The Housing Market in San Francisco and Ideas to Fix It
blog.zactownsend.com
blog.zactownsend.com
Good thoughts. You failed to mention Prop 13 which was put into place a long time ago and simply doesn't make sense anymore. It's at least part of the reason it is so affordable (in relative terms) for rich people to keep second homes here when they bought them years ago.
We live in a building of 60 units where probably at least a third of those are absentee owners. They're rich enough and the cost to maintain is so low that they don't even need or want to rent those units out. We've seen our neighbors only 2-3 times in past 2 years... but if you look at the property tax bills of folks who bought 10-20+ years ago they are minuscule and are only adjusted upon sale of the property. In our case, we're paying easily 4x what the previous owners were.
We moved from DC couple years back which is also very expensive but their tax valuations are re-assessed on a regular basis so you don't have this huge disparity in what the rich old people are paying in prop tax vs the young not quite rich people are.
If values and property taxes were reassessed every 3 years or so this would put more pressure on these absentee owners to either sell or rent their units thus increasing existing inventory as well as adding to the city's coffers.
TELL A FRIEND ALSO
Another possible cause is that being a landlord in San Francisco is incredibly difficult and time consuming. Last year friends of mine rented out their condo to someone that turned out to be a problem tenant. They had to hire a lawyer and pay the tenant off in order to get him to move. Rather than making money as landlords, they lost almost $50,000 on the deal.
The apartment now sits vacant, and they have no plans to rent it out again.
Prop 13 is a problem, no doubt. It would deserve a very long essay -- some of them exist as sub-essays within Kim-Mai Cutler's writings. I tried to focus on policy ideas that, more-or-less, San Francisco could implement themselves.
Housing is often viewed as a San Francisco problem, but really it's an area-wide problem acutely and a state-wide problem more broadly. I.e., areas outside the policy of San Francisco, such as peninsula, south bay, etc, are not significantly cheaper. And entire other metros, like Los Angeles and San Diego, have had similar percentage cost increases (and those metros are actually more "unaffordable" since incomes are lower there).
But I have a hard time reconciling that with the relative pricing in other equally desirable coastal areas that do not have prop 13 (or anything like it).
I am simplifying greatly, but in a broad sense, SF housing is as expensive as Boston housing is as expensive as NYC housing ... and certain hot-or-not inspired pic sites[1] lead me to believe that Vancouver beats all of them.
Are you suggesting that, all else being equal, if prop13 was not extant, SF housing would be markedly lower than the aforementioned areas ?
I can't imagine it would be ...
That said I don't think the current issues with housing in the bay area have much to do with Prop 13. It's why your schools suck. It's why the prices are high, because the carrying cost is 1% lower than you'd expect because property taxes are too low.
Real issue is the deranged FIRE based economy we have. FIRE Finance, Insurance, REal estate. Combined with low growth and income inequality. Means you have a lot of money pouring into 'hot markets' like SF, Boston, Vancouver etc. Same time there is collusion between the people that sit on the boards of large companies to suppress wages.
I don't think that's true even in the "broad sense". San Francisco rents may be roughly comparable to to NYC, but are significantly more than Boston: https://www.zumper.com/blog/2016/04/zumper-national-rent-rep...
It may not be true, but I think the argument would be that in the absence of Prop 13, SF rents would indeed be comparable to Boston rather than 50% higher.
I wouldn't be surprised if like for like, Boston is indeed more expensive than SF... I just checked Redfin for properties in core of Boston (Back Bay, Beacon Hill, Downtown, etc) built since 2000 and roughly average square foot price was $1200. Did the same thing for SF (focusing on SoMa area) and it looks like it's more like $1000/sq ft...
Although, if housing in Boston tends to be of lower quality than SF housing, might that not put extra demand on the more recent and presumably nicer housing?
I do know I have seen a lot of commentary and postings right here on HN about the prohibitive cost of housing in Boston - perhaps it is just certain desirable areas in the center, or Cambridge ...
Different areas just have different issues, but I think in both cases they come from the same source (issues related to supply and demand). Prop 13 creates a supply problem, new housing stock needs to be built because it's not beneficial for people to move or sell their homes due to the tax lock in. That happens in some areas, but the output is sprawl, increasing people's commute times.
Boston's issues are different, and it's based more on new stock not being built due to zoning issues and the MBTA not growing fast enough to make other areas more accessible to the city as the city has grown and attracted more business.
That said the costs in San Francisco are on another level compared to Boston. San Francisco is more comparable to NYC with regards to rent.
In a nutshell, our current housing paradigm was born of the soldiers returning home from WW2. Thus, the entire infrastructure is geared towards supporting single family homes designed for the nuclear family with 2 parents, a stay at home mom and 2 to 3 kids. Thus, in the decades since then, housing has kind of converged towards that standard while population has diverged away from that norm. We are having kids later, we are living long, we are having fewer kids etc etc etc. We need far more housing geared towards the demographics and lifestyles we currently have, not geared towards the demographic and lifestyle of what, for many people today, is their grandparents in their youth.
As long as house prices rise faster than inflation, then that’s nice for the people who manage to buy a house, but it’s common-sense unsustainable.
A soldier returning home from WW2 could buy his first house with a few years of savings. No mortgage necessary.
A few decades later, housing prices rising faster than inflation, and a Gen X yuppie needs a 30-year mortgage to afford a house. Not ideal, but still affordable.
A few more decades, and Millenials face a world where you need to be making bank to even think about paying for the mortgage. No wonder we are having kids later, etc., etc., etc.
I don’t know how net worth and housing will be decoupled, but it has to happen. When only the bank can afford your home, that’s an ingredient for social unrest. All I know is that it’s really going to suck for the people who’ve pumped so much money into their house, when it all comes down.
These comments may also be useful: http://www.metafilter.com/contribute/activity/153873/search?...
Especially the first one:
http://www.metafilter.com/157297/I-cant-afford-to-buy-grocer...
When you say, “you need to think bigger than that. In fact, we need changes all the way up to the federal level,” I agree. The government up to the federal level has been using policies, tax benefits, and direct subsidies to promote detached single-family homes. I think that your solution of reorienting building priorities in favor of individual housing is not incompatible with my idea of removing homes as a long-term investment. Indeed, I think they are aligned: The most economical way to live by yourself is to live in an apartment with a whole lot of other people.
The suburban ideal has cost the country tremendously. Roads, sewers, air pollution, mental disturbance from the isolation, extended emergency vehicle response times, to name a few aspects that come to mind right now. Even perma-camping would destroy the environment if everybody did it. If we want to reduce our per-capita environmental impact, we are going to have to live in dense apartments, and we are going to have to make them affordable for everybody.
For cities to be affordable, we need to overrule the NIMBYs and allow the housing prices to go back down.
Where I’m least sure I agree is with the primacy of single living. A good solution will involve a diversity of housing stock, and we do need more single housing, but any society who want to survive long-term must encourage people to breed and produce a next generation. And once you’re done breeding, outcomes tend to be better if you’re involved with the next generation’s progeny, too. For the long-term health of society, we need plenty of large houses.
That needs to change. If we could get that resolved, you and I would both be happier, even if we still disagreed.
Peace.
My grandparents own a home in Livermore they've had from 1925. Livermore is now a very costly place to live in, and modern property taxes would make it impossible for them to live in a city they saw grow up around them.
I do think Prop 13's protection should be eliminated for businesses - most definitely.
If you're a landlord, perhaps it would make sense to allow up to 2 x Prop 13-protected [low-density] properties, and all those after would have unfixed property tax.
The problem here is landlords will simply pass this along to renters, so it seems 'sane' to just eliminate Prop 13 for commercial and not residential properties.
We lose billions of dollars in tax money from corporations because of Prop 13. :(
Seniors aren't the only ones who need this.
I also want to add that what sucks so hard about businesses being protected by Prop 13 is that businesses can live much longer than people. Disney might keep its decades-old fixed property tax for more than a hundred years.
It's not even like they are economic losers. They bought into a place and it appreciated in value and they got to upside from the increased housing value. When they sell the home, they'll be cash rich and be able to easily afford a new home in a place that was just like 1925 Livermore. If you want to live in 2016 Livermore, which is a wholly different place from 1925 Livermore, then you should pay property taxes commensurate with supporting a 2016 Livermore.
Yes, it's true, they may not be able to afford the property taxes there today under prop 13, but under some alternate universe without prop 13, the property taxes would be lower than they are today. The only reason they are as high as they are is because those that bought a home recently are paying way more in property taxes to make up for how little others pay in property taxes. Basically, if you're paying 1925 property taxes, you're freeloading while others that were born later make up the tax difference necessary for a community to function. Prop 13 is nothing more than a form of wealth transfer from the mostly young to the mostly old.
Furthermore, there are good paying jobs in and around Livermore that require people to live near Livermore. If people are subsidized so they can occupy space near those jobs at the expense of the people qualified for those jobs, you're doing economic harm to the city, county, state and country in which Livermore resides, especially when those jobs are of the variety that are valuable for economic prosperity at the national level.
We need cheaper housing - desperately. Poor. fucking. city. planning. with mediocre transit systems is not doing enough for us. I hear talk all the time about how we should be moving out of the cities and building the needed infrastructure in more urban areas. I think the first way to make that attractive to younger generations or even retirees would be to improve on transit to get to those areas. Make "the country" easy to get to and from.
Anyway - I don't know the answer here. I don't know if it's justified whether prop 13 should exist for individuals. Ethically or logistically I don't know. I sure as hell know businesses don't need prop 13 - they don't retire.
To me "if we should have prop 13" sounds like an argument against people being able to retire.
I'd be happy to let it go entirely (business + residential) if property taxes were factored into social security. ;p
At current property tax rate of 1.1%, a half-million dollar appreciation would result in $5500 yr additional property tax.
I would gladly trade spots with those who have to uproot themselves because they've had such massive home price appreciation.
But that's not the reality we live in.
Property taxes fluctuate too much in California - you might be paying everything you can toward your mortgage to decrease the interest you owe, but still effectively pay the same with rising property taxes. A fixed property tax is really, really necessary.
It's just abused too heavily by corporations...
Personally I think it's strange that we start at 10% income tax on people making so little.
Anyway, most high sales tax proposals come with a post capita rebate.
Tax reassessments during the boom of 2001 to 2007 were on track to price a lot of people out of their houses based on their current economic status. Proposition 13 and other bills passed across the country allowed individuals to avoid being "taxed out" of their house.
If you have a job that pays $100,000 and the taxes on your $250,000 house is $7,500 (3% property tax) and the tax quadruples to $30,000 in five years; why would you want the market fluctuations to be able to force an individual to leave their house?
The main item with this problem, as is with all affordability issues is that supply is not meeting demand. Look in Detroit and Flint where there is not enough demand and the supply is worth next to nothing.
Author's points of increased units would lead to a drop in prices until it becomes affordable to all. San Francisco will never allow it because the people who live there want to keep it San Francisco and NIMBY rules.
Imagine old people viciously fighting for increased development lest their property tax bill goes up, unlike the opposite today at most city council meetings. The elderly drive most housing policy in many ways because they have the free time, general boredom and incentive to participate in the political process this way.
Property tax is also almost never approaching %3. The range can be %0.5 to %2.5. A high property tax rate actually helps modulate the value of houses in a market since the price of housing is based on the monthly payment. This is what contributes to texas being a cheap housing state, since the high property tax prevents housing values from going up too quickly.
Unoccupied properties also cause the supply to go down without a person or family inside it contributing to the local economy. Idle assets should be put to productive use, it's half the point of a property tax already.
I shed exactly zero tears for someone whose $250k property quadruples in value to $1m in five years. Sell the house and dance with joy at your (untaxed!) $750k capital gain.
The only argument for freezing tax assessments is to soak the new residents in favor of the current residents. It's a result of the absolute worst kind of democracy: voting to make other people pay more taxes.
Ok, now where are they supposed to live? All the other properties cost just as much, so now they're forced to not only move out of the city, but now they have to quit their job too! How is this productive? You're penalizing someone for living in a housing bubble and not taking advantage of it. Even worse, you're penalizing current residents for having their house values driven up by a bunch of out-of-state (or out-of-country) investors and speculators.
The other option is to ease pressure on home prices by laying down the NIMBYism and letting more housing be built in your community in a sustainable way!
This is the whole the point of self-corrective market forces: sure, you can choose to keep your low-density housing in a region that is attracting demand with great weather and strong industry, but prices are going to appreciate if you keep your doors closed to newcomers. Keep the door closed long enough and your self-defeating actions will force yourself out as well (see palo alto, where they now need to subsidize housing for anyone making under $250k/yr so they can have people like teachers and firefighters still live in the community).
The fact that taxes DON'T increase with demand distorts the self-corrective market forces that would otherwise stop people from closing the door to affordability.
That doesn't actually work in the real world. If you live in a desirable area, and you increase the housing supply in such a way that the area is still desirable, as soon as the price drops a tiny bit people move in from the outside and drive it back up again.
(If you have evidence of urban areas that have allowed lots of construction during periods of high population and job growth - cities like Dallas, Houston, or Atlanta - and have also seen high housing prices, please share it; I'm genuinely curious).
Part of the problem in the bay area is that there is minimal cooperation between the dozens of municipal governments to allow more housing. None of them want to be the first or only one to do it out of fear that they'll just end up with more density and high prices. It's a bit of a prisoner's dillema.
Orange groves and strawberry fields and outdoor movie theaters and old military bases were all leveled and turned into housing tracts. But housing didn't get any cheaper - the state added 20 million people from 1970 to 2010, because there were jobs and it had the reputation of being a nice place to live.
Prop 13 was put into place because the state and municipalities were raising taxes left and right without consideration of things like fixed income individuals being able to stay in their homes.
There was good and bad in the measure. Good - to a point - raising the need to add taxes above 50%+1 vote, the bad, it applied property tax issues to both commercial and residential properties equally.
It's much easier to set up a business entity to span generations and avoid taxes than it is a private home.
The measure also masked an issue of use. A single individual who bought a house for $500k would pay more in taxes than a family who bought a house in the same neighborhood for $350k, yet if the family has children in the schools, they are paying less in taxes and getting more out. Most property taxes have multiple assessments for schools.
It does need to be fixed, but the conversation so far has fixated on residential and ignored the commercial impacts of prop 13.
Proposition 13 was passed in 1978. The housing boom of 2001-2007 had jack shit to do with its passage.
(Yes there, is a Prop 13 in 2010 that also has to do with property taxes, but only about seismic retrofitting of existing buildings).
There are well-established solutions to your issue about people being forced out of housing with rising demand. Massachusetts allows tax deferrals up to 50% of a property value. (If you want to get technical, Massachusetts allows towns/cities to allow tax deferrals; if your city does not want to offer it, they do not have to)
So, your $250,000 -> $1 million dollar house allows up to $500,000 in tax deferrals, so you've got a lot of years you can live in that house without paying taxes. When you sell the house, you pay the taxes and also pocket a pretty sum on the appreciation in the value of the house.
http://sftreasurer.org/online-property-tax-payment-faq#taxam...
The owner may not care, but the city as a whole should: it makes poor use of the scarce housing supply if sales are discouraged due to tax artifacts.
To make room for newcomers with higher-paying jobs who, in some sense, 'deserve' to live there more than you do. Unpopular opinion, but that's how we ration every other limited resource; it goes to the highest bidder, not the first mover.
This is the opposite of the truth. The core of property rights is that just because someone will offer you a "good" price for your trinket, doesn't mean you have to sell it to them. (That would be a chaotic world!) Limited resources are held by their owners, who had them first.
You can argue that housing is fundamentally different from every other kind of property, which justifies forcing people to give theirs up if somebody else wants it more -- but there is no room to argue that that's how we handle other limited resources.
Because it ties housing prices to economic viability. If a person's housing value increases 10x, they should move if they can't afford to maintain it so that another more economically productive person can live in it.
It sounds evil on the surface, but the reality is that it will keep housing prices in line with the economic growth of the area. As it stands now, fixing the assessment value only encourages people to hold onto the house even longer because taxes eventually become a minuscule amount compared to the appreciation of the house.
If taxes are a fixed $10,000/yr on a house that is growing 10% in value every year, then it makes sense to hold onto the house indefinitely. However, if the property taxes increase proportionally each year, there comes a point in time where the calculus no longer works out and it makes sense to sell the property and cash out. Since this happens to everyone simultaneously, the growth in housing prices will also decrease (thus, reducing the growth in property tax).
A simple solution (for the elderly at least) would be to roll up all the debt until death, payable by the estate.
Simple until the next housing crisis.
And you're right... as owners now we don't care and only benefit from the absentee neighbors. That's a major part of the problem. Now that we're invested, we are naturally opposed to anything that would untether our tax rates. If our neighbors (who mostly bought in the 80s/90s) were paying tax on the current valuations they would be encouraged to either sell or rent thus creating more inventory and helping bring prices toward equilibrium.
While often repeated, that is incorrect. In reality property tax goes up 2% every year under prop 13.
You are indeed correct that in our very modern era, the 2% ratchet under prop13 is less than what we see California real estate appreciating at.
So would you indeed support rebates and/or clawbacks and/or negative property tax increases if California was to ever see sustained drops in valuation ?
I own property in California as well as in other states and I can tell you that the property taxes sure go upwards very easily ... not so much the other way around ...
http://money.cnn.com/2012/07/10/real_estate/tax-liens/
Seniors in those kind of conditions, would be unlikely do better selling off their homes and subject themselves to a more volatile rent for their homes.. which would likely lead to even higher societal financial supports needed so seniors don't end up on the street.
Their good investment allows them to sell that property at a profit, rent it for cash flow, or just sit on it. It's still their choice. Just like in the financial crisis, companies were hoarding cash due to uncertainty but because interest rates were zero-negative this encouraged spending and propped up the economy until more material improvements could be achieved. It's basic economics at the end of the day.
I work in San Francisco. I have lived in San Francisco. I have had two generations of family live in that city. I don't like the city like a lot of you do. I try to avoid it on weekends.
I just haven't seen these empty potential rental units?
I now live in Marin County. I can guarantee I have never seen a empty house due to low property taxes.
My aunt used to live in Marin county. She was far from wealthy. She could only afford to stay here because her property taxes were reasonable. Actually, I would have let her stay with me for free, but she wanted her own house. A house she bought on a librarian's wage in the 50's. Yea--I know--you should let rediculious property taxes force her to move in with you to free up a home. A home she bought.
You will be her one day--I guarantee that--especially the average Programmer.
I was a kid, but before prop 13 property rates were going up every year--without a ceiling in sight. It was making Everyone scared. Beyond scared. Mad as Hell--by Howard Jarvis. I remember my father barely making those bi-yearly payments. I remember the fear on their faces. This was in the 70's, when San Francisco and Marin county were still basically middle class. Way before society decided these counties were magical?
When prop 13 passed. Their was a middle class sigh of relief.
Why can't you find a reasonable place to rent? San Francisco has always been a tight market. Yea, blame rent control. Marin has always been a tight market--no rent control, except in San Anselmo--detached mother-inlaw units are attached to federal poverty level in some way?
So--what's the problem? It's a unicorn of problems.
People are greedy. Building is very difficult. Zoning codes are ridid. Their are NIMBYs. Etc.
Again--people are greedy. Say there's a three bedroom two car garage house in Marin is paying $6000/yr in property taxes. The house has one working bathroom. There's no legal on street parking.
Do you really think that house will not be rented out. How do you think these people have the money they appear to have?
Even if your premise is right--do you really think rents would drop, if say 10 percent of housing opened up overnight? I really don't think some of you realize this is not the Bible Belt. There's not much morality here, except on Christmas, and maybe a few other holidays. People want their money. They are greedy. Get used to it.
I've seen greedy behavior forever, and there's always those that will look for something easy to blame it on. It's not prop 13! It's usually that CEO who needs to live in only the best enviornment? The beach, and mountians, and a low crime rate. Yea--that's where I want to set up shop? Let's the peons fight for housing.
Actually, the state would love it if this blame catches on.
The State of California will rob you blind.
That greedy behavior I have see in people, and even the state always sickened me.
(I wrote this off the cuff. There's bound to be errors. I really don't care to hear about petty errors. Actually, I don't come back to most posts, so fight among yourselfs. I can guarantee the state loves this blame on prop 13.)
Take another look at this [1] BART map with corresponding home prices for each stop. Yeah, it's cheaper to live outside of the city, but it's still crazy expensive. The median sale price for a house in Pittsburg is $430,000, with a 62 min commute into SF. If you live 62 minutes outside of say, Pittsburgh PA, you can certainly expect your median home will cost ~$120,000 or less [2].
It's been my experience that while square footage cost may go down outside the city, you really end up paying around the same rent for a larger space. So if you can't afford a $3000/mo rent in the city, you probably still can't afford the $2800/mo rent you'll pay in Daly City.
I expect what would really happen if SF just went all in building new housing, is that prices would drop in the city slightly, allowing people to move back into the city, thus increasing demand and increasing prices back to where they were. The places where rent would drop are the suburbs, where people were pushed out to initially.
A way to look at it would be that SF's sphere of rent influence would end up shrinking, but the magnitude of the epicenter remains unaffected.
[1] - http://www.estately.com/bay-area-home-affordability-transit-... [2] - http://files.zillowstatic.com/research/public/realestate/ZHV...
You make excellent points, and I don't mean to minimize the regional issues.
Sure, if I had a magic wand then I'd increase housing being built across the Bay Area. In fact, I'd like consolidate the jurisdictions in the Bay Area, but that's a whole other argument.
I don't quite know how to play out the claim that demand is infinite. One, I don't believe that. And, two, it seems like an argument that has us throw up our hands and do nothing. It's large problem that needs a large solution -- I've heard estimates in the 100-200 thousand unit range -- but I'd rather shoot for that goal than do nothing at all.
When the proposal is a bit broader, i.e. "Let's fix the Bay Area", then, at the very least, it doesn't feel like a claim is being made on San Francisco by a specific tribe.
More than anything, it's the tribal nature of this issue that really sucks and it really stalls the things for everyone.
People truck in on a daily basis from New Jersey and Connecticut because there's highways and reliable (enough) rail options.
BART, from all accounts, is a total disaster and is about to completely implode. The rail project through the valley is anemic, completely inadequate for any serious commuter use.
If you can provide more options, stronger links with better commute times, you can live in places farther away without as huge a penalty on your time. It should be practical to live in Oakland and work in San Francisco, the two are so damned close, but it's a nightmare in practice.
Fix that and you're half way to solving this problem.
If you want to live by downtown PA (university Ave) its right around $2800-3000 for a 1 bedroom, for places with 20 year old appliances and no upgrades.
The peninsula is just as bad because of school preferences, etc.
New engineers getting hired in MV and PA literally can't afford to live by themselves in a 1 bedroom. That is fucked.
Not an impossible feat to bike, but the energy is low and there are much better ways to spend rent money.
That seems unlikely to me, based on intuition and my admittedly elementary understanding of economics. It seems very unlikely that a significant increase in the quantity of housing units would cause no change in the price of housing units.
Basically, the author is suggesting that (within practical bounds) the demand for housing inside SF is unlimited.
I think it's a fair assessment.
Tokyo metro area: 37.8 Million
Mexico City metro area: 21.2 Million
NYC metro area: 20 Million
If demand where truly unlimited, then building up S.F. to Tokyo standards or above over the next few decades should be practical, since that level of demand would provide the funds for the growth. Of course, what is really going to happen is that demand will likely stabilize around or below the 15 million threshold for the entire Bay Area.
But even the housing policy you describe, in which SF acts unilaterally, would still be a great good. Tens of thousands of people previously priced out of SF would now be able to live in the city. And those who still couldn't afford the city would find it much easier to live within a reasonable commute.
I quite liked the Peninsula. SF wasn't really my cup of tea. God forbid people like me that lived on the Cliffs of Despair (Pacifica) and were relatively happy.
Poorer, non-tech people are getting pushed out to Tracy and made-from-scratch exurbs like Mountain House.
SF is just the center, Oakland/Berkley is getting hit hard now. The Uber acquisition of that large office complex in Oak has set off a bonanza. The hipster brigade is already popping up in weird places in Oakland. Really not sure where all the poor people will go.
There is one, weird, and very not pc observation though: old home owners get pushed out, but in the East Bay you see a lot of Indian newcomers moving in - and not highly paid executives, but Indian fresh out of rural areas in India, men in sandals (no socks, ever) and women in full garb. Where is that money coming from?
This is roughly the conjecture of Marchetti's constant :https://en.wikipedia.org/wiki/Marchetti%27s_constant
See also induced demand https://en.wikipedia.org/wiki/Induced_demand & https://en.wikipedia.org/wiki/Jevons_paradox
I assure you, you can find a cheaper total cost of living + commuting within 2 hours of SF by car.
First there is Prop 13, which is the Ponzi scheme that let's older owners pay basically the same tax rate forever. This means that landlords have little reason to repair or sell properties. Which goes hand-in-hand with all the tenant protections that make it virtually impossible to vacate a tenant. And because landlords can't raise rents beyond a tiny margin each year (1% or so), they might have tenants paying 1/4 or less the going rate for an apartment, making it even less likely that they will reinvest in improving their building.
So what happens? Anyone who has been living in the same rental for the past 5 years is pretty much locked in to their apartment now, no matter what. Every single tenant in SF who hasn't moved within the last 5 years is NOT MOVING UNLESS THEY NEED TO. Because they are paying about 50% less than the going rate. So those people will not move, which means their apartment won't be available for others, which means the supply of housing is significantly lower than it should be.
Just as new homeowners in SF are paying some of the taxes that existing homeowners should pay, new renters are paying some of the rent that should be paid by existing renters.
We need to look at what the average rents are, not the average rents of current available units. Rent control reduces the former dramatically, but probably increases the latter. In other words, a lot of people are paying a lot lower rent than they would otherwise have to pay, but a lot of non-residents will have to pay higher rents in the future.
I used to be anti-rent control until I thought about both sides of the issue. Rent control can make sense if your goal is to "reward" long time residents, but it may discourage new residents. From a policy perspective you have to ask yourself "Does our city have a problem attracting new residents." SF does not have this problem. But there is a problem of long term residents being forced to move. Rent control alleviates the latter problem.
Same story with the taxes. You can sell your current place for top dollar and buy a smaller one, but you're going to take a huge hit on the new tax basis.
A crucial component in freeing up housing is downsizing in later life, especially as we have the baby boomer generation starting to retire.
Prop 13 is a tax issue, not a housing supply problem. It affects schools more than housing prices. Also prop 13's worst offenders are corporations not individuals.
Individual property owners sell/move on average every 7 years. And the taxes are reset at that point to market rate for the new owner.
This has nothing to do with housing supply constraints, but for schools we should remove it from corporate property owners, who some like Wells Fargo have property that hasn't changed hands in over 100 years.
If it's a tax issue that impacts the housing supply, isn't it both?
Really, on average? Just SF, or Bay Area overall?
Which claims 5 year average nationwide in the US.
Fact: neither are single family homes, including most condos if you moved in after 1 jan 1986 (30 years ago).
i'm confused, how does liquidity affect the housing market?
if you can admit there is plenty of housing then why are you unwilling to simply say, 'all of you would be tenants move into this available housing'?
i think what you really mean by liquidity, which i'll interpret as an owner's ability to end a lease when and how they want, is that people, you?, want to live in a specific part of sf but all the housing there is already filled and the city has determined that those tenants' livelihood should be allotted some predictability by local law
this is the thing that confuses people who have lived in a neighborhood for 4, 8, or 16 years
the reason you want to move there is because of who is living there
evict all you want and it will just be those that paid for their place who remain and if those people are so flush that they can pay any amount to consume the local culture they want, then the question is, will they be willing to contribute to a local culture or will the region stagnate as some former cultural artifact
the poor will live where ever they can afford, and if that place is boring and seemingly uninhabitable then it is on them to make it fun, and they will, and then they will need to leave because you want to be where the pulse is at even if it is the exact same place you turned your nose up to 10 years earlier
fillmore in the 30s -> north beach in the 50s -> haight in the 70s -> mission in the 90s -> ???
() https://en.wikipedia.org/wiki/Fillmore_District,_San_Francis...
() https://en.wikipedia.org/wiki/North_Beach,_San_Francisco
() https://en.wikipedia.org/wiki/Haight-Ashbury
() https://en.wikipedia.org/wiki/Mission_District,_San_Francisc...
It should be virtually impossible for a landlord to do this. A landlord should be able to vacate a rental, perhaps, but not the tenant. :)
Basically:
- Traditionally, the proper fix for a shortage of housing is to build more houses. Just lift the existing regulations, and let the free market do what it does best: take care of the demand at an efficient price.
- However, after years and years of very slow building, the amount of pent up demand is such that even if builders were allowed to construct houses, the houses would almost all be built for the very well off. The amount of houses you'd have to build before you started constructing truly affordable housing is immense.
- People that are in rent regulated apartments have absolutely nothing to gain from more construction. However, even poor people that have no stable housing also have almost nothing to gain from new construction because their only realistic chance of having affordable rent is through subsidies or semi-public housing in the medium term.
- The people that have the most to gain are the moderately well off who can afford SF rents, but cannot find housing at the existing market rate.
Basically - politicians and residents let the situation with housing in SF get so absolutely bad that free-market based solutions would take a crazy amount of time to create affordable housing for poor people. At this point, I'm not sure there even are good solutions, especially if you limit yourself to what is politically feasable.
The lesson to draw from this is that you should never let the situation get so bad that people at the bottom stop caring completely about improving policy. In this case, the right policy (build A LOT more houses) would barely help poor people because the supply/demand curve is so out of wack. The very people that should benefit the most from improving the housing situation are instead opposing it - for fairly rational reasons.
This is a common mistake. In reality, all added supply brings down price levels across the board.
Reducing demand at the top prevents the demand for high-end from overflowing into mid and low end. This does little good if the majority of people moving to SF are middle class. (Which they probably are because bell curves) To make a real difference you have to also add massive quantities of mid and low end --quantities about an order of magnitude higher than SF is currently planning. (going by the 10x disparity between population growth and housing supply creation)
And here comes the hard part: it's hard to build middle end and affordable units when neighborhood associations block the building permit until the developer pays multi-million dollar bribes (sorry donations). http://techcrunch.com/2014/04/14/sf-housing/
It does plenty of good because there will be fewer mid and low-end units occupied by high-income individuals and thus more available to mid and low income residents. This only has an effect up to the point where high-income supply catches up with demand, but we are a long ways off from that point.
"Market-rate housing probably has contributed to gentrification in many cities in the past. But the data shows clearly that, in San Francisco in 2015, market-rate housing development is not accommodating upper-income movers who would otherwise be somehow shut out of the city's housing market. On the contrary, the overwhelming majority of wealthy new residents do not live in new housing, and conversely, the vast majority of new market rate construction creates housing opportunities for existing city residents. For this reason, we find no reason to believe that either a temporary moratorium, or an indefinite prohibition, of market rate housing will reduce the number of upper-income residents in the Mission, or slow the process of gentrification that the neighborhood has been experiencing."
If you can only build 10 houses, and make 10% commission... are you going to build a shack? or are you going to build mansion?
The houses that get built, if the gates were to open wide, would all start off on the high end... while that would start a downward pressure, it would still be a very long time before those who can afford $200k for a house see anything in their range built.
What happens is that 10 people move into those new places and 10 people move into their old one and the vacancy works it's way down the line. Eventually some guy down the bottom gets slightly cheaper rent or a better place.
Imagine that instead 100,000 high-end apartments were built in the Bay Area. None of them will have poor people move into them but instead places like (to quote elsewhere in the thread) "downtown PA (university Ave) its right around $2800-3000 for a 1 bedroom, for places with 20 year old appliances and no upgrades." might now be $1000/month cheaper and affordable by somebody on a lot lower income.
Telling people that within 10-15 years if you keep building several hundreds of thousands of houses eventually rents will be affordable is not a winning slogan :)
New housing would start off being expensive because all housing in SF is expensive. Not the other way around.
Maybe the root of this fallacy is that it assumes prices are constant. If you build something today and charge $5k/month for it, that's how it will somehow remain forever. But in reality prices are set by supply and demand, for both new and old housing.
I hate the term "affordable housing". All dense housing construction helps make housing more affordable - after all, you'll be convincing people who can afford it to move out of "bad" housing into the nice stuff you're building.
Basically, if San Francisco tried that, then the entire affordable housing budget would be taken up just buying enough land. As it is, the mayor’s office of housing and community development is going to spend hundreds of millions of dollars on maybe a few thousand units. Not very efficient, and not nearly enough to make a major impact on the housing crisis.
Streamline the process, and you get branded as a traitor to the people and undoubtedly a peon of the greedy and corrupt developers.
the only solution is to simply not live there, in my opinion.
Actually, if demand is so high, why would anyone bother with building a house for a single family, willing to pay say $10,000,000, when they can build a 120 floor building of small apartments for 25,000 people, each willing to pay $200,000 (on average)?
A much better comparison would be a 6 bedroom mansion for $10mm, or a small building with ten 1-bedroom units. And if you look at high end real estate, the per square foot price is often multiples above the median, which is why it's more profitable to build those than lots of small units.
Even putting aside the ethical and moral arguments, which carry a lot of weight for me: (1) There are network effects in urban environments. (2) Globally, specific industries often concentrate in specific cities. A lot of tech has concentrated in the Valley up to the San Francisco. The effects are getting stronger as that migration occurs. That's a great thing: it allows for people to move between companies easily, allows ideas to be shared, etc, etc.[1] That effects is and will continue to be hard to replicate elsewhere. (3) Destroying that seems like a gigantic waste. (4) We are destroying it through our current public policies -- housing and other. (5) I believe there are political solutions, just not ones that have been well-organized.
[1] Urbanism has a lot of other benefits too, if done right: like less traffic, and a lower per capita carbon footprint.
It could be otherwise than it is, that's sort of the truth of network effects, but it's difficult.
And then you get the chicken-and-egg problem: with all those workers there, companies want to locate there to have access to that talent pool. And then the workers want to stay there so they have access to all those jobs that they can hop between.
Living in SOMA requires $120k/yr minimum to responsibly afford renting a 1 bdrm. Getting paid 20% less but, having housing costing 1/4 of what it is in SF is a win overall. And this is coming from someone who loves the tech scene in SF. So many smart people, so many great ideas, so much energy. But, to move there, I'd have to make at least $35k/yr more just to break even and that's living in a hovel in comparison to where I live now.
To me, the most logical conclusion is to organize and create the political will to create the housing necessary to alleviate prices. This could be on a regional level - building more housing throughout the east bay and peninsula, or organizing on the city level to re-zone and re-develop parts of the city that can most easily support denser development.
Not everyone will like it but as long as you have more people than the anti-more-housing crowd and are organized to vote, it can be done.
What do you mean when you say "morally and ethically correct"?
Furthermore, since government owns all the land outside of the zoned areas, they have a responsibility for making sure there's enough land allocated for people to live/house in - CA is doing a terrible job of this. Even in the furthest reaches of CA, housing prices are still almost twice the national average, especially egregious since only 5% of CA land is being used.
Having read here on HN about the housing problems and high rents I was surprised to see quite a lot of poorly maintained buildings, if you go a bit outside the centre. From my perspective, there seems lots of room for building and improvement. They could take down blocks and build more densely while improving quality. As in all US cities, a lot of room is used by cars.
Looking at my hometown Amsterdam, there are places like Java Eiland, (https://www.amsterdam.nl/javaeiland/) an old harbor dock where they built 8500 high quality appartments housing 18.000 people, on an area of only 1.3km x 130m. I think solutions like that could work in San Francisco too.
If you just visited the conference you probably didn't see Mission Bay, but they are doing the same here as in most other coastal cities, i.e. repurposing old harbour industrial zones and building large apartment buildings, it's just way, way too little, too late.
But I agree with you that there are so many city blocks that currently house a bunch of poorly maintained two-story buildings that should just be demolished and replaced with a single modern, tall residential building. There is nothing of value to preserve there.
1. My goal for San Francisco is a diverse city The City was diverse before the tech boom. The tech boom is pushing people out. Contrast the population of San Francisco with San Jose. Why is SJ more diverse? The white, suburbanites move to SF not SJ because they want NYC on the West Coast. A city of 860k vs 8mm have much more opportunity to have diversity. Again, there needs to be coordination across multiple municipalities that simply don't want to work together.
"I want to live in a beautiful, multiethnic, socioeconomically mixed community. A city where people of low, moderate, and high incomes live together, and people of different ethnicities interact." You should have moved here 20 years ago and then you would understand why long time residents hate the newcomers.
2. A little self awareness about my my role and position in San Francisco You grew up poor but aren't now. Super.
3. The cause of our housing problem is huge demand in the face of limited supply There were population exoduses for many years. The demand is relatively new problem. If you had been here in 2002, landlords were begging you to rent in SF. Granted, you graduated college in 2009 so you wouldn't know that but believe me, this is a recent problem caused by recent graduates.
I want to keep responding to your posts but I'm too tired. This isn't NYC and there aren't 5 boroughs that are able to be coordinated for building codes and transportation. This isn't an easy fix and, forgive me, I find your youthful perspective insulting as you have no idea how long these issues have been brewing. Chris Daly was a big proponent of affordable housing. Read up on him.
Sounds like a plan.
The problem is this. SF is built out; to build something, you have to demolish something first. So the alternative is high-rise housing. High-rise low-income housing, especially high-rise low-income housing, has been a disaster in the US. Chicago had to demolish the Robert Taylor Homes, a mile long strip of high-rises. Here's a list of failed high-rise housing projects.[1] "You can't stack poor people who drink.", as one author wrote.
The boom may be cyclical. SF after the first dot-com collapse in 2001, had low traffic and lots of vacancies. After the 2008 crash, there were tens of thousands of houses in foreclosure and for-sale signs everywhere. That could happen again. Twitter and Uber aren't profitable and are going to get hit by economic reality at some point soon.
[1] http://newsone.com/1555245/most-infamous-public-housing-proj...
I went to high school across the street from the ABLA projects. Most of those were low-rise buildings. They got demolished, too.
Nobody is proposing to build high-rise housing projects.
I moved out of San Francisco at the end of 2001, and it was (for the time) nosebleed expensive. It's obviously gotten much worse since then, but even at the end of the first bubble it was notoriously expensive, and gentrification was a top-of-mind concern for the whole area.
Yes, of course. That is how all healthy big cities work.
So the alternative is high-rise housing
Well, replacing 1-2 stories with 4-8 stories is probably optimal for current SF. Not sure I'd call those high rises.
It will happen again. Again and again and again, and with increasing frequency as the global economy becomes more and more interdependent and fragile.
Housing prices in SF are now fragile to, among other things, the price that Yukos gets for its oil, the banking system in China, grexit/brexit votes in the EU ... on top of all of the usual suspects like interest rates which will become greater than zero at some point in the future.
It's hard to spill too many tears for the very, very current conditions when it is all but assured that everyone will have a buying (and controlled renting) opportunity sometime soon.
If you didn't live where the track died, then you would still say BART is more reliable. I've noticed BART is less reliable in the edges vs the core of SF, berkeley and downtown oakland
One alternative is AC Transit's transbay service, which I swore by for many years. Unfortunately the increase in road traffic has that option declining as well.
There has been talk in the past about a Berkeley Marina/Albany Bulb ferry, but to my knowledge there are no current plans. I haven't ridden the ferry many times from other places, but I'd like to think that having that as an option would get a decent amount of ridership as well as possibly reduce the load on the roads and tracks.
The lack of any ferry service connecting the East Bay between Jack London Square in Oakland and Vallejo is pretty surprising. Judging from the fact that a morning commute-time BART train starting in Richmond is typically standing room only by El Cerrito Plaza (third stop on the line), I'd say the demand for alternatives is definitely there, so there must be financial/political/engineering reasons that there are no ferries from other parts of the East Bay.
The reason why there probably isn't any service from jack london square is because it's faster to get to a bart station by bike or similar and then take the BART.
As for vallejo, there looks like there is a ferry service for some reason according to google maps: https://www.google.com/maps/place/38%C2%B005'59.8%22N+122%C2...
The ferry terminal in San Francisco, on the embarcadaro, is about as central as central gets ...
Yes, there is a Vallejo ferry which goes right to the center (see just above) of San Francisco.
A potential remedy could be a significant tax on parking. Perhaps very significant. Parking is ugly and a blight on the city, as well as a tremendous waste of space that could be more effectively used for housing.
Traffic is a big problem -- as is parking. Public transit investments do have to correspond with building housing, but too often the lack of one is used as an excuse not to expand the other. We have to start somewhere.
As I said in the post, public transit deserves it own analysis -- I was already in the thousands of words just on housing! -- maybe that will be next.
Muni will not be extending T to Fisherman's Wharf, nor BART building a 2nd trans-bay tube and line through the Richmond/19th Ave unless the bay area can manage this housing problem and bring in more residents to pay for it.
Taxing parking(which is already done) is something only 2 groups of people will/can support:
1) Those without a car ( can afford to live close to work,take uber, rent cars - high income people)
2) Those who can afford the tax (high income people)
So no, this is most definitely not the solution.
If you find a way to solve the political problem, I'd be impressed.
The solution is that we need more housing.
The problem is that politicians do not allow that - and that is not going to change. Why? Because existing rich people do not want that.
Not sure what we can do here...
But you're also right that there isn't a defensible reason for forcing so many people to move here to take jobs in the tech industry. Lots of people would live elsewhere and work remotely if they had the chance.
The root cause of the problem is that there are too many people wanting to move to San Fransisco because that's where the (tech) jobs are.
Spread out the jobs to spread out the people?
Seriously, we don't need that many people to make a big difference this time. It's worth it for you to get _one_ more person to vote.
I want to live in a beautiful, multiethnic, socioeconomically mixed community. A city where people of low, moderate, and high incomes live together, and people of different ethnicities interact.
I guess he's never heard of Chinatown. SF is one of the most most ethnically diverse cities in the country. http://theculturetrip.com/north-america/usa/california/artic...
Also 'white' does not imply 'rich', as there are many regions in America that are predominantly white and very poor, Appalachian region being one.
It feels like a very dogmatic mantra "it just works better". VCs should try to reexamine and disrupt startup financing by not being clustered in one place (which is one of the top arguments for moving to SV other than talent pol being there which is kind of self fulfilling).
"Move to where your initial customers live" would be a decent counter-mantra. Make it a differentiator as a VC that you come to the startup and don't make them come to you.
I am perceived to be part of the problem.
That said, I think it does help to make us more aware of how unfair the system is.
If I have $5 million dollars to invest, will I invest in San Francisco where (unless I buy post-1979, and 75% of units are rent controlled in SF) -- or will I invest where I can make a return on the investment?
Shortage of willing landlords. Shortage of new construction.
Almost no one talks about the shortage of willing landlords. It's as if people think "owners have their apartment buildings, they HAVE to be landlords."
NO. See here: http://mjperry.blogspot.com/2011/05/because-of-rent-control-...
- If you make it very difficult/nearly impossible for restaurants to make money, SHORTAGE OF WILLING RESTAUARANT OWNERS.
- If you make it very difficult/nearly impossible for dentists to make money, SHORTAGE OF WILLING DENTISTS
And so on.
The reason no one considers how to entice more landlords (ie. to increase the supply of units) is -- everyone probably thinks "landlords have no choice. They MUST rent their units." It's NOT TRUE.
When public policy acknowledges this point -- maybe we can all stop believing "we don't need to entice landlords -- they have units, they MUST rent them out (so we can control and limit their business).
If investors in the area are not willing to look outside, politicans and others in the San Francisco area know they have enough leverage on you that they can keep following the same failed policies.
Only when you stop the policy of redlining 99% of America and show San Francisco there is a real threat the jobs will move away will any reform be possible.
But realistically, at this point I'd expect investors to circle the aftermath like vultures waiting to throw money at whatever they could. There might be a small downturn, but then things will get right back up there.
My hypothesis is that it would only slightly dent demand for the area. And that says nothing about all the single story wood-framed ranches in the Peninsula which would largely be fine.
I think it's one of the issues facing a lot of cities in the US right now.
We are all now competing for limited housing in most every major metropolitan area.
The solution is for every city to build more housing, not just SF. Unfortunately, new housing starts have only recovered to 1993 levels. http://www.macrotrends.net/1314/housing-starts-historical-ch...
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
That's just a quick look of housing starts / population but we've steadily been building fewer houses and the whole thing fell of a cliff during the financial crisis. Even in the recovery, we're off the chart.
Join, or at least follow, a political action group like SFBARF[0]. And when they mention some special committee, then don’t just go to a couple meetings and otherwise leave it alone. You’re supposed to be part of the community. Actually learn from and provide your own input to that community.
If you have some free time, then find what else the SF Planning Department has been doing[1], and attend their public hearings.
SF ain't Brooklyn
Folks can't buy groceries at Uber
People matter, profits don't
When you've been around long enough, it will begin to make sense
Oh, all those places have to deal with Prop 13 as well.
San Francisco(and the bay area overall) has consistently chosen to restrict their supply for housing for years. Obviously this would culminate into higher prices in the future, but to many people live in denial. They would rather pretend that AirBnB is the real problem, or that Prop 13 is distorting the market(but of course, rent control is not rolleyes)
I ALSO think rent control and airbnb distorts prices too. The Airbnb threat maybe overblown, who knows, but airbnb has maintained in the past they have no way of telling cities how many customers they. Databases are hard I guess.
Consider that the median house price in San Diego is higher than New York or Los Angeles: http://www.advisorperspectives.com/dshort/commentaries/Media...
>The only way to fix it is through a radical change in our housing policy: a change that encourages (a lot of) building.
No, the only way to fix it is to actually build a lot of housing. If you have trouble imagining what that would look at, take one look at Singapore.
To make this happen requires pitchforks, eminent domain, and political will not economic tweaks to building policy.
>Incorrect claim 2: Investment capital will never build affordable housing
Not incorrect at all. Affordable housing meets the demand for a place to live by the middle class but it doesn't meet the demand of the ultra wealthy for a yield bearing asset.
The "lack of demand" for affordable housing is a facet of massive wealth inequality and the treatment of living places as yield bearing assets.
>The forces behind those aren't singular movements or collectively one movement alone.
ZIRP is pretty much behind most of it. If you want somebody to point a pitchfork at, Ben Bernanke or Janet Yellen are as good a target as any. They are largely responsible for homes being transformed into mostly investment vehicles that provide living space from vice versa.