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What would make it a less interesting investment is if there were a credible threat to add enough supply to devalue it.

That's generally how markets keep prices regulated: if they go up enough, more people jump in to producing the good.

That mechanism is severely broken in the Bay Area, among other popular places in the US.

Alternatively, repealing Prop 13, so that property taxes rise with the value. Or increasing property taxes as you get more homes. Both of these would decrease housing prices significantly.

Given that the supply of land cannot be increased (the huge omission in GP's argument), repealing Prop 13 is indeed a large part of the solution.

Thanks to technology, the supply of land is not really the constraint on housing supply in most of San Francisco, and especially not in most of the Bay Area.

What technology are you referring to?

At the extreme, these things can hold a lot of people without too much land:

https://en.wikipedia.org/wiki/Skyscraper

But you don't really need those in most places. Simply building 'in' more and up 2/3/4 stories would add a ton of housing in much of the bay area.

Those are very expensive to build, approaching $1000/sqft. Also require utilities, transit, and other city services (schools, police, fire, etc).

Prices are high enough in San Francisco to pay for them.

2/3/4/5/6 stories are significantly cheaper to build.

There isn't a cheap way out of SF's situation.

> Also require utilities, transit, and other city services (schools, police, fire, etc).

High rises don't require those things. People require those things.

For some of them, the requirements (for the same number of people and the same overall outcomes) increase with density, so, in a sense, high-rises (or other arrangements which increase density) do require them.

I didn't state my point well enough; people are the driving factor here. The density is caused by people wanting to move to SF. High rises are a way to deal with the reality, not providing housing isn't going to solve the problem in any way people are going to be happy with.

> The density is caused by people wanting to move to SF. High rises are a way to deal with the reality, not providing housing isn't going to solve the problem in any way people are going to be happy with.

Quite likely, just as many (if not more, in both absolute and proportional terms) people in SF will be unhappy with adoption of high-rises as the solution; the lack of availability under the current regime constrains some of the problems because it limits the ability of people to move in regardless of their desire to do so; relieving that constraint -- especially if the problems besides finding places to store the bodies aren't addressed -- just makes all the other problems of density worse.

It's about as expensive to live here as it is in many skyscrapers in Manhattan. NYC seems to have those other problems pretty well figured out. I've never heard a very convincing reason that SF can't be more like Manhattan in terms of density, except that the existing residents who've "got theirs" don't like the idea.

> At the extreme, these things can hold a lot of people without too much land:

They can hold a lot of people without too much land, but they don't reduce the land requirements for transporting goods and supplies to and waste products away from those people.

Sure, you can hold a lot more people in San Francisco if you fill the city with high-rises, but that's not going to, e.g., suddenly give the city a greater supply of water to support that population, or a greater ability to handle the solid waste produced by that population.

Cities are greener than suburbs by and large, so actually putting more people in cities that otherwise would have lived in a burb is a win for the environment.

Is that true when you factor in utilities? IE - Where does all the water come from? At least in the burbs, you can set up your own well.

Yes, it is, especially when you consider utilities. Average house in the burbs has some lawn or shrubs or something that uses water, and it's not like well water is ultimately 'free' - it comes from somewhere. Also, it means less land developed, less extensive electrical and water distribution systems, and so on.

What makes cost of living so much more expensive in cities vs. suburban or rural areas if they're really so much more efficient?

Demand.

Yes. Cities, dense cities, are efficiency machines.

Look up Geoffrey West, of the Santa Fe Institute, who does all kinds of research on scale and scale effects. Including of cities.

They also do best in areas where there is a large amount of bedrock close to the surface. NYC is geologically blessed in this regard. The Bay Area has far less geologically stable ground to build on, and a lot of what there is makes up our gorgeous parks and nature preserves.

Chicago seems to do ok. I don't know what the ground is like in SF, but Chicago is basically a swamp.

There is ample room to build in San Francisco - not much construction even needs to be skyscrapers. More 4/5/6 story construction would help a lot. The problem is entirely political.

Presumably building high-rise apartments.

> Given that the supply of land cannot be increased

Supply of land can be increased, but its expensive (and, for geological and hydrological reasons, particularly so in the SFBA.)

Taxing vacant real estate is another tool used in some countries and cities. One way of doing it is via an imputed rental income: if a property is not owner-occupied, then the owners are deemed to be earning a rental income (either market rate, or if rent-controlled, then whatever the set rate is), regardless of whether they actually bother to rent it out or not. That increases the cost of sitting on empty housing.

(Though the real motivation for an imputed-rental-income law is usually to combat tax fraud: people who're renting out apartments under the table and not reporting the income. It just has the secondary effect of making it more expensive to sit on vacant real estate.)

Yeah, something like that might work too, although it can be kind of invasive in the sense that now you need to check if people are living in a place. In Italy, that meant that the police send someone around for a look inside the house where you say you recently moved to. In theory, at least - they don't always.

I guess it's easier in countries with some kind of address register. Denmark doesn't police it with physical police, just through the address register: you have an official principle residence, and can only list one. So by definition any other property you own is not owner-occupied. (At least in the cities, I think second homes outside the cities are handled differently.)

You can get away with some cheating there, e.g. a couple who live together can claim to be living separately and rent the second one out under the table, or someone who lives with their parents can be dabbling in under-the-table real estate with an investment property they don't really live in. But it at least keeps it to that kind of small-scale thing; the couple can pretend to owner-occupy two properties when they really live in one, but they can't do it with five.

Higher taxes is not enough. Taxing property means you confiscate it piece by piece, the owner will have to pay or lose it, but given enough time the owner will pay more than the value of the property. Why go that slow and not go for it, confiscate all properties and be happy with it? You can always follow examples from the likes of North Korea. Just in case you don't get it: you can ask for taxes when you provide services, not when you vote to raise taxes. Not sure what are more expensive services the empty Chinese-owned houses require to tax for it. And blaming Chinese investment is just a straw man: if all the houses would be occupied by pure-breed white Caucasian Americans (that's a joke) who would you blame, Martians?

Just wanted to compliment you on one of the most impressive substance-free arm-flailing retorts I have seen in recent memory. It takes skill to weave residents of both North Korea and the planet Mars into a discussion of Bay Area quality of life.

> Alternatively, repealing Prop 13, so that property taxes rise with the value. Or increasing property taxes as you get more homes. Both of these would decrease housing prices significantly.

More significantly, they would mean that the increased demand for property driving prices would also result in increased public resources to deal with the issues produced.

Or we could tax foreign investment properties at a higher rate. "Remove barriers and let the market work" isn't the only solution to any given problem.

I'm definitely not a "markets fix all the world's problems" kind of guy. Far from it. But in this case I think it's a big part of the answer, and I'm not alone in that thinking either. This book was particularly good, although a bit high level: http://amzn.to/1rOgoq3 - and it's also noteworthy because the author, like myself, is somewhat left of center in terms of US politics.

That depends on a lot of factors. Manhattan is an example of a building boom not necessarily increasing supply or lowering prices: a lot of the building boom involved demolition of older, cheaper apartment buildings that were subdivided into small units, to be replaced with newer, higher-end apartment units subdivided into larger units. Net square footage increased, but square footage isn't identical to number of housing units. Which is why over the past 100 years Manhattan has gone from having cheap housing and 2.3 million people, to having expensive housing and 1.6 million people.

Article about Manhattan rental prices dropping: http://ny.curbed.com/2016/4/7/11381852/manhattan-market-repo...

Unused, speculative, investments.

As I understand it, it's not really speculative, but rather is a way around China's currency controls. It's allegedly quite difficult, if you're Chinese, to convert holdings into USD or other currencies and get that money out of the country, and investing in foreign real estate is apparently a popular way to work around that

We made a pact with the devil when as a society we decided to believe that our primary homes would also double as investment vehicles that will appreciate in value and help us fund our retirement.

Except no one decided that - it falls naturally out of the facts that homes are expensive (and therefore represent a large chunk of the wealth of most people) and that homes do not depreciate very much as a result of people living in them.

> homes do not depreciate very much as a result of people living in them.

I get what you are saying, but this part above isn't a "natural order of things". For example, homes in Japan are expensive (perhaps representing an even larger fraction of lifetime earnings than in the Statse) yet they depreciate like they are cars.

They depreciate like they are cars because Japan focuses on the new. You don't buy a house, you buy the land, knock down the existing house, and build a new one. You don't buy a used car, you buy a new one unless you're broke. There's precious little used market for anything, which can be a boon to those of us who want to buy nice used film cameras from Japanese ebay sellers.

except used video games and used books :)

By the way Yahoo Auctions is much more popular than eBay in Japan so you might check that out.

Honest question: Why?

My home is about 30 years old and honestly the only way you'd know that is by recognizing certain features and techniques that pin it to that general time period of construction and code requirements. It's not like everything shows "30 years of wear" on it. (Of course all the surfaces have been replaced at least once over time, but by mass of the house that's not that much; maintenance is maintenance.) So it seems sensible to me that it hasn't depreciated all that much, in the way that, say, a computer from the same time period is basically worth whichever is greater of "nostalgia" and "scrap metal" value.

I do think the psychology is similar to why a car suddenly drops 30% in value the moment you drive in out of the dealer's parking lot.

For what it's worth, the 30 year old house will show wear in places you can't see, like the plumbing or the electrical wiring or the roofing. My parents' place is about 30 years old now and there's a fairly constant stream of small repairs that have been necessary over the last few years.

I don't really know, but I read an article that said earthquakes contribute significantly to depreciation in Japan. If the structures just don't hold up as long due to the harsh conditions, it would make sense that old structures would be worth less.

It's true that there's no law of nature that dictates housing depreciation. However, I will say that all of America works this way, and has for at least as long as I have been alive - houses hold onto their value. That fact may be culturally bound, but the point still remains that no one decided that this should the case, nor is there some law or policy that keeps homes from depreciating.

Except that voters in California effectively did decide that, with Prop 13. In other states, property tax is effectively a liability for the owner. Texans pay roughly 3% of the current value. That is a lot-- keep in mind that mortgage interest is only slightly higher than 3% (and loan is based on the initial purchase price, ie it doesn't go up like property tax). In California, Prop 13 is essentially an entitlement for the owner, who only pays roughly 1% of the value, and that value is not increased along with the market (only tiny increases are allowed).

Absolutely. The same thing is happening here in Vancouver and it is eventually going to suck the life out of the city. Beautiful homes in formerly vibrant neighbourhoods are left empty...indefinitely...held as an investment by offshore owners. The governments (provincial, civil, and federal) have no intention of limiting foreign ownership so it will continue apace until nobody wants (or can afford) to live here. I rent a house that was bought in 2014 (when I moved in) for $800k and it's now worth $1.5M. Foreign investment is driving this.

Ah! I was hoping someone from Vancouver might comment, as I have heard through the grapevine that there is HUGE foreign money (mainly from China) buying up land there, and driving prices sky high. Hadn't heard much else than rumor about it though. Hopefully Vancouver will figure something out, I hear it's a very nice place to live.

The final slap in the face is that the investment is guarded from rising property taxes by Prop 13.

Same thing happening in South Florida only buyers are South American oligarchs/crooks. A good fix would be to charge much higher property tax rates for non-owner occupied single family residences.