Why are rents in San Francisco so high? What makes them go up, and what (if anything), makes them go down? Is it the number of homes available? Is it rent control, for good or bad?
Not really. While these factors do have some effect, there’s just one factor that drives the prices of housing, according to a new analysis: Jobs, and how much people are paid. When the city’s wages go up, so does the cost of rent. When they drop, so do rental prices. It’s almost ridiculously simple.
Eric Fischer wondered just what causes San Francisco’s rentals to spike and drop, and whether today’s housing crisis is actually a crisis at all or just another data point on an existing trend. His research hit a roadblock, though, because data on rental prices before 1979, when the city introduced what was to become rent control, is scarce.
So Fischer decided to gather his own data. He hit San Francisco’s public libraries and copied out the prices shown in the for-rent ads in the San Francisco Chronicle, trawling through page scans and microfilm to gather 30 years of historical data, back to the 1940s. He then combined this data with that from the San Francisco Housing DataBook, which recorded, from 1979 to 2001, the median rent of a two-bedroom apartment advertised in the San Francisco Chronicle on one Sunday a year.
Fischer’s blog post details his methodology. When his own data overlapped with the official data, everything matched up, which meant he was happy that both sets were valid. He then took historical data on San Francisco wage data from the Bureau of Labor Statistics.
The result is this graph, which shows you pretty much everything you need to know about what drives housing prices in San Francisco:
He found that the single biggest factor in housing prices is the number of jobs in the city, and the money people make from them. The housing-price booms in the late ’70s and again in the 1990s almost exactly match the employment booms at the same times. And when you factor in housing inventory—that is, the number of places available to live in, the match is even better.
“When the economy booms, rents go up, and when it collapses, they go down,” writes Fischer. This pattern holds for other areas too, not just SF. Here’s the graph for Santa Clara County, over the same period:
So are we in a boom? Not really. As you can see, although costs today are way higher than they were back in the ’50s, they have risen rather steadily, at around 6.6% per year. Adjusted for the Consumer Price Index, this is just a 2.5% per year rise, although that’s still faster than wages are increasing. And this rise has stayed constant, year after year, through rent control and through San Francisco’s ever-stricter building regulations
Of course, there is one other factor affecting housing costs—the availability of housing. The reason it makes little difference in SF is because there really isn’t much new housing, ever. And Fischer has data for this too.
Take an other look at the last graph, showing the advertised monthly rent back to the 1940s. You can see the trend is actually dropping fast for the first few years. What, asked Fischer, happened to stop prices from dropping? “The most obvious explanation is that that was when San Francisco ran out of large tracts of vacant land,” he writes.
San Francisco’s post-earthquake housing was built in a series of booms. The biggest were the immediate post-earthquake rebuilding from 1906 through 1918, when essentially all of the densest areas of the city were built, and then the transportation-led boom from 1919 through 1934, when the Marina, the Outer Richmond, West Portal, the Parkside, and the Outer Mission were built. From 1935 to 1943, the Central Sunset and Parkmerced filled in. From 1944 to 1954, the Outer Sunset and Ocean View were built. And that was essentially the end of the easily developed greenfield housing.
So we’re back to wages and jobs. The problem is that, while housing inequality isn’t getting any worse (despite what we may think, the highest, 95th percentile rents are, and pretty much always have been, just 2.2 times the median rent), income equality is getting worse.