Someone commented to me recently that he didn’t see where much more new building could take place in San Francisco. The City, already heavily built up and undergoing still more construction, seemed to be full to bursting. Certainly this city – one of the most densely populated in the country – couldn’t get any more dense, could it?
It can, it will, and it must.
Elsewhere in this issue, Marina Times columnist Carole Isaacs highlights the ongoing and predictable future growth of housing density and values in the CIty. Her message about the construction cranes popping up across our skyline is fitting, and it’s something we should hope to see more of in the future. Increasing the density of buildings and population in San Francisco should be one of those all-too-rare instances that unite hard-nosed investors and environmentalists.
Just about 50 years ago, animals grazed in what was then developed into the Diamond Heights neighborhood just beyond Noe Valley. Where animals slumbered and ate, there now are thousands of units of single-family and multi-unit housing, including a famous pocket neighborhood of Eichler homes. Five decades ago, the city found the space for more development and more people by converting pasture land to housing. But the real value lies up above, not across land.
Seven or eight years ago, a real estate scholar (yes, there are such) pointed out that we have to think about density and investors have to know that the values and opportunities in cities are going to go up and up. It’s inevitable. With populations still zooming to ever-greater numbers, we’re faced with only three options when it comes to cities. When it comes to the question of what to do with all of those people, the scholar said, you can stack them up, spread them out, or kill them. That’s your choice.
Let’s take those in reverse order. Killing them – no one is seriously suggesting that, but it serves to indicate that people have to go somewhere, and you can’t just wish them away. Home values here in the City are already hot because still more people are trying to jam into this crowded city. Far from turning them off, the density attracts them.
Popular science writer Jonah Lehrer is in the public dog-house big-time these days, due to instances of lying and worse in his writing. But if we step gingerly around the wreckage of his works, we still find some intriguing information. A year ago, he told the Commonwealth Club that dense, populous cities are good for everyone. Citing the work of Santa Fe Institute theoretical physicist Geoffrey West, Lehrer says cities are inherently value-creating entities. “As a metropolis expands in size and population, everyone in that city becomes more productive — they make more money, they invent more patents, they invent more trademarks. By every metric we have, they’re going to look smarter and simply better,” said Lehrer. “Something amazing happens when you put too many people in the same zip code; all those bumps, all that human friction — what Jane Jacobs called knowledge spillovers — add up. All those random conversations on the sidewalk while waiting in line for a latte — every once in a while, they lead to a new idea. … As cities get bigger, people become smarter and more productive.”
The middle option — spreading them out — is what Americans have mostly done since World War II. It offered a way to settle an expanding middle class, and the positive for many of them was that they were able to get far more house and land than they could have afforded in the city. The downsides were personal (long commutes, some degree of isolation), economic (perverse incentives for developers to stretch public dollars to make possible their lower-taxed suburban and exurban developments with roads, sewage, and the like), and environmental (those tracks of McMansions weren’t all built on desert land – they were far more likely to be plowing over necessary wetlands, farmlands, and forests).
So we’re back to the first option: Stack them up. This still has costs to the city in terms of greater traffic, more mass transit, more wear on the sewers and other public utilities. But it is easier to handle and pay for when it’s confined to smaller geographic areas, and to follow Lehrer’s points, wealth creation follows real estate creation in this situation.
Investors in commercial real estate are often the villains in movies as they wheel and deal to tear down orphanages so they can build Trump-style luxury skyscrapers. The mission for San Francisco’s elected and appointed leaders will be to channel the investors’ energy into productive and profitable directions (upward!) and not just try to hobble or hamstring them. The mission for investors in both residential housing and commercial real estate will be to think 10 or 20 years down the line, where much of their value will come from condos and offices that have been built in the sky.
