David R. Henderson  

San Francisco: America's Largest Gated Community

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Reinham Salam has an excellent article on Slate. I don't like the title, "Selfish, Selfish San Francisco." No, it's not the objection you might expect from an Ayn Rand admirer: my objection to Slate's use of the word "selfish." My objection is that Slate attributes any virtue or vice to a whole city. Indeed, the content of the article is so good and so clear that it itself refutes the title.

Salam makes the case, which no economist I know of would disagree with, that stringent land-use land-use regulations in San Francisco have substantially limited the growth of the housing stock. It's basic Econ 101 to get from a lower supply than otherwise to higher rents and housing prices than otherwise. Edward Glaeser of Harvard and Joseph Gyourko of Wharton wrote an excellent piece on this in Regulation, Fall 2002. It's "Zoning's Steep Price."

A great paragraph that puts the numbers in perspective:

Or consider San Francisco, one of the least-affordable major cities in the United States. San Francisco's population is about 825,000. If it had the same population density as my hometown, New York City, it would instead have a population of 1.2 million. Note that I'm referring to the population density of all five boroughs of New York City, including suburban Staten Island and the low-rise outer reaches of Brooklyn, Queens, and the Bronx. A San Francisco of 1.2 million would not be a Blade Runner-style dystopia in which mole people were forced to live cheek-by-jowl in blighted tenements. San Francisco at 1.2 million people would still be only half as dense as Paris, a city that is hardly a Dickensian nightmare.

The effect on lower and middle-income families:
In The Gated City, Ryan Avent observed that high housing costs in America's most productive cities had forced large numbers of middle- and low-income households to either accept long, costly commutes, which eat into the ability of families to work and save, or to move to low-cost, low-productivity regions. Over time, this greatly impairs the ability of working- and middle-class Americans to climb the economic ladder. Moreover, when you move large numbers of people from high-productivity, high-wage regions to low-productivity, low-wage regions, you lower the productivity of the entire country. In other words, the rich homeowners who are fighting development in San Francisco and throughout coastal California are actually making America poorer.

This is the point co-blogger Bryan Caplan makes in another context: his discussion of restrictions on immigration. Those restrictions keep people in lower-productivity jobs than otherwise, making those people, and the people who would have gained from trading with them and hiring them, i.e., Americans, poorer.

Also, how allowing more building in San Francisco would cut electricity use:

One of the many benefits of allowing for more housing in a city like San Francisco is that it would likely lead to sharp reductions in carbon emissions. San Francisco is among the greenest cities in the United States, thanks largely to its superb climate. The same goes for San Diego, San Jose, and Los Angeles. The economists Edward Glaeser and Matthew Kahn have estimated that a San Francisco household spends one-fourth as much on electricity as a comparable household in Houston, as coastal Californians have far less need for air conditioning. To be sure, California does face serious environmental challenges. For example, that California's water resources are stretched thin. But redirecting water resources from agricultural to residential uses would make an enormous difference, as would pricing water resources more intelligently. The environmental upside of supersizing San Francisco and other coastal California cities far outweighs the downside.

Now you might see why I don't like the article's title. San Francisco doesn't have only property owners: it also has renters. My daughter is one of them. She and her roommates are hurting from the high rents they pay due to restrictions on building houses and apartments. She, and tens of thousands other renters, are San Franciscans too.


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CATEGORIES: Regulation



COMMENTS (12 to date)
ThomasH writes:

I think his point is that SF is governed as if it were a gated community. That renters suffer from anti-development bias is a natural result. Existing owners of rental property at the expense of the owners of property that is not being build and renters whose rents would be lower with more development.

This is a topic, like many, on which Liberals and Libertarians can make common cause.

David R. Henderson writes:

@ThomasH,
I think his point is that SF is governed as if it were a gated community.
Yes, I know that’s his point, which is why I highlighted the article.

Tom DeMeo writes:

You could also make an alternative case that places like San Francisco, Seattle and Boston take up a tiny fraction of the country, but generate an insanely disproportionate amount of the country's innovation and technological achievement. Maybe we should be careful about tinkering with them.

David R. Henderson writes:

@Tom DeMeo,
You could also make an alternative case that places like San Francisco, Seattle and Boston take up a tiny fraction of the country, but generate an insanely disproportionate amount of the country's innovation and technological achievement.
True. But it’s not an alternative argument. Allowing more people into these places by allowing more housing is highly unlikely to result in less innovation.

Dan W. writes:

The residents of San Francisco demonstrate through their choices that they soundly reject the "open borders" argument. At least they reject it for their community. Good liberal progressives and all the save the world vibe means nothing when the backyard is your backyard. But are we surprised? People act according to their self-interest. Someone ought to write an economics book about this.

LD Bottorff writes:

But you must remember that San Francisco makes up for the misery it imposes in long commutes and higher rents by mandating a minimum wage of $10.74.

Tom DeMeo writes:

"Allowing more people into these places by allowing more housing is highly unlikely to result in less innovation."

I'm not sure either, but what you are advocating will change the city quite dramatically.

How many affordable cities can be described as innovation hubs? Are you so sure there is no causality?

Brendan writes:

I see your point in stead of spurring demand(in the form of low interest rates) thus rising home prices due to stagnant supply. Mu alternative would be to not to intervene in the market, let zoneing laws be loosened to have a some sort of housing increase but not to much so this way we don't get too cheap houses at the expense of property owners by devaluing theirs.

So the lesson is not to intervene.

David R. Henderson writes:

@Dan W.
The residents of San Francisco demonstrate through their choices that they soundly reject the "open borders" argument.
Which choices are you referring to? And, even assuming you’re right, what follows from that that is relevant to Salam’s and my argument?

Dan W. writes:

David,

You brought attention to this question with your reference to Caplan. The article on SF illustrates that immigration law is just one impediment and a minor one at that to realizing a successful immigration policy. Without an abundance of open land there remains a real question of where and how poor immigrants will live. The collision of political ideologies is causing a socioeconomic train wreck. The objective of many affluent Americans is to make sure the train does not wreck anywhere near them.

SF residents choose to support zoning and building regulations that minimize the population density of the city. The resulting high prices and high rent for housing makes it so only the most productive members of society can afford to live in the city. All the while the good people of San Francisco support state & federal politicians who are liberal on immigration policy. They do so with confidence that economics will effectively regulate who lives in their city and who must commute to it.

Of course this paradigm is not unique to SF. The great majority of Americans welcome open immigration assuming they can get the better half of it. But there is the other half. Where do they live and how do they support themselves? Are the good folks of SF wrong (morally or politically) to not want to worry themselves with THAT problem?

JKB writes:

I'm not sure I see your point. San Francisco as a community has imposed zoning and building restrictions to limit the stock of housing. Those policies were implemented by representatives elected by a plurality of voters in San Francisco. That those voters include your daughter, who might prefer more building, doesn't alter the selfishness of the whole. Nor can the selfishness assumption be arbitrarily attributed to landowners. There may be some landowners who would prefer more densification for whatever reason. Just as there may be renters who oppose the densification out of fear of how it may change the character of the city, even as it might lower their rents.

Like all stereotypes often the application of the opinion to the group isn't erroneous, but to apply that stereotype to an individual member without further evidence is a grave mistake.

Ghost of Christmas Past writes:

Prof. Henderson, you write "It's basic Econ 101 to get from a lower supply [of housing] than otherwise to higher rents and housing prices than otherwise."

But then you quote Bryan Caplan (the same Bryan Caplan who is pleased to assert (over and over, not just at this link) that immigration increases housing prices, as if that were a good thing) writing on this very weblog for the roughly opposite proposition, that "restrictions on immigration [...] keep people in lower-productivity jobs than otherwise". That is empirically false: immigration pushes citizen workers into unemployment (because citizens have a higher "subsistence wage" floor than immigrants, so when competed out of low-wage jobs they simply stop working).

Surely you agree that "Econ 101" says that a lower supply of labor leads to higher wages than otherwise! That's good for most citizens, especially those who want to live in San Francisco.

As for "making [...] the people who would have gained from trading with [immigrants] and hiring them, i.e., Americans, poorer", it is an indisputable fact that low-skilled immigration makes most Americans "poorer" because low-skilled immigrants do not produce (much less "earn") enough even to pay for their medical care in America, and they consume much more in "social" spending (when their drop-out-of-high-school-to-join-a-violent-street-gang offspring are considered) than they pay in taxes.

The easiest way to understand San Francisco's extremely exclusive zoning and other anti-growth regulations is as a defense against low-skilled immigration!

I really feel for your daughter. Someday soon my child is going to want to live in San Francisco too, because it is so nice there, but the high rents will be daunting. The best way to help your daughter and my child is to send all of California's illegal immigrants* home. Then the voters of San Francisco will have less to fear from the invading hordes, and citizens will command a bigger share of industrial surplus as wages because they won't have to compete with such a large reserve army of the unemployed (look at "U6").

(*Are you cognizant of the main goal of California giving driver licenses to illegal aliens? It is so that employers can replace citizen truck, delivery, bus, cab, etc. drivers with illegal aliens, thus disemploying hundreds of thousands of citizens. Up until now employers' insurers have prevented them from hiring illegal aliens for jobs which require driving on public roads because crash liability would be nearly automatic for any business using an unlicensed driver. California roads are about to get a lot more dangerous because illegal aliens are notorious for cheating on licensing tests (they have greater incentives because they're usually less competent-- see the link above-- and lower disincentives because if threatened with punishment they can readily flee the country).)

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