5 ms·

> It doesn't help that these cash strapped cities (Toronto) just rubber stamp any new development since the tax haul will be several times what they got for wha

> It doesn't help that these cash strapped cities (Toronto) just rubber stamp any new development since the tax haul will be several times what they got for what was there. The problem is not too much building, but not enough. The only real solution to the real estate problems in expensive cities is to get enough new building that real estate values tank. I could fix the SF real estate market in 10 seconds (although it would take maybe 10-20 years for developers to enact the change). 1. Minimum residential zoning is 15 story multi-family (subject to engineering limitations) 2. Axe rent control 3. No requirement to conform to the character of the neighborhood This would make lots of people very unhappy. People wouldn't like it that huge buildings are going up next to their 1 story house. People wouldn't like it that their real estate values will tank my 80-90%. That's a big part of the reason why there will never be a fix. But that level of change is what's necessary to fix the problems the city has.

zozbot234 7y ago
That would definitely create a lot of value ("fixing the problems"), but it needs not tank real estate values at all - Manhattan NYC does not have "cheap" real estate. What helps people looking for "cheap" RE is that this gives them more options in terms of moving to surrounding communities, since these would be incented to develop and densify in turn.
- nordsieck 7y ago
  > That would definitely create a lot of value ("fixing the problems"), but it needs not tank real estate values at all The most basic, fundamental laws of economics are the relations between supply, demand and price. If you keep demand relatively constant and dramatically increase supply, price will fall. Indeed, because of the close substitutability of owing and renting, the only way to get rents lower is to also decrease property values.
  - zozbot234 7y ago
    Why do you assume that demand would remain constant despite a large increase in density? More density tends to mean more amenities and more services like mass transit, hence raising demand.
    - nordsieck 7y ago
      > Why do you assume that demand would remain constant despite a large increase in density? Sure - induced demand is a thing. But induced demand is a secondary effect: people move to a place because the cost of living is now lower; it can slow the decrease in rent, but it can't stop it More importantly, it's completely possible to just out-build induced demand. There are simply a limited number of people who want to live in SF (although admittedly, that number is quite a bit larger than the number who are currently living there). So the more nuanced relation is: when supply dramatically outpaces demand, price will go down. Just to make sure we're both on the same page, I'm advocating increasing the number of bedrooms in the city by a minimum of 1-2 orders of magnitude.
Spooky23 7y ago
That may be a thing is San Francisco, but this issue exists far beyond it. I live in Albany, NY, a tiny city that has a mix of middle-income and low income residents. It's the state capital, so the fairly narrow salary bands of government workers define the market. The city adopted a model zoning ordinance to make building easier, and now there's a mini-boom of medium-density apartment construction, all of which is upmarket. All of the development is 4-5 story stick on brick buildings. New York provides generous tax incentives for apartments with retail space, so most have that, and most of that space is vacant. It's creating some potentially bad outcomes, as it's cutting off the oxygen for aging flats and single family homes that have been rentals. You have more vacancies as people with money move into new apartments that are cheaper due to the tax abatements. The older properties that pay taxes are going downmarket, and the bottom tier properties are increasingly vacant as they don't meet the code requirements for Section 8 subsidy, and the landlords cannot afford to cut the rent to let the market fill the units. My point is that there are no easy fixes. SFO is a supply/demand problem and while supply is a problem, demand is too -- the outlier is that the extended gold rush is allowing tech companies to make irrational decisions with respect to employee compensation. The market has decided that it's cheaper to pay workers incredibly well than to move to Omaha.
- istjohn 7y ago
  My question is why are they giving developers tax abatements?
neuland 7y ago
One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. And still, they'll not want to do it. There's still farmers holding out, despite single digit million dollar offers for 10-ish acre plots. And it's great if a small number of them do hold out, because it makes it possible to have some green space down the line when the area has fully developed to a single family house level suburb. But I think the main issue is the culture. Farmers want to maintain their way of life. Single family home people want to maintain their way of life. And so on. People don't like change.
- nordsieck 7y ago
  > One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. > I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. I think the way to think about property values is this: what is the highest value economic activity that can be accomplished on the property? In your first example, it's pretty clear that building lots of houses (in the presence of sufficient demand) is a much higher value economic activity than farming. The home to condo example is a bit more complicated. For the very first person to sell to a developer, I think your point is sound. However, each additional bedroom that's created in the city decreases the value of all other bedrooms by a small amount. This not only directly decreases the value of a single family home, but it also decreases the value of a condo building, which means that developers will be willing to play less money for land. Eventually, builders will stop building - the cost of construction will be more than they can sell new condos for. At that point, I believe the remaining home owners will have suffered a dramatic decrease in the value of their property. Where does the equilibrium land? I don't think anyone knows for sure. But new construction goes up in some pretty low value real estate markets. 80-90% is just a guess on my part, but I don't think it's too far off based on current prices.
jariel 7y ago
"The problem is not too much building, but not enough." No - the problem is too many people. Toronto accepts a vast array of newcomers every year - there is simply no need for it. The number of new people is existentially problematic, it's not normative in any sense, and it's a self inflicted problem.
- kapuasuite 7y ago
  Malthus doesn’t make any more sense at a micro level than a macro one - you can’t keep people out.
  - jariel 7y ago
    "you can’t keep people out" This is simply not true. Almost all of the influx is due to migration into Canada. The government absolutely controls those numbers.

zozbot234 7y ago

That would definitely create a lot of value ("fixing the problems"), but it needs not tank real estate values at all - Manhattan NYC does not have "cheap" real estate. What helps people looking for "cheap" RE is that this gives them more options in terms of moving to surrounding communities, since these would be incented to develop and densify in turn.

nordsieck 7y ago
> That would definitely create a lot of value ("fixing the problems"), but it needs not tank real estate values at all The most basic, fundamental laws of economics are the relations between supply, demand and price. If you keep demand relatively constant and dramatically increase supply, price will fall. Indeed, because of the close substitutability of owing and renting, the only way to get rents lower is to also decrease property values.
- zozbot234 7y ago
  Why do you assume that demand would remain constant despite a large increase in density? More density tends to mean more amenities and more services like mass transit, hence raising demand.
  - nordsieck 7y ago
    > Why do you assume that demand would remain constant despite a large increase in density? Sure - induced demand is a thing. But induced demand is a secondary effect: people move to a place because the cost of living is now lower; it can slow the decrease in rent, but it can't stop it More importantly, it's completely possible to just out-build induced demand. There are simply a limited number of people who want to live in SF (although admittedly, that number is quite a bit larger than the number who are currently living there). So the more nuanced relation is: when supply dramatically outpaces demand, price will go down. Just to make sure we're both on the same page, I'm advocating increasing the number of bedrooms in the city by a minimum of 1-2 orders of magnitude.

Spooky23 7y ago

That may be a thing is San Francisco, but this issue exists far beyond it. I live in Albany, NY, a tiny city that has a mix of middle-income and low income residents. It's the state capital, so the fairly narrow salary bands of government workers define the market. The city adopted a model zoning ordinance to make building easier, and now there's a mini-boom of medium-density apartment construction, all of which is upmarket. All of the development is 4-5 story stick on brick buildings. New York provides generous tax incentives for apartments with retail space, so most have that, and most of that space is vacant. It's creating some potentially bad outcomes, as it's cutting off the oxygen for aging flats and single family homes that have been rentals. You have more vacancies as people with money move into new apartments that are cheaper due to the tax abatements. The older properties that pay taxes are going downmarket, and the bottom tier properties are increasingly vacant as they don't meet the code requirements for Section 8 subsidy, and the landlords cannot afford to cut the rent to let the market fill the units. My point is that there are no easy fixes. SFO is a supply/demand problem and while supply is a problem, demand is too -- the outlier is that the extended gold rush is allowing tech companies to make irrational decisions with respect to employee compensation. The market has decided that it's cheaper to pay workers incredibly well than to move to Omaha.

istjohn 7y ago
My question is why are they giving developers tax abatements?

neuland 7y ago

One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. And still, they'll not want to do it. There's still farmers holding out, despite single digit million dollar offers for 10-ish acre plots. And it's great if a small number of them do hold out, because it makes it possible to have some green space down the line when the area has fully developed to a single family house level suburb. But I think the main issue is the culture. Farmers want to maintain their way of life. Single family home people want to maintain their way of life. And so on. People don't like change.

nordsieck 7y ago
> One thing I don't understand is the "their real estate values will tank 80-90%" part. I live in a transforming rural area and one-by-one all the farmers have been selling their land to developers to make planned neighborhoods. They control the supervisors, zoning, and planning boards, and they have to be dragged kicking and screaming to allow these developments. However, their land values have gone up a ton in the last decade: basically a whole order of magnitude from on the order of 10's of thousands per acre to 100's of thousands per acre. > I think the same applies to your single family home next to a 15 story condo building. Instead of selling to a another family, now they're selling to a big developer and can price it waaaaay higher, because the developer will be getting significantly more value out of the land than they were. I think the way to think about property values is this: what is the highest value economic activity that can be accomplished on the property? In your first example, it's pretty clear that building lots of houses (in the presence of sufficient demand) is a much higher value economic activity than farming. The home to condo example is a bit more complicated. For the very first person to sell to a developer, I think your point is sound. However, each additional bedroom that's created in the city decreases the value of all other bedrooms by a small amount. This not only directly decreases the value of a single family home, but it also decreases the value of a condo building, which means that developers will be willing to play less money for land. Eventually, builders will stop building - the cost of construction will be more than they can sell new condos for. At that point, I believe the remaining home owners will have suffered a dramatic decrease in the value of their property. Where does the equilibrium land? I don't think anyone knows for sure. But new construction goes up in some pretty low value real estate markets. 80-90% is just a guess on my part, but I don't think it's too far off based on current prices.

jariel 7y ago

"The problem is not too much building, but not enough." No - the problem is too many people. Toronto accepts a vast array of newcomers every year - there is simply no need for it. The number of new people is existentially problematic, it's not normative in any sense, and it's a self inflicted problem.

kapuasuite 7y ago
Malthus doesn’t make any more sense at a micro level than a macro one - you can’t keep people out.
- jariel 7y ago
  "you can’t keep people out" This is simply not true. Almost all of the influx is due to migration into Canada. The government absolutely controls those numbers.