Build Out, Not Up

Someone has calculated that it would be less expensive for San Francisco workers to rent a two-bedroom apartment in Las Vegas and commute by air than to rent a one-bedroom apartment in San Francisco. They reasoned that a one-bedroom in San Francisco is about $3,100 a month while a two-bedroom in Las Vegas is about $1,000 a month, and four-day-a-week airfares would be about $1,100 a month. Even with local transport, Las Vegas is less expensive than San Francisco.

While most responses focus on the quality of life in Las Vegas vs. San Francisco, the point is that the latter is so terribly overpriced that some software engineers are actually living out of their cars.

The smart-growth mantra is “build up, not out,” but that’s clearly not working out. Between 2000 and 2010, the area of land in the San Francisco-Oakland urbanized area grew by zilch (in fact, according to the Census Bureau, it declined by 0.6%), and developers only managed to build 14 percent more units of housing. Meanwhile, Las Vegas-area developers built 52 percent more housing units as developed land expanded by 46 percent.

The result is that the median home in the San Francisco-Oakland area was worth $615,700 in 2010, rising to $679,800 in 2014. In the city of San Francisco itself, it was abut 25 percent more: $768,000 rising to $846,800 in 2014. Meanwhile, the median Las Vegas-aea home was only $156,300 in 2010, rising to 188,100 in 2014, while the city of Las Vegas itself wasn’t much different: $166,900 in 2010 rising to $187,300 in 2014.

Prices in the city are influenced by prices in the suburbs. If suburbs have nowhere to expand, their prices will rise, and the cities will rise even more. If the suburbs have room to grow, their prices will remain affordable and the cities’ will as well.

San Francisco has other barriers to affordable housing. Rent control discourages builders from building much more rental housing. The city’s strict tenant-rights ordinance discourages people from renting out their homes. Inclusionary zoning ordinances in many Bay Area suburbs discourage new development in those suburbs. Lengthy permitting processes make it difficult for builders to respond to changes in demand. All of these things help explain why San Francisco is so expensive that someone might find it cheaper to commute from Las Vegas.

It would be less expensive to commute from Livermore, on the eastern edge of the Bay Area, than from Las Vegas. A two-bedroom in Livermore is about $1,800 a month, well under San Francisco rents. But Livermore is also quite a bit more than Vegas, and it will remain so until California realizes that it has to grow out, not up.

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11 thoughts on “Build Out, Not Up

  1. Frank

    I read the story of the engineer living out of his car, and it smelled a bit fishy.

    The average software engineer salary in the San Francisco area is about $103k according to GlassDoor. If said engineer, who has chosen to live in a van, were to pay 30% of his income for rent, that equates to about $31,000 a year or $2,500 a month.

    The software engineer in the story states that he “perked up after finding a listing for $1,000 per month. Now this could work.”

    He wants to pay about 11% of his salary, assuming the average software engineer salary in SF, on rent. He later states that this would be “the huge majority of [his] salary.”

    I call bullshit.

    There is no way that $12,000 a year could possibly be “the huge majority” of his salary unless he is making $30k a year as a software engineer in San Francisco. No. Way. Jose.

    There are hundreds of SF Bay Area apartments listed under $2500 a month on Craigslist.

    Software engineer is an exaggerator. Software engineer just wants attention.

    Above all, software engineer is CHEAP.

  2. aloysius9999

    I call you have absolutely no idea what other financial obligations the software engineer has such as school debt, siblings educations, or aging or incapacitated parents.

  3. Frank

    You’re right. I don’t know what other financial obligations she has.

    However, according to her LinkedIn page, Katherine Patterson, aforementioned software engineer, works at Google. According to Glass Door, the total average compensation for a Google software engineer is $165k with a base salary of $127k and 41% above the national average.

    I also know that she wrote: “There are many people who are forced to live in their cars because they really cannot afford to live in the Bay Area. I am not technically one of them, and in doing this by choice I am inevitably appropriating their hardships.”

    I still believe that she is exaggerating about paying the majority of her salary to rent. It is obvious by her statement above that she can afford to live in the Bay Area.

  4. Frank

    A little more research yields a fuller picture of Ms. Patterson. Ivy League grade from Botswana. (Not sure if her parents, likely in their 40s, are “aging” and requiring a ton of financial resources.)

    Additionally, she is rabidly anti-car, as quoted on the Brown University website:

    After graduation, you plan to… Invent a phenomenal public transport system and get rid of all cars.

    An Ivy League grad from the wealthiest African country who works at Google can afford rent in SF but chooses not to pay it. I take back the “because she’s too cheap” part. It’s obvious that this is a lifestyle choice based on ideology. Ironic that she lives in something she has said she plans to get rid of…

    Good day sir.

  5. Lewis

    San Francisco is not really building up. The housing stock grows less than 1% per year on purpose. Mayor Ed Lee has a plan to build only 30k units by 2020, which is about 1% growth, and the community is up in arms about the “surge” of building. Ultimately, it doesn’t much matter to prices whether the city grows up or out. It is more expensive to build up than out, but costs are not “passed on” like a fluid to customers. Prices are set by supply and demand. When supply is restricted by zoning and FAR ratios and height limits and such, costs merely eat into the profits of the supply that is allowed.
    Also, I don’t think it makes sense to say that rent control is restricting the supply of housing, when residents use zoning regulations to restrict it. Rent control in san francisco probably just transfers money from landlords to long-time tenants and lowers the quality of the extant stock by disincentivizing upkeep. But the number of housing units in SF, and the bay area generally, is exactly equal to the number that residents will allow.

  6. Frank

    There is a lot of space for housing in SF without needing to go up; the SF Bay is between 400 and 1,600 square miles with only about 500 floating homes. At 1000 people per square mile for small and affordable houseboats, 200 square miles of the bay could house another 200,000 people.

    Unfortunately, this natural urban growth boundary is highly regulated by the state, which will not allow any more people to live on the water. Certainly there are environmental concerns, but how much of the restrictions exist because with floating homes there is no real property (land) to tax?

  7. Frank

    Wow. Totally crickets around here. No one is gonna call the AP out on his selection of an anti-car type living in her van because she choose too because while can afford the rent, she chooses not to pay it?

    Go Royals!

  8. prk166

    Frnk,

    I’ts been long documented of Googlers living onsite to forgoe renting an apartment.. You’re not onto anything brilliant in pointing out that given “averages” they didn’t “need” to.

    What you haven’t shown is that they could actually find available good housing at the rates you claim they can. Averages on paper don’t reflect real life. Or are those reports of plain 2200 sq ft ranch houses going for millions fabricated?

  9. Frank

    You’re right about averages.

    Starting total pay for a software engineer at Google in Mountain View is $102k. If going by the one-third of gross income as rent rule, a new Google software engineer can afford $2800 a month in rent. There 718 posts on Craigslist in SF city limits that costs less than $2800 a month and 5908 in the entire Bay Area. The South Bay, where Mountain View is located, has 2352. These include studio, one-bedroom, two-bedroom apartments, and even about 100 single-family homes.

    Of course the qualifier of “good housing” is an attempt to move the goal posts. I suppose one might not find a 1238 ft2 luxury two-bedroom loft to be “good housing” (which could be split with a room mate, each paying $1400 a month) or even a $2500 two-bedroom SFH to be “good housing.”

    Seems like “good housing” especially compared to a salvaged van dressed up with Ikea furniture.

    Oh, and then there are her own words: “doing this by choice”.

    Choice. As in I could afford an apartment, but I choose to live in a van down by the river.

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