by John M. Lee
We in San Francisco have been in a housing crisis for a few years now. In fact, most
people surveyed recently say this is the top problem facing the City at this moment.
Looking back, we can see how this housing crisis developed, and we can attribute it to
several economic factors. There has been strong population growth in San Francisco.
With more people, more housing is needed. Because most of the land has been built on,
we cannot construct enough to satisfy the demand. What are currently being built are
mostly high-end condos in the South of Market area and at very high price points.
With inadequate supply and increasing demand, simple economic theory tells us prices
Other reasons are that employment is plentiful. We are hovering in the 2.6 percent
unemployment range, which by many economists’ standards is full employment. Because
people have jobs, employers have to compete by increasing wages, leading to more
income to pay for housing and other expenses.
The turnover rates of homes are low and tenants are not moving out of their
rent-controlled units, once again limiting supply and acting to push real estate and
rental prices higher.
What will bring this housing crisis to an end? A number of things need to happen and
some are happening already, especially since real estate goes through up and down
cycles like any other business cycle.
We must increase the supply of housing in San Francisco to absorb all of the people who
want to live here. We have wonderful, moderate weather, a wealth of culture, various
kinds of employment opportunities, restaurants that rank tops in the world, music and
arts, sites to explore, many recreational areas within driving distances, and a
very accepting and welcoming environment. This is a world-class city and it is not
surprising that people want to live here.
Our city leaders have embraced the idea of building more homes. Mayor Ed Lee made it
a goal of building 20,000 units by the end of his second term in office
and it looks like he will reach that goal. San Francisco Supervisor Katy Tang has
relentlessly worked on her HomeSF project to increase density along transit corridors
and provide more affordable housing and, much to her credit, the SF Board
of Supervisors approved the legislation.
Also in the works is a plan to build units to house teachers, with the first site being
in the Sunset District and coming online in a few years.
Some natural migration out of the City is also happening.
Unfortunately, many families with children move out of the
City to get better schools and a single-family home with a backyard
to fulfill their vision of the American Dream. This has led to our City having the lowest
children per capita in the United States.
The mortgage rate has been hovering at all time lows for the last few years and all signs
are pointing for it to increase. When that happens, buying power will decrease and real
estate prices will come down.
Lastly, the economy has been going up, with stock markets hitting all-time highs.
However, what goes up must come down. It is just a matter of time when that happens.
When will the housing crisis moderate? That is the real question.
Looking back 30 years at our real estate market, I can’t remember a time when I thought
real estate prices were cheap. Prices are always high. My parents complained that prices
were high when they purchased their home. You see, over time San
Francisco prices will always go up.
There was one study that showed if you purchased property in San Francisco, even if it
was at the peak of the market, and you held it for eight years or more, you cannot lose
In the last few months, we have been seeing a moderation in prices, mostly in the high
end, single-family home and condo markets. We have also seen rental prices drop. The
only area we are still seeing healthy appreciation is in the first-time homebuyer
locations. So, the pricing pressure might be slowly alleviating.
The only way we will know is when we look back at this time a few years from now.
But, remember that real estate occurs in cycles and we are close to an inflection point in
John Lee graduated from UCLA with an MBA and specializes in the Richmond and Sunset
districts. If you have questions about real estate, call (415) 447- 6231 or e-mail