Why Affordable Housing Will Not Be Built Anytime Soon in San Francisco

Governor Newsom and the Department of Housing and Community Development have mandated each county to have a plan to build affordable housing, with a statewide goal of reaching 2.5 million new units by 2030 – 1 million of which must be affordable.

In response, Mayor Breed announced plans to develop 82,000 new units (17,000 units per year) of affordable housing by improving the permitting process. Discussions are underway to convert vacant office buildings to below-market-rate (BMR) and affordable housing. All the above sounds great, but it will not happen anytime soon. Why?

For one example, I have a client who planned to build seven Affordable Dwelling Units (ADUs) in San Mateo County. The units would be under 800 square feet each. After receiving eight bids, the cost to build was $600,000 a unit. With rents nowhere near to justify this investment, he has decided not to build. This same decision is being made on all BMRs and affordable housing projects.

With less construction and less labor and materials demand, you would think that prices would be coming down in order to make such development affordable, but unfortunately, that is not the case. Building costs have skyrocketed so high that developers can’t make any business sense to justify building right now.

Another issue is that even if the project is going through the approval process, you always risk neighborhood resentment that could lead to long-term delays, added costs, and prolonged final project approval.

Until all the above can be addressed, San Francisco and counties across California will find it near impossible to build affordable housing anytime soon.

This is why Mayor Breed’s affordable housing goals may only become a reality once prices drop significantly, or more incentives are put into place to make such developments feasible. Until then, San Franciscans will continue to be priced out of San Francisco with no help from the government in sight.

It’s a sad situation, but it appears to be the current reality. San Francisco must find new solutions quickly to address the housing crisis or risk the city’s increasing gap between the wealthy and impoverished, leaving many residents to have to look elsewhere for an affordable place to live.

This is not what San Francisco wants, and it’s time for San Francisco to make changes that enable people from all income brackets to find housing they can afford. If San Francisco doesn’t act soon, their target of building affordable housing may never be a reality. San Francisco can’t afford to wait any longer. The time is now for San Francisco to act and implement a plan to address its affordable housing.

By Hans Hansson

Hans Hansson is president and founder of Starboard CRE, and a San Francisco native, born and raised in the Sunset District, who now resides in Twin Peaks.