Vancouver housing expert questioning consensus finds a following in SF

Want to solve California’s affordability crisis? The popular answer these days is to allow developers to build more homes. Supporters say it’s an intuitive solution that follows the basic logic of supply and demand laid out in Economics 101.

But as San Francisco city officials move forward with a controversial plan to allow much denser housing development across large swaths of The City, some residents who oppose that effort are embracing a heterodox housing researcher who argues that the mainstream housing consensus is simply wrong.

On a Saturday afternoon last month, a crowd of about 200 massed inside Noe Valley Ministry to hear the housing homily delivered by Patrick Condon, a professor of urban design at The University of British Columbia. Condon had come all the way from Vancouver to offer up a warning: “You’re in for a big disappointment.”

A former city planner, Condon has become a prominent voice in Vancouver’s own housing debate. He told the gathered crowd he has seen firsthand how increasing density doesn’t solve the problem of housing unaffordability. Despite a massive development boom in recent decades that has made Vancouver one of the densest cities in North America, housing prices there are among the highest on the continent.

“Unfortunately, it will take 30 years for you to realize that you were wrong,” he said.

Why have housing costs spiraled even as thousands of homes have been built? Condon argues the problem lies with upzoning, the process by which cities redraw their zoning maps to allow bigger structures and more homes to be built on parcels of land than they previously allowed.

Upzoning inflates land values by inviting speculative investment, he says. Real-estate investors pass on those increased land costs by jacking up rents and home prices, effectively undermining any affordability gains that might be gotten by increasing the number of available homes.

“Urban land absorbs the value of all our good works,” he told the audience at Noe Valley Ministry.

Condon’s views cut at the heart of the now dominant consensus on housing in California that to address its affordability crisis, the state needs to massively increase its housing stock, in large part through increased density. That consensus has led to the passage of dozens of new housing laws in recent years aimed at boosting construction and streamlining the approval of new developments.

But Condon’s views also run counter to the work of many leading housing researchers. They cite decades of studies that have drawn a link between restrictive rules for home builders and high housing costs.

“None of the empirical research on this topic supports Condon's argument,” said UCLA urban planning Professor Paavo Monkkonen in a recent email exchange with The Examiner.

Even so, Condon is also not the lone dissenter in the field. Other housing experts, including widely cited academics, have also taken a more skeptical view of the housing market’s ability to deliver affordable housing.

In San Francisco, such arguments have been catching on.

The counter-narrative

Under state law, San Francisco is on the hook to build more than 80,000 new homes by 2031. The City plans to meet that mandate in large part by upzoning, turning areas with relatively low housing density into higher density zones. Some groups of progressive voters and neighborhood advocates have pointed to Condon’s work and warnings as they battle that plan.

His message has also found a receptive ear in Board of Supervisors President Aaron Peskin, who has made opposition to the upzoning plan a key theme of his mayoral campaign. Peskin attended Condon’s recent talk and participated in the question-and-answer session that followed. At one point, the supervisor decried “upzoning for upzoning’s sake.”

“I'm not interested in building 100,000 units if it's not going to bring the price down to things that make a city a great city,” Peskin said at the talk.

It's probably no surprise that Condon's arguments have gotten a warm reception from some participants in San Francisco’s long-roiling housing war. Although advocates in favor of more development and density have had the upper hand in recent years , opposition to such changes — branded by some as NIMBYism, for “not in my backyard” — runs deep in The City. For decades, development critics have worked to block many new projects.

They warn that relaxing San Francisco’s oversight of housing construction will simply allow the real estate industry to run roughshod over the cityscape, raising new luxury high rises, demolishing old neighborhood landmarks and displacing longtime residents — all without meaningfully improving affordability.

Condon’s work, they say, bolsters their case that demand for new housing — either from new residents or from real estate speculators — will always outmatch supply.

Their opponents — many of whom organize around the slogan “yes, in my backyard” — see such arguments as a smokescreen. The true motivation of those in the anti-development camp, the YIMBYs say, is to keep newcomers out and housing values high for property owners.

After years of YIMBY advances, development critics are trying to push back against the tide by changing the narrative around housing. Hosting Condon’s talk was part of that larger effort.

The event was organized by Neighbors and Communities United , a progressive-aligned advocacy organization launched over the summer with backing from labor groups. Neighbors and Communities plans to hold many more such events, bringing in additional housing experts to make their case, said spokesman Eric Jaye.

“Developers and their allies at City Hall are asking voters to believe that building tens of thousands of units of luxury housing will make housing more affordable,” Jaye said. “People like Condon are looking at that and challenging the economics of that assertion.”

Responding to such criticism, YIMBY advocates argue it’s unfair to say they’re only pushing to build more luxury or market-rate housing. They have also campaigned for additional publicly-subsidized affordable housing and greater protections for renters, they say.

Condon’s case

Condon says he too once thought like the YIMBYs. He also believed that adding more density would help bring down Vancouver’s housing costs.

“A lot of people seem to think I'm against density, which has never been the case,” he told The Examiner in a recent interview.

But over the past two decades, as he has watched affordability worsen in the city despite the addition of increased density, he has grown “profoundly disappointed,” forcing him to rethink his assumptions, he said.

According to his figures, Vancouver has tripled its housing stock over the past 60 years. It upzoned neighborhoods, making way for a proliferation of duplexes and high-rise towers. All told, the city has had perhaps the fastest rate of housing growth over that period of any major city in the U.S. or Canada.

“So if there’s a case in North America where adding incredible numbers of new supply should have led to cheaper housing, it should have been Vancouver,” Condon said during his recent talk in The City. “But unfortunately, it’s not.”

Instead, over those same decades, Vancouver’s housing affordability has only gotten worse. By some accounts, in fact, it is now among the most unaffordable housing markets in the world.

That seeming paradox can be resolved by examining the impact upzoning has on land values, said Condon, whose stop in San Francisco was part of a tour promoting his recent book on housing costs .

When a city upzones a piece of land, the value of that land increases whether or not any new construction ever takes place, he said. For instance, giving a future developer the right to replace a single-family home with an apartment complex makes the property more appealing to would-be buyers and worth more in a potential sale, because more money could potentially be generated from it.

The owners of the rezoned land frequently sell it before any redevelopment takes place, pocketing the increased value. The developers who eventually do build homes pass along the inflated cost they paid through higher prices to renters or home buyers.

“The smartest people in the room are the land speculators who go out there and understand this system and buy and sell land,” Condon said.

Skeptics face skepticism

Other housing researchers share Condon’s skepticism that broadly increasing housing density will bring down home prices. The modern housing market, they argue, is affected by complex forces that confound the predictions of simple supply-and-demand models.

Some of these researchers, like Condon, highlight the role of speculative investors in driving up costs. Others point to the alleged anticompetitive business practices of the real-estate industry. Still others argue that the real drivers of housing prices come down to factors such as geography and demographics and that government regulations play a comparatively minor role.

But such views remain a minority position in the field. The Examiner checked in with five academic West-Coast housing researchers for their views. All agreed the weight of evidence firmly suggests that when more homes get built, housing prices and rents tend to drop — or, as the case might be, rise less quickly than they otherwise would have.

“Part of the issue is that observers in many cities see prices rising despite new construction,” a team of New York University professors said in a recent literature review of housing research compiled in response to common forms of housing “supply skepticism.”

“What they do not see is the greater price increases that research suggests would have taken place if less construction had occurred,” the NYU team said in the literature review.

But the team acknowledged that the effects of upzoning vary widely from city to city depending on the local context. Generally, relaxing zoning restrictions leads to more construction. However, the amount of housing that gets built depends on the real-estate industry’s appetite for construction in any given area and tends to fall far short of what is actually allowed, they said in the paper.

Condon’s concern about upzoning leading to surging land prices is unfounded, the researchers consulted by The Examiner said. While it’s true that upzoning can inflate the prices of individual properties, widespread upzoning across a city or a region would produce enough new homes to outweigh this effect and bring prices down, they argued.

But what about Vancouver? Why has the affordability crisis seemingly only gotten worse in the wake of all that construction?

Condon blames upzoning, but University of British Columbia economics Professor Thomas Davidoff says his colleague is mixing up cause and effect with that explanation.

Any explanation of this housing story should begin with the economic booms that have taken place in “superstar cities” such as Vancouver and San Francisco, said Davidoff, who — like Condon — studies the housing market.

Those booms have attracted a lot of newcomers. “So you get a huge demand shock,” he said. As a result, “prices go up,” and, in turn, the surging real-estate market encourages developers to build more homes.

So according to Davidoff, it’s not upzoning and clearing the way for new housing that has led to higher prices. Instead, it’s the rising prices in these globalized, highly in-demand cities that have spurred new construction.

In other words: it’s no surprise that housing construction and rising housing costs would go together. Both are being driven by the same thing — high demand for housing.

Eventually, adding enough new homes will move the needle on affordability, many economists argue. The fact that it’s taking so long to see progress is a sign of just how deep of a hole we’re in, they say. Following years of sluggish housing construction, Canada and the United States, by some estimates, would need to build millions of homes to meet current demand.

And regardless of how much new housing Vancouver has built within its own boundaries, the scarcity of housing in surrounding regions and elsewhere in the country continues to push up demand — and prices — just about everywhere, including in the city, Davidoff said.

Meanwhile, San Francisco offers a good illustration of what happens when cities restrict housing development, he said. Rent and housing prices in The City have outpaced other cities — even other global boom towns — because it failed for years to substantially increase supply.

Davidoff said he understands how appealing Condon’s arguments can be to homeowners in The City, particularly to those who are concerned about housing affordability.

“If you can actually believe that you are improving affordability by opposing more housing, that's obviously a very attractive belief to have, so you can see why people would want to have that belief,” he said.

Facts on our side

Given his experience in Vancouver, Condon finds the suggestion that yet more housing construction is the answer hard to swallow.

“Maybe if we had 600% more housing units, we'd have a nirvana of affordable housing,” he said. “There's no way to prove that, but for those who say that if you add housing you will, in fact, lower prices — the facts of Vancouver do not support that hypothesis.”

While he believes it’s unlikely that most cities will be able to build their way out of the affordability crisis by upzoning, there is one government action Condon advocates. When a developer builds housing, the city should require that a high share of the newly constructed homes be set aside for affordable housing.

“The only people who lose out” on such a policy, known as inclusionary zoning “are the landowners who make that much less money on the sale of the land,” he said.

San Francisco has its own inclusionary zoning requirements, but last year supervisors voted to temporarily relax those standards on concern that the measure was further depressing the number of homes being built in The City.

For their part, The City’s development critics remain uncowed by the mainstream consensus and are determined to reshape San Francisco’s housing conversation.

“We understand this is very hard and will take a long time,” said Jaye with Neighbors and Communities. “The reality is is that we believe the facts and the science are on our side.”