Here’s a great article about a very innovative bit of digging into the causes of high housing prices in San Francisco (“A guy just transcribed 30 years of for-rent ads. Here’s what it taught us about housing prices“).
The article, by Michael Andersen, tries to summarize a detailed analysis in a blog post published over the weekend by Eric Fischer.
Read through Andersen’s summary, then wade through some or all of Fischer’s original.
It’s really very interesting to see the data for housing and rents charted over a long period of time. These data allowed Fischer to calculate how changes in employment or rates of new construction would impact rents in the city.
Here’s Fischer’s own conclusion:
San Francisco is an expensive city because it is an affluent city with a growing population and no easily available land for development. Sonja Trauss is right that building more housing would reduce rents of both high- and low-end apartments. Tim Redmond is right that building enough housing to make much of a dent in prices would change the visual character of most streets, although the result could be more like Barcelona than like the Hong Kong that he fears. The unsettled question is which of these is the higher priority.
Building enough housing to roll back prices to the “good old days” is probably not realistic, because the necessary construction rates were never achieved even when planning and zoning were considerably less restrictive than they are now. Building enough to compensate for the growing economy is a somewhat more realistic goal and would keep things from getting worse.
In the long run, San Francisco’s CPI-adjusted average income is growing by 1.72% per year, and the number of employed people is growing by 0.326% per year, which together (if you believe the first model) will raise CPI-adjusted housing costs by 3.8% per year. Therefore, if price stability is the goal, the city and its citizens should try to increase the housing supply by an average of 1.5% per year (which is about 3.75 times the general rate since 1975, and with the current inventory would mean 5700 units per year). If visual stability is the goal instead, prices will probably continue to rise uncontrollably.
Andersen boils it down to a couple of simple sentences:
For the love of god, keep adding homes. Keep adding homes so things don’t get any worse and you’re not trapped in a lose-lose-lose shitstorm like San Francisco.
You can download Fischer’s data if you want to mess with the numbers yourself.