Nice city. For those who can afford it.

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San Francisco Progressives Declare War on Affordable Housing

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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The U.S. is running out of places for people to live. Rent is a bigger and bigger part of our cost of living. Here is an index of rental prices divided by median household income:

The Rent Is Too Darn High
How average U.S. rent has changed relative to median income.
 
Source: Federal Reserve Bank of St. Louis

Lots of people have been wondering what to do about this problem. One proposed solution is to deregulate housing and encourage denser development. This is called the “market urbanism” approach, because it relies on deregulation -- though it would also certainly require big government investments in mass transit. Another term for this pro-density agenda is “Yimby,” an acronym standing for “yes, in my back yard.”

A related approach is land-value taxation, also called the “Henry George tax,” after the 19th century economist who came up with the idea. This is basically just the idea of giving property tax exemptions for urban buildings -- a straightforward way to encourage density.

But many people have been fighting these pro-density ideas. Some are probably afraid that more residents -- especially more poor residents -- will raise crime or lower property values. Others prize their open space and beautiful views, and fear the aesthetic effects of eliminating urban height restrictions. Still others believe that when new people move into city neighborhoods, it disrupts the traditional character and culture of these places. These anti-density approaches are often referred to as “Nimby,” for “not in my back yard.”

Nimbys often have another idea for how to lower rents -- kick industry out of their cities. Though this policy invariably ends up hurting the urban poor and working class, it is often painted as a “progressive” approach, especially in California. It also happens to be bad for regional and national productivity.

San Francisco provides a cautionary tale. In the last decade, the city has been flooded with technology workers, pushing rents into the stratosphere -- a one-bedroom apartment costs around $3,500 a month to rent. Rent control is in effect, but that has just increased the incentive for evictions. Despite efforts by anti-eviction activists, the sheer size and persistence of the economic incentives involved are impossible to resist for long.

Unlike progressives in New York City, who are often big supporters of density, San Francisco progressives have decided to focus on kicking the tech industry out of the city. Booting tech back to wherever it came from seems like a natural way of restoring the old equilibrium. Sadly, efforts to push tech employees out will fail, and will end up hurting the city's low-income residents even more.

For example, activists have proposed levying a 1.5 percent payroll tax on tech companies only. The initiative will probably not become law, but it clearly indicates that tech-bashing is the order of the day.

They’ve also tried to raise tech workers’ transportation costs. The city recently reduced the number of places where private tech company buses are allowed to stop, and is considering forcing all tech buses to stop only at a few “hub” locations.

But the most powerful weapon for bashing the tech industry is also the most destructive -- a general restriction on the supply of housing itself. Progressives on the city’s Board of Supervisors recently called for certain height limit restrictions to be lifted only for developments that include 100 percent below-market-rate housing (the current policy sets the number at 30 percent). Obviously, developing housing at entirely below-market rates is impossible without heavy government subsidies, so this proposal would effectively stop all new construction in many areas of the city. The progressive supervisors also want San Francisco to be exempt from a possible new statewide policy to expedite regulatory approval for new housing development. This is essentially a scorched-earth policy -- raise rents enough to drive tech out of the city, then lower them again once the industry gives up.

The problem is that other cities in the Bay Area will simply respond in kind. If transportation hassle and high rents start pushing high-earning workers to the South Bay or to Oakland, those cities will likely restrict their own housing development. In fact, South Bay suburban towns have done this for a long time, which is one reason tech workers moved to San Francisco in the first place. Oakland shows some signs of following suit.

Because other cities can and will respond to San Francisco's tech-bashing initiatives, those workers and companies will simply pay the higher costs. But costs will also rise for the working class and poor of the entire Bay Area, especially from housing development restrictions. Those who can pay for the city’s misguided approach will grumblingly pay up, and those who can’t pay -- service industry workers, lower-income minorities, etc. -- will be driven out.

So Nimby solutions not truly progressive. The scorched-earth policies required to kick the industry out of town hurt lower-income residents. They also hold back national productivity, which depends on dense cities. If we’re going to create cities where everyone can live and work, we need density -- there’s just no way around it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
Tobin Harshaw at tharshaw@bloomberg.net