Why is Bay Area Housing So Expensive?

When it comes to economics, pricing factors often play out in two axes: push and pull.

Expensive housing

The push elements in the runaway pricing of houses in the San Francisco Bay Area involves the legal lay of the land, so to speak.

Starting in the late 1960’s there was an anti-growth movement that came out of Marin County. This is the county immediately north of San Francisco. This anti-growth movement placed a big premium on wide open green spaces. In other words, public lands as well as private lands must be left undeveloped.

The idea behind such laws is that when you prevent development, you actually increase the value of the land because you can now see the land in its natural state.

On an aesthetic level as well as personal and philosophical level, this seems to make a lot of sense. Who doesn’t want to see Mother Nature in all her best? Who doesn’t want to wake up to great sunsets with no buildings blocking your view?

The problem is, this had a tremendous unintended economic effect in the greater San Francisco Bay Area. As more and more local towns and small cities adopted similar rules, the total amount of land inventory began to get narrower and narrower.

On top of that, getting permits for building new housing units in land where you can legally build houses went through the roof. You have to hire a lawyer, you have to wait a long time, you have to go through many different hoops, and by the end of the process, you still have to deal with local political pressure.

It may well turn out that you have gone through the right channels, filled out the right forms, did everything according to the rules, and spent a tremendous amount of money and waited years, only to be met with protests.

This happened quite a bit in the 70’s and that’s why developers are quite gun shy in building housing in the San Francisco Bay Area, particularly the North Bay. As a result, few housing units were built, and yet the economy grew because of the pull factor.

The pull factor, of course, is Silicon Valley. As companies like Apple Computers, Google, Facebook, PayPal and other big name tech companies relocated into the San Francisco Bay Area, this created an explosion of high paying jobs, but these people could not get any housing.

As a result, San Francisco Bay is a tremendously expensive housing market. Even if you live in a small shack, that small fifty by thirty foot space is going to set you back several thousand dollars every single month in rent.

These push and pull factors need to be addressed, otherwise, life is going to be tough for both renters and wannabe homeowners in that part of California. Sadly, without much political accommodation, whatever solutions arise are going to be temporary in nature. They are, to say, a buck short and a day late. They are band-aids put on shotgun wounds. Sooner or later, something will break and get knocked loose and people will find themselves where they started. A more comprehensive approach needs to be found.