Soaring construction prices killing SF housing

Already one of the most expensive places in the world to build, San Francisco construction prices soared across all four quarters in 2019—great news for NIMBYs but agonizing for anybody agitating for more housing in the city.

The price tag attached to a new building proved to be the biggest obstacle toward new development in SF right now, more than City Hall red tape or neighborhood ire.

Last week, UK-based consultants firm Rider Levett Bucknall (RLB) released a new cost report covering major U.S. markets for 2019. While the price of doing business went up across most of the country, San Francisco was in a class all of its own.

• Depending on the type of construction, building in SF cost anywhere between $280 and $725 per square foot last year. Retail construction was the cheapest sort of project, topping out at around $400, while high-end offices cost up to $525.
• While costs vary depending on the type of project, RLB estimates that year-over-year SF’s building costs increased by the highest margins in the country. Compared to 2018, prices rose 7.79 percent. The next highest was in Chicago, which came in at 6.29 percent.
• Most of the growth came from the first half of last year, which saw prices move up a combined 4.59 percent, after which things notably dipped, rising 2.98 percent in the last half. In fact, SF is unusual in that none of the other cities in the report saw growth rates decline three quarters in a row last year—and yet SF still came out on top.

Note that RLB does not include residential construction in these assessments—but the same factors that drive up prices for every type of project apply to housing as well, especially the cost of labor, which has been short in the city relative to the demands of the building boom.

As a recent example in Potrero Hill illustrates, the cost of housing isn’t something that affects only developers, big-wigs, and market watchers; it has immediate effect on what gets built in every San Francisco neighborhood.

SF’s entitlements process is already infamously long and difficult—hence Mayor London Breed’s drive to pare it down for some projects recently—but developers are still willing to take on the gauntlet, because the rewards remain rich if you get to the other side.

But now it has become increasingly difficult to budget a building, simply because you don’t know how much more it will cost to build in four years when it’s time to break ground.

Many approved projects simply give up and sell rather than attempt to build in the new reality—which can scuttle new housing altogether.

New construction skeptics can take this to heart, as it puts time firmly on their side: If you can’t beat a new building, simply wait it out. Whereas those who advocate for a supply-side solution are now always working under the gun.