Applying the super-gentrification thesis to San Francisco, Santa Monica, and other cities experiencing hyper-demand
About 18 months ago I responded ("Exogenous market forces impact DC's housing market") to a piece in The Atlantic about the DC property market, stating that what potential residents like Megan McArdle saw as not making sense--significant appreciation of pricing in in-demand neighborhoods at extranormal rates--because the prevailing incomes in "the local real estate market" didn't support such pricing.
The highest wage earners are driving the market in the "best" neighborhoods, not average wage earners. The issue that she missed is that the the market is being bid up not by average wage earners, but by above-average wage earners, a smaller segment of the overall population in the metropolitan area, but a segment with extra-normal buying power and impact.
What's happening is that the real estate market in particular neighborhoods in cities like Washington is being reorganized within networks of global cities and within the landscape of metropolitan neighborhoods in a manner where the market dynamics are increasingly non-local.
What that means is a neighborhood like Capitol Hill isn't just competing with Petworth (and it isn't really, but that's another issue) and vice versa, but Capitol Hill, Georgetown and similar neighborhoods are competing with comparable neighborhoods in suburban Maryland and Virginia, etc. To understand price appreciation, you have to compare neighborhoods to like neighborhoods across jurisdictions.
Of course, this kind of dynamic is very much visible in places like London or New York City. For example, all of the highest value residential real estate markets in the UK are connected to Greater London ("The 43 areas where homes cost £1 million," Telegraph).
And close-in but "suburban" cities like Hoboken and Jersey City ("New Yorkers Discover Jersey City" and "Much Transformed, Jersey City Is Ready to House Super Bowl Teams," New York Times) in New Jersey have been redefined and integrated "into New York City" as city-like neighborhoods because of similar market dynamics, location, etc.
Instead of the issue of properties being bid up and held by non-residents--a problem in London, New York City and Charleston, SC, e.g., "Homes Dark and Lifeless, Kept by Out-of-Towners," New York Times--instead you have desirable neighborhoods being bid up by in-region residents with extra-normal incomes.
Houses being bought by the 0.1% not the 1%--supergentrification. Loretta Lees first wrote about this dynamic, calling it supergentrification, in the context of the Brooklyn Heights neighborhood in Brooklyn, and how Wall Street financial services workers making huge salaries and bonuses--many millions of dollars each year--were buying properties and reshaping the nature of "the local real estate market" around their extra-normal incomes, disconnecting that submarket from the normal vicissitudes of local conditions.
Gentrification: Deliberate Displacement, or Natural Social Movement?")
Market Street, San Francisco.
San Francisco's real estate market and the 0.1%. There is a lot of press coverage of the protests against "the Google buses," private shuttles which whisk Google employees living in San Francisco to their jobs at the Googleplex in Menlo Park. See "San Francisco's guerrilla protest at Google buses swells into revolt: Campaign against tech giant pricing ordinary citizens out of the housing market becomes increasingly disruptive and forces city to act" from the Guardian.
Activists are "protesting" against the buses as a way to call attention to escalating real estate prices in San Francisco, blaming this on Silicon Valley's high wage earners who choose to live in the city because it's cool, abetted by private transit to and from work..
The say that if Google didn't provide the buses, workers would choose to live closer to Menlo Park, and so there would be less demand for housing in SF, so that prices wouldn't be rising so fast. From the article:
Google argues that the protesters are gunning for the wrong target, because the buses alleviated traffic and pollution and because most of the employees who take the bus would live in San Francisco anyway.What is happening in San Francisco is the same kind of supergentrification dynamic happening elsewhere, although San Francisco has long been a city with high real estate prices because of the high demand to live there. It's the same dynamic that Lees described in Brooklyn Heights.
Those claims were challenged by a study published last week by researchers at Berkeley, across the Bay from San Francisco ["Study: 40 percent of S.F. shuttle riders would move without chartered bus service," San Francisco Chronicle--note that the results are based on an extremely low sample size.] They found that rents around the stops used by the Google buses were up to 20% higher than in otherwise comparable areas. They also found that 30-40% of tech workers would in fact move closer to their jobs if the bus service did not exist.
I don't know what kind of policy proscription to recommend. (Also see the past blog entry, "Low income, high income, the market and the right to the city.") I don't think that the ability to offer transportation demand management services like bus shuttles should be restricted.
Twitter's doing it ("Twitter Helps Revive a Seedy San Francisco Neighborhood," New York Times).
But that would further the demand and price appreciation for city residential properties.
So the usual proscriptions:
- build more housing
- inclusionary zoning to include more affordable housing in new market rate buildings
- rent control, which the city already has
- move to Oakland where property is still cheap "Oakland Turns A Corner As California Faces Budget Woes," NPR)
- and it takes less than 20 minutes to get to San Francisco once you're at a BART station
are all I can come up with.
San Francisco Planning and Urban Research advocacy group writes in The Atlantic, "It's Not Too Late to Make San Francisco Affordable Again. Here's How," suggesting the same kinds of policies--except for moving to Oakland--in a more detailed fashion.
He mentions adding zoning capacity to build more housing, doubling the amount of subsidized housing, and focusing new programs on middle-income housing.
For the latter, Vienna is probably a good model for that, "Learning from Vienna and from Vienna's Social Housing Model" as well as New York City's housing production programs from before 1950, and even after, such as the construction of Co-op City.
SF could be a great testbed for a renewed focus on housing production for lower and middle income segments of the market.
But given the limited financial options that cities have, I am not holding my breath.
... Oh, Santa Monica. Umm, see "From Santa Monica, the lament of an 'urban villager'" from the Los Angeles Times. Many cities and neighborhoods in Los Angeles have the same problem which result from similar dynamics.
It is true that as long as people fight the addition of new housing to those places, prices will go up extranormally. It's a generational thing. The people who bought when prices were low can stay. People who rent won't be able to as they are outbid.