Ancillary 10: The Bay Area’s red-hot housing market

While the common notion that the housing market in California is so expensive due to the weather tax, the temperate weather that California enjoys is only part of the reason why housing has become near unaffordable for many. Weather is only one of many factors, such as proximity to high-paying tech jobs, that lead to high demand for housing in California. According to a study by the BACEI, “Employment in the city has grown by over 123,000 from 2009 to 2015, an increase of 22%. And in 2015, the San Francisco metropolitan area grew its gross domestic product by 4.1% while other U.S. metros averaged 2.5% growth.1 While demand has been the leading cause of high housing costs in the city, we show that state and local housing policies also have considerable effects on affordability” (BACEI, 3).

In addition, there isn’t really an “affordability issue” where all of the housing is unaffordable given how the Bay Area housing market is, many houses receive multiple bids 15–20% above the asking price. Instead, many of those who aren’t employed in high-tech industries are the ones who are increasingly becoming unable to afford to house because they are getting priced out by people with extremely high incomes.

As such, simple economics tells us that when demand rises while supply remains constant or decreases causes prices to rise. So the question becomes: why has there been no extra supply in the Bay Area housing market given such high prices?

One solution that has been suggested to increase supply has been to build more affordable housing for people who are unable to afford rent. In addition, this type of housing is affordable because it is capped at 30% of the renter’s income, not based on some market rate. However, one problem is that in many cities where proposals for affordable housing are being proposed, city residents vehemently oppose such developments. This is because the development of affordable housing decreases the surrounding property value, and as such local residents, to preserve their property values, use CEQA and other tactics to prevent affordable housing from ever being built.

CEQA, an environmental act that ensures that new buildings don’t hurt the environment. While CEQA is good in theory, anyone can file a lawsuit against a building for supposedly damaging the environment. The problem arises when those suing have competing economic interests with the construction and are suing under the guise of environmental concerns.

In addition, prop 13, which was passed in 1978, limits property tax revenue that local governments can collect, they would rather make available land into retail space. Retail space can provide these governments with more revenue thanks to sales tax.

In addition, rent control and other commonly suggested solutions don’t work, because then people slow down or stop building new housing, so no new affordable housing gets built, and even if some people are better off the quantity of housing available on the market will decrease. According to a study by Diamond, McQuade, & Qian, “Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law” (1).

Some point out how Singapore is a successful example of creating affordable public housing. However, Singapore’s solution to public housing would be unlikely to garner support in the United States. Singapore, an authoritarian government, bought up land and paid for below market price in order to gain land for affordable housing, and such a notion wouldn’t be supported in the US. People want to have ownership of the land and many reject the idea of the government buying your house for an under-market price with no ability to resist your house being taken away from you.

A possible solution I am considering would be to try to change the culture around bringing more affordable housing into the Bay Area. While Silicon Valley’s mission was to connect the world through technology, nowadays many who want to do that are unable to because the price of housing gates them off. Maybe adopting a global attitude instead of obsessing over property prices can fix this issue.