The Hidden Reason San Francisco Real Estate Costs So Much

Basic economics tells us that high demand and housing shortages drive up costs. Both of those scenarios are true here in San Francisco – an obvious cause of our astronomical housing prices. But there’s a hidden reason San Francisco real estate costs so much.

The Insurmountable Costs of Building

San Francisco’s dilemma is straightforward. The city needs to create as much housing as it can to meet local demand, but the cost for developers to develop that housing is jaw-droppingly high. It’s so high, in fact, that the 30,000 or so homes that have already been approved for building haven’t yet entered the construction phase, as developers struggle to find financing and a workforce. Between lengthy waiting periods for permits, exorbitant fees, restricting zoning mandates, the city has effectively tied itself up with enough red tape that it cannot produce the housing it needs.

According to the SF Chronicle, it costs $700,000 to build a single apartment or condo unit today. That’s almost three times what it cost ten years ago. It’s pricing like this that gives San Francisco the dubious honor of the highest construction cost per square foot in the world — $417 per square foot.

Pair those construction costs with high-priced land, labor costs in the form of workers who aren’t trained for Bay Area building, rigid and restrictive zoning laws, city fees, and a next-to-impossible approval process, and you end up with the current reality of housing in San Francisco — a self-inflicted problem.

The Chronicle took a deep dive into this topic, and it’s an eye-opening readAs a realtor here in San Francisco, I hear people lamenting all the time, “Just what we need, more luxury housing.” But the realty is that nothing else pencils to build. At the very least, it’s a good thing to be aware of as we head into the next decade and address the housing crisis facing most US cities. 

CalBRE #01224570

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