Demystifying the Development Process: How Housing Actually Gets Built
By The Council of Community Housing Organizations
Last month, San Francisco Mayor London Breed hired the City’s first Director of Housing Delivery to expedite project approval and permitting, which should lead to more housing getting constructed, and more quickly.
But, how does the development process actually work?
The simple version is: A developer buys a piece of land, the City approves a development proposal after clearing the hurdles of community input, and then the housing project is built. But, in reality it’s not that simple. Developing a real estate project is a complex and multi-step process.
Why does it take so long for housing to get from point A to point Z, from project inception to move-in day? And who are the “actors” that influence the pacing and actions along the way?
There is much talk about “streamlining” development approvals, and yet that only has public purpose and value if it means new homes actually get built and occupied. It is easy to manipulate the story — by selective omission and over-simplification — to create a narrative in order to push a certain deregulation policy agenda.
This “How Development Works” infographic illustrates a step-by-step process serving to demystify development. The diagram shows the path from project conception to actual housing units constructed, and importantly who has the greatest influence on the steps in the process (i.e., developer, city agencies, investors, or the public).
This is not a professional project management schedule (which can really make one’s eyes blur!). It is intended for lay audiences to break down the complex process into its basic components and sequence.
The infographic is based on the San Francisco system, but generally the sequence and the roles apply in most large cities.
Planning Approval versus Building Permit
One of the most common misunderstandings in the public debates about development policy is about the difference between a “planning approval” and a “building permit.” As the infographic illustrates, these are two distinct milestones as projects go from conception to construction:
- First: the approval of a rough “schematic” design to be able to develop a piece of property with a particular project (sometimes called a “land use entitlement”). This includes any requested “conditional uses,” variances, or changes from the base zoning
- Second: the issuance of a building permit confirming that the final architectural and engineering design is fully compliant with all applicable building, structural, mechanical, energy, accessibility, and other relevant codes needed to actually construct that approved project.
Affordable Housing Developer versus Private Developer
It is important to make distinctions between affordable housing and private developers. Once a project is entitled, an affordable housing developer will usually move quickly through the building permit and construction stage, as is the nature of publicly-financed housing developments with project-delivery accountability to public agencies — local, state and sometimes even Federal. A private developer, however, has the option to proceed with construction or to wait.
Who is in Control of Housing Getting Built?
The developers and investors are the actors who control the transition point from the completion of an approved plan to securing a final building permit — not the city agency or general public. In other words, the developers decide whether to move forward to build the homes, or whether to put the approved plan on the shelf for a while.
More to the point, even if a private developer does want to start building and/or apply for a building permit, they don’t necessarily have control. This is because the developer needs significant external financing, which often comes down to the whim of investors who must weigh potential profit and risk, rather than being motivated by public policy priorities or housing needs on the ground.
As a result, projects can stall at the financing phase even if the project is “entitled.” Consequently, developers may hold entitled land for years, or sell an approved (but unbuilt) project at a profit. A report from the City Controller’s office shows that “entitled” land sells on average for about 60% more than unentitled land, with the price of entitled land almost doubling in price over five years.
In the absence of a use-it-or-lose-it standard that requires projects to break ground within a few years of getting approved, entitled land often ends up as “phantom projects,” sold and traded in the entitlements market. SF’s Planning Department produces a quarterly Residential Pipeline Summary which tracks the cumulative pool of entitled projects that are not yet being constructed — as of Third Quarter 2018 there were approximately 43,000 approved housing units citywide, with 28,000 of those units in eight major master-planned developments.
Sometimes financers can even stop investing altogether if housing prices start to flatten or profit returns on investment aren’t hitting certain marks, which is projected to happen in 2019 according to the San Francisco Chronicle.
Housing Development Public Policy Challenges
There are many assumptions about the housing approval and development process, and there are robust debates about development regulation — what policies are necessary to protect the public and ensure public benefit, and what policies unnecessarily constrain private development?
Setting public policy around housing development is consequently a challenge. For example, streamlining approvals may or may not result in more units being built, given San Francisco’s backlog of 45,000 “phantom units,” unless a firm obligation to start construction on a specific timeline is tied to the streamlining.
Sharpening our knowledge about how housing really gets built, how projects are financed, and identifying the actual constraints to getting units on the ground is a first step to a more-informed public dialogue that could lead to more policies that have impact.
The Development Process infographic underscores how more accountability (not less) can actually help get housing built faster. Accountability for city agencies may mean time limits and inter-agency coordination to speed building permit approvals, and accountability for developers may mean a use-it-or-lose-it time limit to break ground once a development proposal is entitled.
We wish the Mayor’s new Director of Housing Delivery the best of success in navigating this tricky territory between rhetoric and reality.