The San Francisco Rent Explosion Part III
priceonomics.com
priceonomics.com
My question is not if things are going up (they are), but what can we do about them. We are going to destroy our neighborhoods, culture and opportunities (yes, even for us software developers) if these things keep going up like this. Unless none of us ever want to have more than a 150 sq/ft bedroom that we rent (no kids, room for hobbies, etc), we need to find a solution.
I'm really sad for my friends who aren't developers, because its impossible to keep up. I don't want everyone to be a developer. I don't think that is culturally good, or a solution. I want artists, academics, electricians, caregivers, medical professionals, and people of all walks of life in my city.
Look, we've got some incredibly bright minds on here. What is a realistic, forward looking and innovative way we can work on this? We're aiming for the moon, hyperloops and self driving cars... but maybe a few people can try to figure out how to make it so that cities aren't absolutely terrible cost-wise to live in?
NEW THOUGHT: Yes, it is supply and demand. I wonder if someone can start a company whose mission is to quickly create scalable affordable housing in major cities? Something involving tricks for greater density, new building techniques, focus on efficiency but also quality of life... and doing it fast. We need this in 2 years, not 20. How can we build 20,000 units of housing within reach of someone in their 20's in the middle of the income range in each Boston, NYC and SF?
The public transit infrastructure, and road infrastructure, in Boston and SF is insufficient to make living further away ok for most people. But again, that basically just creates neighborhoods of software/biotech people and nothing else, which feels terrible.
It might also push the rent up in your neighorhood/suburb, but across the metro area as a whole, adding luxury housing lowers prices.
ala Volkswagen's Westfalia
Honda Element conversions
Toyota's old mini-van (MasterAce ?)
http://www.designboom.com/design/cornelius-comanns-bufalino/
http://eliomotors.com/ but in camper form?
If I am to believe the self fulfilling prophecy of "the market cycle", it's just a game of hot potato.
Two immediate solutions:
(1) Create compelling reasons for someone to not want to live in this one particular city. For instance, allow one to work remotely. There are hundreds if not thousands of amazing cities to be enjoyed, not to mention the vast stretches of rural land for those who don't want to live in a city at all.
(2) Build more housing units in the city. Eliminate zoning restrictions. Stop worrying about protecting the existing homeowners and pay more attention to everyone else.
Note that both of these are mostly matters of just convincing people to jump on board the plan. People in general are resistant to remote work (especially outside the software world, but even inside it), and some cities like San Francisco are extremely hostile towards a vast number of proposals to just build more housing.
When you combine the desire to compress an entire industry into one city with a refusal to build more housing units, what result could you possibly expect?
A lot of folks who work remotely prefer the city since it gives them all the amenities that an office usually would like food (restaurants), gyms, cafes and an environment with a lot of people.
(I edited the above quote now to reflect this.)
Having good transit is really really important. But it doesn't have to be 24/7 for the vast majority of people. In the maybe once per year that I need to go somewhere in 3am on a weekday I can take the night bus or even a taxi.
Every evening transit trip to SF (if you live in the south bay) results in end-of-day stress of trying to make the last train home if you don't have overnight accommodations. Not to mention the full South Bay route takes 90 minutes (to go 40 miles!), so you leave at midnight SF and arrive at 1:30 am San Jose.
I've lived n Vienna and Berlin and in both the subways go till around 1am on weekdays and 24h on weekends, iirc it's about that way in Prague too. I thought this was the type of situation you were comparing it to.
Before they started running the subways all night on weekends in Vienna (which I think only started maybe 5 years ago) I would often have to take the night busses on weekend evenings, which would suck cause they only went every half an hour.
If there was more remote work that split the difference in pay, and allowed me to work in a slightly smaller city farther north, I'd really prefer that. But the income:living ratio in most of the places with more tech jobs just isn't as good.
These three things are not synonymous - or at least, they need not be.
For example, New York is building a lot of units. (A lot of them happen to be luxury units which often sit vacant since they are used purely as investment vehicles by foreign entities, but that's a separate problem.) The real issue is that Manhattan is an island, and there's only so much you can cram into 33 square miles (though they're working on squeezing every last cubic inch out of that). They're also, of course, building at an absolutely unbelievable pace in Brooklyn, Queens, and even the Bronx[0].
San Francisco, on the other hand, has been incredibly slow to build more inventory (and also build upwards), compared to the amount that the demand has increased. This may be partly due to zoning issues, but not entirely, and the situation that San Francisco is in is not typical of most cities.
Houston is famous for having no zoning code, but New York has a very extensive zoning code[1]. In fact, the market for air rights in New York is quite complicated and fascinating[2]. You can build more housing without scaling back zoning restrictions or removing them entirely; there's just not always enough will to do so in every city.
[0] not sure about Staten Island, but... well, let's not talk about that.
The second avenue subway should help somewhat (assuming it's finished before the heat death of the universe) but increasing congestion and the subsequent decay in the quality of buses transit is a worrying countervailing trend.
In addition to this, you can save a lot of money... paying someone 80% more in SF or NYC, vs letting them stay in Phoenix or Austin and splitting the difference is a great option... you get very senior people for mid-level pay (vs in office). I'd much rather see $150k in Phoenix, than $190-210k in NYC, or $215-240k in SF... especially given Sr. positions in Phoenix tend to cap out around $110-130k.
Of course I'd love to keep east coast hours on the west coast ;-)
This is common in Europe where business parks are setup in underdeveloped areas to encourage investment from outside. Usually these are coupled with reduced tax deals as it's in the governments interest to have people in the area in work rather than claiming unemployment.
More useful would be a tax which increases the longer a vacancy exists on unused lots, vacant or secondary apartments/housing, and property sales that have been unsold for X number of days.
Real estate speculation and housing as financial instruments are basically contemporary feudalism.
The larger answer is changing things so not everyone wants to live in the same place.
Figuring out how more people could work remotely while remaining productive would have a huge payoff in this area. But I don't think that's particularly amenable to a wholly technical solution. It's more of a problem of applied psychology in the form of management techniques.
From a different direction, considerably better urban and regional mass transit would help. In the bay area, that's made much more difficult by the relatively small geographic size of SF proper as compared to the metro area. Compare NYC which incorporated its inner suburbs a century ago. Though on the upside at least all of the bay area is in one state.
To be honest, San Francisco is nowhere near any reasonable density limits.
Population densities:
San Francisco 7 000/km²
Paris 21 000/km²
Manhattan 27 000/km²
Kowloon Walled City 1 255 000/km²
I wish someone would wake up and try to build out from a nice city somewhere else with room to grow. Boise, ID and Reno, NV come to mind... For that matter grow existing cities with infrastructure and room for growth. Some of the latter is happening but not nearly to the extent that it has in SF.
There are plenty of cities that have room, and would appreciate seeing hundreds of thousands of tech jobs move into the area in a couple decades, without the population constraints SF is seeing.
Paris is, mostly, not a city of skyscrapers. Depends on how you define a skyscraper, but for example Paris has less over 400ft tall buildings than San Francisco.
I live in Boise, good luck. Almost everyone here is actively hostile to public transportation and high-density construction - so while there's plenty of area to expand to the South towards Mountain Home it's almost entirely overpriced subdivisions, with no transit options other than your own vehicle - and don't get me started on the mess that we already have with I-84.
The lack of high-density construction isn't really that big of an issue since we have plenty of space, but the lack of public transit funding is going to bite us and is largely responsible for why you mostly see expansion towards the West along I-84, which is causing us to start looking at expanding it yet again, why on Earth we haven't invested in commuter rail at this point is beyond me.
I'm not saying it's a great example, just an example of a decently sized city that isn't locked in and could be a growth area. Right now, I try to live fairly centrally, but that puts work that is closer to the edges of the area out of what I consider a reasonable commute for me (I won't go much over a 30 minute commute).
However expanding public transport in SF is almost a difficult an issue as building skyscrapers. See the central subway as an example of the other end of NIMBYism.
The BART SFO extension took about 30 years to complete. That took a lot longer was a lot more litigious than the construction of the Central Subway.
2. Buy some popcorn.
3. Wait for the bubble to burst.
4. Actually you don't care if the bubble will burst because you are not living in SF.
After the last bubble "burst", you think you could scoop up some cheap property in SF? Nope. Maybe prices dropped 10-15%, and now they're higher than they ever were.
People are flocking to cities, which means the suburbs are the ones that get hammered when prices drop.
What I am saying is why bust a gut as a sub $150k coder to see all your money burned up as rent in SF when you can go to a.n.other city have a better quality of life, more expendable income, the chance to buy instead of rent, etc.
In established neighborhoods, it was probably more like 20%, but there were still foreclosures and a lot of deals to be had. Even 4-5 years ago, there were condo foreclosures near the Caltrain station at 4th and king going for around 300-400k. Granted, SOMA has improved as a neighborhood more than pretty much anywhere else in the city, but it is a myth that property values don't fall in SF. They do and have every 7-10 years (91, 01, 08...), though the long-term trajectory is obviously up.
Even in Finland, with relatively good salaries for construction workers, and high quality buildings insulated to withstand Finnish winters, building an apartment building usually costs under 2000€/m2 ($165/sq-ft).
It is not the construction that makes apartments expensive, it is the price of land in a good location.
So the problem is mostly political. Existing residents usually strongly oppose building new homes for new people in their neighborhoods. Especially if you'd like to build higher and denser than the area previously was. And the potential future residents do not have a right to vote, only the existing residents can vote. And even if you can buy a piece of land, city politicians/bureaucrats may not give you permission to build as much square footage as you might want. Because the want to "preserve the character of the neighborhood".
So usually cities do all kind of kicking and screaming to resist growth.
because typical "higher and denser" coupled with bottom-line optimization by the developer results in making crappy, less livable environment. More people means need for more transportation, more parks ... - the developer in cooperation with the city could build parks inside/on-top the new high-rise, build new transportation options, etc.., yet it would cut into the bottom-line. Classical tragedy of commons. So existing residents resist more load on the existing commons, yet i think it would be different if new construction was creating more commons and/or really improving existing.
Right now my rent in a fairly nice place in Arizona (Tempe) is $1400/month. Similar places in SF/NYC are 3-4 times that much.
To own. Apartments in central areas of Helsinki typically sell between 4000€/m2 to 8000/m2. So the cost of just constructing the building would be something between 20% to 40-50% of the total price. It is the land price, not the construction, that dominates apartment prices in any city.
NY, Seattle, Boston, Northern Virginia / DC, Los Angeles - are all excellent start-up destinations depending on your needs.
There are second tier start-up locations as well that can be quite nice, such as the research triangle in North Carolina or Dallas - Fort Worth. If you're in energy, perhaps Houston (it continues to boom); if you're in biotech / pharma, perhaps San Diego. Denver and Portland can be nice for lifestyle purposes. And so on.
The thing with starting a company is its very rarely just you that is involved in the enterprise; you need developers, you need designers, you need bd people. People that do these things for startups tend to have a slightly different slant or skill-set than people that do them for large companies. As a result, it is a distinct advantage to be near large population centers that have a wealth of this talent.
One of the contributing factors to this is the organization that spawned the very website this is posted to; YCombinator based in SV and companies doing a class move to the bay area for it. The gravity is strong here.
Can you start a company outside the valley? Yes. Is it going to make things much more difficult for yourself doing so? Probably.
Another contributing factor to the dispersion of startups that hasn't been mentioned is remote work. It is possible to have an office in SF and keep yourself and your family elsewhere.
I would love to see data on this one way or another. I find it very hard to believe that it is quantifiably more difficult to start a company outside of Silicon Valley. But you are not the first person to state that.
Django (excluding python specific): MV: 2231, NYC: 2120, Austin: 41, Chicago: 126
RoR (excluding ruby only) MV: 4119, NYC: 4390, Austin: 158, Chicago: 417
I could probably go deeper but at least from a glance it is easy to see why starting in NYC or SF would be preferable.
I'm from Chicago and while the startup scene there is pretty solid (cheap rent, large city, big financial center for funding) SF Bay is in a league of its own (maybe NYC also).
That doesn't mean you won't find investors, resources, etc in other cities. Is basically the same as asking whether you should go to a top 10 school or go to a top 50 school. You can have the same amount of success at both opportunities its just how much effort you put into it.
Moving to silicon valley won't make your business successful, but it will give you access to the tools and connections you need to help yourself. These same tools exist elsewhere but you might have to search a bit harder.
SF/Bay Area is truly head and shoulders above anywhere else for startups. Like Shaquille O'neal's head and shoulders.
That said, it doesn't make it impossible elsewhere.
As San Francisco startups like this one[1], which has an all-in cost of $146,000/year per employee and an insane rent to revenue ratio of 15%, demonstrate, investors are largely footing the bill for the explosion in residential and commercial real estate costs that the boom they're funding has helped create.
It'd be interesting to know the economics for the owners and then the city as well (with taxes).
Anyone with some brains can figure out Oakland, or heck, American Canyon is just as good a place to start-up. At these rents, even Portland is looking good. The 'community' of other entrepreneurs that SF expounds as the reason to start-up there has it's price and its possible all the smart money is leaving it behind. Let the other investors pay the landlords while you sell the next big widget.
Existing startup community can be found mostly via http://siliconprairienews.com/ or incubators like http://betablox.com/
when they stop making $$ from it.
But one shouldn't assume that the angels that have flooded the market are all making real money. Even many of the minority who have seemingly enviable portfolios are primarily sitting on unrealized gains, and many of those have a very sizable portion of those unrealized gains concentrated in a very small portion of their portfolios.
Additionally, there are a lot of barriers to success as an angel even if you are good at picking winners. From position sizes (small) to pro rata rights (ignored or too expensive to exercise), a lot of things can conspire against optimal returns even when you invest in good companies.
My sense is that a good deal of angel capital in the Bay Area, particularly that which is frequently invested in party rounds for the most attractive early-stage startups, is recycled from folks who have done well at a previous company (or two or three) and are having fun with their monopoly money.
But my original point stands. Investors are out to do one thing: make money. As soon as whatever they're doing stops making them money(on paper or otherwise) then they'll stop doing it.
Previous discussion: https://news.ycombinator.com/item?id=8174583
Non SF person here. Can anyone explain? With exploding demand it should have trickled there by now ( Bayview, Excelsior)
Paris and London have pretty fantastic transit.
And as much I grumble, NYC is one of the few places in America I feel ok about going all around the city without a car.
I think it's only a hard political problem, but not a hard technical problem at this point.
I'd guess any European city is better than NYC, which is the best that America has.
Bayview is not very pleasant. My friend's home was burglarized. My brother was mugged and his G1 stolen, back when that was the only Android phone. There are noisy trains and a smelly sewage treatment plant. There are reasons people aspire not to live there.
There are some startups in the Dogpatch further that direction towards Bayview, but already the commute time for most employees is double if you do that due to having to switch from BART train to MUNI train which is much slower and less frequent, and god knows what serves most of Bayview.
Buses where you would get mugged and stuck in traffic maybe? I'd be happier in the East Bay at that point as long as BART was near. The few times I've tried the bus system, half the time the bus is full or late. I own a car, but traffic is ridiculous, so I don't consider it usable for commuting.
Well, the T train runs down the edge of Bayview as far as the Bayshore Caltrain station. But it's reasonably slow and kind of awkwardly routed for the time being (it goes past the ballpark and along the Embarcadero before reversing down Market). Maybe that will change when they open the central subway in the future.
http://inhabitat.com/nyc/wp-content/blogs.dir/2/files/2013/1...
I also walk down these streets frequently late at night to buy stuff from the Safeway. I don't think it's very dangerous.
Basically, these are the last places in SF that are:
1. Relatively affordable.
2. Relatively close to BART.
I live a five minute walk from Balboa Park BART and my mortgage is $3,000 a month for a 2BR1BA house with garage that I bought two years ago. Previously I lived a 10 minute walk from Glenn Park BART and my rent was $2,000 a month for a 2BR1BA house with garage (albeit now a few years old, so I'm sure the rent is higher now).
The area is pretty safe. It's not like a rural small town or like what I kind of assume Pac Heights is like, but it's probably safer than Inner Mission or SOMA, and both I and my wife (a small woman) feel safe wandering around singly after dark.
So why is it relatively cheap? Well, first, inertia from a point when it was less safe -- you can see some of the progression of the neighborhood by looking at the houses. Recently remodeled ones do not have metal security gates on their doors or bars on their windows, but ones that haven't been touched in 15 or 20 years definitely do.
But also, it's just not a very hip neighborhood and doesn't have the density of bars/coffee shops/bicycle stores that other neighborhoods do. It's a little farther from the nightlife centers of the city.
Ultimately, I think these areas are rapidly gentrifying as well, but they're behind the curve of the rest of the city.
Now if you live in a place like sunset or anywhere in the southern part of the city you are kind of stuck. The southern part of the city you will have to take a bus. The bus can be a terrible experience, if you live on the edges expect a 1hr 1way commute. This is just a rough guideline, not always true. Sure sunset has muni trains but its still slow because the majority of the time muni is above ground on the road and does not have right of way.
I live in outer richmond. I think the pricing data is skewed here due to seacliff.
TLDR; transportation sucks. Most of the areas that look cheap require you to have a car and drive.
[1] https://www.google.com/maps/@37.7895641,-122.3885496,3a,19y,...