Why doesn't the San Francisco Bay Area have two-story houses? The San Francisco Bay Area is an interesting place. Housing prices are through the roof (hehe) and increasing by an average of 5-20% per year for the past 20 years. This is largely driven by an increase in land values, as the SF Bay Area has very high incomes and rapid hiring, but geographically constrained area for settlement, leading to a supply and demand issue that has been driving up home prices to astronomical levels.
Interestingly, nearly all homes in the Bay Area are one-story, as opposed to the two-story homes so common elsewhere. I'm trying to square this with the relevant economic factors and I'm coming up just a bit short. Why would a land-dominant housing market lead to below-average construction of larger houses, when the relative cost of building a second floor is lower than it would be in a market where land is cheaper?
Areas such as San Francisco Bay Area have very strict zoning laws. In fact as this source shows in San Francisco Bay Area many houses are restricted to be single family houses. The source focuses mainly on Berkeley and Oakland but discusses also the situation of the wider area.
Adding an extra story just for your own family might not be economical even if there is housing shortage. Furthermore, there might be further restrictions on any such buildings (e.g. neighbors complaining to the zoning board that second story blocks their view/sun). Lastly, the housing shortage and exorbitant housing prices in cities such as San Francisco can actually itself be attributed (among other things) to the zoning laws themselves in the first place (see for example The Impact of Zoning on Housing Affordability Edward L. Glaeser, Joseph Gyourko).