Report Projects Weak Housing Production Under San Francisco Zoning Plan Over Next 20 Years

San Francisco’s contentious rezoning plan is unlikely to produce the number of homes the city is required to build to meet state requirements, according to projections in a report released Thursday by the city’s chief economist.

San Francisco is on the hook to make way for 82,000 new homes by 2031, and risks losing state funding and control over housing development if a local rezoning plan is not adopted by January 2026. The report could add another hurdle for the housing proposal, which has already been a major test for Mayor Daniel Lurie, who had never served in public office before this year.

The report suggests that Lurie’s Family Zoning Plan could lead to a “significant increase in the city’s housing supply.” But even optimistic modeling projected only about 14,600 new units, due to construction costs and the plan’s dependency on market conditions.

“The context for housing development in San Francisco has changed profoundly in the past several years,” the report read.

“Nevertheless, under both scenarios considered in this report, the proposed rezoning would lead to a significant increase in the city’s housing supply, and have broadly positive effects on housing prices and the city’s broader economy.”

The city’s Office of Economic Analysis reviews all new legislation introduced at the board and will report on its economic effects if it’s determined to have a significant impact.

The Family Zoning Plan increases citywide capacity for about 39,000 additional homes, meeting the state target of 36,200 units in the city’s more residential western and northern neighborhoods. The plan does not include blueprints for actual developments, but instead permits more units to be built on some 92,000 parcels in the city to allow denser and taller housing in areas where development is restricted.

A separate financial feasibility analysis by the Planning Department found that the plan could produce about 19,000 units of moderate and above moderate income units, meeting the state-mandated target of 16,000 for these income categories.

The report analyzes market trends before and after the 2010s, when housing production sharply increased following a post-recession low. But the chief economist points out that housing is now more expensive to build than before the coronavirus pandemic, with no clear signals that could change or revert back any time soon.

“An expansive rezoning effort, like the proposed Family Zoning plan, will be challenged to match the 2010s levels of new housing development in the city, even under an optimistic high-growth scenario,” the report read.

California Department of Housing and Community Development, in its preliminary review in September, said the city’s rezoning plan is largely compliant. It’s unclear how they will view the latest report or whether it will affect the city’s standing with the state.

If the city fails to pass a rezoning plan by January, state officials could withhold local funding and take over San Francisco’s housing production approval processes.

“Too many parents are already afraid their kids won’t be able to afford to live in San Francisco,” said Charles Lutvak, a spokesperson for the mayor’s office. “Mayor Lurie’s Family Zoning Plan will help build the housing we need and meet our obligations under state law — we just need to get it done.”

Yes In My Backyard (YIMBY) organizers who support the rezoning proposal have been pushing for more permissive rules to allow for more density and housing across the city.

“We still should be doing family zoning, but we need to do a lot more to actually produce the housing we need as a city,” said Jane Natoli, Organizing Director at YIMBY Action in San Francisco, who stressed that the plan needs to pass. “I am concerned because we have a target that we’re supposed to be moving toward.”

Critics of the plan, which span from homeowners fearful of changes in their neighborhoods to housing watchdogs who say the plan doesn’t do enough to protect renters and small businesses, said the latest findings match some of their concerns, too.

“The problem isn’t zoning; it’s financing, construction costs, and an outdated RHNA formula driven by politics rather than real demand,” said Lori Brooks with Neighborhoods United SF, using an acronym that stands for Regional Housing Needs Allocation and refers to the number of homes each jurisdiction must build.

Some supervisors are simultaneously pushing for a public bank that could help finance the thousands of affordable units that are already approved in San Francisco, but are stalled in the development pipeline due to a lack of funding. Other datasets show private development has also slowed.

“Instead of focusing on what’s actually needed — preserving existing rent-controlled housing, supporting small businesses, and building truly affordable homes — this plan upzones nearly the entire west and northeast sides of the city with no guardrails, no affordability guarantees, and silences the voice of residents in how their communities should grow,” Brooks said.

The report casts two projections based on a high-growth scenario and a low-growth scenario.

The high-growth scenario assumes that the city’s housing process returns to pre-pandemic levels by 2030 and grows until 2045, projecting a 10% increase in housing prices over the next five years. Under that model, the report found the plan could add 14,646 additional housing units, beyond what the city’s existing zoning might produce, over the next 20 years.

The low-growth scenario assumes that San Francisco housing prices increase only at the U.S. long-term rate of 1.8% annually, and that housing prices won’t reach pre-pandemic levels until 2041. That projection would lead to only 8,504 new units in 20 years.

The report also highlights changes to the housing market that have occurred in westside and northern neighborhoods, which are a focus of the rezoning plan to increase density. Condos downtown and in the South of Market neighborhood have experienced price drops of nearly 40% since 2016, while the Richmond and Sunset have fallen only slightly.

Jeff Bellisario, executive director of the Bay Area Council, said he’s projecting insignificant shifts in construction and labor costs in the years ahead. But other market factors could pose a challenge for the city in its effort to build thousands of new affordable homes.

“The real question is, where do rents go in the city? They have been increasing in the last 12 months. Do they continue on an upward trajectory?” he said. “Even if costs continue to move in an upward fashion or stay elevated, that may not matter if developers are able to recapture that via rents or if their condos are for-sale units via higher home prices. So I think that’s really the equation to think about.”

The report notes that the amount of housing that will be produced as a result of rezoning, and its economic impact on the city, depends on the future housing market conditions, creating uncertainty in the projections.

“If market conditions were such that the 36,000 unit target was achieved, as a result of the rezoning, the economic impact on the city would likely be significantly more positive than the estimates in this report,” it read.

San Francisco’s Planning Commission approved the city’s zoning plan in September. In the weeks since, supervisors have put forward amendments, including to prohibit demolition of buildings with more than two rent-controlled units and to incentivize developers to replace lost commercial space.

Those amendments were not included in the city economist’s latest report, but could lower the housing production projections even more.

“As for the amendments, some are improvements, but they do not go far enough to protect tenants, small businesses, or neighborhood-serving corridors,” Brooks, of Neighborhoods United SF, said. “A responsible housing plan must balance production with protection and preservation. This one does not.”