Finally an explanation that improves upon my explanation of the San Francisco market:
This Business Week Online article explains that Economists from Wharton & Columbia business schools coined the term "super cities" for cities like San Francisco and Boston that have two factors that most other cities don't have.
1. People all over the world love San Francisco and want to live here. Not true of St. Louis, Houston, and numerous other cities. You know this if you ever travelled abroad and told them you were from San Francisco.
2. San Francisco and Boston both have limited supply - you can't build on 3 sides which are water, and in San Francisco, money gravitates to an even smaller part of the city - basically the northernmost neighborhoods from Pac Heights northward.
This article further states that it isn't only the limited land, but the regulatary zoning measures that limit building height and size. In San Francsico you're only seeing new high-rises in SOMA & South Beach. If you want Golden Gate Bridge views, or proximity to it, there is NOTHING new going up other then tear downs being rebuilt to the same small-ish sizes.
This is murder on first time home buyers which is why there are so many hateful activists and sour bubble proponents. They or their constituents are priced out of the San Francisco market, and it's becoming a town only the wealthy can afford. This could have negative long term effects - like negative population growth since so many people can't afford to live here, but if you can afford to buy here, rest assured.... many more wealthy people are being created every day around the world who would love to live here too. And while my personal political beliefs do NOT like what is happening with the disparity between the Haves and Have Nots, and I think something has to be done, the fact is that the Haves are growing in size and wealth, which will continue to drive prime SF prices for the foreseeable future.