Cutting fees on luxury housing developers has undermined San Francisco’s ability to build affordable housing but has done little to encourage more market-rate development, a new report from the Budget and Legislative Analyst concludes.
The city has reduced affordable housing requirements and cut impact fees in an effort to get stalled housing projects underway.
However, the report notes:
Overall, our observations show that City’s tax and fee incentives have not successfully reversed the decline in building activity since 2022 and have not pushed building activity to return to 2019 levels.
The reason for-profit developers aren’t building has little to do with the city’s fees, the report notes:
Construction costs increased by 53.5 percent between January 2019 and December 2025. During the same period, interest rates rose from 2.7 percent to 4.1 percent. Higher interest rates mean that projects face higher borrowing costs for development loans and must generate higher returns to justify the investment. Rents and condo prices have not increased to keep up with rising construction costs and interest rates, which means that housing developers have not been able to charge more to rent or sell their units to offset higher construction costs.
In other words, the Yimby approach pushed by Mayor Daniel Lurie and Sup. Bilal Mahmood sn’t working. New housing will not bring down prices, because the rents will have to be a lot higher before developers can promise investors the return that they demand.
So the mayor and the supes have given away money to developers for no visible return:
Based on the analysis presented in this report, we do not conclude that the City’s fee reduction legislation was sufficient to push a substantial number of housing projects towards feasibility or has resulted in a measurable increase in housing production since 2023. While the 2023 fee reduction legislation and subsequent policy actions may have provided financial relief to some housing projects in the pipeline, these changes were insufficient to offset or counteract broader macroeconomic conditions in San Francisco that are largely outside of the City’s control, including high construction costs and interest rates and slow recovery of rents and condo prices.
Sup. Connie Chan has called a hearing at the Budget and Appropriations Committee Wednesday/13 to consider the implications
