Wonkblog: More than 40 percent of the homes for sale in San Francisco are asking more than 1 million


In addition to being an amateur cynic, I am also an amateur economist, and must say that from what I’ve been reading the situation in San Francisco has nothing to do with gentrification or tech workers, and everything to do with a desire to keep old buildings and a fear of gentrification and tech workers.

The biggest takeaway I had from this article is that housing stock is that not expanding in the Bay Area at a rate comparable to the rate of immigration. What’s worse, rent control policies in San Francisco are built around the age of buildings. Can anyone else see some problematic perverse incentives? With demand for rent controlled apartments through the roof, and policy-driven supply constraints keeping other options more expensive than they need to be, the rate of housing turnover will slow further, resulting in a supply shortage and high prices.

In Manhattan, supply constraints in real estate are caused by geography. In San Francisco there are certainly some of these limits, but it really sounds like these sorts of problems would be solved if rent control were reformed and more building permits were handed out. If you really want to make housing affordable, you’d hand out subsidies with those extra building permits to ensure some degree of surplus in the housing stock. Will that happen? Never. Property owners would flay you alive if you did anything to diminish property values on that scale, even if it will be better in the long run for the city. So instead we get rent control, which has its own set of perverse incentives and, for the most part, only serves to drive up rents for those who aren’t the blessed few to get a rent-controlled apartment.

They’ll figure it out eventually. Not even Google is going to jack up their salaries at the same rate as Bay Area housing prices.


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