Why Is It So Hard to Build A House In The Bay Area?

San Francisco, California, is notorious for its complex permitting process, strict building code, and vocal community members. It is also famous for its housing shortage. According to Roland Li in his article for The San Francisco Chronicle, "SF is one of the most expensive places in the world to build housing." In fact, "San Francisco surpassed New York for the highest construction costs in the world" in 2019. It is difficult to build housing in San Francisco, but many residents and developers point first to the city's permitting process and disorganized Planning Department. Li writes that "city agencies have a complex and unwieldy permitting process, [in which] 'additional hoops and requirements seem to pop up at various stages.'" Worse yet, Li notes that "building inspections… aren't standardized and lack of coordination between departments adds time to the process." Of course, the pandemic has worsened all of these preexisting issues – and added a few new ones. With Sacramento ordering a pause in all construction and department employees working remotely, the number of permits issued during the early months of the pandemic hit lows not seen since the 2007/2008 financial crisis. The department is still weeding through a mountain of permit applications almost two years later. A long permitting process is not the only element that makes building in the Bay Area difficult. Expensive land, detailed design guidelines, competition with developers, labor shortages, environmental laws, and a lengthy neighborhood notification process make building a new house in SF quite arduous. In this post, we address all these issues and answer the age-old question: why is it hard to build a single-family house in San Francisco? From housing costs to the California Environmental Equality Act, follow below to learn more!

Terms to Know Before Building a New House in the San Francisco Bay Area

As mentioned above, building in San Francisco is complicated, challenging, and unlike anywhere else in the world. Certain rules, regulations, groups, and terms are unique to the Bay Area. Before we explain why building a new custom home in San Francisco is so tricky, we must define a few of these terms. From “over the counter review” to “by-right development,” follow below for a list of twelve terms to know before reading this post.

#1 Over the Counter Review

San Francisco’s Department of Building Inspection offers over-the-counter reviews for certain permit applications, usually related to minor renovations and home improvement projects. During the first year of the COVID-19 pandemic, SF’s Department of Building Inspection limited the number of in-person OTC reviews. In 2021, the City of San Francisco expanded the OTC review program to reduce wait times for applicants.

Writing for consulting firm Burnham Nationwide in his post “San Francisco DBI Announces OTC Plan Review Expansion,” Nicholas Pounder elaborates. Pounder writes that beginning in May of last year, applicants no longer need to “drop off OTC plans for review and routing.” Instead, applicants “will maintain possession through to permit issuance – providing faster processing and more control for the applicant.” Most construction projects do not qualify for OTC review, but many remodel, renovations, and retrofits of residential and commercial properties do qualify.

#2 Land Use Permit

When building a new custom home in San Francisco, you might need a land-use permit. San Francisco is home to tidal wetlands, floodplains, environmentally sensitive areas, and protected land. Much of the Bay Area is also composed of artificial fill. Because of this, land use permits are required to proceed with certain building projects in San Francisco.

Land use permits are sometimes called zoning permits. Both land use and zoning regulations determine how land in each jurisdiction can be used – i.e., for commercial development, residential building, or agriculture. One cannot apply for a building permit until they have obtained a land-use permit in areas where this step is required.

#3 Building Permit

As mentioned above, a building permit is different from a land-use permit. Jeff Beneke explains in his article “What Is a Building Permit?” for The Spruce. Beneke writes that “a building permit is an official approval issued by the local government agency that allows you or your contractor to proceed with a construction or remodeling project on your property.” In San Francisco, most residential construction and remodeling projects require building permits issued by the DBI. By requiring building permits for each project, the DBI “ensures that the project plans to comply with local standards for land use, zoning, and construction.”

According to Beneke, these “standards are intended to ensure the safety of current and future owners and occupants and to provide enforcement of zoning and land-use policies.” In addition to a building permit, you might also need a “carpentry permit, an electrical permit, and a plumbing permit.” Working with a local design-build firm like Element Homes ensures you do not miss any steps in the permitting process and that your home is completely up to code.

#4 California Coastal Commission and Coastal Development Permit

Many building projects in San Francisco and across California – from affordable housing apartment buildings to single-family homes – are approved or denied by the California Coastal Commission. According to the CCC, "the California Coastal Commission is a state agency within the California Natural Resources Agency with quasi-judicial control of land and public access along the state's 1,100 miles coastline." The CCC works alongside local governments to protect sensitive areas of the California coast from overdevelopment.

It was first established in 1972 but became permanent when the California Coastal Act was passed in 1976. In their resource "When Do You Need a Coastal Development Permit," the CCC notes that "the Commission's actions have resulted in more than 2,000 easements for public access statewide and resulted in tens of thousands of acres statewide of created or restored sensitive habitats and agricultural lands, viewsheds and sensitive habitats placed into permanent legal protection" over the last forty years.

Most development activities in coastal zones of California require builders to obtain a Coastal Development Permit. These include "demolition, construction, replacement, or changes to the size of a structure, grading, removal of, or placement of rock, soil, or other materials…altering property lines, such as through a lot line adjustment or subdivision…and changing the intensity of use of land." This map shows the extent of San Francisco County's Coastal Zone.

In our recent post "Changes to Single Family Zoning in California," we noted that the newly passed Senate Bill 9 slightly loosened the CCC's grip on coastal development. In some ways, the bill will end single-family zoning in California. Now, residential development of duplexes and fourplexes is allowed in areas that used to be single-family only zoning. This includes neighborhoods in the San Francisco Metropolitan Area and surrounding suburbs of the San Francisco Bay Area. The governor hopes changes like Senate Bill 8, SB 9, and SB 10 will alleviate the housing crisis and provide more low-income housing. While the Coastal Act still applies to construct duplexes and fourplexes in previously R1 zoned areas of California, local agencies are no longer required to hold public hearings on CDPs.

#5 Liquefaction Zone

One of the reasons it can be challenging to build in the San Francisco Bay Area is that part of the peninsula is in a liquefaction zone – particularly in areas that were man-made from the artificial fill. Adam Brinklow explains in his article "Earthquake map reveals liquefaction risks in Bay Area neighborhoods" for Curbed San Francisco. Brinklow writes that "saturated sand and silt take on the characteristics of a liquid during the intense shaking of an earthquake" in liquefaction zones.

According to the US Geological Survey, "'the highest hazard areas are concentrated in regions of a man-made landfill, especially fill that was placed many decades ago in areas that were once submerged bay floor.'" In San Francisco, this means that "Marina, the Financial District, the majority of SoMa, South Beach, the East Cut, Treasure Island, Ocean Beach, India Basin, Hunters Point, and Candlestick Point" are all at risk. Given this, it might come as a surprise that new housing development is in the works on Treasure Island.

Elsewhere in the Bay Area, parts of Alameda, Hayward, Oakland, and Berkeley are also in danger of liquefaction. Whether your build site is located in one of these artificial fill areas is just one small part of the significant amount of research one must conduct when building a new home in San Francisco.

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#6 Geotechnical Report

You will probably need to commission a geotechnical report if your build site is located on a steep slope, in a liquefaction zone, in a Maher area, or on a floodplain. Areas with lots of air pollution and those that recently experienced a significant storm or another natural disaster might also trigger the need for a geotechnical investigation. According to the City and County of San Francisco, "you will need a report from a geotechnical engineer if your project includes: a new building (except one-story storage or utility like a shed or garage)." Of course, this applies to most single-family homes.

For those unfamiliar with geotechnical investigations, these reports usually include information about your site's soil's type, strength, density, composition, water content, and pollution. In their report, geotechnical engineers determine whether or not it is safe to build a home on your site. They also usually provide recommendations for your home's foundation type and design – protecting it from landslides, earthquakes, and other disasters. Geotechnical engineers might work with the structural engineer for your project or might simply provide the structural engineer with a copy of their report.

#7 RH, RM, and RTO Districts

RH, RM, and RTO refer to different districts in San Francisco that are zoned for residential buildings. Zoning laws are usually local. This is why terminology surrounding single-family zoned neighborhoods and those zoned for mixed or commercial use varies.

RH refers to "Residential/House" districts in the San Francisco Bay Area. These residential zoning districts were once zoned only for single-family and two-family houses. When Governor Newsom signed Senate Bill 9 late last year, he changed statewide rules surrounding single-family only zoning. Now, homeowners in RH zones can build duplexes and/or fourplexes on properties large enough to host many units.

RM refers to "Residential/Mixed," meaning that multi-unit residential buildings, single-family homes, and certain commercial buildings are allowed. RTO stands for "Residential Transit Oriented." These zones are relatively dense with housing – usually in the form of multi-family apartment buildings. They are usually within walking distance of major commercial centers, train stations, and important services.

#8 View Ordinance

According to Cornell Law School's Legal Information Institute, "view ordinance are laws designed to protect a property's view from obstructions." These ordinances usually "regulate various property features, but commonly address trees and vegetation." In San Francisco, there are technically no view ordinances. However, other ordinances protect public views of the city and residents' access to natural light. View ordinances typically allow property owners and community members "to either demand for the removal of the obstruction or monetary damages."

Cities without view ordinances might otherwise protect public views from obstruction through fence height limits, building height limits, tree laws, and zoning restrictions. The SF Planning Department has specific rules dedicated to safeguarding public views – not private views. These are laid out in their Residential Design Guidelines, to which many single-family homes in the City of San Francisco are subject.

#9 Neighborhood Notification

In San Francisco, homeowners and other residents have a lot of say in the future development of their neighborhoods. Some planned building projects are subject to a period of public comment. Nearly all are subject to Neighborhood Notification. According to the San Francisco Planning Department resource "Homeowners," this department conducts Neighborhood Notification. Information about the project is "mailed to residents and property owners located within 150 feet of the subject property and registered neighborhood groups for a 30-day public review period."

The Planning Department notes that "most new construction or building expansion and some applications to add dwelling units to an existing residential building require notification to the public before permits can be reviewed and the project can be approved." In some cases, even minor renovations and home improvements require neighborhood notification before a permit is granted. This period of public commentary is one of the steps that makes building a single-family home in San Francisco so lengthy and complex.

#10 Discretionary Review

Discretionary review is another stage of the permitting process, though it is not required for all applicants seeking permission to build. Most permit applications are reviewed by the Planning Department. As mentioned above, the Planning Department issues neighborhood notifications and triggers a period of public commentary. However, community members can file a Discretionary Review application if they also want the Planning Commission to look at a building permit application.

According to the San Francisco Planning Department resource "Homeowners," discretionary review "is a special power of the Commission, outside the normal building permit application approval process." This power is only supposed to be used by the Commission "when there are exceptional and extraordinary circumstances associated with a proposed project." Alex Bevk elaborates in his article "What the Heck is Discretionary Review?" for Curbed SF.

Even though the City Attorney has advised that "the Commission's discretion is sensitive and must be exercised with utmost constraint," Bevk writes that "DR has been wildly abused by NIMBYs and feuding neighbors hellbent on stopping projects." Bevk notes that "pretty much anyone can file a DR and it has to go all the way to the Planning Commission, [but it] is usually a disgruntled neighbor who doesn't like some aspect of the project." Even if the plans for your new single-family home in San Francisco "conform to the Planning Code and have been approved," a neighbor could still order a DR.

#11 Encroachment Permit

When building a new single-family home in San Francisco, homeowners and/or their design-build team might need to apply for an encroachment permit. According to Yolo County's "Encroachment Permit FAQ" resource, "an encroachment permit assures that County property will not be damaged and if so, proper repairs are made."

The city requires these permits "any time construction work will be conducted within the public right of way." That means any time your project includes excavation – either for construction or for extending utilities. Encroachment permits are also required for "fence installations, equipment/structures placed upon the street and/or sidewalk, vegetation planting/trimming, driveway or sidewalk installation/replacement."

#12 Entitlements Process

According to BerkeleyLaw's working paper "Examining the Local Land Use Entitlement Process in California to Inform Policy and Process," entitlement is "the process that property owners move through to get a building permit." This includes but is not limited to submitting plans, conducting neighborhood notification, and – in some cases – enduring a period of discretionary review.

Writing for Bisnow, Julie Littman notes that "getting a project approved in San Francisco…can take twice as long [as] in other jurisdictions." Developers and property owners have repeatedly "criticized the city's epic entitlement process." Some have gone so far as to blame the entitlements process for the dire housing supply in Silicon Valley and beyond. Both groups argue that simplifying the entitlements process will lead to the construction of more housing developments across the Bay Area.

5 Reasons Why It’s So Hard to Build a Custom Home in San Francisco

#1 The Entitlements Process is Incredibly Complex

As outlined above, the entitlements process in San Francisco is incredibly complex. In his article “Navigating the Treacherous and Tumultuous San Francisco Permitting Process” for Curbed San Francisco, Alex Bevk writes that “the permitting process in San Francisco is notorious for being confusing, expensive, and impossible to predict.” From luxury apartments in Downtown San Francisco to single-family houses in suburbia, the entitlements process can take months – if not years. Your application will probably find its way through several departments.

It begins at the Department of Building Inspection, from where it heads to the Planning Department. From the Planning Department, your plans might be forwarded to “the Planning Commission or Historic Preservation Commission” for a discretionary review. In our terms section above, we detailed the conditions under which projects head to the Planning Commission.

Permitting costs can also be prohibitive. Bevk writes that “if your work cost is $150,000, you pay a $3,730 flat fee and 2.553% for everything over $100,000, making your total fees $5,006.50.” Of course, there might be “additional fees” related to land use permits, project impact assessment, and more. As Bevk adds, “it gets real expensive real quick” to build a new house in San Francisco.

Most complaints, however, still center around the amount of time it takes to approve building permits in San Francisco. Writing for The San Francisco Examiner in his February 2022 article “Long permitting process makes S.F.’s housing crisis even worse,” Benjamin Schneider explains. Schneider writes that “permitting times may be just as big of a factor as zoning in holding back San Francisco’s housing production.” While this problem extends throughout the Bay Area, it is felt most acutely in SF.

#2 Vacant Land in San Francisco is Really Expensive

As one might imagine, vacant land is incredibly expensive in San Francisco. We took a look at plots of land listed for sale on Zillow in San Francisco this March. As of 05 March 2022, not a single buildable lot was listed in San Francisco on Zillow for less than $150k. The majority of those priced close to $150k – i.e., within $50k of $150k – were lacking access to roads and/or utilities.

At the time, there were thirty-two plots of land listed for sale on Zillow in the city of San Francisco. Only one plot was larger than one acre, and most of those listed measured between 1,500 and 6,000 square feet in size. Thirteen of the thirty-two plots listed for sale were priced below $1M. Nineteen were listed at $1M or above. Three were listed at a price exceeding $4M.

Is San Francisco Really That Expensive in 2022?

In his December 2021 article "10 Most Expensive Cities In The U.S." for Rocket Mortgage, Andrew Dehan identifies San Francisco, California, as the most expensive city in the United States. Referencing the Rocket Homes® Neighborhood Trend Reports, Dehan notes that the median listing price of a single-family home in San Francisco was "~$1,300,000," while the median selling price was "~$1,360,000" at the time of publication.

Though San Francisco is reportedly still in a "neutral market," the cost of both vacant land and developed land are some of the highest in the nation. According to Dehan, "because of its booming tech economy and rising housing demand [that] San Francisco is the most expensive place to buy a home in the U.S." San Francisco is first on Dehan's list, and Manhattan is second – with several other Bay Area cities listed as runners-up. For example, Dehan lists San Jose as third and Oakland as eighth.

Richard Florida concurs, writing for Bloomberg CityLab in his article "The Staggering Value of Urban Land" for Bloomberg CityLab. Referencing a recent study conducted by economists at the University of Illinois and the University of Michigan, Florida writes that "the total value of America's urban land is astounding, adding up to more than $25 trillion as of 2010—that's roughly more than double the nation's total economic output or GDP in 2006."

How Much is Land in San Francisco Worth?

According to Florida, "nearly half the total value of America's urban land, 48 percent of it, is packed into just five superstar metro areas: New York, Los Angeles, San Francisco, Washington, D.C., and Chicago." Dehan writes that "land values are highest by far in the central areas of superstar cities." In fact, "across the United States, the value of central land is roughly four times that of average land." Shockingly, Dehan notes that the average land value per acre in San Francisco is a whopping $3.2 million.

#3 Prospective Home Buyers Must Compete with Developers for Land

With interest rates rising and many prospective home buyers priced out of the market, developers are making their mark in dozens of cities across the US. However, in San Francisco, the affordable housing crisis has given developers a good reason to prioritize specific projects. In recent years, developers have also gained support from city and state governments, hoping to take some pressure off California's housing shortage. Still, would-be homeowners must compete against developers for land in the San Francisco Bay Area.

According to Leonardo Castañeda in his article "Who owns Silicon Valley?" for Reveal for The Center for Investigative Reporting, "just 10 power brokers – a mix of technology behemoths, commercial and residential developers and one private university – own about $59.2 billion in taxable property" in the SF Bay Area. This makes them "the largest landowners in Silicon Valley." Beyond the tech companies that rule the southern tip of San Francisco County and much of Santa Clara County, "the other five top owners are real estate development companies."

As regular buyers struggle to afford homes at the top of the market, institutional investors continue to buy up land and single-family homes across the country. Writing for The Washington Post in February 2022, Kevin Schaul and Jonathan O'Connell write that "investors bought a record share of homes in 2021." As with any major city, buyers must compete with developers when buying land.

#4 California's Building Codes Are Some of the Nation’s Strictest

For decades, the Golden State has been known for its strict building codes. From the California Environmental Quality Act and the California Coastal Act to energy standards and expected earthquake performance, California’s Building Standards Code protects residents and builders alike. Kelsi Maree Borland explains in her August 2020 article “Why CA Is Known for Such Strict Development Regulations” for GlobeSt.com.

Borland writes that “the guidelines aim to protect the state’s natural resources.” California’s Building Standards Code also focuses on protecting homes from wildfires, floods, earthquakes, and other natural disasters that threaten residents of the Golden State. While well-meaning, California’s building codes can slow development – even the construction of single-family homes and affordable housing.

#5 Many New Homes Are Subject to Design Guidelines Set By the City

San Francisco is well known for its historic architecture and stylistically cohesive neighborhoods. San Francisco’s Residential Design Guidelines instruct homeowners to build houses that correspond to existing architecture in certain neighborhoods. According to the SF Planning resource “Residential Design Guidelines,” San Francisco’s “architecture is diverse, yet many neighborhoods are made up of buildings with common rhythms and cohesive elements of architectural expression.”

SF Planning argues that “these neighborhoods are in large part what makes San Francisco an attractive place to live, work, and visit.” Its Residential Design Guidelines seek to maintain the historic character and “visual interest” of each neighborhood by preventing “disruptive” designs.

In the full PDF, San Francisco Planning notes that the city’s Residential Design Guidelines “apply to all residential projects in RH (Residential House) and RM (Residential Mixed) zoning districts. [but] do not apply to NC (Neighborhood Commercial) Districts or to commercial or institutional buildings within residential districts.”

Those in RH and RM zoning districts must conform to these guidelines, both detailed in the terms section above. San Francisco’s Residential Design Guidelines regulate each home’s size, scale, style, setbacks, architectural features, and building materials. In short, new homes must match existing properties in their style, scale, facades, and other features. Even the number and style of windows, garage doors, and porch steps are regulated in these districts.

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