SAN FRANCISCO — In 2014, Cobalt Corazon became a first-time homeowner in one of the country’s most expensive cities. After 30 solid years as a special education teacher, the odds were against him. “Some of the wealthy young people are literally coming down with bags of cash, and whatever the offer price is, they’re offering $200,000 over — in cash,” he said of the housing crisis facing San Francisco, particularly as young, well-paid tech employees displace longtime residents. “If you're just coming here, you’d better be a Twitterite.” After being bought out of his rent-controlled apartment by a payment from his landlord, he won a lottery for one of 220 new units that became available in 2013 through the city’s below market rate (BMR) program, which, according to its manual, aims to “maintain income and cultural diversity in San Francisco” by setting aside a percentage of newly constructed housing for “low-income, median-income and moderate-income” people like Corazon. He purchased a one-bedroom apartment in the Hayes Valley neighborhood for $212,000, about 70 percent below market value. In exceedingly expensive markets like San Francisco and New York City, where median home prices top $1 million and one-bedroom apartments typically rent for $3,000 or more per month, these inclusionary housing programs are increasingly pitched as a solution to the affordability crisis.

In April 2014, protesters march toward the house of Jack Halprin, a lawyer at Google who purchased a multifamily house in San Francisco and illegally evicted six tenants to convert the house into a single-family residence. Robert Nickelsberg / Getty Images It’s the key policy solution local officials are putting their weight behind as a growing tenants rights movement in San Francisco mounts an offensive against the widening inequality gap. It’s a win both for politicians, who can point to the construction of some amount of relatively affordable units in the midst of housing crises, and for developers, who can get their projects fast-tracked during an unprecedented high point for the market. But activists argue that it does little to solve the affordability crisis. Because lower- to middle-income people still can’t afford this "affordable" housing," they say, cities are effectively subsidizing upper-middle-class people to move in and paving the way for gentrification in historically low-income neighborhoods like Hunters Point. Furthermore, they liken inclusionary zoning to using a shot glass to bail out a sinking cruise ship. As of mid-January, San Francisco, a growing city of nearly 900,000, had just 16 below-market-rate units available for purchase, with one-bedroom condos going for well over $300,000. There was only one listing for the rental program.

More than 300 municipalities in the United States have some sort of BMR program in place. New York Mayor Bill DeBlasio recently pledged to add 200,000 BMR units over the next decade. But few cities and counties have programs as robust as San Francisco’s. There BMR units are not just incentivized but required in new developments. In order to take part of the city’s purchase program, you must be a first-time homebuyer, make less than a set amount per year (typically less than $68,000 for an individual), attend new-homeowner classes, find a bank that will approve your mortgage, jump through a few paperwork hoops and win a lottery for new units. If you later decide to sell the place, you won’t make a windfall, because the city ties your resale price to how much local wages have increased since your purchase.

‘Some of the wealthy young people are literally coming down with bags of cash, and whatever the offer price is, they're offering $200,000 over – in cash.’ Cobalt Corazon first-time homeowner, San Francisco

Shannon Way works for Homeownership SF, a local nonprofit that counsels residents on how to purchase homes. She said BMR is increasingly “the only option” for low- or moderate-income earners to stay in the city. Shw speaks with infectious optimism, but the statistics she offers are bleak. For those who meet all the criteria, she says, the odds of winning the lottery for a purchase unit are about 1 in 10. Corazon was up against 118 other applicants for 23 units available in his building. However, the odds can be much tougher. In the desirable South of Market district, 2,145 applicants recently entered a lottery for a building with just 69 BMR condos. According to real estate website Trulia, just 15 percent of for-sale homes in the city are affordable to middle-class San Franciscans, making it the least affordable market in the nation. Inclusionary housing became San Francisco policy in 1992 after decades of unaffordability, in a compromise among affordable housing advocates, politicians and developers who wanted to fast-track lucrative housing projects. By the 2000s, it was clear that the few hundred units the program produced each year wouldn’t cut it. So when San Francisco’s general plan was updated in 2009 by the city department that oversees building applications, it called for 60 percent of new developments to be priced affordably. However, with its BMR program, the city has shaved the general plan’s 60 percent rule down to a 12 to 15 percent rule. “What we found during the [post-2007] downturn is, pushing the numbers any higher would have sent development packing,” said Sarah Dennis Phillips of the Mayor's Office of Economic and Workforce Development. Any higher than 12 to 15 percent, she argued, and developers would flee “to Oakland ... or wherever else.” The second reason behind the number is legal and political. To developers’ delight, in 1987 California instituted the Mitigation Fee Act, a law that effectively requires governments to produce a study showing how new construction would affect the local economy, also known as a nexus study. On the basis of the study, the government has to cap the inclusionary housing percentage or risk getting sued by developers. Under the act, the government must prove that new market-rate housing increases the need for new affordable housing. Effectively, the legislation limits the number of affordable housing units the government may require of developers. Its purpose, as clarified in the 1996 court decision Ehrlich v. City of Culver City, is to guard developers from “disproportionate and excessive fees.” However, a 2006 nexus study that San Francisco relies on found that, including indirect and induced effects, the city could require up to 30 percent of new purchase units and 20 percent of rentals to be affordable. For community organizers, the 12 to 15 percent is simply not enough. “It’s really low, considering how much money they generate from having all these condos,” said Angelica Chabande, director of the South of Market Community Action Network. South of Market, known locally as SoMa, has been one of the hardest hit by displacement. Juslyn Manalo, a housing coordinator at the Veterans Equity Center in SoMa, works with some 800 clients, including World War II vets, seniors, families and working-class residents from the neighborhood. Since 2011, her organization has helped place about eight clients in BMR units. But many more haven’t been so lucky. “It’s really sad, because some of them actually live in their cars, and some of them couch-surf,” she said. “Given the emergency state that San Francisco is in, something has to be done right now.” Besides lack of units, tenants activists have called out some of the particulars of the BMR program as antithetical to its mission. While the inclusionary housing manual preaches about preserving cultural and income diversity, the city allowed real estate investors a separate-but-equal loophole that allows developers to pay a little more to build affordable units off site rather than construct mixed high- and low-income buildings. This way, wealthy residents don’t have to share a doorman with the not-so-wealthy. The program’s definition of lower- to moderate-income deserves a closer look too. If you’re an individual buying in San Francisco, it usually means you make under $68,000 per year, though it’s flexible; some moderate-income people make north of $80,000, up to 120 percent of the local median income. The San Francisco Housing Authority provided information about some clients the purchasing program has attracted. There’s the executive who makes $82,000, the analyst who brings in $78,000 and the accounting manager at $77,000. None of the residents they provided details for listed salaries under $40,000. Affordable housing advocates question whether the BMR program is actually intended to entice more upwardly mobile professionals to San Francisco, especially given that units are often one-bedrooms or studio condos geared toward single young professionals. Also, while the median income for people who purchased through the San Francisco program was $62,952 in 2012, there’s no limit on how much you make after the place is purchased. Upwardly mobile young professionals could get plucked from somewhere outside the Bay Area, get hired at the median starting pay at Facebook ($67,900 in 2012) or LinkedIn ($66,100), under the $71,000 income limit, and continue to live in their BMR condos even if their salaries soar. San Francisco’s BMR rental program only just audited its renters to make sure their income levels are still within the eligibility range for the program. But resources are limited, and the department has just five full-time employees.