As long as demand outstrips supply, prices will go up. How much depends on how big the gap is. Government action can try to limit this (subsidizing construction in nearby areas, improving public transit to areas with more room to build, slashing police budgets to increase the crime rate....) but it only works if it can shift the demand.

> slashing police budgets to increase the crime rate [to reduce housing prices]

That sounds interesting -- can you point me to any documentation about this practice, or are you just brainstorming?

It's simply a matter of supply-and-demand economics. Supply is going up, but demand is going up even faster, like one or two orders of magnitude faster.

San Francisco's population has been growing at about 900 people per month for the past few years. San Francisco's housing stock has been growing at about 150 units per month. Approving new housing is way too hard, and the economically illiterate voters just throw up even more roadblocks to housing (e.g. Proposition B, passed by 14% of San Francisco's registered voters in a very-low-turnout June 2014 election).

Tall buildings also cost more per unit to build, which needs to come out in the price. But the way I see it, 1 unit of rich person living in a luxury condo is 1 unit of rich person not out-competing a middle-class family for a little house in a boring neighborhood.

Again, the reasonable expectation and misconception. When you have a remarkably elastic demand for housing (tech workers and college students WILL pay), then it signals to property owners that they can raise rates by a few ticks. Like I mentioned above, if you create a ton of prime housing stock and charge a ton to live there, then you've effectively moved the goalposts and set the new normal for rent. So while that rich person may not live in the boring neighborhood, the middle class family will have to pay more to live there because of the presence of proximate wealth.

Economic illiteracy, Exhibit A.

The definition of elastic demand is that there is change in demand given a change in price. College students and tech workers, who will pay anything for their place, are examples of demand inelasticity. The demand keeps going up, despite the price.

Though, I suppose you have a point, considering the global market. There are enough houses in the United States for everybody to live. It’s just that more people want to live in the Bay Area than in Detroit, so we’re double- and quadruple-packed here while entire neighborhoods go empty there. And then, skyrocketing house prices attract speculators, who will bid against people who actually belong here and keep the price rising as long as possible.

The missing bit is that that first dense housing signals unmet demand. The real keys are:

1. is to keep on going with the dense housing to saturate.

2. a city council that insists on below-market-rate housing be included with the development

3. layer cake development: bottom floor is retail, middle is office, top floors are apartments/hotels + below market rate

This prevents developers from cherry-picking the highest demand usage for their building at the expense of the total needs of the community.