The reason for San Francisco's high rent/home price is very simple, despite how others like to complicate it more:
1: Its desirable for most people to live here. Possibly the most desirable place in the USA, depending on your tastes. As a result, people are willing to pay more to live here. There are jobs, culture, food, art and much more all in this great city.
2: Rent Control. I wont get too much into it, but my take as a real estate investor is that it greatly entices residents to stay put once they have rented. As a result, there is significantly higher rent (due to less supply) for new residents. Many apartments are not rented at all because of the owners fear of rent control. SF needs to get over its "you have a right to live at your same address forever" attitude.
3: No new housing/construction. SF is a 7x7 plot of land which through both NIMBY-like behavior and heavy legislation/bureaucracy, has pushed a extremely anti-developer agenda. Every year, thousands and thousands of people move to SF. Unfortunately, there is less than 1 new housing unit built for every 25 new residents. The common thread that is thrown around is "We dont want SF to turn into a mini tokyo with skyscrapers and tiny apartments" so instead we have 3 floor victorians being used to house 10 roommates at $1500/pop.
It seems to me that it is even more simple. Economics 101: scarcity of a highly demanded product drives up costs. There's just no room for significant expansion, the bay area is surrounded on 3 sides by water. Furthermore, a good majority of the San Francisco peninsula is undevelopable since it's state park.
My understanding is that this is a special 'trial phase' for Kennedy. The planning department is not approving other similar projects until it studies/weighs the outcome of these.
This is a decent explanation but it's actually simpler than that.
People who are upwardly mobile follow the jobs. In general, they choose jobs, then cities. Except for the very rich who don't have to work, desirability (excluding commute) is a minor factor in prices. I can back that up, but I think most people buy this already.
However, real estate demand is extremely inelastic. If 5 percent of the houses in Manhattan were destroyed, the price increase wouldn't be 5%. It would probably be 2-5x, possibly 10x. That's why, even though rent control only affects a small percentage of the market, its price influence is huge.
New development is supposed to correct for that, but often the result of it is creation of more expensive housing, which solves quality problems but doesn't have the desired price effect until many years later. (Real estate rarely goes down in dollar-denominated amounts, for psychological reasons; what does happen in a soft market is that prices stay flat and lose to inflation. In effect, it's a loss-limit on price declines that is very tight when inflation is low.)
New development is usually more expensive because: a) supply is legally mandated to be low, so only the most profitable per-unit housing is built, and b) what new units are permitted to built are required to be large because housing (especially in CA but pretty much everywhere) pays less in taxes than it consumes in municipal services, especially public schools.
As a consequence of b), the types of housing that are widely allowable are small (0-2BR apts/condos) that families with > 1 child won't live in and large houses. If prices are high enough, sometimes townhouses are allowed. One interesting observation is that the only high density housing being built in most suburbs are senior housing, which are aimed at people ages 55+ and have covenants in place preventing anyone under 18 from living there. Ergo, guaranteed no school children and therefore the cost to serve is more inline with taxes paid.
I would love to buy a 4 or even 5 BR condo because I want to live somewhere dense and I don't care about a yard, but in order to do that I'd have to buy 2+ condos and combine them. Yikes.
The main reason why people don't want new residential development is because it will feed into gentrification and push people out because they can no longer afford to live in SF. NYC has been and is going through this problem right now and it is not pretty.
EDIT: There are a lot of comments about increasing supply as a way to make housing/apartments cheaper in SF. This is not at all well demonstrated, as in NYC new real estate development as continually raised prices and priced out those who had previously resided in those neighborhoods (if they need to move they can no longer afford the cost of living in said neighborhood, esp. if they lived in a rent stabilized or controlled place).
New real estate development can make things cheaper, but we are seeing cities have population influxes and those cities traditionally are land limited for new construction. Those two factors work together to ensure that properties are renovated or rebuilt at higher cost to a wealth class that can afford it. It should be obvious that this is not sustainable, cities that do not provide a sustainable way to live for all classes will collapse.
How does not building new residential units help prevent gentrification?
Last I checked a 1BR in the Mission is approaching $3K. It would seem like gentrification is happening whether SF likes it or not. In fact it seems like gentrification is accelerated, not slowed or prevented, by this housing policy.
Having lived in SF, and now live in NYC, IMO NYC is dealing with the problem of gentrification far better than SF. The transport infrastructure here means that people can be displaced farther but still maintain economic viability. You may be 3 stops further further on the train line, but you're still getting to work.
Compare with SF where, because of just how insanely horrific the transportation infrastructure is, getting pushed out of SF-proper has a litany of consequences for the middle and lower classes.
> How does not building new residential units help prevent gentrification?
The new construction makes no guarantee and a reduction in real estate prices. So long as the demand is very high, prices will continue to rise even with new construction. This is essentially what NYC is going through now, there isn't enough construction that could possibly keep pace with demand and its unlikely that there could be without a collapse in demand.
> Having lived in SF, and now live in NYC, IMO NYC is dealing with the problem of gentrification far better than SF. The transport infrastructure here means that people can be displaced farther but still maintain economic viability. You may be 3 stops further further on the train line, but you're still getting to work.
This is changing as we speak. The outermost parts of Brooklyn are gentrifying, esp. in places that are predominantly black and/or hispanic. Those places are already on the extreme edge of subway mass transit, so once people living there are displaced they will have very little recourse. Queens is also beginning to go through this phase although its still just getting started.
All of this happens while wages remain the same, esp. for low wage or minimum wage workers. These people won't be able to stay as the prices inflate and I'm not eager to see more tenement style apt. crowding due to the cost.
If rents are going up, you have gentrification. End of story. If rents are going up at ridiculously high rates, you have hyper-gentrification.
San Francisco can pick one or the other, but it can't opt out of the basic laws of supply and demand. ANY, and I mean ANY attempt at enforcing affordable rent for a particular income group will have unintended consequences that will either result in less properties being rented, or more rental properties instead being sold to the super-affluent as single family residences.
Or, you can just accept reality and build new, denser developments which will, yes, probably price out the poorest.
As a former construction worker who lived in Asheville, North Carolina (a Portland type city which has attracted tons of hipsters and trust-fund assholes who have driven up rents) I know what its like to have to move because my rent got jacked up. Instead of demanding the government allow me to afford a place to live, I accepted reality and moved the fuck on. I've since moved, worked my way up to making a decent salary, and one day (soon) I will move back and buy the house I got booted out of.
The notion that one person has a "right" to rent a place at a given price is in direct conflict with the "right" of another person to rent that same room for a higher price.
Rent control and "fair housing" policies benefit people like the majority of my family members. My family members, for the most part, are excellent at doing what they did the day before, the week before, the year before. If something begins to disrupt their routine, they complain about the disruption rather than changing their routine. They are poor, and this attitude is a big reason why. Rent control/fair housing policies primarily benefit people like my family.
The reason NYC's still got real-estate-price-itis is that demand still outstrips supply even though they do allow new construction. But the mismatch is not as great as the bay area, where from what I hear nothing can be built and everyone wants to live there.
If you want to see matched supply and demand, look at most of the big cities in Texas. Part of that is geographic -- they're in "flatland" as it's called -- and part of it's that Texas tends to be more pro-development. Supply can rise with demand. Lots of people are moving to Texas too, but prices remain relatively sane excluding a few hotspots.
If you add supply, prices do not, all else being equal, go up.
And add to that any actual residential development in SF will have affordable housing mandates regulated into it.
I don't think that there's anything that will really stop gentrification and price rises in San Francisco real estate short of the current tech boom going away. But if you're interested in mitigating it, you want new development. What feeds the short supply of housing is a large number of single-family-detached houses, especially ones that are uninhabitable in their present form, and so reward extremely wealthy all-cash buyers who can afford to pay a premium for a house, tear it down, and build anew (without the aforementioned affordable housing mandates).
The main reason why people don't want new residential development is because it will feed into gentrification and push people out because they can no longer afford to live in SF
I have my doubts about this. I would be interested to see evidence that you can actually drive prices down by increasing housing supply.
Because when I've been in a position to watch some dramatic housing supply buildouts in a few areas, my observation has been that generally been that the owners price (at least) somewhat above market rates for existing housing -- after all, it's new. Often it's marketed as luxury housing and leased/sold at multiples of the median price.
There's a few places I've observed a decrease in price. It's not where supply is increased, though, it's where demand drops, usually because the economic activity of the region drops off, but sometimes because of conflict/crime or health hazards.
If I'm right, then there are still two options -- build more or don't build more. Each case may have its own merits, but there's not a case that excludes prices going up for SF and the Bay Area.
Short of the current state of economic activity in the area turning out to be an unsustainable bubble or a major disaster, anyway.
AFAIK you can reduce housing price through new building, but most places that can do this expand horizontally outward into undeveloped spaces. This creates the sprawl effect, though, which has its own issues. As for cities, I'm not aware of a city successfully creating affordable housing through new construction and renovation.
> increasing supply as a way to make housing/apartments cheaper in SF
Decreasing overall rent isn't a good goal, for much the same reasons as deflation isn't good. Rather the goal of building new housing is to control inflation, as rents going up 50% year over year is even worse.
And building new luxury / high-end housing does help with that. New luxury housing reduces the number of wealthier tenants considering older housing, which reduces competition over said housing, reducing the rate of rent increase over existing housing.
Right, so rather than have cool little areas like Cow Hollow that are worth living in and visiting, keep things like the Tenderloin that are perpetually unlivable and undesirable.
This is also happening in Austin right now. My friends in Durham are speculating that the same is beginning to happen there, although, comparitively, its still super affordable.
1: Its desirable for most people to live here. Possibly the most desirable place in the USA, depending on your tastes. As a result, people are willing to pay more to live here. There are jobs, culture, food, art and much more all in this great city.
2: Rent Control. I wont get too much into it, but my take as a real estate investor is that it greatly entices residents to stay put once they have rented. As a result, there is significantly higher rent (due to less supply) for new residents. Many apartments are not rented at all because of the owners fear of rent control. SF needs to get over its "you have a right to live at your same address forever" attitude.
3: No new housing/construction. SF is a 7x7 plot of land which through both NIMBY-like behavior and heavy legislation/bureaucracy, has pushed a extremely anti-developer agenda. Every year, thousands and thousands of people move to SF. Unfortunately, there is less than 1 new housing unit built for every 25 new residents. The common thread that is thrown around is "We dont want SF to turn into a mini tokyo with skyscrapers and tiny apartments" so instead we have 3 floor victorians being used to house 10 roommates at $1500/pop.