Photo ops of besuited politicians leaning on shovels aren’t something San Franciscans see very often these days.
Despite a dire shortage of affordable housing, almost no cranes hover over the city's skyline, as a combination of high costs and red tape has discouraged developers from building even market-rate housing.
But this week, a group of local officials and developers assembled to tout the official groundbreaking of an 11-story affordable housing project that was conceived five years ago as something else.
The 425 new apartments under construction at 300 De Haro St. in the city’s Potrero Hill neighborhood will eventually house tenants making between 30% and 70% of the area’s median income, between around $41,000 and $95,000 per year based on current figures. The units will be studios — 300 and 400 square feet — with sofas and dining tables by day that convert to queen-size beds by night.
The long-awaited development is one of the first test cases of Senate Bill 35, a landmark California law passed in 2017 that aimed to streamline badly needed housing production, which has been held up in the past by factors like stringent environmental standards and pushback from neighbors.
The measure allows developers to skip certain review steps for apartment projects in cities that have failed to meet state-mandated housing goals, as long as they reserve at least 10% of units to households making at or below 50% of the local average incomes.
Years overdue
State Sen. Scott Wiener, who introduced the law, was present at the groundbreaking Monday and touted the law as a long-overdue measure that could lead to many more affordable housing projects in San Francisco and elsewhere around the state.
California’s biggest cities are planning fewer housing units than they did a decade ago, despite strict state mandates to ramp up production to increase affordability and keep residents from moving to cheaper areas.
In 2024, Los Angeles approved just 17,200 new residential units — barely 30% of its annual goal — while San Francisco permitted only 1,074, its lowest showing since the aftermath of the Great Recession. Both cities are falling far short of the pace needed to meet their state-mandated targets by 2031, with the state calling for the planning of 2.5 million new residences in that time.
Monthly costs for apartments and other rentals are getting driven up by high prices for single-family homes, with Los Angeles posting monthly rents of $2,330, 30% above the nation's average, according to CoStar. Rents in San Francisco are even steeper, averaging $3,280 per month and more than double the nation's average.
Despite the high rents that point to potential profits for developers, high construction costs, hard-to-obtain financing packages and local red tape have hindered the construction of residential units, industry professionals tell CoStar News.
Creative financing
The 300 De Haro St. project has been years in the making, having faced major delays as a result of the economic disruptions unleashed by the COVID-19 pandemic. A familiar combination of high interest rates and exorbitant construction costs stalled the original plans for a mixed-income development at the site, and project developer Mark MacDonald, the CEO of DM Development, pivoted to affordable housing.
MacDonald said the company managed to move the project forward by using low-income housing tax credit financing to kind of get around the challenges that have stymied market-rate developments.
It's an illustration of the creative steps officials are taking to get more affordable housing built in this perennially unaffordable city. San Francisco is supposed to build 82,000 housing units by 2031 to meet state requirements to help solve California’s housing shortage.
In light of the millions of square feet of empty office space in San Francisco since the end of the COVID-19 pandemic, officials have pushed forward a series of moves that aim to offset the costs of converting office space to housing. Zoning laws have been amended to encourage residential development.
Yet some affordable housing projects have yet to graduate beyond blueprints despite years of planning. The city recently moved forward in requesting $45 million from the federal government to build a 10-story affordable apartment building with 107 units for formerly homeless and low-income residents at the former site of an auto body shop a block from San Francisco’s Alamo Square. The project has been in the works in one form or another since 2013.
Unlike that one, though, the development at 300 De Haro St. would be one of the largest affordable housing projects in San Francisco since the start of the pandemic built without a penny of city money.