Contact Us

The Broken Rungs Of San Francisco's Housing Ladder: A Problem Money Alone Can't Fix

Last month’s decision by the San Francisco Board of Supervisors to shut down a 495-unit housing project on the site of a Nordstrom parking garage prompted outcry by housing proponents desperate to increase the much-needed stock of housing in the Bay Area.

The market-rate project was led by San Francisco developer Build Inc. and would have included north of 100 affordable units.

“If you’re wondering how we got into our housing crisis, this is how,” Mayor London Breed said on Twitter following the 8-3 vote.


The move highlighted mounting concerns over the city’s planning and entitlement process, which has often caused significant delays to housing projects with no guarantee of approvals, making the city a time-consuming and costly place to do business. Though the state is looking to increase funding for these developments, affordable housing advocates, builders and investors say more money alone won't solve the dramatic shortage of housing in the Bay Area.

“This project met all the criteria for approval, and it would have created 500 new homes on what is currently a parking lot surrounded by tall buildings, located near transit,” Breed said. “We can’t keep rejecting new housing and then wondering why rents keep rising.”

Some critics of the rejected project, proposed at 469 Stevenson St. near the corner of Sixth and Market streets, claimed it did not provide enough affordable units and could displace existing residents, according to the San Francisco Chronicle.

There is broad consensus that housing is needed across product types throughout the state to address demand, stabilize rent prices and create upward mobility within the housing ladder. The state housing crisis is perhaps most deeply felt in the Bay Area, where demand from the booming technology industry, high costs for infill development and a challenging permitting environment have exacerbated rising rental prices, forcing an exodus of residents. The state’s Regional Housing Needs Assessment projects Bay Area cities will need to build more than 440,000 new housing units between 2023 and 2030, more than twice the 187,990 units needed between 2015 and 2023, which has yet to be met. 

“We need all kinds of housing projects to meet this demand,” Avanath CEO and co-founder Daryl Carter told Bisnow. “We just simply do not have enough housing.” 

The state government is making strides to address this need, such as Gov. Gavin Newsom’s $100B California Comeback Plan, which passed in July and includes $22B for affordable and homeless housing solutions.

Related California CEO Bill Witte said the government is paying closer attention than ever before, and cities could be penalized for not making strides to fix the state’s affordability crisis. He said the recent rejected project in San Francisco could be grounds for Newsom to take legal action.

“They are serious about keeping the foot on the gas,” Witte said during the Bisnow Multifamily Annual Conference event in Los Angeles on Nov. 2.

Manatt, Phelps & Phillips' Grace Winters, Avanath Capital Management's Daryl Carter, The Pacific Cos.' Mindy Rex, Bueno Group's Andre Bueno and Align Finance Partners' Dani Evanson at a Bisnow event.

But a congested playing pool is competing for these finite resources, and competition is fierce among developers for funding, and particularly for bond allocations and low-income housing tax credits.

“The demand for debt has only increased, while the per-capita limit has yet to go up as a result,” said Brad Wiblin, executive vice president of San Francisco affordable housing developer Bridge Housing. “These resources used to be easy to apply for, now they are just as scarce as any other financial resource.”

There are north of 200 affordable housing projects in the Bay Area stuck in the pre-development stage due to a lack of funding, a study conducted by housing nonprofit Enterprise Community Partners found. It would cost $4B to build these projects, according to the study. These sites could add 18,920 units to the region, but are likely years away from starting construction, NBC Bay Area reports. 

Waterford Property Co., an Orange County-based multifamily investor with affordable housing projects throughout the state, said increased competition for federal resources has hampered the firm's expansion in the Bay Area.

“We have never seen this level of difficulty before,” Waterford co-founder Sean Rawson said. “It can take us three rounds to receive bond allocations, so projects will typically take four to five years before delivering units. Some developers are going five to six rounds.”

In addition to financing struggles, the Bay Area is infamous for its complicated entitlement process, with local leaders delaying or rejecting “seemingly straightforward projects” like that of Build Inc.'s proposal in San Francisco, according to Witte. The city's planning commission has been working to streamline the process for several years.

These headwinds pose a threat to new developers entering the San Francisco market, while investors of existing projects have an easier time making greater returns. 

Avanath, which buys projects rather than building them, has affordable housing projects in San Jose, Oakland and Berkeley, all of which have waiting lists.

“We rarely have vacancies at the Bay Area properties,” Carter said. “We certainly would love to own more there, because it is such a desirable market.”

Acacia on Santa Rosa Creek, a workforce housing project by Opportunity Housing Group

A public-private partnership has used an investment strategy of its own to increase the housing stock across the state, though it, too, is being stymied by structural challenges in the Bay Area. 

A program introduced last year by the California Statewide Communities Development Authority seeks to circumvent the funding and entitlements process by partnering with local project sponsors to pay market rates for Class-A multifamily projects and convert them into workforce, or middle-income, housing for renters typically making 60% to 120% of the area median income. That encompasses about 30% of the workforce population in the Bay Area, or 1.5 million people, according to Lauren Seaver, president of Opportunity Housing Group, an affiliate of developer Blake Griggs Properties.

Waterford and Opportunity Housing Group are project sponsors. 

“This is a huge segment of the market that developers aren’t able to cater to because costs have gone up so much, the land entitlement process is getting worse and it’s harder to get anything to pencil,” Seaver said. “We think the CSCDA partnership is an elegant solution with minimal cost to the city, as no additional subsidies are required.”

The program provides low-cost financing for apartment transactions; those complexes are in turn capped on what they can charge for rent. Under the public-private partnership, sponsoring real estate firms are retained to act as project administrators for the complexes, and the cities are able to take over ownership of the apartments from the state in 30 years.

The program has acquired 5,000 units to date, most of which are in Southern California. Both Waterford and OHG are working with the CSCDA to expand the program to major Bay Area cities like San Francisco and San Jose, but to little avail.  

Though the program has acquired several apartments on the outskirts of the Bay Area, barriers to entry in San Francisco and San Jose are not unlike those for developers, with city leaders reluctant to quickly move projects through the planning process, and that is holding the program back. 

“This is a new, innovative investment structure that some cities aren’t used to, but just because they haven’t seen it before doesn’t mean it doesn’t create tremendous housing opportunities,” CSCDA Managing Director Jon Penkower said.

Waterford has seen early success with the program, with $1.7B in closed acquisitions in the past year, a bulk of which is in Southern California markets like Orange County, Los Angeles and Long Beach. When the company attempted to break into the San Jose market, city leaders indicated they were bullish on the idea, but they said they would rather put together their own program. It isn’t clear where that initiative stands.

“There is a sense of urgency” for a project like this, Drachman said. “We need to add more housing as rents continue to rise.”

Most of the markets the company is in have seen double-digit percent rent increases year-over-year, according to Drachman; under the CSCDA program, Waterford must cap rent increases at 4% year-over-year.

“With unprecedented demand and the low interest rate environment, it’s important that we accelerate this program now,” Seaver said. “This may be a window in time in which cities choose to adopt this.”