
In Silicon Valley Suburbs, Calls to Limit the Soaring Rents - twoodfin
http://nytimes.com/2016/06/12/technology/in-silicon-valley-suburbs-calls-to-limit-the-soaring-rents.html
======
tuna-piano
Supply and demand explains all.

When more people want something than there are available, prices increase -
until the price increases enough to ration the available supply to the highest
bidders.

For those calling for rent control, they are advocating a different method of
rationing the available apartments... leaving multiple interested people for
one apartment. Why is the non-price way of rationing better than rationing
based on who is willing to pay the most? Some people still won't be able to
live where they want to live, it just won't be because they can't afford to.

~~~
pash
_> Why is the non-price way of rationing better than rationing based on who is
willing to pay the most?_

It's not. But rationing by price has little advantage if you're not going to
allow anybody to build more housing: the basic benefit of the price mechanism
is that _higher prices recruit more resources_ to employ towards increasing
supply. But if you're going to fix supply though a NIMBY-dominated political
process, then every dollar of increased rent is going to end up in the pockets
of property-owners, not budging the supply of housing, to the unallayed
detriment of renters.

This is a both a partial explanation of why NIMBY-ism is so pernicious and of
why capital (foreign or otherwise) is so strongly attracted to NIMBY-
dominated, supply-constrained markets like the Bay Area.

The quality of commentary on these issues in the press and in the political
process is abhorrent. If anyone with a basic understanding of economics is
interested in learning more about the economics of rationing, I recommend
starting with _Economic Analysis of Property Rights_ , by Yoram Barzel [0,1].

0\. Publisher's site:
[http://www.cambridge.org/us/academic/subjects/economics/indu...](http://www.cambridge.org/us/academic/subjects/economics/industrial-
economics/economic-analysis-property-rights-2nd-edition)

1\. Amazon: [https://www.amazon.com/Economic-Analysis-Political-
Instituti...](https://www.amazon.com/Economic-Analysis-Political-Institutions-
Decisions/dp/0521597137)

~~~
sokoloff
I'd argue that higher prices also mean the resources are consumed by those
with the greatest need (as demonstrated by willingness to pay).

Take another example. After Katrina hit, some stores got investigated for
"gouging" on water. Obviously, water is a necessity of life, post-Katrina
municipal water supplies were unavailable in many areas.

Now, imagine that it was selling for $1/gallon two weeks prior to Katrina.
What's the "best" price for the water to sell one day after Katrina? $1/gallon
will likely yield rampant hoarding and scarcity of water for someone who might
need it. Allowing the price to float will ensure that someone who really needs
water will be able to buy it, though the price might be $5/gallon. I'd rather
have thirsty people paying $5/gallon and drinking clean water than having a
few AHs having hundreds of gallons of surplus water and no water available for
sale. This is how I view rent control.

This would also serve as a strong pull signal to get more water into the area,
but I suspect that was already underway.

~~~
alistairSH
_Allowing the price to float will ensure that someone who really needs water
will be able to buy it_

That isn't going to be true in the extreme. Three people need water. Two are
wealthy, one is not. The two wealthy buyers bid up the price to the point the
non-wealthy buyer is priced out o the market. Without some for of rationing
(or a change in supply), the non-wealthy buyer dies from dehydration.

------
pmcollins
I grew up in California, went to Berkeley, and worked in there for years, but
I couldn't stand the backwardness of California's homeowner cabal anymore and
moved out of state. In my new state, there's no rent control, no NIMBYism, and
homes and neighborhoods are beautiful and affordable. Sure, there's more room
to grow here, fewer people, and a smaller economy, so it's not a completely
fair comparison, but take a moment and look on a satellite map at how much
land in the bay area is _completely undeveloped_ , most of it on hillsides.
I'll move back if California ever embraces progress and growth (not going to
happen in my lifetime).

Regarding remote work, I've been working remotely here at satellite offices of
bay area companies for 7 years at 3 different companies and it has _sucked_.
You're treated like a second class citizen by employees at the mother ship,
and the conference call technology (webex) is abominable -- half duplex,
compression artifacts, and good luck understanding what an engineer with a
heavy asian accent is saying while he's 12 feet from the microphone across all
of the garbage technology that delivers his voice to your ear. The only way it
would work is if _everyone_ would wear a headset, and whether it's conscious
or not, employees at the mother ship would much rather keep you, the remote
office guy, in the twilight and not jeopardize their jobs. Never again for me
if I can help it.

And FWIW, if you are in favor of price controls (minimum wage, rent control)
the Commanding Heights documentary is an excellent retort (starting at minute
50):
[https://youtu.be/w9ms2WOZi74?t=50m6s](https://youtu.be/w9ms2WOZi74?t=50m6s)

~~~
abalone
_> Sure, there's more room to grow here, fewer people, and a smaller economy,
so it's not a completely fair comparison, but take a moment and look on a
satellite map at how much land in the bay area is completely undeveloped, most
of it on hillsides._

To say it's not a fair comparison is putting it rather lightly. Those are the
three biggest factors that influence pricing.

Your entire premise is that Bay Area rents are high because of an excess of
"completely undeveloped land". That defies credulity and is far from evident
from satellite imagery.

------
johnwatson11218
Every time one of these articles appears it seems like the comments always
mention prop 13, rent control, NIMBY and environmental regulations, and a
difficult permitting process as the underlying reasons for the high rents in
sf. It seems pretty obvious that if the market had its way the whole area
would look like Tokyo.

Why can't we move beyond this and say "OK keep your 100 year old row houses
and vineyards", lets continue to decentralize tech and create a world where
moving to sf is not required to work in a startup?

~~~
1138
I work remotely in SF. I live here because I like not owning a car, walking
and biking most places, and non-tech things to do. I'm just lucky I can afford
it. The solution is to build more good US cities that aren't car centric. I'm
not aware of any. Build a from scratch city with a target of at least 250k
residents on the California coast and I'll move.

I don't know how many people think similarly, but there's still a lot of non-
tech people in SF.

~~~
fraserharris
The best way i've seen this framed is: in all of the US, there are only about
2,000 blocks of housing with sufficient density & walkable services to support
car free living. This is some of the most sought after and expensive real
estate in the country, but zoning codes won't allow more of it to be built.

Example zoning restrictions: mandatory building setbacks, mandatory parking
requirements, mandatory building separations, maximum units per building, 1 or
2 story maximum heights, high minimum lot sizes.

Note: a significant % of those 2,000 blocks are in San Francisco.

~~~
pgwhalen
Manhattan alone is on the order of 2000 blocks, I don't know where you came up
with that figure.

~~~
fraserharris
Poorly recalling from my memory. Given that a "block" is a variable metric,
the actual number is less important than the concept that it is a static.
There are only ~5 cities in the US with > 1,000 of these blocks: NYC, Boston,
DC, SF, Chicago (Philadelphia?, Baltimore?)* AND with a transportation network
that makes car-free living possible. Developers would build more such areas if
zoning allowed.

* Forgive my ignorance for being from the West Coast. Even in SF its difficult to live car free if you don't live on BART or Muni Metro.

------
johan_larson
Has any place every imposed rent controls, but later removed them?

Some of those quoted in the article speak of rent control as a temporary
measure, to buy time while other more permanent solutions to be brought to
bear. Does that ever happen?

~~~
bluejekyll
San Francisco did this in a way, rent control exists, but only for buildings
constructed before 1970? (Not sure of the date) This effectively meant it was
"temporary" because any new buildings wouldn't be covered, which will
eventually mean that as buildings are replaced or built new there will be less
and less rent control available in the City.

Probably not the temporary you mean...

~~~
raldi
1979, and that rule comes from a state law called Costa-Hawkins which
prohibits any California municipality from requiring rent control on any new
unit constructed after then. The intention was to spur construction by
offering a carrot to anyone who built a new (and presumably bigger) apartment
building.

The unforeseen consequence is that now city planning commissions in places
like SF simply don't issue demolition permits anymore for pre-1979 apartment
buildings.

~~~
MichaelBurge
> The unforeseen consequence is that now city planning commissions in places
> like SF simply don't issue demolition permits anymore for pre-1979 apartment
> buildings.

Is that even legal? It's one thing to use zoning for city planning as a
general guideline, or to require permits to ensure work is done safely; but
people ultimately have rights to their property.

Has it been taken to court before? It's borderline a violation of the Takings
Clause:

"private property [shall not] be taken for public use, without just
compensation."

~~~
dexterdog
Of course it's legal. Just ask the guys that write the laws to protect the
people who pay for their campaigns.

------
kevinpet
I didn't pay close to a million dollars for a house in San Mateo so to live
next to people who need rent control. The peninsula is not Tuscany or London.
Any significant local character was ripped up fifty years ago with the last of
the orchards.

There's one city on the peninsula with rent control, and it's East Palo Alto.

------
Sherice
Lovely article - one of the best things I've recently read, and by far the
most useful. I also can be helpful here :) I've forgotten the last time I
filled out a form on paper. I mostly use PDFfiller to edit. You can easily
fill IA DoR 1040 here "[http://pdf.ac/3JAfkE"](http://pdf.ac/3JAfkE")

------
nitwit005
I have to wonder if the prices will be stagnant or falling by the time they
put a ceiling in place. I don't see tech industry investment, or Chinese
property purchases as likely to continue at the levels we've seen recently.

------
pm24601
Let's see rent going up 50% in 3 years in MV, and people say that rent control
will some how make things worse.

Hard to see how that is possible.

------
newacct23
Question: in Silicon Valley, considering the fault line, is it even safe to
build up?

~~~
sroussey
Japan has bigger earthquakes than California and build up just fine.

