Housing Affordability in San Francisco [and the Bay Area]

If you live in the Bay Area, you know that the cost of living is high. By "cost of living," I don't mean food prices, fuel prices, or many other goods and services. I mainly mean the high prices for renting or purchasing property.

While many areas offer an array of low-end to high-end housing solutions, where the renter/buyer can adapt his budget to the options, San Francisco offers almost no availability at the low-end, and almost everything else at high-end prices, with premium-end a growing market share.

There is an array of historical reasons behind this strange, skewed distribution of housing options. The underlying reason is a geographically constrained area, with ample economic opportunities, which attracts a lot of people from all over the world. This underlying problem is exacerbated by Not-In-My-Backyard policies that make it difficult to develop higher-rise, higher-density housing.

Prop 13 severely reduces liquidity in the property market, because if you already own property and decide to move, you stand to increase your tax burden; all property owners stay put. Finally, rent control ensures that renters also stay put.

In 1978, people got tired of property tax increases, so they passed Prop 13 to limit/eliminate property tax increases, and consequences be damned! In 1979, San Franciscans got tired of rent increases, so they passed rent-control, and consequences be damned! Each of these policies are best-described as a "We were here first!" tax on newcomers.

Down where I live, on the Peninsula/Silicon Valley, there is no rent control, but rents are still very high. We have similarly high demand for housing here, and many high-paying employers nearby. One additional reason appears to be monopolistic ownership of rental properties. The same 2-3 companies own all the apartment complexes in town, so they alone control the going rents.

So what's wrong with high rents/home prices? Well, for the lower-income, they're a massive burden. For the middle and higher-income, they're a huge waste of resources. The excess money someone spends on rent or mortgage could go to purchasing other goods and services, creating more economic activity. 

In any case, there's a great article on techcrunch that details the housing situation, and historical factors in San Francisco. It's well-researched, and a long but informative read.