Comment by randomdata | Hacker News Reader

Comment by randomdata | Hacker News Reader

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> if they want to make any real $ need to move to those cities

This is the crux of the matter. The market always seeks equilibrium. If there is an income advantage in one location, people will move there, driving up costs in the process, until the point that there is no longer an advantage. Certain cities have held an advantage in earning ability for quite some time and the market is attempting to correct that disparity by increasing costs.

People complain about how expensive these homes are, but in reality they are the cheap ones! The low dollar value homes out in the middle of nowhere are truly the expensive ones. Like you mention, the profitability in a high cost city outpaces the profitability elsewhere, even after you consider that your costs are lower. If the lower paying job, but also the lower expenditures, provided a higher income there would be absolutely no hesitation to take a 'mcjob'.

The question is: At what point does the 'mcjob', where housing is low cost, actually provide – after accounting for costs – a higher income and become the more desirable type of work? That is when housing in the high-priced cities will stabilize, as there is no longer the financial advantage to live there. Until then, expect price to continue upward.

The income advantage is due to concentrated wealth and income inequality. What you see is a few industries and the people that run them receive the bulk of the excess capital. That results in a firehose of money pointed at a couple of cities where the golden industries leaders all live.

But the fact remains that the income advantage only remains an advantage so long as the costs remain low. The expense side of the equation can only rise so high before income becomes zero, or even a negative value. NYC and SV are able to thrive because housing is still cheap, but the market is quickly correcting that fact. At some point, if the trend continues indefinitely, one's income in these cities will leave them with a lower income than someone working at a minimum wage job in a low-cost area. If the income advantage shifts to these other locations, people will follow.

Trouble is you need a critical mass of social, technical, and cultural infrastructure. It's not like it doesn't happen. But unless a company with deep pockets is behind it, whatever one tries to plant there will die. Point is there are a lot of frictions. And big inequality is a big one.

That is really a non-issue. We don't have to invent new places. Low-cost communities already exist and are abundantly found. Incomes just tend to be lower, thus they are less appealing. But that can quickly change. Imagine,

1. Community A provides revenues of $30,000 per year, and expenses of $20,000 per year, with an income of $10,000 per year.

2. Community B provides revenues of $100,000 per year, and expenses of $50,000 per year, with an income of $50,000 per year.

Naturally Community B is going to be the more appealing option. But if housing costs (among others, but housing is the topic at hand) keep increasing in Community B, at some point you might find your expenses at $90,000 per year, leaving an income of $10,000 per year. Exactly the same as in Community A. At this point there is no income advantage in either location.

Assuming you live in Community B, until your income is reduced to that of Community A it is worthwhile for you to spend more and more of your revenues on housing to keep a good thing going. Even if your expenses rise to $80,000/year in order to stay in Community B, it is still a good deal. Your income is still double that of Community A.

But the market always seeks equilibrium. While corrections take time, eventually your Community B income will have to fall to the same level as Community A to eliminate the income advantage. As we discussed earlier, as long as one place has an advantage, people will move there and compete for resources (i.e. drive up costs) in the process until the advantage no longer exists.

And this is why certain markets are seeing incredible housing price growth. The market is correcting such that your your six figure developer salary in San Francisco provides the same income as working at McDonalds in Detroit.

yeh but in this case you can't recreate the culture or advantages of silicon valley anywhere, you can go be overqualified somewhere else where people don't know anything about code and will pay you to do magic, but that's not a rewarding career and the amount of places like that relative to everywhere else, means it will take 100 yrs or so before the rest of the country rises to that equilibrium...

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