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Grosvenor CEO On S.F.'s Path To Overcoming Labor Shortage, NIMBYism

Grosvenor Americas CEO Steve O'Connell can look at Seattle for solutions to one of San Francisco's biggest problems, and to Washington, D.C., for solutions to another.

Grosvenor Americas CEO Steve O'Connell

In the face of a crippling housing crisis, San Francisco commercial real estate has had a difficult time moving the needle much on housing production for several key reasons, from a complex regulatory system to high costs to NIMBYism.

After a disappointing 2018 in which just 2,600 new homes were produced, the city's planning department expects 4,700 to debut this year, yet that still lags behind Oakland, according to the San Francisco Chronicle. Despite having less than half S.F.'s population, Oakland is expecting more than 6,800 new units in 2019.

One of the most fundamental issues in San Francisco is the cost to build, which comes down to the Bay Area's labor shortage, according to O'Connell, a panelist at Bisnow's upcoming Building a Better City event. 

"As a result of all the employment and wage growth, our construction industry is not as well supplied with labor as it should be, and as a result our cost of construction is extremely high now," O'Connell said. "Construction costs have gotten to such a point where a lot of development is not viable, which is also constraining our ability to supply."

While also a national issue, the construction labor shortage is at a critical level in the Bay Area, as the region experiences a record low unemployment rate and abundant demand for commercial and residential real estate. 

Marketing continues to be a stumbling block for the construction trade itself, especially in the Bay Area, O'Connell said. 

"Part of the problem is a lack of information for people that the construction trade can be a very viable way to earn a living and, in fact, have a very good life," he said. 

Apartment construction at 1066 Market St. in San Francisco

To solve that problem, Grosvenor Americas, which has an office and does substantial work in Washington, D.C., is working on its own apprenticeship training program to recruit people in underserved neighborhoods into construction, according to O'Connell. 

He hopes to start the same effort in San Francisco. 

"Particularly in the Bay Area, the draw of the tech firms and the lifestyle is strong," O'Connell said. "It's almost like more traditional job opportunities like construction and manufacturing have been left to the wayside in the Bay Area, and I think education will help."

Grosvenor also does business in Seattle, a city O'Connell points to as similar to Washington, D.C., in its ability to mitigate housing affordability issues. 

For instance, Seattle, which has decisively outdone S.F. in housing production during this cycle, has also incentivized developers and landlords to make affordable its existing stock of housing. The city offers a tax exemption for landlords that reserve a certain number of units for earners of up to 80% area median income — a measure O'Connell thinks S.F. should look at to circumvent many of the city's development challenges.

Another way to activate affordability O'Connell also likes is making accessory dwelling units, or "granny flats," easier to build. Several state bills did just that starting in 2017, and this year's SB 13 (Sen. Bob Wieckowski, D-District 10) goes even further, cutting several fees and truncating approval time statewide. 

To O'Connell, it all comes down to supply, both of housing and labor. But the most effective solutions like workforce training and also prefabrication are years away from showing peak returns and may show results only after the next market downturn.

"Supply is a big part of the solution, across all categories, income levels and neighborhoods," O'Connell said. "At a macro level, it's unfortunate, but the best thing to help slow down the escalation of construction costs will be a slowdown in the amount of construction in the city."

Join Steve O'Connell, Oakland Mayor Libby Schaaf, TMG Partners CEO Michael Covarrubias and many others at Bisnow's Building a Better City event on Oct. 23 at The Gorgas Rail Complex in the San Francisco Presidio.