January 17, 2014

The Mayor’s Seven Point Plan To Solve San Francisco's Housing Crisis

At the heart of Mayor Lee's state of the city address this morning, a seven point plan to address San Francisco's housing "crisis" with a goal of adding at least 30,000 new housing units in the city by the year 2020, a third of which the Mayor would like to be "affordable":

1. Additional legislation to protect tenants from eviction
2. Protect at-risk rent controlled units from being converted to TICs or condos
3. Push forward with HOPE SF to rebuild public housing in San Francisco
4. Double the City's down-payment assistance program ceiling from $100,000 to $200,000
5. Streamline the approval process for the development of below market rate housing
6. Build more market rate housing with an emphasis on rental units and outlying areas
7. Reduce obstacles to development in San Francisco

First Published: January 17, 2014 12:15 PM

Comments from "Plugged In" Readers

I hope that list is not listed by priority, because it seems to me that reversing the order would provide the best results!

Posted by: Brad at January 17, 2014 12:20 PM

What's the reasoning for the "focus on rental units" in number 6?

Posted by: anon at January 17, 2014 12:26 PM

1. no opinion
2. part of the problem not a solution
3. good idea
4. skeptical
5. why not streamline the approval of other market rate housing we want to encourage?
6. non specific meaningless
7. non specific meaningless

Posted by: Zig at January 17, 2014 12:29 PM

I'm guessing everything on the list is a high priority. But when selling this plan to the people of SF, it's definitely smart to give extra attention to anything related to affordable housing, as the key to getting the city's widespread support for increased development is to show the non-wealthy majority of this city that they're not being ignored. A lot of residents see the large amount of highly expensive market rate stuff going up currently, and think "where's the stuff I can afford?" They think prices like that are how it might be forever with increased development, because they don't realize how supply and demand works. So we build a lot of affordable stuff, and a lot of market rate stuff, and everyone is happy. If we neglect to build sufficient affordable stuff along with the market rate stuff, it also gives the wealthy NIMBY commanders of SF more propaganda to throw at un-informed people: "nothing is affordable! Stop all new development now! Save SF!" ...which is a tactic that's has been proven to work, as 8 Washington showed us.

Posted by: cfb at January 17, 2014 12:36 PM

Makes sense. So it will never happen.

Posted by: sf at January 17, 2014 12:43 PM

7. Stop putting development issues on the ballot

Posted by: Michael at January 17, 2014 12:49 PM

Anon: there are some studies that show areas with large numbers of renters are better for the local economy then areas with high numbers of owners:

http://www.theatlanticcities.com/jobs-and-economy/2013/05/link-betweeen-high-levels-homeownership-and-unemployment/5520/

Posted by: SimpleSimon at January 17, 2014 12:53 PM

#8 - Help my powerful friends build more market rate housing so they can capitalize on market rents that are subsidized by small landlords

Posted by: theHitman at January 17, 2014 12:54 PM

4. Double the City's down-payment assistance program ceiling from $100,000 to $200,000

Outrageous! Stop distorting the non-BMR market with your socialist BS. If the city wants to provide affordable housing, that's fine, but this program is an indecent and infuriating waste of resources that should be invested in schools, crime prevention and other vital services.

Posted by: formidable doer of the nasty at January 17, 2014 1:10 PM

@SimpleSimon -- The idea that a high homeownership rate is desireable is popular in the MSM, but if you look into it deeper there's plenty of doubt out there.

http://marginalrevolution.com/marginalrevolution/2012/06/is-a-high-home-ownership-rate-a-sign-of-a-successful-country.html

Posted by: anon2 at January 17, 2014 1:22 PM

I know we complain/nitpick everything here, but on paper (at work, will listen to the full conference later), these are phenomenal goals. Especially:

* 30,000 units by 2020!!!
* Reduce obstacles to development
* Encouraging rentals (will discourage much of the griping about pied-a-terres, second homes, etc), as rentals are far more accessible to young and middle/low class, which are the populations struggling to get into SF anyway.

Of course there is going to be a lot of focus on affordable housing/BMR, this is SF. But these goals will also promote market rate and density, and being packaged with BMR/affordable strategies is the only way to implement them.

Guys, this is a good start.

Posted by: JWS at January 17, 2014 1:35 PM

Looks good.

Posted by: outtahere at January 17, 2014 1:56 PM

The proper priority is

6. Build more market rate housing with an emphasis on rental units and outlying areas
5. Streamline the approval process for the development of below market rate housing
7. Reduce obstacles to development in San Francisco
3. Push forward with HOPE SF to rebuild public housing in San Francisco

These are defensive move that I have reservation of. They do not add new housing or rental. Sucks to see them being number 1 and 2.

1. Additional legislation to protect tenants from eviction
2. Protect at-risk rent controlled units from being converted to TICs or condos

Very skeptic to use tax payer money to subsidize some fortunate individuals.

4. Double the City's down-payment assistance program ceiling from $100,000 to $200,000

Posted by: Wai Yip Tung at January 17, 2014 2:36 PM

Protect "at risk" rent controlled units from TIC own versions.
Build more affordable housing.

*** Contradiction in terms ***

TIC's ARE more affordable than almost all new construction, for sale units.

Posted by: poor.ass.millionaire at January 17, 2014 2:43 PM

So, who wants to school me and explain why the more market rate housing gets built, the more expensive RE gets?

When the bubble pops, the glut of inventory should eventually push prices down, although QE2 without end will prop up the dying dog.

But in the meantime, we're in a building frenzy, but no matter how fast things are built, prices keep going up. Why? And please don't say "supply and demand," because ~35%-40% of the market is cash: flippers, speculators, hedgefunds, private equity, and REITs.

Posted by: two beers at January 17, 2014 2:55 PM

@two beers, it you how should explain what evidence do you you have for you to say "the more market rate housing gets built, the more expensive RE gets?" There is no sense to explain if you premises is false.

If you believe speculators is creating a appreciation bubble, extra supply can only keep them in check. Where do you find evidence that it cause price to go up more than if there is no new supply?

Posted by: Wai Yip Tung at January 17, 2014 3:10 PM

"So, who wants to school me and explain why the more market rate housing gets built, the more expensive RE gets?"

Because you're making an assumption about causality which might not be right.

Developers could be looking for areas with high demand from wealthy buyers and choosing to build there. Because if it's similar effort to build a high end vs a low end unit, why not build for the high end where buyers are less price sensative.

Or

Adding supply could cause an area to become more desirable. (Increased density brings better ammenities, people can live closer to their peer groups,...)

Or

There is a bubble and money and investment follows a herd mentailty whereby most money is getting thrown at what's currently "hot".

Or

There curently is a shift towards the desirability of urban areas away from suburbs and increased prices reflect this. And even though prices are up with increased supply, they would have gone up even more had less supply been built.

Or

A number of things could be going on and you could debate how the facts relate to each theory. But, at least to me, it seems incredably unlikely that increased supply is directly causing increased prices.

Posted by: anon2 at January 17, 2014 3:14 PM

#2: reminds me of my friend who owns a 1BD apartment in a co-op building in Jackson Heights, Queens. He bought the place for $110,000 in 2004. His monthly fees are now $950, twice as much as his mortgage. The 1930s building was a rental for years. There are still rental units grandfathered into the co-op agreement. These people pay next to nothing in rent. One woman in particular has been there for 65 years and pays a whopping $50/month in rent for a 2BD unit.

Posted by: Mark at January 17, 2014 3:17 PM

All the people complaining about #4, don't bother. Even if they double the limit it would be impossible for anyone to actually qualify to use that limit. Silly proposal. To get $200,000 in DALP funds, the purchase price of the property would have to be $1.333 million. Buyers would need to put down at least $40k of their own money (assuming they can get a grant or gift for the remaining 2% of the required 5% downpayment), they could have at most $120,000 of income (with a household of 5 required to be able to have that much income) and then they would still need to find a bank that would loan them $1 million, on an income of $120,000. The property taxes alone would be 13% of their gross income. Their mortgage payment(at a generous 4.5%) would be $5,000 a month. Their mortgage payment and taxes would be 63% of their gross income.

I have no idea why he bothered with that proposal. Might as well just say he is going to give free houses to unicorns. He will find as many of those as he will real people that could qualify for a $200,000 DALP second.

Posted by: Rillion at January 17, 2014 3:29 PM

"it seems incredably unlikely that increased supply is directly causing increased prices" - anon2

Well, considering that we're seeing an increase in prices in the midst of an off-the-charts building boom, it sure looks like conventional supply & demand theory has failed, then. The banker/builder/realtor/landlord complex says we have to "build! build! build!" to meet demand, but the more that gets built, the more prices increase. The solution, according to the banker/builder/realtor/landlord complex, is to "build! build! build!" even more. Rinse and repeat.

Do you see what I'm getting at here?

"Where do you find evidence that it cause price to go up more than if there is no new supply?"- Wai Yip Tung

Prices might still go up in the absence of the building boom; I can't prove a negative. I'm just observing that it seems no matter how fast we build, prices keep going up. Is it possible that there is a connection between the building boom and increased prices, that the building boom itself is causing the run-up in prices?

Posted by: two beers at January 17, 2014 3:48 PM

"Well, considering that we're seeing an increase in prices in the midst of an off-the-charts building boom, it sure looks like conventional supply & demand theory has failed, then."

No, it's just that correlation isn't causality.

If you give up smoking and then the next day get run over by a bus, that doesn't mean that the conventional theory that smoking increases mortality has failed.

Posted by: anon2 at January 17, 2014 4:05 PM

If we actually get 5000 units per year for 6 years, that will be something.

What will even be more of a something is when the economy eventually tanks again and people flee SF making all of that extra housing just gravy for the renters left price-wise. That time period will probably bring back the resurgence of the impossibly hip san francisco, which at this point is kind of dead (well suffering).

Posted by: Sam at January 17, 2014 4:09 PM

@two beers, "Prices might still go up in the absence of the building boom". Exactly. So it is naive to attribute price increase to building boom.

"Is it possible that the building boom itself is causing the run-up in prices?"

If you make this claim you have to show evidence. This run against basic economic principle so you are going to need very strong evidence to convince people otherwise.

Posted by: Wai Yip Tung at January 17, 2014 4:10 PM

Just pull price per square foot data for new homes vs. resale homes. Sort by District. That'll tell the story whether mix matters or not. I suspect it does. Always costs more to buy new than buy used.

Posted by: Jimmy the House Flipper at January 17, 2014 4:21 PM

Yes, building nothing will help stabilize rents, in the same way that if every building is torn down, prices will trend towards $0/mo.

Posted by: outtahere at January 17, 2014 4:34 PM

Is it possible that there is a connection between the building boom and increased prices, that the building boom itself is causing the run-up in prices?

Not on planet earth, but perhaps on planet two beers?

Posted by: anon at January 17, 2014 4:55 PM

Is it possible that there is a connection between the building boom and increased prices, that the building boom itself is causing the run-up in prices?

Not on planet earth, but perhaps on planet two beers?

I seem to remember prices going up in 2011, when there were less than 1000 new units completed. Is it your theory that very little new building OR some new building causes increases in prices, but maybe, just maybe ZERO new building would cause prices to fall? I don't really understand your proposal, please elaborate.

Posted by: anon at January 17, 2014 4:57 PM

There is an economic case to be made that new development can induce additional demand. This is basically the definition of gentrification. To what extent it's separable from other processes, I don't know, it may not be knowable. However, as an urbanist I believe that increased density and transit oriented development are a strong public good, and the adverse affects can be mitigated through inclusionary zoning, subsidies, development fees, a larger transit system, etc.

Perhaps if every city in the United States was already a "Walker's Paradise", there'd be less disruption resulting from low income areas transitioning to high income areas. Anyway, our cities are what they area as a result of 60 years of disinvestment. The generational change in preferences from suburban to urban appears to be durable and only growing stronger (look at VMT). So, even without any new supply, demand will be increasing. Best to manage it, mitigate it, and try to build enough supply.

Posted by: outtahere at January 17, 2014 5:06 PM

mayor Ed,

Please delete 1,2,3 and 4 if you actually want to help solve the problem.

Just build more market rate housing and speed development process.

as far as 1 goes, this should be limited to the disabled or very old

Posted by: moto mayhem at January 17, 2014 5:07 PM

1 and 2 are ridiculous, out of touch faux pandering.

Goosing the HOPE program would be great. Get real, libertarians. The City is what it is. Rebuilding
Public housing nicer is a good realistic goal that helps everyone.

4 is stupid.

The rest would be great

Posted by: Truth at January 17, 2014 5:22 PM

two beers, are you trolling or are you really that... ahem... unenlightened?

Prices are increasing because demand is growing faster than supply.
There, was that so hard?

Posted by: formidable doer of the nasty at January 17, 2014 5:54 PM

two beers are you Chris Daly? You seem to be tolling here, Mission Local, Uptown Almanac, Mission Mission, to name a few.

Posted by: two joints at January 17, 2014 6:56 PM

how about adopting a 3-tier property tax system
1. (lowest) first-home buyers
2. (higher) second home buyers
3. (highest) speculators, flippers, etc.

Posted by: asiago at January 17, 2014 8:44 PM

They already have a two-tier exemption. You can claim the Homeowner's Exemption and it's all of $70/year.

Don't spend it all in one place.

West Vancouver, for example, allows elderly people to defer payment of their property taxes indefinitely; the unpaid tax debt is recorded on their property and paid out of their estate when they die.

That seems like the most fair solution that respects' senior citizens reduced incomes in retirement but avoids the huge distortions of prop. 13.

Posted by: Jimmy the House Flipper at January 17, 2014 8:58 PM

@ anon: "I don't really understand your proposal, please elaborate."

My proposal only makes sense if the objective is to provide housing that is affordable. But my proposal is far less profitable to the banker/builder/realtor/landlord/flipper bloc, which is why I'm attacked for suggesting that the building boom itself is a main contributor to the spiraling cost of housing. To me, the spiraling cost of housing is a bad thing; most of the posters on SS are of the banker/builder/realtor/landlord/flipper bloc, so the spiraling cost of housing is a good thing.

So, keep in mind that my objective is to make housing affordable, which is in opposition to the self-interests of most of the posters here. It seems that as more and more market rate/luxury housing is built, the new market rate pushes average and median prices even higher, which attracts more speculators and developers. It becomes a feedback loop, and doesn't lead to the equilibrium that conventional S&D models predict. What other approaches might work? One might be that if building more expensive housing makes housing more expensive, then the solution is to build housing that is affordable. In other words, if conventional S&D models are broken, then the way to make housing affordable is to build affordable housing. This idea is preposterous to most of you because it's contrary to the market mechanisms that benefit you.

The current building boom is a massive speculative bubble. If you took the speculators out, the market would crash. At that point, conventional S&D models would being to apply again.

Shorter two beers: conventional S&D models are distorted in speculative bubbles. Increasing the supply of the asset on which the bubble is predicated increases both the and price and the demand, in an escalating feedback loop, until critical mass is reached, the bubble collapses, and conventional S&D models begin to apply once more.

Call me a troll if you want. I'm not trying to suffocate the thread, I'm just bringing up a view that runs contrary to the herd here that we have to maintain this orgy of market rate/luxury building.

If the question is "how can we best enrich the banker/builder/realtor/landlord/flipper bloc, then of course the answer is to build more market rate/luxury housing.

if the question is "how do we make housing more affordable," building more and more market rate/luxury housing has failed to succeed, so the answer must be something else.

I don't mind you guys advocating for market rate/luxury housing; just don't pretend that you're advocating for more market rate/luxury housing because you are concerned with making housing more affordable.

Posted by: two beers at January 18, 2014 12:00 AM

I think you'd first need to show that "conventional S&D models are broken" here, which you haven't shown yet. Yes, prices are going up. Is demand not going up? In other places you're describing induced demand, which is very much built into S&D models, so I have no idea why you think the models are "broken".

How would you suggest building this "affordable" housing? A city owned agency? Would you force lotteries for people to buy? 20 year lists to wait on until my turn to buy a "properly" priced unit?

I am absolutely concerned with making housing more affordable, but I just don't see this orgy of speculation that you see. Even in this housing "boom" there is less new housing being built (as a percentage of the overall housing stock) than in places with reasonable prices. Make housing easier (MUCH!) to build and we'd likely see more than only the top end being built for. I'm talking things like a citywide blanket increase in the height limit, no parking minimums, no FAR restrictions, and by right development on buildings that do not require some kind of variance.

And I'd do all of that not only in SF, but also in surrounding counties - because that's the bigger cause of the current price issues. It's nearly impossible to build any kind of new housing around SF, and basically only possible to build luxury housing in SF.

Posted by: anon at January 18, 2014 7:52 AM

Or it could be that the banker/builder/realtor/flipper bloc has more insight into what it costs to actually build a unit in San Francisco.

You keep mentioning "build affordable housing". What, in your opinion, differentiates a new build that is affordable and a new build that is luxury?

These terms are relative to the city they are in. NEMA is an awesome development, but in any other city, the type/size/finishes of those apartments, especially in an area known for heroin and panhandling, would not be considered luxury. You could go rent an apartment like that fairly cheaply (comparatively) in Atlanta, Miami, Houston, even Los Angeles.

Market rate housing is essentially dictated by a couple things, and NOT by developers/realtors/bankers, etc. They may want higher prices, but they can't get people to pay more than market.

First, you take the tiers of incomes in an area. So, for example, even if you had the Taj Mahal for sale on the waterfront in rural Alaska, the upper tier buyer might cap out at less than six figures, which means no matter what it cost to build, it won't sell for millions. More like a couple hundred thousand.

Then, you match up the tiers of properties in an area. So, in a city like San Francisco where the housing stock is so old and in many cases rundown, virtually anything that is new construction will end up in the, say, top 25% of desirable housing stock over dilapidated Victorians and cheap 50s era construction in the Sunset.

Then you roughly align the tiers of incomes with the tiers of housing desirability, and presto, out comes market rate.

Now, this is grossly simplified, but presents the basic point. San Francisco has very high incomes and very undesirable housing stock (small, old, etc) compared to the rest of the country. This is why virtually any new construction will inherently be determined as "luxury"...it will fall in the top desirability for the city, and thus the top earners will fight the most for it. This basic principle is why you can get a 60 acre 14 bedroom chateau for $1,000,000 in rural Kentucky, and yet people are paying $1.7M for teardown 2 bedrooms in Palo Alto.

Trust me, outside a couple of the high-end SOMA condo complexes, these 1 and 2 bed condos being built would not be considered luxury in most major metropolitan areas. In those metropolitan areas, luxury is full on houses, 5+ bedrooms, 4,000+ square feet, 4 bedroom apartments, whatever.

So, how do you build a home in this environment that isn't luxury? It's not the finishes and the size. It's the newness. So you build a new home and put asbestos in the ceiling and 70s era shag carpeting? How do you propose to do this?

While you may be right about the interests of your paranoid "bloc" lining up, these are also the people who, you know, know what it takes to build homes and how prices/market rate comes about. It is not "set", it develops and you price accordingly to what people demand and are willing to pay. And, as a realtor, I would prefer that prices lower/stabilize...you may make more money off of commissions, but I am tired of buyers competing in 10-15 offer scenarios and not getting the home half the time. They are exhausted and worn out.

Posted by: JWS at January 18, 2014 9:33 AM

Two beers--

I heard an interview the other day with a very smart housing economist who commented that new construction in all *affordable* housing markets (Houston, Dallas, Omaha, etc.) is nearly universally luxury product for the upper end of the local market. Yet these markets, unlike San Francisco and many other coastal cities, are extremely affordable. How can this be? The most affordable cities in the United States have virtually nonexistent nonprofit/affordable housing sectors. It is greedy developers selling to the local gentry who keep these cities affordable! That, and an essentially unconstrained supply of developable land.

The main problem in San Francisco is the lack of developable land--and more specifically, the lack of *developable airspace.* And the fault for this situation lies not with the supervisors who are ostensibly in the hock to developers, but the supervisors who are in the hock to view-loving rich people and the affordable housing nonprofits, each of whom have a vested interest in denying that supply and demand determines housing prices. It reminds me of nothing so much as conservative Republicans talking about global warming.

(To be sure, this is not just a SF problem. See Ed Glaeser's book, The Triumph of the City.)

If the current run-up in housing prices in San Francisco were the result of a speculative bubble in real estate, we would not see rents keeping pace. "Speculators" aren't paying $4500-$5000/month for two bedroom rentals in the Mission.

Whether the tech economy itself is being bubble-inflated is another question, but I see little evidence (considering rents) that San Francisco is experiencing a housing bubble.

Posted by: observant neighbor at January 18, 2014 4:43 PM

Two beers is demonstrably wrong in his/her assertion that the building of new expensive housing in SF is a significant cause of the recent run up in prices. In fact, rents and home prices rose well before any of the large new buildings opened. The increases in rents and home prices spurred the resumption of building of projects derailed by the last financial crisis-- particularly by making the building of new rentals pencil out.

Posted by: Dan at January 18, 2014 6:57 PM

So how would one define "luxury" for a typical new construction condo in SF? First I would apply the classic location location location. Expensive "luxury" dirt. This is an unavoidable fact of living in a very attractive destination city with a very small land area. It is a luxury to live in the Bay Area. Period. Then you have luxury as defined by size. Larger houses, cars, boats, diamonds, whatever. In SF, there are huge inescapable costs of building any type of residental construction. More for steel frame of course, but allows higher density. Again, not much difference between "luxury" and standard for a given 900 square foot 2 bedroom apartment. Luxury buyers are willing and able to spend extra for the luxury size of say 1200 sq.ft plus two bedroom apartment. The extra luxury in this case would be things like an extra bathroom, larger bedrooms, more closets, larger kitchen, etc. But cost per foot not necessarily any different from standard condo. So luxury then could be further defined by features and quality of finish. I don't know exact figures, but this has to be a relatively small portion of an overall cost of building a unit. The developers are buying finish products, appliances, flooring, lighting, etc. at a much lower bulk cost and thus likely not a substantial difference in cost. But large profit. Other factors that factor into luxury that could be manipulated such as parking, ceiling height, decks. Given this, allow for more density and taller buildings. By allowing an additional higher floor, 2 or 3 of larger, fancier outfitted luxury units to be built and sold very profitably, there would be room in the numbers to ALSO build additional smaller, less outfitted, lower floor traditional "affordable" units. Essentially the luxury subsidizing the affordable as much as possible given the high basic costs of land and contruction to the point of selecting finishes. Build more density, and more luxury to subsidize more affordable.

Posted by: joe-realtor at January 19, 2014 1:10 PM

The stock market has skyrocketed in the past 5 years. It's ahead of housing gains so hard to explain higher prices with anything else than wealth creation through the market. More housing clearly will stabilize markets in a bull run. Otherwise more boom bust cycles. To advocate building less in order to stem prices is just ridiculous and can't be taken seriously.

Posted by: Spencer at January 19, 2014 5:41 PM

So, for those of us in the real middle class who bought a condo during the past decade and are working hard and sacrificing to pay our mortgage, we get even higher property taxes in order to subsidize housing in preferred neighborhoods for self-professed artists and others who really don't want to work or save that much. F this.

Posted by: Grrr at January 20, 2014 8:51 PM

Spencer, I'm not advocating building less; I'm advocating a different product mix: build fewer market rate/luxury units, and more affordable units instead.

I'm told this is impossible, that we have to keep building high-end units. I believe that the market rate/luxury boom has become a self-perpetuating bubble, and seems to be driving prices higher. Coincidentally, these higher prices benefit most of the posters here.

I agree that the run-up in the market and in housing are related: while the economy as a whole
stumbles and sputters, the Federal Reserve has shown that it will go to the mat for Wall St ad housing, and speculators have wisely piled in, because, with Fed backing, Wall St and housing are a "sure thing." Workers? Screw 'em.

Posted by: two beers at January 20, 2014 9:32 PM

I don't understand how a unit could be priced artificially low? Even if the asking price were set low, all houses are sold via a sealed bidding process.

So the price would rise to the market price via the free market bidding process we use to sell houses.

At a purely practical level, how (any why) would any free market seller enforce an artificially low sales price? Only the government has that power.

Posted by: Jimmy the House Flipper at January 21, 2014 9:53 AM

Two Beers, lots of people have broken it down for you at this point. The issues are land cost and construction cost. If you don't wish to digest the facts, then fine. But foing around in circles is silly.

Posted by: Truth at January 21, 2014 11:00 AM

Two Beers, what is your field of expertise? What is your background? What is your general field of occupation?

Posted by: JWS at January 21, 2014 11:21 AM

@two beers - you still haven't proposed how you plan to have the unit mix changed. Are you planning on the government building this housing and using a lottery system to sell it? And then forcing people to hold the housing or sell back to the government for a set price?

That's the only way it could possibly work. If you tell developers to build for a different mix, the units will simply be bought for below market and then sold to the highest bidder. If you disagree, why would this not happen?

Posted by: anon at January 21, 2014 11:56 AM

@Truth, picking up on your most recent comment, I would guess one way to reduce land cost outside of acquiring more land, which SF can't do, would be to put more units (however you want to define units) on a piece of land. To me, this means in certain instances to build up (I know...) unless we'll be satisfied with 500sf properties for families.

And that says to me that various height restrictions in parts of the city would need to be re-evaluated in light of this mayoral plan. So the Mayoral plan point #7 is probably rank prioritized at the top of the list?

Posted by: Can't think of Cool Name at January 21, 2014 5:30 PM

@Truth:

I know, I know. We have no choice but to build high-price housing that keeps pushing the cost of all housing higher (until the bubble pops, at which point conventional models of supply and demand re-obtain).

@JWS: My field of expertise is observing bubbles and herd psychology from a safe distance behind the internet.

Posted by: two beers at January 21, 2014 5:51 PM

1-6 are exactly what 7 would get rid of. Same old Prog BS that got us here in the first place. Gotta especially love #4, using public funds as price support for the inflated housing market.

Posted by: reanto39 at January 21, 2014 7:36 PM

@two beers - if you have a plan, state it. Bashing other comments and then waving your hands around about "changing the mix" doesn't really add much.

I'm seriously interested in hearing about how you would implement your plan.

Posted by: anon at January 21, 2014 10:39 PM

@Two Beers - The reason I ask is that you show a complete lack of understanding about how prices are set, development costs, supply and demand, statistical correlation vs. causality, etc.

I am not a scientist, hence I tend to trust what they are saying about global warming. Several people who do have expertise in these areas explained to you in great detail why what you are saying is wildly off base and impossible. And yet here you are, continuing to push these ideas that are not possible.

Many have asked you: how do you propose, specifically, to turn about this unit mix you keep talking about? We all see why it is impossible, but maybe you can enlighten us in a different way that nobody in economics, urban planning, development, or real estate has thought of yet. I'm very excited about this revolutionary plan you have.

Posted by: JWS at January 22, 2014 11:49 AM

@JWS Let's start by barring hedge and private equity funds from the market, and see just how organic (i.e. driven by local employment) the demand really is.

Posted by: two beers at January 23, 2014 12:59 PM

^ as if you can gauge such a thing is currently a significant factor? You're completely full of it.

Posted by: Truth at January 23, 2014 1:40 PM

^How do you plan to do that at a local level? Seems as though it would immediately be struck down by state courts.

Remember, we're talking specific details on your approach, not more hand-wavey stuff. I probably even agree with you about some of this stuff, but agreement and implementation are two entirely separate things.

Posted by: anon at January 23, 2014 1:40 PM

two beers,

If you are saying we should ban financial entities from the funding of new development, I think you will just see a dramatic reduction in new development with the subsequent increase in demand for existing housing.

If you are saying we should ban financial entities from purchasing existing residential housing, then this will likely have pretty much zero impact. I would be surprised if there is more than a handful of such acquisitions per year. And please don't assume that all cash purchases are from "hedge funds and private equity". I believe the majority of cash purchases are from individuals (or individuals via a LLC, etc.) who happen to have a large sum of money. Aging baby boomers (accumulated wealth), trustafarians and employees lucky and/or smart enough to have benefited from options/stock appreciation all contribute to the cash purchase pool of buyers.

Posted by: parklife at January 23, 2014 2:40 PM

A call to bar hedge and private equity funds from the market is just silly. First, it would be illegal. Second, any such bar could be so easily circumvented by incorporating a "not hedge fund or private equity fund" company, whose shares are owned by the hedge fund or private equity fund, to buy/develop properties. Silly all around.

As many have noted, building "luxury" buildings is not driving up selling prices. If anything it is driving them lower through basic principles of supply (increasing it) and demand.

Posted by: anon at January 23, 2014 3:17 PM

@anon,

"As many have noted," ie. boosters running to their Econ 1 textbooks to invoke a simplistic theory to try to explain complicated markets and justify deregulation, displacement, and higher prices. Housing markets violate the basic conditions that must obtain for conventional S&D to apply.

Conventional S&D models have repeatedly failed with RE in "hot markets," like SF, NYC, London, Tokyo, etc. For many reasons, the more that gets built, the higher prices go.

First, just forget your Econ 1 theory and jsut look at the evidence: building booms in SF and NYC (and London and Tokyo and Moscow and Berlin and Hong Kong) have repeatedly driven prices higher. Do you have any examples of a building boom in a "hot market" which resulted in lower housing prices? (and, honestly, are lower prices even your objective?).

Then, consider:
1. that luxury and affordable units aren't fungible;
2. that gentrification development generates its own increasing demand via feedback loop;
3. that housing has become the central speculative asset of the US economy; like the stock prices that no longer bear a realistic relationship to company earnings, housing has become one of Wall St's fixed house games, with a disproportionate number of buyers being speculators;
5. that the population of SF isn't suddenly skyrocketing, so where's the sudden need to build, build, build?
6. housing violates the conditions your Econ 1 textbook set for S&D to work (eg housing features asymmetric information, sticky prices, seller-set prices, etc).

Interesting article in this week's SFBG: http://www.sfbg.com/2014/01/21/manhattanization-revisited

"Build, build, build" is great for bankers, developers, realtors, and landlords. You're exercising your right to seek the highest possible profit. That's great; it's only natural. Everyone has a right to earn a living how they choose, and to try to make as much money as they want. But pretending that the RE industry is interested in "affordable" (i.e. to the lower economic classes) housing is disingenuous.

Posted by: two beers at January 23, 2014 5:10 PM

@anon:

You're right. Considering the RE industry's almost total regulatory capture of state government, anything that would curb skyrocketing prices will go nowhere.

Posted by: two beers at January 23, 2014 5:20 PM

In general, building more does not drive prices higher, but instead, higher prices will result in more building. You have it backwards.

Posted by: parklife at January 23, 2014 5:23 PM

Do you have any examples of a building boom in a "hot market" which resulted in lower housing prices?

Miami, Las Vegas, to name two. Would you like more?

You're focused on markets that have severe (severe!) regulatory impediments to adding supply, enough so that overbuilding isn't allowed to occur. If you don't allow the market to err on the upside, of course it's only going to ever be exactly correct or err on the downside of building too little, hence rising prices.

Posted by: anon at January 23, 2014 5:34 PM

that the population of SF isn't suddenly skyrocketing, so where's the sudden need to build, build, build?

Um, for the population to skyrocket, housing construction would have to skyrocket. I will note that the population of SF is at its highest ever level, so it likely would skyrocket with more allowed construction. Since construction is severely curtailed by regulatory barriers (extremely rigid and low density zoning mostly), the population explosion that would occur shifts to an explosion in prices instead, with only those willing to pay very high prices allowed to enter.

This is textbook econ 101, so I'm not sure what you're disputing. When regulatory barriers prevent the market from providing adequate supply, prices skyrocket until supply and demand come into equilibrium.

Posted by: anon at January 23, 2014 5:38 PM

Prices in Vegas and Miami (and Phoenix, and the Inland Empire, et al), didn't drop until the bubble popped.

When bubbles pop, and if the banks don't withhold foreclosed-on props from the market, a more conventional S&D model begins to apply again.

@parklife: it's a feedback loop. higher prices lead to more building which leads to higher prices which leads to more building...

Classic bubble formation.

Posted by: two beers at January 23, 2014 5:48 PM

Prices in Vegas and Miami (and Phoenix, and the Inland Empire, et al), didn't drop until the bubble popped.

Um, yes. So? That's kind of the point. The market corrected itself. Supply was allowed to increase and prices fell.

You seem to only be focused on cities where almost no additional supply is being built (New York, Moscow, San Francisco, Tokyo, etc) relative to the amount of housing already there and the amount of additional demand, and then using those extreme outliers as "proof" that supply and demand does not work in housing.

How about simply looking at the other 99% of housing prices that never become a "hot" market because supply is allowed to keep up with demand - in other words, boring places like Austin or Chicago?

Posted by: anon at January 23, 2014 8:12 PM

Still waiting on your solution to fix the problem as well - your first solution of "ban hedge funds from buying" was completely nonsensical. Do you have any local level solutions? The thread is talking about the mayor's plan, not some federal level housing plan.

Posted by: anon at January 23, 2014 8:16 PM

I'm still a little unclear on whether a problem in fact even exists. Clearly people displaced by economic growth will feel slighted... but those who replace them are presumably happy with their new living arrangements. So on balance, dissatisfied people are being replaced with satisfied people. This should be a positive step for the city.

Posted by: Jimmy (not a Real San Franciscan (TM)) at January 24, 2014 9:40 AM

Squeezing out people or increasing prices through a bad regulatory environment always has negatives, even if they aren't readily apparent.

Posted by: anon at January 24, 2014 11:07 AM

Ok... so what are these "negatives," specifically? High prices and high rents are a byproduct of a growing economy, low unemployment among residents and rising prosperity overall. I just don't see how you can spin that as a negative outcome.

Posted by: Jimmy (not a Real San Franciscan (TM)) at January 24, 2014 11:18 AM

Jimmy, I'm with you 100%, but there is another piece. Sure, once those who have been priced out actually leave, the numbers of disgruntled drops. But it is that fairly sizable group who is still in SF but faces a real risk of being forced out in the future that feels slighted/threatened/anxious. That's where all the protesting is coming from. With an increasing standard of living and higher prices, there will always be some "losers" (I don't mean that pejoratively, as in actual losers in life) as well as winners. The gripes of the "losers" are legitimate, but I agree with you that the answer is not to handcuff the winners (nor is the answer "prevent luxury housing from being built"). This is a really thorny issue though, with no easy answer.

Posted by: anon at January 24, 2014 11:31 AM

High prices and high rents are a byproduct of a growing economy, low unemployment among residents and rising prosperity overall. I just don't see how you can spin that as a negative outcome.

Or they're a byproduct of a regulatory scheme that prevents housing from being built.

The negative outcome is that you, me, the guy down the street, and everyone else pays more for housing than they otherwise would, meaning less money for stuff like hookers and blow.

Posted by: anon at January 24, 2014 11:54 AM

"High prices and high rents are a byproduct of a growing economy, low unemployment among residents and rising prosperity overall."

That's part of it. But restricted supply due to regulatory/zoning issues is a very large factor as well and that's where the problem lies.

The real feedback loop is not the dubious theory that two beers is putting forth about a breakdown in supply and demand. The problem is that restricted supply pushes prices higher than they normally would be. This forces people, even those with high incomes, to leverage themselves significantly to purchase housing. Having so much of their financial well being dependent on maintaining these high housing prices gives people a huge incentive to keep housing prices high. And so these people vote for policies to restrict development and/or use procedural challenges to slow development.

There is nothing wrong with economic gains due to productivity increases, but economic gains due to voters voting themselves money inevitably comes at the expense of some other group.

In the case of SF housing. Restricting supply benefits current owners at the expense of newcomers regardless of any difference in actual economic productivity.

Posted by: anon2 at January 24, 2014 12:00 PM

Short of Shinzo Abe-style sweeping changes to local and state laws that protect vested interests at the expense of new market entrants, the only possible response is for market participants to work with the status quo and accept it. And we have no local or state politicians of the caliber of Shinzo Abe, so you can all forget about any economically rational policy choices from our own leadership. Like it or not, the system works the way it is and the city is prosperous.

Posted by: Jimmy (not a Real San Franciscan (TM)) at January 24, 2014 12:22 PM

" the only possible response is for market participants to work with the status quo and accept it."

Not Really. Local vested interests can dominate the local legislative process, but there are always state and federal avenues as well as judicial avenues (property rights and due process and such).

SF would likely never eliminate or reduce rent control at a local level, but the Ellis act was passed state wide. Similarly, Cambridge's rent control was ended by a state wide act. A few of SF's housing regulations have been taken to federal court.

The thing is that at some point prices rise enough that the incentive to chip away at supply restricting regulations becomes very large.

Posted by: anon2 at January 24, 2014 12:39 PM

Like it or not, the system works the way it is and the city is prosperous.

Um, the system has been changed massively at the local level numerous times. Rent control is a local phenomenon. Prop 13 is a state phenomenon. And even those are small potatoes compared to zoning issues, which are entirely a local phenomenon. I have no idea why you seem to think that 40' height limits being increased would take some kind of Shinzo Abe federal level hero?

Posted by: anon at January 24, 2014 1:15 PM

if the question is "how do we make housing more affordable," building more and more market rate/luxury housing has failed to succeed, so the answer must be something else.

This has never been tried. San Francisco has never seriously tried to build a sufficient amount of housing. The unholy alliance between "Progressives" (who are ironically opposed to progress) and NIMBYs keep San Francisco from building much. We are in the middle of a building boom, but as many commentators pointed out, this only started *after* prices went up.

If they continue to go up at 25% a year in the middle of this building boom then your thesis will be validated. We will see.

Many other cities have built enough housing to keep up with demand. Houston and Atlanta immediately come to mind, neither had a big run up during the bubble and they mostly avoided the bust as well. Neither are desirable development models from my point of view, but they worked economically.

I have tried to bring up the idea of encouraging more middle class housing as well two beers in the last, only to be insulted by the Libertarians on the site. I think things like expedited approval process and a density bonus, like what is used in some other cities, would all something more affordable to be built. Trinity is a good example, but that took Chris Daly working with a wealthy developer to make happen. We won't see that again.

I am sure we could built 800 sq ft 2 bedroom, 2 bath housing for under $400k. This would allow middle class families to remain in The City. Maybe we need some kind of public-private partnership to make it happen. For profit developers are always going to reach for the biggest margins and that means luxury housing.

Posted by: NoeValleyJim at January 25, 2014 3:51 PM

For profit developers are always going to reach for the biggest margins and that means luxury housing.

Um, it only means luxury housing when the amount of building locations is kept to the absolute minimum.

The "Libertarians" on this site would simply prefer that the entire city be opened to development (ie drop height limits and density limits), which would certainly lead to some areas being developed with lower end housing. As it is now, there are only a handful of places to actually building, meaning that only luxury building demand can possibly be met.

Posted by: anon at January 25, 2014 4:16 PM

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