
The spectre haunting San Francisco - mjohn
http://www.economist.com/blogs/freeexchange/2014/04/housing-markets
======
praptak
I find it strange that the protesters target tech workers. The real class war
seems NIMBY-supported landlords vs everyone else, not crappy-paid vs well-paid
workforce. But well, I'm not even in US so what do I know.

~~~
michaelochurch
I agree with you. The First Estate (landlords, investors and executives, paid
enough to own houses) has been dicking over the Second Estate (engineers, able
to live in SF but not save or buy houses) through no-poach agreements,
collusive arrangements (note-sharing among VCs) blocking them from starting
new businesses, and increasingly mean-spirited HR policies (stack ranking).
The Third Estate (everyone else) is being evicted and abused by the rent-
seeking First Estate.

Somehow, the First Estate managed to convince the Third Estate that it's the
Second Estate's fault, hence the bus attacks. It's not. I'm not so out-of-
touch that I'd call $120,000 per year, in any city, "poor" because it's not;
but neither is it "rich" and these tech workers are _not_ responsible for this
NIMBY nonsense.

~~~
king_jester
> Somehow, the First Estate managed to convince the Third Estate that it's the
> Second Estate's fault, hence the bus attacks. It's not.

Tech workers most certainly share some blame. When you accept work with those
companies and move out to the valley, you are contributing to the culture of
evictions and hyper gentrification that affect that area. You don't get to
wash your hands clean.

~~~
UweSchmidt
I don't think I can be held accountable for the higher order consequences of
my normal, everyday decisions. Researching the complex interactions of a local
economy and deciding to disincentivize things by not moving there? Not buying
the yoghurt from a food corporation that's 'evil' in one category, yet trying
to be exemplary in another?

I that doesn't work morally, nor practically.

~~~
king_jester
Whether you want to be accountable or not, you are to a certain degree
complicit in those things if you choose to pursue them. Obviously systemic
issues are hard to deal with as an individual, but nobody should have blinders
on about what exactly is going on when they move, when they take a new job, or
when they consume a product.

~~~
eli_gottlieb
The question is the size of the degree of complicity. That degree, for a
salaried tech-worker, is _really fucking tiny_. There is no alternative choice
he could make that would have _visibly_ better consequences, nor would there
be any power in an attempt to have tech-workers in general boycott living in
overly-expensive metros (since there are no nongentrifying metros with tech
jobs).

On a bit of additional thought, the best move anyone could make in that
position would be to seek a tech job in a metro area or municipality that has
pro-proletarian housing/development policies, and to try to effect such
policies in general.

------
josephlord
This article's position in this part strikes me as mostly rubbish:

 _... Housing affordability activists like to point out that most new
construction is for luxury housing, meaning that supply of non-luxury units is
not growing by very much. Others love to say that price declines have
historically gone hand in hand with falling construction.

These arguments are both nonsense. The latter point gets causation the wrong
way around; given an unexpected decline in demand due to financial crisis or
other shocks prices fall and interest in new construction dries up until
existing inventories are cleared. The former point misses the fundamental
fungibility of housing. When new construction of luxury units lags, the very
rich buy up older housing stock at exorbitant prices and pay to have them
redone. You see this in London, for instance, where literally every house in
the city is now being rehabilitated, including those that were rehabilitated
last year. Residents have to actively shoo away the builders trying to erect
scaffolding, on the assumption that the owners will be wanting an extra floor
or two on their house. It is a headache. There is a team of wildcat
subcontractors digging us a new wine cellar as we speak. The point is that if
demand for high-end housing is not satisfied with new construction, that
demand will flow to existing supply, putting upward pressure on prices right
across the housing stock._

Yes the rich will buy older housing stock if they build new affordable housing
rather than luxury housing but the affordable housing should be higher density
producing more homes on the same land so there will still be affordable houses
freed up even when the rich have displaced others into them.

~~~
samstave
Im no economist, but ive observed two things in SF; there are a ton of new,
high-end high-rise apartment buildings being built in SF right now. (See all
the cranes)

These will have high rents to pay for their high construction costs.

All other rents will rise as well, because all owners will see what everything
else costs and continue to charge ridiculous amounts for their spaces.

The rents in SF right now are absolutely insane.

~~~
fennecfoxen
> All other rents will rise as well, because all owners will see what
> everything else costs and continue to charge ridiculous amounts for their
> spaces.

Don't be absurd. Owners are already well aware of the fact that there are rich
Google engineers beating a path to their door, and are glad to charge said
engineers as much as they think they can get away with. Additional housing is
_competition_ , and if they affect prices they will cause them to fall, as
various Google engineers will have an alternative to Mission-district
Victorians and other existing housing stock.

~~~
samstave
History disagrees with your theory. I moved back to the bay area in 1997.
There have been thousands upon thousands of new homes and apartments built
since then. I have yet to see one drop in rental prices.

Your statement only looks good on paper.

~~~
krschultz
If there are thousands of units built, but demand increases by tens of
thousands, prices are not going to go down.

NYC is building at a much faster pace than SF, but according to the census on
the order of 300,000 people moved into the city between 2010 and 2013. That is
exerting huge demand pressure on prices even with the new buildings going up.
The only way for prices to go down would have been adding housing stock for
more than that increase - which didn't happen.

------
michaelfeathers
Reading the article, I just kept asking myself whether San Francisco really
needs more people. Despite all of the talk of economics and regulation, it
isn't so bad when people develop new hubs when a hub like San Francisco
becomes saturated. Maybe its better to have more of them than a megapolis.

~~~
fennecfoxen
Bah. San Francisco is an inanimate geographical _region_. It has no needs, and
inanimate objects hate it when you anthropomorphize them.

Instead of asking "does san francisco need more people" let's put actual
actors into these decisions. Would it be beneficial to the set of individuals
currently residing in San Francisco to have more housing stock in San
Francisco? Would it be beneficial to others in the Bay Area, or to humanity at
large?

The answers to these questions may be different. Indeed, that is sort of the
premise of the article: existing residents benefit greatly from the various
restrictions on building, to the detriment of all others. :P

~~~
michaelfeathers
That is what I meant. The anthropomorphism was a shorthand. :)

------
al2o3cr
I'm baffled as to how an article at the Economist somehow got through that
many words without mentioning that land isn't entirely a "market" good -
barring some pretty major civil engineering, increased demand for land in SF
isn't going to make more land come on the market...

~~~
Symmetry
They address that directly:

 _Housing is not really like that. There are cheaper or more expensive ways to
build homes, but in the cities facing these crises construction costs
constitute a relatively small portion of the expense of housing. The rest is
rent._

You could easily fit twice as many people in SF if zoning codes allowed
Brooklyn levels of density. And with Manhattan levels of density you could fit
many more still. It's not land that's the limiting factor but the right to
build.

~~~
selectodude
Seeing as San Francisco is _already_ more dense than Brooklyn, I question
that. However you could over 3 million people in San Francisco if you built up
to Manhattan levels of density. That would be impressive.

~~~
akgerber
San Francisco's density is 17,867/sq mi (6,898/km2).

Brooklyn's density is 14,182/km2 (36,732/sq mi).

Brooklyn is a lot more dense— there are numerous subway lines all the way to
the Atlantic, and essentially all of them are built up with 4-story+ apartment
buildings near the stations. Many former single-family homes (especially
enormous brownstone mansions) are split into multiple apartments.

In San Francisco, there are neighborhoods of single-family homes with a single
story of living space (built over a garage) a couple stops out from the
Mission along the single subway line. Even core urban neighborhoods like the
Mission are mostly 2- or 3-story buildings of the sort that are seen something
like 10 subway stops into Brooklyn.

------
cyphunk
Unpaywalled: [http://archive.today/RlaNR](http://archive.today/RlaNR) (or
access with fresh cookies)

------
michaelochurch
Here's another factor: _extreme price inelasticity_. We saw inelasticity in
the 1970s oil shocks. Supply was only reduced by about 5%, but that caused 4x
price surges, putting elasticity (E) at:

    
    
        -ln(0.95) / ln(4) = 0.037
    

If E < 1, then reducing the quantity supplied by X% will increase prices by
more than X%, with no other change to the innate desirability (demand curve)
of it. With housing, E << 1\. It's probably in the same range as oil: 0.02 to
0.04. This means that things can simultaneously destroy value, but drive up
prices enough to increase the value of the total stock.

Let's say that an earthquake hits Manhattan or San Francisco, destroying 5% of
all housing. Ignore the (highly unpredictable) short-term effect on prices;
there will probably be deals in the immediate aftermath due to panic selling.
Assume zero effect on the local job market (that's not true, but it's actually
close enough that it won't affect the conclusion). Six months out, rents (and,
although not by as much, property prices) will be _much higher_ because of the
reduced supply. Let's say that prices double. Wealth was destroyed. It's
unambiguously a bad, value-destroying, thing when 5% of the housing stock
falls into ruin. However, the bulk price of the total housing stock has gone
up by 90%.

That's what 95% of these housing pundits don't get. They look at a spiking
housing market and think, "Wow, people really want to live here, this place is
doing well." They think that increasing desirability (local job market) is the
primary cause of the housing price increase, and that the NIMBY corruption is
just a supporting actor, and it's not so. At one time, Luanda was the most
expensive city in terms of real estate. Angola is not a wealthy country (GDP
per capita around $7,000) and it's consistently in the bottom fourth for the
HDI. Moscow sometimes edges out New York and San Francisco for real estate
prices, and neither weather nor the job market explain that.

Half a century ago, NIMBYism was more explicitly racist than 2014-style
classism and it did immense damage to American cities. Just ask Detroit,
Baltimore, Newark, or even Pittsburgh. NIMBY policies benefit a small number
of wealth-destroying rentiers, but inelasticity makes a system more brittle.
It means that price impulses magnify (rather than dampening) and cause
undesirable feedback effect. The term "shock" is accurate, and it can bring a
city to its knees in a short amount of time.

------
smoyer
"in a very good explainer"

Apparently written by "W"? I'm a bit surprised to see grammar mistakes in the
economist since it's not just someone's blog.

~~~
wavefunction
"a very good explainer" is just a colloquial phrase, meaning "explanatory
piece of expository writing."

I think you're just noticing and reacting to an example of the rather casual
writing style that appears to be replacing the expected traditional
presentation of pieces in The Economist.

~~~
thaumasiotes
Where are you from? To me (US), as apparently to grandparent, "a very good
explainer" is an error, not a colloquialism.

~~~
scatters
UK here. It's definitely been in use as journalistic jargon for a while,
typically in the form of a headline "Explainer: <topic of article>", e.g.
[http://www.theguardian.com/commentisfree/libertycentral/2009...](http://www.theguardian.com/commentisfree/libertycentral/2009/feb/24/freedomofinformation-
civil-liberties) (2009); here's a trend graph that shows that usage has picked
up in the last decade:
[http://www.google.com/trends/explore#q=explainer](http://www.google.com/trends/explore#q=explainer)

Earliest citation I've been able to find (1998):
[http://books.google.co.uk/books?id=kw9lAAAAMAAJ&q=%22an+expl...](http://books.google.co.uk/books?id=kw9lAAAAMAAJ&q=%22an+explainer+on%22&dq=%22an+explainer+on%22&hl=en&sa=X&ei=uOBPU7D4H6fT7AbHl4HgDw&redir_esc=y)
\- note that this is US, not UK.

Article on "explainer" journalism; a little informal but demonstrates usage:
[http://www.theawl.com/2014/03/eleven-questions-about-
explain...](http://www.theawl.com/2014/03/eleven-questions-about-explainer-
journalism)

~~~
smoyer
Wow ... apparently I'm ignorant twice with this comment (at least the last one
I made was well-received):

a) Culturally ignorant - I had no idea that "explainer" was in common use in
the UK. I would have called the rest of the article "an explanation".

b) Literally ignorant - How did I miss that this wasn't an Economist article?

Sorry!

