Zoning Alone Cannot Explain Unaffordable Bay Area Housing
For every complex problem, there is an answer that is clear, simple, and wrong.
– H.L. Mencken
Abundance advocates and California YIMBYs believe that we can achieve housing affordability in the Bay Area and beyond by sweeping away impediments to new construction, especially multifamily housing near transit. But land use regulations are only one contributor to housing costs. As a result, it is unlikely that new state laws, which provide exemptions from the California Environmental Quality Act process for some multifamily projects, will yield a new era of affordable rent.
It has become much more expensive to build and operate apartment buildings in the Bay Area during the 2020s. Among the major cost drivers are interest rates, insurance, utilities, safety requirements, and the cost of hiring skilled workers to construct and maintain facilities.
Average interest rates on federally insured multifamily apartment loans rose from 2.43% in 2021 to 5.66% in 2024, and remain at similar elevated levels this year. Higher interest rates likely contributed to Maximus’ default on the $1.775 billion mortgage on Parkmerced, a 3221-unit complex in San Francisco, which is now in receivership. Maximus could not roll over debt on the complex which it last refinanced in 2019 when rates were much lower.
The California insurance crisis is well known. Some insurers, concerned with potential wildfire losses, have dropped clients or pulled out of the state entirely. At my own apartment building, we lost coverage last year and were obliged to replace it with a policy that cost four times as much. Larger buildings and complexes require coverage above California FAIR Plan limits, and may have to turn to unregulated, out-of-state insurance companies to obtain coverage.
PG&E bills have also been exploding. And, while tenants are usually responsible for their own utilities, landlords are often obliged to heat, air-condition, and light common areas. At Serenity at Larkspur, a 342-unit complex financed by municipal bonds (which are now in default), utility costs rose 24% between 2021 and 2024, and now account for almost one-third of overall operating expenses.
State safety requirements are also increasing the costs of operating multifamily buildings. For example, California law now requires periodic inspections of “Elevated Exterior Elements”, such as balconies, stairways, that have wood-framed components. Inspection costs per unit can range from $300 to over $3000 depending on how many exterior elements are present and whether a visual or invasive inspection is required. If inspectors find damage, repairs can cost up to $20,000. The balcony law adds to already-existing inspection requirements for elevators, fire alarms, and sprinklers whose cost rises with inspector salaries.
Other categories of workers involved in building and maintaining apartment complexes are also seeing much higher wages. The California Construction Cost Index, published by the state’s Department of General Services, rose 32% over the last four years. Serenity at Larkspur (mentioned earlier) saw Repair and Maintenance costs soar from $123,000 in 2021 to $437,000 in 2024.
As a result of all these cost pressures many landlords can no longer make ends meet despite high rents in the Bay Area. In addition to the two real estate debt defaults mentioned above, we have seen defaults at NEMA San Francisco near the former Twitter headquarters (754 units), the Orion, ZO Apartments and the Logan in Oakland (with 241, 206, and 204 units, respectively), Bayview in Emeryville (186 units), and University Park in Berkeley (97 units).
Adding new housing supply will exacerbate already existing labor cost pressures as the existing pool of laborers is spread across more apartment complexes, and as a result this new supply may very well not produce the rent relief housing advocates expect. To achieve real housing affordability in the Bay Area, policymakers should diagnose and tackle as many of the sources of cost escalation as they can.
An earlier version of this article was published by SHIFT-Bay Area, a multi-county organization supporting sustainable housing, infrastructure, finance, and transportation policies across the Bay Area. Check out their blog at https://shiftbayarea.substack.com/.
In El Cerrito and Beyond, Watch Out for “Voter Initiative” Tax Hikes
El Cerrito has long sought to replace its library. In 2016, the City proposed a bond measure to fund a new library building but fell short of the required two-thirds majority required for passage. Now the City is working with a citizen’s group to place a parcel tax measure on the ballot to fund a new library as part of a transit-oriented development at El Cerrito Plaza BART station. Because the parcel tax measure will purportedly be a “voter initiative”, it will only require a simple majority to pass.
Assuming the citizens’ group, the Committee for a Plaza Station Library, obtains the necessary signatures, it will get a major head start from the city in advocating for the measure. El Cerrito has paid a pollster and consultant over $50,000 to test arguments for and against a library parcel tax
The City and ballot proponents claim that El Cerrito’s current library is too small for its growing population. But they fail to consider the drop in per capita library use. Back in 2008, Contra Costa County residents visited libraries an average of four times annually. More recently that number has fallen to about two-and-a-quarter.
Circulation of books and physical materials—the core function of a neighborhood library—is also falling. At the El Cerrito branch, circulation fell from 138,603 in 2021-22 to 121,247 in 2023-24. While the decline in physical circulation is being offset by e-book borrowing there is no need to visit a library building to check out electronic offerings.
The fact is that traditional libraries are becoming outmoded by the rapid advance of internet-based technologies including artificial intelligence. When Baby Boomers were students, we had to visit the library before writing our term papers; Gen Alpha can use the web or even ChatGPT.
At our June 27th meeting, CoCoTax decided to oppose the library parcel tax. If you live in El Cerrito, we recommend that you not sign the petition and vote against the measure should it reach the ballot.
Later this year, transit agencies, unions, and car opponents will likely make their own use of the citizen’s initiative route. SB 63, which recently passed the California State Senate, would allow a voter initiative to impose an additional transit sales tax in Alameda, Contra Costa, and San Francisco Counties, with San Mateo and Santa Clara being given the ability to opt-in before August 11.
Since SB 63 sets up a multi-county special taxing district and provides detailed guidance on both the level of the sales tax and the distribution of its proceeds, it certainly violates the spirit of a citizen’s initiative, which invokes the idea of a scrappy bunch of residents leveraging the power of direct democracy. As in El Cerrito, tax advocates will get an unfair head start thanks to taxpayer-funded polling conducted by the Metropolitan Transportation Commission.
Because SB 63 would levy a “special tax” it should require a two-thirds majority under the California Constitution. But courts have created the 50%+1 citizen’s initiative loophole starting with the case of California Cannabis Coalition v. City of Upland.
The Howard Jarvis Taxpayers Association hopes to close the Upland loophole next year by qualifying the “Save Proposition 13 Act of 2026” for the state ballot next year. If passed, it could invalidate the El Cerrito library tax and Bay Area transit tax unless they pass with a two-thirds majority.
Upcoming Events at CoCoTax
July 25 - School Finance with Acalanes Union High School District Superintendent Jon Nickerson and Education Expert Gus Mattammal. Register via this link.
September 26 - Local Government Fiscal Health Dashboard with Boomer Shannon from California Policy Center (also: possible presentation from Lafayette School District)
October 25 (New Date) - Steven Greenhut on “The War on Suburbia”