The SF Planning Department just released updated information regarding the new-housing development pipeline. San Francisco is in the midst of one of its biggest new-housing construction booms in history. (The same is occurring on the commercial development side, but this report won’t deal with that.) Indeed, it often seems that new projects of one kind or another are being announced on an almost daily basis, and a detailed map delineating all projects in some stage of the pipeline makes many city districts appear to have measles.
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. Such a change, if it arrives, would certainly affect rent and price appreciation rates.
As of December 30th, there were approximately 62,000 housing units of all kinds – luxury condos, rental apartments, market rate and affordable units, and social project housing – in the relatively near-term pipeline (next 1 to 6 years). 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). If we add the mega-projects planned for Candlestick-Hunter’s Point, Treasure Island and Park Merced, which may take decades to become a reality, the number jumps to well over 80,000. As a point of context, there are approximately 382,000 residential units in San Francisco currently. About 3500 new units were added in 2014. (We are awaiting the city’s 2015 Housing Inventory Report for the 2015 figure, but it will probably be of similar scale.)
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 penciled out includes high costs, enormous hassle-factor and extended project timelines on one side, and the potential for large financial returns on the other. In new San Francisco developments, condos often sell for $1250 per square foot and above, and 500 square foot studio apartments can rent for up to $3500 per month.
Of the units in the greater pipeline of 80,000 units, over 9000 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.
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 significant – constituting billions of dollars in investment – these projects do not constitute the greater part of Bay Area development.
If you are out and about please stop by this beautiful large home I will be holding open on Saturday, February 20 from 1:30 to 4:00. It is listed by my colleague John Solegui.
635 38th Avenue,
San Francisco California
>Offered at $1,495,000
Behind the understated 1920’s façade is a stylishly renovated 2,510 sq. ft. 3bedroom, 3bath home on two levels. The welcoming entry leads to a graceful staircase that ascends to the main level which is graced with wonderful, inlaid hardwood floors and elegantly remodeled environments.
- 3 bedrooms, 3 renovated baths
- Renovated classic white kitchen
- 2,510 sq. ft. per draftsman
- 2 car tandem garage and abundant storage space
- 2 newer furnaces, tank-less water heater and updated electrical and plumbing systems
- Lot Size: 3118 sq. ft. per city records
Please visit John’s site for more details: www.MyHomeInSF.com
I have recently joined the board of a fantastic nonprofit organization, United Policyholders. The mission of United Policyholders is to “empower the insured.”
In practical terms this means that they help provide consumers with advice as to how to make claims against their insurance companies, especially in the case of large natural disasters, like Hurricane Katrina, the recent Northern California fires or the flooding that just happened in New Jersey. But they also try to make sure that consumers care enough coverage, document their belongings and condition of their home well enough to make the claim in case it is after happens. They have a wonderful app, that I encourage you to download and use today to establish a record of your possessions and condition of your home. To try it out, search for UPHelp Home Inventory App in the App Store or click here.
Last Thursday, the 10-year treasury hit a historic low again. One of my favorite lenders says “2013 low,” which is the lowest they have ever been or just about. If you have been thinking about refinancing or even if you have a pretty good rate, I encourage you to call your favorite lender immediately to see if you can lock in one of these historic low rates. We keep hearing that interest rates are going to rise, but here they are, as low as they’ve ever been, again. So if you missed it last time, now’s your chance.
Of course, if you need a referral to a lender, I am here to provide that to you. Just ask! read more →
The new S&P Case-Shiller Index for November 2015 for the 5-county, San Francisco Metro Statistical Area was published yesterday. According to C-S, home prices continued to tick up a small bit through the autumn market.
Most of these charts track the “high-price tier” of homes (the upper third of home sales by price), which apply best to San Francisco, southern Marin, San Mateo and central Contra Costa counties. However, note that appreciation rates do vary by market area.
At this point, the next real indication of where the homes market is heading will come after the beginning of the 2016 spring selling season (which can begin as early as mid-late February) and sales begin to close in March and April.
The past 12 months:
Since the recovery began in 2012. One can see in both the above and below charts the extreme seasonality of home price appreciation over the past year and over the past 4 years. Almost all the significant appreciation has been occurring in the spring selling season, when the supply and demand dynamic has been most out of whack, and the competition situation between buyers for new listings has been the most ferocious. Whether this spring will experience this frenzy once again, or whether an inflection point has been reached (for any of a number of potential reasons) causing a more extended plateau in appreciation or even a negative adjustment of some magnitude will soon become evident.
Over the last few real estate cycles:
And this “aggregate” chart tracks all home price segments for the SF Metro Area. Note that the 3 price tiers delineated by Case-Shiller had bubbles, crashes and recoveries of very different magnitudes, and this aggregate chart doesn’t apply well to either the low or high price tiers, but approximates the mid-price tier reasonably well:
Paragon’s full report on the S&P Case-Shiller Home Price Index for the Bay Area is here.