Yes, Supply & Demand Apply to Housing, Even in San Francisco
San Francisco is a unique and magical place, which is why many of us came here, stay here, and love it so much. The City’s diverse population, natural beauty, fantastic built environment (ranging from the Golden Gate Bridge to the Painted Ladies), and eclectic culture are found nowhere else. We also take pride in setting our own policies, even when they contradict federal law (rejection of immigration enforcement) or state law (rejection of anti-marriage-equality laws).
While our uniqueness and independence as a city are attributes to be cherished and celebrated, anything can be taken too far. Of current relevance is the odd contention by some San Francisco advocates and leaders that the law of supply and demand somehow doesn’t apply to housing in San Francisco. As the argument goes, in an era of growing population (around 10,000 net new residents annually) and $3,000 average rents and explosive home prices, we don’t need to produce much new housing since doing so won’t stabilize or decrease housing prices. Indeed, some of these theorists even insist that building more housing will actually increase the cost of housing.
These theories translate into real-life policy proposals. For example, one member of the Board of Supervisors recently indicated that he may propose a moratorium on market-produced housing in the Mission in order to fight explosive housing costs.
Yes, you heard that right: In order to combat ridiculously high housing prices and in the face of long-term population growth that shows no signs of abating, let’s put a moratorium on building new housing other than government-funded housing.
These arguments don’t hold water. Indeed, in recent history, we’ve never come close to producing enough housing to allow anyone to argue that increasing housing supply doesn’t stabilize housing prices. But, we do have evidence to the contrary. Since 2003, San Francisco has grown by nearly 100,000 people, while producing around 24,000 units of housing. During that same time period, housing prices have gone through the roof.
Other cities recognize the importance of housing supply in stabilizing prices. Washington, DC, which like San Francisco is a popular city with a growing population, is experiencing a decline in rents due to aggressive addition of new units. And, Mayor Bill DiBlasio — perhaps the most liberal big-city mayor in America — has made supply and demand a central part of his housing policy, by proposing to add 160,000 new units of market-produced housing with required below-market-rate housing as part of those developments.
San Francisco’s lack of housing production has historical context, as ably described by another Medium writer. Around 1960, San Francisco stopped producing significant new housing stock, which didn’t matter much as our population shrank in the 1960s and 1970s during an era of flight to the suburbs and hostility to everything urban. During those decades, San Francisco developed a penchant for avoiding the creation of housing, and the City did just fine.
When that population trend flipped — starting in the 1990s and accelerating in the past decade — the City began to grow while continuing to produce very little new housing. We are now nearing 850,000 residents — a historic high — and we are headed toward a million San Francisco residents or more.
Yet, in the face of that growth, our approach to housing has only recently begun to change, and slowly at that. As late as 2013, we were producing around 2,000 or so units a year, barely more than our historic average. In 2014, we increased production to about 4,000 units, an improvement. We have another 50,000 units in the pipeline, but they will take decades to fully build. We are deep in a hole, slowly climbing out, and facing continued pressure on our housing stock due to population and job growth.
These trends are exactly why the supply-and-demand deniers pose such a significant challenge to actually fixing our housing problem. As we work hard to try to produce new housing — through market-produced housing, below-market-rate housing, new types of housing such as co-housing and micro-units, and more flexibility toward in-law units — we have a vocal and influential set of advocates pronouncing that we shouldn’t even bother to build market-produced housing, since, according to them, doing so won’t lower housing costs and may even raise housing costs. This argument, to the extent it succeeds, not only reduces the amount of housing produced in San Francisco but actually slows the production of below-market-rate housing, since market-produced housing, through our inclusionary housing program, is the most significant source of new affordable units coming online.
To be clear, we need to invest aggressively in subsidized below-market-rate housing. Creating that type of housing is a key piece of our housing puzzle. Yet, publicly funded housing will never solve the problem by itself, and market-produced housing is essential to getting the job done. We will never have sufficient resources to build enough subsidized housing to solve the problem solely through that model. One commentator estimates that building enough publicly funded housing to meet our city’s needs (about 100,000 units) would cost in around $25 billion. We don’t have those resources, particularly in an era when our state and federal governments have largely withdrawn from funding affordable housing. We need market-produced housing both to meet our significant housing production needs overall as well as to enhance the available resources, through our inclusionary housing ordinance, for subsidized below-market-rate units.
Economic principles aren’t always convenient, but they are real. Supply and demand exists, and it applies in San Francisco. It even applies to housing. Let’s take that reality into account and move toward serious solutions to our housing crisis.