{"id":8717316,"date":"2023-01-16T06:05:17","date_gmt":"2023-01-16T14:05:17","guid":{"rendered":"https:\/\/www.eastbaytimes.com\/?p=8717316&preview=true&preview_id=8717316"},"modified":"2023-01-17T05:24:53","modified_gmt":"2023-01-17T13:24:53","slug":"is-the-bay-area-on-the-verge-of-a-housing-construction-slowdown","status":"publish","type":"post","link":"https:\/\/www.eastbaytimes.com\/2023\/01\/16\/is-the-bay-area-on-the-verge-of-a-housing-construction-slowdown\/","title":{"rendered":"Is the Bay Area on the verge of a housing construction slowdown?"},"content":{"rendered":"

The Bay Area, already one of the most difficult and expensive places in the nation to build new homes, is being buffeted by a turbulent economy that\u2019s creating even more challenges for a region reeling from a housing affordability crisis.<\/p>\n

The headwinds are plenty: Higher interest rates for construction loans. Rising labor and material costs. Slowing demand from homebuyers squeezed by more expensive mortgages. And fears of a looming recession as cities continue to recover from the pandemic.<\/p>\n

That\u2019s all raising the specter of a widespread housing construction downturn.<\/p>\n

\u201cThere already is a slowdown, but I think it will magnify itself in 2023,\u201d said Ken Rosen, chair of UC Berkeley\u2019s Fisher Center for Real Estate and Urban Economics. \u201cA lot of developers may put projects on hold until construction costs come down.\u201d<\/p>\n

The decline threatens to thwart the Bay Area\u2019s effort to meet its state-mandated goal of approving more than 441,000 homes of all income levels over the next eight years<\/a>, representing a roughly 15% increase in the region\u2019s housing stock. Already, most cities and counties haven\u2019t come close to meeting their individual targets in past decades. And housing experts and advocates contend that chronic underproduction \u2014 in part because many local officials have sought to limit growth \u2014 is at the root of the region\u2019s astronomical rents and home prices.<\/p>\n

Mathew Reed, policy director with Silicon Valley pro-housing group SV@Home, said the mounting economic uncertainty will require officials at all levels of government to remove barriers to development and unlock more money for desperately needed affordable homes.<\/p>\n

\u201cBecause there are ongoing challenges, there\u2019s a lot we can do that\u2019s going to be critical in the longer term,\u201d\u00a0Reed said.<\/p>\n

Signs of a homebuilding decline are already clear. From the start of last year through November, the San Francisco metro area \u2014 which includes the East Bay and Peninsula \u2014 permitted just over 10,000 homes, a 16% decline from the same period in 2021, according to U.S. Census Bureau data<\/a>. The San Jose metro area, which has seen a spate of new housing planned for its urban center<\/a>, actually saw permits increase from around 4,000 to 6,000 new units.<\/p>\n

But just because projects have construction permits, that doesn\u2019t automatically mean they\u2019ll be built. In San Francisco, for instance, several of the city\u2019s biggest housing developments are reportedly stalled<\/a>. And in Concord, a 16,000-unit megaproject still in the planning stages is on hold<\/a> after the developer asked the city to approve the addition of about 3,000 more homes to offset growing costs.<\/p>\n

\u201cYou have deals going to the sidelines because of interest rates,\u201d said Chris Neighbor, president of SummerHill Homes, which develops houses, condos and apartments throughout the South Bay.<\/p>\n

The rising cost of borrowing has sent typical mortgage rates doubling over the past year, to 6.3% last week, boosting monthly home payments by thousands of dollars and pushing many would-be buyers out of the market. In turn, developers are increasingly pulling back on new single-family homes and condos.<\/p>\n

On top of that, financing projects has become more expensive as rates for construction loans also have jumped to around 6%. Neighbor said that\u2019s adding roughly $20,000 to the per-unit cost of large multimillion-dollar developments \u2013 a seemingly small amount that can still make all the difference.<\/p>\n

\u201cThat just upended all of the financial models that determine whether or not something is a feasible project,\u201d said Chris Thornberg, an economist and founder of Beacon Economics.<\/p>\n

Another roadblock: swelling material and labor costs since the start of the pandemic. Neighbor said inflation and supply chain issues for lumber and other materials, coupled with worker shortages, have sent hard costs soaring by around 20% the past few years, though prices are now starting to stabilize.<\/p>\n

The cost of \u200blumber, which has been especially volatile during the pandemic, recently returned to pre-COVID levels. Prices averaged around $377 per thousand board feet this month, down from a peak of $1,495 in May 2021.<\/p>\n

Dean Wehrli, a principal with John Burns Real Estate Consulting, said tens of thousands of local layoffs by tech companies<\/a> such as Facebook, Twitter and Salesforce also are having a \u201cbig impact on housing demand,\u201d giving developers pause. And growing concerns about a recession freezing the local real estate market later this year are only increasing the uncertainty.<\/p>\n

At the same time, the slow pandemic recovery of the region\u2019s urban cores has some developers questioning whether it makes sense to pursue projects in city centers, where rents largely haven\u2019t returned to pre-COVID prices.<\/p>\n

\u201cWhy would you want to live in a downtown if it is dark and empty and boarded up?\u201d asked Danny Haber, chief executive of Oakland-based developer oWOW.<\/p>\n

Meanwhile, affordable housing developers are facing yet another set of challenges. Most low-income projects rely on public subsidies that have become increasingly oversubscribed in recent years and could soon be on the chopping block amid economic uncertainty.<\/p>\n

Last week, Gov. Gavin Newsom, facing a projected $22.5 billion deficit, released a new budget proposal calling for $350 million in reductions<\/a> from the $11.2 billion set aside for affordable housing programs over the next few years.<\/p>\n