
How New York and San Francisco's Tight Housing Markets Are Hurting the Economy - raldi
http://www.bloomberg.com/news/articles/2015-05-07/here-s-how-much-new-york-and-san-francisco-s-tight-housing-markets-are-hurting-the-economy
======
capkutay
San Francisco has bigger issues with class/job sector warfare instigated by
city politicians.

"The tech industry has come like a train wreck into this neighborhood and into
this city," [0]

Theres this backwards mentality purporting the idea that market-rate housing
development will drive out long-time residents. In reality, its the lack of
market-rate development that leads to tech workers out-bidding low-income
families for apartments (especially in areas like the mission).

0: [http://www.sfexaminer.com/sanfrancisco/campos-to-propose-
mor...](http://www.sfexaminer.com/sanfrancisco/campos-to-propose-moratorium-
on-market-rate-housing-in-the-mission/Content?oid=2928953)

~~~
teacup50
Seeking to maintain a balanced economy, culture, and community isn't "class
warfare"; it's just city planning with a view beyond the next MVP.

You can _never_ build enough housing in a high-demand city without destroying
the city; the demand is too elastic, the incentives between
neighborhoods/culture and developers too misaligned.

San Francisco's problem is in the externalities levied by the immature VC-
valley monoculture; significant increases in market rate housing density bring
corresponding increases in the societal/cultural problems underlying this
issue.

~~~
patmcguire
Demand is pretty inelastic when the alternative is being homeless.

Seriously, housing is one of the least elastic markets out there. Everyone
needs exactly one home, everything else is secondary.

~~~
teacup50
No, the alternative is _living somewhere else_. This is obvious to anyone that
has watched the rental and housing market in a city across economic boom/bust
cycles:

\- Bust: Demand dries up from the beleaguered economic sector (e.g., tech in
SF after .com crash, finance in NYC post-housing bubble crash). Prices drop.
Demand rises, fast, with residents moving in from the boroughs/suburbs.

\- Boom: Demand is extremely high from the booming economic sector. Prices
increase to match, unmet demand drops as those outside the boom sector move
out to the boroughs/suburbs.

------
davidf18
Harvard economist Howard Glaeser, Nobelist Paul Krugmann (citing Glaeser), FT
Columnist and book author Tim Harford, and others have spoken for years about
how limited land use through zoning density restrictions and overuse of
historic landmark status has artificially increased the cost of housing and
offices.

Here is a recent column by Glaeser regarding the issue of affordable housing
in NYC:

[http://www.nydailynews.com/opinion/build-big-bill-
article-1....](http://www.nydailynews.com/opinion/build-big-bill-
article-1.1913739)

~~~
mortehu
Norway uses an alternative strategy to get housing to the poor called the
"housing allowance"[1]. Instead of paying developers to build lower quality
housing, money is given directly to poor people for the purpose of paying
rent. The prevents having a bimodal price distribution like the one observed
in New York.

1\. [http://www.husbanken.no/english/what-is-housing-
allowance/](http://www.husbanken.no/english/what-is-housing-allowance/)

~~~
nazgulnarsil
sooo tax dollars go into the pockets of the land owners....and that extra
money bids the price of land up more....and the land owners have a further
incentive to vote against any zoning changes.

~~~
nerfhammer
And yet somehow still infinitely better than extreme rent control based purely
on incumbency

~~~
def_illiterate
I think it would be better that the landlords were not the beneficiaries of
this type of subsidy, though. I'd prefer to see them have to compete, and this
doesn't attack the problem from that end.

------
cromwellian
Population of SF = 837,000 Size of SF = 239 sq mi

Population of NYC = 8,400,000 Size of NYC = 469 sq mi

10x the people on 2x the land.

SF looks more like a suburbs in many places than a city. The reality is, the
city has two choices:

1) Build up, change the city skyline and look 2) Keep SF's "look" frozen, and
watch as limited supply continues to drive prices sky high

~~~
wpietri
That would make NYC 5x as dense as SF. But your numbers are wrong. San
Francisco's land area is 46.9 square miles. New York's land area is 304 square
miles. New York's density is about 50% higher.

But it's not clear that New York shows any a path forward. They did build up,
and prices are still high. Maybe that's a sign that blindly increasing housing
supply doesn't actually solve the problem.

~~~
sadface
Yes, in some parts of NYC (Manhattan, cool parts of Brooklyn) prices are
indeed very high, but there are plenty of parts of NYC where you can find
fairly affordable housing while still being in public transit range of the
things that make NYC a major "World City". My friend is paying <1500/mo for a
1 bedroom in a good part of Astoria that's about 35 mins by foot + subway from
times square. He only moved there a few years ago so it's not like he's taking
advantage of some crazy rent control either.

You'd never find something equivalent in the bay area, so overall I think the
"density argument" has some validity. Even more so if there would be
willingness to expand the public transit infrastructure.

~~~
wpietri
One guy finding a decent apartment still doesn't demonstrate that increasing
density does much to solve problems. Also, I question your definition of
affordable. $1500/month is 36% of the US median wage. People making less need
to live somewhere too.

It also looks like you can find equivalent things in the Bay Area:
[http://sfbay.craigslist.org/search/apa?maxAsk=1500&bedrooms=...](http://sfbay.craigslist.org/search/apa?maxAsk=1500&bedrooms=1&bathrooms=1)

I am definitely in favor of expanding public transit, though. I think that's a
much better way to increase network effects.

------
stevewepay
Wouldn't it actually encourage people to relocate outside of NYC/SF, which
would be good for the economy, according to the article? The drastic
difference in house prices would mean that you could sell your house here, and
move to an equivalent house with many hundreds of thousands of dollars in your
bank account.

------
ronnier
I'm living in Tokyo right now and I own a home in Seattle. In terms of housing
and job market, Dallas, Texas is hard to beat. In Dallas the pay was good (the
average engineer will make a lot more money in Dallas than in Tokyo, and not
really much difference between Seattle and Dallas) and the home prices in the
Dallas area were amazing. Build a new home that's 2 to 3 times the size of a
40 year old home in Seattle and half (or more) of the price. Tokyo is out of
the question - The quality of life here stinks. I'm paying $3,100 for a 700
sqft apartment in Shinjuku surrounded by an ocean of concrete (there are other
good things here though). There are big downsides to Dallas which make it not
ideal for living. In the end I'd pick Seattle as the best quality of life
based on home pricing, pay, the natural environment, and low crime.

An interesting note between Seattle and Dallas was the speed at which things
are built. I've talked to builders who built in both areas and the amount of
bureaucracy in Seattle is absurd compared to Dallas. One builder who's
building fast food restaurants said he'd build out a store in Dallas before he
could get bast the bureaucracy in the Seattle area -- I wonder how that
compares to SFO and NYC?

------
Animats
Read the actual paper[1], not the Bloomberg article, to see the tortured
method by which they compute this. The authors claim that the problem is that
excessive wages in these key cities are holding down GDP, and if the cities
had more people, wages would drop and GDP would go up.

They write: _" This output effect is driven to a large extent by three cities
-- New York, San Francisco and San Jose – which experienced some of the
strongest growth in labor demand over the last four decades, thanks to growth
of human capital intensive industries like high tech and finance (Moretti,
2012). But most of the labor demand increase was manifested as higher nominal
wages instead of higher employment. The resulting increase in overall wage
dispersion negatively impacted aggregate growth. In contrast, Southern cities
also experienced rapid output growth, but much of this growth showed up as
employment growth and only a small amount as an increase in the nominal
wage."_

It's a "trickle down" paper. Wages are seen as a problem, not as the output.

[1]
[http://eml.berkeley.edu//~moretti/growth.pdf](http://eml.berkeley.edu//~moretti/growth.pdf)

~~~
raldi
I don't see what any of this has to do with trickle-down economics, which was
about reducing tax rates for the rich on the premise that they'd throw nice
parties and maybe hire you to serve cocktails.

------
dustinupdyke
One could certainly build a corollary statement to read, "tight housing
markets limit worker options". I mean, seriously, how many people are limited
by location based restraints to pursue the career of their dreams?

This is 2015. Some of us would have thought that by now, location would be a
factor mitigated by technology.

~~~
brandonmenc
> location would be a factor mitigated by technology

Do you want to be surrounded by people on the cutting edge of tech? They all
congregate in one or a few places, and you have to move where they are to reap
the benefits of community.

People will always seek to associate in meatspace, regardless of society's
tech level.

~~~
wpietri
Having lived in SF 15 years, I think that advantage is steadily declining.

When I moved here, people came here because this was the place where all the
interesting technology happened. It was hard to keep up. But now, the number
one reason to move here isn't the technology. It's access to capital.

Since Bubble 1.0, the Internet has become an excellent distributor of
technology. But VCs still aren't interested in getting on planes.

~~~
kilbuz
I recently moved to SF from a large Midwestern city. I don't know what things
used to be like here, but I would say number of job opportunities here
compared to where I moved from are somewhere between 20x and 50x. Maybe that's
confounded by the access to capital.

Not to mention living here is nice for many other reasons.

~~~
wpietri
Well, the competition is higher, and a lot of the jobs available right now are
not funded by revenue, they're funded by investment. So I think the current
picture is misleading.

It is a swell place to live, though. But even that advantage has declined a
fair bit. 20 years ago, a lot of places in the midwest were cultural deserts.
Books, movies, magazine, ideas: all severely restricted. The Internet has
changed that. And San Francisco is rapidly losing the diversity of culture
that was a big draw for me.

------
mpdehaan2
The whole notion of some cities being more productive is flawed. They produce
more because they are more dense, but more productive per capita is a
"citation needed". (Also, I'm not quite sold on productivity being the best
possible measure of quality of life either).

Having more businesses realize they can be located in diverse places is better
for everyone - cheaper real estate, less congestion.

More importantly, many "high tech" companies can be distributed, allowing
workers to work anywhere.

Living in the most congested, expensive area, or enforcing a long commute on
yourself doesn't have to be the case. In fact, it's not the case - though it
seems common for folks from these areas to assume they are so perfectly great
that this must be true.

------
robrenaud
> Reducing land-use constraints in high-productivity New York, San Francisco
> and San Jose to the level of the median city would expand their labor
> forces, boosting U.S. gross domestic product by 9.5 percent, according to
> estimates from a new study by the University of California at Berkeley's
> Enrico Moretti and the University of Chicago's Chang-Tai Hsieh.

That seems so implausible. The combined population of NYC, SF, and SJ is
merely 3% of the US population. I am sure that fraction bunches above its
weight, and nearby residents surely contribute too. But how much more
effective would NYC/SF/SJ be if they were cheaper to live in?

~~~
Cowen
According to some napkin math with these figures[0], the three metro areas
combined account for 11.7% of US GDP in 2012.

So yeah, I'm not sure what estimate they're using for the growth multiple from
liberalizing land-use constraints, but if they're predicting a near doubling
of the combined metro economies, it's safe to assume it's pretty high.

I do agree that land-use restrictions are currently holding all three cities
back, my Friday night napkin math (read: probably wrong, way oversimplified
math) just thinks their estimates are a little optimistic.

EDIT: Another question would be what's the time frame for this addition to
GDP? 9% growth in one year is insanely great. 9% growth over ten years is
insanely bad.

[0]
[http://en.wikipedia.org/wiki/List_of_cities_by_GDP](http://en.wikipedia.org/wiki/List_of_cities_by_GDP)

~~~
raldi
Which part of this chain do you think is the weak link?

1\. If SF had typical land-use policies, it could build enough homes to
accommodate twice its current population

2\. If they did that, they'd be able to fill those homes with people

3\. Those people, upon arriving, would have approximately the same
productivity as current San Franciscans

4\. SF would thus double its contribution to the US GDP

~~~
robrenaud
It's not as though those contributions come for free though. If talent leaves
other places to go to NYC/SF/SJ, those other places become less productive.

~~~
raldi
Not necessarily, on a per-capita basis. If Alice has incredible pineapple-
farming skills and is terrible at everything else, and she moves from Alaska
to Hawaii, she improves both states' per-capita GDP.

------
ChuckMcM
That is an interesting take on it. When you combine it with the article on
'mega cities' [1] it makes you wonder if the bay area is destined to either
embrace it or die.

[1] [http://arstechnica.com/science/2015/05/megacities-demand-
lot...](http://arstechnica.com/science/2015/05/megacities-demand-lots-of-
energy-but-result-in-lots-of-gdp/)

------
wpietri
Is there some reason the assumptions in the cited paper aren't insane?

After a quick skim, they seem to be saying that if we only move a bunch of
people from places Sheboygan to New York City, increasing the population of
the latter from 8.4 to 15 million, then those former Sheboygan slackers will
suddenly be as productive as the current New Yorkers.

There are a host of reasons I find that unpersuasive.

