Why Are So Many Luxury High Rises Being Built in San Francisco?

Introduction

While I am neither a realtor nor an owner or renter of any of these new tall buildings, there are evident reasons why construction of these luxury high-rises is booming in San Francisco. The issue stems from two primary motivations: financial opportunity and a pressing need for housing and office space. This article delves into the intricacies behind this construction boom and explores the challenges and dynamics at play within San Francisco's real estate market.

Commercial and Residential Demand

Firstly, the builders of these properties are optimistic about the robust business potential offered by San Francisco's real estate market. They see it as a valuable and lucrative investment, with a strong and ongoing demand for both residential and commercial spaces. This optimism is palpable, and it fuels the construction of these high-rises. Furthermore, San Francisco, especially the San Francisco Bay Area, faces a significant shortage of residential housing and office space. The construction of these new high-rises aims to address these shortages and meet the ever-increasing demand.

However, this trend is not without its challenges. Building only for the top market is a sound business strategy, but it comes with unique obstacles. When SF Bay Area cities permit the addition of housing for only one-tenth the number of new people allowed for office space construction, it creates a lopsided market. This imbalance skews towards commercial development and away from residential housing, further exacerbating the housing crisis.

Market Adjustments and Construction Costs

The luxury high-rise market has also seen a noticeable adjustment. While high-end condominiums priced at 2,000 per square foot have slowed down or come to a halt in less sought-after areas, the overall trend indicates a high number of luxury units still under construction. The market is undergoing a necessary evolution, but navigating the complexities of delivering affordable and desirable options remains a significant challenge.

Land values in San Francisco are astronomically high, starting at 350-450 per square foot on a good day, which then doubles for hard construction costs. This high cost makes it exceedingly difficult to deliver new constructions within an affordable price range. The luxury market in San Francisco’s South of Market (SOMA) area, for instance, has seen a surge in developments, with limited areas for affordable housing due to local resistance from NIMBY (Not In My Back Yard) groups. SOMA, once a post-industrial wasteland, has seen significant transformation, but it is at the expense of affordability.

These developments are overwhelmingly focused on luxury units, reflecting the narrow focus on high-end market trends. The cost of land and construction material prices contribute to this trend, making it nearly impossible to develop affordable housing that meets the needs of all residents.

Conclusion

The construction of luxury high-rises in San Francisco is a multifaceted issue. While it presents significant financial opportunities and addresses some aspects of the housing shortage, it also highlights the ongoing struggle with affordability and equitable development. Balancing these interests and ensuring that development fosters a sustainable and inclusive San Francisco remains a critical challenge for policymakers and developers alike.

As the market continues to evolve, it is crucial for stakeholders to work together to explore innovative solutions and strategies that can bridge the gap between high-end and affordable housing, ultimately promoting a more balanced and equitable urban environment.