The combination of factors that specifically govern construction costs in The City — land prices and scarcity, entitlement costs and process delays — all contribute to making it expensive to build here.
Such was the subject of a panel discussion Tuesday at SPUR, which additionally focused on the housing crisis and what can be done to solve it. For that question, the panel’s conclusion was to increase supply, of all kinds.
“We just have clearly under-produced,” said Daniel Murphy of Urban Green DevCo. “There’s folks in town who don’t think supply-and-demand economics apply to San Francisco.”
No matter what kind of housing is built, the simple construction cost for one residential unit in San Francisco is about $120,000, according to Mark Hogan, an architect and writer of the Markasaurus blog. But the total cost — every step from entitlement to sale — is more like $450,000 per unit, he added.
Much of the price tag cannot be dramatically changed since it is tied to hard construction costs like materials and labor, the panelists agreed.
Even with such high costs, annual investor return, depending on the project, averages 9 percent in San Francisco, said Libby Seifel of Seifel Consulting. That is far lower than the 25 percent average in nearby suburban locales.
Pre-construction costs, she added, are a part of what drives how much money needs to be spent. Since any construction project is a gamble that few institutional investors are willing to take on — especially in San Francisco — any effort to reduce that risk would help developers, the panel argued.
Blair Allison, of Cahill Contractors, said the longer it takes to get a project going the more the cost is increased. His firm has been working on a project in San Francisco for the past eight years, he said, “and we are still not in construction.”
Lee’s recent State of the City speech, which focused primarily on housing, gave a nod to removing impediments to quicken the construction process.
“I have set forth an aggressive goal to complete at least 30,000 new and rehabilitated homes by 2020, and to do that we need to reduce the obstacles that can slow or even stop their construction,” Lee said.
The Planning Department reported in December that in the third quarter of 2013, there were 6,100 housing units under construction citywide. Another 4,700 units have received building permit approval.
Roughly 900 projects are in the pipeline, 74 percent of them solely residential. If they are all built, San Francisco would have 50,600 new housing units.
Those units include large projects in Parkmerced, Treasure Island and the Bayview waterfront, which account for nearly 30,000 units.