Why housing costs keep rising in San Francisco

With new jobs must come more housing

(For a summary of the key points in this article, scroll through to the end.)

If you love San Francisco, as I do, it’s hard to watch the transformation of the city into a place that is extraordinarily expensive and increasingly exclusive. As a transportation planner, I used to view housing as a related issue, but not my direct focus. But given the challenges San Francisco faces today, I couldn’t help exploring what’s causing this severe housing shortage, and what we can do to make sure San Francisco stays a city that welcomes all people, whether artists, blue-collar workers, or entrepreneurs.

San Francisco hasn’t always been this way. And it doesn’t have to be in the future.

As recently as 1995, decent housing was available at a range of incomes in the city. That year, a two-bedroom apartment in San Francisco went for a median price of under $1,700 (in 2013 dollars), half what it would go for today. Rents grew slowly from the 1930s until the 1990s, sometimes even decreasing. The median price for a two-bedroom apartment increased by just a few hundred dollars from 1979 to 1995.

What has happened since then to make rents skyrocket? And what can we do about it?

Put simply, the city and the region continue to add jobs, but have approved very little housing to accommodate all those new workers. The Bay Area is a dynamic region, and lots of smart, motivated people want to be here. Since 1990, the number of employed residents in San Francisco has grown at almost twice the rate as the number of additional homes. This is partially due to job growth in the city, and partially due to residents finding jobs in growing employment centers in nearby suburbs.

Before 1960, San Francisco added housing at a rate that roughly kept up with new jobs. For instance, from 1940-1960, a period of intense growth as people poured into the region to manufacture military supplies during World War II and start families during the post-war boom, we added 88,000 net new housing units to our city’s supply. The ratio of housing units to employed residents actually increased by over 10 percentage points during that time. In the 53 years since 1960, however, we’ve added about as many housing units as we used to add every 15 years, even as the city and region have seen steady job growth.

This wasn’t a problem in the 1960s and 1970s when residents were fleeing cities across the country for the suburbs—San Francisco was no exception. But as jobs and the preference for city living have continued to grow, the gap between jobs and places to live have become increasingly severe.

The results have been painful. Too many people are looking for homes that are scarce. Unable to find housing in higher-end neighborhoods, wealthier residents have bid up prices in what were once lower-cost neighborhoods such as the Mission. Now everyone is paying more than they otherwise would, until you reach the cutoff point where people simply cannot afford to live here.

In Mountain View and Palo Alto, where there are more jobs than residents, the problem is even worse. Mountain View has almost 50% more jobs than residents, and has added fewer than 1,000 housing units since 2000, even as employment at companies like Google has exploded. Google proposed building over 1,100 housing units near its campus, enough to house nearly all of its employees who commute by shuttle from San Francisco, but the plan was not adopted. Perhaps Mountain View had legitimate reasons for rejecting housing in that specific location, but in general, every city in the Bay Area that has a “say yes” attitude to adding jobs should have an equally “say yes” attitude to adding housing. Efforts such as Plan Bay Area begin to address this problem, but it ultimately comes down to citizens and cities to adopt this attitude.

Jobs bring in more revenue to cities than housing does with fewer costs, when you factor in all the demands for services that housing brings—schools, police, social services, and so on. Due in part to Proposition 13, the incentive structure in California isn’t right, and that’s part of why we have high housing expenses statewide. But we also have a duty as citizens to say yes to more housing in our communities if we are saying yes to jobs.

What about all those cranes?

At this point, you might be saying to yourself, haven’t we added a huge amount of housing in San Francisco in the last year? What about all those cranes along the skyline? As of this past summer, there were 4,800 housing units under construction in San Francisco. After years of building almost no new housing, builders finally have financing from banks and are rushing to construct all the units that were approved during or before the last recession. That puts us at roughly the rate we built at in the 1940s and 1950s. If we kept up this pace, it might start to put a dent in housing prices. But that pace will soon slow down, as all the units already approved are built, and developers must begin the approval process again, which can take many years for apartment and condo buildings in the city.

Therein lies much of the problem. We have deliberately made it very difficult to build housing in San Francisco—even more difficult than it is to build office buildings. A recent proposed housing development on Valencia Street has been in review for years, and, facing neighborhood opposition for its height, lack of parking, and likely cost, has been whittled down from 16 units to 9—including shedding its two affordable housing units in the process, as it has slipped below the 10-unit minimum that triggers affordable housing requirements.

Neighborhood groups have labeled this a victory, but the cost is a loss of seven homes, two of them priced below market rate. As a result, seven families will be looking for housing elsewhere in San Francisco. Five of those families, the ones able to pay market rate for a new condo, will be bidding on some other housing unit, driving up its cost, and pricing out another buyer, perhaps in an older building. Those priced-out buyers will then go on to price out yet another round of buyers in another building, until someone at the bottom of the economic ladder is priced out of the city entirely. What kind of victory is that?

You may have heard the argument that the law of supply and demand doesn’t apply to housing in San Francisco. Or that New York City tried building its way out of its housing problem, only to see costs go higher. But the truth is that on a per-capita basis, New York City has built even fewer units than we have since 2000. And for all the talk of rich tech workers, retirees and investors buying second homes in San Francisco that they rarely occupy, the Census tells us that over 95% of housing units in San Francisco are people’s primary residences. In a few name-brand luxury towers in SoMa and Mission Bay, up to 15-20% of units are being purchased as second homes, but the problem is hardly a citywide epidemic. By and large, new housing units are being occupied by people who would have lived elsewhere in San Francisco—perhaps in the very home you’re living in now.

Filling in the gaps

The takeaway? We should be far more supportive of adding more homes to our neighborhoods and to cities in the Bay Area, especially when they are located near good transit options—as is the case virtually anywhere in San Francisco, or near Caltrain stations in Peninsula cities. Of course, we shouldn’t build just anywhere. The Bay Area’s open spaces are part of what makes our region livable and special. But in dense, transit-oriented areas, it makes sense to add as many homes as we can.

The answer lies partially in dense development in neighborhoods like SoMa, Mission Bay, the Mission, and other areas with outstanding transit access to downtown. But it also means modest increases in density in places like the Sunset, where almost every lot is zoned for suburban-style single family homes. Areas zoned for single family homes make up over 36% of the private land in San Francisco. Even allowing a slight increase in density in such areas could yield a great number of housing units, making room for more families and places for people to retire without leaving the neighborhood. If property owners in portions of the Sunset were allowed to build more 2-unit and 3-unit buildings, bringing the neighborhood’s density closer to that of Noe Valley, the city could greatly increase its housing stock. Certainly, it would not be the end of the world if the Outer Sunset looked more like 24th Street in Noe Valley. And not all new growth ought to happen in historically lower-income eastern neighborhoods, like the Mission.

Nor does more density need to mean skyscrapers—the Mission is already many times denser than the city as a whole, while barely rising above three stories on most blocks. New high-rises often provide relatively little housing for their height because so much space is dedicated to parking and common areas that go underutilized.

The alternative to providing more housing—market rate and subsidized—is to watch San Francisco and the Bay Area become ever more expensive. Blocking new buildings won’t stop this trend, and will actually make it much worse, as job growth continues.

As a planner, it’s deeply concerning that this might eventually be a city that provides homes only for the very wealthy. That’s not inevitable. But if we don’t act now, we may look back on today’s rents with just as much jealousy as we now look upon the $1,700 two-bedroom apartments of the early 1990s.

Have questions about anything in the article, or think there’s an important point that’s missing? Leave a comment here or on Twitter. I may write follow up posts on specific topics that I wasn't able to address here in depth.

Key takeaways:

  • The number of employed residents in San Francisco has grown at almost twice the rate as the number of additional homes since 1990, exacerbating our housing shortage.
  • As a result, the cost of renting in San Francisco has doubled since 1995, when a two-bedroom apartment cost $1,700 a month.
  • In the 54 years since 1960, San Francisco has added about as many housing units as we used to add every 15 years, even as the city and region have seen steady job growth.
  • Our current housing building boom is the result of a long backlog during the recession, and won’t be enough to catch up to demand unless it is sustained for a long period of time.
  • Housing costs will only continue to rise unless we support adding new homes in San Francisco and other transit-oriented areas of the Bay Area.
  • By building near transit, we can accommodate this growth while preserving and enhancing our region’s quality of life.