I disagree that it's a demand problem alone. There was tons of new construction. If I wanted to, I could have moved to any neighborhood in the city on a whim... As long as I was willing to move into a brand new luxury apartment $4k studio.
The demand was high for reasonably priced older units. "Just add new construction" doesn't work if all that gets built is luxury apartments.
Again, think on the margin. If there’s suddenly a lot of new luxury apartments then those looking for something cheaper have less competition from the deep pocketed. If they build so many luxury apartments that prices for them break that’s also a victory condition.
It's not so simple. The newer buildings were constructed at a much higher cost than the old ones and they are priced accordingly (and with less flexibility to go down in price). In spite of the price tag and the 'luxury' appellation, they really are not that nice (they tend to be small and the gym/pool that comes with the apartment is closed during Covid. Consequently there is a subtle structural shortage on apartments that doesn't go away by simply building more apartments. If it were possible to build apartments at a lower price with more space per unit in the city then it would be a simple matter of total housing stock. As long as housing stock is differentiated in price and quality a shortage can endure even with an increase in total supply (rent controlled units for example will always be in short supply regardless of new construction).
> As long as housing stock is differentiated in price and quality a shortage can endure even with an increase in total supply (rent controlled units for example will always be in short supply regardless of new construction).
If you build enough quality housing you end up with old crappy housing being impossible to rent out so it either gets abandoned or redeveloped. If you build enough housing the price floor that is rent control ceases to bind because market rates drop below the floor. There can absolutely be a “shortage” of a given combination of quality and price but that’s like saying there’s a shortage of Peter Norvig talented Computer Scientists who’ll work for $50K a year.
New housing is always for the richer. Those who want a deal go for older ones. However when there isn't enough construction those who are willing to pay for new go for used as well driving all costs up.
That said, housing can be profitably built cheaper, but why would any sane developer make a low price house when there is more profit in luxury housing. SF has refused to allow enough construction to meet demand, and this has resulted in only luxury being built.
Cities with less growth than SF are building more than SF, and as a result all housing is cheaper.
No, but SF's byzantine planning and approval process jacks up the total cost to build to the point where it doesn't make financial sense to build low-end housing. That means the developer has to increase sale prices in order to turn a profit, which in turn means new landlords need to charge more rent to just break even.
If you consider that a newly constructed 750 sqft 1BR apartment can easily run $800k-$1M, a buyer is looking at $4-5k per month to cover the mortgage, property taxes, insurance, HOA, maintenance, etc. Do you really think a buyer is going to turn around and rent it out for $2k/mo?
For buildings wholly owned by a leasing company, the economics are better, but still not to the point where they're going to rent that out for under $3-4k/mo.
I'd argue that new construction is inherently a luxury just because people are willing to pay so much more for it. You can't just directly build reasonably priced older units, any more than you can directly build beater cars.
There have been a number of studies looking at this, but the TLDR is that globally most new construction is and always has been high-end compared to the surrounding market. What typically happens in a healthy market is the rich overwhelmingly live in new construction (or remodels), and everyone else lives in the places that rich people lived in 10, 15, 20, or more years ago. Since construction is durable, a luxury apartment building from the 70s should still be a nice place to live as long as it has been maintained. And if lots of nice new stuff has come in since then, the old stuff should be in less demand and therefore affordable.
The demand was high for reasonably priced older units. "Just add new construction" doesn't work if all that gets built is luxury apartments.