

So You Want To Fix The Housing Crisis - mdev
http://techcrunch.com/2014/11/02/so-you-want-to-fix-the-housing-crisis/
15 of the 30 cities with the highest rents in the US are all in the San Francisco Bay Area.
======
netcan
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.

~~~
chrisseaton
"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.

~~~
netcan
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.

~~~
mattmanser
Edge cases?

That's the entire middle class you just called an edge case. You might be able
to do the math, they can't. All they know is that they bought for £150k, sold
for £175k, woohoo, they made £25k. Doesn't matter their new house was even
more expensive.

Also the baby boomers cashed out big on their houses before the recession, so
their children irrationally believe that's what's going to happen to them.

All your other (pretty good) points now look slightly ridiculous by
association because you're so out of touch with normal people.

~~~
netcan
I meant that instances where homeowners really win or lose significantly from
rising house prices are edge cases. They exist and are common. But, they go
both ways.

I believe that the mentality you are describing is generated by the system
moreso than it generates the system. If people expected their £150k house in
Norwich to be worth £125k in 10 years, the whole psychology would change.
people would see houses as what they are. Things that cost money. Things you
live in.

*I also think that all the mortgage encouragement is counterproductive. If 10 year loans were the norm, house prices would be lower. Own-to-let would require higher returns (7-9%) over a lower purchase cost, but housing as an overall cost to the people in the country would be lower.

------
timr
_" 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.

~~~
kansface
> 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...](http://www.spur.org/publications/article/2014-02-11/real-costs-
building-housing)

~~~
timr
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.

~~~
kansface
Regulator expenses in building houses may only be 20-40% of the cost, but this
isn't true of the price! In healthy markets, houses are priced close to the
cost of construction. In SF (in the 90s), house prices were over 140% the cost
of construction [1]. I'd expect the difference to be even larger today because
regulations are more ridiculous.

I agree, if we eliminated all regulations, the cost of building a house would
decrease perhaps 40% at the most. I'd expect some of this savings to be passed
on to tenants. If this were the only consideration, housing would still be
unaffordable. But, without regulation, we'd also see at least _10x_ increase
in new construction. Housing would be built until it were no longer
profitable. IE, the price of apartments would approach the cost of building
them (from astronomical to merely expensive).

The Bay simultaneously welcomes any and all new jobs while it refuses to build
housing concomitant to the demand. It will never be cheap to live here, but
maybe we could drop the distinction as the most expensive city in the country.

1\.
[http://www.researchgate.net/publication/228180251_Zoning%27s...](http://www.researchgate.net/publication/228180251_Zoning%27s_Steep_Price)

~~~
muzz
> But, without regulation, we'd also see at least 10x increase in new
> construction

This is theory. Reality would be very different.

~~~
spikels
What like 9x increase? Clearly more housing would be built if were simply
allowed. Developers are building to the maximum units/sqft permitted on every
project.

~~~
muzz
I would suspect more like 1.1-1.2x.

Essentially, for most homeowners their home is their biggest investment and
they should be expected to act in their economic self-interest to preserve and
increase the value of that investment, and thus we can expect them to do what
they can to prevent more homes from being built.

------
Rapzid
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.

------
spikels
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](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.

~~~
ktothemc
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.

~~~
spikels
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. ;)

------
retrogradeMT
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.

------
xenadu02
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.

~~~
chrisseaton
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?

------
jamesaguilar
"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.

~~~
ktothemc
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
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.

~~~
ktothemc
Right now, the way that tech companies get around this is by paying their
employees progressively more and not really engaging with the political
system.

But this particular strategy also has its downsides from a community
perspective, because it starves out other uses of our city for public service
workers, teachers, artists, etc.

Perhaps there is another way where we are politically engaged, where we can
generate broad political will for more housing given that the largest and most
successful companies have a hand in funding or supporting diverse growth (in
the way that New York's biggest corporate institutions are also great patrons
of the city's arts).

------
Slix
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.

~~~
kansface
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
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.

~~~
kansface
It is true that you will spend proportionally more on housing here. It is also
most likely true that your total savings will be higher here. EG, you could
save 50K$/year in the valley whereas you could only save 20k$ a year working
in Iowa. The 20K is much larger compared to the cost of living, but you will
be better off when you retire if you squirreled away the 50K$. If you want to
move to Iowa at that point, all the better, you can now afford a palace. This
assumes you can incur the cost of moving and can stay employed.

~~~
muzz
And if one purchases a property, they are on the receiving end of massive home
price appreciation-- housing becomes an investment rather than an expense.

------
raverbashing
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
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...

~~~
raverbashing
"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.

