4 ms·

Isn't the problem in SF that the wages have gone up hugely for a small subset of the population? If that's the case, then the landlord is just following a stan

by ColanR 8y ago

Isn't the problem in SF that the wages have gone up hugely for a small subset of the population? If that's the case, then the landlord is just following a standard negotiation tactic [1], since this is their livlihood. [1] https://www.monster.com/career-advice/article/dont-leave-money-on-the-table-hot-jobs https://www.monster.com/career-advice/article/dont-leave-mon...

thereisnospork 8y ago
> Isn't the problem in SF that the wages have gone up hugely for a small subset of the population? Wages of the renting population is irrelevant to the 'fair economic price1' of an apartment. The equilibrium/fair cost of a latte doesn't go up because a few millionaires move into a neighborhood, it might go up because of a barista labor-shortage, a coffee bean-tariff, or other supply-side effect. You're not wrong that the rent prices are being driven up because there is an influx of wealth to a subset, but the core problem is that the supply is artificially constrained. If you put a quota on lattes sold in our hypothetical neighborhood, only the rich will be able to drink them - and will pay 'rich people prices' to ensure they can (or if you prefer, Starbucks will maximize its profit in the latte constrained environment. Let Starbucks serve all the lattes it wants, and prices will stay more or less constant. 1 to be specific, the fair economic price is the breakeven + opportunity cost (profit!) to build an operate an apartment building, which can be amortized to a monthly rent per unit that would be required in order to make building the apartment worth while to the builder, architect, et al. In SF, and much of the Bay Area, monthly rents far exceed this value - which if SF was a functioning market would drive the construction of more apartments driving rents down towards their fair economic price.
- ColanR 8y ago
  Well, it seems like you're making an assumption about the 'opportunity cost' of building/operating the apartment building, that it's grown far less than the wages. If your argument (that rental costs are too high) rests on that assumption, seems like it should be addressed and backed up. I am curious, though, about the artificial constraint you mentioned. Don't know what you're specifically referring to, would like to know more.
  - thereisnospork 8y ago
    My analysis is a top-down one, In summary: rents in SF/Bay area are 3-4k for new construction 1 bedroom, which is say double Chicago or Houston, and much more even than the Bay Area 10 or 15 years ago. So it reasons that at the prices being paid, people should be able to build profitably. That they aren't implies they can't or have onerous restrictions. For fun, take a (google maps) walk around SF or downtown Oakland and count the single-family homes, parking lots, and vacant lots that, at least mechanically, could easily be turned into very profitable apartments - yet aren't. > I am curious, though, about the artificial constraint you mentioned. Don't know what you're specifically referring to, would like to know more. Restrictive zoning, planning commissions, NIMBYs, activist groups (historical societies, environmental groups,), onerous and vague regulations1 (that can be easily challenged in court.) for a few examples. All serve to both make development costs increase and project success uncertain. 1 e.g. Regulations should exist that require buildings to be earthquake safe (environmentally friendly, etc.), but said regulations should also provide concrete metrics to define 'earthquake safe' otherwise nothing stops lawsuits alleging a failure to properly design a building to be earthquake safe -- which costs a lot of money and time.
    - ColanR 8y ago
      Well, I don't disagree with either of those points. :) Thanks for the elucidation.
    - njarboe 8y ago
      You should take a walk around downtown Oakland. Most of the parking lots have turned into construction sites over the last 3 or 4 years. Not many tear downs happening yet(a few, like an Acura dealership across from Whole Foods getting torn down and a ~20 story apt building going up in its place), but this boom has gone on so long that the NIMBYs have finally gotten tired and thousands of apartments will be coming on the market in Oakland pretty soon. As a long time home owner in the area I like how this is finally happening after decades of people thinking an Oakland revival was just around the corner. Most of the companies doing the construction are from out of state. Maybe they just didn't know it was impossible to build in Oakland, saw the huge potential profits, and went for it.
- mcguire 8y ago
  A question: is N * $x less than or greater than M * $y, where N is the number of current units for rent, M the proposed number of units (N < M), $x is the current rental price minus the cost of providing those units, and $y is the proposed rental price minus the cost there (presumably, $y < $x). I'm wondering if the current disfunctional market is economically rational.
- maxlybbert 8y ago
  > The equilibrium/fair cost of a latte doesn't go up because a few millionaires move into a neighborhood, it might go up because of a barista labor-shortage, a coffee bean-tariff, or other supply-side effect. In my economics class, I remember drawing a supply curve and a demand curve, and labeling the intersection “equilibrium.” If a millionaire moves into my neighborhood and buys so many lattes on a regular basis that the coffee shops keep running out, it’s a hint that the demand curve has shifted, which has caused the equilibrium price to change. Since “equilibrium” means “balance,” I can’t see you can find the equilibrium price by looking at only one of supply or demand. What is supply balanced with at equilibrium?
  - thereisnospork 8y ago
    We are viewing the analogy differently: a millionaire doesn't drink meaningfully more coffee1 than a normal person (perhaps better coffee) but can pay more for it, paralleling the housing needs/wants of a ""tech bro"" and a teacher. To use your version, the problem is that the coffee shops aren't allowed to make more coffee. If they could they would continue to do so (because money), at the point where they make the most total profit (not margin!) which occurs with an increase in supply. Since they now have more demand, fixed costs drop to a lower percentage and your millionaire drives down the cost of lattes, not up. Or does your neighborhood millionaire drink so much as to disrupt the global coffee bean + brewing equipment supply market?
    - maxlybbert 8y ago
      I was only replying to a comment that acknowledged supply changes could affect prices, but seemed to intentionally downplay changes in demand having any effect (which is why my hypothetical millionaire has to buy so many lattes that coffee shops were running out; having people with more disposable income doesn’t change demand until they spend that income). Sadly I am not a millionaire myself, and have no firsthand knowledge about how they spend their riches.
- sullyj3 8y ago
  There's no such thing as a "fair price". There's just what people are or aren't willing to pay.
  - deleted 8y ago
    [deleted]
  - scarejunba 8y ago
    For others reading, the appropriate concepts are economic rent and rent seeking. The model espoused above (what people will pay) captures too few behaviours to be useful on its own in this situation. Certainly, the question of whether property taxes should be capped and whether governments should allow more buildings to be built requires tools beyond “the value is the current bid price”.

by ColanR 8y ago

thereisnospork 8y ago

> Isn't the problem in SF that the wages have gone up hugely for a small subset of the population? Wages of the renting population is irrelevant to the 'fair economic price1' of an apartment. The equilibrium/fair cost of a latte doesn't go up because a few millionaires move into a neighborhood, it might go up because of a barista labor-shortage, a coffee bean-tariff, or other supply-side effect. You're not wrong that the rent prices are being driven up because there is an influx of wealth to a subset, but the core problem is that the supply is artificially constrained. If you put a quota on lattes sold in our hypothetical neighborhood, only the rich will be able to drink them - and will pay 'rich people prices' to ensure they can (or if you prefer, Starbucks will maximize its profit in the latte constrained environment. Let Starbucks serve all the lattes it wants, and prices will stay more or less constant. 1 to be specific, the fair economic price is the breakeven + opportunity cost (profit!) to build an operate an apartment building, which can be amortized to a monthly rent per unit that would be required in order to make building the apartment worth while to the builder, architect, et al. In SF, and much of the Bay Area, monthly rents far exceed this value - which if SF was a functioning market would drive the construction of more apartments driving rents down towards their fair economic price.

ColanR 8y ago
Well, it seems like you're making an assumption about the 'opportunity cost' of building/operating the apartment building, that it's grown far less than the wages. If your argument (that rental costs are too high) rests on that assumption, seems like it should be addressed and backed up. I am curious, though, about the artificial constraint you mentioned. Don't know what you're specifically referring to, would like to know more.
- thereisnospork 8y ago
  My analysis is a top-down one, In summary: rents in SF/Bay area are 3-4k for new construction 1 bedroom, which is say double Chicago or Houston, and much more even than the Bay Area 10 or 15 years ago. So it reasons that at the prices being paid, people should be able to build profitably. That they aren't implies they can't or have onerous restrictions. For fun, take a (google maps) walk around SF or downtown Oakland and count the single-family homes, parking lots, and vacant lots that, at least mechanically, could easily be turned into very profitable apartments - yet aren't. > I am curious, though, about the artificial constraint you mentioned. Don't know what you're specifically referring to, would like to know more. Restrictive zoning, planning commissions, NIMBYs, activist groups (historical societies, environmental groups,), onerous and vague regulations1 (that can be easily challenged in court.) for a few examples. All serve to both make development costs increase and project success uncertain. 1 e.g. Regulations should exist that require buildings to be earthquake safe (environmentally friendly, etc.), but said regulations should also provide concrete metrics to define 'earthquake safe' otherwise nothing stops lawsuits alleging a failure to properly design a building to be earthquake safe -- which costs a lot of money and time.
  - ColanR 8y ago
    Well, I don't disagree with either of those points. :) Thanks for the elucidation.
  - njarboe 8y ago
    You should take a walk around downtown Oakland. Most of the parking lots have turned into construction sites over the last 3 or 4 years. Not many tear downs happening yet(a few, like an Acura dealership across from Whole Foods getting torn down and a ~20 story apt building going up in its place), but this boom has gone on so long that the NIMBYs have finally gotten tired and thousands of apartments will be coming on the market in Oakland pretty soon. As a long time home owner in the area I like how this is finally happening after decades of people thinking an Oakland revival was just around the corner. Most of the companies doing the construction are from out of state. Maybe they just didn't know it was impossible to build in Oakland, saw the huge potential profits, and went for it.
mcguire 8y ago
A question: is N * $x less than or greater than M * $y, where N is the number of current units for rent, M the proposed number of units (N < M), $x is the current rental price minus the cost of providing those units, and $y is the proposed rental price minus the cost there (presumably, $y < $x). I'm wondering if the current disfunctional market is economically rational.
maxlybbert 8y ago
> The equilibrium/fair cost of a latte doesn't go up because a few millionaires move into a neighborhood, it might go up because of a barista labor-shortage, a coffee bean-tariff, or other supply-side effect. In my economics class, I remember drawing a supply curve and a demand curve, and labeling the intersection “equilibrium.” If a millionaire moves into my neighborhood and buys so many lattes on a regular basis that the coffee shops keep running out, it’s a hint that the demand curve has shifted, which has caused the equilibrium price to change. Since “equilibrium” means “balance,” I can’t see you can find the equilibrium price by looking at only one of supply or demand. What is supply balanced with at equilibrium?
- thereisnospork 8y ago
  We are viewing the analogy differently: a millionaire doesn't drink meaningfully more coffee1 than a normal person (perhaps better coffee) but can pay more for it, paralleling the housing needs/wants of a ""tech bro"" and a teacher. To use your version, the problem is that the coffee shops aren't allowed to make more coffee. If they could they would continue to do so (because money), at the point where they make the most total profit (not margin!) which occurs with an increase in supply. Since they now have more demand, fixed costs drop to a lower percentage and your millionaire drives down the cost of lattes, not up. Or does your neighborhood millionaire drink so much as to disrupt the global coffee bean + brewing equipment supply market?
  - maxlybbert 8y ago
    I was only replying to a comment that acknowledged supply changes could affect prices, but seemed to intentionally downplay changes in demand having any effect (which is why my hypothetical millionaire has to buy so many lattes that coffee shops were running out; having people with more disposable income doesn’t change demand until they spend that income). Sadly I am not a millionaire myself, and have no firsthand knowledge about how they spend their riches.
sullyj3 8y ago
There's no such thing as a "fair price". There's just what people are or aren't willing to pay.
- deleted 8y ago
  [deleted]
- scarejunba 8y ago
  For others reading, the appropriate concepts are economic rent and rent seeking. The model espoused above (what people will pay) captures too few behaviours to be useful on its own in this situation. Certainly, the question of whether property taxes should be capped and whether governments should allow more buildings to be built requires tools beyond “the value is the current bid price”.