California’s housing shortage took an entire generation to create, and here in the Bay Area, much of the blame lies with state rules that allowed cities to refuse new development. But now, even with those regulations being relaxed or eliminated, developers say market forces are preventing any housing booms from happening.
Elected officials and builders met Monday for a groundbreaking ceremony. A new 10-story development at 300 De Haro Street will add 425 units of 100 percent affordable housing to San Francisco, designed specifically for working people with middle incomes. It’s something that’s desperately needed, but under the previous rules, it may not have been possible.
“We would not be standing here because the project wouldn’t be entitled, most likely,” said Mark McDonald, CEO of DM Development. “Development in San Francisco is challenging. There’s a lot of hurdles. So, a lot of projects either are delayed or are never built.”
McDonald’s company is the developer behind the 300 De Haro project. It was the first site in the state to be approved under Senate Bill 35, a measure passed in 2017 that forces cities to accept affordable housing projects.
“It wasn’t a ‘yes’ or ‘no’ anymore. It was, ‘This is going to happen,” said Corey Smith, executive director of the Housing Action Coalition.
He, like most activists, wants to see housing built quickly. But he’s had to accept some hard truths.
“While we do need to operate with urgency, to have this go faster, and we’re not seeing a bunch of housing breaking ground today that we would hope for. I have accepted the fact that this is going to be a multi-decade fix,” he said. “That is just the reality of it, unfortunately.”
That’s because market forces are holding things up. First and foremost is the increase in construction costs, which at one point rose by one percent per month. Also, there is a lack of capital available as investors turn to safer sectors in a time of high interest rates. Then there was a post-COVID stagnation in rent.
In layman’s terms, it simply doesn’t pay to build housing in the current environment.
“First, we had COVID that scared away a lot of institutional investors, and they simply red-lined San Francisco in investment committee,” said McDonald. “That’s changing now. The narrative around the city is changing now.”
300 De Haro was originally planned as market-rate housing, but without the benefit of government subsidies, most of that kind of construction has come to a halt. So, McDonald’s company shifted gears to the affordable side, and now he said costs are leveling off and rents are starting to rise, good news for developers. And he said the old “doom loop” image of San Francisco is starting to go away.
“So, I have seen this movie four times now. Everybody leaves San Francisco for dead, and then it rises like a phoenix out of the ashes,” he said. “It has happened every single time and it’s going to happen this time, and it’s happening as we speak.”
If all goes as planned, the 300 De Haro housing complex will be finished sometime in the summer of 2027. It is intended for working people with incomes between $45,000 and $95,000 per year. It took six years for the project to even begin construction, and it will take a generation for San Francisco to get the housing it needs. But that may actually be possible now that the State and cities have gotten out of the way.
