What you call dysfunction I would call the market reaching equilibrium. The market is working efficiently if pricing signals cause housing seekers to look elsewhere due to limited supply or market clearing prices beyond their means.

For example, not everyone can afford San Francisco, but there is a lot of buildable land besides SF in California (the Central Valley, for instance). Everyone should be housed, but it’s likely it might not be their first choice.

This makes sense in an economics-textbook kind of way; but systematically excluding low- and middle-income people from a given city would not turn out well in reality, I think.

All cities need janitors, teachers, baristas, grocery clerks, garbage collectors, etc. in order to function, and those people have to live somewhere at least within a reasonable commuting distance to the city. You can't have all the garbage collectors move out to Bakersfield and have San Francisco _just_ be a citadel of software engineers, unless the software engineers haul their own garbage, or the garbage collectors in SF also get paid $100k+ per year.

Doesn't that dilemma also have an econ 101 answer though?

The teachers, janitors, baristas, etc will move to the location that gives them a better quality of life. If they decide that's not San Francisco, they can move to a better city. If SF wants them back, SF can sweeten the deal for them.

I guess it's kinda sad that not everyone who wants to live in SF gets to, but I'm not sure how "closing the door" is any more fair.

I think that "SF can sweeten the deal for them", while true in theory, does a lot of work in glossing over exactly how it could sweeten the deal for them. By offering higher pay? Or perhaps by somehow providing more affordable housing?

Which (as I understand it) is kind of the topic of this whole sub-discussion: it is not easy to find a solution which will sweeten the deal for them (aka: make it economically feasible and attractive for low/middle income people to live and work in a city with a housing shortage and high housing costs). Rent control is one such proposed solution. It has its benefits and drawbacks, of course, as evidenced by all the debate about it here.

I don't think they actually have a choice though. In person jobs are available in specific locations

I think that's an important issue. If there isn't a real choice about where to live, it's a much bigger problem. I guess I'm under the impression that the labor market is pretty tight across the country right now. I was under the impression that people had pretty good opportunities if they moved out of SF/Seattle/whatever, but I guess I haven't seen real data to back that up.

It's a self solving problem though. If businesses _need_ janitors and there are very few janitors around, those remaining ones can charge very high rates for their work.

Then you either pay very high rates for basic labor or you push the government to build cheaper housing. It all fixes it self.

My point is, the political leadership in most of these locations wring their hands and say "oh no, it's terrible, our janitors and nurses and families with little kids can't afford to live here, it's horrible" and then implement some sort of half-assed kludge that's only effective at giving naïve folks the impression that they care.

Rent control would be one such measure. Other examples are loans with better-than-market terms for certain privileged buyers, publicly-built houses sold at lower than market rates and so on. The market reaching equilibrium for everyone and the local government saying "sorry, but screw you" to buyers is at least honest, if a little heartless from the voters who live there.

I suppose it's fair enough as long as other markets with decent job options are available elsewhere. If not, I would classify it as a failure of democracy if a significant portion of society has no better option than to pay most of their productive output towards rent. This probably varies a lot by location; San Francisco wouldn't be the first example I'd use. Maybe Oslo.

I'd agree if San Francisco was full, but it's possible to build up and increase density so people can live close to their jobs.

People per square mile: San Francisco: 17,246.4 Brooklyn: 35,369.1 Manhattan: 69,467.5

People in SF simply aren’t willing to pay that much for the shoe box condos/apartments necessary to reach manhattan density. That’s what the market is signalling. Because of course even the most die hard nimby would likely take a 8 figure buyout offer for their 7 figure home. If the developer could afford that and still profit, i.e. if they could then sell the units at thousands of dollars per square foot.

If demand ever reaches that high then the market will move to a new equilibrium.

You can have large apartments in tall buildings. There just aren't enough high rise buildings in SF.

Those jobs can be remote, and it is cheaper to encourage employers economically to support remote work than to reshape entire geographies with housing.

Speaking of Manhattan:

https://www.nytimes.com/2021/07/01/nyregion/manhattan-vacant... (Office Vacancies Soar in New York, a Dire Sign for the City’s Recovery; Nearly 19 percent of all office space in Manhattan has no tenants — the highest on record — as companies shed leases and embrace remote work.)

https://www.bloomberg.com/news/articles/2020-12-05/even-befo... (Even Before Covid 2,600 People a Week Were Leaving New York City)