Could the Bay Area’s housing shortage turn into a surplus?

Given the number of high-density residential projects that seem to be popping up everywhere, the answer might seem to be yes.

Last year, building permits for a total of 12,766 single or multifamily housing units were issued in the San Francisco metro area, 28 percent more than in 2014, according to U.S. Census Bureau data.

In the first two months of this year, 2,173 units were permitted, up 89 percent from the same period last year. The metro area comprises San Francisco, San Mateo, Marin, Contra Costa and Alameda counties.

Permits were down in Santa Clara County last year, but that was after a big spike in 2014.

In the nine-county Bay Area — which also includes Napa, Solano and Sonoma — just over 20,000 units were permitted last year.

Housing permits are considered a decent proxy for new housing supply because developers don’t usually pull them until they are ready to break ground. The permit doesn’t typically say whether the home will be for sale or rent.

But that’s only the supply side of the equation.

Demand is much harder to quantify, because it’s based on job, population and income growth and demographic factors. There is no question that since the recession, job and population growth has far outpaced housing creation, leading to stratospheric increases in home prices and rents.

As a result, experts say the Bay Area is not close to filling its housing hole, except at the high end of the market, where much of the new construction has taken place.

One month free rent

In San Francisco, developer Equity Residential is offering one month free rent at the new Azure Apartments in Mission Bay and at Potrero 1010, a 453-unit complex going up by the Interstate 280 extension. One-bedroom apartments at the Azure start at $3,825 a month. At 1010 Potrero, the most affordable unit is a studio for $2,950.

“I think (free rent) is a sign of weakening at the top,” said Ken Rosen, chairman of Rosen Consulting, a real estate market research firm. “We could definitely have a surplus there, especially if we have a correction in the economy or tech sector.”

In an emailed response, John Hyjer, first vice president of Equity Residential, said, “While we may see a softening in growth in the market, offering free rent is a practice that all developers have been using for many years to jump-start leasing in a new development.” He said this is a “standard industry practice” in strong and soft markets nationwide.

For the housing market as a whole, Rosen and every other expert I spoke to agreed that the Bay Area is not close to a surplus, but disagreed as to how many new units are needed to meet current and future demand.

In the Bay Area, there are 2.7 people per household, but “we are building only one house for every five people we add,” said Steven Levy, director of the Center for Continuing Study of the California Economy. In the nine-county region, “we are building 20,000 (units) a year, but we need 30,000 to 35,000 to keep pace.”

The last time we saw that kind of growth was in the 1980s, when the nine counties were permitting an average of 33,000 units per year. That dropped to around 20,000 per year for most of the 1990s, according to data from CIRB, a construction research service.

“As we got into the dot-com boom, we started approaching 30,000 again,” said Cynthia Kroll, chief economist with the Association of Bay Area Governments. “That peaked in 2003, but (permits) stayed in the 25,000-to-30,000 range through 2006, then they crashed.”

Things bottomed out in 2009, when a mere 5,871 units were permitted. Just over 20,000 permits were issued in 2015, according to CIRB.

How much is needed

Just to fill the existing deficit, the Building Industry Association of the Bay Area, which represents home builders, projects that the region should be permitting 2,224 units per month on average, or about 27,000 per year. The association came up with that number based on projections in Plan Bay Area, a report looking at transportation and land-use/housing strategy from 2011 through 2040.

Assuming a steady growth path over that time period, the Bay Area would have created about 206,000 jobs and 136,000 housing units between January 2011 and now.

In reality, the Bay Area created about 531,000 jobs but permitted only 94,000 housing units, said Lisa Vorderbrueggen, a spokeswoman for the building association. To make up for the deficit and keep pace with the new workers, she figures the Bay Area needs to permit “considerably more than 27,000 per year.” Something on the order of 40,000 units per year.

Although 27,000 units a year, on average, is close to what ABAG estimates is needed over the next 10 years, Kroll pointed out that employment “is highly cyclical.” About 240,000 of the jobs created since 2010 represented the recovery of jobs lost in the great recession, she said, not people moving into the Bay Area to take new jobs.

We will know that supply is beginning to grow faster than demand when rents and home prices start falling. That could happen if we get another downturn in the economy. But building alone is no guarantee that prices will fall.

“It’s almost like adding an additional lane to a highway,” said Christopher Thornberg, founding partner of Beacon Economics. When you add a lane, traffic may not improve much because it encourages more people to drive. Likewise, when you build more housing, you encourage more people to move to California.

That doesn’t mean we shouldn’t do it. Building more homes will slow the rate of appreciation. Just don’t assume all that construction in the neighborhood means prices are ready to plunge.

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Blog: http://blog.sfgate.com/pender Twitter: @kathpender