Barriers and steps to restart urban infill apartment projects

Reviving Urban Apartment Development

Urban infill apartment development remains a cornerstone strategy to alleviate California’s persistent housing shortage, especially in the Bay Area where geographic constraints and political resistance have long constrained new supply. While escalating financial pressures, regulatory complexity, and political friction continue to impede many projects, recent developments reveal both deepening challenges and promising innovations that could help restart and accelerate infill housing production.

Escalating Financial Headwinds Intensify but New Market Dynamics Emerge

Financial barriers continue to dominate the urban infill landscape. Bay Area multifamily loan delinquencies have surged to $911 million, the highest level since the 2008 financial crisis, reflecting a tightening credit environment exacerbated by inflation and elevated interest rates. These market conditions have made lenders more risk-averse, particularly for projects requiring layered financing—a typical structure for complex infill and affordable housing developments.

Adding to the strain, the insurance market remains volatile due to mounting climate risks such as wildfires and flooding. According to Tia Boatman Patterson of the California Community Reinvestment Corporation, insurance in high-risk zones has become both more scarce and expensive, substantially increasing project costs and deterring investment. This dynamic underscores the urgent need for new risk-sharing frameworks and state-backed insurance stabilization programs to prevent indefinite project delays or cancellations.

Despite these headwinds, emerging market signals and pilot programs offer glimmers of hope:

San Jose’s pilot program converting nearly 200 units at The Fay downtown into middle-income housing demonstrates an innovative approach to affordability through asset repurposing rather than new construction, sidestepping some financing hurdles.
A shovel-ready, fully entitled 230-unit project in downtown Concord recently entered the market, signaling developer readiness to proceed if financing and approvals align—an increasingly rare opportunity in the Bay Area’s constrained infill environment.
The Metropolitan Transportation Commission (MTC) launched a $45 million incentive program linking regional funding directly to sustainable community policies, the first such direct tie designed to accelerate transit-oriented infill by rewarding jurisdictions that meet housing and sustainability targets.

Regulatory and Political Frictions Persist but Show Signs of Gradual Shift

Regulatory complexity and local political resistance remain substantial barriers. While laws like AB 1997 aim to streamline approvals, inconsistent enforcement and bureaucratic opacity continue to delay projects, escalating costs and compounding financing challenges. Local opposition, especially from affluent neighborhoods such as Palo Alto’s Barron Park, still blocks densification efforts, frustrating statewide housing goals.

Nonetheless, recent developments indicate a slow political recalibration:

San Rafael’s City Council approved a 17-story, 200-unit apartment tower downtown despite appeals, marking a significant win for high-density, transit-oriented development.
Mountain View’s ongoing proactive streamlining initiatives highlight a growing willingness among some smaller cities to embrace reform.

However, entrenched preservationist lobbying and opaque political dynamics remain hurdles, particularly in cities like Oakland, where local politics continue to complicate uniform enforcement and housing production.

YIMBY Movement Evolves Amid Political and Environmental Realities

The Bay Area’s YIMBY (Yes In My Backyard) movement faces increasing pushback not only from traditional preservationist groups but also from environmental advocates concerned about ecological impacts. This has prompted a strategic shift from aggressive zoning expansion to more coalition-based advocacy, balancing housing needs with infrastructure capacity, environmental sustainability, and social equity.

This maturation reflects a pragmatic approach aimed at unlocking broader political support without abandoning core pro-housing goals.

Legal and Legislative Advances Fortify Housing Mandates and Unlock New Tools

Judicial and legislative developments continue to strengthen the state’s capacity to enforce housing mandates and provide new mechanisms to address stalled infill projects:

The California Supreme Court’s refusal to overturn key housing laws reaffirms state authority to override local zoning obstruction, bolstering streamlining efforts.
Legislative efforts such as AB 2390 (targeting remediation and zoning barriers on contaminated parcels), SB 1091 (introducing flexible financing tools for affordable housing amid underwriting and insurance volatility), and SB 1116 (streamlining construction for smaller “starter” homes) offer crucial momentum through 2036.
At the federal level, the U.S. House has passed comprehensive housing reform legislation aimed at bolstering municipal enforcement and streamlining approvals, now pending Senate action. If enacted, this could harmonize incentives and amplify state and local infill efforts.

Innovative Financing and Risk-Sharing Mechanisms Gain Traction

To bridge persistent capital gaps, new financial strategies are advancing with increasing support:

Tax increment financing (TIF) is gaining traction as a key tool. Advocates like Dick Spotswood and Councilmember Stephen Burke endorse TIF as a way to capture future tax gains to fund workforce housing, creating revolving capital pools to accelerate infill projects.
Public-private partnerships are deploying combinations of grants, tax abatements, and flexible lending to de-risk complex projects, particularly those burdened by climate-related insurance costs.
Pilot programs inspired by SB 1091 are actively exploring adaptable financial products that accommodate volatile market conditions, aiming to stabilize developer access to capital.
The MTC’s $45 million regional incentive program further exemplifies innovative funding approaches linking housing production with sustainability goals.

Construction and Delivery Innovations Drive Project Restarts

Technological and community-based innovations remain critical to overcoming supply bottlenecks:

Modular and factory-built housing continues expanding, addressing labor shortages and inflation by reducing costs and speeding timelines. Newly launched initiatives like Pankow Builders’ Pankow Wood Structures are expanding mid-rise multifamily capabilities across California, offering scalable and cost-effective wood-frame construction solutions.
Adaptive reuse and office-to-residential conversions, such as Macy’s redevelopment plans, diversify supply but still face regulatory and market challenges limiting broader scalability.
Accessory dwelling unit (ADU) equity programs in San Mateo County and San Bruno enhance outreach to marginalized communities, simplifying permitting and offering financial incentives to promote equitable adoption.
Replicable nonprofit housing models remain vital, including Liberation Park in East Oakland (119 affordable units nearing completion) and Eliza Senior Housing in Uptown Oakland (96 affordable senior units recently groundbreaking), which blend affordability, community engagement, and targeted services.
Private developers continue to show interest despite barriers, exemplified by Panoramic Interests’ 32-unit Berkeley project on the former Oxford Elementary site.

Political Dynamics and Barriers Intensify: The Role of Developer Influence

New reports reveal that Essex Property Trust has spent over $60 million in California to oppose tenant rights and influence politicians—an unprecedented level of spending that underscores how developer money shapes housing policy debates. Such financial clout from major real estate interests complicates efforts to advance tenant protections and pro-housing reforms, feeding local resistance and preservationist lobbying.

This dynamic adds a complex layer to the political landscape, highlighting the influence of private capital in shaping regulatory and legislative outcomes.

Market Signals and Political Outlook: Cautious Optimism Amid Complexity

Despite formidable challenges, several market and political signals offer guarded optimism:

The Salvation Army’s $58 million sale of a Mission District parcel for housing development underscores sustained investor confidence in urban infill potential.
Developers like StreetLights Residential maintain a steady pipeline of new proposals, buoyed by emerging financing tools and evolving policy frameworks.
The upcoming 2026 California gubernatorial race places housing affordability front and center, with leading candidates advocating aggressive zoning reforms, expanded funding, and tenant protections, injecting fresh political energy into the issue.

Conclusion: A Multi-Pronged, Collaborative Blueprint to Restart Urban Infill

Restarting Bay Area urban infill apartment projects requires navigating a complex matrix of escalating financial constraints, regulatory inconsistency, entrenched political resistance, and climate-related risks. However, the convergence of:

Judicial reinforcement of state housing mandates
Forward-looking legislative proposals (AB 2390, SB 1091, SB 1116)
Federal reform momentum
Innovative financing tools such as TIF and public-private risk-sharing partnerships
Local pro-housing victories and sustainability-linked incentives
Advances in modular construction and nonprofit housing models
Heightened awareness of the political influence of developer spending

creates a cautiously hopeful framework.

To translate this momentum into tangible housing production, stakeholders must urgently prioritize:

Stabilizing underwriting and insurance frameworks that incorporate climate risks without freezing capital flows
Consistent, transparent enforcement of streamlining laws such as AB 1997
Scaling modular and factory-built construction alongside adaptive reuse strategies
Expanding tax increment financing and flexible financing pilot programs
Deepening community engagement to balance preservation concerns with equitable transit-oriented growth
Addressing the outsized political influence of large developers to foster more balanced policymaking

Together, these strategies form a critical blueprint to overcome entrenched barriers and accelerate equitable urban infill housing—the linchpin in California’s broader housing affordability solution.

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