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It's Too Damn Expensive to Build Affordable Housing in SF

Scott Lucas | November 21, 2014 | Story Real Estate

The Bay Area's housing market is twisted up worse than a figure in a Zio Ziegler mural, but the idea most people agree on is that to build more affordable housing. So why aren't we? Well, like hiring Ziegler to doodle all over your garage door, it just costs too much.

That’s according to a new story in the San Francisco Business Times, which reports that after rising five percent in both of the last two years, “construction costs are galloping ahead at 7 percent per year” this year. That leads to a delay of affordable housing construction in particular, because unlike with standard building projects, non-profit developers can’t simply pass the increased costs on to renters—and because state credits haven't kept pace with inflation, the subsidies tehy do rely on aren't enough. As a result, in the last year, San Francisco added just 220 new affordable units. (2,330 market-rate units came on line during the same time period.)

"What it leads to is fewer projects and smaller projects," Donald Falk, executive director of Tenderloin Neighborhood Development Corp, told the Business Times. His organization, one of the city’s largest nonprofit developers, has longstanding plans to put hundreds of new affordable units on two parking lots it owns, but can’t do it because of the rising costs of construction.

Just because an affordable housing unit is cheap to rent doesn’t mean it’s cheap to build. According to the story, during the recession, one unit of affordable housing cost around $200,000 to build. Now it’s up around $400,000 in San Francisco, and over $300,000 in the North and East Bay. Teasing out the root of the increase is complicated, because there are many factors at play: Material and labor costs—which make up half of a project’s final price tag—are increasing, as growing demand allows suppliers to charge higher prices.

Unsurprisingly, the solution isn't simple. In addition to state tax credits, below-market developers rely fees paid by developers on for-profit housing. But San Francisco has a checkered record on facilitating those projects. For instance, the developers of the 8 Washington luxury condos would have paid $11 million in offsets for below-market housing. When city voters nixed that project, they also killed that funding.

Though the Mayor’s office has set a goal of bringing 40,000 below-market units to the city, we're still far away from reaching that number. In conclusion, wverything is terrible and it isn't getting better soon. Happy Friday!

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