New housing on the Peninsula has plummeted

The trend is similar in smaller cities like Foster City and East Palo Alto. The former went from 100 completed units in 2021, to 66 in 2022 and dropped to five last year. Only one unit has been completed so far in 2026.

“No one wants to do ground-up multifamily right now,” said Stephen Couig, founder of Center Street Lending, which provides financing to projects throughout the country, including the Bay Area.

The lack of new construction is despite a wave of statewide housing laws over the past several years that dramatically encourage — or outright require— cities to increase height and density limits and approve more residential units. Many jurisdictions now have strong development pipelines and are approving permits, but it’s taking a while to break ground or complete construction.

“It’s pure economics. The cost to build has completely outrun what it will bear in rent and what it will bear in sales,” Mounir Kardosh, owner and founder of San Mateo-based Nazareth Enterprises, said.

Between May 2025 to May 2026, countywide rents increased by 6% to $3,368 across all unit types, according to data from Zumper and Apartment List. That’s still not enough growth for lenders to underwrite loans for multiunit housing due to stubbornly high inflation, keeping interest rates and 10-year treasury yields elevated. Overall building costs are also higher than years prior.

“The cost of the permanent financing has gone up a bunch. Since 2022, it's not quite double, but it's significantly higher than it was,” Couig said.

A recent report from the San Francisco Controllers Office analyzed costs for different development scenarios. The findings showed that none of them would be financially feasible if they adhered to the city’s inclusionary zoning policies — rules requiring market-rate projects to have a certain amount of affordable units — which are also in place throughout the Peninsula. Each model was “significantly worse than the same models in the 2023 study,” the April 2026 report said.

Over the last couple years, Peninsula cities have issued countless entitlement extensions to developers as they await financing. One of San Mateo’s highly anticipated downtown residential developments, Block 21, was just issued its second two-year extension after the developer cited tough lending conditions. Some cities, like Foster City, have considered or adopted practices that expand eligibility for development extensions.

While the macroeconomic impacts are felt nationwide, it’s particularly tangible in California, which already has the highest building costs of just about any other state — a result of longer-than-normal approval timelines, a more complex regulatory web and impact fees that are often multitudes higher than much of the country.

According to a 2025 report from the Rand Corporation, California is “the most expensive state for multifamily housing production” and that the time to complete a project is “more than 22 months longer than the average time required in Texas.”

“From the bank's perspective, why would they lend to me?” Kardosh said. “They could lend to someone in Waco, Texas, instead. They're not chasing for projects.”

In the short term, California cities’ approval timelines may get even lengthier, as city planners are also adapting to the bevy of new laws that have gone into effect in the last few years.

“You're seeing a little bit more involvement by various city attorneys to make sure all the i’s are dotted and t’s are crossed before they approve something,” said Sailesh Mehra, an entitlement and development consultant and former city planner in San Francisco and throughout the Peninsula. “Over the last two to three years, even I've had a hard time keeping up, so if a planner is working on 15 to 20 projects, they will need more time and resources.”

With no control over interest rates, inflation or rent prices, developers have limited options in the way of cost cutting. The South San Francisco City Council voted to waive several million dollars in impact fees of a massive housing development that has been stalled since 2019. Others, like Redwood City, have revisited impact fee policies to spur construction.

Still, there aren’t signs of an imminent housing boom.

“All the stars have to align, so fee reductions would definitely help, but for it to be a visible change, you'd have to see interest rates drop, lending become easier and material costs come down,” Mehra said.