So You Want To Fix The Housing Crisis

http://techcrunch.com/2014/11/02/so-you-want-to-fix-the-housing-crisis/

by mdev • 12 years ago

58 77 12 years ago

15 of the 30 cities with the highest rents in the US are all in the San Francisco Bay Area.

"Fix it, but, uh, not until I leave."

As a homeowner in the Bay Area, my politics are: "Let's fix it!" But with as much equity as I've got pulling in the other direction, it is damn hard to toe that line.

xnull2guest• 12 years ago

The danger is that the bubble will burst and that you'll lose all of that equity on its own unpredictable timeline.

fiatmoney• 12 years ago

Building cheaper moderately-high-density housing doesn't really compete with single-family detached houses; it competes with housing further from the core. In fact, with higher general density, you'd expect your lot to become more valuable, since it can now potentially be sold to developers. There's also the knock-on effects of higher economic growth and shorter commute times on property values and available amenities, and broadening the tax base, potentially reducing your tax burden.

If you tore down all the skyscrapers in Manhattan, your brownstone wouldn't get more valuable; rather the opposite.

jamesaguilar2• 12 years ago

Huh. That makes me feel better about planning to vote no on M. Thanks.

sampo• 12 years ago

It is interesting how people's intuition guides them to totally wrong conclusions in this matter.

I think what you said is absolutely correct, but I also think that a lot of people still have the opposite opinion based on their intuition.

ktothemc8• 12 years ago

I wrote the article, and I'm personally concerned that housing prices affect the mix and balance of companies in the local tech ecosystem in favor of the big corporations like FB, Google, Apple and heavily venture-backed startups. It's bootstrapped and smaller companies that hurt in this situation because they can't afford to pay the salaries that cover the living costs here.

If the bootstrapped companies can't afford to be here, they end up starting in some other city far away and growing into a significant presence there. That's probably good for those communities, but not necessarily good for the long-term health of the Valley if our ecosystem ends up being too dependent on two or three mega-corporations.

If you look at Palo Alto, it's a microcosm of what could happen to the entire region. That city has basically starved itself of young companies because it's not growing housing or office capacity. And with foreign purchases of 1950s era ranch homes there, I'm mildly concerned that Palo Alto will turn into our regional equivalent of the Park Avenue stash pad or the Kensington ghost mansion for Chinese that are escaping a poorly performing domestic real estate market and Xi Jinping's unprecedented crackdown on domestic corruption. Perhaps that's good for property prices, but it's terrible for having a living, breathing, dynamic community.

eloisant• 12 years ago

It's bad for bootstrapped startup, but startups who decide to raise funds can still do fine.

Anyway that's always been Silicon Valley's strength: VC money. If you want to start a bootstrapped startup, Silicon Valley is a bad place to start with. You're in competition with so many cool companies for recruiting, while in a big enough city with a university you can easily be one of the sexiest company to work for and attract the talented workers who don't want to move to California.

seanmcdirmid• 12 years ago

Many of the foreign-owned houses are actually bought by corrupt Chinese officials and business men planning their exit from a country that will probably eventually execute them if they stay.

The corruption crackdown forces the money out precisely because the time of reckoning draws nearer, while many more honest Chinese also see overseas markets as a value compared to over inflated domestic markets. Actually, if housing gets cheaper here in China (which it should), you'll see more activity here and less activity abroad for the same reason.

muzz8• 12 years ago

If the bootstrapped companies can't afford to be here, they end up starting in some other city far away and growing into a significant presence there.

I would love to hear of examples of this. I cannot think of any at all.

timr11• 12 years ago

"If you need an example of how intense this is, over the summer, 71,421 people, or 8 percent of San Franciscans, decided that we should all vote on every single project over the existing height limits on the waterfront by passing a ballot initiative. It was funded primarily by a single wealthy couple that didn’t want to lose their views, and they put it through in one of the lowest turnout elections in city history."

What she doesn't say, really matters: that initiative was primarily about stopping a massive government handout to the multimillionaire owners of a professional basketball team, which would essentially give away a choice bit of public property in order to build an arena in a part of town where no arena should exist. The ballot initiative was put in place to make it much more difficult for that land-grab to go through.

This stuff isn't just about people being ridiculous NIMBYs. Honestly, I think it's more ridiculous to look at San Francisco and claim that the problem is that we aren't building enough, when you can walk up to just about any live/work space in SOMA (i.e. the new construction), and see that the tenant list is mostly startups. That's what happens when you let developers build whatever they want -- they build for the most lucrative allowed use of the land. And that usually isn't residential construction.

Is there NIMBYism in the bay area? Absolutely. But the biggest problem, by far, is that there's a massive technology bubble inflating everything from real estate to salaries in a very tiny slice of livable property. The price increases are being driven by greed and speculation as much as any sort of sustainable demand.

techsupporter3• 12 years ago

So why doesn't the initiative say that? Why run a vote on requiring votes on all waterfront development height changes?

ktothemc8• 12 years ago

Why blanket punish and make every single development on the waterfront more expensive because of a single Warriors arena project that was eventually moved to Mission Bay?

All of these little costs, process hurdles add up and make housing more expensive. The broad point is that these citizen anti-growth initiatives, which might have a single poorly-designed and consulted project in mind, end up having very long-term and consequential impacts on housing prices across the board.

This 2014 study examined 7,300 land parcels in the Bay Area and found that if you increase the number of independent reviews for a construction project by one standard deviation, average land prices increase by about eight percent.

http://blogs.lse.ac.uk/usappblog/2014/07/01/regulatory-const...

I agree and am concerned about how the point of the economic cycle we're in affects the profile, goals and objectives of people we attract to Silicon Valley. You tend to get more true believers at the low points in the cycle versus the gold-rush folk we're seeing now.

What do you think is the best way of dealing with this? We can either build a lot more housing or drive away jobs and companies if we think they're too greed or speculation-driven.

timr11• 12 years ago

"Why blanket punish and make every single development on the waterfront more expensive because of a single Warriors arena project that was eventually moved to Mission Bay?"

It's a long and detailed backstory, but the executive summary is that you've got a group of lawmakers who were inclined to rubber-stamp the sweetheart deal, so you can't just write a law that allows them discretion on the outcome. The arena plan required a zoning variance that was being granted for this particular project, and so the initiative targeted the exception-granting process for zoning. It was as specific as possible to the arena project, while still being effective and legal.

In any case, it's still possible to build housing on the waterfront -- it's just not possible to get zoning exceptions without public review. I think that's probably a good thing.

desdiv• 12 years ago

Honestly, I think it's more ridiculous to look at San Francisco and claim that the problem is that we aren't building enough, when you can walk up to just about any live/work space in SOMA, and see the tenant list is mostly startups. That's what happens when you let developers build whatever they want -- they build for the most lucrative allowed use of the land. And that usually isn't residential construction.

So why aren't the developers building taller commercial buildings? Startups are lucrative, right? So why don't the developers just build twice as high and sell twice as much floorspace for twice the revenue? They're free to build whatever they want, right?

ktothemc8• 12 years ago

Can't do that. Proposition M, passed in the mid-1980s, caps the amount of office space that can be built in a given time period. We're right up against the cap at the moment.

kansface4• 12 years ago

I think it's more ridiculous to look at San Francisco and claim that the problem is that we aren't building enough...

I have no understanding of this (common) sentiment. We are adding jobs at 10x the rate we are building new housing. There are only two variables in the equation. You can not will the relationship between supply and demand out of existence.

That's what happens when you let developers build whatever they want

No, this is exactly what happens when you don't let developers build to accommodate the market. According to the article, a 640 sq ft single unit costs 500K$ to build [1]. The worse case scenario is that after spending hundreds of thousands of dollars, the project is delayed by any one of dozens of parties that can block development for years.

In summary, of the 1/10th of the required housing we do build, it is quite literally __impossible__ for any of it to be affordable and turn a profit. Any laws that make building more onerous will only exacerbate the problem.

1. http://www.spur.org/publications/article/2014-02-11/real-cos...

geebee3• 12 years ago

I've been interested in a possible analysis for a while (maybe I should finally dig in and do it myself). My hypothesis is that San Francisco isn't as nimby-istic as it appears, that this is an artifact of a political and geographical oddity. San Francisco is a 7x7 square mile city and county that is already reasonably dense (on average - parts are extremely dense, the only place outside NYC with 100k+/sq mi density, whereas other neighborhoods 4 miles away are leafy suburbs). It's also a peninsula, and much of the area to the south is designated open space.

Here's the thing - I'd be interested in analyzing other metro regions where a long standing, dense urban core isn't its own city and county, and see what percentage of growth happens within it or outside it. In other words, let's look at sub-regions with existing stable population density of above (say, 20,000 inhabitants per square mile for the last 50+ years) and see how much construction has occurred within them.

For instance, does Atlanta have a small, historic downtown with an existing housing base that has been relatively dense and stable for 50 years? Has the growth in Atlanta come from tearing down 80 year old buildings in neighborhoods with 20k/sq mile populations dating back a while, or has it been in the suburbs and exurbs that count as "Atlanta" but wouldn't count as "San Francisco"?

I don't know the answer to this question, but I think it's an important one to answer before concluding that SF is uniquely "nimby-istic" toward housing in some cultural or political way. You can probably tell where I'm leaning with this, though - that the NIMBY attitude, to the extent that it exists, has more to do with low density areas like mountain view resisting new housing than high density areas like much of SF.

timr11• 12 years ago

The very first chart in that SPUR publication shows you that the vast majority of development costs are in land and construction. If you do the math, the regulatory costs in that chart amount to 16% of the total. This is consistent with what I've read from architects and urban planners -- regulatory expense in SF is <= 20% of building costs. And most of that is a set-aside for low-income housing.

In other words, regulation is a red herring. Even if you eliminated all regulations, the cost of building a housing unit here would be beyond the reach of most people. Land and construction, in a tiny, dense city where everyone wants to live in the same three neighborhoods: it's expensive because it's expensive.

mahyarm4• 12 years ago

Lets make a car analogy:

If you restrict a Japanese car seller to only export 10k cars to the USA, that car seller will inevitably export 10k luxury cars. The reason why they do this is because the demand for luxury cars wont be exhausted by such small numbers. Once they can sell unrestricted, they will definitely go for the far more profitable median market cars, because they can sell far greater volume of them.

If you want to prevent gentrification, you would allow massive density increases. The middle class out buy the rich in aggregate.

This blog article gives a better overview of the concept: http://urbankchoze.blogspot.ca/2014/06/how-density-limits-br...

timr11• 12 years ago

It's a bad analogy. The car manufacturer's costs go down with scale, making low-margin, high-volume production an achievable business model. Real estate development costs don't really have economies of scale -- it costs a lot more to build skyscrapers, both in terms of construction costs, and in terms of land (rezone a parcel to increase height limits, and the cost of the land goes up to match the new use).

Said another way: unlike cars, the fixed costs of real estate dominate the cost of the final product at all scales of "production".

Slix• 12 years ago

I can't find any reason to be optimistic after reading this article.

Is there any reason to even consider moving to the Bay Area after graduating? It seems like any other city would be more manageable.

raverbashing4• 12 years ago

"whargaaarbl startups whargaaarblr"

No, there's no reason. You can find a good paying, interesting job elsewhere. Life is not all about the newest Instagram for Pets (iPhone 6 only)

kansface4• 12 years ago

You only read bad news; the reason to move here is because the bay is the hub of the both entrepreneurship and tech in the US. Having said that, rent is expensive but salaries are more or less commensurate.

jrjarrett• 12 years ago

No, no they are not.*

Several times in my career I have looked at moving to SF, and when it's gotten to the point of talking about salary and upscaling that to what I made at the time, that's not true.

The numbers discussed were about 20% more, but that did not cover the huge delta in housing costs.

mattgreenrocks• 12 years ago

IMO, Bay Area shouldn't get special consideration from you.

If you really like the work, then, yeah, go for it. But don't choose a crappy job there just because startups.

Edit: it's well worth investigating specific domains that don't get as much airtime on HN. They're probably more technically interesting and demanding, which is what you want from a first job. Ultimately, I can't imagine a technologist finding long-term happiness in pop-tech culture.

raverbashing4• 12 years ago

Stockton is bankrupt. Go build and live there for 20% of the price, you can still come to SF for meeting VCs. Or somewhere across the bay.

"Oh but they don't have my favourite vegan frozen yogurt there, and in Starbucks all I see is PCs" grow up.

They think of themselves as the most innovative people of this generation and use the internet yet they can't manage to have their team 10mi from where they think it should be. Pathetic.

tracker1• 12 years ago

I'm not really familiar with the Bay Area, only been there a few times for work. That said, it looks like Stockton is a bit farther from SF than your post would indicate... And I'm only guessing that a commute in and out of SF daily would be about 3-4 hours of time (just from what I'd seen going to/from the airport into the SOMA area)... I may be mistaken here.

I've spent enough of my life commuting.. I do best with about a half hour commute, which gives me warm up/down time for my day... I really don't want to have a 12-13hour day from when I leave home, and get back.

All of that said, I don't get why there is such a focus on bringing people into the Bay area... It would likely be easier and cost less to relocate the Yahoo guys and build-up further in, or hell, Atlanta or Phoenix. The company could spend the savings on building up the community they move into, probably get great tax incentives, and the employees would bank a lot of cash on the relocation. New hires would come in to more closely match the local economy even.

Phoenix, for example, has pretty decent internet... an okay cultural scene, some great food (okay, not as good with seafood), and already has some very large companies doing software development here (American Express, Paypal, Wells Fargo, Go Daddy...) with a lower cost of living. Yes, summers can seem like hell on earth, but there are lots of places within an hour or so that aren't.

Okay... done ranting...

raverbashing4• 12 years ago

"That said, it looks like Stockton is a bit farther from SF than your post would indicate... And I'm only guessing that a commute in and out of SF daily would be about 3-4 hours of time"

You're right. But what I'm suggesting is: Don't commute there.

Get your team there. If someone is already living on SF, great, they can stay there and do meeting through Skype/Hangout.

If they're moving there, they can live close to the company cheaply.

And if someone needs to do a meeting on SF, going there once/twice a week is not too bad.

mahyarm4• 12 years ago

You forgot the social network effects. Your socially isolated from the developer community in Stockton. Most people I know who have moved from Stockton are far happier in the bay area than Stockton itself. You have no real future living there, and anybody who has potential has long moved out. Live at close to the martinez bart station if you really want to move out.

raverbashing4• 12 years ago

Yes, this is an important issue.

If I lived there I would certainly be more happy living in SF than in some city further away.

My idea is more in the sense of not cramming every new company there. So yeah, maybe you would be alone at first, but convince more people to go there, attracted by the cheap cost of living and maybe SF can get less cramped (and it's still close enough to go once a week, etc)

Of course this also takes some vision from the municipality, unfortunately the most common thing besides high rents is NIMBYism.

spikels9• 12 years ago

Another interesting article from Kim-Mai Cutler on the absolutely fascinating Bay Area housing market. In case you missed her last one and the discussion in HN:

https://news.ycombinator.com/item?id=7590250

One correction is needed: tenancies in common (TICs) ARE NOT a method of avoiding SF rent control rules. It has absolutely no effect on whether or not a particular unit is subject to rent control. It is simply a way that people can share ownership of a multi-unit building - like a coop. On the other hand condo conversion does remove many of the burdens of the SF rent control. That in turn is why the SF government had to essentially outlaw condo conversions. The rules are very complex and constantly changing - educate yourself and then talk to a lawyer.

ktothemc8• 12 years ago

I'm aware of that, but unfortunately, a lot of real estate interests use TICs and the state Ellis Act to kick out long-term rent-controlled tenants.

spikels9• 12 years ago

Well technically it is only the Ellis Act that makes eviction easier. TICs just happen to be the best exit for a building that has been "Ellis Acted" and therefore cannot be rented for several years. All the units still remain subject to all the rent control rules if they are ever rented again - plus a whole bunch of other rules meant to discourage the practice. Again TICs are just the way multiple people own a single real estate.

BTW - TICs have an unusual meaning in SF. In most (English law) places it simply means property held "as undivided partial interests" - say 50/50 by two owners. In SF it means not merely this but also that all the owners have an agreement between them about who live where, etc - much like a coop agreement. It is sort of a condo-lite created in response to the restrictions on condo conversion - part of the endless war that is rent control (that only reliably benefits lawyers and politicians who are usually lawyers too). Again - complex stuff - see a lawyer. ;)

xenadu02• 12 years ago

Just moved to SF (with two kids so renting a 3br was a required expense).

Why aren't the big tech and VC firms spending a lot more on lobbying, redevelopment, etc?

Though I'm the beneficiary of the rapidly increasing salaries, some relief on the housing side would remove a lot of the pressure for wage increases. A lot of really talented engineers won't even bother taking interviews for bay area jobs due to the housing situation. It seems a bit unsustainable to me.

chrisseaton2• 12 years ago

Can I ask where you send your children to school in central SF? I heard bad things about SF state schools - is that true? Are there better private schools as well?

netcan4• 12 years ago

Housing is one of those issues where the political paradigm is so complex, it's impenetrable. Everyone has their own opinions about what the main engine is and it's hard to get anywhere.

Here's my own perspective, it has nothing to do with any city in particular.

(A) Housing is not a free market. Supply and demand exist, but that is not enough to make a market free. It's never a free market because decisions are (necessarily or not) always made at the political level. This covers things from planning, interest rate policies, bankruptcy laws tenancy laws, and even things like bank bailouts. Housing is unavoidably political.

(B) There is a conflict of interests between home owners and renters. One wants high prices, low availability, the other wants low prices.

(C) There are lots of interests that fall on the rising prices side. Rising prices make it easier to make money on loans, building, etc. They make it easier to raise tax revenue that funds public services that all sorts of parties have an interest in.

(D) Owner-occupiers should be neutral. They own one house, regardless of market price. But because of financing, and a lot of incorrect but persistent psychology about personal wealth they usually feel firmly on the high prices side. No one wants their house to lose value.

(E) Nominal increase in property value is inflation. Inflation has real impact on the "real" economy (as economists use the term). This has to do with the value of outstanding loans and annuities.

We are looking at problems that are mostly political and cultural as if they are economic. Ultimately a lot of the things that drive demand for houses are the same as the things that drive demand for universities. Demand for elite universities is not about competing for education as a scarce resource. Same with housing. It's not about competition and scarcity . It's about culture and politics.

chrisseaton2• 12 years ago

"Owner-occupiers should be neutral"

Except for people who want their home to provide a cash inheritance for their children when they die, or who want to sell their home and downsize while still alive to raise cash. That's not an incorrect psychology.

netcan4• 12 years ago

Those are edge cases and they can go both ways. Inheritance for their children to buy a house with? Even with inheritance, it can be zero sum. You inherit a house which you use to clear a mortgage or buy your own house. You still have one house. Unless the houses multiply there is nor real addition of wealth.

Some people do accumulate capital in their houses and downsize. But even in cases where it happens, they might have been better of with cheaper housing costs all their lives enabling savings amounting to more capital at retirement.

Homeowners might end up on either side of this equation. Rapid growth periods place earlier buyers in a better relative place to later buyers. But I think the upside is over valued by home owners while the downside is undervalued. Much of the upside is in fact access to capital.

It's interesting how foreign the idea that lower prices make us wealthier is when it comes to housing.

Rapzid• 12 years ago

I might feel bad for people dealing with housing in SF.. But I live in Auckland. Considering moving back to Texas so I can feel sorry for people dealing with both cities' housing.

Most aren't familiar so I'll paint a picture(in NZD). The average selling price for a home just this past September was 683,101. What will 683k get you? Pretty much a shack by US standards. Probably no insulation. No central AC. It's actually pretty hard to describe just how little you get. Sure, you can buy lower but even at 550k homes come with descriptive words like "Real potential", "A real do-up", "Great starting point", "Fringe", "A foot on the ladder". Oh, and did I mention the 20% DP you need for a mortgage now? And the interest rates will have you paying double unless you pay it off fast. Meanwhile, median household income is about 60K(USD).

Renting? Anything under 400/week will most likely be unsuitable for a couple. You really don't start hitting "descent" until you're closing in on 500/week and they come with more bedrooms than you need.. Almost no good one bedrooms. There is this threshold you have to cross before you start finding places that have been kept up. See, there is a tremendous housing shortage. This causes much of the low end stuff to go barely maintained through decades of renter churn because they are sure to find another renter regardless. You might search months for a suitable place to rent, and then have to contend with many others after the same place. Often between the time a listing goes up and you can call, same day, it's mysteriously gone. A lot of the choice places don't schedule appointments; they herd groups of 20 through at designated times on viewing days. The property management agents, which you'll most likely be dealing with because you're renting a property from some guys portfolio of like 5(corporate owned apartment complexes are almost unheard of), are often times very unhelpful and even rude.

A lot of the points about renting are mirrored in buying. Most homes go to auction because the shortage. People get desperate and end up bidding high to secure a place and be done with the process.

In the US people absolutely hate packing and moving. In Auckland simply finding a suitable place to live is so bad, you don't really pay any mind to the actual moving:|

End Rant.

retrogradeMT• 12 years ago

The problems mentioned in the article certainly are not unique to SF, though the scale is pretty large.

Sidney, MT, which is in the Bakken oilfield, has such a shortage of housing that workers there spent last winter sleeping in campers and trucks on the side of the road. In the winter, the temperature can dip to -30 degrees. The dept of transportation (DOT) bottled up a housing projected for almost a year over a right of way dispute. In this case the developer agreed to pay for the improvements, but the DOT insisted on overseeing the process, which increased the cost 2x.

In my experience:

1. Homeowners fear change because they usually like their neighborhood, have most of their assets "at stake", and envision worst case scenarios.

2. Too many elected officials categorize themselves into a soundbite. They don't just campaign by the soundbite, but they govern by it. Project details and reality be damned, I'm pro-parks!

3. Top municipal employees almost always have too much power. When a new elected official comes in, they listen to his/her goals and then put new processes in place, while seldom removing old processes. This adds unreasonable amounts of time, complexity and cost to projects.

The first and second problem can frequently be worked out but the third problem is crippling. If you want to fix the housing crisis, start there.

So You Want To Fix The Housing Crisis

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