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Real Estate Investor

Real estate culture

If the city gets less weird, does it matter?
MT-May2017-REALESTATE-Investor2

Michelle recently moved back into the city after spending years elsewhere in the Bay Area. The one thing she immediately noticed was the people at the bus stop and in the cafe where she stopped to buy a cup of coffee before heading to work. Where she had lived previously, she usually ran into biotech workers, and she found them to be generally polite, racially mixed, and nerdy in their own way. But she said that too many of the tech workers she now encountered in her morning commute in San Francisco were rude, rushed, and very, very white.

For years now as the economic boom and the real estate price surge have dominated local news, we have heard about the nonprofits and the artists who have been pushed out of San Francisco due to the high prices. Also pushed out have been more boring “normal” people who just couldn’t afford the price of a San Francisco mortgage or rent. Judging by what one often hears on the streets these days, what has been left is a bunch of complainers, people who are either unhappy about what’s happening to the city, unhappy with the newcomers in the city, or unhappy with the old-timers in the city.

How did this city turn so unhappy? And will legalized marijuana make things better or just make it all worse?

That second question isn’t serious, of course. But the question about why so many people here are displeased with life in the city by the bay these days is an intriguing one.

GOTTA GET OUT OF THIS PLACE

On a recent bus trip, everyone on the busy Muni bus noticed the bouncing and jiggling from the oft-patched road. When the vehicle came to a halt at a bus stop, one passenger good-naturedly commiserated with the driver about that road’s terrible shape. “The whole city’s like that,” the driver responded.

Or consider the employees at a downtown business who arrived one recent morning to find a homeless man throwing wet trash from the roadside bin at the doorway. One pedestrian walked by, spotted the activity, and mused “Another day in paradise.” Only after three calls to the police did officers show up and talk the homelss man into stopping.

There are many uncomplicated factors that have created a political maelstrom of bad feelings and bad policy, accusations, and counter-claims. These factors include concerns about quality of life; a significant economic and jobs boom over the past decade; a large number of people moving into San Francisco (and the Bay Area in general); a shortage of existing housing thanks to historic underbuilding and continuing resistance to more housing; and even where building is allowed, there are extensive and expensive delays facilitated by a system that already serves the already-heres and not the wannabe-heres.

And if some older residents grouse that the young newcomers to the Bay Area aren’t as nice as they think themselves to be, they might be pleased to know that 46 percent of Millennials — people between the ages of 18 and 39 — are looking to leave. That’s according to a new survey by the Bay Area Council (BAC), which found that younger and new residents of the region have decidedly different attitudes than older, long-term residents about whether to build more housing here.

The BAC survey had some significant if unsurprising findings. Chief among them is that residents who are older and have lived in the Bay Area longer are less in favor of building new housing in their neighborhoods, while Millennials overwhelmingly support more housing. Seventy percent of Millennials support new housing in their neighborhoods; and at least 75 percent of people who have lived here for 10 or fewer years support new housing. But only 57 percent of residents aged 40 and older supported more housing in their neighborhoods; when broken down by length of residence here, only 55 percent of people who have lived here 20 years or more support more nearby housing.

Maybe here’s the reason for the disconnect: 84 percent of the respondents to the BAC survey who have lived here fewer than five years say they have not benefited from the huge increase in real estate prices; that drops to 59 percent among people who have lived here 20 years or more. People who have lived here longer and have owned their homes have naturally built up a lot of equity in their homes, and that sharp rise in value (and elevated expectations of a sales price) would be lower if there were an increase in housing to a degree that would affect supply and demand.

That puts it in selfish terms. Another, kinder part of the equation is that people who have lived here a long time have more invested in other ways in the community. They have built neighborhood gardens, started businesses, raised families, held fundraisers for neighborhood schools, and much more. Newcomers to any community tend to be less invested in those long-term processes, but if they don’t see a way to be there long term, they never will get invested in them.

One other result from the BAC study deserves mention. When asked about the most important problem facing the Bay Area today, housing and rental costs have ranked number one for the past three years of the survey, though the percentage of people selecting it rose in 2016 and fell in 2017. But “development/overpopulation” made it into the top 10 for each year, rising slightly in 2017.

That brings us back to the numbers of Millennials who are looking to leave the Bay Area. Though the Bay Area’s population is continuing to grow, it is doing so at a relatively slow rate of 0.7 percent, notes the San Francisco Business Times. People move out, others are still moving in, and of course the current residents continue to have children and most parents are fairly keen on having a home for their children.

But if the population pressures are lessening, that should mean that housing costs will become more reasonable. That would be true if there were a lot of available inventory, but if that were the case, then we wouldn’t have the sky-high prices that we already have. The inventory of homes and condos for sale continues to be very low, despite some increases in condos in San Francisco the past few years with new projects reaching completion and going to market.

Paragon Real Estate Group notes that “year over year, the supply of house listings for sale declined in Q1 2017, while sales increased.” Therefore it is still a seller’s market, which will continue to make it difficult for newcomers to get a toehold here.

If you’re looking for a way to turn San Francisco’s frown upside down, don’t look to its real estate.

STATE OF DENIAL

Late last year, a member of the Board of Supervisors bragged to the Marina Times that the board “just got rid of conditional use authorization for 100 percent affordable housing projects.” That was actually a compromise; the board could not agree on changing the rules for market-rate housing, so benefits for 100 percent affordable housing projects was passed, and it was left until some point in 2017 to address how to incentivize developers of market-rate housing to get them to increase the number of affordable units in their projects.

But even 100 percent affordable developments are not immune from neighborhood resistance. In October, CurbedSF’s Adam Brinklow reported on a fully affordable development in the Mission District that was designed to help seniors and has two nonprofit developers. “The only way a new building could possibly score more PR points is by giving away free ice cream and kittens,” he wrote. Yet the nine-story building on Shotwell Street was the target of complaints that it was too tall. A shorter market-rate housing development nearby was also the target of neighbor opposition, which could be troublesome for supervisors who are arguing for giving market-rate developers incentives in the form of increased height limits in return for producing additional affordable units in their new buildings.

In a densely populated city with a desperate need for housing for low-income and middle-income residents, it is probably impossible not to upset some number of people with any development, no matter how necessary it is.

The mix of high demand for housing and a shortage of available housing is not a San Francisco or even a Bay Area phenomenon. People looking to escape it all would have to move to another state. The California Association of Realtors (CAR) reported that sales across the state in March were strong, and prices were still nudging upward. “The economic and market fundamentals remain solid for the most part,” said CAR Senior Vice President and Chief Economist Leslie Appleton-Young. “However, higher interest rates, a dearth of housing inventory, and slow wage growth will continue to have an adverse effect on housing affordability that is putting upward pressure on home prices, and is sure to hamper the market throughout the year.”

So the pressures will continue, and nothing is likely to happen to solve the problem and get people to calm down in this city. The statewide stalemate between the NIMBY and pro-development crowds has pushed Governor Jerry Brown to twice now attempt to push through legislators to fast-track housing development throughout the state.

After California legislators killed his plan in August to streamline housing production by lifting local development roadblocks as long as the projects met certain requirements, such as affordable housing inclusion, the governor renewed his push. He had agreed over the summer to spend $400 million on low-income housing if the legislature supported his plan. In his 2017 budget proposal, which he released in January, Brown cut out that $400 million and said he remains open to working with lawmakers to deal with the housing shortage, as long as the plan has a heavy emphasis on reducing local regulatory barriers. Brown was very clear that the state was not going to pump more money into affordable housing production.

REALTY REALITY CHECK

Former San Francisco Chronicle columnist C.W. Nevius is fond of mocking the Chicken Littles by quoting the line “San Francisco was perfect the day I arrived, but it’s been downhill ever since.” Were things really much better in the past? Were the people really that much better or worse before “the day I arrived”?

When we look around at the city — any city, not just San Francisco — we find artists and free spirits and conformists and criminals and saints. One person’s oddball behavior is another person’s manifestation of untreated mental illness. One person’s exercise of personal freedom through public drug use is another person’s danger to children and public health. One person’s brusqueness is another person’s efficiency.

Cities aren’t families; they are collections of largely unconnected people and organizations that happen to be in the same place. Families entail a certain degree of control and judgment; cities are famously the place where each new generation can escape to and discover or reinvent themselves. San Franciscans will have to figure out if they want to change with their city, if they want to change their city, or if they want to plant their feet on the ground and try to ensure that nothing changes in their city. Either of the first two options is possible; the latter is a recipe for failure that will hurt other people in the process.

As George Burns said, “Happiness is having a large, loving, caring, close-knit family in another city.”

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