For-profit developers who invest now will be building the current unit prices into their model I struggle to follow this. For profit developers will build if t

For-profit developers who invest now will be building the current unit prices into their model I struggle to follow this. For profit developers will build if they can do so for a profit. The only thing that will matter is whether the cost of construction is less than the PV of the future cashflows of a constructed building. An apartment building that costs $50M to put up costs the same $50M whether a 1BR apartment rents for $1,000/month or $5,000/month (for the most part ... if you get a lot of development in response to price increases, you can end up with a shortage of labor and labor costs can increase the total build cost ... but that will be on the margins). Furthermore, the cost to put up a building may be coming down. Here's a story about reducing construction costs by prefabricating buildings. http://www.wired.com/design/2012/09/broad-sustainable-building-instant-skyscraper/all/ http://www.wired.com/design/2012/09/broad-sustainable-buildi... I don't know what it costs to construct and apartment building in SF, but if the rest of the world is a guide, there are plenty of projects that would have a positive NPV even at lower rent levels. So development would contain prices and could even bring prices down.