While it is no surprise San Francisco is an expensive place to live, developers are still able to sell recently built condos at a fast pace. Demand remains high and job growth continues to rise, especially with more office buildings coming to downtown. Home prices are expected to go up with supply dropping off by 2018 since the cost to develop is skyrocketing.

Trumark Urban is among the developers actively selling condos, including its assets The Pacific and The Knox, which just opened sales with 20% of units already sold during pre-sales. Trumark Urban has worked or collaborated on eight projects since 2012.

Even with a healthy number of condos selling, supply has not caught up with demand. Regulations, a labor shortage and affordability requirements continue to make it difficult for new developments to pencil.

“San Francisco has seen tremendous job growth over the past six to seven years as the tech market has come back so strong,” Trumark Cos. co-founder Gregg Nelson said.

Combined with a desire from Millennials to live in the city even if they do not work in San Francisco, demand is strong, but supply is limited.

The cost of land has gone up, fees to the city and requirements from communities have increased. Construction costs have increased because of the lack of labor with construction of office, multifamily and retail all happening at once.

“[The labor shortage] has increased our costs, especially in Downtown San Francisco, and also caused delays in our schedule,” Nelson said.

Comparatively, the construction shortage is not as acute in suburban housing. Affiliate Trumark Communities is working on master plan and traditional neighborhoods in the Greater Bay Area, including an 800-lot master plan in Dublin a few miles from the East Dublin BART line.

Nelson said the Tri-Valley is growing rapidly where BART allows commutes into San Francisco. It is also developing a 500-lot master plan community in Manteca. The firm is working on about 2,000 lots within the Greater Bay Area and its periphery.

Nelson said the labor shortage is more of a problem in San Francisco because it is almost like an island and difficult for workers to get here. The construction industry is dominated by unions, which are typically costlier, and fewer contractors that can perform specific job duties are available.

“Mid-rises and high-rises are different than a two-story house because it takes special expertise from contractors and fewer contractors are available for the amount of work required,” Nelson said.

Affordability requirements are not helping. Nelson said delivering housing to people for much less than it cost to build makes the rest of the units bear the cost.

If it costs more to develop a project, a developer will have less money to go toward the price of land. Sellers will not get as much for the land and may end up just not selling the land. This leads to a decrease in transactions and continued constraint on supply, Nelson said.

Because of all of these factors, it is very difficult to underwrite new products in San Francisco.

Financing, and construction financing in particular, also has been increasingly difficult. Equity partners have to believe in the numbers to get the project going. It also takes much longer to complete financing than before because of the regulatory burdens. Mortgage lender regulations have greatly increased and have made it difficult for people to qualify for a loan to buy a house.

“If [conditions] improve, which we are anticipating, it should help make mortgages more available to buyers,” Nelson said.