Bay Area apartment construction surged during COVID

Bay Area apartment construction has accelerated through the pandemic, surging to its highest level in five years with major new projects in Oakland, San Jose and Mountain View.

But multifamily construction in the region still lags behind most other major metros — with high property and labor costs, heavy regulation and drawn-out battles with neighborhood groups slowing or killing projects.

The San Jose metro is expected to add 5,625 units this year, up 79% from 2020, according to an analysis by real estate data firm Yardi Matrix. San Francisco and the East Bay should see 7,872 new apartments open in 2021, an increase of 36% from the previous year. It’s the highest number of apartments — 13,497 units — added to the region in the last five years.

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Miro, a mixed-use housing, restaurant, retail, and commercial complex as seen from San Jose City Hall in downtown San Jose, Calif., on Tuesday, Aug. 24, 2021. (Nhat V. Meyer/Bay Area News Group) 

The big leaps in housing production suggest construction is getting back on track after the initial shock of COVID-19 shutdowns in 2020. But despite the seeming forests of cranes and busy work sites in core Bay Area cities, the region remains stuck in a critical housing shortage and continues to get lapped by construction in other major cities, including economic rivals in the South and Southwest.

Doug Ressler of Yardi Matrix said the rebound of the residential rental market has sparked production across the country. Some of the increase is also due to construction projects planned for 2020 but delayed by the pandemic. “It looks like the market is resurging, as far as transitioning from the pandemic,” he said.

The Bay Area has lagged in construction of new apartment complexes, even as the Silicon Valley boom has attracted new workers and ramped up demand for rentals. The squeeze has pushed rents to the highest in the U.S., punishing many lower income workers struggling with the economic upheaval and health crises created by the COVID-19 pandemic.

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SAN JOSE, CALIFORNIA – AUGUST 24: Construction continues at Miro, a mixed-use housing, restaurant, retail, and commercial complex in downtown San Jose, Calif., on Tuesday, Aug. 24, 2021. (Nhat V. Meyer/Bay Area News Group) 

About 70% of the new Bay Area apartments are luxury or a notch below, Ressler said. Construction of new affordable housing units has been limited, he said, and largely done by non-profit developers competing for scarce government subsidies.

Oakland led the burst of new Bay Area apartments, with the city projected to add 3,168, followed by San Jose (2,175), Mountain View (1,714), San Francisco (1,521), Fremont (1,185) and Milpitas (717), according to the analysis.

The busiest construction sites for multifamily projects are in two states popular with ex-Californians — Texas and Arizona. The Dallas-Fort Worth metro led the nation for the fourth straight year, on track to add 21,000 apartments this year. The metro area also landed the headquarters of the formerly San Francisco-based Charles Schwab.

Phoenix is projected to add nearly 16,000 units this year, about 17% more than the combined total of the Bay Area despite having a smaller population. Also topping the Bay Area — New York City, Houston and Los Angeles.

The San Francisco and San Jose metros individually fall behind Austin, Texas, Atlanta, Charlotte, N.C., Miami, Minneapolis and Orlando for new construction.

“The apartment market in some sense hit pause during the pandemic,” said Wells Fargo economist Mark Vitner. But in recent months, he said, “demand rebounded pretty quickly.”

Vitner said news of the Bay Area’s demise is premature. The region still serves as the world’s innovation hub, and eventually the talented workforce will return to offices. In coming years, he added, “there’s still going to be a lot of jobs created in the Bay Area.”

Bay Area demand for apartments still outpaces supply, with urban rents climbing toward pre-pandemic levels in most places. The median price for a two-bedroom apartment in San Jose hit $2,720 this month, according to listing site Zumper. A two-bedroom in San Francisco rents for $3,830, and in Oakland, $2,600.

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OAKLAND, CA: NOVEMBER 21: A view of the new ZO apartment building at Webster and 17th Streets is seen from this drone view in downtown Oakland, Calif., on Thursday, Nov. 21, 2019. (Jane Tyska/Bay Area News Group) 

Yardi Matrix forecasts Bay Area rents to rise between 5 and 10% during the next 12 months, with steepest increases in San Francisco. Apartment construction in parts of the region could pick up, but Ressler said other regions are simply easier places for developers to build.

In cities in the southwest, he said, “you can build faster and cheaper.”

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