Monday, July 27, 2015

Outlier by the Bay

As we have mentioned before, San Francisco is almost always a bad choice when trying to find cities to use as examples for economics, social science or urban planning. We are all an outlier on one axis or another, but San Francisco is a serial offender. Due to a number of extreme conditions and a long string of historical accidents, it is almost impossible to generalize any kind of conclusion drawn about the city.

But the very thing that makes San Francisco so unsuitable for analysis, also makes it incredibly attractive. There is a major subgenre of research and think tank fodder based on arguments and hypotheses that are only possible due to this and a handful of other equally extreme outliers. Of these, one of the most active and quite possibly the silliest involves housing prices and construction.

Check out what Gabriel Metcalf (president of the urban planning and policy think tank, SPUR) wrote in the Atlantic's CityLab:
But for cities like San Francisco that now have 35 years of growth behind them, the urban problems of today are utterly different from what they were a generation or two ago. Instead of disinvestment, blight and stagnation, we are dealing with the problems of rapid change and the stresses of growth: congestion and, most especially, high housing costs.

When more people want to live in a city, it drives up the cost of housing—unless a commensurate amount of places to live are added. By the early 1990s it was clear that San Francisco had a fateful choice to make: Reverse course on its development attitudes, or watch America’s rekindled desire for city life overwhelm the openness and diversity that had made the city so special.

When San Francisco should have been building at least 5,000 new housing units a year to deal with the growing demand to live here, it instead averaged only about 1,500 a year over the course of several decades. In a world where we have the ability to control the supply of housing locally, but people still have the freedom to move where they want, all of this has played out in predictable ways.
Metcalf goes on and on in this vein, but he spends virtually no time on what ought to be the lead paragraph.

San Francisco is a postage stamp.

The entire city has less land area than a seven-by-seven mile square. It's a great city. I love to visit. I have friends and family there. But it's a freaking POSTAGE STAMP! If you lose your keys, you can cover pretty much the whole thing just by having your friends link hands and walk slowly watching the ground.

The fact that this postage stamp is some of the world's most desirable real estate and it's just up the street from the epicenter of one of the world's major economic driver raises serious questions about the feasibility of building its way out of its problems..

Nor is Metcalf alone on this. Take a look at this graph from the Washington Post article,
How big cities that restrict new housing harm the economy from last year.

See what happens when you drop the Bay Area and other obvious outliers like Vegas and Honolulu. Then, just for fun, check out how much of the variability in both price and construction can be explained by density (gotta love Wikipedia).

For the record, I'm not taking a position on the relationship between housing costs and restrictions; I'm just saying that here, as with so many "data-driven" discussions, that rely heavily on the same handful of  outliers and which ignore essential data and alternative hypotheses that often provide a better fit, are not worth taking seriously.

1 comment:

  1. I live in Boston and I can walk from the waterfront to my house, across the entire downtown and through most of the desirable neighborhoods in an hour plus. Truth is much of the discussion about housing restrictions is driven by people who want a place to be affordable to them: I want to live in London, NYC, SF, Boston, etc. but not in a shoebox and not an hour and half away by transit. And they tend to misunderstand or misstate the economics of development, which are totally biased against building "affordable" housing without massive subsidy whether you can build as of right or not. By misunderstand, I mean they assume the "market" is an area of Manhattan or SF or Boston and that less or unfettered development would address housing needs, when the reality is the market is much larger than these smallish areas, that it includes the MSA or some other large measure and that development costs would never enable cheap housing in the smaller sections they focus on.