San Francisco Bay Area nonprofit Habitat for Humanity Greater San Francisco has redesigned its Novato, California project after a 40% cost increase since 2019 made the original plan financially unworkable. The changes, prompted by rising lumber prices, higher labor costs, and regulatory fees now totaling millions per project, show how cost drivers directly shape affordable housing outcomes.
According to Maureen Sedonaen, CEO of Habitat for Humanity Greater San Francisco, these escalating expenses forced the organization to rethink its approach and focus on eliminating site-specific construction challenges. The experience highlights how affordable housing developers must navigate broad market pressures and local constraints to keep projects viable.
“Material, labor, financing — the rising cost of lumber alone has been 40%. Labor has gone way up. Just getting a project through means paying millions in fees,” Sedonaen says.
The Novato, California, project demonstrates that cost escalation affects not only budgets but also project design and the number of homes built. Rather than canceling the project or accepting reduced feasibility, Habitat Greater San Francisco redesigned the development to remove expensive site-specific requirements while still serving the same number of families.
Bay Area Redesign Cuts Site Costs
The original Novato, California design required building around and over a gas line, constructing multiple retaining walls on a hillside, and developing new roads and sidewalks. Each element increased costs without adding more homes.
“We went back and pulled out a lot of the constraint costs,” Sedonaen explains. “Instead of building around a gas line or adding expensive retaining walls and extra roads, we shrank the size of the project, but we’re still able to serve the same number of people.”
The redesign reduced the number of units but increased the size of each home. Habitat shifted to larger single-family homes with more bedrooms, allowing multi-generational families, including grandparents, parents, and children, to live together. This adjustment serves the same number of people by housing more family members under one roof rather than spreading them across multiple smaller units.
Sedonaen says this approach addresses two issues: affordability for young families and aging-in-place options for older relatives who can help with childcare. The shift shows how economic pressures can drive design choices that better fit emerging demographic needs, even when those choices fall outside the original plan.
Rising Costs Slow All Development
The cost pressures facing affordable housing are not unique to nonprofits. Sedonaen notes that market-rate homebuilders have also pulled back, with some projects delayed or canceled as lenders reevaluate risk amid financing challenges.
“Many of my colleagues in market-rate homebuilding have slowed down or put projects on hold because of uncertainty around capital,” Sedonaen says. “We’ve had projects where private developer partners lost funding from major banks.”
This slowdown indicates that cost escalation stems from broader construction market dynamics rather than factors specific to affordable housing. The impact is more severe for nonprofits, which operate on thinner margins and cannot offset rising costs by increasing sale prices or rents.
For affordable housing organizations, the result is a widening gap between public funding, often based on outdated cost estimates, and actual construction costs, which have risen by 40% or more. To close this gap, developers must secure additional funding, redesign projects, or scale back plans, all of which slow production and reduce the number of families served.
Menlo Park Land Acquisition Delays
A separate Habitat project in Menlo Park, California, highlights how site acquisition costs and availability can stall affordable housing development. Habitat purchased a lot from another nonprofit that had held the site for years without building, enabling new construction in a neighborhood that had not seen an affordable homeownership project in over three decades.
Rapid growth in the region’s technology sector has increased demand for workforce housing but made site acquisition more difficult. Even when nonprofits own land, uncertainty about financing or project feasibility can lead to years of inaction. The Menlo Park, California, lot changed hands between nonprofits rather than moving forward with development, underscoring that organizational capacity and access to capital are as important as land ownership.
The Menlo Park, California, project also shows how growth in the technology industry affects housing markets beyond direct price increases. As demand for affordable homeownership rises, production often lags, leaving some neighborhoods without new projects for decades despite growing need.
Regulatory Fees Compound Project Costs
Regulatory fees now account for a significant share of project costs, sometimes exceeding millions of dollars per development. These fees cover infrastructure improvements and environmental mitigation, but some add to the financial burden without clear public benefit.
In some cities, local governments offer fee waivers or reductions for affordable housing projects, helping them move forward. Support varies widely across the 31 cities in Habitat Greater San Francisco’s three-county service area. The result is that project economics can differ dramatically from one jurisdiction to another. A project that is viable in one city may be impossible in a neighboring community due to different fee structures or limited local funding.
Controllable vs. Uncontrollable Cost Drivers
Understanding which costs are controllable helps clarify where policy changes can make a difference. National and global markets largely set lumber and labor prices, though local workforce training and supply chain improvements could offer some relief over time.
Site-specific construction challenges, such as avoiding gas lines or building on hillsides, are more manageable through careful site selection and project redesign. The Novato, California, example shows that developers can work around these constraints, but doing so requires flexibility from funders and local governments willing to accept changes in project scope or design.
Regulatory fees are where local policy can have the most immediate impact. Municipalities can waive or reduce fees for affordable projects, and some do. Expanding these programs or streamlining approvals could lower costs for developers without requiring new public funding.
Sedonaen emphasizes that the primary driver of the 40% cost increase is material and labor costs, with regulatory fees adding to the problem but not causing it. Fee waivers and process improvements can help at the margins, but are not enough to resolve the broader cost crisis on their own.
Cost Impact on Housing Production
Ongoing cost escalation limits the number of affordable housing projects that can proceed and the number of families each project can serve. With construction expenses rising much faster than public funding, developers must raise more money, reduce project scope, or cancel projects altogether.
Habitat Greater San Francisco continues to advance projects despite these pressures, but doing so requires more effort to assemble complex financing packages and accept longer development timelines. The result is slower progress and fewer families served than would be possible in a stable cost environment.
This challenge also affects organizational sustainability. Nonprofits must maintain staff and capabilities over multi-year project cycles, even as funding uncertainty and volatile costs make it difficult to predict which projects will move forward and when.
Sedonaen describes the process as “pushing your rock up the hill,” reflecting the difficulty and persistence required to sustain affordable housing projects. Sedonaen adds that stress levels are high across the sector, given the constant need to solve financing challenges and manage cost increases while serving long waiting lists of families.
For policymakers and funders, the central question is whether current cost levels are temporary or represent a new baseline requiring structural change in how affordable housing is financed and built. If costs remain elevated, public funding and underwriting standards must adjust, or affordable housing production will continue to fall short of demand.
Navigating a Higher-Cost Era
The experience of Habitat for Humanity Greater San Francisco shows that rising construction costs are fundamentally reshaping affordable housing development. Developers are adapting by redesigning projects, seeking larger or more flexible funding sources, and working closely with municipalities for fee relief and approvals.
As costs continue to rise, delivering affordable housing depends on creative problem-solving, strong partnerships, and policy support that reflects current market realities. Without these adjustments, the region risks falling further behind in meeting the needs of families priced out of the market.
Organizations like Habitat are finding ways to move forward, but each new project requires more negotiation, more funding, and more patience. A long-term solution will require increased public investment, streamlined regulations, and innovation in project design to ensure affordable housing remains viable in a high-cost environment.
