As most people know there is a housing shortage in CA, especially in the Bay Area.

.)$1,400 could actually be a shortage, in which case next year the payments will be even higher.

That being said we have such a shortage of LTR that I see value in that building and maybe you can do a mix of LTR/MTR/STR and make the numbers work.  

I live in an area with a shortage of rentals and a strong rental market but the homes at the price point you are talking about do not rent nearly as well as the less expensive homes.

Forget about the people that have to agreed to move in with you, there is no shortage of renters, as long as you have a decent property to offer.

In terms of new construction, a couple things to be aware of in San Luis Obispo County are water shortage issues and development fees/taxes which can significantly increase the building costs.SLO city and the neighboring cities are particularly diligent on their water usage, as most of the county's water supply comes from three surface water reservoirs and a groundwater basin.

Isn't that at least partially offset by the continuing single family housing shortage... there are just not enough people in that category to increase inventory enough?

So theres going to be a housing shortage for the foreseeable future

The market here in SD continues to appreciate 10-11% year over year and with a shortage of inventory it's not showing signs of letting up so waiting 5-10 years to just sit on a 3% interest rate on your Merced rental when your goal is to move to SD makes sense to do it sooner rather than later.

There shouldn't be a shortage of people who have money and need a place to live.