Bay Area increases apartment construction despite national decline

Bucking a national decline, the Bay Area is seeing an increase in apartment construction. But, the region is also playing catch up — with the actual number of multifamily developments being added still below other major metro areas in the country.

Out front locally, the San Jose metro area is expected to increase apartment construction by 283 percent, from just 1,579 units last year to 6,044 this year, according to a new report from Rent Cafe. Oakland is expected to add some 1,850 units, followed by Milpitas at 1,685 units. San Francisco ranks fourth for the region with 1,204 apartments expected in 2019.

“It’s a start,” said San Jose Mayor Sam Liccardo. “But amid this housing crisis, we’re still bailing this ship with teacups and we need to really accelerate our efforts. And more importantly, we need to scale them.”

Rent Cafe analyzed new apartment construction in 134 metro areas, using data from its sister company Yardi Matrix, and studied only buildings with 50 or more units.

And while the latest report doesn’t take smaller buildings or accessory dwelling units — which the city has been pushing — into account, “San Jose is just blowing out…it’s just unbelievable,” said Doug Ressler, manager of business intelligence for the company.

With residents struggling to afford some of the highest housing costs in the United States, cities across the Bay Area are looking for ways to boost the number of units on the market. San Jose, for instance, has provided incentives for developers willing to build high rises downtown, and Oakland has said it will work to build 17,000 new homes over the next five years.

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Is build-and-drop the future of granny flats in the Bay Area?? But, the report notes, both the San Francisco and San Jose metro areas are expected to build less than half the number of homes other metro areas like Seattle and Miami are adding. The Dallas-Fort Worth area alone is expected to add more than 22,000 units this year — the most of any major metro area.

Still, even with analysts warning of a looming economic downturn, Ressler thinks that while places like Dallas boast cheap land, the Bay Area housing market continues to be fueled by economic diversity, which could help guard the region against a major slump.

And although it ranks 14th in terms of the number of actual units the city is adding, San Jose is second when it comes to boosting production. Only Detroit, which has increased housing production by 292 percent, ranks higher. Riverside, California, comes in third, with a 243 percent uptick in production. No other metro area in the state cracks the top 10. And even though the Dallas-Fort Worth area is adding so many homes, building there has actually slowed by 20 percent from 2018 to this year.

Across the country, Ressler said, the push for affordable housing and changes in housing policy are coming at the local and state, not national level. And while developers still generally find high-end, single-family homes the most attractive from a financial standpoint, “the real demand growth is in the affordable workforce area,” such as multi-family units.

While Liccardo would like to see more such units in the Bay Area, he pointed out that Texas has fewer environmental and other regulations, and that the cost of building outside of the Bay Area is significantly lower. With rents relatively flat compared to development costs and a shortage of construction labor, he said, it’s difficult to get projects off the ground.

“We’ve got a lot of developers sitting on their shovels right now trying to get financing,” Liccardo said.

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