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Economist Says Red Tape Is to Blame for Housing Crisis

But cutting it back would mean changing the way San Francisco feels about, well, San Francisco

It’s the $1.4 million dollar question: How do we build more housing in San Francisco?

For a lot of locals, of course, the answer is that we shouldn't. These people would rather we concentrate on measures like affordable housing and reviving rent control for working people, and then let the wealthy worry about what a home costs for everyone else.

But the supply-side argument has gained ground in the last few years anyway. Note the "bipartisan" spirit behind new in-law legislation, for example. And although building moratoriums get grassroots support, voters have repulsed them.

So if building more is not necessarily a dirty word with everyone these days, how best to make it happen?

Ralph McLaughlin, an economist with the real estate site Trulia, says he’s spotted a bugbear in the process: He projects that for every month you tack onto the average wait time for entitlements, the city’s overall housing elasticity (the measure of how quickly and easily the local housing market can jimmy up new supply) drops by 0.03 points.

For perspective, an elasticity score of 1 indicates that for every 1 percent increase in the price of housing in the city, that city responds with a 1 percent increase in new building. Trulia finds that Las Vegas has an elasticity rate of 1.17. Washington DC has 0.59, and New York City a mere 0.06.

And San Francisco? One of the lowest in the nation, a spare 0.04. The city’s housing stock has increased only 12.3 percent over the last 20 years.

Red tape is the culprit, says McLaughlin. Streamline the process, and you‘ll get better results. While it’s hardly a remarkable observation that A) building in San Francisco takes forever, and B) delays cost money and shrink development goals, McLaughlin testifies that this is a bigger problem than, say, restrictive zoning, and should be our number one concern.

Is he right? Well, he’s definitely not alone: The Federal Reserve said roughly the same thing back in 2012, for example.

Bloomberg pointed the finger at what it called the "one-sided environmental review" process in 2013. (Mostly a state mandate, of course.)

And UC Berkeley economists warned that "long permit-processing delays have all been associated with increased housing prices" back in 2005.

If you wanted to argue that City Hall should take some scissors to its red tape, you wouldn’t have trouble finding experts and commentators to back you up. So why might it not happen?

One counterargument is that elasticity is a potentially misleading statistic. McLaughlin himself points out, for example, that the broader context of Hurricane Katrina means that New Orleans’ terrible elasticity rating really has nothing to do with city politics.

The testimony of sources like the Fed and real estate sites will also be viewed with skepticism by some critics simply because they’re the Fed and a real estate site.

But there’s also the fact that even the most rabidly pro-growth San Franciscan probably doesn’t want to build like Vegas. As SPUR’s Ben Grant observes, "A city like LA thinks, hey, we're going to hell anyway, build whatever you want. San Francisco is convinced that it's perfect already."

Many label that attitude "selfish" and mere NIMBYism. But some rules are hard to argue with. I once asked former supervisor Bill Maher about the popularity of Prop K, the voter-approved 1984 law that stymies most tall buildings that would cast a shadow on public parks. Maher’s reply: "People like the sun."

Yes, sunlight has good PR. And so does San Francisco, as it exists now. Which is why "make it easier to build" is a simple plan with an incredibly complicated execution.

Building more would help, but as Forbes observes, it’s a trade-off. If you want to untie builder’s hands, skeptics have to be convinced that the trade is a good one.