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the rent is too damn high
Backward Thinking in Silicon Valley

When it comes to technology, Silicon Valley is known for being forward-thinking. When it comes to housing policy, not so much.

The San Francisco Bay Area has faced skyrocketing housing costs over the last several years, fueled by the intersection of the tech boom and the region’s onerous land-use restrictions kept in place by politically powerful homeowner coalitions intent on blocking new development. Middle and working class residents are being squeezed hard, and anger is finally boiling over. But instead of directing their populist energies at the root of the problem—zoning restrictions that keep housing supply well below demand—affordable housing activists are pushing for rent control. The New York Times reports:

After years of punishing rent increases, activists across Silicon Valley and the San Francisco Bay Area are pushing a spate of rent control proposals, driven by outrage over soaring housing prices and fears that the growing income gap is turning middle-class families into an endangered species. Those campaigns, if successful, would lead to the largest expansion of tenant laws since the 1970s.

Rent control is always and everywhere a destructive policy. It exacerbates housing shortages, reduces housing quality, drives up costs even more steeply in non-controlled units, and favors wealthy property owners at the expense of upwardly mobile people trying to move in. What’s worse, as Tyler Cowen has pointed out, rent control policies will “limit the incentive for prospective builders to fight to overturn current building restrictions.” It will also naturally limit the incentive for current residents to vote to liberalize land use policies because their own housing costs will have moderated. (The people shut out of the region won’t be so lucky).

Building new units is always a challenge politically. There is always some interest group opposed to new housing in any given location. But rent control is popular, and easy to sell to residents who are more concerned with their own immediate costs than the health of the housing market more broadly. So instead of opening up its building codes to allow for more construction and bring down prices in a sustainable way, Silicon Valley looks poised to bury its existing units under regressive and unsustainable regulations. Surely the region that brought us Google and the iPhone can do better than that.

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  • qet

    A couple of months ago over at Newgeography.com, which is usually pretty sensible about these things, there was an article endorsing rent control for SF. I was pretty flabbergasted. Rent control is an idea from the 1960s and 70s whose time has come and gone and good riddance. I lived for 7 years in a rent control regime and I even represented tenants before the local rent control board. (Don’t get me wrong, rent control benefitted me personally). Rent control is a tax borne by a relatively small number of property owners, many of whom are themselves persons of moderate means (my landlord/building owner was a plumber). It is a classic “regulatory taking” that not even the Scalia Court had the decency to prohibit, hewing to the “physical occupation” requirement. However, its most objectionable feature, to me anyway, is the micro-managing bureaucratic apparatus and regulatory fishnet that must (and does) spring up to manage rent control.

  • johngbarker

    Bay area foolishness is giving jobs and people to surrounding states. Let the good times roll.

    • CaliforniaStark

      There are some jobs going to neighboring states, but the Bay Area is still booming, as a recent New Geography article indicated:

      http://www.newgeography.com/content/005283-the-cruel-information-economy-the-us-cities-winning-in-this-critical-sector

      What happening in the Silicon Valley is a prime example of the effect of supply-and-demand. There is a major increase in high paying jobs, and a corresponding increase in the price of housing. Rent control is a nutty and failed way to address this issue, as the article states — and as the experience of San Francisco has proven. But changing land-use regulations to encourage more housing will likely fail also in reducing housing costs (although it still would be good policy).

      Vancouver is an example of a city which has been built to a high density, but still has very high housing prices. Desirable places to live, with high-paying jobs, are going to have high housing costs no matter what policies are enacted. Adam Smith made some very good points way back when.

      • johngbarker

        I acknowledge that we flyover people would be hampered without the energy and creativity of California and you are correct about supply and demand in housing. Something for everyone in this scenario.

        • CaliforniaStark

          Yes, but some of them are total loons.

  • Nevis07

    Simple solution, SF should adjust zoning laws to increase building heights and extra floor. Imagine all of those townhouses with an extra floor. Easy way to increase available bedrooms by 25%, no big visible change to the skyline and the iconic houses remain iconic, construction boom helps the local economy. Not a perfect solution, but a common sense one.

    • Jim__L

      Better solution — move more jobs out of Silicon Valley.

  • Blackbeard

    Is it just my imagination or is economic illiteracy getting worse and worse in this country?

  • AllanDale

    As they say on Wall Street, If something can’t continue, it won’t! It is the policy of the US federal government since the 19th century to populate the coastal desert state of California with military installations and defense contractors in order to protect the nation’s western flank: How else are the residents going to make a living? California agribusiness floods national markets with cheap, lousy produce grown in a desert with imported water and industrial chemicals and harvested with imported migrant labor, putting naturally sustainable farmers in the Midwest out of business. The federal government is happy to increase housing allowances for the military stationed there in response to rent increases from landlords because of the strategic necessity of keeping the place occupied: The government merely increases taxes on more productive states to feed the military monkey on the back of the Golden State (so-called because of the color the landscape turns annually). The political trio of Feinstein, Boxer and Pelosi never met a defense-appropriations bill they didn’t like: QED!

    • Jim__L

      I’m not sure where you’ve been if you think CA’s produce isn’t all that good. The soil of the Central Valley is the best in the world, when irrigated — hardly a Sahara. Los Angeles is taking water, yes… from northern California, water that would otherwise go to irrigate the Central Valley.

      Also, aerospace — especially in Silicon Valley! — is crashing in CA, as a result of Feinstein, Boxer, and Pelosi’s opinion of defense-appropriations. It’s moving to Denver, for the most part. LA aerospace crashed decades ago.

      Are you thinking of San Diego or something?

      • AllanDale

        You have obviously never witnessed Diane Feinstein delivering one of her fawning speeches at one of San Francisco’s annual Fleet Week celebrations, praising the military’s contribution to the city and state, followed by Air Force jets flying over the city with sonic booms and dive-bombing the citizenry while sending all animals running for cover!

        • Jim__L

          Well, Feinstein once complained about the Blue Angels doing trench runs below rooftop-level on Market street, and in return they gave her a ride in the jets, which changed her mind a bit.

          However, it wasn’t enough to save aerospace in Silicon Valley. Onizuka’s gone, LM is shifting operations to Colorado, and Ames / Moffet is seriously underutilized. Aerospace in LA’s been on the ropes since the ’90s, which is a major contribution to the city’s economic troubles.

          Aerospace has been a boon to California for a century — as long as people have been flying. A day, or even a week, of “all animals running for cover” is well worth the price, especially when the “price” involves tens or hundreds of thousands of really good jobs.

          • AllanDale

            Every dog has its day! California’s is over! But maybe the Folsom Street Fair will save the economy. SF is a military town and that means anything goes because warriors who are willing to kill and be killed for the state can engage in whatever behaviors they want before they are sent on the next mission.

          • Jim__L

            Calling SF a “military town” is so far out of touch with reality, I’m not sure where to go with this.

            In the interests of clarity, I’d like to point out that SF is considered the Party Town of Silicon Valley — the place where you go to spend (typically on rent and restaurants) what your latest app / tech / etc brings in. Picture the mall of one of the more upscale Las Vegas casinos, where you’re expected to blow your winnings.

            Military has little or nothing to do with it.

    • CaliforniaStark

      In response to this nonsense, it should be pointed out that California produces 99% of the U.S. almonds, walnuts and pistachios; 95% of its broccoli; 92% of its strawberries; 91% of its grapes; 90% of its tomatoes; and 74% of its lettuce. These are not crops that grow well in Wisconsin or Nebraska by those “sustainable farmers of the Midwest.”

      Plus 20% of the nation’s dairy is from California; and about 2/3 of the nations vegetables in the winter come from the Imperial Valley. By the way, while California produces about 13% of the nation’s total cash receipts from agriculture, it only receives about 4% of direct government payouts to agriculture. We are also proud of our military bases in California; they play a substantial role in protecting the nation; however it is not a driving factor in the state’s economy. Despite California’s craziness, or maybe because of it, the state is booming. This is happening despite California’s high tax rates and over-regulation.

      • AllanDale

        The state of Texas (for example) exports three times the value of goods and services onto world markets as does the state of California. You might wonder how California can boast such a large GDP without exporting anything? That’s because its GDP is tied up in defense-contracting and military installations. Silicon Valley is a self-serving myth. The major technological innovation of the postwar era was the invention of the integrated circuit by Texas Instruments in 1958 (a decade before Intel Corp existed). Asian companies exploited that development to dominate world trade in electronic components and today Samsung is the largest industrial combine on the planet manufacturing everything from paper clips to super-tankers.

        • Jim__L

          Defense *was* big in Silicon Valley, the birthplace of the transistor. Now it’s pretty much gone, replaced by Google, Apple, eBay, and the like.

      • qet

        California is so large and has so many distinct regional economies and cultures that to speak of “California” as a single integrated whole is absurd. For purposes of national politics and political rhetoric, “California” refers solely to coastal California, specifically the three large metro areas of SF, LA and SD. Those places have little in common with the Inland Empire (which is very depressed) or the Central Valley.

        National politics right now is preoccupied with “inequality.” Piketty’s book centered on that and there have been analyses demonstrating that housing costs are the single biggest factor in the measured inequality. That is what the rent control proposal is all about and that is the biggest economic issue in the SF area.

        Coastal California, especially (IMO) the Bay Area, is still a beautiful place and a great many people desire to live there despite the economic stress. California can get away with economic policies that would kill off any other place. That is no argument for those policies.

      • Jim__L

        Silicon Valley is booming, and that’s about it. The rest of this post is bang-on.

  • LarryD

    And what gives anyone cause to suppose these ‘activists’ give a tinker’s dam about the middle class?

  • mgoodfel

    I think rent control is idiotic, but I also don’t think every city has to grow without bounds. Let another Silicon Valley with reasonable housing prices, less congestion and a better quality of life get started somewhere else.

    It will be interesting to see if VR/AR allows people to really telecommute, since you’ll have that feeling of working in the office with other people (Augmented Reality is better for this.) If that happens, many, many techies would gladly leave the valley.

  • Michael Shorts

    What is the inevitable result of decades of not building housing?

    New construction is not cheap housing. It’s the housing stock that was not built 30 years ago where the missing affordable apartments went.

  • FriendlyGoat

    When you have too many people in a place who can afford high purchase prices and high rental rates—–and who want to be there anyway, no matter what—–then you will have high prices and high rents. Not only that, you may have them also engaging in zoning protectionism.
    It’s hard to fix at the local level what insufficient taxation of wealth at the federal level causes.

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