Creativity Reigns In High-Cost Areas

SAN FRANCISCO -- One recent summer day, eager homebuyers crowded into a small, one-bedroom condominium in San Francisco's South of Market neighborhood, eager for the chance to pay $295,000 for an apartment measuring less than 600 square feet, parking not included.

Despite its small size and less-than-perfect location, the cozy apartment is new, and it's a steal: A similar unit in the same building is offered at $479,000.

But to get into this low-priced home, buyers must leave their fate to a roll of the dice. Or, more precisely, the pulling of their name out of a hat.

Here, in the land of the $726,900 median-priced home, people earning an average income can afford about one square inch of house, so they either remain renters, call on more affluent family members for help to buy or vie with other desperate owner-wannabes to buy units at below-market rates through city programs aimed at first-time buyers.

Of course, there are far more people seeking affordable homes than there are units available.

"There's no question that the demand far outstrips the supply of these programs. I'd be reluctant to even put a number on by how much," said Matt Franklin, director of the Mayor's Office of Housing, which administers the city's various first-time homebuyer programs.

"We have a very severe affordability challenge in this town," he said. "Currently, about 12 percent of households in San Francisco can afford an average-priced home."

That 12 percent figure assumes buyers put 30 percent of income toward annual housing costs, he noted. In some markets these days, homeowners are paying up to 50 percent of income toward housing.

The median-priced home in the San Francisco Bay Area rose to $726,900 in the second quarter, a 12.3 percent rise from $647,300 in the same quarter a year ago, according to the National Association of Realtors.

When it comes to affordability, San Francisco's not alone. Nationwide, a typical first-time homebuyer earned just 70 percent of the income needed to buy an average starter home in the second quarter, down from earning about 77 percent in the first quarter, the National Association of Realtors said in August, assuming a 10 percent down payment.

Nationwide, the median starter home cost $177,200 in the second quarter, and the typical first-time homebuyer could afford a home costing $124,200, according to NAR.

To promote homeownership, cities nationwide have instituted various first-time homebuyer programs, including second loans that don't have to be paid until the unit is sold, below-market-rate units offered through lotteries and other aid programs.