Bay Area Apartment Construction is Next to Nothing

The housing crisis in the Bay Area isn’t getting any better—and a housing construction crisis appears to be getting worse.

Housing construction is grinding to a halt in the Bay Area, with what appears to be a complete freeze developing in Silicon Valley. No apartment projects with market-units broke ground in Silicon Valley in Hi 2023, according to CoStar data, a drop from nearly 5,300 units that were started in the prior six months.

The construction halt in Silicon Valley is the leading edge of a sharp drop-off in multifamily construction across the Bay Area.

In the East Bay, construction began on 672 apartments, condos or townhomes in H1 2023, down from 1,170 during the last six months of 2022; in San Francisco and on the Peninsula, ground was broken for only 229 apartment units, a drop from 1,846 units in H1 2023 based on CoStar data reported by the San Jose Mercury News.

The data does not include projects that are made up strictly of affordable units.

The report cited higher interest rates, lenders and investors pulling back in the face of smaller expected returns, and rising costs for materials and labor as primary reasons for the slowdown in new multifamily construction starts.

Kenneth Rosen, chair of UC Berkeley’s Fisher Center for Real Estate and Urban Economics, expects the slowdown in apartment construction to continue in the Bay Area until 2025.

“It’s almost a perfect storm. The worry is if we don’t build the supply and the demand rebounds, we could see a big rent jump,” Rosen told the newspaper.

The construction slowdown also jeopardizes the Bay Area’s efforts to achieve the latest state-mandated goals for increasing its housing inventory: the region is required to build more than 441,000 market-rate and affordable homes over the next eight years, an increase of about 15% over existing housing.

SummerHill Apartment Communities, a South Bay developer, told the Mercury News that economic challenges have forced the company to delay construction of two projects, encompassing a total of 600 unit, in Santa Clara and Milpitas. 

Apartment developers also cited the collapse of Silicon Valley Bank and First Republic Bank, which were top lenders in the Bat Area for multifamily developments, as another hurdle to securing construction loans at a time when lenders in general are pulling back amid the rising cost of debt.

The rising cost of materials and labor also continues to pose a challenge to new apartment construction. The price of lumber, just one example, averaged about $530 per thousand board-feet this month, compared to $371 in August 2019.