San Francisco Races To Meet Housing Requirements As Upzoning Initiatives Advance

New initiatives at the state and local levels could help San Francisco boost its housing stock after a couple of slow years for new homebuilding that set the city back in its efforts to meet state-mandated housing goals.

Both measures aim to increase density allowed by zoning, which in theory clears a path for more housing units, but the gap between what exists and what is required is wide. Missing the target would mean loss of local control over zoning and hundreds of millions of dollars in critical state funding.

The regulations likely won’t be enough to outweigh the economic challenges present in the marketplace, according to multifamily professionals in the city. San Francisco must build 82,000 new housing units by 2031.

“They're never going to get close in San Francisco. I put hard money, they might not get within 30% of their goal,” said Jefrey Henderson, executive vice president and leader of the multifamily institutional investment group for the Bay Area at CBRE. 

The city has struggled to bring new inventory online in the last two years, building only 2,066 new units in 2023 and 1,453 units in 2024, for a total of 3,519, or about 4% of the target. Nearly 7,300 units had been authorized by the city at the end of 2024, The San Francisco Standard reported.  

The San Francisco Planning Commission narrowly advanced Mayor Daniel Lurie’s family zoning plan, a program to increase housing density to meet the state-mandated target. Lurie’s rezoning plan would add capacity for roughly 36,000 homes by 2031.

The proposal now heads to the San Francisco Board of Supervisors, which must pass the legislation before Jan. 31, 2026, to avoid penalties from the state.

Earlier this month, Senate Bill 79 passed the state legislature and headed to Gov. Gavin Newsom for his signature. The measure imposes density increases within half a mile of transit hubs. Together, SB 79 and Lurie’s rezoning plan unlock new opportunities for developers to pursue housing in the city of San Francisco.

But the city’s plan faces stiff economic and political headwinds. Supervisor Joel Engardio, who supported Lurie’s rezoning plan, was ousted in a decisive recall vote on Sept. 16, leaving a seat open on the board of supervisors. And even with the recent California Environmental Quality Act reforms, projects will likely still face legal challenges from neighborhood groups, Henderson said. 

One economic challenge is that SB 79 includes a prevailing wage requirement for buildings taller than 85 feet, which increases the cost of labor by about 30% to 35%, making market-rate projects financially nonviable, Henderson said. 

“There's always going to be the labor cost issues and the materials cost issues, too, that haven't subsided,” Henderson said. “The economics still, I think, require some type of government subsidy to help offset those costs for the market-rate or the merchant builder.”

Much of the mayor’s plan calls for “gentle density,” allowing four-story structures in residential neighborhoods and five-story ones in some neighborhood shopping districts. Design guidelines encourage homes with two or more bedrooms and features like yards and setbacks.

Mid-rise buildings of six to eight stories are permitted along most commercial corridors, and high-rises up to 65 stories are allowed near transit hubs along Van Ness, Market Street and Geary Boulevard. 

“It’s called ‘family’ because it’s rezoning in the west and southwestern areas of the city where families have thrived for generations. There are good schools with capacity, transit and lower-density homes at the sizes families need,” said Sarah Dennis Phillips, San Francisco Office of Economic and Workforce Development executive director.

These neighborhoods haven't seen zoning changes since the mid-20th century and have added very little housing since then. They represent more than 50% of the city’s land but only 10% of new housing built in the last 15 years. 

The key difference between the mayor’s plan and SB 79, according to Dennis Phillips, is flexibility. The state density bonus program requires affordable units to be built on-site. San Francisco's local bonus program offers more options. Developers can choose to build those units on-site, pay a fee or build the units off-site. This gives developers more say in how they meet affordable housing requirements.

Some housing advocates argue the mayor’s plan doesn't go far enough. 

“The plan is a fairly monumental step forward in San Francisco's local policy towards housing, while at the same time probably not being enough to really address the housing crisis and provide the level of production that we're hoping it would provide,” said Dylan Casey, executive director at the California Housing Defense Fund. 

“There are things the city could do that would help a lot in bringing construction costs down, because by changing their design standards, they could, for example, allow for more use of modular construction techniques.”

The city is feeling the pressure to deliver. Failure to meet the January deadline brings with it severe consequences, including the so-called builder’s remedy.

Builder’s remedy allows developers to bypass local zoning regulations completely. A handful of other cities in California have come out of compliance with their state mandates and have had to deal with builder’s remedy project submissions, sometimes resulting in costly legal proceedings or being forced to consider projects they otherwise wouldn’t.

Failure to meet the deadline would also result in the loss of grant funding for parks, infrastructure and transportation. 

“If we get stuck in one of the state alternatives, we lose all of that careful planning that we've done in concert with the development community and with the residential community,” Dennis Phillips said. 

She said the mayor’s plan offers height and density bonuses to incentivize developers to build three-bedroom units and up, in an effort to maximize housing attractive to families. 

But the realities on the ground make it difficult for certain high-density projects to pencil. 

“I don't think you could probably do more than 125 units for some of these sites that we're talking about, unless you get assemblages,” Henderson said. 

To make these new zoning changes work, developers will likely need to combine multiple adjacent parcels owned by the same family or different owners. But the process is complex and challenging, with each property owner potentially having different goals or motivations for selling.

“We unlovingly call it brain damage,” he said. 

Assuming those deals get done, the question becomes what might realistically get built.

“You're going to need to build a five-to-seven-story in San Francisco to justify putting a shovel in,” Henderson said. “But the developer needs to understand what his exit price is going to be to make sure he wants to put a shovel on the ground and utilize his [limited partnership] relationships to back a deal anywhere.”

Should Lurie’s plan pass the board of supervisors, it would turn the newly rezoned segments in the city into the Wild West for developers. 

“Most developers will say, ‘I'll be second or third or fourth in line. I'm going to let somebody else catch the flak before I get in,’” Henderson said. “The first mover is going to be watched by everybody in the industry. They’ll say, ‘OK, we're all behind you.’”