> 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.
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.
> 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.
> 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? :)
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.
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.
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.
> 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.
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.
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.
There are numerous known exceptions to simplistic supply/demand arguments, including Giffen goods, Veblen status, lack of insight on either side, information arbitrage, and so on.
It's not impossible some of them apply to city housing markets.
What annoys me about arguments about housing is that housing is clearly a systems problem, not a one-or-two-variable optimisation problem.
Availability and rental prices depend on a complex network of interacting drivers, not all of which are purely economic, and some of which aren't even local.
Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
> It's not impossible some of them apply to city housing markets.
Yeah, that's why I asked for real world examples.
But I still haven't seen any. If this actually happens, there should be real world examples that people would bring up in these arguments, right?
> Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
I don't want to be rude, but isn't this just this standard anti science handwaving? "The world is far more complex than western civilization can grasp, therefore my gut feel must be the real truth!"
I mean, it's fine to say a model isn't perfect, but unless you have a better one to replace it with, or at least a clear example of something wrong, you're not really helping.
To me the SF housing market conforms perfectly with the supply and demand model: With a huge rise in demand, and supply being kept almost constant, it predicts the kind of strong price rises we've seen last few years.
> There are numerous known exceptions to simplistic supply/demand arguments, including Giffen goods, Veblen status, lack of insight on either side, information arbitrage, and so on.
> It's not impossible some of them apply to city housing
markets.
If you think there is such effects you should make the case, rather than hint that they might exist.
> Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
I think 95% of economists would take issue with that statement
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.