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June 1, 2016

San Francisco New Housing Construction & Inventory Trends

June 1, 2016

San Francisco New Housing Construction & Inventory Trends

Many of the charts included below are based on the San Francisco Planning Department’s excellent 75-page 2015 Housing Inventory report, released on May 27, 2016, which can be accessed using the link at the bottom of this article. We are very grateful for the enormous effort put into creating that report by Audrey Harris and other Planning Department personnel.

Numbers in different charts below will not always agree: This is due to the vagaries of how and when condos and other housing units are counted as filed, authorized, permitted or completed by the different agencies who compile this data. As far as the real estate market is concerned, the situation is complicated by the fact that new construction condos are often marketed and “sold” (offers accepted) well before they finish construction, i.e. market dynamics of supply and demand may be significantly affected by units that do not yet exist.

The politics of new home development in San Francisco are not for the weak of heart. There are vociferous disagreements between neighborhood and homeowner associations, developers, affordable housing advocates, tenant’s rights groups, business groups, and pro-, slow- or no-growth advocates regarding how it should best proceed (or not proceed). The battles are non-stop in every political or legal venue available.

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Comparing total inventory (illustrated above) to annual sales reveals that condos and TICs turnover about twice as often as houses in San Francisco. About 2% to 2.5% of all SF houses are now sold each year, an extremely low turnover rate, which has exacerbated the city’s inadequate, house-listing inventory situation. For condos, turnover runs in the 4.5% to 5% range, which is roughly in line with national averages for home sales, and for TICs, turnover is in the 5% to 6% range. These are all very general approximations. Since condos and TICs are typically smaller than houses, and often purchased by younger buyers and/or smaller households – singles, couples, beginning families – it’s not surprising they sell more often than houses, whose owners are often older, more settled in life, and have larger households.

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The process of application and review, public hearings (and sometimes ballot proposals), revisions, entitlement, permitting, construction, inspection and completion is complex and lengthy. Housing units are being planned and built, and existing units are being altered and removed. And there are many housing types: rental or sale units, market rate or affordable, social-project housing or luxury condominiums.

The new-housing landscape in San Francisco is in constant flux: new projects, developer plan changes, city plan changes, and shifts in economic and political realities. The basic fact is that the city, after its recent 2008-2012 new-construction slump, is now experiencing a huge building boom. However, it should be noted that booms can slow dramatically or even come to a screeching halt if economic circumstances significantly change.

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Residential Development by City District

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SF Development Pipeline Map

New construction has been concentrated in a few specific districts of the city, mostly where there are commercial lots able to be converted to residential use and where higher density housing projects are most viable. The ability to take under-utilized commercial property sites and turn them into multi-unit or even high-rise residential projects is particularly prized. Generally speaking this describes the quadrant of San Francisco around and to the southeast of the Market Street corridor.

New Housing Construction by Bay Area County

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Affordable Housing Construction

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Very generally speaking, the city requires that new home developers either dedicate 15% of their units to affordable housing, which could be built on-site or on another city site, or contribute to the city’s affordable housing fund “in lieu” of building the units themselves. (The rules are more complicated than that, and there’s something on the June ballot that will change them further.) There are few subjects more difficult and politically charged in San Francisco than affordable housing: how much should be built where and who should be responsible for the costs.

Affordable housing units are allocated, rented and sold under rules and formulas pertaining to social and economic circumstances and housing cost. Large projects are also built on an ongoing basis by private-public social organizations for dedicated purposes such as senior housing. Looking at the number of units actually being built, there is a general consensus that current construction is deeply inadequate to needs.

In 2015, a total of about $73 million was collected from developers as partial payments of in-lieu fees for projects.

Bay Area Housing Affordability Trends

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Bay Area Housing Affordability Report

San Francisco Housing Units Demolished,
Merged and Removed

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Housing units are gained by additions to existing housing structures, conversions to residential use, and legalization of illegal units. Dwelling units are lost by merging separate units into larger units, by conversion to commercial use, or by the removal of illegal units.

New Development Pipeline

We also have an overview of the quarterly San Francisco Planning Department’s Pipeline Report, which complements the annual Housing Inventory reports with a longer term perspective: The San Francisco Residential Pipeline Report.

There are over 60,000 housing units of all kinds currently in the pipeline – and the pipeline is growing and changing quickly now – but some of the bigger projects (such as Treasure Island, Hunter’s Point/Shipyard, Candlestick Point) may take decades to complete. Also, just because a project is in the pipeline does not mean it will be built as planned, or even built at all.

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Pipeline Analysis, Based on SF Business Times June 2015 Project Breakdown
(A little outdated but still providing useful insight)

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San Francisco Housing Stock Breakdown
A Fascinating 2014 Analysis by the San Francisco Controller’s Office

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The Context behind San Francisco New Housing Development

What ultimately underpins new housing construction is demand. San Francisco has been experiencing surging population, employment and new wealth creation, that has so far been outpacing new housing supply. However, as of spring 2016, it appears that new hiring has slowed, at least in the short term.

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Insufficient Housing = Increasing Prices & Rents

Below are two of our charts illustrating the rental and sale markets in San Francisco. As of spring 2016, it appears that appreciation rates may have begun to finally slow or plateau.

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Condo Values by Era of Construction

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The first golden age of SF apartment buildings, many of which were later turned into condos, was in the period of 1920 – 1940: The units in these buildings are large, light, gracious and filled with elegant detail. Pacific Heights and Marina are filled with these buildings. Though there are beautiful condos built in other eras (Edwardian flats, Art Deco apartments), the second golden age really arrived with the latest burst of new-condo construction, built for an increasingly affluent population: These units are ultra-modern, high-tech and feature highest quality finishes and amenities. They are exemplified by the new, luxury high-rises of the greater South Beach-Yerba Buena area, though variations on this theme, in non-high-rise form, have been springing up all over the city.

The units in these newer buildings command a premium both when rented or, as seen in the chart above, when sold – now surpassing an average dollar per square foot value of $1000, and sometimes far above that. This is the major motivator for developers today, many of whom are now concentrating on luxury or what might be called ultra-luxury condo construction. There is a question as to whether the luxury segment is being overbuilt considering the size of the buyer pool for such expensive units.

Housing Unit Construction by Bedroom Count

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We haven’t found an easy place for construction data by unit size, so this first chart above is extrapolated from SF MLS sales of condos built 2001 -2015. It may not apply perfectly to units built as apartment rentals or affordable housing.

Typically, the smaller the unit, the higher the dollar per square foot value on sale or rental, however in San Francisco, 3+ bedroom condos are often high-floor units with spectacular views that sell for extraordinary sums – but these would be outliers to the general rule.

Below are links to the SF Planning Department Pipeline and Housing Inventory report webpages. They contain a huge amount of data, which we have attempted to represent accurately. As noted by their authors, who did an incredible job, the original reports themselves are “compiled and consolidated from different data sources and subject to errors due to varying accuracy and currency of original sources.”

2015 SF Planning Department Housing Inventory Report, Issued May 2016

San Francisco Planning Department Pipeline Report

SF Development Pipeline Map