Oakland tops S.F. in adding housing
Builders, in big reversal, creating renters’ market
Builders in Oakland are on course to create more new housing units than San Francisco this year, a notable role reversal for a city that has long produced far less residential development than its wealthier and more bustling neighbor across the bay.
The deluge of apartments is leading — at least temporarily — to a renters’ market in Oakland. From the Broadway Valdez neighborhood to Lake Merritt, developers are jockeying to attract wellpaid Millennials not only with amenities such as yoga studios, dogwashing facilities and swimming pools, but also with concessions including six weeks of free rent or a $1,000 signing bonus.
Currently, 9,304 total units are under construction in Oakland. During 2019 it is expected that more than 6,800 of these units will come online, with many having already opened. By contrast, San Francisco — which has more than twice the population of Oakland — is expected to produce 4,700 new housing units in 2019, according to the city’s respective planning departments.
The Oakland production is in stark contrast to
the eightyear period from 2009 to 2017, when the city created well under 1,000 new units annually.
“Institutional money is finally feeling really good about Oakland’s trajectory,” said Clark Manus, an Oakland planning commissioner and San Francisco architect who has worked throughout the Bay Area. “In the past, Oakland has always been a stepchild to San Francisco. The economy always wasn’t quite there. The time always wasn’t quite right.”
The Oakland building boom has its roots in a series of five neighborhood plans the city passed in 2014 and 2015 that are now bearing fruit. These plans — which included Lake Merritt, West Oakland and BroadwayValdez — lured developers by relaxing zoning and eliminating parking requirements.
At the same time, the price of developing in San Francisco — a combination of construction costs, land value, and various impact fees and affordable housing requirements the city passed — had jumped to the point where major regional and national developers were looking for alternatives.
While most of the new apartments are in the greater downtown area, more than 1,000 units are under construction around Brooklyn Basin, MacArthur BART and Temescal.
With rents still around 20% higher in San Francisco than Oakland, the additional revenue doesn’t make up for the cost of doing business, at least for now. Construction costs in San Francisco are 10% to 15% higher than in Oakland, while land is two to three times more costly, according to Signature Development President Mike Ghielmetti, who has built thousands of units of housing throughout the Bay Area.
In addition, while Oakland has a variety of impact fees that add up to about $65,000 a unit, the number in San Francisco is more than $165,000 a unit, according to Todd David, executive director of the building industry group the San Francisco Housing Action Coalition. Impact fees are taxes meant to offset the public impacts of development.
“Oakland is becoming the bedroom community to San Francisco,” David said. “Many of our members are building in Oakland but not in San Francisco anymore.”
Ghielmetti said developers will continue to eschew San Francisco for Oakland as long as that is the case. “We expect the short to midterm prognosis for housing development in San Francisco to be quite low unless something is done to change the fee requirements,” he said.
The explosion of new units has helped flatten rents, according to Darin Ranelletti, policy director for housing security for Oakland Mayor Libby Schaaf. From 2014 and 2018, Oakland rents jumped 35% to an average of $3,154. In 2019, rents have increased about 2%.
In addition, most of the new apartment complexes are offering deals to residents willing to ink a lease. The Alexan Webster at 2330 Webster St., where a 673squarefoot onebedroom goes for $3,115, is offering four weeks of free rent. The Broadway at 3093 Broadway, where a 629squarefoot onebedroom rents for $3,070, is touting six weeks’ free rent for select units. Hanover Broadway at 325 27th St., where a 646squarefoot onebedroom leases for $3,068, is also giving away four weeks’ free rent, as is the 225unit Hanover Northgate at 2450 Valdez St.
The two Hanover projects are leasing units faster than expected, according to marketing director Brooke Dollen. Hanover Broadway is 55% leased, and Hanover Northgate is 50% leased. Both opened in the early spring. The developer has also signed leases with a restaurant, a brewery and Target.
“Oakland has welcomed us with open arms,” Dollen said.
Ranelletti said the new housing developments are “stabilizing the market.”
“We are seeing a little health restored to the market,” he said.
Ken Johnson, business professor and housing expert at Florida Atlantic University, said concessions are a good sign for those worried about the cost of housing.
“Concessions are a precursor to rents starting to flatten out,” he said. “That is a good sign for affordability, or at least a slowdown in rent escalation.”
Developers investing in Oakland say they are not worried about the competition, according to Peter Solar, managing director with the Alliance Residential Co., which just started preleasing Broadstone Axis, a 171unit complex under construction at 28202855 Broadway.
“In the short term it will soften rents during the leaseup, but ultimately it will be a positive to have so many residents moving in around the same time,” he said. “It is creating a dynamic and exciting place to live, which will increase demand in the long term.”
But the proliferation of mostly highend units is also fueling criticism that the boom will offer little relief to the vast majority of Oakland residents unable to afford $3,000 rents for a small onebedroom. Of the 9,304 units under construction in Oakland, less than 7% — a total of 628 — are subsidized affordable projects.
Not surprisingly, the shiny new bellsandwhistlesloaded complexes popping up are more expensive than older Oakland buildings. The average rent for units of all sizes completed from 2016 to 2019 is $3,915, about 20% higher than units in buildings completed before 2016.
Joshua Simon, executive director of the nonprofit East Bay Asian Local Development Corp., said “the current construction boom in Oakland is mostly limited to highincome housing.”
“The market demand for people with incomes over $200,000 will be met just fine,” he said. “For people who are doing day care or teaching kids in our schools or working at a nonprofit or cooking in the kitchens of the restaurants that Oakland is justifiably famous for, it’s not providing anything substantial.”
Simon’s nonprofit has eight projects comprising more than 650 units that are in “predevelopment” and awaiting funding. The group has finished a 94unit project around the Fruitvale BART Station. More than 3,500 families applied for those units.
For affordable housing groups looking to fund projects, some help should be on the way. Oakland’s affordable housing impact fee was recently increased to $24,000 a unit, which generated $17.7 million for the fiscal year ending June 30, 2018. The fee collection for the most recent fiscal year has yet to be tallied. In addition, in 2016 Oakland voters passed Measure KK, a bond measure that will generate $600 million for infrastructure and affordable housing.
But Oakland developers and brokers say the increased fees — along with rising construction costs, a saturated market and flattening rents — are already cooling the building boom. Steve Saffold, a broker who sells land to developers, said “the sweet spot is over” for most builders, who are paying close attention to the concessions being offered at the new buildings. It could take 12 to 24 months for all the new apartments to be absorbed, he said.
“Everyone is looking at the rather large development pipeline in Oakland and wondering what the landscape will look like as even more of these units are are delivered,” he said.
Former Oakland Planning Commission President Adhi Nagraj, an attorney who has worked for both marketrate and affordable developers in the Bay Area, said the city will have to grapple with a tricky balance: how to extract maximum fees without killing production. “It’s always hard to know what the breaking point is.”