Tag Archives: housing

WHAT WILL LIFE BE LIKE IN THE BAY AREA AFTER COVID19?

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We all know that the driving force in the economy of the San Francisco bay area is the high-tech industry. The COVID19 epidemic has made big changes in the way that people in the high-tech industry live and work, and some of those changes will be permanent. Most high-tech workers in this area are now working at home, and many of them will never return to working at an office. Some San Francisco tech giants, including Twitter and Square, have told most of their employees that they can now work from home permanently.

HOUSING. The fact that high-tech company employees are now working at home explains why rents in some bay area cities are falling but not others. The average rent for a 1-bedroom apartment in San Francisco has fallen 9% since May, 2019. In Mountain View, average rent fell 16% and in Cupertino 14%. However, in Oakland, rents rose 5%, and rents in Berkeley are holding up too. In other words, rent is falling in cities where big tech companies are headquartered. Now that high tech employees are working from home, and many permanently, they can move to nearby cities where the rent is cheaper. The average 1-bedroom apartment in San Francisco currently rents for $3,400 a month. See: Rent Jungle. However, the average 1-bedroom apartment in Oakland is $2,500 a month. A person working at the Salesforce Tower may have been willing to pay $4,000 a month for an apartment nearby for the convenience of being able to walk to work, but what about now? For a recent college graduate in a high tax bracket and with student loans to pay off, being able to save over $1,000 a month on rent by moving to the east bay is a no-brainer. No one knows when this epidemic will be over, and when it is over and tech companies have reopened their offices, how many people who are now working at home will go back to commuting to the office 5 days a week just like before? Some tech people working at home may feel that they can now move far away from the bay area to places where rent is really cheap, places like Lubbock, Texas; where you can rent a modern 1-bedroom apartment that’s walking distance from Texas Tech for $500 a month. Of course, a lot of high-tech people currently working at home will still need to live near Silicon Valley when this is over so that they can attend meetings and conferences. Plus, there are a lot of people who work at home 4 days a week but who have to go to the office 1 day a week. I know people like that. Besides, how many people would really want to move from Palo Alto to Lubbock?

OFFICE SPACE. If working from home becomes the new normal for the high-tech industry, what will happen to companies that rent office buildings in Silicon Valley and downtown San Francisco? What will happen to companies like We Work? And what will happen to the businesses near high-tech company headquarters that depend on income from the people who work there – or used to work there – places like spiffy bars and restaurants in San Francisco’s financial district?

A FEW GOOD PROJECTS.

If you are looking for things to do because you are spending more time at home now because of the virus, here are some good projects.

1. Emergency water. During the 1906 San Francisco earthquake, all the water mains in the city burst. Some people in San Francisco didn’t have potable water for months. What would you do if that happened today? Everyone who lives in earthquake country should have an emergency supply of water. Gallon jugs of water are very cheap. You can also just clean out empty plastic milk and juice jugs and fill them with water. Store water jugs in a basement or bike shed or garage just in case they leak.

2. Dump expired food & meds. What’s in the back of your refrigerator? When was the last time you went through your refrigerator and kitchen cabinets and dumped expired food or food that has gone bad? There are a lot of foods that people never check the expiration dates on because they think they are edible forever, products like ketchup, mustard, hot sauce, etc., but that isn’t true. All food goes bad with time. You should also go through your medicine cabinet and replace expired meds.

3. Clean out your closets. When was the last time you went through your closets and got rid of the stuff that you have no possible use for? I am constantly amazed at the stuff that people store in their closets. I once had a tenant who called me over because the light bulb in his living room closet wasn’t working. I couldn’t get to the light fixture because the closet was full of used paper shopping bags. I told the tenant that I would return to fix the light after he removed the bags from the closet. When I returned, there were piles of shopping bags all over the living room. It turned out that the problem was just a burned-out light bulb. I know several other people like this, people who never throw out shopping bags, no matter how many they already have. Some people will not throw out empty boxes either. I know someone with a basement filled to the ceiling with empty boxes.

4. Start a Goodwill box. Start putting things that you have no use for in a giveaway box so that everything is in one place. Ask yourself if the things in this box are actually salable or just junk. People leave junk at thrift stores at night that should go in their garbage can instead. Thrift stores have no use for cracked dishes, broken appliances, or old mattresses. It is illegal in California for stores to sell used mattresses. On the other hand, thrift stores may actually want your old shopping bags.

HERE’S WHY STATEWIDE RENT CONTROL IN CALIFORNIA IS BAD NEWS FOR THE POOR.

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The California state legislature just passed statewide rent control. It goes into effect January 1, 2020. If you want to know what’s the problem with rent control, just take Econ. 101 at Cal. Whenever there is a shortage of a commodity, the price of that commodity will go up. (That’s in ‘Microeconomic Theory’,  the Econ. 101 textbook.) When the government fixes the price of a commodity, including rental housing, at a price that is below the market rate, it creates a shortage and make an existing shortage worse. (That’s also in ‘Microeconomic Theory.’) The truth is that it is hard to find a noted economist anywhere who supports rent control, even here in Berkeley.

Why is the rent in California so damn high? We have a huge rental housing shortage in California, and it is getting worse every year. In 1970, the population of California was 20 million. Today, it is 40 million. In 1945, the population of California was only 8 million. That means that for every 1 person who lived in California in 1945, there are now 5 people living here. Up until the 1960s, new apartment construction kept up with population growth, but then a gap started developing, and the resulting shortage has grown with time. This happened for a long list of reasons: the NIMBY movement ‘Not In My Back Yard’ started here. I know people who are perfectly willing to concede that we need to build a lot more housing, but they just don’t want that housing built near them. We also have high permit fees, restrictive zoning regulations, historic landmarking, environmental laws – including greenhouse gas emission restrictions, and lawsuits – lots and lots of lawsuits. And now we have to add to that list statewide rent control.

We need to build 200,000 new housing units in California every year just to keep up with population growth, but we are building less than 100,000 units a year, and this has been going on for over 20 years. Here in the Bay Area, the shortage is even worse. In San Mateo County, the heart of Silicon Valley, for every 4 jobs created over the past 10 years, 1 housing unit was built. It is this gap between supply and demand for housing in California that explains why house prices and rents are so high. We need to build a lot more rental housing in California, but who is going to build that housing and where will the money come from to build it? Rent control is not an incentive to build rental housing. It is a disincentive.

I have been expecting statewide rent control for a long time. It’s the reason why I never bought an apartment house. I prefer to rent houses and condos, which are exempt from rent control. I once owned a 3 unit property in Oakland, but I converted it to condos. Now that we have statewide rent control, I expect that a lot of apartment house owners across the state will convert buildings to condos and then sell them to owner-occupants, but that will just make the rental housing shortage even worse.


What happens to the poor? Statewide rent control in California is especially bad news for the poor. Whenever there is a shortage of a commodity that everybody wants, like housing, who gets it? Do the poor really get an equal shot at it with the rich? Suppose a landlord has an apartment for rent, and he receives 10 or 20 applications for it. Who is he going to rent to? How will he choose among the many people who want it? Will he rent this apartment to a wealthy applicant who can easily afford to pay the rent, or will he rent the apartment to a much poorer applicant, someone who can pay the rent, but only with difficulty? You know the answers to these questions. Whenever there is a shortage of something that everybody wants, it is the rich who get it first, and the poor who get it last, if they get any at all. Throughout the history of the world, this has never changed. You may not like that, but it’s the way things are.


Trump’s Trade War With China Is Making Things Worse. The California Building Industry Association estimates that President Trump’s tariffs on Chinese imports have increased the cost of building a new home in California by $30,000, a figure that they expect will rise. The National Association of Home Builders agrees, pointing out that over 500 types of products commonly used in housing construction are imported from China, including appliances, lighting, countertops, cabinets, tiles, nails, and laminates. The price of some lines of Chinese kitchen and bathroom cabinets has doubled since the trade war began. Needless to say, these costs are ultimately passed along to the people who live in newly constructed houses and apartments.

THE CALIFORNIA HOUSING CRISIS. All explained with just one statistic.

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We need to build 200,000 housing units in California every year to keep up with population, but we are only building 80,000, and this has been going on for 20 years. This one fact explains everything. It explains why rent is so high, why house prices are so high, why people are doubling up in apartments, why recent college graduates in California move back home with their parents, and why even high paid software engineers in Silicon Valley are living in RVs. All this is happening because we are building less than half the number of housing units that we need to keep up with population. Why is this happening?
 
NIMBYism. It’s all due to NIMBYism. California is where the NIMBY (Not In My Back Yard) movement began. While everyone in California knows that we need to build more housing, everybody wants that housing to be built someplace else, not near them. You can see the effect of this very clearly at BART stations. When our subway system was built 50 years ago, everyone assumed that high density housing would be built around BART stations, but for the most part, that never happened. The area immediately around most BART stations looks exactly like it did 50 years ago. Why? Because the people who live near BART stations want new housing to be built at somebody else’s BART station, not their BART station. Just stand in the middle of the parking lot at the North Berkeley BART station and look around. All the buildings you see are old, built before the subway was constructed. The same is true at the Ashby, Rockridge, Orinda, Lafayette, and most other stations in the BART system. Why? It isn’t because real estate developers wouldn’t like to build high-rise apartment houses and condos near BART stations in desirable neighborhoods. It is because the people who already live in those neighborhoods won’t let them. Unless this attitude changes, and I see no evidence that it is changing, California’s housing crisis will only get worse. It is sad. This is, after all, aside from the high cost of housing, the best place in the world to live.

NEW GRADUATE STUDENT HOUSING COMES TO MY NEIGHBORHOOD.

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The apartment house at 2711 Shattuck Avenue is nearing completion and will be ready for occupancy soon. The entire building has been rented to the university, which will sublease individual units to individual graduate students. The apartments are all 310 square feet, which is very small. These apartments were built in China and arrived at the Port of Oakland in standard 8′ x 40′ shipping containers. The apartments came fully furnished and ready to move in. Each studio apartment will rent for $2180 a month and are all single occupancy (one student per apartment). This apartment house has no amenities aside from a coin-operated laundry room on each floor. There is no lobby, no yard, and no elevator. That means that if you live on the 4th floor of this building and have 4 or 5 bags of groceries, you have to shlep them up 4 flights of stairs as best you can. There is only one parking space (that’s not one parking space per unit. It’s one parking space for the whole building.) Pre-fab apartments from China are popping up in San Francisco and more are planned for Berkeley. Try to imagine what it would be like to live in an apartment that is only 8 feet wide.

WHY IS RENT SO HIGH IN CALIFORNIA?

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The chart below explains it all. It tells the whole sad story. We need to build 180,000 new housing units in California every year to keep up with population growth, but we are only building 80,000, and this has been going on for 20 years. All of the housing problems we have in California, all of them, can be traced back to this one simple fact. Every year, our housing shortage gets worse, and this ever-worsening housing shortage explains why rents keep rising faster than inflation, why the vacancy rate is so low, why people are doubling up in apartments and houses, why people are paying a higher and higher percentage of their income on housing, why college graduates in California move back home with their parents after they graduate, and why thousands of people in the Bay Area are living in RVs, tents, cars, and trucks. Unless we build enough housing to keep up with population, all of these problems will just get worse.

California’s Population Explosion. In 1945, the population of California was 8 million. Today it is 40 million. That means that for every 1 person who was living in California at the end of World War 2, there are now 5 people living here. I live in a house that was built in 1902. In 1902, the population of California was 1.5 million. That means that for every 1 person who lived in California when my house was built, there are now 26 people living in this state. Like most people in the Bay Area, I am not happy about this tremendous population growth. I too wish that fewer people were moving to California, but they are coming here whether we like it or not. And its easy to see why they are coming. This truly is the Golden State! Suppose you were living in a city in a Rust Belt state full of closed factories, where the unemployment rate was 20% and the minimum wage was still $7.25 an hour. Wouldn’t you want to pack your bags and move to California? The unemployment rate in California is 4%, and the minimum wage in California will soon be $15.00 an hour.

America’s Black Hole. My sister Judy once called California ‘America’s Black Hole.’ I never forgot that because it’s true. What she meant was that moving to California is like entering a Black Hole. Nothing that enters a Black Hole comes back out. Once people move to California, they never go back to where they came from.

Adios Baltimore! I grew up in Baltimore, a Rust Belt city. The population of Baltimore peaked in 1950 and has been declining ever since. The heavy industries that once supported Baltimore’s prosperous working class are gone. Baltimore’s shipyards that once employed 50,000 people are gone. The Glen L. Martin aircraft factory that once employed another 50,000 people is also long-gone. The Bethlehem steel mill that once produced 10,000 tons of steel a day is gone. As the jobs dried up, so did Baltimore’s population. Thousands of row houses in Baltimore with their famous white marble stoops are just rotting away. All of Baltimore’s once-fashionable downtown department stores are now abandoned. There are dozens of cities just like Baltimore all over this country, once bustling industrial centers that have been in decline for generations. Without the jobs, what is to keep people in Baltimore? Baltimore is hot and muggy in summer and can be bitterly cold in winter. There are no interesting geographical features in Baltimore like mountains or waterfalls or palm tree lined beaches. We can’t stop people from leaving places like Baltimore and moving to California, and it is a fantasy to imagine that people won’t come here from places like Baltimore if we just don’t build housing for them.

Not In My Back Yard. We need more housing, a lot more housing in California, housing that ordinary working people can afford, but we’re not building it. Most of the city councils around the Bay Area are dominated by NIMBYs. (Not In My Back Yard). These politicians and the voters who elected them support laws that discourage new housing from being built, like downzoning, height limits, and and inclusionary housing laws. They also support laws that encourage landlords to remove existing rental units from the market, like rent and eviction control laws. Rent control gives owners of rental properties, particularly small rental properties, a financial incentive to get rid of their tenants and sell their properties to owner-occupants or to use their rentals for other purposes, like turning apartments into AirBNB rentals or offices. We need to accept this one fact – a lot of people are coming to California whether we like it or not. We are only hurting ourselves by discouraging developers from building new housing and by encouraging landlords to go out of business.

Where Will The Middle Class Live?

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Parker Berkeley is the newest apartment house in town. This place is huge! Parker Berkeley covers a whole block plus part of the block across the street. It is not on a spiffy section of Shattuck Avenue, and it is a long way from campus, but it is walking distance to the Ashby BART station. My guess is that the owners of this building are planning to rent to commuters who work in San Francisco. The rental office is now open and here are the rents:

Studio $2,900.
One bedroom $3,400
Two bedroom $4,500
Three bedroom $6,300
Parking is extra, plus the rent is higher if you have a cat or a dog.

If these rents seem high to you, remember that rents for similar apartments in downtown San Francisco are much higher than this. Like all new apartment houses in Berkeley and San Francisco, Parker Berkeley has inclusionary apartments for the poor, but all the other apartments are rented at market rate. So here is my question. If all the new apartment houses in town only have apartments in them for the rich and the poor, then where will the middle class live? I have been asking that question for 30 years. Consider a schoolteacher who makes $70,000 a year. This teacher doesn’t make enough money to rent a market rate apartment at Parker Berkeley but makes far too much money to qualify for an inclusionary apartment. So where will this schoolteacher live? Certainly not at Parker Berkeley or  any of the new apartment houses going up in Berkeley or San Francisco. America has long been a middle class society, but we are building no housing here for the middle class. None at all. Zero. Zip. What kind of society are we going to live in if we only build housing for the rich and the poor? I never, never hear local politicians talking about this issue, the complete lack of new housing for the working middle class. It never comes up. I wonder why.

What Is Low Income Housing?

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That depends on where you are. In Palo Alto, ‘low income’ means that you make under $250,000 a year, in which case you are entitled to a low income housing subsidy. That is in Palo Alto’s recently adopted City Housing Element. This isn’t as crazy as it sounds. In Palo Alto, a typical 3 bedroom, 2 bath house sells for round $3 million. If you make $250,000 a year, you would have to spend over 70% of your take-home pay to buy a $3 million house, making it ‘unaffordable’. What does it mean to be poor? Well, one way of thinking about poverty is this – someone is poor if he doesn’t make enough money to own his own home. What do you think? Should someone who makes $250,000 a year be entitled to a low income housing subsidy?