A permit to demolish the historic Lucky 13 bar has been requested.

Plans for a new five-story building with 27 condos, a 1,230-square-foot commercial space fronting Market Street and a storage room for 34 bikes to rise upon the bar’s 2140 Market Street parcel have been approved, the building permit for which has been requested as well.

And having hit the market last month priced at $9.75 million or roughly $360,000 per entitled unit, the 2140 Market Street site appears to have found a buyer who isn’t likely to bank the land but rather proceed to break ground.

68 thoughts on “Bad News for Lovers of Lucky 13, a Buyer Has Emerged”
  1. Build it. Down with surface parking lots in the middle of our city. We need housing.

    Losing Lucky 13 sucks, but times change and no business lasts forever.

    1. We need affordable housing. There’s a glut of market rate condos, and that glut of an at best marginally-fungible sector not only doesn’t make housing more affordable, it makes it more expensive. How many of these units will be “affordable”? Four, at most? That’s worth destroying a beloved business that serves working class people? A type of business which is vanishing from SF? For generic and ugly cookie-cutter “market rate” condos, which will add to the further homogenization of the neighborhood?

      The crapification and top-down, unilateral class war of San Francisco marches on.

        1. You — along with 99% of people who have taken introductory Econ and think that simplistic S&D graphs explain all economics — are arguing from a fallacy of composition. “Market rate” and :”affordable” housing are two different market sectors, and they are only marginally fungible. Building into a bubble demand for speculation property and thinking it will lower property costs is like building only Ferraris into a sports car bubble and claiming that that will lower the cost of Hyundai sedans. It diverts resources away from the lower market sector, starving production for the lower sector. And gentrification that is an inevitable consequence of building into the “market rate” sector also puts upward pressure on the lower sectors.

          Look, it’s all right to scream build!build!build!, just don’t be a hypocrite and claim that the reason for or the consequence of market rate development is to make housing more affordable. The build!build!build! crowd (bankers/developers/realtors/landlords and some homeowners) is interested in profits and increased property values, not with making housing more affordable, and it conveniently and hypocritically hides behind a fake appeal that building more condos will make lower-sector housing less expensive.

          1. Since WWII, SF’s repeated housing crises have been statistically tied to job growth (and wages). If we do not build a TON at the market rates to satisfy the demand from the thousands of new high-paying jobs in the region, then those taking these positions will snap up much of the housing that is BELOW the market rate, because there is nothing else available. However, if we oversupply the upper tiers, the competition for affordable housing is reduced—and because of our stringent laws about affordable housing, some new production will also be encouraged. How do you not get that?

          2. When new market rate condos are built, the rich people that can afford them 1) move out of their current place, which might be a place of lesser quality that’s more affordable or 2) don’t show up at the lesser place for an open house, increasing the chances of a lower income person getting that lower tiered place.

          3. It isn’t just the people who took introductory econ who think greater supply would reduce prices, it also happens to be the people who did their econ phds.

            I think you may be suffering from a fallacy of decomposition. Do you really think the same units you describe as “generic and ugly cookie-cutter “market rate” condos” are the Ferrari’s of the housing world? And, if so, what is the “Hyundai sedan” affordable housing you are describing? I’m struggling here.

          4. Surely you haven’t lived this long without having learned to decode an analogy? The ugly condos will be affordable only to those with high incomes, hence the Ferrari analogy. The Hyundai sedan is an analogy for affordable family housing, no bells or whistles (eg no roof hot tubs, concierge, or bluetooth refrigerators).

          5. That analogy doesn’t work. You’re saying that cookie-cutter Hyundai sedans are being built but people are paying Ferrari prices for them; hence, they are Ferraris and not Hyundai sedans. But they are still Hyundai sedans.

          6. You’re conflating “cookie-cutter” with “affordable.” The proposed condos at the Lucky 13 will be bland cookie-cutter ugly, and they will be expensive. I use the the Ferrari/Hyundai analogy with respect to pricing, not styling. If you need to nitpick the analogy in order to obfuscate my argument, be my guest.

          7. Two separate phenomenon. People paying Ferrari prices for a Hyundai is a bubble. The fact that many people will never even be able to afford a Hyundai is increasing income/wealth disparity.

          8. TwoBeers: How does building market rate housing divert “resources” away from the lower market sector? What resources are you talking about? The money that would be spent building this wouldn’t otherwise go to the lower market sector (because it is not profitable to build that). And while land is limited in SF, there is land available to build below market housing — just not the money to do it with. So I am puzzled by where the diversion is happening.

      1. This isn’t destroying L13. They’ve got a location on Park in Alameda. If that is too far to travel then a similar vibe can be found at the venerable Toronado sans cocktails and outdoor space. If you want that then Zeitgeist is also nearby.

        1. It will NEVER be affordable unless it’s subsidized by the government.
          Construction costs, permits and fees, and land costs will always keep housing here expensive.

          Affordable housing is NEVER built as “affordable”

          1. Affordability is entirely a consequence of policy, and although the local BOS has a favorable bias towards affordable housing, they are blinded by the same neo-classical economic malarky that the build!build!build! crowd screams at every opportunity. And even if our supes understood what policies would increase affordable housing, they can’t override state and federal laws made by and for the FIRE (finance, insurance, real estate) sector.

          2. Futurist, in your experience, what is the cost psf to build a wood-framed multi-story apartment building in SF? And what is the cost psf of buildable land? I realize that vacant lots are uncommon, but I want to understand what might be the cost of production in SF. Thanks –

        2. The Venn diagram shows the set of the patrons of the tiny and full-priced Toronado doesn’t intersect with that of the expansive and cheap Lucky 13, and I don’t believe the Alameda location is connected. The Zeitgeist is now largely populated by tech dweeb millenials, and the bartenders are mean as sin, unlike the mostly congenial Lucky 13 barkeeps. But I appreciate your tending to the social considerations of the working class.

          1. Toronado is cheap too. It is a dive that serves craft beer long before the term “craft beer” came into use. I agree though that Zeitgeist bartenders are more brusque than L13’s. So are Toronado’s when they get busy. Just say what you want, hand them your money, and move on. No chit chat about “do you have anything like Heineken ?” and you will do just fine. That’s my new peeve as a customer too. When the bar is slammed, don’t get into a 5 minute discussion with the bartender or ask for taste samples.

            I didn’t know that the Alameda L13 was completely separate. Their identical logo fooled me. But the vibe there is quite nice.

      2. Affordable housing? By definition, any market rate housing that gets sold is affordable by someone.

        Why not call it what it is (subsidized housing for people with low incomes) instead of using silly euphamisms? Anyway, it would be far better off to subsidize BART/Caltrain and let people commute than build low-income housing.

        1. another anon. . . “far better” to subsidize bart . . . than build low-income housing – by what metric? Certainly not by an equity metric, GHG or air quality metric, public health metric, social equity metric, diversity metric, and I don’t know but maybe not even by a cost metric. . . so what exactly makes the idea of low income people not being able to afford to live in the city “far better”?

          1. The idea of low income people not being able to afford to live in the city is far better for those with the objective of developing every inch of land and increasing property values.

      3. All housing in San Francisco is “LUXURY”. The difference is whether people pay for it with their own money, or subsidized luxury housing, when other people are forced by the government into paying part of the cost. It’s also a lie to call subsidized luxury housing “inclusionary” since it is very exclusive. Hundreds of desperate people apply for every scarce unit. A real lotto of the unjustifiably lucky.

        1. Hey Kevin, your hatred of concern for those at the bottom of the economic ladder (about 80% of the population) is touching. Make America great again, amirite?

          1. Facts are never “hatred” except to the deluded. The fact is, hundreds of people apply for every scarce unit and 99% of them will never get anything ! So sad to spend your life waiting for a hand out that will never come. Best to be self enabled and make your own way. Your subsidized luxury housing, is just a lie for the vast majority of people.

    2. We need more housing? Have people on this thread really not traveled the world? Tell me, how much does quality housing cost in top tier cities that are 10+ times bigger than SF? Tokyo, Shanghai, London…

      Hint, more housing does not make housing cheaper. And building it here will utimately cause transit and traffic to reach a breaking point.

  2. Can someone explain how adding housing makes housing more expensive? Is there a bizarro supply/demand economic theory that I missed?

    I’d prefer to see 27 housing units added and more than willing to sacrifice a bar/surface parking lot. I can handle the extra half block walk to Churchill, Republic, Flores, Lookout, Hi Tops, Finntown, Hecho, Brewcade, or one of the MANY other bars in the surrounding area.

    1. Karl, the argument as to why adding housing makes housing more expensive goes something like this:

      1. Adding housing invites buyers.
      2. The buyers are wealthier than the existing demographic of the neighborhood.
      3. The demographics of the neighborhood change and the average income increases.
      4. Retailers, restaurants, and companies recognize the changing demographics and enter or adjust their offerings to appeal to the wealthier demographics.
      5. The new stores and shops make the neighborhood more attractive to other wealthy but more risk-averse buyers.
      6. Developers notice the increase in housing prices as more buyers enter the market and bid up homes.
      7. Developers build to the expected demographic that will buy the new units.
      8. The cycle repeats.

      But if adding housing makes the neighborhood more expensive, then would you expect the converse to be true, that is: demolishing units will reduce unit prices.

      1. Good explanation of the process of gentrification, but no, the converse is not true. Another example of arguing from a fallacy of composition.

        1. Two Beers, I’ll admit that my comment about demolishing units was intentionally provocative, but I am not sure that it is a fallacy of composition.

          One flaw in my above scenario is that I make no mention how large are the pool of buyers, or how large is the pool of for-sale homes. It is possible that I have the explanation wrong. It is not induced demand, but a shortage of homes, like this:

          1. In an open market, each sale usually ends with the seller accepting the highest bid.
          2. The wealthiest buyer submits the winning bid.
          3. The small pool of homes for sale are bought up by the wealthiest buyers.
          4. In the next period, sellers place additional homes on the market.
          5. A large pool of wealthy buyers still are un-housed and continue to snap up the small supply.
          6. Poorer buyers seek out more marginal neighborhoods where they are better able to compete, either because of greater supply of housing, or fewer wealthy buyers.

          So maybe new housing only SEEMS to make housing more expensive, and rather new housing is simply rapidly absorbed by a much larger pool of wealthy buyers trying to find housing.

          Here is another question: if building homes raises prices (in this market and neighborhood) and demolishing homes raises prices, then are there no supply-side market-based solutions that will push housing prices lower, towards the true cost of production [cost of construction + fraction of land applied] of a unit of housing?

          Interesting conversation.

          1. Kind of a nice economic miracle: destroying houses (obviously) would reduce supply and result in higher housing prices, and building more housing also results in higher housing prices because of “a fallacy of composition.” The lesson? Apparently, SF housing is a can’t-lose proposition so buy now . . .

          2. Joel, it seems you are assuming each buyer is buying a primary residence. I don’t believe there are published statistics, but anecdotal data suggest a substantial component of buyers are speculators. Most speculators don’t stop at buying one property. As they see the value of their investment rise, they have a strong incentive to borrow at low rates and acquire more property. Rinse and repeat as long as the up-cycle continues.

            There can be no supply-side solution to a housing shortage as long as monetary policy has the sole objective of jacking up asset prices. Bubbles are purely demand-based phenomenons.

            I don’t claim to have all the answers, but I try to look at the market empirically, instead of using a priori Econ 1 models that work great on idealized markets, but don’t begin to explain real world data.

          3. Two Beers (the system prevented me from directly replying to your comment),

            If you think monetary policy is the primary cause, then how would you account for the outcomes in other cities? Pre-hurricane Houston, Chicago, Atlanta, and even Sacramento have seen only moderate increases in home prices compared to SF, but they operate under the same Federal Reserve monetary policy as SF. These cities have also seen strong job growth, and while housing prices have increased in those markets, price-to-income ratios haven’t climbed like they have in SF. They all share one thing in common: large areas of ready-to-develop land, and government policy more accommodating to development. It is only one factor in a complex puzzle, but perhaps the ability to bring additional supply on-line quickly carries great weight in moderating house prices.

            I haven’t the data on hand to support my theory, and I am certain that there are many factors at play, but other cities have managed to avoid high price-to-income ratios in the face of robust job growth and historically low interest rates, and I think there is a lesson for SF.

          4. “If you think monetary policy is the primary cause, then how would you account for the outcomes in other cities?”

            After the GFC, TPTB decided to try jumpstart the economy with accommodative monetary policy (and meager fiscal policy). The Fed bought up all of the big banks’ toxic assets at 100% on the dollar, drove interest rates for big borrowers into the ground, and left them there for an unprecedented period of time. The recapitalized banks were tasked with pushing money into the economy, but most potential borrowers, still recovering from the GFC, were reluctant to go back to the well. Enter the VCs, especially the Sand Hill Gang. They had (still have?) a bottomless credit line with the major Wall St lenders, and this firehose of cheap money spawned and boosted the post-GFC tech wave of uber, theranos, tesla, et al. Companies valued at $1 billion+ before they go public are called “unicorns.” Most of the unicorns are in the Bay Area. Few, if any, of these unicorns are remotely profitable or have anything like a realistic path to positive cash flow. And it seems that more than a few of the unicorns have a business model based on fraud (although the previous administration decided that large-scale financial fraud would be ingnored as long as the firms’ largest investors weren’t the victims of the fraud). The unicorns (and hundreds of small-fry startups — your garden-variety distuptive on-demand scalable pizza delivery app/interactive salt shaker/smart toaster) have been leaking billions of dollars of this Wall St>VC>unicorn money into our local economy, and almost all of this money has gone into local real estate. The unicorn-engendered demand for coder commons and techie housing has led to RE bubble 2.0. This is a very good thing for those whose income and wealth are tied to the FIRE sector, but it has led to the epic levels of income and wealth inequality that have finally become a permissable topic of discussion in the last few years. Add to this an historic wave of stock buybacks (artificially boosting stock values) and unprecedented Chinese capital flight (focused on a few, mostly West Coast cities), and you have the, er, code for massivce multiple asset bubbles, larger than the GFC by many accounts.

            I know this isn’t a mainstream narrative, and while zero hedge goldbug kooks are likely to agree with some of these points, this narrative has been articulated by numerous economists and financial writers. You can find these writers at sites like Naked Capitalism, and even mainstream outlets like Bloomberg has begun to occasionally publish articles acknowledging most of this.

          5. Why was there a tulip bubble and not a rose bubble? Why Beanie Babbies and not some other collectible? Lending, either loose or low interest, is an enabler of bubbles and allows people to stretch to high price-income ratios. But just because you could get a cheap loan, if you expected an asset to decline in value then you wouldn’t be that compelled to take the loan. It’s really the expectation of future price increases that allows people to rationalize the decision to buy at higher and higher valuations. The lending is just one factor that enables people to stretch themselves into the market.

          6. Bottom line: “SF housing is a bubble because I say it is.”

            The facts that (1) SF places great restrictions on new housing and housing for-sale inventory remains very low, (2) SF’s population has grown a great deal, (3) SF incomes have risen tremendously, and (4) the local economy is booming have nothing to do with it. It’s all zerohedge, ZIRP, Austria, Fed stuff, which is not unique to SF but uniquely affects SF because I say so.

          7. Not uniquely. There are a handful of cities which have also seen simultaneous rises in price/income. I don’t follow Canadian housing as much, but my friends in Vancouver talk about sharp rises there as well.

            Just the other day you were touting your anecdote about a $150k engineer at Uber getting into the market. That gets him a ho-hum condo at 9-10x income. At a company that’s losing $3B per year. Some money losing companies may get lucky, but most startups fail and generally losing tons of money only accelerates that failure. So you have large downside risk merely with a contraction of the price-income valuation ratio. Not to mention the fact that a a decent piece of the income component is from people working at companies with very dicey prospects.

          8. Two Beers,
            I infer from your description that you attribute the price appreciation in SF to demand-side factors. Low interest rates have made it easy for investors and speculators to borrow, and the recipients of some fraction of that wealth have used the money to bid up home prices in SF.

            I am sure there is some truth to the scenario. After all, if a worker earns a high salary or receives a windfall payout, she may be enticed to purchase a home with the funds.

          9. Joel S.-

            “I infer from your description that you attribute the price appreciation in SF to demand-side factors. Low interest rates have made it easy for investors and speculators to borrow, and the recipients of some fraction of that wealth have used the money to bid up home prices in SF.

            I am sure there is some truth to the scenario. After all, if a worker earns a high salary or receives a windfall payout, she may be enticed to purchase a home with the funds.”

            No inference necessary: I explicitly said elsewhere in this thread said that bubbles are always a demand phenomenon. Additional supply is fuel for the speculative mania, until either the factors that induced the mania change or an exogenous shock occurs. Additional supply doesn’t satiate an asset bubble, because as long as the underlying asset price increases, speculators will take on more debt to acquire more of the asset. This phenomenon has occurred over and over throughout history, and each and every time, speculators believe “this time is different.” It’s even worse this time, because after the GFC, banks were bailed out 100% on the dollar (while millions of homeowners got screwed), and not one Wall St exec faced prosecution for the rampant loan fraud that has since been well-documented. This causes “moral hazard,” a well-known ethics dilemma which posits that rewarding (or refraining from punishing) bad behavior incentivizes further bad behavior.

            Low interest rates would not be causing this RE bubble if properties were being bought only by those who could afford them for their own use. It’s the low-risk, easy-gain opportunity that leads to the speculative mania that this website has documented so well.

        2. The gentrification effect has not been the primary reason for price increases around most of central/downtown SF for years. The primary reason for real estate price increases is too many high paying jobs have come into the city without enough corresponding housing being built and terrible roads and public transportation making it highly undesirable to work here and live elsewhere. All you have to do is look at the increase in rush hour traffic jams into and out of the city and all the new office towers built to see this. This means we should build MORE housing not less (or reduce new office construction). While gentrification (building of more desirable/new housing in relatively undesirable neighborhoods) can cause price increase from more construction, I see no evidence of that in this case. Do you any have evidence of this effect happening today around this location? This effect is grossly exaggerated by a lot of people in SF who want to keep status quo.

          1. To what extent do you think SF should be building fewer office buildings? It strikes me that the large number of new offices towers in San Francisco is only going to increase the demand for housing in San Francisco and put further strain on the transit infrastructure required to bring people into the City. Yet as far as I can tell, there has been nothing done to improve that transit infrastructure (the transbay bust stop does’t count because it doesn’t actually increase capacity).

      2. The gentrification argument only holds (some( water when considering a neighborhood that has not already been thoroughly gentrified. The Castro is an expensive neighborhood, it was an expensive 20 years ago, and it will be an expensive neighborhood 20 years from now. The gentrification cycle has almost no applicability to the Castro. Now, if we were discussing a proposed development in the Bay View or Vistacion Valley, it would have more applicability.

    2. Watch out for having the causality backwards.

      When prices rise, that creates incentive for builders to add supply. So you may see a correlation between periods of rising prices and increasing supply, but most likely the increasing prices caused the increase in supply. Not vice versa.

      In some places and times, that added supply can be sufficient to stall or drop prices. But other times and places the supply added is too little or the demand too strong to have a meaningful effect on prices.

      1. All markets for goods are not the same. So things take time for supply and demand to reach that equilibrium point. Gas for example is pretty quick to buy and sell and have supply and demand meet up. Building housing otoh is super slow. So there was a lot of demand for housing here since 2013 and so the demand line has moved right. Now the supply line moves to meet demand but that supply line takes a long time to catch up bc building housing, esp in sf, takes a long time…. so in that interim phase, where supply is not meeting demand you can still have more supply and increasing prices. Also, one could argue that supply has not been meeting demand for housing for years so again, another way increasing supply may not decrease prices…

        1. Consider also sticky prices on the downside. Housing functions as an asset, not as a commodity. If you’re not getting the price you want for your pork bellies, you don’t have the option to pull them off them market and wait five years until the market has recovered and you’re happy with the going price.

        2. Yes in some places, such as the middle of the country, adding supply is fast and easy. Especially with the involvement of “industrial scale” builders such as Lennar and Pulte and the availability of large uniform tracts of land. So it is unusual for a bubble to occur in these types of areas since a sharp rise in price can be quickly met with new supply which dampens the price rise before buyers can be drawn in by the expectation of rapid appreciation.
          That’s what made the 2007 housing bubble so unusual. It’s odd enough for any single “flatland” area to bubble up, but to have the entire country bubble up was unheard of. It’s also an indication of just how strong the momentum effect can be in that it was able to bubble up an entire nation. No amount of supply could stop or slow that bubble once it really got going.

    3. Karl, there is a “supply/demand” phenomenon that you evidently aren’t aware of, and the explanation that Joel S. outlined above is a pretty reasonable sketch of the way it plays out in the local housing market.

      When I was in junior high, I lived in the East Bay for a few years. Commuted on Interstate 80 pretty much daily. And even though I wasn’t driving, it seemed to me that East Bay traffic was as bad or worse than anything I’d seen in Southern California.

      Before, during, and after that time, Cal Trans expanded Highway 80 between the Bay Bridge and the cities of Western Contra Costa County, and every time they added a lane in either direction by widening the freeway, traffic congestion would stay the same or worsen. Then they added another two lanes, and traffic would get worse. This went on for several years until after the Loma Prieta earthquake I stopped paying attention to it.

      If I’d only taken Econ 101, I’d be like you and your musings on housing and would say this was impossible, because obviously expanding freeway capacity increases supply, and so traffic throughput should have increased thus decreasing travel time. Didn’t happen because we’re talking about the real world.

      If you’re looking for economic jargon to hang off of this phenomenon, try the concept of induced demand. It’s been known about since at least the early 1960s.

      1. Or maybe population was just increasing faster than they were building freeways.

        I don’t see this as induced demand as much as revealed demand. Lots of people would like to live in bigger, cheaper houses with more land. And they are willing to put up with a tremendous amount of traffic congestion to do that. So to the extend that new freeways are built, they are filled with people who are willing to make that commute.

        If you didn’t build the freeways, housing prices in SF would likely be more expensive and few people would live in the Bay Area. Or we could build lots of really big high rises — but it is not clear that people would prefer that solution (some would; others wouldn’t).

  3. karl, see my answer above and explain how producing primarily expensive sports cars has any more than the smallest marginal beneficial effect on lowering the price of cheap sedans.

    That’s a nice list of mostly yuppie, mostly gay bars, and those bars have large degrees of fungibility with each other, and very little with the 13.

    1. Both Toronado and Noc Noc a few blocks away on Haight have a similar vibe and pricing as Lucky 13. I’ve spent many hours at Lucky 13 — will miss it, but it’s not like its patrons have no alternative but to move to Fremont to find a cheap bar.

  4. Hunter- Conventional S&D curves effectively model idealized markets, but they break when trying to model asset bubbles. Asset bubbles are driven by demand, and no amount of supply can satiate bubble demand; supply feeds the demand, drawing more players into the game. Bubbles only finally deflate when the conditions that feed the speculative mania change (as is currently happening). IOW, you can’t build out of a real estate bubble.

    Yes, a considerable component of the local demand is from well-paid techies, (most of whom would rarely if ever live in the largely run-down housing characterized as “affordable”), but you’re ignoring the effect on the market of the pool of speculative buyers.

    1. You truly do not understand San Francisco. Many of the wealthy new arrivals—tech or otherwise—have moved into “run down” housing you describe because they want to be in popular neighborhoods like Castro, Mission, NoPa, etc. Without the small supply of new condos going into such areas, MORE of them would be showing up at open houses for existing units and bidding up rentals/purchases. Regardless of whether the job market surge is a “bubble” as you assume (markets always fluctuate, so I don’t know what your specific definition of “bubble is”), the increase in salaried residents is going to put a strain on the supply of housing that vastly more vacant units would alleviate.

      As is already happening, for those parts of the market that are being flooded (upper end condos, for example) prices are falling well before jobs have been cut. Little to no units have been built for middle-income folks, and yet those rents are also beginning to decrease, so there’s the proof that offering more supply than demand can bring pressure down.

  5. You theory assumes housing is in a bubble which is debatable. What happens to the high end sports car in 3-5-10 years. It goes down in value and is purchased used at a reduced price – aka more affordable to others. Same can and does apply to housing. Today’s high end condo is the next generations average person condo. The area has plenty of dive bars if that is how you’d like to classify L13. I was simply listing those in the same block not classiiing them as yuppy, gay, working class. I’ve never found a lack of bars in any of these categories in the city.

    1. Most likely there are two separate phenomenon occurring right now. A secular increasing of wealth and income disparity. And also a large cyclical boom-bust cycle in housing and other parts of the economy.

      It’s quite easy to see why it’s hard to build your way out of a large boom or bubble. What’s the demand like for a $1M condo that people expect will soon become a $1.6M condo? And globalization of finance combined with low interest rates have greatly expanded the circle of people who can compete for the perception of a large equity payout.

      But all those units built during the boom are still there during the bust. And then without the huge tailwind of price momentum those added units do have a meaningful impact on prices.

      But most likely they will still be priced out of the reach of many and the kicker is that lending loosens up during the boom phase and tightens up during the bust.

      A $3M condo could lose 2/3’s of its value and end up at $1M. But a $1M condo with higher interest rates and tighter lending would still be forever out of reach to many in a country where the median household income is around $50k.

      The cyclical housing downturn will probably not help affordability in the sense that ‘two beers’ would like.

      1. “Many of the wealthy new arrivals—tech or otherwise—have moved into “run down” housing you describe because they want to be in popular neighborhoods”

        “..buildings that are truly from a generation ago (ie. 25 years), […] will be lacking major amenities and typically the “style” demanded by current high-end buyers. ”

        Those two statements contradict each other.

  6. “Today’s high end condo is the next generations average person condo.”

    Is it though? With the exception of properties in neighborhoods that see widespread declines for economic (and often racist) reasons, usually today’s high end condo remains the next generations high end condo, usually with a few remodels in between.

    I’m in the process of selling a condo in SF that was last generation’s first-time home buyer’s condo. The relative income level of the buyers of these unit today has increased compared to the relative income level of their original owners. Also correspondingly, the quality of most of the units have been upgraded (fixtures and furnishings) as sellers rationally seek to attract a buyer willing and able to pay more. Absent regulation to prevent it, owners of condos will seek to improve the value of their units in an effort to attract a more affluent person, not a more average person.

    1. The relative income of everyone moving to SF has also increased because of the failure to keep up with demand as the population has steadily grown. If you’re talking about buildings that are truly from a generation ago (ie. 25 years), they will be lacking major amenities and typically the “style” demanded by current high-end buyers. You’d have to do a complete makeover of a structure from the 80s/90s to make it appeal to today’s top tier condo buyers. However, new flooring and paint would make it ready for a more average buyer (tho again, in SF those hardly exist because the entire market is so highly valued).

      1. Right, which is why today’s luxury condo is not assured to become the next generation’s average person condo. I’ve mentioned to many friends that I think the affordability issue in SF is not going to “fixed” (absent a large scale economic collapse of the area which I believe is unlikely). Too many things in place that distort the market (prop 13, rent control, zoning, affordable housing requirements, etc) such that the only thing that is going to get built in SF for the foreseeable future are luxury units and subsidized units. There is no longer a place for the middle class “average” people in SF.

  7. $360k per unit in land alone is insane. How is a purchase like that profitable? The developer still has to build these units, maybe for $600k each. They’d have to sell them for $1M each just to come out ahead. If land in SF was more reasonable, that project would pencil out at a much lower price for the buyer. The only way to bring the price of land down in this city is to increase the supply, both of expensive land in super desirable places and cheaper land in less desirable ones.

    Expensive land like this should have a high rise on it to pencil out, not a mid rise. We just end up with mid-rise units at high-rise prices. If this is condo I wouldn’t be surprised if they use high rise construction methods like a concrete structure, because they can get high prices for any unit in a remotely desirable neighborhood. All the condo buildings in Hayes Valley turned out this way, as far as I can tell.

    There isn’t really a market for “housing” as much as there is for “land” and “buildings.” Land is crazy expensive because there’s not enough of it. And our buildings would be cheaper if land prices didn’t drive developers to build in expensive ways.

    1. In the heart of the Castro, it should be quite easy to sell $1 million+ units. The Castro is an expensive and highly desirable neighborhood and has been for many years. So, I chuckle a bit over all this heady discussion of economic theory and gentrification. You cannot gentrify what has been thoroughly gentrified long ago. It is bizarre that this particular project in a very affluent neighborhood is generating such discussion, or perhaps it is not so bizarre. Maybe, it reveals that it is just pure NIMBYism behind all the cries of “gentrification.”

    2. Anony moose, yes this is the thoroughly conventional wisdom. The supply-siders would answer that “we know how to create more housing when it’s expensive and there’s not enough land. We employ a technology called ‘the elevator’ and build higher on the available land, thus creating more dwellings!”

      What the supply-siders won’t mention, however, is that a high-floor is itself a “luxury amenity” that affluent people will pay a premium for, so developers like to say that building higher will create more supply and then imply that increased supply will lower prices, but in reality building higher just creates more unaffordable units that contribute to gentrification and displacement of existing residents.

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