Blame It All on Airbnb

Airbnb was founded in 2008, but didn’t really start growing until 2010. San Francisco housing has been unaffordable at least since 1979, when median home prices in the San Francisco-Oakland urban area were four times median family incomes. By 2006, two years before Airbnb’s founding, they were nearly nine times family incomes.

Median Bay Area home prices are now down to seven times median family incomes. So naturally, local activists blame Airbnb for high housing prices. That’s just as dumb as blaming affordability problems on Google and other tech buses.

San Francisco Bay Area housing was affordable in 1969, when median home prices were just a little more than twice median family incomes. What happened between 1969 and 1979? Not Airbnb. Not Google. What happened was that Marin, San Mateo, Alameda, Contra Costa, and Santa Clara counties all adopted urban-growth boundaries that included little or no vacant land for growth.

Some of the counties did include some urban reserves, that is, vacant land outside the boundaries that they said would be added when needed. But then California courts held that expanding an urban-growth boundary would require an environmental impact report. Since such reports cost millions of dollars, the cities and counties decided not to move boundaries unless developers were willing to pay that cost. I don’t know of any boundary changes since then.

Normally, affordable housing in the suburbs provides a safety valve that prevents housing in the central cities, such as San Francisco, from becoming too expensive. The urban-growth boundaries prevented that from happening. The growth boundaries also allowed the cities to take years to approve building permits, knowing that homebuilders and buyers had nowhere else to go.

People living in the city of San Francisco, however, don’t seem to see any of this. They don’t understand that housing prices in their neighborhoods are affected by prices in the suburbs. So, when they look for someone to blame for high rents, they focus on their immediate neighbors rather than the region as a whole. That’s convenient, but not very realistic.

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9 thoughts on “Blame It All on Airbnb

  1. Frank

    “What happened between 1969 and 1979?”

    The US abandoned the remnants of the gold standard, and hyper inflation resulted. The population of California also increased by more than 10%.

    I still have yet to hear evidence of how many people who work in SF proper and who are also willing to commute more than an hour from places like Livermore.

    Growth boundaries: it’s called a peninsula.

  2. paul

    Housing prices in San Francisco increased increased much more than 10% per year from 1973-1979 so was not just because of inflation but the baby boomers coming into the housing market and bidding up housing prices. The problem is not enough housing being built see the legislative analysis:
    http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx

    The urban limit line as well as the terrain of the Bay Area prevented an increase in the supply of housing.

    The problem with begin on the gold standard is that the money supply is then limited to the supply of gold. When gold supply cannot keep up with the increase in population and productivity, then deflation results as in the late 19th century and in 1931 and adherence to the gold standard. Therefore the gold standard has been abandoned by all countries. The central banks have to maintain an sufficient money supply to prevent inflation and deflation. Interestingly it was only the discovery of gold in south Africa and the Klondike around 1900 that prevented much more deflation.

  3. Frank

    “The problem with begin on the gold standard is that the money supply is then limited to the supply of gold.”

    That’s a benefit, not a problem. It keeps the government from monetizing debt and passing the cost to the consumer in the form of inflation and devalued dollars and decreased purchasing power.

    “When gold supply cannot keep up with the increase in population and productivity, then deflation results”

    Yes, and consumers see their purchasing power increase as well as their standard of living. Terrible!

    “Therefore the gold standard has been abandoned by all countries.”

    The Breton Wood system, which wasn’t really a gold standard, was abandoned due to the enormous cost of the Vietnam War and the government’s desire to be able to borrow and print without impunity.

    “The central banks have to maintain an sufficient money supply to prevent inflation and deflation. ”

    They have to create cheap money so the US government can borrow and service $20T in debt.

  4. Maddog

    The oft misattributed working definition of insanity is doing something over and over again and expecting the same result.

    But when it comes to housing affordability this seems to be the case. Urban growth boundaries, services limits, zoning, and bureaucratically entangling the permit process all create the problems the activists in San Francisco detest. What is even more ironic is the fact that I have never interviewed one of these characters, and not found them completely in accord with the growth boundary. They fervently want that which causes that which the fervently detest.

    Insanity defined!

    http://www.maddogslair.com/blog/talk-about-missing-the-900-lb-gorilla-in-the-room

    “San Francisco bay area has a huge amount of land, 4.5 million square acres in total, and all of the development is only on about 0.8 million square acres. But nearly all of the rest of the land is off limits for development. There is apparently between 300-500 thousand square acres which could be developed but which lunatics are attempting to make into land permanently unavailable for development.

    The reason San Francisco’s property values are insanely high, is lack of land to build more housing, and this is purely a man made catastrophe. Releasing 400,000 acres of land for development would quickly return the San Francisco housing market to rational pricing, but it would also cause the interstellar individual house prices to fall, likely by half or more, and then remain low. And existing homeowners would be apoplectic with that outcome.

    Once a growth, or service boundary, or zoning scheme begins to artificially inflate prices, it becomes nearly impossible to reduce the underlying cause of the problem. The existing homeowners want high home prices more than they are interested in housing affordability for others. They make silly arguments about how land must remain off limits for development, promote infill development, and seek to spend all transportation dollars on transit, and not on roadways. This drives congestion through the roof, and causes large increases in costs to the individuals, pollution, and carbon. This is what is commonly defined as “sprawl,” it is the natural outcome of “Smart Growth” and “Urban Planning.'”

    Less than 18% of the Bay areas land is developed, yet there is a religious fervor to keep the remaining 82% locked up. The result is housing prices skyrocket since demand for housing continues to grow, but additional supply is nonexistent.

    The other result is gentrification, and densification of the developable lands. However, because the city wants places like Chinatown to remain as is, zoning laws are created which all but prohibit changing the existing structures.

    But humans are, if nothing, creative, and with the advent of AirBnB, the land owners found that they could circumvent the zoning, and rent controls to some extent by renting to transient visitors.

    “These artificial prices will only remain as long as people find reason to live in the area, once that stops, and the people begin leaving, housing prices will decline. Commonly this is pooh poohed, but that is exactly how Detroit went from America’s fourth largest, and most prosperous city to the burned out hulk of a city it is today. It underwent this change between 1970, and the present, a mere 45 years.”

    Mark Sherman

    PS I post on my blog Maddog’s Lair, feel free to visit.

  5. paul

    ““When gold supply cannot keep up with the increase in population and productivity, then deflation results””

    “Yes, and consumers see their purchasing power increase as well as their standard of living. Terrible!”

    Only if they keep a job and can get credit. People are very resistant to a decrease in wages, even if with deflation their purchasing power increases. So instead of decreasing wages during deflation, employers lay employees off, as happened during the great depression. Deflation also interferes with borrowing money as people stop keeping it in banks with negative interest rates and keep the cash in a safe place. This adversely affects credit for business expansion, etc. This is what happened under the gold standard during the great depression. Much better to have a independent central bank that keeps both deflation and inflation small. The central bank must just not let politicians dictate what they want the money supply and interest rates to be.

    Part of being able to build adequate housing for the market is high employment and availability of reasonable mortgages to buy property. Both have been adversely affected when the world was on a gold standard.

  6. Not Sure

    “The central banks have to maintain an sufficient money supply to prevent inflation and deflation.”

    According to the Bureau of Labor Statistics, $1 in 2016 has the purchasing power of 4 cents in 1913.

    Just sayin’…

  7. Frank

    paul, I invite you to cite sources for your many unsupported assertions.

    “So instead of decreasing wages during deflation, employers lay employees off, as happened during the great depression.”

    Hoover adopted a high-wage policy during the first two years of the Depression which kept wages from decreasing; total hours worked fell from an average of 48 in ’29 to 32 in ’32 in part because Hoover pushed work-share policies. According to Rothbard’s America’s Great Depression, this policy “aggravated and perpetuated unemployment” largely because this was most used in the capital goods industry, an area that saw massive malinvestment during the boom years of the 1920s, which was caused by the Fed’s cheap money policy.

    “Deflation also interferes with borrowing money as people stop keeping it in banks with negative interest rates and keep the cash in a safe place.”

    You’ve got the cart before the horse. Deflation occurs during a correction as a result of unsustainable debt levels. Savings (defered consumption) is what is needed to fix this unsustainable imbalance. More debt only exacerbates the problem and prolongs the eventual pain.

    “This adversely affects credit for business expansion, etc.”

    During a correction due to malinvestment and unsustainable debt, the last thing that is needed is “credit for business expansion”. Once the malinvestments are cleared and the market allowed to function without intervention and savings allowed to accumulate can capital be allocated efficiently to where the market directs it.

    “This is what happened under the gold standard during the great depression.”

    No, it’s not. Please support your assertion. See Rothbard above for the basis of my disagreement. The government prolonged the Depression by not allowing malinvestments to be cleared and by economic interventionist policies that attempted to prop up wages and prices. The malinvestments occurred not because of the gold standard; they occurred because of the Fed’s monetary policy. Additionally, fractional reserve banking is what caused people to run on banks. When DDAs aren’t held at 100% reserves and instead are pyramided, you have fraud and you get runs on banks.

    “Much better to have a independent central bank that keeps both deflation and inflation small. The central bank must just not let politicians dictate what they want the money supply and interest rates to be.”

    The Fed has a long record of more than 10% inflation when using CPI calculations from 1980; inflation measured using this method is about 8%. The government has been cooking the books since to hide the true scope of inflation, which is an invisible tax on workers and consumers.

    The Fed is hardly independent; it’s a creature of Congress.

    “Part of being able to build adequate housing for the market is high employment and availability of reasonable mortgages to buy property. Both have been adversely affected when the world was on a gold standard.”

    So you assert. Without any evidence.

  8. Frank

    The “stability” of asset prices, particularly housing, has been a goal of monetary policy. The Fed wants those who own houses and other assets to have a constant appreciation in nominal wealth, meaning the nominal value of those assets will always rise more than enough to offset any temporarily price declines.

    Put another way, the Fed supports asset-price inflation. The mindset is that prices can rise a little, or they can rise a lot, so long as that inflation is never offset by a corresponding deflation. That is of course not really price “stability” at all.

    If you want people to buy more of something, artificially forcing a rise in the nominal price of that thing is probably not a good idea if real incomes are flat or declining.

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