July 9, 2012

32 Percent More Or Less Efficient In San Francisco Part Two

As we first reported this past March:

Per San Francisco Building Code Section 1208.4, the smallest legal dwelling unit in San Francisco must have living room of at least 220 square feet (20.4 m2) in addition to a separate closet and bathroom.
As proposed and sponsored by Supervisor Wiener, Section 1208.4 would be re-written to reduce to the minimum legal living room in San Francisco from 220 to 150 square feet while restricting residency of said units to no more than two persons.

While the amendment would still reduce the minimum legal living room in San Francisco to 150 square feet, a clause has since been added requiring the total area of the unit to be no less than 220 square feet "measured from the inside perimeter of the exterior walls of the unit and shall include closets, bathrooms, kitchen, living and sleeping areas."

San Francisco’s Board of Supervisors are scheduled to vote on the amendment tomorrow.

32 Percent More Or Less Efficient In San Francisco As Proposed [SocketSite]
Amended Definition of Efficiency Unit Amendment [sfbos.org]

First Published: July 9, 2012 7:00 AM

Comments from "Plugged In" Readers

how abou amended to 400 sq ft minimum. Free range people.

Posted by: Kathleen at July 9, 2012 9:59 PM

This is going to be good news for developers like Patrick Kennedy, and possibly landlords that will rent these units out. I'm sure both groups will be able to make money once this is in effect.

Even though simple-minded Econ 101-level arguments would have us believe that this will increase supply and thus bring down the price level, I seriously doubt that will move the needle in either the short or medium term in real world SF.

Posted by: Brahma (incensed renter) at July 10, 2012 11:13 AM

Same idea is getting underway in New York City, but at a 36% higher floor area. From the Associated Press, NYC invites developers to test tiny 300-square-foot apartments on city lot:

Maybe it’s the urban dwelling of the future: studio apartments measuring no more than 300 square feet.

New York City planners believe the tiny units could be the answer to a growing population of singles and two-person households. And in a nation that’s becoming increasingly populous and increasingly urbanized — and where people more frequently are creating a family of one — such downsizing may not stop here.

Mayor Michael Bloomberg on Monday invited developers to propose ways to turn a Manhattan lot into an apartment building filled mostly with what officials are calling “micro-units” — dwellings complete with a bathroom, built-in kitchenette and enough space for a careful planner to use a fold-out bed as both sleeping space and living room.

If the pilot program is successful, officials could ultimately overturn a requirement established in 1987 that new apartments here be at least 400 square feet.

City planners envision a future in which the young, the cash-poor and empty nesters flock to such small dwellings — each not much bigger than a dorm room. In a pricey real estate market where about one-third of renter households spend more than half their income on rent, it could make housing more affordable./

Manhattan is the U.S. capital of solo living, with 46.3 percent of households consisting of one person, according to the 2010 census.
Emphasis added. Note that the current minimum is Kathleen's suggested value.

Like I said above, I really doubt that this is going to somehow move the overall price level of housing, even if some individuals are "helped" by a self-selected reduction in quality of life.

The units at Cubix are about 332 ft.² per unit.

Posted by: Brahma (incensed renter) at July 10, 2012 4:38 PM

Brahma, agreed 100% on your hint that you really doubt that this is going to somehow move the overall price level of housing. Especially in a market where so little property fits the budgets of the median income.

A median income going to the bank will get maybe 250K in mortgage, allowing him to purchase 300K of property. Right now he can afford a 400sf condo if he can find one. If there were 300sf condos available, in theory the price should be closer to 220K. But a lower price would attract a large new pool of buyers, who would bid up the cheaper property to 250 or 275K. If you disregard quality and location, smaller places tend to have a higher $/sf.

All of this is theoretical. ymmv.

Posted by: lol at July 10, 2012 5:04 PM

lol, that was a pretty good summary of the market dynamics that I was hinting at.

From The Chronicle's story on Friday, Micro-apartments next for S.F.?:

Patrick Kennedy of Berkeley developer Panoramic Interests hopes to build the micro-units in SoMa on the site of a former guitar store at Ninth and Mission streets…he anticipates housing young tech workers, fresh out of college, newly relocated to the city, unencumbered by possessions.

The ultra-efficient efficiencies will go for $1,300 to $1,500 a month, he said…the current average rent for a San Francisco studio apartment is $2,075 a month, according to real estate service RealFacts. Those studios average 493 square feet, making the per-square foot price $4.21. Kennedy's proposed units, at 220 square feet, would rent for $5.91 to $6.82 per foot — a big premium.

So it looks like this proposal is aimed at reducing the expense of rental housing, not condos for sale. But I don't think it'll do that, either.

This would introduce more supply at a higher than existing market price, combined with increased demand (the previously mentioned "young tech workers, fresh out of college, newly relocated to the city") which could well have the effect of driving the prices of existing (larger, 493 ft²) units higher, not lower.

Also, the story describes the developer's previous building in Berkeley, but the reporter doesn't seem to have spoken to anyone who actually lives in that building, other than "an MIT grad student [who] lived in the unit for three weeks" to provide initial feedback. Three weeks isn't a long time to live in a unit, and it also wasn't mentioned if Panoramic Interests was paying the student.

Since the developer expects tenants to pay a premium, this isn't about making affordable rental housing as much it is, as a Housing Rights Committee member quoted in the article correctly says, "creating another lifestyle option". It'll be interesting to watch this play out.

Posted by: Brahma (incensed renter) at July 14, 2012 11:03 PM

which could well have the effect of driving the prices of existing (larger, 493 ft²) units higher, not lower

Which economic theory are you using here because it's not supply and demand.

Posted by: tipster at July 15, 2012 1:53 PM

Sure it is. However, I'm assuming that the market isn't in equilibrium and that the ceteris paribus assumption can't be made because demand is going to be increasing faster than supply.

Posted by: Brahma (incensed renter) at July 16, 2012 10:37 AM

In theory more supply would create lower prices, but in a largely seller market, slightly cheaper places with 30% less space would make the other housing stock more desirable. In short a salesman pitch could be: "a 350sf unit rents for 1500, you're getting a really great deal on 450sf at 1700" even though the 450sf unit could have rented for 1600 before. It's a bit counter-intuitive, but housing has proven to be a very emotional issue in SF.
There's a big crowd in the 1300-1600 range: students, roomies, young workers. Anything rents very easily in this range.

Posted by: lol at July 16, 2012 10:58 AM

^None of that made any sense.

And Brahma, if you need more demand to get your higher price, *that demand* would be the reason for the higher price, not the newly available units! So the newly available units would not "have the effect", the increased demand would have that effect. The newly available units would moderate that effect.

Posted by: tipster at July 17, 2012 12:10 AM

If I've learned 2 things in SF RE, it's 1 - due to extreme imbalances it is very emotional and 2 - tipster keeps denying point #1 and applies his pure action/reaction thinking which worked for 2 years until it didn't.

Posted by: lol at July 17, 2012 7:33 AM

tipster, I think you have a fair point in general, but I'm talking about the marginal consumer of rental apartment housing in this situation.

The consumers we're talking about here are currently priced out of the market; they're living in larger homes with unrelated roomates or at home with their parents after returning from college (so-called "boomerang children") or similar arrangements.

Remember that Scott Wiener's proposal only applies to new construction, and the developer's target market is people who aren't living on their own in San Francisco yet but want to. So these consumers aren't part of "the market" yet because they can't afford or don't want to pay, the current market clearing price for rental housing, and so aren't contributing to any movement of the demand curve.

We're (I'm) assuming that they want to do so, however, so there's latent demand, so to speak.

Now, when Patrick Kennedy finishes his building, there's going to be new units priced lower than what's currently on the market (I'm taking the developer's assertions at face value here). They might be more expensive on a per square footage basis, but the absolute price is going to be lower. This will induce some of the people priced out of the market to enter the market and get their own place.

So what I'm thinking is that the new, lower priced units (will) turn the latent demand into actual demand and that in turn is what moves the price level. You're correct that "that demand would be the reason for the higher price", but without the new units, the demand would have never materialized from the marginal consumer and hence the price level wouldn't have moved.

Posted by: Brahma (incensed renter) at July 18, 2012 2:01 PM

From The Chronicle's City Insider earlier this afternoon, Weiner’s housing measures struggle before board, nutshell 'graph:

Weiner agreed to delay discussion on his plan to trim the minimum size of apartments in the city until Sept. 25 to allow more negotiations with other members of the board and then had to fight off an attempt to put his measure to change the rules on local student housing on the back burner.

…Weiner was resigned to the delay for his plan to allow 220-square-foot efficiency units in the city, compared to the current 290-square-foot minimum.

Admitting that the new apartments wouldn’t be for everyone, Wiener said the smaller units would be a boon for the 40 percent of San Francisco residents who live alone.

“This measure has had a very windy path,” he said after requesting the continuence. “But it’s very positive legislation that we will now have further time to discuss.”

It's positive legislation from the perspective of developers wanting to increase their margins on apartments, but I don't know that it's going to be positive for the people for whom this will be their only affordable living arrangement.

Time will tell.

Posted by: Brahma (incensed renter) at July 31, 2012 11:19 PM

That is a really convoluted argument and I don't think that it is accurate. More supply on the low end should drive down prices of similar properties and properties just above it in price due to satisfying a market demand. A few hundred units can't really move the needle, but hopefully this is just the first of many.

Even if it only satisfies latent demand, that will mean an improvement in the quality of life of those who move out of their parent's basement and into their own place. I actually expect most of the buyers to be people who currently commute in from the suburbs, so a big win all the way around.

The only way I can see this increasing prices is if it somehow causes a gentrification effect. Micro-mini apartments sold to middle income workers shouldn't do that unless they are built in The Mission or Tenderloin or similar neighborhood.

With all the new tech workers being pulled into The City we have a particular need to satisfy this market: young, single, living alone. I do wish that more families would move here, but we aren't creating that many family friendly jobs.

I guess I can imagine a situation where increasing the density of people increases the value of the land. It is sort of a stealth upzoning in a way. Is anyone familiar with how increasing density with these super small apartments in cities like Hong Kong effected housing prices?

Posted by: NoeValleyJim at August 1, 2012 9:50 AM

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