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eek

The San Francisco Rental Market And Why We Are Doomed

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This has just popped up on my rss feed and shows what happens when you don't expand housing stock quickly enough. It also confirms that housing is the devil that will suck every penny out of the economy unless you manage it properly (with more houses) and why controls don't work.

https://medium.com/newco/a-guy-just-transcribed-30-years-of-for-rent-ads-heres-what-it-taught-us-about-sf-housing-prices-bd61fd0e4ef9#.igonhddpl

and the original article

https://experimental-geography.blogspot.co.uk/2016/05/employment-construction-and-cost-of-san.html

Have fun....

Edited by eek

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Interesting I see the theoretical link to the UK but what happened to SF prices during the USA national housing crash of 2006/7?

It stayed high. Probably comparable to London

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This has just popped up on my rss feed and shows what happens when you don't expand housing stock quickly enough. It also confirms that housing is the devil that will suck every penny out of the economy unless you manage it properly (with more houses) and why controls don't work.

https://medium.com/newco/a-guy-just-transcribed-30-years-of-for-rent-ads-heres-what-it-taught-us-about-sf-housing-prices-bd61fd0e4ef9#.igonhddpl

and the original article

https://experimental-geography.blogspot.co.uk/2016/05/employment-construction-and-cost-of-san.html

Have fun....

Interesting.

Means you can close the file on the idea that there is a housing shortage in the UK, as there isn't a housing market in the country that's show rent inflation to match that.

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Means you can close the file on the idea that there is a housing shortage in the UK, as there isn't a housing market in the country that's show rent inflation to match that.

London would be the obvious parallel. I wonder how the annual growth figures here would compare to San Francisco (1.72% CPI adjusted income growth p.a. and 3.8% annual rent growth).

Gotta love the bleeding obvious conclusion btw:

"San Francisco is an expensive city because it is an affluent city with a growing population and no easily available land for development"

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Interesting.

Means you can close the file on the idea that there is a housing shortage in the UK, as there isn't a housing market in the country that's show rent inflation to match that.

I don't quite follow your line of reasoning here - can you elaborate?

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It stayed high. Probably comparable to London

No, prices in the San Francisco area tanked after the credit crunch, falling by almost 50%. I sold my house there in 2006, at the top of the market.

http://us.spindices.com/indices/real-estate/sp-case-shiller-ca-san-francisco-home-price-index

This article has its limitation. San Francisco, the city, is actually very small, with a population of only about 700,000. It's in the centre of a wider area with a population of about 4 or 5 million, but the research is limited to only San Francisco, itself, ignoring the fact that there's a lot of housebuilding going on in adjacent areas.

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Where do I lose you?

You seem to be saying that if UK rent inflation is topped by rent inflation elsewhere then it means there is no housing shortage here?

Forgive me if I have misread your point but it seems to me that there could be a housing shortage somewhere and an even bigger one somewhere else; both situations would suffer from a shortage problem.

What constitutes a 'shortage', or not, is very much open to interpretation.

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You seem to be saying that if UK rent inflation is topped by rent inflation elsewhere then it means there is no housing shortage here?

Forgive me if I have misread your point but it seems to me that there could be a housing shortage somewhere and an even bigger one somewhere else; both situations would suffer from a shortage problem.

What constitutes a 'shortage', or not, is very much open to interpretation.

Yeah - I think what I posted bears that interpretation, and that would be a pretty dumb thing to say...

My take on it was that throughout the boom in the UK you had strong wage inflation, no reason to suppose that swathes of the shires were depopulated or being denuded of jobs and yet rents did not take off. They followed wage inflation.

My take on the analysis offered in the article was that the author offered three factors which drive rents; earnings, number of people employed, and number of homes available. If in the UK rents followed earnings, then the other two factors can be inferred to be absent, and my take would be that the other two factors express the mismatch between the number of employed people seeking homes and the number of homes.

I'd stand behind that suggestion for everywhere in the UK outside London, but having thought about it, I could be talked into admitting that I was wrong about London and thus wrong to claim blithely that the behaviour of rents gives superficial evidence for all geographical markets in the UK. Even with London I can think of some ways to wriggle off the hook, but there's enough evidence knocking around to suggest that London rents are tracking away from London earnings a little, and therefore the blanket assertion regarding all markets doesn't hold up.

Looking at it through your eyes I can see with the benefit of hindsight why somebody might be minded to call my post a shit post, (and I might not be inclined to argue with them).

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Thanks for clarifying. I do think the article linked bears some serious thought, since the data presented is pretty compelling. It also makes sense at one one level, to me at least.

I would think that a population which is growing quickly (the UK population doubled in the 20th century) and which is also quickly increasing the labour force participation rate (women, mainly) is doing double duty on the wages per square mile side. Of course family sizes under a roof have trended down at the same time. So that is one aspect.

I also believe that the nature of how we spend our money has also been changing over the same period. See the chart.
UK_percapita_line.png

While GDP, wages etc has been going up, our energy usage per capita has been flat. That is we have been earning more but what tangible stuff we actually have to pay for has stood still. By tangible stuff I mean anything that results in dissipation of energy as part of its production or use, including such things as entertainment, IT and education as well as transport and heating etc. Ultimately all non financial spending and consumption is basically spending on energy.

Given this simple fact, the extra surplus we have that has come about from increased energy efficiency has to be spent on intangible stuff, which necessarily means financial things like more expensive rents. If we were actually increasing energy usage per capita then that is where our surplus would go but its hard to see how burning more energy would make the average citizen better off. Where else can the left over money go, in a closed system?

If you put the basic population and labour force trends together with the energy usage bit I think it does have some utility in analysing our situation.

Bottom line is I am offering one more factor which drives and has driven rents (besides the familiar financial boondoggles which have for sure amplified the whole situation), which is this flat energy use vs growing real gdp phenomenon. And I don't think that a change in either would necessarily show up right away - there will be lags and non-linearities everywhere not least because of the nature of our financial systems.

However I'll be the first to admit that none of this helps much in understanding why the SF situation sticks so closely to that 6.5% trend line.

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San Francisco has the additional risk of a literal crash when the next big earthquake hits.

Not if your house survives. Even fewer properties higher rents. Winner winner chicken dinner.... although seriously a major earthquake is likely to be a major economic shock to the region.

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So rental costs increase at 2.5% per annum above inflation, almost exactly in line with gdp and wages. The other factors partially explain shprt term variations.

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