Set aside growth rates for a moment, and just think about those figures in absolute dollars. On average, it costs over $11 million to build a building in San Francisco. Permits, labor, and materials all cost a lot more here. To get an 8% return on that construction, it would need to generate $930,505 a year in rent. For a ten unit building, that works out to $7,754 a month in rent.
SF building costs have grown at an astonishing 18% per year since 1994, versus just 6% for the entire state of California, reports Digits to Dollars. I’d always thought the issue was housing starts, but apparently we’re roughly in line with the state (which probably is still low compared to population growth, but far better than I’d imagined).