Build, build, build
August 02, 2018
I got invited to a brunch today with someone who's running for Oakland City Council. That's cool. Curious, I took a look at her website:
Act immediately to keep local residents in Oakland and slow home loss through passage of a housing preservation package
This stance is so typical, yet so horribly misguided. Preservation is not the answer!
The simple fact: tons of people are moving to the Bay Area; just in San Francisco, 126 thousand residents in the last 10 years. Against an initial population of 758k, that represents 16.6% growth in a decade, or 1.49%—11,000 people—per year.
That's 11,000 new people every year—25 new high-rises, or 5,000 houses. Is it any surprise that we have a crisis when it's hard to build anything in San Francisco? Are these people supposed to live in tent camps?
This is very frustrating to me because there are three "ideas" for how to solve the problem, and only one is a genuine solution. The time has come to take the medicine and get on with our lives. This post is going to be the last keystrokes I waste explaining what is, at its core, a simple problem with a simple solution.
Dumb idea #1: Stop the inflow
Things have gotten so bad in the peninsula, with median sale prices in the $1.3-1.6 million range, I doubt many people are moving in, save for dual-career couples earning $300-500k.
I call this the "drawbridge" solution: all those newcomers are screwing it up, pull up the drawbridge and keep them out.
How anyone could call this "progressive" is beyond me; in my view, this is the same as Donald Trump and his border wall—we like things how they are now, keep the bad people out.
Dumb idea #2: Ignore basic economics
This seems to be the preferred solution in the Bay Area: start with a limited supply of a basic human need (shelter), crank up demand due to new arrivals, and pretend prices won't spike.
Sure thing. (In other news, I heard the temperature in hell reached 20 degrees Fahrenheit.)
This option forces locals into direct competiton with economic migrants for an undersupplied good. How do you think that story ends? Economic migrants, by and large, don't bother uprooting their lives and moving halfway across the country to work at McDonald's; they put up with this region's traffic and obscene cost of living because they have jobs in high-paying fields like law, banking, or technology, that pay hundreds of thousands of dollars/year.
Is it good policy to force minimum-wage workers into market competition against dual-income couples earning $300k? That's the reality of the Bay Area housing market.
Bay Area policymakers try to skirt the issue by playing every game imaginable, from "developer impact fees" to mandatory affordable housing regulations, to rent control. All of this fails because shelter is a basic human need, and we don't have enough of it. And it's even worse, because the market is so manipulated, developers' profit motive—the thing that creates supply—is blunted. If you were a developer, would you put up with this? Price controls, political volatility, and outright incompetence?
We're facing a housing crisis and Peskin is grandstanding about tech cafeterias. It's lunacy.
Solution: Build more housing
In the long term, this is the only solution to the problem: more high-end stock, which reduces competition at the low end, slowing price growth.
This is the only way to give everyone a place to live that they can afford.
The anti-development crowd complains that developers are only building "luxury units", but that ignores three simple truths:
- High-end units are the only ones that make sense to build given the area's obscene construction costs, environmental regulations, and difficult permitting process. Playing policy games just shoves the cost onto someone else, and this particular "someone else" is getting a little tired of footing the bill.
- Building more high-end units eases compettion at the low end, slowing price appreciation
- Today's lower-end housing is yesterday's luxury stock.
Developers always build at the high end; that's where the profit is. It's just that there's been so little development for so long, there isn't enough cheap housing stock to go around.
If you think this won't work, why is it that many great cities have tons of in-migration, yet only in the Bay Area is this such a crisis? It's because we insist on enacting bad policy, that both doesn't achieve its goal, and that makes the problem worse, by distorting normal market incentives.
What upsets me the most though, is how an area with its nose so high in the air about tolerance and love, shows very little love for its new arrivals. That really burns me up.