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> While building in SF proper would decrease rents there I'm not sure that's a given. Building lots of luxury housing in SF might actually decrease rent in Oak

> While building in SF proper would decrease rents there I'm not sure that's a given. Building lots of luxury housing in SF might actually decrease rent in Oakland and other parts of the Bay Area but not have an appreciable effect on rent in SF proper, at least in the short term. In fact, you could even argue that because of network effects and gentrification, building more luxury housing in SF would actually increase rents locally, even as it decreased rents regionally. And that actually could explain why it's rational for some low-income residents of SF to oppose (or impose conditions on) new construction in SF itself. Increasing the geographic segregation between rich and poor can impact tax revenue, crime, education, transit, and regional politics in ways that particularly hurt the poor.

jmckib 12y ago
The point they make in the article is that the rich are going to move to SF anyway, but without available luxury housing they will have to buy up cheaper housing and have it remodeled. So you still get gentrification and network effects, but even higher prices for non-luxury housing than if you'd have just built more luxury housing in the first place.
- andrewfong 12y ago
  > The point they make in the article is that the rich are going to move to SF anyway That's what I'm actually unsure about. The article states it as a given without data or addressing regional effects. There are at least some well-to-do individuals who would purchase non-luxury housing in the North Bay, Berkeley, and the Peninsula rather than SF proper. You can obviously point to activity in places like the Mission and Bernal Heights, but at least some of the demand for unbuilt SF waterfront condos is going to go to the Oakland waterfront rather than something more inland. You can re-model your home, but you can't re-model your neighborhood. Even if gentrification is a given though, the timing isn't. SF interest groups are pretty good at slowing things down (whether that's new development or a purchase and re-model). Presumably there's some difference in utility to the rich of buying luxury housing and buying non-luxury housing and remodeling it (otherwise there wouldn't be much demand for luxury housing). That's leverage the poor have in extracting some kind of negotiated benefit, like better public transit, education rights, re-distributive taxes, and so forth.
  - jmckib 12y ago
    > That's leverage the poor have in extracting some kind of negotiated benefit, like better public transit, education rights, re-distributive taxes, and so forth. Blocking luxury housing from being built is bad for poor and rich alike. So I suppose the poor could use it as leverage, in the same way a bank robber could use a suicide vest as leverage, but is this really a good idea? :)
    - andrewfong 12y ago
      My point is that the poor lose either way, so yeah, it could be a good idea. Obviously a matter of degree though.
BurningFrog 12y ago
> you could even argue that [...] building more luxury housing in SF would actually increase rents locally You can argue a lot of things. But the relationship between supply, demand and prices is very thoroughly studied. Facts are known! I have never heard of such an effect happening in the real world, but then again I'm no expert. If anyone can provide a reference to an example, I am willing to be enlightened.
- andrewfong 12y ago
  Increasing supply lowers the mean price for the market as a whole. The laws of supply and demand do not rule out local changes that run contrary to the overall market depending on the nature of the new supply. To pick one particular example, Facebook's construction of 394 apartments next to its campus is actually driving up home prices in that part of Menlo Park because the apartments are nowhere near sufficient to meet the demands of Facebook employees but are accompanied by new commercial developments that make the surrounding property more attractive to other Facebook employees.
  - klochner 12y ago
    because the apartments are nowhere near sufficient to meet the demands of Facebook employees That's all you needed to say. Supply and demand works.
  - BurningFrog 12y ago
    Thanks for providing a real world example! But I think the data can be interpreted in several ways. If home prices are rising while apartments are being constructed, that doesn't have mean the price increase is caused by the construction. For one thing, these units won't exist until 2016¹, so supply hasn't actually increased. It could also be that the area needs 1000 units to offset the increased demand. Or, as you imply, that the higher level of services make the area more attractive, rather than the added units themselves. I would like to see actual studies by real economists to change my thoughts on this. ¹ http://www.mercurynews.com/business/ci_27717752/facebook-floats-idea-more-housing-menlo-park http://www.mercurynews.com/business/ci_27717752/facebook-flo...
- 12y ago
rayiner 12y ago
The usual life cycle of high-rise luxury housing is that buildings move somewhat downmarket as they age. The bulk of your housing stock downtown is going to be 30-40 year old buildings that can't carry the premium rents of new luxury buildings. But you won't get to that point if you don't start building now.
- mc32 12y ago
  This is a good point and one worth making. Unfortunately neither politicians nor renting residents look that far afield to the detriment of the area and future residents.
mc32 12y ago
That's a concern but peripheral. Yes foreign RE investment could dampen the effect somewhat, but so long as there is a place for the wealthy to buy, they will ease up pressure I. The east bay, south bay and peninsula. The issue right now is that while SF is quite unaffordable bur for the lucky ir wealthy, the south bay east ba hug and peninsula aren't much better. If we had good transit and we had a regional govt capable of planning and building to accommodate a growing population, that the affordable housing would be in the east bay south bag or peninsula does not matter much to families. Only very few people care to have the 'cachet' of saying "oooooh, no, I live in SF, not dreadful san jose". Most people in the bay area just want an affordable place to live with good transit. Typically only rich folk care about the SF cachet --also nth generation natives, but I dont care much for them. So the problem is that yes SF is stubborn about housing buy other cities in the bay area are no try far behind in this attitude and they all contribute to this issue.

jmckib 12y ago

The point they make in the article is that the rich are going to move to SF anyway, but without available luxury housing they will have to buy up cheaper housing and have it remodeled. So you still get gentrification and network effects, but even higher prices for non-luxury housing than if you'd have just built more luxury housing in the first place.

andrewfong 12y ago
> The point they make in the article is that the rich are going to move to SF anyway That's what I'm actually unsure about. The article states it as a given without data or addressing regional effects. There are at least some well-to-do individuals who would purchase non-luxury housing in the North Bay, Berkeley, and the Peninsula rather than SF proper. You can obviously point to activity in places like the Mission and Bernal Heights, but at least some of the demand for unbuilt SF waterfront condos is going to go to the Oakland waterfront rather than something more inland. You can re-model your home, but you can't re-model your neighborhood. Even if gentrification is a given though, the timing isn't. SF interest groups are pretty good at slowing things down (whether that's new development or a purchase and re-model). Presumably there's some difference in utility to the rich of buying luxury housing and buying non-luxury housing and remodeling it (otherwise there wouldn't be much demand for luxury housing). That's leverage the poor have in extracting some kind of negotiated benefit, like better public transit, education rights, re-distributive taxes, and so forth.
- jmckib 12y ago
  > That's leverage the poor have in extracting some kind of negotiated benefit, like better public transit, education rights, re-distributive taxes, and so forth. Blocking luxury housing from being built is bad for poor and rich alike. So I suppose the poor could use it as leverage, in the same way a bank robber could use a suicide vest as leverage, but is this really a good idea? :)
  - andrewfong 12y ago
    My point is that the poor lose either way, so yeah, it could be a good idea. Obviously a matter of degree though.

BurningFrog 12y ago

> you could even argue that [...] building more luxury housing in SF would actually increase rents locally You can argue a lot of things. But the relationship between supply, demand and prices is very thoroughly studied. Facts are known! I have never heard of such an effect happening in the real world, but then again I'm no expert. If anyone can provide a reference to an example, I am willing to be enlightened.

andrewfong 12y ago
Increasing supply lowers the mean price for the market as a whole. The laws of supply and demand do not rule out local changes that run contrary to the overall market depending on the nature of the new supply. To pick one particular example, Facebook's construction of 394 apartments next to its campus is actually driving up home prices in that part of Menlo Park because the apartments are nowhere near sufficient to meet the demands of Facebook employees but are accompanied by new commercial developments that make the surrounding property more attractive to other Facebook employees.
- klochner 12y ago
  because the apartments are nowhere near sufficient to meet the demands of Facebook employees That's all you needed to say. Supply and demand works.
- BurningFrog 12y ago
  Thanks for providing a real world example! But I think the data can be interpreted in several ways. If home prices are rising while apartments are being constructed, that doesn't have mean the price increase is caused by the construction. For one thing, these units won't exist until 2016¹, so supply hasn't actually increased. It could also be that the area needs 1000 units to offset the increased demand. Or, as you imply, that the higher level of services make the area more attractive, rather than the added units themselves. I would like to see actual studies by real economists to change my thoughts on this. ¹ http://www.mercurynews.com/business/ci_27717752/facebook-floats-idea-more-housing-menlo-park http://www.mercurynews.com/business/ci_27717752/facebook-flo...
12y ago

rayiner 12y ago

The usual life cycle of high-rise luxury housing is that buildings move somewhat downmarket as they age. The bulk of your housing stock downtown is going to be 30-40 year old buildings that can't carry the premium rents of new luxury buildings. But you won't get to that point if you don't start building now.

mc32 12y ago
This is a good point and one worth making. Unfortunately neither politicians nor renting residents look that far afield to the detriment of the area and future residents.

mc32 12y ago

That's a concern but peripheral. Yes foreign RE investment could dampen the effect somewhat, but so long as there is a place for the wealthy to buy, they will ease up pressure I. The east bay, south bay and peninsula. The issue right now is that while SF is quite unaffordable bur for the lucky ir wealthy, the south bay east ba hug and peninsula aren't much better. If we had good transit and we had a regional govt capable of planning and building to accommodate a growing population, that the affordable housing would be in the east bay south bag or peninsula does not matter much to families. Only very few people care to have the 'cachet' of saying "oooooh, no, I live in SF, not dreadful san jose". Most people in the bay area just want an affordable place to live with good transit. Typically only rich folk care about the SF cachet --also nth generation natives, but I dont care much for them. So the problem is that yes SF is stubborn about housing buy other cities in the bay area are no try far behind in this attitude and they all contribute to this issue.