Speaking of supply and demand, over the past month at least 700 potential condominiums have been pulled from the San Francisco housing pipeline (and our Complete Inventory Index).
The dead projects range from Pulte’s abandonment of plans to raze the San Francisco Tennis Club and build ~500 condos (“Pulte’s decision was driven by ongoing discussions with the Western SoMa Task Force, a neighborhood planning group that is studying rezoning in the area…”), to Ray Tonsing’s decision not to convert 153 Kearny from office space into the approved 45 condominium lofts (think “growing tech companies paying more for downtown space”).
And then there’s Urban Realty’s decision to drop 189 potential condominiums from their Mid-Market development on Market Street between fifth and sixth. Now exclusively slated for 265,000 of retail, it’s this property that has been at the center of “Target in the city” rumors for quite some time. Perhaps a plugged-in reader would be willing to share the inside scoop…
∙ SocketSite’s Complete Inventory Index (CII): Q1 2007 [SocketSite]
∙ First Game Pulte (But Many Sets To Go) [SocketSite]
∙ Pulte drops condo plan for S.F. tennis club site [Business Times]
∙ Big Mid-Market project gets housing lopped off [Business Times]
My head just about exploded when I read this quote from Lena Grotz of Save Our San Francisco Tennis Club: “People need to have a place to work, live, and play,” Grotz said. “Recreation is so important. We don’t need any more market rate condos.”
I’m guessing she already has a home to go with those tennis whites. And god forbid she is forced to play on one of our public courts. Talk about a let them eat cake attitude.
Anna: I tend to disagree, though I understand your point. However, despite the fact that I’ll never get to serve on those courts, I do think that it is crucial that SF maintains some recreational room, for both the rich and the rest of us. I had a buddy in high school (we weren’t rich kids, public schooling all the way, baby!) who was a tennis phenom and played at the tennis club.
And the lady is right, isn’t she? About the market rate condos? It’s not like the condos that would have been built would be for the folks who can’t play in the tennis club. Instead, it’ll just be replacing a fancy tennis club with fancy condos where a 1-bedroom will cost 600K or more. And if we want those, there’s plenty to pick from, despite the news from the above posting.
Man, I miss my golf driving range in Mission Bay…
With this rapid drop in inventory either by developers cancelling projects or condos getting snatched up more quickly, why don’t we see more of the developers in the Mission Bay/Rincon Hill areas expediting construction of their approved buildings?
“Man, I miss my golf driving range in Mission Bay…”
I don’t see why we can’t have both here in the city…..I miss the driving range too, but perhaps it would be better suited on less valuable land, sort of like Chelsea Piers in NYC did with its driving range. I think another option would be to have condos and then a couple floors for tennis on the very top. I agree with having open space, but I think in our city, we need to think more vertically. Even LA has us beat on this, talking about parks on rooftops of condos and offices downtown as a trend for the future.
I agree with SFHighrise. If say, people didn’t freak out about tall buildings and force the developers to build shorter buildings, we could have more housing and more open space.
“We don’t need any more market rate condos.”
“the lady is right, isn’t she? About the market rate condos?”
Umm … we don’t?
I guess it all depends on what you consider ‘market rate’ and the effects additional supply would have on prices.
Do we need more $1 mill+ luxury condos? probably not.
do we need more units at all price levels, absolutely, and the only way to get those units say good by to some older low density housing and hello to higher density housing.
Most people in SF make to much money to qualify for a BMR and yet don’t make enough to buy from the existing available stock (without using some higher risk ‘exotic’ mortgage product)
If you curb development, shrinking the supply, you will simply increase the demand and drive prices even higher. The only solution is to allow for increased development.
I am not advocating saying yes to every project ‘as is’ but the city and neighborhoods must learn to work with the developers. you know compromise, where BOTH SIDES makes concessions.
I agree with badlydrawnbear. We do need more housing to increase supply, decrease demand, and lower the prices. I wonder if the decision to hault the project has been affected, in some small way (or maybe not so small), by the developers now seeing the direction that the RE market is headed.
@S&S
“We do need more housing to increase supply, decrease demand, and lower the prices.”
You ought to bone up on your Economics, as increasing the supply of housing does not decrease demand.
In fact, an increase of supply that causes a drop in the marginal price ceteris paribus ought to cause demand to increase.
What is the “Target in the city” rumor and what’s the scource? Any details. Curious.Thanks.
I know that a lot of developers were looking to place their affordable housing requirements off site around the 6th/Mission area and had started buying buildings in this area for such a conversion. That brought about the more recent rule where the affordable housing has to be within one mile of the project so that all the affordable housing doesn’t get clumped in the same place. So the bloom is kind of off the rose for developing residential around this area. As for Target – I have to imagine there is some kind of impasse on negotiations as this rumor has been going for several years now. I have to think they dropped the residential portion of the Market Street property due to high construction costs which would be tricky to get back in high sales prices in that location. And yeah, the office to condo conversion trend is likely over due to the high costs of converting an existing building to residential uses and due to the booming sale and rental market for office space. One property to look at for this trend is the beautiful PacBell building on New Montgomery which for years now has been touted as a residential conversion property but now people aren’t sure and maybe they’ll keep it as office. It should be sold within a few weeks with an announcement of its direction shortly after that. And the Tennis Club and Flower Mart properties in SOMA have been historically contentious and high profile properties to demo for residential uses – there is just a lot of opposition to demolishing these properties (like it or not), so that has scared off developers from both properties. So this recent announcement is more of the same. Also, a lot of big lenders are cutting back on making big residential development loans due to the nationally soft market, so that has affected the residential development climate as well.
I think it would be great, wonderful! if we had more housing at all price levels. Who isn’t for that? But the reality is, “market rate” in SF, is terribly high. All the high-density developments South of Market and Mission Bay haven’t brought down prices. Who knows, maybe in a very short time, prices will come down, but will this be due to more supply or the downturn in the housing market in general? So far, however, the increase in supply has not had any real dampening effects on price. It boggles my mind, but its true, no? I’m not a fancy economist and I don’t have the brain power to know what’s what, but I do know that if people are down to pay 750K for a 2-bedroom, that’s what the developers are gonna give. And they’ve been doing exactly that.
I’d love to see more housing in SF, especially if that does, in fact, cause prices to drop. Man, the day I see a 1-bedroom for 300K..oh man! Wait, I did. The Book Concern Building. 300K. 300 sq. ft. That hurts.
I like the idea that the tennis courts could go inside a residential building. Not sure how it would work out, but smart folks could figure it out.
Gee, Jordan, maybe you could use economic genius to explain one of Socket’s previous posts:
“Based on our calculations, re-sale activity for listed properties in San Francisco increased around 10% over the past two weeks. At the same time, new listings have continued to outpace new sales as Active listed housing inventory increased slightly as well.”
Prices have dropped a bit here in SF (not as a whole, but for a lot of the properties Socket has posted lately), but I don’t see the rising demand as new listings are so not flying off the market. Obviously, you must see something that I don’t.
Developers know what they are doing, its not rocket science. We have the priciest dirt around, they don’t make millions from selling crack.
Good to hear SOMA is getting some relief with 700+ condos not going to be built. Could be problematic for buyers as supply gets taken out, exacerbating the the balance further.
Maybe SOMA will stock rocking and rolling like the northern part of SF has for a long while now.
Regarding Target-forgeddaboutit
S&S
Two weeks is hardly a long enough period of time to consider in any market. There are always going to be seemingly random fluctuations, and my little snippy comment assumes that the demand curve is fixed, which it isn’t.
We can get into a pointless pissing contest over basic Economics if you want, but I’d hope you at least admit that the two weeks you mention hardly constitute a secular trend in the SF Real Estate market.
Anyways, I’m still right 🙂
Miles: the PacBell building has been on the market for eons. It’s structurally questionable and will doubtless cost a fortune to bring it up to code. There haven’t been significant business operations in the building for at least 5 years. In that time there have been a dozen rumors of its sale, usually to unidenified mystical Japanese or Chinese interests in the role of deus ex machina. Is there some reason to believe that a sale is really imminent?
Re: Building our way to affordable housing.
There’s a concept in thermodynamics called a heat bath. It’s something that provides whatever amount of heat is required to put a system into thermal equilibrium. It’s a nice analogy to our situation in SF. There are 300 million people in this country. Any of them, at any time, are free to pull up stakes and come here. They choose to because SF provides a lifestyle that they want and are willing and able to pay for.
Housing costs more here in SF than in Des Moines because SF is nicer than Des Moines. The only way to get housing prices in SF down to the level of Des Moines is to destroy SF’s quality of life so that it is equally crappy to live in SF as to live in Des Moines. Otherwise, for every condo you build some Des Moineian will just pull up stakes and come here.
It is an unfortunate reality that not everyone who wants to live in SF can. It may even be horribly unfair that we ration the right to live in SF based on who is willing to bid the most for real estate. (There are certainly other ways to ration the right to live in SF and they have different ways of being unfair.)
It is true that you can start unrestricted building. Eventually this will bring the price of housing in SF down to the level of housing in Des Moines. But only after it has turned SF into an armpit that no one wants to live in.
The key logical flaw in the belief that we can build our way to affordable housing is to assume that there are a fixed number of San Franciscans and so there is a finite number of houses that would need to be built to house them all. While we are surrounded by this 300 million person heat bath that is just not true.
“Housing costs more here in SF than in Des Moines because SF is nicer than Des Moines. The only way to get housing prices in SF down to the level of Des Moines is to destroy SF’s quality of life so that it is equally crappy to live in SF as to live in Des Moines. Otherwise, for every condo you build some Des Moineian will just pull up stakes and come here.”
San Francisco vs. Des Moines isn’t exactly a fair comparison. What about comparing it to a world class city, such as Chicago? Chicago has world class cuisine, better museums and symphonies, much better architecture, and has a mayor that actually gets things done, and its real estate prices are significantly lower than they are in San Francisco. I don’t think you can call Chicago an “armpit” in any sense of the word.
There is at least one historical example of increased supply yanking down prices that is interesting to look at. When Vancouver, BC first let developers build lots of tall towers on and around the waterfront they deliberately allowed supply to get out of hand. The market … opposite of frothy? … studdered is how I’d put it. The price of condos in that city fell dramatically. Over time the market returned to the usual antics and is now bubbly as can be, but the example was set. Allowing a big burst of condo construction can bring the prices down. Of course comparing SF and the BC coast is a stretch, but as a market exercise the example stands.
“San Francisco vs. Des Moines isn’t exactly a fair comparison. What about comparing it to a world class city, such as Chicago?”
You can compare any two cities you want, it doesn’t change the arguement. I like Chicago too. But just like you I choose to stay here because I like here better, even though I could choose to move to chicago at any time.
“There is at least one historical example of increased supply yanking down prices that is interesting to look at.”
Yup. If you dump a bunch of supply onto the market it will depress prices. Then, as people see what a nice, cheap place Vancouver is they move there and prices go right back up. Your example supports my point.
“The only way to get housing prices in SF down to the level of Des Moines is to destroy SF’s quality of life so that it is equally crappy to live in SF as to live in Des Moines. Otherwise, for every condo you build some Des Moineian will just pull up stakes and come here.”
Wrong, the reasons why Des Moines is an armpit are #1 – location, #2 – size/amenities, #3- lack of culture. You mean to tell me that adding housing to SF will bring SF back to the stone ages, on par with somewhere like Des Moines or any other crappy midwestern city? Far from it. We may never see prices reach the level of Des Moines and I wouldn’t expect that. However, price aside, look at all the additional benefits of adding housing. Its taking bad neighborhoods (mid market is a prime example) and gentrifying them to the point of creating additional nice neighborhoods, to compliment the existing pool. I don’t know where you think that adding more is going to denegrate the city, but its actually allowing for SF to continue to be a world-class city, rather than being left in the dust. Oh, and while it may not ever reduce the prices by 80%, it may keep the prices from rising at the rate that they have been since the late 90s.
Sure SFhighrise, there’s still lot’s of areas that can be gentrified with added units but we were talking about affordable housing. Those “bad” neighborhoods are exactly where the affordable housing is and it is affordable only because it IS in a “bad” neighborhood. Gentrification, from my point of view makes the city nicer, but that doesn’t change the fact that it destroys affordable housing units by replacing them with luxury condos and makes the city even harder for the working class to live in.
Me, personally? I don’t have any particular problem with converting SF to an upper class residential and commercial district with the baristas and other working poor coming in on BART every day. That seems to be the direction that we are inevitably going in anyway.
But that doesn’t have anything to do with the point I was making. Namely,
IF you want to drive the price of housing down by building more units.
THEN you must build enough that the quality of life is reduced.
Notice that this is a different statement from “adding any new units will destroy the quality of life in SF” which I did not say and do not believe.
Hi Jeffrey – here’s the article mentioning that a sale of the Pac Bell building is in the works…
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/05/03/BUG58PJQ991.DTL&type=printable
I’ve lived in both and Chicago, while being a very nice city, is a [sh@#] hole compared to SF. Five months of winter? That’s why I pay more to live here.
diemos,
Has there really been that much “affordable” housing that has been torn down without compensation/relocation for those tenants? The majority of the new housing being built is own former industrial/freeway/unused land, no? Building high-end condos on former parking lots may not be as good as building affordable housing, but it is hardly “crowding out” affordable housing. Adding to the top doesn’t have to mean you’re taking from the bottom.
Toaster,
A lot of the recent stuff is on former industrial/freeway/unused land, it’s true. But over the last few decades there’s been a major destruction of SROs http://ccsro.org/pages/history.htm
which were a big source of housing for the poor. There’s also the live work loft gentrification of the mission and soma which sparked the yuppie eradication project backlash.
I’m not against the building that’s going on but there seems to be this idea floating around that if we just build enough we’ll eventually get the price of a 2000sf condo down to 200K and that’s just not going to happen. UNLESS, we build so much that SF’s desirability goes way down.
There’s a quip I saw on one of the transit boards that goes, “every worthwhile area has a parking problem”. You can just as easily say “every worthwhile area has an affordable housing problem”.
Nobody complains about affordable housing in Detroit. Detroit doesn’t have an affordable housing problem because nobody wants to live there and so there are vast tract of really nice abandoned houses. Pick up one of those houses and move them to SF (plus a little rehab) and they would go for $2M.
But I’m digressing again, what was my original point? Ah, yes. While SF remains a desirable place to live it’s going to be expensive, no matter how much housing you build.
SROs can’t be demolished or converted into market rate housing without replacement of the units elsewhere, or paying into a City fund to build replacement SRO units.
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diemos,
While I do agree with you that any amount of building will probably not lower prices significantly, it could cause prices to hover for a little while instead of increasing by such huge amounts each year. The problem right now for many people is that any amount that they try to save each year is pointless because it ends up being so small in comparison to the price increases. If a glut of new properties could keep prices (even in just a few neighborhoods) at 2006 levels for three or four years, that could allow a significant number of locals time to “get in” to a property.
You’re right that eventually those properties would be snapped up by outsiders if prices remained reasonable, but the cost of moving(in dollars, time, and stress) are significantly greater for someone from Des Moines, as opposed to someone already renting in the area or living in a farflung suburb. And isn’t that really who we’re worried about? The people that are currently commuting or renting HERE simply because the cost of entry for owning is too high?
Toaster,
When it comes to the recent run-up in prices I’m firmly a bubblista. I beleive that these prices exist only because anyone who can fog a mirror could get a 125%, neg-am, teaser rate loan for any amount of money they wanted. They can barely manage the payments at the teaser rate and there will be a massive default and foreclosure wave once those loans start to reset in earnest. Wait, rent, save your pennies and you will be rewarded in the future. It’s what I’m doing even though I could “afford” to buy something with one of those loans.
As to your second paragraph that goes back to a point in my original post. We currently allocate housing to the highest bidder. There are other ways to allocate housing. We could setup a system that favored people who were currently living here for buying housing. But I’ve never seen a compelling rational for why that would serve a compelling societal interest. Why is societies’ interests served by discriminating against recent immigrants to SF in favor of older immigrants. The other scheme that gets tossed around is to discriminate in favor of people who work in the city. Since I live in SF and work in Livermore I suspect that it’s me they want to kick out to make room for someone else. As you might guess I’m not particularly keen on that idea.
(You want to make me live in Livermore? What did I ever do to you?)
But analyzing who wins and who loses under any particular scheme you want to implement and deciding if society as a whole benefits is a topic for another day.
Reading through the comments about Chicago and other cities with more affordable housing, one thing that has always struck me is San Francisco’s inflated self importance. There is not as much wealth in the city as we would like to think which is why I am concerned about the luxury condo building boom. Los Angeles County leads the nation with 268,138 millionaires, Cook County (Chicago) is second,(Orange County 3rd) while Santa Clara is toward the bottom of the top ten. When Ken Griffin (who made over 1 billion last year according to the New York Times) “only” paid 6 million for his two story 28,000 sq. ft. penthouse in Chicago, one has to wonder why our trophy properties deserve to be 20 to 50 million? This city is vastly overpriced when you consider its economic importance and net worth. San Francisco does hold the distinction of having one of the largest non-employed populations living off investment income in the country however. Perhaps we should think of this city as a Santa Barbara with fog and skyscrapers? A pretty place with an aging population against growth and smug in a desire to believe “everyone wants to live here”. What this city needs is more real affordable housing for working people.
Morgan,
I think you need to take a look at the populations of those other places referenced. Then, add up the counties of Marin, San Francisco, San Mateo, and Santa Clara and do another comparison. One other note – San Mateo County has the most billionaires of any county. Maybe the billionaires are just going to buy ten each? 🙂
diemos,
I wasn’t suggesting a “new way to allocate real estate”. I was simply saying that a short term glut of inventory at lower prices would help the people already living in the area more than it would help immigrants to the area. It’s simply easier to buy something and move in quickly if you live close by. Also, if you’re interested in owning a property, you generally tend to know more about the area that you currently live in, and are more “plugged in” to that area. If you live and work in Des Moines, it’s going to be a lot less likely that you’ll be one of the first few thousand to snap up lower priced properties in a city thousands of miles away – even if you would rather live there.
Sure, there may be some people, but I still think that it is ridiculous to say that a short term slowdown in prices wouldn’t help local northern Californians more than people possibly looking to move to the area.
My point was that indeed Chicago and Los Angeles are much larger than the Bay Area, and yet much more affordable. If one does include the Peninsula and Marin (where I live), that does not still justify the high housing costs of San Francisco as many of my neighbors have no desire to move to “the city”. What I was responding to were some of the posts who feel that the high cost of housing in the city is because “everyone wants to live here”, and what a “pit” Chicago is. There are plenty of major fortunes that don’t seem to be leaving Chicago for Pacific Heights, and just for the record the Bay Area is outranked on the West Coast not only by Los Angeles, but by San Diego and Seattle also. (WSJ ranking of 10 highest centers of wealth in America 2006) I know this is hard to believe for I myself always thought this area “must” be wealthy because it is so expensive to live here, but that is not the case. The main problem is the lack of construction of affordable housing.
Morgan,
It all depends on how you’re looking at things.
Take a look at this link:
http://en.wikipedia.org/wiki/Highest-income_counties_in_the_United_States
Notice the four highest California counties? Cost of housing has MUCH more to do with income levels than it does with “wealth”. Having a bunch of really rich people doesn’t raise your housing costs that much because most of those people will only own one place in that metro area. However, having everyone make a significant amount more will raise the prices because everyone needs a place to live. On top of that, San Francisco is a place that a lot of people want a second home, further increasing pressure.
I agree with you in saying that I don’t think there is a never-ending supply of people that want to live here (and I agree that Chicago is not a pit), but I think your logic is flawed. In areas the size that we are looking at (millions of people), a $2000 increase in per capita income can mean $50,000 more for median house price.
Any employer can tell you that the ONLY area that occasionally competes with Marin-SF-SM-SC for the standard cost of living adjustment is NYC – and only occasionally.
Thanks for posting the link. Salaries are definitly higher here, and yet I wonder if the high cost of living here ends up making us poorer. This is something we have talked about endlessly at work. If a Proj. Arch. at our office in Chicago pays 95 thousand a year, and our office in Marin pays 115 thousand a year, my money would actually go farther in Chicago as the housing costs are almost half of what they are here. It does seem that my co-workers in Chicago have a lot more money for travel, entertainment etc, than we do out here. Still, I bought my current home in ’93 so I am doing O.K. My goal is to downsize to a condo in the city, but not at the current prices.
I agree that if you’re buying a place the salary differences don’t make up for the cost difference.
However, if you happen to be renting (as I am right now) the salary differences do make up for it, just not in percentage terms. For example, I would make about 30% less if I worked in Chicago with my company, and my rent would be about half what it is here. But I still come out $15,000 or so ahead here, because other items (food, etc) really doesn’t cost that much more. I have a lot more money to travel than I would if I took my same job in Chicago.
But – I would also be looking to buy if I was there, where I would have to stretch myself pretty thin here.