By J.K. Dineen Jan 8, 2024
Developer Enrique Landa explains plans for the construction of the Potrero Power Station project site in San Francisco in October. The site will provide more housing for the city, but 2023 was a low point in the city’s housing production cycle. Jessica Christian/The Chronicle
Crippled by a seemingly endless pandemic hangover and a lack of investor confidence in the city’s future, 2023 was San Francisco’s weakest year for housing production in a decade, with just 2,024 units completed.
The crop of new units represented a 30% decline from 2022, and a 57% drop from 2021. Among the 2,024 new apartments and condos were 805 affordable units, which was 37% less than the prior year.
The slow pace of production, exacerbated by high interest rates and stubbornly elevated construction costs, underscores the difficulty that San Francisco will face as the city attempts to meet its state-mandated goal of permitting 82,000 housing units from 2023 to 2031.
For some context: If the city’s pace of construction were to continue at the 2023 level, it would take 41 years to create the 82,000 units Sacramento is expecting to see in eight years.
Last year was the worst year for residential construction since 2013, when just 1,843 homes were delivered. But San Francisco has been here before. Famous for its gold rushes and tech booms, and subsequent crashes, the city’s economy has been characterized by deep ravines and dizzying crests. Before the pandemic, from 2015 to 2022, San Francisco beat its state target for market rate production by 54%, producing 19,260 homes in the eight-year period.
Yet in the aftermath of the Great Recession, the city’s housing production was anemic, even compared to last year. In 2012, San Francisco produced just 281 new housing units. By 2020, that number had climbed to 5,460.
“We know that housing production is cyclical, and, generally, it comes when economic conditions are favorable,” said San Francisco Planning Director Rich Hillis. “Right now, the economic conditions are not favorable for market rate housing production.”
Cities’ market-rate housing goals and the number of homes permitted, 2015-22
San Jose was supposed to permit more than 14,000 market-rate housing units between 2015 and 2022, and permitted about 12,000. San Francisco greatly exceeded its goal of roughly 13,000, buillding about 19,000. Oakland’s goal was about 8,000 but the city permitted nearly 16,000 units.
Market-rate homes are those priced at 120% or more above the area median income.
Meanwhile, Mayor London Breed and the Board of Supervisors are deep in the contentious process of revamping all aspects of the city’s housing production and permitting engine, part of the state’s high-pressure campaign to force San Francisco to make it easier, faster and cheaper to build housing.
This includes upzoning transit corridors on the west and north sides of the city, which planners hope will bring a flurry of “gentle infill” projects — five, six or seven stories of housing over retail — on streets like Geary Boulevard in the Richmond and Irving Street in the Sunset.
In December, the Board of Supervisors passed legislation that will allow many projects to bypass the approval process — and the lengthy and expensive appeals that often delay developments in San Francisco. At a signing ceremony in Breed’s office after the legislation was passed, the mayor acknowledged that it is unlikely “we are going to get to 82,000.”
“We had to go as far as we possibly could,” she said. “This is only a start. We have already started to work on other pieces of legislation so that, day after day, we can continue to see ground breakings and ribbon cuttings where we hand over the keys to families so that they can stay in the city.”
Four affordable projects opened in 2023: the 104-unit Maceo May Apartments in Treasure Island, the 131-unit Kapuso at the Balboa Park BART Station, a 203-unit high-rise at Fifth and Mission streets, and 141 units of supportive housing at Mission Bay’s Block 9.
Cities’ affordable housing goals and the number of homes permitted, 2015-22
San Jose was supposed to permit around 21000 affordable housing units between 2015 and 2022, but permitted about 5000. San Francisco’s goal was 16,000 and it permitted 10,000. Oakland’s goal was about 7000 but the city permitted about 2500
Affordable homes are those priced at less than 120% of the area median income.
But 2024 and 2025 are shaping up to be busier on the affordable housing front. From Mission Bay to Treasure Island to the Richmond District to the Haight, some 1,874 affordable housing units are under construction. This includes the city’s first 100% affordable educator project in the Sunset District, a second low-income development on Treasure Island, and the 160-unit redevelopment of the former McDonald’s property at Haight and Stanyan streets.
Sujata Srivastava, planning and housing director at the urban think tank SPUR, said the slow pace of development last year is a reflection of a decline in capital that started before the pandemic. Because it often takes five years to entitle, permit, finance and build a project, the data suggests that the slowdown in San Francisco was well underway by the time the pandemic lockdown started in March 2020.
She pointed to Oakland, which exceeded its state goals during the last cycle by 108%. “People have this perception that we are building a ton of market rate housing, but that hasn’t been true in a while, whereas Oakland has managed to keep that development going,” Srivastava said.
Once the economy bounces back and the local and state laws go into effect, construction cranes will proliferate on the skyline, she said. “In the next couple of years, we are going to see projects breaking ground a lot faster than they did,” Srivastava said. “Once interest rates ease, construction costs come down and rents recover, I think we are going to see a lot more development.”
The focus on removing obstacles for developers has drawn heat from the Board of Supervisors’ left-leaning faction, which argues that the changes will simply grease the wheels for the sort of high-end, deluxe glass towers that the vast majority of city residents can’t dream of affording.
John Avalos, executive director of the Council of Community Housing Organizations, which represents affordable housing developers, said, “the real estate lobby successfully convinced legislators and the governor to set the bar well above what is achievable.”
“Even with all the streamlining laws that they have passed, the governor and legislators have not increased housing resources to achieve the below market rate production goal,” he said. “It’s an outcome foretold well in advance, all to put pressure on local jurisdictions to gut building standards that market rate developers have cited as a hindrance when it’s really been the market and not government regulation that has inhibited market rate production.”
Reach J.K. Dineen: jdineen@sfchronicle.com
Jan 8, 2024
By J.K. Dineen
J.K. Dineen covers housing and real estate development. He joined The Chronicle in 2014 covering San Francisco land use politics for the City Hall team. He has since expanded his focus to explore housing and development issues throughout Northern California. He is the author of two books: “Here Tomorrow” (Heyday, 2013) and “High Spirits” (Heyday, 2015).
He can be reached at jdineen@sfchronicle.com.