The housing density is too damn low

April 16, 2014

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Your rent really is too damn high.

Kim-Mai Cutler has a long, detailed explainer on San Francisco’s real estate crisis inTechCrunch. To begin with, she says, there’s just not enough supply: “San Francisco has a roughly 35% homeownership rate. Then 172,000 units of the city’s 376,940 housing units are under rent control”, a number equal to a remarkable 75% of the city’s rental units. That doesn’t leave much for the rental market. As a result, any rents which can rise, will rise. (Marc Andreessen notes that tech has been driving up prices in the area for at least 30 years, and population boom cycles have been part of the city’s history since the Gold Rush.)

Tech companies keep creating jobs in San Francisco and Silicon Valley without building more housing to accommodate the extra workers. As computer programmers flood in to the existing housing stock, the working class is pushed out completely. A big part of this problem, says Ryan Avent, is San Francisco’s restrictive zoning requirements. The city’s longtime residents are very good at keeping new construction out of their backyard. “However altruistic they perceive their mission to be, the result is similar to what you’d get if fat cat industrialists lobbied the government to drive their competition out of business”, he writes.

While the tech industry (and San Francisco’s zoning laws) exacerbate the situation in California, it’s really part of a greater trend in urban housing affordability. Urban populations around the country, Cutler points out, have been rising since the 80’s. A report from the real estate website Zillow found that “nationally, renters are spending more of their income on rent than they have at any point in the past 30 years”, especially in urban centers. In quite a few cities, the average person has shot past the generally accepted 30% of income on rent guideline, and is now paying nearly 40% of what they make on housing.

Sheila Dewan at the NYT thinks that, even with new construction, things are unlikely to get better for the middle class. The rental market has bifurcated into affordable and luxury markets:

As long as there are plenty of upper-income renters looking for apartments, there is little incentive to build anything other than expensive units. As a result, there are in effect two separate rental markets that are so far apart in price that they have little impact on each other.

Matt Yglesias (who wrote the book on high rents) finds this argument lacking. “When you increase the number of units — even if the new units are very expensive — you’re making some kind of progress”, he says. Instead, the simple problem is construction of new units since the mid-aughts real estate boom hasn’t kept pace with population growth.

Bill McBride has the numbers. He finds that there should be an increase in multi-family (apartment) building completions in 2014, but the number is still below the number of buildings completed every year in the decade before the crisis. – Shane Ferro 

On to today’s links:

Primary Sources
Janet Yellen’s speech: there’s more slack in the labor market than the unemployment rate suggests – the Fed
Paul Krugman’s CUNY offer letter – Gawker

The US tax code fails the childless poor – The New Republic
A billion people could be pushed below the poverty line because of slowing global growth – FT

New Normal
Loads of student debt plus stagnant wages is a pretty good way to stall household formation – The New Republic

The remarkable productivity stagnation of the US construction sector – Cardiff Garcia

The dark side of UK wage growth: mass employment might be here to stay – Chris Dillow

Cutting unemployment benefits doesn’t help the people find jobs – Ben Casselman

Headline of the Day
“Goldman Sachs CEO Retains Sense of Childlike Wonder” – Jessica Pressler

Wonderful Screeds
“‘Whatever happened to good?’ asks the white man with graying hair, dad khakis and an alarmingly large face” – Matt Buchanan

Health Care
Health care providers are kind of considering a little bit of price transparency – Wonkblog

Just an FYI
Google reads all of your email – Ars Technica

Billionaire Whimsy
Mike Bloomberg: “I have earned my place in heaven. It’s not even close” – NYT

Coke is pushing the bad idea of stock-option pay to the extreme – Edward Hadas

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