The parking lot that the development will replace. May 25, 2011.

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.

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REPORTER. Annika Hom is our inequality reporter through our partnership with Report for America. Annika was born and raised in the Bay Area. She previously interned at SF Weekly and the Boston Globe where she focused on local news and immigration. She is a proud Chinese and Filipina American. She has a twin brother that (contrary to soap opera tropes) is not evil.

Follow her on Twitter at @AnnikaHom.

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12 Comments

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  1. PG+E owns three city blocks in the Mission, seemingly using them only for parking service vehicles. The air rights could be used to build housing. Since PG+E operates as a monopoly at the sufferance of the City and the State, it could be persuaded to contribute those air rights to housing developers, thus keeping the costs down.

  2. SF should consider lowering or eliminating affordable housing requirements for smaller developments, particularly during a housing recession. Just for illustration, how would these projects “pencil” if the requirement was 0% or 10%?

  3. If the State Density Bonus helps so much with the economics, does it mean that these lots are quite encumbered by building size limits that prevent spreading the land and construction costs over enough units?

  4. I’m confused how the headline “Breed’s vacant lots to housing idea a no go, analysis says” is the takeaway, or even accurate, given the conclusion at the end of the article “Still, the analysis suggests legislation like Cars to Casas is better than doing nothing”.

    That makes it sound like the ordinance, which is the manifestation of the idea, is a “Go”. It’s just not enough to get things built yet.

  5. … and who’s gonna wanna live here if there are no jobs, the downtown is bare, and its still impossible to get a 3br flat for $500/mth (anywhere in No America).
    Well, the Trust Fund babies, like Mr Preston; but, I mean, regular folks who gotta work?

    1. This one particular bit of streamlining, and for the example given, would result in each unit being $131,000 cheaper, or ~20% closer to being worth building. ($635,000 – $504,000)

      If that’s not a step towards making housing more affordable, I don’t know what is

  6. “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”
    Yeah, that is some very rosy thinking. I’m thinking land sellers want to go ‘as is’ and the contractor would factor in the needed work into the cost. Seems Breed’s approach relied on effectively cutting deals to contractors didn’t have to pass the costs on to buyers.

  7. Maybe things would “pencil out” if the vacant lots were acquired by non-profit developers like Habitat for Humanity?

  8. You never explain what the numbers mean.
    What is a negative worth?
    Actual cost of construction less sales value?
    Will the city own and rent the properties?
    Why the gap $93,000 to $635,000?
    Will the city own and rent the properties, or will they be sold as “affordable?”
    Please explain.

    1. Hi Duchess of Dartmouth,
      Thanks for the thoughtful questions. I attempted at simplifying the concepts because it was jargon-y, but what I mean by negative worth in this case is ‘negative residual value,’ or the value of an asset after it depreciates.

      The gaps are large. If you go to the original analysis, which is included in the Planning Document, you can see the table of the different iterations of the pricing. Some of the factors include the neighborhood, lot size, use of the State Density Bonus, etc. In this committee packet that I’m linking, the explanation of residual value and feasibility is more explained on page 25 in the letter and page 32 for the table of prototypes. The prototypes then show the negative residual values, depending on the factors weighed. I hope that helps.

      Best,
      Annika