San Francisco has been known for decades as one of the most challenging places to build housing. It’s a poster child for a national housing crisis that has become especially acute in coastal cities.
Now, San Francisco and Sacramento have passed laws that drastically cut red tape for developers looking to build new homes: Starting next year, San Francisco will be required to rapidly approve projects that might otherwise be subject to months of hearings and appeals.
But don’t expect construction cranes to start popping up like dandelions all over town. The city is on pace for one of its worst years for housing production in recent memory: As of Dec. 13, the Planning Department estimates that 1,823 new units of housing have been authorized so far in 2023. That follows a trend that began with the pandemic, when the city saw a significant dip in building permits.
The sluggish pace of housing development is expected to continue, as high construction costs, interest rates and a depressed real estate market make it difficult to finance new projects.
“The real issue now is economics. Construction costs have yet to go down, and rents have yet to recover,” Oz Erickson, principal at developer Emerald Fund, told The Standard.
New Laws Pave the Way for Housing
On Dec. 5, after weeks of haggling, the San Francisco Board of Supervisors finally passed the Constraints Reduction Ordinance—a bill designed to cut mandatory meetings and other hurdles to housing. While the state Office of Housing and Community Development looked askance at the amendments, they gave a nod of approval to the bill. Mayor London Breed signed it on Dec. 14.
With Mayor Breed signing Housing Constraints legislation, San Francisco has taken a big step toward creating more housing, faster. There is more work to do, but we are optimistic this action removes barriers to housing production that will make a real difference for… pic.twitter.com/FuWx1dLl4R
— California HCD (@California_HCD) December 16, 2023
The ordinance takes effect immediately. Another law, Senate Bill 423, will require San Francisco to ministerially approve—meaning approve by default—projects with two or more units starting as soon as early 2024, according to the City Attorney’s Office. That’s because the city was singled out for elevated scrutiny in the state bill, which requires quicker housing approvals in cities that aren’t meeting state-mandated affordable housing targets.
“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.
The city has until April 1 to submit housing production data to the state, meaning SB 423 won’t kick in until the first half of 2024, according to Fryman, who believes SB 423 could start impacting projects as soon as February, depending on how quickly the city and state act.
Will Housing Projects Pencil Out?
The new laws are aimed at helping satisfy San Francisco’s Housing Element, which requires the city to allow for 82,000 new homes—47,000 of which must be affordable—by 2031. But even with an easier path to housing, it could be a while before the city sees a significant uptick in new permits, let alone completed projects. High interest rates, which make it more expensive to finance projects, are perhaps the biggest factor.
“For bigger projects (over 25 units), I think it’s late 2024 when interest rates (hopefully) come down,” added Corey Smith, executive director of the Housing Action Coalition, in an email. “Until then, the financial barriers are too big.”
Even if the economics become more favorable, housing is built over time. Projects generally begin with months to years of planning before builders even apply for permits.
“What’s the building going to look like? How much is it going to cost? How are you going to set your money up? You don’t start pulling permits until you’ve sussed all these things out,” said Sam Moss, executive director at Mission Housing Development Corp., a nonprofit developer. “So the permits will be pulled in 2024 and 2025.”
According to Fryman, no one knows exactly when “we’ll hit that sweet spot when developers can secure financing at the going cost of construction.” But market conditions are temporary, builders and housing advocates say.
Conditions “can change rapidly,” Erickson said. “I’m personally optimistic that you will see new projects next year.”