I’ve made a record number of dead-end queries this month to find out who’s making wearable devices in Taiwan. Maybe the global tech hardware hub isn’t doing much with the fast-emerging consumer electronics sector that covers bracelets, glasses, watches sporting mini touchscreen computers. Or maybe it is but no one’s telling. The patchy results of my research point to both. First, big domestic brands such as Acer, Asustek and HTC will arrive late and take only small market shares, so there’s not a lot to say. The other trend: Parts suppliers and contract assemblers will get orders, if they don’t have them already, from overseas and keep them secret due to client confidentiality.
You Can Be Prosecuted For Being a Tax Protester, But Donald Rumsfeld Cagily Complains But Doesn’t Go Too Far. He’s Right, the Tax Code is a Mess.
Ron Paul detailed his thoughts on Bitcoin in one of two posts he wrote on the question-and-answer site Quora Wednesday. While the former Republican presidential candidate and congressman expressed support for the cryptocurrency, he also said it is not “true money.”
“Though I don’t personally believe that Bitcoin is true money, it should be perfectly legal and there should be no restrictions on it, there should be no taxes on it,” Paul wrote. ”The people who operate Bitcoin would, of course, be prohibited from committing fraud but the people should be able to have competition whether it is a basket of commodities or crypto-currencies - it should be perfectly legal.”
Paul described Bitcoin as an “introduction” to competition for the dollar that could improve our “terrible monetary system.”
“Bitcoin is a very interesting subject because for many years in Congress I was a champion of legalizing competition in currencies,” wrote Paul. “We have a terrible monetary system today. We have a government that purposely counterfeits and debases the currencies and I believe that the alternative would be a competition. That means that anything that wants to substitute for the American dollar should be permitted. There should be no prohibitions; there should not be a monopoly and a cartel running our monetary system because it so often benefits the privileged few. … Bitcoin is an introduction to that.”
Paul also noted Bitcoin requires “freedom from government intervention when it comes to the Internet” to flourish. He said he is “concerned that the government ultimately wants to curtail the Internet.”
"The internet is the salvation for those of us who believe in liberty because it is an alternative way of getting around the system not only in the spreading of our ideas in this instance but in in terms of getting around the monetary system on the whole if they do permit crypto-currencies and other forms of transactions. So, this is something that we should all be concerned about whether we endorse it or not,” Paul wrote.
Read Paul’s full discussion of Bitcoin here.
Before their buzz was usurped in the past year by so-called native advertising that’s designed to look like editorial content, engagement ads were touted by some as the next big thing in online advertising.
Before their buzz was usurped in the past year by so-called native advertising that’s designed to look like editorial content, engagement ads were touted by some as the next big thing in online advertising.
Former Republican presidential candidate and Congressman Ron Paul has signed on to the question-and-answer service Quora.
On Wednesday, Paul posted answers to a pair of questions about his positions on marijuana and Bitcoin.
Paul responded to the question about marijuana by calling the American War on Drugs “outrageous.”
"The drug war has never done anything good. It cost a lot of money, it was an excuse to violate the civil liberties of a lot of Americans, and it challenges the notice that people get to make their private choices. Even when there’s risk involved, government is meant to protect us from ourselves, government is meant to protect our liberties," Paul wrote. "When people have the right to make their own decisions, they should be responsible for all the actions they take. The drug war is a typical example of how the government is intending to make people better and once they do that they are getting into the business of removing personal liberty."
Paul argued Bitcoin is not “true money,” but he said the cryptocurrency should be “perfectly legal and there should be no restrictions on it, there should be no taxes on it.”
Scott Stenholm, an executive producer at Paul’s RonPaulChannel digital news network, confirmed to Business Insider that the posts on Quora were written by Paul himself.
"We’ve been talking about it for a while," Stenholm said of Paul’s decision to join Quora. "President Obama did it and some other high profile people. It seems to be getting a fast response. … Ron wants to get the message out, so we thought it would advantageous."
As of this writing, Paul has 195 followers on the site.
It is projected that MRAM and STT MRAM annual shipping capacity will rise from an estimated 80 TB in 2013 to 16.5 PB in 2019 with revenues increasing over the same period from $190 M to $2.1 B. The increasing demand for non-volatile memory based upon MRAM and STT MRAM will drive total manufacturing equipment revenue used for making the MRAM devices (not including the CMOS creation) to rise from an estimated $52.9 M in 2013 to $246.3 M in 2019.
Developers usually make apps for the iPhone first, which means updates for Android and other platforms can take a little while to get to users of those platforms.
But there are quite a few awesome apps that Android owners can use that their iPhone-using friends can’t.
Hello SMS replaces the messaging app built into most Android phones. The app utilizes a tab system to organize chats so you can quickly alternate between conversations with a single touch. Time Stamps give you the ability to quickly respond to messages as well. Plus, you can send an assortment of emoji to spruce up a boring group chat.
Aviate ‘s goal is to deliver you the right apps at the right time. The program learns your habits and can customize the apps on your screen for certain situations. When you wake up in the morning, Aviate can immediately deliver the traffic reports and reminders about calendar meetings right to your phone.
Glove is a useful app for picking out a wireless carrier when you move to a new city. The program runs for three days and figures out where you use your phone the most. After this testing period is over, Glove will analyze which carrier can be the best for you so you can get an excellent coverage plan.
Sarah Bergbreiter is an assistant professor of mechanical engineering at the University of Maryland, and she and her team build tiny robots.
Just how tiny? Bergbreiter calls it “ant-scale,” but said, “That’s really just a PR term. Our robots are built on the millimeter scale, less than 1 centimeter.”
This all happens out of the university’s Microrobotics Laboratory, where they develop technologies that aim to make tiny robots that not only function properly, but will one day be as handy and useful as large robots.
"The immediate impact of this research is on the fabrication process," Bergbreiter told us.
Small robots don’t have nearly the capacity to carry around sensors and batteries that make robots conventionally useful. Consider the human-size Atlas robot by Boston Dynamics. At 6 feet tall and 330 pounds, it’s more than capable of carrying powerful sensors and its own power supply. Bergbreiter and company don’t have the luxury of working without such constraints, so they’re constantly evaluating how to adapt larger-scale technologies for the smaller scale.
Bergbreiter is focused on efficient robot movement, especially over rough terrain. We asked her if it’s better for microbot locomotion to imitate nature or to aim for something totally new, and she says her team has tried both approaches. “Biology lets us look at solutions that exist in the natural world. We’re inspired by them, but we’ve also deviated significantly from nature to build robots that jump, for example.”
Over the next 10 years, techniques from UMD’s Microrobotics Laboratory will lead to improvements in larger robots: “Actuators designed at a small scale can be into a larger scale system for more control than you would normally get,” Bergbreiter told us.
There may even be private business interest in such small-scale fabrication and actuation. “We’re concerned with precision and low power. It’s not all that different from what you’d want in a zoom camera.”
In the longer term, there’s a lot of potential applications in the medical field. “By combining small actuation mechanisms with low power, we could stand to improve things like camera pills, or catheters,” said Bergbreiter.
Check out this great YouTube video from the University of Maryland’s robotics department that gives us a look inside the Microrobotics Laboratory.
For such a well-trafficked site, Reddit keeps its number of employees relatively low and uses an unapologetically retro site design, yet it’s a near-bottomless source of news and humor for the Internet-at-large every single day.
The company doesn’t have its own dedicated space, but instead operates out of a San Francisco co-working space that seems to mirror the positive, low-key vibe of the site.
Reuters recently came through and took the some pictures of the Reddit workspace.
A sign on the door warns of nerds who shouldn’t be allowed to escape.
Reddit’s red-eyed alien mascot greets you when you walk in.
These appear to be the previously mentioned nerds — Reddit employees pore over their computer screens.
Reddit programmer Keith Mitchell works beside an image of the Reddit alien piloting a giant robot.
The office is littered with images of the company mascot. Here’s a large one:
But there are smaller ones all over the place.
Reddit saw 713 million unique visitors last year, and it did it all with a small team and alien mascots.
On April 16, 2014 Google announced that +Post ads would be available to all Google+ brand pages that have more than 1,000 followers. In this article I will review what these are, why it is important for brands to consider taking advantage of them, as well as why this this makes it more important than ever to be engaged in Google+.
It walks and runs, even up and down stairs. It can open a bottle and serve a drink, and politely tries to shake hands with a stranger. Meet the latest ASIMO, Honda’s humanoid robot.
"Hello New York! Thank you for coming today!" the little guy chirped in English, the recorded voice of a teenaged boy, at his US debut Wednesday in a Manhattan hotel.
Resembling a tiny astronaut, ASIMO — decked out in a white suit and helmet — stands 4 feet three inches (1.3 meters) tall and weighs in at 110 lbs (50 kg).
ASIMO — short for Advanced Step in Innovative Mobility — was designed to help people, potentially in cases of reduced mobility. The first model was unveiled in 2000 after 14 years of research during which scientists studied human movements in an effort to replicate them.
The latest demonstration highlighted the robot’s increased flexibility and balance — ASIMO can now jump — as well as sign language abilities. It can now also run at a speed of 5.6 miles per hour (9 km/h).
Researchers think that one day it could help the elderly — say by getting a snack or turning the lights off — when their ability to get around is reduced.
"ASIMO was designed to help those in society who need assistance, and Honda believes that these improvements in ASIMO bring us another step closer to our ultimate goal of being able to help all kinds of people in need," said Satoshi Shigemi, senior chief engineer at Honda R&D Co., Ltd. Japan responsible for humanoid robotics.
"We need to understand what people expect from ASIMO and what people want ASIMO to do."
According to the British Association of Teachers and Lecturers, children who are 3 and 4 don’t have dexterity in their fingers because they’re too addicted to swiping tablet screens.
The children know how to use the devices, but they barely know how to play with actual toys.
"I have spoken to a number of nursery teachers who have concerns over the increasing numbers of young pupils who can swipe a screen but have little or no manipulative skills to play with building blocks or the like, or the pupils who cannot socialise with other pupils but whose parents talk proudly of their ability to use a tablet or smartphone," said teacher Colin Kinney at the association’s annual conference, according to The Telegraph.
The Telegraph reports that in addition to this, the memory of some older children is deteriorating because of over-exposure to computers. According to one teacher, these children couldn’t finish traditional tests using pen and paper.
Pew Research shows that one-third of Americans owned a tablet in 2013. And “among parents with minor children living at home, tablet ownership rose from 26% in April 2012 to 50% in May 2013.”
The National Association for the Education of Young Children says that “when used intentionally and appropriately, technology and interactive media are effective tools to support learning and development.” But it also warns that exposure to interactive media should be limited, especially for young children.
When Box filed its long-awaited paperwork to become a public company, it caused a lot of talk about the financial health of the company, and the long-term viability of its business model.
At issue was how much money Box is spending compared to its revenue, particularly on sales and marketing. People began wondering: is founder and CEO Aaron Levie a quack or a modern-day genius?
Let me be clear: he’s a genius, and he’s not the only one.
I’ve known Levie for six years, ever since Box became an early customer of my company, Zuora, and his company’s revenues were in the low single digits. I’ve watched with great pleasure as Levie, co-founder Dylan Smith and the team have grown Box into the force that it is today. He is the latest in a line of true entrepreneurs, laser-focused on making his vision of collaboration a reality. With over 34,000 paying companies across the globe including Bechtel, Eli Lilly, and Gap, it’s obvious that companies see the value of Box and trust it to power their businesses.
But it’s crazy to me that 10 years after the IPO of Salesforce.com as the first public software-as-a-service (SaaS) company, Wall Street still doesn’t understand the subscription business model. The software industry has been on an inevitable path to subscriptions since 1999, when Salesforce was founded.
Fast forward to today with Workday, Adobe, Box, Zendesk and others. These companies have proven that a subscription model with recurring revenue is a different kind of business. It’s complex. Yet, when managed well, it’s a healthy and financially attractive model that has disrupted some of the most established industries across the globe.
Even giant software vendors like SAP are now offering major products via subscription. And I assure you this is just the beginning.
Why then, is there such controversy about Box? Forbes writer Kurt Marko recently questioned whether Box is a “viable standalone business,” pointing to that fact that operating expenses outweigh revenue and calling it “the beginning of the end.” Erik Sherman with CBS News claimed that Box “badly needs the money” and that “an IPO is necessary to bring in the capital needed for long-term viability.”
It’s become apparent to me that there is a fundamental lack of understanding about the subscription business model, a term I call the “Subscription Economy.”
In order to understand the true genius of Box, let’s look at the four big differences between the subscription model and a traditional software business.
1. Subscription businesses care about a different revenue metric: ARR
The first thing to know is that for a subscription business, revenue is not revenue. It’s the difference between a one-time payment and recurring payments.
Just think about it — let’s say you have two friends: Jack says he’ll give you $10 just this once, and Jill says she’ll give you $5 a year for each of the next 10 years. There is a big difference between the two — you know that Jill’s deal is a better deal.
That’s why smart subscription businesses look at something called ARR, which stands for Annual Recurring Revenue, and consists of only the subscription revenue from customers for an ongoing service. To get at ARR, subscription businesses take the value of their subscription contracts, normalize it to an annual amount, and add it all up. For a subscription business, more so than cash or revenue, ARR is the true indicator of your company’s health.
But here’s the thing: accounting rules today don’t recognize ARR.
In fact, accounting systems do not differentiate between a dollar that recurs and a dollar that does not. Accounting systems today are built on the double entry standard created 500 years ago by Luca Pacioli to help Venetian merchants track the sale of spices. And in that system, a dollar is a dollar is a dollar.
Fortunately, there’s a simple way to approximate ARR from a standard income statement — just take the quarterly revenue, strip out non-recurring revenue such as setup fees or consulting fees, and multiply it by four.
That will tell give you a close estimate as to what the ARR was as the start of that quarter. (The sophisticated reader here will note that this doesn’t tell you what ARR is at the end of the quarter, and it doesn’t include revenue contributed from in-quarter bookings … but we’ll leave that for another time).
In Workday’s most recent filings, for example, the company reported $141 million in quarterly revenue, of which $110.7 million was subscription revenue. By taking the subscription revenue and multiplying it by four, you can see that Workday likely started out that quarter with about $443 million in ARR.
We’ve performed the same calculations for Workday (ticker symbol WDAY) ServiceNow (NOW), NetSuite (N) and Salesforce.com (CRM), below.
|Most recent quarterly ending||Jan 31 2014||Dec 31, 2013||Dec 31 2013||Jan 31 2014|
|Quarterly revenue||$141 million||$125 million||$115 million||$1,145 million|
|% professional services||22.0%||16.3%||18.6%||6.1%|
|Quarterly recurring revenue||$111 million||$105 million||$93 million||$1,075 million|
|ARR (estimated)||$443 million||$420 million||$374 million||$4,300 million|
Now how about Box? Unfortunately, Box doesn’t actually break down how much of its revenue comes from subscription versus that which comes from professional services. We do know that professional services is less than 10% of the total revenue, otherwise it would need to present that separately from subscription revenue.
We’ll make an educated guess that Box’s consulting revenue is in-line with Salesforce.com’s and plug in 5%. Based on that, we see that Box started its most recent quarter at $148 million ARR, double what they were at one year ago. That’s pretty good growth.
|Most recent quarterly ending||Jan 31 2013||Jan 31 2014|
|Quarterly revenue||$19.6 million||$39 million|
|% professional services (**)||5%||5%|
|Quarterly recurring revenue||$18.7 million||$37 million|
|Starting ARR (estimated)||$75million||$148 million|
(**) Our guess
2. Well what do you know, it turns out cloud storage is not that expensive
One common refrain I’ve heard from people is that Box’s costs must be high, since they are storing all those files and have to purchase so many disks. And they must be losing money because they give so much of storage per user.
A look at Box’s gross margins shows a different tale.
But first, let’s do a quick Accounting 101 for the non-CPAs out there. In a SaaS company, there are really just three sources of costs: people, data center, and marketing. In the income statement, the part of Box’s S-1 filing causing the most comments, these costs are allocated into four key buckets:
Take a look at what Box says goes into its costs of revenue:
Our cost of revenue consists primarily of costs related to providing our cloud-based services to our paying customers, including employee compensation and related expenses for data center operations, customer support and professional services personnel, payments to outside infrastructure service providers, depreciation of servers and equipment, security services and other tools, as well as amortization of acquired technology.
Now, most folks will take these costs buckets and map that to revenue, to get a margin. Revenue minus costs of revenue, for example, is your gross margin. We’re going to do something different and compare these costs to ARR.
Why ARR? Think about it — the great thing about ARR is that it’s a forward looking metric — ARR very closely approximates what you expect to make this upcoming quarter, compared to revenue which tells you what you already made last quarter.
If you are Levie and Smith, and you know what your ARR is at the start of the quarter, you can make some smart decisions on how you want to spend that money. Comparing expenses to ARR better approximates how the executives in the company actually think and run their businesses.
To do this accurately, you have to take out the cost of goods sold that are tied to the professional services, and you have to take out the stock option expenses that are reported in the filings. That’s why we call this a Gross Recurring Margin, v.s just a Gross Margin.
Here are the numbers we calculated:
|Most recent quarterly ending||Jan 31 2014||Jan 31 2014||Dec 31, 2013||Dec 31 2013||Jan 31 2014|
|Estimated ARR at the start of the quarter||$148 million||$443 million||$420 million||$374 million||$4,300 million|
|Costs of Sales (annualized)||$31 million||$76 million||$94 million||$55 million||$743 million|
|Gross Recurring Margin||79%||83%||78%||85%||85%|
As you can see Box’s gross margins are in line with others in the SaaS industry. It actually doesn’t cost that much to offer storage in the cloud.
3. Recurring Revenue Margin: The Real Story
At the heart of financial accounting is the concept of matching. When $1 is shown on the income statement, it shows the amount of costs of goods sold, sales and marketing, R&D and G&A (general and administrative) that went into making that one dollar.
Unfortunately, the whole concept of matching starts to break down for subscription business models. That’s because ARR represents revenue acquired in previous periods, which are simply now renewing. Sure, you need to service the customer, so cost of goods and G&A is to service the customer and does match to the ARR.
How about R&D? Well, the traditional view says the products you are selling today are already done, and you are investing in research to create innovations that drive future sales. But here’s the thing — the customers of SaaS companies did not sign up for a static service that never gets better. If you know something about SaaS companies, they are obsessed about keeping their customers happy, to keep them buying the service, and they invest in R&D against that goal.
At Salesforce, we started naming releases with the seasons, for example the “Winter 2013 release,” to convey the constant rate we expected to add enhancements to the products. That’s why I like to think of R&D as being matched to ARR.
Sales and marketing is where it gets interesting. If your ARR represents today’s revenue that you expect to recur, then your spend on sales & marketing is going towards growing ARR. Acquiring future revenue that is not yet in ARR. In other words, today’s sales and marketing expenses are matched to future revenue.
(In accounting lingo, sales and marketing acts more like a “capital expenditure”, or capex for short. In the old manufacturing world, you invested in a big factory to build a bunch of widgets, and you spread the cost of that factory out over time as you made and sold those widgets over time. That would be depreciation of course. In the subscription economy, you invest in sales & marketing to acquire customers, and you recognize revenue from those customers over their lifetime, which often can be 3, 5, 10 years or more. However, accounting rules today do not let you spread or depreciate sales and marketing costs over time.)
That’s why we like to look at something we call Recurring Revenue Margin, which is your ARR minus your cost of sales, research and development, and G&A, but before the spend on sales and marketing.
|Most recent quarter ending||Jan 31 2014||Jan 31 2014||Dec 31, 2013||Dec 31 2013||Jan 31 2014|
|Estimated ARR at the start of the quarter||$148 million||$443 million||$420 million||$374 million||$4,300 million|
|Costs of Sales *||$31 million||$76 million||$94 million||$55 million||$743 million|
|Research & Development *||$51 million||$184 million||$75 million||$73 million||$576 million|
|General & Administrative *||$36 million||$59 million||$53 million||$40 million||$549 million|
|Recurring Revenue Margin||20%||28%||47%||55%||57%|
* Quarterly numbers annualized
When you look at Box’s business from a recurring revenue margin viewpoint, you see they are running a profitable business. If Box stopped all sales and marketing today, it wouldn’t grow any more, but it would have an intrinsic 20% margin business. Now, Box isn’t as profitable as Salesforce or Netsuite, yet, but when you look at Box’s recurring revenue margin over the last four quarters (below), the trend isn’t bad.
|Quarter ending||Apr 30 2013||Jul 31 2013||Oct 31 2013||Jan 31 2014|
|Estimated ARR at the start of the quarter||$89 million||$108 million||$128 million||$148 million|
|Costs of Sales||$17 million||$22 million||$27 million||$31 million|
|Research & Development||$35 million||$41 million||$45 million||$51 million|
|General & Administrative||$30 million||$33 million||$35 million||$36 million|
|Recurring Revenue Margin||8%||11%||16%||20%|
You can see that Box, and Workday, are spending in research & development. Why is R&D spending so high? I would speculate that this is Aaron betting on the future — Aaron likely believes he has a big market that is growing fast, and he needs to invest in R&D with more features to outpace Dropbox or Sharepoint.
4. The Genius of Going for Growth
So what have we established so far? We’ve established that subscription businesses really care about recurring revenue, which is measured by ARR. We’ve seen that on an ARR basis, Box is one of the fastest growing SaaS companies today. We’ve seen on a gross margin basis, it doesn’t cost Box too much to offer storage in the cloud, and on a recurring revenue margin basis, Box is building an inherently profitable business.
The last thing we will look at is where all the controversy lies. On his blog, Tomasz Tunguz notes that:
Box spends about 137% of their revenue on sales and marketing. This sales and marketing expense figure is 3x the average of 42% of revenue found across all other publicly traded SaaS companies at this point in their lifecycle. The next closest comparable is Cornerstone-on-Demand which spent 86% of revenue dollars for sales and marketing. Of the remaining 18 companies in the data set, no other firm exceeded 62%.
Let’s take that again. Box is spending more money on sales and marketing than it has revenues, 3 times more than its peer group, and over 50% more than the #2 spendthrift on the list. I see the Box billboard every day when I drive down Highway 101. So what is Aaron getting for all that money? Let’s take a look.
|Quarter ending||Oct 31 2013||Oct 31 2013||Sep 30 2013||Sep 30 2013||Oct 31 2013|
|Estimated ARR at the start of the quarter||$128 million||$399 million||$372 million||$343 million||$4,018 million|
|Estimated ARR at the end of the quarter||$148 million||$443 million||$420 million||$374 million||$4,300 million|
|ARR Growth||$20 million||$44 million||$48 million||$31 million||$282 million|
|Sales & Marketing Spend||$46 million||$56 million||$50 million||$50 million||$570 million|
In the quarter ending Oct. 31, 2013, Box spent $46 million in sales and marketing to grow ARR by $20 million, net of churn. That means he spent over $2 to acquire $1 of growth. Compared to other public SaaS companies, that’s on the high side, although if Box expects that $1 to recur for the next 5 or 10 years, that’s still a pretty good deal.
Has Aaron built a house of cards, one that requires more and more money to fuel, but that ultimately will fall apart when the music stops?
I don’t think so. I see a person who, by the age of 28, has convinced some pretty big names in the investment community to give him over $400 million dollars to go after a once-in-a-lifetime opportunity.
That’s pretty amazing in and of itself. But that’s not all. Aaron then built a business with strong fundamentals that is intrinsically profitable, if looked at in the right way.
Finally, by recognizing that he’s in land grab in a fast growing market with multiple players, Aaron is showing he has the courage to bet big and spend big to acquire as many customers as they can.
What if one day Aaron decides that he’s won, that he sees the market for cloud collaboration slowing, and he’s the clear market share leader? At that point, if he cuts R&D back down to 15%, and sales and marketing down to 15%, he’ll have a 25% margin business. If he’s a $1 billion company at that point, it means he can throw off $250 million in cash.
If he can grow that to $10 billion, he’s throwing off $2.5 billion in cash. That’s a great business. And that’s the genius of Aaron Levie.
Tien Tzuo is the founder and CEO of Zuora, a cloud service founded in 2007 that provides accounting and billing services for other cloud computing companies. Before Zuora, Tzuo spent 9 years at Salesforce.com where he was employee No. 11 and its former Chief Strategy Officer.
It’s not hard to understand why housing prices keep going up in San Francisco.
In simple terms, more people want to live in San Francisco than the current amount of housing can support.
When there’s higher demand for something than the supply can fulfill, prices go up.
Last week, we wrote about the fact that much of San Francisco is zoned for buildings shorter than 40 feet — with many areas not even developing to that limit — and some of the historical factors that have made things that way.
One of the major factors contributing to the severely insufficient housing stock has been the lack of upward development: taller buildings would mean more housing for the limited amount of space available.
But as Kim-Mai Cutler details in an extremely thorough story on TechCrunch, there are myriad other issues that have contributed to the current crisis of rising rents and gentrification.
According to several influential progressives in the area cited in the piece, these factors have made it so that almost no amount of new housing could make enough of a dent to bring down housing prices.
Calvin Welch, a member of the Council of Community Housing Organizations and the Haight Ashbury Neighborhood Council, wrote a paper in October explaining why new housing units won’t necessarily bring down rent like you’d expect from a simple analysis of supply in demand.
His primary points are that limited land (“of the city’s 47 square miles, only 13 square miles is available for housing uses, the rest being used for streets, schools, parks, beaches, office building, shops, hotels, conventioncenters, hospitals, police and fire stations, ” he notes) and speculation by cash-flush Wall Street investors buying up property have made it so that no matter how much housing is built, housing prices will still increase:
There are some weak points to his logic. He argues that falling housing production in 2001-2002 and 2008-2009 made housing prices fall, when in actuality those were recessions. In both cases, people lost their jobs, couldn’t afford “as much” housing (moving to less space or less desirable locations), and developers cut production because it wasn’t worth the investment, as we saw in housing markets across the nation.
He also says that because of the fact that prices rose in years of high housing production, the argument that more housing can help affordability is bunk. The thing is, he didn’t take into account how quickly people are moving to the city.
Between 2010 and 2013, the population of San Francisco grew by more than 10,000 people each year, according to estimates by the US Census Bureau. Housing units under development went from 4,220 in 2012 to over 7,000 in 2013. Fewer new housing starts than people entering the city means that the rest will have to compete for existing housing stock — driving prices up further.
But overall, he has a point. There’s a limited amount of space available for development in San Francisco; a huge portion of the development going on over the last few years has been aimed at the high end of the market.
If that trend continues, it’s inevitable that lower- and middle-income residents will be priced out of the market.
So what does Welch recommend to keep that from happening?
Basically, rent control and public housing. While rent control is helpful in the immediate sense — it means that a person with a wage that isn’t shooting up by the year can stay in their home — but there’s the downside for landlords: property values keep rising, which means tax bills go up. If they can’t collect more rent, that’s income out of their pocket. I’m not saying either side has the absolute answer in this situation, but it is a reason for political conflict.
Public housing, on the other hand, is incredibly expensive. As Tim Redmond noted on Monday, there’s about $800 million spent on housing subsidies in the Bay Area, and current funding is several hundred million dollars short of what current public housing development proposals have suggested. That money has to come from somewhere — again, something that’s going to be fought by whoever ends up having to pay higher taxes.
A middle-of-the-road solution is mandating affordable housing from developers. For instance, San Francisco Board of Supervisors representative Jane Kim has put forward legislation mandating that new housing developments in the South of Market area include 30% affordable housing units.
The plan could actually put developers and rent control advocates on the same side. Tim Redmond writes:
In theory, that would encourage developers to side with tenant advocates protecting existing rent-controlled housing — because if you evict tenants and remove housing from the rent-controlled stock, it skews the 70-30 ratio and would make new market-rate developments more difficult.
To sweeten the deal, Kim has said that she’s open to adding incentives for developers. As the SF Gate’s Marisa Lagos reported last week, those incentives could include a “density bonus” — which would let developers build even higher if they included more affordable housing — or a “dial” system, which would let developers build especially affordable housing but include fewer units.
The biggest argument over mandates is the ratio of affordable housing to total growth. Is 30% too low? Too high? That’s likely to be subject to a lot of argument as similar proposals are put forward in other areas.