S.F. becomes first California city to miss its housing goals. The impact will be massive

The majority of housing projects in San Francisco will now be eligible for over-the-counter approval, thanks to the activation of a new state law that eliminates the city’s famously contentious land-use battles and cuts the average time frame for approvals from two years to under six months.

On Friday, the California Department of Housing and Community Development ruled that San Francisco did not meet its housing permitting goals in 2023, making it the first city in California to be subject to Senate Bill 423, the housing streamlining legislation passed last fall. The law, written by state Sen. Scott Wiener, requires cities that are behind on their state housing goals to streamline the approval of most projects.

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The law singled out San Francisco, which has the longest approval process in the state, requiring that the city be subject to annual evaluation of its state housing goals. San Francisco’s state-mandated "housing element" requires that it plan for 82,000 new units between 2023 and 2031. San Francisco has authorized 3,870 units in the past 18 months, 3,039 in 2023 and 831 so far this year, according to the city’s Planning Department. Other cities are evaluated every four years.

San Francisco being subject to SB423 means that most proposed housing projects will not require approval from the Planning Commission and therefore won’t be able to be appealed to the Board of Supervisors. Most projects won’t have to undergo extensive environmental reviews. The streamlining does not apply to large projects that are subject to "development agreements," like the Hunters Point Shipyard, Pier 70, Treasure Island or the redevelopment of Stonestown. It also doesn’t apply to projects inconsistent with zoning and affordable housing standards or those proposed for properties that include a historic resource.

Wiener said the law would "dramatically accelerate the time it takes to approve most new housing in San Francisco," with the city obligated to process applications within 180 days, compared with the current time frame, which is 26 months. Wiener called the commencement of SB423 a "watershed" moment and credited the city’s YIMBY organizations with pushing pro-housing laws.

He said that San Francisco’s "confusing and overgrown permitting process has been throttling housing construction … for decades."

"San Francisco has had the longest permitting timeline for housing in the state and now because of SB423 San Francisco will have one of the shortest permitting timelines," said Wiener. "And that is a game-changer."

While San Francisco is the first city to be subject to SB423’s expanded streamlining, it won’t be the last. The new law will take effect in many other cities across the state in 2026, as Gov. Gavin Newsom works to ease the housing shortage and meet the state’s goal of constructing 2.5 million more homes by 2031.

The state’s aggressive push to produce more housing and eliminate the ability of residents to weigh in on — or, in many cases, obstruct — projects has become a prominent issue in San Francisco’s mayoral contest, as city planners undergo a state-mandated rezoning to allow for taller buildings in neighborhoods that have not traditionally seen much development.

Incumbent Mayor London Breed has championed the rezoning — and the YIMBY crusade to make it faster and cheaper to build — while Board of Supervisors President Aaron Peskin, also a candidate for mayor, has found support among residents who fear that the changes will destroy the charm and historical fabric that attracts so many to the city.

Neighborhoods United SF Founder Lori Brooke, who has been a vocal opponent of the YIMBY movement, said it has been obvious from the start that San Francisco would not come close to meeting its 82,000 unit goal and that the "inflated mandate was intentional to cause cities to fail and trigger ministerial approvals."

She said SB423, along with the proposed upzoning, would allow market-rate developers to displace small businesses and residents "without the sufficient time to properly inform the public or assess the true impacts of demolition." With the introduction of SB423, "Scott Wiener is one step closer to his goal of destroying San Francisco," Brooke said.

"It unfairly penalizes San Francisco for something beyond its control," she said. "San Francisco does not build housing, developers do."

While San Francisco’s byzantine and politically fraught land-use politics have long stymied residential development, it’s only one factor for the current dearth of construction cranes on the city’s skyline. Soaring construction costs and elevated interest rates have combined to make most projects economic non-starters while the city’s hollowed-out downtown and inability to bounce back from the pandemic’s shift to remote work has made San Francisco a risky proposition for most lenders and developers.

Still, at least one market-rate developer intends to line up paperwork in the next few weeks to take advantage of SB423. Developer Chris Foley plans to submit an application for a 200-unit, 23-story tower proposed for the edge of the Castro neighborhood at 1965 Market St. Foley is a consultant for the property owner.

"We are working on the SB423 package right now," Foley said, adding that the new law "takes the mystery out of the entitlement process."

"Instead of not knowing what is going to happen for two to five years, once you submit a whole project it should be approved in two to six months," he said.

He said the 1965 Market project would "go vertical as soon as the capital markets come back." He said he didn’t think that the curtailed process would lead to buildings that are shoddily built or don’t mesh with the surrounding urban fabric.

"At the end of the day if you want a project that is going to work and get built and be successful you still have to design a great project," he said. "Just because you get something entitled doesn’t mean you are going to get it built."

Mark MacDonald, managing partner of DM Development, a prolific builder of complexes in Hayes Valley, Cow Hollow, Dogpatch and other neighborhoods, said his firm is exploring submitting applications on an SB423 project. He said he had considered resubmitting a previously approved project using the new law, but instead decided to do a 100% affordable project because it’s currently so difficult to attract capital to market-rate projects in San Francisco.

Housing Action Coalition Executive Director Corey Smith said the response from developers so far has been tentative, but he expects enthusiasm to pick up once the nuances of the laws are better understood and the city’s economy starts to improve.

"There is a lot of PTSD in the development community about what it actually takes to build in San Francisco," he said. "It won’t take off all of a sudden but as the economy picks up and the rules become better known, it will be a game-changer."

He said the changes will especially be appealing to smaller builders doing projects of less than six units who may be less comfortable navigating the complicated politics of the city’s land-use processes.

"At the end of the day, eliminating risk from the approval process, not having to run through the political gantlet to get housing approved … will be a huge net positive for housing production in the city," he said.

The new law expands the now-expired SB35, which previously only applied to projects that were at least 50% below market rate. That bill, which became law in 2018, has streamlined 1,242 affordable units, with another 2,362 homes either under construction or awaiting funding.

Planning Director Rich Hillis said the new expanded law would result in "housing being approved in months instead of years."

"We have already seen how ministerial approvals have benefited affordable-housing projects, but bringing hundreds of new units online quicker and with significant cost savings," he said.

About 23% of housing built in San Francisco is under a development agreement and would not be eligible for SB423. The rest will likely use the legislation for faster approvals, according to Wiener communications director Erik Mebust.

Reach J.K. Dineen: [email protected]