Millennium Partners [0] navigated San Francisco's notorious entitlement process. That's what they do as sophisticated developers. Part of that navigation (according to Wikipedia) was refusing to submit the project to peer review. In real-estate development terms, that usually means lawyering up and running rough-shod over city staff and usually garnering project support of line staff's political superiors. Better real-estate lawyers cost more money and city staff attempts to influence every real-estate development whether luxury or market rate (that's their job and why there is an entity called the "planning department"). The important point is there are a lot of fixed costs with real-estate development that only weakly correlate with project size. [1]
More importantly, the money behind Millennium Partners needs big expensive projects:
With these projects, Jeffries created a new investment vehicle to provide equity capital. The resulting financial structure included a consortium of German financial institutions including ERGO, Provinzial Wuerttembergische, AXA Colonia Immobilien AG, Energie Baden Wuerttemberg AG, as well as Goldman Sachs' Whitehall Fund and George Soros and his Quantum Realty Fund Limited. [2]
These are the interests that drive speculative real-estate development and speculative real-estate development is where most housing comes from these days, public housing is mostly done and dusted.
To put a finer point on the lack of deep market interest in building housing, consider Apple's new headquarters. Residential was never even on the table for the parcels Apple acquired from HP. No residential developer was going to outspend Apple for property adjacent to Apple's existing campus[3] and if one had, the housing would have had to have been luxury not market rate to make the numbers work. At the reported $3,000,000/acre, 20 dwellings/acre and 4:1 construction to land ratio each unit would be ~$750,000. Once you're at $750,000, there's no reason to cap unit mix at a 4:1 cost. That's just where they will start.
That brings us to risk. How quickly can Silicon Valley actually absorb 2000 $750,000+ units? What finances $1.5+ billion+ of residential development? Not today. Back in 2010 when housing prices were falling and financial markets were still unsteady. Apple was able to purchase because it had a pile of cash. Residential developers didn't.
The only people Apple was competing with were institutions interested in parking money in real-estate and waiting for the value to go up. In an alternate world where that happened, there is no reason to assume that the HP parcel would have wound up as housing. It might have, but the most likely outcome is it would have remained as the "higher and better" commercial use.
[1]: In residential development there can even be an inverse correlation between entitlement costs and affordability: i.e. an SRO will probably face more political friction than luxury apartments.
[2]: http://millenniumptrs.com/ see Christopher M. Jefferies profile.
[3]: Even commercial developers couldn't make the numbers pencil out for commercial reuse of the existing buildings.