Both. I spent the last decade having these conversations with people who also grew up here and can’t afford to remain here without staying with their parents, with some of the stranger conversations devolving into my counter parties brainstorming ways to kick tech people out of the City and stop new people from moving in altogether, as if freedom of movement in the United States wasn’t really a thing.
It’s not “supply and demand”, it’s “selfish rich techies and landlords”. I mean you can read that as supply and demand restated, until you get to next steps like solving the supply problem, and apparently building one more apartment building will irrevocably ruin the character of the City.
It's a side effect of de-taxing land. The more land becomes an asset and the less it becomes a liability (e.g. by capping property taxes) , the greater incentive there is to hoard it and jealously guard its value with NIMBYism which leads to even less development, greater shortages and even higher prices on an upward spiral.
Saying "it's about supply and demand" is not technically wrong but it glosses over the toxic systemic changes which brought us here and exculpates the people who deliberately fought for them to create this mess.
If land were closer to being in a liability in SF then the NIMBYism would be a pale imitation of what it is now and the land would be used much more efficiently and property wouldn't be as astronomically expensive.
However, land owners need an economic incentive to develop that requires them to lose money if they use land unproductively.
That means taxing the value of the land - preferably directly (via LVT) but failing that by raising property taxes.
Even if land were historically taxed at say NYC rates in SF the supply and demand problem would still rear its head. The problem is artificial supply constraints created first and foremost by zoning and secondly by a myriad of other regulation that infringed upon property rights and adds friction (time, money, risk, all of the above) that prevents people from exercising their property rights. Prop 13 (a monetary incentive to not sell) falls into this latter category. LVT would just be the revers of Prop 13. It's not going to solve a fundamental supply and demand problem that's created at a lower level. You'd have everything built out as much as the zoning allows for but the net result would still be inadequate because the zoning is too restrictive and the regulatory friction is going to still works its magic at the margin.
NIMBYism is a result of people who really want to protect the value of their land. Some of these people will be quite desperate to do this because they're highly leveraged. Negative equity is a good incentive to turn up to your local planning meetings and inhibit development.
I think NIMBYism only looks financially attractive because everyone who bought a square of land in a "city" since the 1970s or so and held for at least a decade has won big regardless of where. That doesn't mean that SF/SV isn't forgoing a lot of money in order to keep its NIMBY policy. Think about how much just the squares of land those single family homes and low rise buildings in SV are on would be worth if the SF was developed to NYC, Chicago or Boston levels.
I think the fundamental problem here is that the people of SV people do not believe in property rights (e.g. the right to develop property you own as you see fit) to such an extent that they are willing to put their money where their mouth is and codify it in the form of (restrictive zoning and other shenanigans that hinder development) even though this inhibits growth and limits their upside.
* People who have watched their property appreciate in value by 4-10x for basically doing... nothing.
* People who have taken out an eye watering loan for well over a million dollars and are kept up at night by the idea that theyll owe a million dollar loan on a $750,000 home.
Of course they're going to be conservative! Of course they're going to try to avoid anybody rocking the boat! Of course they'll be NIMBYs!
Why on earth would you think that the one thing that keeps them ludicrously wealthy - property rights - is the thing that they'd stop believing in??
I think you and your parent are not using "property rights" in the same way. You're talking about the right to own property in a sort of static sense, while the parent is talking about the right not only to own property, but build and develop on it as the owner sees fit.
SF homeowners of course believe in the kind of property rights you're talking about, but mostly do not believe in the latter. Most homeowners here want (and unfortunately mostly have) absolute veto right over any kind of construction or development that their neighbors want to engage in, whether it's as simple as reasonable cosmetic changes by a resident homeowner, or as complex as a denser rebuild by a housing developer.
(But I mostly agree with you in your characterization of the two types of SF homeowners. There also are some who are nominally in your second category but wouldn't be catastrophically financially impacted if their mortgages went under water, but they're definitely in the minority.)
I guess they "care about property rights" in the same sense that everyone right of die hard communists cares about property rights but that's kind of like saying it's a warm day out because it's 200-something degrees above absolute zero.
If they care so much about property rights then why is it so hard for people there to do build on their own property that increase the value of that property?
Saying SF cares about property rights is like when the person who creates drama says they don't like drama.
Yes and no, and this is a big part of the problem: young adults in the US are taught that their primary residence is/will be their biggest investment. So you get this weird set of fears that encompasses the worst of both.
The house-as-residence aspect makes them fearful that you won't make your mortgage payments, or your mortgage will end up under water, and the bank will foreclose on you and you'll be homeless. The house-as-investment aspect makes them fearful that they'll take a loss or even break even come sale time, and then their retirement nest egg will be weak.
So I agree that fundamentally yes, people are buying a house to live in, but it's a lot more loaded than that.
If housing costs were more reasonable, perhaps we could turn the tide against this "primary-home-as-investment" attitude, which I believe to be counterproductive.
I live in one of those sorts of cities. Detroit is their own doing because of local tax code. There's a decent amount of "there was a falling down commercial building here so we bulldozed it and then just let it sit" type of lots kicking around in other cities but the lots have still increased in value (i.e. inflation has happened) enough that mostly nobody is underwater and anyone looking to get out can do so without losing money.
> a myriad of other regulation that infringed upon property rights and adds friction (time, money, risk, all of the above) that prevents people from exercising their property rights. Prop 13 (a monetary incentive to not sell) falls into this latter category.
I think Prop 13's incentive not to redevelop is actually more significant here than its incentive not to sell.
Right. At least when you're old enough to be in retirement there are a bunch of ways (expanded this year) to sell and keep your old tax assessment on your new place. AFAIK redevelopment will always trigger a reassessment no matter what.
> Saying "it's about supply and demand" is not technically wrong but it glosses over the toxic systemic changes which brought us here and exculpates the people who deliberately fought for them to create this mess.
I am happy to discuss all variables which inform the price, so long as we agree to give supply and demand top billing. We can even discuss the variables which inform supply if you like.
No but when figuring out what informs a price you want to look at supply and demand first. There’s room for other variables, but you normally start there.
EDIT: While I’m inside the edit window, let me throw in another big variable as an example. Costs are another factor that inform a price, and a big one. You could make a case that it deserves higher billing than supply and demand, but if your costs are $X but you can only sell your widget for $X-1, and not $X+>=0, then $X-1 is your price ceiling. Your business is unprofitable and losing money.
I’m trying to be careful with my words but I still seem to be leaving some people with the impression that I think supply and demand is the only variable that informs a price. It’s not, but it’s still incredibly important and often dismissed as a non-factor when discussing San Francisco rental and real estate prices with San Franciscans.
But property supply itself is a constrained effect of politics and the relative power of various social groups, not a unique and independent primary cause.
If landlords can make a killing by constraining supply politically, they will. So the primary cause is the incentive system and the political environment which makes it possible for them to do that.
It's all about how the reward functions are designed. So of course if you reward scarcity and profiteering that's what you get - as a secondary outcome, not a primary cause.
It depends on your definition of "landlord". If by landlord you mean the typical NIMBY homeowner then sure it's true. But in practice landlords can make more money off of building more units vs squeezing out more profit from a smaller amount of units. So if you were a politician and followed the advice of the greediest landlord you would not end up with scarcity. The political environment doesn't listen to the greediest landlord though. It primarily listens to the homeowner type of landlord.
That's not typical of California landlords because of Prop 13. The tax benefits entirely shifts the market towards the benefit of properties that have been in the same hands for a very long time. So building new units will be far less profitable than old buildings, long-held, without any significant renovation. It's very rare to find an existing property on the market that is profitable to rent out at current market prices, because there's a lot of anticipated value gains built in to current prices.
In cities with zoning constraints, developers are the only natural predators of landlords. They are entirely different skillsets, building new units requires managing an extremely difficult political process for permits, raising capital, working with contractors and labor, etc. Being a landlord requires very different analysis and skills.
There may be a few landlords with the capacity to cross over to development too, but it isn't many of them.
Political factors can also inform supply, it doesn’t change the fundamental calculus of supply and demand, merely shapes the supply.
If you have a bunch of left wing groups who are anti-development fighting to keep supply constrained even while complaining the rent is too damn high and the character of the City is changing and yadda yadda yadda, who are you[1], as a landlord, to take the wind out of their sails when you are profiting from their protests?
This is just wildly incorrect. Landlords are very strongly opposed to left wing groups in SF, based on political funding. Landlords are the number one target of progressive legislation. The most left wing supervisor is literally a tenants rights attorney who ran on protecting rent control and wrote the law banning evictions.
Land is a rivalrous good but housing isn't. Sprawl is just the most conflict free way of giving everyone what they want but it's not the only way. You can always build more housing on the same piece of land.
Supply and demand is pretty obvious because of the basic physics behind it. If you have a world with 10 houses and 20 people then 10 people will be without a house. It's not very difficult to see the problem and how to respond to it. We first have to establish that we want every human in our country to have shelter. That means what we don't want to happen is the allocation of housing to a subset of the population, be it via the free market, a lottery or an application process where you are vetted by an interviewer according to some criteria. We don't want any of that. So the obvious solution is to just build more housing, regardless of the economics.
Now lets just add a thin layer of economics.
It turns out that the free market has this interesting property that in the case of demand exceeding the supply the cost of housing increases until it becomes profitable to build more housing. It's a self balancing system if you make sure that it's not getting stuck somewhere.
Turns out if you make it really difficult to build more housing then people decide to pack up and leave because that's the only option left. For the sake of the argument 20 people can't live in 10 houses so 10 people will have to go build housing somewhere else.
Now here is the perverse thing. The same people who made it difficult to build more housing also made it so that they get to stay where they are by removing the pressure to leave the location. What we get is 10 people living in housing and 10 people living in misery. You don't need an economic resource allocation mechanism like the free market to cause misery. The misery already exists in the real world and the economics merely summarizes that misery as a price signal.
So why care about supply and demand? Because it's the closest thing to physical reality but what people fail to grasp is that you have to change physical reality to change the economics. No, messing around with prices via rent control or prop 13 does not solve the underlying problem.
Veblen goods are a special case that prove the concept. With a Veblen good the price paid is part of the demand: you want that Rolls Royce or Lamborghini or diamond ring because its expense signifies your social status. The demand curve then slopes upward: at higher price points consumers demand them more. You can still analyze them by supply & demand, but you just have to take into account the upward-sloping demand curve (which is not unlimited, BTW: Veblen goods still reach an equilibrium price point where supply reaches buyer's ability to pay, it's just higher).
But they are using land productively as they are making $3100 a month off of a small studio.
Also I doubt if raising taxes will result in anything more than them passing that cost on to the renters.
When people talk about "using land productively", they aren't talking about a single person's profit. It's more of a "collective productivity".
You can only pass on so many costs before demand drops because the price you're asking just isn't feasible.
Non-resident landlords in SF, to my knowledge, aren't really anti-development. They recognize that 2x the number of units on the same parcel of land won't cut the per-unit rent in half, so higher density is still a better deal.
The problem, from the individual landlord's perspective, is that they can't redevelop their own land without triggering a tax reassessment, which can easily turn any profit into a loss, even after adjusting rent for the newly-developed property. The landlords who are making out like bandits right now are the ones who have owned their properties for decades. I wouldn't buy a duplex or a quad-plex in SF right now with the intention to rent it out; the cost of the property, plus 2020-assessed property taxes, would mean I'd barely break even at market rates (pre-pandemic market rates; current market rates might be a solid operating loss).
Large developers that are coming in and wanting to build apartment or condo complexes essentially have to build so-called "luxury units", because the economics won't work out otherwise, when you take into account high initial property taxes and the high, drawn-out cost of just building in SF.
which is why i think property taxes are a stupid form of taxation. The property's income should be what's taxed - not the "value" of the property. And that income should be taxed at the marginal tax rate of the owner.
Land owners are not in the business of giving money away. That's precisely why increased taxes will not result in increased rents. After all, if they could increase rents and the market would clear it when there's a tax, why wouldn't they when there's no tax?
They're not selling at cost-plus, they're trying to maximize profit.
Because renting in SF trades off in part against buying in SF at the margins (and against renting nearby to SF and against moving out of SF entirely). If buying in SF becomes more expensive due to an LVT, then renting becomes more competitive on the margin.
I find it to be strangely magical thinking that land-value-taxes will precisely and surgically extract 100% of their value from landlords with no players in the game altering their behavior in any way that would result in the effects being shared across many participants in the real estate markets in a city.
The idea behind the LVT is not about making rent cheaper. It's to reward landlords for using land more efficiently. If the land costs a fixed amount you want to build as many units as possible and make each unit as attractive as possible.
Compare that to a conventional property tax where you have to pay more tax for each unit of housing you build. You also have to pay property taxes for home improvement meaning old properties won't be renovated ahead of time and therefore won't be rented them out. Instead the house will only be available for sale with the hope that the buyer will renovate the property.
Have LVT proponents ever considered augmenting it with tax credits on the LVT for property improvements? To really hammer home incentives towards development in especially supply-strained markets such as S.F.
Usually, the LVT on its own will be sufficient to provide an incentive to develop in an economically efficient manner. The real problem isn't that. The real problem is that people do not desire their neighbours to operate in an economically efficient manner. It is just risk aversion in a different sense except the asset is being paid for by someone else.
Imagine that the US government would buy you a bicycle, any bicycle, at any price, reallocating from things that you don't care about, so long as you tell it how important a bicycle is to you. You are likely to describe it as being a matter of life and death.
The amount any human would pay for a view is different from the amount they require someone else to pay to obscure the view. Economic efficiency is not a goal in any sense. And any incentives such as the ones you provide would be struck down in the court of popular opinion because it is the outcome that is not desired, not the process.
LVT is a tax only on the unimproved value of the land. Property improvements are not covered: the land owner gets to keep (or pass onto the renter) 100% of the value of such improvements. No tax credit is necessary; it's a natural consequence of how the tax is structured.
Right, I understand that property improvements aren’t considered in LVT, and are naturally incentivized through the application of the tax. I’m just speculating if specific development-adverse markets could use both LVT, and credits against LVT to really get the pro-development ball rolling.
Based on the one prior attempt at LVT in the U.S., landowners don’t seem to understand its intent:
There's a pretty big risk of market distortions then. I could easily see landowners adding whatever "improvements" the tax credit incentivizes, regardless of whether it benefits the tenant or increases the potential rent charged, and then passing the cost along to the tenant. Also see a booming cottage industry of contractors & paper-pushers to get the tax credit.
I do agree that an LVT has psychological issues when proposed to voters. It's a massive change to how we currently do things (that's the point!), and it preferences groups who don't currently have political power (future developers, tenants, future residents) over those who do (land speculators, retirees, existing homeowners). I think the most likely scenario for its adoption is in the aftermath of a cataclysmic war that destroys all the existing infrastructure and redraws political boundaries. Likely one successor polity might try it out (since everything's dead & destroyed anyway), and then their pro-development advantages would draw lots of displaced immigrants to them, and eventually they'd amass more power than their neighbors through that economic dynamism. Much like how the U.S. became the pre-eminent global power through an innovative politico-economic system + immigration friendly policies + near complete genocide of the native population.
> Much like how the U.S. became the pre-eminent global power through an innovative politico-economic system + immigration friendly policies + near complete genocide of the native population
It's also invaded a crap-load of countries and defacto taken their natural resources And slavery.
No, that's a facile understanding. The loot-and-plunder style colonialism has given way to a unique variant that the US practises. It's not quite "take their resources" like the British Empire and friends did.
See Japan, a de facto US vassal state after WW2 and what they've grown into. Similarly, Korea and Israel. Also, Germany and France. They are just smaller participants in an alliance.
United Fruit style things still happen but the dominant style of US hegemony is different from VOC or EIC style imperialism.
It sounds like GP understands that point and is positing a "what if the value of certain new improvements were taxed at a negative rate?" (rather than a zero rate)
The point of LVTs is precisely to alter participants' behavior in the market.
The value of LVTs is in aligning incentives so that landlords have an incentive to build more housing and use it more efficiently. It makes vacancy & speculation a money-losing endeavor (the same way that inflation makes holding cash a money-losing endeavor), and creates political pressure to repeal zoning laws and create smart public improvements, ones that will increase the value of the land more than their cost. Its value as a revenue source is secondary, and many proponents (of the geolibertarian sort) actually support lower tax receipts and smaller government.
> The point of LVTs is precisely to alter participants' behavior in the market.
Maybe this is the point to its proponents. However:
> Its value as a revenue source is secondary, and many proponents (of the geolibertarian sort) actually support lower tax receipts and smaller government.
Statements like this muddy tax discussions.
The primary reason for any tax at all, regardless of type or preference is to raise revenue for government. That fact shouldn’t be lost when discussing which kinds of taxes and what percent to raise them at is discussed, even when optimizing for political outcomes.
If the government were raising more tax than it needs for example, tax revenue is too high. If the government is spending more than it is collecting, then tax revenue is too low. Effects on market behavior are always secondary considerations.
That depends whether you're a politician or an economist. ;-) Through a politician's lens the goal of a tax is to raise revenue for government and tax policy exists to do that efficiently. Through an economist's lens efficient trade and alignment of incentives are fundamental and governments exist only incidentally to ensure those. There are various schools of economics that suggest limiting government's role only to the enforcement of private property rights and kneecapping its ability to do anything else.
It's much like how to a physicist, vectors are real objects that live in the abstract concept of a vector space, while to a mathematician vector spaces are fundamental axioms and the existence of vectors is just a consequence that falls out of these axioms.
You missed out an important perspective that is neither purely politician nor purely economist: taxpayer.
Taxes are paid on money earned, whether through labors, investments or rents. They are a taking, a legal one, of something that rightfully belongs to someone else, so if you are going to take it, then it had better go back to government services.
Economists have found ways to reinterpret taxes and exploit their second Order effects, but this does not change what a tax is or how it should properly be used, nor excuse the misuse of surplus revenues.
Now the reason I bring this up is because if a tax were enacted for the express purpose of shaping public behavior and the resulting revenue was greater than what the government needed, what ought to be done with the surplus revenue? Should the tax be lowered to match expected expenses? What if lowering it to that level negates the benefit of shaping public behavior? These are the conflicts I would expect to see come up.
This is one of the reasons why the discussions around taxes tend to fall along the lines of what is taxed, how much, and where the burden should proportionally fall. Leading with second order effects muddies the waters and hinders productive discussion.
> [taxes] are a taking, a legal one, of something that rightfully belongs to someone else
IMO a LVT holds up (relatively) well under this sort of moral reasoning. I'm sure many arguments can be made around what's fair, but it's intuitive that income from labor, investments, etc should naturally go to who performs the labor, who makes the investments etc.
The (unimproved) land itself is a bit different. It can't go to who created the land, since no one did. In the US, the closest thing is maybe who first took it from the Native Americans. The moral argument for strong property rights (on the land without improvements) to begin with seems weaker than the other cases, since there's no contribution to society tied to making the land (of course switching from one tax regime to another is another matter, since people certainly buy land that is valuable under our current system with their hard-earned money).
That also leads to its (relatively) small effects on incentives for a tax. Taxes on labor and investment income of course discourage labor and investment, but the amount of land does not decrease no matter how much it is taxed. Even a huge tax probably does not affect the monthly payments to use land very much (since the supply and demand still remain similar), it would probably just lead to lower land values and more of the monthly payment going to taxes instead of interest.
> Now the reason I bring this up is because if a tax were enacted for the express purpose of shaping public behavior and the resulting revenue was greater than what the government needed, what ought to be done with the surplus revenue?
I think this is an interesting question especially with things like carbon taxes being considered seriously. It seems like two natural things to do would be to either reduce other harmful taxes that exist only to raise revenue, or to distribute the funds to everyone equally. I could see an argument for the latter if the incentive-shaping tax was something that would raise living expenses for most people (for example, a carbon tax that increases electricity costs), since otherwise it would negatively affect people living off savings or others with low incomes.
I'm aware of the taxpayer perspective and it's a big problem with getting adoption for an LVT. It's the type of policy that makes most people better off but you can never really convince people to adopt, because it sounds worse than alternatives.
There's actually an economic theorem (the "Henry George Theorem", discovered by Joseph Stiglitz in 1977 [1]) that states that under conditions of democracy & perfect information an LVT will exactly "right size" the government, spurring investment in only those public goods that pay for themselves in increased citizen welfare. That's because the tax revenues from public good expenditures come back in the form of increased rents: a playground nearby, a subway stop, better schools, low crime, stable currency, a strong military, etc. all increase the amount of rent that a landlord can charge for a property within their jurisdiction. That rent then comes back to benefit the exact same people who are paying the tax, which removes the principal-agent problem inherent in most taxes (where you pay the taxes but it benefits your neighbor). Landlords have an incentive to raise taxes on themselves right up to the point where the public improvement fails to raise rents by more than its cost. Tenants have the same incentive - as long as the cost is less than the public benefit, they get to enjoy the benefit, their rent will raise by the cost (as landlords pass along the tax), and they end up better off. When costs rise more than benefits (as they seemingly have in SF), people leave the expensive jurisdiction and move to areas that have more smartly allocated their tax dollars.
The main problem in practice is that you can always direct people's attention to small problems that don't raise their welfare in aggregate much - saving the burrowing owls, for example, or banning abortion. The economist's answer is that this will eventually even out across many people and many municipalities, but I think we have pretty ample evidence that people are not necessarily rational beings, and an LVT isn't all that robust to irrationality.
> The primary reason for any tax at all, regardless of type or preference is to raise revenue for government. That fact shouldn’t be lost when discussing which kinds of taxes and what percent to raise them at is discussed, even when optimizing for political outcomes.
That's a political statement speculating at intentions. For instance, the number one purpose of a carbon tax is to disincentivize carbon emissions. This is exemplified by the fact that carbon tax proponents generally support returning the money to all taxpayers as a 'green dividend', i.e. it's a net-zero redistributive policy.
Raising government revenue isn't that important compared to the prime purpose of the carbon tax.
If the market will only bear $3100/mo for an apartment today, that's in part because some less desirable apartment is renting for $3000/mo and that might be the case because that landlord can break even on cashflow and bank on the appreciation.
Institute an LVT and those competing landlords may become cashflow negative, forcing some of those units off the rental market entirely (typically to sales to owner-occupants, sometimes to landlords with better financing or lower overheads, sometimes to short-term rentals or other higher cashflow uses).
An extra $100/mo of LVT may not result in an extra $100/mo of market-clearing rent, but it's far from obvious that it results in $0/mo change.
Thought experiment: if the LVT for that unit were $3500/mo, what do you think the offered rent would be? If that's the case for $3500/mo, what part of that doesn't hold for $3000/mo, $1000/mo, $350/mo, or $35/mo?
I don't think you could have a $3500 a month LVT for an apartment that rents for $3100/mo, because the land value is not fixed.
Put another way, I think the main thing that is going to take hit as the LVT % increases is not renters or landlords, but the land value itself.
A piece of land that rents for $3100/mo may have landlords willing to pay $2000/mo for the land so they can break even after construction, overhead, etc. Absent any taxes, maybe they could pay the whole $2000/mo in interest on a loan to buy the property. As the amount of land taxes increases, the budget to make the loan payments decreases, which should reduce the property value (since the same logic should apply to all the potential purchasers).
It gets more complex once you add land speculation but I think the core logic remains the same - instead of being willing to pay $2000/mo for the property the developer might be willing to pay $2200 anticipating a speculative land return (without LVT, so higher property values), but that shouldn't change in general the market rental rate or if construction is viable, so I think the main difference with or without LVT would still be the land values.
>Institute an LVT and those competing landlords may become cashflow negative, forcing some of those units off the rental market entirely (typically to sales to owner-occupants, sometimes to landlords with better financing or lower overheads, sometimes to short-term rentals or other higher cashflow uses).
Well, LVT is always meant to be a replacement for conventional property taxes so depending on how it is implemented it can be roughly the same as the previous property tax or it could be significantly lower because only the land is taxed and not the whole property.
Wouldn’t the rent be too prohibitively expensive at some point, and the landlord will be forced to shift their strategy for recouping the money lost from LVT from lowering rent, to redeveloping it to be a more effective money maker? Such as by building more units and increasing urban densification.
Now what if redevelopment is not possible? Maybe regulation stops it? Actually, if net value of land is negative what will happen to it? That is taxes are more than value and there is no legal way to extract more value...
The government could just guarantee housing for a fixed price. That fixed price becomes the upper bound and all private market participants would have to bid lower than this upper bound.
This doesn't happen because those who have a political say don't actually want more housing. My proposed idea would force the government to actually solve the problem after all. If there is not enough housing the government would be forced to build it as a last resort and if the government can't do so because of the laws it has enacted then it can change those laws but that's exactly what must be avoided at all costs if you were to ask existing homeowners.
This is a lot like Singapore's HBD, which builds lots of public housing. And you're right, it's the absolute nightmare of people in SF who say they want non-market housing, precisely because it means new housing and new buildings.
However, it's a generally popular idea, that if put to a majority vote could pass. It's individual small groups that would stop it, because city politics are highly undemocratic and controlled by small factions.
However, there's hope at the state level to make this possible. I'm hopeful that in the coming legislative session there will be some serious attempts at state-level public housing to alleviate our desperate shortage.
The $3100 is the result of rent-seeking, not of productive economic activity. SF landlords are leaches on the economic engine and wealth of the city, one of the rare things that both Adam Smith and Karl Marx would agree on.
> Also I doubt if raising taxes will result in anything more than them passing that cost on to the renters.
Only new buildings in SF pay substantial taxes, and only new buildings have rents that are close to their carrying costs. The landlords that are getting huge property tax subsidies due to Prop 13 are enjoying market rents that are far far above their carrying costs. This is why SF landlords are economic leaches, their profits come from a supply shortage not from productive activity.
If they coludn't afford to pay the tax, would rents have dropped? No, they would sell if they couldn't cover their costs with rent.
According to pretty much any economic model, the LVT can't be passed on to tenants. Having a hard time finding a concise, and to the point explanation of that, but maybe check out the answer here:
It's all but illegal to build new or higher density housing in SF. We need to start electing people who will actually embrace or at least allow construction.
This is what it's like:
"San Francisco Man Has Spent 4 Years and $1 Million Trying to Get Approval to Turn His Own Laundromat Into an Apartment Building"
Exactly -- there's a pervasive belief in the bay area that high rents are solely due to the evil cabal of landlords who meet every week in a dimly lit room and agree to charge sky-high rents while cackling maniacally and twirling their perfectly-waxed moustaches.
The sudden COVID-related rent price drop indicates that this theory is nonsense, and that the high rents are solely a function of supply and demand, but I'm sure that won't stop anyone from believing in it.
I think most people doubt supply and demand to some degree. How often have you seen someone argue we should secure the supply of food to disaster zones by repealing price gouging laws? Rent control is popular because many people believe, wrongly but wholeheartedly, that landlords are just price gougers and everyone could get cheap adequate housing if they weren’t manipulating it.
My opinion is that rent control is much less about actually controlling rent, and more about controlling who is allowed to be in the city and where. Most rent control systems I’ve seen strongly favor those who have been in their current apartment for a long time, as moving often resets the rents back to market rate. And while that does help avoid evicting long time (and old) tenants, it also has the effect of forcing everyone on rent control to stay where they are.
I mentally couple the way that rent control works with the pretty common opinion that the city was great until “they” came, and would be excellent again if they’d just leave. While the “they” changes from place to place and time to time, the attitude seems to be pretty common. You even see this attitude here on HN, with occasional assertions that those who moved there for tech jobs should move and let rents fall for those who have always been there.
That concern, though, is something I've grown much more sympathetic to. There's a fundamental unfairness in putting in work to make your local community great, making it so good that rich people want to live there, and then being told that the community no longer has room for you because the rent is too high. If the city won't allow enough housing to keep your area affordable, you have a right to feel aggrieved, and it's understandable that you might misdirect the grievance if you have no lived experience of a city successfully expanding the housing supply.
People overestimate their impact on the community. The elephant here is that those people contributed very little to making the place desirable.
You can usually tell. They'll say that the culture has changed because the desirable people left. That's right. But the groupies are still there. They just don't know where the desirable people went.
> If the city won't allow enough housing to keep your area affordable, you have a right to feel aggrieved
The city is not the one preventing more development. It's overwhelmingly these xenophobic residents that are responsible for that. I don't have much sympathy for people aggrieved by shooting themselves in the foot.
>There's a fundamental unfairness in putting in work to make your local community great, making it so good that rich people want to live there,
Actually that is a the result of an incredibly skewed tax policy. Prop 13 means that the government cannot derive any significant tax income from residential property. It is forced to allow commercial property because it brings in tax money. This means you will always have more commercial property than residential property. Land owners want this because it raises their property values. The government wants this because it's the only way to fund itself.
When you look at the reality of what you are doing you are actually incredibly selfish. You are creating jobs and moving them away from rural places but at the same time you are not building enough housing so that people can live near those jobs. You do this because you want the value of your property to go up. Then once those people are coming because you moved all the jobs to your city you start complaining because they want to work there.
There is this misconception that it's "rich people" who want to live there when the reality is that those people only became rich after they arrived in your city. It's you who created them.
>, and then being told that the community no longer has room for you because the rent is too high.
Well, that's exactly what you wanted. You wanted more jobs meaning more people but you did not want more housing which means someone has to go. If you call this unfair then you have no one to blame other yourself.
Now that you can get a high-paying job with the same company without moving from a different region of the US (because of COVID), I expect the SF housing market to collapse. Why move to a shoebox apartment and pay SF cost of living rates when you can have a nice, big property elsewhere?
What's interesting and something I've witnessed first hand in NYC, that the tenants of rent controlled apartments will setup a black market for their rent controlled apartment in collusion with their landlord. So if they do move they will attempt to sell for the privilege of renting the unit, at the time this could range as high as $50k, the landlord and previous tenant would split this 'fee'. What's incredible is that for the right apartment in the right part of NYC amortized over a few years, this was a great deal for the new tenant.
Rent control is popular with renters because the rent is too damn high. You can figure that one out without assigning motives to people you've never met.
I don’t know why you’re assuming bad faith here. I’ve met rent control advocates, talked to them, and read their detailed explanations of why they think there should be rent control. They often believe exactly what I said, and always have some principled explanation for why it’s not fair that the rent is high; despite that one guy in New York, I’ve never actually met anyone who argues for rent control on the grounds of pure self-interest.
The supply and demand based solution to price gouging is to make the government guarantee access to the good at the desired price.
Price gouging laws themselves don't solve the problem.
If anything, the government can pretend that the problem has been solved and block any potential resolution. They can make the problem far worse.
I'll say it over and over again. If you want to fix the economics then you must fix physical reality.
Why does the government guarantee work? Because it will be the government's responsibility to fix the problem. If the government created laws that caused the problem then it will be forced to change those laws.
The classic price gouging example is the mask shortage where people will constantly say that manufacturers can't expand their supply fast enough so price gouging is inevitable and the duct tape fix is the only way to solve the problem. If you introduce a government price guarantee the government will be forced to buy existing masks off the private market and sell them for a lower price. Effectively subsidizing the manufacturers of the mask. The manufacturer can charge an increasing amount of money for the masks until it becomes profitable to expand production capacity immediately. What if greedy manufacturers gouge the government? The obligation to provide masks doesn't disappear because of a little greed. In fact, the government can just buy the manufacturers and build its own factories and completely remove the need for uncompetitive mask manufacturers. If anything, there is now immense pressure for private industry to stay relevant by offering prices lower than what the government is guaranteeing.
There are two problems with this line of reasoning of the type of muddied thinking you're replying to. The first is that it can both be true that supply and demand as a phenomenon can be used to meaningfully explain the world and applies to housing, AND that an individual can denounce landlords morally with the phrase "greedy". However, the OP cannot reconcile the two concepts, they said.
Next, the idea that landlords are a unified group with a common set of designs is itself a premise that requires a little bit of legwork. Here's one. What are landlord expenses versus their expenditures. Are they large or small landlords. etc. To hell with nuance, let's create an Us v Them type of discourse, and see who bites.
Technically it is supply and demand, but there are systemic factors at play that can't be ignored. This is not a typical supply and demand marketplace. The supply here is artificially constrained by existing regulations, and there's a vicious relationship between land owners, elected officials, and demand pressure from folks with high paying jobs.
It's interesting to see how little things have progressed over the last few decades. For example, check this study [1] from fourty years ago.
TL;DR: "A recent survey of local land use policies in the Bay Area identified the important role that land-use controls play in limiting developments. The suburban land squeeze is not the exclusive result of immutable natural constraints. It is the outcome of the restrictive land use and development regulations imposed by many of the region's 100 land governments. A new mood has emerged in the suburbs; land use controls now place severe limits on where, when and how the region can develop. Continued suburban land conversion is now viewed as undesirable, and efforts to limit residential development are well organized and effective."
It's certainly not an "evil cabal of landlords in a dimly lit room", but it'd be naive to ignore the systemic forces at play.
> The sudden COVID-related rent price drop indicates that this theory is nonsense, and that the high rents are solely a function of supply and demand,
Except your own example demonstrates that it's not. If it was "solely supply and demand", then rents should drop far more dramatically than they have, down to levels comparable to other cities that used to be equally unpopular. Yet there's a literal pandemic and even though demand for San Francisco housing is at a ~20-year low, with newly-empty units everywhere, San Francisco still remains one of the priciest cities in the nation. Short of like, an earthquake wiping SF off the map or similar sized event, demand for SF housing will never get lower than this, and it's still not enough to bring rents remotely back into the real world.
Supply and demand have an impact on housing prices, but are definitely not the "sole" source of them. Landlord behaviour, city tax goals, investment banking demands, private equity involvement, and much more all dramatically impact the price of rent far more than "supply v demand" or any "regulation" does.
This is hard to understand for folks used to megacity pricing, where "high demand" (i.e., a small-but-consistent influx of new residents) is until recently, an automatic given thing you could just always point to as blame for any problem. For those of us out in the midwest, where demand is regularly falling in many places, where new construction always outpaces population growth every single year, and yet the housing prices still always rise, the disconnect between prices and supply/demand is quite a bit more obvious.
> where demand is regularly falling in many places, where new construction always outpaces population growth every single year, and yet the housing prices still always rise
that just sounds wrong, and may be i can't see the whole picture from just your comments, but the price _can't_ be rising if demand is falling. Otherwise, these new construction will not sell at all. SO there _must_ be some sort of demand.
even for hyperbole this is hogwash. No one thinks people become landlords because they want to treat their tenets like shit. Obviously they just want to make ends meet like everyone else, they just happen to do so in a way that hurts communities, not on purpose, mind you, but because that's how you get ahead in this society.
You’re mischaracterizing the left-wing / long term renter position here. This is a very common tactic among local SF “YIMBYs” for some reason.
Progressives are not objecting solely on the basis of “character of the city” and in fact regularly poll in favor of development. What they fight for is affordable housing development.
Underlying this problem is a massive income disparity between techies and working class folks. Essentially the YIMBY position is if you build market rate housing for techies it will trickle down to the working class because “supply and demand didn’tyoutakeeconomics???” But Econ 101 has within it the concept of inelasticity that explains why increasing supply does not always move the price much under certain conditions. Like those of say a massive boom economy where tons of high income earners and speculators from around the world are waiting to snatch up new inventory. SF has had many experiences with such boom/bust cycles.
It’s a real estate developer’s dream and it helps us rich-ish techies (hence heavy YIMBY presence on HN) but it doesn’t necessarily translate into lowering rents for the working class. Thus, progressive supervisors are focused on public investment in affordable housing and taxing the rich to fund it, not just serving the needs of the wealthy.
YIMBYs absolutely hate this characterization because they like to claim they are on the side of the poor. But they are 100% aligned with and politically funded by the real estate industry, and that’s why they prefer to mischaracterize progressives who are actually prioritizing the needs of the most vulnerable.
This is a mischaracterization of the YIMBY position. Most YIMBYs are not opposed to raising taxes so that the city can pay for the construction of affordable housing units. (Note that the city doesn't build housing even if they pay for it - developers still do!) YIMBYs also believe, however, that we need housing of all kinds, including market rate housing. That is where YIMBYs and progressives disagree.
Separately, developers are already required to build a certain number of affordable housing units in every development.
If you require developers to build units that are mostly or solely composed of affordable housing, those developers will not earn enough money to make it worth building the units in the first place. This leads to progressives holding up all kinds of development with endless planning meetings and environmental impact assessments. The result is no housing gets built - no affordable housing, no market-rate housing. They allow the perfect to become the enemy of the good.
We need to work with developers to build housing units of all kinds, including affordable housing, rather than demonizing the very developers who are going to end up building those affordable housing developments that I think we all want.
> This is a mischaracterization of the YIMBY position. Most YIMBYs are not opposed to raising taxes so that the city can pay for the construction of affordable housing units.
This is false. YIMBYs opposed the recent prop I to tax >$10M real estate sales to fund “emergency rent relief and permanently affordable housing.”[1]
You stated that "progressive supervisors are focused on public investment in affordable housing and taxing the rich to fund it." This is not what Prop I does.
Instead, the >$10M real estate tax would mostly be paid by developers, not homeowners, because most property sales in San Francisco that are >$10M are apartment buildings rather than houses owned by rich people. Not only that, but it would be a tax paid twice by developers, because they have to buy the land and then sell the finished development.
The reason YIMBYs opposed that proposition is for exactly this reason. It wouldn't be a tax on rich people, but yet another obstacle to the construction of housing, both affordable and market-rate.
Literally is a tax specifically constructed to target sellers (not buyers) of >$10M properties, otherwise known as rich people. With an exemption for sales to affordable housing nonprofits. This issue, passed by a wide margin, demonstrated that SF YIMBY is little more than a real estate lobby front at this point.
Again, developers != rich people. Developers are just businesses like everything else, not some evil cabal. Developers build the housing units that we both claim to want, and if you make it harder for them to build anything then no housing of any kind gets built.
This is a heavy mischaracterization of Progressives. When it's 100% unit that are below market rate, it gets blocked. When it's 50% BMR, it gets blocked. When it's 20%, it gets blocked.
This is because the true position of Progressives is that any development has a chance to cause harm, and they prefer the current situation to any harm, in a messed up form of the trolley problem.
I would also urge you to capitalize the P, as the Progressive positions in SF are not really recognizable as progressive in most of the US or world. It's more of a factional battle in the culture war than about what are more generally agreed to be progressive values.
@ushanti is really amazing, pulling the Progressives kicking and screaming in to approving small amounts of housing. I have no complaints about Preston either. But they are both outliers in the Progressive camp, not the core of it!
Edit: from what I know of Preston, at least. I'm not in SF, just have to deal with the terrible politics there providing cover for conservatives in my area to be reactionary in housing. And this is the core reasons that the Progressives in SF are so bad, they say all sorts of regressive things (like seemingly supporting Prop 13?!) because they are too deep in a culture war to realize the policy that will support the progressive values they claim to support, but all too often, do not. For example refusing to make 100% affordable housing by-right.
To the extent that this means the freedom of poor people to get out of the way of rich people, you can see how some would not be excited. SF's black population has fallen by half in recent decades, for example.
Honestly, the geographic narrowness of the tech boom has always been weird. At the same time we've been selling the limitless power of the Internet to connect people, we've also been working for companies whose structures didn't demonstrate that, and in a financing ecosystem where physical proximity to VCs was a major advantage. So San Francisco got turned into a bedroom community for South Bay companies in areas that refused to build adequate housing for their workers.
Thanks to the pandemic, that is evaporating. We'll see what happens in 6-12 months, when everybody's vaccinated. But the people I'm talking to are unable to remember why commuting every day was ever a thing, and they're very reluctant to go back to it. In which case, we'll write SF's housing issues off as just another bubble.
You're totally right that SF has forced poor people to get out of the way of richer people. They've done this by downzoning the city, refusing to build anything more. This means that only the wealthy get to live there. Prime example is Haight-Ashbury downzonings.
When there isn't enough room for everybody, the rich get served first. So everytime somebody protests a new housing development which adds to the supply, they are advocating for the rich to stay, and to kick out the same number of people that would otherwise occupy those units.
In the 20th century, we declared housing a human right. But in San Francisco, we have declared that only the wealthy should be able to afford housing, and that the everybody else should leave.
It's important to note that jurisdictions in the South Bay refuse to build more housing. Both Google and Facebook tried to but were blocked by the government.
It means government authorities don’t have the authority to restrict people from moving in if they are US Citizens or otherwise in the country legally certainly not on the basis of whether they were born, grew up in the City or based on the type of job they have and its location.
An HOA might, I’m not too familiar with them, but as I understand it even they have legal limits on the restrictions they can place on people moving in, so maybe not. Someone else would have to chime in on that one.
I understand what the words nominally mean, thanks. But based on America's long, long history of de jure and de facto segregation by race, class, and income level, it's reasonable for people on the sharp end of that to not take "freedom of movement" very seriously as some sort of American core principle.
It reminds me of this classic line: “The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal loaves of bread.” -- Anatole France
There so much land in the US. People don't have to live in San Fransisco. These people grew up there, they want to live in their home. You know, that emotional thing that money can't really explain.
Sure they see the people arriving in, with huge paychecks that drive prices up, and them out as bad.
Though this is not an uncommon view in SF at the moment, I find it horrifying. What has made SF such a great place from the 1970s to ~2010 has been its willingness to accept new people, including the strange and the weird. That's not to say that it's been a great city for everyone, the first-wave gentrifiers from the 1960s pushed out Black people from the neighborhoods they took over, like Haight Ashbury, and the downzonings they enacted over the city have greatly amplified their material wealth while keeping out those without wealthy.
But for a brief 40 years before the super-constriction of supply happened, it was a welcoming place to lots of people that couldn't find homes elsewhere, because there were at least some empty places to rent out.
What drives up the prices isn't that people with big salaries are there, they've always been there. What's driving up the rents is that the people with big real estate holdings have said that the people with paychecks can't build anything new. So instead of those big paychecks going to building more infrastructure and subsidized low-income housing, those big paychecks are going only to current landlords, and pushing out anybody without a big paycheck.
SF housing is a game of musical chairs, and all the people that found their chair in the 1970s and 1980s easily because there were lots of empty chairs have decided that there should be no more chairs. That provincial, close-minded, and ultimately xenophobic attitude is what makes the housing market so unfair.
I think you make a lot of good points here, but I think a little more weight needs to be placed on the "big paychecks" part. When my wife and I bought a house here (in SF) a couple of years ago, we had to make offers on nearly 20 homes over the course of 18 months before we had an offer accepted, and we were coming in with an all cash offer at or above asking price every time. The problem we ran into was that there were usually ~7 offers ahead of us (also all cash obviously, but even higher over asking). The income disparity is so extreme these days, and I hesitate to say "income" because these are not senior engineers at FAANG that we were bidding against, these were people who likely earn 10s of millions a year and/or come from extreme family wealth. The wealth gap really is staggering.
Right, and imagine that if instead of all your money going to the profits of the previous owner, your money could be used productively to pay labor to build new housing for you!
Instead of your wealth being transferred to a laborer who has less wealthy, it was transferred to somebody who is likely quite a bit more wealthy. And instead of your wealth being used to improve the city, it was all used for the profits of somebody els.
Exactly, that's what I am griping about. There's more than enough land to accommodate more housing to be built, but existing neighbors to that land have forbidden that through regulatory capture of city zoning laws.
The downstream consequences of this "zeitgeist," the homelessness, the displacement, the destruction of communities, the people right on the edge of eviction doing everything they can to make rent, people overcrowding into apartments so they can get enough salaries together to cover the cost of a room... I'm tired of my friends being forced to move. I'm tired of people living in their cars until they can find some place to crash. In a land of great wealth, this is horrifying. We put people, with jobs, playing their part in society, through a damned meatgrinder just so some assholes don't have to see a new building. I'm not typically a fan of journalism that's driven by personal stories, but in the case of housing it's really important to pay attention to them because the stats alone don't tell the story of what it means to get evicted and to have your entire life upturned because the zeitgeist demands that rents MUST GO UP rather than somebody somewhere pay for a condo and subsidize below-market-rent for somebody else.
Calling the state of housing the Bay Area anything less than "horrifying" is sugar-coating it, and I would thank you not to tone-police others.
I certainly didn't say "unending population increases" or "above all else."
But if you think that building enough housing for the people means unending population increases, that's really in line with the garden variety xenophobic anti-immigrant thinking I grew up with in the Midwest.
The zero-sum philosophy of a newcomer arriving meaning that a current resident loses out, or that the newcomer is "extracting" from the community rather than contributing to it, is also gaining popularity in SF, and is also a very common xenophobic trope.
> I certainly didn't say "unending population increases" or "above all else."
If you don't think that, then there's a certain density level where it's considered fine to oppose it, and there are certain things one could prioritize above population increases that could lead people to favor restrictions. Maybe some of the people favoring restrictions think the high point of density has been reached, or perhaps they favor restrictions because of what values they place above population growth. It's worth at least considering before we simply dismiss them all as xenophobic.
Pointing out specific, xenophobic viewpoints doesn't mean dismissing everybody as xenophobic. If they have legitimate density complaints, please bring them. But I will also point out that these density complaints are even more xenophobic in origin. Density restrictions and zoning in San were invented a century ago to push the Chinese populations out of their neighborhoods.
And for me, this isn't about more or less restrictions. This is about meeting the needs of the people of a city. Not just the wealthy, not just keeping buildings the same, not just the people that have lived there the longest. The needs of the entire people. Which includes people that don't yet live in the city but need access to the economic resources.
So I definitely think that there should be density restrictions, but rather than maximums there should be density minimus. It should be illegal to build a single unit on a 5000 square foot lot anywhere in San Francisco. When somebody tears down a tiny Victorian, they had better replace it with many homes rather than just one. And if somebody remodels those exclusionary Pacific Heights homes, they better be adding more units, IMHO.
For some it's a practical, not emotional. If your job is in the city, and does not allow working remotely, the choices are either commute an hour by car each way, commute for roughly as long via public transportation, or live closer to work.
Hopefully with Covid forcing more sane remote work policies across the board, fewer people are forced to live somewhere they don't want to.
That's basically what happened. There is an overabundance of jobs but since there is no need to live in San Francisco the fundamental mismatch between commercial and residential property has been resolved temporarily.
Though there was mostly never a need to live in SF for a lot of the tech company jobs. Many/most were people who wanted to live in a city in the Bay Area even if their jobs were in the South Bay. I assume it's an exodus from the Bay Area generally.
It’s not “supply and demand”, it’s “selfish rich techies and landlords”. I mean you can read that as supply and demand restated, until you get to next steps like solving the supply problem, and apparently building one more apartment building will irrevocably ruin the character of the City.