10 ms·

Agglomeration effects might change the YIMBY calculus

61 points by luu 8y ago

ISL 8y ago
The author's point about capsule-style living is a interesting one. Are there any examples of capsule hotels or similarly-tiny micro-rentals in the United States?
- ISL 8y ago
  Aha -- sought for and found: https://www.podroom.com/ https://www.podroom.com/
CodeWriter23 8y ago
Supply and Demand is too simplistic a model to think about housing costs because it fails to account for velocity of inventory vs. velocity of occupancy. It also completely ignores the law of retailing which is “Charge what the market will bear”. Let’s also be honest about how opportunity growth drives demand for housing.
- pchristensen 8y ago
  How is "opportunity growth" not just a change in the demand curve? And how is "charge what the market will bear" not just higher demand intersecting fixed supply at a higher price point?
- epistasis 8y ago
  Could you explain how "charged what the market will bear" is ignored by "Supply and Demand"? The entire basis of supply and demand is that prices change based on people charging what the market will bear, and buyers paying as little as they can.
  - nickstefan12 8y ago
    Not the OP, but I would think he's describing: You can't out build rich people. There may be a supply of ten houses and a demand of ten people who need houses. However, that doesn't take into account that one of those ten people might be rich enough to want to buy all of the houses and then rent them back to the other nine. In dieting: you can't out run the fork. In housing: you can't out build the rich people. In anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.
    - AnthonyMouse 8y ago
      But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more... At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
      - function_seven 8y ago
        Yes. When it comes to economics, people seems to stop analyzing after the first iteration. The whole system is continuously adjusting to changes in supply, demand, technology, taste, etc. The rich people aren't going to keep buying due to some sort of spite. They only do so as long as it's profitable, and it's only profitable as long as there is still unmet demand waiting to rent. This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall. Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.
scarejunba 8y ago
Haha, local residents in the Bay challenge the quantity of the agglomeration bonus. They believe they're currently at the perfect balance of dense and neighbourhood-like. Presumably this balance was attained shortly after they arrived and any further increase in density would cause congestion effects that dwarf the value of having more people around.
- amacbride 8y ago
  I know you're being snarky, but at the same time, you're not wrong. Too much of a theoretically "good thing" is still too much.
- Texasian 8y ago
  This is the same thing everywhere. When I was living in San Antonio, I'd always joke about folks who moved from Austin because they were always saying that "Austin was better X years ago." X being equal to +- 1 year from when they moved to Austin.
  - gascan 8y ago
    Is it not only natural that people move to a city when it is good, and leave when it is not anymore? I think there's two interpretations of the observation you describe.
- zjaffee 8y ago
  The problem is more that we are far better at building housing than we are at improving transportation and other infrastructure that needs to scale with population such as schools. Additionally, adding park space in already crowded neighborhoods is virtually impossible. Overall I think it's clear that growth can largely be a good thing, we just need to do a better job deploying resources in a rapid when when large numbers of people move in. A good example is Seattle, where the population is booming, and even with massive transportation projects planned and in the pipeline, it's certainly possible that by the time things get built it's insufficient.
  - 8y ago
istjohn 8y ago
Implicit in this analysis is that density is valuable, and we can create value by increasing the densities of our cities. They consider the possibility that the increase in property values due to an increase in density may outpace the decay in property values due to an increase in housing supply. This is possible in a single metro, since population is highly dynamic and new residents can come from other cities and states, but if federal policies caused a universal increase in metro density, the relatively static population at the national scale would prevent the decay in property values from being wiped out by the agglomeration effect. You can imagine everyone moving a quarter mile closer to the closest metro population center. Average density and thus value would increase, while costs would stay constant. I heard of a study some time ago that said that restrictions on urban development have cost the American economy on the order of trillions of dollars over the past few decades. When you also consider that existing property owners in cities have an incentive to maintain or increase their property values by limiting new construction, there is a powerful argument for the federal government to act on behalf of the interests of the nation as a whole in having more dense, dynamic, inclusive urban centers and prevent cities from enacting anti-development policies. Furthermore, while developers are typically scorned by my comrades on the left, such a policy would be progressive in that it would tend to reduce the wealth of rich property owners, while decreasing costs for renters and making cities more accessible to people with fewer resources.
- erikpukinskis 8y ago
  The NIMBYs described don’t value density, they value access. Speaking for myself, I only value density as a means to establishing a global “right of return”, which I believe is a moral good: Human ecologies are healthier when children who grow up in a place have the option to remain, or to return after exploring. Oakland, right now, is forcing out large numbers of indigenous people, young and old, perhaps never to return. I don’t care about the density of Oakland, I just care that people who have spent part of their development here can continue to embody the geography. As long as there is a supply of wealthy would-be immigrants (which shows no sign of slowing) then that means I am for increasing density. But it’s a means to an end.
  - 8y ago
deleted 8y ago
[deleted]
kyledrake 8y ago
The bay area is currently depopulating. People are demonstrating, with their lives and futures, during one of the biggest boom periods in history, that the agglomeration effects are not sufficient to deal with the housing crisis in the bay area, even with the unprecedented slush capital flying around. The crisis is more happening because they're not even building enough housing for the people that already live in the bay area. Honestly, from my experience living there for a year, the agglomeration benefits of the bay area are pretty oversold. I met some great people there, usually too far away to meet with regularly (transit is beyond terrible), that can't work on anything with you because they're too busy working an all-consuming job so they can afford rent, lost in an endless sea of people I would never want anything to do with.
- kbenson 8y ago
  Upvoted for second paragraph, but do you have anything to support the depopulation claim? Demographic stats from SF and San Jose indicate growth. The bay area in general also seems to be experiencing growth.[1] 1: https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demographics https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demogra...
- JimboOmega 8y ago
  I haven't seen any evidence for it depopulating. Anecdotally yes people talk about moving and how expensive it is, but I haven't seen any data or real evidence that there's a significant outflow. There has to be an end to the housing price rises, though. I think it will happen when salaries get too high for tech companies to pay. Why pay double what you would for the same person in another area? Right now the ease of finding employees makes it worth it, but there has to be a tipping point somewhere. I keep thinking the housing policies will kill the golden goose but it hasn't yet.
  - zjaffee 8y ago
    Inflow is greater than outflow but it primarily comes from births and international immigration. Additionally domestic migration into California is certainly still happening, but it's very likely the case that it involves the filtering out of the working class. https://lao.ca.gov/laoecontax/article/detail/265 https://lao.ca.gov/laoecontax/article/detail/265
lacker 8y ago
It seems like the expense of the Bay Area can't primarily be about density per se, because so many expensive parts of it are not that dense. The Sunset is full of detached single-family housing but it costs as much as the rest of San Francisco.
- pmiller2 8y ago
  I never really understood why it was so expensive out there. It takes almost an hour to get from the Sunset to the parts of the city where people actually work. But, if I'm going to commute an hour, why not live in the East Bay and save on rent?
ummonk 8y ago
"Affordability" and "opportunity" are the same thing. If I don't have the opportunity to find affordable housing here, then it isn't affordable for me. Conversely, if I can't afford to live here, I don't have the opportunity to live here. Value creation is a different matter though - a place can become less affordable and create more value, or can become more affordable and create less value (Detroit, with its vacant subdivisions, being an obvious example).
- zjaffee 8y ago
  Can you think of a place that became more affordable after the fact and created more value, because I struggle to think of one. Virtually every city in America that is considered affordable has either experienced large amounts of population loss, or is in a region that is still on it's rise in popularity and happened to have tons of open land that it continues to subdivide. All over the world, central urban real estate is very expensive, often because it has access to transportation infrastructure such as highways and trains that allow it to attract workers over a larger population boundary.
  - closeparen 8y ago
    Every that grows chooses lower prices and greater opportunity vs. the counterfactual world where it’s subject to the same pressures but stifles growth. The Bay Area’s situation is historically mundane; only its response is unique. New York had a significant population by the mid 19th century. Imagine if its residents had decided to preserve the character of their neighborhoods.
  - nerfhammer 8y ago
    You won't find examples of prices going down over long periods of time, but there are plenty of examples of prices remaining relatively affordable and stable. For example, New York City up until the mid 1970's: https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-rents-and-asking-prices-over-a-century https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-ren...
    - 8y ago
frgtpsswrdlame 8y ago
So the author is discovering Say's Law [1] - basically supply can create it's own demand. Now if you talk to an economist they'll tell you Say's Law is bunk and has been for quite a while, supply doesn't create it's own demand. But let's say you don't mention Say's Law and you talk to an immigration economist, they'll say something like immigration is good because the supply of new labor actually creates even higher demand for labor than what they displace, basically Say's Law but disguised. Which is all to say, does supply drive it's own demand? Hard to say but regardless YIMBYs need to deepen their explanations of the economics behind the issue, supply and demand graphs are good for introducing undergrads to the basics, they're not good for justifying very expensive and highly redistributive policy. [1] https://en.wikipedia.org/wiki/Say%27s_law https://en.wikipedia.org/wiki/Say%27s_law sidenote: draw a supply and demand graph. Now draw a second graph but make demand slightly upward sloping. Increase supply. What happens to price? Just googling around I found several articles about upward sloping demand in housing. It appears to be contentious (urban economics isn't an area I know too much about) but is something that should be considered. http://worthwhile.typepad.com/worthwhile_canadian_initi/2017/08/upward-sloping-demand-curves-for-labour-and-housing.html http://worthwhile.typepad.com/worthwhile_canadian_initi/2017... https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf https://ideas.repec.org/p/arz/wpaper/eres2018_267.html https://ideas.repec.org/p/arz/wpaper/eres2018_267.html https://www.sciencedirect.com/science/article/pii/S0094119006000799 https://www.sciencedirect.com/science/article/pii/S009411900...
geebee 8y ago
I think the article raises an important point. I'm skeptical that increasing the supply of housing in San Francisco will lower prices. I do think that San Francisco suppresses a lot of potential business activity through restrictive housing practices. Some of this business can move elsewhere, but there's a chance that some of it just doesn't happen. More housing might just stimulate the local economy (the agglomeration effect mentioned in this blog post). We certainly know that higher density doesn't necessarily produce lower prices - San Francisco recently passed Manhattan to become the most expensive housing market per housing unit, but Manhattan remains more expensive per square foot. And even if it does, existing San Francisco house owners might still benefit. The structure isn't all that valuable compared to the land, at this point. So even if greater density causes housing prices per unit drop, and even if it causes prices per square foot of living space to drop (due to multiple unit apartment buildings but where a single or two story house used to exist), the value per square foot of land could increase astronomically. And that's if per unit or per square foot prices drop. It could be that these prices would rise, which would only increase the value of land even more. This is why I don't buy into the notion that San Franciscans are anti-development because of a desire to maximize the dollar value of their house. It could be that they haven't thought it through like this, or it could be that the have and they disagree... but I think a lot of San Franciscans are driven by a motivation to keep things from changing. They like it this way, and they don't really want it to change. They got in a while ago, they can afford it, their property taxes are low due to prop 13, and their house value has gone up to the point where they don't really need it to go up much more. They just aren't motivated to seek more density, but it isn't necessarily because they want to maximize the value of their real estate asset (the land their house sits on). It could actually be indifference to the price of their house that motivates them to block new development.
- fmajid 8y ago
  Prices will not go down in the short term. The entire Bay Area needs to increase its housing supply by 50% in the next 20 years just to keep prices constant. SF produces less than 1/3 the required housing.
  - geebee 8y ago
CryptoPunk 8y ago
I imagine most YIMBYs would welcome the agglomeration effect, given it means more high-paying jobs created as a result of the economic efficiencies it enables. Lower cost housing is a means to end, not an end onto itself. That end is a higher quality of life, for more people, and more productive higher density cities provide that.
BurningFrog 8y ago
If this was true, Economists would be all over it. It's the kind of stuff careers and Nobel prices are made of. But Economists have studied this and know the effect is very small. Which is why you have software engineers speculating about it instead. I know no other scientific field where people so confidently ignore well established known facts as Economics. Even people who otherwise quite scientifically literate.

61 points by luu 8y ago

ISL 8y ago

The author's point about capsule-style living is a interesting one. Are there any examples of capsule hotels or similarly-tiny micro-rentals in the United States?

ISL 8y ago
Aha -- sought for and found: https://www.podroom.com/ https://www.podroom.com/

CodeWriter23 8y ago

Supply and Demand is too simplistic a model to think about housing costs because it fails to account for velocity of inventory vs. velocity of occupancy. It also completely ignores the law of retailing which is “Charge what the market will bear”. Let’s also be honest about how opportunity growth drives demand for housing.

pchristensen 8y ago
How is "opportunity growth" not just a change in the demand curve? And how is "charge what the market will bear" not just higher demand intersecting fixed supply at a higher price point?
epistasis 8y ago
Could you explain how "charged what the market will bear" is ignored by "Supply and Demand"? The entire basis of supply and demand is that prices change based on people charging what the market will bear, and buyers paying as little as they can.
- nickstefan12 8y ago
  Not the OP, but I would think he's describing: You can't out build rich people. There may be a supply of ten houses and a demand of ten people who need houses. However, that doesn't take into account that one of those ten people might be rich enough to want to buy all of the houses and then rent them back to the other nine. In dieting: you can't out run the fork. In housing: you can't out build the rich people. In anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.
  - AnthonyMouse 8y ago
    But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more... At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
    - function_seven 8y ago
      Yes. When it comes to economics, people seems to stop analyzing after the first iteration. The whole system is continuously adjusting to changes in supply, demand, technology, taste, etc. The rich people aren't going to keep buying due to some sort of spite. They only do so as long as it's profitable, and it's only profitable as long as there is still unmet demand waiting to rent. This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall. Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.

scarejunba 8y ago

Haha, local residents in the Bay challenge the quantity of the agglomeration bonus. They believe they're currently at the perfect balance of dense and neighbourhood-like. Presumably this balance was attained shortly after they arrived and any further increase in density would cause congestion effects that dwarf the value of having more people around.

amacbride 8y ago
I know you're being snarky, but at the same time, you're not wrong. Too much of a theoretically "good thing" is still too much.
Texasian 8y ago
This is the same thing everywhere. When I was living in San Antonio, I'd always joke about folks who moved from Austin because they were always saying that "Austin was better X years ago." X being equal to +- 1 year from when they moved to Austin.
- gascan 8y ago
  Is it not only natural that people move to a city when it is good, and leave when it is not anymore? I think there's two interpretations of the observation you describe.
zjaffee 8y ago
The problem is more that we are far better at building housing than we are at improving transportation and other infrastructure that needs to scale with population such as schools. Additionally, adding park space in already crowded neighborhoods is virtually impossible. Overall I think it's clear that growth can largely be a good thing, we just need to do a better job deploying resources in a rapid when when large numbers of people move in. A good example is Seattle, where the population is booming, and even with massive transportation projects planned and in the pipeline, it's certainly possible that by the time things get built it's insufficient.
- 8y ago

istjohn 8y ago

Implicit in this analysis is that density is valuable, and we can create value by increasing the densities of our cities. They consider the possibility that the increase in property values due to an increase in density may outpace the decay in property values due to an increase in housing supply. This is possible in a single metro, since population is highly dynamic and new residents can come from other cities and states, but if federal policies caused a universal increase in metro density, the relatively static population at the national scale would prevent the decay in property values from being wiped out by the agglomeration effect. You can imagine everyone moving a quarter mile closer to the closest metro population center. Average density and thus value would increase, while costs would stay constant. I heard of a study some time ago that said that restrictions on urban development have cost the American economy on the order of trillions of dollars over the past few decades. When you also consider that existing property owners in cities have an incentive to maintain or increase their property values by limiting new construction, there is a powerful argument for the federal government to act on behalf of the interests of the nation as a whole in having more dense, dynamic, inclusive urban centers and prevent cities from enacting anti-development policies. Furthermore, while developers are typically scorned by my comrades on the left, such a policy would be progressive in that it would tend to reduce the wealth of rich property owners, while decreasing costs for renters and making cities more accessible to people with fewer resources.

erikpukinskis 8y ago
The NIMBYs described don’t value density, they value access. Speaking for myself, I only value density as a means to establishing a global “right of return”, which I believe is a moral good: Human ecologies are healthier when children who grow up in a place have the option to remain, or to return after exploring. Oakland, right now, is forcing out large numbers of indigenous people, young and old, perhaps never to return. I don’t care about the density of Oakland, I just care that people who have spent part of their development here can continue to embody the geography. As long as there is a supply of wealthy would-be immigrants (which shows no sign of slowing) then that means I am for increasing density. But it’s a means to an end.
- 8y ago

deleted 8y ago

[deleted]

kyledrake 8y ago

The bay area is currently depopulating. People are demonstrating, with their lives and futures, during one of the biggest boom periods in history, that the agglomeration effects are not sufficient to deal with the housing crisis in the bay area, even with the unprecedented slush capital flying around. The crisis is more happening because they're not even building enough housing for the people that already live in the bay area. Honestly, from my experience living there for a year, the agglomeration benefits of the bay area are pretty oversold. I met some great people there, usually too far away to meet with regularly (transit is beyond terrible), that can't work on anything with you because they're too busy working an all-consuming job so they can afford rent, lost in an endless sea of people I would never want anything to do with.

kbenson 8y ago
Upvoted for second paragraph, but do you have anything to support the depopulation claim? Demographic stats from SF and San Jose indicate growth. The bay area in general also seems to be experiencing growth.[1] 1: https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demographics https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demogra...
JimboOmega 8y ago
I haven't seen any evidence for it depopulating. Anecdotally yes people talk about moving and how expensive it is, but I haven't seen any data or real evidence that there's a significant outflow. There has to be an end to the housing price rises, though. I think it will happen when salaries get too high for tech companies to pay. Why pay double what you would for the same person in another area? Right now the ease of finding employees makes it worth it, but there has to be a tipping point somewhere. I keep thinking the housing policies will kill the golden goose but it hasn't yet.
- zjaffee 8y ago
  Inflow is greater than outflow but it primarily comes from births and international immigration. Additionally domestic migration into California is certainly still happening, but it's very likely the case that it involves the filtering out of the working class. https://lao.ca.gov/laoecontax/article/detail/265 https://lao.ca.gov/laoecontax/article/detail/265

lacker 8y ago

It seems like the expense of the Bay Area can't primarily be about density per se, because so many expensive parts of it are not that dense. The Sunset is full of detached single-family housing but it costs as much as the rest of San Francisco.

pmiller2 8y ago
I never really understood why it was so expensive out there. It takes almost an hour to get from the Sunset to the parts of the city where people actually work. But, if I'm going to commute an hour, why not live in the East Bay and save on rent?

ummonk 8y ago

"Affordability" and "opportunity" are the same thing. If I don't have the opportunity to find affordable housing here, then it isn't affordable for me. Conversely, if I can't afford to live here, I don't have the opportunity to live here. Value creation is a different matter though - a place can become less affordable and create more value, or can become more affordable and create less value (Detroit, with its vacant subdivisions, being an obvious example).

zjaffee 8y ago
Can you think of a place that became more affordable after the fact and created more value, because I struggle to think of one. Virtually every city in America that is considered affordable has either experienced large amounts of population loss, or is in a region that is still on it's rise in popularity and happened to have tons of open land that it continues to subdivide. All over the world, central urban real estate is very expensive, often because it has access to transportation infrastructure such as highways and trains that allow it to attract workers over a larger population boundary.
- closeparen 8y ago
  Every that grows chooses lower prices and greater opportunity vs. the counterfactual world where it’s subject to the same pressures but stifles growth. The Bay Area’s situation is historically mundane; only its response is unique. New York had a significant population by the mid 19th century. Imagine if its residents had decided to preserve the character of their neighborhoods.
- nerfhammer 8y ago
  You won't find examples of prices going down over long periods of time, but there are plenty of examples of prices remaining relatively affordable and stable. For example, New York City up until the mid 1970's: https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-rents-and-asking-prices-over-a-century https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-ren...
  - 8y ago

frgtpsswrdlame 8y ago

So the author is discovering Say's Law [1] - basically supply can create it's own demand. Now if you talk to an economist they'll tell you Say's Law is bunk and has been for quite a while, supply doesn't create it's own demand. But let's say you don't mention Say's Law and you talk to an immigration economist, they'll say something like immigration is good because the supply of new labor actually creates even higher demand for labor than what they displace, basically Say's Law but disguised. Which is all to say, does supply drive it's own demand? Hard to say but regardless YIMBYs need to deepen their explanations of the economics behind the issue, supply and demand graphs are good for introducing undergrads to the basics, they're not good for justifying very expensive and highly redistributive policy. [1] https://en.wikipedia.org/wiki/Say%27s_law https://en.wikipedia.org/wiki/Say%27s_law sidenote: draw a supply and demand graph. Now draw a second graph but make demand slightly upward sloping. Increase supply. What happens to price? Just googling around I found several articles about upward sloping demand in housing. It appears to be contentious (urban economics isn't an area I know too much about) but is something that should be considered. http://worthwhile.typepad.com/worthwhile_canadian_initi/2017/08/upward-sloping-demand-curves-for-labour-and-housing.html http://worthwhile.typepad.com/worthwhile_canadian_initi/2017... https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf https://ideas.repec.org/p/arz/wpaper/eres2018_267.html https://ideas.repec.org/p/arz/wpaper/eres2018_267.html https://www.sciencedirect.com/science/article/pii/S0094119006000799 https://www.sciencedirect.com/science/article/pii/S009411900...

geebee 8y ago

I think the article raises an important point. I'm skeptical that increasing the supply of housing in San Francisco will lower prices. I do think that San Francisco suppresses a lot of potential business activity through restrictive housing practices. Some of this business can move elsewhere, but there's a chance that some of it just doesn't happen. More housing might just stimulate the local economy (the agglomeration effect mentioned in this blog post). We certainly know that higher density doesn't necessarily produce lower prices - San Francisco recently passed Manhattan to become the most expensive housing market per housing unit, but Manhattan remains more expensive per square foot. And even if it does, existing San Francisco house owners might still benefit. The structure isn't all that valuable compared to the land, at this point. So even if greater density causes housing prices per unit drop, and even if it causes prices per square foot of living space to drop (due to multiple unit apartment buildings but where a single or two story house used to exist), the value per square foot of land could increase astronomically. And that's if per unit or per square foot prices drop. It could be that these prices would rise, which would only increase the value of land even more. This is why I don't buy into the notion that San Franciscans are anti-development because of a desire to maximize the dollar value of their house. It could be that they haven't thought it through like this, or it could be that the have and they disagree... but I think a lot of San Franciscans are driven by a motivation to keep things from changing. They like it this way, and they don't really want it to change. They got in a while ago, they can afford it, their property taxes are low due to prop 13, and their house value has gone up to the point where they don't really need it to go up much more. They just aren't motivated to seek more density, but it isn't necessarily because they want to maximize the value of their real estate asset (the land their house sits on). It could actually be indifference to the price of their house that motivates them to block new development.

fmajid 8y ago
Prices will not go down in the short term. The entire Bay Area needs to increase its housing supply by 50% in the next 20 years just to keep prices constant. SF produces less than 1/3 the required housing.
- geebee 8y ago

CryptoPunk 8y ago

I imagine most YIMBYs would welcome the agglomeration effect, given it means more high-paying jobs created as a result of the economic efficiencies it enables. Lower cost housing is a means to end, not an end onto itself. That end is a higher quality of life, for more people, and more productive higher density cities provide that.

BurningFrog 8y ago

If this was true, Economists would be all over it. It's the kind of stuff careers and Nobel prices are made of. But Economists have studied this and know the effect is very small. Which is why you have software engineers speculating about it instead. I know no other scientific field where people so confidently ignore well established known facts as Economics. Even people who otherwise quite scientifically literate.