As it stands, dreams of building housing on vacant San Francisco parking lots or car washes is a non-starter, according to new city analysis.
A proposed ordinance “Cars to Casas,” introduced by Mayor London Breed in October, 2021, aims to ease housing construction on parcels formerly slated for car uses, like parking lots or garages. Some 500 parcels could be eligible, according to the Planning Department, but it’s unlikely any housing would be built, given that none of the projects would make sense financially, according to a new financial analysis presented at the Board of Supervisors Land Use and Transportation Committee on Monday.
Real-estate consulting firm Century Urban conducted a financial analysis of the proposal at the behest of the Board. Century Urban configured dozens of housing scenarios that might qualify for Cars to Casas, and found that none of the prototypes Century Urban imagined are financially feasible under present market conditions. Not even under the most ideal circumstances.
As San Francisco is mandated by the state to plan for and build 82,000 new units of housing over the next eight years, city officials need a mix of legislation, rezoning, and funding to achieve these development goals. But even when tackling one issue like zoning, as Cars to Casas could, more formidable obstacles, like funding and high construction and labor costs, remain.
Century Urban’s analysis found the projects’ residual values, essentially its long-term value, was negative by tens of thousands of dollars, at minimum.
The analysis estimated negative worth between $93,000 and $635,000 per rental unit. For condominiums, negative worth ranged between $82,000 to $539,000 per unit.
These dour figures come even after the consulting firm assumed optimistic circumstances. For example, Century Urban supposed each project would not pay costs for demolition, and that the land-seller would take the burden of any environmental remediation costs. Each potential project had a commercial business on the ground floor.
Though the proposal has benefits that may encourage developers to bite — nixing a permitting hearing would save months in a lengthy planning process — the legislation can’t solve other factors, like high construction costs. Streamlining alone, according to Urban Group’s founder Louis Cornejo, “may not be the immediate fix people hope for.”
It still boils down to money, according to the analysis.
The financial analysis homed in on vacant automotive sites in the Marina, Sunset, Excelsior, and Russian Hill neighborhoods, in part because those neighborhoods had eligible sites and because those neighborhoods generally have relied on a more restrictive approach to development. (The Mission and Central SoMa have relied on a less restrictive approach.) The Marina and Sunset generally have smaller eligible parcels, and the Excelsior and Russian Hill sites have larger parcels.
Interestingly, the analysis found that a project is more likely to be feasible in more expensive markets, like Russian Hill, than in cheaper ones, because of the resultant housing’s higher rents.
Still, the analysis suggests that legislation like Cars to Casas is better than doing nothing, simply for its ability to slightly lower the financial infeasibility of building housing. For example, under existing conditions, a potential rental unit in the Sunset may have a negative worth of $635,000. However, by using density control through Cars to Casas, that same unit’s negative residual value drops to $504,000. (If the same unit is in a project that uses the State Density Bonus, the negative value drops to $377,000).
If the ordinance passes, Century Urban estimated Cars to Casas could get closer to becoming financially worthwhile if builders trim costs and increase revenue by raising rent.