November 3, 2014 Housing Action Coalition

Housing Economics and Solutions for Affordability

Dr. Ted Egan, the City’s chief economist, presented last Friday at our Regulatory Committee some crucial analyses on the economic arguments for housing metering which would set a city-wide housing affordability rate of 30 percent for all future housing built. Egan’s research asked an esoteric economic question: “What is the elasticity of supply and demand for SF’s housing?” Egan’s research based on data compiled from 400 California cities from 1996 to 2013 concludes that housing metering is an inefficient way to build affordable housing. Here’s why.
Some key findings:
– “New housing is a very small share of total housing stock in the City – 97 percent of the people who moved to the City between 2007 and 2011 lived in housing that was built before 2005. 98 percent of the people [already here before 2007] lived in pre-2005 housing. There is virtually no difference in these figures, so the idea that new housing attracts new people to the City is unsupported.”
– “Based on [this], approval for an [annual] increase of 3,160 units* yields a 1 percent decrease in prices – equivalent to about a $10,000 price reduction, or a $35/month asking rent reduction.” [NOTE: To achieve this reduction in price we need to reach an annual production of close to 5,000 units per year, something SFHAC has long advocated. And, it’s a pace that would have to be sustained for many years.]
– “Since housing prices for high, moderate and low income households move in tandem, … housing seekers in all income groups would benefit from [an increase in housing supply] – or harmed by a restriction. So restricting housing development imposes costs on all house-seekers.”
Dr. Egan included some demographic data on income groups that showed the following:
– Extremely low income residents are hugely burdened by housing costs, paying close to 70 percent of their income on housing, though this amount decreased slightly in the 20 years between 1990 and 2010
– Low, moderate and middle-income resident’s percentage of housing costs increased sharply between 1990 and 2010, though they pay a smaller proportion than extremely low-income residents.
– Oddly, upper-income resident’s proportion of income spent on housing also decreased from 1990 to 2010, though, not surprisingly, they spend the least of any income group.
This information correlates with US Census data that show the City’s low- and moderate-income populations decreased from 1990 to 2010, while extremely low- and upper-income populations increased.
Overall, every income group in San Francisco spends above the national 30-percent average on housing. Constraining market-rate housing supply doesn’t help anyone, particularly the lower-income residents. Building market-rate housing benefits all residents and contributes to affordable housing production. Therefore, the only thing that improves overall housing affordability is to simply build more.
See Dr. Egans full presentation here.  
Image credit: Flickr user CalUrbanist

Housing Action Coalition

The Housing Action Coalition is a member-supported non-profit that advocates for the creation of well designed, well-located housing at all levels of affordability. We believe more housing means more choices and better solutions.

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