San Francisco's rental market has hit the gas again this year, with landlords and investors pointing to a sharp rebound in demand. Yet a fresh city analysis, backed by technical advisory work, concludes that even with rising rents, most typical market-rate housing projects still do not "pencil out" under today's construction, financing and fee conditions. That disconnect has reignited a bruising policy fight over whether to scale back inclusionary requirements, trim developer charges or find new local revenue to subsidize affordable units.
Rents Are Racing Up
San Francisco's median rent now sits at $3,324, a 14.5% jump from a year ago, according to Apartment List. The surge has pushed the city back to the top of national rent rankings and is cranking up pressure on City Hall to build more homes.
Controller: Most Projects Don't Pencil
A presentation from the city controller found that nine of ten modeled project prototypes generate negative residual land values and that "the maximum economically-feasible inclusionary level is 0%." Those conclusions appear in a slide deck prepared for the Inclusionary Housing Technical Advisory Committee, according to the Office of the Controller.
What's Driving The Gap
Local analysts point to a stacked set of pressures: soaring materials and labor costs, elevated interest rates, and a tangle of city fees and design requirements that together squeeze project returns. Policy group SPUR has warned that piling on impact fees and inclusionary mandates without a broader recalibration can "undermine the public benefits" those rules were meant to deliver, according to SPUR.
Policy Response Underway
The Inclusionary Housing Technical Advisory Committee has recommended a temporary reduction in the city's inclusionary rate, with proposals around 5%, and any change would still need approval from the Board of Supervisors, according to the San Francisco Business Times. City leaders are also weighing dedicated revenue options, from transfer-tax allocations to possible adjustments to the Housing Trust Fund, to replace the affordable homes that a lower inclusionary rate might otherwise take off the table.
Developers Say Equity Is Scarce
Developers and institutional investors told panels and interviewers that equity remains tough to secure for multifamily deals unless projected returns improve, with some reporting months-long stretches of unsuccessful fundraising, as reported by The Real Deal. That wariness helps explain why hundreds of already-permitted units are stalled in the pipeline even as rents climb.
Next Steps For City Leaders
The controller's analysis and the TAC recommendations outline a near-term calendar of decisions that could reshape how San Francisco balances development and affordability. The Planning Department's inclusionary-housing page lays out the triennial feasibility process that will guide any changes.
