May 27, 2016

The Math on Affordability

From Crosscut:

Crosscut

Seattle’s diehard “urbanists” can be remarkably single-minded in their advocacy for new and denser housing, but they aren’t necessarily wrong. In fact, according to some recent number crunching on San Francisco’s rental market, they’re essentially correct on what it’ll take to bring the city’s skyrocketing rents back down to earth.

The Washington Post recently highlighted an analysis of San Francisco’s rental market by Eric Fisher, a computer programmer with a laudable dedication to data-digging. Fisher combed through roughly 70 years of rent prices in San Francisco, cross-referencing them with the city’s economic history and policy changes to create a mathematical model for predicting rent hikes.

Adjusting for inflation, Fisher found that San Francisco’s rents have consistently risen about 2.5 percent a year, with only a few slight deviations. This, despite a period of population decline, the introduction of rent control in the late ‘70s, and a few tech booms and busts.

The basic conclusion of Fisher’s analysis is that it’s extremely hard to bring rents down in a prosperous city. Only two things can really accomplish it: more housing units, or fewer jobs — particularly high-paying ones. That’s it.

Fisher graph

One Twitter user summarized the study succinctly: “We can have Prosperity, Preservation or Affordability, but we can only pick 2.”

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    1. Such as? Making people stop wanting to live and invest here? Putting up a big wall? Placing prohibitive fees on certain buyers? No, from an economic standpoint, this is almost exclusively a supply problem. If you don’t like social change that foreign ownership inevitably brings, that’s another matter. But to contain costs, build more homes. Simple. Not easy.

      1. Supply AND demand play a role, obviously. Demand can be curtailed through taxation, for example by higher land transfer taxes or property taxes for non-residents, or by taxing all more and rebating income tax payers. Many options exist if the political will is there. Is it ?

  1. We fundamentally disagree Dan. I do not take the Libertarian road. My concern is the health and well-being of our City. Real estate primarily as a commodity is not a good thing from my perspective.

    We do need more supply, but how much, what kind and where are questions that are not being satisfactorily dealt with.

    On the supply side when Vancouver is a desirable place to park your cash and when there is 14 million 1%ers in China alone we can NEVER provide enough supply. Therefore, some intervention is necessary not just to preserve some sort of sanity and viability in our neighbourhoods, but also for Vancouver’s economy.

    The young are leaving, and those who stay have to put too much of their income into where they sleep so that hey will have nothing left to invest in businesses and other money making endeavours, which means we are left with a vacant economy.

    1. How about some intervention with Greedy Jim. He has sucked the cash out of this city and the rest of B.C. and moving on into Alberta. He has enslaved tens of thousands with low-paying jobs. He has decimated competition. He has polluted our commons with his revolting billboards. He is relentless. Obsessed with money and control – it’s his game.

      He is a vertical conglomerate: from food and water to farm equipment and transportation. Packaging, manufacturing, media, retail, retail, retail – from cars and trucks to … It’s endless. How much real estate does he own? Why are people so keen to point their finger at immigrants who want to come here with their assets and make a life and let him get away like a bandit?

      He has more cash and cash flow than a thousand of these good immigrants who are bringing their wealth – wanting to make a life with their families – not sucking us dry. Why does this shark in the water get no censure?

      1. No one is forced to work or shop there. You’re saying healthy competition, the backbone of wealth creation in the western hemishere, is bad ? Government control is better ? Shall we regulate shoe color and bread price too ? Or merely what car you are allowed to drive ?

        1. Your response is facile, ignorant, and fatuous.

          Would you have said the same thing during the Irish Potato Famine? A million poor Irish died while thousands of ships laden with meat, seafood, grains, produce, butter, sailed to merry olde England.

          Nick Hanauer, a billionaire, in a talk on Ted, warned fellow plutocrats that the dispossessed would be coming with pitchforks. Hurrah to that!

          And brilliant Anthony Bourdain, who just this week shared a bowl of bun cha with President Obama, said, while he was in London, that the “Royals” should be decapitated, and their heads paraded around on poles, while the populace flung excrement at them. Hurrah to that too!

          Healthy competition? What rubbish. The plutocrats take pleasure in fighting each other for every two cents. This is psychopathy.

          You’ve obviously drunk the purple Kool-Aid. You probably think Bill Gates is one of the world’s great benefactors while he sits on 80 billion and climbing – talking a good game about his foundation. You’ll probably think he’s even more of a doll when he has a trillion.

          You’re right that no one is forced to buy from Greedy Jim, but desperation forces many into servitude. Economic dictators wield power.

    2. Then where have you been for the last 40 years as people with lower incomes have been forced out of the City of Vancouver and the West Side in particular by exclusionary zoning.

      Pretty obvious that it could and should have been zoned for at least low rise affordable rentals. If it would have been, we would not have such a low rental vacancy rate. And surely you can’t blame the rental crisis on foreign million and billionaires.

  2. Incomes have to be substantially higher here but nobody has figured out a way to make that happen, in the absence of (unionized) manufacturing and head office jobs here. I know tech jobs generally pay well but there really aren’t that many of them.

    1. Why don’t you open your own firm and pay above market wages? That is not illegal, you know ?

      Vancouver, especially MetroVan is NOT that expensive compared to other attractive cities. The main issue is excessive demand and under-taxation of non-resident real estate owners, followed by excessive income taxation relative to real estate taxation. If we taxed real estate higher, say triple the property taxes and quintuple the land transfer taxes and eliminated provincial income taxes altogether the picture would look a bit different: we would have more job creation, more money in workers pockets and less real estate speculation and smaller houses.

    2. Frank; once there was talk about Vancouver becoming an official financial centre. That would pay high salaries. That idea should be revised. Expansion of the port also would bring high salaries. The expansion of the airport under the quasi public administration has also brought many good paying jobs. It’s very difficult to imagine any heavy industry setting up In Metro. Bombardier had a SkyTrain plant but it just can’t sell that technology, so the manufacturing plant is now just another TransLink facility. Autos are back east. Clothing has mostly gone to Asia now. We certainly could have pharma and food processing but Alberta is close and cheaper. Mining is strong and energy is still a possible that should be encouraged – by all.

      Or, we move steadily and relentlessly to becoming more of a resort, with the attendant service jobs and wages.

      1. Compared to Alberta for the last two years, BC is doing just fine with its diversified economy even without a white hot real estate market. Ideally, wages “should” be higher, but that is a function of a faction of businesses offshoring work to cheaper labour markets with far lower standards, and thus wages do not rise with inflation here.

        In other words, talk is cheap.

  3. I truly see all the moral foundations conceivable lining up behind *allowing* more housing.

    Low rents for the poor. Jobs for the middle class. Concern for the environment. Liberty for the landowner. More tax revenue to redistribute. Economic utilitarianism. And allow more of the world to come and live in our beautiful, just, liberal sanctuary. Give us your tired, your poor, your huddled masses – we have room for you (but only if we build)!

    Plus – development is for those who are excited by progress and prosperity! For those liberal optimists who enjoy gazing up at the glories of human audacity! The fruits of human ingenuity! Not for the parochial or the backwards-looking.

    As for preservationists – take a photograph, shed a tear, then call in the bulldozers. We are a young city, and we aren’t tied to ancient symbols.

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