What if your market-based model is destined to fail? An open letter from someone who is not a Nimby

Dear Yimbytown folks:

Welcome to the Bay Area, where housing and land-use debates are at the heart of almost all local politics. You’re going to hear a lot about those politics at this week’s conference, and a lot about the people who get disparaged as opponents of new housing.

Your ally Randy Shaw described them as activists who

support suburban sprawl, enjoy subjecting working people to long commutes, and who think preserving gas stations is more important than allowing kids to grow up in vibrant cities.

I am not any of those things. But I have some perspectives on the housing market and development policies that might be worth considering. Because we all say we want the same thing – more affordable housing for the workforce in the communities where we live.

For starters, there are things I think we agree on. It’s insane for cities like Cupertino and Mountainview to allow commercial office space for tens of thousands of workers (which brings those communities tax revenue) without building any housing at all.

And if we stipulate that San Francisco’s housing crisis – and the crisis of urban housing in the United States – is unfair to working-class people, terrible for local economies, and damaging to communities … I agree.

We also agree, I think, that it’s unfair to landlords to take advantage of these soaring housing markets to jack up rents and toss out tenants. (One of the leading groups in your Yimbytown is the San Francisco Bay Area Renters Federation, which says it advocates for the interests of renters.)

Where we seem to part company has nothing to do with what gets called “Nimbyism” and everything to do with what appear to be dramatic differences in how we look at and understand local housing markets.

Before you talk at your conference about the Nimbys, please (please) take a moment and read this piece.

In theory, if the Nimbys would just get out of the way, Econ 101 would work, and the Magic of the Market would solve the problem, as private developers simply built to meet the need. That hasn’t happened in SF in at least half a century. Why? Because the market is what the more advanced textbooks would call “irregular.” Developers build not to meet the market demand but to meet the demands of their investors. In San Francisco in the 1980s and 1990s, it was highrise office space, not housing, that brought the highest returns to investors (often the newly deregulated Savings and Loans, that were speculating wildly in real estate, ultimately causing a huge crash that costs the US taxpayers more than $100 billion). In those days, no housing got built. I was here; I was watching. It wasn’t Nimbys who stopped housing construction in SF; it was investment capital. In fact, the people who are now called Nimbys were begging the city to force office developers to build housing. I sat through the meetings, followed the debate. The developers fought the idea all the way. Today, investment capital gets higher returns with luxury condos. So that’s what is getting built. It’s not Nimbys, or Mayor Lee, or zoning policy that is driving the gold rush of housing for the very rich: It’s international speculative capital. You can quiet all the Nimbys, stop all neighborhood opposition to development, let the builders go crazy – and still, nobody right now is going to build housing for the working class and middle class without government action and subsidies. The private market isn’t interested in that kind of housing.

I have told the Yimby folks many times that if I really thought building tens of thousands of more housing units in San Francisco would bring down prices dramatically – to the point where the people who work here could afford to live here – without any existing residents being displaced in the process, I’d support it. I’d also demand that the developers and the wealthy, including the tech companies that are driving the demand, pay the many millions of dollars it would cost to provide the additional transportation, schools, police and fire, parks, and other infrastructure that would be necessary to accommodate that growth; growth should pay for growth, or cities become impoverished and unlivable.

But it’s not going to work. It can’t work; the facts on the ground are just too clear.

In classical economics, the stuff they taught me in college, increasing the supply of a commodity tends to drive down prices. If supermarkets are flooded with rice, and there’s more rice than you can sell at $5 a bag, you have to cut the price to $4 a bag, or $3 a bag, until people decide to buy rice instead of wheat and the market “clears.”

Right?

But when it comes to housing in a dense city, there’s a different story.

When the current market forces, driven not by planning or Nimbys or Yimbys but by the availability of capital, build housing in San Francisco, they tend to drive up prices.

That’s backwards, right? If there’s more housing, it should be cheaper; everyone knows that.

In fact, at the high end, we’ve seen some truth to the old rules: When there’s an oversupply of luxury condos, the prices stabilize; instead of renting for $5,000 a month or selling for $1.2 million, they wind up renting for $4,500 a month, or selling for $1 million.

But those prices never come down to, say, $1,500 a month for a two-bedroom unit, and they never will. Not until land values drop to the point where it costs less than $500,000 to build a housing unit. In fact, if housing prices dropped to the level where most working San Franciscans could afford to enter the private market, developers would stop building, because the capital would dry up. There’s more money to be made investing in places where the return is higher.

I am told by the Yimby that building more housing for rich people will take the pressure off the existing housing stock, which again sounds perfect — in theory. In fact, building more market-rate housing has, in many cases, the effect of driving up land values, of making other housing more expensive and leading to displacement.

Let’s look, for example, at a project that critics call the Monster in the Mission, a proposal for 209 market-rate units next to the BART station at 16th and Mission. If you haven’t spent much time in San Francisco, take a ride over and check out the Mission; it’s a 20-minute BART ride from downtown Oakland. The area around 16th, despite serious gentrification, is still a wonderful neighborhood – and there are a considerable number of low-income people living in relatively low-cost housing in the area.

The Monster term isn’t about the size of the development – it’s about the impact the project would have on the neighborhood.

There is little dispute that putting a development that would add at least 300 wealthy residents to a low-income area will have a dramatic impact. The residents will be seeking higher-end amenities, and that will drive up commercial rents so that many of the old, family-owned, community business that cater to a lower-income clientele will be forced out.

Even Yimbytown folks I’ve talked to agree that it will also drive up housing prices; as the neighborhood “improves,” landlords will find they can get more rent for what were once less-desirable apartments. That will lead to more evictions.

In the end, what will happen is simple: The price of land in the area will increase. Future housing developers will have to pay more, and thus charge more. The addition of more housing won’t bring down costs; it will drive costs up.

This isn’t an unusual phenomenon in San Francisco.

The Yimby argument that I’ve heard is, in general, that eventually, the markets will “clear;” that we may see some gentrification at first as a lot more housing comes in, but in ten years, prices will work their way down.

I don’t see how that can happen, when development in most of the parts of town where there is room for development will see property values rise as more market-rate housing is built. There are parts of the city that are against any new density, especially on the west side, where some areas still feature low-density detached single-family houses. But in many areas, the issue really isn’t density (North Beach, one of the best neighborhoods in the city, is also one of the densest.)

The issue is whether the people who live here now get to stay. And the current Yimby model generally ignores that question. Until you address that problem, you are going to have a very hard time getting political traction in cities like San Francisco.

This is a city under enormous pressure, brought on by a tech boom that the current residents never asked for. That pressure has spread to Oakland, where you are meeting.

People who have lived here for decades, in some cases for generations, are being forced out by people who have more money. It’s no surprise that there is a lot of anger.

Your solution is to let the private market build more housing – at every level. Even if that worked in the long term, which the reality of urban economics in San Francisco defies, in the short term it would mean even more displacement.

The Yimby folks have been almost entirely absent from the battles for better rent control, for anti-displacement measures, and for protecting existing vulnerable communities. I have never seen a Yimby person at a protest against an Ellis Act eviction, or against the brutal gentrification and displacement in this city. I haven’t seen Yimby money and efforts go into land trusts, social housing, or other models that get housing out of the private sector. Those, I believe, are the only models that have a chance of working.

Instead, your movement has sided with politicians who oppose efforts to protect existing residents from displacement.

San Francisco has always been a city of immigrants, and we have always welcomed them. But it’s fair to ask people who are moving here – particularly if they are coming here for high-paid jobs – to have some respect for the existing communities. I think one of the central rules of housing and planning policy ought to be this: If you live somewhere, you get to stay, even if someone else with more money wants your place.

That means, I think, that you have to look at two issues. One is what I will call the “demand side,” which is almost entirely lost in the discussion of the lack of housing “supply.” San Francisco has created far more jobs in the past few years than there are current residents; that’s a recipe for problems – and it’s not the result of the Invisible Hand of Adam Smith. Political policies in the Bay Area have sought to attract tech firms and their workers – without accounting for where they will live.

There’s this love of growth, as if economic growth were the Holy Grail – and it’s not. If we grew a little more slowly, with a little less disruption, we might all be better off. That might mean approving less office space, and encouraging some tech companies to set up shop in other cities, where there is less of a jobs-housing imbalance.

(And let’s not forget that SF’s own studies show that more market-rate housing creates a demand for more affordable housing, at a level the city can’t possibly keep up with.)

The other is this belief that the market will solve our problems, and that housing should be a private commodity, built and bought and sold for profit. That leads to people buying housing not to live in it but as a place to park cash; I have not yet heard the Yimbytown people supporting the idea of a tax on vacant apartments.

Nor have I heard one Yimby activist say that housing should be taken out of the private sector. You are, as far as I can tell, a market-driven movement – and housing, like health care, is one of the many areas where the US market has utterly failed us.

So enjoy your conference and your political seminars. But understand that you are taking a single, simple approach to a problem that is immensely complex – and that some of us who disagree with you aren’t Nimbys and aren’t trying to hoard housing to make money; we aren’t the enemy. We just don’t think your approach will work. In fact, in a place like San Francisco, we fear it will do a whole lot of harm.

So maybe take a minute and listen to us. We have been on the front lines for half a century, working for an affordable city — for the rights of tenants and working-class people. We are not greedy, not against density, not against housing. We don’t want to dismiss you as developer shills; many of you sincerely think your approach will work. But many of you are also new to this issue, and some of us have been wrestling with it for a long, long time. Until you consider that you might be wrong — not in your goals but in your solutions — and join us and start helping to stop displacement instead of just demanding more market-rate housing, you aren’t going to convince us you are serious about helping the renters and working-class people of this and every other city.