Wednesday, July 10, 2013

Is God the Problem When It Comes to High House Prices and High Rents in San Francisco?

Josh Barro at Business Insider reports:
Last month, I spoke with Trulia's Chief Economist Jed Kolko about why San Francisco home prices are so high and he said, in reference to the city's geography, "God wanted San Francisco to be expensive."
The fact of the matter is that it is government regulations that prevent property development and thus limit housing. The Tenderloin district  of San Francisco, right smack in the middle of the city, could easily be an area of magnificent structures but zoning laws prevent development of the area, so instead you have dilapidated structures.

Indeed, architect Cesar Pelli says the San Francisco skyline has become boring because of the oppressive zoning laws.

On top of the zoning laws in SF, there are suffocating rent controls, which push up the rent of the very limited available rental space. What Barro explains about rents in NYC, also applies to SF:
Rent control raises your rent if you're not rent controlled. While the average rent for available apartments in New York City is now over $3,000, the U.S. Census Bureau says renters in New York City were only paying a median of $1,125 in 2011. What gives?

The answer is, there are lots of cheap apartments in New York. You just can't get one of them, because they're rent controlled, and tenants with great rent controlled deals cling to their apartments until they die.[...]In cities without rent control, rents for available apartments form a normal distribution around the Census median rent. Here's a chart of Philadelphia rents in 1997:

But in cities with rent control, most of the available housing stock exceeds the median rent.

[...]when you look at data from the Furman Center at New York University, it's not hard to see why.

In Manhattan below 96th Street, 35% of rent regulated apartments are occupied by a tenant who has lived there for more than 20 years. Less than 3% of market-rate tenants have been around that long.

Many of those rent regulated tenants would have moved if they had to pay market rent, whether within the city or to Florida; when they hold onto their great deals, they reduce supply available to new renters, and that drives up prices for everybody else.

The same goes for San Francisco, except it is worse, rental laws so favor tenants that many apartment owners choose to  leave their apartments vacant. One SF apartment owner explained in NyTi the situation:

The City by the Bay is going through one of its worst housing shortages in memory. With typical high demand intensified by a regional boom in tech jobs, apartment open houses are mob scenes of desperate applicants clutching their credit reports. The citywide median rental price for a one-bedroom is $2,764 a month, but jumps to $3,500 in trendy areas.

One reason for the shortage? Me.

I’ve recently joined the ranks of San Francisco landlords who have decided that it’s better to keep an apartment empty than to lease it to tenants. Together, we have left vacant about 10,600 rental units. That’s about five percent of the city’s total — or enough space to house up to 30,000 people in a city that barely tops 800,000.

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