WHY IS SAN FRANCISCO REAL ESTATE SO COSTLY? #

Surrounded By Water on 3 Sides #

Geographic Limits: San Francisco’s geography—surrounded by water on three sides—leaves little room for expansion. Every inch of land is precious, making new construction a constant challenge. Adding to these constraints, half the city is less appealing to many due to the Bay Area’s iconic coastal fog (affectionately known as Karl), which blankets the western and southwestern parts of the city, limiting desirable housing options to areas east of Twin Peaks.

Other parts of the city, particularly in the north and northeast, are less desirable or off-limits due to liquefaction risks. On top of these natural limitations, human-made constraints like freeways, conservation set-aside lands, incompatible zoning, and other regulatory hurdles further restrict development and exacerbate housing shortages.

Human-Made Limits #

Protected Charm: San Francisco’s history and beauty are treasures, but it comes with a price. Stringent regulations like the California Environmental Quality Act (CEQA) and historic preservation laws make it tough to replace or renovate older buildings. Renovating anything older than 45 years, which is approximately 80 percent of the City’s structures, presumptively requires historic review which can be a very long and expensive process. While these measures protect the city’s charm and character, they also slow modernization and exacerbate housing shortages.

NIMBYism Rules: The “Not In My Backyard” mindset runs deep in San Francisco. Community resistance, sometimes from just a single vocal individual, can delay or block projects, significantly driving up costs and discouraging investment. The process is further complicated by a web of overlapping city departments, permits, approvals, and neighbor comment opportunities. What might take weeks in other communities can take years here.

The resulting carrying costs, vacancy losses, and expenses for lawyers, consultants, experts, and administrative proceedings can be overwhelming. These hurdles create bottlenecks that exacerbate housing prices and limit availability, further intensifying the city’s housing crisis.

To address this, California’s state-mandated targets require San Francisco to add thousands of housing units by 2030. Because the city has missed these targets, developers can now pursue so-called builder’s remedies—a legal pathway allowing them to bypass many administrative hurdles to build more and faster. However, how these measures will evolve in practice remains to be seen.

Too Few People to Build: The national shortage of skilled tradespeople has hit San Francisco especially hard, as the city’s already high cost of living makes it difficult to attract and retain workers in the first place. Contributing factors like wildfire reconstruction efforts in nearby Wine Country and the potential for stricter immigration policies go to strain the construction workforce and trades even more. These pressures have driven labor costs to unprecedented levels, making building or renovating homes more expensive than ever.

As of 2025, one trusted contractor told us that high-quality residential renovation work in San Francisco can cost upwards of $700 per square foot. Others report figures reaching $1,500 per square foot or more, depending on the scope and complexity of the project.

Rent and Eviction Control Laws Distortive Effects: San Francisco’s robust rent control and eviction protections offer stability for tenants but come with trade-offs. These policies discourage property owners from selling or making upgrades, leading to fewer homes on the market and a lack of modernized housing stock.

And Taxes (Of Course): Federal and state tax policies present financial hurdles for long-term homeowners. Capital gains taxes that start after $250,000 or $500,000 worth of gains, which is only a modest gain here, and Proposition 13’s lock on how much property taxes can increase are disincentives for owners, especially older people, to sell. This results in fewer homes entering the market, further restricting supply.

Mortgage-based Handcuffs: Previously low mortgage rates that we saw until 2023, have effectively tied many homeowners to their properties, even when they might otherwise have upgraded to something new. Moving often means giving up a mortgage with an interest rate that could be half of what they would face today.

With little financial pressure to sell, many choose to build equity rather than move, further tightening the already limited housing inventory. This creates a cycle that accelerates and exacerbates the housing shortage, making it even harder for new buyers to enter the market.