First Projects Advance Under San Francisco's New Zoning Plan, But Costs Hold Pipeline To A Trickle

San Francisco’s first housing project proposals under the city’s new Family Zoning Plan are beginning to advance, but six months after the policy opened large swaths of the west side to taller, denser construction, multifamily development remains largely stalled as high financing and construction costs continue to sideline most projects.

The zoning plan was Mayor Daniel Lurie’s attempt to create more than 36,000 homes as housing element deadlines bear down on cities across California. With a 2031 deadline fast approaching, the pace of new projects remains slow, despite enthusiasm to get new units going.

“It's a long process to get from thinking about it to breaking ground, but there's a positive attitude in the development community, and there’s certainly a positive residential growth attitude at City Hall,” said Ric Russell, multifamily broker at Kidder Mathews’ San Francisco office. “The city’s development pipeline will start filling up.”

Two small projects — a nine-unit building at 2 Crestline Drive and an eight-unit development at 230 Anza St. — are the only new multifamily developments approved and moving forward using the city’s new height and density guidelines.

The Family Zoning Plan went into effect in mid-January after the San Francisco Board of Supervisors approved the initiative on Dec. 12. The ordinance is designed to spur denser housing development by rezoning northern and western neighborhoods such as the Marina, West of Twin Peaks, Sunset and Richmond districts, areas that haven’t been targeted for multistory residential development due to zoning laws that stipulated single-family development.

The plan is also facing competing lawsuits, with one arguing the policy illegally restricts housing production and another claiming it allows too much density in historically low‑rise neighborhoods.

City officials say the zoning overhaul is essential to meeting state‑mandated housing targets, while opponents argue it either undermines neighborhood character or fails to go far enough to spur development.

The legal challenges create uncertainty as the city attempts to accelerate housing approvals under pressure from California’s housing laws, on top of nationwide market uncertainty and economic pressures.

“San Francisco’s housing market is showing early signs of recovery, but construction and financing costs remain exceptionally high,” said Candace SooHoo, operations and digital communications manager for San Francisco Planning.

“Developers continue to face elevated interest rates, labor and materials costs, insurance costs and broader economic uncertainty, conditions that, in many cases, have grown faster than rents. As a result, many projects remain on hold.” 

The large multistory housing projects that dot the city’s skyline have primarily been erected in eastern neighborhoods that are zoned for mid- and high-rise residential developments. However, under the FZP, mid-rise buildings of six to eight stories are allowed on most transportation corridors and on corner lots larger than 8K SF, while high-rise projects of 12 to 65 stories are allowed on major thoroughfares that have access to public transit.

The FZP also established the creation of the Housing Choice-San Francisco Program, which offers developers an additional pathway for increased residential capacity for new housing projects or residential conversions outside of the city’s standard zoning regulations. The projects on Anza Street and Crestline Drive both tapped the program for approval of increased density.

Although new projects have been slow to get out of the gate, continued compression in vacancy rates and rapidly rising rents in the multifamily sector are likely to spur new development, Russell said.

“San Francisco had the highest percentage of rent increase in the country last year,” Russell said. “All the neighborhoods are full. There are a couple of secondary neighborhoods that are having a little bit of softness, but as a whole, it's a very, very tight market.”

Multifamily vacancy in San Francisco in the first quarter was 4.4%, according to Moody’s data. Rental demand is being fueled in large part by employees working for artificial intelligence companies such as Anthropic and OpenAI, which leased large blocks of office space to build out their staffing levels. Those office leases, which totaled more than 700K SF in the first quarter, are driving hordes of new residents into the city.

“AI is filling up the empty office space in San Francisco, which is producing residential tenants,” Russell said.  

Apartment rents have skyrocketed as a result. Average apartment rents in May are $3,950, according to Zillow, a $455 increase from a year prior. 

The spikes in apartment rents are likely to make developers take a much closer look at new housing projects, especially when they can use new zoning and height regulations to increase project density within the same footprint, Russell said.

“There are a lot of proposals for new projects,” he said. “Most are high-rise projects, but I think the development community is looking favorably at [the Family Zoning Plan], especially the projects in the better locations.

The mayor’s office didn’t respond to a request for comment from Bisnow regarding early adoption of the Family Zoning Plan.

As market conditions continue to stabilize, developers are also increasingly interested in tapping the Housing Choice-SF Program to advance their projects, San Francisco Planning’s SooHoo said.

“Overall sentiment is more optimistic than it was a year or two ago,” she said. 

“We’re hearing from project sponsors who are seriously interested in how they might utilize the Housing Choice-SF Program, and many believe their stalled entitled projects could move forward using Housing Choice as market conditions continue to stabilize.”