SAN FRANCISCO (KPIX) – Construction costs for new housing are going through the roof in San Francisco and developers are feeling the pinch. They are having trouble getting their projects finished, or even started.
San Francisco is experiencing a building boom, the likes of which the city has not seen since the days of the Gold Rush.READ MORE: Here's What You Can Expect From The $1.9 Trillion Senate Stimulus Package
But a closer look shows many big developments are hitting a financial wall that is quickly becoming the new barrier to more badly-needed affordable housing.
Eric Tao is the president of AGI Capital.
“We had a project that made sense,” he said.
That is, it made sense three years ago when City Hall approved the permits and before the Bay Area construction boom sent the cost of building through the roof.
“We were predicting 3 to 5 percent increases per year for construction costs,” said Tao. “Instead, it was 10 to 15 percent, something that we have never seen in all of our 15 to 20 years of construction and development.”READ MORE: COVID-19 Vaccine Shortage Forces Sutter Health To Reschedule Appointments
Chamber of Commerce Vice-President Jim Lazarus explains we are seeing a shortage of labor and inflated cost of materials all across the Bay Area.
“We went from 50 percent unemployment in the depths of the recession eight years ago, to not enough people,” said Lazarus. “They are bringing in workers for construction from all over the West.”
According to a survey by the San Francisco Chronicle there are currently 6,750 units of housing under construction in the city. That’s about 1,000 more than a year ago, and there are another 15,000 approved for building.
It’s a gold mine for the construction business, but financial quicksand for housing developers who have to cover the increases.
“This is a normal curve,” said Tao. “The construction costs started going higher and faster than values were going up – so projects get stalled.”
Lazarus adds that rental housing is tougher to build.MORE NEWS: San Francisco Bay Ferry Officials Considering 1-Year Reduction In Fares
“Land plus construction plus profit… that’s it,” said Tao.