This is it in a nutshell. But as the babyboomer population starts to decline their will likely be some supply increase as millenials don’t have the numbers or the wealth to afford the properties that become available at current market prices.
I was simply stating that because there are more baby boomers than the generations that follow there will inevitably be a surplus of houses since not all have children to pass down to or even if they do the children are likely to sell and split the money
The way I see it, whoever buys from boomers will turn around and become the interested in continuing this trend. In other words it’s not being a boomer or non boomer or being the generation with most housing equity etc but simply being a homeowner.
This is arguably the main problem. That said, in some urban areas, renters are the majority. For example, in 2010, 52% of housing units in the City of Seattle were occupied by renters[1], and that’s not counting townhouse/condo owners and supportive home owners.
If renters voted the same way on an initiative, they’d set policy. If everyone who doesn’t own a single-family home (renter or not) did so, it would be a landslide.
> That said, in some urban areas, renters are the majority. For example, in 2010, 52% of housing units in the City of Seattle were occupied by renters[1], and that’s not counting townhouse/condo owners and supportive home owners.
The problem with this is that it costs approximately the same amount to rent as it does to own, by the time you take into account interest, taxes, insurance, maintenance, etc. So the people who rent in the expensive area are already the people who can afford to live there, they're just the people who prefer to rent. If you tell them increasing the housing supply will reduce purchasing costs, what do they care? They're not looking to buy.
Increasing the housing supply would also tend to reduce rents, but this discussion is usually framed as "people can't afford to buy a home" so many renters may tune out at that point and not comprehend the relationship to rents. Especially when people see propaganda about new developments increasing rents, which only happens if other neighborhoods aren't building enough new housing, because then higher density is valuable when it's scarce. The whole point is to build enough to make it less scarce.
Moreover, one of the major reasons people prefer to rent is for mobility, i.e. they expect not to be there in ten years.
Meanwhile the people who do want to buy there but can't afford it are the people who currently live somewhere else, which means they don't get a vote.
Well put. I’d also add that many renters (who prefer mobility) may not necessarily go through the voter registration process in a new city if they don’t expect to stay there more than a couple of years.
I own a house in San Bruno and I'd support more development. The benefits of higher housing prices for owners are massively overstated: I wouldn't realize any gain until I moved out of the area, which I probably won't do for decades if ever.
In the mean time, the housing market just makes more painful for me to move.
I don't want the value of my house to crash down to 10% of it's present cost, but I'd be fine with no appreciation for a couple of decades, or a moderate drop in value.
I'm not aware of any intrinsic benefit to a high priced house other than housing being a leveraged investment, but that is clearly a double edged sword. In my opinion. this is the heart of the issue.
I want to be clear that there might be many great personal reasons (@raldi has some listed above) to be in favor of more housing stock. However, in the context of the assertion of the original article that voters just don't understand econ 101 supply and demand my feeling is that the majority of homeowners (who are disproportionately voters) understand econ 101 supply and demand perfectly well and that the article does a disservice suggesting that they don't.
If I own a highly priced, highly leveraged and, highly demanded investment (such as a house in the bay area), what is my (per the original article) clear as day "econ 101" motivation to help increase supply and thereby reduce the value of this investment? In the context of the original article there is simply no econ 101 incentive for me as a voter to support policies that devalue my investment.
Remember, as a highly leveraged investment, a drop in price of just 5% could easily wipe out my entire investment while doing almost nothing to make housing fundamentally more affordable to others. I want to reiterate, there could be many great non-economic motivators for a current homeowner in a high demand market to support more housing. These motivations just fall outside the context of the original article about the unwillingness of voters to understand econ 101 supply and demand.
Well, I'm sure conversation on this thread is super dead, but:
What you're saying all makes sense in the context of house-as-investment. But unlike other investments, you need housing, and if your house's value appreciates, you can't just sell and put that money in something else -- unless you're moving out of the area. You could sell your house and rent, but rents and house prices move roughly similarly, so you don't save much doing so. If you sell and buy another house in the area, you just end up moving your money from one "investment" to another and probably have some tax problems (from Prop 13, in California).
"Wiping out my entire investment" is less of a concern when all that means is that you can buy another equivalent house at the new price, and appreciating is less of a benefit when it means you need to buy another equivalent house at the new price.
Going actually underwater on your loans is of course bad -- though most people shouldn't be so leveraged that modest drop puts them underwater. And those who are about to move out of the area or downsize, sure, they have much more of a traditional investment mentality. But if you're 20+ years from that? If you might never move away or get a smaller house? The value of your house means very little.
* I want to act locally to help fight climate change (by allowing more people to live in a walkable neighborhood within a car-free commute of great jobs)
* I want my friends to stop leaving the city and state
* I want my daughter to be able to afford to move out of the house in 20 years
* I want the lusher culture population density brings (better museums, more art, more interesting foods and shops, a wider variety of orgs and interest groups for me to join...)
* I want my kids schools to be less desperate for teachers, who currently are constantly quitting because they either live here and can't make ends meet or they live far away and burn out on their commute
Oh they get it, they’re just looking out for themselves. Property owners account for 72% of the voting block and have strong roots in the community where renters tend to be more transient [1]. In America, as a property owner, your home is probably your largest investment. The perception here for better or worse is that more housing means less demand for yours, so you lose money.
It’s like wondering why the foxes don’t vote for razor wire around the chicken coops. Not in a malicious way, it’s just not in their interests.
For what it’s worth I own, and am fine with new development because I think it’s not nearly as detrimental as it’s made out to be. I think the community benefits both directly with diversity of people and indirectly as it supports more jobs but I feel very much in the minority.
tl:dr; it’s because renters don’t vote and voters don’t rent.
In Palo Alto I've seen an additional nuance. When I first moved here (1984) houses were underwater and there was lots of student rental. As Stanford built student housing, most of the houses became single family but there was an aggressive effort to keep the environment diversified (e.g. two SRO hotels downtown, section 8 requirements, and a lower median income than surrounding towns).
Then in the late 90s/early 00s the real estate interests took over the city council. It was in their interest to restrict supply for the reasons you stated; if you built it was to build larger, higher priced units as replacement for existing stock which are marketed to newcomers. It's great to have new neighbors, but when you move in and worry about the cost of your mortgage, you aren't really interested any more about the structure and balance of the community.
Taller buildings have been resisted as have most new multifamily residences. As a result, the median income has shot up, teachers, cops, firefighters and the like can no longer live here. It's a different and much less interesting place.
Through the late 1990s except EPA (since it became a town in the 80s). Nowadays there are still some homeless folks, but there used to be plenty of people living in homes on public assistance along with everyone else downtown, at cal ave etc. I remember a Palo Alto person-on-the-street question about "what's your favorite shop?" and the person replied "Woolworth's, because I can afford things there". No woolies or other discount shops downtown any more. The SROs are now boutique hotels.
I used to live in Professorville in a house with 10 people and a band in the basement and we got along with our neighbors just fine. Even over-loud parties were handled in a friendly fashion. Nowadays the cops get called on anything, kids jump in front of trains...too much freaking out instead of freaks. What happened to SF has been exported to Silicon Valley as well.
Hmmm...while there is definitely a difference between owners and renters, the article is talking in large part about the attitudes of renters:
"But, among renters, attitudes toward affordable housing were quite different. While renters were less likely to support market-rate housing the closer it was located to their house, for affordable housing the result was reversed."
The question is why renters did not support more upscale housing being built, and rejected the argument that any increase in housing would ultimately result in an increase in housing supply and thus (theoretically) a reduction in rent. The answer is, they don't believe that's the way it really happens, and they're correct not to believe it.
Oh they get it, they’re just looking out for themselves. Property owners account for 72% of the voting block and have strong roots in the community where renters tend to be more transient [1]. In America, as a property owner, your home is probably your largest investment. The perception here for better or worse is that more housing means less demand for yours, so you lose money.
It’s like wondering why the foxes don’t vote for razor wire around the chicken coops. Not in a malicious way, it’s just not in their interests.
The corollary is that the people pushing for vertical building and high density housing, while dressing the issue up as being about the homeless, are also looking out for their best interests. They want a better place to live, where they want to live, where they can make 6-figure salaries in the sun. It’s important to realize that this isn’t a matter of chickens and foxes, and there’s a reason why the focus is inevitably in areas where they can earn the most and where they would like to live.
The truth is that every aspect of this debate is shrouded in hypocrisy, because otherwise it boils down to people wanting massive new infrastructure to support their desires, or people supporting a deeply imperfect status quo because they’re already winners in it. One side justifies their desire for a slice of the pie by looking to trickle-down economics for housing, clsiming that they care about the less fortunate. The claims that the techies making their property even more valuable through demand are a plague of locust ruining their fair cities. Both are more or less full of it.
Building up is the only sustainable way to house us all. Yeah the character and fabric of the city will change but I have a hard time believing the people in Hong Kong long for a time of 3 story houses but I suppose I could be mistaken.
If they had a larger tech ecosystem, I would prefer Hong Kong to SF or most American cities. Amazing food, great public transit, miles and miles of hiking trails through the mountains, international and varied culture (to SF's tech monoculture), and it's very safe where ever you go.
I mean, I do. Among other things they don’t have capital gains tax, it’s clean, efficient, stunningly pretty and they’ve got a little of everything. Amazing food, some of my favorite bars (Cafe Grey at Upper House, Buenosera in Kowloon). Beaches down by Repulse Bay. More than enough English to get by for me, and being an official language all paperwork is available in English. An hour boat ride from Macau makes it easier gambling than going from SF to Vegas. From my perspective it’s half way between Japan and Thailand in all the best ways.
Author says that increased luxury housing will trickle down to lower level housing. I'm not so sure. I wish I could find it, and maybe it's a bit anecdotal, but I came across something recently that said decent sized chunks of luxury housing in NYC is basically bought and left vacant by people using it essentially as an investment vehicle. If this is the case, additional high end housing will not trickle down to the same net effect on supply & demand as additional low-end/affordable housing.
In NYC those luxury apartment towers get massive property tax breaks, because of course they do. Vacant housing should be charged (a lot) more tax—at eye-watering rates if that's what it takes for it to be rented out—but that's still not a substitute for simplifying zoning, eliminating parking minimums, and everything else that makes it more expensive to build housing without a good reason.
Yeah I'm surprised the article didn't bring up design. Shit like Hudson yards is so bad that the New York Times calls it a "Neoliberal Zion"[1]. Anything that comes off primarily as a "fuck you" status symbol is not going to inspire popular support.
Just compare the street level unit density of old new buildings anywhere in the city. Absolutely none of the relearned lessons of walkability, integration with the rest of the city, etc., being applied.
This is obvious to anyone who lives in the real world.
Add 10k $1MM apartments to San Francisco and it won’t do anything appreciable for people making $55,000/yr. it will just attract more millionaires and investors.
Trickle down anything is paper theory for your intro micro course. By the time you learn about externalities and non-linear equations you quickly realize it doesn’t play out in reality the way you want it to.
Maybe the term isn’t really that misleading though. The concept of trickle down is kind of like a clogged rain gutter. Sure, a few drops trickle down, but most of the water just piles up.
I think the solution is the heresy that the central bank should put strings on the money they lend out. So the central bank has to apportion a certain amount of funds for high density housing in particular geographic areas. Directly loan money to states to build mass transit.
And specifically not to purchase paper, stocks, bonds, etc. All that stuff should be hard money loans.
And who decides where the money should be appropriated? There are plenty of other existing avenues for political action in setting economic policy. The money supply should never become one of those, for what I would think are entirely obvious reasons.
Why involve the central bank for those loans? I think the federal budget could handle it well enough and there is even some justification for it being a loan as a slight anti-graft measure to give encouragement to make it something productive instead of squandering it.
I don't know why you think that? Tech workers will buy them if they're close to work. That means they're not competing for other housing. Everybody has to live somewhere.
There are a bunch of tech IPO's about to happen. What do you think they'll buy instead?
The problem is that it takes decades to hit equilibrium. Chicago and Tokyo have relatively affordable housing because they’ve been allowing relatively unrestricted development for decades. Buildings that started it as high end luxury apartments got repurposed into mid-range buildings when new luxury units were built later. Housing has a very long usable life. When I lived in Chicago, I lived in a 40-year old high rise that had been built as a high end place. A studio was a good 30% cheaper than the brand new luxury building across the street.
But it still works. A study recently showed that allowing construction of two market-rate units (which costs the city nothing) has the same impact on displacement as one affordable unit that must be subsidized by the city: https://nextcity.org/daily/entry/subsidized-housing-developm... (of course this got spun as subsidized housing reduces displacement twice as effectively as market rate units, conveniently ignoring the fact that the former solution requires hundreds of thousands of dollars in subsidies while the latter is half as good for no cost to the city.)
The author actually spends a long time arguing the opposite:
> I think it is clear from this that we can’t expect new luxury development to have the same impact on rents at the bottom of the market as it does at the top. But how much less impact is not clear. In technical terms, there is no good recent data on the cross-price elasticity of demand between luxury housing and lower-cost housing. A large group of urbanists have taken to talking about the housing market as if these elasticities were close to 1 (increases in luxury supply have a big impact on the low-end rent). But it’s just as likely that the elasticity is closer to 0 (the rent at the bottom of the market is very insensitive to the level of supply at the top of the market).
You're (mostly) correct. I misread parts of his argument. But he doesn't conclude that opposite, only that luxury housing doesn't have the impact some argue for, and also that it might have very little impact at all on the opposite end of the market. However he does spend some time demonstrating that it does have some effect on the next tier down, then a little less on the next below that. And, as I argued, that some of the luxury inventory is purchased as buy-and-hold, not buy-and-move.
Actually the author is more nuanced than saying to build "some" luxury housing.
NYC is a special case all of its own with a bunch of factors specific to it. I'd say the biggest are:
1. Construction costs are so high that it's largely the same cost to build luxury condos than mid-priced condos
2. It's more profitable to build luxury condos, at leas tin Manhattan.
3. Globalization of property markets and the rise of the ultra-wealthy mean that a lot of real estate is just the ultra-wealthy parking money in homes they might visit for 2-3 days a year if at all. That's not just foreign money either (although Chinese, Arabians and especially Russian money seeking refuge in real estate in the developed world is obviously a factor). Steve Jobs owned one of the penthouses in the San Remo building on Central Park West for 20 years before selling it to Bono (or U2), having never set foot in it.
3. Bloomberg's "attract the billionaires" mantra mean that luxury condos, even after property tax abatements end, are the lowest in the city as a percentage of property value. This makes parking money in NYC more attractive.
4. The skyrocketing cost of insurance of construction projects [1].
Two things: if there is a limited supply of luxury housing, the rich will buy mid-market housing (or low-end) and often renovate to make it luxury. Very common in SF. That means more competition for the lower/middle of the market.
And second, the luxury housing today will be middle of the market in a couple decades.
This is something that most people who in the "only luxury housing will be built" camp miss.
If the newly rich (either acquired wealth or moving in) can't buy luxury housing because none is being built, they will just do create their own luxury housing. That's one less housing unit for normal folks.
I don't disagree that luxury housing will have some effect, but the "in a few decades" part is where I see a problem. It's only a partial solution, and only in the long term. If there's demand for it then sure, build it. But also build other kinds.
Might not significant improvements in mass transit might help this problem quite a bit as well? If a commute from 20-30 miles away was trivial, more people on the lower end of the economic scale could live further from urban centers where housing prices are at their peak.
Yes, but if you're far enough that the housing pricing works out the density will also be too low - translating to many stops or areas feeling underserved.
Very good point, that is in fact what happens after about 40 miles out from NYC. In fact a bus company recently tried a new direct route from a town at the 39 mile mark and cancelled it after 5 weeks when the average ridership was 10 people (on a 53 seat bus). Some mornings there were none. Just a little closer, around 30 miles, is still viable though. And three spidering train routes service a large population between 5 and 30 miles out, and around which townships have flourished over the last few decades. I think it's common for people further out from the train line to drive to it and park and ride. That does add to the commute time though.
Much as I have mixed feelings about Elon Musk these days, his Boring company gamble does seem to have potential to leapfrog current bottlenecks on mass transit.
Yes, mass transit is one answer because it warps geography of time. It is also why it is so political: route of mass transit has massive impact on nearby housing market.
But in California, major transit extensions take a decade or more to complete and cost tens of billions of dollars. It would be hard to build enough housing to make a serious effect on prices: it's probably five times harder to build enough transit to have a serious effect on prices.
> in California, major transit extensions take a decade or more to complete and cost tens of billions of dollars
Recent data from LA Metro:
* In 2012, Expo Line phase one (Downtown to Culver City) opened, six years after construction broke.
* In 2016, Expo Line phase two (Culver City to Santa Monica) opened five years after construction broke.
* In total, the 15.1 mile Expo Line cost $2.5 billion.
* Also in 2016, the Gold Line Foothill Extension, Phase 2A (Pasadena to Azusa) opened after five years of construction at a cost of $735 million.
* Gold Line Foothill Extension, Phase 2B (Azusa to Montclair) is expected to cost ~$1.5 billion, involves some major additional work (relocating existing commuter rail and freight rail tracks), and is expected to open in 2028, about nine years after it broke ground.
If only luxury housing gets built eventually the amount of middle class housing will become too scarce. This is quite apparent in Boulder, when I lived there the citizens were quite good at banding together to prevent any development that wasn't going to be upper middle class and above.
Yes..... but historically a lot of middle class housing was luxury housing 20 years prior. You can see this in older areas all the time. I think a place like Boulder - smaller city, with most of its wealth and housing problems coming from national recognition and “lifestyle appeal” - is in a slightly different boat than most places.
On the face of that, this seems like a nonsensical objection.
In my view, obviously "middle class housing" is just "average quality housing"; as more luxury homes are built, existing housing stock will start to be considered as middle class or working class.
Further, this is how things have worked historically; in most cities I have been in, the working class housing stock is invariably older, and was originally built for other purposes, eg, a mansion now turned into apartments, or a middle class house now turned into a duplex, or simply a bunch of originally middle class tract housing now that the middle class can afford better. We have not historically, nor are we now, building large amounts of purpose-built working class housing.
> If only luxury housing gets built eventually the amount of middle class housing will become too scarce.
If housing of any type is built, then housing will not be scarce. If no housing of any type is built, then housing will be scarce. Worrying about the type seems like misguided micromanaging.
You're missing the point, people from middle class housing wont be able to move into luxury housing, most people don't have the means to do so. I don't see how you can believe that building luxury housing will help middle class people. Building middle class housing will help middle class people. If you don't believe that there's too few options for middle class people in Boulder and that it hasn't become too scarce I would encourage you to do some basic research using a simple tool like Zillow to look at prices. Building expensive homes raises the prices of everything around them so now most homes in a place like Boulder are out of reach.
There are people who currently live in "middle class housing" even though they have more than middle class money because all housing is scarce. If you build more luxury housing then those people move out of the middle class housing into the new housing and then middle class people can move into the middle class housing.
Moreover, there is no structural difference between "luxury housing" and "middle class housing". A building is a building. You take 10 units of "luxury housing" and add some walls and appliances and now it's 20 units of "middle class housing". The problem isn't what they're building, it's the zoning that prevents it from being subdivided that way.
That doesn't make any sense at all. No middle class person will be able to move into Boulder where the average home price is over $1 million. If someone moves out of there a middle class person wont be able to move in at that price point.
It costs over $1 million because the existing owners aren't selling, because they don't have better properties to buy instead. Provide those and the existing properties go on the market, and once there are more of them on the market they can no longer command a million dollars.
What do mean continue to work? It's clearly not working in Boulder where they are building luxury homes. Those types of places are trying what you claim will work and it's not working.
It doesn't work because of the lack of building. You have to unleash it for it to work. Boulder is only allowing a few hundred units a year. You have to allow enough construction for supply to start to exceed the demand.
> If housing of any type is built, then housing will not be scarce. If no housing of any type is built, then housing will be scarce. Worrying about the type seems like misguided micromanaging.
TFA is devoted entirely to debunking this idea and explaining in detail why worrying about the type of housing is very important. IMO it did a pretty solid job. If you have an actual counter-argument, let's hear it, but don't just assert it.
The counter argument is there is so little building happening, that while elasticity may be below 1 now, if we flood the market with construction, it would get close to 1. San Francisco added ~20k housing units between 2010 and 2017, an increase of 5%. This isn't even keeping up with demand. Do 20x more building, and then measure the elasticity.
You can't keep up with demand until the amount of housing (and thus people) is so high that the place becomes miserable enough that people start rejecting it.
Different people have different thresholds of misery. Consider that people live in Manila, Mumbai, Guangzhou, and Dhaka. People even used to live in Kowloon Walled City, which looked like something out of the movie Bladerunner or maybe Soylent Green. That is what you'd get.
> If only luxury housing gets built eventually the amount of middle class housing will become too scarce
New Yorker here. Bunch of luxury buildings came up in my neighbourhood. The highest-income renters in my building decamped. As a result, my landlord reduced rents.
Keep in mind that lots of present-day middle-class housing (e.g. Harlem) was once luxury housing.
The "luxury" housing that gets built in the Bay isn't actually special; it's just expensive because it's in high demand, and because being new means it isn't run down. The only axis on which housing ever really has much of a premium is square-footage, and the larger units just end up with more people living in them.
It's sort of like the market for cars: poor and middle class people buy used, moderately wealthy people buy the same kinds of cars except new, and only a tiny fraction of the market is premium on any axis other than newness.
One reason this is less of a problem in Texas is the high property tax rates (about 3% per year vs. 1% here in California). Combine that with no prop 13 and you have homeowners with mixed incentives — yes, equity appreciation is nice, but ouch the tax bill! Thus you have a lot of home owners who support keeping costs down via supply growth.
In Texas, taxes are heavily leavied against _wealth_ and _lifestyle_: high property tax, high sales tax (but none on staple goods and tax holidays for back to school etc.), and no income tax.
Conversely in CA, the tax structure makes it easy to shelter wealth (low property taxes AND they never increase), with moderate sales tax and high, almost flat income taxes (the brackets ramp quickly to 9.5% at $45k then are flat to $1m/yr).
Not surprising so many people are moving to Texas in search of an easier ladder to climb.
Having made the opposite move for a big tech job, the headwinds here against upward mobility are really striking.
No, the property tax is not low in CA. What you pay is tax_rate*assesed_value. Because value is high what you actually pay is huge amount of money on what is considered a very modest house in other places
But if you bought your $2 million house for $200k a few decades ago, you're still paying taxes on it like it's $200k (plus some tiny increases that fall well below inflation). Thanks Prop 13!
yes, thanks to the prop 13 a teacher or retired couple are able to keep the house the’ve lived in for a huge part of their lives.
And even with prop 13 the taxes are increasing every year (by~2% I think)
Anyone who buys property now subsidizes (through higher property taxes) EVERYONE who bought properties in the past. Some of those previous owners might be teachers or retired couples. But many other are movie stars and tech millionaires or billionaires.
New home owners in California are subsidizing everyone else who bought property in the past. It creates a disincentive to sell as people want to be locked in to below market rates. It might help some people that we hope to help, but it also helps lots of people who should be paying their fair share that they're instead pushing off to new home buyers.
You're drawing a disproportionately weighted link between high property values and the low taxes of past property owners, it's just not there.
This is a problem in the especially desirable pockets of California, and people don't want to give up a good thing once they've got it, especially when it's increasingly scarce due to the low rates of residential development.
You wouldn't have fixed the housing shortage by raising taxes, you'd just have accelerated the concentration of wealth displacing people who luckily got to live out their lives in a place they could no longer really afford to compete in.
It would be expensive but the tax burden would be fair if based on your property value. Now it’s more based on how long you’ve owned it, which is just the people who got there first stealing from those who happened to come later. Whatever happened to equal opportunity?
prop 13 is worse. Social security and Medicare have gotten to where we have obvious structural problems we need to resolve long term, but they at least were founded in hopes of fairness. Prop 13 was theft generational theft from day 1.
That's completely disingenuous, and deceptive. What does Prop 13 have to do with keeping at-risk people in their homes?
That's not what Prop 13 is about, it treats golf courses and property speculation the same as people on disability or pensions. It treats vacation homes and investment property the same way.
If it was about keeping at-risk people in their homes, there would be some mention of that. If it were about that, Prop 13's effect would be mostly to keep at-risk people in their homes. But the majority of what Prop 13 does is reward the super wealthy and jack up the incentives for speculation on real estate. Compare the tax incentives handed out to the wealthy compared to those tax incentives given to those in need, is there any chance that Prop 13 is meant for those at need?
Be honest here, does a Howard Jarvis tax bill sound like something aiming at helping those in need, or is the "help" just a cover for a scheme to hugely increase wealth inequality, and force larger tax burdens away from the wealthy to the less wealthy?
So don't give us those false accusations that wanting to fix the horribleness of Prop 13 means wanting to kick people out of their homes, those two concepts are not connected.
Right. It's hard to argue that new home buyers should subsidize people who bought properties decades ago and have made hundreds of thousands of dollars on the appreciation.
Why should taxes be disproportionally higher for new buyers and housing options more limited for everyone else? Not everyone in the world can live in California, and I'm not convinced that living there decades ago entitles you to live there forever if you can't afford the current prices. As a society we've decided to allocate scarce resources by price. If someone bought property in California decades ago and can't afford to pay their fair share of taxes on that property now, they can sell it at a huge increase in price and can afford to buy a luxury property in most other areas of the country.
And then we hear the sob story of how their own children can’t buy a house nearby and have to move far far away. Can’t have it both ways.
My theory is that this will remain the status quo in CA until the last of the baby boomers is finally eradicated. Only then can the political will to make real change be strong enough to succeed.
IIRC from these conversations in the past, Texas solves this problem by allowing delinquent property taxes to accrue as a lien against the property rather than seizing/evicting the owner. Seniors and those on low incomes can continue to live in their houses without paying full property taxes, but they can’t sell it or leave it to their heirs without settling up first.
This seems like a better way to address the problem without creating the havoc that prop 13 has in the CA housing market.
You have to try hard to make a regressive income tax. And, by “try hard,” I mean literally impose higher rates on lower income earners. That would never fly politically anywhere.
Isn't that what has effectively happened given the massive cost of living increases in CA? 100-150k income only affords a middle class lifestyle in many areas, yet the tax brackets did not necessarily keep up with the times. If costs of living had instead gone down, you can bet that the state would have at least tried to make adjustments in their favor if they could get away with it (likely so given the long history of tax increases).
I’m not sure what about 1% being a third of 3% isn’t self-evident...
In Texas a “typical” house for about $350k would come with an annual tax bill of $10,500. And it goes up if housing gets more expensive.
Around me in SF an entry level home at $1M would have a tax bill of $10,000. But it’s locked forever.
The same bill for a property 3x more valuable... it makes an enormous difference in the monthly payment which also has a meaningful impact on the ability for prices to shoot up in the first place.
That's less than inflation! It doesn't count as going up.
(It will peak over inflation in some years, but it's still effectively a freeze. Even a modest property appreciation like 50% will stay out of reach of an annual 2%-minus-inflation effectively forever.)
One point for clarification: It's 1% at the state level, however, depending on which county you live in there's plenty of other local taxes (School districts etc.) that end up nudging it to ~1.8% (SF and Oakland). Add "Special Assessments" which aren't %-based and it's even more. So "1%" is a bit misleading.
Unincorporated areas end up being a little less at around 1.3%, in the Bay Area at least.
Add state income tax + sales tax (9.75% where I am!) and California is a hilariously expensive state to live in.
I just checked my tax bill. I live in Cupertino, one of the highest cost areas in the state, and even including all special assessments and fees, my bill is 1.34%. But here's the problem: It's 1.34% of my base rate. I've lived here for 10 years. Using Zillow as a guide, my real tax rate is 0.56% thanks to Prop 13.
My neighbor, who has owned their house for 35+ years, is paying 0.08% on a house worth just slightly less than mine. And more than 1/2 of that is special assessments.
That's the problem with California property tax. We are all totally disincentivized to move or the encourage a drop in our property values, since eventually we want to sell it for top dollar and retire out of state.
Texas is in some ways the egalitarian sort of place California pretends to be. I was talking to a cab driver in Austin who had immigrated from Morocco. He and his friends bought houses in the suburbs with pools in good school districts, which they were able to pay off in 15 years with a cab drivers’ salary. What really strikes me visiting there compared to the coastal cities is relative prosperity among ordinary people, especially the kind of people (immigrants, etc.) that people in the coastal cities like to talk a lot about. Texas also does a better job educating students from disadvantaged groups than California, despite spending less money on education: https://www.forbes.com/sites/chuckdevore/2015/06/30/which-of.... For math and science, Texas has some of the highest NAEP scores in the country for black and Hispanic students, while California has some of the worst.
The Texas Public Policy Foundation is one of the worst organizations you could cite. They're infamous for being just a front for Rick Perry's ambitions and as such are one of the groups directly responsible for the decreasing quality of Texas's higher education system. (Higher education in Texas is much worse than that of California.)
There's no denying that California has a problem with K-12 education due to Prop 13. But I grew up and was educated in Texas, and I can say the government of Texas has always been significantly more dysfunctional than the government of California. The "Texas Miracle" thing during GWB's campaign was obviously an attempt to take credit for the fact that the oil industry attracted the kind of people who care about education, not because of anything related to the government. In fact, attempting to recreate the "Texas Miracle" nationwide led to the disastrous No Child Left Behind law.
I more-likely-than-not won't end up having kids, but if I did, I would want them educated here, not in Texas. The government of Texas plays games with education to score political points in a way that the government of California does not. Besides, I question how sustainable Texas education is going to be without an income tax, and income tax is the third rail of Texas politics.
The data underlying the article is NAEP scores, which are widely respected as an objective measure of student performance. And California does awful on NAEP, and has for a long time.
As to where I’d want my kids educated—I’m thinking from the perspective of having come to this country as an immigrant. We were solidly middle class and moved to a pretty nice neighborhood in Virginia with decent schools, but there is no way we could have afforded it today. If I were in my dad’s position, I’d definitely head to Houston or Dallas rather than San Francisco or LA. Heck, when I bought my house in the DC area, I was apalled at the school situation. I didn’t want my kids to grow up in a place where a million dollar house is the buy-in for a going to a good school district. We ended up moving to a different city and just putting up with a long commute.
My dad lives in the Highland Park area of Dallas. He says people move there and pay their 20 or 30k a year in property taxes to go to a great school district as it's cheaper than a private school tuition. It sounds like the same thing. Of course that's just one example.
How much are the houses to pay $30K-$40K in property taxes? The wealthiest city in GA is Johns Creek with top rated schools and just looking at Zillow, a home valued at $460K has property taxes around $5000.
Texas schools are insanely well funded. The high schools here are better equipped than my college back in California. They get a lot of endowments from private sources. It has nothing to do with the kind of garbage "No Child Left Behind" created. It's all just having enough money to do the job.
My public high school in California's Inland Empire was a lot like a training camp for prison. Learning how to survive while crowded with the violent and insane. Riots happened almost every other week. Just too many kids in too small a place, and no funding to handle the problems from so many poor and broken families. You can't put 3000 kids in a school for 1000 with funding for maybe 1500 and expect anything else.
Anecdotally, having talked to several ex-Texas-teachers, Texas sounds extremely hostile to primary education. Texas was a pioneer of the intense focus on high-stakes standardized tests and elimination of teacher autonomy.
It’s hard to credit their anecdotal opinions over hard data. There is also quite a bit of tension between what students need, and what teachers want.
California is a particularly egregious example. It has some of the highest teacher pay in the country while having some of the lowest per-student spending in the country. That math balances on the backs of students. So teachers are happy with pay, and old homeowners are happy with their property taxes, and the students get the short end of the stick. It’s California in a microcosm.
I can second it, having gone through the Texas public education system. The standardized testing regime in Texas is completely counterproductive, and my teachers all hated it. Texas' silly education funding system that tied funding to (among other things) student attendance caused the schools to overtly encourage sick kids to show up and spread disease. The attempt by the Bush administration attempt to deploy Texas standards nationwide in the form of No Child Left Behind was a miserable failure. The legislature is constantly playing games with the schools (e.g. putting ambiguous language in the teaching standards to appease creationists [1]).
Texas has decent K-12 education in spite of everything the government does, not because of it.
For anyone reading this site, the standardized testing regime in Texas is going to be a bureaucratic formality for the teachers and an afterthought for the students, where kids spend 2-4 days per year wasting time taking an easy test about stuff they already know, then dozing off for the rest of the time.
The sad reality is that Texas-style standardized tests measure basic material that students anywhere should be expected to know (take a look at the tests if you're not sure: this is not even the SAT we're dealing with). The primary purpose of them is to identify and remediate the many dysfunctional schools. If a school can't teach their kids this material and have 50% of them pass the test, they have a serious problem.
Thanks for sharing that, very interesting, not what I would have expected. What do you attribute the better outcomes in Texas to? The state has some education challenges I'm aware of, but I do't know about their successes. Texas seems to be pretty successful up to high school, but why don't they succeed for higher ed as well?
I'm always reading about attempts to put extreme conservatives on the state school board and restrict discussion of evolution and also avoid discussing uncomfortable issues around slavery and the founding of the country - that must not have had much impact. For housing, I kind of understand why Texas is much less expensive to live in, partly because they have those endless cities across the plains.
One thing is TX has the “Robin Hood” rule, which essentially is that rich school districts have to transfer money to the poor ones.
I think another thing is that there’s a lot of natural lived diversity. What I mean is, for example, my parents middle middle class neighborhood street looks like: black family, white family, Indian family, Hispanic family, European first generation family, just all in a row. And that’s pretty common. I think in part getting back to the housing thing, it’s within reach of most people.
As for the “extreme conservatives,” I don’t know. I think it’s one of those things that the media likes to pounce on and blows out of proportion. Yeah sometimes they do dumb stuff but generally speaking radically conservative proposals get floated by fringe political folks in red states just like radically liberal proposals get floated in blue states, then never goes anywhere. I think it’s more fodder for the news-tainment industry than actual policy making.
Texas for better or worse is extremely prideful that education is baked into their state constitution from very early on so I feel there is just more state identity tied to education at many levels compared to some of the surrounding states (article 7). While I agree with others that the current outcome is not really desirable and all of the other issues going on it is a top level part of the conversation where I feel like in surrounding states it easily become a B or C priority in discussions.
I agree with your point overall, but you say Texas has "high sales tax" and California has "moderate sales tax", but Texas' sales tax rate is 6.25% and California is 7.25%. Comparing rates with local additions, Los Angeles is 9.5%, San Francisco is 8.5%, Dallas/Houston/Auston is 8.25%,
"Having made the opposite move for a big tech job, the headwinds here against upward mobility are really striking."
CA (at least the Bay Area) incentivizes a very different sort of upward mobility: striking it rich through owning equity in a business doing fundamental innovation in its area.
If you're hoping to steadily build wealth by working for a big tech company, staying in CA long-term, and saving your money, you're playing the wrong game. (And I say this as someone who came to CA to work at a big tech company, has been here a decade, and married a local.) There are three basic paths to wealth in Silicon Valley:
1. Found a company outside of the valley. Do all the initial work in a low-CoL area, get customers and traction there, and then move to Silicon Valley for fundraising and scaling. Enjoy your equity appreciation, and cash out a billionaire.
2. Move here in your 20s. Get on a rocketship - a company that is likely to go public in the next 5 years. Stick it out for 5-ish years, enjoy your equity appreciation, and cash out a millionaire. Move to some other low-CoL area to buy a house and retire.
3. Get a time machine. Buy a house 15 years ago. Enjoy your equity appreciation as successive waves of #1 and #2 bid up housing prices. Cash out now, and move to some other low-CoL area to retire.
If you're moving here hoping to work for one company the rest of your life, save up, and eventually own a home, you're in for a rude shock. Most of the housing stock is taken up by #3, and #1 and #2 will be able to bid up the rest far higher than any ordinary worker can afford without using a perilously high proportion of their salary. If there's a market downturn or shift in the tech industry, you get laid off, your employer's stock takes a hit, and you're screwed because many lenders count stock compensation as part of your income for deciding how much mortgage to give you. And housing prices in Silicon Valley are heavily correlated to the fortunes of the tech industry, so if there's ever a permanent downturn, this place will be the next Detroit.
> If you're hoping to steadily build wealth by working for a big tech company, staying in CA long-term, and saving your money, you're playing the wrong game.
Eh, I really thing big tech is a feasible means to building wealth. Just don't confuse 'publicly traded' for 'big tech.' I understand the source of emotional pessimism, but wages for big tech seem to start around 200k, and increase annually with RSU refreshers.
It is entirely feasible to save away 100k a year in that scenario. Invested prudently, that'll compound up well with a far lower risk than the startup equity lottery, and is far more liquid. You don't even have to invest in real estate, if you're happy renting, and the current tax situation makes home ownership marginally less appealing.
I know - I worked for Big Tech for 5.5 years. I was making a lot more than $200K/year at the end of it, and saving more than $100K/year.
The problem is that so is everyone else - or maybe not "everyone", but a significant enough fraction of the Bay Area to have a measurable impact on prices. So while I saved up a whole lot, most of it will get eaten up if we choose to buy a house in the area. The competition among homebuyers isn't your average middle-class professional, it's couples where both of them work at FAANG companies, making over half a million combined a year. When all buyers have the same means, prices rise to match, and you get inflation, you don't get wealth creation. The only way to get wealth creation is to build more wealth (in this case housing, but it also refers to other social services like childcare, healthcare, transportation infrastructure, etc.).
Right now, we're doing standard-of-living arbitrage: we live like people who don't (and didn't) work in tech, rent an apartment, and bank the rest, which gives me time to work on my startup idea (going for #1) and my wife a decent cushion to advance her career. That only works until what's left of the middle-class is entirely priced out of Silicon Valley, though. While immigrants and service workers can still find apartments, rents will remain priced at what they can afford, but if the housing crunch becomes severe enough that all of them move over the hill to Pleasanton or Davis (which is already happening to a lot of them), rents will jump to the maximum that a tech salary can afford.
Structurally WA has many of the same benefits. It’s not a perfect comparison though because Seattle is struggling with fierce nimbys against a tech boom, and also tax rates are around 1% like in CA.
Note that Austin has some of the same issues with housing prices surging due to nimbys. The biggest difference is that outside the city proper there’s a lot of land and a lot of suburbs that are thrilled to have Austin aggressively push the growth “out,” and also it was a much smaller city to begin with so this is the first ring of suburbs we’re taking about, not a second or third ring as you’ll find in bigger cities.
My main argument is just that property tax is a more effective wealth tax and lends itself towards a more progressive overall tax system.
A 2% nominal increase every year is a decrease every year in real terms. Annual inflation has averaged above 2% every decade since the 30s, often far above 2%[1].
In Washington, no income tax, there are 12 billionaires. Of course, there are constant calls for a state income tax to squeeze them. But I bet Washington wouldn't be home to Amazon and Microsoft if there was a state income tax.
Sure they would. The microsoft founders (as in Bill Gates and Paul Allen) gave significant funding and public support towards the capital gains tax initiative here.
Allen isn't one of the 12. He has passed away. That leaves one out of 12. (BTW, in their efforts to pass a capital gains tax in Washington, the proponents argue it isn't an income tax. I don't agree with that, but there it is.)
Well I was thinking of the ones that mattered. Gates is still alive of course. Mickeysoft was really founded in New Mexico but moved to Seattle because they were both from here.
As someone who recently moved out of Los Angeles in search of more affordable housing and a better traffic situation, I would vote against building more housing in Los Angeles due to overcrowdedness. There's just simply too many people living there and the traffic is insane. The city should work on fixing other issues first, like public transportation and mixed zoning rather than allowing more housing to be built.
The way California works, housing is an economical loss for local governments while jobs are a profit center.
This in itself fully explains the absurd California job/housing situation. If we changed those laws, it would solve itself just through the greed/invisible hand of local government.
I've been asking myself this question as well. Despite the high rents and the insane traffic people still keep coming. Either that or the millennials never moved out. I know plenty of people, some are family, where 5 or 6 adults live in a 2 bedroom home. That's why street parking is hard to come by. Again, this is my own experience from living in a working class neighborhood.
> Building more housing near work locations should make traffic less insane
Maybe initially, but would it stay that way? People change jobs more often than they are probably willing to change homes, which will tend to bring back the traffic.
Well if they are clustered together in the first place it would mean less distance to travel - having to go merely from say district to district instead of outlying suburbs.
I don't know LA, but here in the SF Bay Area, tons of people now have to live 1.5-2 hours east of their jobs in SF/Silicon Valley because there is nothing affordable closer.
They probably wouldn't live on the same block as their jobs if housing was legal, but they'd be a hell of a lot closer.
I wonder why more companies don't try something between in-office work and remote work?
1.5 - 2 hours from SF gets you to Modesto, maybe even to Merced, both of which have plenty of houses under $300k in the 1600ish sq ft range on a nice lots.
Doing that commute every day to work in-office would be a pain in the ass. But doing it once a week for face to face meeting with the rest of your team and working the rest of the week remotely should be a lot less of a pain.
PS: kind of similar situation in Seattle. Go west, across Puget Sound, either by driving south through Tacoma and back north on the west side, or by taking the Bremerton, Bainbridge, or Kinston ferries, and you can find plenty of affordable housing 60-90 minutes from Seattle.
But you really don't want to do that commute every day. Once a week, though, and it would be fine.
Mixed zoning are where businesses and residential areas mix. In some places, this means multiple story buildings where the first floor is business only.
That's an interesting point. For example, whenever people talk about increasing road building to alleviate traffic these days on places like Reddit, they are immediately lectured to about how more roads just cause induced demand and they don't actually cause traffic to go down.
For highly desirable cities I have to wonder if the same thing is true for housing. I mean, it feels like even if you doubled the amount of housing in SF that you would just cause more people to want to congregate in SF while 3rd tier cities and rural areas would empty out even faster.
And that makes all the new people better off. But we can measure this effect and I recall the city economist found every 3٪ increase in housing stock dropped rents 1%.
> For example, whenever people talk about increasing road building to alleviate traffic these days on places like Reddit, they are immediately lectured to about how more roads just cause induced demand and they don't actually cause traffic to go down.
People misunderstand how that works.
If you have a road which is excessively congested, the congestion suppresses demand. Nobody wants to sit in traffic for two hours, so people stay home or make use of flexible hours to commute at what would otherwise be less convenient times etc.
If you add capacity to the road then the congestion gets better, but not by as much as you would have expected if you looked at the existing traffic, because the fact that it got better caused some of the congestion-suppressed demand to return, which made it less better. So the net result is that it got a little better when you expected it to get a lot better.
But that doesn't mean you can't fix it by adding supply, it just means you need enough supply to satisfy the whole demand, including the demand that was suppressed by the high congestion (or in the housing case by the high prices).
Of course, in the road case there are also alternative ways to satisfy demand, like building more housing so that people can live closer to where they work and don't have to drive as many miles.
Rents are higher in San Francisco than they are in New York City. Moreover, most of the density in NYC is historical and it currently has a lot of the same zoning restrictions that prevent new high density housing from being built, hence rents have been on the rise. (It also has a lot of ridiculous nonsense like rent control which reduces rents for historical tenants but raises it significantly for the new ones we get our numbers from.)
Rent control is incredibly dumb. It requires the landlord to set the initial rent at a level that accounts for the fact that it can't be adjusted while the tenant is in the apartment, when tenants in rent controlled apartments will stay for decades. So you're still paying the same total amount, but now you're paying more of it up front. And really you're paying more than that, because the landlord is taking a risk in not being able to adjust the rent -- what if taxes go up or some other cost, or the tenant stays longer than estimated? So now you're not just paying the same amount, you're paying it plus a risk premium for the landlord.
Then, once you've been there long enough for your rent to be lower than the market rate (which itself is more expensive due to rent control), the landlord loses any incentive to maintain your apartment. Certainly you can expect to never see any improvements, and you'll be lucky if they even do what they're required by law rather than hoping that the insufferable conditions will cause you to move out.
Then you can never leave. Apartment is now too small? Too big? Too far from your new job? Bad luck, you're stuck.
So you get widows and widowers living in three bedroom apartments they don't need because it's cheaper to stay there than move to a one bedroom down the street (which could otherwise have actually saved them money), meanwhile a family of five is living in the one bedroom because the upgrade to three bedrooms is a rent increase of 700% rather than 70%. And better hope you don't get a new obnoxious neighbor, because you'll be together forever since neither of you can leave.
Rent control isn't great for anyone. If you want to hedge against rents increasing by paying a bunch of money up front, maybe invest in a local REIT.
You write "You can't leave" like its a bad thing for tenants, but leaving isn't a choice, it's being priced out of your place or not. I'd love to see a citation for how many widowers are taking up supply of three bedroom apartments.
Rent control stabilizes rents in places where they can explode and collapse faster than a tenants salary can change to compensate, that's all. All the other problems you bring up are from poor implementation, not that it's a bad idea for everyone.
Years ago I argued the cost of living in NYC was significantly lower than living in the Bay Area and that gap has only widened. For one, prices haven't really risen in NYC in several years (renting or buying) and in some cases have declined. For another, you can typically avoid owning at least one car in most parts of the city.
Let's not trust that trash tabloid for any thing nuanced. NYC is expensive in rent but not bad in every other category.
Honestly if they kept on building subways like they used to, plus didn't funnel all of them into Manhattan (grid routes), rent would be mostly fine too.
The culture and classist issues of gentrification have more to do with inequality than cost of living.
The etiology is a bit backwards - high rents leads to higher density if allowed and it would be worse if not allowed.
Everything is relative to the impact on the rest of the economy of course. It is possible that prices could be kept down if the demand collapses because of not having enough to justify the expenses.
Increased housing in high cost locations DOES NOT decrease prices. This is a complete fallacy. The problem is that the supply is limited and it solidifies comps and makes people more sure that high prices are legitimate.
Look at Bay Meadows in San Mateo. An entire community has been built in the last few years. There are a ton of condos, townhouses and single family homes built in quite frankly a well thought out community.
Townhouses are over $1.5M and SFH, which are yards away from the Caltrain are over $2M.
This is entirely new supply and their prices are higher than existing houses. The prices in the area didn’t go down, they went up because this legitimizes the high prices and solidifies them.
The only way you get lower house prices is by killing demand like during the housing bust, not by increasing supply because supply doesn’t happen at the scale that is required to decrease prices.
You're talking about a community of 2000 residents [1] out of over 7 million residents in the San Francisco Bay Area [2]. Do you really expect it to change the housing cost equation at all?
In a largely unregulated market land use is largely dictated by how expensive that land is. Developers don't otherwise just decide to build high rises, mid rises, townhouses or SFHs. It's why the 3-6 story condo complexes you get in, say, Santa Clara County you don't get in Manhattan.
Now obviously this is complicated by regulation, demand in different market segments, what the infrastructure can support, etc but the prices you give seem to suggest the land value is extremely high. Building low density housing on that is going to lead to really high prices.
1) In the segmented model, the cross-segment elasticity limits the impact of high-end supply on lower-segment prices, but that applies just as much to the impact of _high-end demand_. Yet the same people who reject high-end supply as a solution are much more likely to believe in high-end demand as a cause (those damn techies pushing housing prices up!).
2) There is a significant number of singles with high-paying jobs in San Francisco who are living with roommates, in tiny studios, etc. These people who would live in much larger and better housing in any other city. Thus there is a good reason to believe that the cross-segment elasticity in San Francisco is actually quite high.
3) In general, nobody believes in Economics 101 when it comes to policy, unless it aligns with their other preferences.
Great article that adds a lot to a nuanced and controversial topic.
I'm surprised they don't consider time as a dimension of market segmentation, i.e. what is "luxury" today might become "standard" or even "basic" as time progresses. Even things that you'd think would stay static over time don't -- houses are larger today than they used to be, and I could very much imagine people standing around 100 years ago talking about only "the rich with their luxury running water" can afford to live in a certain area.
I think long-term the solution really is just to build, and build, and build. Over time, if builders consistently add supply to the top of the market, it will gradually slide downmarket as it ages and its amenities become more standard. I think the biggest problem is that in California, the normal process of adding luxury units has been paused for 20 years due to anti-developer sentiment, and they're trying to make up for it now, at all once.
I'm reminded of a saying: the best time to plant a tree is 20 years ago, but the second-best time is today.
Another thing, and I wasn't even going to mention it, but any Bay Area real estate developer will tell you [0], it's very difficult adding supply to the middle of the market here because things are just so damn expensive. Affordability is not and never was the priority. It's 500K to build a middle-market affordable unit before the developer makes a cent of profit. For that, thank buy-local regulations, environmental legislation like CEQA, organized labor, huge "developer impact fees", extremely long wait times (years) for permits to get approval, and now "inclusionary housing" requirements that force developers to cross-subsidize below-market rate housing by jacking up the prices of the market-rate units. It's madness.
[0] I'm married to an architect working in the Bay Area.
Because the US doesn't have a housing shortage nationally. The vacant houses and the jobs are in different places. If you want a cheap foreclosed house in San Bernardino, CA, here's a list.[1] That's in Southern California, not too far from LA. It's not Cleveland or Detroit. Developers overbuilt in the last boom.
There's a reason why those houses are cheap. Commuting from the Inland Empire to Los Angeles is miserable. It's an hour if there's no traffic, which of course is never the case in Southern California.
No cities are far more efficient (engery, economically, culturally...). Suburbs are massively subsized miserable alienation farms that only appear cheaper.
The problem may have been created by our norm becoming the 2-income household. Previously, one would simply move to the location of a suitable job. Now, the pair of people must find a pair of suitable jobs. It is easy to find a small city with a job for one person, but not easy to find a small city with a pair of jobs that might be wildly unrelated.
For example, one person is a petroleum engineer and the other person is an avionics repair technician. Finding one job or the other in a small city is easy. Finding both in the same small city is hard.
Because for the government to have an effect on the housing supply, they need to find a way to lower the price. At best homeowners risk losing their equity, at worse they become upside down and are subidizing the new construction with their own martgage losses.
This is great work. It does a great job bridging the gap between the true but l overly simple supply and demand arguments with the complex dynamics of housing markets.
I think supply + demand oversimplifies one major issue.
Wages are extremely inflated in certain hotkey areas with housing issues. There was a story somebody shared a couple of months back on here about somebody in the Bay Area working at a cafe unable to find affordable housing on the $75k he was taking home. The point of the article was supposed to be pointing out that even such high wages don't solve the problem, but I think the more salient point is that high wages cause the problem.
Cafe work is relatively low skill. When you can take home 250% the median personal income for low skill work, you're never going to find affordable housing. Such high wages are already driving seemingly endless economic migration with unaffordable housing. Add in reasonably affordable housing and you just exponentially increase the demand.
The point of this is that I think it's questionable about whether or not you can build your way out of this. There are two examples we can look at for lessons: Hong Kong and Tokyo. The current situation is that both are extremely densely populated areas. Hong Kong has 17,552 people per square mile, Tokyo's at 16,121. Hong Kong is extremely expensive whereas Tokyo has become a somewhat reasonably affordable place to live. Many people have tried to attribute this to various programs the Japanese government has carried out.
In reality, one factor plays a dominant role. In the 90s many expected Japan to become the world's leading economy. They were actually far ahead of the US in terms of GDP/capita. Since then they've gone through decades of something between recession and stagnation. Their GDP was higher in 1995 than it is today. Hong Kong, by contrast, is much more like all the other areas facing housing pricing issues. Their GDP continues to exponentially accelerate - far more than doubling since 1995 with a continuing exponential growth. Japan, in general, became affordable because it became economically less desirable. And ultimately I think that is the only solution - but it's one few would ever lobby for!
On the other hand if your goal is not to actually create affordable housing, but instead to simply maximize your GDP then things become much more interesting - but that's an entirely different topic.
NIMBY voters. The issue is 100% local zoning to allow less parking spaces, efficiency units, inlaw apartments in suburban houses, allow multi-family housing, and allow zoning of nearby grocery stores.
To summarize: voters aren't dumb, they do do economics, and the economics clearly spell out that building luxury housing isn't in the majority interest, but building anything else isn't in the developers interest. Is this really rocket science?
A land value tax should never brought up as it has wide support among economists for precisely the purpose of improving land use necessary to make building more housing most productive.
Maybe it takes a huge amount of luxery housing before another type gets "naturally" made, but with good land use at least the rest isn't stuck with crippling commutes.
If we had good land use, we could probably get away with saturating the luxery housing market and not sticking everyone else with terrible commutes.
Here's just a sampling of the rhetoric I see on Nextdoor in Silicon Valley:
> See where the Wheels and Deals is going to be torn down and have another living complex built there? And the old nursery, a pre-school as well! It's never going to end until all of El Camino is a mess of roaming cars and people. Our whole area is going to be turned into an over populated dump.
And in case you weren't clear on who's doing the over population, the poster later makes clear their opinion on the subject:
> These living places aren't being built at the alarming rate they are because there's a line of people waiting. NO sir.....there being built to ATTRACT them here. WHY.. would we want that? Politicians can shove all their forced urban developments. They're not living in them.
> And for the record, the state of California and it's past buffoon elected officials are the ones to blame. If they weren't so busy preaching sanctuary state they would have come up a population control plan. That's whats needed. Not trashing cities with every element that has little to offer.
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[ 2.8 ms ] story [ 222 ms ] threadIf renters voted the same way on an initiative, they’d set policy. If everyone who doesn’t own a single-family home (renter or not) did so, it would be a landslide.
1: http://www.seattle.gov/opcd/population-and-demographics/abou...
The problem with this is that it costs approximately the same amount to rent as it does to own, by the time you take into account interest, taxes, insurance, maintenance, etc. So the people who rent in the expensive area are already the people who can afford to live there, they're just the people who prefer to rent. If you tell them increasing the housing supply will reduce purchasing costs, what do they care? They're not looking to buy.
Increasing the housing supply would also tend to reduce rents, but this discussion is usually framed as "people can't afford to buy a home" so many renters may tune out at that point and not comprehend the relationship to rents. Especially when people see propaganda about new developments increasing rents, which only happens if other neighborhoods aren't building enough new housing, because then higher density is valuable when it's scarce. The whole point is to build enough to make it less scarce.
Moreover, one of the major reasons people prefer to rent is for mobility, i.e. they expect not to be there in ten years.
Meanwhile the people who do want to buy there but can't afford it are the people who currently live somewhere else, which means they don't get a vote.
Same reason to support h1b visa.
This is a problem when society is becoming less communal and more nimby like.
In the mean time, the housing market just makes more painful for me to move.
I don't want the value of my house to crash down to 10% of it's present cost, but I'd be fine with no appreciation for a couple of decades, or a moderate drop in value.
I want to be clear that there might be many great personal reasons (@raldi has some listed above) to be in favor of more housing stock. However, in the context of the assertion of the original article that voters just don't understand econ 101 supply and demand my feeling is that the majority of homeowners (who are disproportionately voters) understand econ 101 supply and demand perfectly well and that the article does a disservice suggesting that they don't.
If I own a highly priced, highly leveraged and, highly demanded investment (such as a house in the bay area), what is my (per the original article) clear as day "econ 101" motivation to help increase supply and thereby reduce the value of this investment? In the context of the original article there is simply no econ 101 incentive for me as a voter to support policies that devalue my investment.
Remember, as a highly leveraged investment, a drop in price of just 5% could easily wipe out my entire investment while doing almost nothing to make housing fundamentally more affordable to others. I want to reiterate, there could be many great non-economic motivators for a current homeowner in a high demand market to support more housing. These motivations just fall outside the context of the original article about the unwillingness of voters to understand econ 101 supply and demand.
What you're saying all makes sense in the context of house-as-investment. But unlike other investments, you need housing, and if your house's value appreciates, you can't just sell and put that money in something else -- unless you're moving out of the area. You could sell your house and rent, but rents and house prices move roughly similarly, so you don't save much doing so. If you sell and buy another house in the area, you just end up moving your money from one "investment" to another and probably have some tax problems (from Prop 13, in California).
"Wiping out my entire investment" is less of a concern when all that means is that you can buy another equivalent house at the new price, and appreciating is less of a benefit when it means you need to buy another equivalent house at the new price.
Going actually underwater on your loans is of course bad -- though most people shouldn't be so leveraged that modest drop puts them underwater. And those who are about to move out of the area or downsize, sure, they have much more of a traditional investment mentality. But if you're 20+ years from that? If you might never move away or get a smaller house? The value of your house means very little.
* I want my friends to stop leaving the city and state
* I want my daughter to be able to afford to move out of the house in 20 years
* I want the lusher culture population density brings (better museums, more art, more interesting foods and shops, a wider variety of orgs and interest groups for me to join...)
* I want my kids schools to be less desperate for teachers, who currently are constantly quitting because they either live here and can't make ends meet or they live far away and burn out on their commute
* I care about the plight of others
It’s like wondering why the foxes don’t vote for razor wire around the chicken coops. Not in a malicious way, it’s just not in their interests.
For what it’s worth I own, and am fine with new development because I think it’s not nearly as detrimental as it’s made out to be. I think the community benefits both directly with diversity of people and indirectly as it supports more jobs but I feel very much in the minority.
tl:dr; it’s because renters don’t vote and voters don’t rent.
[1] https://www.apartmentlist.com/rentonomics/renters-and-voting...
In Palo Alto I've seen an additional nuance. When I first moved here (1984) houses were underwater and there was lots of student rental. As Stanford built student housing, most of the houses became single family but there was an aggressive effort to keep the environment diversified (e.g. two SRO hotels downtown, section 8 requirements, and a lower median income than surrounding towns).
Then in the late 90s/early 00s the real estate interests took over the city council. It was in their interest to restrict supply for the reasons you stated; if you built it was to build larger, higher priced units as replacement for existing stock which are marketed to newcomers. It's great to have new neighbors, but when you move in and worry about the cost of your mortgage, you aren't really interested any more about the structure and balance of the community.
Taller buildings have been resisted as have most new multifamily residences. As a result, the median income has shot up, teachers, cops, firefighters and the like can no longer live here. It's a different and much less interesting place.
I used to live in Professorville in a house with 10 people and a band in the basement and we got along with our neighbors just fine. Even over-loud parties were handled in a friendly fashion. Nowadays the cops get called on anything, kids jump in front of trains...too much freaking out instead of freaks. What happened to SF has been exported to Silicon Valley as well.
The question is why renters did not support more upscale housing being built, and rejected the argument that any increase in housing would ultimately result in an increase in housing supply and thus (theoretically) a reduction in rent. The answer is, they don't believe that's the way it really happens, and they're correct not to believe it.
The corollary is that the people pushing for vertical building and high density housing, while dressing the issue up as being about the homeless, are also looking out for their best interests. They want a better place to live, where they want to live, where they can make 6-figure salaries in the sun. It’s important to realize that this isn’t a matter of chickens and foxes, and there’s a reason why the focus is inevitably in areas where they can earn the most and where they would like to live.
The truth is that every aspect of this debate is shrouded in hypocrisy, because otherwise it boils down to people wanting massive new infrastructure to support their desires, or people supporting a deeply imperfect status quo because they’re already winners in it. One side justifies their desire for a slice of the pie by looking to trickle-down economics for housing, clsiming that they care about the less fortunate. The claims that the techies making their property even more valuable through demand are a plague of locust ruining their fair cities. Both are more or less full of it.
Just compare the street level unit density of old new buildings anywhere in the city. Absolutely none of the relearned lessons of walkability, integration with the rest of the city, etc., being applied.
1: https://www.nytimes.com/interactive/2019/03/14/arts/design/h...
>[The Vessel] ... ruinously manspreading
Is that what passes for journalism these days?
Add 10k $1MM apartments to San Francisco and it won’t do anything appreciable for people making $55,000/yr. it will just attract more millionaires and investors.
Trickle down anything is paper theory for your intro micro course. By the time you learn about externalities and non-linear equations you quickly realize it doesn’t play out in reality the way you want it to.
Maybe the term isn’t really that misleading though. The concept of trickle down is kind of like a clogged rain gutter. Sure, a few drops trickle down, but most of the water just piles up.
And specifically not to purchase paper, stocks, bonds, etc. All that stuff should be hard money loans.
There are a bunch of tech IPO's about to happen. What do you think they'll buy instead?
But it still works. A study recently showed that allowing construction of two market-rate units (which costs the city nothing) has the same impact on displacement as one affordable unit that must be subsidized by the city: https://nextcity.org/daily/entry/subsidized-housing-developm... (of course this got spun as subsidized housing reduces displacement twice as effectively as market rate units, conveniently ignoring the fact that the former solution requires hundreds of thousands of dollars in subsidies while the latter is half as good for no cost to the city.)
> I think it is clear from this that we can’t expect new luxury development to have the same impact on rents at the bottom of the market as it does at the top. But how much less impact is not clear. In technical terms, there is no good recent data on the cross-price elasticity of demand between luxury housing and lower-cost housing. A large group of urbanists have taken to talking about the housing market as if these elasticities were close to 1 (increases in luxury supply have a big impact on the low-end rent). But it’s just as likely that the elasticity is closer to 0 (the rent at the bottom of the market is very insensitive to the level of supply at the top of the market).
NYC is a special case all of its own with a bunch of factors specific to it. I'd say the biggest are:
1. Construction costs are so high that it's largely the same cost to build luxury condos than mid-priced condos
2. It's more profitable to build luxury condos, at leas tin Manhattan.
3. Globalization of property markets and the rise of the ultra-wealthy mean that a lot of real estate is just the ultra-wealthy parking money in homes they might visit for 2-3 days a year if at all. That's not just foreign money either (although Chinese, Arabians and especially Russian money seeking refuge in real estate in the developed world is obviously a factor). Steve Jobs owned one of the penthouses in the San Remo building on Central Park West for 20 years before selling it to Bono (or U2), having never set foot in it.
3. Bloomberg's "attract the billionaires" mantra mean that luxury condos, even after property tax abatements end, are the lowest in the city as a percentage of property value. This makes parking money in NYC more attractive.
4. The skyrocketing cost of insurance of construction projects [1].
[1] https://www.constructiondive.com/news/critics-blame-nycs-sca...
And second, the luxury housing today will be middle of the market in a couple decades.
This is something that most people who in the "only luxury housing will be built" camp miss.
If the newly rich (either acquired wealth or moving in) can't buy luxury housing because none is being built, they will just do create their own luxury housing. That's one less housing unit for normal folks.
Exhibit A: https://sf.curbed.com/2015/10/8/9913302/victorian-disembowel...
Much as I have mixed feelings about Elon Musk these days, his Boring company gamble does seem to have potential to leapfrog current bottlenecks on mass transit.
Recent data from LA Metro:
* In 2012, Expo Line phase one (Downtown to Culver City) opened, six years after construction broke.
* In 2016, Expo Line phase two (Culver City to Santa Monica) opened five years after construction broke.
* In total, the 15.1 mile Expo Line cost $2.5 billion.
* Also in 2016, the Gold Line Foothill Extension, Phase 2A (Pasadena to Azusa) opened after five years of construction at a cost of $735 million.
* Gold Line Foothill Extension, Phase 2B (Azusa to Montclair) is expected to cost ~$1.5 billion, involves some major additional work (relocating existing commuter rail and freight rail tracks), and is expected to open in 2028, about nine years after it broke ground.
In my view, obviously "middle class housing" is just "average quality housing"; as more luxury homes are built, existing housing stock will start to be considered as middle class or working class.
Further, this is how things have worked historically; in most cities I have been in, the working class housing stock is invariably older, and was originally built for other purposes, eg, a mansion now turned into apartments, or a middle class house now turned into a duplex, or simply a bunch of originally middle class tract housing now that the middle class can afford better. We have not historically, nor are we now, building large amounts of purpose-built working class housing.
> If only luxury housing gets built eventually the amount of middle class housing will become too scarce.
If housing of any type is built, then housing will not be scarce. If no housing of any type is built, then housing will be scarce. Worrying about the type seems like misguided micromanaging.
Moreover, there is no structural difference between "luxury housing" and "middle class housing". A building is a building. You take 10 units of "luxury housing" and add some walls and appliances and now it's 20 units of "middle class housing". The problem isn't what they're building, it's the zoning that prevents it from being subdivided that way.
By the time they move into it, it won't be "luxury housing". Changes in supply change prices. :)
And again, this is literally how the housing market has historically worked; it's not wild speculation to suggest it can continue to work.
> Building expensive homes raises the prices of everything around them so now most homes in a place like Boulder are out of reach.
Prices in a market are not set by production costs.
TFA is devoted entirely to debunking this idea and explaining in detail why worrying about the type of housing is very important. IMO it did a pretty solid job. If you have an actual counter-argument, let's hear it, but don't just assert it.
Different people have different thresholds of misery. Consider that people live in Manila, Mumbai, Guangzhou, and Dhaka. People even used to live in Kowloon Walled City, which looked like something out of the movie Bladerunner or maybe Soylent Green. That is what you'd get.
What a bunch of nonsense.
Prices are set by the number of units available vs number of people looking to rent/buy. The quality level is a very marginal factor.
New Yorker here. Bunch of luxury buildings came up in my neighbourhood. The highest-income renters in my building decamped. As a result, my landlord reduced rents.
Keep in mind that lots of present-day middle-class housing (e.g. Harlem) was once luxury housing.
It's sort of like the market for cars: poor and middle class people buy used, moderately wealthy people buy the same kinds of cars except new, and only a tiny fraction of the market is premium on any axis other than newness.
In Texas, taxes are heavily leavied against _wealth_ and _lifestyle_: high property tax, high sales tax (but none on staple goods and tax holidays for back to school etc.), and no income tax.
Conversely in CA, the tax structure makes it easy to shelter wealth (low property taxes AND they never increase), with moderate sales tax and high, almost flat income taxes (the brackets ramp quickly to 9.5% at $45k then are flat to $1m/yr).
Not surprising so many people are moving to Texas in search of an easier ladder to climb.
Having made the opposite move for a big tech job, the headwinds here against upward mobility are really striking.
New home owners in California are subsidizing everyone else who bought property in the past. It creates a disincentive to sell as people want to be locked in to below market rates. It might help some people that we hope to help, but it also helps lots of people who should be paying their fair share that they're instead pushing off to new home buyers.
This is a problem in the especially desirable pockets of California, and people don't want to give up a good thing once they've got it, especially when it's increasingly scarce due to the low rates of residential development.
You wouldn't have fixed the housing shortage by raising taxes, you'd just have accelerated the concentration of wealth displacing people who luckily got to live out their lives in a place they could no longer really afford to compete in.
It would still be exorbitantly expensive IMHO.
That's not what Prop 13 is about, it treats golf courses and property speculation the same as people on disability or pensions. It treats vacation homes and investment property the same way.
If it was about keeping at-risk people in their homes, there would be some mention of that. If it were about that, Prop 13's effect would be mostly to keep at-risk people in their homes. But the majority of what Prop 13 does is reward the super wealthy and jack up the incentives for speculation on real estate. Compare the tax incentives handed out to the wealthy compared to those tax incentives given to those in need, is there any chance that Prop 13 is meant for those at need?
Be honest here, does a Howard Jarvis tax bill sound like something aiming at helping those in need, or is the "help" just a cover for a scheme to hugely increase wealth inequality, and force larger tax burdens away from the wealthy to the less wealthy?
So don't give us those false accusations that wanting to fix the horribleness of Prop 13 means wanting to kick people out of their homes, those two concepts are not connected.
Why should taxes be disproportionally higher for new buyers and housing options more limited for everyone else? Not everyone in the world can live in California, and I'm not convinced that living there decades ago entitles you to live there forever if you can't afford the current prices. As a society we've decided to allocate scarce resources by price. If someone bought property in California decades ago and can't afford to pay their fair share of taxes on that property now, they can sell it at a huge increase in price and can afford to buy a luxury property in most other areas of the country.
My theory is that this will remain the status quo in CA until the last of the baby boomers is finally eradicated. Only then can the political will to make real change be strong enough to succeed.
This seems like a better way to address the problem without creating the havoc that prop 13 has in the CA housing market.
In Texas a “typical” house for about $350k would come with an annual tax bill of $10,500. And it goes up if housing gets more expensive.
Around me in SF an entry level home at $1M would have a tax bill of $10,000. But it’s locked forever.
The same bill for a property 3x more valuable... it makes an enormous difference in the monthly payment which also has a meaningful impact on the ability for prices to shoot up in the first place.
Property tax in CA goes up 2% every year. So,
year 0: $10,000 year 1: $10,200 year 2: $10,404
And so on... maybe it doesn't go up as fast as you'd like (until you own a place) but it is by no means locked in.
(It will peak over inflation in some years, but it's still effectively a freeze. Even a modest property appreciation like 50% will stay out of reach of an annual 2%-minus-inflation effectively forever.)
Unincorporated areas end up being a little less at around 1.3%, in the Bay Area at least.
Add state income tax + sales tax (9.75% where I am!) and California is a hilariously expensive state to live in.
My neighbor, who has owned their house for 35+ years, is paying 0.08% on a house worth just slightly less than mine. And more than 1/2 of that is special assessments.
That's the problem with California property tax. We are all totally disincentivized to move or the encourage a drop in our property values, since eventually we want to sell it for top dollar and retire out of state.
There's no denying that California has a problem with K-12 education due to Prop 13. But I grew up and was educated in Texas, and I can say the government of Texas has always been significantly more dysfunctional than the government of California. The "Texas Miracle" thing during GWB's campaign was obviously an attempt to take credit for the fact that the oil industry attracted the kind of people who care about education, not because of anything related to the government. In fact, attempting to recreate the "Texas Miracle" nationwide led to the disastrous No Child Left Behind law.
I more-likely-than-not won't end up having kids, but if I did, I would want them educated here, not in Texas. The government of Texas plays games with education to score political points in a way that the government of California does not. Besides, I question how sustainable Texas education is going to be without an income tax, and income tax is the third rail of Texas politics.
As to where I’d want my kids educated—I’m thinking from the perspective of having come to this country as an immigrant. We were solidly middle class and moved to a pretty nice neighborhood in Virginia with decent schools, but there is no way we could have afforded it today. If I were in my dad’s position, I’d definitely head to Houston or Dallas rather than San Francisco or LA. Heck, when I bought my house in the DC area, I was apalled at the school situation. I didn’t want my kids to grow up in a place where a million dollar house is the buy-in for a going to a good school district. We ended up moving to a different city and just putting up with a long commute.
My public high school in California's Inland Empire was a lot like a training camp for prison. Learning how to survive while crowded with the violent and insane. Riots happened almost every other week. Just too many kids in too small a place, and no funding to handle the problems from so many poor and broken families. You can't put 3000 kids in a school for 1000 with funding for maybe 1500 and expect anything else.
Chuck DeVore is a partisan hack.
California is a particularly egregious example. It has some of the highest teacher pay in the country while having some of the lowest per-student spending in the country. That math balances on the backs of students. So teachers are happy with pay, and old homeowners are happy with their property taxes, and the students get the short end of the stick. It’s California in a microcosm.
Texas has decent K-12 education in spite of everything the government does, not because of it.
[1]: https://www.statesman.com/NEWS/20170202/Texas-education-boar...
The sad reality is that Texas-style standardized tests measure basic material that students anywhere should be expected to know (take a look at the tests if you're not sure: this is not even the SAT we're dealing with). The primary purpose of them is to identify and remediate the many dysfunctional schools. If a school can't teach their kids this material and have 50% of them pass the test, they have a serious problem.
I'm always reading about attempts to put extreme conservatives on the state school board and restrict discussion of evolution and also avoid discussing uncomfortable issues around slavery and the founding of the country - that must not have had much impact. For housing, I kind of understand why Texas is much less expensive to live in, partly because they have those endless cities across the plains.
I think another thing is that there’s a lot of natural lived diversity. What I mean is, for example, my parents middle middle class neighborhood street looks like: black family, white family, Indian family, Hispanic family, European first generation family, just all in a row. And that’s pretty common. I think in part getting back to the housing thing, it’s within reach of most people.
As for the “extreme conservatives,” I don’t know. I think it’s one of those things that the media likes to pounce on and blows out of proportion. Yeah sometimes they do dumb stuff but generally speaking radically conservative proposals get floated by fringe political folks in red states just like radically liberal proposals get floated in blue states, then never goes anywhere. I think it’s more fodder for the news-tainment industry than actual policy making.
Ref: https://www.avalara.com/taxrates/en/state-rates/california/c...
CA (at least the Bay Area) incentivizes a very different sort of upward mobility: striking it rich through owning equity in a business doing fundamental innovation in its area.
If you're hoping to steadily build wealth by working for a big tech company, staying in CA long-term, and saving your money, you're playing the wrong game. (And I say this as someone who came to CA to work at a big tech company, has been here a decade, and married a local.) There are three basic paths to wealth in Silicon Valley:
1. Found a company outside of the valley. Do all the initial work in a low-CoL area, get customers and traction there, and then move to Silicon Valley for fundraising and scaling. Enjoy your equity appreciation, and cash out a billionaire.
2. Move here in your 20s. Get on a rocketship - a company that is likely to go public in the next 5 years. Stick it out for 5-ish years, enjoy your equity appreciation, and cash out a millionaire. Move to some other low-CoL area to buy a house and retire.
3. Get a time machine. Buy a house 15 years ago. Enjoy your equity appreciation as successive waves of #1 and #2 bid up housing prices. Cash out now, and move to some other low-CoL area to retire.
If you're moving here hoping to work for one company the rest of your life, save up, and eventually own a home, you're in for a rude shock. Most of the housing stock is taken up by #3, and #1 and #2 will be able to bid up the rest far higher than any ordinary worker can afford without using a perilously high proportion of their salary. If there's a market downturn or shift in the tech industry, you get laid off, your employer's stock takes a hit, and you're screwed because many lenders count stock compensation as part of your income for deciding how much mortgage to give you. And housing prices in Silicon Valley are heavily correlated to the fortunes of the tech industry, so if there's ever a permanent downturn, this place will be the next Detroit.
Eh, I really thing big tech is a feasible means to building wealth. Just don't confuse 'publicly traded' for 'big tech.' I understand the source of emotional pessimism, but wages for big tech seem to start around 200k, and increase annually with RSU refreshers.
It is entirely feasible to save away 100k a year in that scenario. Invested prudently, that'll compound up well with a far lower risk than the startup equity lottery, and is far more liquid. You don't even have to invest in real estate, if you're happy renting, and the current tax situation makes home ownership marginally less appealing.
The problem is that so is everyone else - or maybe not "everyone", but a significant enough fraction of the Bay Area to have a measurable impact on prices. So while I saved up a whole lot, most of it will get eaten up if we choose to buy a house in the area. The competition among homebuyers isn't your average middle-class professional, it's couples where both of them work at FAANG companies, making over half a million combined a year. When all buyers have the same means, prices rise to match, and you get inflation, you don't get wealth creation. The only way to get wealth creation is to build more wealth (in this case housing, but it also refers to other social services like childcare, healthcare, transportation infrastructure, etc.).
Right now, we're doing standard-of-living arbitrage: we live like people who don't (and didn't) work in tech, rent an apartment, and bank the rest, which gives me time to work on my startup idea (going for #1) and my wife a decent cushion to advance her career. That only works until what's left of the middle-class is entirely priced out of Silicon Valley, though. While immigrants and service workers can still find apartments, rents will remain priced at what they can afford, but if the housing crunch becomes severe enough that all of them move over the hill to Pleasanton or Davis (which is already happening to a lot of them), rents will jump to the maximum that a tech salary can afford.
Note that Austin has some of the same issues with housing prices surging due to nimbys. The biggest difference is that outside the city proper there’s a lot of land and a lot of suburbs that are thrilled to have Austin aggressively push the growth “out,” and also it was a much smaller city to begin with so this is the first ring of suburbs we’re taking about, not a second or third ring as you’ll find in bigger cities.
My main argument is just that property tax is a more effective wealth tax and lends itself towards a more progressive overall tax system.
Under Prop 13, property taxes go up 2% every year.
Sure, that doesn't quite keep up with appreciation in boom years, but not the same as "never increase".
[1] https://inflationdata.com/Inflation/Inflation_Rate/Long_Term...
I’ve never heard anyone suggest restricting job growth when a place is “overcrowded,” but why else do people move there?
This in itself fully explains the absurd California job/housing situation. If we changed those laws, it would solve itself just through the greed/invisible hand of local government.
Or is that maybe what you mean by "mixed zoning"?
Maybe initially, but would it stay that way? People change jobs more often than they are probably willing to change homes, which will tend to bring back the traffic.
They probably wouldn't live on the same block as their jobs if housing was legal, but they'd be a hell of a lot closer.
1.5 - 2 hours from SF gets you to Modesto, maybe even to Merced, both of which have plenty of houses under $300k in the 1600ish sq ft range on a nice lots.
Doing that commute every day to work in-office would be a pain in the ass. But doing it once a week for face to face meeting with the rest of your team and working the rest of the week remotely should be a lot less of a pain.
PS: kind of similar situation in Seattle. Go west, across Puget Sound, either by driving south through Tacoma and back north on the west side, or by taking the Bremerton, Bainbridge, or Kinston ferries, and you can find plenty of affordable housing 60-90 minutes from Seattle.
But you really don't want to do that commute every day. Once a week, though, and it would be fine.
For highly desirable cities I have to wonder if the same thing is true for housing. I mean, it feels like even if you doubled the amount of housing in SF that you would just cause more people to want to congregate in SF while 3rd tier cities and rural areas would empty out even faster.
People misunderstand how that works.
If you have a road which is excessively congested, the congestion suppresses demand. Nobody wants to sit in traffic for two hours, so people stay home or make use of flexible hours to commute at what would otherwise be less convenient times etc.
If you add capacity to the road then the congestion gets better, but not by as much as you would have expected if you looked at the existing traffic, because the fact that it got better caused some of the congestion-suppressed demand to return, which made it less better. So the net result is that it got a little better when you expected it to get a lot better.
But that doesn't mean you can't fix it by adding supply, it just means you need enough supply to satisfy the whole demand, including the demand that was suppressed by the high congestion (or in the housing case by the high prices).
Of course, in the road case there are also alternative ways to satisfy demand, like building more housing so that people can live closer to where they work and don't have to drive as many miles.
While I don’t agree with all of it, he brings up a key metric: “cross-price elasticity of demand” between sub-markets.
Then, once you've been there long enough for your rent to be lower than the market rate (which itself is more expensive due to rent control), the landlord loses any incentive to maintain your apartment. Certainly you can expect to never see any improvements, and you'll be lucky if they even do what they're required by law rather than hoping that the insufferable conditions will cause you to move out.
Then you can never leave. Apartment is now too small? Too big? Too far from your new job? Bad luck, you're stuck.
So you get widows and widowers living in three bedroom apartments they don't need because it's cheaper to stay there than move to a one bedroom down the street (which could otherwise have actually saved them money), meanwhile a family of five is living in the one bedroom because the upgrade to three bedrooms is a rent increase of 700% rather than 70%. And better hope you don't get a new obnoxious neighbor, because you'll be together forever since neither of you can leave.
Rent control isn't great for anyone. If you want to hedge against rents increasing by paying a bunch of money up front, maybe invest in a local REIT.
Rent control stabilizes rents in places where they can explode and collapse faster than a tenants salary can change to compensate, that's all. All the other problems you bring up are from poor implementation, not that it's a bad idea for everyone.
[1] https://nypost.com/2019/03/20/more-than-a-third-of-new-yorke...
Honestly if they kept on building subways like they used to, plus didn't funnel all of them into Manhattan (grid routes), rent would be mostly fine too.
The culture and classist issues of gentrification have more to do with inequality than cost of living.
“43% of Californians say they can’t afford to live there”
Also, what’s the point of your footnote formatting when your link immediately follows?
Everything is relative to the impact on the rest of the economy of course. It is possible that prices could be kept down if the demand collapses because of not having enough to justify the expenses.
https://www.redfin.com/NY/Corona/112-50-Northern-Blvd-11368/...
In the Bay Area it's expensive near job centers but it's still expensive 40 miles away.
California's problem is property taxes. Tax people fairly - not based on the time they joined the class of property owners - and our problems go away.
Look at Bay Meadows in San Mateo. An entire community has been built in the last few years. There are a ton of condos, townhouses and single family homes built in quite frankly a well thought out community.
Townhouses are over $1.5M and SFH, which are yards away from the Caltrain are over $2M.
This is entirely new supply and their prices are higher than existing houses. The prices in the area didn’t go down, they went up because this legitimizes the high prices and solidifies them.
The only way you get lower house prices is by killing demand like during the housing bust, not by increasing supply because supply doesn’t happen at the scale that is required to decrease prices.
In a largely unregulated market land use is largely dictated by how expensive that land is. Developers don't otherwise just decide to build high rises, mid rises, townhouses or SFHs. It's why the 3-6 story condo complexes you get in, say, Santa Clara County you don't get in Manhattan.
Now obviously this is complicated by regulation, demand in different market segments, what the infrastructure can support, etc but the prices you give seem to suggest the land value is extremely high. Building low density housing on that is going to lead to really high prices.
[1] https://baymeadows.com/2017/12/22/2017-lets-do-the-numbers/
[2] http://www.bayareacensus.ca.gov/
[citation needed]
1) In the segmented model, the cross-segment elasticity limits the impact of high-end supply on lower-segment prices, but that applies just as much to the impact of _high-end demand_. Yet the same people who reject high-end supply as a solution are much more likely to believe in high-end demand as a cause (those damn techies pushing housing prices up!).
2) There is a significant number of singles with high-paying jobs in San Francisco who are living with roommates, in tiny studios, etc. These people who would live in much larger and better housing in any other city. Thus there is a good reason to believe that the cross-segment elasticity in San Francisco is actually quite high.
3) In general, nobody believes in Economics 101 when it comes to policy, unless it aligns with their other preferences.
I'm surprised they don't consider time as a dimension of market segmentation, i.e. what is "luxury" today might become "standard" or even "basic" as time progresses. Even things that you'd think would stay static over time don't -- houses are larger today than they used to be, and I could very much imagine people standing around 100 years ago talking about only "the rich with their luxury running water" can afford to live in a certain area.
I think long-term the solution really is just to build, and build, and build. Over time, if builders consistently add supply to the top of the market, it will gradually slide downmarket as it ages and its amenities become more standard. I think the biggest problem is that in California, the normal process of adding luxury units has been paused for 20 years due to anti-developer sentiment, and they're trying to make up for it now, at all once.
I'm reminded of a saying: the best time to plant a tree is 20 years ago, but the second-best time is today.
Another thing, and I wasn't even going to mention it, but any Bay Area real estate developer will tell you [0], it's very difficult adding supply to the middle of the market here because things are just so damn expensive. Affordability is not and never was the priority. It's 500K to build a middle-market affordable unit before the developer makes a cent of profit. For that, thank buy-local regulations, environmental legislation like CEQA, organized labor, huge "developer impact fees", extremely long wait times (years) for permits to get approval, and now "inclusionary housing" requirements that force developers to cross-subsidize below-market rate housing by jacking up the prices of the market-rate units. It's madness.
[0] I'm married to an architect working in the Bay Area.
[1] https://www.zillow.com/san-bernardino-ca/foreclosures/
For example, one person is a petroleum engineer and the other person is an avionics repair technician. Finding one job or the other in a small city is easy. Finding both in the same small city is hard.
Bravo to the author!!
https://www.ft.com/content/023562e2-54a6-11e6-befd-2fc0c26b3...
Wages are extremely inflated in certain hotkey areas with housing issues. There was a story somebody shared a couple of months back on here about somebody in the Bay Area working at a cafe unable to find affordable housing on the $75k he was taking home. The point of the article was supposed to be pointing out that even such high wages don't solve the problem, but I think the more salient point is that high wages cause the problem.
Cafe work is relatively low skill. When you can take home 250% the median personal income for low skill work, you're never going to find affordable housing. Such high wages are already driving seemingly endless economic migration with unaffordable housing. Add in reasonably affordable housing and you just exponentially increase the demand.
The point of this is that I think it's questionable about whether or not you can build your way out of this. There are two examples we can look at for lessons: Hong Kong and Tokyo. The current situation is that both are extremely densely populated areas. Hong Kong has 17,552 people per square mile, Tokyo's at 16,121. Hong Kong is extremely expensive whereas Tokyo has become a somewhat reasonably affordable place to live. Many people have tried to attribute this to various programs the Japanese government has carried out.
In reality, one factor plays a dominant role. In the 90s many expected Japan to become the world's leading economy. They were actually far ahead of the US in terms of GDP/capita. Since then they've gone through decades of something between recession and stagnation. Their GDP was higher in 1995 than it is today. Hong Kong, by contrast, is much more like all the other areas facing housing pricing issues. Their GDP continues to exponentially accelerate - far more than doubling since 1995 with a continuing exponential growth. Japan, in general, became affordable because it became economically less desirable. And ultimately I think that is the only solution - but it's one few would ever lobby for!
On the other hand if your goal is not to actually create affordable housing, but instead to simply maximize your GDP then things become much more interesting - but that's an entirely different topic.
Vancouver B.C. had it so bad that they had to tax foreign investment purchasing. https://en.wikipedia.org/wiki/Bill_28_(British_Columbia)
Maybe it takes a huge amount of luxery housing before another type gets "naturally" made, but with good land use at least the rest isn't stuck with crippling commutes.
If we had good land use, we could probably get away with saturating the luxery housing market and not sticking everyone else with terrible commutes.
> See where the Wheels and Deals is going to be torn down and have another living complex built there? And the old nursery, a pre-school as well! It's never going to end until all of El Camino is a mess of roaming cars and people. Our whole area is going to be turned into an over populated dump.
And in case you weren't clear on who's doing the over population, the poster later makes clear their opinion on the subject:
> These living places aren't being built at the alarming rate they are because there's a line of people waiting. NO sir.....there being built to ATTRACT them here. WHY.. would we want that? Politicians can shove all their forced urban developments. They're not living in them.
> And for the record, the state of California and it's past buffoon elected officials are the ones to blame. If they weren't so busy preaching sanctuary state they would have come up a population control plan. That's whats needed. Not trashing cities with every element that has little to offer.