One of my friends just moved here and is sharing a 5-bedroom home with 25 other people. I thought he was bullshitting me, and I still couldn't believe it when I went over. He's paying $600 a month to share a bedroom with four other guys. He told me it was the best thing he could find on 1-day notice. He pays for rent online, and he has no idea who the actual owner is, nor who is actually receiving the money.
I thought that kind of living arrangement only happened with undocumented workers (barring SF and NYC, which I've always considered to be ridiculous), who can't easily exercise tenant rights.
Now I really wonder how many of the apartments and homes around me are just completely packed with people who are splitting rooms.
I've been to the Adventurer Hotel which is the first on that list a long, long time ago. I would not recommend it. I had a layover at LAX, their bus pulled up right in front of me, and some kids said get on. The staff, all the girls were from Russia or Poland and the guys were from New Zealand, Australia, and one bloke from England, on the bus made a pit stop at the liqueur store. They bought at least 12 liters of booze. There wasn't a bar by the pool like in the pictures. They just set up a table by the pool. When the bus rolled in there was a prostitute on roller skates across the street and one prostitute half a block up 6 or 7 months pregnant. One guy says looks like roller girl is working tonight. The staff lived in the hotel rooms. This was during the Gulf War and the bus picked up two kids serving in the British army who just got a couple weeks leave. The Australian guy who worked at the front desk set up an elaborate plan to hook the soldiers up with a couple of the Russian girls who were waitresses in the bar. Early in the night he rounded a few of us up to pretend the party was in one of the empty hotel rooms. The staff were just people travelling from other countries working under the table. They just partied and partied with everyone who stayed there. He invited two Russian girls and the soldiers to join all of us in the room. As soon as they all got there the rest of us left. It worked because they ended up hanging out together all night. It just kept going on like that. It was wild and out of control. Frat parties are tame compared to what was going on there that night. There is no reason ever to stay there. If you do you will get bed bugs or hepatitis.
I'm with you right up to the point where you say you don't recommend staying at this place.
From your description, this sounds like every backpacker hostel, everywhere. Or at least what they aspire to be.
Sadly, everything moves upmarket, and "hostel" tends to now translate to giant soulless hotel where they have two or three bunk beds in each room and no real shared space or opportunity to meet other travelers (who realistically would now be staring at their phone the entire time they were in one of those shared spaces, so you'd never meet them anyway).
But what you describe used to be every night of your round the world trip. It was fun.
It seems like everyone's trying to move upmarket and killing everything that was fun, unique or interesting about themselves in the process. It's not just businesses it's people too. Everyone wants to get the same soulless desk job, parrot the same inoffensive opinions, Instagram the same stupid travel and gym photos to show how worldly and fit they are, and sit in their same stupid Ubers so that they can interact with as little of the world as possible while moving through it.
I live in a red light district and I get shit about it on a daily basis, but man, not once have I had a dull night and the stories people tell around here blow my goddamn mind. For sure you wouldn't want to live in this type of environment your whole life, but it's absolutely tragic to watch it all gentrifying and being replaced by lifeless condo developments and Au Bon Pain. I'll take the pregnant prostitutes and the alcoholic backpackers over Au Bon Pain any day because they have CHARACTER.
Is your $215k Aussie house in close to town in Sydney, Melbourne or Brisbane? There are plenty of cheap houses in America too, living in LA/SF/NYC is a luxury that people pay a premium for.
No, no it's not. I live in Launceston, Tasmania - population approx. 100,000 people.
living in LA/SF/NYC is a luxury that people pay a premium for.
Yeah nah. I don't really follow this. Unless you consider terrible traffic and less than idea air quality luxuries. Having said that, I did live in Adelaide for 13 years.
Okay, I'm being too critical, too inflammatory. Big cities bring people together in a pretty special way that enables all sorts of culture to arise that doesn't happen here, in these big country towns, or struggles to exist on the fringes as a caricature of it's big-city counterpart. And I definitely miss that.
Choices, I guess. I can't afford to buy a house in any suburb I'd like to live in in the big cities in Australia. And I'm getting too old to rent or sharehouse. It's good here, 800 rock climbing routes within an hours drive of my house; kayaking and surfing; high-speed internet and Hacker News; a dog; business opportunities we're putting in to action.
Yeah nah. I don't really follow this. Unless you consider terrible traffic and less than idea air quality luxuries. Having said that, I did live in Adelaide for 13 years.
It's a fact, not a matter of opinion. People definitely do pay a premium for the luxury of living in LA/SF/NYC. Just look at the rents as you move further away from the center of the cities.
You and I may argue whether it's worth paying that premium, but that's a separate conversation. Location is the most important valuation metric in real estate. A one acre piece of land in rural America could be worth $5,000. An acre in Manhattan is worth $90M+.[1]
There are no decent houses anywhere near the major cities of Australia to be had for anywhere near $215k. The median house price in Australia is $659k. The apartment median is $518k.
What about them? This is a question that deserves a long, complicated, reasoned answer, but it's generally asked as though it's already the answer.
I'll just say for brevity that people (especially young professionals) drastically underestimate 1) the amount of opportunities there are in other, smaller cities and 2) the quality of life that's possible on lower salaries in those cities.
The all-in daily cost for my mother's South St. Louis City bungalow is $16.50. That includes mortgage repayment, property taxes, and insurance on a conventional 30-year loan with 20% down. She lives in a structurally intact, solidly working-class portion of the city.
The point is that a lot of people don't want to live in a South St. Louis City bungalow. (By the way, I think a lot of the snobbery around this is misguided, but it is what it is.)
GP's point was that their friend had to find a place to stay with one day's notice which seemed to be the limiting factor.
A mortgaged house, and short-notice, temporary housing are not in the same category. I was asking if there was some point that the person I was responding to was trying to make that I wasn't seeing.
Except that's not really saying much. If there was nothing more to owning a house than paying a mortgage instead of rent everyone would own a house and never rent.
The cost to live in the hostel when you include all factors is lower even if the daily rates were the same.
i thought it was common knowledge that real estate prices vary around the world. a lot. if Proud Aussie saying anything more than that? and that Proud Aussie has a mortgage?
I've heard of "hacker house" type places in the Bay Area which sound exactly like this. I think the rate was something like $30/day or so.
I've also heard of operators of these places who will sign a regular rental contract with a landlord, "convert" the place to such a high density dorm, milk it until the landlord finds out, and when the landlord does, apologize, end the contract, then find another rental to rinse and repeat.
As I'm currently living in a hacker house in San Jose, I'm obligated to say that this is mostly true except that you make it sound shadier than I think it usually is.
Mine is a 5 bedroom that fits 15 people (one of the 5 bedrooms is for the guy who runs it + his gf). He himself is renting from a landlord who knows that it's a hacker house and is completely happy with that--the landlord gets paid rent while the host takes care of everything that goes wrong (when all utilities get 5x normal use, things break all the time). The host does all this and makes $27/day from each tenant. The whole setup is through Airbnb, and he's made sure he complies with Airbnb rules as well as San Jose rules for renting out houses.
I, too, first rented this place because it was cheap and available on 1 days notice, and while I had planned on moving out to find an apartment, I ended up staying for months because the community is good, the house is well maintained, and the rent really is affordable compared to the cost of most places on Craigslist (which would all be shared houses anyway).
I've stayed at 2 of this guy's (Vic) properties. The first time was in the sunset in SF and it was pretty great. The cops did come bursting into our bedroom at midnight on a weeknight once, but besides that I have fond memories of it.
I also stayed at Vic's hacker house in San Mateo, where the stoner host and his buddy were often up to no good... One guy actually decided to stop paying rent, and exercise his tenant's rights. Basically things were going horribly there so I was able to convince my fellow tenants to split a 3 bedroom apartment near by.
I get that Vic takes care of the house that he lives in. It's just not the case for all of his properties.
I lived in Pasadena just 30 min out of LA and paid 1000/Mo for a 1 be below the 210. This was 4 years ago so I assume rates are up. Just checked CL and see 1br in a townhome for rent for 900 in a decent area. Why would you share with 4 other people for 600... Is it that difficult to put away an extra 300 and commute 30 min?
Woah, I knew about things being bad in the USA, but I didn't know living conditions are going towards third-world standards :/ Where I live (The Netherlands) there are laws that even protect foreign workers (i.e. from Poland) from all being stuffed in a single room.
At this point it's starting to look like even jail cells have more room and privacy.
The problem isn't: "We are an exploited underclass unable to live in reasonable conditions." The problem is more along the lines of a gold rush type movement of people. Where large cities are attracting a large influx of people increasing demand on housing faster than it can be corrected.
Plenty of inexpensive housing in Ohio. Not so much along the California coast.
That, plus a complete refusal on the part of government and voters to build any more housing.
not to mention all the environmental impact fees, taxes, and endless regulation which increase housing costs way beyond where it would be without. It's not just LA and SF (gold rush cities that have housing problems). In CA, even the rural areas with miles of space in every direction, housing still costs a lot more than the national average.
You can't walk a block in downtown LA without stumbling on a 20- to 50-story apartment building going up, and vacant/underused historic buildings are being converted into housing at a decent clip. New housing is going up in the Hollywood and Koreatown areas close to mass transit. It's true that Los Angeles has an extreme housing shortage (~3% vacancy rate), but the supply side of the housing market is catching up.
Sure, why not? If zoning regulations were relaxed, developers would definitely be willing to build more housing. Even most of Manhattan doesn't have very tall buildings, just look at Google Maps in 3D view.
That's mostly because of the geography of Manhattan though. The places with tall buildings (Midtown and Downtown) sit on a solid base of bedrock, in between this base is much deeper a lot harder to build to. Housing in Manhattan isn't the big problem anyways, it's Brooklyn and Queens. But there are a lot of political issues in there.
Personally, I don't want to live in these new developments because I find them ugly. You can't tell the difference between a new flat NYC, London, Amsterdam and Paris anymore.
> Personally, I don't want to live in these new developments because I find them ugly. You can't tell the difference between a new flat NYC, London, Amsterdam and Paris anymore.
This seems like a solvable problem though. Like if everyone complains about how ugly everything is, why aren't there regulations passed specifying how things should look (or should not look)? Developers mostly just want a consistent way to build and make money, if you specify how things should look most will fall in line instantly.
Paris city area has a density (21000/km²) that is twice that of New York City (10800/km²), but is an exception. Many other major European metropolitan cities are less than half of New York's density.
(Berlin 4000/km², London 5500/km², Amsterdam 4900/km², Stockholm 5000/km², Helsinki 1500/km², Madrid 5400/km², Köln 2600/km², Lyon 10000/km², Brussels 7000/km²).
Where I live (The Netherlands) there are laws that even protect foreign workers (i.e. from Poland) from all being stuffed in a single room.
How do those laws work in practice? Everything I've seen about these sorts of tenant protection regulations make them infeasible to enforce in the case where the tenants are migrant workers who might even be working illegally. The idea is that if a person is already running afoul of the law personally, they will keep quiet about the law-breaking of their landlord lest they upset the apple cart and cause everybody to get kicked out.
Poland and The Netherlands are both members of the EU, so immigrant workers from Poland are legal by definition. As for illegal migrant workers I suspect that it's just not that big of a problem, quantitatively speaking.
Yes? You can work illegally in any country by getting paid in cash and not reporting your income. I really don't see where the EU or the nationality of the worker comes in here.
There's significantly less incentive to do that when you don't have to. Or, in other words - why would a Polish worker do that any more than a Dutch person, when both of them are otherwise there entirely legally?
The cheap migrant worker probably doesn't care if he pays the Dutch taxes or not, but his employer will definitely be very happy if he and his coworkers don't.
I skipped to the conclusions as I have no interest in reading over 100 pages, and there is no statement in the conclusions that migrant workers are more likely to perform untaxed work than local workers.
It's not even representative of Los Angeles. The "one-day notice" thing makes this person's situation different, but it's not hard at all to find 2 bedroom apartments for less than $2400, even in expensive areas like Hollywood. Split each bedroom two ways (assuming relatively "equal" bedrooms…) and you'd have < $600 rent in a much saner (from my POV) living situation.
If you expand the scope to Long Beach, the Valley, and South Bay, I'm sure you could find some 3BRs for < $2000 and pay around $600/mo to have your own room. For what it's worth, among my friends in LA — most of whom aren't well-off tech workers — none split a bedroom with anyone other than a significant other.
This is in one of the most expensive areas in the US. I wouldn't call this third world status. In most areas you can easily find a 1BR apartment for that much.
I'm reasonably sure there are laws against this in LA, too. It doesn't sound like an above-board operation at all. (Unless it literally is a hostel, as some have said, and the OP misunderstood.)
You can have a 3bd/2ba house with detached garage in an excellent school district for $200,000, as long as you do it somewhere designed for cars, cold, and economically stagnant.
Things are not that bad. The OP's post is kind of odd as many others have pointed out. Four adults sharing an apartment is something you would see broke college students doing. It is not the norm and has very little to do with Los Angeles which a huge place.
There are laws in many parts of the US forbidding more than a certain number of unrelated people from living in one house or apartment. How well they are enforced varies from town to town.
Curious about what exactly does it mean in this content. Is it about banning full grown and consenting adults from signing a deal because government think it knows best what's good for them?
Your objection could apply against all tenants' rights laws, or against any workers' rights laws as well, such as maximum allowed work hours, rights to breaks every few hours, etc.
Does your friend have a typical well paying tech job? He should save up first month's rent and move out. I don't quite get these hacker houses, if people are earning normal tech salaries they should only be temp solutions.
Sounds like your friend is a fool. I had a nicely sized studio in West Hollywood about 2 years ago. It was right on La Brea and Santa Monica, and that cost me $1000. With laundry and parking. The idea of paying $600 to split a room 5 ways is crazy. That is more representative of your friend than it is of LA housing market. WeHo is probably among the more pricy areas in LA(save Beverly Hills, Santa Monica and a few others), and I found and signed for that room in about 6 days. There is a paid rental listing website. It seems like a scam, but it's not. It was called Westside Rental I think, you'll see the name on a lot of signs. It's work the ~$60 for a membership to see all the listings, maybe you can sell your membership to someone else after if there's a few weeks left.
I ended up leaving LA because that place is a hellish shit hole, but not because of the rent.
A friend used to rent out a spare room in SF on a regular basis. Two years ago, he could get $1850 for a single room with it's own bath room, furnished. We're talking 6-10 replies from a Craiglist post within 24 hours. Stopped renting it out about a year ago.
He just posted it again. Zero takers at $1850. Finally got someone for $1600 (-13% decrease in rent) after a month. A dramatic change.
The rental market in SF is definitely turning towards the buyer.
that's cheap if it's a decent place in a nice neighborhood. i was doing 1500 (utilities included) on nob hill with 3 other roommates and 1 bathroom a year ago. and that was the cheapest i could find in a decent location, and that's including many of my emails that went unanswered.
For historical perspective - when I first moved out to the Bay Area in 2009, I paid $900/month for a master bedroom + private bath in a 3BR townhome, in Mountain View. My roommates paid $650/month.
If you've never been through a downturn in the Bay Area, you'll be amazed at how low prices can go (and also at how many people can become unemployed and move back to where they came from).
I've read Yelp reviews on a previous 2/2 in San Mateo. $2600 at that point, one review had a price listed a few years back (~2011), ended up being near 20% increase year over year.
Also heard of the U-Haul stories of where there was none left in the bay because everyone moved out. Don't think that's going to happen this time around. Think that start ups, or at least their employees will be acquired into bigger/more stable companies. Did that happen last time around? For example, did Yahoo, AOL, PayPal go on a buying spree?
20% YoY increases is about right in boom times. My rent increased by about $300/month/year from 2011-2014, then has been roughly stable since then. It was stable from 2009-2011 though.
In 2009, most of the startups were really small Web 2.0 outfits with 2-6 employees. However, the big companies were laying off people, and very few companies were hiring. I was initially going to apply to E-Bay/PayPal (I had a contact there), but the day that I was going to apply they announced they were laying off 5000 people, and I was like "Welp, that's not happening." My roommate worked at EMC and went through 3 rounds of layoffs, with about 3/4 of her department laid off. Was very lucky to end up at Google, which according to the news media was in hiring freeze (like everyone else) at the time; I had an awkward conversation with my recruiter where I was like "Are you actually hiring right now, or am I wasting my time?" What tended to happen was that the big companies cherry-picked the startup founders/employees that they really wanted and laid off all their low performers, and everyone who didn't have a track record of producing stuff was basically fucked.
I wasn't around for the dot-com bust in 2001 or the 1991 recession, but my understanding is that they were far worse in Silicon Valley, because the dot-coms had hired a large number of underskilled workers who literally had nobody willing to hire them when their employers went bust. I suspect 2017 will be worse than 2009 but better than 2001 in tech; unicorns collectively employ many more people (particularly low-skilled people) than Web 2.0 startups, but the crash this time is a slow-motion slowdown and doesn't seem to be affecting all companies, and so there's time for stronger companies to pick up the pieces of weaker ones.
2009 and (allegedly) 2017 are nothing like 2001. Within one week, my office building (in Seattle) went from being completely full of startups to 50% occupancy. I distinctly remember one day walking around and seeing multiple people in their offices crying with their heads in their hands. The whole market basically disappeared overnight. I had only been working for a year at that point, so I was completely screwed. It was 3 years before I could get an entry level job in the industry again (at 2/3 of my previous salary). Anyway, what's this about a crash? I've been job hunting and every company I've interviewed with says they are having difficulty finding people.
Yep: first, rents crash in the East Bay and other outlying areas, and then as traffic diminishes people who were paying $$$ to rent in PA/MA/MV decide that it wouldn't be so bad to live farther out. Rents then drop everywhere, although home sale prices never really drop much in PA/MA—they just level off for a while.
Condo prices can drop - in 2009 there were 2BR condos available for about $400K, while the cheapest you could get in early 2015 were about $900K. You're right though, I didn't see single-family homes drop much even in 2009; they still went for more than a million.
I had a 2 bedroom lease in Adams Morgan, one block off 18th, for $2500 last year. We've since bought a place a few blocks away, so I'm unsure if it's risen.
And I pay a $800 a month mortgage for a 3500 square fort castle with 5 beds and 4 baths on 1/2 acre in BF Indiana. Doesn't mean I am getting a good deal though, just where I happen to be.
I would way rather be paying more for a city home :)
I'm in the opposite situation. I moved to Washington from a small Rust Belt city. The last house I toured there was a historic 5500 ft^2 Victorian 6 bd 5 bath, in the most desirable location, and thus with near instant liquidity. It was listed for $500k. With a local bank, which knows the housing market in the area, the mortgage would have been less than $2000/mo.
Considering the inexpensive housing, an excellent Jesuit preparatory school for $7k/year, the low cost of living, and the huge scholarships to the city's University, a family of five could live extremely comfortably for $150,000-$200,000/yr. Couples with occupations such as lawyer, doctor, engineer, or small business owner live like they're downright rich.
I suppose it's the old adage that keeps me in DC: You could sell your house here and live like a king anywhere else. But you never will, because you're afraid you'll never be to get back.
on short notice and short term, you're competing with hotels which are astronomical on monthly terms, or impossible to find (because they could simply rent out nightly).
>The rental market in SF is definitely turning towards the buyer.
Am I misunderstanding something? If rents are going down (like you suggest in your story) wouldn't that mean that the rental market in SF is turning toward the renter?
Edit: Thanks for the clarification. Terminology can be confusing since there can be buyers/sellers for the renting homes market and buyers/sellers for the buying homes market.
No, it would be turning toward (as in, in favour of) the buyer.
If it was turning toward the seller it would be fast to rent at a higher price (best situation for seller), yet he is describing the opposite, where buyers have plenty of time, choice, and more purchasing power.
In real estate, you are correct. A buyer's market in real estate means a good time to buy a house. A seller's market is a good time to sell a house. A renter's market is a good time to rent. I've heard different terms for landlords, usually an investor's market or a landlord's market when rents are high.
Saying the market is turning to the buyer in real estate, implies it's a good time to buy a house, and renting is comparatively expensive to a mortgage.
$1600 is more than you need to survive in most countries on this planet. If you can earn that with 1 single room apartment I can't see how you can start to be pessimistic. If your friend earns more than 300$/month on that apartment I think it's quite a good market and your friend is still making a premium. And $1600 sounds like "a little" more than $300.
So the market is being depleted of high-income people seeking rentals.
Across the bay, a month or two ago, a coworker saw an apartment in Uptown that astounded me. 4 bedrooms for $8500/mo. That's only $2125/mo per person, but you have to live with at least 3 other people to get that. Crazy.
I know nothing about the San Francisco housing market apart from what I've heard in discussions here on HN. The received wisdom here seemed to be that powerful NIMBY lobbies in SF were preventing needed development and causing the sky-high rent. But this article is talking about an "historic construction boom". Did something change regarding development in SF? Or was the NIMBY effect always a bit over-stated? Anyone care to speculate?
The NIMBY effect in SF is very real and there is lots of strong evidence from both academic and industry analysis. For example there are several indices of construction regulation and SF is usually near the top:
So despite this why is there a building "boom"? Basically prices (rents and sales) have gotten so very, very high that it again makes sense to build in SF. And as mentioned this "boom" is relatively modest.
To give you some flavor: the new housing (and office) construction is almost exclusively at the high-end of the market. This is because NIMBY and other policies have made it cost around $750,000 to build a unit of housing in SF. So as long as prices and rents can justify this spending taking into account risk, time, required return, etc. developers will build.
The "historic boom" is big compared to the very low rate of new construction of the last few decades, but still small compared to the need and potential. There is a fair amount of construction downtown, but most of the city remains frozen in time.
That said, I wouldn't blame it all on NIMBYs. Few changes of any kind get done in this town.
The entire peninsula dumps their housing problem onto sf and san jose. viz linkedin and google building millions of ft2 of new campuses for tens of thousands of employees in a town of 80k that is possibly going to study maybe building some housing. Potentially. So where do the employees go? The only places there is housing available.
Indeed. If there are more jobs than apartments in SF, and more people commuting to SF than from SF, it doesn't sound like "the entire peninsula dumps their housing problem onto sf"; it's rather the other way round.
Speculation that this is the case in SF, but is an effect I've seen:
You can get a dip in average rent without (sufficiently) dropping bottom quartile rents, which is what NIMBYism tends to block, by having a lot of nice condos built.
The top quartile of rents dips heavily as places jockey for condo buyers, everyone moves in to a nicer place as the wave spreads, but the price at the bottom remains (mostly) the same (even if unit quality goes up), because the oldest buildings get torn down at the end of the wave, rather than genuinely increasing the housing supply (because land to develop on is still hard to come by).
So it's possible average rents dipped, but service workers still struggle to afford rent, even if they struggle in a nicer unit.
Tl;dr: I expect the building that happened raised low-end apartment quality rather than drop price, even if average rent is down. Because NIMBYism.
This is a theory, but wouldn't dropping upper quartile rents automatically flow down to lower quartiles?
Let's say you have a market with 3 apartments for rent. $100, $200, $300 per month.
Luxury apartment is created and starts at $400 per month, but no one rents, so they drop it to $300 per month.
The guy renting a non-luxury apartment for $300 says "screw that" and moves to the luxury apartment. Plus, the guy renting the non-luxury apartment looks at comparables and says "jesus, a luxury apartment is $300, mine is maybe worth $200". And so on, all the way down the line.
Sure it's not a perfect example, but I can see how cheaper luxury apartments could cause prices to fall overall.
I get the chain effect, but because of the scarcity of land zoned that way, the buildings that are currently the bottom end up torn down rather than rented for less, and the land re-used because the base value of the land doesn't allow the rent to drop.
So you see drops across most of the market, except at the bottom.
This market effect is actually good! It keeps land cycling to be productively used and everyone gets to live in a nicer place.
The problem is we need to rezone land to drop the value of highly dense land, so those low end apartments drop a bit, rather than being repurposed. (At least, until cities are rebalanced a bit.)
This is not entirely accurate. If the median rent drops, this means necessarily that the rent for at least some portion of the renters below the 50th percentile has dropped. So while it is possible that the very bottom hasn't changed much, the middle/top of bottom necessarily has.
It's not necessary for the bottom quartile (which is what I was talking about) to change at all for the median to move, as long as the median stays above the highest value in the bottom quartile. The lower-middle quartile could absorb all of the change.
A quartile is 25%, or a quarter, if you didn't know.
My concern was for bottom quartile rents, since the bottom 20% of society is largely concentrated on the low end of that quartile, and they're largely the ones who actually suffer from high housing costs (as opposed to merely having fewer luxuries).
This sounds plausible, and it chimes with the article's statement that the new supply is at the high end. Thanks! If people were only blocking certain kinds of development, that would explain why low-end prices stay high even while there's a lot of construction causing the median price to drop.
I think of it as: NIMBYism keeps high-density zoned land high value, so the floor never comes out of the market, even if you squish the top down.
Houses don't belong in (the core of) major metros anymore, but there are a lot of wealthy home owners who live there, and have built up political networks over decades or centuries.
It's a tragedy of our system that we let 20 residents keep out 200.
Should the 20 just be bought out, or forced to sell, or allowed to rezone and then sell one by one (with the first person getting the most money, as each lot is turned into a high rise).
We are facing some of this in the city in which I live and I don't really know how to address it (I can see validity in the arguments of both sides) so was wondering what you see as the path forward.
I'm generally leery of things like eminent domain, because they can be very problematic. On the other hand, there's a good chance that converting a lot of blocks also means we need to up utility capacity in the area, which can be very disruptive for residents, so it also makes sense to rebuild an area at a time.
I like the idea of having the city nominate regions, and then any time 90% of a block agrees, the whole block is sold as a unit (or maybe auctioned with minimum bid) and rezoned at that time. (This kind of idea meshes well with the development plan of having several high density clusters smattered around the city as neighborhood focal points, which is what my city recently switched to.)
It doesn't quite fix the utilities problem or some people being forced out, but I think it balances out a lot of competing forces reasonably, and keeps us from working with weird lots during development (as the city can repartition the block during rezone).
The “historic construction boom” just seems historic because it followed a historic construction bust, so the first order derivative is pretty high. And it’s all concentrated in a few neighborhoods right outside reporters’ offices, so it seems more dramatic than it actually is.
Even so, the construction rate now is not matching the rate in the early 1960s[0]. Back then, the bad word was “urban renewal,” and the people and politicians of San Francisco managed to stop it. Unsurprisingly, that only exacerbated the housing crisis, setting off the exponential rise in prices that has now reached unbelievable levels[1].
So, nothing of substance has changed. NIMBYs and their supervisors have still effectively outlawed affordable housing, so financiers have not been willing to fund projects until the market-rate prices reached so far into the stratosphere that they could expect to make a profit. So they make only super-expensive housing, with some “affordable” units begrudgingly provided to lottery winners as the community organizers have forced them to, which feeds back into the common misperception that developers are only willing to build super-expensive housing. Which provides political support for more restrictions, which raise the costs, which slow construction, which raises the prices, in an insane feedback loop.
The NIMBYs have had a very strong effect in that they significantly delayed the pipeline of development. Ultimately, the demand for housing had to be met, but it required extra years of community meetings and fights with the NIMBYs. Basically, the construction boom would have come sooner.
Luxury highrise condos and apartments have been showing weakness all year due to oversupply. Deeded land single detached homes (where the strongest coalitions of SF NIMBY lobbies reside) are still very supply constrained and are still very strong wrt price. This is the source of the discrepancy you're talking about.
Source: friend who's been in Bay Area real estate for over a decade.
The reality is, rental housing is a canary and shifts quickly based on market conditions. The market is flooded nationwide, and if you look closely at newer projects, the better banks have slowed down investment.
Actually, the rents are far higher than they should be in not only SF, but NYC, DC, Boston, LA, London, and many other cities and the reason is structural -- the use of zoning density restrictions to create artificial scarcity of housing to help the special interest group of wealthy landlords to the detriment of renters. Many people trying to make a life have trouble making ends meet while Donald Trump and other wealthy landlords have far more wealth than they would in an efficient market.
"Did something change regarding development in SF? Or was the NIMBY effect always a bit over-stated? Anyone care to speculate?"
No, not much at all has changed and the "building boom" consists of 5 or 6 high rises and a small handful of quarter-block sized rental apartment complexes.
Think of the normal background level development that is always occurring in Denver/Minneapolis/Portland ... that suddenly happened here for a few years. "Boom".
NIMBYs are extremely powerful. sometimes they even sue developers, raising the cost of housing for everyone. Environmental legislation also causes a huge increase in development costs as well.
NIMBYism is largely targeted at preventing construction in the traditional residential areas. Most of the new development is large buildings in areas that aren't traditionally residential. In particular, the areas around where the Giants stadium (SOMA) is and where the Warrior's arena (Mission Bay) is planned have seen many new high-occupancy construction projects because there aren't neighborhood groups being obstructionist.
Studio "luxury" apartments here in Nashville have long term leases at $1200/mo for a studio. I was not impressed when I did a tour across the city; I asked the occupancy rate at a few places, and was floored when they told me it was only ~25%; these were 1yr+ old developments, which is apparently common place. I've been telling people the city is in a bubble, but no one believes me. Everyone says now is the time to buy, I think they're insane.
A lot of people from out of state that had higher real estate values could sell their $400K-$500K home in California and come to Nashville and live like a king. Now they are just poaching people knowing they'll pay up. Our hotel rates are higher than New York City's on average. It's insane, and everything thinks this will last. We'll see. Nashville wasn't mentioned in the article, but I have a very hard time believing the city will sustain its current rent levels, with such low occupancy rates.
It's actually cheaper to just buy a condo outright (which I think is still too expensive $300K for a studio,) than to rent.
I'm in Nashville as well, and was just talking about this yesterday with people. The past couple of years has seemed to be almost entirely luxury apartment complexes being built, and anecdotally most of the young people I know here can't afford them, or if they can will just buy a house instead.
St. Louis, believe it or not, is experiencing a bit of a modest boom in its central corridor. It's certainly more new construction than we've seen in something like 50 years. But, anecdotally, the units are selling quickly, and at rates (and sizes) we've never before seen.
For the lazy, they're renting a 683 sq/ft 1 bed/bath for $1812-$1977. I heard some long-time residents literally laugh at those prices. But, they're selling quickly, reportedly.
(I don't have a coherent point; I just thought some might find this interesting in relation to your anecdote.)
I just went there last week for a conference. Man there's tons of development going on. Road construction, looks like a new building being built every 3-4 blocks.
I usually hit all the food joints when I visit a place. Thought all there was going to be was grade A bbq. Was I mistaken, food scene is amazing, would rate near same caliber as SF (and as expensive).
Hotel rates are crazy, spoke with some locals and they said it's cause of all the conferences. Averaged ~300 a night (fri-thurs).
Can this please be re-titled as a US study? First blush of the article title made me go "What? Seriously?"; the two markets I look at first are London and Sydney.
I've heard similar reports about the London rental market, but then again when it comes to the housing market, the UK press report on every scrap of noisy data they can get their hands on.
London has also seen a huge glut of (supposedly) high-end property come online. Builders are struggling to sell, so they're now starting to offer discounts on the new housing stock [1]. If what the article says is true, I would be surprised if the same scenario didn't play out in London.
This isn't too surprising, since I think London rents were seriously testing what the market would bear - plenty of chatter about London becoming completely unaffordable.
Except at the lower end of the market rents are still unaffordable and social housing has dropped off precipitously since the 80's. And housing starts for households on less than the median wage in London is at its lowest since WWII.
So I guess this is a case of convergence, higher priced housing is dropping and lower priced housing is increasing. This effect will probably become more pronounced if interest rates start to rise.
London, I believe, has a big problem with the Brexit because many banks plan on or are already leaving the country. No banksters, no tenants for outrageously expensive properties.
Here's some stories.[1][2] Of course, these are about future plans, not actually leaving, so take them however you want. AFAIK,the real concern is not that banks will actually "leave" the UK, but that they will downsize as they move operations to other areas of the EU, which makes complete sense. Some of the laws that allowed free access to EU citizens from the UK will end with brexit, and while UK officials will try to get something similar in place, there are EU officials that feel that a deal that's essentially the same is not in their favor, and that the UK should pay a penalty for leaving. This is the uncertain climate that is causing some banks to hedge their bets and move some operations to the EU.
I was responding to the statement that some banks were planning to leave and some had already left - I have heard of banks planning to leave, but have definitely not heard of anyone doing so. Was curious if the poster might come back with any evidence for that claim but as they haven't, I think it was probably just hyperbole.
Clicked on that list hoping to see good news in Seattle... turns out we're up more than any other city in the top 10. Sigh. There actually is a decent amount of housing construction in progress but it seems like it's not nearly enough.
Also Seattle Resident, has a few things going against it:
* Highly constricted physical space, poor public transit and almost continuous traffic problems due to natural bottlenecks. This means people have to live close or else risk a 60 min+ commute one way.
* Single family homes drive a lot of property demand here, not just luxury apartments. Those are still expensive and hard to come by, and they are not building much more of that within the city proper. Average home value is hovering around 500k. Apartment building will not offset this very easily.
* In general, the city was historically undervalued given the insane density of highly skilled and highly paid jobs. We have some heavy hitters and offices of some large international tech companies but rents remained low for quite awhile. This is just the adjustment.
The prices for apartments will level out eventually, but we still have some way to go imo.
I disagree. It's not perfect, and it's definitely no Manhattan subway system, but I live car-free in Seattle while working on the other side of the lake and it has been pretty awesome. The trolleybuses are smooth, there are a bunch of regional express routes, and--especially after the prop 1 passage in 2014--the span of service and on-time performance have both increased.
If your measure of "quality of public transit" is defined in miles of light rail, yes, Seattle's is poor. But the buses, in my experience (though I don't usually travel during traditional commute hours), are a great companion to the light rail that we do have.
Seattle buses are okay compared to suburban non-cities like Phoenix or Silicon Valley.
They're a disaster compared to other desirable world power cities with functioning public transit, though. Seattle's transit system would be considered a disgrace anywhere in Europe or Asia, or even most parts of the northeastern US.
I've been seeing a 9.5% year-over-year increase on our apartment in Downtown Bellevue. We stay because it's still the best deal we can get in the area for an apartment the same size as ours.
But paying what we pay in rent is depressing. I record and chart our expenses in a spreadsheet and the piece of the pie for rent just dwarfs everything else.
I can't help but wonder if Seattle is increasing and SF is decreasing at least in part because so many people are moving from the latter to the former.
I'd be curious to know what the breaking point is for luxury condo developers, i.e. how far do prices need to sink before they're in trouble? As an extension of that, who are the investors that will take the hit?
Presumably, the capital put down for the construction of these condos gives landlords and developers a hard floor on the prices they can accept. Is their solvency dependent upon charging luxury rents, or could they get by leasing at more moderate rates?
The past 2 years for me have been about the enormous exposure of how rent has been going up and house affordability has become a real problem world-wide.
As legislation started to get promoted in different countries (Vancouver's foreign tax, Berlin's Airbnb ban, Argentina rent-caps) I always thought that the origin of this entire problem is the low rates for lending, and that these laws would only be a hinderance to recovery.
This is still early to take for granted, but my suspicion is getting more likely. I feel sympathy for the people that told me that houses are the safest investment, and that renting is always worse than buying.
Not everywhere though -- Tokyo rents are stable (if not decreasing, for older units) due to their decades long building spree. If this building boom had ceased, they would have been supply crimped just like many countries in the developed world, since there's an ongoing migration of rural youth into Tokyo for employment and education.
I agree that laws passed to deal with high housing costs are often counterproductive in the long run. The classic example is rent control.
Can you explain your theory that low rates drive high rent inflation? Seems like it would be the opposite for several reasons: low rates are associated with low inflation, low rates make it much cheaper to build and operate apartment buildings, etc.
Low rates drive up mortgage lending and increases housing value, that is far from being "my theory", it's an accepted phenomena.
There are other things related to the housing market, like construction lagging demand(the U.S. is not building as many dwelling units as purely demographic demand needs) or demand being pro-cyclical.
As far as i can tell, developers are picking up the pace and the whole situation might fix itself with a simple market correction. If housing prices dropped 5% one year, demand would lower and might match supply. Ofc, i cant tell the future, but there are reasons to believe the situation we have is only temporary, and raising rates and increasing supply might calm the whole situation down.
I thought we were talking about rent levels not home prices! Again how does low rates drive up rents?
Keep in mind that very few people borrow to pay rent while most apartments and their construction is financed by debt. At first approximation low rates would be neutral for demand but positive for supply.
The more houses people buy to live in, the supply for houses for rent lowers. People that had property renting out see a higher return by just selling their property, reducing the supply for the rental market.
How strong is that correlation, i don't know. There could be other demographic factors like people moving to cities more and more (SF still has a huge influx of people).
You might be conflating overall rental demand activity with overall real estate financing activity. Keep in mind that low interest rates create continuous opportunities for financing, bandlimited to the minimal interval between credit knocks for doing so. If Joe Q. Landlord can refinance or purchase property at an assumed valuation of $X, that incorporates an expected inflation subject to interest rate Z%, which yields a median monthly rental fee of $Y.
Not sure I am following you but the classic valuation relationship would be something of the form $X is proportional to $Y/Z% (i.e. revenue or income capitalization valuation). So if $X is fixed (your assumption) and Z% decreases (interest rates decline) then $Y (rents) must also decrease. QED
Wouldn't say that $X is not proportional to $Y/Z%. It's the other way around, that $Y is proportional to $X/Z%. If Z% decreases, that value increases. The utility of a property can serve multiple use cases -- it could be rented, lived in, or used for parking wealth. Financing allows people to purchase property at rates higher than they would be able to with all cash. That specific rate is material to the deal they get on their mortgage at the time that they finance it.
Therefore, low interest rates inflate the prices of real estate because they encourage people to take on debt because it's at more favorable terms. They also encourage people who have mortgages on worse terms to refinance. With higher interest rates, the ratio of mortgage to all cash buyers would decrease, and so the appraised market value of the property would decrease as well.
Rent control still leaves people who want apartments without them, it simply changes the allocation strategy from "willing to pay market price" to "was here first" or, in the case of designated affordable housing, lottery.
Increasing density limits, or improving transportation to allow wider sprawl, actually add housing supply in a way that might keep up with demand.
Montreal is affordable, but I don't think you can attribute that entirely to rent control. Forty years ago it was the premier city in Canada, but it's had a serious decline since then. Perhaps not an absolute decline in population, but certainly slower growth than the rest of the country, and way less money than it used to have.
I'm no expert on the Montreal rental market and rent control rules but if you are not experiencing shortages then the rent controls are likely not "binding". That is, the controlled rental rate is very close or above what the rental rate would be without rent control.
Since it appears that Montreal has relatively low rental rates it is likely that supply is high but demand is low relative to other cities. This is consistent with the relatively low population growth of the area (the Island of Montreal had a larger population 60 years ago than today!). In this situation rent control would have very little impact and be unnecessary anyway.
Rent control is good for people who already live somewhere, and bad for new arrivals. Places like the Bay Area, with huge numbers of new arrivals and not much new development, see this more than "normal" cities.
So I don't think you can attribute the affordability to rent controls at all.
You can perhaps attribute it to the rent controls that all the metropolitan population growth has gone outside the city (where it has over the past 50 years doubled from 1.3 million to 2.6 million).
There's no doubt in my mind that low rates are driving up house prices, but the link to rental prices is a bit more tenuous to me. My gut feeling is that the post-crisis recovery started in the big cities, so people flocked to them, which drove up rental prices.
But if anyone's seen some decent analysis that says otherwise, I'd love to see it.
There's no doubt in my mind that low rates are driving up house prices, but the link to rental prices is a bit more tenuous to me.
Yeah, the link to house prices is clear: low rates means you can afford a larger mortgage, so prices get bid up. The link to rents is less direct: low rates are effected by loose monetary policy -- by central banks pumping money into the market. This means more inflation (not quite the same thing as "rents getting more expensive" of course.)
In theory, anyway. Inflation has actually been very low even with historically loose monetary policy, so folks have been flummoxed (but generally positive about it, because they think it has let them encourage job growth and economic expansion more than they otherwise would have been able to.)
Meh. "Plunging" is a strong word for an 8% drop. Even if you buy the "effective rent" argument, 22% isn't much of a plunge. This is a start, limited to a very few neighbourhoods, and merely makes the housing market slightly less insane.
8% in a year is plunging. Factor in inflation, and 5 years at that rate and real rents drop 41%. That would be a massive decrease in a short period of time and it's hard to imagine it happening - which just supports the notion that 8% in a year is a pretty big drop.
You should be celebrating this news and not complaining.
The rent concessions are the real leading indicator. As every month of "free rent" in a 1 year lease lowers gross rent by 8% (4% for a 2 year lease, and 2.7% for a 3 year lease) As a strategy it assumes that the rent will come back up after the lease period. When it doesn't the rents actually get lowered to avoid being the highest rent in the list.
Also there is an impact on increasing AirBnB regulation both from cities and from landlords. Now there are often very explict callouts in a rental lease that specifically mentions getting money for the use of your apartment from non-family members. That means you're not going to be able to monetize that second bedroom to pare back your housing expense.
A whole bunch of big new 'luxury' rental buildings have flooded the market in my area of Brooklyn, and the 'free rent' concessions they're offering–especially with a bit of negotiation–are substantial. Some friends of mine recently moved into one (with a few months free rent), and it's shocking how few apartments have been rented despite how long the building has been available.
The effects of these buildings coming online have been noticeable in my nearby neighborhood: two apartments in my 6 unit building that otherwise would have been rented in a matter of days sat empty for several months until they lowered the asking rent multiple times, I got an immediate 'yes' to a lowball counter when it came time to re-sign our lease, and the number of nearby 1 bedroom listings under $3k has multiplied dramatically since the last time I was searching for a new apartment.
My anecdotal evidence shows a dramatic shift of my 20-something and 30-something year old co-workers to Oakland from SF due to affordability. Oakland is close, cheaper (though rising), diverse, and close by BART. This is probably putting a good deal of supply back into the SF market, but putting pressures in the East Bay markets (Berkeley, Oakland, Alameda).
Very few trust that supply vs demand doesn't work, but it absolutely does. Sure there will be temporary spikes in price, but as rents go to ridiculous heights (I think $5000 for a 2 br condo is utterly ridiculous, and that prices is about 5 years old in SOMA), it will abate at some point. As long as there isn't a monopoly, or people aren't manipulating the markets, fair and properly functioning markets will self-correct.
Apartment communities (I first saw this in Bay area) are doing whatever they can to make sure you end up in a particular month of a year. This is summer, at least now.
Most of them are doing this. Some use lower prices for 6-7-14 months (the number depends on what month right now). I personally signed up for 14 months without realizing what would happen to me. Some try to just cheat. One of apartment communities sent me a contract for 13 months without mentioning a word. Fortunately I knew about this scam at that time and didn't sign it.
So as long as many people need to renew their contracts at the same time - boom! Artificially heated market.
It's very debatable whether the SF property market could be considered a fair and properly functioning market, given the massive impediments to new construction, legislative rent controls, and crazy tax breaks for longtime residents.
Of course it's properly functioning. There is a ton of demand and a lack of supply. Of course prices are going to rise and that's perfectly okay. But they can't rise ad infinitum. I think we're seeing the limits of how high prices people are willing to spend, and rising interest rates are going to limit that even further. I'm expecting a precipitous plunge in >$2M houses and the sweet spot will be houses in the $750k range after interest rates limited the crazy market.
It's functioning, but I wouldn't say it's functioning properly. Prices have had to rise much farther than they would in a less encumbered regulatory environment, and as a result, it's been very disruptive for a far larger number of people than it had to be. If there was less encumbrance, we would have seen a housing construction boom well before the prices got to the current, rather ridiculous levels. Compare the number of yearly housing starts and pricing in Seattle to see a more functional market, which happens to be absorbing a lot of SF's excess demand.
If your bar for a properly functioning market is that prices rising have caused normalizing factors to kick in, then yes, of course that's the case, as always happens in markets that aren't completely messed up.
A 2 bedroom in my building dropped from $3950 to $3250 over the past few weeks. The landlord can't unload it. And today I got a notice that they're raising my rent. Shortsighted -- they'll have another vacant apartment on their hands soon.
Ha, I'm in Hollywood, and my complex has been sending out emails offering promotions to recommend friends on a bi-weekly basis for a few months now. Vacancy has got to be around 20%. Meanwhile, there's 6 new luxury complexes with over 1500 units opening or that have opened this year--JUST ON MY BLOCK ALONE [2,3,4,5] (for reference, the entire population of Hollywood is roughly 22k [1]). The new complexes are practically ghost towns, Eastown in particular was offering a free month for ages before finally dropping rents 10%. Sunset Gordon Tower is literally kicking everyone out that moved in, which was only 17% occupied anyway [5].
Meanwhile, my lease is set to expire, and the renewal offer comes with a 10% bump in my rent (as it has for the last two years).
The sad part is, I feel like it's working from an economic standpoint. Vacancy was close to zero when I moved in (literally got the only apartment available). Even though it's now got to be around 20%, the rent has risen by over 30%. Pretty sure that means they're making 4% more over the course of 3 years, which given the dismal global economic growth, that yield isn't too shabby.
With all the vacancy, you'd think development would be slowing, but it's actually picking up even more. There's 7 new hotels planned for the block [6]. And there's several other residential towers planned for the block [7], 750 new units by 2018 just in one, the Palladium Towers [8].
Keep in mind that this is just one block. Roughly the same thing is happening a mile up Hollywood Blvd at Highland. And to a lesser degree a mile down the street at Western.
All of this is great. We desperately need the new units. The mixed-use walkability will be an example to the entire city for how great Los Angeles can be.
But where are this many luxury renters suddenly going to appear from? Wishful thinking?
Most of these projects were planned and approved many years ago. One of the challenges with development is that you start a project knowing people won't move in for 3-5 years (when construction completes).
The rents are astounding to me as an Atlanta area resident. My fully loaded mortgage+escrow payment on an entire 3 BR house with a full basement (in which I have an office and wired for Cat6 ethernet) is less than $1100/month. There are tons of tech companies within commuting distance and even more remote work opportunities as a developer. Chances are good that we'll finally have gigabit fiber to the home within a year and current Comcast service is serviceable at 75 MBps.
> The rents are astounding to me as an Atlanta area resident. My fully loaded mortgage+escrow payment...
I see this a lot of the time when rents for certain areas of the country come up. My friends in Dallas and Austin say the same thing. FWIW, I own a duplex unit inside the city of Seattle, so my views may also be a little skewed.
My usual response is, "yes, but then I'd have to live in [other city]." There are a lot of advantages to living where I do, in my opinion; that's why I chose to live there. The weather is a not-insignificant consideration. I don't ever have to look at a weather forecast and see that the expected high is 100F-or-above for the next month. Natural beauty is another. Local culture is yet another.
One other point about the cost of housing: you wrote "Atlanta area," so I imagine you're OTP. By comparison, I'm paying $1,600/month to own my 2BR house inside Seattle, and I don't begrudge any cent of it. Mortgages inside Atlanta proper are possibly in the same range.
So it's not a question of being astounding or out of the ordinary, just different life choices.
> Chances are good that we'll finally have gigabit fiber to the home
And yes, it is about weighing the pros and the cons. I personally have chosen very much to refuse any engagement/job that requires daily commute into an office. I understand that is a privilege that comes with being a developer and not something everyone can do.
I was in the same position, but decided to just move Jakarta to live in a fully furnished 2bd apt (along with other other amenities of the building) for about $750/month (I paid this much for a room in a 3bd apt in Boston, with nothing sort of the amenities). Different pros and cons (see remote working cross timezones).
I think in the long run as more and more work allow for it, it will free up pressure in extremely nominally inflated areas that I consider most top US cities to be, but I see this more as a long term trend since there's a lot of entrenched interests to treat real-estate more like a financial instrument.
And remote work needs to get more and more mainstream.
If that doesn't happen, then the pressure will remain on the geographies with many job opportunities, and most of the wealth will flow to the landowners.
There are some economic incentives for companies to push towards more remote working: less capital expenditures of offices (which might matter more for smaller companies), possibly some downward pressure on wages (depending on the industry/skills), but I'm not too optimistic about it.
I'm in Alpharetta, which is a tech center in its own right by some standards. Housing prices jump $300k across the street from my neighborhood. So yes, prices can go really, really high around these parts.
With Google Fiber out of the race, it's pretty much a question of when AT&T will run their Gigapower service here. They're installing for the neighborhoods less than a mile away at the moment. I suspect Comcast will get more competitive with their gigabit service in short order to compete or AT&T will upgrade their service here.
This is quite a news. I just looked at renting page of my formal apartment in Wayback Machine. They had listed 3 bedroom + garage at $2200 in Puget Sound area from January to May. Now its $2100. Not a big decrease but I don't recall I had ever seen a decrease during past 5 year or so. It's actually quite shocking.
This probably means that the real estate price cycle theory is right. First house prices goes up so construction boom starts and then supply overfloods the market and suddenly there are no takers which brings rent as well as house prices down. It's closed loop with delays so you get overshoots and undershoots. This can be mark of price fall for next 3-5 years in real estate as well rents.
It's fascinating that it's happening at a time when wage growth across the board is at a eight to nine year high (and plausibly heading even higher so long as unemployment remains where it is). So whatever supply is coming on-line, is entirely cancelling out that wage growth.
So build up. Here in London people don't build up, for some reason (I mean other than office spaces, obviously). I think it's this nefarious british mentality that old is good. So you never demolish any 2 story buildings, you just build more outwards. Then you complain that the prices are insane.
In San Francisco there is a lot of progress that can be made without building up. For example, building more Accessory Dwelling Units [1] and subdividing oversized streets [2].
See, there we go again. Why is the problem the greenbelt? Between central London and the greenbelt there's a mind-blowing extension of small houses in every direction. There is A LOT that could be built before getting to the greenbelt. The greenbelt is only a problem if you want to continue building small houses.
Do we know what policies are genuinely effective at improving housing affordability? This is the one biggest thing the (proverbial?) middle class have been struggling to make gains on over the last generation in a lot of otherwise successful places.
Public Transit/road infrastructure helps costs too. If you can get around an area faster you effectively increase the number of units that are available for people working at your location keeping prices a bit lower.
And I thought Jersey City and Hoboken were bad. I pay 1825 in rent for a 2 bedroom that's 30 min from my work. But thats because the landlord has not jacked up the rent since I moved in 2 years ago. A new place as big as mine today will probably rent at 2500, which is still not as bad as many other places like SF.
For what it's worth - Four of the eleven Supervisors (in San Francisco) were just up for re-election. Some of the candidates were much better than the others.
Marjan Philhour, a pro-housing candidate in District 1, lost by 1000 votes. If she won, pro-housing SF Supervisors would have had a 6-5 majority on the board. We were 1000 votes away from a much better housing situation in SF.
If you live in SF, the way we change this is by electing better Supervisors and kicking off the NIMBY's. Sandra Lee Fewer (the "progressive" candidate who wants zero new housing) had volunteers on every Geary street corner the day of the election. Get involved in your local races, donate money, volunteer to call people. Also, call/write your Supervisor when they try to pull crap like this: http://missionlocal.org/2016/11/in-stunner-city-strikes-down...
Hillary Ronen, Campos's former chief of staff, could turn out to be pro housing. She included building 5,000 units of "affordable" (BMR) housing in her platform: http://hillaryronen.com/hillarys-plan/
There's nowhere near enough public funds to subsidize that much BMR housing, so in theory she would have to support mixed developments. In practice it might just be lip service.
Affordable housing is great but gets more expensive as market rate rent increases, and won't meet the demand for housing. I'm much more concerned about the market rate housing stock.
So you're arguing that demand increased more than supply in the same period? By your logic, that's the only way that prices could fall while the new housing was built.
I'm not sure what you mean, but I'll try to express myself more clearly.
In the most basic sense of economics for prices to fall supply has to increase more than demand. If demand increases more than supply the opposite is true. There's nothing saying that a more supply can't also increase demand or even increase demand more than supply.
When more wealthy (or ambitious) people move into an area it often leads to that area becoming more attractive (schools, restaurants, entertainment get better) increasing demand.
Therefor there's nothing particularly strange about arguing that luxury condos could lead to higher rents as the op makes it out to be.
Yeah, this is one particular kind of gentrification cycle that's sometimes seen in cities (most clearly in parts of Manhattan). Higher-quality new housing is built, which is one part of making an area more attractive to more affluent residents, which drives up prices despite there being more total housing available than before. What of course is less agreed on is how to untangle all the interacting causal factors here.
Manhattan is a particularly stark example because not only did its 20th-century building boom go along with long-term price increases, but it also went along with decreased population density. Compared to year 1900 Manhattan, year 2000 Manhattan had more square feet of residential space and fewer people living in it! (The reason for that is that wealthier families demand more square feet of living space per person, and in the case of Manhattan this effect outpaced the net increase in residential space.)
In practice, it's impossible to keep this from happening.
If you don't construct luxury housing, it's not like you can keep people from moving in. Witness all the tech employees living in genuinely terrible Mission apartments. All that happens is you end up with gentrification that works around construction laws: old single-family homes being converted into hacker houses, run-down houses being rented by well-paid tech workers, with lower income people being forced to move ever further away.
Objectively, most San Francisco housing is really not attractive. Yet rents are still extremely high because there is demand despite the poor housing. It makes far more sense to construct efficient luxury housing which can soak up the luxury demand so high-income earners don't end up taking over the traditionally affordable housing.
Now that the construction pipeline is finally coming through, we're seeing this effect and rental prices are starting to fall. If your theory were true, we'd expect rents to be rising now that construction has finished—the exact opposite of what has happened.
It might be possible to make an area unattractive for gentrification, but I think it's pretty damn hard. Construction bans certainly don't do it. Not even violence does (though crime as an affordable housing strategy is significantly under-researched).
>Higher-quality new housing is built, which is one part of making an area more attractive to more affluent residents, which drives up prices despite there being more total housing available than before.
This has me convinced that people might be right that new housing could lead to higher rent in some cases, but at the same time those people are wrong for arguing against basic supply and demand. Sure, supply increased and prices went up. But it could be that demand increased more than supply did, as pointed out by the parent comment.
That's a fairly unique and interesting argument that I've never heard before.
I usually just dismiss these types of arguments as "this person doesn't understand economics".
But your argument essentially is that housing has a Network Effect that increases in value as more people join the market. (or perhaps can be described as some sort of two-sided market?)
Yes, rents are set by wages as you have to pay them out of your wages.
Supply and demand also works for buying. Because central banks have ran with ultra-loose monetary policy since forever credit supply is huge and prices detach from wages.
What a total mess these guys have created. Easy on the way down, chaos on the way back up.
This is a false dilemma. Higher wages cause rent to increase (as you mentioned), but new housing causes rent to decrease (as OP mentioned). If high wages are making housing unaffordable for people, you can increase the housing supply.
I think with the existing situation in SF where you have a lot of young people with high wages who will live in a run-down place in the mission and pay $2-5k, if you build a bunch of luxury condos and need people to fill them, those people will move out of the mission and into a luxury condo. As buying pressure for lower quality housing e.g. off Mission St. is released into the luxury market, prices come down and schoolteachers can once again afford the Mission, or Lower Haight, or wherever.
One valid point I see coming from the anti-development camp is that the new surge in tech jobs is caused by a credit bubble, and once that crashes, you'd have all this excess supply, and it will tank the SF housing market, making the NIMBYs worse off than if expansion happened gradually.
I guess it comes down to whether you "believe in" the sustainability of bay area tech.
> rents are set by wages as you have to pay them out of your wages.
Are you implying that there's some sort of grand-scale collusion on rent prices? If most rent takers think "hey, the median salary is X so I'll just charge X * 0.33" then what's stopping another rent taker from drastically undercutting that price?
I'd like to see that argument. The median home in California is not by any means affordable. The median home in many other states is absolutely affordable. Furthermore---and back to my original argument---suppose that home prices are X * C where X is the median salary and C is some number between 0 and 1. What's stopping someone from drastically undercutting the artificially-high home price?
I have no reason to believe that either home prices or rent are set by wages.
>easy access to loaned capital has perversed the connection between wages and house prices a bit
Only to a certain extent. Loaned capital is still limited by wages (no one is going to give a $1 million mortgage to someone who makes $40k per year). But again, I don't think wages has hardly anything to do with house prices; it's all about supply and demand. Sure, most people might only be willing to pay 1/3 their salary on housing. That doesn't mean that the price for housing is that number. If a huge supply of housing for less than that price floods the market, then why would everyone continue to pay 1/3 their salary for housing when they could pay 1/4 or 1/6?
Wages are a factor of demand (and hence help to drive rent prices), but they're far from being the only factor. Supply is also a key factor though: there is far from being a perfect correlation between wages and rent.
Strange concluding sentence about the prospect of an influx of Chinese investors to rekindle rising rents. Is there evidence that such a trend is likely in the near future? I have seen reports that a lot of money is expatriated from China into real estate because it's easy to launder that way. In general is it expected to increase so much that it would have a noticeable impact on rents in the major markets?
I have seen reports that a lot of money is expatriated from China into real estate because it's easy to launder that way.
I don't know about rents, but overseas investment certainly drive up price to own in Auckland NZ and Vancouver, Canada, though the latter may have stopped due to changing tax policies. Auckland is as big as SF.
If you're investing in property overseas you want the value to be stable or increasing, though. I don't think these people are value investors who would jump into a market with declining prices because the houses were suddenly underpriced -- quite the opposite, I think some would rush to get out in that case.
Irvine, CA has this occurring. 2014 numbers reported that 80% of single family homes in the area were bought by Chinese families (random first google hit article on it: http://www.zerohedge.com/news/2015-09-30/80-all-new-home-buy...). A lot of the Irvine Company apartments top-level units are effectively birthing centers on the down low, but nobody really seems to take much issue with it.
There is also a significant rich foreign Saudi presence in Irvine and that's definitely more of a culture clash due to the misogynistic nature of mother/son relationships. Super spoiled kids, "slavery" scandals, etc but the money "donated" to Irvine company for things like renovating the spectrum mall is massive. Considering Irvine company owns ~90% of Irvine, I think this foreign interest can't be overlooked in lieu of the more public Chinese impact.
Blame it on China. It's all China's fault. China has caused all sorts of problems and will continue to do so until it becomes a "democracy" defined by the U.S.
No, that seems about right. The “Progressives” (I consider them to be a peculiar West Coast form of conservative) have now made unprofitable subsidized housing an integral part of any large-scale housing project, which means housing can’t be built unless the financiers can expect the market-rate prices to remain sky-high. So, when prices go down, they have to stop building.
What would make a difference is additional YIMBY pressure to roll back these harmful restrictions and delays, and allow housing to be affordable to build.
I am glad I had my SF adventure when I did. I lived there from 1996-2001 and paid less than US$900 for a charming Nob Hill bachelor. That same apartment goes for $3k today.
Currently I am in Toronto, paying CAD$1400 for a rent controlled one bedroom downtown that I have been in for over a decade. Current market price for same is CAD$1700, but this includes a flood of new condo units more luxurious than mine.
Toronto is looking good in comparison to US cities. It has all the amenities of SF, Seattle or Boston, though the IT salaries are not as high. Plus, no Republicans.
Why do you think Seattle's growth in housing costs is sustainable? Certainly the cost increases in single family detached units have been large and rapid. My naive interpretation of that would be that such increases are a) unlikely to continue indefinitely and b) are pushing demand for 2+br apartments to unusually high levels. That's weakly supported by this data, which show a 6.4% increase in 1br prices and 8.2% for larger units. Of course, many other markets have completely taken single family detached off the table, so maybe I'm not making an apples to apples comparison.
seattle has more growth counted in the number of construction cranes than any city in the us. prices of standlone houses seem to be increasing, apartment pricing is less clear, but this article seems to know.
Not trying to be dense, but possibly succeeding: why does this indicate that Seattle's price growth is sustainable? If Seattle builds too many apartments with those cranes surely the growth in prices will collapse (homes seem to be supply constricted and to some degree a lack of supply has dampened demand, but this might change if condos became very affordable). Alternatively, if Seattle builds out too little then prices will grow unsustainably until they collapse to sustainable levels due to supply restricted demand dampening. So there seem to be two goldilocks zones: one where demand and supply are in harmony, and the other where they're totally out of whack and the combination of effectively liquid real estate and fluctuating value overdampen to produce stable averages with unstable individual outcomes. Which is the claim here?
You are right, current growth doesn't mean sustainable. I'd look at the example of the bay area and the endless growth there. Seattle is cheaper, less dense, has all the same pieces, allowing for lots of growth to catch up to that level.
A lot of the expensiveness of Seattle is the home prices, not just rent. Those will continue to be expensive for quite awhile. Apartment building will not completely offset the price of the city.
Even with the rents decreasing, they are still way to high for most people and adjusted for inflation, far higher than they were 30 years ago.
The reason for the high rents are structural -- the use of politics to create artificial shortages in housing by use of zoning density restrictions. This is the deliberate creation of market failures due to "rent seeking" -- use of politics to create artificial scarcity to benefit a special interest group. The artificial scarcity inflates the value of property to landlords such as Donald Trump harming renters.
An example, regarding taxi cabs: NYC had a law creating a limit on taxi cabs to 13,000 medallions --needed in order to drive a yellow, hail-able cab. The market value of the taxi medallion was $1.2 million which meant that for drivers who typically lease cabs, a substantial part of their income went towards leasing the cab with medallion. Thus, taxi riders (renters of use of cabs for trips) were paying far more than they should and taxi medallion owners (landlords) were receiving a huge windfall.
Then Uber/Lyft came to NYC and the political artificial scarcity of (electronic) hail-able cabs was relieved. The result is that the medallion price went from $1.2 million to < $700,000 and far more drivers were no longer paying high leases to medallion owners and driving for Uber/Lyft instead. Our prices for taking hail-able cabs have decreased and continue to decrease. Everyone gains except the medallion "landlords."
This rent-seeking market inefficiency tremendously damages the economy. Fewer housing units are built than they should be in an efficient market. Tenants are paying a far greater proportion of their income for rent instead of goods and services. Simply fixing this law that benefits wealthy landlords can be a substantial stimulus to the economy.
Another cause of high rents is the number of illegal immigrants that are allowed to stay in certain cities. This NYTimes article claims there are about 600,000 "undocumented" immigrants in NYC (of a population of 8.5 million)[1]. Almost all undocumented immigrants are in the country illegally and hence the more correct word is illegal. These 600,000 illegal immigrants adds substantial market pressure that otherwise would not be there if the law were enforced and hence the rents are far higher for low-income New Yorker American citizens than they otherwise would be.
Can you explain how illegal immigrants are able to rent in the New York market? Surely the landlords will demand identification and references and would refuse someone who is illegal?
In Manhattan, generally, there is more background checking and credit rating, etc. But I'm not so certain that is true in the outer reaches of NYC which would have housing that is more affordable to lower-wage workers.
Overall, NYC (and others) do not check papers for public school, health care, ... at least as far as I know. In fact, there was a NYTimes op-ed within the past month where 200 students at Berkeley are illegal immigrants.
So here's the results[1] from Zillow for a 2BR for $2500 or less in an actual Boston zipcode. These aren't all the results, as it limits the results to 500. If you're not looking for a managed, new luxury apartment, it's tremendously easy to find.
Moreover, if you go on Craigslist, you'll find far, far more. Zillow listings are almost always represented by a realtor, broker or property management company so it's only a subset of the market.
They're mostly in Brighton and way deep Dorchester. The commonwealth ave one is as ridiculous as the same price being advertised for a real 2br in a doorman building in Chelsea. This is akin to measuring salaries by the high end of glass door. Sure. Someone may have gotten that price, or it could be a lie, but you won't.
Yep, flawed study. The stuff in Brighton, deep Dorchester, Hyde Park and Roxbury should be thrown out since a lot of it is very much not TOD and you'd barely know you were living in Boston.
That is pretty ludicrous - Dorchester makes up nearly 1/4 of the city's entire population and is by far the largest neighborhood land area wise. Plus it has the red line, high speed line, and commuter rail/fairmont line. Same goes for the rest of the neighborhoods like Rozzie, Westie, Hyde Park - the two families are three deckers are as 'Boston' as any Brownstone in the Backbay or South End.
Don't know why you're being down voted. Sure if you're extremely generous with your definition of "two bedroom" or "Boston" you can but a real two bedroom apartment in Boston proper will run you at least $3200. I'm moving to New York right now and my rent isn't increasing drastically (a tad less apartment for the money though).
I assure you, you can very easily find a 2 Bedroom for well under $3200 with a ~30 minute or less commute to Downtown Boston on either the Orange, Red, or Blue lines.
It is extremely frustrating that they actually show the content, let you read a paragraph or so, THEN won't let you continue without paying in some way. I won't be supporting this website.
While I don't agree w/ the parent posts necessarily, sometimes providing discussion around an article has the effect of promoting it which is a way of supporting the website by drawing eyes which do not adblock. Promotion is not always direct to final consumer; popularity plays, especially on news aggregation sites.
Price controls in competitive markets are usually a bad, bad idea. Rent controls, for instance, are famous among economists for managing to both disrupt rent markets while failing to achieve their desired outcome, which is helping poor tenants.
The effect of a price ceiling is often just to shrink the supply of any units whose price would be above the price ceiling, while consumer queue themselves. It would be the same as rationing. And since the opportunity cost of time of richer folks is lower, not to mention that they're more likely to be socially connected, they end up displacing poorer consumers.
> And since the opportunity cost of time of richer folks is lower, not to mention that they're more likely to be socially connected, they end up displacing poorer consumers
Your conclusion is correct, but this should say "since the opportunity cost of time for richer folks is higher".
People who earn more have a higher opportunity cost of time, which means (all things equal) that they will have fewer children and choose residences with lower commute times than those who make less money.
I'm sorry to say it, but you're mistaken. The opportunity cost of time is decreasing over income, since the marginal utility of income is also decreasing, and these things should be equal in equilibrium.
It seems somewhat counter-intuitive, because the high income worker might be much more highly paid than a low income worker, and thus gives up much more in monetary terms than the low income worker. But the value of an additional dollar isn't the same for these two workers, since it's also a function of their present income. An hour work missed could mean a low income worker this week's lunch or his kid's medicine, whereas for a high income worker it often means just a little less money in his savings account.
I won't touch the issue of having children, because I don't think anyone has quite yet successfully tackled human reproduction. But when it comes to commuting, all workers in an would be interested in reducing their commutes. Richer workers can afford higher rents because their wages are higher. But that still doesn't mean that their marginal utility of income is higher than thay of lower paid workers.
It's somewhat unintuitive, because often people go through Econ 101 without trying to understand what a decreasing marginal utility of income means. But in Urban Economics, the falling opportunity cost of time is the mechanism which allows cities to form, first from cottage industries, as the agricultural productivity grows. So it's a standard argument.
The whole overall effect is that queues benefit the richer among the eligible for whatever they're queueing for.
> The opportunity cost of time is decreasing over income, since the marginal utility of income is also decreasing, and these things should be equal in equilibrium.
In a two-good, work-leisure market, the opportunity cost of non-work time is the foregone income. It's not (just) equal at equilibrium; it's equal by definition. The two things that are equal at equilibrium (and only at equilibrium) are the marginal utility of the income and the opportunity cost of working (that is, the marginal value of an extra unit of non-work time). That's not the opportunity cost of the non-work time, which is what we're talking about when we refer to the opportunity cost of time.
> But the value of an additional dollar isn't the same for these two workers, since it's also a function of their present income.
You're confusing the marginal utility with the opportunity cost. There's a function that relates these two concepts, yes, but they're not the same thing, as you can see here:
> Richer workers can afford higher rents because their wages are higher. But that still doesn't mean that their marginal utility of income is higher than thay of lower paid workers.
Nobody said that the marginal utility of income for the higher-paid workers is greater than the marginal utility of income for lower-paid workers. In fact, that's a comparison that can't really be made - utility is explicitly not comparable between two individuals (that's a fairly fundamental axiom of microeconomics). We can say that, as an individual's income increases, the marginal impact of further increases in income decreases, but the comparison you're trying to imply here is a value judgment between two individuals.
However, we can say that the opportunity cost is higher for the higher-paid workers, because that is something that is comparable across individuals - it's dollar-denominated. The opportunity cost of non-work time for both sets of workers is the foregone income, and that will be higher for higher-paid workers (by definition). That does not diminish the importance of what either set of worker might choose to do with an additional $50 (or any fixed lump sum of money), but that's a value judgment and is not the same as the opportunity cost of the work-leisure trade-off (which is an objective measure).
> I won't touch the issue of having children, because I don't think anyone has quite yet successfully tackled human reproduction.
It's pretty well-established that children are inferior goods (in the economic sense - the income-elasticity of demand is less than zero).
> It's somewhat unintuitive, because often people go through Econ 101 without trying to understand what a decreasing marginal utility of income means
I have a degree in economics. I know how diminishing marginal utility works.
> Have there been any experiments in legislating ceilings for housing prices? If so, what has been the effect?
As Assar Lindbeck put it, "next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities." For instance, in 1970s when the Bronx was burning, a major contributing factor was New York City rent control. In some neighborhoods of the Bronx and in Harlem, fully a third of the housing stock was literally abandoned by its owners: it was easier to just walk away and let the building rot than to take any action to repair it and continue to collect rent-controlled rents.
Even notoriously planned-economy San Francisco has backpedalled from the price-ceiling approach, favoring instead a mandatory "right to lease at the same inflation-adjusted price forever" in all its housing contracts.
it was easier to just walk away and let the building rot than to take any action to repair it and continue to collect rent-controlled rents.
My parents and I lived in a rent-controlled apt in Manhattan in the early 1970s. Rent was $80/month. The 1973 oil embargo happened and heating oil prices went up. Oh, did I forget to mention that the $80 rent included heat?!!!!
Basically things were so bad for the landlord that it cost as much to heat the average apt in the building as that apt paid in rent. Clearly not a sustainable situation.
We moved out of the city the next year. But in retrospect we should have bought our apt (for about $7,000) when the building went coop/condo.
So the tenants not only enjoyed below market rents for decades, but after the landlord was bled dry they were able buy their apts for a pittance.
Hmmm ... 12 apts, maybe two voters each, vs an older couple, the landlords, only two votes. I wonder why rent control existed for so long? (that was sarcasm, I know exactly why it existed!).
As Maggie Thatcher said, the problem with socialism is that eventually you run out of other people's money. I'm sure the tenants saw some large cost increases once they went coop, because now they had to pay 100% of all the building costs. But that only moved them into fair value territory. All the money they "stole" from the old landlord in the previous decades would never be paid back.
Ironically, rent control may have been the single biggest factor leading to the consolidation of ownership of New York real estate by the ultra-wealthy.
If you were a landlord, you couldn't afford to pay enough to buy your tenants out of their apartments. But massively wealthy investors and big banks could - and they did. They bought the rent-controlled apartments that were money pits for small landlords, and then paid large sums of cash (under the table) to the tenants to get them to leave. Once the tenants had left, the apartments could be easily converted back to unregulated, market-rate apartments.
Small landlords literally couldn't afford to own the buildings, because they had to spend money to operate them and received next-to-nothing in rent. So, they had no choice but to sell them to the investors and banks who were well-capitalized enough to negotiate these buyouts, resulting in the mass consolidation of real-estate by a relatively small number of owners.
And of course, the original goal of rent control (ensuring that long-time residents would continue living in the same neighborhoods) went completely out the window, because it was in their best financial interest at that point to move. And the secondary goal (providing "affordable" housing) was gone long before that
> We moved out of the city the next year. But in retrospect we should have bought our apt (for about $7,000) when the building went coop/condo.
In retrospect, you should probably have kept living there as tenants. If you were there in the early 1970s, you'd have been grandfathered into rent control, and rent control in New York (as opposed to rent stabilization) is insanely profitable for the tenants, even if you weren't offered the type of buyout that I described above.
It'd have taken you 7 years just to break even on the savings in rent by itself, but between maintenance costs (which your landlord was required to give you for free) and property taxes (easily more than you were paying in rent), you'd probably still come out ahead today if you'd just stayed on as tenants.
Of course, you'd have to live there continuously and never move, and the apartment wouldn't be yours to pass on in inheritance. But the money you'd save would be worth way more than that.
"Once the tenants had left, the apartments could be easily converted back to unregulated, market-rate apartments."
This is why rent-controlled apartments should never be allowed to go back to "market rates". They should remain rent controlled in perpetuity. Problem solved.
> Doesn't seem to have had much success in destroying Swiss cities. Maybe the neutrality helps prevent bombing-like effects?
When talking about policies like price floors and ceilings (ie, rent control), scale is critical.
The city of New York has a population roughly equal to the entire country of Switzerland. The largest Swiss city (Zurich) is smaller than the smallest borough of New York City (Staten Island), and about one-fifth the size of the Bronx (the borough mentioned in fennecfoxen's comment).
So comparing the effect of rent regulation in New York City to the effect of rent regulation in various cities in Switzerland isn't really meaningful, because the economies of cities in a country whose total population is roughly 8 million can't be compared with the economy of a city whose metropolitan region is two and a half times that size (20 million).
"In some neighborhoods of the Bronx and in Harlem, fully a third of the housing stock was literally abandoned by its owners: it was easier to just walk away and let the building rot than to take any action to repair it and continue to collect rent-controlled rents."
It's absolutely scandolous that landlords would be allowed to get away with doing that.
They should be taxed severely if they don't rent out the property within a certain amount of time, or perhaps just have the government take over ownership in that case.
It's scandalous that it was a better investment to simply walk away then lose money on every transaction? And then you think they should be taxed because the government is forcing them to lose money?
I'm not some anti-government zealot, but think about what you are saying/asking for here.
I don't think there are mustache twirling landlords that buy buildings only to leave them empty and refuse to let people live in them. Frankly it's appalling that government regulation could get bad enough that a landlord's only choice to minimize his losses is to leave a building unoccupied. I really hope the parent's comment is an exaggeration or a myth. What is even worse is that people actually think it's somehow the landlord's fault.
There are two kinds of real estate "prices": rental rates and property sales prices.
Ceilings on property sales prices are very rare. Probably the most common example is resale price caps on government sponsored housing for lower income buyers.
Price ceilings on rent are more common but still rare. This is commonly known as rent control.
Like all price caps the result is shortages in varying degrees depending on how binding the ceiling is. If the rent/price is set below operating/construction costs you will see very little avalabilty/construction. On the other hand if the ceiling is set well above the "natural" rent/price there will be little if any impact. In between you will see increasing shortages as the ceiling decreases.
This is generally basic economics but can get pretty complex depending on the details of the specific policy. Taking thsee details into account as well as the unusual nature or real estate (durability, immobility, etc.) the actual results have lined up very well with the theoretical predictions.
Hum, interesting. I think of rent control differently, but maybe the way you describe it is what is normally meant.
When I hear rent control, I hear controlled increase in rent over time for existing rental units. You make sure all rental units are profitable, but you protect existing tenants from being able to afford their rent to not being able to in a year, simply because a neighborhood has increased in desirability. So you force the market to either build new construction to profit from the boom, or to make remodeling to old buildings to justify rent increase.
You protect existing tenants from new tenants. Existing units leave the equation for people moving or coming of age, who face much higher prices than they would if they were allowed to compete with existing residents.
The point is that you still end up misallocating housing units. The marginal Googler at San Francisco may end up taking a lower paying job elsewhere in the country reducing overall productivity. If the renter moves because they can't afford the rent they may find a place where costs are more favorable to their earnings. It's part of the difficult changes introduced by market-based economies but I thought the consensus was that in the long run everyone benenfits.
Well, duh. The dumb money has been funding way too many apartment projects.
Where I live (Albany, NY), they just built thousands of rental units within a 15 mile radius. In one example, they are trying to rent a "luxury" two bedroom for $2500/mo, when you have a much nicer home a few blocks away for $200k+$50k for a fancy kitchen, etc.
Zumper is pretty inaccurate when it comes to SF I have found. The influx of new residents still vastly outpaces new construction + people leaving SF. As such, rents are not going down. The easiest way to verify this is just to ask anyone trying to rent in SF.
I'm currently in the process of packing for a move on the 1st. Rents are definitely going down compared to the last time I moved in 2014, the new place is significantly cheaper than my current apartment. In 2014 when I went to a showing, there were several other groups also there to compete against, this year I was the only one at most showings.
Rents are going down. I am moving this weekend, and in the 2 months I've been looking a bit, it's very, very obvious. At first, it was just that you no longer had to essentially arrive with 3 months of rent in hand and sign on the spot. Next, there was emphasis on how "this is the only property at X price" (which was false on it's face). When we finally signed, the leasing agent told us "if the price is too high, make an offer." So we came in 10% below list price and asked for a discounted first month of rent. They agreed immediately. Stories like this are common to anyone currently in the process of finding a new apartment.
The only ones that I encountered that weren't notably going down were Russian Hill and the Marina, but even then, the prices weren't rising, and it was far easier to find a place in the first place.
As a possible counterexample, in the past month I have seen street signs in my carpetbagger-friendly neighborhood for rental open-houses and "For Rent" signs on buildings, which I haven't seen since before the recession.
I've seen for rent signs up for over a month in some very desirable locations. That's a change from 2 years ago when I was looking for a place. But the rents are still pretty high for new buildings. The developments opening up in SoMa on 8th street from Harrison to Brannan are asking for $3000/$4000/$5000 (studio/1bd/2bd). I wonder if they're getting that considering those are significantly above median.
I want a 2bd place soon, so I'm hoping that all the young professionals who came in 5-6 years ago are lowering rents by moving to the suburbs to pump out babies.
One of my friends just moved here and is sharing a 5-bedroom home with 25 other people. I thought he was bullshitting me, and I still couldn't believe it when I went over. He's paying $600 a month to share a bedroom with four other guys. He told me it was the best thing he could find on 1-day notice. He pays for rent online, and he has no idea who the actual owner is, nor who is actually receiving the money.
I thought that kind of living arrangement only happened with undocumented workers (barring SF and NYC, which I've always considered to be ridiculous), who can't easily exercise tenant rights.
Now I really wonder how many of the apartments and homes around me are just completely packed with people who are splitting rooms.