San Francisco is a gorgeous city with a rich history. Each year, more and more people move here to get in on the fun. But whether you’re a local or a newbie, the cost of living will give you sticker shock.

The cost of housing in San Francisco is no joke. Median one-bedroom rental prices are the highest in the country, while the cost of a single-family home is five times the national average. This is because the demand for housing far exceeds the available supply. And the shortage of housing is why everyone is talking about a housing crisis.

Understanding why housing prices in the Bay Area are so out of control may seem complicated, but we’ve got you. Welcome to Housing 101.

Why is there is a housing shortage in San Francisco?

San Francisco is growing — fast. As more people move to the Bay Area, population growth is outpacing available space. In California, we need to build about 180,000 new homes per year, but we are only producing an average of about 80,000. In 2017, the ratio of new jobs to housing units was reportedly 3.5:1.

Plus, those who currently rent are staying put.

In San Francisco, the majority of rental units are subject to rent control. This means that a landlord can only raise the rent by a certain amount each year. Proponents argue that this protects vulnerable populations and preserves diversity in the city. Eliminating rent control (and letting the market determine rental prices) would make housing unaffordable for over 16,000 households.

However, San Francisco does not have vacancy controls. These are measures that would ensure that rent for a rent-controlled property would stay low once an existing tenant moved out. There is a state law (the Costa-Hawkins Rental Housing Act) that instead allows landlords to raise the rent to market prices after a tenant vacates. This is intended to incentivize landlords to maintain their property. That same law also bars any housing built after 1995 from being subject to rent control. So, landlords have no cap on how much they can increase rent on these properties.

Because rental housing prices have soared dramatically, lots of tenants in rent-controlled apartments can’t afford to move because market prices far exceed their current rent. In response, some landlords have evicted long-standing tenants because they are paying way below market price for rent.

san francisco housing

What about buying a home?

Well, existing homeowners are also staying put. In 1978, a law called Proposition 13 was enacted. Essentially, it created artificially low property taxes and provided other incentives for homeowners to stay as long as possible. Many of those homeowners passed along those properties (and their tax breaks) to their children, rather than selling to new owners. And, to protect their increasing property value, they have used tactics to oppose new housing construction. (We’ll get to that below.)

Taking rent-controlled spaces into account, more than 80 percent of existing housing is occupied.

Due to limited supply, purchasing a home is out of reach for most prospective buyers in middle– to low income brackets. The California Association of Realtors estimated that prospective homeowners in San Francisco would need an annual household income of $344,000.

Why don’t we just build more housing?

There are a bunch of barriers to building more housing thanks to a legacy of discriminatory urban planning. Specifically, the idea of local control. Local control is intended to increase transparency and allow the public to give feedback about the community. For instance, anyone can challenge proposed projects through a discretionary review process for new building permits, even if developers meet the requirements for building.

In practice, this has been used to block new housing developments in two ways. On one hand, affluent homeowners challenge projects that might (in their view) affect their property value. This is known as NIMBYism, and often falls under ‘environmental concerns,’ or is explained as a potential ‘loss of community character.’ In reality, this has led to housing segregation.

On the other hand, vulnerable groups like communities in the Mission, have used objections to block developments, citing concerns about gentrification and eviction.

These barriers make the building process difficult, costly, and time-consuming. The Bay Area is the most expensive place to build, and construction has decreased. Unsurprisingly, there is a market for wealthier homeowners. San Francisco is currently building twice as many homes for people with above moderate incomes according to the Regional Housing Needs Assessment.

san francisco housing

So how is this affecting communities?

Gentrification is happening in urban cities across the country. As more affluent (mostly white) residents move into urban centers, the gap between market-rate prices and rent-control gets bigger. Long-time residents become vulnerable to displacement.

As the San Francisco Chronicle explains, “Lower-income African Americans, Latinos, and Asians are increasingly clustering on the fringes of the Bay Area. Exurban outposts are particularly difficult for these communities. They typically have fewer social services to combat poverty and its related ills. They also tend to have far less transit infrastructure than cities do, isolating residents from educational and work opportunities.”

That loss of diversity jeopardizes what makes the city great.

Rising income inequality means there isn’t enough affordable housing for either low-income residents or the middle class. Middle-class income earners such as teachers, artists, police officers, and nurses don’t qualify for affordable housing, but can’t afford housing on their salaries. So many of them are forced to find housing farther from major cities like San Francisco, exacerbating long commutes. As the cost of living rises, businesses struggle to attract and retain workers.

How can we make San Francisco housing more affordable?

State legislators have introduced over 200 bills this year to address the housing crisis in California. These bills propose a variety of solutions — from creating a faster permit approvals process to speeding up affordable housing projects.

One example: inclusionary zoning policies. These measures tie the development of affordable housing to market rate housing. They require (or encourage) developers to make some of the new housing units affordable for low- or moderate-income residents. In return, developers are provided cost offsets, like fast-track permitting and public subsidies.

AB-1763 amends current law by increasing density bonuses for affordable housing. A density bonus is an incentive that allows developers to increase the maximum number of allowable housing units on a site. Currently, density bonuses for affordable housing projects stand at 35%. This bill would increase the density bonus rate to 80% to boost affordable housing and cut costs for developers.

Another example is the controversial Senate Bill 50, which is currently making its way through the legislative process. This law aims to increase housing near transit hubs and job centers. Advocates argue it would improve commutes and increase the number of affordable housing units. There are provisions in the bill that would set aside housing for low-income residents in new developments, protect long-term residents from being forced out of their homes, and allow communities at risk of gentrification to develop their own plans.

Housing policy in San Francisco has the ability to transform lives and shape the future of its residents. Meanwhile, urban planners and developers like Starcity are coming up with housing solutions that create access for the middle class and engage the community at large. These options further the conversation about how we can maximize affordable space, increase efficiency through design, and make city life sustainable.