The accessibility of housing in San Francisco has been an issue gaining steam over the past several years. Last December, Mayor Ed Lee announced an executive directive ordering relevant city departments to prioritize the permitting of new housing construction, including permanently affordable housing.
In the ensuing coverage, frequent references were made to the situation in Seattle. According to the Berkeley economist Enrico Moretti as cited in Gregory Ferenstein’s recent TechCrunch article, “After Seattle significantly increased construction, rent hikes slowed even during a jobs boon that outpaced San Francisco’s.”
We took a closer look at the building permit data in Seattle and San Francisco to validate the legitimacy of the claim and better understand the relationship between construction activities and rental prices.
Comparing permits issued over time, it is clear that Seattle has consistently outperformed San Francisco since 2006
A look at project valuations reveals that aggregate remodeling and construction expenditures in San Francisco have actually exceeded those in Seattle, over the past four years (note: data for Nov. and Dec. 2013 was not included in the following chart):
Although on a per capita basis, 2012 was the first year that San Francisco surpassed Seattle.
Overall expenditures don’t necessarily correlate to increased housing inventory. A closer look at residential permits classified as “new construction” projects reveals a glaring disparity between Seattle and San Francisco since 2006.
Comparing residential construction permits versus average rental rates in SF, we can see how a sharp drop in the issuance of permits seems to line up with a jump in average monthly rental rates.
Both comparisons suggest a meaningful inverse relationship between residential construction and rental rates.
What remains to be seen is how developers, already hamstrung by existing affordable housing regulations in San Francisco, will react to increased regulation and preferential treatment for affordable housing projects in Lee’s executive order.
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