Rents In San Francisco And Conflicting Values
Rents in San Francisco are expensive, and becoming more so: REIS today put the year-over-year rise there at 6.7 percent. Middle class folks not in rent stabilized buildings are being priced out of San Francisco. What are the potential policy responses? They all involve trade-0ffs.
(1) Have more rent control. This would help those already living in San Francisco, but it would (1) discourage new construction; (2) discourage renovation; (3) encourage landlords to convert rental units to condos and (4) be poorly targeted. High income people living in rent controlled buildings would get as much help as low income people living in such buildings.
(2) Provide more housing subsidies, such as Section 8 vouchers. I am in general a big fan of Section 8 in places where housing supply is elastic–that is, where it is easy to build. But increasing Section 8 in a constrained market will increase housing demand there, and push up rents for everyone, thus hurting those that don’t get Section 8.
(3) Build more “affordable” housing. This sounds appealing, but the construction cost of affordable housing is often more expensive than its private sector counterpart, in part because financing it is very complex. Any difference in construction cost between the subsidized housing and private sector housing is, to use the economist’s term, deadweight loss or, to use the human being term, waste.
(4) Require developers to build affordable units along with market rate units. Again, this sounds appealing, but (a) San Francisco makes it very hard to develop much of anything (although sad to say, it might be a little easier to develop there than LA) and (b) work by Jenny Schuetz shows that “inclusionary zoning” is not very effective at bringing about a net increase in affordable housing, because the new affordable stuff just crowds out the old affordable stuff.
(5) Live with the idea that San Francisco is a luxury good, like a Porsche or a Zegna suit. I think most people are comfortable with the idea that not everyone can afford luxury goods; I suspect most people, however, with the possible exception of certain venture capitalists, would find the concept of a city of 800,000 people being a luxury good to be obnoxious.
(6) Change the character of the city (a/k/a be more like Houston). Housing in general, and rents in particular, are inexpensive in Houston, because Houston does not curb development. San Francisco will likely never be as inexpensive as Houston, because the city itself is constrained to the tip of a peninsula. But if it could have, say, double the number of units (which would still make it a lower density place than Manhattan), it would have lower rents than it has now.
Points (5) and (6) embody the key trade-off. The current character of San Francisco is what makes it a luxury good. Making San Francisco denser, tearing down its beautiful houses and blocking some of its views, would ruin part of what makes it so wonderful for those lucky enough to live there. Developing what were the dilapidated areas of SOMA helps, but it is not remotely enough alleviate the pressure on rents. Preserving the rest of San Francisco in amber guarantees that it will become more expensive–an exclusive playpen for the rich.