It’s the market, stupid!
That’s the short-hand on San Francisco’s market for residential developments, which has fallen stagnant over the past year despite new laws from the city and state intended to cut red tape. The city is on pace to add fewer than 2,000 new residential units for 2023, the lowest total in recent memory, the San Francisco Standard reports.
The dearth of residential development is expected to continue into 2024 despite city and state laws intended to streamline residential development.
“The real issue now is economics,” Oz Erickson, principal of prominent San Francisco developer Emerald Fund, told the publication. “Construction costs have yet to go down, and rents have yet to recover.”
There is nothing to indicate a dramatic drop in construction costs next year, and cuts to interest rates will be incremental and spread out, according to the U.S. Federal Reserve Bank’s latest statements. Those factors overlay a local market that is still dealing with depressed values in the wake of the pandemic, making financing for new projects hard to come by.
The marketplace still struggles with the work-from-home trend and higher costs, but there is some apparent help on the way in the form of new laws and regulations that could help residential development in San Francisco and other cities in California.
A new rule specific to San Francisco will start with 2024, providing the city a way to quickly approve projects by avoiding various appeals that might require months of hearings by various city panels and neighborhood meetings.
The new city ordinance works in tandem with the recently passed California Senate Bill 423, which was authored by Sen. Scott Wiener, a Democrat who represents the city.
“These two policies will speed up housing approvals and provide certainty against indefensible appeals and delays, ensuring permits for new applications will be issued in weeks instead of years,” Annie Fryman, director of special projects at the San Francisco Bay Area Planning and Urban Research Association, wrote in an email to the Standard.
SB 423’s provisions and related city ordinances could begin to affect the market as soon as February, according to Fryman.
The new legislation is intended to foster development to meet the mandate the state has set for San Francisco as part of a planning program called the Housing Element. The city is on the hook to add 82,000 residential units, with more than half of them required to be affordable, by 2031.