I know its easy to blame the big tech companies for the housing crisis in California, but is it true? I think it is more complicated than that.
In econ 101 we learn the theory of Supply and Demand, which means that when the demand is higher than the supply the price of a commodity will rise and vice versa. Therefore the optimal spot on the supply and demand graph is the equilibrium where the two cross each other.
In 2016, the cities of Dallas and Houston built more homes than the entire state of California, according to US Census Bureau figures. That’s a bad sign.
According to the Legislative Analyst’s Office, California needs to double the number of homes built each year to keep prices from rising faster than the national average. Also, a bad sign.
Now, tech company employees do earn more than the median household. And this means, because the supply is so low compared to demand, they can increase the market rent by outbidding and offer to pay more than the average household can. But it is not fair to blame the tech companies for paying their staff high wages, which is necessary to attract the best and the brightest minds to their respective businesses.
Who we should blame are NIMBYs and the state government.
The middle class and the wealthy might say that they want to help the homeless and those struggling, but not in a way that matters. Because substantially increasing the supply of homes in the area would make their properties lose value. This would help the young, the poor and those who rent, but hurt the wealthy and middle class who own their properties. One might speculate that one of the reasons the state government does not incentivize and support increased supply might be because it would hurt the very people who voted them into office.
NIMBYs block residential development, further straining supply, and they force the developers into costly courtrooms and legal fights. This means that developers are scared off of developing and thus blocking any meaningful change in supply. Private citizen’s ability to prevent housing projects needs to be reduced and residential development needs to be incentivized more.
Some will argue that this will result in more luxury properties instead, but that will not be worse than the current status quo already is. High-end real estate will increase supply, just like any real estate. Wealthy people, at the moment, are buying multi-family properties and turning them into a single-family property for their own family. Properties are also being converted into luxury apartments. So this argument that increased high-end real estate development will somehow be worse, lacks merit.
If you have lived in Los Angeles or the Bay area for all of your life, understandably, you would not want to leave even if the costs pile up. If you can’t afford to live somewhere you move away, normally, but this is not as easy when you have a job very close by. And I believe the state of California has a role to play here. Everyone can’t live where they want to, but moving outside of the high demand areas could be easier if public transportation worked. In Sweden, it is common for people to live more than 60 miles away, but by using the train and trams or buses, your time to work is still no more than 40 minutes.
Rent control is another fool’s errand. What you are doing is artificially decreasing the price of the commodity, in this case, housing. This, in turn, leads to less development because the investment is not worth it, thus straining the supply further by disincentivizing new development. As soon as the rent control is removed the rent is increased to the market rent, thus making it a temporary fix and a pretty useless one at that. By pushing the problem into the future with band-aids such as rent control, you are simply going to end up with a bigger problem than the one in front of you know. This because rent control leads to fewer property developments, so when the rent control is removed, the supply is lower than it would’ve been without rent control. And thus, the market rent is now higher than it would’ve been, and the new rent will price out the current tenants.
This is a very complex issue, so of course, i don’t have all the answers. No one probably does. But blaming high paying employers is pretty lazy.