In case you haven’t heard, San Francisco is a pretty expensive place to live. Regardless of whether you’re a renter or buyer, you’ll face prices high enough to make you second guess that decision to leave Kansas City.
The total bonkers-ness of the real estate market is one thing we all agree on, but that’s about it. When it comes to why housing is so expensive, the field of ideas is as crowded as a Tokyo subway. The sense of exasperation around this discussion is palpable. If you read about this issue casually it sounds like everyone thinks, “We could get this thing fixed, if only you’d listen to me.”
In this regard, if San Francisco housing policy is an undiagnosable illness much of the chattering class has its own variety of snake oil to sell.
I think it worthy to explore some of the major phenomena that are oft cited in a way to suggest that if we could stop this, than housing won’t be so expensive anymore. I’m talking about things like zombie ‘hoods (pieds-a-terre, foreign investment), short-term rentals (Airbnb), too much/too little regulation, etc.
The point of this post isn’t to say that these phenomena aren’t happening. I just don’t think that they’re (1) not pervasive enough to be responsible for a preponderance of the housing crisis, or (2) are actually a side effect or symptom of the core problem.
I think it’s a worthwhile exercise to walk through each of these “causes” and see how many units they’ve removed from the overall housing stock.
Before we start this exercise its important to know a few things:
First: How many housing units are there in San Francisco? That number is 379,597 (as of 2014, according to the city).
Second: We’re going to look many issues for which there is very little solid data. Part of the reason policy makers, the media, and the public have been fixated on things like zombie ‘hoods, Airbnb, and foreign investors is because of that dearth of information. If we can’t measure the extent to which those things occur, its difficult to say whether or not its a problem vis-à-vis housing prices. That being said, we’re sure going to give it the old college try.
The first phenomena is ZOMBIE ‘HOODS, and it’s one of my favorites because it almost makes no sense. A “Zombie ‘hood” is an area where there are apartment buildings where LOTS (how many? Hard to say) of units sit empty most of the time. These are housing units that could be someone’s primary residence, but for some reason are not.
How could it be that in a city where housing is scarce and rents are at an all time high that there’s even one square inch of space that isn’t used as housing? The very idea that hundreds of whole apartments could be built and then sit vacantly defies reason. This is especially puzzling, given that San Francisco is a city with more than a little overcrowding — meaning that there would probably be someone out there willing to pay good money to rent it out.
But how big a problem are zombie ‘hoods, really? To answer that we need to know what causes an owner to decide to let go unoccupied, and how often that happens. According to the news, there quite a few reasons (myths/scapegoats?) for why these units are empty.
Pieds-à-Terre: Quite a bit of ink has been spilled over San Francisco’s part-time residents. They’re the kind of people who love the nightlife, who love to boogie, who love to return to San Mateo. These units aren’t exactly vacant, but they aren’t exactly not vacant either.
The San Jose Mecury News wrote about how the Silicon Valley Wealthy are scrambling to buy San Francisco’s luxury condos.
Similarly, 48 Hills reviewed 28 new luxury condo buildings in San Francisco and found 2,034 of the 5,212 (39%) of the units were owned by someone whose tax bill is mailed to an address different from that of the condo itself. Many of those addresses were in nearby counties.
But are pieds-à-terre really a foot on the neck of the city’s housing stock?
Despite the fact that the SJMN wrote a whole story about it, they only found 30 units that fit their thesis. And in regards to the 48 Hills review, the authors admit its entirely possible that the owners live there full-time or rent those units out to permanent tenants. The way those facts are presented makes it appear as though more of those units are vacant than we can reasonably infer.
Foreign Investors: Foreigner’s have always made for convenient scapegoats, and the San Francisco housing crisis is no exception. There have been plenty of articles tying increased foreign (especially Chinese) investment to rising housing costs. See:S.F. Places Third in Foreign Investment How and why buyers from China are snatching up Bay Area homes, Chinese Investor Activity in San Francisco Real Estate Reaching Fever Pitch, Foreign Investment Drives Housing Booms in San Fran, NYC, and California Love: Chinese appetite for the Golden State.
While investment from China is undoubtedly increasing, implying that it’s a catalyst for the rise in area home prices is a dubious claim that also strikes me as more than a little racist. By describing Chinese investors as “snatching up” property in a way that “drives housing booms,” or “pose a threat to residential real estate,” these articles lay blame at their feet without actually being able to explain why. None of these articles cite a number of housing units are being made unavailable for permanent tenants.
It’s also possible that the foreign investment is a response to the rapid increase in housing prices — investors blindly following a perception of hi high return-on-investment. Or that we need foreign investment, because it’s is necessary to grease the wheels of housing development. There’s no doubt that foreign investment has increased, but maybe their here because we’ve created an environment that attracted their attention.
Burdensome Regulation: Another widely believed culprit of housing vacancy is rent control and/or tenant protections. If you thought there was little data regarding Chinese investment, information about vacancies due to over regulation is ever worse. Based almost entirely scare anecdotal evidence, the popularity of this narrative far exceeds the evidence that it’s at all true. The fact is that both rent and the number of no-fault evictions is very high, which suggests that landlords in the city are ready, willing, and able to charge market-rate rents for their units regardless of the regulatory environment.
When it comes to vacant units there isn’t much in the way of solid information, especially when you try to break it down by cause, but SPUR took a look at Census data and found, what they believe is, a fairly reasonable approximation for the total number of part-time residences in San Francisco. They found that 9,075 of the total city housing stock is used for “seasonal, recreational, or occasional use. The Census also indicated another 9,689 units that were vacant for “other” reasons, which could be a mix of the reasons we’ve cited above. Assuming the worst case scenario, that’s 18,764 units that currently sit vacant without the prospect of a resident on the horizon. Remember that number, you’ll need it in a few minutes.
SHORT TERM RENTALS
Short Term Rentals (AirBnb), is another oft-cited cause of the housing crisis. The argument is that units that would otherwise house renters are being used as tourist accommodation, and thus “exacerbate the housing crisis.”
But sentences like, “In neighborhoods like the Mission, which has become ground zero for displacement, you see that as high as 40 percent of the housing stock that could be rented is being Airbnb’ed,” or headlines like “Airbnb makes housing crisis much worse, city study shows,” overstate the connection between short term rentals and the rise in housing prices.
This article is so misleading it makes me angry. It states things like, “Airbnb rentals are reducing the number of available housing units by almost 25 percent.” This makes it sound like 25 percent of the city’s housing stock has been converted into AirBnB rentals, which is not true.
These quotes comes from a report by the city’s Budget and Legislative Analyst. The report compares the number of units being used as short term rentals to the vacancy rate. That is to say, of the number of vacant units in a particular neighborhood, how many are being used as short term rentals.
Let’s look at the actual number of units that have converted into full time short term rentals.
The report estimates that 6,113 units in San Francisco are being listed on AirBnb. Of that 6,113 the report estimates that at most 3,006 of those units are commercial (i.e. full time, without a permanent resident) short term rentals. The other 3,107 are units where the resident rents out a spare room part time, or rents out the unit when out of town.
Let’s assume the worst case scenario. That means there’s:
- 9,075 Seasonal, Recreational, or Occasional Use Units
- 9,689 “Other” vacancies
- 3,006 Commercial Short Term Rentals
Assuming that none of those populations overlap (which is unlikely, but its impossible to say how much overlap exists), that’s a total of 21,770 housing units that have been removed from the market. That sounds like a lot, right? Especially since the Mayor’s housing goal is to build 30,000 units by 2020.
But 21,770 units is only 5.7 percent of the total housing stock (379,597 housing units). The fact is that the vast majority of housing stock in San Francisco (like over 94 percent) is occupied by people who use their dwellings as a primary residence.
In 2000, the city’s population was about 776,700. Over the next 15 years it’s grown to about 852,000. That’s an increase of about 75,00 people who all need a place to live. In the same time period the housing stock only grew by about 31,000 (see page 18). About two-thirds of that population growth occurred in the last five years, whereas only about 20 percent of that housing stock growth occurred in the same time frame.
What’s the upshot, you ask? In the starkest terms, 50,000 people arrived in the last five years and the housing stock only grew by about 7,000 units. The city isn’t just growing, it’s growing more rapidly than it has in the past, but the pace at which we build new housing hasn’t kept up.
Don’t get me wrong, I’m not saying that having 21,770 (at most, remember its almost certainly lower than that) un-rented apartments in San Francisco is a good thing. It’s not, but its also not the cause of the current housing crisis. Given that the city only built 31,000 units in the last 15 years, I would love to be able to unleash another 21,000 units on the market tomorrow. However, that’s only necessary because the city hasn’t responded to the rapid increase in population with the appropriate urgency.
I also don’t write this to suggest in any way that the wave of displacement currently taking place, especially in the Mission, is in any way not a crisis of its own (with it’s own policy solutions). Obviously, the problem of displacement is related to the problem of rising housing prices. Rising rents and home prices incentive landlords to find ways to evict their longtime and lower income tenants, who, once evicted, then face a housing environment that is wholly unaffordable.
The other fact to consider is that San Francisco is not an island (it’s a peninsula!). This crisis is a regional one, but there hasn’t been a coordinated regional solution. That’s a problem I have no idea how to solve. Conquer Daly City? Take to the sea? But before we can focus on a region-wide solution, we need get our act together as a city. Focusing on hyper local fringe issues like short term rentals or blaming foreign investors is the opposite of city-wide.
Rather than focus on 5 percent of housing that sits vacant. Take a look at San Francisco’s current mix of housing stock:
|Single Family Homes||123,951||32.65%|
What can we glean from the table above, besides the fact that San Francisco suffers from a terrible dearth of houseboats? Single family homes comprise a full third of our housing stock. Parcels that can only house one family disallow the possibility of growth (someone moving in without someone moving out, i.e. displacement).
Even the problem of vacant units is exacerbated by the the fact that our housing stock is so heavily skewed to single family homes. If multi-unit dwellings are best at absorbing growth, and all the vacant units are in multi-unit dwellings (that’s a big assumption, but play along with me) then vacant units reduce the available housing stock by 8 percent, instead of 5.
My point is that, in stories about the housing crisis, media attention has been fixated on issues that affect the numerator, and our attention should be focused on the denominator.
I don’t think (nor do I believe that most people think) that San Francisco became the most expensive American city because just one thing went wrong, but there’s just an awful lot of attention focused on these stray issues at the fringe of the housing crisis. By focusing on short term rentals, pieds-á-terre, foreign investors, or the “burden” of rent control we’re just nipping at the heels of the housing crisis. We need to put a stake through its heart.