San Francisco's corrupt city government isn't precisely the cause of the high rent prices. But, that's only because it's inept at city governance.
There is not enough office or living space in San Francisco because of the "humanitarian" laws passed over the last century. Ignorance of basic economics and community backlash make addressing the problem nearly impossible.
The median rent in San Francisco is higher than the median income in the United States. Just a cool $50,200 a year hanging over your head.
—Greg Wester (@gwestr) May 28, 2015
Rent Control
Rent control does not control rents. It suppresses prices; which increases demand; which decreases supply. That should increase prices and complete the cycle, but … rent control.
We're left with suppressed prices in rent controlled buildings and inflated prices in new buildings. New buildings target the upper classes that can afford the high prices, and zoning laws prevent us from tearing down old homes. Rent control should help the lower classes. The irony. The mismanagement. Only the wealthy are benefiting from the current situation. Rent Control is a Bad Idea.
Affordable Housing
Is is messy for all the same reasons as rent control, but with the additional complexities. City governments have proven they're either corrupt or incapable of managing large construction projects. San Francisco is particularly susceptible to these problems.
Building Ceiling
“It appears the Giants have touched all the bases with this revised project,” Agnos said. “And those bases are: reasonable heights, increased affordable housing, open space and neighborhood-serving retail to bring some spark to what is an unfinished neighborhood. Assuming all this bears out in the writing of the measure, I think they have done a terrific job of revising the project.”
—Giants add affordable housing, shorten heights in building plan
San Francisco is a six by six mile square of land edged on 3 sides by ocean with a mountain range in the middle. There's only so much space to put people, it long ago hit the limit, and more and more people want to move it. If the city wants to expand, it can only do so by building vertically. The laws of physics and whatnot.
Just to fill the existing deficit, the Building Industry Association of the Bay Area, which represents home builders, projects that the region should be permitting 2,224 units per month on average, or about 27,000 per year.
Yet, the city's people seem intent on "maintaining the character of the city" or "protecting the environment" by capping new buildings to four stories. There are exceptions, but the areas that are slated for development cover a comparatively small portion of the city. Futher, landlords are not incentivized to build further—rental payments are big business and keeping supply low keeps prices high.
Miami took the opposite approach: it provided a larger area for new growth which it has enjoyed while keeping it's cultural communities. New people will move to the city, shutting them out doesn't work for either group.
Over the past two decades, San Francisco has produced an average of 1,500 new housing units per year. Compare this with Seattle (another 19th century industrial city that now has a tech economy), which has produced about 3,000 units per year over the same time period
Oakland, right across the bay from San Francisco, has enacted policies to encourage building and has now passed more new housing units per capita.
Again, the inept city government helps no one. Ballot measures like 2014's Prop B, which are confusingly worded do all they can to work with special interests and not the interests of the city's future.
The problem is that San Francisco won't build housing, and making matters worse, residents work tirelessly to prevent more housing from being built.
…let's look at what San Francisco has in fact built. Not very much! Between 2005 and 2015, San Francisco (city/county) added 26,770 new units, according to housing permits data provided by Trulia. That's one-quarter of the housing units built in the San Francisco metro area, one-half of what was built in the San Jose metro area, and just 17 percent of the total units across the entire Bay Area. Sad.
Tenderloin
Search for a San Francisco Crime Map and look for the red area. It's a small neighborhood, centrally located in the city, near the high-market shopping district.
The Loin is a great location, mandated by turn of the century laws to maintain single occupancy apartments, supposedly for migrant labor. The Loin is trying to become a modern, crime free, property, but it's completely hamstrung by crazy laws, outdated thinking (what homeless person can afford $1000/month in rent?), and political non-starers (we can't make all those poor people homeless). The Loin is ripe for revitalization. Forget the 100 year old zoning laws, allow the community to start modernizing itself.
Lack of built-out Suburbs
The growth of new housing has slowed way down. A lot of the pressure would come off San Francisco if outlying cities would allow growth. Instead, most suburbs fall victim to the NIMBY1 syndrome.
This leaves the city in a cycle of ever increasing rents. As richer people move into higher priced homes, the slightly less rich move to slightly cheaper housing slightly further from the city center. This forces the even less rich to move further out.
As the central circles of housing fill with increasingly richer populations, the less rich are forced to move further out. The upper classes in the middle of the city then want to keep their high-rent quaint 3-story Victorians instead of building large apartments. Which perpetuates the cycle.
A Few Concrete Things To Do
Without a solution, San Francisco rents are going to remain outrageous. Already, I see people moving away from the city to live in surrounding areas and commuting into the city. While some of this is inevitable, Oakland is a major city in its own right, and it has reasonable rents, and is on the upswing.
The city should do the following:
- Remove the red tape around building high rise buildings. Many are going up near Market Street, but there are many more areas that can be built on and the city needs the housing and office capacity. Cheap housing markets build housing. Building works! There's a mostly older generation that don't want new buildings in their neighborhood. Push building through anyway.
- Phase out rent control. Start in just a few areas of the city and remove rent control from new leases. Areas like the Sunset and Potrero Hill might be good places to start.
- Maybe we should start reducing road width to add more buildings.
Do away with Prop 13which raises property values by keeping supply artificially low.- Remove the incredible
corruption in the city government - Incentivize more development, even if people don't support it. More supply means lower rents. Even adding up-market units decreases overall rental prices. Perhaps even place that housing near public transit to help break the cycle of pushing the less-wealthy further out of the city center.
San Francisco only recently got the spotlight away from Silicon Valley. If it's not careful, it'll price itself right back out.
Also Read
There are many great links in the article, but you can also read:
- I'm not a big TechCrunch fan, but this essay is a great
summary of the entire problem.
Footnotes
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Not In My Backyard ↩