A new study from the UC Berkeley Terner Center for Housing Innovation reveals that bureaucracy is the main reason San Francisco is the world’s second most expensive city to build a home in — and the correlation to high housing costs is no coincidence. “The most significant and pointless factor driving up construction costs was the length of time it takes for a project to get through the city permitting and development processes,” the authors noted.
Why do construction costs matter?
High construction costs make homes more expensive to build, which means fewer affordable homes get built. Besides exacerbating income and racial inequality, San Francisco’s housing affordability crisis has contributed to San Francisco having the nation’s second-highest income inequality.
Bay Area rents have increased 43% over the past decade while salaries have stagnated for teachers, firefighters, service workers, and basically anyone outside tech. Despite the need for affordable housing, developers continue to build mostly luxury apartments and condos in San Francisco. While it’s easy to point to developer greed, the truth is that density restrictions and our approval process make it impossible for developers to build less expensive housing cost-effectively. When affordable housing costs about the same to build as luxury housing, of course developers are going to build luxury. I call it the “IKEA problem."
Why are construction costs so high in San Francisco?
There are three main reasons building housing is one-third more expensive here than the national average:
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Labor is expensive.
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Low-density zoning increases competition for scarce land (and A UC Berkeley study found that every growth-control policy a city puts in place raises housing costs by as much as 5% there.
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Our approval process takes forever.
San Francisco has “some of the most complex land use and environmental regulations in the country,” according to the Urban Land Institute. Planning permit fees in SF alone are about $5000 per home. The national average is $500-$2000.
The biggest contributing factor to high home building costs in San Francisco is our discretionary review process. In most of the country, construction permitting is “by-right.” That means if a project meets local zoning and code regulations the developer gets to build. San Francisco insists on an individualized approval process for each project. Here’s what that looks like in theory:
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The Terner Center spoke with non-profit and market-rate housing developers, architects, and other homebuilding professionals. One respondent said the SF Planning Department changed the required door size between the design and build out stages of their project and asked them to implement the change in their plan. Design standards are arbitrary and therefore impossible to plan for. As one study participant said, “You think you’re on the finish line and then you find out there’s one more permit.”
Then in addition to the permits you have the appeals. The California Environmental Quality Act (CEQA) is frequently abused to obstruct infill development near public transit, and usually draws out the process for a year and a half to two years. But it can take much longer, depending on how many lawsuits you have to fight. Almost none of these appeals actually stop construction. “There’s no benefit to the public – the need to get ‘exceptions’ approved just adds costs,” one participant said.
How can we lower construction costs in San Francisco?
Respondents in the Terner study unanimously stated that the most effective thing San Francisco could do to reduce construction costs is to streamline our permitting process.
There are many ways to do this. Housing providers were largely in favor of expanding the number of projects that can be permitted “by-right,” or exempt from unnecessary appeals and delays. Designating more projects by-right makes housing more affordable and more affordable housing pencil out. Reducing community hearings speeds up development and cuts costs. For this reason, YIMBY Action, SFHAC, and nonprofit affordable housing developer Mission Housing have submitted a ballot measure to build homes which San Francisco’s middle-income families, our firefighters and teachers, can afford, by-right.
A parallel need is to supercede most local land-use regulations. We should start by easing height restrictions so we can build more homes for less money. The State Legislature should pass SB 827, which will spur construction by zoning the areas around transit hubs for higher density.
Finally, we must reduce San Francisco’s highest-in-the-nation permit fees.
The data is clear that building more housing does not increase market prices for homes, and that building more housing of all kinds, including market-rate housing, reduces gentrification and displacement in vulnerable low-income communities.
But city bureaucracy does increase the cost of building new homes. Everything from permits and permit fees, environmental impact reports (EIRs), affordable housing mandates/inclusionary zoning ordinances, local ballot measures,CEQA lawsuits, last-minute zoning changes, arbitrary inspection standards, aesthetic concerns, and parking requirements make it harder and more expensive to build new homes in San Francisco.
Reducing the red tape around housing is a crucial step in easing the housing affordability crisis and battling the attendant racial segregation, income inequality, and displacement of low- and middle-income families.
Publisher's Note: In a previous version of this article, we did not clarify that the permit fees referenced in the article were specific to the SF Planning Department's fees. These fees are different than the fees issued by the Department of Building Inspection for building permits. DBI fees have been shown to be lower than a number of other Bay Area cities.
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