To take Manhattan as an example, 40% of the buildings could not be legally built today because they would violate zoning laws. A huge amount of San Francisco is under single-family zoning, and so low density - and given fixed land, low supply - is artificially enforced, which probably has something to do with it being one of the most expensive housing markets in the country.
I think they’re referring more to artificial restrictions like single-family zoning, setback requirements, parking minimums, etc.
https://www.nytimes.com/interactive/2016/05/19/upshot/forty-percent-of-manhattans-buildings-could-not-be-built-today.html
To take Manhattan as an example, 40% of the buildings could not be legally built today because they would violate zoning laws. A huge amount of San Francisco is under single-family zoning, and so low density - and given fixed land, low supply - is artificially enforced, which probably has something to do with it being one of the most expensive housing markets in the country.