Why building more market-rate housing can’t possibly solve the city’s crisis

JULY 15, 2014 — Yesterday, we presented Part One of our Housing Video Series, explaining how San Francisco got into this mess. And in Part Two, we show how the “market-based solution” that the mayor and so many others appear to favor — just building and building for-profit market-rate housing — will eventually bring down costs.

Fact: We have abundant empirical data to show that’s just not true. Check out this video and understand why trickle-down housing economics won’t work in San Francisco — and to get a sense of what will.

By the way: If you want an idea of what happens to a city that is enamored of building highrise housing without much limit, check out Vancouver. Once a jewel of the West Coast, it now looks like … Hong Kong.  Or Miami Beach on steroids. And housing prices are still out of reach for many.

You want SF to look like this?

You want SF to look like this?

 

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36 Responses to Why building more market-rate housing can’t possibly solve the city’s crisis

  1. Sam says:

    Welch commits a fundamental error of logic. The reason increased build of new homes correlates with higher prices is not because the new supply drives up prices. That is evident nonsense unless you believe that all economic theory is nonsense.

    No, the reason is obvious. Developers only invest and build when home prices are going up. It is higher prices that drive more construction and not the other way about. His theory is self-serving if his real motive is to bash the market, which of course it is.

    Once his premise is destroyed, as above, then his entire flimsy house of cards collapses as well. Welch is being dishonest and biased. And luckily most voters see that, as they elected a pro-growth, pro-development mayor who strongly supports building new homes for the city’s people.

    • Dave says:

      Just watched the video…you guys need to try a different approach. Welch pointed to 3 factors why building more doesn’t make sense. On 2 of them HE made no sense. Here is what he said:

      1) New development is a small percentage of available housing. Recently it has been 18%. Not sure why this is an argument against building, it seems the other way around.

      2) Land is limited. True. He doesn’t say anything about height or more efficient use of existing land. He also says something about a small amount of landlords controlling price, as if buyers are not part of the equation. He needs help on this one.

      3) Then he talks about speculation and goes all socialist with plans to prevent people from benefiting from increases in the value of their property. He might have something there, but, unfortunately we live in the United States of America and it is 2014. Secession from the US could be out of our price range right now.

      Look at it this way…if Google bought Golden Gate Park and built million dollar condos to house the entire tech work force then would those same techies still be bidding for TIC’d apartments in the Mission?

    • Sam,

      You’ve fallen into Welch’s deepest mire yourself. He’s detained you in the debate over whether the market supply of housing will effect anything.

      You must know that the high price of housing in San Francisco isn’t the price of housing itself. It’s the high price of land. Building material cost, labor cost, permit cost not withstanding, the relative to elsewhere big ticket item in development in SF is the price of land. And Welch and the well-intentioned do a disservice to their good intentions when they focus on housing rather than land values. Land values are clearly a function of the growth of community. And so the attempt to penalize developers for building is misguided. When Welch et al argue for socializing community-generated land values they’ll be on solid ground. Then they won’t have to ask for subsidies from builders because they will have stopped the enormous subsidies which currently go to land owners. Full disclosure: I am a land owner and am thoroughly familiar with this racket.

      • Sam says:

        Because land is the one thing that cannot be removed from a jurisdiction, it is imperative that strict controls be put on a municipality’s power to tax it. It is all too easy for a city, county or state to right roughshod over individual rights and freedoms, and tax property to death.

        That is why the voters overwhelmingly passed the still wildly popular Prop 13. Because abuse by taxing authorities was just too rampant.

        Oh, and BTW, because land is often 50% of a property’s value, at least for low-rise, land is already massively taxed. Increasing that won;t make housing cheaper. It will make it more expensive.

  2. Erin Smith says:

    Meanwhile – back in the reality of current San Francisco – Google increases their office presence by over 50%. More and more affluent and ambitious newcomers compete for scarce housing. Prices skyrocket. Out-of-touch Progressives look dumber and dumber.

  3. murfle says:

    Seriously, that’s the objection here? We don’t want SF to look like Vancouver, consistently rated one of the most beautiful cities in the world? Screw you guys — I *do* want SF to look like that. And it will: the do-nothing, keep-everything-2-stories, I’ve-got-mine-fuck-you hippies are going to fail and die off soon enough.

    • Andrew Huerta says:

      San Francisco > Vancouver.

      And Why don’t you move to Vancouver, New York or Dubai then if thats what you like, instead of trying to change what the locals and real people of San Francisco call home.

    • Nick says:

      That was my thought too. Vancouver is awesome… Hong Kong is awesome… Meanwhile, San Francisco radicals continue to pretend there is no room to house people when the existing land is barely developed. The only thing their strategy will ensure is that none of them will be able to afford to live in San Francisco.

      • Sam says:

        Yes, the NIMBY’s in SF wish to suppress the building of new homes while anyone who cares about homes being affordable clearly has an interest in building more homes.

        So it’s the NIMBY mafia versus the affordable housing mafia and that’s fine except that Welch weirdly is trying to claim that there is no disconnect here, and that you can be a NIMBY advocate for affordable housing. And meanwhile, of course, he owns property in SF and so has a vested interest in housing costing more.

        Welch’s bizarro logic appears to entail that if we started destroying housing then it would presumably get cheaper, since he thinks that more housing makes it more expensive.

      • hu says:

        Vancouver isn’t awesome if you want to buy a home … if you are tired of seeing beautiful old character homes plowed under for someone to build a pink stucco monster home with no soul … better yet they chop down all the trees from prior to WWII because after all … hemlock needles are messy. Yes its pretty to visit … its not a fun place to try to raise a family and own a home on a average take home of 50k a year

        • Sam says:

          But rents are much cheaper in Vancouver. They’re doing something right that we are not, and I’d argue it is upping the density.

    • BP says:

      Well, not _that_ soon, it seems. Otherwise, we might at least have enough housing units for the people who seek to live here now, instead of policies that serve primarily to protect older, richer residents’ views.

  4. LK says:

    Why yes, correlation DOES imply causation. Of course, now everything makes sense. /s

    • Sam says:

      Yes, whenever A and B correlate, someone will try and infer causation, and they usually infer it in a way that suits their world view, as Welch does here.

      The problem is that he cannot explain why more supply means higher prices. He simply assumes that because there is a correlation. While of course it is a central tenet of economics that more supply reduces prices for any given level of demand.

      The only rational way to explain the correlation is to look at the demand side. Developers only build when there is demand, and that increase in demand drives higher prices which drives more development. So when demand falls off a cliff, like during the 2008 sub-prime collapse, the developers pull or mothball their projects, and we get the other correlation – lower prices and less new supply.

      Welch’s central dilemma is that he wants to be a NIMBY and he wants affordable housing. Those are contradictory and so he has to invent a weird counter-intuitive upside-down theory that says that more supply equals higher costs.

      And if he believes that then he should advocate destroying homes as that would presumably, by his twisted logic, reduce housing costs. You can’t make this stuff up.

  5. David says:

    All major cities build up, San Francisco will be no exception. Affordability, if one cannot afford to live here move to the suburbs.

    • Sam says:

      Welch’s other flawed premise is that he considers only SF, whereas the real urban area is the Bay Area. More than half the people who work in SF live outside of SF. So any consideration of housing needs to take into account all nine Bay Area counties and not just one.

      What Welch is doing is trying to pretend that the downtown area of a large city should house everyone who works there. Nonsense.

    • David,

      See my reply to Sam at the top.

  6. Wynette Pugh says:

    Tim, thanks for your article. Readers should also see the recent New Yorker Financial Page on this:

    http://www.newyorker.com/talk/financial/2014/05/26/140526ta_talk_surowiecki

    In a way I find it comforting – this is just where the rubber of economic inequality meets the road. This is not some convoluted zoning problem, we need to tax income and stop allowing massive tech firms hide their money in Bermuda.

  7. SFrentier says:

    Are you kidding, I love this bozo. Thanks for making me rich!

  8. SFrentier says:

    BTW, how can his illogical “points” even be published? That chart showing price increases and new construction is laughable. Ummm….what if there was NO NEW construction during those years- would prices have gone down? Or what if there was a shit ton of new construction?

    The point is that these progressives are responsible for making SF housing so restricted (NIMBY policies, rent control, anti landlord measures, etc.) and THAT is why prices are sky high. And as a multi property owner in the city, I can’t thank them enough for that :) :) :)

  9. Dan says:

    Vancouver home prices remain high, but rents are much cheaper than in SF– typically half SF rents. The high rises are in limited parts of the city. Meanwhile, those seeking lower density can live in East Vancouver and other neighborhoods, in which older, single family homes and duplexes have been preserved. The density is concentrated in downtown neighborhoods and around good transit.

    • hu says:

      Dan have you lived in East Van? How many times did a crack head steal your stuff or smash your car window or better yet how many times have you had to take a sick day to go to ICBC to get your smash and grab car assessed. Yes Rent is cheaper and there is a reason for that … Chinese millionaires don’t really rent that much … they like to buy

      • Sam says:

        Cheaper areas are always inferior. THat is why they are cheaper!

        Oakland is also cheaper than SF, but crime is higher. Pays your money and take your choice.

  10. Eat land values as community revenue or they will eat you . . . as SFRentier so triumphantly trumpets. Are you listening, Mr. Redmond?

    • SFrentier says:

      Sooo……ru against private ownership of land?

    • Sam says:

      Your assertion that it is the community that confers value on my land is erroneous. If my land is valuable it is because of the economic value that is generated in the community. That typically derives from corporations, partnerships and other enterprises and employers. It does not derive from any specific aspect of the community and, indeed, there are many communities that create negative wealth, as I suspect a place like Detroit does.

      If anything a community consumes wealth rather than creates it, and can only survive, let alone flourish, by attaching the prosperity that the private sector generates. I’d aver that the 500,000 poorest San Franciscans make no material difference to land values in the city. It’s the others that drive prosperity, and the entities that they work through.

      Oh, and BTW taxes should generally only be levied on trades and transactions. A tax on an inert, inanimate object is fundamentally flawed because there is no guarantee that there is any income or means to pay that tax. If you are old enough, you might recall that was why we passed Prop 13.

      Americans aren’t real keen on wealth taxes, and the federal government is actually constitutionally banned from doing it. Personally I would scrap all land and property taxes and instead tax imputed rent on all residents, thereby broadening the tax base and spreading the freight of carrying the “community” onto the community.

  11. hu says:

    As an X-Vancouverite there are huge differences between Vancouver and San Francisco that will save San Francisco from Vancouver’s fate.

    1) San Francisco has industry and employment … Vancouver relies solely on import and export of raw materials from Canada and import of goods from Asia … unlike San Francisco that has high paying jobs across banking, industry, technology … Vancouver has none of that.

    2) San Francisco has a soul – you will be hard pressed in Kitsilano, Kerrisdale or any of the legacy neighborhoods in Vancouver proper to have any architecture that has survived from prior to WWII – Moving down here I lost my mind seeing a city LOVE their heritage buildings.

    3) San Francisco Gentrification is done by high paid USA residents – Vancouver’s Gentrification has come primarily from rich Hong Kong, Mainland Chinese who have no intention of being Canadian except for healthcare and our social framework. This is not a racist statement … it is a fact, they have no intention of being part of Canada and simply need a place to reside to escape the trials and tribulations from their lives in China. Too many have paid for their Canadian Citizenship ($500,000) loan to the province for citizenship for them and their family.

    They give very little back to the community and create a great rift between the Canadian citizens of all colours and themselves. Hongcouver as it is known is not the city that I grew up in. I understand that by the 2nd and 3rd generation of immigrants that the Canadian mindset will be as mainstream as I … but the harm to the cities culture, identity and overall once great vibe have been tarnished.

    People complain about cost of living in San Francisco …. Try living in Vancouver for a while with a low paying job and see how hard it is here ….

    This place is freaking paradise in comparison.

    • SFrentier says:

      And, if I’m not mistaken, Vancouver has an even bigger drug abuse and homeless problem than liberal SF.

      • hu says:

        Yes for a city of 3 million they have about 60 beds for detox and have decriminalized and support safe injection clinics (funded by taxpayers) to enable junkies to bring their smack in and shoot up without fear of
        AIDS or HepC … Thus ringing the dinner bell for every junkie in Canada to come and smash and grab their way through the city to get money for their drugs. I have had my car broken into countless times and home and myself was accosted in a parkade in Gastown when it was really bad down there.

        Fact is I would walk the Tenderloin any day over the corner of Main and Hastings in Vancouver … they just say “Sorry” as they rob you there

    • Sam says:

      No, people who buy homes, pay taxes and consume zero services are the PERFECT people to have in your community.

  12. Grow baby grow says:

    God this thread is full of idiots. Thankfully despite rampant stupidity on these issues, SF will continue to grow and become more dense. No not like Hong Kong and Manhattan bc that will take a long time, but we will keep growing. Long past when the Calvin Welch’s of the city will be gone. SF will become that dense city bc it HAS to. In the meantime ppl like Calvin and commenters on this blog will continue to say dumb things in public much to the entertainment of people like myself who know the city will have 1.2 million people in 15 years.

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