Silicon Valley homes now out of reach even for big spenders | Hacker News Reader

Silicon Valley homes now out of reach even for big spenders

mercurynews.com

49 pointslxm89 comments

In a sane world, the Bay Area would have the highest new-construction numbers of any metro area in the USA, and probably the developed world. Unfortunately, the market is so distorted that I'm only aware of one potential large-scale buildout in the area (the Brisbane Baylands development -- and even that has a 50/50 shot of being successfully blocked). Such pointlessly wasted potential. :(

Or some of the tech companies could be distributed over a larger number of cities. It seems ironic to me that tech companies, of all industries, are placing such a huge premium on physical proximity.

Sometimes "good, old fashioned" collaboration is best.

I'm a longtime Bay Area software engineer, and the problem is it's scary to move to a town that only has a couple tech companies. I'd love to live someplace smaller, but if I find -- and lose -- a job in a small town, I'm out of other options. Here I have recruiters knocking down my door.

So move to a town that has a lot more than a couple tech companies like Austin or Raleigh. It’s not all SV and wastelands in this country.

I don't live in SV, but I've worked remotely for SV companies, and have spent some time there.

I think you're underestimating the gap. I wouldn't call every other city a wasteland, but it can sometimes feel like it's hard not to have a tech job in the Bay Area.

It's also possible that people in SV are over-estimating the gap, but I think the reality is closer to the extreme they imagine.

Man, it's not like there's 1000 software companies in the Bay Area and 12 in the rest of the country combined. I have a hard time believing you'd be out of a job for too long in Austin or Denver/Boulder or NYC or DC or Seattle?

It's not that extreme, but it's quite a difference. The quality just isn't there, either.

The price to rent ratio in Manhattan is worse than San Francisco.

As someone who was present in the so called "Silicon hills" (Austin, TX) and "Telecom corridor" (Dallas, TX) it was hard to find a tech job during the 2008 recession.

These places look great from the outside (cheap, plenty of space, infrastructure etc.), but the job prospects during a downturn are radically different as compared to the Bay Area (I'm only talking about 2008, not the dotcom bubble).

I heard there's a 10,000 unit development going forward in MV. Not sure if that doesn't meet your threshold of large-scale buildout.

EDIT: why was this downvoted? I'm adding new information that is directly relevant to the parent comment. If what I've heard is untrue, feel free to say so.

The Mountain View city council recently approved Google's proposal for additional housing and office space.

http://www.mercurynews.com/2017/12/12/googles-massive-housin...

That land is trapped on the Bay side of 101 with only two ways out (Shoreline and Amphitheatre Pkwy)... both of which are already gridlocked during commute hours.

Residences there will be fine for Google workers (and the few other businesses on the bay side of 101), but it will be a nightmare for everyone else.

I think that's why the purchase price was so cheap.

I could see Google putting in a short-throw underground railroad spur or hyperloop to their campus eventually.

I support building more housing, but we can't have much more housing without completing significant upgrades first. Our roads, schools, and popular public transit routes are now operating beyond design capacity in much of the Bay Area. We can complain about how urban planners should have foreseen the need for higher density decades ago but that doesn't change our reality today. Any major new housing developments need to be coupled with simultaneous infrastructure upgrades; if we can't find funding and political will for infrastructure then the housing will have to wait.

The Brisbane Baylands is not a load of potential, it is a fetid swamp that has remained undeveloped because it is a flood prone wasteland well apart from all nearby inhabited areas. The Brisbane Baylands have remained undeveloped since the gold rush for very solid reasons. Simply adding one or two stories to permitted development in downtowns in nearby areas would open up large volumes for more development, but because of the depraved and irrational state of land use planning a fetid swamp is considered vastly more desirable than an added story in an existing and already developed downtown with transit access and all the rest. Zoom out and look at the big picture of bay area land use and this idea that the Brisbane Baylands is an absolutely critical development falls away.

Back during the .com era, I got bored one day and looked up the cheapest house for sale in Cupertino. $300k got you what would have been a crack house in the RTP area - run down, no lot, chain-link fence to keep people out.

I just repeated this experiment - $500k for a 1-acre lot with a shack on it, or $925k for a 2 bedroom condo. Those prices are insane. Yet every time I think they're unsupportable - they go higher.

Also don't discount the fact the USD went through some serious deflation. In the name of jump starting the economy, our govt literally made money out of thin air and made it rain.

Wouldn't that be inflationary?

Printing more money is inflation

Wait when did the USD go through deflation?

Well, don't forget that the reason the economy needed jump starting is that $4 trillion evaporated in the crisis of 2008.

You mean inflation (well really, quantitative easing, we actually have been below target inflation for years), but that would mean housing everywhere has spiked in price. That's not the case, housing in a few markets has far outpaced anything else.

>, we actually have been below target inflation for years

no, we have crafted something called CPI, that charts how much consumer goods cost, and tracked below the target for that. Meanwhile, coastal RE, equities, business valuations and skyrocketed at unprecedented rates...

I'm going to assume you've read a bit about crypto currencies, and are now confident in their superiority to fiat currencies. I recommend spending some time learning about basic macroeconomics before drawing too many conclusions about the government "literally making money out of thin air". You can get the kindle version of Keynes' General Theory of Employment, Interest, and Money for $1 [0] or pick it up from your local library for free!

[0] https://www.amazon.com/General-Theory-Employment-Interest-Il...

Inflation is responsible for the wage slavery we find ourselves in today. Those peddling inflation and control of the money supply as a necessary component of modern economics are peddling snake oil. Price discovery is hard enough without an invisible handle manipulating the units you’re trying to measure value in.

Good thing Bitfinex isn't magically making money out of thin air with Tether as we speak...

The insanity has kind of infected me, now I want to see the 1 acre lot for 500K. You could build a lot of 925K condos on that! edit: looked on Zillow and the cheapest condo/townhome was 2.19 million for the new ones just built off Stevens Canyon where the dump trucks from the quarry pass by five days a week (seven when the building boom was here). There used to be a gas station here until the condo developer bought it and tore it down so they are probably right on top of an EPA site. The cheapest homes were estimated at 1.4-1.5 million for three foreclosures.

Only if you could get permission to build on it. And if permission were easy to come by, a developer would have already bid $5M+ for the lot.

The lot (which as you guessed, is on Stevens Canyon). Former gas station was my guess too.

https://www.realtor.com/realestateandhomes-detail/17580-Stev...

That lot/abandoned home is pretty far back on Stevens Canyon, it's regularly 10 degrees cooler there than the rest of Stevens Canyon because it's in shade most of the day, most of the year, but manages to get a lot of car traffic because it's a shortcut from highway 9 to Cupertino.

I was mistaken about the street address of the gas station turned condos, those are on Foothill just before it turns into Stevens Canyon https://www.zillow.com/community/cupertino-live-work/2092128...

> $500k for a 1-acre lot with a shack on it

That sounds low for Cupertino

Cupertino is not exactly the cheapest area in SV. Though $500k I think is motivated by the lot size. San Jose is cheaper.

The share of the wealth creation in Silicon Valley that has been captured by property owners is outrageous.

How much of the gains from the computing revolution have been captured by a few thousand Bay Area Landlord’s?

I think the vast majority of the gains from the computing revolution have been captured in consumer surplus. Billions of people get to use all kinds of online software for free. Certainly hard to estimate but this is likely worth trillions alone?

You can probably measure some of that in terms of how people would have done these tasks previously. Some of those tasks are trivial, like keeping a paper calendar instead of a digital one.

You can also interpret it in terms of jobs eliminated.

You still have to pay to access the Internet. Comcast/AT&T aren't free.

It's still cheap as free compared to the cost of accessing the same information/media pre-Internet.

Google used to brag about how using Google was more energy-efficient than going to the local library.

Disagree. Maybe one day all of these homes will be owned by a giant corporation, but for now, they are typically owned by individuals. Not everyone who has benefited is a robber baron.

You're rebutting a point nobody made.

Corporations are owned by individuals.

From yesterday: http://highline.huffingtonpost.com/articles/en/poor-millenni...

That interface is horrible. Forced animation, images, and graphics no matter how I scroll down to get to the actual text? Get Out.

God, 21st century America is a Dickensian Hellscape.

There should be another option besides McMansion, townhouse, condo or condo hi-rise. That is small two-story homes. I say split the lots up into two or three pieces.

In many cases this idea is illegal under local zoning laws which is....unfortunate.

same goes with going underground. Nothing stops us from having -100 stores underground in NYC or LA or SF. We know how to lay water pipes, AC, deliver air, supplies, create emergency plans, etc... the only problem --- zoning laws :(

edit: was referring to places where you cannot build up anymore, such as sky scrapers in NYC

Building underground is much more expensive than building up.

I lived in NYC until very recently and was kinda sorta apartment shopping. One place I looked at had the common areas on the ground floor, the bedrooms on floor -1 (with small windows that looked up to grates through holes in the ground) and then a windowless basement on floor -2.

It was kind of neat actually and pretty cheap (relative to similarly sized places in the neighborhood) due to being on the ground floor and below.

Isn't there some kind of law against a living space without access to windows?

I'm all for the idea, but I don't get claustrophobic very easy

Yes, in the NYC administrative code: Lighting Requirements: All bedrooms must have at least one window that opens to a street, yard, or court on the same lot. The window may also open to a balcony that opens on a street, yard, or court. The total area of the windows in the room must at least be one-tenth the floor area of the room. All required windows must be at least twelve square feet in area.

So, making underground excavations in one of the most built up pieces of land on Earth. Doing that safely would cost a pretty good penny, so you'd have to sell them as "luxury" condos, but who in their right mind would spend that kind of money on a windowless hole, rather than living a bit further on a regular condo?

I'd bet zoning is not the only thing keeping that from happening.

The water table is a pretty obvious barrier to that in all 3 cities you mentioned.

> -100 stores underground in NYC or LA or SF

I don't know about NYC but California is an earthquake-prone area. Making underground housing that can withstand a serious quake would be quite a challenge. And imagine trying to rescue people from -100th floor after one...

"In-law" units are now being fast-tracked in many communities, which is a variant of this.

What are the factors preventing real estate developers from buying up land and building larger complexes to meet the demand?

Seems like an opportunity to make a lot of money

Zoning laws that make it illegal to build tall buildings and insane NIMBYism from property owners who benefited from Prop 13.

> What are the factors preventing real estate developers from buying up land and building larger complexes to meet the demand?

Local property who oppose new development in order to restrict supply, primarily.

Here's a good summary:

https://techcrunch.com/2014/04/14/sf-housing/

Basically, there are a lot of regulations governing what you can build and where. And those regulations have a constituency that benefits from them, namely everyone who already owns a home in the Bay area.

If you bought a nice single-family home twenty years ago, you're sitting pretty. You live in a nice area that probably isn't going to change very much (thanks to the regulations), and the steeply rising value of your real estate (thanks to the regulations) is going to fund your retirement very nicely.

Not sure how much of this primer on Bay Area politics you need, but here we go:

Mostly local governmental opposition. Local towns want businesses (tax revenue!) but not residential development (costly services!). Local homeowners who vote for said town governments also have an interest in higher home prices.

What makes this possible for them is the lengthy public hearing process involved, allowing local activists to delay construction for years for BS reasons; and the discretion given to elected officials not just to make policy, but also to override it.

In recent years, Bay Area activists (under the slogan of YIMBY - "Yes In My Backyard") have been successful in both pushing housing development through direct local advocacy (especially effective in places with lots of voting renters, like SF proper), and in getting the state to exert its power more over local government. The background to this being that the state has since 1982 had a law trying to combat this phenomenon - the Housing Accountability Act. It requires cities to publish city development plans for public inspection, requires those zoning policies to meet certain requirements in terms of housing quantity, and then to actually make zoning decisions that comply with those policies. However, private individuals or organizations need to bring suits against cities to make it effective, because the US is crazy and prefers lawsuits to actually hiring professional regulators. So activists have funded lawsuits (see the more recent entries at https://en.wikipedia.org/wiki/California_Housing_Accountabil...) against cities that have obstructed development. They also got the CA state legislature to strengthen the HAA this year, putting more of the burden of proof on the cities to show their justification for development denials, making cities pay attorney's fees when they lose a case, and allowing judges to fine cities for violations.

The fiasco that was the appointment of the acting director of the Consumer Financial Protection Bureau (CFPB) and the absurd ping-pong policies of the Federal Labor Bureau (FLB), FCC, and (presumably) the CFPB exemplify why in the United States civil suits are the better enforcement mechanism, especially in the modern era. They typically lead to more stable regulatory policies.

Heck, even the behavior of zoning boards exemplifies this. The civil actions are being used by YIMBYs precisely because the regulators--the zoning board--are neither obeying the spirit nor letter of the law, having become puppets of the elected officials or worse--wagging the dog.

A system of centralized regulators only works when you have a strong and independent technocratic bureaucracy. Because of the extreme divisiveness of modern politics, especially at the federal level where regulatory agencies have become turf for epic policy battles, that simply doesn't exist in the U.S. Indeed, the use of civil actions for enforcement is often chosen precisely to try to deflect criticism aimed at proponents of a regulatory framework, and protect the framework from interference by opponents. This is common at both the federal and state levels, and used by both parties.

Sure, civil actions are more costly. But much like democracy you pay a price for a certain amount of stability. Because of the size, diversity, and peculiar politics of the U.S., we often must resort to such approaches where, e.g., Norway, Japan or the EU would not.

You create a centralized bureaucracy by hiring bureaucrats and giving them the final say. The ping-pong policies of the FCC, FLB, and shortly the CFPB result from legislatures insisting on a system where political appointees are the ones who make the final vote on regulatory decisions. This results in a situation like the current FCC, where votes are party-line and regulatory action depends not on the written policies but on who won the most recent election.

Similarly with zoning boards and the YIMBY suits - local zoning policies were made by elected city councils, and the YIMBY suits and state legislation are trying to force cities to pass legislation and then apply those rules without political interference.

  > You create a centralized bureaucracy by hiring bureaucrats and giving them the final say.

Americans don't like doing that, especially conservative Americans for whom "centralized bureaucracy" is literally synonymous with Communism. In many states even judges and sheriffs are elected. My point is, if you want to shield the regulation from politics your best bet (although by no means guaranteed) is a framework that creates a private right of action.

  > Similarly with zoning boards and the YIMBY suits

If zoning boards mechanically applied zoning ordinances like they're supposed to, things wouldn't be nearly as problematic as they are now. Ask any developer; they'd be thrilled if they only had to contend with the letter of the zoning ordinances.

FWIW, in the business world private rights of action are usually preferred over a centralized regulator, at least if they have to choose their poison. Centralized regulators usually _prohibit_ certain business practices prophylactically long before any substantial harm arises. Whereas with private rights of action you get to do whatever you want, whenever you want, until you _actually_ harm someone.

Historically this is one reason why some economists argue the United States and other Common Law jurisdictions that relied on civil actions were more innovative. Similarly, such jurisdictions were long considered more business friendly as regulatory policies were more predictable. A central regulator can decide to block your business on a whim, whereas with a civil action there has to be _actual_ harm as well as refusal to settle damages outside of court. Both can involve a lot of red tape and a long paper trail. The important distinctions are 1) whether the government steps in before or after substantial harm has occurred, and 2) how closely penalties reflect actual harm.

Moreover, the basic issue is how reliably you can price risk into your business plan. A business can reasonably plan expenses for civil suits. A regulator can shut you down, and all the money in the world won't stop it.

But other Common Law jurisdictions have slowly shifted enforcement to Continental-style centralized regulators. The U.S. has too, but it's been more chaotic, inconsistent, and (predictably) much more corrupted by politics. There are many reasons for this, but in any event there's no reason to think that Americans can do centralized bureaucracy any better than we do now. It's important to recognize and accept built-in political and societal constraints when engineering regulatory frameworks if you want to maximum benefit and minimize harm.

> The U.S. has too, but it's been more chaotic, inconsistent, and (predictably) much more corrupted by politics. There are many reasons for this, but in any event there's no reason to think that Americans can do centralized bureaucracy any better than we do now.

Agreed. Hence my original "because the US is crazy".

I wonder how the self-driving car trend will change things in the Bay Area. Right now, there's a tradeoff between paying $2M+ for a house and having a 2 hr+ commute. When your car can drive you to work, the commute becomes much less annoying. If people can save $1.3M on a house in exchange for a long, but self-driven, commute, the allure of living right in SV will be significantly lower.

Really, you'd enjoy sitting in your car for 2+ hours every weekday? That's incredibly unhealthy.

How is this any different from a 2 hr train commute, which many people endure? Not saying it's great, but if it saves over $1M in purchase price (plus another $10k/yr in property tax), I think some people would take the bargain.

If I wouldn't have to drive, I'd probably be fine with it, maybe not 2+ hours, but an hour or so definitely wouldn't be a huge deal. You could read, sleep, work, listen to podcasts/music, watch movies, relax, etc.

Commute is a pretty big thing. If SV had proper public transportation (which is virtually non-existent) it's be much easier to live a bit further. But I don't think it's feasible - maybe with self-driving cars it would be?

But then, for 90% of tech jobs, you don't do anything that needs you to be physically present in the office anyway. We should just learn to work remotely better.

“The biggest single factor that determines pricing or value of a home is supply and demand,”

It's a bit different from the traditional supply and demand: There are two kinds of demand: One is the demand for actually using housing, which is not affected by supply and price. The other is the demand as a financial instrument, which even increases with rising prices.

I know there is a class of people in SV unaffected by this directly, but eventually it MUST start to affect them in that they will be unable to get employees to come to the area? I guess this is probably a self correcting problem with more people/companies going to Seattle, RTP, Austin, Boston and elsewhere.

That's been happening for a while. I was involved with recruiting for my employer and HR mentioned the COL in the Bay Area is a major barrier to hiring. People love the company, love the area, but just can't afford to move here.

In fact, my employer just open a site in Portland, OR to address a major hiring need. The fact that the lower COL was a major deciding factor was clearly stated.

My view on that is: good. Stay away. Go elsewhere. Whatever. That's less competition with the same demand for my skills here. I haven't found a single job in Seattle, Austin, Boston, or elsewhere willing to offer the salary I earn, benefits, and equity that isn't also with a company that has a presence in the Bay Area.

The best way to cut success probability of your startup in to half is by basing it in SV. Startups don’t have truckload money to pay for COL in SV. They can’t attract talent other than big shots who are already multi-millionaires (and likely won’t code). People from other place would not move to join them because base salary won’t even pay for their rent (and stock options stays paper money for long time). It’s utterly foolish to base your startup in SV. Come here for hiring but keep your base out of SV, probably in Austin, Seattle, Florida or may be Southern CA.

I find it beyond belief that local homeowners are being so short sighted. Do they not worry what their children/grandchildren are going to do for accommodation when they are property hunting? Or is their assumption that screw them, that's their problem?

As with most issues, what does the future have to do with today?

Most people don't want to take the risk of a huge hit on their property value today in exchange for a chance at avoiding crisis some day in the future. Ideally, some other chumps would take a huge hit on their property values for the future, and mine would remain high.

I don't actually live in SV, but that sort of thinking is everywhere.

Fuck the Bay Area. Just...fuck it. There are other well-paying jobs in nice parts of the country where you can still live like a human being and not spend 4/5 of your income on rent or 2 hours a day in traffic.

Just boycott the whole damn mess and let the companies figure out that they have to stop hiring and expand to other parts in the country.

America cannot do city planning to save its life. Hasn't been able to since the 1920's. It's all single-story homes and strip malls and highways and that shit doesn't scale past a point that most other industrialized societies laugh at, but we just suck at it here and quality of life goes to shit immediately.

Just accept it, there's no easy solution, and move somewhere else. Even NYC is better at this point. DC are has a shit-ton of jobs, so does Texas, so does Washington, so does Colorado.

I'm a developer well away from Silicon Valley, so when I saw this story I laughed. Then I remembered my most recent paycheck, and I cried.

many homeowners are electing to retain ownership of their home but rent it out. this has reduced the inventory available for purchase. many homes on my street in Los Gatos have become rentals. when my new neighbors (renters) tell me their monthly rent, my jaw drops.

I would expect this trend to accelerate as the new GOP tax plan greatly reduces the taxes paid on income earned by landlords letting out a property.

Citation?

The bill, go read it.

Prop 13 highly encourages this behavior. If one is leaving the Bay Area and ever wishes to return, keeping ownership of a property with a low assessed value could save one or two thousand dollars a month in property tax when you return.

We have a neighbor who rented out her house to 5-6 groups of people (some individuals, some couples). Based on the type of cars her tenants drive — newer German sports cars — I'm guessing she pulls in around 10k per month in total.

She cashes the checks from South America, where she now lives.

If you follow homes on Zillow you'll see small two bedroom houses get bought for 1.2-1.5 million and then immediately show up as rentable for $5500/month.

If you actually live here and want to buy it's very difficult and extremely risky. I don't mind living with roommates, but if you're someone who wants to have a family it's probably not worth it.

I share a 3 bedroom with three other roommates (four total since there's one couple) and the total rent is $6150 (which is a pretty good deal).

I wish there was some hefty tax on people buying houses just to rent them that don't actually live here.

I wish there was some hefty tax on people buying houses just to rent them that don't actually live here.

So, you want to pay quite a bit more on your rent?

I don't get the aversion to rentals. Not everyone wants to purchase a house everywhere they might live.

Maybe some other way to not incentivize rich people from far away buying houses to rent which drives the entire market (and rents) up?

It's not an aversion to rentals (I don't mind renting) - it's more an aversion to burning large amounts of money on extremely high rents even when I plan to stay somewhere for a long time.

what is the situation in east bay Oakland or thereabouts? or perhaps Marin county? are they just as insane?

Yes. But proportionately less as the commute worsens.

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