San Francisco residential real estate has been expensive for decades. It ranks right up there with the other most expensive metropolitan areas in the US, including New York City, Washington DC, and Boston, to name just a few.
One of the obvious reasons for this is that San Francisco occupies a small, but very desirable peninsula of 49 square miles, which is bounded on three sides by water. Another is that two-thirds of the housing stock is in the rental pool, the opposite situation in every other major U.S. city.
This means that there is limited space to build new structures. Less than 10 single-family homes are built in a typical year, and there are only about 100,000 existing single-family homes scattered throughout the City.
So that leaves condominiums, co-operatives, and the more recent T.I.C.’s (Tenants In Common) to fill the demand. Except for in the South of Market Area (SOMA), the City-imposed building height limit is 40 feet. That essentially means three stories over a garage, and you will find small 20- or 30-unit condominium buildings of this type in various parts of the City. But the only neighborhood with large new residential structures is SOMA.
In the late 1990s the City recognized the need for more housing and deemed SOMA a good place to relax the rules so that developers could construct high-rise buildings. Unlike the suburbs, where large areas of land can be used for tract home construction, San Francisco construction is limited to building on relatively small land parcels that were previously used for parking lots or gas stations. As each parcel is used for construction, the remaining ones become dearer, thus raising the cost of future development. While San Francisco is subject to price downturns in the market, the lack of land in the City tends to restrict the depth of these downturns.
Another factor that stabilizes the market is the five different kinds of residential buyers, any of whom may fade away at times. However, if one group softens, there are at least three or four other groups that can pick up the slack; whether they do so is another story.
San Francisco real estate attracts:
As with any consumer product, neighborhoods and housing types come in and out of favor over time. Though this may be so, virtually every San Francisco neighborhood is a reflection of the overall economy – highly diverse.
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