Proposed Development in San Francisco Drops to a Four-Year LowDecember 29, 2016
With two days left in 2016, the preliminary plans for 79 major developments have been submitted to San Francisco’s Planning Department since the beginning of the year. And as we forecast last month, that’s the fewest since 54 in 2012 and down from a peak of 116 in 2014.
At the same time, while the number of new residential units currently under construction in San Francisco is the fewest since the second quarter of 2014, and is running 27 percent lower versus the same time last year, the inventory of new condos on the market in San Francisco has been running an average of 38 percent higher while new condo sales are down 29 percent in 2016 and pricing appears to have dropped around 10 percent since August of last year.
Comments from Plugged-In Readers
Thank you Proposition C (June 2016) for killing developer incentive with unrealistically high BMR requirements on new housing developments.
so right! Perhaps 5 to 10 years of waiting to build while undergoing lengthy/expensive/uncertain EIR/planning processes, etc. got developers exhausted and needing a time out 🙂
prop C will effectively raise prices for all except the lottery winners.
that is economic illiteracy. prices always go to what the market will bear, period. no more, no less.
Yeah, and the point is that with fewer total units on the market, the price that the market will bear will be even higher than it otherwise would have been.
Moto is saying the right thing. Adding more lottery housing lowers potential supply of market rate and raises prices.
The Excelsior, Outer Mission and Sunset should each be constatly up gauging, rising to four to eight stories.
How does this make any sense when those areas are the least equipped with infrastructure to handle the increased population? A four story condo building in the Sunset might add sixteen units when the same could be done with three extra stories on a SOMA tower, the big difference being that many of the Sunset residents will be getting around by car for work, groceries, etc while the SOMA residents have much better options. This will increase raffic/congestion which is already the #2 problem cited by Bay Area residents. Density should be built around transit hubs.
Of course, less building during population growth times will also prop up real estate values. The progressive leaders mentality to keep tenants in place until they die, to maintain cultural relevancy and fight gentrification has become unquestioned. I suspect we’ll see more moves toward legacy tenancy soon.
How are “major developments” defined? I just looked at the Planning Dept’s Active Permits website and found more applications under review than shown by the dots above, but some are smaller. For example, a 4-story mixed use project at 5118 3rd Street in the Bayview with 6 residential units and 1 retail unit. Permit applications received January and Aug 2016.
Projects with 7 or more residential units; non-residential buildings (or additions) of more than 10,000 square feet; new schools or campus expansions; and proposals to change the use of an existing structure that measures 25,000 square feet or more.
Great, that explains it.
Given the double-digit growth of real estate prices in Seattle and Portland, I’m not surprised to see developers shifting their focusing and resources out of SF.
What’s critical for real estate prices is not the number of projects approved, but the number of new units hitting the market. Some of the large projects under way (Hunter’s Point, Candlestick, Schlage Lock) should be bringing a good amount of condos to market in 3-6 years.
At the same time, I don’t believe this will be nearly enough supply to keep real estate prices from rising of that period.
The development slowdown started before Prop C.
Beyond that, IMO the Prop C argument is a canard.
Seattle has been way outbuilding SF in number of new units/year for years now. Seattle has been averaging around 5K new units/year in recent years. SF under 3K units – but for the most recent year and projected for next year when it will exceed 3K somewhat. IIRC.
Seattle is projecting 50K new units by 2025 with 20K (40%) being affordable. Keeping up the 5K pace. Seattle is booming with cranes everywhere – the 40% mandate does not seem to be a deterrent.
30% for SF should not be a problem. Some developers may grumble but they have gotten away with too much in SF – to the city’s detriment in some cases.
Well, I agreed with your first sentence.
It’s primarily an issue of inventory and the resultant price deflation with softening demand relative a recent increase in supply.
Good for Seattle, and it rains a lot there too, so they are less prone to drought – a lot of Californians should move up there 🙂
Seattle has been among the top 5 most rapidly growing large cities in the US for several years now. It has 685K residents or so – on the way to 3/4 million and eventually north of a million. So yeah, plenty of Californians and others are heading there.
The point is how Seattle is trying to insure that folks who live in the city can afford to own a home there. This is the mayor’s top priority and the thrust of the 50K new units with 20K affordable by 2025.
It is discouraging to see people object to Prop C – if SF had gotten into a pro-active mode early on, when the city was more affordable, things might be different now.
The math is really simple – if you build a 10 apartment building at a cost of $100 you will need to get $10 from each apartment. But now you have to put 40% (4 apartments) on the market for $5, so the remaining 6 apartments will cost $13.33
You can argue about the exact cost and what % of cost you get covered by ‘affordable’ apartments but a mandatory share of below market housing always pushes the cost of market rate housing up. It is a tax system that takes from the self-supported and gives to those that can not otherwise afford to live in this location. You can be in support or against such a system, but the system itself does not lower the cost of housing.
The math isn’t nearly that simple. Nor is that how the market actually works. Developers aim to maximize the market-rate price of the units they produce, regardless of their costs. And market-rate housing isn’t sold or rented for less when it’s less expensive to build.
Rising development costs without an increase in the price that buyers are willing to pay can reduce margins to the point that projects don’t pencil, which is driving the trend above. And that can eventually lead to an increase in prices through a decrease in future supply (keep in mind that there are nearly 64,000 apartments and condos in the development pipeline for SF).
But rising development costs aren’t simply passed along to buyers as many incorrectly posit, time and time and time again.
Actually, dear leader you just explained it fairly well and supported Anon123’s argument. “Rising development costs” absolutely include the subsidy demanded by affordable housing provision of Prop C. So the city has increased the cost of development.
And as to whether the costs get passed on to the buyers (as apparently the naive commentariat “incorrectly posit[s], time and time and time again”) again you counter back on yourself noting that development will subside in a way “that can eventually lead to an increase in prices through a decrease in future supply.” So yes, you are correct that the costs of affordable housing are passed along to buyers.
There’s a big difference between thinking that developers raise prices when their costs increase versus understanding the potential downstream effect, and implications, of reduced future supply when projects don’t pencil, especially when declining prices and rents are now factoring into the equation as well.
The same rule applies to Seattle and other cities with affordable housing requirements. In Seattle’s case the current market rate residential building boom continues with no slowdown despite the costs added to housing due to affordability requirements.
One can argue about Seattle pro-actively addressing this problem when affordability there is quite a bit better than SF and if as such the passed on cost is somewhat ameliorated because of that. As opposed to SF which has historically high unaffordability and if that makes BMR standards which are lower than Seattle’s less effective.
That gets back to SF’s failure as a city to address this problem long ago – much as it is doing today with the transportation infrastructure.
Thanks SS – you throw more things in the mix, but arrive at the same conclusion
Thanks b_e_o (awesome handle btw), you make my point better than I could
Thanks Dave – the example was directed at your earlier comment, and with the growth and high share of affordable housing that you mentioned for Seattle I am sure it will become quite un-affordable over time. I do not disagree that housing cost in SF are ridiculous, the issue is how it can be alleviated. Higher share of mandated below market rate housing will not help the general population/residents of the city.
@Anon123 – Seattle’s hope and that of Portland is not to make the mistake San Francisco made and become a city where the average worker can’t afford to live. Seattle’s plan is impressive and the more so as it is, today, much more affordable than SF. But the city PTB see red flags and are taking action. Will Seattle succeed in keeping home prices from getting out of hand and forcing the typical Seattle resident to move to the suburbs? No one knows.
But Seattle and Portland are addressing the problem relatively early on. For SF the horses are out of the barn and the 30% BMR requirement may be way too late. That does not mean the city should abandon a tough BMR requirement – without it the result will be the building of ever more unaffordable homes – but for the very few.
Seattle’s median home price is 612K and median income is 75K. Portland’s median home price is 346K and median income is 64K. San Francisco? Median home price 1,132,000 and median income 86K. That says it all.
Kudos to Seattle and other cities for caring enough about housing for its average citizen to be taking an aggressive stance now before the horses are free of the barn. For Seattle 50K new units by 2025 with 20K affordable will make a big difference. Even with the rapid population growth there.
Seattle’s 40% requirement will accelerate the cost of market rate housing, not decelerate it. Seattle is doing the right thing by building more OVERALL, but the high affordability % will just keep prices unnecessarily high for the 60% that are market rate.
Median household income for SF and Seattle are slightly more than 92k and 80k, respectively. Most SF residents rent. Median monthly housing costs for SF and Seattle are $1840 and $1541, respectively. All my stats quoted here are from the 2015 Census ACS. I guess in the spirit of Dave we should offer kudos to SF for caring enough about housing for its average citizen to have taken an aggressive stance decades ago (rent control) before the horses were free of the barn (due to successive economic booms). Cause gov’t “aggressive stance” trumps market pressure long term. I guess.
FWIW, the Bay Area has more residents than the entire State of Washington. Seattle has nearly twice the land as SF and SF has actually been building housing at about the same rate as Seattle based on new units/acre, which is the basic measure of density. In fact if both cities keep building at the rate they have been for the past decade or so, then SF will increase our density lead over Seattle. Lies, d’ lies, statistical lies.
There is one additional major factor that contributes to the different approaches to housing in California compared to Washington & Oregon.
Proposition 13 killed residential development as a source of local property taxes. Local property taxes do not cover the costs for infrastructure like new sewage systems, schools and roads necessary for new residential developments. Therefore, new residential housing is unattractive for local governments in California and everyone tries to offload it to the neighboring town or county. I’m not sure what the local property tax situation looks like in Washington and Oregon, but the impacts of Proposition 13 might be a big driver of the two different approaches to residential development, regardless of BMR requirements and construction costs.
it’s clear you have a major seattle crush. me, i love barcelona. but i live in SF.
and surely you realize that each of these cities have unique political and geographic constraints, as well as history, that effect their real estate and prices and development.
seattle has 75% more land mass (sq miles) than SF and less than half our population density. so it would be illogical for it NOT to be able to build quicker. it has so much more low hanging fruit.
rent control is illegal in WA state and term leases, as opposed to lifetime tenancy, are the norm. month to month renters can have their rent raised with 30-60 days notice.
seattle’s home ownership rate was ~50%, but the housing boom has dropped that to ~46% as it has been more in rentals than “for sale” units; still well above SF city (as opposed to MSA) at ~37%.
seattle’s affordable housing is built primarily by taxes/levies on ALL homeowners, not just developer fees. developer fees (linkage fees) are much lower in seattle than SF’s OLD percentage. they have proposed increasing them to $22/sq ft which would be in the neighborhood of at most 15%. i believe this would apply to ALL new construction not just large projects.
and their efforts to stimulate developers to build more affordable units have been no more successful than ours (be they density bonuses or other ideas).
seattle construction costs are $100-300 for finished sq footage plus land costs vs. $450-800/sq foot here in SF plus more expensive land costs….so each affordability dollar in seattle goes 2-3x farther.
what has worked – TAX BREAKS on rentals that agree to 15 yrs of affordability, easier rules on density construction/backyard cottages which have enabled a new class of homeowners to become landlords without the rules that impede mom and pop landlords here, smart rules that require these landlords to be occupants and not developers (hence not having the ELLIS Act eviction game played by some here).
yet even in seattle queen anne neighborhood resident/owners are pushing back at city efforts at density; imagine that!
yes. seattle has things to teach us, but to my eyes the lessons are more about sharing the costs across the whole population, with fewer rules on construction and ownership and eviction and rent increases and density than SF will ever be willing to admit, much less copy.
Actually, I have a Portland crush. But, that said, I am San Francisco born and bred and am/have been disturbed by the deterioration in the quality of life here I’ve seen in my lifetime. And I am not old.
They are different cities and the unique political situation here where there is no regional zoning coordination is a huge, huge problem. In Seattle you see cranes everywhere. In SF and north San Mateo county you see few cranes but for downtown/SOMA. That vast stretch of one and two story commercial building and parking lots from SSF to Burlingame along El Camino real would be humming with residential (mid-density) construction if we were like Seattle. Which, yes, we are not.
Ownership has fallen from around 50% to 46% and Seattle is worried and taking action. SF has a 37% ownership rate and only with Prop C was a realistic BMR been put in place. Too few care here. One pet peeve is we are a city of transients more and more and this is a place to make a buck, flip a house, whatever – and move on. The sense of “place” in SF is fading. Anecdotal – if you are in Portland and drop a paper or debris as you walk as likely as not someone will politely “confront” you about it. In SF that does not happen much as evidenced by the dirty streets.
I agree that the cost of providing affordable housing should be born broadly by all residents. Including renters as they are such a big portion of SF residents that to make a dent in the problem they need to contribute also. But that will never happen in SF. In our lifetimes anyway.
What has worked in Seattle as you note should be a lesson for SF, but SF is a rigidly progressive city and Seattle is a practically progressive city
The backyard cottage thing is fine, but Seattle has larger lots and it generally would not be practical in SF and it’d worsen the deteriorating parking situation in areas like Mt. Davison and the Sunset. A friend just stayed at week in Portland in a converted tool shed. The owner turned it into a one bedroom/bath unit with a kitchenette and rents it through AirBnB. It’s in the middle of a large yard and is private and comes with its own parking spot. Only wish this was practical in SF.
As to SF being willing to admit or copy other cities – ain’t happening. SF is the city that knows how after all – cough, cough….
dave, do you have any data that suggests that there are a higher % of transients now. i moved here in 97, and almost all i know who moved here at that time are still here. some have had families and moved to oakland or marin,but all are still in bay area
If you are indeed San Francisco born and bred then you’d at least have heard about ABAG, which is the local regional zoning coordination body.
Now if you want to make the case that it’s ineffective, than go right ahead but we have one, even if it’s not to your liking. What, pray tell, is the Portland, OR area’s regional zoning coordination body doing that is so great that ABAG is not?
30% affordability IS a problem, as well as labor and material increase as well as significant cost due to code changes, energy efficiency requirements, SFPUC regs, city required labor agreements, well meaning but bonkers sustainability goals, borrowing cost, land cost, entitlement drag.
Planning is San Francisco is a cosmic act of economic and social sadism. Look no further than the parking meters and red lanes splattered on poor (and often residential) streets (because the rich wouldn’t stand for it), the tent camps festering in those same poor neighborhoods (because SFPD wouldn’t dare allow that in Pac Heights) and the cheap, crowded ugly rabbit cages erected throughout the North Mission and Southern SOMA. Its a harmonic convergence of the low and corrupt.
This will definitely be a win for people who currently own in SF.
Quite frankly, I’m happy to see development slowing down: until The City begins to solve the worsening traffic situation, disgustingly poor road conditions, better transit solutions,cleaner streets and dealing with the worsening homeless crisis.
Have others seen the homeless camps now being constructed near the design center area and under the 280 freeway where the homeless are now BUILDING small buildings? No permits, not addressing the toilet and water issues. Over decades, we (the citizens) have ignorantly come to accept these camps as a “normal” housing solution. Now we are seeing small buildings being erected.
These are not coupled. The City should be doing more on our obvious existing homelessness problem.
While it does that, it should also allow more housing to be built. Those are separate, but congruent. SF has limited housing development for years/decades, which has resulted in undersupply, which has resulted the existing ridiculous prices, which has helped push some people onto the streets.
I disagree completely. There is no “undersupply” for those who CAN afford to live here. Those who are living on the streets and now attempting to build “illegal” permanent housing on public sidewalks NEVER could afford to live here. Many now choose to live on the streets. It’s considered a new lifestyle here in SF.
Prices are not “ridiculous” as long as there are legitimate buyers out there, and there are many, who CHOOSE to pay the market value of housing for sale and rent. I see no shortage of buyers who come here with good jobs and incomes, contributing to the quality of life here in SF.
“There is no “undersupply” for those who CAN afford to live here.”
I don’t think think I’ve ever witnessed a weaker comprehension of the basic concept of supply and demand.
It’s not weak at all. You just don’t understand the concept. As an example, I don’t see any shortage of buyers in Noe Valley. So, what’s the problem?
Again demonstrating a basic lac of comprehension.
How many buyers are willing to pay $50 million in Now Valley? None. So there IS a shortage of buyers (and an oversupply of homes) at that price level.
Now how many are willing to pay $300,000 in Now Valley? Scads, but there are no homes at that price, hence an undersupply.
That some buyers are buying some homes simply describes the point where the supply and demand curves meet. It has nothing to do with whether there is an undersupply. Read some basic econ texts.
Duh……..because there are no houses priced at $50m or $300k. And you know that. Your little game of tricks says nothing. Supply and demand is meaningless.
Yes, nobody in Noe would sell their home for $50 million if the demand were there because, you know, that’s just not the price. It has nothing to do with supply and demand. Other things that are meaningless: gravity, photosynthesis, evolution, thermodynamics, algebra, mechanics …
And yet you entirely miss the main point, which is that dealing with the homelessness problem is entirely separate from developing more housing.
The City leaders will never solve the homeless problem, because they call it a “lifestyle choice”, and plenty of the so called “homeless advocates” make a living pretending to “solve” the problem and pretending to “offer” services.
Not disagreeing with your statement, but that has nothing to do with development. They’re 100% separate.
You’re right that SF will never solve the homeless problem, but your explanation is entirely wrong. Homelessness is a national issue — a direct consequence of nearly four decades of neo-liberal economic hegemony. A city can’t solve a problem caused by national economic policy. At best, it can moderately ameliorate some of its effects. Cities like San Francisco where poverty isn’t overtly criminalized have become magnets for some of those most marginalized by our national economic policies. The better we treat the dispossessed, the more they will come. It’s a self-reinforcing feedback loop, and an ethical dilemma.
Nope, I disagree. the citizens and leaders of SF have become “accustomed” to the homeless and their encampments. “WE” now accept is as a normal, and well, afterall, it’s only (mostly) under the freeeway and not near where “I” live. what’s the big deal?? That’s the general attitude.
And we are now moving toward and attitude of letting the homeless actually build illegal shelters on OUR public sidewalks. Again, “what’s the big deal?”
AS a short term and yes, rather harsh solution, we need to keep dismantling the camps, day in and day out. over and over again. Send a message that it’s not acceptable. AND!! offer the homeless more help, more services, but REQUIRE them to work (most can: they seem to do a pretty good job of creating bike chop shops all over the CITY).
Let’s stop coddling them. let’s stop ignoring them. Make it know that SF is NOT a homeless destination,
IIRC there are 40,600 entitled units of housing at this time. Or thereabouts. Many of the units are in projects that will be built out over 2 decades or so.
Still, thousands of these units are for “one-off” projects and come with a date by which construction must begin or the entitlement is lost. Given the slowdown in condo appreciation and price drops for new construction, its likely many of these developers will hold off starting construction. But the clock is ticking. Often the entitlement period is 3 years, so timing may work against some of these projects.
Usually in the past developers seek an extension on the entitlement and get it. What if now there is a push back by affordable housing advocates to not re-entitle unless the project meets Prop C guidelines? Virtually all of these projects were entitled prior to prop C and have lower BMR thresholds.
Don’t know the legalities of everything in a re-entitlement but I’ve heard this idea brought up.
I see it’s all about keeping others out, I see.
The residents and politicians in San Francisco have built a virtual Trump wall based on housing prices. How ironic.
those poor developer kids. or maybe they are just waiting to see what Trump’s voodo economics do to the economy next year.
What is the one at the bottom, near Daly City?
Already occurring in excelsior d11
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