San Francisco might be the most expensive place in the entire world to build new housing—intimidating news for anyone holding out for the possibility of increased supply to relieve the housing crisis.
In an epic examination of SF’s construction dilemma, the San Francisco Chronicle’s Roland Li blames variables ranging from a labor shortage (demand for construction contractors has skyrocketed in recent years) to the city’s Byzantine permitting process.
According to one estimate cited, building in SF costs $417 per square foot, exceeding the next most expensive market of New York City at $368.
One of the key sources of that assessment: The annual International Construction Market Survey from UK-based services company Turner & Townsend, which this year declared SF the new top of the heap in terms of building costs.
“This year San Francisco removes New York from the top spot, having increased by 5.0 percent,” according to the 2019 report, which put SF at the lead of a top-five field that also includes London, Zurich, and Hong Kong.
The firm noted in 2018 that New York City was the top spot but was dipping in costs, while SF was number two but still heating up, driven by “wealth and demand generated by high-speed growth in the technology sector”—specifically, the demand for new and bigger offices.
Steel tariffs were also a factor in driving up construction costs in SF, increasing the cost of building as much as ten percent, although other U.S. cities grapple with those same burdens.
Note that the Turner & Townsend report mainly assesses commercial construction costs, but the same variables driving up prices in those sectors also agitate the cost of building housing.
The UK firm wasn’t alone in its assessment; in 2018, New York-based consulting company Arcadis also called SF the most expensive market to build.
The 2019 report flipped the top two spots and put New York just ahead of SF. Arcadis also pointed the finger at labor shortages as a factor driving up costs, but also singled out “local building and energy codes” as a variable. New York edged into the number one spot thanks in part to higher insurance costs.
According to UC Berkeley’s Terner Center for Housing, rising residential construction costs are a national problem, noting that “[o]ver the course of 2017 alone, the national single-family and multifamily construction price indexes increased by 5.6 percent and 6.3 percent, respectively.”
Terner singled out SF, San Jose, and Oakland as among the cities most affected, again citing fees and labor.
One other factor the San Francisco Chronicle notes that these other reports do not: The cost of land in SF. Li cites a record $916,000 purchase in 2017 of vacant property for condo planning.
“Skyrocketing land costs are partially tied to how few areas in the city are zoned for apartments,” the story notes, with the overwhelming majority of the city restricted to single homes or duplexes.