http://realestate.wharton.upenn.edu/research/papers.php?pape...
So despite this why is there a building "boom"? Basically prices (rents and sales) have gotten so very, very high that it again makes sense to build in SF. And as mentioned this "boom" is relatively modest.
To give you some flavor: the new housing (and office) construction is almost exclusively at the high-end of the market. This is because NIMBY and other policies have made it cost around $750,000 to build a unit of housing in SF. So as long as prices and rents can justify this spending taking into account risk, time, required return, etc. developers will build.
That said, I wouldn't blame it all on NIMBYs. Few changes of any kind get done in this town.
The entire peninsula dumps their housing problem onto sf and san jose. viz linkedin and google building millions of ft2 of new campuses for tens of thousands of employees in a town of 80k that is possibly going to study maybe building some housing. Potentially. So where do the employees go? The only places there is housing available.
I think it's the East Bay and Deep South Bay that gets "dumped on".
The fact that it's seen as a burden/sacrifice for a city/region to provide housing tells you a lot about what's wrong with California.
This needs to be fixed on the state level.
You can get a dip in average rent without (sufficiently) dropping bottom quartile rents, which is what NIMBYism tends to block, by having a lot of nice condos built.
The top quartile of rents dips heavily as places jockey for condo buyers, everyone moves in to a nicer place as the wave spreads, but the price at the bottom remains (mostly) the same (even if unit quality goes up), because the oldest buildings get torn down at the end of the wave, rather than genuinely increasing the housing supply (because land to develop on is still hard to come by).
So it's possible average rents dipped, but service workers still struggle to afford rent, even if they struggle in a nicer unit.
Tl;dr: I expect the building that happened raised low-end apartment quality rather than drop price, even if average rent is down. Because NIMBYism.
Houses don't belong in (the core of) major metros anymore, but there are a lot of wealthy home owners who live there, and have built up political networks over decades or centuries.
It's a tragedy of our system that we let 20 residents keep out 200.
We are facing some of this in the city in which I live and I don't really know how to address it (I can see validity in the arguments of both sides) so was wondering what you see as the path forward.
I'm generally leery of things like eminent domain, because they can be very problematic. On the other hand, there's a good chance that converting a lot of blocks also means we need to up utility capacity in the area, which can be very disruptive for residents, so it also makes sense to rebuild an area at a time.
I like the idea of having the city nominate regions, and then any time 90% of a block agrees, the whole block is sold as a unit (or maybe auctioned with minimum bid) and rezoned at that time. (This kind of idea meshes well with the development plan of having several high density clusters smattered around the city as neighborhood focal points, which is what my city recently switched to.)
It doesn't quite fix the utilities problem or some people being forced out, but I think it balances out a lot of competing forces reasonably, and keeps us from working with weird lots during development (as the city can repartition the block during rezone).
A quartile is 25%, or a quarter, if you didn't know.
My concern was for bottom quartile rents, since the bottom 20% of society is largely concentrated on the low end of that quartile, and they're largely the ones who actually suffer from high housing costs (as opposed to merely having fewer luxuries).
Let's say you have a market with 3 apartments for rent. $100, $200, $300 per month.
Luxury apartment is created and starts at $400 per month, but no one rents, so they drop it to $300 per month.
The guy renting a non-luxury apartment for $300 says "screw that" and moves to the luxury apartment. Plus, the guy renting the non-luxury apartment looks at comparables and says "jesus, a luxury apartment is $300, mine is maybe worth $200". And so on, all the way down the line.
Sure it's not a perfect example, but I can see how cheaper luxury apartments could cause prices to fall overall.
So you see drops across most of the market, except at the bottom.
This market effect is actually good! It keeps land cycling to be productively used and everyone gets to live in a nicer place.
The problem is we need to rezone land to drop the value of highly dense land, so those low end apartments drop a bit, rather than being repurposed. (At least, until cities are rebalanced a bit.)
Even so, the construction rate now is not matching the rate in the early 1960s[0]. Back then, the bad word was “urban renewal,” and the people and politicians of San Francisco managed to stop it. Unsurprisingly, that only exacerbated the housing crisis, setting off the exponential rise in prices that has now reached unbelievable levels[1].
So, nothing of substance has changed. NIMBYs and their supervisors have still effectively outlawed affordable housing, so financiers have not been willing to fund projects until the market-rate prices reached so far into the stratosphere that they could expect to make a profit. So they make only super-expensive housing, with some “affordable” units begrudgingly provided to lottery winners as the community organizers have forced them to, which feeds back into the common misperception that developers are only willing to build super-expensive housing. Which provides political support for more restrictions, which raise the costs, which slow construction, which raises the prices, in an insane feedback loop.
[0]http://www.spur.org/publications/urbanist-article/2012-12-18...
[1]https://experimental-geography.blogspot.com/2016/05/employme...
Source: friend who's been in Bay Area real estate for over a decade.
We can start talking about oversupply when they're more like $700.
The reality is, rental housing is a canary and shifts quickly based on market conditions. The market is flooded nationwide, and if you look closely at newer projects, the better banks have slowed down investment.
It was the best of times, it was the worst of times...
I like the idea of 'economic canaries'. There has been a bipartisan effort to ignore fundamentals for the past 36 +/- years [1]...
I can only pray the new administration manages to at least get something right with their supposed dedication to the Rust Belt.
Actually, the rents are far higher than they should be in not only SF, but NYC, DC, Boston, LA, London, and many other cities and the reason is structural -- the use of zoning density restrictions to create artificial scarcity of housing to help the special interest group of wealthy landlords to the detriment of renters. Many people trying to make a life have trouble making ends meet while Donald Trump and other wealthy landlords have far more wealth than they would in an efficient market.
No, not much at all has changed and the "building boom" consists of 5 or 6 high rises and a small handful of quarter-block sized rental apartment complexes.
Think of the normal background level development that is always occurring in Denver/Minneapolis/Portland ... that suddenly happened here for a few years. "Boom".
http://www.economist.com/blogs/freeexchange/2015/03/wealth-i...
The thing though with this situation is that things have been so bad and so extremely NIMBY that it isn't really possible to do worse.
Things are still bad, but when rents hit the outer atmosphere, there isn't really anywhere for them to go but down.