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Unaffordable Housing

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oldrentcontrol

Probably the single biggest challenge facing American cities today is the lack of affordable housing. We are just finding out the details of why this has become such a problem. A random guy decided to track San Francisco rent prices over the past sixty years through the methodology of a quality historical study: he went to microfilm and charted rental ads.

There are some ups and downs, but for the most part there is a very simple trend: 6.6 percent.

That’s the amount the rent has gone up every year, on average, since 1956. It was true before rent control; it was true after rent control. It wasn’t entirely true during the 2000 tech bubble, but it was still sort of true and it became true again afterward.

6.6 percent is 2.5 percentage points faster than inflation, which doesn’t seem like a lot but when you do it for 60 years in a row it means housing prices quadruple compared to everything else you have to buy.

The first thing that stands out is the important point that rent control has not negatively affected rental prices. May not have helped either but this is important evidence against those who demonize rent control. The second thing that stands out is that 6.6 percent over 60 years adds up to a lot of money and suggests that the roots of the housing problem in San Francisco run deeper than the tech boom. What would help solve these problems and make housing affordable?

It would take a 53% increase in the housing supply (200,000 new units), or a 44% drop in CPI-adjusted salaries, or a 51% drop in employment, to cut prices by two thirds.

OK, so this would mean the way to make San Francisco as affordable as (say) Portland would be to either cut everybody’s salary in half, or fire half of them, or rapidly increase the number of homes by 50 percent, which would let the population rapidly leap to about 1.2 million.

Oh. Well. That’s not good. Is there any way forward? Maybe.

1. Adding new units is mostly only going to keep shit from getting worse.

1a. That’s still a good thing.

2. Rent control does not seem to be a huge cause of the problem per se. Shit was bad before; shit was bad after; shit did not get notably better or worse for the median apartment seeker, at least if you start in 1956. (On the other hand, something odd is going on in Fischer’s early price data from the 40s. If you omit the 1950–1960 dip in rents, then everything before rent control in 1979 starts looking more like a plateau. Here’s his first chart again for good measure.)

2a. The way that rent control might matter indirectly is if it leads indirectly to fewer new units, for example because it gives people a reason to protest or sue to prevent developers from replacing little old rent-controlled buildings with big new market-rate ones. Which is pretty understandable on the part of the poor people but it’s still a shitty outcome, because (as Fischer’s formula suggests) every fancy new roof holds prices down a little bit because the rich people under it don’t push middle-class people out from under their middle-quality roofs, and so on down the line until someone ends up in a tent.

2b. Still, there’s no clear sign in this data that rent control has had this additional anti-new-housing effect on San Francisco. Again: shit was bad before. Shit was bad after.

3. Cutting infill development costs would help if there are ways to do that without screwing other things up too much.

4. If there is something stopping the housing market from building enough new homes for newcomers, then it’s probably got to be something that arrived around 1960 or earlier.

And the alternative, endless sprawl, is a completely unsustainable environmental disaster.

And as rental prices skyrocket around the nation (my own just went up $100 a month…) and with home ownership at a 48 year low, Rachel Cohen highlights a recent report demonstrating how new categories of subsidized rental housing actually encourage racial segregation by appealing to relatively affluent whites that force people of color into more segregated neighborhoods.

Amid this housing policy landscape comes a provocative new report from the Institute of Metropolitan Opportunity (IMO), a research and advocacy organization associated with the University of Minnesota, which looks at what they call a new category of subsidized housing—one catering to whiter and comparatively more affluent people than the typical residents of affordable developments. IMO says that while many of these projects, which rely on federal Low Income Housing Tax Credits (LIHTC), may advance public policy goals like historic preservation and economic development, they also worsen racial and economic segregation and likely violate fair housing laws. Coining these developments Politically Opportune Subsidized Housing, or “POSH,” IMO suggests that affordable housing development can create segregation not only within and between communities, but also within the subsidized housing system itself.

The report focuses primarily on the Twin Cities—the most segregated predominately white metropolitan area in the United States—but the authors also explore how similar subsidized development projects have proliferated around the country. While many of these projects are marketed specifically to artists, using a special exemption that developers lobbied for from Congress during the recession, other similar projects target teachers and veterans. Such projects carry decided political appeal, as millions of middle-class families struggle with housing costs, too.

But these POSH units, which come with a host of fancy amenities, are extraordinarily expensive. In the Twin Cities, IMO finds the average per-unit total development cost of a POSH project to be $347,500, compared with $266,000 per unit for traditional subsidized housing. For POSH projects specifically designated as artist housing, per-unit costs can reach as high as $670,000. POSH projects are, they say, likely the most expensive subsidized housing developments in Minnesota’s history.

The residents in POSH housing also look quite different than those who live in traditional subsidized housing. While more than 70 percent of residents in Twin Cities Low Income Housing Tax Credit projects are nonwhite, more than 65 percent of Twin Cities POSH residents are white. In some buildings, the resident percentages top 80 percent and 90 percent white.

IMO suggests that these POSH projects may violate federal fair housing laws. Some artist housing, for example, imposes screening mechanisms, many of which could create discriminatory hurdles for low-income minority applicants. IMO quotes a legal aid attorney saying, “You have to try really, really hard to find 80 or 85 percent white people in the poor population of Minneapolis. You have to have a really good sorting system.”

There’s no question that the affordable housing issue needs to be a top priority for policymakers. There are no easy answers, but whatever solution that comes forward is going to have to combine a lot of dense building, public transportation systems without large parking requirements for individual vehicles, and probably mandated public housing with rent control and a funding mechanism to maintain said housing for the very poor.

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  • DocAmazing

    Before the feces-fling commences, I just want to suggest that the Minnesota outfit change its name to “the Institute of Metropolitan Housing Opportunity” for better acronymic possibilities.

    • Manju

      Then they should move from the University of Minnesota to the Antonin Scalia School of Law.

  • For POSH projects specifically designated as artist housing, per-unit costs can reach as high as $670,000.

    That really jumped out at me. There was a mill building redeveloped for low-income artist live/work space in Lowell where the developer got some affordable tax credits, and I assure you, it cost closer to $67,000 per unit than $670,000. What is up with that in Minneapolis?

    • DocAmazing

      Conversion vs. de novo, from-the-ground-up building?

      • Mill rehab.

        ETA – it’s a project that included a % of affordable units, with the rest market rate.

        • efgoldman

          Mill rehab.

          Old industrial cities, particularly in the Northeast, have/had plenty of convertible buildings (At least where the mills haven’t burned down) and dwindling populations. Lowell has been lucky in that it’s got the expanding UMass campuses and Wang led the way in new technology. Other places (Holyoke, Fall River, Woonsockett….) are not so lucky. Not that I have an answer.

          • Even where the mills burned down, you have the land. Downtown, often riverfront, land.

            The difference between Lowell and those other examples is Lowell’s closeness to Boston and to the northern 128 industrial cluster. If we were as far from Boston as Springfield is, we’d be Springfield.

            I think focusing economic development efforts to second-tier cities in the region is a big part of the answer. People would flock to renovated mills in Pawtucket if there were jobs in Providence, or in industrial parks in Attleboro.

            I’d rather see New Bedford connected by rail to Providence than to spend that money to provide a 2-hour commute to Boston. Not sprawl, but a more poly-centric region. We already are, and have always been, so it would be a restoration/infill type of strategy.

            • efgoldman

              The difference between Lowell and those other examples is Lowell’s closeness to Boston

              And the availability of commuter rail.

              I think focusing economic development efforts to second-tier cities in the region is a big part of the answer. People would flock to renovated mills in Pawtucket if there were jobs in Providence, or in industrial parks in Attleboro.

              I agree, but that’s a big, big “if.” And yes, making Providence a secondary rail hub would be a start, although I don’t know that any such plans are even in the concept stage. Fidelity and Citizens, most notably, continue to expand on campuses in Northern RI, although some portion of those jobs are relocated from Boston. not, technically, new.
              We need a RI version of Mike Dukakis and Fred Salvucci.

              • There’s commuter rail from Providence and Worcester and Fitchburg, but it’s just a little too far if you’re going all the way in to North or South Station. But if those place were job centers, there would be “reverse-commuter rail” already in place!

                I wish there was more cross-border planning and strategy. Beacon Hill just doesn’t think of Bristol County as part of a Narragansett region, just as a distant part of Boston’s.

                ETA – I think they might have been a little more effective on cross-border thinking in the Blackstone River area.

              • DocAmazing

                If you want some high-flying tech firms, we can spot you a few.

                • I’m picturing a guy in a sweater vest trying to get Sal to accept App Store credits for the weekly pickup.

  • Steve LaBonne

    One piece of a long term solution is for a bunch of other cities to become desirable enough that everybody doesn’t want to live in the same half dozen places. And this is beginning to happen to some extent with the revival of “flyover” cities like Cleveland, Indianapolis and Kansas City.

    • This is true, but the extent of this isn’t probably going to be all that helpful–the walkable housing in a lot of these cities will fill up fairly quickly. It’s still going to require more urban planning and dense building. Many neighborhoods in Cleveland are cheap, yes, but they are also distant from any grocery stores, decent public transportation, etc.

      • Steve LaBonne

        Absolutely, it’s basically only the Richard Florida stuff that’s getting done so far in these cities, but at least it’s a start.

      • It’s still going to require more urban planning and dense building.

        One successful example of which is the development of residential and mixed-use projects on obsolete industrial sites. The Brownfields laws of the 1990s really helped make that easier.

      • los

        still going to require more urban planning and dense building.
        Too many people in the USA aren’t civilized enough to live in multi-unit residences. This seems to be less of a problem in ‘enlightened’ European countries…

    • efgoldman

      One piece of a long term solution is for a bunch of other cities to become desirable enough that everybody doesn’t want to live in the same half dozen places.

      Chicken/egg thing, though, with jobs, jobs and more jobs. In that regard the Midwestern rust belt cities have the same problem that the Northeast mill cities do. And I don’t have an answer for that, either.

    • shah8

      Well…

      This is mostly a gentrification boom, not a land price boom. Land prices went up a lot, but it’s a factor of making places “exclusive”.

      As such, that’s why you’re seeing this phenomenon in fly-over country with plenty of land.

      It also means that you can’t fix this on the supply side. No plausible amount of deregulation, downzoning can fix this and give us more housing. That’s because every insider has a gold miner mentality wrt value of their property. Only way to fix this is with two processes.

      1) We finally decide to tax housing capital gains and land value appropriately, and tax Grandma Millie out of her home. (also, remove mortgage deduction)

      2) We wait until the malinvestment leaves municipalities desperately unable to fund things municipalities have to fund, and most prospectively gentrified places go right to 1970’s South Bronx.

      • Francis

        Precisely. To be clear, though, gentrification means workers getting paid more, which is usually not a bad thing.

        So what is really happening is that there is an increasing spread of wealth. Enough workers are getting paid more that they are bidding up the best housing stock against each other. See, also, London, NYC and portions of LA County. As the best housing stock is locked up by billionaires, the high millionaires go a little farther and so forth. People whose wages aren’t rising and who rent are thus faced with ever more unaffordable housing.

        San Francisco is functionally built out. So is Manhattan. The occasional high-rise is not really going to move the overall stock much. (SF is also facing water supply shortages.) At this point, I’m concerned that a substantial additional increase in SF’s minimum wage would likely largely be captured by landlords because the City is so desirable.

        So before we focus just on the issue of unaffordable housing in a few large cities, we should be asking a deeper question of what problem it is that we’re actually trying to solve. If we’re just trying to improve the quality of life for the working poor, then the best solution is likely to improve rail access into the City and stop trying to overcome the massive economic forces affecting housing costs.

        And one final point — who gets to decide how each of us live? Personally, I like the fact that the California Planning and Zoning Code vests the power to decide in the local communities. If Marin County, for example, wants to remain low density, why should the vote-heavy counties in the Bay Area and LA have the right to over-ride that decision. Or, even worse, a federal government controlled by the Republican Party?

        • DocAmazing

          If Marin County, for example, wants to remain low density, why should the vote-heavy counties in the Bay Area and LA have the right to over-ride that decision.

          Part of this is a “bury your own droppings” issue. Marin’s not the issue; they’ve checked out of the whole regional thing, other than commuting into neighboring counties to work. Santa Clara and San Mateo Counties are another matter: cities within those counties have elected to host large, local-tax-paying companies while preventing most of the employees of those companies from living there. Letting Cupertino (for example) externalize the costs of having Apple headquartered there while reaping the tax benefits is more than merely unjust–it’s causing serious problems in SF, Oakland, and Emeryville, among other places.

          • LosGatosCA

            Letting Cupertino (for example) externalize the costs of having Apple headquartered there while reaping the tax benefits is more than merely unjust–it’s causing serious problems in SF, Oakland, and Emeryville, among other places.

            I’m not sure I get that example.

            Google is supporting their workforce preferences to live in SF while working in Mountain View and free riding (last I heard) on bus line infrastructure in San Francisco while their employees are driving up everyone’s housing costs (along with the local internet media companies, SalesForce, etc.) But as pointed out above, they are also driving up the wealth of property owners in Oakland as the overflow goes East. Alameda median home prices are higher than Contra Costa right now.

            These companies have to be headquartered somewhere. Apple is in Cupertino because Steve Jobs and Wozniak grew up there. Cupertino is small because they did not incorporate until San Jose annexed about 25% of the neighborhood in the mid 50’s.

            The whole situation is completely path dependent – not a plot on Apple’s or Cupertino’s part. I’m sure Jobs drove as hard a bargain as he could, but that would be true wherever they landed.

            In fact, I suspect that Jobs took over the HP/Compaq Cupertino sites as some final closure in his mind in superseding HP as Silicon Valley’s premier company.

            It’s that way for most of Silicon Valley. Stanford grads start companies in Menlo Park, Palo Alto, Mountain View. Harvard grads come to Sand Hill road to get early funding and like the weather and the industry ecosystem. Xerox starts PARC to be close to Stanford instead of Rochester.

            It’s not a plot, it’s a competitive advantage that yields tangible results. If Sybase could have beaten Oracle from Emeryville way back when, then the situation would be different. But they didn’t. Peoplesoft gave Oracle a good run for their money and now Pleasanton/Dublin/San Ramon is thriving with software/tech companies.

            • Philip

              free riding (last I heard) on bus line infrastructure in San Francisco

              In this particular case, the optics are/were worse than the facts. The Muni bus stops they were using often don’t even have a shelter, it’s literally just a pole in the ground. I think all the tech companies are paying to use the bus stops now, though.

              The problem in South Bay is that the cities constantly whine (fairly!) about tax revenue from the big companies headquartered there, but most of them absolutely refuse to make it easy for employees to live there. San Francisco’s NIMBYism is famous when it comes to housing, but it’s not just SF. It’s the whole region. So the companies themselves aren’t really to blame; as you say, they have to be headquartered somewhere, and as problematic as they are, e.g., the shuttles actually are an effort to do the right thing by reducing traffic and car use/ownership. But the local governments refuse to help improve things.

        • Dilan Esper

          If San Francisco cannot accommodate more residents because of a water shortage, than water needs to be a lot more expensive there, priced at whatever the market clearing rate is.

          • Pat

            Cause poor people don’t need to drink water?

            • Dilan Esper

              Poor people can’t live in the Hamptons, and they can’t live in San Francisco if the water thing is true.

              If it is not true, the City needs to start radically increasing density.

              • Philip

                It’s true, but dishonest. SF has water issues, but no more so than the entire state of California.

          • Ronan

            The people should just bathe in Evian

          • Chaz

            This is very stupid.

            First of all, the much fairer way to do what you are talking about is this: make the first X gallons of water per person or per household very cheap, and then make quantities beyond that much more expensive.* X is the amount a person needs for drinking/cooking/cleaning, with a healthy margin, and then the amount beyond that is what people blow on lawns and pools. Better yet have another threshold where the rate shoots up yet again, at the point where you go from “house with a lawn” to “Oprah’s personal botanical garden”.** That lets you ration out your water without screwing people.

            But beyond that the claim you accept (“San Francisco does not have enough water”) is false anyway, because San Francisco’s water supply is not fixed by nature or engineering practicalities. “San Francisco’s water” does not come from San Francisco. Like Los Angeles and other cities in California San Francisco has a hodgepodge of legal rights to various sources of water all over the place. A portion of the water from Lake X, a portion of the river flow from River Y (which in turn is from snowmelt in the mountains), Z amount of groundwater from the local groundwater basin, etc. It comes from a hodgepodge of old laws, doctrines, and contracts which are politically determined. Effectively the actual San Francisco water supply is “whatever the State of California says San Francisco can have”.

            At the moment the vast majority of California’s water is given over to agribusiness for free or dirt cheap–way way cheaper than those San Francisco water rates you think are too cheap. This is because the state legislature has decided to give agribusiness a giant gift. If they were to wake up tomorrow and change their mind the legislature could double every city’s water supply just by cutting the farmers’ cut by ~20%.

            Now that is politically difficult, but it is a lot more realistic than saying, “San Francisco has no water time to kick everyone out!” (And by the way where is this water-rich place everyone is supposed to go? Are we evacuating the entire state and moving to Louisiana?)

            *This is common practice in California cities. Unfortunately some dingbat court ruled it illegal (for at least one city; I don’t think they’ve all had to stop) when a rich guy sued. The state has a law saying municipalities can’t charge more than the cost of supply for water (can’t make a profit on it). The city said their overall water charge revenue matches their overall cost, but the court said, oh no, that’s not good enough–the rate you charge Joe Waterhog (who is over his basic allotment and thus paying the 2nd or 3rd tier rate) cannot exceed the cost of acquiring that water and piping it to his house.

            **True story, Oprah has a vast garden and tons of fountains. But the City of Montecito doesn’t have enough water to accommodate this (along with all her rich neighbors) so she sucks up water two towns over and brings it in in tanker trucks.

        • MattT

          If Marin County, for example, wants to remain low density, why should the vote-heavy counties in the Bay Area and LA have the right to over-ride that decision.

          In practice what “local control” means is that historically segregated communities can do is use formally race neutral practices to maintain segregation in form of restrictions for lower density. This is a serious issue here in Austin. The city formally segregated neighborhoods by cutting off utility services to minority homeowners until they moved to segregated neighborhoods. That’s now illegal, but the zoning created under this system was single family homes on relatively large lots in the white neighborhood, and any attempt to get more affordable housing or any kind of multifamily or apartment units is a massively uphill battle, and the status quo maintains the economic and racial segregation that the city initiated. It’s not the lunatic Republicans in the state legislature maintaining that, it’s local control in a very Democratic city.

          In California, that kind of segregation was enforced through redlining rather actual city utilities, but the underlying dynamic is pretty similar

        • LosGatosCA

          San Francisco is functionally built out. So is Manhattan.

          Manhattan density is 4X San Francisco. Twice as many people in half the space.

          San Francisco is built out only in the sense that one might say the right balance between quality of life, preservation of open space, and economic development (including character preserved for tourism) are perfectly balanced and that balance should not be disturbed.

          The Presido and Golden Gate Park are very, very low and no density, respectively. They constitute 1/3 of the size of Manhattan. Lands End, Ocean Beach, Twin Peaks, Lake Merced Park make the park land in SF over 40% the size of Manhattan and dwarf Central Park. Still the remaining parts of SF are 75% greater than Manhattan.

          Tourism is a big part of the CA and SF economy. If 49 mile drive becomes significantly less attractive, if the Cow Hollow/Marina becomes less walkable, etc. then it’s not just somebody’s personal enjoyment of their home that’s degraded, it’s the tourism and many people’s income that could be negatively impacted.

          San Francisco is a national treasure and an international city- density could be upgraded in other areas, many of which are actually closer to the jobs people have on the peninsula. Redwood City, San Carlos, Belmont, Cupertino, Campbell, Los Gatos, San Jose, for instance. Or even in the East Bay – Fremont, Pleasanton, etc.

          I’m not saying that SF should be exempt, but I am saying the real solutions are regional in nature not SF specific plus they involve more than just density/zoning.

          • MattT

            Increasing density makes things less walkable? Replacing some 3 story apartment buildings with 5 or 6 story building means people want to pave over Golden Gate Park?

            Solutions absolutely have to regional, but I think it’s a lot more important that cities actually have space for economic and racial diversity than being primarily for millionaires and tourists.

          • Dilan Esper

            The City would not lose tourism by growing denser. That’s an excuse for keeping it small and full of rich people.

          • Philip

            There are vast swathes of San Francisco that could be denser without affecting anything you mentioned. Zone parts of the Richmond and the Sunset to have ~10 story buildings. Put up more skyscrapers in SoMA. Put more 5 or 6 story stuff in Haight-Ashbury rather than 2 and 3 story stuff. Same thing in Nob Hill. None of this would destroy the character of the city, except insomuch as it would be a change in character for San Francisco to take affordability and livability seriously

            • LosGatosCA

              I’m not saying that SF should be exempt

              Must have missed this.

            • Chaz

              I like this, but from a developer’s standpoint, I wonder if it is profitable to demolish a three story building and build a six story one, if the existing building is in good condition and you’re not jacking up rent? You effectively have the capital cost of a six story building, plus a demolition, plus all the lost rent during the construction time, to get the (extra) rent of a three story building.

              In principle it is profitable if the land costs and rent are high enough, but they’d have to be pretty darn high indeed. In that case I would also guess that you’d be better off going straight up to, say, nine stories.

              There are of course buildings that wear out and need replacing anyway but redeveloping that way is very slow.

      • los

        why you’re seeing this phenomenon in fly-over country with plenty of land
        I don’t think haut flyover can appeal as much as haut flyto appeals. Too many people with “career options” have seen life outside of the flats.
        A 2bed/1bath “slum” at 40 minute commute into the highest demand cities probably rents for $2000+/month.
        I doubt a 2bed/1bath “slum” at 40 minute commute into the highest demand city in Alabama rents for $1000/month.

        Converting coastal or otherwise scenic industrial areas into haut 2nd tier (on the national scale) can relieve some of the demand for 1st tier haut living.

  • efgoldman

    And the alternative, endless sprawl, is a completely unsustainable environmental disaster.

    Coastal cities (including the Great Lakes) are limited by topography. In the 19th and early 20th centuries they created new land by filling swamps, rivers or the coast. That option’s not available anymore, for good reasons. If you can’t build out, you have to build up, and that’s (relatively) very expensive. It’s a supply/demand thing. And it’s not just the cities proper. The near-in “streetcar suburbs” (especially where there’s reliable public transportation) face the same issues. Brookline/Cambridge/Somerville/Watertown/Belmont/Waltham MA, Arlington/Alexandria VA (my kids, each with a good full-time job that pays thousands more than I ever made, are being priced out of Arlington), Brooklyn, etc…..

    • Coastal cities (including the Great Lakes) are limited by topography.

      Not as limited as they (excluding the Great Lakes…) will be in, say, 20 years! (And if drought should happen to extend the buildable land next to the Great Lakes, that buildable land wouldn’t be liveable for long.)

      • los

        Real estate investor’s goldmine!
        1. Sell before the beach houses before the beach runs too far away, then build along the new beachline!
        I’m holding onto some great shoreline property just outside of Atlantis!

        2. Buy one block inland of the Carolinas coast, then sell when the beach reaches your purchases!
        /s

  • Tyro

    I would guess that the reason these middle income residents skew heavily white is because in the past, they would have moved out to more affordable suburbs. Now that these additional middle income housing opportunities are available to them, they choose to remain in the city rather than moving outside to someplace less expensive.

    I suspect this will continue as racial minorities who get middle income jobs will have less interest in living in the center city and more interest in living in cheaper suburbs.

    • AMK

      The white millennials clogging up all the rental apartment space in the city will eventually move to the suburbs, because most of them won’t be able to afford the rent/cost of living plus the private school tuition for their kids.

      I suppose you could say that with enough of these middle-class yuppies living downtown, the public schools serving those areas will just improve, but it won’t happen fast enough.

      • Tyro

        The white millennials clogging up all the rental apartment space in the city will eventually move to the suburbs

        This is what people keep saying, but Millenials are heading into their 30s at this point. I think they’re staying.

        So we might as well build more housing.

  • jake

    Looking only at San Francisco since 1950 gives a pretty misleading picture of stuff, no? The SF Bay Area almost tripled in population since then while the city itself went up by something like 5%. SF is now proportionally more central to the area than it used to be, so naturally it’s more expensive.

    Rent control also has the effect of giving renters something awfully like a property interest in their home that they can’t sell which tends to make them anti-development just like homeowners…

    • LosGatosCA

      Palo Alto – $2.5M median home price
      Los Altos – $2.8M
      Mountain View – $1451
      San Jose – $900K
      Cupertino – $1.7M
      Los Gatos – $1.7M
      Santa Clara County – $1.1M – 1.9M population

      San Francisco -$1.4K – 813K population

      There’s a whole different dynamic in the Bay Area due to the fact that the economic center is actually in Palo Alto/Mountain View/Cupertino. 35-50 miles south of San Francisco. For Google employees SF is a bedroom community.

      San Francisco is the cultural/tourist center of the area. But Berkeley and Palo Alto are the educational and research centers.

      • LosGatosCA

        I used to think that mass transit would be a leveling factor on home prices in the Bay Area. But with median home prices in Alameda and Santa Cruz counties over $700K and Marin over $1M, I don’t see how intra-Bay Area mobility will impact housing prices unless density goes up everywhere (except Marin – that will never happen).

        Santa Clara County is filling in almost every vacant lot with high density housing. Three story apartments, row houses, etc. Especially along the rail lines.

        So the only other outlet to get affordable housing is to build mass transit infrastructure in a figure 8 with one circle around the SF- South- East Bay and the other circle East Bay-Tracy/Stockton – Sacramento-Oakland. Have capacity to have express and local trains. But use zoning to avoid repeating the interstate-fueled sprawl.

        Maybe an inner circle from Antioch to Brentwood down to Livermore as well. I’m not familiar with the Brentwood to Livermore area, so I don’t know the environmental impact of growth there.

        More density without improved mass transit is just as pointless as more mass transit without more density.

        But do I have faith in my fellow citizens to have a vision and fund it? Not sure about that.

        • los

          only other outlet to get affordable housing is to build mass transit infrastructure in a figure 8 with one circle
          AFAIK, the 2006-2010 (2011?) foreclosures hit the commute fringe (home debt owners) the hardest.

          I used to think that mass transit would be a leveling factor on home prices in the Bay Area.
          Transit has, hasn’t it? But there is still a price gradient. The gradient would be steeper without transit.

          • Philip

            There definitely is a gradient, but it’s closing. For example, I know (because I’m probably doing it!) that a lot of people who’ve tried living in San Francisco are now moving across the bay to Oakland because it can save you thousands a year on rent, which thanks to the basic economic laws SF homeowners don’t believe exist is pushing Oakland prices up into the stratosphere. It’s still not as bad as SF itself, which has hit the mesosphere and kept going, but…

            • DocAmazing

              Eh, don’t expect applause. I was born in Oakland; a lot of friends of mine have had to move to Sacramento and Stockton because of the increase in rents brought about by better-heeled people moving in.

              • Philip

                Oh, I’m not saying this is in any way good. I just mean that San Francisco’s leakage is inevitably causing damage elsewhere too. I don’t like that I’m part of it, but my job is here and I’ve gotta live somewhere.

      • los

        the economic center is actually in Palo Alto/Mountain View/Cupertino
        I would expect the next ‘center’ to develop near the coast, not inland, though the new center’s sprawl will fill inland.

        Also, some agricultural area will “die” not by suburbia, but by water allotment buyouts.

  • Sebastian_h

    This guy did great first order work, but I think this analysis is wrong:

    Rent control does not seem to be a huge cause of the problem per se. Shit was bad before; shit was bad after; shit did not get notably better or worse for the median apartment seeker, at least if you start in 1956. (On the other hand, something odd is going on in Fischer’s early price data from the 40s. If you omit the 1950–1960 dip in rents, then everything before rent control in 1979 starts looking more like a plateau. Here’s his first chart again for good measure.)

    Whoever wrote that is thinking of the 6% per year as a constant, when in a normal market it would represent a hugely INCREASING incentive to build every year. So each year that the prices go up 6% it should be more and more mysterious that more building is not happening in response. The other way of looking at the data is that SF has a 200,000 unit backlog of building. But it didn’t start that way. It started as a 10,000 unit backlog. Then 20,000. Then 30,000. Think water behind a dam. As the backlog gets bigger the pressure to build gets stronger and stronger. As prices skyrocket the incentive to build gets stronger and stronger. But for some reason, it didn’t. I’m not sure that ALL of the reason was rent control, but this data doesn’t suggest that rent control wasn’t a major factor.

    • j_doc

      Does it matter to your analysis that SF rent control started only in 1979 (as the article says) and has never applied to new construction since then? Since 1979, rent control can only apply to buildings constructed before 1979. It’s never been very clear to me, given sky-high rents, how this is a major disincentive to new construction. You can rent new construction for whatever the market will bear, and the resulting rents are indeed sky-high and presumably quite lucrative. And the backlog, so to speak, started long before 1979 anyway.

      • Manju

        resulting rents are indeed sky-high and presumably quite lucrative

        This, that rents will be off the charts for uncontrolled apartments, is precisely what Textbook Econ 101 predicts will happen under a rent control regime.

        • DocAmazing

          Of course, rents are sky-high in desirable cities without rent control–it’s just that no apartment is affordable.

          • Just_Dropping_By

            And the restaurants are so crowded, nobody goes there any more! [/Yogi Berra]

      • los

        new construction
        Limited by zoning/permits. Neighbors in 1940s 3bed don’t want a 2 foot setback 34 floor apartment to replace the 1920s 2bed bungalow on adjacent lot.

  • Manju

    The first thing that stands out is the important point that rent control has not negatively affected rental prices.

    The graph shows that a rents right before rental control (around 1980) were the same as rents a decade earlier. Ditto if you go all the way back to the mid 40’s.

    The pre-rent control rise occurs from 1955ish to 1970ish. But that’s only because there was a steep decline earlier, probably because the 1940’s featured WWII and “the entire Japanese community being sent to internment camps” as one commenter in the linked article puts it.

    So basically, before rent-control SF rents were essentially flat. After, they rocket up.

    Rent Control. Still Evil.

    • j_doc

      WWII might have had a teeny distorting effect on SF rents. It’s too bad the numbers don’t go back further than 1945. I imagine you’d see a huge war-boom inflation from 1942-45 followed by what we do see, the popping of that bubble as everyone goes home. Remember SF was the entrepôt and epicenter of the entire pacific war. I bet only Honolulu was more affected.

      Which is to say it’s not unreasonable to start the postwar trend from the 1955 nadir, probably the closest to a normal economy SF had since the start of the Great Depression.

      • Manju

        By 1970, rents were back where they were in the late 40’s. Then they plateaued for about a decade.

        Then comes rent control and boom.

      • los

        Remember SF was the entrepôt and epicenter of the entire pacific war.
        What of LA/Long Beach?
        East Coast? Norfolk? (questions because I don’t recall reading of that history)

        I bet only Honolulu was more affected.
        No jobs in Honolulu. Military was probably biggest employer. I don’t think tourism that required ocean travel attracted many mainland customers in the late 1940s (aerial photos should show a somewhat sparse Waikiki beach?)

        SF was an established business center that offered jobs.

  • Sebastian_h

    I haven’t digested this guy’s work (it goes into hundreds of posts) but this post seems very representative. It goes well with a recent post here suggesting that quite a few of the non-coastal cities are MUCH better for inequality. He analyzes at the zip code level for what he calls “Closed Access Cities” and suggests that the policies which make them closed access (there is a cluster of policies, largely around housing) dramatically intensifies inequality.

    • los

      The ultra-rich (Dianne Feinstein..) don’t bid up San Antonio or Flagstaff.

      • Sebastian_h

        You didn’t read the link.

  • Oh, this is easy to fix: raze the single-family housing.

    The majority of San Francisco’s landscape is single family housing. Single family residential-only zoning is, relative to nearly any other urban pattern, deadweight in terms of per-acre taxes produced. It also, thanks to half a century of white supremacist housing policies (lol if you think this isn’t a problem in every urban area, regardless of politics), skews white and wealthy. Single-family homeowners benefit the most from California’s & San Francisco’s current limits on property taxes, due to the huge delta between their average income and what they actually pay for housing. (As opposed to renters who find half of their paycheck drained just to keep a roof over their head.)

    In other words, the people in these neighborhoods are the least deserving of any pity in the current system. Force them out with eminent domain—they can move to Oakland with the extra $800,000 now in their pocket; who cares. Build decent but unimposing two- and three-story apartments in their place. Make it either all public housing, or sell the lots one by one to locals and pass laws requiring the owners to live in the same neighborhood and forbidding consolidation of building ownership. This encourages the control of housing supply to stay in the hands of people with a significant investment in the success and health of the community, without giving enormous power to already-humongous real estate companies.

    Unfortunately, this is politically impossible, because single-family detached housing is fucking untouchable even in San Francisco, so debates about housing supply stay focused on the controversy of replacing the relatively small number of existing apartments with slightly bigger ones.

  • Sebastian_h

    More on the supply side problem:

    The Census estimates released on Thursday offer some context: In the 12 months ending in July 2015, California added just 80,000 units. Harris County, Texas, the sprawling home of Houston, added 37,000. This fits the five-year pattern. Since 2010, America’s most populous state has built 300,000 units; Harris County has built 121,000. (Texas as a whole has doubled California’s total in that time.)

    From this article.

    Remember San Francisco alone has a backlog of about 200,000 units. So essentially the WHOLE state of California only allowed enough building for 1.5x what is needed to keep its 4th largest city more affordable. That is a huge part of the reason why SF is completely ridiculous and CA is becoming largely unaffordable.

    • los

      Inland such as Bakersfield is ‘affordable’ relative to coastal California, but Bakersfield is probably still pricier than a 3rd tier city in Arkansas or Nebraska.

      High income people pay for low-density housing as near as possible to haut city benefits (opera, top international djs, etc)

  • Dave W.

    I’d be a little careful of the conclusion that rent control didn’t negatively affect rental prices. Remember, this is a study of the median rental price of units coming on the market each year. Under rent control, renters often try to stay put as long as possible, to take advantage of that sweet sweet controlled rent. So I would expect that rent-controlled apartments would be somewhat underrepresented in his data, relative to non-controlled apartments, because they wouldn’t be coming on the market as often. It’s a good measure of what someone new to the city might have to pay, but it might not be as good a measure of what people currently in the city are paying.

  • Chuchundra

    There are certain bad ideas, like rent control and abstinence-only sex education that keep hanging around because they appeal to certain ideological biases.

    They’re bad ideas. We know they don’t work. We have both theory and data proving they don’t work. In fact, not only don;t they work, they generally make things worse. But there’s always some group of people who say we need to keep trying them because “common sense” or whatever says they should work.

    • Manju

      Abstinence-only rent control deserves a shot though.

    • DocAmazing

      Looks like someone didn’t actually read the linked-to study.

      • Manju

        Doc, I suspect DSB is affecting your judgment.

  • Richard Gadsden

    BART being a non-standard gauge still stands out as one of the stupidest decisions ever.

    Still, I’d have a chat with Talgo and CAF (the two Spanish train manufacturers) about gauge-changing trains so you can run trains through from BART onto CalTrain.

    If there were through trains from the East Bay to Palo Alto (you really should be able to provide a service from say Oakland to Palo Alto in under an hour) then the cheaper areas of the Bay to live would be connected to the areas where the jobs are.

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