Rents in Megacities Can't Go Up Forever | Hacker News Reader

Rents in Megacities Can't Go Up Forever

bloomberg.com

206 pointsjseliger377 comments

Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world. Let's concentrate on the US for a moment. Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines? Talented people already move from one coast to the other, so they could as well move to any other place. The rest of the country's infrastructure is so good that you could connect venture capitalists, founders and customers in any arbitrary way.

I also say to the main point of the articles: rents have a lot of room to grow under the current logic. City centers simply get voided of average earning people and replaced by high earning ones. As soon as they are the average earners, even more wealthy people move in. Also with the rents, salaries go up, so people have the possibility to pay for their accommodation again. While in Berlin you could easily live with 40.000 Dollar/year, you'll probably have to add another 60.000 so people are at least somehow able to move to work for your new shiny SV company.

>Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world. Let's concentrate on the US for a moment. Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?

Because the real commodity being sold with the apartments and offices isn't net access or even land. It's proximity to rich people. It's not an open market economy; it's a feudal system in which you need to stick close to your patrons.

While there's certainly some true to that statement, I think you're being overly cynical. People congregate in cities to be near _people_. For sure with a good internet connection I could do all my work from small town america living in a mcmansion at a quarter of my rent; instead I live in nyc. Access to artistic communities, robust public transit, diverse food and culture, and a fluid job market makes the value add for me a no brainer. Im sure for different people the economics don't work out so cleanly, but online I feel like discussions on rent and technology tend to gloss over the things you're actually paying for.

A successful startup isn't going to be in the cities you mentioned because you have to convince people that they find the non-work related amenities they've gone to SF, Seattle, NYC, etc to find. Or go full remote, which has its own set of challenges (though I'd posit a full remote company really isn't in any one city so it doesn't really matter where the founders live).

And that's just the employee point of view. Access to capital, to useful investors, to founder networks and to decision makers of your prospects are all important factors in where to set up shop.

We're located in Cebu, Philippines, the 2nd biggest city in the country, and our CEO spends a good deal of time in Manila, the capital, because decision makers want to meet someone. Starting there, would have been easier for many of the above mentioned aspects.

> Access to artistic communities, robust public transit, diverse food and culture, and a fluid job market makes the value add for me a no brainer.

Other than the public transit, all of the above are available in any number of towns and cities in the U.S.

A half a century ago maybe you had to go to NYC to hear great live music and eat Cambodian food, find specialty ingredients, or get access to off-beat books. But that's not the case any longer. I just googled and apparently there are Cambodian restaurants in Des Moines, Iowa. The internet can get you all the ingredients, music, and books you'll want.

Honestly, I think the coastal cities just have better marketing and more hipster appeal.

I've lived in NYC and Buffalo, a reasonably large city 8 hours north of NYC. The two experiences are not at all comparable, particularly with food and diversity in culture. Although a large Chinese population exists as international students in Buffalo, you can't get anywhere near the close-as-authentic-as-you-get-in-the-states Chinese food in Buffalo that is available in spades in NYC area(particularly Flushing,Queens). this applies equally to Indian, Ethiopian, etc. cuisine. Many particular specialties that I enjoy aren't available in Buffalo at all.

Not every Cambodian restaurant is the same. I promise you the best Cambodian restaurant in Des Moines is nowhere nearly as good as any half-decent Cambodian restaurant in New York. Same goes with Italian and Japanese and Spanish and Thai and Korean. Are you really equating the food scene in Des Moines with that of New York by the availability of cultural cuisines?

Not sure where to jump into this thread:

There are many good reasons the bay area is the hub of tech development. It all started with proximity to two very good computer science schools; Stanford and UC Berkeley. At this point, there are more tech-savvy investors here than anywhere else.

Ongoing development of technology is an iterative process and by necessity, must be a productive one to get to market more quickly. The VCs and the talent pool are here in the bay area. If a startup wants to get to market quickly, that startup will need money and talent, both of which are people issues.

Maybe it was related to the proximity to silicon valley which wasn't due to the computer science departments of Stanford and UC Berkeley, although Stanford did likely place a role.

I have to disagree strongly. I live in NYC for work. I actually hate living here and I don't like the people I'm around. I am desperately looking for a way out of this city but my family lives on Long Island, so it's hard to justify going to another city.

Why don't you move to Long Island and commute? If you don't like the city there are plenty of smaller towns nearby and it's cheaper too.

That's a very interesting and original way of looking at it.

It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc).

Do you have any links or references exploring that idea in greater detail?

I don't mean to have this come across as snarky, at all, but really the reference for this is the whole of human history.

Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up.

The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.

That's not snarky, and you have a point.

But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case.

We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on.

This proximity to wealth may be a symptom of some third factor or it may be the driving factor.

That's why I appreciate it when smart, hard-working people take their time to figure it out for me.

It also provides a place with interesting signals. You could tell shale oil was going to take off when Minot ND suddenly had direct, daily flights from Houston.

The reference that I posted elsewhere in this thread is pretty thorough: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf

In industrial industries like Oil & Gas, there are also a lot of advantages to having clusters of suppliers and service industries together. When I worked in the drilling business (not in Houston but in another city fairly nearby), pretty much all the overhaul, fabrication, part suppliers, etc. were all in the general area and we could visit them to review plans, oversee tests, etc.

A good resource that is still in use today by many urban planners is a book called "The Death and Life of Great American Cities" by Jane Jacobs. She explores among other things the growth, decline and renewal of urban centers. Even though this was written in the 60's most of her ideas are still considered when city urban planners make decisions.

Remember that you have consolidation happening too!

Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads.

As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you.

Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office.

Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.

Are you serious? That's Students choose to attend "good schools" because of the networks and resources. Immigrants flock to the US because of our resources. Increasing your chances of prosperity is the reason why anyone moves anywhere (unless a family member is in need).

I first read about this connection in Paul Graham's essay "How to be Silicon Valley" [1]

[1]: http://www.paulgraham.com/siliconvalley.html

In my field we service the financial industry and this couldn't be more true. It's a requirement to be in physical proximity to midtown and Wall Street. However phrasing it like you do doesn't make me feel all that good :(

Don't feel bad, you have a real reason to be close by because light speed is only so fast. I remember reading recently somewhere that some firm had microwave relay systems in place so they could get data faster. High frequency trading only works with the best data!

CEOs are wealthy enough to live in the places and apparently desire to. This creates jobs in those cities and people will pay to live in them. Some people end up working remotely and live in cheaper places but not everyone has this option.

I'm pretty sure you have this backwards. The company doesn't locate itself where the CEO wants to be. The company is just located somewhere.... and the CEO will usually move to wherever that is upon hiring, unless they already live there.

you could argue it is a form of apartheid: manhattan and the san francisco peninsula are classic constrained square miles with limited access points.

The walled City of London, a separate sovereign maritime nation situated within London is another historic example...

https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feab...

That's it, although I'd say it's access to capital & advice from wealthy people.

You can code and create a product anywhere; you can meet VCs by flying into SFO (VCs might fly to you if you are extremely successful already).

I'd say that capital flows freely and advice can be given anywhere. What's hard to cultivate and maintain at a distance is friendship.

I think that capital aggregates in trade centres, where materials can be exchanged and deals can be made extremely swiftly. People closer to the trade can get information more quickly, and quickly react to it too.

Individual capital is very liquid, but the herd is not. Consider San Francisco: it has capital because of tech, because of the need for electronics & power for running a port, because of the trade in the Bay, because of the gold miners in 1849. That capital hasn't moved significantly to (say) Bakersfield.

> It's proximity to rich people.

You have to be a lot more specific. There is an immense number of rich people in Los Angeles and it has historically had a mediocre tech scene for example (especially compared to SF, but it also lags Seattle and NY currently).

It's proximity to large numbers of very specific rich people.

I live in Chicago. I love it here because of everything else it has to offer. I have everything almost everything I need available to me within walking distance from home. That includes grocery store, dive bars, cheap restaurants, high end restaurants, clubs.

For anything else I may want to do (concerts, sports games, plays, comedy), there are dozens of world class options within a ten minute cab drive / 30 minutes on public transportation.

It's gotten to the point, where if there's a band I want to see, but they're in the suburbs, I'll just wait til they're back in the city.

I grew up and went to college two different small beach towns. There wasn't much of anything to do besides drink. If you wanted culture, you'd have to get in your car and drive at least an hour.

I have no desire to live outside of a big city, unless it is in the middle of nowhere, but in that case, I will still have a home in a city.

My guess is a lot of other people feel the same way.

> If you wanted culture, you'd have to get in your car and drive at least an hour.

Everywhere has culture. You just didn't like the one you were in.

In tiny towns, the culture looks more like running around in the woods, country music, 4-H club, and church potlucks. That's a culture, even if you don't like it. And, besides, in the internet age there are plenty of farmers' daughters that get really into oil painting or Korean TV or opera. Producing great culture is harder without a local community, but it's not like there's no access to culture in small towns. They're binge watching Iron Fist just like all the other geeks.

People tend to use "culture" to refer, more often than not, to the local availability of global culture-production top-dogs. For example, New York has "fashion culture", because it's a place where you can expect to run into people who aren't just into fashion, but who lead and dictate the world's fashion.

In other words, people want access to socially-dominant individuals. It's probably some sort of backwards instinct that doesn't serve us very well these days, given that for each of the top 100 people in anything, there are a million people who want that "access", and obviously only an infinitestimal fraction of them are going to get it—and living closer to those top 100 people (or even going to events they hold) won't really increase their chances of doing so, any more than living in the capitol city of a monarchy means you'll get to meet the monarch.

That means "culture" is a dog whistle referencing some sort of elitism.

With fewer people in a place there will be fewer people that match OP's cultural interests. Even moving from a medium city to a larger city has a noticeable increase in organizations of people doing cool things I'm interested in.

Right. To do things, it helps to be colocated. But in many cases, you don't strictly need to be in the same room with people even then.

There's complexity and sophistication. Which you don't simply find anywhere.

Having lived in small towns, big cities, and desert planets.

I have to imagine I'm somewhere on the opposite end of the spectrum. I could care less about attractions, since even when I lived in the city I was spending a lot of evenings just playing video games anyway.

I think the broad adoption of mobile gaming and the Millennial adoption rate on video games and the successor generation (whatever we are calling them now) basically being raised on them will break down the reliance on physically proximate entertainment for enough of a subset of these generations that businesses will have to adapt to remote more than they already are.

Plenty of people are going to be satisfied with what is available through technology, rather than just what they can commute to. This is on top of being able to do work remotely, its the value in being entertained remotely that truly separates them from the city centralization problem.

I pretty much think the expansion of drugs and crime due to boredom in rural America proves you wrong.

On top of the fact that many people are different than you (in fact the 100s of millions who live in cities) are not satisfied just playing video games all day long.

Or maybe logistics are so much better now that even illegal drugs are more accessible and cheaper than before.

> I could care less about attractions

That means you still care.

I'll show myself out.

I've heard this pitch for Chicago many times, and it seems reasonable if you are in the one of the industries, Tyler mentions, that are more diffuse.

The main problem with Chicago is it lacks an anchor industry. Is it the best place to be for finance? No, that's NYC. Is it healthcare? Boston, Baltimore, Cleveland or Rochester. Energy? Houston. Technology? SF. Entertainment? LA or NYC. Politics? DC.

What exactly is Chicago good at? They have Wilco, so that's cool.

Chicago is the center for futures and options trading, especially commodities. Proprietary trading is generally based in Chicago, while banks and hedge funds are usually in NYC.

There are a massive number of other companies headquartered here, like Boening, CNA, Kraft Foods, Walgreens, State Farm.

While NYC might be known for its comedy, it recruits directly from Second City in Chicago, and the numerous small comedy clubs and schools here feed into Second City. It has its own caliber of theatre it puts out as well, regardless of whether it matches NYC on notoriety.

Lastly, while having the benefits of a large city, Chicago also does not have the stupidly high rents of NYC or SF. It is a very livable city, even for those on modest incomes. Public transportation is excellent (though not as good as NYC).

And if you are doing well enough to have a six-figure salary, you can live very well here as opposed to how you would live even on an cost-of-living adjusted salary in SF and NYC.

The primary downside to this city is the weather. In my opinion, the secondary downside is how far it is from outdoor activities, but, then again, you can easily fly elsewhere via O'Hare/Midway.

Counterpoint...

I grew up and lived in Chicago for most of my adult life. I moved to the Bay Area in 2013. My main reasons were weather, crime, and jobs.

For some people, living with gray skies half the year with not-infrequent temperatures below zero or above 100 takes its toll. Also, the violent crime rate has gone through the roof in recent years, even in generally good neighborhoods.

On the jobs front, I'm in marketing and a more technical marketer at that. The job options in Chicago were largely unappealing, but more importantly was the major difference in culture. There are obviously exceptions, but Chicago seems to have a much more "conservative" corporate culture on the average. This means less competitive pay, 2 weeks of PTO, 2 weeks paternity (if that), stricter 8 or 9am start times, less free on-premise food, fewer perks overall, less competitive benefits, etc. Again, you can find exceptions, and large tech companies tend to have offices there as it is a hub (particularly for media companies like Google). But on the balance, due to the extreme concentration out here, it seems many Bay Area companies are forced to up their game and be much more in favor of the employee with regards to comp, perks, culture and benefits if they want to be competitive with the local giants.

I get very sad when I think about the cost of housing out here, but TBH, I'm not sure I could go back. Whenever I get off the return flight from a trip home and step out the doors at SFO, all of the color, sunshine etc. makes things look like technicolor compared to the ugly red brick, gray skies and black slush of Chicago.

Don't get me wrong--it will always have a place in my heart and I dearly love many things there. But depending on your priorities, in some cases there is no competition if you can afford enough to make it manageable.

All those exchanges are moving to the east coast. CBOE and CFE did a number of years ago. CMK is not the data center it used to be although it is still very large.

A few more winters like this one and it'll be hard to complain too much about the weather (although, in mid December, when I got back from Antarctica, it was much colder in Chicago than Antarctica).

> The main problem with Chicago is it lacks an anchor industry. Is it the best place to be for finance? ...

This is a weird expectation. Why does a city have to be "the best" at something? Seattle isn't the best place for software but I'd still choose it over SF any day. Chicago has plenty of industry.

The nice thing about not having one dominant industry is that the entire local economy is more stable and better able to take shocks to the system. (I've lived in NYC and Silicon Valley and both felt like boom/bust kind of places to live. I now live in Chicago.)

I think you're a bit misinformed. Chicago has two large keystone industries that serve the global economy: (1) Industrial large scale manufacturing (Boeing, John Deere, Caterpillar), (2) Insurance (all of them); not to mention a ton of Food and Agriculture HQs are based there as well.

Insurance is Hartford, CT. Food and ag I can see though

USAA is in San Antonio!

Isn't Boeing in Washington?

Also, not too many people aspire to be in insurance. I don't think you can put it on the same level as finance, arts, software, fashion, film, etc.

Chicago is the "second city" in a lot of things. These are the top public companies in the city:

  Aerospace/Defense: Boeing
  Agribusiness/Foodservice: ADM, Mondelez, McDonald's, US Foods, Ingredion
  Communications:  Anixter, Motorola, TDS
  Energy: Exelon
  Finance: Discover, JLL
  Healthcare: Walgreens, AbbVie, Abbott, Baxter, Baxalta
  Industrial/Manufacturing/B2B: ITW, CDW, Navistar, Grainger, Univar, Tenneco, LKQ, Dover, Packaging Corp., Essendant
  Insurance: State Farm, Allstate, Old Republic, AJG
  Publishing: RR Donnelley
  Retail: Sears
  Transport: United

Apparently, Chicago excels in insurance, food, and manufacturing support.

If you intend to create technology for supporting businesses in those sectors, having a Chicago office would not be a bad idea. SV unicorns tend not to even want to solve problems like how to more efficiently route a single gigantic monolithic I-beam from the foundry to a building site without destroying buildings, bridges, and roads along the way. It isn't sexy, and doesn't attract money or eager and idealistic employees.

Chicago has finance, it just doesn't have Wall Street. If you want to trade options or commodities Chicago is arguably a better place to be. New York is undoubtedly the better place to be for stock trading.

As far as entertainment goes, it's no accident that a huge number of comedians get their start in Chicago.

Chicago has tons of anchor industries, the real problem is that they don't translate well to the unicorn strategy of most start-ups.

To your point, pretty much everyone who's ever been on SNL made their way there through The Second City.

NYC is more the equity side of finance, Wall St. and all that. Chicago is home to the largest futures exchange in the world, the CME and the largest options exchange, the CBOE.

CBOE and CFE moved to the east coast a few years ago.

What about debt?

I don't know the city well enough to be sure, but traditionally it's transportation - back in the day as a link between the Mississippi and Great Lakes systems, then as a huge rail hub (cattle from the west would get repackaged and shipped on to the East), and most recently O'Hare (busiest airport in the world).

Atlanta is the busiest airport in the world and has been for almost 20 years.

That's also the main benefit of Chicago. The city isn't incredibly screwed when one industry goes belly up (i.e. Detroit and automotive).

Uhhhhhh....

https://en.wikipedia.org/wiki/Economy_of_Chicago

>Chicago and its suburbs, which together comprise the Chicago Metropolitan Area, is home to 29 Fortune 500 companies and is a transportation and distribution center. Manufacturing, printing, publishing, insurance and food processing also play major roles in the city's economy. The total economic output of Chicago in GMP totaled US$547B in 2012[1] making Chicago the 21st largest economy in the world[2] just surpassing the total economic output of Switzerland.

>The city houses one of the Federal Reserve Banks, established in 1914. There is also the Federal Home Loan Bank of Chicago. The largest banks in the Chicago region (by % of deposits) are: JPMorgan Chase, Bank of America (through its acquisition of LaSalle Bank), BMO Harris Bank (a BMO subsidiary), and Northern Trust. The largest banks headquartered in Chicago are: Northern Trust, Chase, BMO Harris Bank, Wintrust Financial, and First Midwest Bank. Many financial institutions are in the Loop.

>Chicago has five major financial exchanges, including the Chicago Stock Exchange (CHX), the Chicago Board Options Exchange (CBOE), the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), and NYSE Arca. While the city of Chicago houses most of the major brokerage firms, many insurance companies are in the city or suburbs, such as Allstate Corporation.

I have family in Rochester and it isn't known, at least to me, for healthcare in particular. The biggest Rochester companies are Xerox and Kodak neither of which are healthcare companies.

> What exactly is Chicago good at?

Geography.

Chicago's the primary water connection between the Great Lakes (which communicate with the Hudson and St. Lawrence Rivers) and the Mississippi River; that's the historic origin of its central role in commodities trading.

Commodity trading?

IIRC, Chicago is the main national hub for agribusiness.

>What exactly is Chicago good at?

Corruption.

There are certainly a lot of factors. People want to live in trendy cities. There's a lot to consider besides rent - culture, nightlife, etc. San Francisco sure does have some of the best food in the country (and with tech consuming most of spare time the way it is, eating out is really a huge part of culture). Rent definitely ends up being the deal breaker for many, but for others isn't.

It's a lot harder for a company to hire top tech talent if they're in Miami / Des Moines, because the Bay Area has a much higher concentration of tech workers. Convincing people to move is hard, especially so for more experienced tech workers who have a life/family somewhere. You need to be getting an insane deal for it to be worth abandoning your friends and family/forcing your partner to find a new job (and I've yet to see tech companies trying to compete on comp vs SF/SV outside of them). Can't run off middle-road new grads alone (Edit: Good point below that top grad talent wants to hit the big cities too).

> People want to live in trendy cities. There's a lot to consider besides rent - culture, nightlife, etc. San Francisco sure does have some of the best food in the country

We're talking about tech workers though. I don't know about you, but my whole life as a tech worker, I've gotten up at the crack of dawn, worked all day, come home late at night exhausted and passed out sleeping until the next day. I don't even know what city I live in because I NEVER SEE IT. Culture? Nightlife? What the hell are they? It doesn't make sense that tech workers would care about these things because we never get to take advantage of them.

You should get a better job if you spend all your waking hours working. "Better than 16 hours a day" isn't a high bar.

> It doesn't make sense that tech workers would care about these things because we never get to take advantage of them.

Not all tech workers are 12-hour-a-day workaholics.

Why are you killing yourself at work?

Why would you get paid six figures as a tech worker unless you're a workaholic? If you're not putting those hours in at work, surely you're putting in those hours in for both fun and personal growth at home, right? You're passionate about code, aren't you?

...no, I'm not honestly asking that, but those are the questions I'd expect to fend off.

Because I legitimately find work more stimulating and enjoyable than most other things. Which isn't to say I don't do other things I find enjoyable, but I have no qualms about working 10+ hours a day.

See, here's the thing about coastal types: they are obsessed with getting the "top" talent, as if every project or startup requires it.

What if most startups only need "good" developers to develop their mostly CRUD apps and don't need "the best" developers?

I mean sure, if you want to build a lifestyle company, and by the way there's no shame in that.

But the dream, and the reason all the coastal co's are in it, is to be the next Google or Facebook, or Twitter or Snapchat.

You could say an app to get people to come over to your house won't change the world, but people think hey maybe it will grow, or we'll just pivot, and wind up with the next Flickr or Slack, and that's certainly good enough.

Why does every company in this industry need to be either a "lifestyle business" or a Google wannabe? What ever happened to growing a business organically over time, or with non-VC investments?

> What if most startups only need "good" developers to develop their mostly CRUD apps and don't need "the best" developers?

There are some exceptions, but most any successful technology product needs at least a few great technical leaders, if only to say no to net-negative ideas, provide mentoring to those who need it, and to make strategic technical decisions (architecture, tech stack, technical hiring strategy, etc.).

It doesn't require being in the top 10% of a top 10 school to be able to recognize bad ideas though. The standard you are describing is what I would call "qualified" or "competent" not "elite" or "top".

There are highly competent people in both the lower 90% of the top 10 schools as well as in non-top tier schools

What they say they're getting ("the top talent") and what they actually get are two separate things.

Hey, the worst graduate from Stanford is better than the best graduate of Ohio State, right?

It's true that not everybody needs it, that's a separate argument probably. Companies that feel they don't are often outsourcing though, no? There's definitely the argument of "talent pays for itself (in multiples)" to think about.

They must have a different definition of "top" talent. I'm thinking of people like Daniel Bernstein and Fabrice Bellard. The list is really very short.

But of course that definition is useless to a VC fueled, exponentially growing trainwreck/unicorn that wants to hire hundreds or thousands of "engineers".

Top talent includes good, too. Leaving only mediocre to bad for everyone else.

We're on the smaller side in SF, and I'm having a terrible time finding good ops people.

You could always do what the founders of TI did: start your own university and grow your own talent.

The University of Texas at Dallas, established explicitly for this reason, is probably the reason why Dallas is a tech hub.

Every large city has some schools.

Why is it that Austin is a tech hub (UT) but Houston is not (U of H, Rice)?

One theory: it is not the school, but the kinds of jobs people get after. Austinites went to work for Dell, and Houstonians went to work for Exxon.

Houston is, for some definition of "tech". It's just more focused on petroleum and ocean engineering, which don't get a lot of play I'm these circles.

Exactly. As I watch Downtown Brooklyn seemingly magically transform itself overnight from a collection of third-tier forgotten university offerings to a genuine nexus of tech and engineering education[0] I'm reminded that this dynamic does indeed work in both directions.

[0] https://thebridgebk.com/engineering-hub-downtown-brooklyn/

The Dallas area had several universities before UTD was founded: the University of North Texas, Southern Methodist University, and the University of Texas at Arlington (though UNT had a different name at that time). These existing universities were not STEM schools.

What made UTD different was that it was founded by the same people who founded the largest technology company in the area, and they specifically founded it in order to do something about the low number of STEM graduates in the Dallas area. The TI founders went out of their way to engineer a STEM culture in a city that didn't have one just to grow some more talent for their company.

From Wikipedia [0]:

> Qualified personnel required by TI were not readily available in the Dallas-Fort Worth area because the region's universities did not provide enough graduates with advanced training in engineering and physical sciences. TI was forced to recruit talent from other states during its expansion and the founders observed in 1959 that "To grow industrially, the region must grow academically; it must provide the intellectual atmosphere, which will allow it to compete in the new industries dependent on highly trained and creative minds".[12] To compensate for this shortage they established the Graduate Research Center of the Southwest in 1961. The institute initially was housed in the Fondren Science Library at Southern Methodist University. Land for the center was acquired by Jonsson, McDermott, and Green in Richardson in 1962 and the first facility, the Laboratory of Earth and Planetary Science (later named the Founders Building), opened on the grounds of the present-day UTD campus in 1964. The Graduate Research Center of the Southwest was renamed the Southwest Center for Advanced Studies (SCAS) in 1967 and in 1969 the founders transferred the land and assets of SCAS to the State of Texas. On June 13, 1969 Governor Preston Smith signed the bill adding the institution to the University of Texas System and creating the University of Texas at Dallas.

[0] https://en.wikipedia.org/wiki/University_of_Texas_at_Dallas

Exactly right. Young people today would rather be poor in a "trendy" city, than rich in a not so trendy one. It has almost become a badge of honor of how much you can rough it to stay afloat in X trendy city. I am guessing it was not like this for previous generations, and I think it leads to too much homogeneity of culture. I think we should start to encouraging people to go to a uncool city and help build it up and make it cool.

> I think we should start to encouraging people to go to a uncool city and help build it up and make it cool.

While this is a laudable project and it works in some places, many rural citys are very conservative and against anything new the youth might be interested in.

I was speaking with a friend about this recently. I do think we'll see growth in smaller cities, kind of like how Austin exploded. I think an interesting aspect of this is the job problem. Jobs are getting more scarce outside cities as industries change it seems, and I wonder how that might affect population movement.

"I think we should start to encouraging people to go to a uncool city and help build it up and make it cool." -

This basically describes the prevailing attitude in Minneapolis. Minneapolis is super cheap and has all the fancy cocktail bars you will ever need.

It was definitely like this for previous generations. Young people have been moving to big cities they could barely afford for at least 100 years, and probably since Roman times.

My counter-anecdote - it seems to have been very hard to hire a Consulting Engineer in the Bay Area for my team. We've had plenty of candidates (some very good) from other cities, but haven't yet found anyone in SF or the surrounding areas.

Could be issues with our sourcing, perhaps, but it seems surprisingly difficult.

(PM me if you'd like to be a counter-example)

> Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places.

Startups are built on young talent. Young people are obsessed with living in "the big city" and to hear them tell it, living in a suburb and driving a car is about the worst thing imaginable.

So if you want young talent, you better set up shop in SF.

> and to hear them tell it, living in a suburb and driving a car is about the worst thing imaginable

Motor vehicle accidents are the largest cause of death for people in the US under the age of 24 so it is, arguably, the worst thing imaginable ;)

https://www.cdc.gov/injury/wisqars/leadingcauses.html

Also true for the environment, both ecologically and culturally.

That's a bit silly to say, considering SF and SV are about as suburbanized as can be. If you wanted "the big city", you'd go to New York, London, Paris, Tokyo, or some other place with actual urban density.

SV is very suburban, yes, but SF is densely-populated. "Big city" in this case doesn't necessarily imply that the city proper is 10M+ in population.

And the lengths to which this insanity will go is that (e.g.) Google workers will live in SF and commute into SV. Talk about turning the "live in the suburbs, work in the city" paradigm on its head!

As a young person that grew up in the suburbs and deeply influenced by the "automobile life"; can confirm you'd have to quadruple my salary before I even considered moving back to the suburbs and sitting through a driving commute.

The false American dream of the oversized house, piles of kids, and picket fence just isn't appealing anymore to a growing population of young people. Life is too short to spend your prime someplace boring.

As a young-ish person (technically a Millennial, born in 1984) who also grew up in the suburbs, you literally couldn't pay me enough to leave the suburbs. I don't care if you're offering me seven figures; I won't live in the city.

I detest noise, grime, and crowds. I like having lots and lots of space all to myself. I worked in the city once; I got sick to death of hobos on the streets shouting at me and demanding I give them money (and then having to listen to them calling me a liar when I say I don't carry cash, which is 100% true), and I got sick to death of working in a tall building where the elevators would break down all the time. Working in the city also had me constantly on edge and worrying that I was going to get gang-raped, and I'm glad I don't have to deal with that anymore.

It's not just me, either. Most of the people I went to college with and still keep in touch with now have houses in the suburbs, and those who don't have houses per se live in two-story suburban apartment complexes. I only know one guy who lives in a more urbanized area (and even then, he's in a mixed-use master-planned development in a suburb), and that's only because he's legally blind and can't drive. A good way to make him angry is to say "you're so lucky you don't have to deal with the hassle of driving"; he will remind people at the top of his lungs that he would love to drive everywhere if he had fully-functional retinas.

My friends and I are the kind of people who make fun of hipsters and mock people who are pro-homeopathy, anti-vaccine, anti-GMO, anti-gluten, vegan, Bernie bros, etc. Trust me when I say that an urban lifestyle isn't for us.

I think there are a lot more culturally conservative young people than you think. Not conservative in the political sense ("liberal but not leftist" and "Clinton Democrats" apply to me and most of my friends), but conservative in the sense that they want to live a traditional lifestyle.

Some of it may be the previous generation's "American Dream" (I won't call it false, because it wasn't for them or for many of us whose parents lived it).

A lot may also be attributed to getting older and wanting to slow down, start a family, etc. Just ask any parent how much they enjoy SF's school lottery, or inability to let their kids play unsupervised outside for safety reasons, or lack of a back yard.

Having lived in a city most of my life, lived somewhere in walking distance of Mountain View, and now live somewhere in the Peninsula that I need to drive from if I want to get anywhere of note, there are definitely tradeoffs. It isn't always black and white. I miss the walkability, but I also love some of the other features of being more removed from the congestion and city centers.

Why young talent? Isn't that just ageism?

Yes, it's ageism, and some among us in our profession have decided it's justified.

Building a company that excludes young talent would not be ageism?

> Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?

Some of the burden is on you to prove what has failed so far. If it is possible to build a successful large scale startup in Amarillo, why hasn't it happened?

I'll point out the theory of agglomerative clustering also includes the contrary point: a city that is great at something tends to exclude other activities, for any given amount of population. A city like Amarillo, which plays a role in the oil industry, is less likely to be great at software, because it plays a role in the oil industry. It's population would have to grow before it could be good at both.

Also, if two 20-somethings build a successful startup in Amarillo, they may want to move to San Francisco as soon as they have money. The "this startup can be anywhere" argument works both ways: yes it could be Amarillo, but if it can be anywhere then it doesn't need to stay in Amarillo.

And the startup can also move to Poland, or Romania, or India. If you believe the startup can be anywhere, then you basically believe that a startup would only be in Amarillo by random chance. If there are 100,000 great cities in the world, and all of them equally good for a software startup, then the chance of a startup being in Amarillo is 1 in 100,000.

But in fact, there are good reasons why startups tend to cluster into certain cities. You should read "Why tiny Stockholm has the most stunning startup ecosystem since Tel Aviv" :

https://pando.com/2012/11/20/why-tiny-stockholm-has-the-most...

It's also important to note that "successful large scale startup" in this context means "a new web application with a lot of users".

The Dept. Of Energy, Southwest Airlines, Texas Instruments, and Principal Financial Group need not apply.

DoE may be slightly different from the others...

Why is this getting downvoted? I can not see a single sentence in this comment that is not accurate.

I think it's mostly just because the concentration of the industry is convenient.

In the UK, there are tech jobs all over the country. But there are probably more in London than everywhere else combined, especially if you're looking for the start-up unicorn types. I lived in a smaller city for a while after university, but there were very few jobs to choose from that interested me.

I moved to London for one job in particular at the time, but also safe in the knowledge that it would be easy to find another job. I've had 4 different jobs in London since then, and it's never been very hard for me to find something else that's suitable and interesting for me.

The same holds true for most of my friends from university - many of the moved to London because it was the most obvious option for finding a tech job. So it has a further concentrating effect, that people are more likely to know others who are working in the capital city than elsewhere in the country.

If I was seeking a new job and open to moving anywhere in the country, I could find one somewhere outside of London. But if I was already living in another city, it might be harder to find a job without moving. It might not be quite the same in US, where there are a number of cities around the country that are a similar size to London, but in the UK there are maybe only 2-4 other cities that are large enough to have a wide selection of jobs in one industry, and none besides London with a population of over 1 million.

This book does a good job of explaining why: https://www.amazon.com/New-Geography-Jobs-Enrico-Moretti/dp/...

Pretty much it is a networking effect issue. The same reason why you are posting this on hackernews instead of reddit. Physical proximity matters a lot, even when work is digital.

Ordered a copy. Thanks for the suggestion! I've been looking to read a bit more non-fiction :)

You're absolutely right! It could be anywhere in the world! Talented people can easily move anywhere! Startups can be successful in San Antonio, Phoenix, or Ithaca! So why do so many smart people insist on concentrating themselves so?

Is it possible that perhaps there may be reasons for people to choose such an obviously irrational thing? What do they think they're getting out of it?

Many companies have found that they benefit significantly from physically proximate workers. There are distinct benefits to putting people in offices in person. On top of that, having many such companies in one place is beneficial to the specialist worker. It mitigates risks of unemployment, and enables workers to take greater risks.

Myself, I've done what you suggest. I took a job in a cheap place. It was great in some ways, and terrible in others. When I decided I was done with the job, I had to leave that city. There just weren't many options for me there. I understand why a businessperson would like it - you get more leverage over cheaper employees - but it's not the best choice for me.

Rational behind Zoho's new office in rural Tamil Nadu (their engineering base is primarily in city Chennai) is to reduce clustering in mega cities.

https://www.youtube.com/watch?v=lyHgMNuftL0

Zoho's CEO feels that good software products can be developed not only in silicon valley or even big cities like Chennai and Bangalore, it can be developed in non-descript towns like Tenkasi too.

I think with more accessibility to digital media, and expansion of skills through internet education, skills can be diffused across geography, atleast in our field.

My understanding is it's largely demands of VC. They want to be able to check in on their investments, and having to hop on a plane to do that isn't convenient. That has always struck me as odd, since the invested money would go further in a cheaper market, but that's the explanation I've heard many times.

"Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places."

It's concentrated _because_ it doesn't have to be at certain places. Your post office that had to be close to you is now run by a couple of thousand people at Google.

"Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?"

Again, without being to annoying, why does it have to be in Dallas? It doesn't, so it mostly isn't.

> Again, without being to annoying, why does it have to be in Dallas? It doesn't, so it mostly isn't.

Actually, the answer is that Dallas is already a tech hub.

https://en.wikipedia.org/wiki/Silicon_Prairie

https://en.wikipedia.org/wiki/Telecom_Corridor

As far as I know that only tells you why it might have had to be Dallas at some point when regional centers made sense. Which changed somewhere around Paypal if not earlier.

I'm not saying that Dallas (or any other city) can't have some, even quite successful, startups. Just that you can't really compete being say "the third to fifth best choice for startups". At that point you're competing with too(!) many different cities. You have to be the obvious choice in a few, preferably large, categories; capture a lot of local talent (which is harder in the US), and most likely both.

I think more than anything else, this problem is caused by a old mindset. Some managers really believe that "if he ain't in the office, he ain't working". Especially when working with external consultants, even if that means paying them to commute a total of 5+ hours daily.

Software Companies only have two real requirements on their location... skilled programmers, and money. Both are easier to come by in megacities, so that's how it ends up working most of the time.

A lot of people don't want to live in boring, conservative places like Amarillo and Des Moines. More importantly, tech company executives and managers really don't want to live there. The workers have to work on-site with managers, so the workers obviously can't live there either. Everyone has to be co-located in the same place.

Have you ever been to Des Moines? Not picking on you specifically, but boring and conservative aren't the adjectives I'd use for it. It's possibly slightly more conservative than Ann Arbor or Madison, but the area around Drake feels like a college town to me when I visit.

> Everyone has to be co-located in the same place.

Why?

You can't question this. It's known to be true to executives and managers.

Preach the gospel sister, brother or other gender identity!

Executives and managers are the priests and offices are their temples. Amen.

> City centers simply get voided of average earning people and replaced by high earning ones. As soon as they are the average earners, even more wealthy people move

okay but how do you run a city like San Francisco once all of the service industry workers get priced out? Do you start paying people 6 figures to clerk a convenience store?

Yes? And thats not really a problem at all.

Except it doesn't work that way. Instead 7-11 simply decides that it can't run a convenience store profitably in that location. For other types of service workers, wages/fees may well go up but it probably also just gets harder to find people.

Of course it works that way. If almost all the stores close then the remaining ones can raise prices. If All the stores close, the quality of life goes down and rents go down until it equalizes with a few stores open.

Where do the rich people get their groceries then. Its clear that service jobs pay a lot more in SF that they do in other places, for the very reasons you mention before.

> Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?

I agree in general, and I think it's likely that the future of growth is in sprawling inland metro areas like Dallas-Fort Worth, Kansas City-Overland Park, and Minneapolis-St. Paul.

Well, in the case of Dallas, this is largely going to depend on whether or not the Texas state legislature can ever get their heads out of their asses. If SB6 passes, expect Texas's economy to crater.

On the other hand, I'm not sure if your exact list of cities is feasible. Amarillo is too small to really become a hub for anything in the near future (it would take a dedicated effort, like how Bugsy Siegel transformed Las Vegas). And Miami is limited in its ability to sprawl because it's on a coast. Des Moines is a distinct possibility, though.

The suburbs have room to sprawl out forever. The city centers can become high-rent places for the rich, and everyone else can live in the suburbs and exurbs. Furthermore, the inner ring suburbs can become "edge cities" where businesses prefer to locate themselves (this is already how Dallas is laid out) so people from both the exurbs and the city center can have short commutes.

I wouldn't have any interest in living in many of those cities you listed, and as a result wouldn't be willing to move and work there. I'm sure there are many out there who feel the same.

But most people would be willing to work remotely regardless of where the company headquarters is.

That's not what the parent comment said.

> Talented people already move from one coast to the other, so they could as well move to any other place.

Companies and people that are sitting pretty in SV will tell you that you absolutely need to be there to get anything of importance done. It's job security and protects them from most outside competition.

Freedom of speech and expression will suffer as long as all Western world's social media is controlled by a few city blocks in SF.

Clustering effects are real, even for software. The ability to meet with clients by taking a (relatively) quick trip from SOHO to Chelsea (to initiate, pitch, or close deals) or the ability to meet with the developers of company that created a service with an API you're going to integrate with is actually helpful ( "warm currents" of communication).

Software technology ecosystems could certainly succeed in other places if one could bootstrap them in the first place; the clustering (and self-reinforcing network) effects mean that people gravitate to where the action is already happening. Getting started in a new location is challenging, so only those willing to shoulder additional risk (beyond the often-high risk of starting and running a startup) are going to try.

Talent attracts talent. Wealth attracts wealth.

This cities work because there is a high concentration of wealth, talent and resources for them to produce big wins over and over.

Google and Facebook couldn't have been this successful anywhere else.

Pg had a nice article on how other places can become sv like hubs.

Silicon Valley is basically one giant hackathon. Half the fun is being there.

Technology has a long way to go before it completely disrupts human evolution and the desire to be close to people with similar values.

Technology has been disrupting human evolution since we learned to bang the rocks together.

You are right. But still I don't quite understand why there are not more smaller dynamic centers popping up. Of course it is NOT only SV and NYC any more. But there would be many other places that are nice enough to attract IT in a substantial way.

It seems riskier to employees if that were the case - if you get laid off or tired of one company in one of these small regional centers and there's only say 5 companies total to choose from, chances are you'll have to uproot your life and move to a new city for your next job which is a big inconvenience.

I think some part of the network effect of big tech hubs is the option value. If you're in the Bay Area you can have the best of both worlds - stay in one place as long as you want for your personal life/family, and still have the possibility of working at any of thousands of the best companies of all sizes and switching between them if you need to.

I think there are some popping up. Austin comes to mind. Takes time for cities to grow, though.

Hipsters, microbreweries, and fancy lattes will continue to spread I am sure!

You might have to think twice about Berlin:

https://www.nytimes.com/2017/03/18/world/europe/berlin-rent-...

>Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world.

Because face to face is high bandwidth. You can have everyone work from home but it will reduce your ability to collaborate effectively. Teams worry about being in separate buildings or even just split across floors because the friction introduced reduces impromptu face to face conversations significantly.

Now, if you're asking why an entire company can't move, that's because the talent pool is where it is and many engineers will not be willing to relocate. Moving is disruptive and for married couples where both work at different locations, it may be effectively impossible.

I work in the world of enterprise consulting where offshoring and remote work are a daily part of the job.

Yet many companies don't allow remote working to their own employees, even though all contractors (including freelancers) are doing it mostly remotely.

> Talented people already move from one coast to the other, so they could as well move to any other place.

But any-town, USA has nothing else to offer them in terms of entertainment, arts, food. I live in the 77th largest city in the US and this place is dead.

SV companies are not price sensitive. They'll pay alot, even just for the benefit of having them in the office. Software companies either win big or lose big. If they win big, they can easily cover whatever cost of salary in SV and there's still a plethora of talent out here in the bay area, for a well funded company.

I think you're describing a certain type of software company - one that doesn't have to answer to shareholders (Google, Facebook, Snap, etc) and thus behave according to what their leader and employees want. Most of the tech industry (including for example Apple and Amazon) isn't like this.

Why do you think Amazon and Apple aren't like this?

All of the big software houses compete for the same engineers, and they're all paying their incremental new engineers +/- 10% the same total comp across the experience spectrum.

I would agree with pascalxus, the big tech companies aren't price sensitive.

That doesn't mean the average engineer can easily finagle a drastically out-of-band salary, but the bands are already exceptionally high and grow faster than inflation in the aggregate.

> Talented people already move from one coast to the other, so they could as well move to any other place.

There is less risk in moving to a place with more options when the current one falls through.

It's not talent that's concentrated. It's capital. The SF bay is the undisputed headquarters for smart technology investment capital, both angel and venture.

The author of the article is a professor of economics but doesn't state the true cause of rising housing costs: Market inefficiencies (or market failures) caused by politically induced market scarcity restrictions called "rent-seeking" which benefits landowners such as President Trump over people who rent or are purchasing housing.

Rent-seeking was first illustrated by David Ricardo in the mid-19th century (IIRC) and surprising that the author did not cite the true reasons for the rising housing costs.

Harvard Economist Edward Glaeser and Economist and Financial Times writer Tim Harford among many others writes about this.

Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.

Tokyo is a good case study for how effective selective deregulation and zoning policy can lead to more efficient housing construction.

  In Minato ward — a desirable 20 sq km slice of central 
  Tokyo — the population is up 66 per cent over the past 20 
  years, from 145,000 to 241,000, an increase of about 
  100,000 residents. In the 121 sq km of San Francisco, the 
  population grew by about the same number over 20 years, 
  from 746,000 to 865,000 — a rise of 16 per cent. Yet 
  whereas the price of a home in San Francisco and London 
  has increased 231 per cent and 441 per cent respectively, 
  Minato ward has absorbed its population boom with price 
  rises of just 45 per cent.

https://www.forbes.com/sites/scottbeyer/2016/08/12/tokyos-af...

It also helps that Japan has a brilliant zoning system:

http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html

Thank you. This is a great read and this is the suggestion Economist Cowan should have offered.

"Harding wrote in the article, the city had 142,417 housing starts in 2014, which was “more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m)." Compare this, also, with the roughly 20,000 new residential units approved annually in New York City, the 23,500 units started in Los Angeles County, and the measly 5,000 homes constructed in 2015 throughout the entire Bay Area."

And the true solution is to pass a law using Japan as an example: "The [Japanese] federal government recognized that these regulations were the problem, so in 2002, it passed the Urban Renaissance Law. The law stripped municipalities of the ability to control private property."

Here is another interesting article from the same author, Scott Beyer pointed to by this article. https://www.forbes.com/sites/scottbeyer/2016/05/25/modern-zo...

> The law stripped municipalities of the ability to control private property.

I can only dream. As someone who must post a permit and involve the city in order to remove a tree in my own back yard

Our homes are micromanaged here. It's like the city has created a city-wide HOA.

Ricardo's law of rent shows that indeed, even without artificial scarcities imposed by regulation, rent can go up forever as long as productivity is rising.

While we want housing to be affordable, arbitrarily trying to reduce rental costs is futile. Rent exists. It is a reflection of the intrinsic desirability of the location. The only way to reduce the rent is if the location becomes less desirable and less productive.

So, really, it is a question of political economy... of who should own the rising value of land, since that value is not a return for the effort of the owners.

> "Ricardo's law of rent shows that indeed, even without artificial scarcities imposed by regulation, rent can go up forever as long as productivity is rising."

The rent-seeking that he established states that political regulation can artificially create a situation of scarcity thus resulting in high lands costs that benefit landowners.

Specifically, he illustrated this regarding the "Corn Laws" of Britain which were a politically induced import duty on grains of all sorts making the cost of bread more expensive for consumers. Famers could charge more for the grain they grew because of less competition but the landowners would simply charge the famers more money. Thus, the import duties raised the cost of food for consumers while indirectly directing that wealth to landowners.

The "Corn Laws" created the market inefficiency, market failure which interfered with wealth creation and David Ricardo even joined British Parliament to combat the "Corn Laws." He eventually succeeded in the repeal.

While the values might continue to increase with rising productivity, the overriding factor at least for today's environment is the "rent-seeking" and we need to reverse the local control of land which benefits wealthy landowners like President Trump over normal working people.

Rising prices are due to scarcity. The scarcity is politically induced in order to in this case benefit landowners. Reverse the scarcity, politically induced or otherwise, and prices fall.

The price of gold has risen considerably over the years. There's no particular reason to suspect that this trend will stop, since it is tied in with rising levels of production.

It is quite possible to create an artificial scarcity of gold, and thus gold would be higher than it should be. But it would be ridiculous to claim "gold can't go up forever" and that to achieve affordable gold we only need to remove the artificial scarcity.

It may be desirable that we remove the artificial scarcity, but it is also a distraction from the core question at hand.

It is ignoring the natural scarcity and the general rising level of productivity. Prime locations are prime locations. A port, for instance, only becomes more desirable as total production levels increase.

> "It may be desirable that we remove the artificial scarcity, but it is also a distraction from the core question at hand."

I respectfully disagree and so does Harvard Economist Edward Glaeser who has written extensively about this as does FT columnist and economist Tim Harford (as explained in his book, "The Undercover Economist" as does Steve Beyer who has written about this in the NYT and Forbes as well as other places.

Japan passed a federal law that overruled local restrictions and in 2014 Tokyo built 140,000 residences compared with a total of 20,000 in NYC and about 90,000 in the entire state of California.

I'm speaking pragmatically.

> "A port, for instance..."

A port is a much greater and natural scarcity compared with, say Manhattan which is huge as well as London which is not an island, but made "an artificial one" because of the Green Belt that circles London.

You call them rent seekers, but the vast majority of the anti-builders I see around the Bay Area are home owners who worry about traffic or some such. It's not some big conspiracy to increase profits. It's incumbent nimbyism.

Attend a town hall meeting where they're discussing a new apartment building and you'll meet them.

> "You call them rent seekers, but the vast majority of the anti-builders"

Many people have the vast majority of their wealth in their homes and as such want laws that increase the value and not laws that decrease the value by increasing supply. Regardless of the stated reason, the scarcity and rising prices thus market inefficiency are politically induced.

Many people have advocated for "Green Belts" parks with the true intent of decreasing available land to increase scarcity.

Even a lot of bay area renters are anti-development. "They're just going to build luxury condos and destroy the neighborhood character" is the go-to phrase.

> "Even a lot of bay area renters are anti-development."

They might be receiving some sort of rent control so that their rent is far below the market price. I know there are a number of people in NYC that live in rent-controlled, rent-regulated apartments.

You literally described rent seeking activity

>Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.

Yes, but why would you want to do this? Or more accurately, why would the powers-that-be in a given area want to do this? They already have their real estate, and they're profiting by the rising prices. Why would they want to bring prices down?

> Or more accurately, why would the powers-that-be in a given area want to do this?

Well, they generally would not. Except there are firms that must pay salaries that are not in real estate that have to pay their employees higher salaries in order to pay for the "rent-seeking" of landowners. It would benefit them to lobby and influence city council.

Also, powers that be love monopoly pricing but there are laws to stop monopolies.

Still, author Cowen is an Economist, yet doesn't state the true reason for rising housing prices, a discovery made two centuries ago by an extremely famous economist, David Ricardo.

>It would benefit them to lobby and influence city council.

Why would city council want to bring down rents? They and their cronies are profiting off the high real estate prices. The city council is, after all, composed of wealthy people who own land in the city. You can't have a city council composed of people who don't even live in the city.

>Also, powers that be love monopoly pricing but there are laws to stop monopolies.

Those laws only apply to corporations; they have nothing to do with real estate, and this isn't a monopoly situation. There isn't a single company that owns all the land, or all the apartments, in these high-priced cities. There's merely a shortage of usable land, because of geography and physics.

Basically, to fix this problem, we would need new laws at the State or Federal level, along with enforcement which would absolutely work against the wishes of these city councils. But there isn't much demand for such laws, because it's a local issue, and national-level politicians aren't going to do well trying to make it a campaign issue. Voters in rural areas just don't care about high rents in cities; they'll tell you that you just need to move out where they are and bring the high-paying jobs to their rural communities.

> "The city council is, after all, composed of wealthy people who own land in the city."

I can't speak for your city but in NYC, I'm not certain if any member of the city council is wealthy. I know my representative is not.

My point regarding anti-trust busting of monopolies is that federal legislation has been enacted before to combat deliberate attempts at market inefficiency and it could be done in the case of zoning density restrictions. In 2002, Japan enacted a federal law that overruled local land-use restrictions and as a result in 2014, Tokyo built 7 times the number of housing units as NYC (140,000 vs. 20,000).

We should do the same in the US as they did in Japan and you'll see more affordable housing.

Tyler Cowen knows about rent seeking and Ricardo. He's not writing an encyclopedia article on the topic of rising housing costs though, he's writing a short piece for a broad audience about the demand side factors that might stabilize the price of housing in the long run, given (what we all take for granted) a more or less fixed supply.

I realize that he knows about rent seeking and Ricardo. He was addressing the issue of high housing costs and the question to ask is, why didn't he address the solution which is to reverse the rent-seeking that benefits wealthy landowners like President Trump over regular citizen renters and home buyers.

He should have written about this (article link was provided by another comment above) about how Japan solved the problem in Tokyo. We need a similar federal law in the US.

An article by Cowen that solves the problem by showing how successfully implemented the law was in Japan for Tokyo would have been far, far more interesting and implementable.

"The federal [Japanese] government recognized that these regulations were the problem, so in 2002, it passed the Urban Renaissance Law. The law stripped municipalities of the ability to control private property."

https://www.forbes.com/sites/scottbeyer/2016/08/12/tokyos-af...

It isn't a market failure if it is a result of regulation

There are laws and regulation that protect people from harm, e.g. product safety, physician licensing, FDA drug approvals, food inspections, etc.

Then there are regulations that help special interests get an unearned portion of wealth. That would include these landowners benefiting from zoning density restrictions or in NYC before Uber/Lyft came along, the artificial restriction of 13,000 taxi medallions for a population of 8.5 million.

Gotta agree with you there. Market failures refer to failure in a free market, or some problem caused by some market being too free.

Regulation failures are problems caused by bad/too much/too little regulation. In this sense, regulation failure can sometimes overlap with market failures.

I like how you managed to throw in a blow on Trump there, nice!

I love how many of the very people who claim to be critical of Trump and his wealth are the very people who help support zoning density restrictions that have made him far, far wealthier than he would otherwise be. If they started caring for regular people instead of wealthy people like President Trump then there would be more, affordable housing, and President Trump would not benefit from "rent-seeking".

It's one thing to support laws and regulations that happen to benefit Trump, it's another to want him to be the leader of your country.

> "It's one thing to support laws and regulations that happen to benefit Trump,"

But these left-leaning people claim they want to help the working class and others and are worried about inequality, yet they are the major cause of the inequality by making housing unaffordable through rent-seeking which benefits President Trump instead. In other words, they say one thing that they are for addressing the ills of inequality and instead support a policy that creates more inequality and benefits the very wealthy whom, in words only but not in deeds, criticize.

If they truly cared about inequality as they claim, they would reverse the unfair rent-seeking zoning density restriction laws.

> Rents in Megacities Can't Go Up Forever

Yes it can, College Tuition is a great example. Instead of finding the cause and treating it, we just increase the amount of aid people have access to.

I remember hearing a variation of this claim by rationalizers for the dot-com stock market bubble in the 90's and the housing bubble in the 00's.

I recognize you're not trying to rationalize this, but you've identified the common factor to each bubble: a new and unsophisticated source of investors being aided by the financial industry.

With the dot-com bubble, it was daytraders and online traders generally (including me). With housing bubble, new untraditional homebuyers who bought homes with exotic mortgages. With education, student who traditionally would not have gone to college going to college.

These could have all been positive examples of American upward mobility at work. But as was especially evident with the housing bubble, the financial industry turned people looking to improve their lives into consumers and, in many cases, exploited them.

With rents in metropolitan areas, it seems to be driven by wealthy investors (institutional investors and wealthy foreigners) pricing marginal middle class homebuyers (e.g. yuppie millennials) out of the market and then turning around to rent to them. Renters, like tech workers and young white-collar professionals generally, can stretch to afford these rents. But they definitely have a ceiling and all of this has been fueled by a growing economy. As soon as the economy falters, aid will dry up and the roof will cave in.

Thats not the case here. The financial industry is not driving up rents and costs in San Francisco. The pure amount of private wealth pouring into the area is.

Thats the dramatic shift this time around -- this isn't a bubble propped up by lending -- this is a bubble due to the fact that we are living in a time where the rich _have so much money they dont know what to do with it._

Well, true, I suppose. Demand directly is driving up rents. And San Francisco is a special case because of its geographic constraints. It is almost like a literal geographic bubble that formed on the bay there. My conclusions reflect more generally I'm seeing and experience in Southern California, which isn't quite so geographically constrained.

I agree it's not the same kind of bubble we saw when strippers (to borrow the example from The Big Short) were carrying 5 mortgages in Florida. And it explains why housing prices never fell there or really here in Southern California to the extent I was expecting (and really hoping) back after the crash.

Still, I imagine most of that private wealth that is pouring in there and here is either connected with the financial industry directly or indirectly. At one end, you've got the financial industry financing everything, from mattresses to cars to college education, which spurs demand and price inflation.

On the other end, you've got a global wealthy elite for whom all real estate is local. They are small proportionally but still large enough in aggregate to quickly exhaust limited edition luxury items like residential property offerings in San Francisco, Vancouver, London, etc.

Anyway, that's the simplified model I've been operating on for the last few years. A weird combination of the super rich shopping where they please and local middle class Americans, hopped up on credit, trying to compete with them in select desirable areas.

No, college tuition will rise with middle-class incomes.

This is a cultural phenomenon. We're "supposed" to get our children the best education we can possibly afford, otherwise we are bad parents. Since colleges don't have price discrimination, this essentially means tuition is set at the absolute maximum that the middle class can afford - squeeze every penny out of them. This is why aid won't reduce the burden of tuition on the middle class (tuition will just rise to meet the aid amount). It's also why tax breaks won't help the middle class either (same idea), although the tax breaks can help those above the middle class (since they have a higher tax rate, and the tuition rises to match exactly the effective aid for the middle class).

Or rather it will rise with availability of debt. Tuition is not paid cash and incomes have been barely going up by a couple of percent per year

Ah, sorry. You're right. Income is a bad proxy for the real source of the funding and availability of debt is far more precise.

College tuition has been going up much faster than incomes. When I went, the only people I knew getting student loans were those getting professional degrees: medical doctors and lawyers.

Tuition used to be very low. When we adopted a culture of "college is everything" that's when tuitions rose rapidly to meet what could be maximally extracted from the middle class. We've now reached that point so they will rise slowly now - only to meet increases in government aid (direct and indirect aid) and increases in middle class incomes.

Food is more everything than college and it didnt raise prices the same way. College tuition has specific market conditions to be the way it is.

College tuition has been rising more than incomes for a long time. It's very rare for someone to be able to go to college without a loan.

> According to the College Board, the average cost of tuition and fees for the 2016–2017 school year was $33,480 at private colleges, $9,650 for state residents at public colleges, and $24,930 for out-of-state residents attending public universities. [1]

1: http://www.collegedata.com/cs/content/content_payarticle_tmp...

Thank goodness we are too smart to try that with Healthcare.

Compare the statements "not everyone needs to live in an expensive city" and "not everyone needs to go to a private out-of-state college" to "not everyone needs to be able to live" to see the silliness of that comparison.

I think one of us has misunderstood something in this thread.

I assume that everyone wants healthcare for everyone. I mean, who would want even a stranger to suffer from disease?

The question is what is the best mechanism to make it affordable for everyone.

One answer is: give everyone more money to spend on it. The problem with that is that it drives up the cost for everyone and you may be no better off. You might be worse off.

Another solution might be to spend money on the supply (build more hospitals and train more doctors). I pick this example because it doesn't imply things like lowering taxes or spending less, so it doesn't get caught up in the budget discussion.

The criticism here is just in regards to the first solution, not in regards to providing healthcare.

The rise in college tuition likely can't continue forever, either.

The fallacy of rent control, which only treats the symptom and fails to address the root problem of inadequate supply and restrictions to adding additional supply to the market.

I'm genuinely curious how the supply of housing in Manhattan could be increased.

The standard way is to build more.

Another option is improving commutes from the outer boroughs and New Jersey - the Bronx has many affordable areas, but the 456 is a shitshow, and I'd rather move back to Texas than put up with the slow peristalsis that would become my commute. Buses aren't great, either, and suffer from a lot of the same problems that regular street traffic does. My coworkers who come from Jersey typically have a bus ride of an hour, assuming there aren't any traffic problems.

Grow vertically. I saw this regularly when I was living in Hong Kong - 50 year old 5-15 story apartment buildings being bought out by developers, demolished, and replaced with something 30-40 stories tall.

High speed rail into the city (see tokyo). You can travel enormous distances in 40 minutes on HSR.

Replacing 4 story Brownstones with high-rise apartments. Simply removing the politically induced scarcity of zoning density restrictions would achieve that or something similar.

See my earlier comment to this post: https://news.ycombinator.com/item?id=13940272

But college is not a necessity, whereas living somewhere is, and you can somewhat easily get money from the government (at least in the US) to support your degree, whereas you can't really get that for your housing.

> But college is not a necessity

Ehhh, that isn't the narrative we've been pushing for the last 20+ years.

> whereas living somewhere is

I think the fact that it's a necessity only benefits the idea of providing people aid for housing.

> you can't really get that for your housing.

I mean, you absolutely can depending on your level of income. It won't make up for being poor, but that's what section 8 housing is.

Even on the more middle-class scale, the government provides tax breaks for home owners (and especially for first-time home buyers) which is basically money from the government.

Exactly, from the point we think a child can understand it, society pushes a narrative that you need college to succeed.

...and then pass bills and laws to strip them of that aid.

For those interested, rentier classes appropriating all surplus value in an economy has been dealt with outside the typical marxist context:

https://en.wikipedia.org/wiki/Georgism

Georgism was wildly popular in the United States, but was memory holed after WW2 (along with distributism and Texas-style populist banking).

This article crystalizes a point that was vague in my mind: "megacities have a problem making it affordable to raise large or even medium-size families. How many of us could live in San Francisco, London or New York City and bring up three children in a decent neighborhood with good schools? Only the already well-to-do can manage such a feat.".

As a mid-30s person with a new baby, I don't see how the numbers work for new entrants to the housing market - unless you were a gambler. Your gamble would be that (a) you don't ever take a hit on your income, and (b) property prices continue to rise. We've been unable to take that gamble .. and homes have increase 40% in the blink of an eye.

In Canada, we have a lot of family in the GTA. We're basically priced out of areas as far away as Mississauga and Milton (Milton went up 20% since Nov 2016). An option we are considering is to move to BC and just rent for a few years in Vancouver. At least we get a better city out of it. For any Canucks, are there any other decent places with tech jobs, and somewhat affordable housing?

>How many of us could live in San Francisco, London or New York City and bring up three children in a decent neighborhood with good schools?

The simple solution is to not have any children. Leave that to extremely rich people and very poor people. Society obviously does not support child-rearing, given the cost of housing and the lack of support from employers, so why fight it?

That is a logical but dystopian conclusion to make.

It disturbs me deeply and I wonder why.

Maybe it was your matter of fact, emotionless delivery of it that caught my attention.

I can't really dispute what you have said other than it is not an inevitability. Societies can choose to change this, Sweden being a current example, Finland too. But people need to organise and want it enough, maybe they don't. Time will tell.

>It disturbs me deeply and I wonder why.

I'm very glad about this; it means I must have gotten something right. :-)

>I can't really dispute what you have said other than it is not an inevitability. Societies can choose to change this,

Exactly, but that's the problem: societies can choose to change this, but will they? As a pessimist, I say no, other than a few very small countries like those you cite (and even there those are just attempts at change so far; the birthrates in those nations are extremely low). Humans are remarkably bad at seeing impending large problems and collectively working together to change things to avoid them.

Or you move out to the suburbs when you have kids. It's not uncommon for young 20-somethings to live in the city and then move out when they start having children.

Case in point, my cousin in NYC just had her third kid. She'd been considering moving to the suburbs for a while, because there was barely any room in their tiny apartment in Battery Park City for her, her husband, and the twins. Now that they've got another kid and the twins aren't babies anymore, they've gone from simply considering moving to the suburbs to actively house-hunting (and they're putting such a priority on it that she had her parents go house-hunting for them while she was in labor). I'd be surprised if they were still living in the city by the beginning of the second half of this year.

Another example: my parents. Both of them lived in Manhattan when they were in their 20s, and immediately after they got married, they moved to Texas and bought a nice cheap house in a suburb that had just been developed.

Right, but now you're forced to get a new job in a new place, or at the very least have a very lengthy commute. What's the point of having a family and kids if you're spending 3-4 hours a day just commuting to work? Or worse, having to live in Texas? This of course assumes that there's even jobs for you in TX or other low-cost locations.

Basically, if you want to be a decently-paid professional and have a rewarding career, location is going to be very important to you, and you're not going to have time or money for kids. If you really want kids, you should make that your priority, and forget about education and career, and just work on having a stable job in a low-cost place, perhaps working in fast food and trying to work your way into managing a McDonald's where you might be able to get $40k. With kids and working at McD's as a cook in your younger years, you should qualify for tax benefits and probably some social programs like SNAP to help make ends meet.

I'm typing this from work -- I work at a B2B telecom in an inner-ring suburb of Dallas -- and all I have to do is look around the office and see lots and lots of white-collar professionals who live and work in the suburbs and have spouses and children, including everyone on my team (well, one guy on my team doesn't have kids, but he's married and owns a house in a conservative suburb). I remember when I used to sit next to the sales department, and some of them would talk about their kids all the time. Very few people live in the city, and some people in the more business-y departments have given me some very strange looks when I tell them I live in an inner-ring suburb that's only 15 minutes away; most of them live in distant exurbs and have fairly long commutes.

This is what the corporate world is like all across the country.

To answer specific points:

> Right, but now you're forced to get a new job in a new place, or at the very least have a very lengthy commute.

People change jobs all the time, and they typically get raises and promotions out of it

Oh, and having a long commute and spending lots of time at work is considered a bonus to many people who have kids. Work is the best way to get a breather from the screaming babies at home. You know the guy who's always super-excited and happy to be in the office at 8:00 Monday morning? He's obviously a father.

> Or worse, having to live in Texas?

I actually love living in Texas. I've lived here my entire life, and the only reason I'm even considering moving later this year is because of SB6, and even then I'm going out of my way to move to a suburban environment that reminds me of home (I've pretty much decided on Torrance, CA, though Orange County is still a backup).

> This of course assumes that there's even jobs for you in TX or other low-cost locations.

And it's not like Dallas doesn't have any tech industry. We're even called the Silicon Prairie: https://en.wikipedia.org/wiki/Silicon_Prairie

Dallas-Fort Worth-Arlington is the fourth largest metro area in the country, and Houston-The Woodlands-Sugar Land is the fifth-largest [0]. It's patently absurd to say there are no jobs here. Both metro areas individually (Dallas: 7.1M; Houston: 6.7M) are more populous than San Francisco-Oakland-Hayward (#11) and San Jose-Sunnyvale-Santa Clara (#35) combined (6.6M).

[0] https://en.wikipedia.org/wiki/List_of_Metropolitan_Statistic...

We had two children and the cost isn't remotely an issue. However, we're a dual-income dual-engineer family who moved to Austin and bought in 2012. Our house value has doubled in price since we bought it though.

It's very possible with perfect decisions, lots of sacrifices, and freakishly good luck.

You are missing the point. The problem is prices have doubled since 2012. People who didn't time it right are hosed. And there was no obvious reason why prices should go up so much so fast.

There actually was/is an obvious. Jobs are bouncing back in several urban markets, and Quantitative Easing has been continually making it cheaper and cheaper to borrow larger amounts of cash. As it becomes cheaper, people borrow more, bid more, and house prices go up.

The question is how well they will sustain, and whether a future market shake up (quite possibly Trump-related) would reset things to more sane levels, and for how long.

> For any Canucks, are there any other decent places with tech jobs, and somewhat affordable housing?

I'm not sure if Ottawa is a "decent place", but Kanata has lots of jobs and affordable housing (in walking distance).

Still want to move to the US, though.

I don't think the U.S. has quite the same problem Canada (or the U.K.) does of people/jobs concentrating in only a handful of mega-expensive cities. It may seem on a forum like this one that "everybody" is moving to NYC or SF, but If you look at the population change statistics from the census, the NYC and SF metro areas are growing relatively slowly. People are mostly moving elsewhere, for a variety of reasons, but cost of living probably being a factor.

These are the the 10 fastest-growing large (>1m population) metropolitan areas in the U.S. in the period 2010-2015:

1. Austin, 2. Raleigh, 3. Houston, 4. Orlando, 5. San Antonio, 6. Denver, 7. Dallas, 8. Nashville, 9. Charlotte, 10. Phoenix.

Plenty of pretty affordable options in there.

Toronto housing has to come back to reality at some point. Rent and ride it out if you can, consider Montreal if you can find a good job and are OK with French, otherwise if you can stomach being away from home you're much better off financially as a dev in the US.

I'm contemplating just putting my Toronto condo on the market for an outrageous price, like 2-3 times what I paid for it 18 months ago. If anyone accepts that price, it's a sign that something is terribly wrong, and that I need to get the hell out of this city.

> An option we are considering is to move to BC and just rent for a few years in Vancouver.

I'm not really sure how moving to Vancouver helps solve any of your problems. If you're priced out of Milton you're likely priced out of the entire Metro Vancouver area.

Is rent in Vancouver that much cheaper than the GTA that you're saving money and it's worth moving? I don't think it is.

You missed this part:

>At least we get a better city out of it.

With the train of logic going like this:

1. We're priced out of big cities in Canada, so we have to rent

2. If we have to rent, then we are flexible with the location

3. If we are flexible with the location, then might as well move somewhere with nicer weather

Montreal?

I've said it many times: this is one area where NYC is so much better off than, say, the Bay Area.

In NYC you have an ultra-wealthy enclave around Central Park and pretty much the rest of Manhattan really requires winning an affordable housing lottery, being an incumbent or being in the top 10%.

That might seem like a problem but it's not. Or at least not a huge one. Why? Because there are affordable options within reasonable distance with public transit (eg NJ, Queens, the Bronx).

Compare this to the Bay Area where there's really nowhere affordable to live.

So rents here are a proxy for property values. The author is right that property values have a natural ceiling but that's in the macro sense. There can be (and are) enclaves that are only the domain of the rich (eg lower CPW, CPS, 5th on the Park).

This sort of thing tends to have a flow on effect which is why gentrification tends to radiate outwards.

So you end up with a situation where you can buy an apartment on 57th for $100m and 30 minutes away you can buy one in Queens for $150k.

That's actually a pretty healthy situation (IMHO). It also means that property values in Manhattan, for example, still potentially have a huge amount of upside.

I lived this out a few years ago when I had (great) offers in hand from TechCo in the Bay Area and FinCo in NYC. Running the numbers, the former was simply impossible without a four-hour daily commute, whereas the latter worked pretty well with a commute half that long.

Supply and demand. So long as people want a limited resource enough to pay $X+1 for it, prices will rise. There's a limit to the inherent value of living in a megacity (adjusting for floorspace, quality, etc), so once insufficient customers are found, prices will flatten or drop.

Being able to work from anywhere, there's no reason for me to stay anywhere near a megacity (which I find expensive and distasteful). As employers discover the cost savings of telecommuting, employees will discover the cost savings of moving out of megacities ... and prices will slow, flatten, and perhaps even drop.

I agree. The only challenge for me is the lack of dining table economics on the part of employers outside of places like NYC and the Bay Area.

What I mean is that they almost exclusively look at local market prices for developers. They don't generally factor in what developers can make in the big cities. Now, some do, but generally they just apply the inverse of a cost-of-living multiplier and make that offer. That's problematic because then our savings rate, something that should be measured in absolute terms, is being reduced.

Anyway, point being, if I add up my benefits, savings rate, and cost-of-living adjusted expenses, I end up with a big number for most non-coastal-U.S. employers. I then have the risk of branding myself as an overpriced prima donna, especially if I'm seen as a cost center instead of as a strategic resource.

> there's no reason for me to stay anywhere near a megacity (which I find expensive and distasteful)

Yes! I lived in SF for a year, but then moved back home to Ohio and went back to working remotely. I occasionally travel to bigger cities to work with colleagues (maybe 3-5 trips a year), and this feels like a much nicer balance.

I also earn enough that I could live like a king around here... or live on a more "normal" income, save the extra, and retire at ~45.

The article is mistaken about one thing: the size of the financial sector is not limited by the total wealth of the world. Eg: there could be derivative contracts (insurance or derived bets) for cumulative values much more than the value of the underlying asset (arbitrarily high, in principle). This is a big factor in what makes the global financial system so fragile.

If the finance industry keeps skimming a fraction of all the money flowing through it then financial hubs like New York city and London could keep becoming more expensive.

I work for a tech company in San Francisco and would gladly relocate to a cheaper city if the company allowed us to work remotely or had other satellite offices. Unfortunately, the satellite offices we do have seem to be dedicated towards specific departments, which doesn't help me.

Why not get a new job then? My neighbors will murder me for saying this but Austin is wonderful. Move here!!

I work in fintech and not in an engineering role, so the jobs that are available are mostly located in other high cost of living areas. I would definitely consider Austin if given the option to move there. The income taxes and housing costs make me salivate.

To put it another way, the cost of real estate in a given area is proportional to the rate of money flowing through that area. Will ever larger flows go through New York and San Francisco, increasing without end? History suggests that is unlikely.

Market growth is showing that you are not correct. Market is going up all time, S&P 500 even if bubble burst around 2008 and 2000, now we have prices almost twice as high. So it is true that more and more money will flow to those places.

Well the frothiness of the tech bubbles are purely a factor of a lack of liquidity of meaningful services to create.

VC capital focused on tech is a tiny sliver of available capital given the sources VCs get their funding from, and an entire order of magnitude of greater flows could come through.

So if you were using that as an excuse not to buy that costly condo on the island or peninsula, its not a great excuse.

“The market can stay irrational longer than you can stay solvent.”

Yes, much much longer or macroeconomic events can spook a few relatively large funds and dry up funding.

Keep building! There's a very large ecosystem and a lot of continually generated capital that merely needs to be convinced that the tech sector is the place to park it.

The article title is spot on. Vancouver is not a megacity, therefore our rent will go up forever.

It's unbelievable how relatively expensive rent is to income.

I'm beginning to wonder why I'm putting up with Vancouver.

I'm thinking I will take the first train out of here but that doesn't seem to be coming.

From Toronto. We have it worse. We are actually thinking of moving to Vancouver and renting :-p The rents in both places seem the same, except Toronto has shitty traffic, very limited tech opportunities, bad weather, and bugs. I looked around at jobs in Vancouver and it seemed a bit surprising how many tech employers there were.

Can you shed light on why you are fed up with V? Where else are you considering?

It's more disheartening when you think that just a few hours away in Seattle a developer could be making 50-100% more salary.

It's around $126,000 USD /year in Seattle. [1]

They didn't bother listing Vancouver because the salary here is so painfully low with entry level software engineering positions regularly listing $40,000 CAD /year or $30,000 USD /year, which is what a Starbucks barista in Seattle clears.

As your experience goes up, so should your salary right? Not in Vancouver. It's around a couple hundred dollars per month in after-tax pay bump provided you've slaved at a company for 5 years minimum.

Pretty fucking hard to build a competitive tech company in Vancouver, when people are unmotivated due to depressed wage, high cost of living with no upward mobility. Almost everybody I talk to, housing is a big issue. Everyone is working, commuting on congested public transit, house poor but the image of living in Monaco, coupled with good ol' Canadian Ohwellism, people really don't give a shit about career mobility as long as they have a regular job that will let them sustain a roof over their heads.

There is a large brain drain happening here, in 15 years, this city is going to be a very different place. I don't know what the impact of losing long time middle class residents who comprise of the economy.

You will be poor but working in Vancouver, and that alone serves as a novelty for newcomers. There's really nothing special in Vancouver, to justify a 100%~300% pay cut (factoring in exchange rate and low Vancouver salary).

Vancouver might be multicultural but it's also a ethnically silo'd and very tough to meet people in general as they are very cliquey and stick with their own skin color.

Lot of broken dreams and disappointed Canadians/Americans from other provinces/states who tell me these things, which is why I'm writing this long comment to warn those who have a romantic attachment to Vancouver.

Fuck Vancouver.

[1] : http://wonderfulengineering.com/much-software-engineers-arou...

Your point is 100% correct, but IMO that link understates Seattle earnings potential. Probably doesn't include equity/cash bonus, which will happen a lot in Seattle and not so much in Vancouver.

Big tech company jobs in Seattle are extremely common, and a big tech company job in Seattle will pay you much more than $126k/year USD when you include stock/cash bonus.

Especially a few years into your career. If you're willing/able to be a dev at a big tech company, $200k-$300k/year is absolutely normal 10 years into your career (often much sooner). If you're great, $300k-$400k is completely possible.

>Can you shed light on why you are fed up with V? Where else are you considering?

- Very expensive with relatively low wages (Vancouver has the lowest median income for someone with a bachelor degree among major Canadian cities)

- Near zero possibility to afford to buy anything other than an extremely overpriced shoebox condo.

Not OP, but Toronto at least has high-ish wages to go with the high rents. In Vancouver, you make less than $100k per year as a dev. And that's CAD, not USD, so under $75k USD.

No wonder Amazon, Microsoft and others are expanding in Vancouver like crazy, same timezone as Seattle and San Francisco, an english-speaking population and salary levels 50% lower.

Maybe they can't, but that won't stop the people who benefit from high rents[1] from trying!

[1] (And the people they have somehow brainwashed into being on backing them up, despite it being against their best interests.)

What does it look like if a rent bubble pops? Can such a thing even happen? Rents tend to be difficult to change without moving. I guess rents can fall if demand considerably outstrips supply and the landlords get desperate, but most landlords I've seen are pretty stubborn and will hold out until the last second before they lower the rent a single penny.

This is a pretty crazy macroeconomic view to take, that you've known some stubborn landlords therefore rents across a city will never come down.

Look at the numbers of how many jobs have been created vs housing units created in a place like SF over the past decade. It's not some mystical force driving up rents, if you build enough housing it will become more affordable. There's no evidence that housing operates outside the principles of supply and demand, despite what some Nimby politicians will try to tell you.

I guess you're expecting the renters to survey the market every year and aggressively negotiate down their rents if the supply grows too large?

When the choice is between getting $0 in rent a month and getting 10% less than last month, most will take the later option.

Occupancy is a make-or-break issue in real estate. Dropping your rent by 7% is better than having a single month of non-occupancy.

In 2008 rents didn't drop much. I think landlords will leave places empty before they will drop rents too much.

I wouldn't expect rent to have fallen in 2008. Thousands of people were losing the homes they owned and becoming renters, sky-rocketing the demand for rental property.

That's right. At the start of the crisis, I had landlords offer crazy incentives - 2 months rent free on a 13 month lease. They just wanted to lock people in. In a few months, when it was clear that people abandoning houses were moving into apartments, these deals disappeared and rents actually started to increase!

That wasn't my experience. I knew several renters who renegotiated their rent down around 2008. We're taking knocking off 10%+. With rent control in SF that's locked in inperpetuity.

10% down is not that much compared to the previous run-up.

Apparently hedge funds scheme to always leave a a fraction of the units empty as a means of pushing against the market.

That doesn't make sense.

They'd accept lower rents if they couldn't find other people to rent. They just don't have to in big cities.

But this isn't a rental bubble. The rents aren't really too high, they just can't keep growing above inflation rates forever.

http://www.austinchronicle.com/news/2007-03-02/451609/

Not literally forever, of course, but I think it's naive to say people's inability to have the lifestyle they want will deter increasing rents. Empirically, society on balance doesn't care one tiny bit how much hardship people endure, and people will endure the hardship. I'm not seeing what mechanism is assumed to counter that.

I'm not seeing what mechanism is assumed to counter that.

Increasing supply. Which in this case is difficult due to the alliance of existing property owners and useful idiot "anti-gentrification" protestors.

It's also difficult for the more fundamental reason that space is one of the harder goods to 'manufacture'.

We're not running out of land, obviously, but for standards like "land within 3 miles of the city center and -100 to 500 feet of the surface", that's much tougher. Not full, but crowded and with exponentially-rising development costs (since construction gets more difficult and annoys more people).

Of course, that's a problem I associate with NYC, LA, etc. SF (and probably London?) get blocked politically before they ever reach that point.

  1.  Repeal prop 13.

  2.  Apply local or state taxes and penalties against empty lots and housing/retail units without real tenets.

  3. Reevaluate property tax annually and apply land tax for dense urban cores to encourage mixed development and high density units.

There is lots of free space within 3 miles of these cities. It is just in the air.

> Many more economic sectors tend to be spread out geographically -- such as higher education, caring for the elderly, installation of smart-home equipment, fracking, restaurants -- and if more economic activity takes these forms, to some extent rents will equalize across different cities.

I do not buy this. In the countryside the economy is backed by the local resources (forestry, agriculture, if it applies fracking etc.). The rest of the economy in the countryside lives off the money brought in by those, and especially off the wages of the workers.

The more automatisation you have, the less you need people spread out. The trend is that things get cheaper and need less work that is more centralized. What you need to be able to do is creating new things, and that is easier in centralized megacities.

Forever is a long time. As a famous economist once noted, in the long run we're all dead.

Obviously not forever -- eventually the sun will become a red giant and consume San Francisco, at which point all rents there fall to $0 -- but I heard "forever" in that article as "the foreseeable future and its foreseeable future". Maybe 100-200 years; maybe longer than that... How do you read it?

It is unclear. I prefer clarity. I don't know what to think of it really.

Wait. Bloomberg is saying that the price of something can't go up forever?

Sure they can. That there is a natural bound relative to other fundamentals in no way means that the absolute price cannot unboundedly increase. Any in any case, the most thorough spatial equilibrium analysis suggests that there is natural agglomeration of high skill/wage (locally positive feedback). The reference is Diamond (AER 2016), but the working version of her job market paper is a bit more complete: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf

I disagree with the article's premise that urban growth is driven by creativity.

For example, this doesn't explain Tokyo. Japan's capital of creativity is Osaka; Tokyo doesn't even come close.

Doesn't ubranization drive urbanization? I mean, people (myself included) treat living in cities as end in itself. People pay more of their income in rent just for the access and experience of urban life. So yeah, I think Cowen's justification is off.

There is a second layer where I agree with Cowen more, which is that urban cash flows need some 'engine'. People can only pay based on their salaries, and some fraction of spending in a city flows out (to food, industry, etc). So yeah, having a major economic driver raises your price cap, but it doesn't have to be creative. It just has to be something you can effectively do in a city and get money from elsewhere. I don't know what it would be for Tokyo, but in my home town it was urban-friendly manufacturing not creativity.

I found housing prices to be harbingers of what turned out to be the "Great Recession". Looking around my metropolitan area, wages and income just weren't keeping pace (and we didn't have a localized influx of foreign investment, like in Vancouver, BC).

I suspect that escalating rents, tuition, and perhaps some other things, are similar signs of change, although it may prove to be less sudden and dramatic.

Sooner or later, the "slop" in consumers' budgets that can accommodate these runs out.

Also, the U.S. is becoming a less friendly place to foreigners. Although I don't know whether that applies -- or will be made to apply, by this 'embrace the "winners"' Administration and Congress -- to the global 1% buying in to e.g. U.S. real estate. (The U.S. currently being the center of my perspective.)

" In the early years of smartphones, a big part of the gain goes to Apple. As cheap imitators enter the market, prices fall and more of the gains go to consumers, or business users of the product, who are scattered across the country."

I believe Apple still take 90% of the profit.

The author is of course strictly correct, and practically wrong. Eventually our civilization will collapse, and the sun will go supernova. But for the foreseeable future, fiscal policy will be managed by inflation, and economic policy will be managed by economies of scale. The surprising thing is the author, doesn't mention either inflation or scalability once.

When information technology no longer scales, and we achieve full saturation for jobs that support scaled services, the prices will plateau. Until then, I expect them to rise at a rate faster than the rest of world. I don't expect that trend to end in my lifetime.

> and the sun will go supernova

Nope. Not massive enough.

I hope he's right.

But, here's how he might not be: If cities like SF continue to maintain excess building regulations and "affordability" requirements that actually make it less affordable for most people. Zoning and land use policies are causing huge problems. Anyways, a smaller and smaller percentage of people will continue to prop up these insane housing prices, while a few others either gets free housing from gov subsidies or price ceilings, locking out any new entrants.

Not just that, but CA is unique with Prop 13. That is an artificial pressure cooker factor that other markets do not have. The best time to buy in CA was as close to when Prop 13 was implemented as possible.

I think all almost industries cluster in the sense they are talking about in the article. The corporations responsible for creating and distributing are clustered.

For instance, Oil and Gas in Houston, Pharma in New Jersey and so on.

I don't think the economic value of clustering will stop anytime soon.

The trend may stop because people find better solutions to housing than simply building more of the same.

(And software should not be thought of as an industry, but a tool that enables other industries, but this is not the place for that.)

The way I see it, to renters rent will forever seem to be going up forever. Because when general pay level goes up, rent goes up to match it.

There has been a massive debt fueled asset bubble since the late 1990's in surprisingly nearly all major world cities. And financial policy in most countries has been not only fueling this but also protecting the banks. Any asset price drops will most likely devastate them. Unless these policies change asset prices will continue to rise.

Classic example of trends vs facts in journalism.

SF chronical article today (like any of you read that hah!) talks about recession-level net migration in the Bay Area last year. Meanwhile in NY prices have supposedly declined (can only site annecdotes and others claims unfortunately).

The predicted future is already here.

> Will New York, San Francisco and London become unstoppable juggernauts, soaking up more talent and becoming more expensive each year?

London rent and properties took a 10% hit since the Brexit event.

No they didn't. Some high end billionaire properties did, that's all.

It's easier to move to the bay than to move the bay to you.

In theory, can't the drop in rental prices be in small cities and the more "desirable" ones keep going up?

Is wealth inequality bounded? As long as there are people that can afford to pay more, some will.

But why not? There is no precedent to the contrary. Rent has always gone up, people are social animals.

The needs of business are independent of people's desire to be with other people.

Virtualization need to improve a lot before the experience of "group" is as good as real life.

Rent has always gone up

This is not true, see e.g. http://observationsandnotes.blogspot.com/2011/07/housing-pri..., http://marginalrevolution.com/marginalrevolution/2016/02/676..., and http://marginalrevolution.com/marginalrevolution/2016/08/lai... . The housing sector is excellent at providing housing services but has not over long periods of time and a wide array of places shown supernormal investment returns, adjusting for inflation.

Robert Schiller has written extensively on this. Here is on pop article on his work: http://www.usatoday.com/story/money/personalfinance/2014/05/...

Well, of course, no number that represents a physical quantity can go up forever.. neither electric charge, nor information, nor energy, or mass, nor money. Yeah I'm being a bit nitpicky I guess.

Well, since I'm good at contrarian nitpickiness, I'm going to argue that it can. Mass can increase forever in a black hole, and if you keep accelerating, you get heavier and heavier so that you can never actually reach the speed of light. I guess you could argue that black holes will eventually run out of matter, and you would run out of accelerant, though. Conductivity is infinite in super-conductors (i.e. resistance=0). I don't see any reason why energy has any limit to how much it can be concentrated. I think people have argued that irrational numbers like Pi contain all possible strings (that is, of the characters [0-9]), although you may have to look pretty far out. So that would mean that the digits of Pi have infinite information.

Writing this makes me think the world is a stranger place than I thought. I would have said that a physical quantity cannot go up forever, but I've talked myself out of that.

ok, so there are certain functions that keep rising forever but are still bounded above. So what I mean is that physical extensive quantities are all bounded above. Black holes will run out of matter, and there is only so much accelerant in the universe. Like you said. Conductivity is not an extensive physical quantity like mass or energy.

> Well, of course, no number that represents a physical quantity can go up forever..

Money isn't a physical quantity, though it can be represented by physical tokens; and, yes, a measure of a physical quantity can go up forever if the physical quantity is continuously (rather than quantum) valued. It may even be able to go up without bound whether it is quantized or not (which is different than going up forever), depending on the exact measure used.

In any case, nominal rents absolutely can go up both forever and without bound, and real (inflation-adjusted) rents probably can, too.

And rent in any particular city can go up forever and without boubd much more easily than overall rents.

I think you need to look up "forever" in the dictionary! I'm not saying a long time, I'm saying forever, which is different. I mean the reducto ad absurdium would be, the sun is going to burn out, the universe is going to suffer heat death. The question is, given that rents will stop rising at some point, what will the constraint be that actually stops the rise?

You know, I didn't realize that saying that the universe is finite was such a controversial statement. According to current science, it is. And since the total value of all the money that exists can't exceed the purchase price of the universe, the total value of all money is finite. So therefore rent is finite. If you can't agree on that- then you're using magical thinking!

It has to at least track inflation, which varies between 2-4% a year, so yes they can go up 'forever'

Rents in fact do not have to at least track inflation. With increasing housing supply or loss of jobs, rents in will in fact go down.

<Megacities> Hold my beer.

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