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The reason for San Francisco's high rent/home price is very simple, despite how others like to complicate it more: 1: Its desirable for most people to live her

The reason for San Francisco's high rent/home price is very simple, despite how others like to complicate it more: 1: Its desirable for most people to live here. Possibly the most desirable place in the USA, depending on your tastes. As a result, people are willing to pay more to live here. There are jobs, culture, food, art and much more all in this great city. 2: Rent Control. I wont get too much into it, but my take as a real estate investor is that it greatly entices residents to stay put once they have rented. As a result, there is significantly higher rent (due to less supply) for new residents. Many apartments are not rented at all because of the owners fear of rent control. SF needs to get over its "you have a right to live at your same address forever" attitude. 3: No new housing/construction. SF is a 7x7 plot of land which through both NIMBY-like behavior and heavy legislation/bureaucracy, has pushed a extremely anti-developer agenda. Every year, thousands and thousands of people move to SF. Unfortunately, there is less than 1 new housing unit built for every 25 new residents. The common thread that is thrown around is "We dont want SF to turn into a mini tokyo with skyscrapers and tiny apartments" so instead we have 3 floor victorians being used to house 10 roommates at $1500/pop.

deadfall 13y ago
SF approved "tiny apartments" http://www.wired.com/design/2012/11/san-francisco-micro-apartments/ http://www.wired.com/design/2012/11/san-francisco-micro-apar...
- DanBlake 13y ago
  My understanding is that this is a special 'trial phase' for Kennedy. The planning department is not approving other similar projects until it studies/weighs the outcome of these.
- fyolnish 13y ago
  Interesting title, considering that 20m^2 is considered pretty roomy in Tokyo
king_jester 13y ago
The main reason why people don't want new residential development is because it will feed into gentrification and push people out because they can no longer afford to live in SF. NYC has been and is going through this problem right now and it is not pretty. EDIT: There are a lot of comments about increasing supply as a way to make housing/apartments cheaper in SF. This is not at all well demonstrated, as in NYC new real estate development as continually raised prices and priced out those who had previously resided in those neighborhoods (if they need to move they can no longer afford the cost of living in said neighborhood, esp. if they lived in a rent stabilized or controlled place). New real estate development can make things cheaper, but we are seeing cities have population influxes and those cities traditionally are land limited for new construction. Those two factors work together to ensure that properties are renovated or rebuilt at higher cost to a wealth class that can afford it. It should be obvious that this is not sustainable, cities that do not provide a sustainable way to live for all classes will collapse.
- crusso 13y ago
  Right, so rather than have cool little areas like Cow Hollow that are worth living in and visiting, keep things like the Tenderloin that are perpetually unlivable and undesirable.
- mimiflynn 13y ago
  This is also happening in Austin right now. My friends in Durham are speculating that the same is beginning to happen there, although, comparitively, its still super affordable.
- deleted 13y ago
  [deleted]
  - wwweston 13y ago
    > 1. Build more 2. Watch prices go up I have my doubts about this. I would be interested to see evidence that you can actually drive prices down by increasing housing supply. Because when I've been in a position to watch some dramatic housing supply buildouts in a few areas, my observation has been that generally been that the owners price (at least) somewhat above market rates for existing housing -- after all, it's new. Often it's marketed as luxury housing and leased/sold at multiples of the median price. There's a few places I've observed a decrease in price. It's not where supply is increased, though, it's where demand drops, usually because the economic activity of the region drops off, but sometimes because of conflict/crime or health hazards. If I'm right, then there are still two options -- build more or don't build more. Each case may have its own merits, but there's not a case that excludes prices going up for SF and the Bay Area. Short of the current state of economic activity in the area turning out to be an unsustainable bubble or a major disaster, anyway.
michaelochurch 13y ago
This is a decent explanation but it's actually simpler than that. People who are upwardly mobile follow the jobs. In general, they choose jobs, then cities. Except for the very rich who don't have to work, desirability (excluding commute) is a minor factor in prices. I can back that up, but I think most people buy this already. However, real estate demand is extremely inelastic. If 5 percent of the houses in Manhattan were destroyed, the price increase wouldn't be 5%. It would probably be 2-5x, possibly 10x. That's why, even though rent control only affects a small percentage of the market, its price influence is huge. New development is supposed to correct for that, but often the result of it is creation of more expensive housing, which solves quality problems but doesn't have the desired price effect until many years later. (Real estate rarely goes down in dollar-denominated amounts, for psychological reasons; what does happen in a soft market is that prices stay flat and lose to inflation. In effect, it's a loss-limit on price declines that is very tight when inflation is low.)
- pchristensen 13y ago
  New development is usually more expensive because: a) supply is legally mandated to be low, so only the most profitable per-unit housing is built, and b) what new units are permitted to built are required to be large because housing (especially in CA but pretty much everywhere) pays less in taxes than it consumes in municipal services, especially public schools. As a consequence of b), the types of housing that are widely allowable are small (0-2BR apts/condos) that families with > 1 child won't live in and large houses. If prices are high enough, sometimes townhouses are allowed. One interesting observation is that the only high density housing being built in most suburbs are senior housing, which are aimed at people ages 55+ and have covenants in place preventing anyone under 18 from living there. Ergo, guaranteed no school children and therefore the cost to serve is more inline with taxes paid. I would love to buy a 4 or even 5 BR condo because I want to live somewhere dense and I don't care about a yard, but in order to do that I'd have to buy 2+ condos and combine them. Yikes.
khawkins 13y ago
It seems to me that it is even more simple. Economics 101: scarcity of a highly demanded product drives up costs. There's just no room for significant expansion, the bay area is surrounded on 3 sides by water. Furthermore, a good majority of the San Francisco peninsula is undevelopable since it's state park.

deadfall 13y ago

SF approved "tiny apartments" http://www.wired.com/design/2012/11/san-francisco-micro-apartments/ http://www.wired.com/design/2012/11/san-francisco-micro-apar...

DanBlake 13y ago
My understanding is that this is a special 'trial phase' for Kennedy. The planning department is not approving other similar projects until it studies/weighs the outcome of these.
fyolnish 13y ago
Interesting title, considering that 20m^2 is considered pretty roomy in Tokyo

king_jester 13y ago

The main reason why people don't want new residential development is because it will feed into gentrification and push people out because they can no longer afford to live in SF. NYC has been and is going through this problem right now and it is not pretty. EDIT: There are a lot of comments about increasing supply as a way to make housing/apartments cheaper in SF. This is not at all well demonstrated, as in NYC new real estate development as continually raised prices and priced out those who had previously resided in those neighborhoods (if they need to move they can no longer afford the cost of living in said neighborhood, esp. if they lived in a rent stabilized or controlled place). New real estate development can make things cheaper, but we are seeing cities have population influxes and those cities traditionally are land limited for new construction. Those two factors work together to ensure that properties are renovated or rebuilt at higher cost to a wealth class that can afford it. It should be obvious that this is not sustainable, cities that do not provide a sustainable way to live for all classes will collapse.

crusso 13y ago
Right, so rather than have cool little areas like Cow Hollow that are worth living in and visiting, keep things like the Tenderloin that are perpetually unlivable and undesirable.
mimiflynn 13y ago
This is also happening in Austin right now. My friends in Durham are speculating that the same is beginning to happen there, although, comparitively, its still super affordable.
deleted 13y ago
[deleted]
- wwweston 13y ago
  > 1. Build more 2. Watch prices go up I have my doubts about this. I would be interested to see evidence that you can actually drive prices down by increasing housing supply. Because when I've been in a position to watch some dramatic housing supply buildouts in a few areas, my observation has been that generally been that the owners price (at least) somewhat above market rates for existing housing -- after all, it's new. Often it's marketed as luxury housing and leased/sold at multiples of the median price. There's a few places I've observed a decrease in price. It's not where supply is increased, though, it's where demand drops, usually because the economic activity of the region drops off, but sometimes because of conflict/crime or health hazards. If I'm right, then there are still two options -- build more or don't build more. Each case may have its own merits, but there's not a case that excludes prices going up for SF and the Bay Area. Short of the current state of economic activity in the area turning out to be an unsustainable bubble or a major disaster, anyway.

michaelochurch 13y ago

This is a decent explanation but it's actually simpler than that. People who are upwardly mobile follow the jobs. In general, they choose jobs, then cities. Except for the very rich who don't have to work, desirability (excluding commute) is a minor factor in prices. I can back that up, but I think most people buy this already. However, real estate demand is extremely inelastic. If 5 percent of the houses in Manhattan were destroyed, the price increase wouldn't be 5%. It would probably be 2-5x, possibly 10x. That's why, even though rent control only affects a small percentage of the market, its price influence is huge. New development is supposed to correct for that, but often the result of it is creation of more expensive housing, which solves quality problems but doesn't have the desired price effect until many years later. (Real estate rarely goes down in dollar-denominated amounts, for psychological reasons; what does happen in a soft market is that prices stay flat and lose to inflation. In effect, it's a loss-limit on price declines that is very tight when inflation is low.)

pchristensen 13y ago
New development is usually more expensive because: a) supply is legally mandated to be low, so only the most profitable per-unit housing is built, and b) what new units are permitted to built are required to be large because housing (especially in CA but pretty much everywhere) pays less in taxes than it consumes in municipal services, especially public schools. As a consequence of b), the types of housing that are widely allowable are small (0-2BR apts/condos) that families with > 1 child won't live in and large houses. If prices are high enough, sometimes townhouses are allowed. One interesting observation is that the only high density housing being built in most suburbs are senior housing, which are aimed at people ages 55+ and have covenants in place preventing anyone under 18 from living there. Ergo, guaranteed no school children and therefore the cost to serve is more inline with taxes paid. I would love to buy a 4 or even 5 BR condo because I want to live somewhere dense and I don't care about a yard, but in order to do that I'd have to buy 2+ condos and combine them. Yikes.

khawkins 13y ago

It seems to me that it is even more simple. Economics 101: scarcity of a highly demanded product drives up costs. There's just no room for significant expansion, the bay area is surrounded on 3 sides by water. Furthermore, a good majority of the San Francisco peninsula is undevelopable since it's state park.