I have been spending some time in San Francisco, and of course everyone complains about the housing prices. This is causing real problems -- even high-paying employers like Apple or Google find that their employees have nowhere to live, and often face both punishing commutes and extreme rents and mortgages. And if you are not in the Top 5% ... sorry. Maybe you should sell your company to Oracle?

So, I am presenting a different vision: the possibility of a (very small) studio apartment, in one of the better locations of San Francisco (actually SF Metro, i.e., "Bay Area"), that you can purchase for $50,000, or perhaps rent for $400-$500 a month. This is a full market rate. No subsidy, no rent control, no "affordable housing" regulation, no land giveaways. Plus, we want the developers to make a return on capital that is not only adequate, but exceeds most other opportunities in their industry.

Our per-unit budget looks like this:

$30,000 construction costs

$10,000 land & other non-construction costs

$10,000 profit margin

This includes a 20% profit margin. Is this enough? In 2015, Toll Brothers, a major homebuilder, had a pretax profit margin of 10.7% on sales. The average unit selling price was $755,000. The company's capital structure was about 54% debt (including all liabilities), and 46% equity. So, if you had a 20% profit margin and a 4% cost of capital on debt (vs. 3.9% on debt and 2.9% on all liabilities at Toll Brothers), and a construction cycle of 12 months, that would imply roughly a 49.7% return on equity before taxes, and 33.8% after taxes. Not too shabby.

Our $50,000 housing unit can take many forms, from detached wood "cottages" up to 70-story high-rises. Obviously, the higher the land cost, the more dense the form that is required to keep the land costs to $10,000 per unit. If you put 200sf cottages on 1000sf plots (1/42nd of an acre) then you need land costs of less than $420,000/acre. But, with a 70-story high-rise, you could pay as much as $200 million per acre, and still get $10,000/unit costs.

For detached housing, the cheapest and worst, is the lower grade of "manufactured housing," which can run as cheap as $50/sf. So, for $30,000, you could get about 500-600sf. But this is really dismal and crapulous, so let's forget about it.

Detached Cottages

For a nice wood-framed cottage, you might be able to do $150/sf, which means about 200 square feet with a budget of $30,000. Since this is quite small, it could actually be done with manufactured housing, or perhaps on-site building. What might this look like?