What the housing “dashboard” shows: Too many luxury condos

    Council of Community Housing Organizations chart
    Council of Community Housing Organizations chart

    By Tim Redmond

    Sup. Jane Kim wanted the city to develop a housing “dashboard” – an ongoing report that would link the development of market-rate and affordable housing. Her idea, later toned down a bit in a compromise with the mayor, would have mandated that developers building luxury condos go through an additional planning process whenever the balance was out of whack – when affordable housing was below 30 percent of the mix.

    Those figures, of course, already exist – the city keeps track of how much housing is approved, and what type of housing, and the folks at the Council of Community Housing Organizations have turned it into a nice, easy-to-understand, chart.

    The news here is not so much that the city is only meeting 27.5 percent of its middle-income expectation and only 58 percent of its very-low income need. It’s that we’re building 211 percent as many luxury apartments and condos as we need.

    The “need” is a bit of a fuzzy figure, but it’s based on what the Association of Bay Area Governments sees as San Francisco’s responsibility for meeting regional housing needs.

    ABAG, of course, is trying to push even more housing on San Francisco, and there are plenty of issues around its projections.

    But there are also pretty solid statistics on the population of San Francisco, the employment base, the standard salaries, and the projected growth of different industries.

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    Tech, of course, is a growth industry. But so is health care and hospitality – and, right now, to a more limited extent, government. And most of the jobs in those industries – which are critical to the city’s future, more critical than tech – pay salaries that don’t even begin to cover “market rate” housing.

    So we know how much housing we need for the existing workforce, and we can project pretty well what we need for the workforce of the future – and the dashboard shows how radically out of connection the city’s current policy is with what the city actually needs.

    Even if building 30,000 more units of housing, as the mayor has proposed, will bring down prices a little bit – and the city’s economist, Ted Egan, says we’d need more than three times as much new housing to make a serious dent in prices – the mayor’s plan isn’t going to make a new condo affordable to a hotel worker, a teacher, or a hospital technician.

    A condo that might go on the market today at 1.5 million could wind up selling for $1.2, or even $1 million, if supply causes prices to dip (and again, all evidence indicates that prices won’t dip with more supply).

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    (I can see a future Ed Lee press release: “Mayor’s housing policy brings market prices down 10 percent.” Maybe it’s 20 percent. No difference; no matter what happens, unless there’s a catastrophic jolt to the city’s economy, that new condo will never sell for $350,000 or rent for $1,500 a month.

    No: The only way housing for the existing and future workforce will be built is if it’s constructed as below market rate units in the first place. And the vast oversupply of market-rate housing is doing nothing for the crisis.

    That’s what the dashboard shows – and it’s why Kim wanted to slow down the luxury condos until we can build enough affordable housing to catch up.

     

    • Sam

      How can we possibly be building more “luxury” condos than we need when every single condo being built is quickly purchased or rented? Clearly there is a need and demand for more expensive homes even if there is also a need at other price points.

      If a luxury condo is not built, it doesn’t mean a cheap home will be built instead. It just means those investor dollars go to another town. In fact it makes it less likely that a cheap home will be built because of the affordable housing fees that new market-rate developments have to pay.

      So when you kill “luxury” housing, you also kill affordable housing. Never let envy get in the way of helping the poor.

    • Lucy

      Hey Sam, define “shill”.

      • Sam

        Lucy, my definition would be someone who issues one-line comments with no content rather than carefully analyzing the situation using facts and arguments.

        And/or someone who tries to personalize the debate because they cannot refute the other party.

    • E

      $1500 per month, assuming housing takes at most one-third of someone’s salary, still implies someone is earning at least $54,000 per year. In hourly wages, that’s $27 per hour and working full-time. Our definition of “affordable” housing needs to consider the types of jobs being offered.

      $1500 a month is still double or even triple what many long-time renters currently pay. The current trend for micro-apartments and micro-units means that new “affordable” housing is way more expensive per square foot than previous units.

      Attaching a label of “affordable” to a $1500/mo micro-unit is the same as saying we’ve lost the struggle for working- and service-class housing in the city.

      • Sam

        E, why do you assume that everyone who works in SF has to live there.

        500,000 daily commuters into SF say you are wrong.

        • E

          I made no such assumption. Why did you assume I made that assumption?

          • Sam

            E, the assumption was implied. Your argument is based on the premise that SF housing should be affordable for lower-paid SF workers.

            My point is that it does not, since there is no obligation for a SF worker to live in SF at all. They merely have to live somewhere in the Bay Area within a commutable distance.

            • E

              Define “commutable distance” and show me the math, both hours per day and *net* income after commuting costs. The entire Bay Area is impacted by the predatory and exploitative real estate bubble happening in SF right now. I suppose if we don’t like it we should move to Reno, right? Wrong. Talk to people from around the country, in many places, real estate is taking every last available penny from people.

              Sam, I’m guessing you’re Tim Redmond in disguise trying to bump the hits on the site for advertising $$.

              (And if not, sorry for the insult, Tim)

              Sam, take the last word, go ahead, they’re all ignorant, transparent troll-talk anyway. bye bye.

            • Sam

              RE prices per square foot in Oakland are about 50% of the SF figure (with rents following accordingly) and it is ten minutes by car or BART.

              Tell me why that won’t work. And why instead you demand to be subsidized.

              In fact, anywhere on BART or CalTrain is within an hour of downtown SF and it can take longer than that to get downtown from the Outer Richmond.

    • Just because the housing is sold does not mean the housing is occupied by voting citizens. There are a lot of empty units in the city, and they will contribute to the bubble that will not, at some point, sustain itself, because bubbles never do.

      • Sam

        zRants, I’d like to see your figures for vacant units. I often hear that claim but have never seen any hard evidence that it is true.

        It’s possible at the very top-end of the market because very wealthy people typically own more than one home, and clearly cannot fully occupy all of them all the time. But I think that Tim regards a 1-2 million condo as “luxury” when in fact the SF median is now in that range. And most buyers in that range are going to live them.

        Of course, I could argue that a homeowner who pays his property taxes but consumes no services is the perfect resident.

        But either way, I suspect that far more housing units are left vacant by property owners do not want to deal with rent control. I’ve seen figures of up to 40,000 for that.

        Unless you want to pass laws restricting ownership or residency to those who live, work and vote here, then I’m not sure anything can be done. Likewise you cannot reasonably force a home owner to occupy or rent out his unit if he doesn’t want to.

        • No there are not 40,000 units kept off the market due to rent control. The 2010 Census tells us that at the time, there were 8,200 units that were neither listed for rent nor occupied making up 3.3% of the non-owner occupied & not for sale units & 2.2% of the city’s total housing stock at the time. This was before the market went absolutely nuts

          https://www.facebook.com/sporcpac/photos/a.1503661289867133.1073741828.1451382748428321/1503661123200483/?type=1&relevant_count=1

          • Sam

            I do not know how accurate the census data is. But assuming that you are correct, then zRants claim that there are many new market-rate condos that are sitting empty would appear to be wrong.

            While your 8,200 figure is closer to the 10,000 figure I have seen as the lower level of estimates for rent-controlled units that are held off the market. 40,000 would appear to be fanciful on that basis.

            No doubt there have been more in the past but they get sold as TICs, get converted to condos, or get Airbnb’ed.

            • The Census is the gold standard for this type of data so I think its fairly accurate. This does not however capture privately held units that are simply kept as pied-a-terre crash pads for the well off.

            • Sam

              I’m not clear why the census would not capture high-end homes that are used as a second home. the census asks where you live and so presumably those people would not designate their pied-a-terre as their primary home.

              But until and unless zRants can substantiate his claim, this is all mere speculation.

              The fact that one rental unit in thirty is vacant in a city with a near zero vacancy rate certainly implies that many landlords prefer not to rent them out. And given that they could get a market rent for those units. the only explanation is fear of rent control.

    • What’s unfortunately left out of this conversation is the city doesn’t actually build the affordable housing. it subsidizes its construction. and it obtains those funds from a mixture of thoroughly inadequate state & federal funding and development fees. we can and should argue for more of both but the knee jerk “stop luxury construction” trope simple can’t cope with the fact that such an action would dry up a major source of BMR construction.

      What is also rarely mentioned or acknowledged that every new unit occupied by some incredibly well paid techie (or whatever) is one fewer currently rent controlled unit demanded by that same individual. these douchebag containment units are critical to tamping down the pressures faced by long-term tenants. The pressures are real and scary but adding more competition for a scarce resource only makes thing worse for those without the money power to hold their own in that competition.

    • Luxury condos are not sprouting everywhere, but rather in desirable places like downtown, Rincon Hill, Potrero, Castro, and newly desirable locations like the Mission, the new mid-Market twitterland, Dogpatch and so on. Some neighborhoods like Visitacion Valley (future home of an affordable housing project where the old Schlage factory used to be) will likely not support luxury condo construction in the foreseeable future.

      No property owner with a choice between building profitable luxury condos and affordable housing will opt for the latter, that’s just basic economics. Thus, the options are:

      1) Make up for the difference with public funding to shift the developers’ calculus (question: who will pay?)

      2) Force developers to set aside a higher portion for below market rate housing (i.e. the answer to question 1 is an indirect tax on developers)

      3) Encourage building of high-density housing in less desirable places, like Visitacion Valley, Bayview, and so on, that still have decent transit links. The Schlage project is a good example. It took a long time to happen, though, finding out why and getting rid of those obstacles is the course of action most likely to succeed.

      All of these articles are about advocating for a wealth transfer from developers or property owners to lower-income residents who have lived in the city for a while. Who will win will not be decided by principle or ethics, but by a naked political contest between self-interested voters and money.

      • Sam

        Fazal, the problem with your solution number 2 is simple enough. If the city tries to raise the percentage of BMR units a developer must create or fund, then more projects will become marginal on a risk-adjusted basis. That means that there would be less market-rate new homes and so less new BMR homes.

        In other words, I don’t think it’s a solution. Raise the BMR percentage and you get less development because the developer will invest elsewhere. Conversely lower it and you will get more new homes. Developers aren’t dumb and there is no free lunch.

        To the other, I suspect the voters have a limited capacity for paying higher taxes to subsidize homes for people they don’t know. Given the 2/3 threshold for raising property taxes under Prop13, I do not believe that the city could possibly raise the hundreds of billions necessary to make a difference.

    • lucy

      Dear Sam,
      You’re incorrect! “A shill, also called a plant or a stooge, is a person who publicly helps a person or organization without disclosing that they have a close relationship with the person or organization” (from Wikipedia)
      Your output and energy is impressive! I hope you get a big bonus this year!
      Lucy

      • Sam

        Lucy, i have no such connection. The beliefs expressed and arguments made are my own.

        Why do you find it so hard to believe that some people in this city support development and want to see a stronger and bigger tax base?

    • medalist

      Mandatory inclusionary zoning is just a tax on developers plain and simple. They will just build
      elsewhere if we keep taxing them more. Slash the regulations that make development so expensive and difficult, relax zoning on density limits and weaken rent controls.

    • SFrentier

      The social benefits of rent control are getting ruined by offering them to well off tenants. Why should a google engineer who rented in the mission 3 years ago be under market by $1000? There are so many well off tenants enjoying below market rents, and that puts a lot of pressure on the lower income folks who really rely on rent control as a social benefit.

      Blanket rent control with no means resting for income or assets is just plain stupid. Rent control advocates need a serious wake up call and shift their strategy. Means test rent control and have the benefit for people who actually need it. Stop trying to milk all landlords into giving low rents to well of tenants!

      WAKE UP FOLKS!!!

    • Dan

      Chinese investors and other international investors are buying a lot of the “luxury” condos in San Francisco and in other US cities. I’ve read several credible articles about that. So there is clearly NOT a need or demand for more expensive homes in San Francisco because people who don’t even live here and have no plans of living here (i.e. “need”/”demand”) are buying some of these properties solely as a frill investment. That’s what the real estate shills and hacks who come on this site leave out when they’re painting their rosy picture of this housing bubble.

      What San Francisco does need is more AFFORDABLE housing, which is not being built.

      Some “luxury” condos are selling (to international investors and others). Other “luxury” condos are not selling. It took eight months for a new “luxury” condo building near me to sell just 22 units. It wouldn’t have taken that long if things were as rosy as the real estate shills and hacks like to paint them. Another “luxury” condo building with 18 condos near me sold out (to whom?…more international investors?) is mostly dark every night of the week. Rarely are there any lights on in that building at night. It’s as if no one lives there either.

      • Sam

        Dan, can you cite the exact percentage of new market-rate condos that have been sold to absentee Chinese buyers?

        How do you know those units are really vacant? How could you know? If they were rented out, you would not know. If their kids were living there to attend college here, you would not know. Your fuzzy anecdotes about not seeing lights on doesn’t count.

        Oh, and eight months isn’t long to fully sell a development given that it probably took ten years from conception to completion.

        Sorry, but I smell envy.

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