Sunday, September 20, 2020
Uncategorized The developers' dilemma

The developers’ dilemma


Developers are meeting in San Francisco to talk about how to fix the housing crisis, and one source told me this was all about “making sure there’s never another 8 Washington.”

Gabriel Metcalf, who runs SPUR, the think tank that’s hosting the meetings, told me it was no big deal: “It’s not related to 8 Washington,” he said. “It was me looking for new ideas on housing affordability, part of a series I’ve been doing.”

And indeed, SPUR (like the SF Progressive Media Center, which publishes this here website) does a lot of forums and meetings on housing and development policy. Nothing new or unsual here.

Except that the politics of San Francisco right now are driven by anger and fear: Anger at how an entitled new economic class is transforming the city. Fear because not a single tenant under rent control who has been here for more than a few weeks feels secure – and most of the renters I know wake up in the middle of the night and wonder if the next day’s mail will bring an Ellis Act notice, which will in effect be a legal mandate that they leave the city they’ve called home and go somewhere else.

But here’s the interesting element:

 “I think there is a fear of backlash,” said Nate Ballard, a Democratic strategist, when reached by phone Thursday. “When housing prices rise, those that are displaced can react angrily at the polls and that’s understandable.”

The way out of the crisis, Ballard said, is to build — a sentiment echoed by SPUR and Mayor Ed Lee.

“There are certain immutable laws of economics and one is the law of supply and demand,” Ballard said.

Okay: If I read that right, the developers and the mayor are saying that if we build enough new housing (Metcalf likes maybe 5,000 units a year) then eventually prices will come down.

That means that developers will build housing and sell it or rent if for a lot less than they’re charging today. Market forces; competition. Prices come down.

But that also assumes that developers will build at all if the prices are lower, that you can actually get 5,000 units a year when some of them will be priced at a level the middle class can afford.

Either that’s wrong – the developers will give up once prices come down – or it’s true. If it’s true, that means that developers can, in fact, build and sell or rent housing at a much lower cost than the current market rate.

Right? Free market? Prices come down, they keep building. Eventually you can rent a two-bedroom for $1,500 again, which means working class families can stay here.

But wait: That means that it’s economically feasible to build housing in the private sector that will be affordable to the rest of us – if we only build enough. Which means, of course, that it’s economically feasible to do it now; the developers just don’t want to, because they can make gobs of money.

Maybe that’s the message these folks ought to get: If your market is going to solve my problems, show me now that it’s possible. Or none of us are going to believe that anything other than strict regulation will work.

Marke B.
Marke Bieschke is the publisher and arts and culture editor of 48 Hills. He co-owns the Stud bar in SoMa. Reach him at marke (at), follow @supermarke on Twitter.


  1. I’m not a developer, so take this with a grain of salt, but I believe that new luxury construction puts downward pressure on prices of previous luxury construction. So while new market-rate construction is never “affordable”, enough new construction will turn older buildings into (somewhat) more affordable units.

    Example: A big condo project went on Masonic & Fulton more than 10 years ago. I recall that it was considered “luxury” at the time. Craiglist has an old 1BR listing for $3100 — which is crazy-high, but middle-of-the-road rental price for that neighborhood nowadays. It’s certainly less than 1-BR rates at the crazy butterfly habitat place on Market/Dolores.

    I believe supply and demand accurately describes our housing market, and I believe that more construction would help our woes. But I agree that (1) the developer lobby should produce more whitepapers / studies proving this to the public, and (2) if enough luxury units are built, the price point will go down and construction will halt, such as in 2007/2008. Which would cause rents to rise during the next bubble, and we’d be on the same roller coaster again.

    IMO the best thing we could do is reduce permitting costs, fees, and uncertainties, so that new construction can still pencil out at lower prices. An example of the problem is the crazy fight over 1050 Valencia — it’s been going on for three years! Since developers have no idea how long a project is going to take, they only build ones with big surefire payoffs. Here’s their perspective:

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