern Neighborhood re-zoning train wreck produces as much market-rate housing as possible, while conceding as little as possible to the communities.

Missing from this discussion was that under current zoning, the maximum number of housing units that can be produced is around a total of 30-40,000. Officials were celebrating that they were entitling between 5-10,000 units a year. The notion that producing that much housing quickly, say 5,000 units/yr for 7 years or 7,000 units/yr for 5 years would have a measurable impact on price is simply fanciful. Even if optimistically it pressured price downward by a few percentage points, over time the same forces in play now which drive up price would go anywhere and devour those points quickly.

There was also some discussion of building smaller units which might command a lower price. This has been tried in SOMA where a provision of the Planning Code allows for market-rate Single Room Occupancy hotels in zoning districts reserved for light industrial where affordable housing is also permitted. Market-rate SROs were intended to offer up replacement housing after the 1989 Loma Prieta earthquake.

But now developers see this as a loophole for a quick profit, a sort of "child of Live Work Lofts." Of the market-rate SROs we've studied, counter-intuition rules. Where a traditional condo of 900-1200 square feet goes for $650-800 per square foot, market-rate SROs of 300 square feet are selling for $1,000 per square foot. Again, this is a good idea at first blush — but San Francisco lacks the space to scale up sufficient supply to impact on price more than slightly and temporarily.

Evans suggested that lowering the price of producing housing would lead to lower prices. There might be some conscientious developers who would tie price to cost — but scarcity is one factor which drives up price.

Just as the price of housing is divorced from the local wage base, price is divorced from the costs of construction. When San Francisco's housing competes with Manhattan, London, Paris and Tokyo as an investment sink, price is governed by the economics of investment capital maximizing profit in a climate of scarcity — rather than the costs of production.

Even the expedition of entitlements is tricky because developers tend to put forth bad deals at the outset, knowing that they will have to negotiate with the community. Trinity Plaza is an example of how delays led to a much better deal for the tenants there and the community at large. Unless builders are willing to offer up their last best deal first, we will see this delay dance continue.

Since the price of housing is divorced from the costs of construction, investors will not finance projects unless a minimum profit of 28% is guaranteed (according to the Inclusionary
Housing Sensitivity Analysys.) There is no evidence that for all but the most altruistic developers, delays impact price.

Indeed, with 28% a minimum profit, one is left to wonder what the median profit might be. As BART Board Director Tom Radulovich likes to say, entitling market-rate housing in San Francisco is a license to print money.

San Francisco's working class has been dealt a really crappy housing hand by circumstances far beyond our control. Hindrances such as Propositions 13 and 218 limit the abilities of localities to tax for necessities like housing and fiscalize land use — causing cities to prioritize the costs and benefits of development over community need, stabilization and orderly development.

We are also part of a larger, somewhat integrated Bay Area economy, but have almost no tools nor opportunity for comprehensive regional land use planning. But we have to play the hand we've been dealt to the best of our ability.

First, there is no imperative to build out quickly. Building out at a rate greater than 1,000 units per year only accelerates our date with the brick wall. We need to ensure that as we entitle market rate housing, we get the best deals possible from developers. Supervisor Chris Daly has been the trailblazer on this, incrementally iterating better and better deals — from 4th and Freelon to Rincon Hill and Trinity Plaza.

But we might need more. We should force the hand of builders by restricting entitlements to the extent that we dismiss ½ of applications as not good enough. Developers should have to compete with one another

for the scarce few development slots by offering up the best deals on community benefits. We have the power of entitlement and we must learn

to use it as a tool to benefit our communities by negotiating like it counts. Because it does.

There are no simple, easy answers to San Francisco's housing crisis. Over time, as the East Side gets built out and the economic pressures become irresistible — think $2,000,000 for a modest home in the Sunset — then we will see a re-zoning of the east side and a possibility for the removal of a structural barrier to building housing.

But so long as Ron Miguel gets to lament the housing crisis that is in large part a legacy of his own policies, so long as HAC supports every single market rate housing project as proposed, so long as nonprofit builders and some progressives resist unifying all folks who are housing impoverished by this situation---very low, low and yes even moderate and upper moderate income folks---we are going to see more of the same housing misery, vulnerability and instability for most all San Franciscans.