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Speaker 1: For home buyers in San Francisco. To afford a starter home,

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Speaker 1: you're gonna need to show out a hundred and ten

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Speaker 1: percent of your income. Yeah, Aki, Do you think you'll

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Speaker 1: ever be able to buy a home in San Francisco? Oh,

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Speaker 1: my gosh, definitely not. Hello and welcome back to Bloomberg Benchmark,

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Speaker 1: a podcast about the global economy. It's Thursday, March thirty one.

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Speaker 1: I'm Akio Bloomberg News, joining from my hometown of Tokyo.

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Speaker 1: Also joining from d C. Is Tori stillwell? Tori? It's

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Speaker 1: been a while. Hey, Hockey, how's it going good? It's

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Speaker 1: It's so good to be back on the show together.

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Speaker 1: I know I missed you. I know I missed you.

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Speaker 1: Did you want to know what my mom said about

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Speaker 1: you the other day? Yes? What did mama to say?

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Speaker 1: So a couple of days ago, she finished listening to

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Speaker 1: our recent episode on China's Take Demographic time Bomb, and

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Speaker 1: that was a show that you weren't on, and Dan

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Speaker 1: wasn't on either, and she put her your buds down

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Speaker 1: and she was like, you know, like I like listening

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Speaker 1: to you. Okay, like you're fine, but I really missed Tory.

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Speaker 1: One story coming back on the show. Your mom's being

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Speaker 1: way too nice. That like high pitched squeaky voice in

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Speaker 1: a while, or that really annoying laugh. I need it

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Speaker 1: back in my life. She loves you. It's it's just,

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Speaker 1: you know, it's great to hear your voice again. All

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Speaker 1: you too lucky? Well, you know, speaking of my family. Um,

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Speaker 1: they're a little sad right now because my time in

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Speaker 1: Tokyo is coming to a close. For listeners if they remember,

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Speaker 1: I'm in Tokyo right now because of a job swap. Um,

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Speaker 1: it's just the three month assignment in Tokyo and then

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Speaker 1: I go back to San Francisco. And when I was

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Speaker 1: living in San Francisco, I was living with these two

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Speaker 1: guys right by Alamos Square, Tori, do you know where

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Speaker 1: where Alamo Squares? I do not. I've been to San Francisco,

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Speaker 1: but I have no idea where that is. Hu. So

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Speaker 1: it's like the backdrop of Full House if you remember

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Speaker 1: that show with all the painted ladies, and that's right,

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Speaker 1: that's right. Yeah. So it's like a really beautiful, really

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Speaker 1: central part of the city. It was rank controlled. It

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Speaker 1: was the best deal ever. But I moved out of

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Speaker 1: my place when I left the city. Um to come

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Speaker 1: out here to Tokyo, and when I go back to

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Speaker 1: the bar area, my girlfriend and I need to find

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Speaker 1: a place together. When I get back to where you know,

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Speaker 1: what do you know about the housing market in San Francisco?

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Speaker 1: And then then it gives me the hives to think

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Speaker 1: about moving there. Well, that's the nightmare that I get

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Speaker 1: to go back to. UM. So that's today's topic. We're

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Speaker 1: going to be talking about the affordability crisis in the

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Speaker 1: housing market, and I guess we're going to focus on

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Speaker 1: San Francisco because I think it's a really good microcosm

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Speaker 1: of what's happening and a lot of cities across America,

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Speaker 1: even though San Francisco is probably like the the worst

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Speaker 1: case scenario. Yeah, especially out west. I think that that's

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Speaker 1: been a big point in recent years because we have

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Speaker 1: seen housing markets in places like Seattle, Portland's markets in

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Speaker 1: in California really starting to heat up, and and that

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Speaker 1: could have really bad implications for the housing market California.

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Speaker 1: Really truly, it is great though, I can see why

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Speaker 1: everyone wants to move here. Cali vibes well, Tori. Should

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Speaker 1: we run through some of these numbers to set the

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Speaker 1: stage for our listeners So the listing price for a

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Speaker 1: median starter home in San Francisco, and so by starter

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Speaker 1: home we mean the cheapest one third of homes out there,

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Speaker 1: is currently seven hundred and fourteen thousand dollars, which is

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Speaker 1: absolutely mind boggling. It's higher than any other city in America.

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Speaker 1: And for that you could buy forty homes in Detroit.

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Speaker 1: We just got the smp K Shiller Index of property

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Speaker 1: values on Tuesday, and San Francisco is once again in

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Speaker 1: the top three four home price gains. It was up

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Speaker 1: a little over ten percent, and that's almost double what

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Speaker 1: prices nationally are doing. Actually, Portland's came out number one here.

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Speaker 1: They hadn't end eleven point eight percent gain in the

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Speaker 1: year ended January, which is just crazy, you know. To

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Speaker 1: go back to that, truly a stat that you just

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Speaker 1: talked about. For home buyers in San Francisco, to afford

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Speaker 1: a starter home, you're gonna need to show out a

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Speaker 1: hundred and ten per cent of your income. So that's

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Speaker 1: every single cent you earn, which would leave you no

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Speaker 1: money for food or leisure or anything else. And then

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Speaker 1: you also have to scrape up ten percent from like

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Speaker 1: the ether. So I guess that alone really shows you

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Speaker 1: just completely out of reach homes are in San Francisco. Yeah,

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Speaker 1: he Do you think you'll ever be able to buy

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Speaker 1: a home in San Francisco? Oh, my gosh, definitely not so, Tori.

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Speaker 1: I think a lot of our listeners don't live in

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Speaker 1: San Francisco, so why should they care about the affordability

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Speaker 1: crisis here? I think that it's important because we were

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Speaker 1: learning a couple of things from this, right So, we

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Speaker 1: know that San Francisco has a really tight job market

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Speaker 1: with pretty good wage gains. Obviously tech is is centered there,

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Speaker 1: so we know what it looks like when we get

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Speaker 1: this improvement and employment and things start heating up a

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Speaker 1: little bit. Now. I don't think that that means that

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Speaker 1: cities all across America are going to see timber sent

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Speaker 1: growth in home prices, but we do start to see

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Speaker 1: what it looks like when an economy is getting better

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Speaker 1: and when employment is doing much better, and how that

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Speaker 1: can feed into housing, how it improves demand for housing.

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Speaker 1: So naturally prices are going to increase, and that's a

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Speaker 1: specially the case if inventories are tight, and that is

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Speaker 1: a problem that we're seeing across the country right now.

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Speaker 1: We have very low inventories for houses for anyone, whether

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Speaker 1: it's starter level, mid level, even top tier. It's easier

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Speaker 1: for people to buy those homes if they're even looking

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Speaker 1: at top tier homes. But the inventory levels are down

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Speaker 1: and that does push up prices, and that makes it

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Speaker 1: harder for people like you and Miaki who are young,

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Speaker 1: who are just starting out in their careers, etcetera. And

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Speaker 1: they want to save up money to buy a home.

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Speaker 1: It becomes a problem because a They've got to come

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Speaker 1: up with this down payment, and if you're thinking, is okay,

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Speaker 1: I want to come up with about I mean of

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Speaker 1: seven hundred thousand dollars, like, there's there's just no way

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Speaker 1: I'm going to be able to save that up. I

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Speaker 1: think it's a really important reminder of why we don't

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Speaker 1: want home price growth to get out of control and

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Speaker 1: what sort of factors play into that. And I think

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Speaker 1: a big one that we'll talk about a little bit

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Speaker 1: later is regulation and how zoning or can affect the

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Speaker 1: supply of homes that people can buy. So, Tori, one

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Speaker 1: of the things that kind of surprised me when I

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Speaker 1: moved back to tokyo Um from San Francisco was just

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Speaker 1: how affordable everything seemed in Tokyo, which is crazy, right

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Speaker 1: because you think of Tokyo as this like super expensive place.

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Speaker 1: But at this point, I feel like San Francisco might

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Speaker 1: be a more expensive place to live. And one of

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Speaker 1: our producers, Alec, found this really interesting index that came

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Speaker 1: out from an organization called Demographia, and they put San

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Speaker 1: Jose and San Francisco in the top ten of the

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Speaker 1: world's most unaffordable housing markets, which I found really interesting,

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Speaker 1: and Tokyo wasn't in that top ten. Well, we have

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Speaker 1: a great guest to help us make sense of all

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Speaker 1: of this. Ken Rosen, who chairs you see, Berkeley's Fisher

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Speaker 1: Center for Real Estate and Urban Economics, is on the line.

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Speaker 1: Ken is also the chairman of the market research firm

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Speaker 1: Rosen Consulting. Hi can Hi, good to talk to you.

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Speaker 1: Thanks so much for joining us today. Ken, I was

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Speaker 1: taking a look at your CV and and you've been

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Speaker 1: with UC Berkeley since nine seventy nine, Is that right? Yes,

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Speaker 1: that's correct. You've really seen the Bay Area go through

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Speaker 1: so many transformations, so many waves. So I guess like

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Speaker 1: my first question is when you think of how unaffordable

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Speaker 1: San Francisco housing is right now, is today unprecedented or

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Speaker 1: have we seen other times like this too? We have

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Speaker 1: seen other times like this. When I first arrived here

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Speaker 1: in nineteen seventy nine, it was very expensive relative to

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Speaker 1: other places in the country, and then we had a

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Speaker 1: period of time where it did not it got a

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Speaker 1: little bit more relatively more affordable. The least unaffordable period

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Speaker 1: was actually in two thousand seven, humber people would afford

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Speaker 1: to live in San Francisco itself, based on their income

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Speaker 1: was at a record record low. And of course we

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Speaker 1: did have then the big housing correction that followed, which

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Speaker 1: made it more affordable again. M hm. You know, the

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Speaker 1: question everyone is asking is what's going to happen over

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Speaker 1: the next year or two. You're you're very well known

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Speaker 1: across California for your forecasts. So will things calm down

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Speaker 1: or are are things gonna get worse in San Francisco.

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Speaker 1: So we have a problem in San Francisco, and the

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Speaker 1: problem is a good one. We've created in the Bay

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Speaker 1: areas five and seventy nine thousand jobs since the bottom

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Speaker 1: of the recession in two thousand two, and that's a

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Speaker 1: huge number of jobs, and especially in San Francisco and

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Speaker 1: Silicon Valley there's basically a lot more jobs being created

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Speaker 1: and housing being put online. So we've had increase in

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Speaker 1: rents in the last four years and between a thirty

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Speaker 1: and increase in house prices, and those have outpaced the

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Speaker 1: income growth because so many people have moved in and

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Speaker 1: we can't build enough fast enough. Why why is that?

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Speaker 1: Why Why aren't people just building more to accommodate this demand.

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Speaker 1: It's the area is one of the most difficult places

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Speaker 1: to build housing in the country. Part of it is

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Speaker 1: due to the geography itself, but part of it is

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Speaker 1: due to the regatory process that local communities are disincented

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Speaker 1: to add housing because of Top thirteen. They don't get

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Speaker 1: enough tax revenue to cover to all the expenses are

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Speaker 1: associated with it, so it's very difficult to get permits

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Speaker 1: and and fools to build in many cities. So even

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Speaker 1: though we're building quite a bit, it's not at all

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Speaker 1: going to keep pace and has not kept pace over

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Speaker 1: the last thirty years with population growth. So the house

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Speaker 1: prices here have gone up dramatically relative to the rest

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Speaker 1: of the country. And as of the rents ken right now,

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Speaker 1: I'm in I'm in Tokyo, but it's just for a

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Speaker 1: three month assignment and then I go back to San

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Speaker 1: Francisco and my girlfriend. Until pretty recently it was managing

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Speaker 1: a bar in the Mission, which for our listeners is

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Speaker 1: kind of like the hippiest area of San Francisco right now.

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Speaker 1: And the cooks and the servers she worked with definitely

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Speaker 1: couldn't afford to live in the city unless they were

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Speaker 1: in places that have been under rent control for many, many,

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Speaker 1: many years. And I think there's a lot of anger

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Speaker 1: around how unaffordable life is in the Bay Area as

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Speaker 1: a whole. And you know, there was a New York

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Speaker 1: Times article a couple of weeks ago about how people

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Speaker 1: in the city are, you know, almost rooting for a

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Speaker 1: downturn in the tech sector. So as an economist and

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Speaker 1: also as a Bay Area resident, I guess what would

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Speaker 1: you say to people like this, who who are you know,

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Speaker 1: just so angry and disappointed about being displaced? Well, I

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Speaker 1: would say that part of the reason this is happening

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Speaker 1: is that many individuals you've mentioned are the same people

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Speaker 1: who vote against new housing, vote for supervisors who don't

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Speaker 1: want new housing production. I think the best way to

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Speaker 1: stop this is to make it hard to build. Also,

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Speaker 1: they put in rent controls and rent stabilization, which again

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Speaker 1: prices aren't igh enough to get new production built. So

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Speaker 1: the very people who are complaining are the people who

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Speaker 1: really had the citizens who prevented the solution. But there

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Speaker 1: was initiative recently that didn't happen that tried to stop

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Speaker 1: building in the housing in the Mission area, thinking that

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Speaker 1: would help. That makes it worse. But displacement, unfortunately, is

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Speaker 1: part of the success of the economy, and it's unfortunate,

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Speaker 1: but it's a side effect and there's no way to

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Speaker 1: stop it through regulatory processes, and the Bay area is

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Speaker 1: going to lose a lot of people are gonna move

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Speaker 1: elsewhere where they can afford to live and with the

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Speaker 1: salaries they get lived nicely. It's really difficult. It's notline

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Speaker 1: for servers, but it's everyone from lawyers to teachers to

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Speaker 1: policeman environment it's not just waiters and waitresses. One of

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Speaker 1: the aspects of this debate that's so interesting is it

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Speaker 1: actually kind of damps productivity when you have of these

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Speaker 1: housing regulations that prevent new housing from being built. Like

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Speaker 1: you said, Ken people who are from Peoria, Illinois. I

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Speaker 1: think is the example we like to use on this show. Peoria,

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Speaker 1: Illinois want to move to San Francisco. They think they

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Speaker 1: found a job there that they'd be really good at

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Speaker 1: that matches their skill set very well. But because they

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Speaker 1: can't afford the housing there, they can't move there. It

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Speaker 1: doesn't make sense for them to do that. So it

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Speaker 1: actually makes our job market a little bit less efficient

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Speaker 1: than otherwise would be. And it ahead, yes, you're absolutely

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Speaker 1: right that the housing shortage has produced a labor shortage here,

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Speaker 1: no question about it, and that it makes the economy

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Speaker 1: much less efficient. But companies may respond by moving some

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Speaker 1: of their jobs elsewhere, to Austin, Texas, to Colorado Springs,

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Speaker 1: to Denver. So that's one of the things that is

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Speaker 1: going to happen, is that people will move. The companies

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Speaker 1: will also move, because if you can't basically make a

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Speaker 1: living here after paying your housing costs, you're going to

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Speaker 1: do that calculation and say I need to work elsewhere.

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Speaker 1: And the fastest growing places has been San franciscro and

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Speaker 1: Silicon Valley, but other places are growing rapidly or Austin, Texas, Charlotte,

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Speaker 1: North Carolina, Rawleigh, Durham, Portland's so there are lots of

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Speaker 1: the great places to live where there are great jobs,

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Speaker 1: and some of those jobs are coming from the Bay Area,

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Speaker 1: you know, across the country right now. I think Tory

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Speaker 1: and I were going through some numbers earlier about how

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Speaker 1: the inventory of affordable housing has just plunged in a

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Speaker 1: lot of attractive cities, especially in the West, and and

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Speaker 1: so a lot of our favorite cities are becoming unaffordable.

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Speaker 1: Does that worry you? I think the fact that housing

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Speaker 1: costs a kind of faster than incomes is what you're

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Speaker 1: talking about, and that is a problem in many places,

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Speaker 1: especially as wages have stagnated, just generally in the last

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Speaker 1: that's actually not is to mediance have stagnated. But if

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Speaker 1: you look at this is it's a nationwide phenomena. Is

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Speaker 1: not just in the West, that rents have got up

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Speaker 1: faster than incomes, and this is it is a big problem.

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Speaker 1: But the solution, of course is not rent control. So

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Speaker 1: the solution is build more housing, and we are doing

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Speaker 1: that in a lot of places so that rent growth

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Speaker 1: is more modest. And my prediction going forward is rent

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Speaker 1: growth is slowing dramatically. In the Bay Area, we expect

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Speaker 1: rent growth is going to be four to five instead

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Speaker 1: of ten percent, and many other parts of the country

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Speaker 1: is going to drop to three, so rent growth is

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Speaker 1: going to slow and hopefully as the economy strength and

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Speaker 1: income goes up more rapidly. But it is a problem.

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Speaker 1: We have almost no housing policy in Washington. That's part

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Speaker 1: of the issue, no leadership at all. We have a

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Speaker 1: very difficult time for people to qualify to buy houses,

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Speaker 1: which is part of the solution. We have very low

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Speaker 1: indust rates, so it's a great time to buy a house,

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Speaker 1: but for a young person or young family, credit is

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Speaker 1: very tight still because of the last crisis, and we

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Speaker 1: have a leadership Voyd in Washington on housing policy. Yeah,

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Speaker 1: I think, I mean, speaking of Washington, I'm I'm based

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Speaker 1: here there, and um, I think we're actually starting to

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Speaker 1: see a little bit of what you you talked about earlier,

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Speaker 1: which was we had this big run up and supply here.

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Speaker 1: A ton of millennials are moving to Washington and so

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Speaker 1: builders really took note, and there is you know, a

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Speaker 1: new high rise going up every week. It seems like

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Speaker 1: of apartment buildings and they're I mean, they're filled with yuppies.

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Speaker 1: It's fine to say it because I am one, but

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Speaker 1: they're filled with the yuppies. But it has had the

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Speaker 1: effect that our rents haven't been growing as quickly. Even

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Speaker 1: home price growth here has had a lid on it.

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Speaker 1: I think it grew about two percent in the year

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Speaker 1: ended January, which is lower than the US overall. And

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Speaker 1: so Washington is actually a place where the supply has

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Speaker 1: responded to the demand and it's actually worked out for

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Speaker 1: the better. Yeah, And I think that if you look

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Speaker 1: at the number of rental housing units being built nationwide

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Speaker 1: this past year was three which is up a hundred

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Speaker 1: thousands from normal. So the market is working, but it

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Speaker 1: takes a long time and it doesn't really help that

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Speaker 1: bottom the income distribution. Unfortunately, they are in jobs that

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Speaker 1: don't pay well, that don't have the ability to have

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Speaker 1: that wage growth that you need. So I think the

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Speaker 1: solution is not housing market. It's labor market. And it's

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Speaker 1: also education because if you do have again a college

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Speaker 1: education or more, you can get a higher paying job

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Speaker 1: which gives you more income. If you don't have a

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Speaker 1: high school degree, it's really hard in this economy. Didn't

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Speaker 1: make ends meet, and it's a it's a it's a

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Speaker 1: very sad thing, but it's true. Wow, Well, I think

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Speaker 1: Tory needs to run now. But Ken before we let

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Speaker 1: her go. Um, I'm about to start my apartment search

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Speaker 1: in a month when I go back to the Bay Area.

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Speaker 1: Do you have any advice for me? Yes, I would say,

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Speaker 1: if you can do it, look at East Bay. You

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Speaker 1: can probably save a thousand dollars a month and take

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Speaker 1: part into San Francisco. Do you want to live in

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Speaker 1: San Francisco itself, Maybe you can find someone who's got

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Speaker 1: a rent stabilized department who can take you in as

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Speaker 1: a roommate. Because again, a big part of San Francisco

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Speaker 1: is sheltered from this because people have rent stabilized departments,

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Speaker 1: so their rent has gone up very slowly. Also, people

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Speaker 1: who have an existing house are sheltered by props, their team,

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Speaker 1: which keeps their property text at years ago level that

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Speaker 1: goes up two percent a year, so they're also sheltered.

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Speaker 1: So the Bay Area has, in essence, some implied subsidies

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Speaker 1: for a lot of incumbents are here. A new person

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Speaker 1: coming in is theone who bears the burden. Conversely, you

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Speaker 1: could just come up with like the next greatest technology

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Speaker 1: invention or dating app. I would love to become the

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Speaker 1: next Mark Suckerberg. Well, Ken, thank you so much for

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Speaker 1: joining us today. Okay, thank you. So, I guess taking

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Speaker 1: all of this into consideration, the numbers really are against me.

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Speaker 1: It's no longer just this kind of hunch, but can

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Speaker 1: still give me a lot of really good pieces of advice.

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Speaker 1: I think my girlfriend and I will definitely probably end

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Speaker 1: up living in Oakland, and we'll try to find a

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Speaker 1: place that is under rent control. And I think it

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Speaker 1: comes down to just the fact that, you know, I

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Speaker 1: love the Bay Area, and so to live there, I'm

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Speaker 1: going to have to live with a couple of sacrifices.

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Speaker 1: So anyway, with that, we've come to another end of

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Speaker 1: a Benchmark episode. Thanks again to everyone for listening to

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Speaker 1: Bloomberg Benchmark. We'll be back next week. Until then, you

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Speaker 1: can find us on the Bloomberg Terminal and Bloomberg dot com,

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Speaker 1: as well as on iTunes, podetcast, Stitcher, and other platforms.

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Speaker 1: While you're there, please take a minute to rate and

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Speaker 1: review the show. Some more listeners can find us and

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Speaker 1: let us know what you thought of the show. You

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Speaker 1: can talk to us and follow us on Twitter at

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Speaker 1: Tori Stillwell and Aki Itoh seven. See you next week.

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Speaker 1: M hm hm