With 18,087 housing units built in San Francisco since 2007 and another 12,340 units entitled for development, San Francisco is within 2.5 percent of the minimum number of housing units (31,193) that the city was to have delivered or in the works by 2014.

While within reach of its overall goal, the City of San Francisco has only produced or entitled 57 percent of the housing units which were to be allocated for those with incomes below 80 percent of the area median. Even more striking, the production of housing for those with moderate incomes of between 80 and 120 percent of the area median income is at 27 percent of plan.

The production of housing for those with incomes over 120 percent of the median in San Francisco – which is currently $81,550 for a single person or $116,500 for a family of four – is at 176 percent of plan.

At the same time, the population of San Francisco has grown faster than forecast and the Regional Housing Need Allocation for San Francisco adds up to another 28,869 housing units by 2022, 43 percent of which are intended to be for those with incomes under 120 percent of the median.

56 thoughts on “The Acute Gap In San Francisco’s Housing Production Versus Plan”
  1. Clearly, the solution to make up for the underdeveloped lower-income market segments is to build more luxury towers. And make ’em taller ‘n denser!

  2. The shortage is even more glaring when considering so many new units become pied-a-terres or corporate housing, neither of which are permanent housing for residents.

  3. How do you calculate the proper share of housing that should be built for any particular income group? It strikes me as rather arbitrary.

  4. @ z: I agree. pretty arbitrary.
    A city can’t “force” housing units. It comes from a lot of factors, including a robust economy, demand, low interest rates and ease of the entitlement process.

  5. As someone who just went through a home purchasing process in SF, and the rental search a few years ago, I must point out that right now, all available housing is luxury housing unless it is specifically BMR or subsidized. (And new construction is generally required to have some of that.) Even dumpy places in marginal areas are selling and renting for amounts of money that would be “above moderate” or “luxury”.

  6. Define “Luxury” housing.
    Is it about a certain price point? Is it finishes and quality of construction? Is it location and/or neighborhood? Is it with views or no views?
    I see lots of housing in the southern neighborhoods for sale that is not “luxury”.

  7. It is simple economics ,
    If you want subsidized housing built then make it attractive to developers so its still profitable ,
    That means let them add height, square feet, or give them a tax break based on the square feet devoted to subsidized housing

  8. Isn’t @two beers actually pretty close to being spot on? Doesn’t more luxury home development (definition aside) pore more money into the affordable housing fund?
    And doesn’t that fund offset the costs of development of more affordable housing? If I remember the SPUR article correctly on the now typical cost to build *any* home in the city, it’s somewhere slightly north of $450K. Even if the developer sold at cost, could a low to moderate income earner(s) afford a $360K mortgage assuming 20% down? And who in those income brackets have $90K in cash laying around anyway?
    Given that 8 Washington and the Warriors SWL330 plans are now gone, wasn’t that millions of dollars that were destined of the affordable housing fund, which have now vaporized? And shouldn’t those folks now targeting the Giants Lot A/SWL337 and Pier 70 for example ease up and let those developments move forward as planned simply to recoup some of the affordable housing fund money lost from 8 Washington and SWL330?
    And no, I don’t work for or am I associated with the Giants, the Warriors, real estate or development/construction industry, or the city or the port authority.

  9. “cant think of a cool name”
    you bring up a good point and are correct in the fact that the more luxury home development the more money for the affordable housing fund. Which is helpful for low income folks. The
    affordable housing fund is focused on those in the low income “below 80% of AMI” category.
    The real issue IMO is the lack of middle class development or those in the 80%-120% AMI range. Developers have no incentive to build housing for that income level (won’t pencil naturally and no city/tax incentives) which is where much of the demand is.

  10. There are a fair number of $300-400k places for sale in SF in which a family could live. They are in the SW part of town. A family with a $100k income could make that work. That’s how life works – inexpensive housing is going to be smaller and in less desirable areas. The idea that one should expect to be able to buy a new home in a desirable neighborhood for that kind of price, in a city where the median home is selling for about a million bucks, is just a fantasy. Even tiny little new places fetch far more than that in today’s market.

  11. K&L; increasing the fund only helps if lower-income housing gets built. As the chart shows, it isn’t.
    Add to which, building predominantly high-end housing raises the cost of living (I’ll leave it as a thought exercise for you, if you already know that), so lower income people are doubly screwed.

  12. With a couple of good comments from @K&L and @anon, I went back and dug up the SPUR article. The SPUR article says that the cost to build a home in the city today is $469,800. I then looked around the web for what the typical markup is on a new home. The best I could find was roughly 15-20% on average. If you split the difference, and adjust accordingly, the “typical” retail sales price of *any* new home in the city is a minimum of $552,015.
    Since we’re not talking about existing homes, but new homes that need to be built to support the city’s current and growing population, $550K+ could be a tough nut to crack for certain percentage of people. How many? I have no idea.
    My only suggestion would be to redefine “affordable housing” to include the middle class – which is probably emotionally tough to swallow, so that the affordable housing fund can include subsidization of more expensive housing than is currently allowed so that the fund can assist those in the middle class.

  13. @two beers, per your comment about lower income housing not getting built, one reason it may not be happening more quickly and with more volume may be that the defeat of 8 Washington, which according to reports was going to dump $11 million into the affordable housing fund and who knows how many millions from the Warriors SWL330 condo/retail/hotel is no longer available to subsidize that housing build-out.

  14. anon 4:37, a search on Redfin for “anything less than $600,000” brings up 5 units in the Western half of the city between the Golden Gate and the city limits. One of these is a hole in the ground, and one is mis-listed at $4500 (459-461 33rd Ave). Is that what you mean by a “fair number?”

  15. I would not trust SPUR at ALL to offer info as to the cost of building a house in SF. they’re an urban planning think-tank not a contractor.
    First of all, there is no such thing as a typical house.
    You need to go simply by “average” cost per sf of construction; that being “about” $400, but the range is between $300 and $1000 per sf.
    So, say a 1600 SF house/3br/2ba would be about $640,000.
    Then add in the cost of the lot or land, then add fees and entitlements. Then add the builders profit.
    See how far off that is from the SPUR number.

  16. Ratios are way off on what should have been built , anyone that is in the know is aware that unless developers are allowed to build for profit they will not, and that by killing projects that could have funded subsidized housing there were less funds available for low income and moderate income subsidizes.
    What should be done is making the tax benefits for building moderate housing the same as low income housing , and that the ratio should be closer to 80% market rate, 10% subsidy for moderate housing, and 10% for low incomes.

  17. Honestly, no one on this website gets it. I’m a contractor, so I’ll tell you why housing costs so much in the city and bay area: Anti-growth policies and sentiment. This means density limits, height limits, lengthy EIRs, tons of various political groups & organizations, lawsuits, etc. I spent the entire day in Monterey in a contractor meeting listening to the Water District explain how the Monterey Peninsula will run out of water by 2016, if they don’t build this water project. The region has voted down any project for the past 5 years and they finally passed a project that will allow for their water needs, but “zero growth”. In other words, if you add 1 house in monterey peninsula in next 5 years, they will have no access to water.
    Honestly, Northern CA is crazy. After the meeting, I asked the water utility director how the cost of building this project differs from his previous experience in Atlanta. He said that the cost is more than double solely due to delays and legal costs from anti-water folks in Monterey Peninsula.
    I know construction costs and they are 100% due to anti-growth policies in Northern CA (legal, EIR, environmental reviews, NIMBY’s, etc.). All of those costs are passed along to end-user or units are not built. Plain and simple. Everything comes down to economics 101.

  18. So I am curious, how many of those 12,340 entitled units are actually going to get built in 2014? Because the whole picture looks much worse if those units are taken out.
    I know this analysis already pulled out the entitled units for the Treasure Island, Hunter’s Point and Park Merced. It is from CCHO (an affordable housing non-profit advocacy group):
    Why were they pulled out, but not the other entitled units? What do the numbers look like if they are put back in?

  19. @two beers I know that there are a bunch of Progressives in San Francisco that claim building luxury housing causes rents in surrounding areas to go up. Every time I see that claim, I ask for some evidence of it, but so far no one has been able to provide any.
    Sometimes people describe a mechanism how this might happen that could be plausible, but such a widely important topic must have economic research on it. I widely read the literature on the topic, but have not been able to find anything. I even asked Professor Thoma, a liberal economist from Oregon and he was unable to help me. I can dig up a paper from The Fed that showed a very weak effect on rents with 2-3 blocks caused by new construction, but that is it.
    Can you help me out here?

  20. @Futurist, I hear you. Data and statistics can always be challenged. But, if I take your “about” SF cost of $400 and multiply it by the SF of a family-friendly (definition required, I’m just guessing) home of, say 1200 SF, we get a cost (without, as you point out costs of land, fees and entitlements, which I assume will vary as a percentage of total costs depending on if you’re building a SFR or a multi-unit building) of $480,000, which is higher than the SPUR article suggests at $469,800.
    Add in those other costs, then the developer profits (15-20% based on what I found) and the “retail price” of the home based on your numbers is greater than I posted previously. I’m guessing that retail price would still be tough on a middle class family looking to live in the city.
    To me, that still validates what I said previously, that the affordable housing fund may need to expand its definition of what an “affordable home” is in the city and that we may need to loosen the desire to throttle developers to build “higher end” projects simply so that those projects pore cash into that fund.
    @I’m a contractor, I think at least you and I talking about the same thing. Simply put, I’m looking at the symptom and you’re looking at the cause.

  21. The SPUR estimate was done by a local architect. It was for a 640 sqft unit in a 100 unit building. The land and construction costs were about three-fourths of the total.
    From the SPUR article (namelink):
    “This is very simplified and does not include construction financing expenses, contingencies or developer’s profit, among other things. Calculations are based on a 100 unit building assuming 800 square feet per unit, which is approximately 640 square feet of usable space based on typical building efficiency (this allows for stairs, corridors, lobbies, etc.”

  22. Most of you have it right – it just makes more sense for investors to build high-cost housing (to recoup high costs and expect a reasonable return). Part of the reason for lower production numbers for the affordable housing is that there is a lag period between getting new market-rate units entitled and started (therefore paying into the fund) and then arranging all the other financing, land acquisition, permitting and construction of the affordable units. The crash after 2008 in market rate housing put lots of affordable housing on hold, and it’s just starting to catch up. It’s important to keep in mind that financing for affordable housing is complex – developers have to align tax credits, various federal state and local pots of money, private lenders, on top of all the regular development steps.
    That also explains why mid-income housing is nearly impossible to subsidize. I think almost all of the state and federal subsidies used by affordable developers are targeted solely for lower income people. Local funds aren’t adequate to significantly subsidize or incentivize developers to build and manage these unit.

  23. Okay, we all agree, building housing is expensive, so builders build mainly high-end housing.
    Can we just stop pretending that all this building-bubble mania has a positive effect on housing affordability? Empirically, building primarily high end housing raises the cost of all housing.
    Make your profits, fine. Just stop hypocritically and disingenuously screaming “build! build! build! taller! taller! taller!,” as if you give a rat’s behind about housing affordability, because all that’s doing is making everything more unaffordable.

  24. @two beers — It sure sounds like you’re advocating for more supply to be added to the low/mid end of the market.
    But if SF is a marginally elastic reverse fungus zone or whatever you keep saying, won’t the added supply just push up prices?

  25. two beers – I generally agree with you. As a person with some economics training, I get the concept that more supply should reduce prices over the long term. However, I have yet to see any good data here on Socketsite (and am too lazy to look elsewhere) that estimates the price elasticity of housing in SF, and estimates how many units of overall housing would make a significant enough dent in demand to lower prices.
    Given the price premium buyers give to new construction, all “new” housing will likely raise the overall price of housing – you can’t expect that a new 750 sq. ft. condo will cost less than an old one (all other factors such as location being generally equal). While RE comps do try to take into account general condition, sellers and buyers are influenced by higher comps and price accordingly.
    So I also agree with the “build bigger” folks, especially in places like SOMA and Mission Bay and on transit line. I believe greater density has a bunch of benefits beyond simply supply-driven price relief (e.g. better utilisation of infrastructure, transit and air pollution, etc.). Hopefully more (and more varied) units will EVENTUALLY provide some price relief, but I won’t hold my breath.

  26. Agree with anon2, if what two beers is saying is true, building more low/mid end housing will be WORSE than building high end housing, because it will push up the prices of other low/mid end housing.
    Maybe we should start tearing down housing in order to drive prices down? Will removing some high end housing from the market cause a drop in prices?

  27. The biggest “problem” here is that people who want luxury end housing have money.
    If you don’t have suitable housing for them, they will simply buy cheaper housing and renovate it to their liking, which will effectively build high priced housing at the expense of lower priced, and also reduce the availability of lower priced housing.
    Do we eliminate the renovation permit?

  28. NVJ, that article shows that despite a relative (Seattle vs SF) building boom, rental prices still increased more than 20%.
    Based on the US Census ACS 2012 data of gross rent as a percentage of household income, Seattle doesn’t appear to be more affordable than San Francisco. For example, in Seattle 59.7% of renters spend more than 25% of income on rent. In SF the number is 59.8%. The difference is less than the margin of error on the data.
    Prices are higher in SF, as are incomes.
    City to city comparisons are interesting, but problematic. Seattle has ~180% the land of SF with ~75% of the population and half the jobs. It has a population density about the same as SF had in 1900. Not surprising it would have somewhat less encumbered development opportunities.

  29. According to the graph “Per Capita Expenditures” San Francisco went from spending quite a bit less per capita on housing in 2006, to spending quite a bit more today.
    The only way this could possibly be true is if San Francisco went from being more affordable to being less affordable than Seattle. Or perhaps if income growth was spectacularly higher. Do you have ACS data for 2006? I will see if I can find it.

  30. anon2:
    I didn’t say SF is reverse elastic (that makes no sense). I said that high-end housing is reverse elastic.
    It’s not difficult to understand, if you can get beyond the conceptual restraints of neo-classical ideology.
    High-end housing “improves” an neighborhood. Improving a neighborhood enables sellers to ask more. It’s just that simple.
    I’m not putting a value judgment on “improving a neighborhood.” I’m just saying that when you do, you make the housing there more expensive.
    Building lower-end housing doesn’t “improve” a neighborhood. Building housing for more working class minorities is not going to induce rich whites to move in.
    If high-density, high-end housing lowers the cost of housing, then New York, Tokyo, London, Shanghai, and Hong Kong should be the most affordable cities in the world.

  31. 2 beers. How do you define “luxury” or “high end”. Most people define it by materials used and amenities. How would you define “Low or middle end” housing? Cheaper materials? Less amenities? Or is size a factor. If you go by these standards, I would say many of the units built in SF are not “luxury”. You can’t define “luxury ” by price in SF the way you can in other places, unless you pick a much higher price point. Price is driven by demand, and as long as demand is 5x available supply the price will remain expensive whether the house is made of straw, wood or brick, and whether there are granite countertops or not. Most of the 800k 2bdr condos are not luxury, although the price makes them seem so. As wellost of the SFHs in SF are not luxury, but you can’t touch them for under 1million. I grew up in North Carolina. Basically any home there over 400k is luxury, but equivalent to a 2M home here. The crappy 2 B&T condos going for 800 here would be 150k there. SF has become a “luxurious” destination, but the housing stock is no more luxurious than other places. More housing stock will keep prices from rising as fast, it’s not even debatable

  32. Um, the per capita data was for remodeling and construction expenditures not rent. That graph looks like an indicator of how SF came out of the recession faster than Seattle.
    Not sure why anyone would use 2006 as a baseline for housing since the market was so distorted by an asset bubble.
    Anyway, that article jumbles together data from a bunch of different sources to reach overly broad conclusions.
    FWIW, the author has a website with an interest in increasing the number of building permits in SF.

  33. Yeah I understand the hand-wavy argument two beers, I didn’t say there wasn’t any argument for this point of view, I said that it is not backed by empirical evidence. I still have yet to see one peer-reviewed research paper that confirms it. Heck, I would even accept something written by someone like Mike Davis as a good jumping off point for further discussion.
    The Bronx has lots of high-density towers and is one of the more affordable urban areas in the country. Philadelphia is another dense affordable city. In fact, there are high density urban slums all over the world, as I am sure that you are aware. They serve critical housing needs for their community.
    And I don’t think you really want to use Tokyo as a poster boy for your thesis: prices in Japan are at 1983 levels. Overbuilding and and a financial bubble has led to 30 years of price stagnation. I am pretty sure it is cheaper than San Francisco now, on a cost per square foot basis.

  34. Jake you are right, I misread the graph. I am mucking around with ACS now, trying to find historical data.
    If you don’t like 2006 as a baseline what would you prefer? I think it is as good a year as any, broadly in the middle of a real estate cycle like the present. A better study would look at peak to peak and trough to trough values, but if you are going to be lazy and just try and compare some year to today, 2006 is fine.

  35. Weird, it almost doesn’t matter what city I look at, affordability has gone down and gone down about the same amount. I guess this is what happens with stagnant incomes and a flood of money from The Fed.

  36. Yeah NVJ but there’s a cultural generational thing happening too. A lot of millennials want to begin their lives in urbanity. Is that so easy to gauge as a metric?

  37. NV Jim- You’re conflating different situations.
    Philly’s affordable not because there was a sudden high-density building frenzy. Philly’s affordable because there are relatively few good jobs there, no income growth. It’s not a good place for Wall St to set up its casino.
    I don’t know if there are any “peer-reviewed” studies to back me up. I doubt that there are. Most money in economics is thrown at neo-classical models that “prove” the path to porsperity is through tearing down trade barriers to US capital, suppressing working- and middle-class jobs and wages, and cutting taxes on the rich. The foundations that support economic studies tend to be rightwing, neo-liberal organizations that are unlikely to fund studies of the negative consequences of unrestrained capital.
    We’ve now had thirty years of neo-liberal economic policy hegemony (which uses the neo-classical model as its justification), and it has proven bankrupt, except as a means to funnel virtually all the gains to productivity at the bottom to the rentiers at the top.
    There is no money to fund studies disproving the tautological theories of neo-classical economic pseudo-science. Neo-classical economics cannot predict cycles. It failed to recognize the two largest asset bubbles in history until those bubbles had collapsed. It has no remedies to economic stagnation other than to remove trade barriers to American capital, and give even more of the American worker’s money to the rich.
    If you are genuinely interested in alternate economic approaches — ones that have successfully predicted cycles, recognized asset bubbles in real-time, and offer proven methods to remedy economic stagnation, you’re not going to find them in the New York Times or Washington Post. Theories that challenge the status quo aren’t even acknowledged. But Wall St mouthpieces like Thomas Friedman and Robert Samuelson are published in the papers of record, so they are the authorities, even though they have both shown to be wrong about almost everything.

  38. Jill-
    By high-end or luxury, I just mean the market segments aimed at the top 5%-10% incomes.
    The demand you have such faith in consist largely of kids who expect to become millionaires when their options vest. Most of their companies have never turned a profit, and have no feasible model to do so other than “grow fast.” Even the companies that are profitable have historically-high P/E ratios. How is this a sustainable model?
    Of course it’s debatable that building only housing for the top 5% incomes will not keep prices from rising as fast, but are actually a leading factor in the price increase.
    Again, I’m not putting a value judgment on it (yes, we all want “better” neighborhoods), but what happens when you “improve” a neighborhood? The RE prices go up! Can you show me examples of improved neighborhoods where prices didn’t go up?
    It’s so obvious, that most people can’t see it. Or they do see it, but know better than to discuss it.

  39. @two beers — You’ve said previously that you don’t like “Ceteris Paribus”. But unfortunately, that’s life. Many forces and factors occur at once. The law of gravity says things fall down, but balloons, airplanes and jumping frogs don’t disprove the law of gravity. The physical sciences have the luxury of being able to perform controlled contrived experiments, while real world economics does not.
    Surely new development can sometimes improve a neighborhood (and sometimes make it worse). So you have the supply of new construction along with a change in character of some nearby existing homes. But just as you are sometimes on the verge of advocating for more supply of mid/low end housing in order to ease pricing, here you’re nipping at the realization that it’s the reduction of supply of low end housing that you’re complaining about.
    And as you point out in your example of Philly, income and employment also play into the equation for what prices will settle to.
    And remember that many people work hard to escape bad neighborhoods, so having your neighborhood improve around you can be good. Some of these people will own their homes, some will be rent controlled, and even those with floating rents may not see the amount increase quickly to market value.
    There can be a real cost to living in a bad neighborhood. Property crime, higher insurance, poorer transport options, negative role models for your children,…
    In fact, that leads to a semi-technical definition of “luxury” used by sociologists/economists. At the very low end, goods with a low up front cost can have a bad value proposition such that they end up being costlier in the long run. (i.e. a cheap car with expensive maintenance needs that ends up being costlier than one with a higher initial sticker price) “Luxury” goods are ones past that point where you are no longer spending more money for a long term economic benefit, but rather purely for hedonistic reasons.

  40. “The demand you have such faith in consist largely of kids who expect to become millionaires when their options vest. Most of their companies have never turned a profit, and have no feasible model to do so other than “grow fast.” Even the companies that are profitable have historically-high P/E ratios. How is this a sustainable model?”
    I personally also deeply question the valuation and sustainability of this latest tech boom/bubble. But I don’t see how a potential bubble invalidates logical economic thought and research. After all, remember that Robert Shiller just got a Nobel Prize!
    Listing to the people here and elsewhere who gaze starry eyed at the Twitters, Zynga’s, Castlights and Box’s I don’t see a vast neoclassical conspiracy, Just garden variety greed and ignorance.
    It’s one thing to lament the formation of bubbles, it’s another to try and devise a system to stop them without stifling off real innovation and progress (throwing the baby out with the bathwater so to speak). Basically, if someone gets it into their head that a mediocre home on the outskirts of town is going to double in price and fund their retirement, or is willing to pay literally any multiple of earnings (or for no earnings at all) for a share of a company without even giving much thought to their business model, who exactly get’s to stop them?

  41. anon2: Who said anything about conspiracy? All people are doing is what is in their own self-interest. But thanks for playing the condescending conspiracy card.
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair
    Of course, Sinclair was a socialist, so I suppose in many little minds, that obviates the sense of his quote.
    The formation of bubbles is well understood, and controlling them is actually very easy, and only requires the political will. We went many decades without a significant bubble, and — not coincidentally — those were the strongest economic years for the US, AND there was incredible technological progress. Now, we have a new bubble every three or four years, inequality and instability are soaring, infrastructure is crumbling, and the future looks bleak.
    Whatever we do, we must not interfere with the Fed’s ability to inflate asset bubbles!

  42. There is a huge amount of published research being done by Keynesian and Neo-Keynesian economists. I regularly read the blog of Prof. Thoma from U of O, he is not a neo-liberal. Robert Reich is very prolific and he not a neo-liberal as well. I don’t consider Krugman a neo-iberal either and he would certainly not consider himself one. Yellen is mostly a Keynesian and Brad De Long a New Keynesian.
    The biggest book in Economics today is a scathing critique of Capitalism titled “Capital in the Twenty-First Century” by Thomas Piketty. I have to admit to having not read it yet, but I have on back order from Amazon.
    So there is a load of research done on alternative economic models, not all neoclassical or neo-liberal at all.
    I see a fair amount of new development going up targeted at other than just the top 5%. What kind of income does it take to afford a $2100/mo apartment? About $60k/yr at 38% of gross income? That is what Trinity Towers is charging, according to their website. But we do need more like this.
    What you forget is that today’s luxury apartments becomes tomorrow’s middle of the road stuff.

  43. My comment got help up for having too many links, but I will leave you with a Keynes quote until it gets approved:
    “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
    It is not just the Marxists who critique disaster Capitalism.

  44. Thoma’s lucid, but he’s mostly a Krugman acolyte.
    Reich was a vehement supporter of NAFTA. He gets a lot of press for attacking inequality, but he’s been a heavy booster of the very policies which enabled it.
    I have no problem with Keynes. He provided the software patch for capitalism. That patch worked wonders for forty years until the neo-liberals first deposed him, and then purged demand-side from the textbooks.
    Krugman, Reich, and DeLong are milquetoast Keynesians, faux progressives.
    Yellen a progressive? Good one!
    The foregoing pay lip service to fiscal stimulus, but they are monetarists. Krugman is close to Friedman than his boasting would have you believe. The great misunderstanding that has enabled them to masquerade as “liberals,” is that monetarism has been conflated with demand-side stimulus. It can be, but it isn’t necessarily. The problem is that we’re not in a liquidity crisis, but instead are in a solvency crisis.
    They rant and rave against the supply-siders, but they support massive Fed intervention, which puts money in Wall St’s hand, not in Main St’s. Keynes wasn’t opposed to monetary stimulus when there was insufficient capacity to demand. it makes sense then. But keeping interest at near 0% for years on end when there is excess capacity is simply giving money to the rich to gamble with.

  45. “Whatever we do, we must not interfere with the Fed’s ability to inflate asset bubbles!”
    “But they support massive Fed intervention, which puts money in Wall St’s hand, not in Main St’s”
    Think about what you’re saying and you’ll see that it isn’t the market you have a problem with, but those who have taken it upon themselves to “correct” the bursting of bubbles and otherwise second guess the market.
    The problem with empowering the government to “correct” the market is that instead of leaning against bubbles, during the good times no one wants them to end. And in the bad times everyone wants things re-inflated to the good times.
    During dot com 1.0, after the bust rents fell sharply in SF. If our current situation is a repeat, would you rather have rents naturally respond to lower demand and again fall sharply or have someone step in and attempt to prop things back up to current levels?

  46. “By high-end or luxury, I just mean the market segments aimed at the top 5%-10% incomes.”
    How do you target housing for the bottom 90%? The top 10% will buy those up too, so they will remain over $800k regardless of the building quality. The demand is driving the price, not the “quality” of the building, at least for those “entry level” homes between $800k and 1.2m. The developers are not setting the price

  47. “The problem is that we’re not in a liquidity crisis, but instead are in a solvency crisis.”
    Don’t know what you mean by this. Are you saying that the country is facing insolvency? If so, nonsense. Or that lots of families are? Agreed. The bankruptcy process is pretty well-suited to handle that. Or something else?
    Krugman et al have been very clear in arguing that easy, cheap Fed money is not the only best way out of the Great Recession, and not even a good way. The problem is and has been slack demand, and the best way out of that is pure Keynes – for the government to step up and create the demand, with works projects, etc. I.e. give the unemployed jobs. How to pay for it? Well, debt is super cheap right now, so we come out way ahead by borrowing to stimulate the economy, and in a liquidity trap that will not generate inflation. Even better, higher taxes on the super-wealthy to pay for it. That group is not going to slow down their spending if they have to pay 5% more in taxes because they have way, way more than they would ever spend.
    But politicians, especially the inflation-sky-is-falling right, who has been wrong at every step in their predictions, has prevented this best approach. So cheap Fed money is the best tool we have to ease the suffering of the unemployed and do SOMETHING to spur the economy by picking up the slack demand. It has never been the first choice.

  48. “The problem is and has been slack demand, and the best way out of that is pure Keynes -“
    Slack demand at current price levels.
    And some would say a better way out is to have the market let prices fall or to let substitution take effect until supply and demand meet at reasonable volumes.
    A lot of the slack demand has been in home sales and unemployment in the homebuilding trades.
    A consequence of propping up home values is that prices get pushed up to a point where there is little volume.
    From the CEO of Meritage homes:
    “”We’d like to try to bring our [average selling prices] down across the country,” Mr. Hilton told investors on a conference call Wednesday. “They’re getting relatively high. I don’t see anything on the horizon that gives me a lot of excitement that the first-time buyer is coming back.””
    SF has a relatively high floor for land and construction costs. But there’s plenty of land in most of the US and it’s better for people to be employed building smaller cheaper homes or rental apartments, then unemployed waiting for a high priced home sale that never happens.
    I think the Meritage CEO comment is a bellwether and especially now with the refi boom over many in the construction, lending and realty industries will see higher volumes at lower prices as the road ahead.

  49. Bob Dobbs –
    The financial crisis of 2007 and 2008 (and which continues today) was caused by banks on Wall St going insolvent when the derivatives and MBS markets cratered. Hank Paulson told Bush there would be blood in the streets if the banks were not bailed out. The problem is that the collapse of the derivatives and MBS scams left a multi-trillion dollar hole that needed to be filled up, and this is still ongoing.
    It is/was a crisis of institutional insolvency. However, the methods chosen to bail out Wall St have savaged the middle class economy, so, yes, American families are insolvent now, as well. Except that they aren’t getting any of the bail out.
    You’re right about the inflation bogeyman. You’re right about borrowing when rates are so low. You’re right about getting the rich to pay for it. What I think you have wrong is that monetary stimulus doesn’t boost demand — at best, it boosts supply. And it is a useful tool when the economy is below capacity, and businesses want to borrow to expand to meet demand. But we’re at overcapacity as it is, and demand is falling.
    The point is that monetary stimulus in an economy with excess capacity doesn’t get to workers to help stimulate demand. That cheap money just stays with the rich to speculate with, hence the current housing and stock market bubbles.
    I don’t anything I’ve said is inconsistent with Keynes.

  50. anon2: The government is a wholly-owned subsidiary of Wall St. It gets its marching orders from Wall St. During the later Clinton years, Bob Rubin and Larry Summers, along with Phil Gramm, engineered the evisceration of FDR’s banking regulations, which somehow we managed to live with during the forty most stable and prosperous years of our country. Post-Keynesian economists warned that overturning those regulations would lead to unstable boom and bust cycles that have become the norm. Et, voila.

  51. “What I think you have wrong is that monetary stimulus doesn’t boost demand — at best, it boosts supply.”
    We are in complete agreement on this. “Pushing on a string” and all that. I also agree that far more of those dollars made their way to Wall Street than Main Street (fortunately, I benefit from that). Point is that Congress dropped the ball in failing to directly spur demand. The Fed’s tools are limited – it can’t hire workers to build and repair bridges and sewers. Logic is that by adding lots of cheap dollars, someone will hopefully spend them somewhere, adding to the demand. An indirect, imperfect tool, but better than just doing nothing and watching more and more people sink into joblessness and despair. By doing something, the U.S. has fared better than just about everyone else.

  52. better than just doing nothing and watching more and more people sink into joblessness and despair.
    Or, in the case of Europe, doing the exact opposite!. Europe is currently committing collective suicide:
    Instead of curbing the deficit through growth (1 EUR spent by the govt during times of crisis end up adding N EUR overall into the economy), Europe tries to cut deficit by cutting into everything. As 1 EUR “saved” becomes N EUR less into the economy, tax revenue collapses and the deficit keeps growing. Of course anyone with a brain would try and stop this train wreck, but Brussels elites are in charge and have imposed more and more stringent curbs on spending, punishing bad elements (anyone but Germany).
    You’d think the culture would change, or that someone, anyone, would look across the pond to see how things are done. But nope. This is ideological and the end game is the total annihilation of the european social system (shrink the Gov until it is small enough you can drown it in the bathtub), as well the privatization of everything that would compete with a private company. Ironically this disappearing system is the same system Democrats here want to see expand!

  53. Am I the only one amused that Bob Dobbs has steered the discussion towards “slack”?

  54. My, My… annihilation, suicide & drowning government. It’s all quite dramatic.
    I suppose we’ll see soon how it all plays out.
    But as I said before, I suspect that since most of the US does not share SF’s high building costs, development restrictions or income distribution, much simpler forces will come into play. Simple self interest of builders, bankers and realtors will find the obvious solution of stimulating demand by targeting a lower price point. Two beers will get his low end cheaper homes, albeit not in SF, and people will regain employment building, financing and selling them.

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