7 ms·

"But this paper conflates correlation with causation. He argues that when there is a decline in new housing units, there is also a decline in price." I knew th

by timr 13y ago

"But this paper conflates correlation with causation. He argues that when there is a decline in new housing units, there is also a decline in price." I knew this was going to happen: people have heard a trite sound-bite about "counter-intuitive" statistical logic so many times that they ignore that correlation is usually a pretty damned good signal for a causal relationship. To wit: of course there's a correlation between price and new housing units -- because it is causally related. When prices go up, developers have greater incentives to build. More importantly, in a city with as high a density as San Francisco (and yes, folks, it is dense -- the second-densest city in the US, in fact), with as many architectural challenges (seismic, geographic, etc.) the limiting factor for new construction is land and materials, not red tape. Nobody wants to hear this, but it's true. The fixed costs of building here are so high that developers won't do it unless rents go up. That's why new construction costs upwards of $4k for a 1-bedroom unit, and why new construction in SF doesn't place any real downward pressure on rents -- except (perhaps) in the very long term. At best, you're treading water. Developers don't build into a falling market. But really, the best response for the people who keep asserting that "building up" is the magical solution is to point to Manhattan: it's the densest city in America, yet it's just as expensive as San Francisco, if not more so. There are no magic bullets. San Francisco is expensive because there's a lot of money chasing a tiny little bit of land. You don't need a dissertation to explain it.

onion2k 13y ago
To quote XKCD #552, "Correlation doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'." :)
- timr 13y ago
  Yeah, Tufte said something similar: "Correlation is not causation but it sure is a hint."
- Symmetry 13y ago
  "Correlation correlates with causation because causation causes correlation".
jamiequint 13y ago
You can't just hand-wave away red tape as a factor. If you read the whole article (granted it is ridiculously long) she points out that SF has one of the greatest divergences between building cost and housing cost. That in most markets building cost approximates housing cost but in SF housing cost is 140% above base housing costs. That is the cost of zoning and other red tape. While developers may not build into falling markets it it disingenuous of you to say that additional housing stock at market price doesn't help, where do you think the people occupying those shiny new market-price rentals would go if they were not there, I'm guessing not Oakland... I think you are mistaking rising rents for lack of downward pressure. It's possible to have both at the same time as long as the influx of people exceeds the growth in supply.
- timr 13y ago
  "You can't just hand-wave away red tape as a factor...in most markets building cost approximates housing cost but in SF housing cost is 140% above base housing costs. That is the cost of zoning and other red tape." I read the whole article. The source she cites for that factoid is an article that excludes apartments from its analysis. It deals only with single-family housing. Oops: http://www.nber.org/papers/w8835.pdf?new_window=1 http://www.nber.org/papers/w8835.pdf?new_window=1 I've also read a whole bunch of other stuff on it, and it doesn't agree with the assertion. An example of what architects and developers have to say about it: http://markasaurus.com/2013/10/22/why-can%E2%80%99t-developers-build-housing-in-san-francisco-for-the-people-who-need-it-most-instead-of-for-the-rich/ http://markasaurus.com/2013/10/22/why-can%E2%80%99t-develope... The biggest consistent complaint that I read from developers is subsidy for low-income housing, which is onerous, but still only 12%. This guy suggests that average bureaucratic costs are ~30%. "where do you think the people occupying those shiny new market-price rentals would go if they were not there, I'm guessing not Oakland..." The article has a table that points out that SF has built something like 200% of the anticipated demand for high-end construction. If that's to be believed, the answer is: they'd be just as empty as they are today.
- orky56 13y ago
  No need to hate on Oakland. Crime has gone down and gentrification has definitely occurred there as shown in the article. A 40% decrease in blacks has changed the ethnic landscape thereby changing the diversity in another bay area city.
nerfhammer 13y ago
> the limiting factor for new construction is land and materials, not red tape. I strongly disagree. Land and materials aren't creating 3 story height restrictions close to mass transit. > the best response for the people who keep asserting that "building up" is the magical solution is to point to Manhattan: it's the densest city in America, yet it's just as expensive as San Francisco, if not more so. If Manhattan had tried to stop new construction at all costs or limit the height of new building for the past 30 or 40 years, do you think prices there now would be lower, higher or about the same as they are now?
- deleted 13y ago
  [deleted]
rweba 13y ago
Thank you. I think people are far too quick to imply every problem is caused by bureaucratic over regulation. Manhattan is also the counter example that always comes to mind for me. If you have a lot of relatively well off people chasing the same thing the prices are going to be high no matter what. Urban rents generally only come down if the economy crashes or an area becomes undesirable (i.e. a lack of people people willing to pay the prices). I would love to see examples of an urban area (i.e. not a suburb) where rents went down MAINLY because of building new units, even while demand and the economy remained strong.
w1ntermute 13y ago
> with as many architectural challenges (seismic, geographic, etc.) the limiting factor for new construction is land and materials, not red tape Are you kidding me? There are plenty of other cities in seismically active regions where they've built upwards with great success. All of you people who blame earthquakes for SF's inability to build upwards should put your money where your mouth is and get rid of all the red tape - then we'll see what really happens. > But really, the best response for the people who keep asserting that "building up" is the magical solution is to point to Manhattan: it's the densest city in America, yet it's just as expensive as San Francisco, if not more so. Wow, how is it that so many people forget basic economics whenever the topic of Bay Area housing comes up? Prices demand both on supply and demand. You are making the (false) assumption that demand is the same in SF and Manhattan.
- raldi 13y ago
  > There are plenty of other cities in seismically active regions where they've built upwards with great success For example, Tokyo.
  - timr 13y ago
    ...and the last time I checked, Tokyo real estate is amongst the most expensive in the world. Which was my point.
    - raldi 13y ago
      Oh, I thought your point was what you actually wrote: > with as many architectural challenges (seismic, geographic, etc.) the limiting factor for new construction is land and materials, not red tape
- timr 13y ago
  "Wow, how is it that so many people forget basic economics whenever the topic of Bay Area housing comes up? Prices demand both on supply and demand." Excellent question! Because "supply and demand" is a lot like "correlation does not equal causation" in the lexicon of internet debate: most people are parroting something they heard once but don't quite understand. The econ-101 supply/demand curve requires a perfectly competitive market for a homogenous product -- neither of these applies to the SF housing market. The products are not homogenous, and the current landowners have dramatically more influence on the prices than the consumers. So yeah, how is it that so many people forget basic economics? And what does it have to do with housing prices here, anyway?
akgerber 13y ago
San Francisco is the 20th densest incorporated place in the US: http://en.wikipedia.org/wiki/List_of_United_States_cities_by_population_density http://en.wikipedia.org/wiki/List_of_United_States_cities_by... Cudahy, California is a city that's significantly denser than it. It's the 2nd-densest large city in the US, but that's because the dense core city is its own incorporated area, as opposed to most other American cities, which annexed many suburban areas throughout the 20th century. And most American cities are some of the least dense in the world— San Francisco doesn't even rate on a list of world cities: San Francisco doesn't even rate on a list of world And it's still only half as dense as Brooklyn.

by timr 13y ago

onion2k 13y ago

To quote XKCD #552, "Correlation doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'." :)

timr 13y ago
Yeah, Tufte said something similar: "Correlation is not causation but it sure is a hint."
Symmetry 13y ago
"Correlation correlates with causation because causation causes correlation".

jamiequint 13y ago

You can't just hand-wave away red tape as a factor. If you read the whole article (granted it is ridiculously long) she points out that SF has one of the greatest divergences between building cost and housing cost. That in most markets building cost approximates housing cost but in SF housing cost is 140% above base housing costs. That is the cost of zoning and other red tape. While developers may not build into falling markets it it disingenuous of you to say that additional housing stock at market price doesn't help, where do you think the people occupying those shiny new market-price rentals would go if they were not there, I'm guessing not Oakland... I think you are mistaking rising rents for lack of downward pressure. It's possible to have both at the same time as long as the influx of people exceeds the growth in supply.

timr 13y ago
"You can't just hand-wave away red tape as a factor...in most markets building cost approximates housing cost but in SF housing cost is 140% above base housing costs. That is the cost of zoning and other red tape." I read the whole article. The source she cites for that factoid is an article that excludes apartments from its analysis. It deals only with single-family housing. Oops: http://www.nber.org/papers/w8835.pdf?new_window=1 http://www.nber.org/papers/w8835.pdf?new_window=1 I've also read a whole bunch of other stuff on it, and it doesn't agree with the assertion. An example of what architects and developers have to say about it: http://markasaurus.com/2013/10/22/why-can%E2%80%99t-developers-build-housing-in-san-francisco-for-the-people-who-need-it-most-instead-of-for-the-rich/ http://markasaurus.com/2013/10/22/why-can%E2%80%99t-develope... The biggest consistent complaint that I read from developers is subsidy for low-income housing, which is onerous, but still only 12%. This guy suggests that average bureaucratic costs are ~30%. "where do you think the people occupying those shiny new market-price rentals would go if they were not there, I'm guessing not Oakland..." The article has a table that points out that SF has built something like 200% of the anticipated demand for high-end construction. If that's to be believed, the answer is: they'd be just as empty as they are today.
orky56 13y ago
No need to hate on Oakland. Crime has gone down and gentrification has definitely occurred there as shown in the article. A 40% decrease in blacks has changed the ethnic landscape thereby changing the diversity in another bay area city.

nerfhammer 13y ago

> the limiting factor for new construction is land and materials, not red tape. I strongly disagree. Land and materials aren't creating 3 story height restrictions close to mass transit. > the best response for the people who keep asserting that "building up" is the magical solution is to point to Manhattan: it's the densest city in America, yet it's just as expensive as San Francisco, if not more so. If Manhattan had tried to stop new construction at all costs or limit the height of new building for the past 30 or 40 years, do you think prices there now would be lower, higher or about the same as they are now?

deleted 13y ago
[deleted]

rweba 13y ago

Thank you. I think people are far too quick to imply every problem is caused by bureaucratic over regulation. Manhattan is also the counter example that always comes to mind for me. If you have a lot of relatively well off people chasing the same thing the prices are going to be high no matter what. Urban rents generally only come down if the economy crashes or an area becomes undesirable (i.e. a lack of people people willing to pay the prices). I would love to see examples of an urban area (i.e. not a suburb) where rents went down MAINLY because of building new units, even while demand and the economy remained strong.

w1ntermute 13y ago

> with as many architectural challenges (seismic, geographic, etc.) the limiting factor for new construction is land and materials, not red tape Are you kidding me? There are plenty of other cities in seismically active regions where they've built upwards with great success. All of you people who blame earthquakes for SF's inability to build upwards should put your money where your mouth is and get rid of all the red tape - then we'll see what really happens. > But really, the best response for the people who keep asserting that "building up" is the magical solution is to point to Manhattan: it's the densest city in America, yet it's just as expensive as San Francisco, if not more so. Wow, how is it that so many people forget basic economics whenever the topic of Bay Area housing comes up? Prices demand both on supply and demand. You are making the (false) assumption that demand is the same in SF and Manhattan.

raldi 13y ago
> There are plenty of other cities in seismically active regions where they've built upwards with great success For example, Tokyo.
- timr 13y ago
  ...and the last time I checked, Tokyo real estate is amongst the most expensive in the world. Which was my point.
  - raldi 13y ago
    Oh, I thought your point was what you actually wrote: > with as many architectural challenges (seismic, geographic, etc.) the limiting factor for new construction is land and materials, not red tape
timr 13y ago
"Wow, how is it that so many people forget basic economics whenever the topic of Bay Area housing comes up? Prices demand both on supply and demand." Excellent question! Because "supply and demand" is a lot like "correlation does not equal causation" in the lexicon of internet debate: most people are parroting something they heard once but don't quite understand. The econ-101 supply/demand curve requires a perfectly competitive market for a homogenous product -- neither of these applies to the SF housing market. The products are not homogenous, and the current landowners have dramatically more influence on the prices than the consumers. So yeah, how is it that so many people forget basic economics? And what does it have to do with housing prices here, anyway?

akgerber 13y ago

San Francisco is the 20th densest incorporated place in the US: http://en.wikipedia.org/wiki/List_of_United_States_cities_by_population_density http://en.wikipedia.org/wiki/List_of_United_States_cities_by... Cudahy, California is a city that's significantly denser than it. It's the 2nd-densest large city in the US, but that's because the dense core city is its own incorporated area, as opposed to most other American cities, which annexed many suburban areas throughout the 20th century. And most American cities are some of the least dense in the world— San Francisco doesn't even rate on a list of world cities: San Francisco doesn't even rate on a list of world And it's still only half as dense as Brooklyn.