Our best guess is that if we added 5,000 units a year for a sustained period of time, prices would stabilize. While San Francisco has produced just 1,500 units a year over the past two decades, Seattle has averaged 3,000, adding the units in a way that has improved the vitality of its downtown and kept prices from rising as drastically. The lesson is clear: Making it easier to add housing supply keeps rents lower than making it hard to add supply does.
The city’s economist thinks it would take 100,000 units to make rents stabilize, but that’s just an argument about numbers. (And “stabilize” isn’t really the goal here, is it? Rents are far, far too high now; just keeping them from going further up won’t help the city.) The real case, I think, is made elsewhere in the SPUR publication, where an architect outlines the cost of building a single unit in the city. With land, construction, permits, professional services, etc, it runs, according to SPUR, at $469,800.
That’s to build one unit. One small unit, with 640 square feet of usable space – about the size of a modest one-bedroom apartment. Obviously, housing for families would be more expensive to build. And it doesn’t include financing costs or developer profit, which would drive the per-unit cost in the private market to a good bit more than $500,000.
Two lessons here:
- It’s far, far cheaper to protect what we have in terms of affordable housing than to try to replace it, and
-
There’s no way the private market is going to create anything close to housing that working-class or even most middle-class families can afford.
You can build 100,000 units, and unless developers want to lose money, none of them will sell for anything less than half a million dollars. Land costs aren’t coming down (as the old saying goes, they ain’t making any more of it – in fact, as sea levels rise, they’ll be making less of it). Labor and materials costs go up every year. Market competition might bring prices down from $2 million a unit to $1 million a unit, but never down to the level that we need in this city.
So the only way we’re going to get affordable housing is to build it outside of the private market.
Metcalf told me that there are ways to drive down costs:
The one that is the easiest to do at scale is to build smaller units. This is what I would call the “European” strategy. In general Europeans live in much smaller units than Americans. Some other ways to bring down the cost to produce housing include: encourage secondary units in lots more places; encourage modular building construction methods; and a long slog through the building code to make tweaks here and there to reduce construction costs. In the example we published, $75k or the per unit costs is fees to the city (including for affordable housing). These can get over $100k per unit depending on construction cost, for what it’s worth — a pretty significant chunk of the total cost, for what it’s worth.
Actually, while Europeans do live in smaller units, the most successful European strategy is direct price controls on housing and an aggressive public-sector role in housing development. That’s something that’s proven to work, and that the United States hasn’t taken seriously in a generation.
As far as the market goes, Metcalf believes that building at any price level can only be good:
In the real world, will be build 100,000 units, as you say below? Probably not soon. In the real world, will we get the $5-10 billion (or much more!) in added subsidies that we need? Probably not soon. The vast, vast majority of people who need help are never going to get to live in a subsidized unit. So there we have it: we can “prove” that adding supply isn’t going to work, and we can “prove” that adding subsidy isn’t going to work either. But in the real world of imperfect compromises, the best approach is to try multiple strategies. The more housing we build, the more we take pressure of the existing supply. The less we build, the more pressure we place on the existing supply. There is no scenario in which it hurts to add supply.
My disagreement is that building new housing at the upper level takes pressure off the existing supply. That’s only true if you believe that that demand for housing in San Francisco – particularly now – is anything other than infinite. Market-rate housing, it seems to me, is like the old adage about jails and freeways – the more you build, the more they will fill up. You can’t solve traffic problems with more roads; all that does is get more people to drive. You can build luxury condos until the end of time in this city, and all you will do is attract more rich people who want to live here, in many cases part-time. (Condos in SF are marketed all around the world, and the fanciest often go as pieds a terre for world travelers.)
(And honestly, there are some barriers to building in SF, not all of them bad. Is it really a good idea to put high-end housing on top of the 16th Street BART station, when you absolutely know it will transform that area and lead to major displacement of existing residents and small community-serving businesses?)
But at least SPUR and the affordable housing folks and I have some basic common ground: We need to save what we have now. Maybe that’s a start.
