Developers say high cost of land in county driving widespread development
SAN CARLOS — When it came right down to it, housing developer John Baer found that his firm would rather build 90 condominiums than 104 rental apartments next to the Caltrain tracks.
The San Carlos Planning Commission gave him the green light this month to do exactly that, allowing him to join the ranks of local builders who frequently favor constructing condominiums and townhomes for sale over rentals.
Condominiums are in the works across the county, from 99 new units at the Park Station Lofts in South San Francisco to 105 on Broadway in Millbrae and 1,250 in San Mateo in Bay Meadows Phase II. From Daly City to East Palo Alto, 2,449 new condominiums have been approved or are under construction, compared with 1,568 new rental units, according to statistics from the Housing Leadership Council of San Mateo County.
Developers say land costs are so high in San Mateo County, it’s financially riskier to build rental units, which can take a long time to pay off.
“Apartment and condo builders are going to have the same upfront costs, but that builder who is building condos is going to get his or her money back quicker,” said Joseph Perkins, CEO of the Home Builders Association of Northern California. “If land costs were comparable with what they are in the rest of the country, a builder could carry those costs much longer.”
In addition, developers may be more likely to build condos and less likely to build multi-family rental projects if they can’t get height and density bonuses from cities.
“Often what drives your decision is the city and how much flexibility they’re going to give you,” Baer said. “If the cities are going to make it tough, it’s tough to get the apartments to pencil out.”
Many landlords have also recently converted their apartment buildings to for-sale units, according to Redwood City Planner Jill Ekas. The housing market — in which rents have remained flat and prices for homes have continued to rise — has driven this trend, she said.
Those trends raise concerns about affordability, said Chris Mohr, executive director of the Housing Leadership Council.
The median rent for a two-bedroom apartment in San Mateo County in October 2005 was $1,536 a month, while the median price for a condominium was $555,000. For that, a 30-year mortgage would cost approximately $3,239 a month — far beyond the reach of many residents. The council projects demand will exceed supply by 20,000 housing units by 2010, including 16,000 rentals and 4,000 ownership homes.
Some, such as Mohr, would like to see a continued supply of rental housing for low-income residents. But others see condominiums as a low-cost option for cash-strapped families hoping to enter the ownership market. Currently, 62 percent of county residents own a home, compared to the 38 percent who rent.
“You can pay a few hundred less for an apartment, but at the end of the day, you don’t have anything to show for it,” Perkins said.