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How Regulations Are Deepening the Bay Area Housing Crisis

Screen Shot 2016 05 04 at 5.34.32 PM
Screen Shot 2016 05 04 at 5.34.32 PM

A steep climb in housing prices is reaching crisis-status in the Bay Area. Now, even fingers in Oakland are pointing across the bay to San Francisco’s tech sector as the factor behind soaring housing prices and resident displacement.

However, while the tech boom is certainly drawing new workers, closer analysis suggests that the drastic increase in housing prices may be as much a result of strict housing and zoning laws as the influx of new residents.

Perhaps it’s time for policymakers and economists in the Bay Area to reconsider the issue and realize that the problem could be solved by breaking out their old Urban Economics 101 binders.

Labor costs, housing costs and gentrification

As San Francisco continues to be a massive hub of startups and economic activity, it continues to draw more people, entrepreneurs and businesses. Also important to note: San Francisco proper isn’t a very big area. As these people and enterprises come into San Francisco, they need places to live and conduct business.

Seeing as San Francisco is beginning to fill up, people are electing to commute from nearby areas, like Oakland, rather than live in San Fran itself; a situation common to many urban areas across the country.

This has made life difficult for both transplants and long-time local residents. New workers arriving to the Bay Area have an exceptionally hard time finding affordable housing, hence their willingness to explore commuter options. Established residents, meanwhile, are often forced out of their housing because their wages do not adjust quickly enough to keep up with the rapid influx of workers.

Known as gentrification, this process is playing out nationally in cities where the sudden arrival of a large number of new residents exceeds the housing market’s ability to adjust. Gentrification is a major problem, one that destroys communities, but the reaction of local governments to use regulations to fix the problem has often made things worse, not better. Just look at Oakland.

When solutions make the problem worse

The economic intuition is fairly simple: more demand for an item creates a need for more supply of that item. In reality, the Bay Area is seeing more demand for housing, which should mean more supply in return. But this new demand is causing huge problems, in the form of skyrocketing rent prices, due to regulatory constrictions on housing supply.

In 2015, Mayor Libby Schaff of Oakland rallied housing experts, practitioners and advocates to combat the housing crisis by forming a Housing Implementation Cabinet. In their released plan Oakland at Home, they outline ways to protect existing homes and to promote the construction of new ones.

 

Among these recommendations are the replacement of parking minimums with maximums near heavy transit areas and the regulation of buildings by form, as opposed to capping the number of units, according to the cabinet. These do not seem sound solutions either and, instead we may be better able to take lessons from Proposition 13, a previous piece of legislation meant to ease the burden of housing costs.

Passed in 1978, Prop 13 was an amendment that designed to create property tax breaks across the board; residential, commercial, retail, etc. However, the legislation, leaky with loopholes, actually accomplished the exact opposite of its intent: a net increase in the overall taxes for California residents, who now shoulder a larger share of the public funding burden compared to large businesses and corporations than before Prop 13.

Our take

The housing crisis in Oakland is not entirely a problem of the tech boom in San Francisco; after all, more businesses and startups create more jobs and more commerce. The strict regulation of housing in the Bay Area is harming both transplants, who have to pay through the nose to find housing, and long-time residents, who suddenly face skyrocketing housing prices.

You might think that people in the local governments would be wary of enacting more regulations that restrict housing supply, but surprisingly, the opposite is true. Government officials are pushing for even more regulation and rules, supposedly to keep housing prices in check. Instead, the problem could be alleviated if officials allowed the supply of housing to adjust with the demand.

 

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Header image: Getty

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