San Francisco’s Future Looks A Lot Like L.A.’s Status Quo

Last week, real estate database Zillow released a list of the 10 most valuable housing markets in the country — as expressed by the sum total of all home values (in tax terms) in the city — as well as a list of the cities that paid the highest accumulated dollar amount in rent in 2015. 

San Francisco came in third on both lists, worth a combined $1.2 trillion and shelling out $16.7 billion in rent. (Hope you were sitting down for those numbers.) We were “beat” in both categories by New York City (number one in rents, number two in home value) and the greater Los Angeles area (vice versa).

Double bronze medals is pretty insane when you consider we’re less than half the size and a fraction of the population of those other municipalities. There are very few remaining measures of housing costs by which anyone can hold a candle to us.

So, is this really the summit, or can we go higher still on next year’s list (God help us)? We asked some real estate honchos in those other cities what’s driving demand in their neck of the woods and whether our skyrocketing market looks like an unprecedented cataclysm or business as usual.

[jump] New York, though 10 times our population and nearly double our density, is actually in almost the same boat in housing terms. New York City mayor Bill de Blasio’s “Five Borough Plan” for taming housing costs reads like it could have been taken straight from San Francisco Supervisor Aaron Peskin’s mouth:

“Ever-increasing economic inequality […] has created a painful reality where more and more New Yorkers are spending more and more to cover their housing costs, and entire neighborhoods have lost their affordability,” de Blasio writes in the plan report.

The recipe for New York’s housing crisis sounds familiar, too: lots of demand but little development, with most of what is being built aimed at big money. Manhattan (one of the only municipal areas where it’s still slightly more expensive to put a roof over your head than San Francisco, to the tune of $165K according to Zillow’s sister site Trulia) is only 3×11 miles, even closer quarters than our good old 7×7 square.

“[New York is] a dense city, but we could stand to get a little denser,” says Michael Slattery, senior vice president of the Real Estate Board of New York. “For a long time we thought that because the population wasn’t going up that meant we didn’t need more housing, but now people aren’t moving to the ‘burbs like they used to. There were invisible drivers that caught us by surprise.”

De Blasio, whom the Washington Post calls one of the most liberal elected officials in America, has been going nuts calling for hundreds of thousands of units of new housing. Believe it or not, HUD reports indicate San Francisco is building less now than just two years ago. If even hyper-dense New York can find room to build its way out of a crisis, it stands to reason that San Francisco can too — but we might not want to.

Meanwhile, Southern California probably regards our recent real estate panic as a little naïve. The things that are pushing our housing costs higher — a perpetual growth industry and increased foreign investment — have been the L.A. region’s status quo for decades.

Despite its sprawl, we’ve got more in common with our southern neighbors than you might think.

“Vacancy rates are going down in both cities, unemployment is declining, and all the pressures of a regional economy are at work in both cities,” says HUD’s California regional director Eduardo Cabrera. They’re feeling the sting of Airbnb down south too, and they’ve also (paradoxically) seen development dip as demand increased in recent years.

Aaron Leider, president of the Greater Los Angeles Realtors Association, says he expects San Francisco’s market will just keep going up, which is part of the city putting on its big kid pants.

“For decades you had prices that were low because you had a lot of property that wasn’t being used. What you’re seeing now is just a market adjustment,” Leider says.

The suggestion that prices were ever really low in San Francisco would make some locals see red, but the point is worth considering: We’ve had a good thing for a long time, and it was inevitable that sooner or later more and more people would want in on it.

It’s possible that San Francisco’s future is much like L.A.’s status quo, what Leider calls an “enduring market” that “always comes back up” after a downturn. The only thing that was missing before was something as sexy, lucrative, and enduringly popular as Southern California’s entertainment industry. Now we’ve got it.

The idea of a future San Francisco that looks like LA, where investors and developers are constantly at work and expansion is fueled by an industry that never really declines, will chill the blood of many Bay Area natives. But the lessons to the south and the east a pretty clear: You can’t hide from it forever. Sooner or later, it finds you.

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