Thursday, February 25, 2016

Urban economic inversion


Most mornings I receive an email from 48 Hills that keeps me up to date on doings in our city. I recommend this coverage; it is worth the additional email box pollution.

Yesterday, I was absorbing the latest outrages: Mayor Lee and powers-that-be are beating up on our homeless people as politicians who feel their support slipping usually do. That's what they do always do and we can protest it, but it is likely to remain popular.

A short sentence in an article about increasing the minuscule sum developers of new residential and office buildings pay to offset the costs their profitable enterprises impose on the city stopped me cold. Here is that sentence:

It’s astonishing that the city is willing to say: You can build and make millions in our city without paying even a fraction of the cost of that growth.

In most of this country, that probably seems counterintuitive. I grew up in Buffalo. I don't think they'd say that in Buffalo; they'd bend over to attract builders. In parts of California -- think Riverside or Bakersfield -- likely the same.

But San Francisco is such a desirable location that the normal rules of supply and demand are flowing backward. There is NO reason to believe that developers can't pass through to their rich clients any increased costs the city imposes on them. Tech innovation winners and overseas buyers are snapping up luxury condos here as fast as the developers can throw them up. (Mere tech workers are beginning to the feel the pinch of high rents themselves.) Winners want to be here (or to have a pied a terre or investment property here.) And their companies want the prestige of locating some of their business here. They'll pay. We don't have to be beggars here; given land scarcity and high demand, we couldn't kill the goose laying the golden egg if we tried.

This is hard to get our minds around; it's not how urban economics have worked in most cities for a very long time. But it it is how supply and demand are working in San Francisco at present.

You'd think this would be a no-brainer. Here's the grown-up policy argument from the same article:

Every time someone puts up an office building in the city, that building fills with workers, and those workers (or many of them) take transit, which means the city has to buy more buses and hire more drivers and spend more money.

How much? A city study puts the figure – the actual, cash impact, the amount that the city (that’s us, the taxpayer) will have to spend to support new office buildings is about $87 a square foot.

The city wants to charge developers $18.

It’s a huge giveaway to developers, worth billions. It’s astonishing that the city is willing to say: You can build and make millions in our city without paying even a fraction of the cost of that growth.

So [Supervisor John] Avalos wanted to hike the fee just a little bit – not to the $87 level where it ought to be, but closer to $20. That would bring in another $2 million a year for Muni [public transit], and backdating it would bring in a one-time payment of about $30 million.

The Mayor is expected to veto this minimal increase. The rest of us will continue to get ripped off to support the moneyed invasion.

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