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San Francisco New Housing Construction Pipeline

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New Home Construction in San Francisco

New Construction in San Francisco

Approximately 64,000 housing units, 31 million sq.ft. of commercial space
& 25 hotels with 4685 rooms are now in the SF new construction pipeline -
with 5700 units, 10 million sq.ft. and 5 hotels currently under construction.

With a lot of help from the recent San Francisco Business Times analysis and investigation of the SF Planning Department Pipeline report, we put together the two charts above. As far as the SF apartment building market is concerned, the big issue is the continued construction of new rental units, how that is affecting the supply and demand dynamic, and rent rates. Over 8000 new rental units have been built in the past 5 years, with at least 10,000 more expected to hit the market in the next 5. This surge of supply is a major factor in the recent decline in SF rents illustrated at the top of this report.

Note that projects are continually being added to the pipeline, or their plans significantly changed, or even abandoned. Some of the big projects noted are very long-term, and economic and political shifts can dramatically affect future plans, sometimes very quickly.

These next two charts are based on May 2017 analyses made by the San Francisco Business Times (Top 25 Residential Construction Projects currently underway), and Socketsite.com (the Q4 2017 Planning Department Pipeline of new housing projects). Because the status of construction projects in the pipeline is constantly changing, and we get data from different sources, who look at things from different angles, sometimes the data in one chart will not agree with the data in another.

Another aspect of new housing construction is the recent changes in state and county law pertaining to the building of so-called accessory dwelling units, though in San Francisco, many of the permits being granted are for legalizing existing illegal units (aka in-laws) as opposed to creating brand new units. Here is an excellent overview: Accessory Dwelling Unit Construction

SF Planning Department Pipeline Report Webpage

Planning Department Q1 2017 Pipeline Map

New housing construction has lagged population pressures for decades - pressures which have soared during the current economic and employment boom - and now there is a scramble to address the inadequacy of housing supply, and, for developers/investors, to reap the rewards of a high demand/low supply dynamic in one of the most affluent and expensive housing markets in the world. Of course, one of the questions now is at what point might new inventory succeed in fully meeting market-rate buyer and renter demand, and possibly proceed to an over-saturation point, thus significantly changing the supply and demand dynamic. In 2016, increasing numbers of rental units helped bring about a decline in city rent rates, and increasing numbers of new-project condos affected appreciation in that segment as well.

As of Q1 2017, there were approximately 63,000 housing units of all kinds - luxury condos, rental apartments, market rate and affordable units, and social project housing - in the pipeline. Most are in the Market Street corridor area, the Van Ness corridor above Market Street, and in the districts to the southeast of Market Street (see map), except for the mega-projects planned for Candlestick-Hunter's Point, Treasure Island and Park Merced, which may take decades to become a reality. As a point of context, there are approximately 384,000 residential units in San Francisco currently. About 3500 new units were added in 2014, 2500 in 2015, and 4000 in 2016.

Housing supply and affordability issues, strong feelings about neighborhood gentrification and tenants' rights, and even simple NIMBYism (or in SF, NBMVism, "not blocking my view!") make development the most contentious political topic in San Francisco. Furious battles are ongoing in the Board of Supervisors, the Mayor's office and the Planning Department; with neighborhood associations and special interest groups; and at the ballot box. Development is not for the faint of heart or shallow of pocket: One cannot contemplate building virtually anything in the city without vehement opposition and sometimes a well-funded coalition in opposition. For developers, the equation to be calculated out includes very high land and construction costs, increasing affordable-housing contributions required by the city, enormous hassle-factor and extended project timelines on one side, and the potential for financial returns on the other. In new San Francisco developments, condos often sell for $1250 per square foot and above, but we are hearing from people on the development side that they can no longer pencil out building new housing in the city in a way that makes financial sense. They believe that many of the projects in the pipeline probably will not actually be built - we are not in a position to comment on that.

Of the units in the greater pipeline of 63,000 units, over 10,000 units are designated as "affordable housing," but many of those are in the long-term Candlestick-Hunter's Point and Treasure Island projects. Because of the nature of the political environment, much to do with how much affordable housing will be built is in flux. Many developers are in intense negotiations with government agencies and neighborhood associations to find a workable compromise between return on investment on one hand, and unit mix and affordable housing requirements on the other. Said requirements may consist of a percentage of units in the project, building affordable units elsewhere in the city, or contributing substantial amounts to the city's affordable housing fund in lieu of building.

In early March 2016, the San Francisco Board of Supervisors voted to put a city charter amendment on the June ballot, which, if passed, would hugely increase the affordable-housing contributions (in money or in affordable units built) required of developers of projects of 25+ units. Obviously, this would affect the financial equation for builders in the city. The question is will it affect their motivation to build so much as to significantly impact new home construction (market rate and affordable) in San Francisco. If you are interested, the city's chief economist, Ted Egan, wrote a detailed report on the issue: Economic Impact Report

New housing construction is very sensitive to major economic, political and even environmental events (i.e. natural disasters), so simply because something is in the pipeline doesn't mean it will be completed as planned within the time frame contemplated. First of all, plans are constantly being changed just in the normal course of things. And if a big financial or real estate market correction (or crash) occurs, as happened in late 2008, projects in process can come to a grinding halt, and new projects substantially altered, delayed or abandoned. Because the timeline in San Francisco can run 3 to 6+ years from initial filing with Planning to construction completion, developers and their lenders make enormous financial bets on what the future will look like. Timing is everything in real estate development, and can make the difference between large profits and bankruptcy. When the music stops - which it always does sooner or later, though the time range of opportunity can vary greatly - not everyone will find a chair to sit down in. That especially applies to those who over-leveraged their projects.

As a side note, big Chinese developers have been investing in both large residential and commercial real estate development projects in the Bay Area, and, according to reports, continue to aggressively seek additional opportunities. Though very significant - constituting billions of dollars in investment - these projects do not constitute the greater part of Bay Area development.

SF Planning Department Pipeline Report

Other reports you might find interesting can be found here:

SF Planning Department Housing Inventory Report

San Francisco Market Reports

San Francisco Neighborhood Values

30+ Years of San Francisco Real Estate Cycles

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and all numbers should be considered approximate.

© 2016-2017 Paragon Real Estate Group